Free Trade Agreements (FTAs) with Asian nations are a boon for exports, but their complexity and lack of available information is deterring companies from fully tapping into their benefits, according to a study by the Economist Intelligence Unit and sponsored by HSBC.
Regionally, each FTA signed is only used by about a quarter of exporters in Asia, the Economist reported. The survey was conducted with 800 export companies from eight countries around the region, including Australia, China, Hong Kong, India, Indonesia, Malaysia, Singapore and Vietnam.
However, 86 percent of those who made use of the FTAs said their exports have increased as a result, confirming the benefits that lower tariff barriers bring for trade.
Exporters from India reported the greatest benefits from FTAs, with 93 percent of respondents indicating that exports increased due to the agreements. In particular, FTAs with Singapore, Malaysia, Japan and the broader ASEAN region are the most used by Indian firms.
Some FTAs are certainly more popular than others, with exporters more likely to use FTAs with neighboring countries and larger economies, than to use bilateral agreements with distant or smaller economies such as Costa Rica.
Since the early 1990s, Regional Trade Agreements between two or more trade partners have been increasingly prevalent and are now the preferred route for countries, especially in light of the stalled progress at the World Trade Organization Doha Round, which began 13 years ago in 2001. As of June 2014, there are 585 RTAs around the world, of which 379 are in force.
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Analysts and businessmen have long raised concerns about the “Asian Noodle Bowl” effect, whereby a complex, overlapping set of FTAs create confusing and sometimes contradictory outcomes to the intentioned benefits of the agreements.
Almost half of exporters had limited or no understanding of the FTAs their country had signed, many of whom cited the lack of publicity for the agreements as the main reason for this. One-third said that the countries covered by the FTAs were not attractive or relevant to their businesses.
Despite the importance of FTAs, few Asian countries provide a single-window information service for FTA details. The lack of publicity for FTAs is especially acute in Asia’s emerging markets, according to the report. In India, 68 percent of executives acknowledge the lack of available information as a problem, as do 64 percent in Vietnam and 50 percent in Indonesia.
Surprisingly, it is not only smaller companies that struggle with sieving through and making sense of the numerous FTAs, larger firms also face similar problems. Comparable proportions of both larger and smaller firms cite lack of internal expertise and the complexity of agreements as constraints on using FTAs, the report said.
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Nevertheless, firms do recognize the importance of FTAs for their businesses, with 69 percent agreeing that FTAs are their best hope for the future of their overseas business. In fact, tariffs are the second most important factor determining overseas sales for Asian companies, only behind economic growth.
What firms are hoping to see in the future are more comprehensive FTAs and ones with larger economies. With two pan-Asian regional agreements currently under discussion – the Trans-Pacific-Partnership and the Regional Comprehensive Economic Partnership (RCEP) – and the ASEAN Economic Community soon to kick in next year, it is likely that a growing number of firms will begin to utilize the agreements.
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