Conclusion

The rapid growth of FTAs involving East Asian economies in recent years has focused attention on the impact of agreements on the region's business activity. East Asia had 37 FTAs in effect in January 2009 and the critical issue is whether the Asian noodle bowl of multiple, overlapping FTAs is harmful to business activity, particularly SMEs. The lack of micro-level data has made it difficult to verify this topical issue and related issues (e.g., the use of FTAs, benefits and costs of FTAs, and effects of multiple ROOs on SMEs). The paper seeks to generate debate on East Asian FTAs with new evidence from surveys of 609 firms in Japan, Singapore, Korea, Thailand, and the Philippines conducted in 2007–2008.

To the best of our knowledge, this is the first comprehensive firm survey of the business impacts of East Asian FTAs across countries. Faced with heightened reliance on FTAs as trade policy instruments, many East Asian firms are increasingly responding to the commercial opportunities presented by these agreements. Hence, the view that the Asian noodle bowl has severely harmed the region's business activity over the last eight years receives little support from the firm surveys. As more FTAs under negotiation take effect and the complexity of the Asian noodle bowl increases, the business impact is likely to intensify. Implementation of key policies can help mitigate negative effects and facilitate a more SME-inclusive business response to FTAs.

The main findings from the East Asian firm surveys are as follows:

1. Use of East Asian FTAs (measured by incidence of firms) is higher than expected from previous studies. Around 22% of the East Asian firms surveyed use FTA preferences and this figure will likely nearly double when future plans are included. Japanese and Thai firms make higher use of FTA preferences than firms from Korea, Singapore, and the Philippines. T-tests on characteristics of FTA preference users and non-users suggest that users are larger, older, have more foreign equity, are more aware of FTA provisions, and more responsive to FTAs in terms of business model than non-users are.
2. East Asian firms report more benefits than costs from major FTAs in effect, including AFTA. The main benefits are wider market access that results from higher export sales and preferential tariffs that make it easier to import intermediate inputs. Meanwhile, costs relate to increased competition from imported products and documentation work relating to FTA preference use. The general perception of net benefits of major FTAs is emphasized by the level of use being made of AFTA and ASEAN+1 FTAs to facilitate the region's business activity and also of key bilateral FTAs with major partner countries.
3. At the present level of concluded FTAs in the region, the evidence suggests that multiple ROOs impose a limited burden on firms in East Asia. Although around 27% of responding East Asian firms said that multiple ROOs significantly added to business costs, the bulk of the sample did not think they were a problem at present. The evidence also suggests that larger firms have more negative perceptions of multiple ROOs than do SMEs. The relationship between firm size and concerns about multiple ROOs presents a puzzle for researchers. Econometric analysis to resolve the puzzle indicates that larger, older firms tend to export to multiple markets, change their business plans in response to FTAs and, therefore, are more likely to complain about issues of multiple ROOs, while smaller firms tend to export only to a single market and hence do not have much basis for complaint.
4. The four East Asian countries have institutional support systems of varying degrees of comprehensiveness and quality. As expected, high-income Japan, Singapore, and Korea have more comprehensive support systems than middle-income Thailand and the Philippines. Private provision of services is also increasingly common in high-income countries. A significant demand remains for more support for SMEs to export through FTAs in East Asian countries. Services demanded include more information on FTAs, upgrading of technical quality and standards, financial support, and enhanced consultations with business during FTA negotiations.

The findings point to the need for a comprehensive set of policies to mitigate the negative effects of the Asian noodle bowl in the future. Such a comprehensive response is particularly important in view of the global financial crisis and accompanying economic downturn. MFN tariff reduction is an attractive idea and one to be encouraged. However, it is not happening much in Asia—nor globally for that matter—at present. Accordingly, other supportive policies are also needed, including encouraging rationalization of ROOs, upgrading origin administration, increased awareness of FTA provisions, improving business participation in FTA consultations, and improving institutional support systems for SMEs. Increased resources and closer cooperation between government agencies and business associations are necessary features of policy implementation.

More generally, this paper underlines the fact that firm surveys are an invaluable tool of empirical research to improve our understanding of the effects of FTAs on business in East Asia. Widening the number of sample countries and extending the scope of the survey to cover services would further deepen our insights.

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Comment(s)

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1. manuel a cardenas
   (posted 20 April 2009 / 10:52:18 PM)
   
   Chile maybe is a unique country because it has suscribe the greater quantity of agreements of free commerce. The net effect is that it has develop faster in the latin american region.
   The problem with the small business is not with the agreements signed, the problem is the lack of opportune information given with the tools that the information technology can give. The governments have to construct the adequate tools in order that the small business can get the adequate information for their needs and benefit with agreements as the big business does.