A new study by Policy Support Unit of the Asia Pacific Economic Cooperation (APEC) group of countries has concluded that free trade agreements (FTAs) give rise to a significant boost to a country's exports in the first years after their introduction.

The report showed that the number of regional and bilateral FTAs in the Asia-Pacific region has multiplied since the 1990s, with APEC members among the most active economies in negotiating such trade agreements. At present, APEC members have 144 enforced FTAs, equal to approximately 53 percent of free trade agreements globally.

Initial analysis by the Policy Support Unit showed that the average exports five years after an FTA is enforced are significantly higher compared with the average exports five years before. For the entire sample, average annual exports for the five years before FTAs was USD4.1bn. Five years after the introduction of an FTA, this value jumped to an average of USD6bn.

"Our results show that free trade agreements do in fact have a compelling impact on trade," Gloria Pasadilla, Senior Analyst at the APEC Policy Support Unit. "The effect of FTAs, however, depends on the size – essentially the more partners involved the better."

The quality of a free trade agreement was also found to be important in terms of encouraging exports. For example, some agreements only cover goods but exclude services. Others are more comprehensive and include regulations affecting labor, the environment, and competition policies, among other items. The study tested for quality through comparing FTAs enforced before 2005 and those after 2005, the rationale being that later FTAs are more comprehensive and of higher quality.

"These initial findings suggest that free trade agreements between economies do make a difference and have a significant impact on exports, despite the cost and time required to negotiate such agreements," concluded Pasadilla. "This should help inform APEC Minsters and policymakers moving forward."

Source: Tax News

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