Domestic Market Protection Instruments within the Framework of Regional Trade Agreements

The ASEAN countries have amassed vast experience in entering into regional trade agreements (RTA). In total, they have concluded over 89 bilateral and multilateral RTAs. So, at present there are multilateral RTAs (the so-called ASEAN+1) such as the following: ASEAN-China, ASEAN-India, ASEAN-Republic of Korea and ASEAN-Australia-New Zealand. The analysis of regional trade agreements formed with the ASEAN participation has shown that all the parties to RTAs applied both tariff and non-tariff instruments to protect their domestic markets.

However, it was found out during the research that the main factor behind enterprises’ refusal to work under a free trade zone regime was an insufficient level of liberalization (a low preference margin), variety of rules to determine the country of origin of goods and insufficient information on the prospects of free trade zones (FTZ), rather than non-tariff barriers.

The first factor behind rather low utilization of RTAs was a small “preference margin” which is determined as the difference between the advantages and costs that arise in case of a free trade zone. The advantages can be received by means of a difference between the applied tariff rates of the most favored nation and preferential tariffs of a free trade zone, while the main expenditures are related to costs on securing the Certificate of the Country of Origin of Goods.

The other factor behind rather low utilization of a free trade zone is the limited information on FTZ, which is available to companies (particularly small and mid-sized ones). Over 60% of respondents from different ASEAN countries declared that the information on FTZ and the ways of utilization thereof is limited. The main sources of information on FTZ were state Web-sites. In some countries, such as Cambodia, 70% of companies using a FTZ regime declared that they were urged to do that by their government, while the remaining 30% of companies did it at the request of their trade partners. In Myanmar, the surveys of entrepreneurs showed that a FTZ was perceived as another manifestation of trade limitations.

Also, it is to be noted that free trade agreements complicate further a rather complex system of foreign trade relations as special rules between parties to RTAs are recognized and that may lead to modification of the architecture of the multilateral trade system. Rules to determine the origin of goods are differentiated and different deadlines for liberalization of tariffs, customs procedures and privileges (for example, in the fields of investments, intellectual property rights, licensing of market activities, sanitary and phytosanitary rules and other) are set.

So, in preparing future free trade agreements with the ASEAN participation, it is necessary to seek a unification of provisions to exclude the so-called “plate of spaghetti”, that is, a multiple of specific agreements that turn a preferential trade agreement into a barrier. To achieve this goal, the agreement on FTZ between the EEU and Vietnam should serve as a model with special attention paid to unification of rules of determination of the country of origin of goods.

It is important to make the information on free trade zones and prospects of utilization thereof more widely available. It is a priority to upgrade the quality of service of state Web-sites and referral services of the authorities which issue certificates of origin of goods.

Nadezhda Volovik, Head of the Department of Foreign Economic Activities