Can mega-regionals deliver the goods?

Can mega-regionals deliver the goods?
U.S. Trade Representative Michael Froman (R) and Japan's Economics Minister Akira Amari take questions during a news conference with other pacific rim ministers to conclude the Trans-Pacific Partnership (TPP) Ministerial meeting in Singapore May 20, 2014.

In trade policy, the negotiating action is now in "mega-regionals" - big-block trade agreements revolving around one or more major powers.

ASEAN is involved in two, the American-led Trans-Pacific Partnership (TPP) and the Chinese-led Regional Comprehensive Economic Partnership (RCEP).

Are mega-regionals good for trade and economic growth? Will they spur regional and global economic integration? Where does ASEAN stand?

As of last year, there were 261 free trade agreements (FTAs) in Asia, over a hundred of them operational. Asia's three major powers, China, Japan and India, are heavily involved. Among ASEAN countries, so are Singapore, Malaysia and Thailand.

ASEAN also has its own ASEAN Free Trade Area , now upgraded into the ASEAN Economic Community.

And ASEAN has collective FTAs with China, Japan, South Korea, India, and Australia-New Zealand. The strength of FTAs varies enormously.

FTAs with the United States are by far the strongest in Asia in terms of reach and the extent to which tariffs and non-tariff protectionist barriers are brought down.

Despite this, these FTAs still contain exemptions for politically sensitive sectors, especially in agriculture, and are riddled with complex and discriminatory rules-of-origin requirements.

The rules-of-origin requirements are used to protect domestic industries.

Intra-Asian FTAs, on the other hand, are generally weak - they are "trade-light". The better ones remove tariffs on most goods, but they are weak on eradicating protectionist regulatory barriers in goods, services, investment and public procurement.

That is true of Chinese, Japanese and Indian FTAs, as well as the FTAs involving ASEAN as a bloc and ASEAN member states.

Overall, the new wave of FTAs since 2000 has not given a big boost to trade and foreign investment. Nor has it impeded trade growth. In general, the effects have been broadly neutral, or at best marginally positive.

Now attention has shifted to mega-regionals. There are three being negotiated: the TPP, the RCEP, and the EU-US Transatlantic Trade and Investment Partnership (TTIP).

If done cleanly and comprehensively, these mega-regional agreements would iron out distortions caused by multiple and overlapping FTAs among members. With a bigger integrated economic space, they can reap economies of scale and spur technological innovation.

This is particularly important for global supply chains. Regional production networks, located in different parts of the world and linked up with complex logistics to serve global markets, are the biggest drivers of productivity, employment and growth in international trade.

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