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Asian FTAs Seldom Used, Says Report

by Mary Swire,, Hong Kong

14 August 2014

A survey conducted by The Economist Intelligence Unit and sponsored by HSBC, which elicited businesses views on free trade agreements (FTA) in the Asia-Pacific region, found that only seven percent of export businesses made use of all the trade treaties they knew about.

While more than 85 percent of respondents across the Asia-Pacific region reported that their exports to the markets concerned increased as a result of the FTAs that they used, the complexity of the agreements themselves was cited as a major barrier to their use by 45 percent of companies.

On average, the usage rate of each of the more than 50 FTAs signed by the eight countries surveyed in the survey – Australia, China, Hong Kong, India, Indonesia, Malaysia, Singapore, and Vietnam – was just 26 percent. In addition, about 44 percent of respondents across the region admitted either to having a limited understanding of one or more FTAs their country had signed, or having never heard of one or more of the agreements.

Usage rates were found to be "lowest in Australia and Malaysia, which is perhaps to be expected given both are major commodity exporters and there are few barriers to global trade in non-agricultural commodities. But [usage rates] are barely higher in Singapore (21 percent)... This is surprisingly low for a small, export-dependent economy," it said.

It pointed out that: "Critics of FTAs have long warned [low uptake] would happen. FTAs, they say, replace the relative simplicity of multilateral World Trade Organization (WTO) agreements with a 'noodle bowl' of overlapping preferences and rules and regulations that, in practice, often prove more trouble than they are worth for companies to use."

"The low usage rates of many FTAs will be a concern for policymakers, who put massive effort into completing such deals," said David Line, Managing Editor, Economist Intelligence Unit. "They will also embolden proponents of the WTO system and regional megadeals, who claim these are needed to simplify the noodle bowl effect."

Therefore, while tariffs and duties were listed as among the most important factors limiting the ability of companies in Asia to increase their exports, it was noted that many of the factors causing the low rate of FTA-use are firmly within the remit of governments to rectify, "particularly through the provision of better information and more consultation with companies during the negotiating process."

Despite the importance of the agreements, few Asian countries provide a single-window information service for FTA details. In the survey, 73 percent of respondents reported that the provision of more support and education on existing FTAs was either very important or important for government trade policy.

"Businesses in Asia think their governments should seek more comprehensive agreements (although this is not always within the control of a single country, especially in regional negotiations). … Broad regional deals currently under consideration, such as the 12-nation Trans-Pacific Partnership, the 16-nation Regional Comprehensive Economic Partnership and the Association of Southeast Asian Nations Economic Community, may go some way to meeting their demands."

80 percent of respondents had annual revenues of between USD50m and USD150m, while the remainder had revenues in excess of USD150m.

TAGS: tax | business | free trade agreement (FTA) | India | tariffs | trade treaty | Australia | China | Singapore | agreements | Hong Kong | Indonesia | Malaysia | regulation | trade | Vietnam | Asia-Pacific

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