Do Free Trade Agreements Spur Agricultural Trade and Promote Greater Integration? An Empirical Analysis of the ASEAN-China Free Trade Agreement

The agricultural trade between the Association of Southeast Asian Nations (ASEAN) and the People’s Republic of China (PRC) has seen substantial and sustained growth, with total trade of USD 14 billion in 2004 to USD 68 billion in 2018. This expansion in trade is attributed to the ASEAN-China Free Trade Agreement-Agreement on Trade in Goods (ACFTA-ATIG), which was signed on 29 November 2004 between the parties and came into force on 1 January 2005. Ahead of this, an Early Harvest Program was instituted on 6 October 2003 to accelerate trade by immediately removing tariffs on selected agricultural goods. The involved parties are the PRC and all ASEAN members—Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.

This paper examines how ASEAN trade in the agriculture sector benefited from such an agreement, using trade data of the parties. Employing an augmented gravity model with 51 economies and 24-year time series with 75.9 million data points, the empirical results provide evidence of trade creation effects on agricultural commodities via two channels: (1) intra-trade among ASEAN members and the PRC and (2) ASEAN exports to the rest of the world. Country-level analysis, however, shows that Vietnam, Indonesia, Thailand, Malaysia, and the Philippines demonstrated trade creation effects to varying degrees and channels, while the rest of ASEAN shows either no trade effects or diversionary trade effects.

Policymakers and trade authorities can use the results of our study to recalibrate their respective country strategies in the agriculture sector. Moreover, lessons learned from Vietnam, which has benefited the most from the ACFTA, can be explored further by economies that have yet to maximize the benefits arising from the agreement.