Chinese Regionalism and the 2004 ASEAN-China Accord: The WTO and Legalized Trade Distortion

Abstract

The issue presented is whether Chinese regionalism (quyu zhuyi), or new regionalism (xin quyu zhuyi), poses a threat to the multilateral world trading system. The question directly relates to the recent 2004 ASEAN-China accord, which proposes to establish the world's largest free trade area (FTA). Regionalism promoted by exclusionary motivations, such as political considerations, tends to produce trade distortion, and is welfare-reducing. An exclusionary trading area of such magnitude may pose a threat to multilateral world trade. In such an event, trade distortion may result in great harm to the global economy, producing disastrous economic and social consequences worldwide. This article examines the consequences that may flow from the recent 2004 ASEAN-China accord and adequacy of the World Trade Organization (WTO) rules governing FTAs. It also analyzes Chinese regionalism, trade distortion versus trade creation, and finally, whether the 2004 ASEAN-China accord threatens the WTO and multilateral trade, especially in the wake of the January 1, 2005, termination of the WTO Agreement on Textiles and Clothing (ATC).