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78. AFTA and NAFTA: Complementing or Competing?
- ISEAS–Yusof Ishak Institute
- Chapter
- Additional Information
AFTA and NAFTA: Complementing or Competing? 385 By: ROS Size: 7.5" x 10.25" J/No: 03-14474 Fonts: New Baskerville 78. AFTA AND NAFTA Complementing or Competing? WISARN PUPPHAVESA and MAUREEN GREWE Reprinted in abridged form from Wisarn Pupphavesa and Maureen Grewe, “AFTA and NAFTA: Complementing or Competing?”, in APEC: Challenges and Opportunities, edited by Chia Siow Yue (Singapore: Institute of Southeast Asian Studies, 1994), pp. 175–95, by permission of Wisarn Pupphavesa and the publisher. COMPARISON OF AFTA AND NAFTA A first step in addressing the future relations between AFTA and NAFTA is to look at the similarities and differences between them. Their common membership in APEC is an important similarity in providing a forum for dialogue and setting joint priorities for trade relations. Both groupings have only recently formed free trade areas and thus will be somewhat absorbed in the restructurings taking place in their economies as a result. AFTA and NAFTA also place high priority on multilateral trade negotiations due to the U.S. historical commitment to a free and open world trading system, and the AFTA nations’ reliance on export-led growth to fuel their impressive economic expansion. There are also striking differences between the two groups. AFTA comprises developing countries, albeit at different levels of development, with Indonesia at the lower income end and Singapore at the upper end of the spectrum. The ASEAN countries (except Singapore) have similar comparative advantages and little existing integration in trade, apart from entrepôt trade through Singapore. One of the primary goals of AFTA is to attract infusions of capital and technology. On the other hand, NAFTA includes two G-7 countries, the United States and Canada, and a developing country, Mexico. NAFTA is the first economic grouping that includes countries at such diverse levels of development. These countries thus have differing comparative advantages related to their natural resources, capital, and labour endowments. Securing markets in the more developed countries and locking in trade liberalization in the less developed countries is an important consideration of NAFTA. Given their geographical proximity and diversity of economic activity, the NAFTA economies were already heavily integrated prior to the formation of free trade area. It is likely that trade expansion in AFTA will come from specialization of production, resulting 078 AR Ch 78 22/9/03, 12:56 PM 385 386 Wisarn Pupphavesa and Maureen Grewe By: ROS Size: 7.5" x 10.25" J/No: 03-14474 Fonts: New Baskerville in increasing intra-industry trade, while NAFTA will capitalize on differences in factor endowments to increase inter-industry trade. TRADE AND INVESTMENT DIVERSION POTENTIAL OF NAFTA FOR ASEAN Major Trading Relationships For the ASEAN countries, the United States is by far the most important market, while Japan is its most important trading partner. The United States absorbed 19.0 per cent of total ASEAN exports to the world, and supplied 14.6 per cent of total ASEAN imports. In 1991 Japan bought 20.0 per cent of all ASEAN exports and supplied 21.0 per cent of total ASEAN imports. On the other hand, of total U.S. imports from the world only 5.9 per cent came from ASEAN, while it exported only 6.2 per cent of its total exports to ASEAN. ASEAN is a more important trading partner for Japan, taking 12.0 per cent of Japanese exports and supplying 13.4 per cent of its total imports. Canada and Mexico both rely on the U.S. market for 60 to 70 per cent of their imports and exports, but remain small markets for ASEAN and Japan. ASEAN accounted for just over 1 per cent of Canada’s exports and imports, and just under 1 per cent of Mexico’s trade. Trendwise, in the post-World War II period the share of U.S. trade remained stable over time with Canada, but declined with Latin America (Fishlow 1993, pp. 2–4). Also, U.S. trade has remained fairly stable with Europe but increased markedly with Japan and Asia. These trends point to a highly geographically diversified trading pattern, making the United States a “global rather than regional trader”. It is in U.S. interests, therefore, to maintain a strong global trading system, and to avoid allowing NAFTA to encourage the regionalization of markets into closed blocs. Conversely, Japan’s trade share with Asia has been constant in exports but increased markedly in imports, with Asian countries still having an import deficit with Japan but moving closer...