HOW TO MAXIMIZE THE BENEFITS OF FTAs ?

Free Trade Agreements (FTAs) have proved to be one of the best ways to open up foreign markets for exporters. FTA partner countries provide each other favorable treatment on trade, investment, provision of services and trade facilitation as well as economic and technical cooperation. Exporters benefit from FTAs through preferential treatment and market access. They also enjoy cost savings from elimination or reduction of customs duties and from mutual recognition agreements, trade facilitating customs procedures and removal of onerous regulations. For service providers, FTAs provide improved market access for various commercial and professional services. FTAs also provide for easier entry for businessmen as well as more predictable terms for investment in the FTA partner country.

Benefits of FTAs

Among the benefits which can be derived from the FTAs are:

  • Accor and enhance long term market access opportunities for products and services;
  • Provide access to cheaper imports from the FTA partner countries, which can be inputs for partners' exports;
  • Enhance position as an attractive destination for foreign direct investment;
  • Promote capacity building through economic and technical cooperation activities;
  • Improve the efficiency and competitiveness of industries, through increased competition and economies of scale; and
  • Facilitate trade through establishment of mutual recognition agreements.

How business can take advantage of FTAs?

  1. FTAs can be used by businesses to expand and penetrate overseas market. With the easier market access, businesses can embark on joint ventures or acquisitions into the overseas market.
  2. The elimination of import duties on negotiated products serve as an opening for products to be introduced into the overseas market, apart from increasing existing market share.
  3. FTAs enable industries to source inputs at more competitive prices.
  4. Bilateral FTAs enable to expand services and products into third countries through partnerships with enterprises from FTA members.
  5. FTAs offer trade facilitation measures for industries to expand trade, as well as capacity building to improve and enhance competitiveness.

A word of caution

FTAs are just the beginning and businesses need more than signatures to succeed. There needs to be more follow-through to help take advantage of opportunities that might arise from a FTA.

While industry basically welcomes the concept of free trade because of the potential market access, a FTA alone guarantees nothing. It doesn't mean the floodgates open and the market is suddenly wholly accessible.

A FTA is a symbol of global commitment to an open international trade and investment system. FTAs are not panaceas for exporters, but they are steps forward on the road to greater market access and require a bit of faith to work. The benefits come over a period of time.

FTAs are a great way to understand issues between markets and this then paves the way for a priority trade relationship, one that enables both sides to more easily change aspects of the agreement as the economic environment evolves. A FTA opens up discussion and focuses people on the outstanding issues and endeavours to make the operating environment more transparent.

While negotiations is an important aspect of a FTA, exporters are understandably more interested in the benefits to be gained after the parties have signed the agreement. A FTA merely lays the groundwork for open business, so it is unlikely that everyone  will see benefits from day one. FTAs don't do business for people, they just set environments.

Exporters need to understand this crucial point about FTAs: While the agreement may open a market, a business still needs to make it work. There are the issues of making contact, developing business proposals, developing your credibility, marketing. It takes a long time to build up credibility, and that would be the case if there was a FTA or not. There are a whole lot of other factors at play. The FTA is not the whole answer.

Government and industry need to work together to achieve the trade results expected when parties sign a FTA. FTAs do present opportunities, but it takes a long time. In short, although exporters need to be aware of the access to a market allowed by a FTA, they also need to select the market on its own merits.

In order to put a FTA into practiice, it is most important for government to inform about the benefits business can draw from a FTA.

  • What are the general and industry-specific contents of the FTA? (Overview, sectoral cooperation, institutional set-up, dispute settlement, safeguards, tariff liberalisation, rules of origin)
  • How can companies prepare themselves to make the most of the Agreement?
  • What is the tariff elimination schedule for different economic sectors?
  • How can companies benefit from tariff elimination?
  • What kind of non-tariff barriers are addressed by the FTA?
  • What is the impact of the FTA in different sectors e.g. on automotives; electronics and electrical appliances; pharmaceuticals and medical devices; food, beverages and agricultural products; services; intellectual property rights.

The most direct benefit enjoyed by businesses under a FTA is the reduction or elimination of tariffs. Indeed, one side is tariffs, but the other side is the specification and regulatory side.

Service exporters can also take advantage of FTAs through greater recognition of education and competency standards, and the ability to travel and work more freely in other markets.

Investment is always a feature of FTAs. Most of them set up a framework that allows for a more transparent, less risky environment.

In addition to economic benefits, there are also clear political benefits to FTAs. The FTA process is tinged with politics. It is an achievement of government to have a FTA. It is politically advantageous. No government wants to be seen as protectionist. All the new FTAs being negotiated are signs the global economy is flattening out. These agreements are good if everyone is playing, and it sees a levelling out of the playing field. That's where the advantage is.

 

 

 

 

 

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