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RTA in Existing and Potential Markets

Despite having the membership of WTO countries faced issues like high amount of tariff rate quota, tariff escalation, safeguard, rejections fur to Regional Trade Agreement / Tariff Barrier Treatment concerns etc. and hence countries came together to formulate RTA. The RTAs helped towards the reduction in import duty on goods, faster liberalization of services and liberalization of investments and thus helped in formation of production networks promoting the position of SMEs in GMS to move up the value chain. This movement was possible by drawing collective efficiency due to :   

  • Scale : purchase of inputs, technology, pool of skilled workers, pooling production capacity to meet large volume orders.
  • Specialization : by producing a joint output by diversification of labor.
  • Joint Action : collaboration through producer association. Leaning jointly about new market standards.
  • Enhance attractiveness as suppliers : reduce transaction cost of buyers sourcing otherwise from small firms.
     

Hence RTAs were found more meaningful than WTO since it provided member countries with a comprehensive legal framework to provide greater market access for goods and services. Negotiations are certainly faster and it allows countries to develop partnerships in areas not covered by WTO.

A trade agreement (also known as trade pact) is a wide ranging tax, tariff and trade treaty that often includes investment guarantees. The most common trade agreements are of the preferential and free trade types are concluded in order to reduce (or eliminate) tariffs, quotas and other trade restrictions on items traded between the signatories.

Business Implications of RTA presence

Since one of the fundamental negotiating agenda of the trading agreements is to provide an exception to the WTO MFN clause, hence the presence of an RTA of the exporting country with the target country will help exporting firms in that country to face lesser tariff as compared to their competing suppliers in case of absence of similar agreement of the target country with the latter.

However, some factors should be taken into consideration by an SME while deciding to use the RTA to best of their business benefit. Below are some considerations including status of the commodity (open/sensitive/negative), time period of concession, difference between MFN duty rate and RTA duty rate, rules of origin etc.

Table below is provided the status of FTA for reference.
 


Intra-regional Membership Status (2013)
ASEAN: AFTA, AFAS, AIA, AICO, e-ASEAN ASEAN-10 Come into effect
ASEAN-China Comprehensive Economic Partnership (including bilateral FTAs) ASEAN-10, China The ASEAN-China Free Trade Area (ACFTA) (come into effect on 1 January 2010, Framework Agreement signed in November 2002 which provides an ASEAN-China Free Trade Area (ACFTA), Agreement on Trade in Services signed in January 2007
ASEAN- Japan Comprehensive Economic Partnership (including bilateral FTAs) ASEAN-10, Japan Agreement on Comprehensive Economic Partnership among Member States of the Association of Southeast Asian Nations and Japan, 2008 (implemented), Japan-Singapore bilateral implemented, Japan-Indonesia bilateral signed, other bilateral with Japan under discussion, implementation of the CEP will be completed before 2012, free trade pact endorsed in November 2007
ASEAN-South Korea Comprehensive Economic Partnership (including FTA) ASEAN-10, South Korea The ASEAN-Korea Investment Agreement was signed on 2 June 2009, Framework Agreement signed in December 2005, Trade in Goods Agreement signed in August 2006, Agreement on Trade in Services signed in November 2007
China-Japan-South Korea FTA China, Japan, South Korea Under consideration, also ongoing negotiations on Japan-Korea and China-Korea bilateral on 26 November 2013, Japan, China and South Korea began their third round of free trade talks in Tokyo
ASEAN+3 ASEAN-10, China, Japan, South Korea The Regional Comprehensive Economic Partnership is still under negotiations and will be concluded in 2015, Implementation of Economic Cooperation Projects, e.g. IT, SMEs, standards and quality conformance, environment and logistics management
ASEAN+6 ASEAN-10, China, Japan, South Korea, India, Australia, New Zealand The Regional Comprehensive Economic Partnership is still under negotiations and will be concluded in 2015, East Asia Study Group's measures for the establishment of an East Asia FTA adopt, further negotiations ongoing
Cambodia bilateral FTAs With South Korea and America Trade and investment deal signed in November 2007 Korea-Cambodia FTA to take effect in November 2008 US/Cambodia Bilateral Textile Agreement (1999)
China bilateral FTAs With Hong Kong, Macau, South Korea, Thailand, Pakistan, Chile, Singapore, Peru, Costa Rica, Iceland and Switzerland The Agreement on Trade in Service of the China-Pakistan FTA which would enter into force since Oct.10 th,2009.
The Supplementary Agreement on Trade in Services of the Free Trade Agreement between the Government of the People's Republic of China and the Government of the Republic of Chile was signed On April 13, 2008, The China-New Zealand Free Trade Agreement in Beijing entered into force on October 1, 2008.
The China-Singapore Free Trade Agreement was signed on October 23, 2008.
The China-Peru Free Trade Agreement was signed on April 28, 2009.
The Closer Economic Partnership Arrangement (CEPA) with Macau was singed in 2003.
China-Hong Kong bilateral implemented, Partial Trade Agreement signed with Thailand, GCC, Norway, Australia, Costa Rica and Iceland are under negotiation
Hong Kong bilateral FTAs With China and Iceland, Liechtenstein, Norway and Switzerland Closer Economic Partnership Arrangement (CEPA) was come into effect Hong Kong and the Member States of the European Free Trade Association (EFTA), namely Iceland, Liechtenstein, Norway and Switzerland, signed a comprehensive Free Trade Agreement (the Agreement) on 21 June 2011
Japan bilateral FTAs With Chile, India, Mexico, Malaysia, the Philippines, Singapore, South Korea, Thailand, Indonesia, Brunei Darussalam, Vietnam Japan-Singapore bilateral implemented, bilateral with Malaysia, Thailand and the Philippines signed, bilateral with Indonesia, South Korea and Vietnam in process The agreement for an economic partnership was signed between Japan and Brunei on June 15 2007;
Agreement between Japan and the Republic of Chile for a Strategic Economic Partnership (March 2007);
Comprehensive Economic Partnership Agreement between Japan and the Republic of India was signed on 16 February 2011;
The Agreement between Japan and the Republic of Indonesia for an Economic Partnership was signed on August 10, 2007;
Japan-Thailand Economic Partnership Agreement (April 3, 2007);
Japan-Philippines Economic Partnership Agreement (JPEPA) in 2006;
Agreement between Japan and the United Mexican States for the Strengthening of the Economic Partnership September 2004;Japan-Malaysia Economic Partnership Agreement was signed 13 December 2005
Malaysia bilateral FTAs With Japan, Pakistan, New Zealand, India, Chile, Australia, The Malaysia-Japan Economic Partnership Agreement (MJEPA) came into force on 13 July 2006;
Malaysia-Pakistan Closer Economic Partnership Agreement (MPCEPA) came into force on 1 January 2008;
The Malaysia-New Zealand FTA was signed on 26 October 2009;
The Malaysia-India Comprehensive Economic Cooperation Agreement (MICECA) came into force on 1 July 2011;
Malaysia-Chile Free Trade Agreement (MCFTA) came into force on 25 February 2012;
The Malaysia-Australia Free Trade Agreement (MAFTA) entered into force on 1 January 2013.
Philippines bilaterals With Japan Signed
Singapore bilaterals With Japan, South Korea Singapore-Japan bilateral implemented, Singapore-South Korea bilateral signed
South Korea bilaterals With China, Japan, Singapore, Thailand South Korea-Singapore bilateral signed, other bilateral under negotiation
Thailand bilaterals With China, Japan, South Korea, Australia, Bahrain, India, New Zealand, Peru, US Thailand-Japan bilateral signed, Partial Trade Agreement signed with China, other bilateral under negotiation
AFTA-CER Closer Economic Partnership ASEAN-10, Australia, New Zealand Ministerial Declaration signed in September 2002, negotiations on the ASEAN, Australia, New Zealand FTA expected to be completed by mid 2008
Asia Pacific Economic Cooperation (APEC) ASEAN-6, Australia, Canada, Chile, China, Hong Kong, Japan, Korea, Mexico, New Zealand, Papua New Guinea, Peru, Russia, Taiwan, US, Vietnam Established in 1989, not a regional FTA as it promotes 'open regionalism', aims to arrive at free trade and investment by 2010 for industrialized members and by 2020 for developing members
ASEAN-US Enterprise for ASEAN Initiative (including bilateral FTAs) ASEAN-10, US EAI announced in October 2002, Singapore-US bilateral implemented, other bilateral under negotiation
ASEAN-EU Comprehensive Economic Cooperation (including FTA) ASEAN-10, EU EC-ASEAN cooperation Agreement signed in March 1980
ASEAN-India Comprehensive Economic Cooperation (including FTA) ASEAN-10, India Framework Agreement signed in October 2003, negotiations to establish AIFTA have not progressed as envisaged
Malaysia Bilaterals With US, Australia, New Zealand, Pakistan Malaysia-US bilateral signed, other bilateral under negotiation
Philippines bilateral FTAs With US, India Philippines-India bilateral signed, other bilaterals under negotiation
Singapore bilateral FTAs With Australia, Bahrain, Canada, Chile/New Zealand ("Pacific Three"), EFTA6, Egypt, India, Jordan, Kuwait, Mexico, Pakistan, Panama, Peru, Qatar, Sri Lanka, United Arab Emirates, Ukraine, US Bilaterals with Australia, EFTA, New Zealand and US implemented, bilaterals with Chile, India, Jordan, Panama and Qatar signed, other bilateral under negotiation Thailand-Australia bilateral implemented, bilateral with New Zealand and Bahrain signed, other bilateral under negotiation

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