East Asia's FTAs Benefit Business, Can Counter Protectionism - Study

MANILA, PHILIPPINES - East Asia’s myriad free trade agreements (FTAs) benefit the regions’ businesses and could help counter falling trade volumes and trade protectionism triggered by the current global economic crisis, says a new study from the Asian Development Bank Institute (ADBI).

In 2000, only three FTAs were in effect in East Asia. As of March 2009, ADB estimates there were 37 FTAs in effect, with another 72 in the pipeline.

The study, The Asian Noodle Bowl: Is it Serious for Business?, authored by Masahiro Kawai, Dean of ADBI and Ganeshan Wignaraja, Principal Economist in the Asian Development Bank's (ADB) Office of Regional Economic Integration, provides the first comprehensive survey of the impact on business of East Asia’s numerous FTAs. Drawing on data collected in 2007 and 2008 from 609 exporters, the survey shows that the "noodle bowl" of agreements, as they have been termed, is a benefit rather than a burden for companies.

"The surveys clearly show that the noodle bowl of free trade agreements is not as harmful as many have suggested. Rather, the agreements provide net benefits to firms that use them," says Mr. Kawai.

Critics of the agreements say the explosion of deals, with complex rules and variable tariffs, has increased transaction costs, particularly for the small- and medium-sized enterprises which can least afford them. They also argue that the multiplicity of bilateral and plurilateral deals hinders the broader push towards a global free trade agreement.

However, the survey found that most firms see more benefits than costs from the agreements. Those benefits include wider market access and preferential tariffs that make it easier to import intermediate materials needed for finished goods. Multiple country rules of origin—which determine where goods originate from for a variety of purposes including quotas and labelling—add some costs but were not a significant hindrance to business activity.

Moreover, the bilateral and plurilateral FTAs can counter protectionism and provide a valuable stepping stone towards broader trade liberalization, say the authors.

"Signs of protectionism in the form of non-tariff barriers, subsidy packages and 'buy local' conditions amongst trading partners are aggravating the current trade slowdown. Free trade agreements, if designed in line with World Trade Organization principles and in the spirit of openness, may be critical in curbing economic isolationism and falling trade activity," says Mr. Wignaraja.

 

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