process,1<sup>6</sup> and liberalization in cross-border trade in services.17 Throughout the paper we compare and supplement our findings with results from this literature. We extend the literature by looking at the impact of accession induced technological change in China on the East Asian region.

The paper is organized as follows. Section 2 provides a qualitative analysis of the impact of WTO accession on East Asia. Section 3 discusses the methodology and simulation design and provides a quantitative assessment of the impact of accession on individual country's output, exports, investment flows and welfare. Section 4 discusses the impact of accession induced productivity gains in China on the countries in East Asia. Section 5 offers some concluding remarks.

# **2. Impact of WTO Accession on East Asia: A Qualitative Assessment**

We identify several main channels through which China's WTO accession will affect the economies in East Asia: (1) increased access to China's domestic market; (2) improved competitiveness; (3) competition with China in third markets; (4) expansion of foreign investment in China and, potentially, outward foreign investment from China; (5) transparency and ptedictability of trade policy; (6) entry of a major developing country to the WTO.

_Increased access to China's large market_ China has been a powerful driver of growth in East Asia - spurring growth not only in the newly industrialized economies, but also in the developing countries of East Asia. In 1997, more than 60 percent of China's imports were sourced from other countries in East Asia.'<sup>8</sup> In the nineties, ASEAN countries' exports to China grew by 390 percent and these countries' share in China's total imports rose from a little below 6 percent in 1990 to 9 percent in 1999.19 Looking ahead, China is expected to continue to be a driver of growth in East Asia as it becomes a much bigger market for its trading partners following accession to the WTO.<sup>20</sup> In many sectors China's WTO accession only adds a little to the already vigorously projected growth of these markets.<sup>2</sup> ' Nevertheless, accession will lead to significant changes. In services, China has made commitments to provide national treatment to 16 Francois and Spinanger (2002) estimate that tariff reform as part of WTO accession could generate as much as a 20 percent increase in total factor productivity in the automobile sector affecting particularly assembly operations. None of the studies looking at the regional impact of China's WTO accession consider the reform-induced restructuring of the automobile sector.

**"** The method adopted here follows Francois and Spinanger (2002). Most studies have abstracted from the impact of China's WTO accession on cross-border trade in services.

18 Source: Version 5 GTAP data (Dimaranan and McDougall, 2002).

**19** Source: UN Comtrade System.

20 With assumptions of higher growth rate in China than in other developing countries, China's share of world trade is expected to double by 2007 and surpass that of Japan, but be still much lower than that of US and the EU (lanchovichina and Martin, 2003).

21 Growth in China has been fueled by years of serious economic reform. See Tables 5, A.5, and A.6 in Ianchovichina and Martin (2003).

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