The nature of the FTA partner matters in determining whether the signed FTA would be useful. The proliferation of free trade agreements (FTA) has been one of the most remarkable phenomena in the world economy over the past 15 years. To date, there has been no systematic analysis of the trade flow effects of FTAs due to the limited access to administrative records on the implementation of FTAs.
Estimates of the use of trade preferences and their actual utilization rates are provided using the administrative records of all free trade agreements whose tariff reduction covers more than 80 percent of product lines and has been in effect for at least one year. We assume that the price of the latter is equal to the world price PIN PIW but lower than that of the former (PIW PIM. Let us assume that there are three countries, Country A, B and the rest of the world.
FTA Usage
As illustrated in Panel B of Table 2, more than 80 percent of product lines in both countries have a tariff margin of less than 5%. When it comes to the tariff margin for products, more than 70 percent of the product lines are in the tariff margin category of less than or equal to 5. So there are about 40 percent of the product lines, the tariff margin of which is greater than 10%. .
The cumulative share of export value of the top 10 products eligible for tariff preferences under the FTA was between 30 and 62 percent of the total products traded under the FTA.
Empirical Model
For countries whose FTAUs are in the top three (Australia, Indonesia, and the Philippines), high FTAUs are largely driven by trade in vehicles (HS8701–8704). Excluding vehicle trade, their FTAU has declined significantly in the cases of the Philippines and Australia. To address a possible non-linear relationship, the squared BLI is introduced into the empirical model.
If there are fixed costs, one would expect companies to decide to apply for FTA tariff concessions. Nevertheless, as argued in the literature on multinational enterprises and product fragmentation (e.g. Jones, 2000; Jones ..amp; Kierzkowski, 2001; Athukorala, 2006), efficiency-oriented FDI has become increasingly important in Eastern Europe over the past two decades. Asia. Foreign presence (FORi) is measured by the ratio of the production share of foreign companies to that of the sector as a whole.
Third, the proportion of conglomerate firms CONi is introduced into the model to capture the firm size effect on FTAU. Third, the initial trade is added before the FTA enters into force INTi simply because, when fixed costs are involved, the sales volume must reach a certain level i. Finally, PCi t, , the proportion of parts and components (P&C ) trade in total trade in industry i is introduced into the empirical model.
12 In the recent literature on international trade, a range of alternative terms have been used to describe this phenomenon, including 'fragmentation of international production', 'vertical specialisation', 'value chain fragmentation' and 'outsourcing'. CONi t (+) = degree of conglomeration in the ith industry at time t, an approximation of the share of output of conglomerate firms as defined in the text above.
Data Description
FORi t (+/-) = the degree of foreign presence in the industry ith at time t authority by the output share of foreign firms. PCi t (-) = the proportion of parts and component trade in total trade of product i at time t. The theoretical expected signs are in brackets). Our econometric analysis focuses on manufacturing products that account for approximately 75% of Thailand's exports to Australia, Indonesia, Japan, Malaysia, the Philippines and Vietnam.
The definition of products in this study follows the International Standard of Industrial Classification (ISIC), and international conformity is used to match the HS system (ie, 25–97 net of other primary products). Agricultural and other primary products are excluded because the key determinants of FTAU in these products tend to differ from manufacturing. The feedback index BLIi t, is constructed over two years based on the availability of input-output table of Thailand, 2000 and 2005.
Note that Thailand's input-output table is a complementary import type, where the import content of each transaction is identified separately and allocated to an import matrix, so that BLIi t only measures domestic content. BLIi t, data for CON it and FORi t, are taken from Kohpaiboon & Ramstetter (2008), using data on large companies from. Since classifications of BLIi t, ,CONi t and FORi t are not yet in the HS classification, international concordance is used to be converted to HS classification.
The list is based on parts of Board Economics Classification (BEC) 42 and 53. Lists are initially broken down by the six-digit HS classification and then summed to four digits to determine the share of P&C in the total trade at the four-digit HS classification .
Results
Baseline Estimation
All coefficients are statistically significant at the five percent level or better with expected theoretical signs. Both coefficients corresponding to BLIi t, and BLIi t2, are statistically different from zero at the one percent level, suggesting that the non-monotonic relationship between. The positive and significant coefficient corresponding to BLIi indicates that the ROO constraint is binding.
The negative and significant coefficient associated with BLIi t2 suggests that the positive effect of BLIi t, on FTAUi t, would be diminishing. The negative coefficient associated with FORi t reflects the dominant role of export-oriented foreign firms operating in the Thai manufacturing sector. The coefficient corresponding to PCi t turns out to be negative and statistically significant as hypothesized.
Nor is it easy for parts and components to comply with tariff changes ROO, as international trade in parts and components takes place at the highly fragmented level, six-digit HS classification. For example, electrical and electronic goods and the related parts and components usually belong to the same tariff codes at the HS six-digit level, which is the normal basis for designing these types of ROOs. Products must be traded significantly earlier (ie in the prior FTA period) to ensure that there are significant FTA exports.
Please note that the sample size varies among FTA signatories depending on the year they started using the FTA. Among developing country counterparts, the coefficients between developing countries are in the narrow range between 0.5 and 1.
Assess Cost of Compiling ROO
The tariff margin and pre-FTA trade are the key factors that encourage companies to use FTA tariff privileges. Another interesting pattern that emerges from Table 6 is the size of the estimated coefficient corresponding to the tariff margin, which varies considerably across countries. The clear pattern is that the estimated coefficient of the counterpart between developed countries and FTAs is higher than that of developing countries, such as ASEAN members.
The estimated cost of compiling ROO is X*, a positive integral such that the statistical significance of titiFTA disappears. Based on our experimental performance, the coefficient corresponding to titiFTA is statistically significant up to X 4 percent. Our experimental examination suggests that the cost of ROO compilation would be a wide range between 5 and 8 percent.
In contrast, the coefficient corresponding toBLIi t turns out to be statistically insignificant when X 8 percent. When the tariff margin exceeds the cost of compiling the ROO, firms tend to request an FTA tariff preference regardless of the extent to which their production depends on domestic inputs. The estimates from the Japanese case are not available due to the relatively small sample size.
We differ from the above that the cost difference appears to be substantial, ranging from 2 percent in the case of Australia to 10 percent for Indonesian exports. For Malaysia and Vietnam, the cost is about 4 percent, while in the Philippines it is slightly higher (6 percent).
Conclusions
In particular, not only rules of origin, but also issues of trade facilitation must be incorporated and considered at the negotiating table to ensure that the trade effects related to free trade can materialize. Source: Author compilation from the official registration of certificate of origin available at the Bureau of Trade Preference Development, Department of Foreign Trade, Ministry of Commerce. Australia Greater than 1% Greater than 2% Greater than the effects of Japanese FTAs/EPAs: Post-evaluation from the initial data', RIETI Discussion Paper Series 07-E-041, Research Institute of Economy, Trade and Industry (REITI), Tokyo .
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