Free Trade Area Membership as a Stepping Stone to Development : The Case of ASEAN

This study investigates the economic
impacts of accession to the ASEAN Free Trade Area (AFTA) by
the new member countries of Cambodia, the Lao PDR, Myanmar,
and Vietnam. The trade policies of these countries are
examined, and a series of quantitative analyses were
undertaken to evaluate the impacts of accession. The results
showed that the static impacts of reducing tariffs against
ASEAN members are beneficial, although the magnitude of the
net gains is diminished by the trade diversion resulting
from the discriminatory nature of the reforms. The binding
commitments on protection rates under the AFTA plan provide
an important initial step to more broader and more
beneficial trade reforms. The study focuses on some of the
key country-specific policy challenges associated with trade
liberalization--such as declining tariff revenues in
Cambodia, and the negative impacts on sensitive domestic
industries in Vietnam. The study recommends that accession
to AFTA be viewed as an important transitional step in the
broader process of trade reform and institutional
development needed for successful development and poverty alleviation.