NAFTA's Implications for East Asian exports

Several studies have quantified the influence of the North American Free Trade Agreement (NAFTA) and the earlier Canada - United States Free Trade Agreement on member countries. Less attention has been paid to their effects on nonmembers. The authors try to quantify NAFTA's third-party effects on East Asia using a partial equilibrium trade model and a gravity flow model. They identify and focus on East Asian export sectors that are especially at risk of trade diversion. Their results suggest that the NAFTA-induced trade diversion losses could range from $380 million to $700 million. The larger figure represents less than 1 percent of East Asia's nonoil exports to the United States. Their analysis also indicates that losses would be concentrated in a few sectors - such as textiles, clothing, and ferrous metals - where high U.S. trade barriers exist. A larger share of Hong Kong and Macau trade would be diverted than trade in other East Asian economies because textiles and clothing represent a larger share of their exports. Economies specializing in such products as machinery and equipment (Singapore) would have relatively little trade diverted. East Asia's trade losses might be reduced by roughly half once the results of the Uruguay Round are implemented because that will lower the preference margins NAFTA members can extend to each other. To put things in perspective: the trade losses East Asian economies might incur because of NAFTA are roughly 1 percent of the gains they will receive from successful implementation of the Uruguay Round results.