Workshop on Simplification and Harmonization of Rules of Origin (ROO) 18-21 March 2008 ADBs Thailand Resident Mission, Bangkok,

Thailand

Opening Remarks and Keynote Speech by Worapot Manupipatpong Director Capacity Building and TrainingCBT) Asian Development Bank Institute, Tokyo

Distinguished participants, eminent resource speakers, ladies and gentlemen,

Good morning.

On behalf of the Thailand Resident Mission of the Asian Development Bank (ADB) and the Asian Development Bank Institute (ADBI), I am very pleased to welcome all of you to this four-day Workshop on Simplification and Harmonization of Rules of Origin (ROO). Since I am also going to deliver a keynote speech next, allow me to combine it with the opening remarks and start with some recent progress of regional economic integration in Asia.

As you are probably aware, Asia has become much more integrated over the past decade. Intra-regional trade accounted for about 52% of Asia's trade in 2006, most of which occurred in emerging Asia. While this statistics compares favorably with 52.5% trade within NAFTA and 59.2% trade within EU15, much of this growth was, however, concentrated in East Asia. Intraregional trade in South Asia, for example, was less than 2% of GDP. The differences in growth in intra-regional trade are attributable to different growth strategies of these sub-regions. South Asian countries
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pursued import-substituting industrialization while East and Southeast Asian countries adopted an outward oriented growth and industrialization strategy.

This growth in intra-regional trade has been brought about by market-led as well as government-led integration efforts. Market-led integration has been driven by profit maximizing behavior of business firms and supported by both technological advancement and globalization. Economic regionalism in North America and Europe has motivated countries in Asia to pursue closer cooperation and greater institutionalized or government led integration. Another reason for greater regionalism is that certain issues such as energy shortage, mobility constraints for landlocked regions, and high transaction costs due to poor trade facilitation across regions, can be addressed much more effectively through regional cooperation. This sense of regionalism intensified after the latest Asian financial crisis in 1997/98 where the lack of timely responses in putting together a rescue package made countries in the region realize that it is better to create their own regional self-help and support mechanism and hence the adoption of the Chiang Mai Initiative by the ASEAN+3 in 2000.

In terms of trade, there have been a number of regional trade agreements (RTAs) in Asia. These include the Bangkok Agreement of 1976, Australia-New Zealand Closer Economic Relations (CER) in 1983, ASEAN Free Trade Area (AFTA) in 1992, the APEC Bogor Declaration in 1994, and the South Asia Free Trade Agreement (SAFTA) in 2004. In addition, as of June 2007, there were almost 200 FTAs in Asia, 90 of which were concluded, 61 were under negotiation and 47 were proposed. About half of them were in East Asia.

It was argued that while countries in East, Southeast and South Asia are at various stages of development, there exist substantial complementarities that can be exploited for mutual benefits. For example, countries with savings surplus can act as the bankers for those that suffer from savings gap. Pooling of regional demand can help address underutilization of industrial and production capacity.

It is notable that among various groupings in Asia, ASEAN countries have made the most significant progress in terms of regional economic integration. Recently, in

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November 2007, the ASEAN Leaders have adopted the ASEAN Economic Community (AEC) Blueprint that will transform ASEAN into a single market and production base, a highly competitive economic region, a region of equitable economic development, and a region fully integrated into the global economy. The Blueprint identifies 17 core elements and delineates 176 priority actions to be undertaken within a strategic schedule of four implementation periods towards realizing the AEC in 2015. In 2006, intra-ASEAN trade was at 27.2% of total trade.

At the ASEAN+3 level, a Joint Expert Group is undertaking a Phase II study on East Asian FTA. In a larger grouping called an East Asian Summit (EAS) that has India, Australia and New Zealand joining the ASEAN+3 countries, another study is being conducted to explore the possibility and modality for a Comprehensive Economic Partnership in East Asia (CEPEA).

In addition, a Tokyo Forum was organized earlier this month to introduce a draft report on Developing a Roadmap toward East Asian Economic Integration. The report was prepared by the Economic Research Institute for ASEAN and East Asia (ERIA), another regional initiative of the sixteen EAS countries.

A World Bank paper on Preferential Trading in South Asia asserted that because economic size and share in world trade of SAFTA economies were relatively small, it runs a risk of creating a trade diversion and therefore SAFTA should be strategically approached in the context of creating a larger preferential trade area in Asia, particularly encompassing the Peoples Republic of China (PRC) and ASEAN countries. Perhaps, the CEPEA, which includes India, would contribute towards bridging South and East Asia.

At ADBI, we have been conducting a number of policy studies and capacity building and training activities in support of trade liberalization and facilitation in the region. The latest study is a discussion paper by ADBI Dean, Masahiro Kawai, on Evolving Economic Architecture in East Asia. The paper reviews the progress of East Asian economic integration, assesses regional cooperation initiatives in the areas of trade, FDI and finance, and identifies issues and challenges for greater institutionalization of regional economic integration towards an East Asian economic community.

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Another paper, co-authored by Dean Kawai, maps the salient characteristics of East Asian FTAs, assesses their economic impacts and identifies issues and challenges for further integration in East Asia. The paper suggests that consolidation of multiple and overlapping FTAs into a single East Asian FTA can help mitigate the harmful noodle bowl effects of different rules of origin (ROOs) and standards and that the consolidation at the EAS level would yield the largest gains to East Asia among plausible regional trade arrangementswhile the losses to non-members would be relatively small.

It further recommends ASEAN to act as the regional hub and for ASEAN countries to further deepen ASEAN economic integration, the plus-three countries (PRC, Japan, and Korea) to collaborate more closely, and India to pursue further structural reforms. To take advantage of integrated regional markets, the need to strengthen the supply-side capacity of poorer ASEAN countriesincluding the building of tradesupporting infrastructure (transport, energy, and telecommunications)was also highlighted.

Recognizing this need, ADBI is currently conducting a flagship study to look at the roles of cross-border infrastructure in promoting regional cooperation and vice versa.

In the area of capacity building, this workshop is one of a number of activities planned this year to facilitate Asian economic integration. In addition to the workshop on ROO, another workshop on sanitary and phyto-sanitary measures is planned in the fourth quarter. A workshop series on public-private partnership in infrastructure development is under way, with the latest PPP workshop for Central Asian countries being conducted a few weeks ago. More PPP workshops are being planned for East and South Asian countries later this year. A workshop on competition policy is also expected to be held during the second half of 2008 to assist the ASEAN Experts Group on Competition to develop their competition policies.

As essential components of RTAs and bilateral FTAs, ROO are primarily intended to prevent trade deflection and enforce tariff discrimination. The complexity and variety

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of ROO in existing RTAs and bilateral FTAs, however, may hinder cross-border trade, particularly from the private sector perspective.

According to an agreement on rules of origin reached at the Uruguay Round, a set of principles was identified to govern the existing ROO based on national laws, and the development of product-specific detailed ROO was referred to the World Customs Organization (WCO). Although WCO has developed a harmonized ROO for global application, it has not yet been approved by WTO members.

Against this background and to promote intra-regional trade in Asia, this workshop is designed to critically analyze the various ROO components at international level (for example, draft harmonized ROO for global application); regional level (such as AFTA and SAFTA); and national level with three major trading partners (the European Union, Japan, and the United States). By sharing country and regional experiences in the implementation of ROO, the workshop aims to explore ways to further simplify and possibly harmonize ROO, particularly for the existing as well as upcoming RTAs.

With the combined expertise of eminent resource speakers and senior officials from participating member countries, the private sector, regional and international organizations such as ASEAN and SAARC Secretariats, and UNCTAD, I am looking forward to hearing, by the end of the workshop, some suggestions on how the region could work together towards a simpler and better harmonized ROO.

On that note, I would like to conclude by wishing you all fruitful deliberations and an enjoyable stay in Bangkok over the next four days.

Thank you.

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