ASEAN, the Pacific Alliance and Mercosur: Moving Forward with Sub-Interregional Trade Cooperation

Interregional or cross-regional trade between geographically distant partners has grown in recent years, transcending intraregional trade, as countries that have exhausted their gains or potentials within regional boundaries seek to secure new or alternative markets. From that perspective, interregional trade is seen as a promising solution. One reference point is the Association of Southeast Asian Nations (ASEAN) and Latin America (LA) region-to-region partnership. Yet, interregional trade between distant partners, such as the ASEAN-LA, is often beset with high trade costs, which includes transport costs and other costs (information, compliance, and procedural costs).

To date, the most revealing point on the ASEAN-LA connection is that the estimated impact of the existing bilateral free trade agreements (FTAs) are found to not significantly matter for interregional exports for the following reasons. First, though many Asia-LA FTAs liberalize tariffs in a relatively fast manner, they contain temporary or permanent exclusions lists. For example, the Thailand-Peru FTA adopted a gradual approach to tariff liberalization, where they only committed 70% of total tariff lines to liberalization, excluding a wide range of goods, within the categories of agricultural products, fish products and durable goods.  Second, many of the bilateral FTAs between the ASEAN Member States (AMS) and the LA countries do not include commitments that are substantive (such as market access commitments and harmonization of standards obligations). For example, it was reported that the coverage of substantive commitments for Vietnam-Chile FTA (2012) and Malaysia-Chile FTA (2012) is only 2.2% and 5.4% respectively, compared to 23.3% for Singapore-Panama FTA (2006), 25.6% each for Singapore-Peru FTA (2009) and Singapore-Costa Rica FTA (2013). It can therefore be inferred that the current bilateral FTAs between ASEAN and LA, which are signed and in effect, may not significantly create the intended market access for trade integration. 

Given the high trade costs and lack of market-led integration between both regions, inter-subregional mechanisms can be considered a practical path towards a broader integration scheme. LA, for example, has many subregional arrangements (or programmes) that co-exist with and parallel the larger blocs. This includes the Pacific Alliance (PA) and the Common Market of the South (Mercosur), among others.  ASEAN in fact is already moving ahead with its sub-interregional engagement with the PA to explore further cooperation through the development of a new ASEAN-PA Work Plan (2021-2023), that includes trade, among others.

What follows, then, is the genesis of sub-regionalism (which are part of a larger regional bloc) moving beyond the region to establish sub-inter-regionalism to drive a common agenda and bring closer a select group of countries in LA with ASEAN.  The relevance of sub-interregional engagement between ASEAN and the PA, and Mercosur, is deliberated below.

The PA (comprising Chile, Mexico, Colombia, and Peru) and Mercosur (comprising Brazil, Argentina, Paraguay, and Uruguay) are important for ASEAN as they constituted, on average, 31.9% and 41.5% of ASEAN’s total trade with LA for the 1990 to 2019 period. Though ASEAN ran a consistent trade surplus with the PA, it countered a trade deficit with Mercosur. On average, Mercosur commanded 58.9% of ASEAN’s imports from LA, relative to only 24.5% from PA. Conversely, 37.8% of ASEAN’s exports to the LA were destined to the PA, while 27.7% were to Mercosur. Comparatively, the PA is more important as an export destination for ASEAN than Mercosur.

It is important to also identify the roles of the PA and Mercosur within the LA in terms of their value-added (VA; domestic value-added plus foreign value-added) exports and participation in global value chains (GVCs; foreign value-added and indirect value-added exports). For the 2000 to 2018 period, on average, both the sub-blocs contributed 79.4% and 82.9% of LA’s global VA exports and GVC participation. From a bilateral perspective, the PA contributed on average 54.7% of two-way VA export flows between ASEAN and LA, while Mercosur’s contribution stood at 25.8%.

That said, the estimated export efficiency scores for most of the country-pairs between ASEAN with the PA and Mercosur are still far less than one, and as low as zero, indicating that actual inter-subregional exports are below the potential level than determined by the frontier. Though traditional trade policy areas such as tariff reduction has been negotiated in the bilateral FTAs between ASEAN and some of the LA countries, these tariff preferences alone do not justify the extent of trade integration between the regions, especially in the presence of non-tariff measures (NTMs). MERCOSUR, for example, regulates its imports with NTMs more than the PA.  Approximately 29.5% (or 2,921 measures) and 26.7% (2,645 measures) of the total import related NTMs within LA are from MERCOSUR and PA, respectively. These measures that are regulatory in nature, can impose substantial trade costs for traders to access markets in both regions, and they in turn, can lower trade efficiency between the regions.

To conclude, it seems only practical for ASEAN to move forward with sub-interregional cooperation with the PA and Mercosur, since they include the key LA trading partners of ASEAN, and both sub-regional groups display the capacity and efficiency to engage more in VA exports and GVC trade within LA. Therefore, the possibility for ASEAN in deriving quality trade integration through the development of interregional GVCs appears more plausible through sub-interregional cooperation with the PA and MERCOSUR. Second, the insignificant effects of the existing bilateral FTAs on interregional trade suggests that much work needs to be done with existing FTAs or for future interregional FTAs, if they were to be signed. For that purpose, it may be easier for ASEAN to establish regulatory coherence through sub-interregional cooperation with the PA and MERCOSUR, rather than a region-to-region wide arrangement with LA.

Dr. Evelyn S. Devadason is Professor at the Faculty of Business & Economics, University of Malaya, and Vice-President of the Malaysian Economic Association.

Previous articleOTT Marketing Strategy: How-to Promote Your Content
Next articleNetccentric-Nuffnang’s RTV: Keeping Pace with Disruptive Developments in Video Marketing

LEAVE A REPLY

Please enter your comment!
Please enter your name here