Free trade agreements (FTAs) the bilateral and
multilateral deals designed to boost business between nations
hinder rather than help trade, a senior official at the
Asian Development Bank told Emerging Markets.
Do the costs [related to FTAs] actually outweigh the
benefits? I think overall yes, they do, said Jayant
Menon, a trade expert and lead economist at the ADBs
office of regional economic integration.
Menon likened the fashion for pursuing and signing FTAs to
the drive among sovereigns over the past three decades to cut
business and retail taxes in an effort to suck in corporates
and wealthy individuals from other territories.
He called the process a domino effect, in which
an FTA is signed between two countries, in effect forcing a
third-party country to cut its own deal, either with those two
countries, or with other willing nations, to avoid losing
If one of your trading partners negotiates an FTA with
a competitor, the cost to you of doing nothing isnt zero.
Your exports to both countries will be hit, so you will be
motivated to negotiating your own preferential tariff with
those countries to prevent your own exports from
The desire for agreements designed to boost cross-border
commerce has never been higher. Japan is in talks with the
United States to join the mooted Trans-Pacific Partnership
(TPP), ultimately designed to boost trade flows between the
worlds largest and third-largest nations.
Several other Asian nations have expressed their desire to
enter the talks, including Vietnam, Malaysia and Singapore.
That compelled China to act. Beijing is now actively pursuing a
raft of new FTAs with countries in Asia and beyond.
It is difficult to keep track of the sheer quantity of these
deals. The ADB reckons the number of FTAs covering at least one
Asian nation soared from 36 in 2002 to 109 at the start of this
year, with a further 148 in various stages of development.
India alone has signed 48 FTAs with countries as diverse
Afghanistan, Nepal and New Zealand.
Quite apart from the high administrative costs of processing
and maintaining an FTA with another country, there is the added
cost levied on producers of goods and services.
Senior Asian government officials highlighted the downside
of FTAs. Amando Tetangco, governor of Bangko Sentral ng
Pilipinas, the Philippine central bank, said that when FTAs
worked between member countries, there have been clear
net benefits, as trade has risen.
But for those nations sidelined by agreements, the opposite
holds true. There are other effects from FTAs,
Tetangco added. In some cases, FTAs have created
divisions between countries, with producers in one
country suddenly finding their goods priced out of hitherto key
- Follow us on twitter @emrgingmarkets