The majority of businesses in the Asia Pacific region lack any clarity about free trade agreements (FTAs), with just 26% of exporters using them, and the majority of them calling for more comprehension.
There are over 50 FTAs in the Asean bloc, and much confusion about what the agreements actually entail, other than cutting barriers to entry and tariffs, surveys conducted by HSBC, in collaboration with the Economist Intelligence Unit, have found.
What is also interesting, says Noel Quinn, regional head of commercial banking, Asia Pacific at HSBC, is the adoption rate between multilateral and bilateral FTAs.
Quinn says to GTR: “If you look at countries within the Asean bloc and companies trading within it, the multilateral FTA utilisation rate was 50%. However, with bilateral FTAs, a two-way FTA, there was only a 19% utilisation rate.”
“If you can make an FTA multilateral, for the benefit of multiple countries, to foster intra-bloc trades you’re going to get a higher result. Put simply, the more multilateral you can make it, the higher the adoption rate will be.”
Quinn also tells GTR that larger firms have more of an advantage in understanding the complexity of FTAs as they are “able to afford the infrastructure to understand FTAs compared to smaller businesses”. He adds: “Across these eight countries, there are more than 50 FTAs, which is a lot of information to get your head around. Remembering that an FTA could run to 500 pages in legal drafting, with terms and conditions, that’s a lot of knowledge to acquire for a small business.”
The low adoption rate can also be attributed not to the complexity of the FTAs but to the simple fact that businesses just don’t know about them.
Survey findings detailed that the knowledge of FTAs is low, with 44% of companies having little or no knowledge or understanding of an FTA. “There’s a big communication challenge,” Quinn says. “All the effort goes into negotiating, developing and signing an FTA, but 44% of businesses don’t know about them, and those that do know about them think they’re very complex.”
Findings also show that 78% of companies want FTAs to be more comprehensive in the provisions in the agreements and 73% of companies want more support in terms of educating them once an FTA is signed.
81% of exporters in Asean want their governments to sign FTAs with more comprehensive provisions, rather than just cutting tariffs.
Findings from the surveys also show that the majority of Asean businesses want more ambitious FTAs. “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 liberalisation,” says the editor of the report, David Line. “Agreement on trade in services, and other ‘behind the border’ issues, will define whether the next generation of FTAs achieves its objectives.”
The usage rate of existing deals using FTAs is very low and liberalisation of trade in services has been identified by the respondents as being crucial in driving trade growth.