Evaluating the Effects of Free Trade Agreements in the Asia-Pacific Region under Alternative Sequencings

In the past decade, a growing number of bilateral and plurilateral free-trade agreements (FTAs) involving Asia-Pacific countries have been signed or ratified. Although there have been studies on sequencing of real and monetary integration, studies on optimal sequencing of FTAs are extremely scarce. However, the magnitudes of sectoral output and employment adjustments resulting from trade accords are great concern to policy makers. Using a dynamic computable general equilibrium (CGE) model, the relationship between sequencing of FTAs in the Asia-Pacific region and the magnitudes of welfare gains and sectoral adjustment costs of the member countries is examined. A different sequencing of FTAs is considered in each policy scenario. If a particular sequencing of FTAs would change the industrial structure within each country closer to that which would prevail under free trade, while increasing economic welfare of the member countries, then it may be considered as a beneficial intermediate step towards global trade liberalization. The preliminary results suggest that the extent of sectoral adjustments differs greatly among alternative FTA sequencings.