Policy Implications

The five firm surveys have produced a rich and fresh set of findings on the business impacts of FTAs in East Asia. As trade barriers are gradually dismantled in the region, margins of preference will fall and FTAs may become redundant at least in tariff barriers.²³ Nonetheless, in the interim, the findings of the firm surveys indicate several policy areas that can help facilitate a more SME-inclusive environment and positive business response to FTAs in the region. Increased resources and closer cooperation between government agencies and business associations are necessary features of implementation. This section briefly discusses six key ideas:

1. Reduce MFN Tariffs. In the absence of other ways to deal with the noodle bowl, influential economists like Jagdish Bhagwati argue that "we can virtually eliminate PTA (preferential trade agreement) by reducing the MFN (most favored nation) tariff itself to zero" (2008: 97). This is an attractive idea but is not happening much in Asia—or elsewhere for that matter—today. MFN tariffs have fallen in Asia since the 1980s but the trade-dependent, open economies of Singapore and Hong Kong, China are the few Asian exceptions with negligible MFN tariffs. While encouraging MFN tariff reduction, other means suggested below may also be useful.
2. Encourage Rationalization of ROOs. Widespread gains are possible from pursuing a simplified approach to ROOs in East Asia, involving harmonized ROOs, co-equality of rules, and cumulation of value contents. Around half the East Asian sample firms perceive benefits from harmonized ROOs and adoption of co-equal rules. Alternative coequal rules have already been incorporated into ASEAN FTAs (particularly AFTA and the ASEAN-Japan CEPA); AFTA recently allowed a comprehensive listing of co-equal product specific rules. The benefits from co-equal ROOs could be increased significantly with rationalized cumulation policies. In the absence of a single East Asian FTA (or uniform ROOs), one remedy lies in encouraging rationalization of ROOs, including the adoption of co-equal rules and use of extended cumulation.²⁴
3. Upgrade ROO Administration. Weaknesses in ROO administration (including delays in issuing origin certificates) were highlighted as an impediment to FTA use in the firm surveys. In middle-income countries, these may arise from a reliance on paper-based ROO systems and a focus on public sector customs agencies with limited capacity. Good practices in ROO administration from within East Asia and internationally should be disseminated to reduce transactions costs particularly for SMEs. These may include introduction of a "trusted trader program," as is done with NAFTA, for example, that would allow successful applicants to self-certify their own certificates of origin, a switch to business associations issuing certificates of origin for a fee, increased use of IT-based systems of ROO administration, and training programs for SMEs.
4. Increase Awareness of FTA Provisions. Awareness of FTA provisions—including phasing out of tariff schedules, margins of preference at product level, and administrative procedures for ROOs—is positively associated with FTA use (as indicated by the t-tests in Table 4). Likewise, the main impediment to use of AFTA preferences in the Philippines is a lack of information on FTAs. SMEs typically have lower levels of awareness than large and giant firms. Accordingly, business associations and governments could improve transparency and information on how to use FTAs particularly for SMEs. Practical ideas might include: frequent seminars with SMEs, television programs directed at business, dedicated websites, and telephone helplines.
5. Improve Business Participation in FTA Consultations. Government agencies and business associations in East Asia organize periodic consultations with firms on FTAs in general and prior to specific FTA negotiations. In some countries, a study group is formed that investigates the perceived benefits and costs of forming a specific FTA is organized before officially proposing such an FTA with a potential partner country. Such a study group should involve the private sector so that their interests are sufficiently reflected in FTA negotiations. If this is done, FTA use may rise. Participation rates in consultations, however, seem to differ markedly between Thailand and the Philippines. Present efforts are commendable but more needs to be done particularly to involve SMEs in consultations before FTA negotiations. Increased business participation in consultations before official FTA negotiations are likely to increase FTA use once it is implemented.
6. Improve Institutional Support Systems Particularly for SMEs. Existing support systems for exporting under FTAs are of variable quality and take-up rates differ. Significant public and private investment is required in East Asia to improve service coverage, upgrade service quality, and reduce bureaucratic impediments to service use. Business and industry associations will have to play an increasing role in delivering services relating to exporting under FTAs to members. Attention might focus on upgrading of technical standards, quality, and productivity of SMEs so that they can play a fuller role in regional production networks driven by large firms.

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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.