What Kind of Trade Integration Would the SCO’s Further FTA Be?

Abstract

The Shanghai Cooperation Organization (SCO), whose the history dates back to “Shanghai five,” was founded in 1996 in order to deal with security and border issues. However, in the course of time, the organization has expanded the cooperation ground: the vision of the organisation has been recently enlarged so as to intensively emphasise economic issues such as forming a free trade area and initiating an economic integration. Since the potential economic effect is ambiguous and initially depends on the actual trade structure among the member countries, it is crucial for policymakers to have the right tools to evaluate the economic effect of such an initiative. The aim of this study is to provide practical guidance to policymakers for determining the potential economic effect of a further Free Trade Area (FTA) to be founded within the SCO. For this purpose, a set of indicators are used to determine the potential effect at regional and industrial levels that a possible regional trade arrangement may yield for the participating countries. It is concluded that there is a geographical bias towards trading among the members. To overcome this, there are two possible solutions for the SCO if it attempts a FTA: It should generate inter-industry and intra-industry trades and initiate new members.