Question

Q1. Are East Asian countries desirable partners under the conditions for the desirable RTA?

* the conditions are the

- Market size of the RTA: Larger the better( Gains from economics of scale)

- Intra-regional tariff: the higher the better(Maximizing trade creation effect)

- Extra-regional tariff: The lower the better(Minimizing trade diversion effect)

- Intra-regional trade volume: The higher the better(Gains from economies of scale)

-Competitive industrial Structure: The Tougher the better(Efficiency gains)

Answer 1

East Asia countries include China , Japan, Hong Kong , Macau, Japan , Magnolia, North Korea, south Korea and Taiwan. Let's look analyse whether these countries are desirable partners for signing a regional trading agreement with respect to the following criteria.

* Market size of the RTA

Among the east Asian countries- China, Japan , south Korea and Thailand come are among ten largest economies of Asia. China is the most populous country in the world. Therefore, east Asian countries are large markets.

We already know then, larger the market size, better the returns from economies of scale. In this aspect, East Asian countries presents huge opportunities for enjoying economies of scale, via the formation of RTA.

* lntra - regional tariff

In East Asian countries, intraregional tariffs have fallen over the last years. China has no national tariff.

Since intraregional tariffs are lower, maximisation of trade creation effect won't take place.

* Extra regional tariff

Extra regional tariffs have been reduced over time. But non tariff barriers are still in place and some have been risen in response to tariff cuts.

So, if minimisation of trade diversion is possible. But, it may be offset via the impact of non-tariff barriers on trade.

* Intraregional trade volume

The volume of intra- regional trade in East Asia has increased tremendously over the last decades. For example, it has increased from 120 billion US dollar in 1985 to 1033 billion US dollar in 2004. This seems to be consequence of incentives that have been given unilaterally to MNEs so that they may realize the 'virtual' free trade by governments that are trying to attract FDI.

As we already know, higher the intraregional trade volume, better the gains from economies of scale. Thus, once again its proved that trade relation with East Asian countries provide an opportunity to reap economies of scale.

* Competitive industrial structure.

East Asian countries like China, Japan and south Korea have became highly advanced in terms of technology. The rapid development that took place I'm these countries was fuelled by industrialization and enabled them to build a competitive industrial stricture.

As we Already know, tougher the structure, better the gains .Therefore, tougher the establishment of competitive industrial stricture , better will be the gains. So its proved that, competitive industrial stricture akso presents an opportunity to benefit from trade.

From the points discussed above, we can conclude that, for signing an RTA , East Asian are countries possess all the necessary or desirable characteristics except high - intra regional tariffs. If this concern is eliminated, signing an RTA with east Asian countries can offer very high potential gains from trade.