Analyzing the Benefits of Joining the Asia-Pacific Trade ... on APTA benefits for Malaysia...The author would like to thank Miss Jirawan Piyasupasit for her excellent research assistance

Analyzing the Benefits of Joining the Asia-Pacific Trade Agreement (APTA) for Malaysia, Thailand, and Vietnam

Final Output (Output 1.4)

Piriya Pholphirul*

Graduate School of Development Economics National Institute of Development Administration

Prepared for Trade and Investment Division, UNESCAP

c * Mailing address: Serithai Road, Klong-Chan, Bangkapi, Bangkok 10240. Corresponding Email: [email protected]. The author would like to thank Miss Jirawan Piyasupasit for her excellent research assistance.

2

I. Introduction

In July 1975, seven ESCAP member countries (Bangladesh, India, Laos, the Republic of Korea, Sri Lanka, the Philippines, and Thailand) met in Bangkok and agreed on a product list for mutual tariff reductions. After the meeting, these countries considered signing the first trade agreement among developing countries, namely the “Bangkok Agreement.” Aimed to promote economic development through a continuous process among ESCAP members, the Bangkok Agreement was finally established and ratified by five of the seven countries, excluding the Philippines and Thailand. However, the Lao PDR has not yet issued customs notification on the tariff concessions granted. Thus, it is not considered an effective participating member.

In 2001, after the first and the second round of negotiations (in 1979 and 1985), the People’s Republic of China, the most populous country and the fastest-growing economy in the region, joined the Bangkok Agreement. The entry of China to the Bangkok Agreement made the Bangkok Agreement the only regional preferential trade agreement linking the two most populous countries of the world: China and India. The third round of negotiations offered a maximum of 50 percent Margin of Preference (MoP) on tariffs with respect to agreed items, using 2001 as the base year and including a wider coverage of products. The concession lists were agreed upon by the member countries during the third round of negotiations.

During the first session of the Ministerial Council of the Bangkok Agreement in November 2005 in Beijing, the Asia-Pacific Trade Agreement (APTA) was signed under the revitalization process. To establish APTA as a true Asia-Pacific trade bloc, one of the revitalization processes was to further liberalize trade among existing members and expand membership as a regional-wide preferential trade agreement of the Asia-Pacific. All developing member countries of ESCAP were eligible to accede to the Agreement. One of the most distinguished gains from joining the APTA was that members would have access not only to the two most populous and two of the fastest growing countries in the region, namely India and China, but also to opportunities to trade in major world markets, such as the Republic of Korea, and in newly developing markets in South Asia, such as Bangladesh and Sri Lanka. However, since intra-trade among the APTA members is still low (at around 10 percent of the total trade volume), the Participating States and UNESCAP, as the secretariat to APTA, identified a priority list of prospective member countries. Malaysia, Vietnam, and Thailand were selected as three prospective new members from ASEAN under APTA. For these countries, the potential gains from joining APTA are needed to be investigated in-depth and presented to them to help them reflect upon the potential benefits should they join.

The main purposes of this study are to analyze the country-specific benefits for Malaysia, Vietnam, and Thailand if they decide to join the agreement, including future policy implications.1 In this regard, the research plan is presented in the seven sections that follow. In the next section, the overall economic situation and trade regime of Malaysia, Thailand, and Vietnam will be analyzed. The features of bilateral c 1 This paper aims to deepen and strengthen analysis from Pholphirul (2006), which explains the potential gains if Thailand decides to be a member of the Bangkok Agreement. Pholphirul (2006) calculated some indicators and made estimates using a pool gravity model and found that trade can be increased in these industries within the Bangkok Agreement.

3

trading agreements between those prospective countries and APTA participating states are identified by examining volumes, trends, and shares of trade. This section will also update the status of free trade agreements, whether they have already been signed, are under review, or under negotiation by prospective countries and their partners. In addition, the Herfindahl-Hirschman Index (HHI) of three potential countries will be computed to measure the extent of the countries’ export diversification Section III analyzes the similarities of trade patterns of the prospective countries with each APTA Participating State by estimating three quantitative trade indices: 1) the Spearman’s Rank Correlation between the Revealed Comparative Advantage (RCA), 2) Trade Intensity Index (TII), and 3) Intra-Industry Trade (IIT) Index. The RCA Rank Correlation will be used to discuss gains from trade in terms of whether the trade with APTA is substitutive (competitive) or complementary. The Trade Intensity Index will be used to identify sectors that are highly intensive in the APTA market. And, the Intra-Industry Trade Index will be used to analyze whether there are gains from variety from trading between prospective countries and APTA member states.

After analyzing potential gains/losses to Malaysia, Thailand, and Viet Nam, section IV aims, initially, to identify gains/losses within each country’s various sectors. First of all, the paper will compare the RCA exports of the three prospective countries with the RCA imports of the member states to identify effects from “trade creation” and “trade diversion” at the sectoral level. Secondly, this section will match products under the current concession list based on the HS-6 digits for the products that APTA Participating States import from the prospective countries. Section V forecasts the increase in benefits according to further tariff concessions by estimating export demand from Malaysia, Thailand, and Vietnam to APTA member countries. At last, Section VI discusses some further potential benefits for Malaysia, Vietnam, and Thailand according to expansion of the coverage of APTA to trade facilitation, service liberalization, and investment. Section VII concludes.

II. Overview of the Economic Situations and Trade Regimes of the

Prospective Countries

Being permanent members of ASEAN since it was formed in 1992, Thailand and Malaysia are among the ASEAN-6 that have made significant progress in the lowering of intra-regional tariffs through the Common Effective Preferential Tariff (CEPT) Scheme for AFTA. Vietnam, as one of ASEAN’s newer members, is not far behind in the implementation of their CEPT commitments to bring down tariffs on products in the Inclusion List to no more than 5 percent duties.2 There is no doubt that intra-ASEAN trade has been increasing, not only for Malaysia, Thailand, and Vietnam, but also in other ASEAN economies. The United States, Japan, and the European Union are, as usual, ASEAN’s main trading partners. In addition, trade with China has been growing very fast in recent years. Even though intra-regional trade among ASEAN members has continually increased over time from 17.4 percent in 1980 to 22.8 percent in 2002 and 24.9 percent in 2006, intra-trade among ASEAN members is relatively low compared to other trade blocs around the world, such as

c 2 ASEAN achieved the original target of the AFTA as scheduled in 2003. Tariffs on almost all products traded among the ASEAN-6 were reduced to rates between zero and 5 percent. The ASEAN-4 has been implementing their Common Effective Preferential Tariff (CEPT) commitments in line with timeframes agreed upon at concession.

4

NAFTA, FTAA,3 or EU-25, all of which involve more than 50 percent intra-group trade (See Table 1).

Table 1: Percent of Intra-Regional Export Volume among Trade Groups YEAR PARTNER APTA ASEAN MERCOSUR NAFTA FTAA EU 25

Intra-Group 8.0 23.0 20.0 55.7 60.7 67.2 Rest of the region 84.2 60.9 61.3 9.0 1.0 8.3 2000 Rest of the world 92.0 77.0 80.0 44.3 39.3 32.8







Source: UNCTAD Hand Book of Statistics in 2007 On-line, www.unctad.org/

Table 2: Intra and Extra ASEAN Trade in 2006

Total trade Intra-ASEAN Extra-ASEAN Country

Value (Millions US$)

Share to country total (Percent)

Value (Millions US$)

Share to country total (Percent)

Brunei 2,633.2 28.9 6,475.1 71.1 Cambodia 1,226.5 19.1 5,210.9 80.9 Indonesia 37,862.3 23.4 124,001.8 76.6 Lao, PDR 790.5 79.8 199.7 20.2 Malaysia 73,270.2 25.7 212,272.7 74.3 Myanmar 3,324.4 59.0 2,305.9 41.0 The Philippines 18,410.5 18.6 80,773.3 81.4 Singapore 146,102.0 28.6 363,987.9 71.4 Thailand 50,484.0 20.3 198,204.3 79.7 Vietnam 18,667.7 24.2 58,602.8 75.8 ASEAN 352,771.4 25.1 1,052,034.3 74.9

Source: ASEAN Trade Database

c 3 The Free Trade Area of the Americas (FTAA) is an attempt to expand the North American Free Trade Area (NAFTA) to every country in Central America, South America, and the Caribbean, except Cuba. Negotiation began right after the impletation of NAFTA in 1994.

5

Table 3: Selected Key Macroeconomic Variables of Malaysia, Thailand, Vietnam, and ASEAN

Merchandise trade GDP at current prices

GDP per capita at current price Exports Imports Total trade

Foreign direct investments inflow

US$ million US$ US$ PPP US$ million US$ million US$ million US$ million US$ million Country

2007 2007 2007 2006 2006 2006 2005 2006 Malaysia 186,960.70 6,880.20 14,256.40 157,226.90 128,316.10 285,543.00 3,964.80 6,059.70 Thailand 245,701.90 3,740.10 10,677.70 121,579.50 127,108.80 248,688.30 8,957.00 10,756.10 Viet Nam 71,292.10 836.7 3,835.70 37,033.70 40,236.80 77,270.50 2,020.80 2,360.00 ASEAN 1,281,853.90 2,227.30 5,961.90 750,708.00 654,097.80 1,404,805.80 41,067.80 52,379.50

Source: ASEAN Secretariat

Table 4: Percentage Growth of Selected Key Variables of Malaysia, Thailand, Vietnam, and ASEAN

Merchandise Trade

Growth rate of GDP Ratio of

exports to GDP

Ratio of imports to GDP

Ratio of total trade

to GDP

Growth of nominal value of exports

Growth of nominal value of imports

Growth of nominal value of

total trade

Year-on-year change in foreign direct investments net inflow

percent percent percent percent percent percent percent US$ million percent

Country

2007 2006 2006 2006 2006 2006 2006 2005-2006 2005-2006 Malaysia 6.3 100.2 81.8 182 11.9 12.4 12.1 2,094.90 52.8 Thailand 4.8 58.8 61.5 120.4 10.9 7.7 9.3 1,799.10 20.1 Viet Nam 8.5 60.8 66 126.8 29.6 23.5 26.3 339.2 16.8 ASEAN 6.5 69.9 60.9 130.9 15.8 13.4 14.7 11,311.70 27.5

Source: ASEAN Secretariat

6

Even though intra-regional trade among ASEAN members was relatively low (at 24.9 percent) in 2006, trade volumes of ASEAN countries with other countries in the region were as high as 60.7 percent. There is an implication that ASEAN would benefit even more if they were to increase trade and investment with other countries. Among ASEAN members, Singapore trades the most (US$146,102 million) while Malaysia, Thailand, and Vietnam are among the ASEAN countries that have high trade volumes– US$73,270.2 million, US$50,484 million, and US$18,667.7 million, respectively. However, relatively low and stable intra-ASEAN trade shares (around 20-25%) within the ASEAN bloc and intra-trade volumes for Malaysia, Thailand, and Vietnam, which are prospective members for APTA, indicate opportunities for those prospective countries to gain much if they decide to join other preferential trading agreements, especially one in the Asia-Pacific region.

In this regard, APTA is therefore one of the potentially most advantageous trade blocs under consideration for the three prospective countries to reap benefits by becoming members. Even though intra-APTA trade was still as low as 10.7 percent in 2006, the intra-trade shares among the APTA members is nevertheless expected to be higher due to stronger performance of the world’s most populous and fastest-growing economies, namely, China and India, including South Korea, one among the world’s high performance countries, and Bangladesh and Sri Lanka, other two emerging countries. Before analyzing potential gains for Malaysia, Thailand, and Vietnam, individually, from joining APTA, this section aims to analyze overall the current economic situation, trade and investment regime, the current situation of free trade agreement, and features of bilateral trading between Malaysia, Thailand, and Vietnam with APTA member countries.

2.1. Malaysia

2.1.1. Malaysia’s Trade and Investment Regime

With the third highest GDP per capita among ASEAN economies (US$6,880 of constant price in 2007), Malaysia aims to guarantee rising living standards and economic prosperity with continued efforts to liberalize its trade and investment regime. Trade and trade-related policy instruments continue to be an important part of Malaysia's pro-active industrial development policy. Malaysia's main trade policies aim to improve market access for exports of primary commodities, manufactured products, and services; to develop and promote exports of higher value-added manufactures; to expand trade with major trading partners; to diversify trade into non-traditional markets, particularly developing countries; to strengthen trade and economic cooperation within trade agreements; and to expand bilateral trade and investment links within the Asia-Pacific region. Within this liberalized trade regime, there is no doubt why a degree of openness measured in terms of total trade volumes to GDP ratio in Malaysia was as high as 182 percent in 2006, which was the second highest ratio among ASEAN economies, after Singapore. Exports contributed to 100.2 percent while imports contributed to 81.8 percent of Malaysia’s GDP. During 2006, there was 12.1 percent nominal growth in its merchandise trade, which was lower than average growth of ASEAN economies during the same period (17.7 percent). The manufacturing sector accounted for nearly 85 percent of the country’s export volumes.

Malaysia has implemented its Uruguay Round commitments by unilaterally lowering tariffs in its annual budget exercises and participating constructively in the Doha Development Round. At the regional level, Malaysia is heading towards a single market by 2020.

7

Nevertheless, due to the failure of the WTO meeting at Cancun, Malaysia has been actively participating in a number of bilateral free trade agreements. For example, since early 2006, Malaysia has been negotiating a bilateral free trade agreement with the United States, which was continued from a bilateral agreement between both countries initiated in 2000. In addition, the Malaysian government made another significant decision in December 2005, namely, to sign a bilateral FTA with Japan (The Japan-Malaysia Economic Partnership Agreement or JMEPA). Also, since 2005, the country has started talking with Australia, New Zealand, Chile, and Pakistan regarding a possible bilateral agreement as well as preparing ground for free trade agreements with India and Korea. Under the free-trade scheme, the Malaysian government maintains that existing and planned bilateral and regional free-trade agreements are consistent with, and complement, the multilateral framework for trade negotiations.4

The overall Malaysian trade policy aims to promote and safeguard Malaysian interests in the international trade arena, to spur the development of industrial activities, and to further enhance Malaysian economic growth towards realizing Vision 2020. To actively pursue the vision, Malaysia aims to further liberalize WTO, AFTA, and other regional arrangements. Along with trade liberalization, the Malaysian government must make a strong commitment to enhance the competitiveness of Malaysian exports and to create its value-added products. Efforts are being undertaken to increase intra-regional trade and other bilateral mechanisms. Internally, the Malaysian government is actively working and moving the country towards a knowledge-based economy. The main priority is to promote investments and encourage product development in selected and strategic economic sectors, namely, agriculture, manufacturing, and services.

In terms of investment regime, foreign direct investment in Malaysia is still relatively low (US$3,964.8 million in 2005), relative to the size of the economy (US$186,960.7 million of real GDP in 2007), or about 0.21 percent. The Malaysian government encourages foreign direct investment, particularly in export-oriented manufacturing and high-tech industries. Thus, the government has allowed 100 percent foreign equity for all investments in new manufacturing projects and offered a number of incentives to foreign manufacturing investors.5 One of the incentives is, for instance, that export-oriented manufacturers are eligible for customs duty exemption. Currently, Malaysia is among the world's leading sites for semiconductor assembly. Many multinational corporations have manufacturing operations in the country, and Malaysian companies are playing an increasing role in the industry, mainly as contract manufacturers.

c 4 Nonetheless, there are some arguments that the simultaneous negotiation of a number of ASEAN-wide as well as bilateral agreements would seem to raise issues of uniformity and consistency that may need to be addressed with a view to minimizing complexity. 5 The main incentives for the manufacturing sector are identified by the Promotion of Investments Act of 1986 and the Income Tax Act of 1967, including investment tax allowance, export credit refinancing, double deduction of export credit insurance, for export promotion, and incentives for R&D activities

8

Table 5: Malaysia’s Bilateral and Regional Trading Initiatives with Non-ASEAN Partners

Partner Type Title Scope Status

Bilateral Japan-Malaysia Economic

Partnership Agreement (JMEPA)

FTA: trade in goods, agriculture, services, and investment with flexibility for sensitive sectors; economic cooperation in several sectors

Negotiations started 2003 and signed in December 2005

Japan

Regional ASEAN-Japan

Comprehensive Economic Partnership

Goods, services, investment liberalization by 2012; facilitation; economic and technical cooperation

Negotiations started in 2003, commenced in 2007; commitment to conclude by 2008.

United States Bilateral Malaysia-US TIFAa

Trade and investment; possibility of FTA

Signed in May 2004

Bilateral Malaysia-Australia FTA Comprehensive FTA negotiations began in

April 2005, to conclude mid-2006

Australia

Regional ASEAN-Australia and NZ FTA

Comprehensive for goods, services and investment within ten years

Agreement in November 2004 to establish an FTA> Next round of negotiation was on April 2008

New Zealand Bilateral Malaysia-NZ FTA

FTA: to address high tariffs, NTMs, MRAs, facilitation of investment flows in agriculture

Agreement in March 2005 to conclude negotiations by end of 2005

Bilateral Malaysia-India FTA

To enhance exports of goods and services and expand cooperation in advanced sectors (biotechnology, software development)

Decision in December 2004 and develop joint study report by mid-2006

India

Regional ASEAN-India CECA

To enhance trade volume of sensitive list items, special products, services investment and petroleum

Framework Agreement signed in October 2003. Recent round of negotiation was on February 2008

Bilateral Malaysia-Korea FTA

Trade in goods and services, investment promotion, economic and technical cooperation

Negotiations to start after taking into account ASEAN-Korea FTA talks, which started early 2005

Korea

Regional ASEAN-Korea FTA

To expand two-way trade and investment by liberalizing and integrating markets; at least 80% of goods at zero tariff by 2009

Negotiations commenced early 2005. Recent round of negotiation was on April 2008

China Regional ASEAN-China CECA Framework

FTA on goods by 2010 for ASEAN-6; FTA for services trade and investment to be implemented within mutually agreed upon timeframes

Framework agreement entered into force on 1 July 2003

Pakistan Bilateral Malaysia-Pakistan FTA

Liberalization of trade in goods, services, investment, and economic cooperation

Negotiations commenced in April 2005; Negotiations for trade in goods and investment to be finalized by end of 2005

EU Regional ASEAN-EU FTA

Liberalization of trade in goods, services, investment, and economic cooperation

Initiated in May 2007 under ASEAN-EU ministerial meeting. Recent round of negotiation was on April 2008 in Bangkok

Source: Summarized by Author. Detailed information from http://www.ftamalaysia.org, http://www.thaifta.com, and WTO Secretariat Analysis

9

2.1.2. Malaysia’s Bilateral Trade with APTA

During the period 2000-2006, Malaysia consistently ran trade surpluses with the world. Its export volumes increased from US$98,229 million in 2000 to US$160,669 million in 2006, or approximately 9 percent annually increase. Import volumes have increased from US$81,289 million in 2000 to US$131,127 million in 2006, an annual increase of approximately 8.9 percent. Relative stable growth of Malaysia’s exports and imports during five-year periods could be used to explain the success of Malaysia’s stabilized policy on trade and exchange rates.

However, as far as Malaysia’s bilateral and regional trading status is concerned, Malaysia is participating in bilateral agreements with two major APTA members, Korea and India, and implementing a regional agreement with China, the ASEAN-China FTA, which was planned to begin by 2010. To determine whether Malaysia will indeed benefit from being an APTA member, bilateral trade between Malaysia and each APTA participating state will be analyzed.

Figure 1: Exports and Imports of Malaysia: 2000-2006 (US$ Thousand)

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

180,000,000

Export 98,229,760 88,004,488 94,058,288 104,707,232 126,639,704 140,962,928 160,669,232Import 81,289,536 73,078,960 78,673,784 82,443,544 105,156,808 114,583,632 131,127,048

2000 2001 2002 2003 2004 2005 2006

Source: Comtrade Data, United Nations.

10

Table 6: Annual Growth of Malaysia’s Exports/Imports to/from APTA, ASEAN, and the World (Percentage)

APTA ASEAN World APTA ASEAN World Year Exports Imports 2001 0.9 -14.1 -10.4 -1.4 -14.8 -10.1 2002 22.1 9.9 6.9 46.0 9.4 7.7 2003 22.4 6.8 11.3 13.6 9.9 4.8 2004 28.4 21.9 20.9 34.2 29.7 27.6 2005 13.0 16.1 11.3 19.0 12.2 9.0 2006 24.9 13.9 14.0 21.7 14.0 14.4

Average 18.6 9.1 9.0 22.2 10.1 8.9

Source: Author’s calculation using Comtrade Data, United Nations.

Even though trade volumes between Malaysia and APTA member states were still relatively low (14.6 percent) compared to the volumes traded with ASEAN countries (25.7 percent), APTA started to gain more trade with regard to its total exports during 2002-2004. While the average growth of Malaysia’s trade with ASEAN increased around 9-10 percentage points annually, trade volumes between Malaysia and APTA member countries has increased much more. Export volume from Malaysia to APTA countries has increased by 2.7 times from US$8,612 million in 2000 to US$23,527 million, or approximately 18.6 percent annually increase. Import volume has increased from US$7,648 million to US$24,321 million, or 22.2 percent annual increase. Since imports have grown more than exports from/to APTA member countries, Malaysia could not maintain a trade surplus with the APTA member countries and run a deficit in 2004.

Among its APTA partners, on the export side, China takes in most of Malaysia’s export volume (49.5 percent in 2006), followed by the Republic of Korea (24.7 percent in 2006), India (21.8 percent in 2006), Sri Lanka (2.3 percent in 2006), and Bangladesh (1.8 percent in 2006). Even though Malaysia’s exports to all APTA member countries increased significantly in terms of their volumes, we can observe that China is the only country among APTA members in which export share from Malaysia is noticeably increasing, from 35.2 percent in 2000 to 49.5 percent in 2006 among APTA countries, while in other APTA countries export shares have remained constant or have decreased somewhat. An increase of export share to China can explain the importance of the Chinese economy to Malaysian exports, which were offset by reductions of export share to South Korea (from 38.1 percent in 2000 to 24.7 percent in 2006). Results are similar on the import side. Malaysia’s import shares from China have increased from 42.4 percent in 2000 to 65.3 percent in 2006 of all imports from APTA countries, offset by reduction of import share from South Korea (from 47.9 percent in 2000 to 29 percent in 2006).

China is not only the largest trading partner among APTA members, but it also has a strong influence on Malaysia’s economy. In 2006, Malaysia’s exports to China were about US$11,638 million, which was nearly 4 times the amount accrued from export volumes in 2000 (US$3,028 million). The volume of Malaysia’s imports from China was approximately US$15,883 million, which was an increase of nearly 5 times from that in 2000 (US$3,028 million). Even though China maintains a trade surplus with Malaysia, broken down by sector (2-digit Harmonized System), there was a high degree of intra-industry trade between Malaysia and China, which focused on “electrical, electronic equipment” (HS-85) and “nuclear reactors, boilers, machinery,

11

etc.” (HS-84). On the import side, Malaysia imports “nuclear reactors, boilers, machinery, etc.” (HS-84), amounting to more than 25.37 percent of industry imports. On the export side, China was a main market for “animal, vegetable, and fat Oil” (HS-15) and “rubber and articles thereof” (HS-40) of Malaysia’s exports, which made up approximately 22.23 percent and 24.87 percent, respectively, of industry exports.

Another country which might be a potential recipient for Malaysia’s exports is India. Even though trade shares with India were still lower than those with China and South Korea, Malaysia has more of a trade surplus with India. In 2006, Malaysia’s exports to India were about US$5,124 million, while its imports from India amounted to only US$1,331 million. Joining APTA can possibly open opportunity to Malaysia for deeper market access to India, especially for exports of “mineral fuels, oils, and distillation products” (HS-27) of which export share to India is 12.31 percent of industry exports. On the import side, Malaysia imports 58.07 percent of “ships, boats, and other floating structures” (HS-89) for industry from India. Overall, traded items between Malaysia and APTA member countries are focused on “mineral fuels, oils, distillation products” (HS-27), “electrical and electronic equipment” (HS-85), “nuclear reactors, boilers, and machinery” (HS-84), and “iron and steel” (HS-72).

Table 7: Malaysia’s Export/Import Shares to/from APTA Member Countries: 2000-2006

Year Bangladesh China India South Korea Sri Lanka APTA Exports ($ million)

2000 153.5 3,028.2 1,924.1 3,280.1 226.8 8,612.7 1.8% 35.2% 22.3% 38.1% 2.6% 100.0%

2001 171.3 3,821.0 1,577.1 2,935.7 187.0 8,692.1 2.0% 44.0% 18.1% 33.8% 2.2% 100.0%

2002 225.9 5,265.2 1,765.1 3,122.1 233.3 10,611.6 2.1% 49.6% 16.6% 29.4% 2.2% 100.0%

2003 320.2 6,787.2 2,537.4 3,040.7 304.2 12,989.7 2.5% 52.3% 19.5% 23.4% 2.3% 100.0%

2004 364.6 8,496.4 3,015.0 4,460.1 346.0 16,682.1 2.2% 50.9% 18.1% 26.7% 2.1% 100.0%

2005 409.4 9,302.3 3,954.3 4,739.4 438.3 18,843.8 2.2% 49.4% 21.0% 25.2% 2.3% 100.0%

2006 422.5 11,638.3 5,124.3 5,808.4 534.4 23,527.8 1.8% 49.5% 21.8% 24.7% 2.3% 100.0%

Imports ($ million) 2000 15.2 3,242.3 723.1 3,663.1 4.8 7,648.4

0.2% 42.4% 9.5% 47.9% 0.1% 100.0% 2001 15.3 3,804.4 772.4 2,948.1 4.9 7,545.1

0.2% 50.4% 10.2% 39.1% 0.1% 100.0% 2002 20.6 6,139.2 642.6 4,208.3 6.1 11,016.8

0.2% 55.7% 5.8% 38.2% 0.1% 100.0% 2003 15.1 7,271.2 671.1 4,553.6 5.7 12,516.7

0.1% 58.1% 5.4% 36.4% 0.0% 100.0% 2004 18.2 10,335.3 1,218.6 5,223.8 7.0 16,802.8

0.1% 61.5% 7.3% 31.1% 0.0% 100.0% 2005 21.8 13,173.8 1,099.5 5,685.0 10.8 19,990.8

0.1% 65.9% 5.5% 28.4% 0.1% 100.0% 2006 22.8 15,883.6 1,331.3 7,062.0 21.8 24,321.5

0.1% 65.3% 5.5% 29.0% 0.1% 100.0%


12

Table 8: Malaysia’s Top 5 Export/Import Commodities to/from APTA Member Countries in 2006 (HS-2 Digits)

Exports Imports

HS Code Volume Share of industry export HS Code Volume Share of

industry import (2-digit) ($ Million) (%) (2-digit) ($ Million) (%)

Bangladesh 15 183.3 2.63 3 9,173.0 1.82 39 37.7 0.84 63 4,388.0 3.33 84 31.7 0.1 61 2,241.0 1.86 55 24.2 10.11 62 1,388.0 0.72 52 15.0 10.74 7 1,330.0 0.29

China 85 3,808.7 7.62 85 5,898.8 12.42 84 1,793.6 5.49 84 4,892.9 25.37 15 1,550.0 22.23 72 412.3 9.79 40 1,198.9 24.84 39 383.2 8.21 39 615.4 13.75 90 372.7 9.64

India 27 2,715.8 12.31 29 170.0 7.12 84 544.2 1.67 2 154.8 58.37 85 428.5 0.86 74 117.8 4.58 29 283.0 11.09 85 100.0 0.21 44 206.4 4.43 72 83.6 1.98

South Korea 27 2,800.9 12.69 85 3,362.2 7.08 85 828.6 1.66 84 1,147.3 5.95 84 559.3 1.71 89 475.1 58.07 44 268.2 5.76 72 393.3 9.34 38 172.7 8.5 87 372.9 11.93

Sri Lanka 27 192.3 0.87 40 8.8 0.68 15 85.7 1.23 49 2.5 0.95 84 29.3 0.09 9 1.2 0.6 87 25.6 2.71 99 1.0 0.04 25 23.6 10.08 85 0.9 0

Total of APTA 27 6,084.3 27.58 85 9,362.4 19.71 85 5,084.9 10.17 84 6,124.0 31.75 84 2,958.1 9.05 72 889.2 21.11 15 2,114.9 30.34 39 642.6 13.76 40 1,384.0 28.67 29 518.2 21.7


Nonetheless, even though Malaysia’s trade shares with Bangladesh and Sri Lanka were much lower than those with other APTA countries, there are opportunities for Malaysia to expand its market depth in these two countries by joining APTA since there are not any trade agreements as yet among these countries. In addition, Malaysia has a large trade surplus with both countries. In 2006, Malaysia’s exports to Bangladesh were about US$422 million, while its imports from India were only

13

US$23 million. The main export items from Malaysia to Bangladesh were focused on “animal, vegetable fats and oils and cleavage products” (HS-15) and “plastics and articles thereof” (HS-39). For Sri Lanka, Malaysia’s exports were about US$534 million, while its imports from India amounted to only US$22 million. The items most traded were “animal, vegetable fats and oils and cleavage products” (HS-15) and “mineral fuels, oils, distillation products” (HS-27)

2.2. Thailand

2.2.1. Thailand’s Trade and Investment Regime

Having the fourth highest GDP per capita in ASEAN (US$3,740 of constant price in 2007), which is similar to that of Malaysia, Thailand has maintained its commitment to free trade liberalization. Thailand believes that regional free trade agreements can be an effective catalyst for free trade contributing to long-term economic growth. Therefore, the country’s foreign policies are focused on strengthening of regional links with immediate neighbors and deepening ties through free trade agreements in the wider Asian region such as ASEAN, BIMSTEC, and further extension of ASEAN.

In addition to a multilateral trading system, Thailand has concluded a network of bilateral preferential trading arrangements with several trading partners such as Australia, Bahrain, India, Japan, Peru, New Zealand, and the United States. In this regard, The FTA negotiations can be used as a means to maintain and strengthen its shares in traditional export markets such as Japan, Europe, and United States as well as to broaden and deepen its trade and investment access in potential markets, particularly China, India, Australia, and New Zealand. A free trade agreement with a far-off country, like Peru or Bahrain, is hoped to be a major step towards further trade expansion and economic cooperation with Latin America and the Middle East, respectively.

There is no doubt under these open foreign policies why the country’s degree of openness in terms of trade to GDP ratio was as high as 120.4 percent in 2006, which significantly increased when the baht currency was devalued in 1997. Currently exports make up 58.8 percent of the Thai GDP. During 2006, there was a temporary appreciation of the baht coupled with intense competition in the world market; Thailand achieved only 10.9 percent export growth in merchandise trade, which was much lower than the average growth among ASEAN economies (15.8 percent). A lower growth of export volumes indicates that Thai exports are losing their competitiveness in the world market. Losing competitiveness in the world market has become a big challenge among trade policymakers and exporters in the new era.

Since long-term growth is still an important issue, Thailand needs to rely not only on its export potential, but also on foreign capital. The foreign investment regime in Thailand is one that concentrates mainly on the provision of fiscal incentives, in particular, taxes and duties exemptions. Unlike many other Asian governments, the Thai government did not have specific industries for selective promotion. There was, however, a general indication that high-technology investment projects were a priority that would help promote the upgrading of Thai industries and, thus, would likely receive promotional incentives. Another important feature of the regime is its emphasis on most-favored nation (MFN) status and non-discrimination. All foreign investors are eligible for similar rights and subject to similar obligations under domestic laws, while local and foreign investors are eligible for the same tax and non-tax incentives offered by local investment promotion agencies such as Thailand’s Board of Investment (BOI) Thailand continues to operate a liberal foreign

14

investment regime by encouraging investors from all areas. Foreign direct investment (FDI) inflows to Thailand increased by 20.1 percent during the 2005-2006, which was nonetheless lower than the growth of FDI inflows in Malaysia during the same period (52.8 percent). So far, Thailand's investment climate is favorable by international standards, although investors seem to be sometimes hindered by heavy regulatory burdens, shortages of skilled labor, and infrastructure deficiencies, especially investment areas outside Bangkok.6

Table 9: Thailand’s Bilateral and Regional Trading Initiatives with Non-ASEAN Partners


Bilateral Japan-Thailand Economic

Partnership Agreement (JTEPA)

FTA: trade in goods, agriculture, services, and investment, and NTBs for sensitive sectors

Negotiations started 2002; agreement in principle in May 2005; signed in November 2007

Japan




Negotiations started in 2003, commenced in 2007; commitment to conclude by 2008.

United States Bilateral Malaysia-US FTA

FTA: trade in goods, agriculture, services, and investment, IPRs, and NTBs

Agreed to sign Trade and Investment Framework Agreement between the US and Thailand (TIFA) in 2002, started for negotiation in 2004. Now US asked to suspend the negotiation due to political development in Thailand in 2006.

Bilateral Thailand-Australia FTA

FTA: trade in goods, agriculture, services, and investment, and Rule of Origin

FTA negotiations began in May 2002 and signed in November 2005

Australia

Regional ASEAN-Australia and NZ FTA


Agreement in November 2004 to establish an FTA. Recent round of negotiation was on April 2008

New Zealand Bilateral Thailand-NZ Close Economic

Partnership

FTA: trade in goods, agriculture, services, and investment, and Rule of Origin

Started negotiation in May 2004 and singed in May 2006

Bilateral Thailand-India FTA

To enhance exports of goods on early harvest scheme of 82 items, services, and cooperation in service sector (tourism, construction, healthcare, ICT)

Initiated in October 2003, signed in September 2004 on 82 sensitive items, expanded to 3,000 items in September 2007. Now India requested to suspend further negotiation and wait until the ASEAN-India FTA concludes.

India

Regional ASEAN-India CECA

To enhance trade volume of sensitive list, special products, services investment and Petroleum


Korea Regional ASEAN-Korea FTA



c 6 FDI inflows to Thailand, in growth terms and volume terms, were claimed to have decreased further due to constitutional and legislative changes under political developments in 2006.

15

China Regional ASEAN-China CECA Framework

FTA on goods by 2010 for ASEAN-6; FTA for services trade and investment to be implemented within mutually agreed timeframes. Early harvest of HS digit 07-08 was implemented prior 3 months for Thailand under the ASEAN-China framework

Framework agreement entered into force on 1 July 2003. Recent round of negotiation was on February 2008

EU Regional ASEAN-EU FTA Liberalization of trade in goods, services, investment, and economic cooperation


Bahrain Bilateral Thailand-Bahrain FTA Early harvest program of 626 products was adopted in 2005.

Initiated and signed in 2002. However, since the Golf Corporation Council (GCC) do not allow Bahrain to sign bilateral agreement. The agreement between Thailand and Bahrain was suspended while Thailand-GCC FTA was proposed instead.

Peru Bilateral Thailand-Peru Closer Economic Partnership

Liberalization of trade in goods, services, investment, and economic cooperation by 2015

Initiated in the APEC meeting in 2002, the joint study report is under developed, especially for rule of origin and tariff reduction of the sensitive products.

EFTA Bilateral Thailand-EFTA FTA

Comprehensive liberalization of trade in goods, services, investment, and economic cooperation

Initiated in March 2004 when the SWISS Prime Ministry visited Thailand. The second of negotiation was on January 2006 in Chiang Mai, Thailand.

BIMSTEC Regional The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation

Comprehensive liberalization of trade in goods, services, investment, and economic cooperation

Initiated in March 2003 under BIMSTEC meeting in Sri Lanka and signed in 2004 in Phuket, Thailand. Recent round of negotiation was on April 2008 in Myanmar.

Source: Summarized by Author. Detailed information from http://www.thaifta.com

2.2.2. Thailand’s Bilateral Trade with APTA

Thailand’s trade volumes increased substantially over the period of 2000-2006. Export volumes increased from US$68,786 million in 2000 to US$130,580 million in 2006, or approximately 11.7 percent annual increase. Import volumes increased from US$61,450 million in 2000 to US$128,584 million in 2006, or approximately 13.5 percent annual increase. Thailand’s potential markets are composed of ASEAN members. The country’s exports to ASEAN increased dramatically from 12 percent of total export volumes in 1990 to 21 percent in 2006. An increase in Thailand’s export share to ASEAN is offset by the reduction of its export share to other major export markets such as European Union countries, Japan, and the United States, which dropped from 23 percent, 17 percent, and 23 percent, respectively, in 1990 to 15 percent, 14 percent, and 17 percent, respectively, at present. Other important export markets include China (7 percent in 2003), Hong Kong (5 percent), Taiwan (3 percent) and South Korea (2 percent).

On the import side, Thailand’s imports from ASEAN member countries also increased from 13 percent in 1990 to 17 percent in 2003 and 19.5 percent in 2006, offsetting the reduction in import shares from major countries such as European

16

Union countries, Japan, and the United States. At present, Thailand’s import shares from European Union countries, Japan, and the United States have decreased from 16 percent, 30 percent, and 11 percent, respectively, in 1990 to 10 percent, 24 percent, and 9 percent, respectively. Other major import markets are China (8 percent in 2003), Taiwan (4 percent), South Korea (4 percent), and the United Arab Emirates (3 percent).

Thailand’s bilateral and regional trading status with APTA member countries started from its signing of a multilateral agreement with China under the ASEAN-China framework and bilaterally initiated an early harvest program covering HS-07 and HS-08. In addition, the country has already implemented a bilateral free trade agreement with India. To avoid conflicts and complicated management under different agreements, including APTA, the new potential trade bloc, patterns of bilateral trade between Thailand and each APTA participating state should be reviewed to ensure that that Thailand will actually benefit once it decides to join.

Similar to Malaysia, even though trade volumes between Thailand and APTA member states were still relatively low (around 13 percent of Thailand’s exports and 15.8 percent of Thailand’s imports), trade shares between Thailand and APTA were increasing overtime. Even though average growth of Thailand’s trade volumes with ASEAN increased around 14.7 percent for exports and 17.1 percent for imports, trade growth between Thailand and APTA countries was found to increase much more. Exports from Thailand to APTA increased around 3.4 times over six years, from US$5,038 million in 2000 to US$17,006 million in 2006, or approximately 23.3 percent annual increase. Imports from APTA to Thailand increased from US$6,267 million in 2000 to US$20,390 million in 2006, or about 22 percent annual increase. Since imports have grown more than exports from/to APTA members, Thailand faced a trade deficit with APTA countries. Figure 2: Exports and Imports of Thailand: 2000-2006 (US$ Thousand)

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

Export 68,786,608 65,113,240 68,107,864 80,323,272 96,247,904 110,110,032 130,580,048Import 61,450,576 62,057,448 64,645,216 75,824,144 94,402,608 118,164,336 128,584,480

2000 2001 2002 2003 2004 2005 2006


However, among its APTA partners, on the export side, China gained the most market share from Thailand’s exports (69.2 percent in 2006), followed by Korea

17

Republic (15.6 percent in 2006), India (10.6 percent in 2006), Bangladesh (2.7 percent in 2006), and Sri Lanka (1.7 percent in 2006). Similar to Malaysia, even though Thailand’s exports to APTA increased significantly in terms of aggregate volumes, rising exports came mainly from China, offset by falling export shares to other APTA members, especially to the Republic of Korea. Thailand’s export shares to China increased from 55.9 percent in 2000 to 69.2 percent in 2006, while export shares to Korea decreased dramatically from 25.2 percent in 2000 to 15.6 percent in 2006.

For imports, shares of imports from China also increased from 53.8 percent in 2000 to 66.8 percent in 2006. An increase of export/import shares from China implies an important influence of the Chinese economy on the Thai economy in terms of trade linkages. For other APTA countries, namely, India, Bangladesh, and Sri Lanka, trade shares between Thailand and India were relatively constant over the period, while trade shares between Thailand-Bangladesh and Thailand-Sri Lanka shrunk.

It is clear that, among APTA members, China is potentially the largest market for Thai exporters. In addition, breaking down exports/imports to the sectoral level shows a high degree of intra-industry trade between both countries on “electrical, electronic equipment” (HS-85) and “nuclear reactors, boilers, machinery, etc” (HS-84). China is also a major market for Thailand’s “organic chemicals” (HS-29), which amounted to as much as 44.36 percent of total industry exports. Since data show bilateral trade between Thailand and China is tending to concentrate on manufactured products, rather than agricultural products, joining APTA can potentially benefit both countries beyond the formal agreement of the Early Harvest Program (HS-07 and HS-08).

Another potential country for Thai exports is South Korea, which sends about 15.6 percent of its total exports to APTA. Even though export volumes from Thailand to South Korea increased about 2.1 times from US$1,270 million in 2000 to US$2,661 million in 2006, Korea still plays an important role in terms of Thailand’s imports. Korea shares around 25 percent of Thailand’s imports from APTA. Thailand’s import volumes from Korea increased about 2.4 times from US$2,164 million in 2000 to US$5,088 million in 2006. Similar to bilateral trade between Thailand and China, there was also a high level of intra-industry trade between the two countries in “electrical, electronic equipment” (HS-85) and “nuclear reactors, boilers, machinery, etc” (HS-84). In addition, “iron and steel” (HS-72) were also important import items from Korea, which amounted to around 9.81 percent of total industry imports.

Even though bilateral trade between Thailand and Bangladesh/Sri Lanka was still somewhat lower than trade volumes with China, India, and the Republic of Korea, Thailand continually gained a trade surplus with both countries. In addition, a sector-by-sector breakdown indicates differences in market demands compared to those of China and Korea. For example, exports from Thailand to Bangladesh and Thailand to Sri Lanka consisted largely of “salt, sulphur, earth, stone, plaster, lime, and cement” (HS-25), “plastics and articles thereof” (HS-39), “manmade staple fibres” (HS-55), and “sugars and sugar confectionery” (HS-17), which were found to be different from what China and the republic of Korea imported from Thailand, for the most part.

18

Table 10: Annual Growth of Thailand’s Exports/Imports to/from APTA, ASEAN, and the World (Percentage)

APTA ASEAN World APTA ASEAN World Year Exports Imports

2001 -1.9 3.4 -5.3 5.0 10.9 1.0 2002 16.2 8.0 4.6 25.7 7.1 4.2 2003 45.5 22.0 17.9 19.7 15.8 17.3 2004 24.5 28.0 19.8 30.7 23.9 24.5 2005 29.5 13.2 14.4 26.4 35.3 25.2 2006 26.1 13.6 18.6 24.8 9.4 8.8

Average 23.3 14.7 11.7 22.0 17.1 13.5


Table 11: Thailand’s Export/Import Shares to/from APTA Members: 2000-2006

Year Bangladesh China India South Korea Sri Lanka APTA Exports ($ million)

2000 219.3 2,816.3 558.0 1,270.7 174.0 5,038.3 4.4% 55.9% 11.1% 25.2% 3.5% 100.0%

2001 230.9 2,862.7 482.1 1,228.8 140.5 4,945.0 4.7% 57.9% 9.7% 24.8% 2.8% 100.0%

2002 229.3 3,554.4 413.2 1,398.0 152.3 5,747.1 4.0% 61.8% 7.2% 24.3% 2.6% 100.0%

2003 272.1 5,701.5 640.3 1,589.6 160.8 8,364.3 3.3% 68.2% 7.7% 19.0% 1.9% 100.0%

2004 373.7 7,098.0 911.7 1,851.4 182.5 10,417.2 3.6% 68.1% 8.8% 17.8% 1.8% 100.0%

2005 392.6 9,134.2 1,518.9 2,250.2 193.4 13,489.3 2.9% 67.7% 11.3% 16.7% 1.4% 100.0%

2006 464.2 11,774.2 1,810.7 2,661.3 296.0 17,006.4 2.7% 69.2% 10.6% 15.6% 1.7% 100.0%

Import ($ million) 2000 41.2 3,369.2 617.6 2,164.2 75.1 6,267.3

0.7% 53.8% 9.9% 34.5% 1.2% 100.0% 2001 28.9 3,715.8 673.1 2,121.6 38.9 6,578.4

0.4% 56.5% 10.2% 32.3% 0.6% 100.0% 2002 24.5 4,932.1 776.2 2,526.8 6.7 8,266.3

0.3% 59.7% 9.4% 30.6% 0.1% 100.0% 2003 30.1 6,065.2 879.0 2,914.4 8.1 9,896.8

0.3% 61.3% 8.9% 29.4% 0.1% 100.0% 2004 13.5 8,187.8 1,137.3 3,584.1 9.6 12,932.3

0.1% 63.3% 8.8% 27.7% 0.1% 100.0% 2005 28.9 11,157.9 1,271.4 3,872.4 13.0 16,343.6

0.2% 68.3% 7.8% 23.7% 0.1% 100.0% 2006 35.6 13,617.2 1,622.6 5,088.1 27.1 20,390.4

0.2% 66.8% 8.0% 25.0% 0.1% 100.0%


19

Table 12: Thailand’s Top 5 Export/Import Commodities to/from APTA Member Countries in 2006 (HS-2 Digits)

Exports Imports

HS Code Volume Share of industry exports HS Code Volume Share of

industry imports

(2-digit) (US$ Million) (%) (2-digit) (US$

Million) (%)

Bangladesh 25 76.3 11.52 31 12.1 1.29 39 66.7 1.03 72 10.8 0.15 55 62.0 6.24 53 5.7 20.82 17 44.5 5.09 03 2.3 0.15 84 42.8 0.18 58 2.0 1.40

China 84 2,712.7 11.34 85 4,287.3 16.98 40 1,699.3 19.36 84 3,168.1 17.53 85 1,687.4 7.26 72 1,047.5 14.80 29 1,130.6 44.36 73 387.9 10.99 27 996.6 15.31 39 331.0 7.15

India 84 338.3 1.41 71 359.2 8.85 85 295.6 1.27 27 190.5 0.74 39 181.7 2.80 72 149.2 2.11 87 126.8 1.26 29 113.1 2.96 72 101.8 6.78 85 107.7 0.43

South Korea 85 672.8 2.89 85 1,865.8 7.39 40 396.5 4.52 72 694.2 9.81 84 320.3 1.34 84 481.4 2.66 27 267.9 4.12 39 322.1 6.96 03 101.9 4.67 29 273.8 7.17

Sri Lanka 84 41.1 0.17 71 18.8 0.46 17 34.3 3.93 58 1.2 0.88 55 26.1 2.63 74 1.1 0.04 39 19.3 0.30 85 1.0 0.00 27 16.0 0.25 38 0.7 0.04

Total of APTA 84 3,455.3 14.44 85 6,261.9 24.80 85 2,670.0 11.48 84 3,716.1 20.56 40 2,191.3 24.96 72 1,901.6 26.87 27 1,361.8 20.93 71 800.9 19.73 39 1,297.0 19.98 39 679.4 14.67


2.3. Vietnam

2.3.1. Vietnam’s Trade and Investment Regime

Over the years, Vietnam's economy has been in transition from a centrally planned economy based on agriculture to a socialist market economy. Nowadays, the country is among five remaining one-party communist states. Under communist rule,

20

Vietnam’s policy decision-making must be shared by national and provincial governments. And since political power lies with the Communist Party of Vietnam (CPV), decisions made under its auspices tend to be made very cautiously. In 1986, Vietnam embarked upon an economic reform process popularly known as Doi Moi, which paved the way for the Vietnam of today.7

Aiming to be member of the World Trade Organization, Vietnam prepared itself well to meet WTO accession commitments, including adopting legislation, improving transparency of trade and investment regulations, and clarifying consistency of treatment for private companies and state-owned enterprises. Under this transition, there was a big change in Vietnam’s focus on developing the country to becoming one of the fastest-growing economies in the world.

With the highest GDP per capita among CMLV (US$836 million in 2006) or the seventh highest among the ASEAN-10, Vietnam has been able to achieve very high and consistent economic growth since the early 1990s.8 From 1991-1995, annual growth of the economy was around 8.2 percent and was still as consistently high as 8.5 percent in 2007. The average growth of Vietnam’s economy was higher than the average growth of ASEAN countries (6.5 percent).

Equally impressive is the growth in Vietnam's international trade. The country has achieved the highest growth rate in trade volumes compared to other ASEAN economies. Growth of nominal value trade in Vietnam was as high as 26.3 percent in 2006. Merchandise exports were 60.7 percent of GDP, which was more than double the 30 percent share recorded in the mid 1990s. Merchandise imports were 66 percent of GDP, which was lower than those of Malaysia but higher than those of Thailand. In terms of its openness, the degree of openness measured by total trade-to-GDP ratio was as high as 126.8 percent in 2006. Vietnam is therefore another country that strategically commits itself to use trade as a main engine to drive its economy, which will contribute to the country’s sustainable development in the long run.

In addition, as a signatory to a number of trade agreements, Vietnam has had to commit itself to global economic integration and long-term development by participating in multilateral agreements such as ASEAN, APEC, and WTO. This commitment was widely confirmed when Vietnam successfully hosted APEC in 2006. Vietnam has maintained its commitment to open regionalism under multilateral trade liberalization. For example, as a member of ASEAN, Vietnam is caught up in the bloc’s regional FTA dealings with Korea, the EU, China, Japan, Australia, New Zealand, and India.

To participate in bilateral trade agreements, Vietnam has signed comprehensive bilateral trade agreements with a number of trade partners. A bilateral agreement was signed with the United States in 2000 and came into force in 2001. In January 2007, Vietnam and Japan began talks towards a Japan-Vietnam bilateral free trade agreement (economic partnership agreement). Shortly after, Vietnam began talks with Chile and India on establishing a joint mission to study the feasibility of a bilateral free trade agreement. In addition, a number of trade agreements were signed with South Africa, Tanzania, Pakistan, Nigeria, etc. However, so far, those c 7 The reform included developing a multi-sectoral market, reforming the legal, banking, fiscal and monetary systems, controlling inflation and the national budgets, and creating a friendly-environment to attract both domestic and foreign investments 8 CMLV is a notation referring to “Cambodia, Myanmar, Laos, and Vietnam.”

21

agreements have not been actively followed up by the Vietnamese government. In addition, Vietnam also signed a number of bilateral IPR and science and technology agreements with industrialized countries.

Table 13: Vietnam’s Bilateral and Regional Trading Initiatives with Non-ASEAN Partners


Bilateral Japan-Vietnam Economic Partnership Agreement

FTA: trade in goods, agriculture, services, and investment, and NTBs for sensitive sectors

Negotiation started 2007

Japan




Negotiation started in 2003, commenced in 2007; commitment to conclude by 2008.

United States Bilateral Vietnam-US Trade and Investment Framework

Agreement (TIFA)

FTA: trade in goods, agriculture, services, and investment

Bilateral agreement was started in 2000 and enforced in 2001.

Australia and New Zealand Regional ASEAN-Australia and NZ

FTA


Agreement in November 2004 to establish an FTA. Recent round of negotiation was on April 2008

India Regional ASEAN-India

To enhance trade volume of sensitive list, special product, services investment and Petroleum


Bilateral Vietnam-Korea Bilateral Agreement

Arrangements of business meetings, trade missions, seminars. Exchange of information and experiences relating to trade.

Agreement was signed in 2002

Korea

Regional ASEAN-Korea FTA



China Regional ASEAN-China Framework

FTA on goods and service, including investment to be implemented within mutually agreed timeframes.

Framework agreement entered into force on 1 July 2003. Recent round of negotiation was on February 2008

EU Regional ASEAN-EU FTA Liberalization of trade in goods, services, investment, and economic cooperation


South Africa Bilateral Vietnam-South Africa Trade Agreement

Facilitating and promoting trade and economic relations between two countries

Agreement was signed in April 2000

Tanzania Bilateral Vietnam-Tanzania Trade Agreement

Facilitating and developing trade relations between their two countries

Agreement was signed in October 2001

Pakistan Bilateral Vietnam-Pakistan Trade Agreement

Desiring to develop, extend and strengthen trade relations between the two countries

Agreement was signed in May 2001

Nigeria Bilateral Vietnam-Nigeria Trade Agreement

Facilitating and developing trade relations between their two countries

Agreement was signed in June 2001

Namibia Bilateral Vietnam-Namibia Trade Agreement

Promoting and facilitating trade and economic relations between countries

Agreement was signed in May 2003

Mozambique Bilateral Vietnam-Mozambique Trade Agreement

Facilitating and promoting trade and economic relations between their countries

Agreement was signed in November 2003

Source: Summarized by Author. Detailed information from Vietnam’s Ministry of Trade and http://www.bilaterals.com

22

To abide by bilateral and multilateral free trade policies, Vietnam actively revised its investment regime through Enterprise and Investment Laws in 2005 and implemented a series of regulations in 2006. Under new regulations, foreign businesses are permitted to remit their profits in hard currency and to share revenues from joint ventures and from income derived from services, technology transfers, legally owned capital, and intellectual property. Foreign investors are also allowed to remit royalties and fees paid for the supply of technologies and services as well as principal and interest on loans obtained for business operations. Any domestic or foreign legal person has the right to establish and manage enterprises in Vietnam. The Investment Law regulates the new investment regime in Vietnam, especially with regard to the allocation of incentives of investment activities. This very different investment regime replaced the previous one, which treated domestic and foreign investors differently.

2.3.2. Vietnam’s Bilateral Trade with APTA

Before 1990, Vietnam's main trading partners were socialist countries, particularly the Soviet Union and China. Later, when the country started to expand its global markets, promote export-oriented industries, and put emphasis on import substitution of manufactured goods, the composition of Vietnam's trade in terms of trading partners was likely to change even more. Vietnam's current major trading partners are now Japan, Singapore, Hong Kong, Taiwan, Korea, and the European Union. Its major trade partners are the Asian economies, which constitute around 80 percent of its total trade volumes.

Vietnam’s trade volumes increased from US$16,706 million in 2002 to US$32,447 million in 2005, or approximately 24.9 percent annual increase, Import volumes increased from US$19,746 million in 2002 to US$36,761 millions in 2005, or approximately 23.4 percent annual increase. Even though trade volumes of Vietnam were much lower than the volumes of Malaysia and Thailand, if we consider growth rates, growth of Vietnam’s trade volumes were much higher than those of Malaysia and Thailand during the same periods. Higher percentages of growth of trade volumes explain why the trade-to-GDP ratio was as high as 126.8 percent in 2006, which was the third highest among ASEAN economies (after Singapore and Malaysia). So far, trade-openness ratio of Vietnam is about to double from the ratio of the mid-1990s. A high trade-to-GDP ratio also indicates the importance of exports as the driving force behind Vietnam as the fastest growing economy among ASEAN countries.

As for trade with ASEAN, by 2005 exports from Vietnam to ASEAN had more than doubled since 1990 while imports had almost tripled. In 2005, ASEAN accounted for around 17.7 percent of Vietnam's exports, increased from 13 percent in 1990, while Vietnam’s import share from ASEAN grew from 19 percent in 1990 to 25.3 percent in 2005.

Nevertheless, unlike Malaysia and Thailand, which rely more on the ASEAN market, Vietnam’s trade share with the APTA countries was not significantly different from trade with ASEAN. Vietnam’s export shares to APTA were around 12-13 percent of total exports, lower than import share from APTA, which was 27.6 percent in 2005. Vietnam’s exports to APTA countries increased from US$2,055 million in 2002 to US$4,049 million in 2006, or around 26.4 percent annual increase. Import volumes increased from US$4,778 million in 2002 to US$10,132 million in 2005, or around 27.6 percent annual increase. Faster growth of imports relative to exports means that Vietnam faces a huge trade deficit with APTA countries.

23

Figure 3: Exports and Imports of Vietnam: 2002-2005 (US$ Thousand)

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

Export 16,706,053 20,149,324 26,485,036 32,447,128Import 19,745,554 25,255,778 31,968,820 36,761,116

2002 2003 2004 2005


Among its APTA partners, on the export side, China accounts for more than 80 percent of Vietnam’s export volume, followed by South Korea (16.4 percent in 2005), India (2.4 percent in 2005), Sri Lanka (0.5 percent in 2005), and Bangladesh (0.5 percent in 2005). Thus we can see China and the Republic of Korea, accounted for nearly 97 percent of Vietnam’s exports with APTA countries. We can also see that the increase in Vietnam’s exports to APTA occurred over time in terms of aggregate volume, and the increased export volumes went mostly to China. Results are similar on the import side. Vietnam’s import shares from China and South Korea were 58.2 percent and 35.8 percent, respectively, of all imports from APTA countries in 2005. The summation of import shares from both markets, China and Korea, accounted for around 94 percent of the country’s total imports from APTA.

Table 14: Annual Growth of Vietnam’s Exports/Imports to/from APTA, ASEAN, and the World (Percentage)

APTA ASEAN World APTA ASEAN World Year

Exports Imports 2003 17.7 21.3 20.6 30.6 24.7 27.9 2004 50.0 37.0 31.4 37.4 30.6 26.6 2005 11.6 41.9 22.5 18.1 20.1 15.0

Average 26.4 33.4 24.9 28.7 25.1 23.2


24

Table 15: Vietnam’s Export/Import Shares to/from APTA Members: 2002-2005

Year Bangladesh China India Korea Rep. Sri Lanka APTA Exports ($ million)

2002 9.8 1,518.3 52.0 468.7 6.8 2,005.6 0.5% 73.9% 2.5% 22.8% 0.3% 100.0%

2003 5.6 1,883.1 32.3 492.1 5.8 2,418.9 0.2% 77.8% 1.3% 20.3% 0.2% 100.0%

2004 19.5 2,899.1 78.6 608.1 22.1 3,627.5 0.5% 79.9% 2.2% 16.8% 0.6% 100.0%

2005 22.1 3,246.4 97.8 663.6 20.1 4,050.0 0.5% 80.2% 2.4% 16.4% 0.5% 100.0%

Imports ($ million) 2002 7.1 2,158.8 324.7 2,279.6 8.2 4,778.4

0.1% 45.2% 6.8% 47.7% 0.2% 100.0% 2003 10.6 3,138.6 457.1 2,625.4 10.7 6,242.4

0.2% 50.3% 7.3% 42.1% 0.2% 100.0% 2004 21.3 4,595.1 593.5 3,359.4 6.9 8,576.2

0.2% 53.6% 6.9% 39.2% 0.1% 100.0% 2005 32.0 5,899.7 596.0 3,594.1 10.4 10,132.1

0.3% 58.2% 5.9% 35.5% 0.1% 100.0%


Breaking down trade into sectors (2-digit Harmonized System) also indicates some degree of intra-industry trade between Vietnam and China and between Vietnam and Korea in terms of “mineral fuels, oils, distillation products” (HS-27). Exports of “rubber and articles thereof” (HS-40) to China were as high as 59 percent of the total exports of the whole industry. With regard to the Republic of Korea, traded items between the two countries consisted mainly of “fish, crustaceans, molluscs, and aquatic invertebrates” (HS-03), which comprised about 5.52 percent of industry exports. Other exports included “mineral fuels, oils, distillation products” (HS-27), “electrical, electronic equipment” (HS-85), and “nuclear reactors, boilers, machinery, etc” (HS-84). Even though trade shares with other APTA countries, except China and South Korea, were still relatively low during the period of 2002-2005, there was high potential for Vietnam to expand its trade with those countries in terms of other products, apart from what Vietnam sold/bought to/from China and India. For example, major import items from India were “iron and steel” (HS-72).

In addition, even though trade shares with Bangladesh and Sri Lanka were still as low as 0.5 percent of total trade with APTA countries, we should be more concerned about trade growth instead of trade volume. Vietnam’s exports to Bangladesh and Sri Lanka grew around 72 percent and 86 percent per year during 2002-2005, which were much higher than the average growth of Vietnam’s exports to APTA countries as a whole (26.4 percent) as well as to ASEAN countries (33.4 percent). Very high export growth in Bangladesh and Sri Lanka definitely encourages Vietnam’s exporters to consider these two markets among its potential partners. Trading with Bangladesh and Sri Lanka would be beneficial for Vietnam because of market diversification since exports from Vietnam to these two countries were focused on “cotton” (HS-52), “manmade filaments” (HS-54), and “manmade staple fibres” (HS-55), which are different from major export items to China or South Korea, so joining APTA could possibly open market opportunities for these sectors.

25

Table 16: Vietnam’s Top 5 Export/Import Commodities to/from the Bangkok Agreement Member Countries in 2005 (HS-2 Digits)

Exports Imports

HS Code Volume Share of industry exports HS Code Volume Share of

industry imports (2-digit) ($ Million) (%) (2-digit) ($ Million) (%)

Bangladesh 54 5.1 4.41 41 11.2 1.53 85 4.2 0.28 31 11.0 1.69 55 3.1 2.26 58 4.8 1.19 52 2.0 3.97 53 1.7 20.85 84 1.0 0.09 72 0.5 0.02

China 27 1,646.4 19.70 27 938.5 17.39 40 537.3 59.00 72 739.4 24.04 08 174.7 27.99 84 708.0 15.72 99 114.1 82.18 85 428.7 14.31 03 94.5 3.88 55 327.3 24.73

India 09 32.8 3.24 23 152.2 26.11 27 13.1 0.16 72 63.8 2.07 13 10.4 68.54 30 54.5 10.00 85 6.7 0.43 39 48.9 2.28 39 5.3 1.28 29 37.6 5.24

Korea Rep. 03 134.5 5.52 27 445.4 8.25 27 55.8 0.67 84 369.5 8.20 85 45.9 2.98 85 318.5 10.63 94 41.7 2.93 39 299.6 13.95 55 38.5 27.93 55 285.9 21.58

Sri Lanka 71 5.4 3.99 71 3.8 0.42 84 1.7 0.14 55 1.1 0.08 52 1.6 3.10 23 1.0 0.18 85 1.4 0.09 60 0.9 0.28 38 1.2 3.58 40 0.9 0.22

Total of APTA 27 1,715.3 20.52 27 1,384.7 25.66 40 577.5 63.41 84 1,097.6 24.37 03 230.2 9.45 72 1,041.2 33.86 08 178.4 28.59 85 758.8 25.33 85 124.0 8.03 55 620.4 46.82


In conclusion, joining APTA should potentially benefit the three prospective countries–Malaysia, Thailand, and Vietnam–in terms of market opportunities for a number of products, especially manufactured products. If market opportunities are considered in terms of trade volume and trade shares, China is the most potentially beneficial market, followed by South Korea and India. However, if market opportunities are considered in terms of trade growth, Bangladesh and Sri Lanka should receive more attention.

26

Besides market diversification, product diversification of a country’s export/import structure indicates a high degree of intra-industry trade among APTA countries.9 Intra-industry trade is not only an important mechanism of trade growth in the global market, but also explains a degree of intra-regional trade within the APTA trade bloc. Based on the traditional theory of international trade, product diversification in exported items leads to competitive advantage for domestic production in terms of product variety, while product diversification in imported items might imply gains by creating variety in domestic consumption.

The Herfindahl-Hirschman Index (HHI) was used to measure the extent of export (HHI-Export) and import (HHI-Import) diversification of APTA members and the three prospective countries.10 From the index, using data from Comtrade, HHI imports are found to vary between 0.06-0.17, which implies a high degree of import diversification or a high degree of product variety in terms of domestic demand on the part of each of the three potential countries–Malaysia (0.17), Thailand (0.11), and Vietnam (0.06). HHI-exports from the three prospective countries, on the other hand, range around 0.09-0.16, which also indicates a high degree of product diversification of export items. Highly diversified exports and imports among APTA members and the three prospective countries explain not only the widening of intra-trade volumes, but also mutual benefits received among those countries from gains in variety.

Figure 4: Herfindahl-Hirschman Index (HHI) of Export/Import Diversification

0.33

0.10

0.06

0.12

0.14

0.09

0.16

0.10

0.06

0.12

0.15

0.13

0.05

0.11

0.17

0.06

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

Bangladesh China India Korea Rep. Sri Lanka Thailand Malaysia Vietnam

HHI Export HHI Import


In addition, diversification of exports and imports is very important since it suggests a high degree of both trade stability and macroeconomic stability. Product diversification is considered important in explaining how a country can maintain c 9 “Diversification” can be of two types: “market diversification” and “product diversification.” Market diversification is determined by analyzing the diversification of the country’s export and import markets. 10 The Herfindahl-Hirschman Index is a quantitative measure of export/import concentration (or the inverse of diversification). The more diversified the composition of exports/imports, the lower is the value of this index.

27

economic stability. If a country is only slightly dependent on relatively few primary commodities for export/import earnings unstable prices for these commodities would have fewer adverse impacts on these countries should a country face serious trade shocks.11

Even though trade shares with APTA are still lower than shares with other ASEAN countries, joining APTA may nevertheless yield limited benefits. And actual trade benefits should rise rapidly in the future, with the deepening and widening of concessions, since APTA is composed of Asia’s most populous and most dynamic economies, such as India and China, as well as newly emerging markets such as Sri Lanka and Bangladesh. Thus, joining APTA will enable countries to actively engage in a regional integration process.

III. Potential Gains to Prospective Countries from Joining APTA

This section analyzes potential gains to prospective countries Malaysia, Thailand, and Vietnam if they decide to join APTA. Potential gains to those prospective countries can be determined by analyzing the similarities of their trade patterns with each APTA Participating State. A difference of trade pattern reflects the degree of competition among countries and explains whether or not trade creation and trade diversion should exist. The comparison of trade patterns among countries can be analyzed by using the three fundamentals of trade indicators, namely: 1) Reviewed Comparative Advantage (RCA) Rank Correlation, 2) Trade Intensity Index (TII), and 3) Intra-Industry Trade (IIT) Index.

3.1. Revealed Comparative Advantage (RCA) Rank Correlation

The potential gains from signing a preferential agreement come from how trade patterns among the prospective countries and the APTA Participating States are complementary or substitutable. Spearman’s Rank Correlation between the Revealed Comparative Advantage (RCA) is used to estimate gains/losses from trade. This correlation index shows whether trade patterns among the prospective countries and the APTA Participating States are substitutable or complementary. Revealed Comparative Advantage (RCA) Rank Correlation is an index calculated to measure the competitiveness of the countries’ industries in the global market.12 Therefore, the positive values of RCA Rank Correlation coefficients identify the similarities of trade structure between nations so that trade items between both countries are substituted for each other. Conversely, the negative values indicate dissimilarity of trade structure. In other words, the traded items between countries are complementary.13

c 11 Pholphirul and Vichyanond (2008) explain the importance of a high degree of exports for the Thai economy. They point out why the country’s external shocks have not diminished Thailand’s macroeconomic growth. 12 Formula of RCA = ( ) ( )∑∑ wiwkik XXXX / where ikX is the value of sector i export of country k, and

iwX is the total value of world export of product i. A comparative advantage is “revealed”, if RCA >1. But if RCA < 1, the country is said to have a comparative disadvantage in the commodity i. 13 RCA rank correlation reflects comparative advantage in trade patterns. Regarding the standard trade model, the Heckscher-Ohlin Theorem (H-O) states that for a country that has a comparative advantage in the production of goods that involve intensive but abundant labor, a relatively cheaper price should result. Inter-industry trade between two different countries (in terms of its resource abundance) results in more trade, which therefore increases a

28

In Figure 5-7, RCA rank correlation is graphed at the vertical axis to compare trade structure between prospective countries and their partners, including the APTA participating states. RCA rank correlation is graphed along the horizontal axis as since the partner countries’ GDP per capita is an indicator of the relative cost of production. The vertical line toward the left of the figure indicates the prospective countries’ GDP per capita. Coefficients with negative rank correlation or coefficients close to zero are those that may create trade with prospective countries. The coefficients located at higher GDP per capita compared to those of prospective countries (on the right of the diagram) indicate good potential markets. Countries with a fairly high (positive) rank correlation reflect similar trade structures to the three prospective countries and tend to generate less potential of trade.

As a result, Malaysia’s trade structure is substituted for most APTA countries except for Bangladesh. The rank correlation coefficients for Korea are located at the upper right, while those for India, Sri Lanka, and China are located at the upper left, which means that those countries, compared to other trade partners of Malaysia, tend to have less potential for trade creation. Moreover, even though a positive value of rank correlation for Korea is the highest value among others, which implies the least potential market among APTA, a higher GDP per capita in Korea indicates Malaysia’s advantages from lower costs of production. Since a negative value of RCA rank correlation implies a complementary degree of trade structure with Bangladesh, trading with Bangladesh is more likely to generate trade creation to Malaysia if both countries decide to join APTA.

For Thailand, since rank correlation coefficients are positive relative to most APTA countries, compared to those values of Malaysia, trading with APTA tends to have less potential for trade creation. However, since rank correlation coefficient for Korea is located at the upper right of the diagram, is similar to Malaysia’s, a higher GDP per capita in Korea also indicates the country’s comparative advantages from lower costs of production.

omm country’s welfare. On the other hand, a decline in trade between countries with similar trade structures reduces both countries’ welfare.

29

Figure 5: Malaysia’s RCA Rank Correlation with Partner Countries

AUT

BGD

BEL

BTN

CHN

CYP

CZE DNK

EST

FIN

FRA

DEU

GRC

HUN

INDIRL

ITA

JPN

KOR

LVA

LTU

MLT

NPL

NLD

POL

PRT

SVN

ESP

LKA

SWE

GBR

USA

-0.10

-0.05

0.00

0.05

0.10

0.15

0.20

- 10 20 30 40 50

GDP per capita (1,000 US$)

RC

A ra

nk c

orre

latio

n

Malaysia's GDP per Capita (PPP) = 14.3 thousand millions US$ in 2007


Figure 6: Thailand’s RCA Rank Correlation with Partner Countries

AUT

BGD

BEL

CHN

CYP

CZE DNK

EST

FINFRA

DEU

GRC

HUN

IND

IRL

ITA

JPN

KOR

LVA

LTU

MLT

NPL

NLD

POL

PRT

SVN

ESP

LKA

SWE

GBR

USA

-0.20

-0.15

-0.10

-0.05

0.00

0.05

0.10

0.15

0.20

0.25

- 5 10 15 20 25 30 35 40 45 50


RC

A ra

nk c

orre

latio

n

Thailand's GDP per Capita (PPP) = 10.7 thousand millions US$ in 2007


30

Figure 7: Vietnam’s RCA Rank Correlation with Partner Countries

AUT

BGD

BEL

BTN

CHN

CYP

CZE

DNK

EST

FINFRA

DEU

GRC

HUN

IND

IRL

ITA

JPN

KOR

LVALTU

MLT

NPL

NLD

POL

PRT

ESP

LKA

SWE

GBR

USA

-0.40

-0.20

0.00

0.20

0.40

0.60

- 5 10 15 20 25 30 35 40 45 50


RC

A ra

nk c

orre

latio

n

Viet Nam's GDP per Capita (PPP) = 3.8 thousand millions US$ in 2007


As opposed to those of Thailand and Malaysia, Vietnam’s rank correlation index is negative for Korea. Coupled with its higher GDP per capita, trading with Korea is most likely to generate trade creation for Vietnam compared to other APTA partners. Even though trading structure is substituted between Vietnam and other APTA countries, relatively higher GDP per capita in China and Sri Lanka seems to indicate Vietnam’s comparative advantage in exports to those markets.

Overall, within APTA, even though trade with Bangladesh seems to promote trade with Malaysia and trade with Korea seems to promote trade with Vietnam, a positive value of RCA rank correlation with other APTA countries, especially with China and India, indicates less potential for trade creation among those countries.

RCA rank correlation can be estimated in order to compare export structure between the three prospective countries and APTA in terms of industry basis. The RCA rank correlation indices of industry basis are estimated based on International Standard Industrial Classification (ISIC) product codes. These estimated coefficients can be used to interpret the complementarities/substitute among Malaysia, Thailand, and Vietnam and APTA within industry basis. Using the concept of comparative advantage, the negative value of the estimated index explains trade complementarities (similarity) between countries, which thereafter imply higher gains from trade. The positive value of the estimated index, on the other hand, explains substitute trade between those countries, which implies lower gains from trade between the three prospective countries and APTA member countries. The result shows that trade structures between those prospective countries and APTA participating states are somewhat similar, considering the positive significant value of the RCA rank correlation. Nevertheless, there are some potential industry groups that have a significant and negative coefficient value, which can be used to determine dissimilarity of trade structure between prospective countries and APTA member countries.

31

Table 17: RCA Rank Correlation between Malaysia and APTA

Countries ISIC 1 ISIC 2 ISIC 31 ISIC 32 ISIC 33 ISIC 34 ISIC 35 ISIC 36 ISIC 37 ISIC 38 ISIC 39 Bangladesh -0.23 0.70 -0.04 -0.14 0.50 0.30 0.03 -0.25 0.15 -0.12 -0.45

China -0.38 0.30 -0.30 -0.23 0.50 1.00** 0.11 0.15 0.36 0.28 -0.56* India -0.38 -0.80 -0.37 -0.15 0.50 0.30 -0.29 -0.53 -0.10 0.25 0.04 Korea -0.12 0.90* 0.20 0.48** 0.50 -0.40 0.29 0.55 0.24 0.23 0.63*

Sri Lanka 0.28 -0.70 0.41 0.16 1.00** -0.10 0.35 -0.57 0.50 0.69** -0.09 Source: Author’s calculation using Comtrade Data, United Nations.

Table 18: RCA Rank Correlation between Thailand and APTA

Countries ISIC 1 ISIC 2 ISIC 31 ISIC 32 ISIC 33 ISIC 34 ISIC 35 ISIC 36 ISIC 37 ISIC 38 ISIC 39

Bangladesh 0.34 0.30 0.22 0.18 1.00** -0.30 0.16 0.62 0.29 0.03 -0.26 China 0.08 0.70 0.42 -0.06 1.00** 0.20 0.42* 0.03 0.42 0.10 -0.39 India 0.45* 0.20 0.11 0.28 1.00** -0.30 0.06 0.08 0.18 -0.02 0.51 Korea 0.27 0.50 0.26 0.48** 1.00** -0.40 0.34 -0.35 0.43 -0.03 0.31

Sri Lanka 0.26 0.50 0.07 0.26 0.50 0.50 0.46* 0.37 0.27 0.39 0.43 Source: Author’s calculation using Comtrade Data, United Nations.

Table 19: RCA Rank Correlation between Vietnam and APTA

Countries ISIC 1 ISIC 2 ISIC 31 ISIC 32 ISIC 33 ISIC 34 ISIC 35 ISIC 36 ISIC 37 ISIC 38 ISIC 39

Bangladesh 0.48* 0.10 0.51* 0.64** 1.00** 0.10 0.27 0.63 0.16 0.02 0.73** China 0.17 -0.10 0.48* 0.64** 1.00** 0.60 0.44* 0.85** 0.04 0.44* 0.52 India 0.50* -0.40 0.31 0.35 1.00** 0.10 -0.08 -0.43 0.21 0.21 0.43 Korea 0.10 0.70 0.04 -0.11 1.00** 0.00 0.12 -0.40 -0.21 0.04 -0.08

Sri Lanka 0.50* -0.60 0.40 0.67** 0.50 -0.30 0.46* 0.13 0.28 0.55** 0.48 Source: Author’s calculation using Comtrade Data, United Nations.

32

The estimated coefficients of RCA rank correlations with negative values show that potential exporting industries from Malaysia to APTA are mainly “Agriculture, Hunting, Forestry and Fishing” (ISIC-1), “Manufacture of Food, Beverages and Tobacco” (ISIC-31), “Textile, Wearing Apparel and Leather Industries” (ISIC-32), and “Manufacture of Non-Metallic Mineral Products, except Products of Petroleum and Coal” (ISIC-39). Even though trade creation seems to be lowest for Thailand, the potential exporting industries from Thailand to APTA are, nevertheless, concentrated on “Textile, Wearing Apparel and Leather Industries” (ISIC-32) for China, “Manufacture of Paper and Paper Products, Printing, and Publishing” (ISIC-34), and “Manufacture of Fabricated Metal Products, Machinery, and Equipment” (ISIC-38). Due to Vietnam’s abundance of natural resources, its potential exports, on the other hand, are concentrated on “Mining and Quarrying” (ISIC-2) and “Manufacture of Non-Metallic Mineral Products, except Products of Petroleum and Coal” (ISIC-36).

3.2. Trade Intensity Index (TII)

Another potential gain from signing on to a preferential agreement depends on how intensive the competition is among the prospective countries and APTA Participating States. The estimation of RCA rank correlation might not fully predict which potential industry that Thailand should focus on. An alternative measurement can be made to determine whether the value of trade between two countries is greater or smaller than would be expected based on their importance in world trade. The Trade Intensity Index (TII) is used here to estimate the effects of changes in trade patterns between the prospective countries and APTA member states on the prospective countries’ trade. The Trade Intensity Index (TII) is defined as the share of one country’s exports going to a trading partner divided by the share of world exports to the partner.14 Therefore, an index of more (or less) than unity indicates a bilateral trade flow that is larger (or smaller) than expected. These methodologies will identify whether joining APTA will result in a gain or a loss to those prospective countries for each product item.

Table 20 shows the top ten export items from the three prospective countries to each APTA country. The three prospective countries are found to trade intensively with APTA countries in direct products or modified products from natural resources, for example, “animal, vegetable fats and oils, cleavage products” (HS-15), “cocoa and cocoa preparations” (HS-18), “cereal, flour, starch, milk preparations and products” (HS-19), “rubber and articles thereof” (HS-40), “wood and articles of wood, wood charcoal” (HS-44) for Malaysia, “live trees, plants, bulbs, roots, cut flowers etc.” (HS-06), “milling products, malt, starches, wheat gluten” (HS-11), “sugars and sugar confectionery” (HS-17, and “wood and articles of wood, wood charcoal” (HS-44) for Thailand, and “coffee, tea, mate and spices” (HS–09), “milling products, malt, starches, wheat gluten” (HS-11), and “wood and articles of wood, wood charcoal” (HS-44) for Vietnam.

Since the trade intensity index is used to determine whether the value of trade between the three prospective countries to APTA countries is greater or smaller than would be expected on the basis of their importance in world trade, a high trade intensity of these agricultural-based products and products that are modified from

c 14 Trade Intensity Index (TII) is calculated as: TIIij = (xij/Xit)/(xwj/Xwt) where xij and xwj are the values of country i’s exports and of world exports to country j and where Xit and Xwt are country i’s total exports and total world exports, respectively.

33

natural resources implies potential sectors in which Malaysia, Thailand, and Vietnam should receive when they decide to join APTA.

Table 20: Top 10 Export Items of Trade Intensity Index from the Three Prospective Countries to APTA Countries

Bangladesh China India Korea Sri Lanka Rank HS TII HS TII HS TII HS TII HS TII

Malaysia 1 15 45.22 15 41.66 44 34.01 80 30.33 15 65.02 2 18 22.29 18 13.13 18 16.34 15 15.55 25 24.90 3 44 20.14 40 11.78 15 13.54 44 12.41 44 24.07 4 19 14.14 44 5.94 94 13.17 40 7.41 95 20.36 5 78 13.90 78 4.92 19 12.03 27 5.47 35 15.16 6 94 8.37 34 3.33 27 8.28 92 3.75 68 11.92 7 21 8.13 21 3.04 34 7.92 18 3.72 27 11.58 8 40 7.80 94 2.43 21 6.62 34 3.63 94 11.53 9 68 6.60 38 2.43 38 5.29 38 3.28 73 9.17 10 38 6.55 89 2.04 54 5.27 76 2.60 21 9.03

Thailand 1 11 39.38 07 57.53 23 25.11 40 22.59 03 28.84 2 25 38.06 10 40.99 06 24.73 17 11.61 11 15.29 3 06 33.35 11 21.14 11 15.57 16 8.14 25 15.04 4 21 24.50 40 20.55 33 14.41 48 7.16 16 14.72 5 44 15.23 17 19.21 57 11.36 35 6.11 55 13.94 6 20 14.34 93 12.85 21 11.03 44 5.45 17 13.85 7 39 12.35 08 11.75 16 10.46 06 5.26 64 13.30 8 94 11.78 57 10.46 40 9.67 55 5.19 12 12.92 9 89 11.00 06 5.13 61 9.17 57 4.63 97 12.35 10 17 10.37 44 5.00 55 9.14 20 4.31 66 11.37

Vietnam 1 11 31.53 11 97.96 46 143.33 09 45.36 46 32.98 2 46 25.48 09 76.75 13 92.98 46 42.88 68 13.28 3 22 10.79 08 74.47 09 90.60 14 40.73 21 7.15 4 20 8.48 24 37.79 10 34.75 16 24.08 63 6.68 5 94 7.77 40 33.56 03 32.64 03 22.57 69 6.37 6 54 5.49 07 31.74 14 18.84 07 20.52 71 5.94 7 56 5.41 14 30.30 64 8.05 55 19.53 09 5.45 8 09 5.39 46 26.24 68 3.93 94 17.67 38 5.11 9 44 4.57 27 19.50 16 3.20 64 16.46 24 4.25 10 14 4.18 2.04 5.27 40 2.67 50 13.58 12 3.96


The sectors, which indicate both high value of TTI and negative or low positive significant value of RCA rank correlation, should be considered as the “high potential sectors” that the three prospective countries would gain from joining the APTA. The industries that indicate not only high positive value of RCA rank correlation but also relatively low value of TII (less than unity) are considered below-potential sectors. Figures below illustrate potential/below-potential sectors under 2 digit-HS. RCA rank correlation is graphed along with the vertical axis while Trade Intensity Index (TII) is graphed along the horizontal axis. Area in the lower-right corner identifies “high potential sectors” in which RCA rank correlation is “negative” value and TII is greater than “unity.” On the other hand, the upper-left corner identifies “below-potential sectors” in which RCA rank correlation is “positive” value and TII is less than “unity”.

34

Area in the upper-right corner of the diagram corresponds to high positive value of RCA rank correlation and high trade intensity. High value (more than unity) of IIT implies success of exporters from the prospective countries in penetrating the APTA market, while positive value of rank correlation implies lack of product diversification and product development of export items in the APTA market. Therefore, sectors on the upper-right corner are classified as “Sectors of Product Development Strategy.” Under this strategy, exporters must introduce new products into existing markets (APTA countries). This strategy may require the development of new competencies and requires businesses to develop modified products that can appeal to existing markets. This strategy will require much investment in market research15

Area in the under-left corner of the diagram corresponds to negative value of RCA rank correlation but low trade intensity. Since negative value of rank correlation implies a substitute trade structure between the prospective countries and APTA members, indicating higher gains from trade from different trade structure. However, low value of trade intensity (less than unity) implies weak market penetration to exporters from prospective countries. Therefore, lists of items on the lower left corner are classified as “Sectors of Market Penetration Strategy.” Under this strategy, exporters from the prospective countries must increase their market share of current products in APTA market. This can be achieved by using competitive pricing strategies and various market promotions, for example advertisements and sales promotions and campaigns. Unlike product development strategy, this strategy is unlikely to require much investment in new market research.

Figure 8: RCA Rank Correlation and Trade-Intensity Index between Malaysia and APTA

1

2

3

6

7

910

13

19

212325

26

28

29

31

33

37

38

46

48

49

51

52

54

56

57

58

61

62

63

65

69

73

74

76

7884 85

89

90

91

92

93

95

96-0.2

0 4

Trade Intensity Index

RC

A ra

nk c

orre

latio

n

Below-Potential Sectors

High Potential Sectors

Sectors of Product Development Strategy

Sectors of Market Penetration Strategy

Source: Author’s calculation using Comtrade Data, United Nations. c 15 Regarding strategic management strategy, in terms of product development, exporters can leverage their strengths by developing a new product targeted to their existing consumers. However, in terms of diversification, exporters require both product development and market development when developing new products for new markets or new consumers.

35

Figure 9: RCA Rank Correlation and Trade-Intensity Index between

Thailand and APTA

1

2

3

5

689

13

15

19 20

21

23

25

26

27

28

29

32

33

36

37

38

42

44

46

47

49

50

51 54

55

57

61

62

63

65

66

68

69

73

7476

78

79

81

82

83

85

86

89

91

92

94

95

96

-0.30

0.30

-1.00 9.00


RC

A ra

nk c

orre

latio

n


Below Potential Sectors Sectors of Product Development Strategy



Figure 10: RCA Rank Correlation and Trade-Intensity Index between Vietnam

and APTA

96

95

94

90 85

78

69

65

63

62

61

55

53

52

51

50

49

47

45

44

4342

34

32

31

27

26

25

23

21

20 19

18

152

1

-0.20

-1


RC

A ra

nk c

orre

latio

n


Below-Potential Sectors

Sectors of Product Development Strategy



36

3.3. Intra-Industry Trade (IIT) Index

Besides the degrees of similarity and intensity in countries’ trade with one another, another positive feature of this trade structure is the high degree of intra-industry trade between the prospective countries and the member states. Intra-industry trade plays a particularly large role in the trade in manufactured goods among countries, which accounts for most of world trade. Over time, countries have become increasingly similar in their levels of technology and in the availability of capital and skilled labor. Thus, nowadays, there is often no clear comparative advantage within an industry due to different endowment and non-identical trade structure. Much of international trade therefore takes the form of two-way exchanges within industry, driven in large part by economies of scale rather than inter-industry specialization.

Intra-industry trade not only increases growth in intra-regional trade blocs, but also generates benefits from trade by increasing product variety.16 Intra-industry trade allows countries to benefit from larger markets. By engaging in intra-industry trade a country can simultaneously reduce the number of products it produces and increase the variety of goods available to domestic consumers.17 Therefore, intra-industry trade tends to be prevalent between countries that are similar in their factor endowment, such as, capital-labor ratio, skill levels, and so on. Gains from trade will be large when economies of scale are strong and products are highly differentiated.

To investigate this issue, the IIT is calculated to reflect the pattern of intra-industry trading between countries18. The index captures trade between two countries within the same product group. A high IIT index shows a high trade proportion in that particular product group, and a low IIT index implies less trading of that product group and a possibility to compete in the third country. Therefore, a high level of IIT between two countries suggests an advanced degree of economic integration and tends to be positively correlated with participation in a preferential trading area. For simplicity, the products shown within this calculation will be in terms of 2-digit HS level.

In addition to gains from trade in different structures explained by the RCA rank correlation, intra-industry trade also implies gains from product varieties. Gains to Malaysia, Thailand, and Vietnam might come from trade creation within the same industries rather than trade with different industries. Table 21 shows the numbers of export sectors in which IIT indices to APTA are higher than those indices to the world. Higher value of IIT Indices with APTA indicates higher gains from varieties

c 16 Intra-industry trade does not reflect comparative advantage. It is economies of scale that keep each country from producing the full range of products for itself. In this case, economies of scale can be an independent source of determining trade volumes. 17 To produce fewer varieties, a country can produce each at large scale, with higher productivity and lower costs. And, at the same time, consumers benefit from the increased range of choice. 18 To be more precise, the standard formula for calculating the importance of intra-industry trade within a given

industry is ITT=ijij

ijij

MX

MX

+

−−1 where ijX is the value of country i’s export of product j to the market under

investigation, and ijM is the import value of in country of product j from the market under focus. If there is not any

intra-trade within a given industry, we expect a country either to export a product or to import it, not both, in which case the IIT Index would always equal zero. On the other hand, if a country’s exports and imports within an industry are equal, we find IIT = 1.

37

received by the three prospective countries compared to the world level. Since there are as many as 57 out of 99 export items (58 percent) for Malaysia, 67 out of 69 export items (68 percent) for Thailand, and 68 out of 99 export items (69 percent) for Vietnam, more than 50 percent of a country’s intra-industry trade with APTA is more than what was intra-industry traded to the world. Joining APTA will, therefore, enhance the Malaysia’s, Thailand’s, and Vietnam’s trade creation, not only by widening product ranges, but also by expanding product varieties.

The figures below illustrate potential sectors under 2-digit HS in terms of product varieties. RCA rank correlation is graphed along the vertical axis while Intra-Industry Trade (IIT) Index is graphed along the horizontal axis. Sectors located in the lower-right of the diagrams are therefore classified as “high potential sectors,” made so by both complementary trade structures between prospective countries and APTA and product differentiation resulting in gains in variety. Sectors located in the upper-left of the diagram therefore indicate lower gains in trade from both substitute trade structures and a low degree of intra-industry trade. Even though, overall, trade structures between Malaysia, Thailand, and Vietnam, and APTA countries are rather substituted, which might not contribute to a high potential for trade creation under inter-industry trade, trade creation can still come from intra-industry trade. Regarding the diagrams below, each scatter point representing a HS-2 digit industry is concentrated on the right of the diagrams. Trade structure between prospective countries and APTA is considered trade within the same industry, which results in a high degree of product diversification and variety.

In conclusion, this section explains trade creation patterns between three prospective countries–Malaysia, Thailand, and Vietnam. Gains from trade creation in an industry were, firstly, explained by how substitute/complementarities of trade structure were generated between prospective countries and APTA using RCA rank correlation. Complementary trade structure is represented by a negative value for RCA rank correlation, which implies higher terms of trade from a classical standard trade model.

Secondly, gain from trade depends on whether export items from the prospective countries are high or low with respect to APTA countries. The trade Intensity Index indicates a bilateral trade flow that is larger (or smaller) than expected. It was used to identify whether joining APTA will result in a gain or a loss to those prospective countries in each product item. The higher of the TII value, the higher market penetration, which contributes to higher market shares of export items from prospective countries in the APTA market. Industries that would be affected are classified by sectors with high TII value coupled with significant negative rank correlation. Those industries are, for example, “miscellaneous chemical products” (HS-38) and “musical instruments, parts and accessories” (HS-92) for Malaysia, “carpets and other textile floor coverings” (HS-57) for Thailand, and “furniture, lighting, signs, prefabricated buildings” (HS-94) and “articles of apparel, accessories, not knit or crochet” (HS-62) for Vietnam. Lastly, gains from trade also depend on whether trades were carried out within the same industry. The intra-industry trade (IIT) index can be used to predict whether the three prospective countries would benefit from a greater variety of goods under trading with APTA countries. Potential industries in term of product variety are classified by sectors with high IIT value coupled with negative rank correlation. Those industries are, for example, “tobacco and manufactured tobacco substitutes” (HS-24) and “soaps, lubricants, waxes, candles, modeling pastes” (HS-34) for Malaysia, “headgear and parts thereof” (HS-65) and “carpets and other textile floor coverings”

38

(HS-57) for Thailand, and “silk” (HS-50) and “wool, animal hair, horsehair yarn and fabric thereof” (HS-51) for Vietnam.

Table 21: Sectors in which Degree Intra-Industry Trade with APTA is Greater than Degree of the World’s Intra Industry Trade

Malaysia Thailand Vietnam HS World APTA HS World APTA HS World APTA 02 0.06 0.37 01 0.55 0.81 03 0.15 0.8906 0.18 0.99 03 0.81 0.96 04 0.56 0.7107 0.38 0.74 04 0.52 0.96 07 0.40 0.6008 0.71 0.99 06 0.10 0.84 08 0.44 0.7109 0.47 0.86 07 0.25 0.91 09 0.01 0.7910 0.01 0.06 08 0.65 0.77 10 0.33 0.7811 0.54 0.91 09 0.82 0.93 12 0.59 0.9112 0.15 0.54 10 0.17 0.99 14 0.62 0.7115 0.19 0.97 11 0.49 0.84 15 0.17 0.7116 0.61 0.86 12 0.33 0.84 16 0.02 0.7817 0.46 0.98 13 0.77 0.95 20 0.24 0.6518 0.87 1.00 15 0.69 0.85 21 0.79 0.8619 0.86 0.96 16 0.02 0.97 23 0.03 0.4123 0.62 0.85 17 0.11 0.96 25 0.27 0.5426 0.14 0.52 18 0.74 0.87 26 0.35 0.5927 0.69 0.94 19 0.73 0.90 27 0.78 0.8028 0.57 0.78 20 0.16 0.95 28 0.08 0.3930 0.26 0.97 21 0.48 0.88 29 0.20 0.9631 0.60 1.00 23 0.85 0.89 30 0.07 0.9432 0.80 0.87 25 0.43 0.77 32 0.05 0.7833 0.56 0.99 26 0.38 0.73 33 0.45 0.6234 0.78 0.97 27 0.41 0.99 35 0.36 0.8236 0.75 0.93 28 0.38 0.86 37 0.13 0.4838 0.61 0.91 29 0.80 1.00 38 0.11 0.6340 0.42 0.98 30 0.36 0.99 39 0.34 0.9041 0.30 0.80 31 0.11 0.95 40 0.62 0.8144 0.17 0.89 32 0.43 0.88 41 0.13 0.4047 0.10 0.74 33 0.77 0.89 42 0.08 0.8248 0.57 0.81 34 0.84 0.93 43 0.16 0.6650 0.05 0.16 35 0.58 1.00 44 0.59 0.7151 0.93 0.94 37 0.24 0.76 46 0.02 0.9652 0.68 0.99 38 0.34 0.66 47 0.00 0.0253 0.66 0.85 40 0.22 1.00 48 0.34 0.8254 0.43 0.98 42 0.48 0.91 49 0.22 0.6955 0.91 0.96 43 0.74 0.90 50 0.86 0.9556 0.64 0.96 44 0.75 0.97 51 0.39 0.8557 0.74 0.82 46 0.38 0.46 52 0.15 0.6059 0.54 0.97 47 0.44 0.98 53 0.74 0.9660 0.77 1.00 50 0.88 1.00 54 0.35 0.7461 0.26 0.86 51 0.84 0.98 55 0.19 0.9762 0.54 0.70 52 0.74 0.86 56 0.38 0.9764 0.79 0.91 53 0.56 0.85 58 0.11 0.9765 0.34 0.87 54 0.89 0.97 59 0.10 0.8766 0.50 0.63 55 0.46 0.98 60 0.10 0.5667 0.75 0.75 56 0.72 0.99 61 0.07 0.8468 0.85 0.97 57 0.13 0.90 62 0.13 0.7672 0.50 0.80 59 0.80 0.94 63 0.05 0.7474 0.62 0.88 60 0.59 0.81 64 0.17 0.6379 0.52 0.79 61 0.08 0.97 65 0.08 0.6581 0.15 0.35 62 0.18 0.89 69 0.30 0.9883 0.74 0.97 63 0.44 0.82 70 0.42 0.7284 0.74 0.98 64 0.21 0.93 71 0.26 0.7987 0.46 0.72 65 0.25 0.95 72 0.11 0.2891 0.61 0.67 67 0.15 0.61 73 0.66 1.0094 0.31 0.78 69 0.55 0.83 74 0.04 0.0995 0.73 0.79 72 0.35 0.86 75 0.02 0.4096 0.85 0.94 73 0.76 0.95 76 0.26 0.52

Share 57 from 99 = 58% 74 0.54 0.80 78 0.03 0.22 76 0.59 0.92 79 0.04 0.73 78 0.07 0.49 80 0.62 0.94 79 0.50 0.88 83 0.39 0.81 81 0.68 0.78 84 0.42 0.90 82 0.40 0.88 85 0.68 0.69 87 0.56 0.72 88 0.18 0.45 94 0.33 0.70 92 0.57 0.63 95 0.38 0.85 94 0.09 0.46 96 0.90 0.97 95 0.50 0.51 Share 67 from 99 = 68% 96 0.47 0.69 Share 68 from 99 = 69%

Source: Author’s calculation using Comtrade Data, United Nations

39

Figure 11: RCA Rank Correlation and IIT Index between Malaysia and APTA

97

96

95

94

93

92

918988

86

8581

8079

78

76

75

7471

69

6766

65

63

62

59

5857 54

50

49

47

46

4543

42

37

36

35

34

33

32

292826

24

22

20

18

1716

14

13

10 9

7

5

4 3

21

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

0.0 0.2 0.4 0.6 0.8 1.0

Intra-Industry Trade Index

RC

A ra

nk c

orre

latio

n

Figure 12: RCA Rank Correlation and IIT Index between Thailand and APTA

1

2

4

5

10

15

16

17

18

21

23

24

25

26

27

28

32

33

34

36

37

3841

42

45

46

47

50

5155

5763

65

66

67

68

69

71

73

74

75

76

78

80

81

85

86

88

89

91

93

9596

97

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

0.0 0.2 0.4 0.6 0.8 1.0


RC

A ra

nk c

orre

latio

n

40

Figure 13: RCA Rank Correlation and IIT Index between Vietnam and APTA

97

96

95

93 92

9190

87

85

80

79

78

76

75

74

73

72

69

67

66

65

64

63

6261

57

53

5251

50

49

47

4543 42

41 37

36

34

32

3027

26

25

24

23

21

18

17

15

14

13

6

5

2

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

0.0 0.5 1.0


RC

A ra

nk c

orre

latio

n

3.4. Preliminary Assessment of Trade Creation and Trade Diversion

This section attempt to preliminary assess whether joining APTA will result in trade creation and/or trade diversion for each prospective country. Since APTA is about to expand into an integrated Asia-Pacific region, an important step in this process is the gradual liberalization of trade among APTA participating states and new members. In order to assess the possible benefits arising from the APTA expansion process, it is essential to analyze how trade between old APTA participating states and Malaysia, Thailand, and Vietnam will be affected by distinguishing between trade creation and trade diversion.19 For this purpose this section will compare the RCA export and RCA import of the three prospective countries and those of APTA participating states. Comparison between trade creation effects and trade diversion effects can be used to identify any possible ambiguous effects on economic welfare of prospective countries from joining APTA. If joining APTA leads to replacement of high-cost domestic production by imports from other signatories of the agreement, it would generate trade. In that case, prospective countries would gain from joining APTA. But if joining leads to the replacement of low-cost imports from outside the zone with high-cost goods from member nations, it would be trade diversion, and prospective countries would not benefit.

c 19 Even though this is not sufficient to highlight the beneficial effects of regional integration, it provides a basis for analyzing the trade effects of integration.

41

Revealed Comparative Advantage (RCA) indices are estimated for both exports and imports (RCAx and RCAm) among prospective countries (PC) and APTA countries. The estimation is done by industry-level 6-digit HS classification. The analysis of trade creation needs to be based on two directions of trade flow: prospective countries’ exports and prospective countries’ imports. In terms of exports, trade will grow in sectors in which exporters from prospective countries are relatively competitive in the world market and APTA countries are strong importers of those products as well. In this case, trade creation on the export side is more likely to exist when RCAx indices from prospective countries are greater than “unity” and RCAm indices of APTA participating states of those products are greater than “unity” as well. In this case, trade is created when exporters from prospective countries can meet the high and competitive demands of APTA markets (See Table 22).

Table 22: Criteria for Trade Creation and Trade Diversion

Table 23 shows opportunities for trade creation with Malaysia, Thailand, and Vietnam in terms of exports. China is the APTA member that helps most to create export volumes for the three prospective countries. There are 243 traded items of trade creation to Malaysia’s exports, 273 items of trade creation to Thailand’s exports, and 138 items of trade creation to Vietnam’s exports, which accounts, respectively, for around 5.27 percent, 6 percent, and 4.72 percent of total exports from each prospective country. However, if the average tariff rate is considered, Bangladesh and India impose higher tariff rates on items that might be traded (around 17-18 percent) compared to other APTA countries. Further negotiations are needed tor reduce tariffs among those countries. South Korea is the second potential market that creates trade volumes for the three prospective countries–US$2,785 million (1.79 percent of total exports) for Malaysia, US$915 million (0.97 percent of total exports) for Thailand, and US$386 million (0.97 percent of total exports) for Vietnam. Malaysia would seem to receive the greatest benefits from trade creation from exports if the country decides to join the APTA, followed by Thailand and Vietnam.

In terms of exports, trade will be generated in sectors in which exporters from APTA countries are relatively competitive in the world market and in those sectors in which Malaysia, Thailand, and Vietnam are strong importers of those products as well. In this case, trade creation of imports for prospective countries is more likely to occur when RCAx indices from each APTA country are greater than “unity” and RCAm indices of those products are greater than “unity” for the three prospective countries. In this case, trade is created when prospective countries can import from APTA countries those products for which they have comparative advantage.

For the opportunities for trade creation of imports for Malaysia, Thailand, and Vietnam, again, China is among the APTA members that contribute the most to the three prospective countries’ imports. There are 468 items under trade creation to Malaysia’s imports, 554 items under trade creation to Thailand’s imports, and 657 items under trade creation to Vietnam’s imports, which account for, respectively, around 5.37 percent, 4.45 percent, and 7.25 percent of total exports from each prospective country.

Trade Creation If RCAx of PC >1 & RCAm of APTA>1 If RCAm of PC >1 & RCAx of APTA>1

Trade Diversion If RCAm of PC >1 & RCAx of APTA<1

42

South Korea is the second market from which imports to the three prospective countries would come, at US$4,185 million (3.19 percent of total imports) for Malaysia, US$2,640 million (2.05 percent of total exports) for Thailand, and US$2,226 million (4.96 percent of total exports) for Vietnam. Nevertheless, since average tariffs imposed on China and Korea for those import items are found to be relatively higher than those imposed on other APTA countries, these imported items can be considered items for “tentative concession lists” for each prospective country to negotiate upon joining APTA. Tariff reduction of these tentative items will significantly benefit Malaysia, Thailand, and Vietnam through trade creation on their import side. And, when both the number of products and volumes are concerned, APTA is much more likely to cause higher trade creation in each prospective country on its import side rather than its export side.20

Even though trade would be created among the three prospective countries upon signing on to the APTA, trade diversion should be determined in order to compare what would happen in either case–whether the countries joined APTA or whether they did not. Hence trade diversion will exist in sectors in which exporters from APTA countries are relatively uncompetitive in the world market, but in sectors in which Malaysia, Thailand, and Vietnam are strong importers. Therefore, threat from trade diversion is more likely to exist when RCAx indices from each APTA country are less than “unity” and RCAm indices of those products are greater than “unity” for the three prospective countries. In this case, trade seems to be diverted from non-APTA countries that have higher comparative advantage on those products to APTA countries that have low comparative advantage or comparative disadvantage.

Table 24 shows threats of trade diversion to Malaysia, Thailand, and Vietnam’s imports. Taking into consideration import volumes, China and South Korea are also among APTA countries that generate the highest volumes of trade diversion to the prospective countries. There are 468 items of trade creation to Malaysia’s imports, 554 items of trade creation to Thailand’s imports, and 657 items of trade creation to Vietnam’s imports, which accounts for, respectively, around 5.37 percent, 4.45 percent, and 7.25 percent of total exports from each prospective country.

Nonetheless, as shown in Table 25, when net gains from trade are computed by subtracting volumes of trade diversion from total volumes of trade creation (from both exports and imports), it can be seen that trading with APTA countries should benefit all three prospective countries since benefits from trade creation are outweigh costs from trade diversion for all APTA countries. Among those countries, from the results shown in Table 25, China is the country from which all three prospective countries receive the most gains, followed by South Korea, India, Bangladesh, and Sri Lanka. Among the three prospective countries, Malaysia will receive the highest volume of net gains from trading with APTA countries (US$19,131 million), followed by Thailand (US$14,770 million) and Vietnam (US$4,286 million).

All three prospective countries are found to receive net positive gains from trading with APTA countries. There are some industries that might contribute extra benefits to exporters from those countries if they were able to enhance their competitiveness in the global market. Extra benefits will be created from sectors in which exporters from the three prospective countries are not yet competitive in the world market, c 20 Tentative concession lists under 6 digits-HS on import side for Malaysia, Thailand, and Vietnam are presented in Appendix. The list shows active importing Industries to Malaysia, Thailand, and Vietnam from APTA in which both RCAm of three prospective countries and RCAx of APTA are greater than unity.

43

while APTA countries are strong importers of those products. Those extra benefits can be computed by matching the RCAx indices of each prospective country that has an index of less than “unity” to RCAm indices of those products that are greater than “unity” for the APTA countries. Since RCAm indices that are greater than unity imply strong demand for those products in APTA markets, to meet the high import demand for those items, exporters from the three prospective countries who are not yet competitive enough in those sectors should consider joining APTA as a challenge not only to enhance their effort in terms of export abilities, but also to actively penetrate the APTA market.

As shown in Table 27, there are greater challenges in the Chinese market compared to other APTA countries. There are 1,103 traded items of challenge to Malaysia’s exports, 1,073 items of challenge to Thailand’s exports, and 1,208 items of challenge to Vietnam’s exports, which account for, respectively, around 1.28 percent, 1.95 percent, and 3.49 percent of total exports from each prospective country. In addition, if the average tariff is figured in, since tariff rates of these challenged items imposed by APTA countries are relatively higher than those imposed by the three prospective countries, exporters from the prospective countries will receive higher extra benefits and gain price competitiveness if the countries decide to join APTA.

44

Table 23: Opportunity for Trade Creation to Malaysia, Thailand, and Vietnam from Exports: RCAx of Prospective Countries > 1 and RCAm of APTA > 1

APTA Countries Number of Products (HS-6 Digits)

Export Volumes from Prospective Countries

(Thousand US$)

Percent of Total Exports from


Percent of Total Imports to APTA Countries

Average Tariff of Prospective Countries

Average Tariff of APTA Countries

Malaysia Bangladesh 181 298,163 0.19% 2.27% 9.49 18.93

China 243 8,461,121 5.27% 1.07% 5.51 7.33 India 202 1,245,861 0.78% 0.67% 6.22 17.15

Korea Rep. 213 2,875,609 1.79% 0.93% 6.63 8.53 Sri Lanka 251 199,480 0.12% 2.04% 9.73 9.20

Thailand Bangladesh 342 326,770 0.25% 2.49% 9.40 18.36

China 273 7,837,456 6.00% 0.99% 7.12 7.95 India 210 406,434 0.31% 0.22% 7.36 17.63

Korea Rep. 247 915,545 0.70% 0.30% 9.34 14.63 Sri Lanka 424 208,925 0.16% 2.14% 11.73 8.96

Vietnam Bangladesh 188 13,086 0.03% 0.10% 24.00 17.80

China 138 1,880,847 4.72% 0.24% 16.34 8.79 India 121 37,986 0.10% 0.02% 18.12 17.15

Korea Rep. 191 386,226 0.97% 0.12% 21.30 18.63 Sri Lanka 262 6,619 0.02% 0.07% 28.30 10.97


45

Table 24: Opportunity for Trade Creation to Malaysia, Thailand, and Vietnam from Imports: RCAm of Prospective Countries > 1 and RCAx of APTA > 1


Import Volumes to Prospective Countries

(Million US$)

Percent of Total Imports to


Percent of Total Exports from APTA Countries



Malaysia Bangladesh 48 10.5 0.01% 0.08% 10.31 17.84

China 468 7,036.1 5.37% 0.73% 6.37 9.41 India 410 682.0 0.52% 0.54% 6.10 18.91

Korea Rep. 294 4,185.4 3.19% 1.29% 6.48 8.62 Sri Lanka 138 12.0 0.01% 0.17% 8.37 12.79

Thailand Bangladesh 41 29.6 0.02% 0.23% 9.59 16.20

China 554 5,724.2 4.45% 0.59% 7.40 9.29 India 424 880.1 0.68% 0.70% 7.04 16.90


Vietnam Bangladesh 60 23.1 0.05% 0.18% 22.32 16.10

China 657 3,256.3 7.25% 0.34% 17.52 9.45 India 554 637.7 1.42% 0.51% 15.13 17.21



46

Table 25: Threat from Trade Diversion to Malaysia, Thailand, and Vietnam from Imports: RCAm of Prospective Countries > 1 and RCAx of APTA < 1


Import Volumes to Prospective Countries

(Million US$)

Percent of Total Imports to




Malaysia Bangladesh 1,299 2.1 0.00% 4.99 13.35

China 879 4,111.2 3.14% 4.52 8.48 India 937 212.1 0.16% 4.76 17.29

Korea Rep. 1,053 1,548.5 1.18% 4.80 17.54 Sri Lanka 1,209 1.2 0.00% 4.81 8.12

Thailand Bangladesh 1,412 1.6 0.00% 6.68 12.97

China 899 2,923.7 2.27% 6.38 8.17 India 1,029 214.2 0.17% 6.65 16.29

Korea Rep. 1,047 1,059.8 0.82% 6.86 10.76 Sri Lanka 115 20.7 0.02% 9.73 9.13

Vietnam Bangladesh 1,647 2.9 0.01% 11.79 13.79

China 1,050 2,848.9 6.35% 8.81 8.63 India 1,153 142.1 0.32% 10.74 16.78

Korea Rep. 1,295 1,201.0 2.68% 12.05 12.98 Sri Lanka 1,552 1.6 0.00% 11.20 6.98


47

Table 26: Volumes of Trade Creation, Volumes of Trade Diversion, and Net Gains to Malaysia, Thailand, and Vietnam from Imports (Million US$)

APTA Countries Volumes of Trade Creation on Export Side

Volumes of Trade Creation on Import Side

Total Volumes of Trade Creation

Volumes of Trade Diversion

Net Gains = Trade Creation-Trade Diversion

Malaysia Bangladesh 298.2 10.5 308.7 2.1 306.6

China 8,461.1 7,036.1 15,497.2 4,111.2 11,386.0 India 1,245.9 682.0 1,927.9 212.2 1,715.7

Korea Rep. 2,875.6 4,185.4 7,061.0 1,548.5 5,512.5 Sri Lanka 199.5 12.0 211.5 1.2 210.3

APTA 13,080.2 11,926.1 25,006.3 5,875.2 19,131.2 Thailand

Bangladesh 326.8 29.6 356.4 1.6 354.8 China 7,837.5 5,724.2 13,561.6 2,923.7 10,638.0 India 406.4 880.1 1,286.5 214.2 1,072.3

Korea Rep. 915.5 2,641.0 3,556.5 1,059.8 2,496.7 Sri Lanka 208.9 20.7 229.6 20.7 208.9

APTA 9,695.1 9,295.4 18,990.6 4,220.0 14,770.6 Vietnam

Bangladesh 13.1 23.1 36.2 2.9 33.3 China 1,880.8 3,256.3 5,137.1 2,848.9 2,288.2 India 38.0 637.7 675.7 142.1 533.6

Korea Rep. 386.2 2,226.1 2,612.3 1,201.0 1,411.3 Sri Lanka 6.6 14.6 21.2 1.6 19.6

APTA 2,324.8 6,157.7 8,482.5 4,196.5 4,286.0


48

Table 27: Challenges to Exporters from Malaysia, Thailand, and Vietnam from Imports:

RCAx of Prospective Countries < 1 and RCAm of APTA > 1


Export Volumes from Prospective Countries

(Thousand US$)

Percent of Total Exports from




Malaysia Bangladesh 1,161 1.1 0.00 7.50 14.35

China 1,103 1,683.7 1.28 5.14 7.57 India 1,023 192.3 0.15 4.56 16.53

Korea Rep. 1,086 1,007.3 0.77 4.85 10.28 Sri Lanka 1,252 3.8 0.00 8.92 7.77

Thailand Bangladesh 1,000 14.7 0.01 7.36 13.80

China 1,073 2,506.6 1.95 4.99 7.42 India 1,015 413.5 0.32 4.87 16.43

Korea Rep. 1,052 927.5 0.72 7.88 8.90 Sri Lanka 1,079 12.7 0.01 9.61 7.63

Vietnam Bangladesh 1,154 12.2 0.03 15.61 14.50

China 1,208 1,566.1 3.49 8.86 7.38 India 1,104 163.7 0.36 6.39 16.58

Korea Rep. 1,108 631.5 1.41 8.46 8.50 Sri Lanka 1,241 2.6 0.01 17.35 7.38


49

IV. Analysis of Possible Gains for Prospective Countries under Concession List

This section will match products under the APTA concession list based on 6-digit HS classification to the products of APTA participating states’ imports from the prospective countries. The possible gains for the prospective countries on acceding to the APTA would come from two channels. The first channel would be from the prospective countries’ industries from which the APTA participating states have already imported, which would also be on the concession lists. The second channel would be from the prospective countries’ industries from which APTA countries have not yet imported although these industries in the prospective countries have currently exported to the rest of the world.21

In any event, one of the direct measures for evaluating trade flows between the three prospective countries and the APTA members is to compare their bilateral trading industries to those that are offered on the current concession lists. The analysis should be discussed based on two directions of trade flow: each prospective country’s export side and each prospective country’s import side. In terms of the scope of trade creation and trade diversion, matching studies between those of merchandise trade and those of concession lists should provide a strong conclusion that prospective countries should possibly gain upon joining the agreement.

Starting with the export side study, first, we acknowledge that the active import industries of the APTA countries do not extensively cover all sectors in the concession lists. Tables 28-30 represent possible gains from trade to Malaysia, Thailand, and Vietnam, respectively. Columns I and II of the tables below show that each APTA member country, in reality, imported about the same amount of the concession. Based on the third round concessions under 6-digit HS classification, nearly 100 percent of a number of concessions offered to all countries is, in reality, actively imported–153 of 170 items for Bangladesh, 1,059 of 1,068 items for China, 513 of 570 items for India, 606 of 608 items for South Korea, and 347 of 369 items for Sri Lanka.22 Those remaining items can be considered potential channels from which Malaysia, Thailand, and Vietnam can directly gain by boosting their exports upon the decision to join the agreement.23

Next, matching products imported by APTA from the three prospective countries to those in the concession lists shows, in Column III, that items under concessions imported by the APTA member countries were much fewer than those from the three prospective countries. China has imported from the largest number of industries, 576 from Malaysia, 729 from Thailand, and 405 from Vietnam compared to 1,059 active industries under its concessions. South Korea imported from 194 Malaysian industries, 300 Thai industries, and 230 Vietnamese industries, compared to 606 of its active imported industries under its concessions. Bangladesh imported from the least number of industries, namely, 45 industries from Malaysia, 54 industries from Thailand, and only 7 industries from Vietnam compared to 153 of its active importing

c 21 The most likely sectors to benefit are classified by the RCA Export Indices that are greater than “unity” (RCAx > 1). 22 Under 10-digit HS classification, the APTA Participating States agreed on concessions on 4,270 products plus 587 products offered exclusively to least-developed countries. There were 209 concession items for Bangladesh, 1,697 items for general concluded plus 161 exclusive concessions for China, 507 items for general concluded plus 48 exclusive concessions for India, 1,367 items for general concluded plus 306 exclusive concessions for Korea Republic, and 427 items for general concluded plus 72 exclusive concessions for Sri Lanka. 23 Since data is based on current trade volume (not cumulative), possible number of products and trade volumes which will be benefited from APTA membership, in this case, may not be trivial.

50

industries under its concessions. These are, however, much fewer than what they really import from all over the world under the concession lists and should be the potential sectors from which Malaysia, Thailand, and Vietnam should aim to gain benefit and promote, according to their free trade agreements. The values are calculated based on the current values of six-year averages during the period of 2000-2006.

By matching items in Column III with those in which the RCAx indices are greater than unity for the three prospective countries, we get the results displayed in Column IV, showing that the three prospective countries are not competitive in all sectors that each APTA country actually imports from under its own concessions. The number of items and trade volume in column IV can be used to measure possible gains to those prospective countries from joining the APTA. Noting the total trade volumes in Column IV, Thailand should gain the most benefit in expanding its export volumes to APTA countries under sectors in which they are competitive. In total, Thailand could gain approximately US$4,583 million, Malaysia could gain US$2,003 million, and Vietnam could gain US$1,103 million. The greatest benefit on joining APTA would come mainly from China’s concessions, followed by those from Korea and India.

Gains from the second channel, on the other hand, would possibly come from the items that Malaysia, Thailand, and Vietnam, so far, have already exported to the rest of the world but that were not imported by APTA member countries, even those items that are concentrated on the APTA’s concession lists. Those industries, listed in Column V of the tables, are therefore considered another source for trade benefits that three prospective countries could expect if they join the APTA trade bloc. Column V shows possible gains to prospective countries from the second channels. China generates the most gains for all three prospective countries. There are 411 sectors (US$40,218 million) for Malaysia, 297 sectors (US$70,300 million) for Thailand, 655 sectors (US$158,317 million) for Vietnam. South Korea generates the second largest gains for all three countries in which the number of items for potential export are 375 items (US$19,627 million) for Malaysia, 268 items (US$19,513 million) for Thailand, and 376 items (US$82,869 million) for Vietnam. The numbers of potential export from Malaysia, Thailand, and Vietnam are lowest for Bangladesh, which are 104 items at US$240 millions US$ for Malaysia, 88 items at US$322 million for Thailand, and 146 items at US$477 million for Vietnam.

By matching items in Column V with those in which the RCAx indices are greater than unity for three prospective countries, Column VI shows that three prospective countries are competitive in only 10-20 percent of the potential industries in Column V. Possible gains to Malaysia, Thailand, and Vietnam under this second channel can be measured by matching those concession list items in Column V (at 6-digit HS classification) to the formal RCA indices for Malaysia, Thailand, and Vietnam to ensure that those industries in which Thailand has a comparative advantage and thus have the greatest potential to generate benefits are focused on. All told, there are approximately US$57,818 million of possible gains to Vietnam, followed by Malaysia (US$6,057 million) and Thailand (US$5,489 million), which is opposite from the ranking from possible gains in the first channel (Thailand, Malaysia, and Vietnam.

51

Table 28: A Possible Number of Products Flowing from Malaysia to APTA Member Countries under Concessions: 6-digit HS Classification

I II III IV V VI

APTA Member Countries Concessions

Active World Imports under

Concessions

Active Imports from

Malaysia under

Concessions

Active Imports from Malaysia

under Concessions, when RCAx of Malaysia > 1

Possible Gains of Potential Industries

that inactively

import from Malaysia

Possible Gains of Potential

Industries that inactively

import from Malaysia, when

RCAx of Malaysia > 1

Bangladesh 153 45 16 104 22 - US$ Millions

170 548.63 16.36 11.56 240.53 11.46

China 1059 576 140 411 24 - US$ Millions

1068 293,068.42 2,134.82 1,352.65 40,218.50 780.42

India 513 213 65 265 16 - US$ Millions

570 18,044.70 214.20 172.19 5,324.12 546.65

South Korea 606 194 70 375 30 - US$ Millions

608 110,872.08 1,339.85 441.60 19,627.04 4,709.74

Sri Lanka 347 124 31 218 16 - US$ Millions

369 1,019.67 43.35 25.71 360.12 8.87

Total 423,553.50 3,748.58 2,003.71 65,770.31 6,057.15

Source: Author’s calculation

Table 29: Possible Number of Products Flowing from Thailand to APTA Member Countries under Concessions: 6-digit HS Classification

I II III IV V VI


Active World Imports under

Concessions

Active Imports from

Thailand under

Concessions

Active Imports from

Thailand under

Concessions, when RCAx of Thailand >

1


that inactively

import from Thailand



import from Thailand, when

RCAx of Thailand > 1

Bangladesh 153 54 17 88 21

- US$ Millions 170

548.63 11.04 2.89 322.34 90.86

China 1059 729 267 297 39

- US$ Millions 1068

293,068.42 4,672.73 4,080.65 70,300.73 366.37

India 513 290 96 203 24

- US$ Millions 570

18,044.70 205.68 147.14 2,667.14 90.09

South Korea 606 300 125 268 35

- US$ Millions 608

110,872.08 581.43 308.73 19,513.96 4,880.08

Sri Lanka 347 179 76 159 26

- US$ Millions 369

1,019.67 51.07 43.71 335.52 62.06

Total 423,553.50 5,521.94 4,583.11 93,139.69 5,489.46


52

Table 30: Possible Number of Products Flowing from Malaysia to APTA Member Countries under Concessions: 6-digit HS Classification

I II III IV V VI


Active World Import under Concessions

Active Imports from

Vietnam under

Concessions

Active Imports from

Vietnam under

Concessions, when RCAx of Vietnam >

1


that inactively

import from Vietnam



import from Vietnam, when

RCAx of Vietnam > 1

Bangladesh 153 7 4 146 17

- US$ Millions 170

548.63 1.23 1.15 477.93 51.54

China 1059 405 195 655 105

- US$ Millions 1068

293,068.42 983.15 895.17 153,317.41 923.74

India 513 68 28 445 55

- US$ Millions 570

18,044.70 18.30 10.15 15,188.70 348.36

South Korea 606 230 119 376 31

- US$ Millions 608

110,872.08 222.87 196.83 82,869.17 56,382.80

Sri Lanka 347 29 6 318 59

- US$ Millions 369

1,019.67 2.38 0.26 793.07 112.40

Total 423,553.50 1,227.93 1,103.55 252,646.29 57,818.85


In general, acceding to APTA will largely benefit Malaysia, Thailand, and Vietnam since being APTA members will generate more positive effects from trade creation than from trade diversion. Especially when the concessions are compared, there is still more room for the prospective countries to benefit from signing on to the agreement and enjoying trade potential under the current concessions, for items that are both actively and inactively imported by APTA member countries. However, the effects would vary by degree of Margin of Preference imposed on each specific item. In the next section, our analysis will incorporate the Margin of Preference to predict exact potential gains to Malaysia, Thailand, and Vietnam.

V. Forecasting Gains to the Countries according to Tariff Concessions

This section aims to forecast whether the prospective countries will receive more benefits according to further tariff concessions using a simple export demand function. Export demand function is based on the argument that bilateral trade that flows between countries must be related to economic factors (GDP, Price), geographical distance, and trade barriers. Theoretical considerations should be employed. The standard export demand functions, which are determined by export price, income, and tariff barrier.

Xijt= f(pijt, GDPjt, GDPPCjt, Tariffijt, Concessionij, ,Trendt)

Where, Xijt is the value of real exports from a prospective country (Malaysia, Thailand, or Vietnam) to each APTA member country of product (i) to country (j) in each year

53

(t). Products (i) are classified by 6-digit Harmonized System Code, Country (j) is one of the five APTA countries (Bangladesh, China India, South Korea, and Sri Lanka), and time period (t) is the annual data between 2000-2006 for Malaysia and Thailand and between 2001-2005 for Vietnam. Let GDPjt be the real GDP of each APTA country in year t. GDPPCjt is the real GDP per capita of APTA country in year t. Pijt is the export price of industry i to APTA country j in year t.24 Let Tijt represent average tariff rate imposed by APTA country j on industry i in year t and Concessionij is the margin of preference implemented by each APTA country j of industry i. Trend is the time-trend. The log-linear form of the partial adjustment models for export demand can be specified as follow:

ln Xt* = α0 + α1 ln pijt + α2 ln GDPjt + α3 ln GDPPCjt

+ α4 ln Tariffijt + α5 Trendt + α6 Concessionijt + εijt

The coefficient α1 represents export price elasticity of export demand from each prospective country to APTA countries. The coefficients α2 and α3 represent income elasticity of each country’s export demand on both aggregate term and per-capita term, respectively. The coefficient α4 represents elasticity of tariff imposed by APTA countries. The coefficient α5 represents export growth from each prospective country to APTA countries over one year. To forecast potential gains of each prospective country under tariff concessions, the variable Concessionijt represents percentage of the Margin of Preference announced by APTA member countries.25 The estimated coefficient α6 is expected to be “positive” measuring additional increase of export growth from a percentage of tariff reduction under the concessions. In this section, the coefficient α6 will be a key parameter to be used to quantify potential exports for each three prospective country according to tariff concessions.

As shown in Table 31-33, export demand functions for Malaysia, Thailand, and Vietnam to APTA member countries are estimated to quantify export gains to these three countries from joining APTA and enjoying the tariff concessions. There are six models of export demand function to be estimated. Model 1 estimates export price using export price, GDP, GDP per capita, tariff, time-trend, and concessions by using all aggregate data of APTA countries. Models 2-6 use the same specification as Model 1, but make separate estimates by using data coverage from each APTA country: Bangladesh (Model 2), China (Model 3), India (Model 4), Korea (Model 5), and Sri Lanka (Model 6).

From the estimated results, price elasticity of Malaysia’s export demand to the APTA market is around -0.046, which implies that a percentage increase of export price should result in a -0.046 percent reduction of export flows from Malaysia to APTA countries. Price elasticity of Thailand’s export demand to the APTA market is less inelastic around -0.011, which implies that a percentage increase of export price should result in a -0.011 percent reduction of export flows from Thailand to APTA countries.

However, if data is separately estimated for each APTA member country, export price elasticity for Thailand is found to be negative, which is explained by Law of Demand, in the inelastic range, especially for Sri Lanka (-0.025), followed by India (-0.053) and South Korea (-0.088). Consistent to Thailand, export price elasticity for c 24 Export price is calculated by dividing export volume by its quantity. 25 The Concession variable = 0 if products are not agreed in the concession list.

54

Malaysia to each APTA country is also in inelastic range and significant, especially for China (-0.064), South Korea (-0.07), Sri Lanka (-0.072), and Bangladesh (-0.076). Even though coefficients of export price elasticity in Vietnam are not significant in APTA market, Vietnam’s export price elasticity is found to be very elastic and significant for Sri Lanka (-9.76), China (-1.25), and India (-3.58). The higher degree of export price elasticity (in negative value) in Vietnam explains necessities for the exporters from the three prospective countries to control their cost and keep the competitive price in order to successfully compete in those markets. On the other hand, the less elastic of export demand from Thailand and Malaysia in total APTA market explains ability of mark-up condition. Therefore, if the exports are found to be very sensitive to change in price like the case of Vietnam, joining APTA and enjoying tariff reduction should not only raise export volumes from those three prospective countries, but also improve welfare gains to those countries.

Coefficients of ln (GDP), which are the income elasticity of export demand, are not significant for Malaysia, 0.069 for Thailand, and 0.512 for Vietnam. As a result, a percentage increase of the real GDP growth in APTA member countries should respectively result 0.069 percent and 0.512 percent increase of export flows from Thailand and Vietnam to APTA countries. The higher degree of income elasticity of Vietnam explains the likelihood that export items from Vietnam are more sensitive to APTA’s aggregate income than those of Malaysia and Thailand. Considering the APTA member states as the fast-glowing APTA members, especially China and India, there is no doubt to see high and positive relationship of the coefficients that strengthening export volumes among three prospective countries.

However, to measure in terms of purchasing power, income elasticity coefficients in terms of GDP per capita (Ln GDPPC) can be used to determine how exports are sensitive to changes in purchasing power of APTA markets. The coefficients of income elasticity in per capita terms are 0.087 in Malaysia, 0.062 in Thailand. The higher the purchasing power, the more demand for Thailand and Malaysia’s export items in the APTA market.26

As predicted by the standard trade model, tariffs are the main barriers to export flows. The estimated coefficients of tariff elasticity are found to be negatively and significantly correlated to export demand from Malaysia (-0.385) and Thailand (-0.425). The higher coefficient of tariff elasticity in Thailand (in absolute value) explains why the country should receive more benefits from 0.425 percent of export growth from a percentage of the tariff reduction by APTA. In addition, if data is separately estimated for each APTA country, Thailand’s exports are found to be the most sensitive to reduction of tariff reduction in India (-0.856), followed by reduction in China (-0.425), South Korea (-0.241), and Sri Lanka (-0.219). Different from those in Thailand, estimated coefficients of tariff elasticity for Malaysia are found be the most sensitive to the reduction of tariffs in South Korea (-1.144), followed by India (-0.754), and China (-0.417).

c 26 Even though estimated coefficient of Vietnam’s export demand function of the APTA’s GDP per capita is not significant, the coefficients of Vietnamese export’s income elasticity in per capita terms is significant and positive in Bangladesh (159.5) and India (125.4)

55

Table 31: Malaysia’s Export Demand Function to APTA

Independent Variables

(1) APTA

(2) Bangladesh

(3) China

(4) India

(5) Korea

(6) Sri Lanka

ln(p) -0.046 -0.076 -0.064 0.009 -0.07 -0.072 [0.004]*** [0.011]*** [0.008]*** [0.007] [0.010]*** [0.009]***

ln(GDP) 0.04 9.63 0.898 -0.815 -20.27 -4.839 [0.027] [22.520] [5.557] [10.801] [15.433] [8.398]

ln(GDPPC) 0.087 -4.506 0.775 -1.093 13.819 7.064 [0.009]*** [26.363] [4.774] [12.937] [12.586] [9.440]

ln(tariff) -0.384 -0.033 -0.417 -0.754 -1.144 -0.071 [0.019]*** [0.056] [0.062]*** [0.040]*** [0.052]*** [0.025]***

Trend 0.076 -0.253 -0.002 0.289 0.681 0.008 [0.006]*** [0.336] [0.120] [0.372] [0.455] [0.070]

Concession 0.016 0.023 0.009 0.015 0.009 0.017 [0.001]*** [0.008]*** [0.003]*** [0.002]*** [0.002]*** [0.003]***

Constant -150.329 472.093 -9.126 -558.817 -1,350.12 -23.259 [12.383]*** [619.968] [229.945] [711.658] [893.945] [131.143]

Observations 37,343 4,330 8,728 11,494 7,157 5,634 R-squared 0.04 0.02 0.02 0.04 0.08 0.02

Note: * significant at 10%; ** significant at 5%; *** significant at 1%

Standard errors in brackets

Table 32: Thailand’s Export Demand Function to APTA


(1) APTA

(2) Bangladesh

(3) China

(4) India

(5) Korea

(6) Sri Lanka

ln(p) -0.011 0.101 0.021 -0.053 -0.088 -0.025 [0.006]* [0.013]*** [0.013]* [0.011]*** [0.014]*** [0.013]*

ln(GDP) 0.069 -2.576 1.293 19.171 -20.757 1.629 [0.030]** [21.596] [6.745] [13.253] [17.295] [9.558]

ln(GDPPC) 0.062 12.177 3.979 -16.607 17.384 -0.263 [0.010]*** [25.451] [5.888] [15.875] [14.109] [10.701]

ln(tariff) -0.425 -0.012 -0.425 -0.856 -0.241 -0.219 [0.023]*** [0.057] [0.087]*** [0.049]*** [0.051]*** [0.033]***

Trend 0.101 -0.48 -0.185 -0.441 0.556 0.038 [0.007]*** [0.330] [0.137] [0.462] [0.512] [0.080]

Concession 0.019 0.003 0.002 0.014 0.016 0.041 [0.001]*** [0.009] [0.003] [0.002]*** [0.002]*** [0.004]***

Constant -201.725 888.415 321.392 863.886 -1,141.61 -86.699 [14.047]*** [609.588] [263.319] [883.470] [1,005.649] [150.294]

Observations 48,694 8,459 10,393 12,979 9,513 7,350 R-squared 0.03 0.01 0.02 0.03 0.01 0.03



56

Table 33: Vietnam’s Export Demand Function to APTA


(1) APTA

(2) Bangladesh

(3) China

(4) India

(5) Korea

(6) Sri Lanka

ln(p) 0.151 -5.958 -1.255 -3.581 1.231 -9.757 [0.290] [9.747] [2.696] [1.818]** [0.324]*** [3.981]**

ln(GDP) 0.512 -74.132 -4.994 -48.362 -0.594 -3.917 [0.068]*** [69.775] [14.096] [23.333]** [18.321] [39.564]

ln(GDPPC) -0.022 159.539 17.305 125.4 -10.688 89.313 [0.021] [86.224]* [10.933] [38.019]*** [15.212] [66.696]

ln(tariff) 0.215 -0.98 1.179 -0.23 0.503 -1.201 [0.065]*** [1.254] [0.687]* [0.200] [0.088]*** [0.380]***

Trend -0.001 -4.895 -0.762 -6.541 0.521 -4.41 [0.015] [1.700]*** [0.613] [1.860]*** [0.536] [1.517]***

Concession 0.015 0.002 0.008 0.013 0.02 0.002 [0.002]*** [0.024] [0.006] [0.003]*** [0.002]*** [0.011]

Constant 0.828 9111.839 1394.38 12421.523 -890.629 8243.781 [29.232] [3,162.191]*** [1,163.894] [3,542.358]*** [1,055.193] [2,840.275]***

Observations 11,246 491 1,436 3,821 4,937 561 R-squared 0.03 0.02 0.1 0.02 0.02 0.05



The potential gains for Malaysia, Thailand, and Vietnam from joining APTA member countries can be directly measured by focusing on the estimated coefficients of the Concession variable. Incorporating the margin of preference agreed upon by the APTA concessions, and estimating coefficients of Concession explain percentage increases/decreases of the export volumes due to a percent reduction of tariffs (Margin-of-Preference) under the concessions.

Therefore, in order to forecast the export gain, first, we need to compute the weighted average Margin-of-Preference (MoP) of total APTA and of individual member countries. 27 Product items that are not covered by concession will be assumed to have a Margin of Preference of “zero.” Secondly, we will multiply the computation of weighted average MoP to the estimated coefficients of the Concession variable of the total APTA and of individual member counties. Then the product of weighted average MoP and estimated coefficients will provide potential export flows (in terms of export growth) to Malaysia, Thailand, and Vietnam, upon joining APTA and benefiting from tariff concessions. Later, a computed percentage number of export growth will be applied to predict its potential gain for the three prospective countries in terms of export volumes.

Using the Third-Round concessions, the study aims incorporate two hypothetical scenarios:

Scenario 1: The minimum liberalization scenario that MOP was agreed in the third round.

c 27 Weighted average Margin of Preference (MoP) is computed by using the total summation of export share of each industry times Margin of Preference.

57

Scenario 2: The best case scenario of full liberalization when MoP = 100 with the same condition of product coverage.

As shown in Table 34, weighted average numbers of MoP for both scenarios are reported. Under the minimum liberalization scenario, Vietnam will receive more MoP, around 7.1 percent, than Malaysia and Thailand. However, if the best-case scenario (Scenario 2) is used, Thai products will enjoy the most of tariff reduction (30.5 percent) compared to those products from Malaysia (15.5 percent) and Vietnam (29.4 percent). Korea is the country among APTA members which offers the highest degree of tariff reduction (MoP) under the minimum liberalization scenario (Scenario 1) and China seems to be the country, among APTA members, that offers the highest degree of tariff reduction (MoP) under the best-case scenario (Scenario 2).

Multiplying weighted average MoP in Table 34 by estimated coefficients of Concession variable in Tables 30-32 shows potential export gains to Malaysia, Thailand, and Vietnam. As shown in Table 35, both scenarios (Scenario 1 and Scenario 2) are applied to quantify the effects in terms of export growth and export volumes.28

Results in Table 35 shows that minimum liberalization (Scenario 1) of tariff concessions yields US$1,995 million in export gains to Malaysia, US$1,841 million in export gains to Thailand, and US$431 million in export gains to Vietnam. However, if the best-case scenario of full liberalization is used, Thailand can be expected to receive the highest gains, namely, US$9,855 million, followed by Malaysia (US$5,834 million) and Vietnam (US$1,786 million).

Among APTA member countries, China and South Korea are the countries that contribute the most potential export gains to those three prospective countries, followed by India, Sri Lanka, and Bangladesh. Thailand will greatly benefit from Korea’s tariff concessions, which will contribute as much as US$379 million under minimum liberalization and US$932 million under full liberalization to Thailand. Malaysia, on the other hand, will greatly benefit from Korea’s tariff concessions as much as US$580 million under minimum liberalization and benefit from China’s concessions as much as US$1812 million under full liberalization. However, if we compare Thailand and Malaysia, we can see that Korea and China generate more moderate value of export gains to Malaysia than to Thailand, while India, Bangladesh and Sri Lanka generate value in terms of export gains to Thailand than to Malaysia. Vietnam, on the other hand, will be less likely to benefit from APTA concessions compared to Thailand and Malaysia. However, which is consistent to the result found in Thailand and Malaysia, China and Korea generate the highest export gains to Vietnam as much as US$184 million and US$83 million, respectively, under minimum liberalization. The result found in this Table 35 ensures our prediction that China and South Korea should generate the highest value of export gains to three prospectives when these countries decide to join the APTA.

Multiplying export growth found in Table 35 with export share to GDP (current price) predicts economic gains of Malaysia, Thailand, and Vietnam under APTA concessions. Results in Table 36 shows that minimum liberalization (Scenario 1) of tariff concessions yields US$15,886 million in economic gains to Malaysia (8.5 c 28 Potential export gains in terms of volume are computed by multiplying percentage growth to current export volume in 2006.

58

percent of economic growth), US$15,646 million in economic gains to Thailand (6.4 percent of economic growth), and US$4,616 million in economic gains to Vietnam (6.5 percent of economic growth). However, if the best-case scenario of full liberalization is used, Thailand can be expected to receive the highest gains, namely, US$83,722 million, followed by Malaysia (US$46,459 million) and Vietnam (US$19,115 million).

Table 34: Weighted-Average Margin-of-Preference of Exports from Malaysia, Thailand, and Vietnam in 2006

Prospective Countries Malaysia Thailand Vietnam

Scenario Minimum

Liberalization (Scenario 1)

Best-Case Scenario

(Scenario 2)

Minimum Liberalization (Scenario 1)

Best-Case Scenario

(Scenario 2)


Best-Case Scenario

(Scenario 2) Bangladesh 0.5 3.9 0.3 2.4 0.6 5.7

China 4.8 17.3 5.8 36.7 7.1 31.3 India 0.5 4.2 1.6 11.4 1.9 13.3 Korea 11.1 23.3 8.9 21.9 8.3 26.4

Sri Lanka 2.1 8.3 3.6 17.4 0.9 11.5 APTA 5.3 15.5 5.7 30.5 7.1 29.4

Source: Author’s Calculation

Table 35: Potential Export Gains to Malaysia, Thailand, and Vietnam in Growth Rate and Volumes according to Tariff Concessions

Prospective Countries Malaysia Thailand Vietnam

Scenario Minimum


Best-Case Scenario

(Scenario 2)


Best-Case Scenario

(Scenario 2)


Best-Case Scenario

(Scenario 2) Export Gains from Tariff Concession (Percent)

Bangladesh 1.2 9.0 0.1 0.7 0.1 1.1 China 4.3 15.6 1.2 7.3 5.7 25.0 India 0.8 6.3 2.2 16.0 2.5 17.3 Korea 10.0 21.0 14.2 35.0 12.5 39.6

Sri Lanka 3.6 14.1 14.8 71.3 0.2 2.3 APTA 8.5 24.8 10.8 58.0 10.7 44.1

Export Gains from Tariff Concession (Volume: Million US$) Bangladesh 4.9 37.9 0.4 3.3 0.0 0.3

China 502.8 1,812.1 136.6 864.2 184.4 812.9 India 38.4 322.8 40.6 289.0 2.4 16.9 Korea 580.3 1,218.0 379.0 932.5 82.6 262.8

Sri Lanka 19.1 75.4 43.7 211.2 0.0 0.5 APTA 1,995.2 5,834.9 1,841.8 9,855.2 431.3 1,786.1


59

Table 36: Potential Economic Gains to Malaysia, Thailand, and Vietnam in Growth Rate (Percentage) and Volumes (Current Price) according to Tariff Concessions

Malaysia Thailand Vietnam Minimum


Best-Case Scenario

(Scenario 2)


Best-Case Scenario

(Scenario 2)


Best-Case Scenario

(Scenario 2) Economic Growth from Tariff Concession (Percent)

8.5 24.8 6.4 34.1 6.5 26.8 Economic Gains from Tariff Concession (Volume: Million US$)

15,886.0 46,459.0 15,646.4 83,721.9 4,616.3 19,115.4


VI. Potential Benefits from Widening Scope of Cooperation beyond Tariff Concession.

The Asia-Pacific Trade Agreement (APTA), formally known as the Bangkok Agreement, is one of the oldest preferential trading agreements in the Asia-Pacific, where it has had great potential to boost trade between member countries. However, intra-member trade in the Bangkok Agreement region has remained relatively low even though this is the only trade bloc that includes the world’s two largest countries, China and India. Lower intra-group trade volumes can be attributed to the limited number of concessions to promote the success of this trade bloc. The APTA Participating States as well as UNESCAP, as the secretariat, have identified three prospective member countries from Southeast Asia–Malaysia, Vietnam, and Thailand–as prospective members of APTA in order to deepen and strengthen APTA to be as the preferential trade agreement of the Asia-Pacific region. Nevertheless, any decision by Malaysia, Thailand, and Vietnam to sign on to the Bangkok Agreement should be reviewed and studied more for its possible tradeoffs. This paper tries to analyze the potential benefits for these three prospective countries on accession to this trade agreement

The estimates of trade indicators, namely, RCA rank correlation show that the trade structures between the three prospective countries and APTA member countries are quite similar to each other, which implies less likelihood of gaining from trade. In addition to gains from trade in different structures explained by the RCA rank correlation, intra-industry trade also implies gains from product varieties. The estimated results of trade indicators show that joining APTA should enhance trade gains to prospective countries, not only by widening product ranges, but also by expanding product varieties.

By comparing trade creation and trade diversion, we can see that joining APTA will be largely beneficial to Malaysia, Thailand, and Vietnam since trade creation is found to be outweighed by trade diversion, which therefore results welfare enhancement. Reduction of tariffs from populous markets such as China and India will definitely create opportunity for the three prospective countries to not only boost their export volumes of initially traded products, but also create the chance to develop new products.

60

Since the ASEAN-Korea agreement is still currently under negotiation, taking advantage from current APTA members will be another option for the three prospective countries to enjoy Korea’s concession list. Even though trade volumes between three prospective countries and Bangladesh/Sri Lanka were still relatively small, selling new products to new markets will be the strategic challenge for the three prospective countries to take advantage under the concession lists offered from both countries.

In addition, the estimation of export demand functions of Malaysia, Thailand, and Vietnam convey the results whether APTA would lead to the possibilities trade volume increment. The estimated coefficients of export demand function support the wise prediction that export volume of three prospective countries should be blossom upon joining the Bangkok Agreement and enjoying tariff reductions under concessions granted therein. Nevertheless, to establish APTA as the full-fledged preferential trade agreement for the Asia-Pacific, other non-tariff issues must be considered. This section aims to explain some further potential benefits for Malaysia, Vietnam, and Thailand according to the expansion of APTA cover trade facilitation, service liberalization, and investment.

6.1. Trade Facilitation

Besides gains from tariff reduction, well-established trade facilitation procedures will also promote international trade and improve welfare gains to countries. Trade facilitation is defined as the “systematic rationalization of procedures and documentation for international trade” (UNESCAP, 2002). It covers all the regulatory measures that affect the flow of exports and imports such as customs control, veterinary inspections of animals and animal products, including other quality control inspections to ensure that goods meet national standards. Therefore, the benefits of trade facilitation accrue to not only international traders by reducing costs and delay from customs, but also to governments by increasing effectiveness of control procedures and improving efficient deployment of resources.

Countries located in the Asia-Pacific region have been under an advisory by ESCAP to develop trade facilitation. There have been a number of projects undertaken by ESCAP which aimed to examine documentation and procedural rigidities that impede trade flows. ESCAP has also conducted a series of workshops for the GMS countries to encourage government institutions, trade operations, and traders to meet and collaborate in order to improve trade regulations and address related issues.

Therefore, apart from pursuing tariff elimination under APTA concessions, the APTA countries, as well as the three prospective countries, should focus their attention on trade facilitation activities, especially in customs procedures, and the elimination of technical barriers to trade. The countries should implement the “APTA Harmonized Tariff Nomenclature,” which is the classification of goods using certain criteria of description (e.g., usage, function, measurement) so that it will be easy to compare products. Since the APTA economic structures are relatively similar, the harmonization of tariff nomenclature will speed up the process of international trade by facilitating product comparability at customs, which simplifies trade transactions. In addition, it will increase comparability of data cross countries. Besides, customs procedures and customs valuation should also be harmonized among APTA member countries. Like ASEAN countries, APTA member countries can consider whether to

61

use either the Brussels Definition of Value (BDV) or a combination of the GATT Transactions Value (GTV) and BDV as a system of valuation.29

Since Trade conducted under the concessions is not only governed by the standard customs clearance procedures for all goods but is also burdened by the additional requirement of determining the origin of the product, APTA countries should work together toward creating a Common Declaration Form which explains in detail three sorts of procedures–the Certificate of Origin requirement, export procedures from the country of origin, and import procedures from the importing country–that should be required for all transactions under concession lists.

Since trade volumes among APTA countries are weighted toward China and Korea, both countries may be considered leaders in arranging joint-commitments for trade facilitation. There should be disparate working groups or sub forums for each particular area, such as standards and technical regulations, customs procedures, electronic-commerce and electronic trade systems, and labor mobility. APTA member countries should definitely develop a joint action plan for intra-group trade facilitation that aims for simplification, transparency, and modernization.

6.2. Service Liberalization

Inspired by WTO, one of the notable trends in recent years has been the increasing importance of cross-border supply of services. Service trade has been increasing faster than goods trade in the last few decades and has become an important means of conducting international economic activities. To be a fully preferential trade agreement for the Asia-Pacific, the liberalization of investment and services is necessary. APTA should thus set up a committee on service negotiation. It is commonly understandable that the negotiations on trade in services are more difficult than merchandise trade issues. Thus while the APTA concessions on tariff reductions have been implemented, the frameworks on trade in services have not yet been established. It is still in the beginning stages, not only in APTA but under other international forums.

To be consistent with the world’s trading system, the negotiation should employ the General Agreement on Trade in Services (GATS) framework. APTA must present a list of sectors and activities for which market access and national treatment is granted to other members according to mode of supply.30 Analyzing trade in service is rather complicated since it requires understanding of laws, accounting systems, government regulations, tax systems, and visa procedures.

Regarding data from UNCTAD’s Handbook of Statistics, China was the largest exporter of services among APTA member countries, followed by India and Korea. Exports of services from APTA member countries were concentrated on commercial services, which accounted for nearly 50 percent of the total amount. Other important service sectors are, for example, tourism (especially for China), transport, and other business services, similar to those of the prospective countries, where tourism and commercial services also play an important role in exports in services. 31Therefore,

c 29 There are no precise methods of calculating value for the BDV system, but it leaves each country to decide on how the custom value should be determined. The GTV gives, however, precise methods of determining customs value. 30 The General Agreement on Trade in Services (GATS) defines four modes of trading services: "cross-border supply" (Mode 1), "consumption abroad" (Mode 2), "commercial presence" (Mode 3), and “presence of natural person” (Mode 4). 31 Vietnam’s data on trade in services is not available in the UNCTAD’s Handbook of Statistic.

62

APTA should put the tourism sector and commercial services on its list of priorities for the negotiation of service liberalization among member countries.

It is also worthwhile to assess the measures of revealed comparative advantage (RCA) to explain the country’s potential service sectors for export. 32 The RCA measure indicates whether a country is in the process of extending the supply of services in which it has potential with its partners. The RCA indices of service sectors are presented for the period of 2006 to compare the competitiveness of APTA member countries and the prospective countries. The results of the estimation clearly indicate that Thailand and Malaysia have gained the highest degree of comparative advantage as global suppliers in the tourism industry; the RCA indices are not only greater than unity, but also higher than those of APTA countries (1.98 for Thailand and 1.84 for Malaysia).

The higher index implies potential gains for prospective countries upon liberalizing their tourism industry. In this context a great deal of attention must be focused on the negotiations for further liberalization of tourism among APTA countries, including prospective countries by applying the measurement from GATS. Negotiation should be focused on 4 modes of supply such as rules and regulations on the production, distribution and marketing of tourism services such as tour operators, international visitors, international hotel chains, branches or ownership of hotel chains and agencies in other countries, and the activities of tour guides and hotel managers. The economic gains behind tourism liberalization are based on the idea that tourism will yield overwhelmingly positive benefits on growth and development for the APTA member countries.

Besides tourism, commercial service is a potential service sector for growth among APTA member countries and prospective countries as indicated by the RCA indices that are greater than unity. The commercial service sector is interesting since there is a high-proportion share of this sector related to domestic economic activity.

Among other service sectors, APTA member countries have fewer obligations with regard to liberalizing their financial sectors. Even though those APTA countries had less comparative advantage in their financial sectors, governments are trying to encourage foreign investments while simultaneously avoiding a repeat of economic instability, as happened in 1997-1998 in Asia.33 Some economies, especially Korea and Thailand, have continued to relax foreign equity limitations.

To conclude, the service sector has the potential to serve as an important driver of long-term growth in APTA countries, including its new members, if the proper sequencing of liberalization and deregulation are implemented. Service liberalization in particular requires that the institutional and regulatory environment be fortified prior to and during the process of liberalization.

c 32 Similar to identifying potential export sectors of manufacture products, “Potential service sectors” are defined by calculating RCA index and compare whether the index is greater than/ less than “unity”. From the formula of RCA =

( ) ( )∑∑ wiwkik XXXX / where ikX , in this case, is the value of service sector i export of country k, and

iwX is the total value of world’s export of service i.

63

6.3. Investment

Foreign direct investment has provided a major boost to Asian trade in recent decades, especially its focus of production networks within the region. Generally, investment liberalization is often treated as liberalization of services. For example, rule of origin is applied to investors including Mode 3 of commercial presence for FDI in service industries. The restrictive origin criterion for juridical persons–ownership and control–is applied in preferential trade agreements.

In particular, negotiations for comprehensive disciplines on a bilateral and regional investment were fruitful in market economies, for example India, the Korea, Singapore, Malaysia, and Thailand. Summarized by Sauvé (2007), many agreements in the region list national treatment with regard to services on a positive list basis and for investment on a negative list basis. And most preferential trade agreements in Asia-Pacific include most-favored-nation (MFN) clauses. Since member countries in APTA are different in terms of market economies (e.g., Korea and India) and central planning economies (e.g., China and Vietnam), APTA member countries should start negotiating on national treatment for both investment and services on a positive list basis, including commitment of most-favored-nation (MFN) clauses.

Since investment liberalization is implied when capital can move freely from one country to another, investment liberalization is usually a sensitive issue. APTA member countries should set out a routine for investing into sensitive areas of their own economies such as service areas and major industries. Therefore, the important roles of the competition policy should be concerned with prohibiting cartels, preventing abuse of a market-dominant position, and controlling mergers and acquisitions. In addition, competition policy must encourage free trade, free selection, and free market access for enterprises.

Table 37: Exports in Services by Service-Category in 2006 (Unit: Millions US$)

APTA member countries Prospective countries Service Categories Bangladesh China India Korea Sri Lanka Malaysia Thailand

Transport 88.7 21,015.3 7,628.8 25,858.1 750.7 4,228.0 5,377.2 Percent 4.6 11.5 5.1 25.3 23.3 9.7 11.2

Travel 80.3 33,949.0 8,934.0 5,322.3 410.3 10,426.5 12,432.1 Percent 4.1 18.5 5.9 5.2 12.7 23.9 25.9

Communications 62.4 737.9 2,191.1 466.3 67.9 641.2 244.2 Percent 3.2 0.4 1.5 0.5 2.1 1.5 0.5

Construction 22.4 2,752.6 402.9 126.1 29.2 1,041.2 336.1 Percent 1.2 1.5 0.3 0.1 0.9 2.4 0.7

Insurance 8.0 548.2 1,115.9 365.6 57.2 292.4 252.8 Percent 0.4 0.3 0.7 0.4 1.8 0.7 0.5

Financial services 26.2 145.4 2,071.0 2,557.2 - 71.3 - Percent 1.4 0.1 1.4 2.5 - 0.2 -

Computer and information services 31.2 2,957.7 29,186.3 239.9 98.0 571.6 - Percent 1.6 1.6 19.4 0.2 3.0 1.3 -

Royalties and license fees 0.3 204.5 111.6 2,010.6 - 26.2 46.4 Percent 0.0 0.1 0.1 2.0 - 0.1 0.1

Personal, cultural and recreational services 2.6 137.4 217.8 368.5 - 864.0 - Percent 0.1 0.1 0.1 0.4 - 2.0 -

Government services 731.3 578.7 297.2 1,488.2 21.2 109.3 186.2 Percent 37.8 0.3 0.2 1.5 0.7 0.3 0.4

Commercial services 602.6 91,420.5 75,057.0 50,385.2 1,603.7 21,721.7 23,943.7 Percent 31.1 49.8 49.9 49.3 49.7 49.9 49.8

Other business services 280.5 28,972.5 23,197.6 13,070.6 190.4 3,559.4 5,255.0 Percent 14.5 15.8 15.4 12.8 5.9 8.2 10.9

Total services 1,936.4 183,419.8 150,411.2 102,258.6 3,228.6 43,552.7 48,073.6

Source: Handbook of Statistics, UNCTAD

65

Table 38: RCA-Export of Services

APTA member countries Prospective countries Service Types

Bangladesh China India Korea Sri Lanka Malaysia Thailand

Communications 1.93 0.33 1.20 0.37 1.73 1.21 0.42

Computer and information services 0.52 0.71 8.56 0.10 1.33 0.58 -

Construction 0.84 1.49 0.27 0.12 0.90 2.38 0.69

Financial services 0.27 0.02 0.38 0.69 - 0.05 -

Government services 24.38 0.28 0.18 1.28 0.58 0.22 0.34

Insurance 0.28 0.28 0.69 0.33 1.65 0.63 0.49

Other business services 0.85 1.27 1.24 1.01 0.47 0.66 0.88

Personal, cultural and recreational services 0.18 0.14 0.27 0.66 - 3.67 -

Royalties and license fees 0.00 0.05 0.03 0.79 - 0.02 0.04

Other services 1.71 0.79 1.53 0.78 0.56 0.64 0.51

Transport 0.31 1.05 0.46 2.29 2.12 0.89 1.02

Travel 0.23 1.42 0.46 0.39 0.97 1.84 1.98

Commercial services 0.47 1.04 1.05 1.02 1.04 1.04 1.04

Source: Handbook of Statistics, UNCTAD

VII. Conclusions

In conclusion, APTA offers a number of good reasons for Malaysia, Thailand, and Vietnam to join the agreement. Attractive factors are the sheer market size, good growth prospects of existing members, potential trade creation, high degree of product differentiation, and gains from tariff reductions under concession lists. After analyzing potential gains/losses to Malaysia, Thailand, and Viet Nam, by identifying gains/losses within each country’s various sectors. Comparing trade indicators of the three prospective countries identify effects from “trade creation” and “trade diversion” at the sectoral level. All three prospective countries are found to receive net positive gains from trading with APTA countries. There are some industries that might contribute extra benefits to exporters from those countries if they were able to enhance their competitiveness in the global market. Extra benefits will be created from sectors in which exporters from the three prospective countries are not yet competitive in the world market, while APTA countries are strong importers of those products.

Nevertheless, given proliferating preferential trading agreements, APTA is not as attractive as it would be if it were alone. The gains from joining APTA are based on the tariff level. A high tariff barrier to non-member countries is a good reason for a country to apply for membership. Especially when the concessions are compared, there is still more room for the prospective countries to benefit from signing on to the agreement and enjoying trade potential under the current concessions, for items that are both actively and inactively imported by APTA member countries. However, the effects would vary by degree of Margin of Preference imposed on each specific item.

By forecasting the increase in benefits according to further tariff concessions by estimating export demand from Malaysia, Thailand, and Vietnam to APTA member countries. Among APTA member countries, China is the country that contributes the most potential export gains to those three prospective countries, followed by Korea, India, Sri Lanka, and Bangladesh.

However, APTA may possibly distract three prospective countries from the effect called the “Spaghetti Bowl” in which free trade agreements between Malaysia, Thailand, and Vietnam and those APTA member countries have been already signed and named as different agreements, for example, the bilateral agreements between Thailand-India, Thailand-China, Malaysia-India, Malaysia-Korea, and Vietnam-Korea and the multilateral agreements between ASEAN-China, ASEAN-Korea, ASEAN-India, ASEAN+3 (China, Japan, Korea), BIMSTEC, etc. With limited resources, before joining and enjoying benefits received from APTA, each three prospective countries have to prioritize all potential agreements. This is both a political as well as an economic issue determining the order of PTA attractiveness.

67

Reference

Pholphirul, P. 2006. “Potential Gains to Thailand from Joining the Bangkok Agreement”, NIDA Economic Review, Vol. 1, No. 2, pp. 1-20.

Pholphirul, P. and P. Vichyanond. 2008. “Thailand,” in Chapter 7 of Jose M. Fanelli (Editor), Macroeconomic Volatility, Institutions, and Financial Architectures: The Developing World Experience, pp.157-189, London: The Palgrave Macmillan Publishing.

Sauvé, P. 2007. "Investment regulation through trade agreements: Lessons from Asia" in the Chapter II of ESCAP, Towards coherent policy frameworks: understanding trade and investment linkages, Trade and Investment Studies, No. 62, United Nations, pp.27-64.

UNESCAP. 2002. Trade Facilitation Handbook for the Greater Mekong Subregion, Bangkok: United Nations.

68

Appendix Table A: The Two-Digit Harmonized System (HS) HS Product Descriptions HS Product Descriptions 01 Live animals 02 Meat and edible meat offal 03 Fish, crustaceans, molluscs, aquatic invertebrates nes 04 Dairy products, eggs, honey, edible animal product nes 05 Products of animal origin, nes 06 Live trees, plants, bulbs, roots, cut flowers etc 07 Edible vegetables and certain roots and tubers 08 Edible fruit, nuts, peel of citrus fruit, melons 09 Coffee, tea, mate and spices 10 Cereals 11 Milling products, malt, starches, inulin, wheat gluten 12 Oil seed, oleagic fruits, grain, seed, fruit, etc, nes 13 Lac, gums, resins, vegetable saps and extracts nes 14 Vegetable plaiting materials, vegetable products nes 15 Animal,vegetable fats and oils, cleavage products, etc 16 Meat, fish and seafood food preparations nes 17 Sugars and sugar confectionery 18 Cocoa and cocoa preparations 19 Cereal, flour, starch, milk preparations and products 20 Vegetable, fruit, nut, etc food preparations 21 Miscellaneous edible preparations 22 Beverages, spirits and vinegar 23 Residues, wastes of food industry, animal fodder 24 Tobacco and manufactured tobacco substitutes 25 Salt, sulphur, earth, stone, plaster, lime and cement 26 Ores, slag and ash 27 Mineral fuels, oils, distillation products, etc 28 Inorganic chemicals, precious metal compound, isotopes 29 Organic chemicals 30 Pharmaceutical products 31 Fertilizers 32 Tanning, dyeing extracts, tannins, derivs,pigments etc 33 Essential oils, perfumes, cosmetics, toileteries 34 Soaps, lubricants, waxes, candles, modelling pastes 35 Albuminoids, modified starches, glues, enzymes 36 Explosives, pyrotechnics, matches, pyrophorics, etc 37 Photographic or cinematographic goods 38 Miscellaneous chemical products 39 Plastics and articles thereof 40 Rubber and articles thereof 41 Raw hides and skins (other than furskins) and leather 42 Articles of leather, animal gut, harness, travel goods 43 Furskins and artificial fur, manufactures thereof 44 Wood and articles of wood, wood charcoal 45 Cork and articles of cork 46 Manufactures of plaiting material, basketwork, etc. 47 Pulp of wood, fibrous cellulosic material, waste etc 48 Paper & paperboard, articles of pulp, paper and board 49 Printed books, newspapers, pictures etc 50 Silk 51 Wool, animal hair, horsehair yarn and fabric thereof 52 Cotton 53 Vegetable textile fibres nes, paper yarn, woven fabric 54 Manmade filaments 55 Manmade staple fibres 56 Wadding, felt, nonwovens, yarns, twine, cordage, etc 57 Carpets and other textile floor coverings 58 Special woven or tufted fabric, lace, tapestry etc 59 Impregnated, coated or laminated textile fabric 60 Knitted or crocheted fabric 61 Articles of apparel, accessories, knit or crochet 62 Articles of apparel, accessories, not knit or crochet 63 Other made textile articles, sets, worn clothing etc 64 Footwear, gaiters and the like, parts thereof 65 Headgear and parts thereof 66 Umbrellas, walking-sticks, seat-sticks, whips, etc 67 Bird skin, feathers, artificial flowers, human hair 68 Stone, plaster, cement, asbestos, mica, etc articles 69 Ceramic products 70 Glass and glassware 71 Pearls, precious stones, metals, coins, etc 72 Iron and steel 73 Articles of iron or steel 74 Copper and articles thereof 75 Nickel and articles thereof 76 Aluminum and articles thereof 77 Reserved for Possible Future Use 78 Lead and articles thereof 79 Zinc and articles thereof 80 Tin and articles thereof 81 Other base metals, cermets, articles thereof 82 Tools, implements, cutlery, etc of base metal 83 Miscellaneous articles of base metal 84 Nuclear reactors, boilers, machinery, etc 85 Electrical, electronic equipment 86 Railway, tramway locomotives, rolling stock, equipment 87 Vehicles other than railway, tramway 88 Aircraft, spacecraft, and parts thereof 89 Ships, boats and other floating structures 90 Optical, photo, technical, medical, etc apparatus 91 Clocks and watches and parts thereof 92 Musical instruments, parts and accessories 93 Arms and ammunition, parts and accessories thereof 94 Furniture, lighting, signs, prefabricated buildings 95 Toys, games, sports requisites 96 Miscellaneous manufactured articles 97 Works of art, collectors pieces and antiques 99 Commodities not elsewhere specified

69

Table B: The International Standard Industrial Classification (ISIC)

1 - Agriculture, Hunting, Forestry and Fishing

11 - Agriculture and Hunting 12 - Forestry and logging 13 - Fishing

2 - Mining and Quarrying 21 - Coal Mining 22 - Crude Petroleum and Natural Gas Production 23 - Metal Ore Mining 29 - Other Mining

3 - Manufacturing 31 - Manufacture of Food, Beverages and Tobacco 32 - Textile, Wearing Apparel and Leather Industries 33 - Manufacture of Wood and Wood Products, Including Furniture 34 - Manufacture of Paper and Paper Products, Printing and Publishing 35 - Manufacture of Chemicals and Chemical, Petroleum, Coal, Rubber and

Plastic Products 36 - Manufacture of Non-Metallic Mineral Products, except Products of

Petroleum and Coal 37 - Basic Metal Industries 38 - Manufacture of Fabricated Metal Products, Machinery and Equipment 39 - Other Manufacturing Industries

70

Table C: RCA-Export and RCA-Import (HS-2 Digit)

RCAx RCAm RCAx RCAm RCAx RCAm RCAx RCAm RCAx RCAm RCAx RCAm RCAx RCAm RCAx RCAm01 0.07 1.00 0.61 1.00 0.10 1.00 0.00 1.00 0.29 1.00 0.06 1.00 0.00 1.00 0.01 1.0002 0.04 0.02 0.01 2.76 0.17 2.56 0.00 0.49 0.14 0.76 1.02 26.07 0.01 10.01 0.02 2.3903 3.19 0.02 0.61 2.69 13.38 194.43 7.97 0.09 0.94 0.07 2.37 0.77 0.45 4.07 5.16 8.2704 0.25 0.12 0.29 1.95 0.77 0.28 0.00 0.03 0.08 0.07 0.36 1.47 0.01 0.99 0.11 2.2705 0.36 0.03 0.09 0.98 0.56 136.95 0.64 1.73 2.30 1.44 0.67 1.92 0.22 17.42 0.29 4.0306 0.60 0.06 0.31 0.19 0.18 17.95 0.14 1.56 0.09 0.03 0.93 1.61 0.11 5.12 1.57 13.4607 1.62 0.01 0.21 0.44 1.12 19.96 0.42 0.01 1.21 0.17 1.55 0.99 0.08 1.36 0.60 1.8908 0.60 0.02 0.11 4.31 4.02 12.54 0.10 5.97 0.30 0.12 1.59 2.77 0.06 3.03 1.68 14.3509 0.20 0.12 0.21 55.34 16.97 126.43 0.32 0.89 0.56 0.64 5.15 27.18 0.02 3.34 52.89 1377.7710 4.93 0.00 0.01 1.32 10.15 0.93 0.06 2.72 0.26 0.01 3.25 0.69 0.00 0.00 0.05 0.0511 4.69 0.01 0.38 0.44 3.19 0.76 0.05 8.98 0.32 0.02 0.41 0.09 0.13 0.79 9.54 10.4312 0.25 0.02 0.05 1.96 0.76 12.18 0.04 1.32 0.51 0.47 1.58 6.61 0.19 22.19 1.00 20.6513 0.88 0.01 0.08 0.99 1.36 0.26 0.00 2.49 0.55 0.14 10.61 12.49 0.65 21.21 0.79 4.6014 0.92 0.03 0.27 2.96 4.25 130.73 1.55 1.26 1.18 0.29 4.50 5.07 0.03 0.85 93.02 517.1815 0.41 3.03 11.72 0.23 0.15 29.56 0.16 0.75 0.11 0.06 0.69 1.73 0.02 1.34 3.96 48.9816 12.53 0.00 0.32 0.19 3.80 2.72 0.44 10.75 2.32 0.04 0.64 0.05 0.21 0.48 0.23 0.0917 2.71 0.01 0.34 0.05 0.22 1.06 0.04 0.04 0.19 0.02 2.44 0.93 0.29 3.13 0.13 0.2518 0.18 1.09 1.82 0.03 0.01 0.00 - 13.58 0.07 0.08 0.04 0.21 0.05 7.70 0.17 4.9019 1.13 0.09 0.92 0.78 1.37 8.06 0.12 0.05 0.33 0.07 0.39 0.36 0.40 10.36 0.25 1.1620 3.39 0.00 0.15 0.14 0.71 0.48 0.02 0.58 1.31 0.09 0.51 0.16 0.14 1.18 0.60 0.9121 2.06 0.04 0.69 0.13 0.42 0.39 0.01 0.05 0.34 0.04 0.56 0.28 0.42 5.94 1.38 3.4422 0.30 0.11 0.31 0.31 0.14 4.43 0.02 0.29 0.20 0.15 0.08 0.29 0.14 13.44 0.08 1.3423 1.71 0.03 0.43 0.03 0.09 1.86 0.04 0.07 0.20 0.03 3.66 2.22 0.06 0.99 1.35 4.0424 0.29 0.26 0.70 3.63 1.63 164.96 0.61 3.12 0.27 0.21 1.37 4.96 0.57 57.71 2.42 43.0025 2.07 0.03 0.59 0.14 0.46 5.14 0.14 0.55 1.13 0.12 3.74 1.88 0.39 5.46 0.60 1.4926 0.07 0.03 0.02 4.14 0.42 0.46 0.00 6.09 0.12 0.42 4.84 77.01 0.03 15.16 0.30 23.4327 0.34 0.29 0.94 3.53 1.87 5.87 0.03 0.15 0.12 0.08 1.02 3.12 0.44 37.40 0.01 0.1128 0.27 0.12 0.31 0.15 0.06 149.25 0.52 0.28 1.15 0.97 0.93 3.57 0.44 46.75 0.20 3.7129 0.79 0.09 0.64 0.08 0.09 0.25 0.00 1.15 0.65 0.19 1.83 2.42 1.58 58.12 0.02 0.1030 0.06 0.05 0.03 0.26 0.02 147.64 0.11 0.62 0.07 0.25 1.05 18.55 0.05 26.64 0.01 1.0531 0.18 0.46 0.75 1.07 0.29 1031.72 2.32 0.34 0.50 0.65 0.04 0.21 0.31 50.64 0.14 4.2332 0.38 0.13 0.47 0.09 0.06 0.63 0.00 4.88 0.65 0.39 1.67 4.61 0.72 55.48 0.09 1.1633 1.03 0.02 0.21 0.14 0.22 0.38 0.01 2.88 0.28 0.06 0.79 0.79 0.18 4.99 0.30 1.4834 0.80 0.14 1.04 0.78 0.97 7.40 0.08 0.54 0.41 0.12 0.38 0.50 0.34 12.32 0.35 2.2635 1.90 0.01 0.22 0.14 0.41 2.48 0.06 1.16 0.54 0.06 0.74 0.41 0.45 6.88 0.04 0.1036 0.29 0.07 0.20 0.22 0.10 0.00 - 0.94 2.29 1.80 1.22 4.39 0.18 17.93 0.08 1.4237 0.11 0.38 0.38 0.36 0.06 3.60 0.00 0.24 0.47 0.98 0.14 1.30 0.42 112.87 0.01 0.4438 0.28 0.54 1.42 0.27 0.12 0.62 0.00 1.27 0.49 0.40 1.02 3.79 0.53 54.48 0.45 8.2739 1.55 0.06 0.87 0.17 0.41 4.19 0.08 1.20 0.72 0.10 0.68 0.45 1.48 27.59 0.28 0.9240 6.85 0.05 3.06 0.27 2.87 0.18 0.02 1.25 0.78 0.03 0.96 0.15 1.24 5.26 8.95 6.7041 1.07 0.01 0.07 0.37 0.61 594.93 8.21 0.56 0.75 0.16 2.43 2.35 1.06 28.64 0.08 0.4042 0.76 0.01 0.10 2.80 3.30 25.94 0.25 0.79 3.97 1.19 2.99 4.10 0.11 4.23 1.39 9.4043 0.03 0.06 0.02 1.81 0.09 4.71 0.00 0.12 2.03 14.93 0.00 0.08 0.08 79.63 0.00 0.0844 0.89 0.38 3.14 0.60 0.83 0.41 0.00 0.03 0.96 0.25 0.11 0.13 0.02 0.57 0.49 2.8345 0.00 1.15 0.01 0.91 0.00 0.00 - 0.09 0.15 34.57 0.06 63.97 0.01 177.45 0.00 4.8546 0.61 0.01 0.04 26.63 25.25 165.40 1.29 0.09 7.94 2.96 0.27 0.46 0.07 3.15 1.82 15.3747 0.36 0.01 0.02 0.00 0.00 0.04 0.00 0.05 0.02 0.02 0.00 0.01 0.02 1.47 0.67 9.4648 0.68 0.04 0.28 0.27 0.28 1.81 0.02 1.18 0.45 0.15 0.29 0.44 0.56 24.13 0.17 1.2749 0.25 0.20 0.47 0.13 0.05 10.81 0.03 1.56 0.47 0.42 0.63 2.61 0.18 20.66 0.44 8.9250 0.73 0.00 0.01 3.53 4.04 1.29 0.01 0.49 5.27 1.63 11.00 15.59 1.41 55.76 0.02 0.1451 0.43 0.07 0.30 0.18 0.12 0.14 0.00 1.58 1.85 0.98 0.62 1.50 0.30 20.08 0.01 0.1152 0.98 0.02 0.21 0.23 0.35 31.20 0.39 3.31 2.20 0.51 7.47 7.94 0.52 15.50 0.58 3.0653 0.27 0.01 0.03 2.87 1.20 25318.61 87.40 34.54 2.26 1.91 3.91 15.10 0.32 33.99 20.23 385.6754 1.39 0.10 1.35 0.46 0.98 5.79 0.10 3.17 2.16 0.35 2.58 1.93 2.66 55.62 0.27 1.0155 3.17 0.02 0.62 0.32 1.57 2.15 0.09 9.07 2.38 0.17 3.46 1.13 1.73 15.77 1.10 1.7756 1.40 0.05 0.62 0.47 1.02 38.27 0.69 20.56 0.86 0.14 0.56 0.42 1.52 31.53 1.13 4.1357 0.92 0.02 0.13 0.23 0.33 17.27 0.20 2.02 1.04 0.26 9.05 10.24 0.11 3.34 1.11 6.1758 1.34 0.02 0.19 0.30 0.64 13.35 0.23 0.18 3.44 0.58 1.30 1.01 2.12 46.01 2.54 9.7559 0.79 0.02 0.14 0.28 0.35 2.44 0.02 20.75 1.54 0.44 0.46 0.61 2.55 93.56 0.04 0.2460 0.68 0.06 0.38 0.27 0.29 11.61 0.10 5.40 2.66 0.89 0.34 0.51 4.95 211.58 0.96 7.2361 1.31 0.03 0.41 2.16 4.41 2018.27 33.95 18.73 3.82 0.66 2.36 1.87 0.30 6.57 18.62 72.8662 0.88 0.03 0.24 4.50 6.16 2589.02 29.22 0.11 3.40 0.88 3.15 3.72 0.19 6.10 19.51 113.7563 0.76 0.03 0.19 2.13 2.54 1221.41 11.96 0.16 4.13 1.23 6.04 8.23 0.52 19.75 2.36 15.8664 1.15 0.02 0.17 8.26 14.75 109.87 1.62 0.19 3.61 0.72 1.57 1.42 0.23 5.82 0.64 2.8665 0.80 0.04 0.28 5.56 6.94 2534.98 26.06 0.22 4.32 1.22 0.26 0.33 1.17 42.22 8.99 57.5366 0.28 0.01 0.02 0.45 0.19 7.42 0.03 0.31 7.76 6.36 0.09 0.33 0.05 5.58 0.08 1.4767 1.60 0.00 0.02 0.37 0.93 7.70 0.16 2.15 6.22 0.88 4.51 2.93 0.38 6.99 2.47 7.9268 0.55 0.07 0.37 0.69 0.59 1.00 0.01 0.08 1.37 0.57 2.39 4.53 0.44 23.32 1.18 11.0169 1.77 0.03 0.46 0.98 2.70 38.55 0.88 0.64 2.30 0.30 0.45 0.26 0.12 1.98 2.53 7.3270 0.88 0.08 0.65 0.16 0.22 2.05 0.02 0.59 1.34 0.35 0.56 0.66 0.58 19.07 0.09 0.5271 1.43 0.04 0.55 0.10 0.22 0.20 0.00 0.44 0.36 0.06 6.47 4.70 0.30 6.08 2.91 10.4272 0.42 0.08 0.32 0.31 0.21 13.02 0.07 0.06 0.95 0.51 1.62 4.01 1.57 108.42 0.03 0.3873 0.95 0.09 0.81 0.38 0.57 1.43 0.02 1.30 1.60 0.38 1.56 1.70 1.04 31.81 0.12 0.6774 0.74 0.09 0.64 0.02 0.03 16.95 0.16 0.63 0.54 0.16 2.14 3.00 1.10 42.85 1.24 8.5575 0.03 0.12 0.03 0.04 0.00 0.00 - 0.33 0.21 1.78 0.09 3.41 0.45 473.41 0.00 0.3276 0.60 0.09 0.48 0.19 0.18 0.41 0.00 0.04 0.83 0.32 0.57 0.98 0.53 25.74 0.33 2.8678 0.11 0.96 0.95 0.38 0.06 0.00 - 0.68 2.13 4.55 0.61 5.97 0.54 146.31 2.04 98.3879 0.20 0.16 0.30 0.17 0.05 24.06 0.06 2.54 0.91 1.03 3.54 18.34 1.87 270.02 0.11 2.8580 4.88 0.09 4.16 0.17 1.31 0.00 0.00 4.56 0.78 0.04 0.45 0.09 0.32 1.91 0.36 0.3781 0.30 0.02 0.07 0.12 0.06 0.00 - 0.65 2.24 1.71 0.23 0.81 0.52 50.26 0.00 0.0382 0.35 0.11 0.34 1.20 0.65 2.65 0.01 0.07 1.76 1.15 1.16 3.50 0.99 83.05 0.13 1.8783 0.80 0.05 0.35 0.20 0.25 0.69 0.01 0.40 1.88 0.53 0.59 0.77 0.46 16.64 0.17 1.0684 1.40 0.12 1.55 0.12 0.27 1.93 0.03 0.75 1.47 0.24 0.31 0.23 0.99 20.58 0.15 0.5385 1.31 0.19 2.29 0.17 0.35 1.08 0.02 0.98 1.73 0.30 0.24 0.19 1.94 42.82 0.18 0.7086 0.02 0.64 0.14 0.48 0.02 126.94 0.04 0.70 3.17 30.69 0.28 12.43 0.35 427.49 0.06 13.3787 0.93 0.01 0.07 0.09 0.13 2.66 0.03 0.61 0.28 0.07 0.36 0.40 1.58 49.12 0.09 0.5188 0.69 0.03 0.19 0.01 0.01 0.77 0.01 0.37 0.09 0.03 0.04 0.06 0.12 5.20 0.15 1.1389 0.16 0.52 0.78 0.41 0.10 2.74 0.01 0.21 1.11 1.58 1.08 7.03 8.75 1590.14 0.22 7.1790 0.53 0.16 0.80 0.12 0.10 5.03 0.03 0.62 1.09 0.46 0.21 0.40 1.84 99.75 0.16 1.5491 1.32 0.03 0.37 0.08 0.16 0.25 0.00 0.35 0.91 0.16 0.16 0.12 0.14 3.10 0.13 0.4992 0.28 0.24 0.64 0.75 0.33 3.41 0.01 0.20 2.46 1.99 0.21 0.77 1.40 145.15 0.18 3.2593 0.24 0.01 0.02 0.07 0.03 361.62 1.10 0.09 0.06 0.06 0.05 0.20 0.60 73.19 - 0.0094 0.92 0.15 1.27 2.53 3.65 1.89 0.02 0.33 2.52 0.62 0.29 0.33 0.20 6.15 0.28 1.5495 0.89 0.04 0.33 0.30 0.41 20.50 0.23 0.13 4.09 1.05 0.18 0.21 0.21 7.00 1.22 7.0296 1.00 0.07 0.67 0.71 1.11 3.53 0.05 0.11 2.70 0.61 0.88 0.92 0.90 26.31 2.60 13.3797 0.01 0.20 0.03 0.35 0.01 236.01 0.05 6.83 0.05 0.72 2.38 166.40 0.74 1452.39 0.04 12.9499 0.47 0.12 0.55 0.25 0.19 11.14 0.07 0.01 0.09 0.04 0.44 0.96 - 0.00 0.13 1.42

India Korea, Rep. Sri LankaMalaysia Vietnam Bangladesh China Product Thailand

71

Table D: Tentative Concessions for Malaysia, Thailand, and Vietnam (HS-6 Digit) if Joining APTA (The active importing items in which RCAm > 1 for Malaysia, Thailand, and Vietnam and RCAx > 1 for integrated APTA member countries)

Malaysia = 541 Commodities

291713, 291731, 291735, 291739, 291811, 291829, 291900, 292112, 292242, 292310,

292610, 292990, 293020, 293100, 293311, 293319, 293352, 293361, 293721, 293890, 310221, 310310, 310390, 310559, 320417, 320490, 320620, 320641, 320642, 320650, 320720, 321210, 330741, 370295, 380520, 380690, 381210, 381700, 382479, 390311, 390320, 390330, 390610, 390710, 390740, 391110, 391220, 392069, 392071, 392340, 392690, 400219, 400220, 400259, 400300, 401019, 401390, 401511, 401700, 410791, 411390, 480254, 481014, 481032, 482312, 482319, 482390, 520511, 520521, 520522, 520541, 520542, 520546, 520622, 520790, 520811, 520829, 520831, 520911, 520931, 521011, 521029, 521129, 530390, 540120, 540252, 540349, 540710, 540752, 540754, 540771, 540773, 540774, 540821, 550320, 550340, 550620, 550953, 550959, 551090, 551311, 551319, 551339, 551343, 551349, 551411, 551413, 551419, 551443, 551449, 551691, 560710, 560790, 560811, 560890, 570390, 580121, 580124, 580131, 580135, 580230, 580429, 590210, 590220, 590900, 600110, 600121, 600191, 600192, 610339, 610349, 610419, 610799, 610899, 611219, 611249, 611300, 611599, 611692, 611699, 611720, 611790, 620412, 620590, 620799, 620819, 620899, 621139, 621390, 621490, 621790, 630190, 630292, 630311, 630411, 630590, 640320, 640590, 680410, 680423, 681190, 681270, 681290, 690210, 690290, 691490, 700210, 701120, 701190, 701310, 701339, 701912, 701990, 702000, 710590, 711419, 720219, 720230, 720299, 720712, 720839, 720851, 720915, 720917, 720918, 721030, 721061, 721069, 721123, 721190, 721220, 721399, 721410, 721610, 721730, 721790, 721911, 721913, 721914, 721934, 721935, 722100, 722240, 722519, 722710, 730490, 730512, 730519, 730690, 730711, 730719, 730721, 730722, 730791, 730792, 730793, 730799, 731290, 731600, 731811, 731819, 731823, 731824, 731910, 731920, 731930, 731990, 030193, 030349, 030376, 030379, 030624, 070310, 070320, 070610, 071190, 071220, 071231, 071232, 071331, 071332, 071390, 071490, 081340, 090411, 090412, 090420, 090810, 090910, 090920, 090930, 090950, 091010, 091030, 100630, 100820, 110429, 110812, 110819, 120210, 120220, 120300, 121110, 121120, 121190, 130190, 130231, 140200, 140490, 151540, 151550, 160415, 190230, 190300, 200811, 210112, 230210, 251110, 251320, 252310, 252520, 252910, 262110, 270500, 271099, 280512, 280519, 280800, 281119, 281511, 281520, 281640, 282010, 282110, 282300, 282410, 282580, 282611, 282619, 282620, 282710, 282732, 282735, 282739, 282751, 282759, 282810, 283210, 283230, 283321, 283324, 283325, 283326, 283329, 283429, 283510, 283522, 283523, 283524, 283525, 283529, 283531, 283539, 283610, 283620, 283630, 283640, 283660, 283699, 283719, 283720, 283990, 284150, 284610, 290124, 290220, 290230, 290241, 290243, 290342, 290345, 290410, 290542, 290549, 290619, 290960, 291241, 291421, 291529, 291531, 291631, 732599, 732619, 732620, 732690, 740321, 740821, 740921, 740931, 741011, 741021, 741110, 741129, 741533, 741700, 760529, 760691, 760719, 761490, 761691, 780110, 780411, 790120, 790310, 790400, 800400, 800700, 811299, 820110, 820130, 820140, 820510, 820570, 820590, 820820, 821194, 821210, 821490, 830130, 830220, 830250, 830400, 830510, 830590, 830790, 831000, 831110, 831130, 831190, 840290, 840410, 840420, 840490, 840610, 840732, 841340, 841381, 841392, 841420, 841829, 842420, 842511, 842519, 842790, 842840, 843049, 844351, 844790, 844820, 844841, 844859, 845012, 845129, 845140, 845180, 845229, 845380, 845510, 845522, 845819, 845899, 845929, 845959, 846090, 846150, 846239, 846299, 846320, 846591, 846592, 846781, 846880, 846890, 846920, 846930, 847029, 847030, 847170, 847330, 847510, 847960, 848010, 848020, 848041, 848079, 848291, 848320, 850110, 850120, 850134, 850140, 850431, 850434, 850440, 850450, 850490, 850511, 850519, 850730, 850780, 850990, 851511, 851529, 851679, 851690, 851810, 851829, 851830, 851890, 851999, 852290, 852910, 852990, 853120, 853190, 853222, 853224, 853340, 853400, 853510, 853661, 854011, 854060, 854089, 854091, 854099, 854110, 854121, 854130, 854140, 854160, 854419, 854420, 854511, 854590, 854620, 854790, 860290, 860900, 870110, 871419, 890120, 890520, 900140, 900669, 900691, 900999, 901180, 901910, 902890, 903020, 903031, 903130, 910219, 910291, 910390, 910519, 910529, 910599, 910911, 911410, 920110, 920710, 950659, 950669, 950720, 950730, 960350, 960500, 960899, 960920

72

Thailand = 646 Commodities 030349, 030379, 030624, 030741, 030749, 041000, 050210, 050290, 070610, 070890,

071151, 071159, 071231, 071232, 071239, 090420, 090920, 100820, 110819, 120210, 121110, 121220, 121299, 130190, 130231, 130232, 140110, 140300, 150500, 151530, 151540, 200830, 200840, 210112, 210310, 230500, 230649, 230690, 251320, 251612, 252520, 262190, 271099, 271210, 271220, 280469, 280480, 280800, 281119, 281511, 281520, 281640, 281700, 281910, 282010, 282120, 282300, 282410, 282520, 282580, 282619, 282620, 282690, 282710, 282720, 282735, 282739, 282810, 282919, 283010, 283110, 283210, 283230, 283311, 283321, 283324, 283329, 283330, 283340, 283429, 283510, 283522, 283524, 283525, 283531, 283539, 283610, 283620, 283630, 283660, 283699, 283711, 283719, 283800, 283911, 283990, 284161, 284690, 290124, 290243, 290244, 290250, 290330, 290342, 290349, 290516, 290542, 290611, 290613, 290621, 290723, 290960, 291421, 291511, 291522, 291529, 291531, 291539, 291620, 291631, 291712, 291731, 291735, 291739, 291815, 291821, 291823, 291829, 292151, 292221, 292242, 292310, 292511, 292610, 292700, 292910, 293020, 293030, 293212, 293361, 293622, 293623, 293624, 293625, 293627, 293628, 293629, 293942, 294110, 310221, 310310, 310530, 310540, 310559, 320210, 320411, 320412, 320413, 320414, 320415, 320416, 320420, 320490, 320500, 320620, 320641, 320642, 320650, 320720, 321210, 330124, 370295, 380190, 380690, 380810, 381210, 381700, 382479, 390320, 390330, 390710, 391110, 391310, 391739, 391890, 392069, 392071, 392094, 392329, 392340, 392690, 400219, 400220, 400259, 400300, 401019, 401310, 401390, 401694, 401695, 401700, 410530, 410719, 430400, 470610, 480990, 481019, 481730, 482319, 482390, 500100, 500310, 500400, 500500, 510510, 511119, 511120, 511190, 511230, 520100, 520411, 520526, 520541, 520542, 520547, 520632, 520641, 520642, 520644, 520645, 520811, 520812, 520819, 520821, 520822, 520832, 520833, 520842, 520843, 520849, 520853, 520859, 520932, 520941, 520943, 520949, 520951, 520959, 521011, 521029, 521032, 521041, 521042, 521049, 521121, 521211, 521222, 530310, 530919, 530929, 540110, 540120, 540220, 540233, 540243, 540249, 540262, 540349, 540610, 540620, 540741, 540742, 540751, 540754, 540761, 540769, 540771, 540772, 540773, 540774, 540781, 540783, 540821, 550120, 550320, 550390, 550620, 550810, 550921, 550922, 550953, 550959, 550961, 550969, 550992, 550999, 551311, 551319, 551329, 551331, 551349, 551419, 551511, 551529, 551592, 551599, 551611, 551623, 560290, 560500, 560729, 560790, 560890, 580122, 580123, 580124, 580133, 580190, 580220, 580421, 580429, 580610, 580620, 580632, 580710, 580790, 581010, 581092, 581099, 590210, 590220, 590390, 590700, 590900, 600191, 600192, 600320, 600490, 600532, 600590, 600622, 600623, 600632, 611790, 620799, 620819, 650699, 650700, 660310, 660320, 670490, 680423, 680430, 681190, 681270, 681290, 681591, 690290, 691410, 691490, 700521, 700991, 701120, 701200, 701339, 701690, 701959, 701990, 702000, 710122, 710239, 710391, 710399, 710691, 711419, 720120, 720230, 720711, 720712, 720838, 720839, 720915, 720916, 720917, 720918, 721030, 721049, 721050, 721061, 721069, 721070, 721090, 721119, 721129, 721190, 721220, 721230, 721240, 721391, 721399, 721730, 721790, 721913, 721934, 721935, 722090, 722100, 722220, 722240, 722300, 722519, 722520, 722830, 722990, 730421, 730429, 730539, 730690, 730721, 730722, 730791, 730793, 730799, 730820, 731100, 731290, 731300, 731414, 731449, 731589, 731811, 731816, 731819, 731822, 731823, 731824, 731920, 731990, 732112, 732690, 740321, 740721, 740821, 740921, 741011, 741021, 741110, 741121, 741129, 741521, 741820, 741910, 741999, 760529, 760691, 760719, 760900, 780110, 790120, 790310, 790400, 790700, 800400, 810110, 810196, 810199, 810320, 810390, 810920, 820299, 820570, 820580, 820590, 820740, 820810, 821194, 830130, 830220, 830810, 831000, 831110, 831120, 831130, 831190, 840211, 840212, 840219, 840220, 840410, 840420, 840682, 841320, 841381, 841420, 841430, 841590, 841829, 841861, 842420, 842511, 842519, 842619, 842790, 842833, 842840, 843830, 844140, 844351, 844400, 844511, 844513, 844520, 844711, 844790, 844820, 844841, 845012, 845020, 845090, 845140, 845180, 845221, 845229, 845290, 845320, 845380, 845490, 845510, 845521, 845811, 845819, 845899, 845929, 845940, 845959, 846090, 846150, 846239, 846299, 846320, 846719, 846820, 846880, 846920, 846930, 847141, 847290, 847330, 847751, 848010, 848020, 848041, 848071, 848079, 848291, 848320, 850110, 850120, 850131, 850140, 850431, 850434, 850450, 850511, 850519, 850530, 851230, 851511, 851529, 851610, 851730, 851890, 852033, 852290, 852390, 852729, 853120, 853180, 853222, 853225, 853400, 853669, 853929, 853990, 854011, 854012, 854060, 854071, 854089, 854091, 854099, 854110, 854130, 854160, 854389, 854419, 854451, 854470, 854511, 854590, 854620, 854790, 871419, 871491, 871492, 871493, 871494, 871495, 871499, 900190,

73

900220, 900290, 900662, 900669, 900691, 901180, 901710, 901730, 901780, 902580, 902830, 903130, 910219, 910291, 910400, 910519, 910599, 910610, 911220, 911430, 920110, 950659, 950720, 960350, 960621, 960622, 960629, 960711, 960719, 960720, 960839, 960840, 960910, 960920, 961380, 961390

Viet Nam = 746 Commodities 030349, 030379, 030510, 030614, 030741, 030749, 050210, 050510, 070320, 071220,

071232, 071331, 071332, 071390, 080132, 080290, 080450, 081340, 090220, 090411, 090950, 110720, 110819, 121110, 121190, 121299, 130190, 140110, 151550, 190300, 230210, 230220, 230500, 230649, 230690, 250610, 251400, 251612, 252310, 252520, 252910, 271210, 280480, 280800, 281511, 281700, 281910, 282010, 282110, 282120, 282300, 282619, 282710, 282732, 282735, 282810, 282919, 283110, 283190, 283210, 283230, 283311, 283321, 283324, 283325, 283326, 283329, 283330, 283340, 283429, 283522, 283523, 283524, 283525, 283529, 283531, 283539, 283610, 283620, 283630, 283640, 283699, 283719, 283720, 283800, 283919, 283990, 284150, 284161, 284210, 284910, 290230, 290244, 290342, 290345, 290362, 290516, 290543, 290549, 290611, 290613, 290890, 291241, 291421, 291511, 291522, 291531, 291539, 291631, 291711, 291731, 291732, 291735, 291739, 291811, 291814, 291816, 291821, 291823, 292214, 292241, 292242, 292310, 292511, 292700, 292910, 293311, 293353, 293621, 293622, 293623, 293624, 293625, 293626, 293627, 293628, 293629, 293721, 293921, 293941, 293942, 294110, 294120, 294130, 294140, 294190, 294200, 310221, 310430, 310530, 310540, 320210, 320411, 320414, 320415, 320416, 320417, 320420, 320490, 320500, 320620, 320641, 320642, 320650, 320720, 330124, 330190, 330730, 350610, 380190, 380210, 380520, 380810, 381210, 381700, 390210, 390311, 390320, 390330, 390610, 390710, 391110, 391220, 391739, 391890, 392069, 392094, 392220, 392329, 392340, 392620, 392690, 400219, 400220, 400259, 400300, 401019, 401034, 401120, 401162, 401610, 401692, 401694, 401700, 410310, 410622, 410631, 410719, 410799, 411200, 411310, 411320, 411390, 420340, 430310, 430400, 441219, 441223, 441293, 460199, 480254, 481014, 481019, 481032, 482319, 482390, 500200, 500400, 500500, 500600, 500710, 500790, 510400, 511000, 511190, 511220, 511300, 520100, 520411, 520420, 520514, 520522, 520524, 520526, 520531, 520541, 520542, 520644, 520645, 520710, 520790, 520811, 520813, 520819, 520821, 520829, 520832, 520839, 520859, 520911, 520919, 520921, 520929, 520931, 520932, 520939, 520942, 520949, 520959, 521011, 521012, 521019, 521029, 521039, 521041, 521049, 521119, 521121, 521129, 521132, 521139, 521141, 521142, 521159, 521211, 521212, 521215, 521222, 530310, 530390, 530890, 530911, 530929, 531090, 540110, 540120, 540220, 540233, 540242, 540243, 540249, 540252, 540261, 540262, 540310, 540331, 540341, 540610, 540620, 540710, 540741, 540742, 540751, 540752, 540769, 540771, 540781, 540782, 540791, 540792, 540831, 550320, 550340, 550390, 550410, 550620, 550810, 550820, 550921, 550922, 550932, 550942, 550952, 550969, 550999, 551020, 551090, 551130, 551211, 551219, 551221, 551229, 551299, 551313, 551319, 551322, 551323, 551329, 551331, 551339, 551343, 551349, 551411, 551413, 551419, 551421, 551422, 551423, 551429, 551432, 551439, 551443, 551449, 551511, 551512, 551519, 551529, 551591, 551592, 551599, 551611, 551612, 551613, 551621, 551622, 551623, 551631, 551632, 551641, 551642, 551644, 551691, 551692, 551693, 551694, 560290, 560391, 560392, 560394, 560410, 560710, 560729, 560749, 560811, 560819, 560890, 560900, 570259, 580121, 580123, 580124, 580131, 580132, 580190, 580220, 580230, 580310, 580390, 580410, 580421, 580429, 580430, 580500, 580610, 580620, 580710, 580790, 580810, 580890, 581099, 590110, 590190, 590210, 590220, 590310, 590320, 590390, 590700, 590900, 600110, 600121, 600191, 600310, 600320, 600410, 600490, 600532, 600590, 600621, 600622, 600632, 611699, 611720, 611780, 611790, 620819, 621010, 621390, 621520, 621710, 621790, 630590, 640610, 640620, 640691, 640699, 650700, 670100, 680223, 680410, 680423, 680430, 681270, 681290, 681490, 690210, 690290, 690790, 691410, 700991, 701020, 701120, 701190, 701329, 701610, 701919, 720510, 720711, 720719, 720837, 720838, 720839, 720851, 720890, 720915, 720916, 720917, 720918, 720925, 721050, 721061, 721070, 721090, 721119, 721123, 721129, 721190, 721220, 721230, 721240, 721391, 721399, 721410, 721621, 721633, 721720, 721730, 721913, 721914, 721934, 721935, 722090, 722100, 722300, 722519, 722710, 722830, 722990, 730300, 730429, 730431, 730490, 730539, 730610, 730630, 730650, 730690, 730719, 730722, 730792, 730799, 730840, 730900, 731029, 731100, 731210, 731290, 731449, 731511, 731582, 731589, 731600, 731819, 731822, 731824, 731930, 731990, 732112, 732190, 732619, 740821, 741129, 741521, 741533, 741700, 741910, 750810, 760410, 760529, 760719, 790111, 790120, 790310, 790400, 790600, 800400, 810196, 810199, 810296, 810920, 811300, 820239, 820299, 820530, 820580, 820740, 820750, 820810, 820820, 821300,

74

821490, 830110, 830130, 830249, 830590, 830810, 831110, 831120, 831130, 831190, 840211, 840212, 840219, 840220, 840610, 840682, 840732, 841340, 841381, 841392, 841510, 841821, 841829, 841830, 842111, 842410, 842420, 842511, 842519, 842531, 842542, 842619, 842620, 842790, 842832, 842833, 842840, 842952, 843041, 843049, 843050, 843319, 843830, 844140, 844400, 844511, 844513, 844520, 844530, 844711, 844790, 844820, 844841, 844859, 845012, 845090, 845129, 845140, 845180, 845221, 845229, 845230, 845240, 845290, 845320, 845380, 845410, 845490, 845510, 845521, 845522, 845699, 845819, 845899, 845929, 845940, 846090, 846150, 846239, 846299, 846320, 846591, 846592, 846781, 846820, 846880, 847010, 847141, 847290, 847510, 847960, 848010, 848020, 848079, 848320, 850134, 850220, 850410, 850423, 850450, 850490, 850511, 850790, 851120, 851511, 851529, 851610, 851730, 851890, 852451, 852520, 852821, 853510, 853661, 853929, 853990, 854091, 854099, 854419, 854460, 854470, 854511, 854590, 854620, 854790, 870110, 871120, 871419, 871491, 871493, 871494, 871495, 871499, 890120, 890800, 900211, 900691, 901180, 901710, 901780, 901812, 901910, 902580, 903031, 910400, 910610, 920110, 920710, 920920, 950659, 950661, 950720, 960310, 960621, 960622, 960629, 960630, 960711, 960719, 960720, 960820, 960899, 960920, 961390, 961610, 961620

Documents

Analyzing the Benefits of Joining the Asia-Pacific Trade ... on APTA benefits for Malaysia...The author would like to thank Miss Jirawan Piyasupasit for her excellent research assistance