The EU’s free trade agreements are used to a high degree – but untapped potential remains - Kommerskollegium
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The EU’s free trade agreements are used to a high degree – but untapped potential remains

2018-01-29

The EU’s free trade agreements are used to a high degree by companies in the EU and its partner countries. Both sides benefit about equally from duty savings measured as a share of the import value. This is observed by the National Board of Trade Sweden and UNCTAD, the United Nation’s organisation on trade and development, in a new report. The authors Jonas Kasteng of the National Board of Trade Sweden and Stefano Inama of UNCTAD describe its conclusions.

What is the report about?
– The report analyses the use of the EU’s free trade agreements in reality. This is important as the EU is one of the most active negotiators of free trade agreements at the global level, and because EU companies have favourable trade conditions – including through reduced tariffs – thanks to the free trade agreements, says Jonas Kasteng at the National Board of Trade Sweden. 

 – Still, many companies report that they have difficulties taking advantage of the preferential tariffs in the free trade agreements, which often has to do with the fact that the rules on proving a product’s origin – a requirement for reduced tariffs – are complex, says Stefano Inama at UNCTAD.

What are the report’s most important conclusions?
– We can see that the EU’s free trade agreements are in fact used to a high degree. The EU’s exporters use the agreements for 67 per cent of their exports to countries with which free trade agreements exist. But we can also note that the EU’s importers use the free trade agreements to an even greater extent. In 90 per cent of cases where tariff reductions can be used, they are, Jonas Kasteng says.

The report does not, however, describe how many and what type of companies make use of the free trade agreements. It may be the case that the agreements are used mainly by bigger companies with large export values, and that it remains difficult for smaller companies to make use of the tariff reductions.

And there is untapped potential in the free trade agreements – almost 72 billion euros of EU exports where the possibility of reduced tariffs is not utilised. A large proportion of this under-utilisation is in exports to major free trade partners such as Switzerland and South Korea. The report also notes that the untapped potential (as a share of the export value) is particularly high in the free trade agreements with Tunisia, Morocco, Egypt, Lebanon and Mexico.

– If it were possible to make greater use of reduced tariffs, exports to these countries would likely increase further, Stefano Inama says.

The biggest share of unused tariff reductions to the EU is in imports from Switzerland, Turkey, South Korea and Mexico. This impacts imports to a value of 10.5 billion euros. But in total – if all free trade agreements are taken into account – the EU’s importers forfeit 600 million euros in reduced tariffs every year. This ultimately means higher prices for the manufacturing industry and for consumers. 

– To sum up, we can say that the EU and its partner countries benefit about equally from existing free trade agreements. On average, tariff reductions make up around 6 per cent of the overall import value for the EU as well as for its partner countries – even if the number varies a bit for the different free trade agreements, Jonas Kasteng says.

What do these conclusions imply?
– The report shows that the resources spent by Sweden and the EU on negotiating free trade agreements and on informing companies about them have an impact, but that some free trade agreements could be used to even greater extent, Jonas Kasteng says.

– In order to increase use of free trade agreements, action is probably also needed in the area of customs administration and trade facilitation procedures in the partner countries. The report helps highlight those free trade agreements in which the situation is particularly problematic, Stefano Inama says.

The National Board of Trade Sweden and UNCTAD plan to continue to analyse how different industries make use of the EU’s free trade agreements, and how the use of free trade agreements vary for different products. The hope is that this will influence the formulation of lenient and trade facilitating rules of origin so that companies are truly able to benefit from the reduced tariffs that the free trade agreements allow for.

 

Read the report: 
The Use of the EU’s Free Trade Agreements – Exporter and Importer Utilization of Preferential Tariffs

For more information: 
Jonas Kasteng, Kommerskollegium
Phone: +46-8-690 48 45
Email: jonas.k...@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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