Effects of economic integration in industrial countries on ASEAN and the Asian NIEs

This paper assesses the effect of the proposed North American Free Trade Area, the second enlargement of the European Community (EC) and EC-1992 on Association of Southeast Asian Nations (ASEAN) and South Korea. By matching the commodities exported by ASEAN or South Korea to an integrating market (such as the United States) with those exported to the same market from “internal” sources (such as Canada), it identifies the industries that would bear the brunt of the discrimination. Total trade diversion is estimated (as a terms-of-trade effect) at 4% of ASEAN exports and 5% of South Korean exports to North America; and 8 and 5% of their respective exports to the EC. EC-1992 is expected to have further discriminatory influences. The effect of integration on direct foreign investment in ASEAN and South Korea is also evaluated.