The full potential of European Union free trade agreements (FTAs) remains untapped to the tune of almost 72 billion euros ($89 billion), according to a new report by UNCTAD and the National Board of Trade Sweden. 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 both developed and developing countries.
As governments hurry to negotiate or review FTAs, it is important to understand if businesses are fully using the agreements, the report argues.
“This report challenges some enduring myths on preference utilization 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 indicates 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.
For instance, a large proportion of this under-utilization 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 10.5 billion euros ($12.9 billion).
If all free trade agreements are considered, the EU’s importers forfeit in total 600 million euros ($742 million) in reduced tariffs every year. This ultimately means higher prices for the manufacturing industry and for consumers.
Findings
- About 2/3 of EU exports to partner countries use the FTAs whereas the corresponding number for partner country exports to the EU is as high as 90%.
- The value of exports using the FTAs is higher for EU exporters than for partner country exporters – the net difference is 33 billion euro.
- The value of duty savings by the partner country importers of using the FTAs is higher than the value of duty savings by the EU importers – the net difference is 1.5 billion euro.
- The largest under-utilization of the EU’s FTAs is found among EU exporters in their trade with Tunisia, Morocco, Egypt, Lebanon and Mexico. The one-sided underutilization of the possibilities for tariff reduction in these FTAs account for about 40% of the total value of exports or duty costs of not using the EU’s FTAs (or as much as 80% if only the medium-sized FTAs are considered).
- The duty savings obtained by using the EU’s FTAs benefit both the EU and partner countries. The duty savings are on average about 6% of the import values for both parties of the EU’s free trade agreements. This implies that both parties benefit from the use of the EU’s FTAs to a fairly equal degree at a total level.
Further information may be found in the following report:
