ASEAN warned of pitfalls in FTA chase

ASEAN warned of pitfalls in FTA chase

Eileen Ng, Agence France-Presse, Kuala Lumpur

As ASEAN nations chase bilateral free trade agreements (FTAs) to cope with the China challenge, analysts warn the grouping stands to lose more than it gains if it fails to speed up internal liberalization.

FTAs will be more of a stumbling block than a building block for the Association of Southeast Asian Nations' own free trade area (AFTA) if tariff walls among its 10 members are not sufficiently low, they say.

A flurry of FTAs will also result in a web of complex preferential tariff schemes which could burden the private sector and lead to trade diversion and investment distortion, analysts warned at a recent ASEAN business forum.

Singapore, the most affluent but trade-reliant ASEAN member, started the ball rolling by inking FTAs with the U.S, New Zealand, Japan and Australia. It says such deals can help restore investor confidence in the rest of Southeast Asia, and boost ASEAN's competitiveness against China.

The island-state said on Friday it hoped to conclude FTA talks with Canada this year.

Other ASEAN members, including Thailand and the Philippines, have since joined the fray and are negotiating deals with economic heavyweights including the U.S. and Japan.

Deunden Nikomborirak, research director with Thailand Development Research Institute, said cumbersome and slow multilateral negotiations were turning countries to FTAs but these were "second best alternatives".

The danger is they could divert trade from AFTA to big trading partners such as the U.S., Japan and the European Union which end up becoming hubs, she said.

"If each ASEAN member country has a bilateral FTA with the U.S. while maintaining high tariffs among themselves, then the U.S. will mostly benefit as the preferred location for investment," she said.

"To avoid this, ASEAN must ensure that tariff walls among themselves are sufficiently low."

Deunden said it would be tough for smaller economies to see net gains from FTAs since major industrialized countries often have a standard pre-set agreement, she said.

For instance, Japan and the U.S. are using the FTA with Singapore as the blueprint for talks with Thailand but this is unfair as the economies differ and the Singapore FTA for example, does not include agriculture which is a key sector for Thailand, she said.

Hank Lim, research director at Singapore's Institute of International Affairs, said FTAs were "discriminatory in nature" and could complicate tariff rates and rules applied to the same products.

He noted that ASEAN, as a grouping, was also developing FTAs with a number of countries including the U.S., Japan, India, South Korea and was working with China to create the world's largest free trade zone within 10 years.

But in the absence of a common framework, there is a danger ASEAN will end up with a series of different frameworks that are inconsistent with each other and could lead to negative implications, he said.

As FTAs are increasingly involving a wide range of non-tariff issues like domestic regulations and competition policy, there is also fear it could lead to an "invasion of domestic policy space," Deunden said.

"For example in the U.S. FTA blueprint, the private sector can take governments to court for imposing a certain policy that could infringe on their growth," she noted.