Complements or Substitutes? Preferential and Multilateral Trade Liberalization at the Sectoral Level

Ando, Mitsuyo; Estevadeordal, Antoni; Volpe Martincus, Christian Working Paper Complements or Substitutes? Preferential and Multilateral Trade Liberalization at the Sectoral Level ADB Working Paper Series on Regional Economic Integration, No. 39 Provided in Cooperation with: Asian Development Bank (ADB), Manila Suggested Citation: Ando, Mitsuyo; Estevadeordal, Antoni; Volpe Martincus, Christian (2009) : Complements or Substitutes? Preferential and Multilateral Trade Liberalization at the Sectoral Level, ADB Working Paper Series on Regional Economic Integration, No. 39, Asian Development Bank (ADB), Manila, https://hdl.handle.net/11540/1832 This Version is available at: https://hdl.handle.net/10419/109542 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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Preferential and Multilateral Trade Liberalization at the Sectoral Level Mitsuyo Ando, Antoni Estevadeordal, and Christian Volpe Martincus No. 39 | November 2009 ADB Working Paper Series on Regional Economic Integration Mitsuyo Ando+, Antoni Estevadeordal++, and Christian Volpe Martincus+++ Complements or Substitutes? Preferential and Multilateral Trade Liberalization at the Sectoral Level ADB Working Paper Series on Regional Economic Integration No. 39 November 2009 This paper was prepared for the Asian Development Bank (ADB) project on Quantifying the Costs and Benefits of Regional Economic Integration in Asia. We would like to thank Jerónimo Carballo for excellent research assistance. We would also like to thank Robert Barro, Wook Chae, Jong-Wha Lee, Jayant Menon, Emanuel Ornelas, Andrew Rose, Jesús Seade, and Heiwai Tang for their helpful comments and suggestions. The views and interpretations in this document are strictly those of the authors and should not be attributed to the Inter- American Development Bank, its executive directors, or its member countries. Other usual disclaimers also apply. +Mitsuyo Ando is an Associate Professor, Faculty of Business and Commerce, Keio University, 2-15-45 Mita, Minato-ku, Tokyo 108-8345, Japan. Tel +81-3-3453-4511 (ext.23174), Fax +81-3-5427-1578, [email protected]. ac.jp. ++Antoni Estevadeordal is Manager of Integration and Trade, Inter-American Development Bank, 1300 New York Avenue, NW, Washington, DC 20577, United States of America. +++Christian Volpe Martincus, Inter-American Development Bank, 1300 New York Avenue, NW, Washington, DC 20577, United States of America. Tel +1 202 623 3199, Fax +1 202 623 2995, [email protected] The ADB Working Paper Series on Regional Economic Integration focuses on topics relating to regional cooperation and integration in the areas of infrastructure and software, trade and investment, money and finance, and regional public goods. The Series is a quick-disseminating, informal publication that seeks to provide information, generate discussion, and elicit comments. Working papers published under this Series may subsequently be published elsewhere. Disclaimer: The views expressed in this paper are those of the author and do not necessarily reflect the views and policies of the Asian Development Bank or its Board of Governors or the governments they represent. The Asian Development Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. Use of the term “country” does not imply any judgment by the authors or the Asian Development Bank as to the legal or other status of any territorial entity. Unless otherwise noted, $ refers to US dollars. © 2009 by Asian Development Bank November 2009 Publication Stock No. Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Abstract iv 1. Introduction 1 2. Within and Between Trade Liberalization: What Do We Know? 2 3. Data and Descriptive Evidence 4 4. Empirical Methodology 5 5. Econometric Results 6 5.1 Aggregate Estimates 6 5.2 Sectoral Estimates 7 6. Concluding Remarks 8 References 9 Tables 1. Descriptive Statistics 11 2. Correlation between MFN Changes and Preferential Tariff Changes 11 3. The Relationship between MFN Tariff Changes and Preferential Tariff Changes 12 4. The Relationship between MFN Tariff Changes and Preferential Tariff Changes Robustness Check Exercises 12 5. MFN Tariff Changes, Preferential Tariff Changes, and Import Demand Elasticities 13 6. MFN Tariff Changes, Preferential Tariff Changes, and Revealed Comparative Advantage 14 A.1. FTA networking in extended East Asia 18 A.2. Japan’s Free Trade Agreement Negotiations (As of Mar 2009) 19 Figures 1. Average MFN and Preferential Tariffs, All Countries (1985–2005) 15 2. Evolution of the Average MFN (continuous line) and Preferential(dotted line) Tariffs for each Sample Country (1985–2005) 15 3. Box Plots of the MFN and Bilateral Preferential Tariffs for each Sample Country (selected years) 16 4. Sectoral Estimates of the Relationship between MFN Tariff Changes and Preferential Tariff Changes (Left) and Corresponding Kernel Density Estimate (Right) 17 5. Utilization Ratio of AFTA-CEPT, Thailand’s Exports (%) 17 Abstract This paper explores the relationship between preferential and multilateral trade liberalization at the sectoral level using a unique dataset that includes data on most favored nation (MFN) and bilateral preferential tariffs at the 4-digit ISIC level for 11 Latin American countries over the period 1985–2005. We find evidence of heterogeneity across sectors. While in some industries, complementary effects between both kinds of trade liberalization are observed, in others no significant links are detected and—in a few cases—even substitutability seems to prevail. Variation across sectors appears to be systematically related to both import demand elasticities and countries’ sectoral comparative advantages. Keywords: Trade liberalization, regionalism, Latin America JEL Classification: F13, F14, C20 Complements or Substitutes? Preferential and Multilateral Trade Liberalization at the Sectoral Level | 1 1. Introduction Latin America developed a complex web of simultaneous unilateral, multilateral, and preferential agreements as part of structural economic reforms implemented since the mid-1980s and throughout the 1990s (Ando and Estevadeordal, 2004). A natural policy question is how these trade policy reforms have interacted with each other. In particular, have preferential and multilateral trade liberalizations been complements or substitutes? A recent paper by Estevadeordal et al. (2008) shows that regional trade integration seems to have favored general trade liberalization. In other words, regionalism appears to have been a “building block” for multilateral trade liberalization in the case of Latin America.1 In this paper, we explore whether the aforementioned result holds across sectors. More specifically, we investigate whether sectoral heterogeneity exists for changes in MFN tariffs in response to changes in preferential tariffs. In doing this, we exploit a new rich database, which substantially extends the database used in Estevadeordal et al. (2008). Our estimations suggest that the nature of the relationship between these two trade policy variables does indeed vary significantly across sectors. Furthermore, heterogeneity seems to be linked to specific country-sector characteristics such as import demand elasticities and revealed comparative advantages. We believe that these results based on the Latin American experience may provide valuable insights to other countries that have been less exposed to regionalism, but are increasingly involved in these kinds of initiatives. This is clearly the case of the Asian countries. Table A.1 in the Appendix presents the status of FTA (Free Trade Agreement) networking in extended East Asia as of March 2009.2 This table reveals two interesting facts. First, the movement toward regional integration within Asia, through bilateral and plurilateral trade agreements, was lagging behind the rest of the world until recently. Until the mid-1990s, only one FTA had been signed: the Association of Southeast Asian Nations (ASEAN) Free Trade Area (AFTA). Even in this case, preferential tariffs were not significantly utilized in the 1990s. The utilization of preferential tariffs, or the Common Effective Preferential Tariffs (CEPT), however, has recently been expanding at an explosive pace, as the case of Thailand shows in Figure 5. Furthermore, countries in the region have started to rapidly accelerate such movement since the 2000s, particularly the latter half of the 2000s, as many FTAs/PTAs (Preferential Trade Agreements) have been signed, put under negotiations, or at least been subject to feasible study and/or preparatory talks. Second, FTA networking in the region has been developed with ASEAN as its hub in terms of both bilateral and plurilateral trade agreements.3 As of 1 See IADB (2009) for a recent map of overlapping preferential trade liberalization. 2 Extended East Asia here includes the countries of the Association of Southeast Asian Nations (ASEAN)+6. “Plus six countries” are composed of the “plus three countries” (People’s Republic of China [PRC], Japan, and Korea) and India, Australia, and New Zealand. For some FTAs, their status in Table A.1 is based on the agreement of trade in goods; negotiations may still be ongoing over other areas such as investment and services, even if the agreements are identified as those signed or being effective. Besides the bilateral and plurilateral agreements identified in Table A.1, preliminary talks for ASEAN+3 FTA (EAFTA: East Asia Free Trade Area) and ASEAN+6 FTA (CEPEA: Comprehensive Economic Partnership in East Asia) have started. Furthermore, ASEAN’s membership has attempted to strengthen integration by signing the ASEAN Trade in Goods Agreement (ATIGA) in 2008/2009 and proposing the establishment of an ASEAN Economic Community (AEC) with a targeted year of 2015. 3 Most of the plurilateral and bilateral agreements with ASEAN have introduced a system of rules of 2 | Working Paper Series on Regional Economic Integration No. 39 March 2009, all “plus six countries” had signed or enforced FTAs/PTAs with ASEAN as a whole, namely ASEAN+1 FTAs/PTAs,except India which has completed the corresponding negotiations. In addition to such plurilateral agreements, the “plus six countries”—particularly Japan, Australia, and New Zealand—have simultaneously made efforts to form bilateral FTAs with ASEAN countries (see Table A.2 in the Appendix for the case of Japan).4 The remainder of the paper is organized as follows: Section 2 reviews the relevant literature. Section 3 describes our dataset and presents descriptive evidence on the evolution and distribution of MFN and preferential tariffs in Latin America, and their relationship. Section 4 explains the empirical methodology, Section 5 reports the estimation results, and Section 6 concludes. 2. Within and Between Trade Liberalization: What Do We Know? There is an extensive and controversial theoretical debate on how the formation of a regional trade agreement (RTA) influences the incentives of governments to set external tariffs, i.e., MFN tariffs. Few studies, however, have empirically examined the linkage between preferential and multilateral trade liberalizations, which is largely due to the difficulty in obtaining a comprehensive dataset of tariffs, especially in the case of preferential tariffs. This section reviews some empirical studies analyzing the relationship between these kinds of trade liberalization and discusses what we can learn from the existing literature. Using data on 51 industries for 1968–1983, Magee and Lee (2001) show that the enlargement of the European Economic Community (EEC) from 6 to 12 members in 1967 induced members to reduce external tariffs over the following 15 years. Limao (2006) and Karacaovali and Limao (2008) analyze the impact of preferential trade liberalization on multilateral trade liberalization at the Uruguay Round in the United States (US) and European Union (EU), respectively. They find that liberalization was smaller in products where preferences were granted. More specifically, Limao (2006) finds that the US cuts in MFN tariffs were smaller for products imported under PTAs relative to similar products that the US imported only from non-members. The subsequent study by Karacaovali and Limao (2008) finds that the EU reduced its MFN tariffs on goods not imported under PTAs by almost twice as much as it did on PTA goods. The intuition on such a negative relationship between multilateral and preferential origin that allow a choice of either regional value content (RVC) or common change in tariff classification (CTC). The stronger points of plurilateral agreements would be that (i) the cumulative rules of origin in calculating RVC can be applied when RVC is selected and (ii) the common CTC can be applied when CTC is chosen, thereby, facilitating intra-regional trade. On the other hand, the stronger point of bilateral agreements would be the possibility to achieve higher degrees of liberalization in some sectors without enforcing consolidation at lower degrees of liberalization. 4 Some preferential tariffs are lower in bilateral agreements than in plurilateral agreements. The opposite holds in other cases. It depends on the timing of enforcement, which influences the number of tariff reduction for phasing-out tariffs, and the baseline tariffs for preferential tariffs. See JETRO (2009b and 2009c) for the case of Japan and Malaysia–Indonesia–Thailand. Complements or Substitutes? Preferential and Multilateral Trade Liberalization at the Sectoral Level | 9 References Ando, M., 2007. Impacts of Japanese FTAs/EPAs: Preliminary Post-evaluation. The International Economy. 11. pp. 65-88. Ando, M. and A. Estevadeordal. 2004 Trade Policy Formation in Latin America and Asia- Pacific: A Comparative Analysis. 21st Century COE Discussion Paper No.2004-27. Baldwin, R. and E. Seghezza. 2007. Are Trade Blocs Building or Stumbling Blocks? New Evidence. CEPR Discussion Paper 6599. Bohara, A., K. Gawande, and P. Sanguinetti. 2004. Trade Diversion and Declining Tariffs: Evidence from MERCOSUR. Journal of International Economics. 64(1). pp. 65-88. Broda, C., J. Greenfield and D. Weinstein. 2006. From Groundnuts to Globalization: A Structural Estimate of Trade and Growth. NBER Working Paper 12512. Estevadeordal, A., C. Freund and E. Ornelas. 2008. Does Regionalism Affect Trade Liberalization Towards Non-members? Quarterly Journal of Economics. 123(4). pp. 1531-1575. Foroutan, F. 1998. Does Membership in a Regional Preferential Trade Arrangement Make a Country More or Less Protectionist? World Economy. 21. Inter-American Development Bank (IADB). 2009. Bridging Regional Trade Agreements in the Americas (Report by the Integration and Trade Sector). Japan External Trade Organization (JETRO). 2009a. The usage of AFTA: over 60 percent for Thailand’s exports to Indonesia. Tsusho Koho. Prepared by Seiya Sukegawa from Asia and Oceania Division, Overseas Research Department. 9 March. http://www.jetro.go.jp/biznews/ (in Japanese). _______. 2009b. Preference of the JMEPA to the AJCEP for Japan’s exports to Malaysia., Tsusho Koho. Prepared by Seiya Sukegawa from Asia and Oceania Division,Overseas Research Department. 30 January. http//www.jetro.go.jp/biz news/ (in Japanese). _______. 2009c. Preference of the AJCEP to the JTEPA only for 532 tariff lines for Japan’s exports to Thailand. Tsusho Koho. Prepared by Seiya Sukegawa from Asia and Oceania Division, Overseas Research Department. 3 June. http://www.jetro.go. jp/biznews/ (in Japanese). Karacaovali, B. and N. Limao. 2008. The Clash of Liberalizations: Preferential VS Multilateral Trade Liberalization in the European Union. Journal of International Economics. 74(2). pp. 299-327. Limao, N. 2006. Preferential Trade Agreements as Stumbling Blocks for Multilateral Trade Liberalization: Evidence for the U.S. American Economic Review. 96(3). 10 | Working Paper Series on Regional Economic Integration No. 39 Magee, S. and H. Lee. 2001. Endogenous Tariff Creation and Tariff Diversion in a Customs Union. European Economic Review. 45(3). pp. 495-518. Ornelas, E. 2005. Trade Creating Free Trade Areas and the Undermining of Multilateralism. European Economic Review. 49(7). pp. 1717-1735. Ornelas, E. 2008. Feasible Multilateralism and the Effects of Regionalism. Journal of International Economics. 74(1). pp. 202-224. Proudman, and S. Redding. 2000. Evolving Patterns of International Trade. Review of International Economics. 8(3). Richardson, M. 1993. Endogenous Protection and Trade Diversion. Journal of International Economics. 34(3-4). pp. 309-324. Stoyanov, A. 2009. Trade Policy of a Free Trade Agreement in the Presence of Foreign Lobbying. Journal of International Economics. 77(1). pp. 37-49. Complements or Substitutes? Preferential and Multilateral Trade Liberalization at the Sectoral Level | 11 Table 1: Descriptive Statistics Variable Year Average SD CV p10 p50 p90 All Countries MFN Tariff 1985 41.566 25.848 0.622 17.720 37.000 77.900 2005 11.399 6.718 0.589 5.000 10.000 18.940 Preferential Tariff 1985 39.362 24.807 0.630 16.835 34.540 74.100 2005 5.448 5.133 0.942 0.570 4.130 11.920 Countries: Member of Customs Unions MFN Tariff 1985 45.395 27.585 0.608 17.050 40.830 83.750 2005 11.539 5.400 0.468 5.000 10.500 18.950 Preferential Tariff 1985 43.064 26.454 0.614 16.130 38.470 78.620 2005 2.567 2.567 1.000 0.000 2.050 5.300 CV = coefficient of variation, MFN = most favored nation, SD = standard deviation. Note: p10, p50, and p90 are the 10th percentile, 50th percentile, and 90th percentile, respectively, of the distribution of the variables.The members of customs unions include countries that will be (1985) or are (2005) member of a customs union. Source: Authors’ preparation based on IDB-INT Tariff Database. Table 2: Correlation between MFN Changes and Preferential Tariff Changes ∆MFN Tarif f ∆Preferential Tarif f Variable (1) (2) (3) (4) (5) (6) ∆Preferential Tariff 0.973*** 0.965*** (0.007) (0.008) ∆Lagged Preferential Tariff 0.066*** 0.064*** (0.003) (0.004) ∆MFN Tariff 0.845*** 0.824*** (0.003) (0.003) ∆Lagged MFN Tariff -0.023*** -0.004 (0.001) (0.003) Country Fixed Effects Yes Yes Yes Yes Yes Yes Partner Fixed Effects Yes Yes Yes Yes Yes Yes Sector Fixed Effects Yes Yes Yes Yes Yes Yes Year Fixed Effects Yes Yes Yes Yes Yes Yes Observations 217560 206440 206440 217560 206440 206440 R2 0.848 0.836 0.184 0.850 0.836 0.197 MFN = most-favored nation. Note: Robust standard errors in parentheses; * significant at the 10%; ** significant at 5%; ***significant at 1%. Source: Authors’ preparation based on IDB-INT Tariff Database. 12 | Working Paper Series on Regional Economic Integration No. 39 Table 3: The Relationship between MFN Tariff Changes and Preferential Tariff Changes Variable 1985-2005 1990-2001 (1) (2) (3) (4) ∆Lagged Preferential Tariff 0.064*** 0.065*** 0.074*** 0.085*** (0.004) (0.004) (0.005) (0.006) Customs Union*∆Lagged Preferential Tariff -0.076*** -0.097*** (0.007) (0.007) Customs Union 0.453*** 0.174*** (0.031) (0.021) ∆Lagged Preferential Tariff + Customs Union*∆Lagged Preferential Tariff -0.013*** -0.008** [0.003] [0.004] Country Fixed Effects Yes Yes Yes Yes Partner Fixed Effects Yes Yes Yes Yes Sector Fixed Effects Yes Yes Yes Yes Year Fixed Effects Yes Yes Yes Yes Country-Partner-Sector Fixed Effects Observations 206440 206440 108210 108210 R2 0.184 0.185 0.144 0.145 MFN = most-favored nation. Note: Robust standard errors in parentheses; * significant at the 10%; ** significant at 5%; ***significant at 1%. Source: Authors’ preparation based on IDB-INT Tariff Database. Table 4: The Relationship between MFN Tariff Changes and Preferential Tariff Changes Robustness Check Exercises Fixed Ef f ects Rules of Ori g in Im p ort Shares Variable (1) (2) (3) (4) (5) (6) ∆Lagged Preferential Tariff 0.052*** (0.005) 0.053*** (0.005) 0.049*** (0.006) 0.052*** (0.006) 0.061*** (0.049) 0.063*** (0.005) Customs Union*∆Lagged Preferential Tariff -0.073*** (0.007) -0.076*** (0.007) -0.078*** (0.006) Customs Union 0.922*** (0.073) 0.247*** (0.007) 0.307*** (0.030) Import Share 1985 * Lagged Preference Margin -0.153*** (0.027) -0.319*** (0.076) Import Share 1985 * Lagged Preference Margin * Customs Union 0.252*** (0.078) ∆Lagged Preferential Tariff+Customs Union*∆Lagged Preferential Tariff -0.019*** [0.004] -0.024*** (0.004) -0.014*** (0.004) Country Fixed Effects Yes Yes Yes Yes Partner Fixed Effects Yes Yes Yes Yes Sector Fixed Effects Yes Yes Yes Yes Year Fixed Effects Yes Yes Yes Yes Yes Yes Complements or Substitutes? Preferential and Multilateral Trade Liberalization at the Sectoral Level | 13 Fixed Ef f ects Rules of Ori g in Im p ort Shares Variable (1) (2) (3) (4) (5) (6) Country-Partner-Sector Fixed Effects Yes Yes Observations 206440 206440 134487 134487 192520 192520 R2 0.196 0.197 0.199 0.200 0.187 0.188 MFN = most-favored nation. Robust standard errors in parentheses; * significant at the 10%; ** significant at 5%; ***significant at 1%. Source: Authors’ preparation based on IDB-INT Tariff Database. Table 5: MFN Tariff Changes, Preferential Tariff Changes, and Import Demand Elasticities Variable (1) (2) (3) (4) ∆Lagged Preferential Tariff 0.066*** (0.005) 0.065*** (0.005) 0.069*** (0.005) 0.068*** (0.005) Customs Union*∆Lagged Preferential Tariff -0.086*** (0.007) -0.087*** (0.007) Customs Union 0.295*** (0.037) 0.297*** (0.037) Demand Elasticity -0.002*** (0.000) -0.001*** (0.000) -0.002*** (0.000) -0.002*** (0.001) Customs Union * Demand Elasticity 0.004*** (0.001) 0.003*** (0.001) Demand Elasticity * ∆Lagged Preferential Tariff 0.000*** (0.000) 0.000** (0.000) Demand Elasticity * Customs Union * ∆Lagged Preferential Tariff 0.000 (0.000) ∆Lagged Preferential Tariff + Customs Union*∆Lagged Preferential Tariff -0.018*** (0.005) -0.019*** (0.005) ∆Lagged Preferential Tariff + Demand Elasticity * ∆Lagged Preferential Tariff 0.065*** (0.000) 0.068**** (0.000) Country Fixed Effects Yes Yes Yes Yes Partner Fixed Effects Yes Yes Yes Yes Sector Fixed Effects Yes Yes Yes Yes Year Fixed Effects Yes Yes Yes Yes Observations 118180 118180 118180 118180 R2 0.206 0.206 0.207 0.207 MFN = Most-favored nation. Note: Robust standard errors in parentheses; * significant at the 10%; ** significant at 5%; ***significant at 1%. Source: Authors’ preparation based on IDB-INT Tariff Database. 14 | Working Paper Series on Regional Economic Integration No. 39 Table 6: MFN Tariff Changes, Preferential Tariff Changes, and Revealed Comparative Advantage Contemporaneous Variable Revealed Comparative Advantage (1) (2) (3) (4) ∆Lagged Preferential Tariff 0.069*** (0.005) 0.045*** (0.006) 0.072*** (0.005) 0.048*** (0.007) Customs Union*∆Lagged Preferential Tariff -0.085*** (0.006) -0.064*** (0.007) Customs Union 0.259*** (0.030) 0.306*** (0.030) Revealed Comparative Advantage -0.025*** (0.006) 0.020*** (0.007) -0.037*** (0.007) 0.014* (0.008) Customs Union * Revealed Comparative Advantage 0.077*** (0.020) 0.026 (0.020) Revealed Comparative Advantage * ∆Lagged Preferential Tariff 0.030*** (0.003) 0.030*** (0.003) Revealed Comparative Advantage * Customs Union * ∆Lagged Preferential Tariff -0.025*** (0.004) ∆Lagged Preferential Tariff + Customs Union*∆Lagged Preferential Tariff -0.013*** (0.003) -0.016*** (0.004) ∆Lagged Preferential Tariff + Revealed Comparative Advantage * ∆Lagged Preferential Tariff 0.075*** (0.005) 0.078*** (0.005) Country Fixed Effects Yes Yes Yes Yes Partner Fixed Effects Yes Yes Yes Yes Sector Fixed Effects Yes Yes Yes Yes Year Fixed Effects Yes Yes Yes Yes Observations 183050 183050 183050 183050 R2 0.194 0.195 0.195 0.196 MFN = most-favored nation. Note: Robust standard errors in parentheses; * significant at the 10%; ** significant at 5%; ***significant at 1%. Source: Authors’ preparation based on IDB-INT Tariff Database. Complements or Substitutes? Preferential and Multilateral Trade Liberalization at the Sectoral Level | 15 Figure 1: Average MFN and Preferential Tariffs, All Countries (1985–2005) Source: Authors’ preparation based on IDB-INT Tariff Database. Figure 2: Evolution of the Average MFN (continuous line) and Preferential (dotted line) Tariffs for each Sample Country (1985–2005) Source: Authors’ preparation based on IDB-INT Tariff Database. 020 40 60 80 1985 1990 1995 2000 2005 020 40 60 80 1985 1990 1995 2000 2005 . Argentina 020 40 60 80 1985 1990 1995 2000 2005 . Bolivia 020 40 60 80 1985 1990 1995 2000 2005 . Brazil 020 40 60 80 1985 1990 1995 2000 2005 . Chile 020 40 60 80 1985 1990 1995 2000 2005 . Colombia 020 40 60 80 1985 1990 1995 2000 2005 . Ecuador 020 40 60 80 1985 1990 1995 2000 2005 . Mexico 020 40 60 80 1985 1990 1995 2000 2005 . Peru 020 40 60 80 1985 1990 1995 2000 2005 . Paraguay 020 40 60 80 1985 1990 1995 2000 2005 . Uruguay 020 40 60 80 1985 1990 1995 2000 2005 . Venezuela Figure 3: Box Plots of the MFN and Bilateral Preferential Tariffs for each Sample Country (selected years) Argentina Bolivia Brazil Chile 010 20 30 40 50 MFN BO BR CH CO EC MX PE PY UY VE 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 010 20 30 MFN AR BR CH CO EC MX PE PY UY VE 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 020 40 60 80 100 MFN AR BO CH CO EC MX PE PY UY VE 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 0 5 10 15 20 MFN AR BO BR CO EC MX PE PY UY VE 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 Colombia Ecuador Mexico Paraguay 020 40 60 80 MFNARBOBRCHECMXPE PYUYVE 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 050 100 150 200 MFNARBOBRCHCOMXPE PYUYVE 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 020 40 60 80 MFN AR BO BR CH CO EC PE PY UY VE 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 010 20 30 40 50 MFN AR BO BR CH CO EC MX PE UY VE 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 Peru Uruguay Venezuela 050 100 150 MFNARBOBRCHCOECMXPYUYVE 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 020 40 60 MFNARBOBRCHCOECMXPE PYVE 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 020 40 60 80 100 MFN AR BO BR CH CO EC MX PE PY UY 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 Source: Authors’ preparation based on IDB-INT Tariff Database. 16 | Working Paper Series on Regional Economic Integration No. 39 Complements or Substitutes? Preferential and Multilateral Trade Liberalization at the Sectoral Level | 17 Figure 4: Sectoral Estimates of the Relationship between MFN Tariff Changes and Preferential Tariff Changes (Left) and Corresponding Kernel Density Estimate (Right) Note: The kernel density estimate is based on the Epanechnikov kernel. In the figure on the left, sectors are placed in increasing order of their ISIC codes. Source: Authors’ preparation based on IDB-INT Tariff Database. Figure 5: Utilization Ratio of AFTA-CEPT, Thailand’s Exports (%) 0 10 20 30 40 50 60 70 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Brunei Indonesia Malaysia Philippine s Vietnam ASEAN (excl. Singapore) 0 1 2 3 4 -.4 -.2 0.2 .4 -.3 -.2 -.1 0.1 .2 AFTA = Association of Southeast Asian Nations (ASEAN) Free Trade Area, CEPT= common effective preferential tariff. Notes: Singapore is excluded for ASEAN as a whole since it has already removed tariffs on all but six items. The percentage shows the portion of exports. Source: JETRO (2009a). Appendix (As of March 2009) Japan Korea PRC ASEAN India Australia Japan y (suspended) È: 2008 - : 2008 : 2008 : 2006 : 2008 : 2002 : 2007  yy Korea y (suspended) È: 2007 - : 2006 y ÈÈ PRC ÈÈ : 2005 - : 2009 È y : 2008 ASEAN : 2008 - : 2007 - : 2005 - : 1993 - (1992) (1992) (1992) (1992) (1992) (1992) (1995) (LM:1997/ C:1999) y*  Brunei : 2008 (1992) (1992) (1992) (1992) (1992) (1992) (1995) (LM:1997/ C:1999) : 2006 Indonesia : 2008 (1992) (1992) (1992) (1992) (1992) (1992) (1995) (LM:1997/ C:1999) È Malaysia : 2006 (1992) (1992) (1992) (1992) (1992) (1992) (1995) (LM:1997/ C:1999) yy È Philippines : 2008 (1992) (1992) (1992) (1992) (1992) (1992) (1995) (LM:1997/ C:1999) Singapore : 2002 : 2006 : 2009 (1992) (1992) (1992) (1992) (1992) (1992) (1995) (LM:1997/ C:1999) : 2005 : 2003 : 2001 Thailand : 2007 (1992) (1992) (1992) (1992) (1992) (1992) (1995) (LM:1997/ C:1999) È: 2005 : 2005 Vietnam  (1995) (1995) (1995) (1995) (1995) (1995) (1995) (LM:1997/ C:1999) CLM (LM:1997/ C:1999) (LM:1997/ C:1999) (LM:1997/ C:1999) (LM:1997/ C:1999) (LM:1997/C: 1999) (LM:1997/ C:1999) (LM:1997/ C:1999) (LM:1997/ C:1999) India yy È y*y : 2005 ÈÈÈ Australia y È y È y : 2003 : 2005 È: 1983 New Zealand È: 2008 : 2006 È: 2001 : 2005 È: 1983 Brunei Indonesia Malaysia Philippines Singapore Thailand Vietnam CLM New Zealand Table A.1 FTA networking in extended East Asia Sources: Websites of trade ministries in each country and others including JETRO website (http://www.jetro.go.jp/world/). Notes: : signed or in effect, y : under negotiation or agreed to negotiate ( y *: negotiation completed), È: feasibility study or preparatory talks. The year indicates when the concerned FTA was in force. "-" after the year means that some ASEAN countries are under the corresponding FTAs in force and others follow later. Dark blue indicates FTAs signed before or in the 1990s, blue indicates FTAs signed in the first half of the 2000s, and light blue indicates FTAs signed in the second half of the 2000s. For some FTAs, their status in this table is based on the agreement of trade in goods; negotiations may be still ongoing over other areas such as investment and services even if the agreements are identified as those signed or in effect here.The year in parenthesis shows the year for the corresponding ASEAN country to be a member of ASEAN/AFTA. CLM = Cambodia (C), Lao PDR (L), and Myanmar (M). PRC = People’s Republic of China. 18 | Working Paper Series on Regional Economic Integration No. 39 Complements or Substitutes? Preferential and Multilateral Trade Liberalization at the Sectoral Level Mitsuyo Ando, Antoni Estevadeordal and Christian Volpe Martincus explore the relationships between preferential and multilateral trade liberalizations in Latin America at both the aggregate and sectoral levels. They find that while regional trade liberalization has a complementary effect on multilateral trade liberalization in general, the effects seem to vary across sectors, depending on specific country-sector characteristics such as import demand elasticities and revealed comparative advantages. About the Asian Development Bank ADB’s vision is an Asia and Pacific region free of poverty. Its mission is to help its developing member countries substantially reduce poverty and improve the quality of life of their people. 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