But at the November 1994 APEC meetings in Bogor they committed themselves to forming an APEC free trade area. The impact of such a free trade area on trade, welfare, and the economic structure of the Pacific Rim economies and the European Union. Whether an APEC free trade area provides more benefits than full trade liberalization that includes the European Union. They analyze these issues using a multicountry, computable general equilibrium model to simulate alternative liberalized trade scenarios.
Gains are greatest for the poorer countries, for whom trade externalities are more significant.
Trade expands greatly, and although there is some trade diversion away from the European Union and the rest of the world, that is swamped by the creation of trade within the free trade area. Movements in other bilateral balances are much larger, suggesting that changes in sectoral protection make movements in particular bilateral trade balances nearly impossible to predict. The Asian NIEs have the most to gain from broad membership. Excluding China reduces Asian NIE gains by about half, and excluding the United States yields even greater declines. The European Union is largely unaffected by different versions of the APEC free trade area.