China And The ASEAN Trade In Goods Effect Differences. CAFTA Empirical Research

The last decades have witnessed an explosion in the number of preferential trade agreements around the globe. According to the World Trade Organization, 194 are in force today, many more are planned and they overwhelmingly take the form of free trade areas (shorted for FTA). FTA has becoming an important trade policy for many countries, including China. More than 10 FTAs are under negotiating,implementing with China.China-ASEAN Free Trade Area (CAFTA) is the first regional economic integration organization that China joined formally.In November 2001, ASEAN and China agreed to launch negotiations for CAFTA. In the following year, ASEAN and China signed the Framework Agreement on Comprehensive Economic Cooperation between ASEAN and China (FA). The FA, which contains both liberalization and cooperation elements, serves as a roadmap for the realization of an CAFTA by 2010 for the 6 original ASEAN members (including Singapore) and China, and by 2015 for the rest of the ASEAN members. An Early Harvest Programme is set to start in 2004.At present, Early Harvest Programme has been fully implemented, and tariff reduction of Normal Track has been carried out from Jul.2005. So, how did the formation of CAFTA affect the trade volume of the member countries and non-member countries. It is an important subject for CAFTA and may offer inspirations for other FTAs that China is negotiating.Therefore, the trade effects of CAFTA are the target this paper will study. The focus problems needed to be solved are as following:1.How about the trade effects of CAFTA on the member countries and non-member countries since its estabishment, including trade expension, trade diversion, and trade creation; Is there any differences on China and ASEAN countries;2. What factors influence the trade effects of CAFTA;3. If the the trade effect difference will influence the trade behavior of ASEAN countries, and what China can do accordingly.On theoretical frame and realistic foundation, we have an empirical study on the trade effect of CAFTA. The paper includes six chapters:Chapter 1 introduces research background, research objective, research train of thoughts and logic frame. Chapter 2 reviews the literature in the realm of the trade effect of FTA from the perspective of theoretical framework, and empirical studies.Chapter 3 is the theoretical foundation of this paper, which makes essential foreshadowing for the following empirical study, incudes theories with partial equilibrium and general equilibrium, small country and big countrie model, FTA hub-and-spoke model.Chapter 4 is the empirical study of CAFTA on the member countries and non-member countries. First,it studies the realistic foundation of CAFTA, focusing on trade volume,trade dependence,tarrif level,trade district composition and commodity composition;Second, using trade intensity index and gravity model, it studies the general effect of CAFTA, includes on the whole member countries and non-member countries, on the separate member countries; Third, by constructing country size index and relative export price index,it studies the connection between country size and trade effects.Chapter 5 studies the sectoral trade effects of CAFTA. Using sectoral trade intensity index and sectoral gravity model, it studies the trade effect of Early Harvest Prducts.Chapter 6 summarizes the main conclusions of the paper and gives the outline for further research.The general conclusions of this paper are as follows:1. So far, the trade expension and trade creation effects of CAFTA on ASEAN countries are bigger than China, and same for the trade diversion effects, including the trade diversion between ASEAN countries.2. By theoretical and empirical research, we find the size dispersion of CAFTA and ASEAN countries has connection with the trade effects difference. Besides, CAFTA is a hub-and-spoke FTA with one of ASEAN countries as the hub and other ASEAN countries and China as the spokes, this system may cause the trade diversion between ASEAN countries.3. If ASEAN countries undertaking more trade diversion, they will have incentives to set up new FTAs, so as to decreasing the trade diversion from CAFTA. A hub-and-spoke FTA with ASEAN countries as the hub will do benefit to themselves but no good to China. Therefore, China should strengthen cooperations with ASEAN countries in trade in service, investments, so as to compensation the trade diversion on ASEAN countries.