FTA Under Value Chains Specialization Scheme

Over the past two decades, the world trade center has gradually shifted to the Asia-Pacific region. The further development of global value chains specialization (GVC) and bilateral FTA (free trade areas) has simultaneously taken place in Asia-Pacific region, which seems to imply the relevance of FTA and global value chains specialization. Then what changes has occurred in Asia-Pacific free trade under the global value chains specialization scheme? Can FTAs promote value chain specialization? From the perspective of value chain specialization, the thesis does research on the development and future trends of FTAs in Asia-Pacific region, and evaluates effectiveness of FTAs. All these bring enlightenment to our country how China should face the challenge and opportunity of future free trade since the economic is under the "new normal".First, based on the collation and analysis of previous research and theory, the thesis illustrates the background and reasons for the increase of the Asia-Pacific FTA. Since the ASEAN Free Trade Area (AFTA) and North American Free Trade Area (NAFTA) was formally established and entered into force, dramatic changes in Asia Pacific free trade have occurred. Asia-Pacific developing countries has gradually opened trade policy, China has joined to the WTO, international division has further developed and each countries has taken an active part in trade negotiations to promote global and regional trade liberalization. However, since 21 century, the multilateral trading system under the WTO framework has stagnated and economic integration in the Asia-Pacific is difficult to be promoted, many Asia-Pacific countries begun to promote bilateral and sub-regional free trade agreement (FTA) negotiations. So FTA has rapidly developed in the Asia-Pacific like dominoes, and formed the complicated "Hub-spoke" structure among the main Asia-Pacific countries. Furthermore, with the further development of Global value chains, many new topics have constantly added to FTA.Then, the thesis focuses on the new features of the Asia-Pacific trade and the development and effectiveness of FTA under the value chain specialization system since 1993. The research found that global value chains specialization coordinated by transnational corporations has deeply developed, which bring new phenomenon of trade and investment in the Asia-Pacific. More and more intermediate goods trade and service trade take place in vertical specification coordinated by transnational corporations and transnational corporations dominant the foreign direct investment (FDI) to distribute resources all over the world. Especially the automobile and electronics industry has formed the integration of vertical division in the Asia-Pacific region. At the same time, the GVC bring new barriers to the free trade and investment cooperation, such as the increase of trade cost consists of magnifying tariff cost, nature cost and risk cost, upgrade of trade friction and the limit of developing countries taking part in GVC. In order to promote value chains specialization and alleviate these frictions, domestic interest group such as these transnational corporations promote many deeper FTAs between different countries or economies in the Asia-Pacific region, which to some extent reduce the trade cost, alleviate trade fictions and promote the investment open, finally deep the GVC in theory.However, how the FTA’s contribution to GVC is not inevitable. Through the analysis of NAFTA, US-Australia FTA and US-China value chain link, the thesis found that value chain specialization does not come from the conclusion of FTA and the conclusion of FTA is not necessary to bring about the value chain specialization. Only in the case that value chain specialization run well, the FTA can promote value. Thus those FTA not matching the values chains gradually lose trade and investment effect, then present the limitations. Nowadays the Spaghetti bowl phenomenon has taken place in the Asia-Pacific region and preferential rules of origin become more complicated, which results in the increase cost of firms using FTAs. In addition, there is little trade connections between some FTA partners, all these result in the low use of FTA.Finally, the thesis looks forward to the future of Asia-pacific FTA and free trade of China. When facing the constant deceleration of world trade after crisis and the shock of future trade rules and GVC brought by the conclusion of TPP, the free trade in the Asia-Pacific region should move to a more fair, free and wide FTAAP. China, as a big trader, should quickly improve FTA and promote industry upgrading. Through gradually domestic reform, China should adopt to the new trade rules, increase industrial competitiveness, strengthen the match between FTA and value chains, and finally shift to middle or high end of GVC and enhance the competitive power of country.