A new report by the United Nations Conference on Trade and Development (UNCTAD), and the National Board of Trade Sweden has revealed that the full potential of European Union’s free trade agreements (FTAs) remains untapped to the tune of almost €72billion ($89billion).
According to the report, this is the amount that European exporters overpaid, because they did not take full advantage of the reduced tariffs offered by the FTAs that the EU as a bloc has signed with a variety of developed and developing countries.
Nigerian exporters may have also had to contribute to this figure, as the nation and the ECOWAS region refused to append signature to the Economic Partnership Agreement (EPA) proposed to it by the EU.
As governments hurry to negotiate or review FTAs, it is important to understand if businesses are fully using the agreements, argues the report, which is the first to use the concept of utilisation rates to systematically analyse FTAs entered into by the EU.
President, Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, had been consistent in his opposition of Nigeria appending its signature to the EPA fearing that goods from the advanced nations would crowd out local products, already suffering from the incidence of dumping from Asian countries.
His concerns were based on the fact that infrastructure challenge had left Nigeria’s manufacturing sector at a perpetual state of infancy.
According to Jacobs, any agreement that opened Nigeria’s markets to foreign goods would render the local industry vulnerable, and signal death to the economy as well.
The report showed that a large proportion of this under-utilisation is in exports from the EU to major free trade partners such as Switzerland, and the Republic of Korea, while the biggest share of unused tariff reductions to the EU is in imports from Switzerland, Turkey, South Korea and Mexico. This hits imports to a value of €10.5billion ($12.9billion).
In total, if all free trade agreements are considered, the EU’s importers forfeit €600million ($742million) in reduced tariffs every year. This ultimately means higher prices for the manufacturing industry and for consumers.
“This report challenges some enduring myths on preference utilisation in free trade agreements,” UNCTAD Secretary-General Mukhisa Kituyi, and Anna Stellinger, Director-General of the National Board of Trade Sweden, write in the preface to the report. “For example, it is commonly believed that FTAs, in general, are not used to a high degree.”
However, empirical data presented in the report indicate that companies in the EU mostly take advantage of FTAs with other countries, but also that border-related aspects of their implementation might in some cases be more cumbersome than the provisions of the FTAs themselves.
The report concludes that while some potential in the agreements remain untapped, companies are for the most part making use of them.
“The EU’s exporters’ use the agreements for 67 per cent of their exports to countries with which FTAs exist,” co-author, Stefano Inama of UNCTAD said.
“But we can also note that the EU’s importers use the free trade agreements to an even greater extent. In 90% of cases where tariff reductions can be used, they are,” co-author, Jonas Kasteng of Sweden said.
The report analyses the use of the EU’s free trade agreements “in reality” and not merely what is available in the agreements on paper.
“This is important as the EU is one of the most active negotiators of FTAs at the global level with a variety of developing countries and most recently least developed countries, and because EU companies have favourable trade conditions – including through reduced tariffs – thanks to these FTAs,” Kasteng, one of the authors of the report said.
Another author, Inama added: “Still, many companies report that they have difficulties taking advantage of the preferential tariffs in the FTAs, which often has to do with the fact that the rules on proving a product’s origin – a requirement for reduced tariffs – are complex.”