Economic integration in Asia-Pacific

The Asia-Pacific region owes much of its economic success to the multilateral liberalisation of the global trade environment that took place under the auspices of GATT during the post-war period. Consequently, most countries in the region are supporters of liberalisation at the multilateral level and, until recently, the region was virtually free from regional trade arrangements. Since the early 1990s attitudes to free trade areas (FTAs) have changed, however, and commitments to form such areas have been proliferating. Economists are, as a rule, sceptic as to the benefits of such arrangements. With the aid of basic economics it is not difficult to show that discriminatory trade arrangements, at least in a comparative static sense, are likely to be inferior even to unilateral trade liberalisation. Nevertheless, the political rhetoric on FTAs is very positive and hardly presents any drawbacks whatsoever. A priori it seems hard to believe that the trend towards FTAs would not have good reasons, even if those reasons may not be fully picked up by standard economic theory. One argument is that the FTAs are a step towards multilateral liberalisation or, at least, a second or third best solution when the multilateral process is slow. The purpose of this paper is to consider the possible merits of regional FTAs, against the backdrop of the mainly negative predictions of international trade theory and the arguments in favour that are part of the official rhetoric on regional integration.