Sogang ilas research series on international affairs Volume 8

S o g a n g H A S R e s e a r c h S e rie s o In t e r n a t io n a l a f f a ir s CONTEN TS ASEAN Free Trade Area: Discriminatory or Not? A Case Study for V ietnam and Singapore Yoon H eo Normative Interpretation of Democratic Peace: i Validity and Policy Implications Jaechun Kim Assessment of Korea-China Economic Relations and II Prospects o f Korea-China FTA Si Joong Kim Secret Intelligences and State Structures: The influence o f Secret Intelligences on Transformation K of the M odem State Structures Kyu Young L ee & M irko Tcisic I Editor’s note It is my great pleasure to present the eighth volume o f the Sogang HAS Research Series on International Affairs, the journal o f the Institute of International and Area Studies (T1AS) o f Sogang University. The HAS o f Sogang University has the goal o f promoting research on international issues from diverse perspectives, since it was founded in 1997. Publishing this journal is one o f the major activities of the HAS to achieve the goal. This volume includes four papers written by scholars o f diverse fields, including international trade, international relations, and area studies. This fact is very much consistent with the journal’s policy o f promoting multi disciplinary international studies. Let me briefly summarize the papers o f this volume. The paper by Nguyen K. Doanh and Yoon Heo titled as “ASEAN Free Trade Area: Discriminatory or Not? A Case Study for Vietnam and Singapore." This article analyses and compares the economic effects o f ASEAN Free Trade Area (AFTA) on the trade flows o f Vietnam and Singapore. Using the gravity model, the study shows a number of robust empirical findings. First, on the multilateral trade flow's o f Vietnam and Singapore, the model reveals no trade diversion following integration. Second, trade flows are not significantly affected immediately following the signing o f the AFTA agreement. Third, trade distance still remains a hindrance to trade, indicating that globalization and integration ha \e not Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn mitigated the relevance of physical distance even though technological innovations continue to reduce transportation costs. Fourth, cultural familiarity, as a proxy for linguistic affinity and colonial relationship, continues to be an important determinant o f bilateral trade flows. Finally, differences in per capita income among trading partners continue to have negative impacts on bilateral trade. Efforts to narrow the GDP gaps among members, improving social infrastructure, and continued domestic reforms are suggested as remedies for the obstacles to freer flows o f trade in the region. The paper by Jaechun Kim is titled as “Normative Interpretation of Democratic Peace: Validity and Policy Implication.” The normative explanation o f Democratic Peace stressing elites' role asserts that peaceful conflict resolution norms and cultures of democratic leaders prevent conflicts among democracies from mounting to military disputes. According to this norm-based explanation o f Democratic Peace, leaders in democracies apply such peaceful conflict resolution norms in their relations with other democracies, because they try to follow the same norms o f conflict resolution as have been developed within and characterize their domestic political processes. This paper claims that the behavior of democratic leaders during most o f the conflicts with other democracies was not consistent with the predictions of elites’ norms- based theories. Throughout the conflicts between the US and other nascent democracies, it was the latter who appealed more to the peaceful conflict resolution norm in earnest. It was the latter who could use the language of democratic norms and culture more comfortably. Since the end o f the Cold War, quite a few Americans, scholars and policy-makers Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn alike, have suggested that the export or promotion o f democracy abroad should become the central focus o f U.S. foreign policy in the post-Cold War era. Instead o f unilaterally projecting W estem -style democracy, the American leaders should grant to the foreign counterparts the compromise o f “embedded democracy.” The Democratic Peace as U.S. foreign policy would do well to avoid becoming a 21st century American campaign for "benevolent assimilation.” The paper by Si Joong Kim is titled as "Assessment of Korea-China Economic Relations and Prospects of Korea-China FTA.” It investigates the bilateral economic exchanges between Korea and China, which has experienced rapid increases since they established diplomatic relations in 1992. The economic exchanges in diverse channels have shown both quantitative increases and structural changes in this 15 year period, mainly based on high-growth o f Chinese econom y. Korean econom y has benefitted from its rapidly-growing exchanges with China, enjoying such effects as economic growth, price stability, and structural upgrading. However, its dependence on Chinese econom y increased sharply and costs for too-rapid structural changes have not been negligible. The claim o f "industrial hollowing-out" due to China cannot find its solid ground. The prospects o f Korea-China FTA, which has been recently discussed in public, are not clear. In theory, the bilateral FTA would have mutually beneficial effects. In practice, the positive effects for Korea ma\ not be that large or uncertain depending on the coverage and contents o f the agreement. Also, the degree of dependency on China would increase further. However, the negotiation power o f Korea is relatively weak. The alternatives will be either to establish a low-level traditional FTA in a Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn short period o f time or to negotiate a high-level broader-ranged I-'TA in a long-term perspective. The decision will not be easy, but it will have severe consequences for future Korean economy. The paper titled as “Secret Intelligence and State Structures” is coauthored by Kyu Young Lee and Mirko Tasik. It discusses the influence of secret intelligence on transformation o f modem state structures. Since Napoleonic Wars the importance o f secret intelligence had progressively increased. In the beginning, as a part of military crystallization, its scope and functions were limited and subordinated to military purposes. However, with the raise of ‘political citizenship’ and institutionalization o f the state the need for 'social stabilizer’ emerged, especially in countries with sensitive geopolitical positions and complex societies. As a result, secret intelligence’s functions and purposes had diverged from the previous subordination to the military. Hence, both high military and civilian governing structures, which were in a quite discordance throughout the 19th and early 20th century, increased their dependence on secret intelligence. After the October Revolution, secret intelligence in Bolshevik Russia and later in Stalin’s Soviet Union evolved from the state stabilizer into the nucleus of the state crystalli zation. Its scope and functions were broadened, and its distributive power within the state highly maximized. The secret intelligence under Stalin started to develop as another form o f military crystallization, altering the previous concept o f war. This directly had repercussion in US, causing creation of the resembling ‘new generation’ secret intelligence. Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn I hope this volume will contribute to the advancement o f international and area studies in Korea by facilitating academic discussions. Further, I promise that the IIAS o f Sogang University will make its effort to increase the number o f articles and improve the qualities of the papers published in this journal in the next volumes. December 31. 2008 Si Joong Kim Director Institute o f International and Area Studies Sogang University' Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn ASEA N Free Trade Area: Discriminatory or Not? A Case Study for Vietnam and Singapore 7 ASEAN Free Trade Area: Discriminatory or Not? A Case Study for Vietnam and Singapore Nguyen K. Doanh* Yoon Heo** Abstract This paper analyses and compares the economic effects o f ASEAN Free Trade A rea (A FTA ) on the trade flo w s o f V ietnam and Singapore. Using the gravity model, the study shows a number of robust empirical findings. First, on the multilateral trade flow s o f Vietnam and Singapore, the model reveals no trade diversion following integration. Second, trade flows are not significantly affected imme diately follow ing the signing o f the AFTA agreement. Third, trade distance still remains a hindrance to trade, indicating that globali zation and integration have not mitigated the relevance o f physical distance even though technological innovations continue to reduce transportation costs. F ourth , cultural fam iliarity, as a proxy for linguistic affinity and colo n ia l relationship , con tinues to be an important determinant o f bilateral trade flows. Finally, differences in per capita income among trading partners continue to have negative impacts on bilateral trade. Efforts to narrow the GDP gaps among * Faculty o f Economics. Thainguven University, Vietnam, e-mail: nkdoanh@ yahoo.com * * Professor, G raduate School o f International Studies. Sogang U niversity, Korea, e-mail: bury:'« sogang.ac.kr Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn Xguỵen K Doanh Yoon Heo members, improving social infrastructure, and continued domestic reforms are suggested as remedies for the obstacles to freer flow s o f trade in the region. Keywords. AFTA. Gravity Model, Trade Diversion. Revealed Comparative Advantage. Intra-industry Trade, V ietnam. Singapore. 1. Introduction Regionalism has becom e one o f the most salient trends in the global econom y. Even after the launch o f the WTO multilateral trading system, the number of regional trade agreements (RTAs) has increased rapidly, expanding their scope and geographical reach across continents. In spite o f such incremental growth in RTAs, no consensus for the merits of RTAs has been confirmed yet. Instead, these initiatives have led to ongoing debate between economists and politicians over whether RTAs represent 'building blocs' or 'stu m bling blocs'. Economists advocating RTAs have heralded such agreements as stepping stones towards worldwide free trade, which benefits individual countries because o f the cost reduction resulting from intensified competition, econom ies o f scale, and diversified consumers' choices. In contrast, opponents h a \e argued that these initiatives will be stumbling blocs, acting primarih to divert trade from other countries to those countries receiving preferential treatment. The 'second-best' nature of liberalizations under RTAs makes it Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn A S EA N Free Trade Area: Discriminatory or Not? A Case Study for Vietnam and Singapore 9 difficult to determine whether the welfare effects from RTAs will be positive, even for the members o f the arrangements. In addition, empirical research has not succeeded in reaching firm conclusions on whether trade creation outweighs trade diversion. For example. Karacaovali and Limao (2005) and Limao (2006) found stumbling bloc effects for the cases o f EU and U.S. respectively. In contrast, Miljkovic and Paul (2003) found that trade creation occurs in US agricultural exports to Canada because o f Canada - USA Free Trade Agreement. Therefore, the effects o f forming a regional integration agreement on the welfare o f member countries and non-member countries will depend on individual circumstances and can only be assessed on a case-by-case basis. Founded in 1992, ASEAN Free Trade Area (AFTA) aims primarily at increasing A SEAN's competitive edge as the production base for the world market. To achieve this goal, the plan involved a lowering of intra-regionai tariffs, through the Common Effective Preferential Tariff (CEPT) scheme, to 0-5 percent within a period of 15 years commencing in 1993. Whether the formation o f AFTA has increased intra-regional trade in the South East Asian region still remains a point o f controversy in the literature. Some studies (e.g.,Elliott and Ikemoto, 2004) have show'n that intra-regional trade in ASEAN was strengthened in the 1990s. In contrast, other studies (e.g Endoh, 2000) have produced opposite results. This paper centers on the following research objectives: First, using a set o f m odels with fixed and random effects considered, it evaluates the impacts o f accession to AFTA on the multilateral trade flows of Vietnam and Singapore as a result o f trade creation and trade diversion among member and non-member countries. Second, it investigates the Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn 10 Nguyen K Doanh / Yoon Heo issue o f whether or not RTAs can bring about regional economic opportunities and how these opportunities can be fully exploited. Third, due to the varying levels of development among member countries the analysis in this paper aims to offer practical insight into whether or not high and low-income members are equally affected. Fourth, it examines other key determinants o f the trade flows o f Vietnam and Singapore and finds the potential obstacles therein. Finally, the paper derives policy implications based upon the empirical findings. This study differs from the previous studies in several aspects. First. instead o f pooling data across all countries, we estimate a single equation for Vietnam and Singapore1. This provides us with a better understanding o f the impacts o f AFTA on the individual countries. Second, this study presents a set o f models: fixed effects model and random effects model as discussed in section 2. Third, we decided to choose Vietnam and Singapore as case studies because Vietnam and Singapore are in different stages o f development. In addition, although there are a number o f studies on the effects o f regional trade integration on its members (Athukorala and Menon. 1997; Brada and Mendez. 1983; Clausing, 2001; Fukase and Winters. 2003; Heng and Gayathri, 2004; Tang 2003). little research has focused on comparing the effects of AFTA on Vietnam and Singapore. Another point o f interest is that Vietnam's tariff rates before joining AFTA were relatively high, while those o f Singapore were close to zero. Therefore, it would be interesting to see how AFTA affects Vietnam, with its initially higher tariff levels, and Singapore, with its lower tariff levels. 1 Sharm a and Chua (20001 used single gravity equation for Indonesia. M alavsia. the Philippines. S ingapore and Thailand. Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn [...]... Singapore Indonesia Malaysia 1.54 2.52 0 0.42 76.36 19.15 3.67 62.74 6 .85 1 .84 2.03 22 .88 19.34 15 .84 16.92 19.04 3. 08 25. 78 27.39 23. 18 0.21 7.94 17.23 24.05 12.44 19.73 1.31 42.75 21.11 2.67 20 .84 0.64 3.46 0 6.1 68. 96 9.71 2.54 7.05 54.69 12.01 13.99 5.79 4 .89 17.1 28. 28 17. 68 26.25 0. 48 24 .86 18. 6 8. 68 0.21 47. 18 33.39 0.76 64.5 1.07 0.27 0.01 7.67 13.97 12.54 55.61 1. 38 8 .83 17.44 8. 37 3.7 17.06 38. 05... 38. 05 15. 38 9.7 0.56 60 .81 5.45 22.43 1.06 2 .87 8. 1 25.65 0 53.35 10.03 0.14 3.69 2 .87 8. 78 42.14 42. 38 26.09 16.9 42.46 9.31 1.32 3.93 69.97 0.34 14 .87 5.1 4.69 5.03 2. 18 0.02 0.22 9.3 20.77 67.52 0.59 28. 74 24. 68 30.44 3.41 12.13 1.99 7.49 27.59 17.19 32.5 13.24 1.11 26.45 36 .8 1.56 25.51 8. 56 47.06 19 .8 0.93 26.24 4.26 1.71 0.74 2.71 24. 58 48. 63 7.72 15.62 1.29 42.32 2.33 10.95 18. 31 24 .8 1.99 57.79... 0.307 1.215 3.5 08 0.240 0.342 0.332 0. 189 0.227 0.640 0.047 0.123 0.575 0.211 0.053 1.472 2 .80 7 0.095 0.610 0.032 0.606 0.191 0.002 0.022 4.956 0.062 0.1 48 3.292 0.316 0.101 0.203 3.479 0.3 18 0.690 0.207 1.512 1.226 3.601 0.412 0.470 1.259 12 .84 9 0.123 0.960 0.140 4.393 0.114 0. 588 0. 185 1.107 0. 586 0.473 1.917 0.137 3.253 0.463 0.622 1 .84 3 0.171 0.5 18 0.317 0.3 08 0.143 1.393 0.761 1. 087 0.296 0.495... 0.062 2.077 0 .87 7 0.043 0.043 0.124 0 .87 3 0.301 0.145 0. 186 0.223 0.040 2.065 0.543 0.029 0.227 0.060 http://www.lrc-tnu.edu.vn A SEA N Free Trade Area: Discriminatory or Not? A Case Study for Vietnam and Singapore 35 Vietnam 0.399 0.211 10. 983 0.273 0.924 0. 184 1.125 3.075 18. 535 4 .85 9 2.192 0.550 0.354 7.542 0.206 6. 284 0.209 0.021 0 .82 8 0.6 48 0.505 0. 089 0.164 0.273 0.575 0.745 1. 988 0.072 0.135... 0.420 0.113 0 86 8 45 Cork 0.074 0.006 0.004 0.030 0.001 46 Straw ' 5.7 58 ~ ~ 0.017 11 .80 0 0.031 0.6 18 47 Wood Pulp _ 3.934 0.0 08 0.374 0.142 0.40£ 48 Paper & Paper Board 2.162 0.254 0.1 58 0.223 0.575 49 Books, Newspapers _ i 0.125 0.302 _ 0.077 1.0 08 0.225 50 S i l k _ 0.207 0.040 0.065 0. 388 1) .86 9 51 W o o l 0.069 _ 0.2 38 0.040 0.020 0.532 _ 2. 084 0.231 ... 0.162 0.1 18 0.954 52 Cotton 53 Paper Yarn 0.104 0.015 _0 .85 2 0.021 0 I8 T 1.2 78 54 Man-made Filaments 3 .81 4 1.124 _ 0.226 0300 55 Man-made Staple Fibers 4.7 98 _ 0.555 0.321 0339 2. 983 56 Wadding 0.5 58 0.359 0.794 0.151 ¡.420 57 Carpets 0.391 0.115 _ 0.114 0.070 0. 688 ^ 58 Special Woven Fabrics _0.639 0.126 _ 0. 786 0253 1.206 0.111 0.007 0.210 0.78tT 59 Laminated... 222.7 Cam bodia 0.0 146 .8 19.1 96.4 62 .8 47.4 37.0 33.2 Indonesia 0.7 2.0 1.2 1.9 1.9 2.1 1.2 1.3 Lao PDR 124.2 44.1 85 .1 116.5 100.7 81 .6 58. 8 46.6 M alaysia 0.1 0.4 1.7 0.9 0.9 1.4 1.0 1.1 M yanmar 0.0 0.0 0.0 0.0 0.0 0.0 0ệ2 0.5 2.1 Philippines 3.4 0 .8 0.1 0.1 0.4 lế 0 1.5 Singapore 9.0 16.0 12.7 11.0 9.0 7.6 8. 8 8 l Thailand 1.7 1 .8 2.1 2.4 3.0 3.3 2.7 3.5 ASEAN 4.0 6.3 19 98 partner Brunei 1999 5.3... 10.9 4.9 Indonesia 8. 5 4.3 2.6 2.4 2.6 3.1 2.4 2ằ 3 Lao PDR 73.6 154.7 79.4 55.5 47.5 35.5 34.5 30.4 1.7 1.7 1 .8 1.9 2.1 2■ > 2.4 M yanmar 0.4 0.4 0.9 0.7 0.9 lệ 8 2.0 2ẻ 0 Philippines 6 .8 2 .8 2.5 2.1 1.7 1.7 3.4 2 .8 Sineapore 4.5 7.0 6.7 7.0 6.0 5.7 5.3 6.0 Thailand 4.2 3.9 3 .8 3.5 3.2 3.5 4.0 4.6 ASEAN 4.6 4.4 3 .8 3ế5 3.4 3.4 3.5 3.7 M alaysia Source: The au th o r’s com putation based on C O M T... justification for population variables (POP,, and POP,,) is somewhat imprecise On the one hand, large population could promote a division of labor and allow more industries to reach efficient econom ies o f scale Thus, opportunities for trade with foreign partners in a wide variety o f goods will increase, suggesting a positive impact o f population on bilateral trade (See Brada and Mendez, 1 983 ; Oguledo... Products — — — -Rev‘ a k J Inslnnncin Indonesia Malaysia 0.353 0.670 0.043 0ệ 0 18 3.604 0.549 0.414 0.254 0.151 0.099 0.237 0.1 38 0 ể220 0.2 08 0.4 68 0.171 4 .86 5 0.273 0.039 0.007 0.505 0.432 0.257 0.053 1.163 0.041 9.419 0.233 13.336 12.426 1.021 0.355 0ễ 4 78 0.436 4ữ 033 1.370 0.673 0 .80 1 0.673 0.155 0.266 0.660 0.069 0.256 0.579 0. 385 1ẵ 11 4 0.691 1.211 0.404 6 .82 6 0.049 2.207 0.991 0.604 0.274 0.755 . eighth volume o f the Sogang HAS Research Series on International Affairs, the journal o f the Institute of International and Area Studies (T1AS) o f Sogang University. The HAS o f Sogang University. including international trade, international relations, and area studies. This fact is very much consistent with the journal’s policy o f promoting multi disciplinary international studies absorption effect o f this domestic market causes less reliance on international trade transactions, indicating a negative impact o f population on bilateral trade (See Aitken, 1973; Bikker, 1 987 ;