economic integration in ASEAN that would most likely be far more significant than the ‘‘static’’
price effects driving the CGE model presented above. In fact, while CGE models should be
admired for their consistency and comprehensiveness, they suffer from a strong downward bias
inherent in a tariff-based approach to liberalization. Given the extremely low tariffs that exist in
ASEAN, how could this possibly have a large effect? Gilbert (2003), for example, estimates the
effects of a series of a series of bilateral FTAs between the United States and AMCs, using a
model very similar to Park (1998). He uses the same underlying data and model specifications
(i.e., those based on GTAP). For a US-Malaysia FTA, for example, the estimated effects on the
Malaysian economy would be less than $500 million, that is, less than 1% of Malaysia GDP. This
should not be surprising given that tariff liberalization – as in the case of Park (1998) – drives the
model, and the United States and Malaysian average tariffs are extremely low. But why then
should the Malaysians be sitting down with the Americans at present to hammer out a politically
difficult FTA, which will reach deeply into non-border issues, if there are to be such small gains?
The problem is that the model does not allow for the positive benefits that Malaysia seeks, e.g.,
greater FDI flows, better insurances against contingent protection by the United States, and the
like. These could be many times as large as the static effects. The same will likely be true in
AFTA.