Beyond the Uruguay Round : the
            implications of an Asian free trade area
The Pacific Rim members of the Asia
            Pacific Economic Cooperation (APEC) group have different
            views about the role each should play in fostering further
            trade liberalization. But at the November 1994 APEC meetings
            in Bogor they committed themselves to forming an APEC free
            trade area. The authors explore: 1) the impact of such a
            free trade area on trade, welfare, and economic structure of
            the Pacific Rim economies and the European Union; 2) the
            implications of forming a partial free trade area, excluding
            such potential partners as China, the Association of
            Southeast Asian Nations (ASEAN) economies, or the United
            States; 3) 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. Their
            findings are as follows. Under the base-case scenario (in
            which all tariff and most nontariff barriers are removed
            among the APEC countries, China, Japan, ASEAN, the Asian
            newly industrializing economies (NIEs), and the United
            States): all APEC countries gain in GDP and the excluded
            European Union loses sligthly. 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. The U.S.-Japan trade balance
            improves only slightly (by $1.4 billion), and the U.S.-China
            balance are much larger, suggesting that changes in sectoral
            protection make movements in particular bilateral trade
            balances nearly impossible to predict. When one economy is
            excluded: there are gains from making the free trade area as
            broad as possible. Omitting any one region (China, the
            United States, or the ASEAN 4) makes that region
            significantly worse off and lowers the gains for all other
            members as well. 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. Excluding the United States has the worst
            impact on all other potential members, greater than the
            effect of omitting China or the ASEAN 4. The European Union
            is largely unaffected by different versions of the APEC free
            trade area. Global (versus regional) liberalization: global
            liberalization that includes the European Union is the best
            outcome in terms of world GDP and welfare. And all countries
            gain more from global liberalization than they do from
            joining an APEC free trade area alone. Forming a regional
            free trade area may be politically easier than continued
            global liberalization, but there are economic incentives for
            all parties to expand on the completed GATT round.