ASEAN enterprises find FTAs complex and unambitious, want more mega-trade pacts

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ASEANMajority of exporters in the Association of Southeast Asian Nations (ASEAN) see it as important that their governments sign free trade agreements with more comprehensive provisions, rather than just cutting tariffs, while 77 percent want FTAs with larger economies.

These are among the key findings of a survey of 400 exporters in a range of industries in four countries in ASEAN—Singapore, Malaysia, Indonesia, and Vietnam—on how they use FTAs and their attitudes toward these agreements. The HSBC-sponsored survey was carried out in the first quarter of 2014 by The Economist Intelligence Unit.

Among the key findings of the survey published August 27 is that usage rates of FTAs in ASEAN are low but that FTAs bring benefits.

The average usage rate of all FTAs in the four ASEAN countries is just 26 percent, or just one in four exporters use them, the report said. Even FTAs between ASEAN countries are not fully utilized, having only a 50 percent usage rate, on average.

Nonetheless, 85 percent of the polled say their exports have increased as a result of the FTAs they use, while 72 percent agree that FTAs represent the best hope for the future of their overseas businesses.

The survey also showed that the complexity of the FTAs is off-putting, as about half the exporters in ASEAN (48%) say they do not use some them because of the complicated agreement terms, while 29 percent say the benefits do not compensate for the difficulties in using them.

A clear majority (64%) say that they would like to see greater outreach to businesses like theirs on trade issues by their governments.

The respondents also indicated they found the current FTAs low in ambition and focused only on tariff reductions. “Tariffs have been reduced for many goods in Asia, but because existing FTAs are ‘unambitious’—that is, they rarely go beyond simple tariff cutting—companies see limited upside in accessing their preferences,” noted the report.

“Behind-the-border” issues such as trade in services, e-commerce, intellectual property rights, competition policy, customs cooperation, environmental rules, and other regulations are tackled only in a limited way. For trade to become truly free in the region, reducing non-tariff barriers successfully is also a primary requirement, said the report.

But the exporters look forward to joining next-generation mega-FTA deals offering more diversified benefits beyond tariff privileges.

The report said some 81 percent of ASEAN exporters see it as very important or important that their governments sign FTAs with more comprehensive provisions, while 77 percent want FTAs with larger economies.

It elaborated further: “Consequently many ASEAN businesses want their governments to engage in the ‘mega-regional’ pacts now under negotiation, including the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP), of which the latter addresses ‘21st Century FTA’ issues like freeing up trade in services.”

Hopes are also high for the implementation of the ASEAN Economic Community in 2015, although its trade and investment liberalization measures are likely to be undertaken gradually.

David Line, the editor of the report, said: “ASEAN nations have been among the most assiduous in signing free-trade agreements, but our research suggests they could do a lot more to encourage trade liberalization. Agreement on trade in services, and other ‘behind the border’ issues, will define whether the next generation of FTAs achieves its objectives.”

The ASEAN includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Singapore, Thailand, the Philippines and Vietnam.

Photo: IAEA Imagebank