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I.

Introduction
A free trade agreement (FTA) is a legally binding agreement between two or more
countries to liberalise trade and bring about closer economic integration. FTAs allow the partners
to give each other preferential market access. Free Trade Agreements (FTAs) aim to remove the
barriers to trade and investment. These barriers are supposedly in place for the protection of local
markets and industries, yet often end up doing more harm to economies than good. Along with
strengthening economies, FTAs are also designed to benefit consumers, with the idea being that
increased competition results in a greater diversity and abundance of products available to
consumers at lower prices. They create a freer flow of goods, services, investment and people.
Through free trade, regions and companies are able to focus on the goods or services that they are
best able to provide.
East ASEAN is probably the region that has been most active over the last decade in
seeking the rapid expansion of Preferential Trade Agreementd (PTAs). ASEAN as one of the
international trade blocs that became one of the attractive target market. ASEAN FTA caused by
three main reasons: (1) the failure of the Asia Pacific Economic Coooperation (APEC) group and
the World Trade Organization (WTO) to have a substantial impact at either the continental and
global levels; (2) the need of the East Asia economies to establish their own institutional identity
in order to strengthen mutual cooperation following the adverse impacts on their economies of the
Asian financial crisis in 1997; (3) the continued highly discriminatory nature of intra-regional trade
in East Asia, which remains a major obstacle to expanding trade within the region
(Kitwiwattanachai, Nelson and Reed 2010).
Kawai et. al (2010) said the major factors that determine the current expansion of FTA in
Asia can be distinguished as follows: (i) The slow pace of the World Trade Organization (WTO)’s
Doha negotiations makes FTAs a viable alternative; (ii) FTAs can support Asia’s market-driven
economic integration through additional liberalization of trade and foreign direct investment
policy; (iii) European an North American economic regionalism motivated policy makers in Asian
countries to enhance international competitiveness; (iv) Asian financial crisis in 1997-1998 proved
that regional initiatives are required to maintain growth and stability by overcome common
challenges (Kawai and Wignaraja 2010).
Association of Southeast Asian Nations (ASEAN) was established on 8 August 1967 in
Bangkok, Thailand, and was marked by the signing of the ASEAN Declaration (or Bangkok

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Declaration) by its founder members, namely Indonesia, Malaysia, the Philippines, Singapore and
Thailand. The ASEAN population is around 635 million people by 2013 and continue to increase.
ASEAN countries are economically developing with varying degrees of growth per country.
ASEAN covers a land area of 4.4 million square kilometres, 3% of the total land area of Earth.
Member countries have a combined population of approximately 625 million people, 8.8% of the
world's population.
Figure 1 shows total population in ASEAN and country in the world in 2015. ASEAN is
among the top 3 regions with the most populations. In 2015, ASEAN’s population increased by
11.1% from 2007. ASEAN’s population was the third largest in the world, after China and India.
Figure 1
Total Population in ASEAN and Other Countries

Sumber: ASEAN Economic Community Chartbook

Figure 2 describes GDP from ASEAN member countries. The GDP OF Singapura is the
biggest compared another countries with US$ 52.743,9, followed by Brunei and Malaysia. And
GDP od Cambodia is the lowest GDP in 2015 with US$ 1.198,5.

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ASEAN established a free trade area with several partner countries. member countries eliminate tariffs among themselves but maintain individual tariff schedules on imports from non-member countries. This paper seeks to investigate the long-run impact of the ASEAN – Japan – Korea – China FTA using a computable general equilibrium (CGE) modeling approach. ASEAN . Figure 2 Gross Domestic Product in ASEAN At Current Price (Nominal) in US$ Source: ASEAN Economic Community Chartbook The scheme of cooperation of international trade can be in the form of bilateral or regional cooperation. are an important vehicles for enhancing bilateral trading relationships (Siriwardana dan Yang 2007). The GTAP model has been widely used in studies examining the effects of preferential trade treaties. Free trade agreements (FTAs) which improve market access and strengthen trade flows. ASEAN international trade cooperation agreements with ratified partnership countries are ASEAN FTA.Australia New Zealand FTA and ASEAN . ASEAN . As members maintain their own external tariffs. 3 .Korea FTA. import could enter through the member country wih the lowest tariff and then be re-exported to other members (Bowen. The purpose of forming a free trade area is to create trade among members. So to implement these goals. ASEAN .India FTA. In this paper uses the Global Trade Analysis Project (GTAP) model to simulate the effects of the agreement. 2016).China FTA. ASEAN has made FTA with several countries in the world (Naya and Plummer 1997). In a free trade area. et al. attract investment to enter ASEAN and want to become a full participants in the global economy as a form of new regionalism and open it for free trade cooperation with the Other regions. ASEAN is an economic block in the Southeast Asia area which has a relatively fastest and dynamic grow (Shohibul. Hollander and Viaene 2001). avoid the shift of global investment.

Japan Comprehensive Economic Partnership) in 2010. Section II emphasizes the trade between ASEAN and Japan. While income per capita of the people shows income from each individual in a country. The paper ends with some concluding remarks in Section VI. The results from the simulations are reported and discussed in Section V. The paper is organized as follows: Section I provides an introduction. and are more capable to achieve economies of scale. Figure 3 shows ASEAN and international trade coorperation in the World. with Korea (ASEAN-Korea FTA) in 2007 and with Japan (ASEAN . Section IV outlines the GTAP model. its database and the design of GTAP simulations. According to Ekanayake (2010) countries that are larger in size will have the ability to absorb imports more powerful than the small countries. thus the development of their comparative advantage is better than small countries. Section III presents a brief description of the main features and database of the GTAP Model used in this paper. Figure 3 ASEAN and Partnership Countrie Source : BKF Kemenkeu 4 . II. Overview Trade Between ASEAN-Japan-China-Korea ASEAN FTA in cooperation with China (ASEAN-China FTA) in 2004.

Japan's desire to develop its industrial marketing area.6 billion and Japan's exports to ASEAN will increase by US $ 20. As an industrial-based country. Japan requires the supply of mining products that are widely available in ASEAN countries. ASEAN countries are the main customers of Japan-made products such as electronics. On the other hand. Japan is very poor of industrial resources.  ASEAN – Japan Comprehensive Economic Partnership ASEAN and Japan formally established a free trade agreement in October 2003. In addition. 2005).07% (Kemendag RI. During this time. ASEAN expansion into ASEAN + 1 (ASEAN – China FTA) and ASEAN + 3 ( ASEAN – China – Korea – Japan ) indicates that shallow integration have changed into deep integration and develop into regionalism. include ASEAN and Japan's competitiveness in world markets and facilitate trade in goods and services including investment. ASEAN . However. ASEAN GDP can increase by 1. International trade between Japan and ASEAN countries has taken place long before ASEAN was formed. in real terms it is estimated that the value of dependency between the two is the largest.Japan Closer Economic Partnership will increase ASEAN's exports to Japan with 44. and vehicles in large quantities (Pop 2007). For Southeast Asia.2 billion. regionalism is a continuation of regionalization where formal trade agreements have formed part of the reform process and are used to reinforce the goal of economic development strategy of export-oriented member states (Asian Developmnet Bank 2008). a special attraction for consumers in Asian countries. Japan is the third largest export destination after China and the European Union. to meet the needs of raw materials and energy. machinery.5% or nominally. The establishment of the ASEAN-Japan CEP aims to strengthen economic integration between ASEAN and Japan. Japan's exports to ASEAN will increase by 27. including the establishment of a free trade area. Secondly. as the GDP of Japan will increase by 0. For Asian countries.99%. According to Hadi (2005) consistency of Japan products with affordable price and high quality. ASEAN's exports to Japan will increase to US $ 20. As for the background of Japan-ASEAN trade relations are: First. ASEAN countries whose coverage area is so vast to be a potential market for Japan. Increasing the wage of labor and the high cost of domestic production became the reason for Japan to relocate its industry and open 5 . equipment.2% until 2020.

ASEAN-China relations have been multi-dimensional – including politics and security as well as the social and cultural fields – but the success stories have been concentrated in economic relations. China and the Association of Southeast Asian Nations (ASEAN) have developed a growing partnership in security cooperation. Figure 4 ASEAN’s Trading Partners Source : ASEAN Secretariat Figure 4 shows that For ASEAN. so that Japan-made products are more competitive compared by other country. For the past 25 years. China and ASEAN have formed a strategic partnership for peace and prosperity. and the development. Today. Obviously. Japan is the third largest trading partner after China and the EU and Japan is the second largest investor after the EU. every statistic on trade and investment shows remarkable progress and 6 .MNC (Multinational Corporation) in a number of ASEAN countries. The goals are to make the wages of labor and production costs become cheaper. economic/ trade interdependence. signed a framework agreement on ASEAN – China Free Trade Area.  ASEAN – China Free Trade Area Since the mid-1990s.

China became an important destination for ASEAN’s exports. (3) By taking the lead in forming an FTA. Figure 4 ASEAN – China Trade (in billion US$) Source: : ASEAN Trade Statistics Database as of 10 June 2016 7 .5 billion. ASEAN’s total merchandise trade with China reached US$346. China also hopes to play a more prominent role as the region’s center of economic growth (Yuan 2006). Similarly. Figure 4 in 2015. ASEAN also received US$8. rising from 2 percent in 1993 to 6 percent in 2003 and to 11 percent in 2010. Over the past decade. Its 2011 share in ASEAN trade of 11. over this interval the share of China’s imports sourced from ASEAN rose from 2 percent in 1993 to 12 percent in 2010 (Yean and Yi 2014). In addition. In 2011. placing China as ASEAN’s fourth largest source of FDI. following intra-ASEAN trade.potential.7 percent represented a dramatic increase in its importance.2% of ASEAN’s total trade. (1) facilitate a more peaceful regional security environment critical to ASEAN and China’s continued economic rise.2 billion in foreign direct investment (FDI) from China in 2015. trade and investment ties between ASEAN and China as well as Singapore and China have expanded significantly. There are several reasons for the establishment of ASEAN – China FTA. China was the top trading partner of ASEAN. with a rise from its earlier levels of 2 percent in 1993 and 7 percent in 2003. accounting for 15. (2) It addresses concerns in the region over ASEAN’s growing power by more closely integrating itself with China and vice versa. China has consistently maintained its position as ASEAN’s largest trading partner.

ASEAN and the Republic of Korea signed the Framework Agreement on Comprehensive Economic Cooperation. Korea is ASEAN's 6th largest trading partner in 2008. progressive elimination of tariffs and non-tariff barriers in substantially all trade in goods. progressive liberalisation of trade in services with substantial sectoral coverage. All these formed the legal instruments for establishing the ASEAN-Korea Free Trade Area (AKFTA). Economic cooperation projects have also been initiated to promote AKFTA and facilitate trade and investment among parties. This shows that AKFTA has highly contributed to the expansion of trading between ASEAN – Korea and trade in the ASEAN region with South Korea has a positive impact of increasing the volume of trade and public welfare. Because ASEAN is one of the fastest growing market. 8 . which set the stage for the signing of four agreements: Trade in Goods. AKFTA was established through the Joint Declaration on Comprehensive Cooperation Partnership and was enacted in Vientiane. ASEAN – Korea Free Trade Agreement In addition to Japan and China. an increase of 26 percent. trade in goods with ASEAN amounted to $90 billion in 2008. ASEAN is famous as huge economies which have actively engaged in FTA with ASEAN. AKFTA cooperation will provide a positive contribution in the form of increased direct investment (FDI) and improve the quality of domestic products in the ASEAN region as well as national competitiveness. Laos in 2004. Services. one of Korea's most important economic partners. Investment. establishment of an open and competitive investment regime that facilitates and promotes investment among the Parties and establishment of effective trade and investment facilitation measures (ASEAN Corporation 2006). ASEAN is emerging as the pivot of economic integration in East Asia. and Dispute Settlement Mechanism. Since the 2007 effectuation. ASEAN as an important economic partnership for Korea and vice versa. Korea-ASEAN FTA and strengthen and enhance economic cooperation through the following. In addition to these impacts. the ASEAN-Korea Free Trade Area (AKFTA). The other reason for Korea. ASEAN conducts economic and trade cooperation with South Korea.

which imply the price received by the producer the same as the producer’s marginal cost (Siriwardana dan Yang. United States. and investment regimes among the Parties of the AKFTA. multi-sector. facilitative market access. Purdue University. In the GTAP model there is a one-to-one 9 . Figure 5 Real GDP Growth AKFTA Source: http://akfta. 2017 Figure 5 describes that the establishment of the AKFTA creates an opportunity for the 670 million people of ASEAN and Korea with a combined real GDP growth of USD 4.85% through a more liberal.China FTA: Sectoral Aspects 2007). computable general equilibrium (CGE). GTAP Model Analysis of the Effect of an Australia . perfectly competitive market. The structure of GTAP is based on multi- region. III. Outlines of the Model and Database The standard GTAP model applied in this paper is a type of CGE model for comparative static analysis.org/ access : June 16. In the GTAP model. GTAP is a software and database used to simulate the effect of international trade integration. GTAP is created and developed in 1992 by the Department of Agriculture Economics. Demand and supply are balanced in all markets. while bilateral trade model is formulated using Armington assumption.asean. The analytical framework used to quantify the impact of bilateral tariff reductions is the well-known GTAP model. and constant return to scale. all markets are assumed to be perfectly competitive. Theory structure and comprehensive documentation of GTAP can be seen in Hertel (1997).

explicit recognition of savings by regional economies. government. is the characteristic of GTAP. In an open economy system. producer. and exploration recognition of a global transport sector (Siriwardana. IV. and capital). Malaysia. 57 sectors and 5 factors (land. global saving. 2016). Aggregate household expenditure is determined as a constant share of total regional income (household consumption plus government expenditure and national savings). In each region.relationship between producing sectors and commodities. multiple trading regions. Japan. The model has many general features which include product differentiation by country of origin. Malaysia. the economic agents include regional household. including taxes and subsidies on commodities as well as on the primary factors. contains data on 140 regions. making the model more attractive to policy analysts. international mobility of capital. An Analysis of the Impact of Indo-Lanka Free Trade Agreement and Its Implications for Free Trade In South Asia 2004). Simulation Design To analyze the impact of ASEAN-Japan Comprehensive Economic Partnership (AJCEP). which consists of many countries and industries. Korea and China. natural resources. Cambodia. version 9. Vietnam. multiple goods and primary factors. empirically based differences in production technology and consumer preferences across regions. Which then run with giving shock from each FTA. skilled labor. Shock given in this study is in the form of tariff reduction and performed in two ways. The simulation in this study is conducted separately by conducting aggregation of member countries which joined in ASEAN free trade agreement with partner countries. private household. and rest of the world (Shohibul. 10 . this section will evaluate the potential impact of AJCEP. unskilled labor. AKFTA and ACFTA using computable general equilibrium (CGE) model. Laos and Thailand). 2007 and 2011. Each region has a single representative household. a capital goods producing sector in each region to service investment. It is also featured by many policy variables. tariff reduction of ASEAN member countries (Indonesia. each sector is assumed to mix the input to minimize total cost at a given output level. Japan. AKFTA (ASEAN – Korea Free Trade Area) and ACFTA (ASEAN – China Free Trade Area) on the ASEAN8 economies (Indonesia. For the version 9 consists of three reference years: 2004. et al. Philippines. Economy openness. The latest version of the GTAP Data Base. There are two types of inputs – intermediate inputs and primary factors used for production. Singapore.

6 10. export-import.3 ProcFood 490 154 183 283 350 311 235 5.5 5. in the form of tariff elimination up to zero percent/full liberalization for all goods classification and all regions.5 36. (ii) long-term scenario.9 Util_Cons 0.7 113 96..9 41. (i) short-term scenario. China and Japan. Laos and Thailand) on one of partner countries (Japan. Extractive Industry.26 71.2 0 25. with equal level of tariff reduction for each country. and Services.7 16. Cambodia. Textiles. balance of trade and term of trade which 11 .2 227 105 52. Simulation Results This study purpose is to analyze quantitatively the effect of free trade cooperation between ASEAN Korea.3 203 133 TextWapp 159 57.4 43. Philippines.55 68.009 0 0.2 20. refers to Park et al.5 29.9 72. and McDonald and Walmsley (2003) which consist of Agriculture Products. Vietnam. Heavy Manufacturing. and Korea) and vice versa. China. This study used GTAP application version 9 as analysis tool with aggregation data with 2011 as base year. But before simulation with CGE GTAP model will be elaborated database GTAP version 9 is to know comparison of tariff comparison between countries which analyzed for every commodity that traded.3 MeatLstk 237 204 153 270 202 124 263 0 137 12.3 49.9 123 70 HeavyMnfc 42.005 0 10.4 LightMnfc 74. Table 1 Tariff Comparisons before FTA Korea Japan China Cambodia Laos Vietnam Thailand Singapore Philippines Malaysia Indonesia GrainsCrops 2340 229 82. GDP. Construction. Food Products.2 113 197 107 142 205 0 90.9 0 0 0 0 0 0 TransComm 0 0 0 0 0 0 0 0 0 0 0 OthServices 0 0 0 0 0 0 0 0 0 0 0 Total 3415 690 703 1520 1258 974 1442 5. Singapore.9 241 303 170 251 0 98. Technology-intensive Manufacturing. which consist of welfare. Variables used as parameters in this study are macroeconomic analysis.6 Extraction 71. Shock in the form of tariff reduction is divided in two scenarios.26 583 982 462 Source: GTAP Version 9 Database V. Utilities.7 159 29. Agglomeration/aggregation of commodity in this study is fit with its characteristic and type.7 49.7 93.4 0 19. in the form of tariff reduction up to five percent/partial liberalization for all aggregated goods commodities. (2008).1 9.2 144 151 125 379 0 140 470 51.

028 0.282 444.056 -0.006 0.062 -241.32 Laos -85.97 0.95 -0.87 0.02 Simulation 2 Full Liberalization Korea -4201.863 1.49 -0.855 -806.22 -1.81 -0.65 0.24 0.46 -0.03 0. AKFTA and ACFTA are reported in Table.209 3441.49 0.06 SSA 84.04 0.132 234.892 -4.51 0.29 China -1734.79 Oceania 564.21 -0.003 0.02 Namerica 604.20 0.82 -76.363 -178.65 -0.81 -0.012 0.399 -109.66 -0.26 Philippines -1410.018 -90.35 -0.01 MENA 967.02 Latin America 368.21 0.38 0.532 -0.43 -0.446 0.is simulated in two schemas.056 -2.00 -0.733 3330. Results of macroeconomic effect of the AJCEP.105 -338.82 2.94 -2.40 0.26 0.633 -2010.215 -1.44 -0.09 -0.052 -1759.11 SE Asia 15.01 Cambodia -40.61 -0.04 0.1 South Asia 116.321 -40.005 0.441 -0.23 Singapore -1282.68 -0.29 0.97 1.87 1.037 -0.8 0.036 -2362.582 -385.99 -0.39 Thailand 1156.69 0.078 -1.16 Japan 4962.164 0.44 Malaysia -1776.062 -541.383 -679.61 0.328 -2.28 0.5 -0.1 -0.82 Indonesia -1863.183 0.21 Vietnam -41.03 EU 28 935.2 -0.04 12 .53 1.14 East Asia 639.93 -1.98 -4460.666 2517.225 1.2 Table 2 Macroeconomic Effect from ASEAN + 3 FTA Trade Balance Term of Equivalent Export (%) Import (%) (USD Million Trade Variation Dollars (%) Simulation 1 Partial Liberalization Korea -4635.

41 -0.128 -0.26 Malaysia 249.22 2295.43 0.248 382.21 Vietnam 1554.639 6.18 1.301 2.93 Singapore 331.443 244. AKFTA and ACFTA is expected to provide positive effect for all regions through the creation for all countries.22 0.496 0.18 Indonesia 1273.94 -0.919 -82.12 Namerica -4369.44 0.07 6372.18 -0.03 SSA -597.048 -0.176 -0.579 66.151 0.353 1.75 -0.18 East Asia -1142.278 -0. Net welfare of AJCEP.33 0.59 China 1340.26 0.45 0.51 -0.903 2041. EV is revenue adjustments that alter consumer utility equal to the level that would occur if the economic changes have occurs.47 Oceania -883.072 -0.97 -0.446 1118.21 SE Asia -47.165 -6086 0.94 -0.536 -5771.41 -0.753 -61.06 Cambodia -140.159 0.31 South Asia -1418.70 -0.259 1178.51 0.08 EU 28 -2560.081 -0.11 Philippines -306.76 3.34 0.097 744.74 -0. Table 2 shows the result of AJCEP.328 8.657 -142.24 1.02 -0. Negative EV value indicates that change in the economy (income and prices) resulted in a decrease in the level of consumer welfare and vice versa (Widodo.123 -5974.12 Latin America -1034.386 -3727.85 0.10 -0.488 0.003 -0. Japan 8612.93 4.65 -0.6 Thailand 3162. AKFTA and ACFTA is measured based on equivalent variation (EV). AKFTA and ACFTA simulation in two scenarios with using GTAP.297 159.59 -1.02 MENA -579.934 5.183 0.015 -0. 13 .861 -227.25 2.17 -0.139 -0.62 0.67 0.89 0.78 Laos -59.75 0.261 10889.95 3.628 3.22 -0.09 Source: Model Simulation  Macroeconomic Analysis ASEAN free trade cooperation in the scheme AJCEP.39 -0.

76 million.340. country with the biggest welfare is Japan with USD 8. For Rest of World (in this paper Oceania. MENA and SSA has a negative welfare. East Asia. As in previous analysis. this implement that these FTA do not cause trade diversion. Vietnam USD 1.273. Based on Table 2. The increase in international trade performance in this free trade area scheme indicates that all countries experience bigger import expansion than export in all cases. Trade creation provides trade transactions among FTA members that have never occurred before. for Thailand and Japan. which is replaced by bigger import because of low import cost for ASEAN + 3 FTA member.95 million. which also applies in China and Korea. Namerica.38% export and 8. In second scenario. Filipina.85 million. except Laos’s export. Latin America. full liberalization provides greater effect on international trade performance than other scenario. except Singapura and Indonesia. Cambodia. all countries experience positive welfare (except Korea. South Asia. All countries (ASEAN.554. and Rest of World).it is the change in income that would get them to the same new utility level as the change in price would if it happened (Sanders 2007). the condition of balance of trade in scenario 2 from each country joined in ASEAN + 3 are in deficit state. followed by Thailand USD 3. first scenario shows that all ASEAN member countries face declining welfare. tariff reduction in various sectors substitutes with import.16% import. Thus. The opposite condition occurs in second scenario. While the smallest change in welfare received by Malaysia USD 249.612.18 million. the existence of ASEAN + 3 will create a trade creation.162. This condition caused by inefficient domestic products replaced by more effective import from within FTA area. Singapura and 14 . This shows that full liberalization gives positive effect in terms of improving welfare for member countries compared to partial liberalization. EU 28. Then. EV is how much money the consumer would be willing to give up (or be paid) to prevent prices from changing . Vietnam is a country with the biggest trade performance with 3. except Thailand and Japan.25 million.2009). China USD 1. Japan. Korea and China) face increasing international trade performance. So that trade creation will be formed from a decrease in high cost used by domestic industry.89 million and Indonesia USD 1. SEE Asia. this is due to incentives due to the formation of FTAs where regional economic cooperation of the original products of its member countries is not levied on import duty. Laos. Based on Table 2 ASEAN + 3 also has an effect on international trade performance (export and import) of each country.

175 1. A decline in the terms of trade means the price of exports falls relative to imports.584 0.748 China -0. Thailand is a country that gets the biggest positive effect in terms of trade.031 -0.792 Laos -2.453 -0.031 -2.304 -0.003 0.880 -0. Namerica. Worsening terms of trade lead to a decline in the relative price of exportable to importable goods and thus to a spending effect and a resource-movement effect (Cordon 1984).03 0.469 0.076 Cambodia -0.022 -0. lead to a decline in national wealth and hence lower demand for both tradables and nontradables. followed by Vietnam.001 0. for example as a result of a decline in the world market price for the export good.45 million and USD 2041. Liberalization that fully implemented by countries joined in ASEAN + 3 FTA brings negative and positive effect in each country.567 -0.211 -0.23 0.304 -0.267 0.707 0.614 Japan 0.005 0.78%. EU 28.501 -0.648 Thailand 0.207 Philippines -2.Indonesia experience a surplus in international balance of trade with USD 159. Table 3 National Income of Each Region Change Change Change Change in Change Change in GDP in GDP in GDP GDP in Value in Value Price Price Quantity Quantity of GDP of GDP Index Index Index Index (%) (%) (%) (%) (%) (%) Partial Liberalization Full Liberalization Korea -0. the other purpose of free trade cooperation is term of trade.145 0.053 0. Latin America.633 2. The higher are terms of trade. The same thing happened to RoW (Oceania.363 0. Cambodia gets the negative effect in term of trade with -0. South Asia. MENA and SSA). The economic basis of the terms of trade is represented by the existence of a causal relationship between the ratio of the prices of two products and the ratio of the volume in which these two products will be bartered.293 -0. SEE Asia.591 -0.281 Vietnam -0. the terms of trade (ToT) are one of the most important indicators of the quality of a country's integration into the international trade. Lower export prices. East Asia.028 2.016 -0.336 -0. In the context of foreign trade. Typically a country will have lower living standards and less ability to import.037 0. the greater a country's advantage from price developments in foreign trade (Taillard 2012).326 -0.21 1.579 -0.016 -0.071 -1.140 -0.289 -0.05 0.309 15 .204 0.698 0. Last.456 -0.331 0.44 million.075 0.092 -2.554 -1. Japan and Indonesia.575 Singapore -0.

GDP Price index is percentage GDP in region r multiplied by price of GDP in region r (Hertel 1997) . Exporters and importers.034 -0.698%. Vietnam is a country with the biggest change in the range - 0. change in the GDP Price Index for each member country tend to increase. GDP Quantity Index and Change in Value of GDP.575%).03% to 1.363% and Japan with 0. When shipping goods between countries.  International Shipping In the process of international trade.483 0. the economy is in trouble. The risk of loss or damage to the goods is transferred to the buyer. In addition. the economy is in good shape. the value of percentage change in GDP quantity index which shows the changes in real value of GDP.648%).663%). GDP Price Index. change in value of GDP is a percentage GDP in region r multiplied by value of GDP in region r. although Korea. Ports. and the nation is moving forward. Free On Board. such as FOB (Free On board). 16 . Banks. which can be reflected in a business slowdown. Thailand in the range of 0.663 Source: Model Simulation The effect of ASEAN + 3 FTA cooperation will be explained by national income. The economic condition of a region is measured by GDP.332 0. Japan (0.377 Indonesia -0. Firstly. Forwarders. which is definitely a big company in each country. Laos and Philippines has negative change in GDP Quantity index. and many more. there are Customs. The second scenario shows that all ASEAN member countries face increasing GDP Quantity Index.107 -0.447 0. there are many parties involved. A declining GDP. FOB.028 0. for instance. and the nation is losing ground. Malaysia -1. there are terms about the rules of loading in international trade logistics. In full liberalization scenario. Secondly.298 -0. Results of National Income effect of the ASEAN + 3 FTA are reported in Table 2. If GDP is rising.002 -1. Thailand (1. indicates a recessionary trend.748%) and Indonesia (0. But if GDP is falling.445 -0. Thirdly.331% to 2. is a transportation term that indicates that the price for goods includes delivery at the seller’s expense to a specified point and no further. Cambodia. and the seller (exporter) is responsible for delivering the goods from his place of business and loading them onto the vessel of at the port of export.005%. Cambodia face declining GDP Price Index. The biggest percentage change in value of GDP is faced by Vietnam (2.636 0.

318 13.977 -1.608 -4. except Cambodia.647 -0.539 3.061 -1.501 -4. Each countries face increasing in value of regional merchandise exports by commodity (full liberalization).554 -7.126 6.499 7.321 -3.557 -2.467 - TransComm 0.983 GrainsCrops MeatLstk 60.552 2.215 -9.602 4. because with the cooperation between countries through free trade 17 .35 -0.815 -3.491 -9.362 -8.345 -2.051 -2.662 -0.085 -3.697 -0.58 0. With free trade cooperation.712 49.542 1.675 0.632 -2.503 -3.134 5.394 0.444 -11.643 185.535 1.802 -14.849 5.763 10.656 1.586 -5.499 7.542 0.258 1.792 5.81 2.262 -5.495 2. Korea.003 5.216 1.883 -0.269 2.257 -4.401 2.216 -2.496 -1.328 32.254 -16.688 0.267 2.15 0.014 1.182 Full Liberalization vxwfob Korea Japan China Cambodia Laos Vietnam Thailand Singapore Philippines Malaysia Indonesia 36.6 -0.854 - TextWapp 2.405 0.184 0.509 1.49 0.488 0.467 12.74 -1.21 - Extraction 0.365 -2.516 0.65 10.363 3.876 0.033 - HeavyMnfc -0.838 6.291 0.805 23.439 -0.021 LightMnfc 1.509 1.838 -1.353 4.412 -5.974 4.46 0.636 -8.444 -0.199 7.876 0.551 4.482 Source: Model Simulation For example.548 1.278 -0.25 13.226 2.901 4.939 -0.132 LightMnfc 2.917 1.598 -0.601 -13.417 0.541 1.979 -3.181 -12.609 -8.207 -0.826 0.577 14.467 -0.909 -0.162 -1.618 -2.099 6.284 -1.68 0.638 0.741 1.737 0.181 1.308 5.985 57.518 -4.529 -0.24 0.982 0.06 10.936 -1.474 - Util_Cons -0.083 1.07 2.375 -3. Japan and China has increasing value of regional merchandise exports for almost all commodities.781 Extraction 1.693 -2.334 -5.548 -5.811 Util_Cons -0.751 -2.08 0.718 -4.767 -15.797 4.877 MeatLstk 37.511 -3.371 -1.5 -5.098 5.316 5.623 -3. Laos.079 0.314 6.011 - TextWapp 7.706 2.098 -4.218 3.209 -1.67 1.137 -0.715 2.995 2.605 5.119 -3.124 0.013 -4.829 4 .33 -2.761 12.872 2.191 4.335 0.752 0.561 -6.762 1. Table 4 Value Of Regional Merchandise Exports (%) vxwfob Korea Japan China Cambodia Laos Vietnam Thailand Singapore Philippines Malaysia Indonesia GrainsCrops 29.969 1.75 -1.252 -7.966 -3.505 0.856 HeavyMnfc 0.798 1.206 ProcFood 35.49 0.928 -1.668 4.688 0.711 -6.259 -8.759 1.804 -2. the value of regional merchandise exports by commodity (FOB) is changing.364 -4.48 -16.029 -0.238 -4.324 -1.827 13.491 4.585 0.799 -21.434 - OthServices -1.483 0.029 -0.133 5.877 - OthServices -0.97 6.825 -3.476 3.442 2.997 - TransComm 0.08 ProcFood 44.921 -0. and Malaysia for several commodities.782 -5.663 -14.013 3.432 209.

925 -12. Rubber. Viet Nam. for some commodities decreased in value of regional merchandise exports FOB except Extraction. ASEAN.249 -0.24 -58. Philippines face a decrease for agriculture and meat. fabrics. food. food (except to Korea). construction. but decrease in sector agriculture to Japan and Korea.59 Extraction 7. equipment. But different condition accurs in the Cambodia. Cambodia mainly imports petroleum products. Cambodia export to Japan and China decreased in all sectors (except in textile and technology-based industry sectors). Text Wapp. Indonesia export also experience an increase for export destination countries for agriculture for Korea (except Japan and China). China is a bigger export market for Cambodian rice because.245 -24.319 -19. While the industries that face a decrease for all export destination countries are extractive industries. Major export commodities of Cambodia are Clothing. Table 5 represents the output of export trade. Footwear declined. and services.042 -37. Cambodia’s main import partners are China.107 -28.276 -0. generated by ASEAN member countries toward partner countries (Japan. cigarettes. For Malaysia experiences an increase for textile.711 -0. The same thing happens to Laos.775 MeatLstk -8.area increases trade of goods and services with partnership. is presented in Table 5 and 6. Whereas equipment.352 18 . Korea and China) in full liberalization. and South Korea. Thailand. The result of sectoral effect effect from ASEAN + 3 FTA scheme. and Vietnam. cambodian rice exports have dramatically declined. For commodity. Thailand. Singapore. Technology-based industry and textile in Cambodia experience an increase for all export destination countries.114 -27. rice.232 -15. Fish.442 Extraction 327. and technology-based industry sectors to Korea. Table 5 The Estimation of Change in Trade Output of ASEAN Member Countries Based On Sector in Formation ASEAN + 3 FTA (%) qxs[*Cambodia*] Korea Japan China qxs[*Indonesia*] Korea Japan China GrainsCrops 563.  Sectoral Analysis Trade liberalization will have a significant effect benefit from the liberalization of trade in ecah country allocates its resources on sector that have a comparative advantage (Siriwaranda and Yang 2007). Tobacco.015 -9. electrical communications equipment and medicine.333 MeatLstk -18. vehicles. and services sectors face a decrease for all export destination countries. wholesale yarn. grains crop. light and manufactures. construction.413 GrainsCrops 24509. Timber. heavy equipment.

789 -2.088 TextWapp 66.328 81.744 -19.63 TextWapp 87.708 1.289 HeavyMnfc 16.049 TransComm 0.179 MeatLstk 42.736 -1.246 21.382 1.946 26.318 Extraction 18.341 9.836 -4.696 GrainsCrops 1861.509 2.995 10.165 -3.971 2.616 -48.03 -4.773 -1.336 ProcFood -10.767 25.152 -1.151 7.126 2.121 -16.064 1.734 LightMnfc 43.445 3.77 -8.171 -10.623 13.163 0.766 -10.886 -0.464 4.043 Util_Cons 8.585 TextWapp 64.55 Extraction 6.94 GrainsCrops 342.084 ProcFood 72.798 25.015 -9.824 HeavyMnfc 6.053 0.558 qxs[*Singapore*] Korea Japan China qxs[*Thailand*] Korea Japan China GrainsCrops -49.365 15.855 -11.642 2.386 26.349 Util_Cons -0.428 2.069 Util_Cons -2.244 -40.974 131.366 -6.41 -4.53 HeavyMnfc 5.121 27.944 9.364 -0.374 -6.305 5.292 ProcFood 34.293 1.114 0.859 LightMnfc 42.49 -11.228 0.622 4.108 0.726 0.373 6.464 -20.652 39.739 10.471 OthServices -8.278 0.785 0.613 ProcFood 43.973 OthServices -1.351 1.676 4.992 HeavyMnfc 12.225 -7.653 13.757 TextWapp 45.015 ProcFood 0.402 -0.998 3.917 5.609 9.233 -38.138 -2.215 18.002 -2.92 TextWapp 43.811 23.737 MeatLstk 70.339 2.833 qxs[*Laos*] Korea Japan China qxs[*Vietnam*] Korea Japan China GrainsCrops 20.614 TransComm -1.641 ProcFood 239.813 2307.297 Extraction 34.303 Util_Cons 3.072 -5.166 HeavyMnfc 10.484 -2.246 9.02 TextWapp 42.347 2.329 6.683 -9.56 ProcFood 45.068 1.139 20.758 2.325 3.011 24.377 3.267 TransComm -5.394 28.169 -4.68 MeatLstk 229.755 TransComm 2.617 OthServices -17.729 LightMnfc 14.431 14.7 0.124 TextWapp 69.184 MeatLstk 131.396 56.151 LightMnfc 20.13 15.741 17.092 1.059 6.27 0.49 Util_Cons 0.844 59.018 23.194 9.004 -10.291 LightMnfc 12.315 GrainsCrops 59.189 TransComm -0.368 2.433 LightMnfc 39.047 Util_Cons 0.655 37.771 17.956 -8.118 -1.767 0.199 4.047 Util_Cons -12.638 20.748 OthServices 10.56 -17.291 6.923 OthServices 1.787 -10.892 qxs[*Malaysia*] Korea Japan China qxs[*Philippines*] Korea Japan China GrainsCrops -48.788 3.902 2.788 -37.631 -8.704 -0.886 -35.917 HeavyMnfc 11.276 Extraction 19.831 13.927 Extraction 6.01 2. ProcFood 23.8 61.913 TransComm -9.312 MeatLstk -17.203 TextWapp 84.427 -36.2 10.38 Extraction 446.515 5.672 HeavyMnfc 12.869 7.906 -18.486 19.27 8.537 19 .347 Util_Cons 1.877 LightMnfc 39.439 MeatLstk 257.28 127.811 -1.114 OthServices 1.973 3.09 -6.209 0.726 LightMnfc 33.3 40.79 8.723 HeavyMnfc 7.338 19.149 0.49 -0.466 -2.

553 92.282 60.59 -6. There are sizable heavy industry such as chemical.238 27.669 -0.514 26.988 -2.402 -2.54 -2.652 49.398 MeatLstk 790.854 -3.448 35. Nissan and Mitsubishi. textile.408 -4. Mitsubishi.999 20.622 159.215 39.03 -2.5 TransComm -7.388 -2.675 58.366 -3.675 -0.375 OthServices -0. Fujitsu.1 -6. and steel.336 -3. South Korea has comparative advantage in the production of commodities which are relatively labor-intensive.066 155. manufactures. such as textile yarn.786 0.966 2. and Korea) to ASEAN.631 TransComm -0. Philippines and Indonesia).53 -2. TransComm -0.631 97.443 Util_Cons -0.695 43.618 20 .737 70. Seiko.762 21.382 26.118 37.682 HeavyMnfc 107.906 32. professional and scientific instruments.601 17.486 1.729 46. Automobiles and automobile parts is the largest and they account for 20% of the total exports.49 -3.279 Extraction 337.002 16.137 23. Nikon.511 4.282 -7.839 52. Toshiba and Yamaha. tsunami and nuclear accident. Japan face increase manufactures.629 -3.644 38.398 12.781 11. Panasonic. Honda. Japan's high tech components are a key element in global production networks was immediately evident in the wake of the triple crisis of earthquake.535 OthServices -7.632 5.599 -6.379 -7.8 ProcFood 48.008 -6.269 87.174 3.351 35. China. food. fabrics and related products and relatively technology intensive.552 3.975 -3. Korea face a increase agriculture.201 -4.821 -3.729 0. Table 6 The Estimation of Change in Trade Output of Partner Countries on ASEAN Member Countries Based On Sector in Formation ASEAN + 3 FTA (%) qxs[*Japan*] Cambodia Laos Vietnam Thailand Singapore Philippines Malaysia Indonesia GrainsCrops 50. Electronics is important too. iron and steel.808 5. meat.399 15.558 7.509 11.639 18. heavy equipment and technology-based industry sectors. Japan has Toyota.713 OthServices 0. electrical machinery.657 0.005 0. All of top 10 most important exports in Japan are high tech manufacturing.97 TextWapp 31.788 28.992 76. Japan export to all ASEAN countries experiences an increase for all sectors (except to Singapura and several commodities to another partner countries).321 -2.436 LightMnfc 32. NEC.324 -2.55 114.359 39. heavy equipment and technology-based industry sectors.168 70. extraction (except Singapore. There are many global electronics companies including Canon.499 Source: Model Simulation Table 6 shows export performance of partner countries (Japan. Hitachi.244 18. Sony. Sharp.14 -5.403 -4.833 29. metal working machinery and road vehicles. other transport equipments.754 852. ship building. Nintendo.

137 1. food.296 TextWapp 24.545 35.291 83. China manufacturing is becoming very complex and high technology oriented.812 19.16 Source: Model Simulation China has the best performance after the implementation of ASEAN + 3 FTA.073 85.377 qxs[*China*] Cambodia Laos Vietnam Thailand Singapore Philippines Malaysia Indonesia GrainsCrops 91.582 -0.964 Extraction 317. millet. potatoes.533 12.717 6.341 -1.257 -0.668 -0.544 11. barley. Agriculture is a vital industry in China.57 -2.828 Util_Cons 1.814 84.21 14. because China export to all ASEAN countries experiences an increase for all sector (except TransComm and Other Services).079 -2. tomato.216 66. China ranks first in worldwide farm output.213 276.856 -3.058 448.307 6. Chinese companies are now competing 21 .13 5.553 0.603 0. sorghum.569 TextWapp 44.884 30.16 -1.91 -4.646 0.598 11.507 15.152 1.571 LightMnfc 65.09 494.905 40.368 -0.162 596.079 0.224 39.35 41.184 Util_Cons 2.561 20.455 6.059 -1.523 37. manufactures.334 236.984 -0.656 14.243 289.146 13.096 ProcFood 54.386 -0.7 -2. meat. primarily producing rice.261 2.115 50.362 24.697 0.071 91.221 46.368 -1.975 1.582 35.937 TransComm 1.129 -0.962 26.968 11.972 -2.404 -0.186 -0.258 MeatLstk 200.263 -0. peanuts.708 12.793 87.132 4.319 -1.337 35.46 2. oilseed and soybeans (Carter 2011).995 220. employing over 300 million farmers.416 0.087 45.037 93.251 152.258 156.272 6.615 0.155 0.714 3.647 74.6 -2.395 106. China is not only rich with plant and animals but also is a global hub for manufacturing.282 71.024 -1.887 65.493 83.444 65.278 16.626 22.067 -1.967 0.765 111. qxs[*Korea*] Cambodia Laos Vietnam Thailand Singapore Philippines Malaysia Indonesia GrainsCrops 130.471 -0.389 -5.389 OthServices 2.028 38.126 7.081 0.249 3.509 51.294 -3.009 -0.538 0. heavy equipment and technology-based industry sectors.902 38.086 23.133 3.001 Extraction 182.09 29.274 1.531 -1.141 23.239 -0.298 -1.504 308.885 80. and is the largest manufacturing economy in the world as well as the largest exporter of goods in the world.708 TransComm 2.454 131.556 9.009 -0. extraction (except Singapore and Indonesia).875 LightMnfc 101.155 -1.514 50.193 25.782 3. cotton.226 4.166 -3.658 HeavyMnfc 109.756 6.653 -4.009 120.005 92.037 HeavyMnfc 105. wheat.449 MeatLstk 251.859 162.554 22.786 46.175 573.83 142.268 46.436 -1.622 1. tea.363 ProcFood 160.083 24. China export also experience an increase for agriculture.658 75.561 36.81 71.156 OthServices 1.

And every country should have a comparative advantage to boost exports and economic activities. Concluding Remarks In summarising the economic relations between ASEAN China.globally in Component Design & Manufacturing. so ASEAN members must to take the benefits from it. In addition. auto parts. standar of living and the annual per capita income of nation. the integration of ASEAN with China. 22 . efforts should also be made to replace imports. ASEAN member countries should continue to increase national exports to several countries among partner countries. Japan. more intense competition. and Korea can entice more foreign corporations. to increase economic growth. which each market alone cannot otherwise attract. Network Hardware. investors will be more inclined to locate in the integrated region. To optimize the positive impact of trade. PCs. VI. refrigerators. ASEAN FTA partner countries have a stronger economic and positive effect of ASEAN country members. As such. PCBs. and much more. With a larger market. increased investment and economies of scale. TVs. it is evident that there is continuing growth trend between the two economies based on a strongly complementary trading relationship. ASEAN Korea and ASEAN Japan. Surface Mount Technology.

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