ADB Advisor Discusses Policy Challenges and Scenarios Posed by FTAs
Mr. Ganeshan Wignaraja, Advisor to the Economic Research and Regional Cooperation Department of the Asian Development Bank (ADB), delivered his lecture “Policy Challenges Posed by Asian Free Trade Agreements (FTAs)” as part of the Mabini Dialogue Series at the Benedicto Room, Carlos P. Romulo Library on 2 June 2016.
Recent trade growth in Asia has been sluggish as volume of imported goods and services in developing economies in Asia decelerated to around 4-5 percent in 2011-2015, compared to the 10 percent rate in 2002-2010 (except 2008-2009). According to Mr. Wignaraja, this decline in trade growth was caused by weak demand from the US and the European Union as well as structural issues in the global economy, namely, subdued demand for exports within the supply-chains and more protectionist measures, especially non-tariff barriers. For instance, Southeast Asia has the highest average of services trade restrictiveness (STR) among sub-regions in Asia. Based on the World Bank’s 2015 STR database, Southeast Asia’s STR index is at 47.8 followed by South Asia (44.1), East Asia (29.9), and Central Asia (17.0).
Over the years, Asia’s approach to liberalize trade has been multifaceted as countries utilized various measures. Since 2000, the appetite of Asian economies for nonreciprocal or voluntary, unilateral liberalization has diminished. Efforts were also pursued through the World Trade Organization’s (WTO) Doha Round, but talks have stalled since 2008. Furthermore, advanced economies are advocating for plurilateral or sectoral agreements, which are focused on a single issue such as services and e-commerce.
Countries in the region prefer the use of free trade agreements (FTAs) in reducing trade and investment barriers. As a result, the number of concluded FTAs in Asia rose to 181 in 2015 from only 16 in 2000. The failure of the WTO Doha Round, fear of exclusion, and efforts toward regional political integration prompted Asian countries to pursue more FTAs. However, FTAs also present several challenges to Asian countries.
Mr. Wignaraja noted that deepening the coverage of Asian FTAs poses a wider array of policy considerations for parties as they incorporate and address 21st century trade issues such as services and other WTO-plus elements (i.e., competition policy, investment, trade facilitation, and government procurement). He said that many Asian FTAs are not comprehensive since they mostly cover trade in goods. Another challenge is improving the utilization of FTA preferences. Firm-level evidence suggests that the lack of information on FTAs in countries like China, Korea, the Philippines, Indonesia, and Malaysia hinder domestic exporters from maximizing benefits from FTA use. Delays, administrative costs, and low usage of export processing zone (EPZ) schemes of Information Technology Agreement (ITA) were also cited as impediments in the FTA usage of firms. The final concern relates to the Asian “noodle bowl,” or the overlapping of trade rules and preferences, which further adds to the transaction costs of Asian firms.
To address these challenges, Mr. Wignaraja proposed a pragmatic approach that includes specific measures such as mainstreaming FTAs into national development strategies, consolidating Asian FTA regionalism, supporting WTO reforms, and developing an agenda for global supply chains and FTAs. To encourage FTA use, the Philippine government can help small and medium enterprises (SMEs) in the areas of FTA outreach, export marketing, finance and technology, as well as provide adjustment assistance through training and social protection. Moreover, the government has to be abreast with developments in the two region-wide mega FTAs—the Regional Comprehensive Economic Partnership (RCEP) and Trans-Pacific Partnership (TPP). The Philippines is a party to the RCEP, and the government has signified interest in joining the TPP. The convergence of these two mega-FTAs can pave the way for the establishment of a Free Trade Area for Asia and the Pacific (FTAAP) in support of efforts toward global trade liberalization. Forging an FTAAP is no easy feat as it requires notable vision, political will, and time. Thus, Mr. Wignaraja advised developing economies like the Philippines to be prepared to accept high standards of liberalization and more transparent rules.