Abstract
This article examines the trade creation and diversion effects of ASEAN-Plus-China (ACFTA) and -Japan (AJFTA) free trade agreements focusing on production stage and machinery industry by estimating the gravity trade model for the recent two decades between 1993 and 2015. The purpose for focusing on the trade flows by production stages (final goods and intermediate goods) and by industries (machinery and non-machinery) is to uncover the effects of ACFTA and AJFTA on the expanding international production networks in East Asia. The main findings are summarized as follows. First, regarding industry total, the trade creation effects of ACFTA and AJFTA are identified not in intermediate goods but in final goods. This might come from the larger tariff gaps between the Most Favored Nation (MFN) rates and the preferential rate for ASEAN in final goods than in intermediate goods, reflecting the structure of “tariff escalation”. Comparing the effects of ACFTA and AJFTA, larger trade creation effects are found in ACFTA than in AJFTA, probably due to the larger tariff gaps as a result of higher MFN rates in China. As for the machinery industry, the trade creation effects are verifiable regarding ACFTA probably due to the large tariff gaps with the still-existing high MFN in China, while no trade creation effects are found with the implementation of the AJFTA because of no tariff gaps with almost zero MFN rates.
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Notes
- 1.
See WTO webpage: http://rtais.wto.org/UI/PublicAllRTAList.aspx.
- 2.
- 3.
The latest version is “RIETI-TID 2015”. See the website: http://www.rieti-tid.com/trade.php.
- 4.
The “machinery” is the sum of general machinery, electronical machinery, household electric appliances, transportation equipment, and precision machinery.
- 5.
Baier and Bergstrand (2007) conducted the estimation using first-differenced data as well as fixed effects for robustness analysis and found no significant differences in the estimation outcomes. Thus, we herein only focus on the fixed-effect estimation.
- 6.
Scaling the left-hand side trade flow by-product of GDPs means imposing the restriction of unitary income elasticities. Baier and Bergstrand (2007), however, showed that imposing the unitary income elasticities had no impact on the FTA coefficient estimate.
- 7.
We also exclude Singapore Brunei due to transit-trading and oil producing country, respectively.
- 8.
See the website: http://www.imf.org/en/data. From the theoretical perspective, the price index for calculating a real exchange rate should be selected according to industries and production stages, considering the supply side of traded goods. Due to data constraints, however, the consumer price index is used to represent the prices regardless of industries and production stages in this study.
- 9.
See the website: https://wits.worldbank.org/WITS/WITS/Restricted/Login.aspx.
- 10.
The tariff escalation is explained by the glossary term by WTO as follows: “Higher import duties on semi-processed products than on raw materials, and higher still on finished products. This practice protects domestic processing industries and discourages the development of processing activity in the countries where raw materials originate.”
See the website: https://www.wto.org/english/thewto_e/glossary_e/tariff_escalation_e.htm.
- 11.
In Japan, since the MFN rates themselves are extremely low already in machinery industry, there are quite limited items as targets for AJFTA.
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Taguchi, H., Nishi, E.D. (2018). Trade Effects of ASEAN-Plus-China and -Japan Free Trade Agreements: With Focus on Production Stage and Machinery Industry. In: Ishikawa, T. (eds) Locational Analysis of Firms’ Activities from a Strategic Perspective. Springer, Singapore. https://doi.org/10.1007/978-981-13-1684-5_10
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