Importance of ASEAN Free Trade Area

The ASEAN Free Trade area is in essence an important trade bloc agreement signed by all the members of the Association of South East Asian Nations. The AFTA came about in order to support local trade as well as manufacture in the different countries of South Eastern Asia as well as to facilitate economic integration and cooperation with regional and international allies. The AFTA is considered to be one of the largest of free trading zones in the whole world and has been responsible for driving some of the biggest blocs and trading forums in the globe such as the East Asia Summit, Regional Comprehensive Economic Partnership and Asia Pacific Economic Cooperation. This report reviews important scholarly literature on the ASEAN Free Trade Area and points out the gaps in this literature in its conclusion.

Significance of AFTA in Dispute Settlements Related to Trade and Commerce 

In the view of Puig and Tat (2015), there are a number of problems that can be seen to exist in the ASEAN Free Trade Area when it comes to the settlement of disputes and also when it comes to arriving at effective solutions for economic growth and integration. They argue that close economic integration is something that can help the ASEAN to retain its competitiveness as an important free trade area in the international economy. However, they also argue that if this economic integration is to be achieved, disputes need to be effectively settled, that arise inevitably as a result of the liberalization of investment and trade. The authors further argue in their work, for the invocation of the Protocol on Enhanced Dispute Settlement Mechanism which came into being 2004, and which, till date has not been utilized by the AFTA for proper, legal dispute settlement. In doing so, the authors point to the pros and the cons of this dispute settlement mechanism and also propose the adoption of an arbitration model. This arbitration model, they believe, would be ideal for resolving conflicts within the ASEAN, particularly when it comes to settling conflicts relating to liberalized trade and investment.

Ahmad et al (2014), point to the moderating effect that the ASEAN Free Trade Area has on business performance and total quality management. They argue that while AFTA brings with it a number of benefits for foreign companies in the Southeast Asian region, it does not do the same for all the local companies in the region. Ahmad et al (2014), examine the role that AFTA plays, as a moderator when it comes to guiding business growth in Southeast Asia, and proposes a relationship between business partnership and quality management practices with AFTA. What the research undertaken by the authors suggests is that business enterprises and traders need to focus on the production of high quality goods and services in the global market place. For instance, Malaysian companies have been finding it increasingly difficult to survive in the international market place owing to the lack of quality of its services and goods. The authors suggest that the AFTA has a moderating impact in this respect and guides businesses in the Southeast Asian region into producing the goods and services that can help these to secure long term clientele and business development.

Challenges with Dispute Settlement Mechanism in ASEAN Free Trade Area

Zhang et al (2018) examine the effects that the ASEAN Free Trade Area has on the exports that are carried out by Chinese firms in the region of Southeast Asia. According to them, regional trade is that which is capable of changing regional institutions, while stimulating firm exports in regional markets at the same given time. They also argue that firms that are more experienced, more technologically competent and more private tend to be far more responsive to any regional institutional change compared to those that are not. The researchers Zhang et al (2018) examine their hypothesis against the backdrop of the creation of the Chinese AFTA. As many as seven hundred listed Chinese firms are studied in detail by the authors in order to arrive at the proposed findings. The impact that all regional institutional changes have on firm growth and expansion are well examined by the authors. They successfully make it clear that it is regional trade that needs to receive a boost if it is to promote economic growth in the ASEAN region while adding that private firms need to play a more active role in promoting economic growth here as these respond far better to regional institutional changes.

Yang and Martinez-Zarzoso (2014), study the trade diversion effects and trade creation effects in the ASEAN Free Trade Area. They make a clear distinction between the effect that trade has on manufactured goods with the effect that trade has on agricultural products. The researchers focus especially on the ASEAN-China Free Trading Area in their study and argue that the ACFTA is one that is capable of leading to the substantive creation of trade in for both manufactured goods as well as agricultural products. Yang and Martinez-Zarzoso (2014), also make use of a gravity trade model that is theoretically justified in order to analyze the effects of trade and also utilizes disaggregated data in order to point out the positive and significant relationship that is seen to exist between the ACFTA and exports, when it comes to both manufactured goods as well as agricultural goods in addition to manufacturing industries such as transport equipment, machinery and chemical products.

Calboli (2016), undertakes a comparative study of the NAFTA, AFTA and EU in order to study the free movement of goods and trademark exhaustion. The author examines in particular, the existing approaches to parallel imports and trademark exhaustion in all the three trading areas and argues that the national policies which are adopted by the countries that are members of all these trading areas are what influence the free and fair movement of goods and trademark exhaustion in these trading zones. It is noted by Calboli (2016), that the countries or nations that are members of the free trade areas are those that adopt a fairly consistent policy as far as the free movement of goods is concerned. Calboli (2016), further argues that such international or regional policies and principles can be made to evolve overtime in order to achieve further economic integration and growth in these regions or trading areas.

Moderating Effect of AFTA on Business Performance in Southeast Asia

Larsen (2016), talks about how the different approaches to integration are those that tend to vary from one part of the world to the other. Larsen talks about how approaches to economic integration vary on the basis of impact, size of membership, functional scope, as well as institutional set up. For Larsen (2016), this variance is also something that is seen to vary quite a bit when it comes to how economic gains are valued and favored over geopolitics, the important role played by learning processes in regional economic integration and talks about how creating new collective identities is also something that is known to influence the process of economic integration in different regions of the world in a very significant way.

According to Bath and Nottage (2013), a number of important agreements within the framework of the ASEAN Free Trade Area such as ASEAN Plus, PRC ASEAN Investment Agreement and ASEAN Comprehensive Investment Agreement play a crucial role in economic integration in the Asia Pacific. The authors go and analyze these different agreements by comparing them to and understanding their impact on the workings of the Australia – New Zealanad Free Trade Area. Bath and Nottage (2013), discuss in detail, the various approaches that are taken by ASEAN towards dispute resettlement and investment in the Asia Pacific region, all of which led to the formation of the famous Comprehensive Investment Agreement. The authors also highlight the issue that arose when it came to implementing this agreement. The authors content that members of the ASEAN tend to be quite ambivalent when it comes to the liberalization of investment and the proper and effective settlement of disputes between states and investors. Bath and Nottage (2013), also discuss the economic cooperation treaties signed within the ASEAN as well as how the various provisions of these agreements relate to trade and investment in the region. This the authors do with special reference to the Australia – New Zealand Free Trade Area.

Nguyen (2016), studies the important relationship that exists between the workings of the ASEAN and Chinese free trade, with special reference to trade flows. The author makes use of the gravity model in particular in order to assess the impact of the ASEAN China Free Trade area on free trade flows between China and the countries of Southeast Asia. The author concludes that while the impact of ACFTA is different for the different countries of Southeast Asia, as far as trade flows with China is concerned, ACFTA has resulted in a decrease in Chinese exports to other Southeast Asian nations. The ACFTA can thus be said not to be too profitable from the Chinese point of view.

Effects of ASEAN Free Trade Area on Exports by Chinese Firms in Southeast Asia

Ventouri (2018), points to the co-relation between regional economic integration and banking competitiveness by looking especially at the case of the ASEAN countries. The author makes an assessment of the largest markets in the whole Southeast Asian region and investigates that factors that lead to the birth of competitive conditions, particularly institutional characteristics as well as the control for structural conditions. The findings of the author lead the author to conclude that banking is something that is seen to flourish quite a bit under monopolistic conditions and that since the banking operations in ASEAN countries are of a heterogenous character, banking integration proves to be quite a challenging objective for the region as a whole.

Hasan et al (2014), talk about the relationship between the ASEAN Free Trade Area and China’s trade development. The authors point to how china is one of the largest trading partners in the whole of Asia and that trade and commerce with a country like China, has a vital role to play in influencing economic integration in both East Asia as well as Southeast Asia. They talk about how the existence of AFTA is something that has helped China and the ASEAN countries to come closer together in terms of bilateral trade agreements. The authors also argue that apart from the world economic crisis that took place in 2009, bilateral trade among the ASEAN member states and China has been increasing quite rapidly, especially since the year of 2010, and is likely to continue to do well because of AFTA.

While all the articles that have been discussed in this review, are those that do a successful job of pointing to the impact that the ASEAN Free Trade area has on Chinese trade and commerce and on the economic integration of countries in the region, there is little emphasis on the role of political and social factors in economic integration in the AFTA, a subject that is certainly discussing and researching on. Instead of using financial or quantitative variables only to understand the impact that the AFTA has on economic growth and integration in the Southeast Asian and even East Asian region, an attempt should also be made on the part of researchers to understand how the social and political climate in the different countries of Southeast Asia have a role to play in how these get impacted by the AFTA.

Conclusion 

Thus, there is indeed a good body of work that can be seen to exist on the subject of AFTA and the impact that it is seen to have on economic integration, business growth, trade and development in the Southeast Asian region. The various works analyzed and reviewed point to how national policies, the settlement of disputes and the liberalization of trade and investment can all go a long way in helping AFTA to have a truly beneficial impact on economic expansion, liberalization of trade and investment and settlement of disputes between investors and states, for all the ASEAN member states.

References 

Ahmad, M. F., Zakuan, N., Jusoh, A., Yusof, S. M., & Takala, J. (2014). Moderating effect of asean free trade agreement between Total Quality Management and business performance. Procedia-Social and Behavioral Sciences, 129, 244-249.

Bath, V., & Nottage, L. R. (2015). The ASEAN Comprehensive Investment Agreement and ‘ASEAN Plus’–The Australia-New Zealand Free Trade Area (AANZFTA) and the PRC-ASEAN Investment Agreement. INTERNATIONAL INVESTMENT LAW: A HANDBOOK, M. Bungenberg, J. Griebel, S. Hobe & A. Reinisch, eds., Nomos Verlagsgellschaft: Germany.

Calboli, I. (2016). Trademark Exhaustion and Free Movement of Goods: A Comparative Analysis of the EU/EEA, NAFTA and ASEAN.

Feldman, M., Vignolo, R. M., & Chiffelle, C. R. (2017). The Role of Pacific Rim FTAs in the Harmonization of International Investment Law: Towards a Free Trade Area of the Asia-Pacific. In Asia’s Changing International Investment Regime(pp. 177-205). Springer, Singapore.

Hasan, M. M., Cheng, J. H., & Xuan, L. (2014). CAFTA: China-ASEAN Free Trade Area, Implications on Trade and Development. Journal of Economics and Sustainable Development, 5(15), 48-55.

Laursen, F. (2016). Regional integration: some introductory reflections. In Comparative Regional Integration (pp. 25-42). Routledge.

Nguyen, S. T. (2016). Impact of ASEAN: China free trade area on trade flows.

Puig, G. V., & Tat, L. T. (2015). Problems with the ASEAN free trade area dispute settlement mechanism and solutions for the ASEAN Economic Community. Journal of World Trade,49(2), 277-308.

Ventouri, A. (2018). Bank competition and regional integration: Evidence from ASEAN nations. Review of Development Finance

Yang, S., & Martinez-Zarzoso, I. (2014). A panel data analysis of trade creation and trade diversion effects: The case of ASEAN–China Free Trade Area. China Economic Review, 29, 138-151

Zhang, L., Cui, L., Li, S., & Lu, J. (2018). Who rides the tide of regionalization: Examining the effect of the China-ASEAN Free Trade Area on the exports of Chinese firms. International Business Review, 27(3), 501-513