During ASEAN Summit in Singapore in 1992, ASEAN members agreed to enhance the liberalization of regional trade through AFTA. It is the earliest major regional trade agreement in East Asia and has successfully reduced regional tariffs and non-tariff barriers. It also promotes FDI but this area is mainly dealt with through the ASEAN Investment Area (AIA) which was established in 1998. The main instrument of AFTA is tariff liberalization through Common Effective Preferential Tariff (CEPT).
Indira M. Hapsari and Carlos Mangunsong (2006) analyzed the impact of AFTA in increasing the trade among its member countries by estimating a gravity model. Their results show that AFTA has significantly and positively affected the bilateral trade flows between…show more content… The effects of four different FTAs scenarios on net welfare, international trade and economic growth in the Vietnamese economy have been studied. The four FTAs are;
1. ASEAN Free Trade Area (AFTA)
2. ASEAN China Free Trade Area (ACFTA)
3. ASEAN Japan Free Trade Area (AJFTA) and
4. ASEAN China-Japan Free Trade Area (ACJFTA)
1) WELFARE EFFECTS:
For analysing the change in welfare of the households, EV (Equivalent Variation) has been used as a measure. EV can be explained as the change in regional household income in the event of a policy change evaluated at the base year (1997) prices. The results show that Vietnam enjoys immense welfare gains under all the FTAs with ACJFTA generating the largest gain. All participating nations of a specific FTA appear to have welfare gains, but the gains are spread out unevenly. For e.g. Philippines, despite being a member of FTA suffers welfare losses from AFTA and ACFTA. Table below shows EV (in US$ million). AFTA ACFTA AJFTA ACJFTA
Indonesia 314.9 558.4 918.1 899.6
Philippines -29.5 -42.6 196.8 38.5
Malaysia 376.8 949.0 239.5 582.5
Singapore 1,884.9 2,633.0 1,250.9 1,703.0
Vietnam 140.7 320.0 6,48.9