Asia-Pacific FTAs can coexist

15/11/2023    1580

Global supply chains have been subjected to multiple shocks over the past few years. The most notable one has been the three-year-long COVID-19 pandemic. The disruptions from the pandemic were compounded by the outbreak of military conflict between Russia and Ukraine in early 2022. The economic costs triggered by the disruption of food and energy supply chains are likely to increase because of the Israel-Palestine conflict now.

The Asia-Pacific region has been suffering from the above supply chain disruptions. It is also witnessing a rise in geopolitical tensions, arising out of the intense competition between the United States and China. The competition has resulted in the reorganization of several supply chains. These include those that have a direct impact on the national security of countries, such as semiconductors. It is important to note though that geopolitical impulses influencing supply chain shifts might not always work as intended.

Over the years, China has come to occupy a very important part in several global supply chains. In manufacturing supply chains, China has been a key source of raw materials, intermediates, and the assembly of final products. Over time, it has also become an important endpoint of various supply chains because of its growth as a major global consumer market. The dual significance of China makes it difficult to visualize supply chain strategies that can achieve economic decoupling from China and yet yield business outcomes that are efficient.

The Asia-Pacific has always been one of the most active regions of free trade agreements. ASEAN-specific FTA architectures have been the most prominent among these. The ASEAN's hub and spoke model has pulled ASEAN and its ASEAN+1 partners into region-wide FTAs. These include ASEAN's FTAs with Australia, New Zealand, China, Japan, the Republic of Korea and India. The culmination of the ASEAN+1 FTAs has been the Regional Comprehensive Economic Partnership that has ASEAN and all its +1 regional FTA partners, except India. The RCEP is likely to enlarge over time by drawing in more partners from the region.

The ASEAN+1 FTAs, as well as the RCEP, have put in place tariff concessions, rules of origin for estimating value added for obtaining preferential tariff treatment, and cross-border service, investment and dispute settlement rules. These rules have significantly influenced the shaping of regional supply chains. The influence has extended to frameworks that

Source: China Daily