BUSI 464 Week 4 Discussion Board Forum 4 Example

Discussion Board Forum 4: Regional Integration in Asia

BUSI 464 International Market Integration and Trade Agreements, Discussion Board Forum 4 Thread and Replies

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The forum prompt and the classmates are composites; the textbook and the research cited are real.

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Europe integrated from the top down. Governments signed treaties, built common institutions and created a single market, and trade grew inside the framework they designed. East and Southeast Asia followed almost the reverse order. Through the 1980s and 1990s, Japanese, Korean, Taiwanese and later Chinese firms spread production across the region, making components in one country, assembling them in another and shipping finished goods to the world. Formal agreements came later. ASEAN's free trade area was launched in 1992, its agreements with China, Japan and Korea came in the 2000s, and the fifteen-country Regional Comprehensive Economic Partnership entered into force only in 2022, decades after the production networks it now governs. Lynch (2010) describes Asia's agreements as numerous, overlapping and often shallower than Europe's, and I think the order of events explains why.

My claim is that in Asia, trade followed factories and treaties followed trade. Johnson and Noguera (2012) measured trade in value added, separating the value each country actually contributes from the gross value of goods crossing its borders. They found that the ratio of value added to gross exports varies widely by country and is especially low where production sharing is intense, as it is across East Asia. A smartphone part may cross three Asian borders before it reaches a final assembly plant, so gross trade figures count the same value several times.

Networks like these need more than low tariffs. Baldwin (2016) argues that twenty-first-century trade agreements are mainly about making supply chains work, through rules on investment, services, standards and the movement of business people, rather than about cutting tariffs on finished goods. Asia's newer agreements, especially the Regional Comprehensive Economic Partnership, fit that description: their most important feature is a single set of rules of origin across fifteen countries, so that a component made in Vietnam and one made in Japan both count as regional content for a product assembled in Thailand.

There is a complication. Kawai and Wignaraja (2011) surveyed firms across East Asia and found that many exporters did not use the tariff preferences their governments had negotiated, often because documenting rules of origin under several overlapping agreements cost more than the tariff savings were worth. The agreements followed the factories, but the factories did not always follow the agreements. That is a strong argument for RCEP's common rules: one set of paperwork for fifteen markets should make the preferences worth claiming. It also explains why large multinational firms, which can afford specialists to manage origin documents, captured more of the early benefits than small suppliers did. For the research paper's question about joining agreements, Asia suggests that the value of membership depends as much on how usable the rules are as on how low the tariffs fall.

Reply to Lauren

Lauren, you singled out RCEP's common rules of origin as its most important feature, and I agree. One reason they matter is cumulation: under a single agreement, inputs from any member can count toward the regional content a product needs to qualify. Before RCEP, a Thai assembler using Japanese components and Chinese parts might qualify under one bilateral deal but not another, because each deal counted only its own two members' content.

Baldwin (2016) describes this fragmentation as a mismatch between regional supply chains and bilateral rules. Kawai and Wignaraja (2011) found that firms cited complicated and differing rules of origin as a leading reason for not using preferences. If RCEP's common rules reduce that burden, utilization should rise, especially among smaller exporters that cannot afford trade specialists. It would be worth watching whether small firms in Vietnam and Indonesia start claiming preferences they skipped before. Governments could help by publishing simple origin calculators and training customs brokers, since a rule that is common but still confusing will not change much. Your post also mentioned that RCEP includes countries without an earlier agreement with each other, such as China and Japan, which makes the common rules even more valuable, because firms trading between those two economies had no preferences to claim at all before 2022. Do you think the common rules will matter more for small firms than for large ones?

Reply to Daniel

Daniel, you argued that ASEAN is a weak organization because it has no strong central institutions like the European Commission. That is true institutionally, but I am not sure weak institutions mean weak integration.

Lynch (2010) notes that ASEAN has preferred consensus and informal cooperation to binding supranational rules, a choice that reflects its members' concern for sovereignty. Yet the region's production networks are among the densest in the world, as the value-added research by Johnson and Noguera (2012) suggests. Kohl et al. (2016) estimated the effects of nearly three hundred agreements and found that effects varied widely, with deeper and more enforceable agreements generally raising trade more. That supports your concern in part: a deeper ASEAN might integrate faster. But Asian integration has relied on firms as much as on treaties, so ASEAN's light institutions may matter less than they would in a region where governments had to create trade from scratch. There is also a practical side for businesses: a firm deciding where to place a factory in Southeast Asia cares about tariffs, customs speed and investment rules, and ASEAN has delivered progress on all three without a European-style commission. Would you judge ASEAN by its institutions or by the trade among its members?

References

Baldwin, R. (2016). The World Trade Organization and the future of multilateralism. Journal of Economic Perspectives, 30(1), 95-116. https://doi.org/10.1257/jep.30.1.95

Johnson, R. C., & Noguera, G. (2012). Accounting for intermediates: Production sharing and trade in value added. Journal of International Economics, 86(2), 224-236. https://doi.org/10.1016/j.jinteco.2011.10.003

Kawai, M., & Wignaraja, G. (2011). Asian FTAs: Trends, prospects and challenges. Journal of Asian Economics, 22(1), 1-22. https://doi.org/10.1016/j.asieco.2010.10.002

Kohl, T., Brakman, S., & Garretsen, H. (2016). Do trade agreements stimulate international trade differently? Evidence from 296 trade agreements. The World Economy, 39(1), 97-131. https://doi.org/10.1111/twec.12272

Lynch, D. A. (2010). Trade and globalization: An introduction to regional trade agreements. Rowman & Littlefield.