Abstract
Though negotiations on an Association of Southeast Asian Nations – European Union (ASEAN-EU) trade agreement began in 2007, the region-wide agreement stalled, and the EU has since pursued bilateral agreements with individual ASEAN member states (AMS). Nevertheless, the goal to form an interregional agreement remains as the European Commission and the AMS are currently undertaking a stocktaking exercise to explore the prospects towards the resumption of region-to-region negotiations. In this paper, a stochastic frontier specification of the gravity model is employed to identify and compare the performance (efficiency) of exports relative to the maximum export levels for the ASEAN-EU partnership. The findings, based on a panel dataset of two-way bilateral exports between the ASEAN-10 and the EU-28 over the 2000–2016 period, indicate a low-level of export efficiency. The low efficiency scores of below 0.2 suggest a high degree of trade resistances in the ASEAN-EU partnership. The low interregional trade potentials relate to market access issues, which in turn depend on the trade policy of both regions.
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Notes
The negotiations were interrupted amidst the complexity and wide range of issues tabled for negotiations under one interregional agreement. The appropriate format or configuration of the FTA was called into question.
Other studies that have quantified the economic impacts of an ASEAN-EU FTA include Francois et al. (2009).
There is quite a vast literature that presents that evolving ASEAN-EU relations, namely its political and security dimensions and challenges, and the EU as a model for ASEAN (Lempkowski 2010). Worthy of further research, however, is the trade efficiency of interregional engagement, which is the focus of this paper.
Brunei has shown a persistent trade deficit with the EU (see also Anaman and Al-Kharusi 2003).
Trade efficiency (TE) is a measure of actual levels of trade against potential trade and can be estimated statistically using the stochastic frontier gravity model for all trade flows (Kalirajan 2007).
The estimation of the frontier, or potential trade, is made using core determinants of trade as the theoretical derivations would suggest (Armstrong 2007).
A total of nine country-pairs, Brunei with Estonia, Latvia, Lithuania, Luxembourg, Malta, Slovakia and Slovenia, and Lao with Luxembourg and Malta, are excluded due to no export flows for the period 2000 and 2016.
Importer fixed effects are excluded as the model does not fare well with the inclusion of both the exporter and importer fixed effects.
Zero export flows represent 11.6% of the total number of observations in the two-way export flow of the ASEAN-EU data set
Cambodia, Lao PDR and Myanmar benefit from the free trade status (with the “Everything but Arms” or EBA scheme). Worth mentioning here is that ASEAN members have heterogeneous differential access to the EU market. Indonesia and Vietnam continue to enjoy the EU’s standard Generalized System of Preferences (GSP) and the Philippines the GSP+.
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Acknowledgements
The research leading to these results has received funding from the European Union H2020 Framework Programme CP-2016-under grant agreement n°770562 (Grant No. IF002AB-2018).
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Devadason, E.S., Mubarik, S. ASEAN and the EU: an assessment of interregional trade potentials. Int Econ Econ Policy 17, 705–726 (2020). https://doi.org/10.1007/s10368-020-00471-5
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DOI: https://doi.org/10.1007/s10368-020-00471-5
Keywords
- Augmented gravity model
- Stochastic frontier analysis
- Interregional exports
- Association of Southeast Asian Nations
- European Union