A majority or 81% of exporters in the Association of South-East Asian Nations (ASEAN) see it as important that their governments sign Free Trade Agreements with more comprehensive provisions, rather than just slashing tariffs, while 77% want FTAs with larger economies.
These are among the key findings of "FTAs in South-east Asia: Towards the Next Generation," the second in a series of reports sponsored by HSBC that examines Asian businesses’ attitude towards FTAs and usage of their provisions.
Published by the The Economist Intelligence Unit, the report is based in part on the findings of a survey conducted in the first quarter of 2014 that included 400 exporters from four ASEAN nations—Indonesia, Malaysia, Singapore and Vietnam—representing a range of industries.
Research for the report shows that, on average, each of the existing FTAs signed by countries in ASEAN is used by just 26% of exporters. Even the agreement covering free trade between ASEAN countries is used by only 50% of exporters, on average.
The low usage rate is partly down to the complexity of the terms of the agreements, according to 48% of respondents.
The low rate also reflects the fact that many existing FTAs rarely go beyond simple tariff cutting to address issues such as trade in services, e-commerce, intellectual property rights, customs cooperation and other regulations that hinder trade—which means companies see limited upside in using them.
Consequently many ASEAN businesses have high hopes for the next generation of “mega-regional” pacts now under negotiation, including the Trans- Pacific Partnership (TPP), and the formation of the ASEAN Economic Community in 2015.
The report also finds that the liberalization of trade in services is crucial to economic growth in the region.
As supply chain fragmentation across ASEAN increases, trade becomes increasingly dependent on logistical, legal, financial and other services, which account for an increasingly large proportion of the value of goods shipped across borders.
Better access to quality services would also help businesses expand into other markets, says the report.
“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," says David Line, the editor of the report. "Agreement on trade in services, and other ‘behind the border’ issues, will define whether the next generation of FTAs achieves its objectives.”