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In the dark on trade deals

BusinessMirror, Manila

In the dark on trade deals

By Jennifer A. Ng / Reporter

18 January 2010

Lack of information, coupled with procedural problems, discouraged companies from fully taking advantage of the potential benefits of a free-trade scheme in the Association of Southeast Asian Nations (Asean), a working paper authored by trade experts from the Asian Development Bank (ADB) revealed.

ADB trade experts, led by Ganeshan Wignaraja, noted in the paper “FTAs and Philippine Business” that lack of information is the “biggest barrier” to the use of free-trade agreements (FTAs) among exporters of manufactured goods from three sectors, namely, transport equipment, processed foods and electronics. “Surprisingly, despite more than 15 years of experience with Afta [Asean Free-Trade Area}, the firms’ survey revealed that a lack of information is the primary reason firms do not use FTAs, as reported by around 80 percent of nonusers,” the report read.

The paper noted that a lack of information is an impediment to 93.6 percent of nonusers in the food sector, 76.7 percent of firms in the electronics sector and 61.1 percent in the transport sector.

Within the size groupings, 84 percent of small, nonuser firm reported “lack of information” to be a barrier; and “around 79 percent of large firms and 50 percent of giant firms identified this as a factor in their decision not to use FTAs,” the paper read.

The ADB paper said firms are demanding increased and enhanced awareness campaigns, FTA training, impact studies on business, more consultation and nontariff measure surveillance.

In terms of awareness, the ADB paper noted that only 2.6 percent of firms in the sample had thoroughly studied the FTA provisions affecting their businesses, and an “alarming” 66 percent had not read any part of the agreements.

Also, only 22 percent of the companies surveyed have a limited understanding of the content of the agreements and 9 percent have knowledge of only some aspects.

“The percentage of firms [that were surveyed] that have not read any of the provisions of the FTAs is highest among small firms at around 72 percent of the group that reported a lack of information as a major impediment to FTA use,” the paper read.

Besides the lack of information, other impediments to the use of FTAs include the availability of export processing zone-incentive schemes, low most-favored nation (MFN) rates (particularly in electronics), delay in origin administration, rent-seeking behavior and nontariff measures in partner country markets.

“Interestingly, the majority of firms do not think that multiple rules of origin in overlapping Asian FTAs add significantly to business costs. However, there is room for improvement in the system of Afta rules of origin,” the paper noted.

It cautioned that as the number of Asian FTAs multiplies in the future, steps will need to be taken at the regional and national levels to minimize the potential of the “noodle bowl” problem.

One such measure is the need to improve the residual procedural issues related to exporting and applying for origin certificates.

The ADB paper noted that the Afta is significant to the Philippines. Exports to Asean countries grew at an impressive rate of 20.4 percent a year during the period 1992 to 2008, while the share of Asean in its total exports reached 16.6 percent in 2008.

The authors surveyed 155 manufactured goods exporters from the transport equipment, processed foods, and electronics sectors in Luzon, Visayas and Mindanao. The survey period was from May to November 2008.

Of the 155 firms surveyed, only 31 firms or 20 percent reported using or having used Afta. The authors noted that the overall FTA utilization rate is expected to increase “dramatically.” At least 63 firms or around 41 percent of all the firms surveyed said they plan to use Afta or other FTAs.