Integration Options of ASEAN Transition Economies

This paper looks into the relative merits of two approaches—participation in preferential trading agreements (PTAS) and multilateralism, as exemplified by membership in the World Trade Organization—both of which lead to the path of integration with the world economy. Four ASEAN transition countries with relatively large agricultural sectors are examined. Given the growing empirical evidence that trade openness is associated with higher economic growth and improved standards of living, as well as the upsurge in demand for agricultural products, these transition economies face potential benefits from increased exports.

The literature reviewed by the paper suggests that PTAs and the multilateral system complement each other, with the trade agreements forming part of the process in which PTAs create incentives for non-members to eventually join the WTO. PTAs, therefore, serve as the next-best path towards expanding world trade while negotiations for multilateral trade liberalization are still going on. On the other hand, findings also point out that regional trading agreements tend to divert trade toward its members, incur unnecessarily high administrative costs, and create opportunities for unproductive rent-seeking activities.

Policy makers are thus enjoined to innovate on their respective preferential trade arrangements, using these to help solve regional spillover problems and promote more trade among members.