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New report on FTA:s and the countries outside

2018-11-19

Free trade agreements also affect market access for the countries outside, according to a new report from National Board of Trade Sweden. Senior Adviser Henrik Isakson explains how and why.

What are the three main conclusions?Kommerskollegium ledningsgrupp Henrik Isakson
– First, when two countries conclude a Free Trade Agreement (FTA) this will affect market access also for firms from other countries, those that are not part of the agreement and who are normally referred to as third countries. Their ability to export to the FTA-countries will be changed, both for the better and for the worse.

– Secondly, how market access will be changed depends of course on what is in the agreement. Some provisions automatically lead to benefits for all firms, regardless of their geographic origin. Other provisions are discriminatory by nature whereas some provisions can, depending on the political willingness to do so, be made either positive or negative for third countries. Finally, some provisions are formally neutral by design but will affect firms very differently depending on their sector, size and which country they are based in.

– Thirdly, to conclude it is clear that most provisions in an FTA increase market access also for third country firms but it will benefit the participating countries firms even more, which leads to a situation where the third country firms face some relative competitive disadvantages.

In what way can a free trade agreement benefit countries on the outside?
– The positive side is that the agreements often leads to reforms that generally stimulates trade and investments in the participating countries for all firms doing business there, regardless of their national origin. This could be pro-competitive reforms, reforms that reduce red tape and increase transparency. But it could also be ensuring that openness for services trade and foreign investments remain or that markets for government procurement is being opened up.

– Tariff reductions of course only benefit firms in the participating countries, but firms from third countries can still indirectly benefit from the reductions by acting as suppliers to firms that can directly benefit from the agreement. The opportunities to do so has partly, but not only, to do with how the rules of origin are framed.

Free trade is a vivid global topic these days. How does this report contribute to that discussion?
– What is often discussed is the effect for the countries participating in the agreement, which is natural. However, all FTAs will have intended or unintended, positive and negative, short run and long run effects also for non-participating countries. These effects will become a part of those firms business reality. This knowledge can contribute to making the agreements as positive as possible for third countries, so that the agreements becomes building blocks for global free trade and not contribute to the worlds countries building protectionist fortresses against each other.

The report: 
Free Trade Agreements and Countries Outside – an analysis of market access for non-participating countries

Contact:
Henrik Isakson
08-690 49 07
henrik....@kommers.se 

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National Board of Trade, P.O. Box 6803, SE-113 86 Stockholm. 
Visiting Address: Drottninggatan 89. 
Phone: +46 8 690 48 00     Fax: +46 8 30 67 59

E-mail: kommersk...@kommers.se

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