The Relative Importance of East Asia and Other Regions in World Trade

With the need for speedy recovery and building up of national security post the 1997 financial crisis, East Asian countries have observed a major development of regionalism, termed as 'new regionalism', in its region. This new regionalism mostly comes through the approach of bilateral agreements, both inter- and intra-regional6. Table 6 shows a list of proposed and actual regional trading arrangements undertaken by some East Asian countries.

Singapore has been one of the countries that is most aggressive in initiating bilateral agreements with other countries and parties inside and outside the East Asian region and will be even seeking more of them following the recent breakdown of the WTO talks in Cancun, Mexico. Bilateral trade has some advantages over multilateral trade and can even complement regional trade. Bilateral agreements like FTA and Closer Economic Partnership (CEP) as compared to multilateral agreements such as WTO are easier to deal with since it involves only two parties.

The large size of the WTO means its negotiations are harder to start and finish. On the other hand, bilateral arrangements are less time consuming and complicated. It can be said bilaterals provide a "fast track alternative to WTO". Countries that are prepared to embrace trade liberalisation now are able to proceed faster with bilateral arrangements. Other countries can access the bilaterals at a later stage when they are prepared to undertake the rights and obligations involved. Bilateralism can also be regarded as the building block for further multilateral liberalization.

Bilateral agreements between one East Asian country and a non-East Asian trigger similar initiatives by other individual East Asian countries with non-Asian countries. One such example would be the New Zealand – Singapore CEP Agreement. The initiation of such bilateral agreement is referred to by Singapore's Prime Minister, Mr Goh Chok Tong as an "intention to spin a web of interlocking free trade agreements between APEC members, which could help to move the organization toward achieving free trade in the Asia Pacific.

" (2000) Hence, with the implementation of the Singapore- New Zealand CEP agreement in 2001 and more recently the Singapore-USA FTA, in 2003, these moves can induce other Asian countries to start their own negotiations with other countries so that they will not be at the losing end. If such similar trade agreements are to be set up within Asia and its major trading partners, it will not only create free trade within Asia, but also between Asia and its trading partners which includes countries on the other parts of the globe.

In other words, bilateral FTAs or sub-regional FTAs between East Asian countries will also help retain foreign investors in AFTA, which would be seen as a single market by investors. Hence, this will not only complement AFTA implementation but also extend East Asia's outreach to the rest of the world. Additionally, these Asian trading partner countries may be in other forms of economic integration or agreements. The earlier mentioned Singapore-USA FTA whereby USA is both a major trading partner of Singapore in the electronics industry and a member of NAFTA demonstrates this.

This brings in the notion of bilateral agreements complementing RTAs. That is, they allow a regional trading area to expand consequentially and, in some cases, they allow two or more blocs to coalesce. While it may not be in the interests of a set of countries collectively to admit a new member, it may in the interest of one member to engage in bilateral agreements with an outside country. When this happens, there is greater incentive for other members to form bilateral agreements with the outside country.

In turn this may improve the benefits to members admitting the country to membership or, in cases where the outside country is itself a member of another RTA, a bilateral agreement could lead to coalescence of two areas. In this context, the Singapore-USA FTA, for example, in the long run can in fact coalesce the AFTA and NAFTA and create a bigger free trade area, one more further step towards global free trade: the 'grand coalition'.

This is because when Singapore, a member of the AFTA formed a free trade agreement with USA, a member of the NAFTA, the other members from both parties will naturally be more aware of each other in terms of what each country can offer to other countries and thus may express interest to negotiate more bilateral trade agreements across these two free trade agreements which, in the end, can lead to coalescence. Another illustration of such possible happening is the implemented Singapore-EFTA FTA in 2003.

Even if coalescence may not happen, the existence of many RTAs around the world such as AFTA, NAFTA, EFTA and many more, make bilateral agreements needed for supplementation of their formations to link all of the countries between which there is no free trade. One way of measuring crudely the significance of bilateral agreements to East Asian countries is to review its impact on trade of these economies since the shift of multilateralism to bilateralism after the financial crisis. Chart I Merchandise trade of Asian economies in financial crisis, 1995-00 (year to year % change)

As shown from the chart above, total trade of Asian economies have significantly improved from negative percentage changes during the crisis to large positive changes after that. This is largely due to the proliferation of RTAs in terms of bilateral agreements initiated by East Asian countries with countries inside and outside the region. This phenomenon is further illustrated by the figures in the table below which indicated that on the overall both East Asian intra- and inter-trade, in $billion and as a percentage of world trade, showed increases in the post crisis period from pre crisis period.