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CHAPTER 6
6
CHAPTER
PREFERENTIAL
TRADE AND
AGREEMENTS:
AN UPDATE
In 2016, global trade will grow by less than 3% for the fifth consecutive year,
lingering behind average world economic growth (WTO, 2016a). While this
extended lower trade growth is now accepted as structural in nature (see chapter
1 for more details), the efforts to revive trade growth are not withering, not least
because trade is one of the key means of implementation for achieving the
Sustainable Development Goals. In this context, many efforts are being directed
towards reducing trade costs, which remain high for most of the countries in
need of more, and more efficient, trade (see chapter 4 for more details). The
autonomous liberalization, which was often credited for the “Asian miracle” in
the 1980s, has for all practical purposes been abandoned due to public angst
towards globalization and evidence of increasing inequalities, especially within the
countries that followed these unilateral liberalization policies two decades ago.
On the other hand, as shown in chapter 5, the autonomous policies are more
in favour of restricting than liberalizing trade. In the absence of any reassuring
signalling from WTO and negotiations at the multilateral level, Governments
160
140
120
100
80
60
40
20
0
1973
1976
1977
1981
1983
1989
1991
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1993
1994
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1996
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1999
2000
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2002
2003
2004
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2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Developing-Developing Developing-Developed Developed-Developed
Figure Cumulative number of PTAs (notified and non-notified to WTO) put into force by Asia-Pacific
6.3 economies, by geographical region of parties, 1971-July 2016
160
140
120
100
80
60
40
20
0
1973
1976
1977
1981
1983
1989
1991
1992
1993
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1996
1997
1998
1999
2000
2001
2002
2003
2004
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2011
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2016
others also covered economies outside the region, recent pursuance of plurilateral agreements (such as
e.g. the Protocol on Trade Negotiations (PTN), and RCEP, TPP and EAEU) and country-bloc agreements
the Global System of Trade Preferences (GSTP) – such as between Asia-Pacific economies and the
among larger number of developing countries. The European Union, the Gulf Coordination Council (GCC)
proliferation of bilateral deals began to dominate after and EAEU – there is no evidence that a bilateral
1992, covering only trade in merchandise goods. As approach might be abandoned in the near future.
of July 2016, 137 of the existing 169 agreements
(81%) were bilateral (figure 6.4), of which 68 were In terms of types of agreement, 87.6% of all PTAs
with members from outside the region.9 Despite the in force in the Asia-Pacific region comprise free
58
60
50
40
30
20
10
8 7
10 5 6
2 2 1 1
0
0
Free Trade Agreement FTA and EIA Customs Union Others
Bilateral Plurilateral Country - bloc
trade agreements (FTAs), and combined FTAs and economies to undertake deeper and more ambitious
Economic Integration Agreements (FTAs and EIAs). forms of integration, thus providing a good indicator
On the other hand, 10.6% of PTAs (18 agreements) of the level of political support for regional economic
are partial scope agreements (PSAs)10 and only integration. In the Asia-Pacific region as well as at the
1.8% (three PTAs) are classified as Customs Unions global level CUs are rare and represent only 6.7% of
(CU). One CU, the EAEU, includes also elements of the “physical agreements” notified to WTO.11 Although
services liberalization and thus is also classified as common markets are an even more comprehensive
an EIA. Figure 6.4 also shows a breakdown of these form of integration as they provide full movement of
agreements (PSAs appear as “Others”). all factors among the members, they are rare in this
region. EAEU and the ASEAN Economic Community
There has also been a shift in terms of which areas are two examples of economic integration processes
of liberalization these agreements are addressing. In in the Asia-Pacific region within which the members
2000, the share of PTAs covering both goods and are working towards the consolidation of common
services (also known as “FTA and EIA”) was only markets.
3%. In 2016 this share has grown to 43%. The
increasing number of agreements covering both goods 2. Agreements under negotiation
and services shows the recognition by Governments
of the growing importance of services in international Of the agreements currently being negotiated by
trade. Indeed, many trade agreements that initially Asia-Pacific economies, the majority are bilateral
only covered trade in goods have been expanded to (42) followed by country-bloc (26). Moreover, 74%
include liberalization commitments in trade in services of PTAs being negotiated are with economies or
– for example, the FTAs between ASEAN and its blocs outside the Asia-Pacific region. As of July
dialogue partners, the SAARC Agreement on Trade 2016, the Asia-Pacific economies involved in further
in Services (SATIS), Pacific Island Countries Trade negotiations were: Turkey (15), India (14), the Republic
Agreement (PICTA) Trade in Services Protocol, and of Korea (9), China (8) and Japan (8). With regard
the APTA Framework Agreements on the Promotion to trade partners, the European Union and EFTA
and Liberalization of Trade in Services. However, rank first with 11 and 6 processes of negotiation,
many of these agreements are still under negotiation respectively, with Asia-Pacific economies. GCC also
or waiting for negotiation to start. ranked first in negotiations between the bloc and
Australia, China, India, Japan, the Republic of Korea,
The degree of market integration as well as the Pakistan and Turkey; however, negotiations with
disciplines covered is determined by the willingness of this bloc were suspended when the GCC Council
Figure Share of trade with PTA partners (percentage, average for 2012-2014)
6.5
Marshall Islands
Federated States of Micronesia Import
Mongolia
Kiribati Export
Vanuatu
Tuvalu
Cook Islands
Azerbaijan
Maldives
Turkmenistan
Sri Lanka
Bangladesh
Russian Federation
Solomon Islands
Islamic Republic of Iran
Kazakhstan
Macao, China
Niue
Japan
Cambodia
Pakistan
Hong Kong, China
India
China
Nauru
Tonga
Viet Nam
Kyrgyzstan
Armenia
Fiji
Uzbekistan
Tajikistan
Samoa
Thailand
New Zealand
Papua New Guinea
Nepal
Philippines
Afghanistan
Singapore
Malaysia
Indonesia
Turkey
Georgia
Australia
Republic of Korea
Bhutan
Lao People's Democratic Republic
Myanmar
Brunei Darussalam
0 20 40 60 80 100
Percentage
Source: ESCAP calculation based on United Nations COMTRADE data from WITS and APTIAD databases, accessed in August 2016.
Likewise, the statistical office of the European Union access but instead are using Most-Favoured Nation
(Eurostat) also provides statistics at a disaggregated (MFN) regime. For example, while only 1% of the
level. Based on those statistics, 78% of total European European Union’s imports from Papua New Guinea that
Union imports from Turkey in 2015 were covered under are eligible for preferential treatment were imported at
preferences within the Association Agreement (CU) the MFN duty rate, 17% of the imports from Georgia
between Turkey and the European Union (of which that were eligible for preferences were conducted under
98% were duty-free). European Union imports from MFN terms (of which 5% were MFN duty-free and
other PTA partners, such as EPA partners Papua the remainder under MFN tariffs).15 Further studies will
New Guinea and Fiji, also showed high utilization of be needed to understand the reasons for this result;
preferences. Of the total European Union imports from possible explanations could include zero or near-zero
Papua New Guinea and Fiji 72% and 77%, respectively, MFN duties, overly-complex rules of origin, traders
were imported using negotiated preferences. In contrast, not being properly informed of the preferential trade
only 42% and 39%, respectively, of total European opportunities, and/or costs associated with complying
Union imports from the Republic of Korea and Georgia with PTA provisions.
relied on preferential access (of which 89% and almost
100%, respectively, were duty-free). Eurostat data also Only a few developing economies of the Asia-Pacific
allow the calculation of imports eligible for preferential region do provide information related to their PTA
90
80
70
60
Percentage
50
40
30
20
10
0
Jordan
Mauritius
Palestine
Israel
Albania
Bosnia-Herzegovina
TFYR of Macedonia
Georgia
Rep. of Korea
Egypt
Tunisia
Serbia
EFTA
Chile
Morocco
Montenegro
Source: WTO (2016c), Trade Policy Review – Report by the WTO Secretariat, 9 August 2016, WT/TPR/S/331/Rev.1.
Figure Thailand’s preferential tariff utilization rate of exports under PTAs, 2014
6.7
80
70
60
50
Percentage
40
30
20
10
0
Australia
China
India
Rep. of Korea
ASEAN
Japan
New Zealand
Peru
Source: ESCAP calculation based on United Nations COMTRADE data from WITS; and data provided by the Ministry of Commerce during Thailand’s
WTO Trade Policy Review (WTO, 2016d).
Box India-Sri Lanka bilateral FTA: Sri Lanka reaping the gains by the preferential margins
6.1
Nearly 70% of Sri Lanka’s exports go to India via the bilateral free trade agreement and benefits from
the zero tariffs granted by India. Sri Lanka has been using FTA more than India (figure), also leading
to the former recording a trade surplus under the deal with India in six of the 16 years since the
Agreement came into force.
Figure. Trade flows under preferential tariffs of the Indo-Sri Lanka FTA (ISFTA)
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000 (Mar - Dec)
0 20 40 60 80 100
WEB PAGES
Eurasian Economic Union. Available from www.eaeunion.org/?lang=en.
China, State Council. Available from http://english.gov.cn/beltAndRoad/.
ONLINE DATABASES
Economic and Social Commission for Asia and the Pacific. Asia-Pacific Trade and Investment Trade Agreements
Database. Available from http://artnet.unescap.org/databases.html#second.
Eurostat. Available from http://ec.europa.eu/eurostat/web/international-trade/data/database?p_p_id=NavTreeportletprod_
WAR_NavTreeportletprod_INSTANCE_yMiooQ47vf0e&p_p_lifecycle=0&p_p_state=normal&p_p_mode=view&p_p_
col_id=column-2&p_p_col_count=1 .
United Nations Statistics Division, Department of Economic and Social Affairs. United Nations COMTRADE database.
Available from www.comtrade.un.org.
United States International Trade Commission. Interactive Tariff and Trade and DataWeb. Available from http://dataweb.
usitc.gov.
World Trade Organization. Regional Trade Agreements Information System (RTA-IS). Available from http://rtais.wto.org/.
World Bank. World Integrated Trade Solution (WITS). Available from http://wits.worldbank.org/
ANNEX
TOWARDS CONSOLIDATION OF PREFERENTIAL TRADE AGREEMENTS
ESCAP has highlighted the complexity associated with the “noodle bowl” phenomenon where countries sign
many different agreements with the same group of countries. Globally, and but particularly in the Asia-Pacific
region, there has been a lack of effort by economies to abolish or annul bilateral agreements between
economies that have moved on and signed regional or plurilateral agreements among the same set of
economies (ESCAP, 2015). ESCAP has also proposed that when a larger PTA with more countries is signed,
the existing bilateral PTAs and partial scope plurilateral should be nullified. Such a phenomenon was seen
in the past in the process of European Union consolidation, but never in the Asia-Pacific region. However,
such an approach has recently been seen in the formation of the most recent plurilateral agreements in
the North and Central Asia subregion.
In October 2011, eight members of CISa signed a new treaty, the CIS-Free Trade Area 2011. The FTA
began entry into force from September 2012 for those CIS members that ratified it.b This treaty replaced
the CIS Agreement 1994 among the Parties that signed the CIS-FTA 2011. Therefore, the CIS Agreement
1994 became ineffective for all its Parties except Azerbaijan, Georgia, Turkmenistan and Uzbekistan. The
termination of the CIS Agreement 1994 for the Parties of CIS-FTA 2011 was notified by the Russian
Federation to WTO in 2013. The CIS-FTA 2011 also stipulated that the Parties would take measures to
terminate existing bilateral treaties and, as such, replace many bilateral PTAs between the Parties. However,
as of July 2016, the Russian Federation had notified WTO of the termination of its bilateral free trade
agreements with Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova and Ukraine (although the bilateral
agreements were terminated between 2012 and 2013, the notification was made in March 2016).
On the other hand, the treaty that created EAEU absorbed the earlier CU and single economic space.
As a consequence, among other agreements, the Eurasian Economic Community was terminated as of 1
January 2015, according to a Decision of the Interstate Council of the EAEC. However, the termination
of EAEC has not been notified to WTO.
Based on available official information, seven PTAs have been removed from APTIAD (table).
The previous examples prove that there is no rationale for failing to terminate agreements that have been
surpassed by more advanced versions.c The enactments of the Treaty on a Free Trade Area between
members of CIS (in force since 2012) and EAEU (in force since 2015), accompanied by the termination
of former bilateral and plurilateral agreements, were positive steps towards a simpler and more transparent
regional economic integration. This was a move in the right direction towards the consolidation of PTAs,
which ESCAP has been suggesting over the years in its policy recommendations. However, there are several
other PTAs among the Parties of CIS-FTA and EAEU that should have also been terminated, but these
terminations have not yet been notified to WTO.d
The effort to cancel superseded agreements must be accompanied by an effort to notify WTO in a
timely manner. In fact, apart from Turkey and the Russian Federation (and its preferential trading partners),
Asia-Pacific economies have not notified terminated agreements, even though several agreements may be
Asia-Pacific Trade and Investment Report 2016 − 101
candidates for termination (e.g. the Lao People’s Democratic Republic-Thailand PSA, superseded by the
ASEAN Economic Community agreements, and the Afghanistan-India PSA, superseded by SAFTA). In any
case, these few examples clearly illustrate the need for Asia-Pacific economies to review overlapping PTAs
and decide on their termination, which will make it easy for traders to carry on their business more efficiently.
Similarly, RCEP has the potential to reduce the complexities of the Asia-Pacific “noodle bowl” by integrating
the ASEAN Trade in Goods Agreement (ATIGA), ASEAN+1 and other bilateral PTAs between RCEP
members. At the same time, TPP can also supersede the existing bilateral PTAs between its members
once it enters in force.
a Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, the Russian Federation, Tajikistan and Ukraine.
b Dates of entry into force: 20 September 2012 for the Russian Federation, Belarus and Ukraine; 17 October 2012 for Armenia; 8 December 2012 for
Kazakhstan; 9 December 2012 for the Republic of Moldova; and 13 December 2013 for Kyrgyz Republic.
c Australia and New Zealand did so when they reached a new agreement in 1982 and placed their previous agreement, signed in 1965, in the
“inactive” category.
d For example, the WTO-notified bilateral FTAs of Armenia-Kazakhstan, Armenia-Kyrgyzstan, Armenia-Moldova, Armenia-Ukraine, Kazakhstan-
Ukraine, Kazakhstan-Kyrgyzstan, Kyrgyzstan-Moldova and Kyrgyzstan-Ukraine.