August 14, 2006 | Philippine Daily Inquirer
Too many trade pacts seen driving up costs
Study: Apec members need to harmonize provisions
By Ronnel Domingo
THE PROLIFERATION of regional and bilateral free trade agreements in the Asia-Pacific, coupled with the failure of global trade talks, is driving up transaction costs for business despite the decrease in tariffs.
A study being done by a research center based in the University of Southern California shows that there is a need for member economies of the Asia-Pacific Economic Cooperation to harmonize trade provisions amid the clutter of FTAs.
Peter R. Giulioni Jr., executive director of the Fred V. Kennan MBA Career Source Center at the USC’s Marshall School of Business, on Saturday said the significant divergence among the wide array of FTAs could be making business operations more complex, while increasing costs.
Giulioni was presenting to the Apec Business Advisory Council (ABAC) the first phase of a comparative analysis of FTAs in the region, which he said would produce a catalog that business could use as a tool in "navigating" the so-named "noodle bowl" of trade pacts.
ABAC, government officials and up to three business leaders from each Apec member-nation are represented in a meeting held in Cebu over the weekend.
ABAC marked its third meeting for the year, in time for the 10th anniversary of its establishment.
The academic explained that among the 21 Apec member economies, there were 21 existing FTAs and at least 17 more pending.
"(The catalog is also hoped to) help trade negotiators and researchers who are engaged in developing new FTAs," Giulioni said.
The Apec count among its members Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, Philippines, Russia, Singapore, Taiwan, Thailand, United States and Vietnam.
The Philippines is engaged in developing the Asean (Association of Southeast Asian Nations) FTA, a comprehensive economic pact, with China, and a trade in goods pact with South Korea.
The country is also involved in ongoing talks to conclude possible Asean pacts with India, the European Union and Australia.
Other findings of the USC study showed that at least 70 percent of FTAs among Apec members contained provisions that were consistent with, or even better than, the rules of the World Trade Organization.
The provisions include lower tariff commitments across the board.
Also, non-tariff provisions in these FTAs meet, or go beyond, WTO standards.
But Giulioni said such efforts to improve on WTO requirements have led to "significant divergence ... which may be increasing complexity and imposing substantial transaction costs on businesses."
He said the most important example was the wide array of rules of origin (ROO) provisions that spell out which merchandise are considered made in the FTA parties and are thus covered under tariff reduction agreements.
Giulioni said efforts to remedy the negative effects of FTAs should focus on creating a harmonized system of trade, especially one that addresses the many different ROOs.
Also in the same forum, Victor Fung, chair of the Hong Kong-based Li & Fung Group, said the multilateral approach to trade, such as that espoused in the WTO, was the only way to ensure continued health among firms and to promote global prosperity.
Li & Fung operates in about 40 economies and is focused on supply chain management, as well as export trading, retailing and distribution.
Fung said that because future trade lies with internationally dispersed manufacturing processes and increasing complex trade flows, multilateralism would matter even more.
He said bilateral agreements have "very troublesome consequences" because they distort the flows, throws up barriers, creates fiction, reduces flexibility, raises prices and hinders the ability of companies to get new countries involved in the global production system.
"This is because, with ROOs, FTA parties are keen to limit the geographic scope of where the products originate," Fung said.
He said that, in contrast, firms can pick out the best location for, and the best contractors in, a certain stage of production, which could be anywhere in the world, involving as many suppliers as possible.