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Bilateral Trade Agreements in the Asia - Pacific: Wise or Foolish Policies?

Heribert Dieter

CSGR Working Paper Series No. 183/05

Bilateralism is mushrooming in the Asia - Pacific, yet the motives for it remain puzzling.

Why do countries devote substantial effort to bilateral free trade agreements that are providing limited additional benefits when compared both with unilateral liberalisation and with the multilateral regime? Furthermore, some of the deals recently implemented are less trade liberalising than the powerful rhetoric would suggest. For example , the free trade agreement between Australia and the United States is not including “substantially all the trade” and, on top of that, is asymmetric – Australia’s access to the American market is more restricted than vice versa.

The paper first addresses some conceptual issues and analyses the disadvantages of bilateral free trade agreements. Here, the need for rules of origin is of particular concern. These have two effects. First, they result in additional costs to producers. Whilst the dismantling of tariffs reduces the cost of trade, the need to administer rules of origin increases them. Second, transnational production is made more complicated. In order to qualify for duty free trade, the region for the sourcing of inputs shrinks, with negative consequences for competitiveness. Subsequently, the bilateral agreements of Australia, Singapore and Thailand will be examined. At closer inspection, these preferential deals are not convincing. All of them require complex rules of origin and do not make a significant contribution to the liberalisation of trade.

 

Key words: Free trade agreements; bilateralism; rules of origin; protectionism