Free Trade Agreements are Writing a New Chapter for Asia

free_trade_agreements

Asia-Europe trade deals drive momentum for SME recovery

By Kawal Preet

As economies worldwide respond to continued waves of the COVID-19 pandemic, there are positive signs in markets across Asia, where cross-border commerce is trending positively against the backdrop of the health crisis. This is the marketplace for growth.

Asia has long been a world leader in closer regional integration – exploring remarkable, adaptive, and resilient networks in trade, investment, and innovation. A new free trade lane in Southeast Asia, the European Union-Vietnam Free Trade Agreement (EVFTA), has recently been followed up by another FTA in North Asia – the U.K.-Japan Comprehensive Economic Partnership Agreement (CEPA)

These trade deals equate to a vote of confidence for global commerce in several pandemic-restricted economies during this critical time. This is especially welcome at a time when nations are leaning toward restrictive measures such as tariffs and other trade barriers – a trend that analysts expect will last for a few years to come. By gradually eliminating tariff and non-tariff trade barriers, FTAs can help realize the potential that lies in unimpeded cross-border trade.

For instance, the EVFTA signifies the growing importance of Vietnam on the global stage, both as a manufacturing hub and as a market for consumer products with its young, capable workforce and burgeoning middle class. These characteristics are true for most of Southeast Asia, as well.

During the pandemic, we observed production shifts and trade lane diversification between Asia and Europe. Businesses – especially small and medium sized ones – will seek to build resilience, reduce risk, and plan for contingency scenarios such as last-minute supplier unavailability or other unforeseen challenges.

In the post-COVID-19 world, businesses of all sizes will do well to diversify their sourcing and their customer base, trading with a broader range of partners to reduce the risks of relying too heavily on any single source or customer. This will benefit economies like Vietnam as trading partners look to diversify their supply chain risks, particularly in the textile, technology and pharmaceutical industries (Vietnam Briefing).

We can’t talk about FTAs without stressing the importance of Intra-regional trade. Take for instance the recently signed Regional Comprehensive Economic Partnership (RCEP), which establishes a common certificate of origin and will help make intra-Asia trade faster and simpler for businesses. RCEP enables a much bigger marketplace between the 10 members of ASEAN plus Australia, China, Japan, New Zealand and South Korea (ASEAN). Trade deals like this help to reduce trade barriers for businesses and drive post-pandemic recovery.

Moreover, the Intra-Asia and Asia-Europe partnerships are expected to outpace the long-delayed Trans-Pacific Partnership (TPP), according to the IMF.

The success of recent cross-regional FTAs may also serve as a benchmark for post-Brexit U.K. as it navigates its approach to international trade. The significance of the U.K.-Japan CEPA as the first major post-Brexit Britain trade deal provides a model for other markets in Asia looking to follow in Japan’s footsteps (Gov.uk), setting a solid precedent for negotiating trade deals with the U.K.

Trade is the lifeblood of the global economy. We saw flight operations between Asia and Europe grow by almost 50% in April 2020, with additional increases in May and June as a result of manufacturing and businesses reopening across Asia Pacific, the Middle East and Africa (FedEx). As the Chair of the Committee for Trade and Investment of APEC recently highlighted, the movement of goods such as medical supplies via an efficient and expansive logistics network is important in combating COVID-19.

In addition, with business recovery prioritized across the region, keeping goods and commerce moving – at both international and domestic levels – is key to ensuring that this health crisis does not lead us to a long-term economic crisis.

By modernizing and expanding global trade through FTAs, costs and regulatory barriers will ease; this is a significant benefit for small and medium businesses in particular, which are the economic engines for recovery. Free trade will allow SMEs to thrive and continue to provide their customers with quality goods at affordable prices.

In June 2020, the World Economic Forum called for new approaches to revitalize global cooperation, to put the global economy on a better path after the pandemic abates. In the face of rising costs and pandemic-related economic challenges, both developed and developing nations need to hit reset and reach a pro-trade consensus.

EVFTA and the U.K.-Japan CEPA are demonstrating that it can be done. The benefits to business recovery and future growth are clear. The time is now.

About the Author

Kawal

Kawal is the president of the Asia Pacific, Middle East, and Africa (AMEA) region at FedEx Express based in Hong Kong. She is responsible for leading the business across the region, including overall planning and implementation of corporate strategies and operations across more than 103 countries and territories with nearly 40,000 employees Prior to this role, Kawal was senior vice president of operations, North and South Pacific. Since she began her career with FedEx Express in 1997 as an associate engineer, Kawal has held various leadership positions in operations and planning, and engineering within the organization.

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