Utilization of Free Trade Agreements

Transcrição

Utilization of Free Trade Agreements (FTA’s) by
Companies Trading in Goods
Focusing on the Japan-Switzerland
Free Trade and Economic Partnership Agreement
(JSFTEPA)
DISSERTATION
of the University of St.Gallen,
School of Management,
Economics, Law, Social Sciences
and International Affairs
to obtain the title of
Doctor of Social Sciences
submitted by
Matthias Schaub
from
Läufelfingen (Basel-Landschaft)
Approved on the application of
Prof. Dr. Heinz Hauser
and
Prof. Dr. Mun Heng Toh
Dissertation no. 4041
Niedermann Druck, St.Gallen, 2012
The University of St.Gallen, School of Management, Economics, Law, Social Sciences
and International Affairs hereby consents to the printing of the present dissertation, without
hereby expressing any opinion on the views herein expressed.
St.Gallen, May 21, 2012
The President:
Prof. Dr. Thomas Bieger
Acknowledgements
My sincerest gratitude goes to the members of my dissertation committee, Professor Dr.
Heinz Hauser and Professor Dr. Mun Heng Toh. I am very grateful to my supervisor
Professor Dr. Heinz Hauser (University of St.Gallen) for guiding and advising me during
my research. I am equally indebted to my co-supervisor Professor Dr. Mun Heng Toh
(National University of Singapore) for his support. Professor Toh provided me with
invaluable help and in-depth expertise on statistical challenges and paved the way for me
to get access to human and electronic resources in Singapore and beyond during my early
days in Asia. I have greatly benefited from my dissertation committee’s suggestions and
helpful comments during many hours of discussions.
Special thanks go to the extended faculty members and administration staff at the National
University of Singapore for their kind acceptance of my attachment to NUS Business
School. The participation in doctoral seminars and discussions proved to be very precious
for my academic advancement.
I was also very fortunate to receive help and valuable comments on my research from
colleagues at University of Zurich, especially from PD Dr. Patrick Ziltener and Georg Blind.
I have enjoyed our stimulating discussions which have inspired this work.
My greatest thanks go to my dear wife for her continuous support, encouragement and
patience during the years of my research in Singapore.
Singapore, July 2012
Matthias Schaub
Table of Contents
ABSTRACT ........................................................................................................................III
ZUSAMMENFASSUNG .................................................................................................... IV
LIST OF FIGURES ............................................................................................................. V
LIST OF TABLES ............................................................................................................. VI
ABBREVIATIONS ........................................................................................................... VIII
1
INTRODUCTION ......................................................................................................... 1
1.1
1.2
1.3
MOTIVATION ........................................................................................................... 1
STRUCTURE OF THE THESIS..................................................................................... 2
GENERAL METHODOLOGICAL REMARKS.................................................................... 3
2 THE JAPAN-SWITZERLAND FREE TRADE AND ECONOMIC PARTNERSHIP
AGREEMENT..................................................................................................................... 5
2.1
SWITZERLAND’S FREE TRADE AGREEMENTS ............................................................. 5
2.2
JAPAN’S FREE TRADE AGREEMENTS ........................................................................ 7
2.3
EXTERNAL TRADE OF JAPAN AND SWITZERLAND.......................................................10
2.4
OVERVIEW OF THE JAPAN-SWITZERLAND FREE TRADE AND ECONOMIC PARTNERSHIP
AGREEMENT ....................................................................................................................11
3 UTILIZATION OF FREE TRADE AGREEMENTS AND FIRM CHARACTERISTICS:
A COMPANY SURVEY .....................................................................................................15
3.1
INTRODUCTION AND LITERATURE REVIEW ................................................................15
3.2
RESEARCH DESIGN AND PROFILE OF RESPONDENTS ................................................17
3.3
DEPENDENT VARIABLE ...........................................................................................19
3.4
INDEPENDENT VARIABLES: DETERMINANTS OF THE UTILIZATION OF FREE TRADE
AGREEMENTS...................................................................................................................22
3.4.1
Description of Variables and Development of Hypotheses ..........................22
3.4.2
Methodology of Analysis of Independent Variables......................................25
3.4.3
Overview of Variables, Tests and Hypotheses .............................................30
3.5
RESULTS...............................................................................................................32
3.5.1
Presentation and Discussion of Findings .....................................................32
3.5.2
Comparison with Earlier Studies ..................................................................34
3.6
CONCLUSION .........................................................................................................37
4 MANAGEMENT OF FREE TRADE AGREEMENTS: HOW DO COMPANIES
UTILIZE THEM?................................................................................................................41
4.1
INTRODUCTION ......................................................................................................41
4.2
LITERATURE REVIEW ..............................................................................................41
4.3
RESEARCH DESIGN AND PROFILE OF RESPONDENTS ................................................43
4.4
COSTS AND BENEFITS OF UTILIZING FREE TRADE AGREEMENTS................................44
4.4.1
Costs ............................................................................................................44
4.4.2
Benefits ........................................................................................................46
4.5
FACTORS INFLUENCING THE MANAGEMENT OF FREE TRADE AGREEMENTS ................47
4.5.1
Trade Volume...............................................................................................47
4.5.2
Decision-Making Process .............................................................................47
4.6
CHALLENGES TO THE MANAGEMENT OF FREE TRADE AGREEMENTS ..........................50
4.6.1
Production and Distribution Networks ..........................................................50
4.6.2
Compliance Process ....................................................................................53
I
4.6.3
Responsibilities ............................................................................................56
4.6.3.1 Functional Responsibility ..........................................................................56
4.6.3.2 Geographical Responsibility .....................................................................57
4.7
CONCLUSION .........................................................................................................59
5
UTILIZATION OF FREE TRADE AGREEMENTS: ANALYSIS OF CUSTOMS DATA
63
5.1
5.2
5.3
5.4
5.5
5.6
5.7
6
INTRODUCTION ......................................................................................................63
LITERATURE REVIEW ..............................................................................................63
DATA COLLECTION AND PRESENTATION ...................................................................64
UTILIZATION RATES: CONCEPTUAL CONSTRUCTION ..................................................68
DEVELOPMENT OF HYPOTHESES AND MODEL ...........................................................74
RESULTS OF ANALYSIS ...........................................................................................77
CONCLUSION .........................................................................................................80
LOCATION CHOICE AND HOMOGENEITY OF RULES OF ORIGIN.......................83
6.1
INTRODUCTION ......................................................................................................83
6.2
THEORETICAL FOUNDATION AND FRAMEWORK DEVELOPMENT...................................84
6.2.1
Location Choice ...........................................................................................84
6.2.2
Rules of Origin and the Spaghetti Bowl........................................................85
6.2.3
Rules of Origin and Location Choice ............................................................87
6.2.4
Restrictiveness versus Homogeneity of Rules of Origin ...............................89
6.3
RESEARCH DESIGN AND METHODOLOGY .................................................................90
6.4
RESULTS AND DISCUSSION .....................................................................................92
6.4.1
Statistics .......................................................................................................92
6.4.2
Rankings of Territories according to the Homogeneity of Rules of Origin ....99
6.4.3
The Emergence of Templates ....................................................................100
6.4.4
The Clash of Templates .............................................................................104
6.5
CONCLUSION .......................................................................................................106
7
CONCLUSION .........................................................................................................109
7.1
7.2
7.3
RECOMMENDATIONS FOR POLICY MAKERS ............................................................109
COMPARISONS OF THE METHODOLOGIES ...............................................................109
CONSIDERATIONS OF THE EFFECT OF A FREE TRADE AGREEMENT ON TRADE ...........110
BIBLIOGRAPHY .............................................................................................................113
APPENDICES .................................................................................................................121
A-1: PREFERENTIAL RULES OF ORIGIN .............................................................................121
A-2: SURVEY QUESTIONS ...............................................................................................122
A-3: STRUCTURE OF THE SURVEY ...................................................................................142
A-4: TOPICS OF INTEREST TO POLICY MAKERS .................................................................143
A-5: SURVEY DIRECTORY OF SAMPLED COMPANIES..........................................................146
A-6: DISTRIBUTION OF INDEPENDENT VARIABLES ..............................................................149
A-7: DETAILED RESULTS OF MODEL 4 ..............................................................................152
A-8: BILATERAL AND REGIONAL FTAS OF TERRITORIES IDENTIFIED AS FTA HUBS ...............154
A-9: REGIONAL FREE TRADE AGREEMENTS AND MEMBER TERRITORIES .............................160
II
Abstract
Amidst a seemingly unstoppable proliferation of free trade agreements (FTAs) globally,
both theoretical and empirical literature on regional trade integration has traditionally
mostly concentrated on the effects of FTAs on trade flows and welfare. Efforts to examine
the utilization of FTAs from a company perspective, by contrast, are comparatively new.
This dissertation attempts to contribute to the growing body of literature which examines
the mechanisms of FTAs, both from a methodological and a theoretical perspective.
The utilization of FTAs is analyzed with qualitative and quantitative methods. In addition to
studying the relationship between the utilization rates of FTAs and firm and industry
characteristics, these methods also allow for an examination of how companies utilize
FTAs in terms of the management of challenges posed by FTAs.
In terms of firm-characteristics, the findings underline the importance of size-, learning-,
and intra-firm effects when companies utilize FTAs. In addition, the main challenges with
regard to the management of FTAs can be categorized into challenges related to the FTA
compliance process, the assignment of functional and geographical responsibilities, as
well as the organization of international production and distribution networks.
The fact that mainly large companies are utilizing FTAs should be of concern to policy
makers, especially since small and medium sized enterprises would require a more liberal
trading environment in order to increase their international competitiveness. The main
reason for this finding is the difference in structures between costs and benefits of utilizing
FTAs. High initial fixed costs prevent smaller companies from utilizing FTAs. Therefore, an
important lesson for policy makers is the fact that the entry into force of an FTA is only a
first step towards trade liberalization. In order to make companies utilize the negotiated
benefits, policy makers will have to ensure that these are able to take the hurdle of initial
fixed costs and can get access to the world of FTAs.
Keywords: Free Trade Agreement, Economic Integration, Rules of Origin, Multinational
Firms, Transaction Costs
JEL classification: D23, F15, F23, F53
III
Zusammenfassung
Die Verbreitung von bilateralen und regionalen Freihandelsabkommen hat sich
insbesondere im Zuge der Probleme der Doha-Runde stark beschleunigt.
Sowohl die theoretische als auch die empirische Forschung im Bereich regionaler
Wirtschaftsintegration hat sich traditionell auf die Effekte von Freihandelsabkommen auf
Handelsflüsse und Wohlfahrtsaspekte fokussiert. Forschung im Bereich der Nutzung von
Freihandelsabkommen aus Firmenperspektive sind dagegen verhältnismässig neu.
Die vorliegende Dissertation versucht deshalb einen Beitrag zu leisten zur Literatur welche
sich mit den Mechanismen von Freihandelsabkommen auseinandersetzt. Dazu bedient
sie sich sowohl qualitativer als auch quantitativer Methoden.
Diese Methoden erlauben die Untersuchung der Beziehung zwischen der Nutzungsrate
von Freihandelsabkommen und den Eigenschaften von Firmen und Industrien. Zusätzlich
wird auch analysiert wie die untersuchten Firmen Freihandelsabkommen nutzen,
beispielsweise wenn es um Produktionsnetzwerke oder firmeninterne Prozesse geht.
Bezüglich der Firmeneigenschaften zeigen die Ergebnisse dass Charakteristiken wie die
Grösse von Firmen und Lerneffekte bei der Nutzung von Freihandelsabkommen eine
bedeutende Rolle spielen. Der prozentuale Anteil von unternehmensinternen
Handelsflüssen am totalen Handelsvolumen spielt ebenfalls eine wichtige Rolle.
Wenn Firmen Freihandelsabkommen nutzen werden sie mit zahlreichen
Herausforderungen konfrontiert. Diese können kategorisiert werden in die Bereiche
Compliance, Zuteilung von fachlicher und geografischer Verantwortung, sowie
Organisation von internationalen Produktionsnetzwerken.
Die Tatsache dass tendenziell eher grosse Firmen Freihandelsabkommen nutzen sollte
die entsprechenden Entscheidungsträger und Verhandlungsführer zur Ausarbeitung von
Massnahmen veranlassen. Dies umso mehr als ein liberales Handelsumfeld insbesondere
kleinen und mittleren Unternehmen (KMU) helfen würde ihre internationale
Wettbewerbsfähigkeit zu stärken. Der Hauptgrund für die relative Benachteiligung von
KMU ist in der unterschiedlichen Struktur der Kosten und Nutzen dieser Form von
Handelsliberalisierung zu finden. Verhältnismässig hohen Fixkosten des Gebrauches von
Freihandelsabkommen steht ein proportionaler Nutzen gegenüber. Dies hält kleinere
Firmen mit tiefem Handelsvolumen davon ab, von diesen Abkommen Gebrauch zu
machen. Entscheidungsträger und Verhandlungsführer sollten sich deshalb im Klaren sein
dass das Aushandeln und Inkrafttreten eines Freihandelsabkommens nur die ersten
Schritte in Richtung Handelsliberalisierung sind. Damit Firmen, und insbesondere auch
kleine Firmen, aus diesen Abkommen Nutzen ziehen können Bedarf es Instrumenten
welche deren Gebrauch vereinfachen. Erst dann werden auch KMU freien Zugang zur
Nutzung von Freihandelsabkommen erhalten.
IV
List of Figures
FIGURE 2-1: TRADE FLOWS BETWEEN JAPAN AND SWITZERLAND .............................................11
FIGURE 4-1: COMPARISON OF A “SATISFICING” AND A PRO-ACTIVE DECISION-MAKING PROCESS ..48
FIGURE 5-1: G-UR OF THE JSFTEPA FOR ALL IMPORTS FROM JAPAN INTO SWITZERLAND ........72
FIGURE 5-2: A-UR OF THE JSFTEPA FOR ALL IMPORTS FROM JAPAN INTO SWITZERLAND ........73
V
List of Tables
TABLE 2-1: SWITZERLAND’S FTA PARTNER TERRITORIES ......................................................... 6
TABLE 2-2: JAPAN’S FTA PARTNER TERRITORIES .................................................................... 9
TABLE 2-3: JAPAN’S AND SWITZERLAND’S EXPORTS TO AND IMPORTS FROM THE W ORLD ...........10
TABLE 2-4: TARIFF PROFILES OF JAPAN AND SWITZERLAND .....................................................13
TABLE 2-5: TARIFFS BY IMPORT PRODUCT GROUPS .................................................................14
TABLE 3-1: NUMBER OF REPLIES BY SECTORAL DISTRIBUTION OF COMPANIES ...........................18
TABLE 3-2: NUMBER OF TFBR BY DIRECTION .........................................................................19
TABLE 3-3: UTILIZATION RATES OF THE JSFTEPA BY TFBRS ................................................19
TABLE 3-4: REASONS FOR NOT UTILIZING THE JSFTEPA ........................................................20
TABLE 3-5: ADJUSTED UTILIZATION RATES OF THE JSFTEPA .................................................21
TABLE 3-6: REASONS FOR UTILIZING THE JSFTEPA ...............................................................22
TABLE 3-7: CONSISTENCY OF UTILIZING THE JSFTEPA ..........................................................22
TABLE 3-8: EXPLANATORY VARIABLES AND HYPOTHESES ........................................................24
TABLE 3-9: SAMPLE SIZES OF INDEPENDENT VARIABLES, BY TFBR ..........................................25
TABLE 3-10: TESTS, VARIABLE’S LEVEL OF MEASUREMENT AND DISTRIBUTION ...........................26
TABLE 3-11: TESTS FOR NORMALITY OF INDEPENDENT VARIABLES ON NUMERIC LEVEL ...............28
TABLE 3-12: LEVENE’S TEST FOR THE EQUALITY OF VARIANCES ...............................................30
TABLE 3-13: TESTS, INDEPENDENT VARIABLES’ LEVEL OF MEASUREMENT AND DISTRIBUTION ......30
TABLE 3-14: NORMALLY DISTRIBUTED EXPLANATORY NUMERIC VARIABLES WITH HYPOTHESES ...31
TABLE 3-15: NON-NORMALLY DISTRIBUTED EXPLANATORY NUMERIC VAR. WITH HYPOTHESES .....31
TABLE 3-16: EXPLANATORY BINARY VARIABLES WITH HYPOTHESES ..........................................32
TABLE 3-17: VARIABLES TESTED WITH TWO SAMPLE INDEPENDENT T-TEST ...............................33
TABLE 3-18: VARIABLES TESTED WITH MANN-W HITNEY U TEST ...............................................33
TABLE 3-19: VARIABLES TESTED WITH PEARSON’S CHI-SQUARED TEST OR FISHER’S EXACT TEST
...................................................................................................................................33
TABLE 3-20: SELECTED FINDINGS OF PREVIOUS STUDIES ........................................................35
TABLE 4-1: MARGIN OF PREFERENCE DECISIVE IN UTILIZING PREFERENTIAL TARIFF RATES .........42
TABLE 4-2: NUMBER OF REPLIES BY SECTORAL DISTRIBUTION OF COMPANIES ...........................44
TABLE 4-3: ILLUSTRATION OF A “SATISFICING” AND A PRO-ACTIVE DECISION-MAKING PROCESS ...49
TABLE 4-4: COMPANIES’ OPINION ON A CHANGE OF THE PRODUCTION NETWORK, BY COMPANIES 51
TABLE 4-5: (IN)DIRECT TRANSPORTATION OF GOODS UNDER THE JSFTEPA, BY TFBRS...........51
TABLE 4-6: DESTINATION OF PRODUCTS TRADED BETWEEN JAPAN/ SWITZERLAND, BY TFBRS ...53
TABLE 4-7: TYPE OF PROCESS TO MANAGE FTAS, BY COMPANIES ............................................54
TABLE 4-8: APPROVED EXPORTER STATUS, BY COMPANIES .....................................................55
TABLE 4-9: FUNCTIONAL FTA RESPONSIBILITY, BY COMPANIES ................................................56
TABLE 4-10: GEOGRAPHICAL FTA RESPONSIBILITY, BY COMPANIES .........................................58
TABLE 4-11: CHALLENGES COMPANIES FACE, DECISION-MAKING PROCESS AND TRADE VOLUME .60
TABLE 5-1: TOTAL IMPORTS BY INDUSTRIES FROM SEPTEMBER 2009 TO DECEMBER 2010 ........65
TABLE 5-2: IMPORTS WHICH COULD HAVE, THEORETICALLY, BENEFITED FROM THE JSFTEPA, BY
INDUSTRIES FROM SEPTEMBER 2009 TO DECEMBER 2010 ...............................................66
TABLE 5-3: AVERAGE MARGINS OF PREFERENCE OF THE JSFTEPA FOR IMPORTS FROM JAPAN
INTO SWITZERLAND FROM SEPTEMBER 2009 TO DECEMBER 2010, BY INDUSTRIES ............67
TABLE 5-4: COMPARISON OF THE CONCEPTS OF G-UR AND A-UR ...........................................69
TABLE 5-5: IMPORTS FROM JAPAN INTO SWITZERLAND BY INDUSTRIES AND IMPORT REGIMES FROM
SEPTEMBER 2009 TO DECEMBER 2010 (IN %) ................................................................70
TABLE 5-6: AVERAGE G-UR AND A-UR OF THE JSFTEPA FOR IMPORTS FROM JAPAN INTO
SWITZERLAND BY INDUSTRIES FROM SEPTEMBER 2009 TO DECEMBER 2010 .....................71
TABLE 5-7: OVERVIEW OF THE ANALYTICAL FRAMEWORK .........................................................75
TABLE 5-8: DESCRIPTION OF INDUSTRIES EXAMINED ...............................................................76
VI
TABLE 5-9: RESULTS OF ESTIMATIONS FOR MODELS 1 TO 4 .....................................................77
TABLE 5-10: MOP AND VIMP MARGINAL PROPENSITIES ..........................................................78
TABLE 6-1: DIFFERENCES BETWEEN THE CONCEPTS OF RESTRICTIVENESS AND HOMOGENEITY OF
ROO ...........................................................................................................................89
TABLE 6-2: NUMBER OF FTAS AND FTA PARTNER TERRITORIES OF FTA HUBS .........................92
TABLE 6-3: NUMBER OF FTAS AND FTA PARTNER TERRITORIES FOR HS 300490A, BY FTA HUB94
TABLE 6-4: NUMBER OF FTAS AND FTA PARTNER TERRITORIES FOR HS 870323B, BY FTA HUB95
TABLE 6-5: COEFFICIENTS CT AND CF FOR HS 300490A, BY FTA HUB .....................................96
TABLE 6-6: COEFFICIENTS CT AND CF FOR HS 870323A, BY FTA HUB .....................................97
TABLE 6-7: VALUES AND BASES OF CALCULATIONS OF FTA HUBS, HS 300490A AND 870323B ...98
TABLE 6-8: NUMBER OF DIFFERENT F-ROO BY FTA HUB AND HS 300490 AND 870323 ...........99
TABLE 6-9: RELATIVE POSITION OF FTA HUBS REGARDING THE HOMOGENEITY OF FTAS’ ROO 100
TABLE 6-10: TEMPLATES OF FTA HUBS FOR ROO OF HS 300490 AND 870323 .....................101
TABLE 6-11: EXPORT OF GOODS AND SERVICES IN % OF GDP, 2008 AND 2009, BY FTA HUB .103
TABLE 6-12: GROSS DOMESTIC PRODUCT OF FTA HUBS IN 2010, BY FTA HUB .......................103
TABLE 6-13: FTA ACTIVITIES AMONG FTA HUBS USING A ROO TEMPLATE FOR HS 300490A AND
870323B ....................................................................................................................105
TABLE 6-14: ADOPTED ROO TEMPLATES AMONG FTA HUBS .................................................105
VII
Abbreviations
A-UR
AANZFTA
ACFTA
AIFTA
AJCEP
AKFTA
APTA
Asean
ATIGA
CAFTA-DR
CHF
COO
CTC
EEA
EFTA
EPA
EU
F-ROO
FOB
FTA
G-UR
GCC
GDP
H0
HS
ITA
JBIC
JETRO
JSFTEPA
KS
LAIA
M
Mercosur
MFN
MOP
NAFTA
OECD
PR
ROO
S-ROO
SACU
Adjusted Utilization Rate
Asean-Australia-New Zealand FTA
Asean-China FTA
Asean-India FTA
Asean-Japan Comprehensive Economic Partnership Agreement
Asean-Korea FTA
Asia-Pacific Trade Agreement
Association of Southeast Asian Nations
Asean Trade in Goods Agreement
Dominican Republic - Central America – U.S. FTA
Swiss Franc
Certificate of Preferential Origin
Change in Tariff Classification
European Economic Area
European Free Trade Association
Economic Partnership Agreement
European Union
Full Rules of Origin
Free On Board
Free Trade Agreement
General Utilization Rate
Gulf Cooperation Council
Gross Domestic Product
Null Hypothesis
Harmonized System
Information Technology Agreement
Japan Bank for International Cooperation
Japan External Trade Organization
Japan-Switzerland Free Trade and Economic Partnership Agreement
Kolmogorov-Smirnov test
Latin American Integration Association
Million
Southern Common Market
Most-Favored-Nation
Margin of Preference
North American Free Trade Agreement
Organization for Economic Co-operation and Development
Process Rule
Preferential Rules of Origin
Single Rule of Origin
Southern African Customs Union
VIII
SAFTA
Sig.
SMEs
SPARTECA
SW
TFBRs
TPSEP
UNESCAP
UR
U.S.
USD
VA
VIMP
WTO
South Asian Free Trade Agreement
Statistical Significance
Small and Medium Sized Enterprises
South Pacific Regional Trade and Economic Cooperation Agreement
Shapiro-Wilk Test
Trade Flow Based Responses
Trans-Pacific Strategic Economic Partnership
UN Economic and Social Commission for Asia and the Pacific
Utilization Rate
United States of America
United States dollars
Value Added Rule
Value of Imports
World Trade Organization
IX
X
1 Introduction
1.1 Motivation
The theory of economic integration suggests that a reduction in transaction costs resulting
from economic integration leads to an increase in trade and welfare. Static effects from
trade liberalization include trade creation and trade diversion (Viner, 1950). In addition,
Meade (1955) suggested a consumption effect, resulting from the reduction or elimination
of import tariffs and the subsequent reduction in prices for the final consumers. The
magnitude of this effect depends on the elasticity of demand. Apart from static effects,
Balassa (1965) found trade integration to show dynamic effects with regard to the growth
rates of members to a trade agreement. Dynamic effects include investment creation and
diversion, economies of scale and technology spillovers.
One of the most remarkable occurrences over the last two decades in the area of
economic integration was the sharp increase in bilateral and regional trading
arrangements since the end of the Uruguay Round in 1994. With the exception of
Mongolia, all WTO members are party to at least one FTA. The number of FTAs notified to
the GATT/ WTO reached close to 500 by the end of 2011, of which close to 300 were in
force1. An important reason for this development was the growing awareness among WTO
members that liberalization going beyond the Uruguay Round would be difficult to achieve
on a multilateral level. The current Doha Development Agenda was initiated in 2001, but
has since missed several deadlines while negotiations remain stalled.
Against the background of a strong proliferation of FTAs, literature suggests various
approaches to analyze the effects of FTAs, most notably in the fields of trade flows and
welfare analysis. One of the most widely used approaches to study the effects of FTAs on
trade flows is the gravity model. While some studies do not provide convincing evidence
for an increase in trade flows after trade liberalization 2, a recent comprehensive study
surveying past results from gravity models found that trade agreements predominantly
increase members’ trade (Baier and Bergstrand, 2007). However, even if a trade effect
coincides with the entry into force of an FTA, a meaningful counterfactual analysis seems
to be a challenge. While most gravity models assume trade policy to be exogenous, a
study by Baier and Bergstrand (2002) suggests that pairs of territories which negotiate
FTAs would have traded more, even without an FTA, pointing to reverse causality.
However, the discussion on trade creation versus trade diversion has lost some of its
importance since FTAs do no longer focus on tariff reduction exclusively, but deal with
regulatory obstacles, administrative procedures and non-tariff barriers in addition. Adams
et al. (2003) find that recent FTAs are often non-discriminatory in nature. Therefore, the
liberalization in trade applies to all trade, not only to the one between the territories party
to an FTA.
1
WTO Secretariat (www.wto.org/english/tratop_e/region_e/regfac_e.htm; accessed September 15, 2011);
the WTO counts goods and services notifications separately.
2
See for example Trefler (1993).
1
With regard to effects of FTAs on welfare, computable equilibrium models, and specifically
computable general equilibrium models (CGE) have received much attention (Hertel et al.,
2004). CGE models are helpful when simulating and comparing welfare effects with
various policy alternatives. However, criticism has arisen with regard to the empirical
validity of these models and the parameter selection criteria (McKitrick, 1998).
Rather than focusing on effects on welfare and trade flows, this dissertation will follow a
relatively recent strand of literature which is concerned about the actual utilization of
preferential tariffs which FTAs offer. Methods to examine whether or not companies are
actually claiming preferential origin when trading goods include analyses of data on
preferential imports provided by Customs as well as company surveys (Kohpaiboon, 2010;
Pomfret et al., 2010; Kawai and Wignaraja, 2009). These methods allow for a direct study
of an FTA’s utilization rates, and thus provide more accurate insight into the relevance of
trade policies. In addition, a researcher who is examining the relationship between
utilization rates and firm and industry characteristics may also provide valuable insights to
policy makers with regard to a review of an FTA3. While this is an advantage over other
methodologies, the examination of utilization rates does not allow for an analysis of the
effects of FTAs on trade flows or welfare. As will be discussed during the course of this
dissertation, it is important to note that a trade or welfare effect of an FTA is a result of the
utilization of FTAs by companies. By contrast, the non-existence of a trade or welfare
effect does not necessarily imply that an FTA has not been utilized.
As the analysis of the effects of FTAs on firm- and industry-level is relatively new, the
present dissertation contributes to both the development of methodology and theory. In
addition, it attempts to explore not only if but also how companies are utilizing or
managing FTAs within firms. The sources of data for this study are, firstly, a company
survey conducted from October 2010 to February 2011, and secondly, highly
disaggregated customs data on preferential imports4. Both the company survey and the
customs trade data are focusing on the Japan-Switzerland Free Trade and Economic
Partnership Agreement (JSFTEPA) which entered into force on September 1, 2009. To my
knowledge, this is the first study which qualitatively and quantitatively examines an FTA
between two developed countries.
Although some findings of this study will be specific to the JSFTEPA, the majority of
results found will be of general nature and thus applicable to other FTAs as well.
Restrictions to either only the JSFTEPA or to FTAs between developed countries will be
highlighted.
1.2 Structure of the Thesis
Since both the company survey and the analysis of customs trade data are based on the
JSFTEPA, the second chapter will provide an overview of the trade policies and FTAs of
Japan and Switzerland. In addition, provisions of the JSFTEPA which are considered
3
Specifically, CGE models usually assume that companies would utilize FTAs once they are in force.
However, this is not necessarily the case. Surveys will then shed light on the reasons for which companies
do not utilize FTAs.
4
Details of the company survey and the trade data analysis are discussed in the respective chapters.
2
essential for the subsequent analysis are introduced, specifically with regard to the
preferential rules of origin (ROO) and the tariff rates of Japan and Switzerland.
The third chapter presents firm- and industry-level results based on a company survey on
the JSFTEPA. The analysis of the survey is of quantitative nature and contributes to
theory building with regard to the relationship between firm and industry characteristics
and the utilization rate of FTAs.
While the third chapter is mainly concerned with the question of whether or not companies
are utilizing the JSFTEPA, the fourth chapter is looking into how companies utilize or
manage the JSFTEPA and FTAs in general. Since fewer companies could be surveyed
with regard to the management of FTAs, the analysis is of qualitative nature. Management
challenges addressed include the FTA compliance process, the assignment of functional
and geographical responsibilities, as well as the organization of international production
and distribution networks. In this sense, chapter four aims at linking macro-level concerns
of the global economy with micro-organizational issues of production and distribution.
The fifth chapter examines the utilization of the JSFTEPA by analyzing highly
disaggregated data on preferential imports provided by the Swiss Federal Customs
Administration. Although the fluctuations of the trade volumes on a highly disaggregated
level are quite substantial, the actual share of imports which benefits from the JSFTEPA is
much more stable. Since import tariffs are also defined on a highly disaggregated level,
the data provided by Customs suits this study very well. Customs data cover trade flows
from Japan to Switzerland and indicate both the total trade value and the trade value
under different import regimes. It is examined in how far benefits provided by the
JSFTEPA are related to the utilization rate of the JSFTEPA. From a methodological point
of view, this chapter will address shortcomings of the analyses in chapters three and four,
namely the limited sample size, the potential sample selection bias, and uncertainties with
regard to the accuracy of a respondent’s reply.
While chapters three to five explain companies’ utilization of FTAs by company and trade
characteristics, chapter six takes the impact of territories’ policies into consideration.
Drawing on findings from chapter four as well as from anecdotal evidence from existing
literature, multiple ROO seem to add to business costs of companies exporting to several
markets. Therefore, this chapter studies the location choice of companies with regard to
territories’ homogeneity of ROO. A theoretical foundation is presented to explain the
behavior of companies and territories in an environment of multiple set of trading rules
created by bilateral and regional FTAs. Thereafter, an empirical analysis of WTO
members with regard to their business friendliness in terms of the homogeneity of the
ROO is carried out.
Finally, chapter seven subsumes recommendations for policy makers, provides a
comparison of the various data collection methods employed, and describes the
theoretical effects of FTAs on trade as found in this study.
1.3 General Methodological Remarks
Units of analysis: The units of analysis of this study are companies, territories, or trade
flows between territories, as specified in the respective chapters. Throughout the whole
3
study the term “territory” is used for reasons of accuracy as trade policy is usually decided
on the level of customs territories, rather than on the level of a “country”. As an example,
FTAs involving members of the European Union (EU) are entering into force between a
third territory and the EU as a territory. Individual members of the EU are not in a position
to negotiate FTAs independently. Similarly, the customs territory of FTAs concluded by
Switzerland includes the territory of Liechtenstein with regard to trade in goods due to the
Customs Union Treaty of 1923 between Switzerland and Liechtenstein.
Scope of companies examined: The content of FTAs differs in terms of both coverage and
depth. Most of the contemporary FTAs go far beyond the reduction or elimination in tariff
and non-tariff barriers, with some even exceeding the so called “Singapore Issues”5 of
investment, government procurement, competition policy and trade facilitation.
The subsequent studies, however, focus only on companies trading in goods. There are
two reasons for this limitation. Firstly, only companies which are trading in goods face
costs in order to benefit from FTAs. These costs can be interpreted as an entry barrier to
the world of FTAs. By contrast, benefits in areas such as trade in services or protection of
intellectual property rights are accessible to all companies as soon as an FTA enters into
force, without incurring additional FTA-related costs6. When trading in goods, however,
companies receive benefits only once they have complied with the respective rules and
requirements7. Companies trading in goods are therefore well suited for an analysis of
both the mechanisms of FTAs and the behavior of companies towards the utilization of
FTAs. Secondly, specifically the survey methodology has proven inadequate to capture
the impact of FTAs on companies trading in services. This is mostly due to the fact that
companies are unaware of FTAs as they do not face costs when benefiting from FTAs and
as such do not need to know that they enjoy preferential market access due to an FTA.
Classification of goods and industries: Throughout the study, the Harmonized System (HS)
nomenclature is used to classify goods and industries. The HS Nomenclature assigns
each product a code, referred to as the HS Code. The HS Codes are classified into
chapters (2-digit level), headings (4-digit level), subheadings (6-digit level) and splitsubheadings (8-digits and more). HS Codes are internationally standardized on the HS 6digit level. Split-subheadings are used by individual territories for individual purposes.
5
Compare www.wto.org/english/thewto_e/whatis_e/tif_e/bey3_e.htm; accessed September 15, 2011.
In the area of trade in services, once the barriers to market access have been removed, a company in the
FTA partner territory does not face additional FTA-related costs to enter the market. Similarly, once
additional intellectual property protection has been implemented in local law, companies do not face FTArelated costs to benefit from enhanced protection. In both cases a company does not even need to know
that the liberalization took place because of an FTA.
7
“Benefits” in the area of trade in goods refer to tariff benefits. Other benefits, such as simplified customs
procedures or avoidance of duplicative testing, would incur no costs either.
6
4
2 The Japan-Switzerland Free Trade and Economic
Partnership Agreement
2.1 Switzerland’s Free Trade Agreements
Switzerland is a medium-sized nation which is highly dependent on trade. The prime
objective of Switzerland’s foreign economic policy is therefore to ensure an open and
predictable market access to other economies worldwide in order to maintain and improve
the competitiveness of the Swiss economy. For a medium-sized nation, the multilateral
approach within the framework of the WTO is best suited to improve access to foreign
markets. The other two pillars of Swiss trade policy with regard to market access are
bilateral agreements with the EU, and FTAs with territories outside of the EU (Deiss, 2006).
Switzerland usually negotiates FTAs within the framework of the European Free Trade
Association (EFTA)8 which results in both more negotiation power and more resources.
Disadvantages of the EFTA-approach include the different priorities of EFTA member
countries due to the structure of their economies. Switzerland, however, can also
negotiate FTAs outside of EFTA – the JSFTEPA for example was negotiated between
Japan and Switzerland only.
Switzerland’s motivations to negotiate bilateral FTAs include the creation of a stable, levelplaying market access compared with foreign competitors and the achievement of
liberalization beyond the WTO. In addition, FTAs are seen as a second best solution
amidst the uncertainty regarding the conclusion of the WTO Doha Round. Furthermore,
they promote domestic reforms aiming at increasing Switzerland’s competitiveness and
position as a business location (Deiss, 2006; The Foreign Economic Policy Report, 2007;
The Foreign Economic Policy Report, 2010). Specific FTA partners are selected according
to a number of criteria. These include the economic importance, existing or potential
discrimination resulting from FTAs with Switzerland’s competitors, and Switzerland’s
foreign-policy objectives (The Foreign Economic Policy Report, 2009).
In order to improve market access for service sector branches and to protect investors
abroad, Switzerland’s recent FTAs do no longer only cover trade in goods, but also trade
in services, investment, government procurement, and protection of intellectual property
rights. The JSFTEPA is an example of such a “second generation agreement” 9.
Due to Switzerland’s character as an agglomeration in the center of Europe and its
economic and migrational integration via bilateral treaties with the European Union, FTA
partner territories outside Europe may perceive FTAs with Switzerland as a bridge to
Europe. It is therefore not surprising that Switzerland was able to negotiate a number of
FTAs.
Table 2-1 lists the territories with which Switzerland is negotiating or has already
negotiated FTAs.
8
EFTA member states are Iceland, Liechtenstein, Norway and Switzerland.
Compare www.seco.admin.ch/themen/00513/00515/01330/index.html?lang=en; accessed September 15,
2011.
9
5
Table 2-1: Switzerland’s FTA partner territories
FTA Partner Territory
Status
Albania*
Algeria*
In force since 2010
Under negotiation
37
571
0.02
0.33
Bosnia-Herzegovina*
Canada*
Under negotiation
In force since 2009
58
2,318
0.03
1.34
Chile*
China
In force since 2004
Under negotiation
207
5,075
0.12
2.94
Colombia*
Croatia*
In force since 2011
In force since 2002
269
235
0.16
0.14
EFTA
Egypt*
In force since 1960
In force since 2008
722
605
0.42
0.35
EU
Faeroe Islands
In force since 1973
In force since 1995
102,984
1
59.71
0.00
Gulf Cooperation Council (GCC)*10
Hong Kong*
Signed
Signed
5,003
4,999
2.90
2.90
India*
Indonesia*
Under negotiation
Under negotiation
1,987
342
1.15
0.20
Israel*
Japan
In force since 1993
In force since 2009
854
6,580
0.50
3.82
Jordan*
Korea, Republic of*
In force since 2002
In force since 2006
182
1,746
0.11
1.01
Lebanon*
Macedonia*
In force since 2007
In force since 2002
355
49
0.21
0.03
Mexico*
In force since 2001
1,091
0.63
Morocco*
In force since 1999
283
0.16
Palestinian Authority*
Peru*
In force since 1999
In force since 2011
26
87
0.01
0.05
Russia-Belarus-Kazakhstan
(Customs Union)*
Southern African Customs Union
(SACU)*11
Under negotiation
2,221
1.29
In force since 2008
624
0.36
Serbia and Montenegro*
In force since
201012
243
0.14
10
11
Exports to
Partner
Territory
(2009, in M
USD)
Percentage
of Total
Exports
(2009)
GCC member states are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
Members are: South Africa, Botswana, Lesotho, Namibia and Swaziland.
6
Singapore*
In force since 2003
1,917
1.11
Thailand*
Tunisia*
Under negotiation
In force since 2006
855
193
0.50
0.11
Turkey*
Ukraine*
In force since 1992
Signed
1,661
336
0.96
0.19
515
123,267
0.30
71.47
21,956
12.73
27,251
15.80
Vietnam*
Planned**
Exports to territories with which an FTA is in force
Exports to territories with which an FTA is planned**,
signed or under negotiations, but not yet in force
Exports to other territories
Total Exports
172,474
100.00
Notes:
(*) Concluded within the framework of EFTA.
(**) Includes consultations, feasibility studies, joint working groups and negotiations in
preparation.
Source: OECD (http://stats.oecd.org/Index.aspx; accessed September 15, 2011), SECO
(www.seco.admin.ch/themen/00513/00515/01330/04619/index.html?lang=en; accessed
September 15, 2011).
According to table 2-1, in 2009 Switzerland exported goods worth 172 billion USD, of
which almost three quarters were exported to one of Switzerland’s FTA partner territories.
EFTA’s FTAs with the transition economies in central and Eastern Europe13 and later with
territories in the Mediterranean region became possible after EFTA adopted the third
country policy following the end of the Cold War. Beginning with Singapore in 2003,
Switzerland and EFTA continuously extended their network of FTAs overseas to include
territories in Africa, the Americas and Asia, with the JSFTEPA being Switzerland’s third
FTA in Asia after FTAs with Singapore and Korea.
In order to further grow the FTA network and to get preferential market access to
important trading partners such as the member states of Mercosur14, Switzerland will have
to implement domestic reforms, specifically in challenging fields such as agricultural policy
(The Foreign Economic Policy Report, 2010).
2.2 Japan’s Free Trade Agreements
Japan’s FTA strategy has to be seen against the background of a stagnant domestic
economy with a declining population, which is in sharp contrast to Switzerland’s growing
economy and population. In addition, high labor costs and a strong yen create competitive
disadvantages for Japanese companies when exporting out of Japan. Japanese
12
The EFTA-Serbia FTA is already in force since 2010, while the EFTA-Montenegro FTA is still under
negotiations. For reasons of availability of data, the FTAs are combined in this table and assumed to have
been entered into force.
13
These FTAs are not listed in table 7-1 as they have been replaced by the agreement with the EU after
these countries joined the EU.
14
Member states of Mercosur are Argentina, Brazil, Paraguay and Uruguay.
7
companies are therefore increasingly shifting their production bases to other territories in
East and Southeast Asia, from where they either export back to Japan, to other territories,
or serve the respective domestic market15. While achieving economic growth under these
circumstances is difficult, growth is vital to finance public expenditures. Therefore, in
December 2009, Japan has announced a “New Growth Strategy” (On the New Growth
Strategy, 2009) to revitalize Japan and strengthen the Japanese economy. The strategy
basically aims at creating new employment and demand-led growth. In January 2011, a
report was issued about the extent to which the “New Growth Strategy” has been
implemented and what the next steps would be (Realizing the New Growth Strategy 2011,
2011). Apart from initiatives covering topics such as the promotion of Japan as an Asian
industrial center and the acceptance of highly-skilled foreign labor, these documents also
refer to liberalization of trade and investment, specifically also within the framework of
FTAs.
As part of the New Growth Strategy, the “Basic Policy on Comprehensive Economic
Partnership” was announced in November 2010 16 . The document reinforces Japan’s
commitment to the WTO Doha Development Agenda. In addition, several reasons are
offered as to why Japan would pursue bilateral and regional trade agreements.
Specifically, Japan refers to the uncertainty regarding the conclusion of the WTO Doha
Round, other territories’ efforts in concluding FTAs17, the inclusion of topics which are not
covered by the WTO, as well as political and diplomatic advantages 18. In terms of specific
FTA partners, the documents outline the importance of deeper economic relationships
with both Asian and Western, and both emerging and resource-rich territories 19 . In
addition, the trade volume and the potential reduction in tariff rates and non-tariff barriers
are of importance when selecting potential FTA partner territories. Consequently, Japan
initially focused on territories in East Asia which accounted for a high percentage of its
trade and at the same time maintained relatively high tariffs. Apart from the FTAs which
East Asian territories that are already in force, Japan therefore puts much emphasize on
negotiations towards regional FTAs such as a China-Japan-Korea FTA, an East Asian
FTA, or even a Free Trade Area of the Asia-Pacific. The latter is a target under the New
Growth Strategy to be reached by 2020. Negotiations on these FTAs are currently either
15
In a survey conducted by the Japan Bank for International Cooperation (JBIC) in 2009, 66 percent of the
responding Japanese companies indicated that they intended to strengthen overseas operations, while only
27 percent wanted to strengthen domestic operations (JBIC, 2009). Already in a 2002 survey, 80 percent of
Japanese companies responded that they are expanding their overseas production to strengthen price
competitiveness (JBIC, 2002).
16
‘Basic Policy on Comprehensive Economic Partnerships’, November 6th, 2010, Ministerial Committee on
Comprehensive
Economic
Partnerships
(www.mofa.go.jp/policy/economy/fta/policy20101106.html;
accessed September 15, 2011).
17
In this regard, the Japanese industry is urging officials to conclude new FTAs. Especially the car
manufacturers which are struggling with a strong yen and low profit margins feel threatened by FTAs
involving their neighbors, e.g. the Korea-EU and the planned Korea-US FTA. Toshiyuki Shiga, chairman of
the Japan Automobile Manufacturers Association was quoted as saying 'We are asking the government to
sign FTAs as it's a problem that concerns the entire Japanese economy.' (Singapore Business Times,
November 19, 2010, “Japan car body seeks FTAs to bolster industry”).
18
‘Japan’s FTA Strategy (Summary, 2002)’, October 2002, Economic Affairs Bureau, Ministry of Foreign
Affairs (www.mofa.go.jp/policy/economy/fta/strategy0210.html; accessed September 15, 2011) and ‘Basic
Policy on Comprehensive Economic Partnerships’ (compare footnote 16).
19
Japan is currently negotiating an FTA with Australia, and is the first territory to prepare negotiations with
resource-rich Mongolia.
8
ongoing or suspended for various reasons. Urata (2007) points out that Japan became
interested in FTAs as one of the policy options to promote structural domestic reform,
especially since trade-related pressure from the U.S. on Japan weakened after the
establishment of the WTO.
Similar to Switzerland, an extension of Japan’s FTA network will have to be accompanied
by a review of domestic regulations with the objective to open up the country, specifically
in areas such as agriculture or movement of natural persons.
Table 2-2 lists territories with which Japan is negotiating or has already negotiated FTAs.
Table 2-2: Japan’s FTA partner territories
FTA Partner
Status
Territory
Exports to
Partner
Territory
(2009, in M
USD)
Australia
Bilateral (under negotiation)
Brunei
Percentage
of Total
Exports
(2009)
12,168
2.10
Bilateral (in force since 2008);
AJCEP* (in force since 2009)
162
0.03
Cambodia
Canada
Bilateral (planned**)
112
7,748
0.02
1.33
Chile
China
Bilateral (in force since 2007)
1,339
109,727
0.23
18.90
EU
GCC
72,441
18,001
12.47
3.10
India
Indonesia
AJCEP* (signed)
6,338
9,323
1.09
1.61
Korea, Republic
of
Lao PDR
Bilateral (under negotiation)
47,273
8.14
76
0.01
Malaysia
12,865
2.22
Mexico
6,824
1.18
Mongolia
Myanmar
107
202
0.02
0.03
New Zealand
Peru
Bilateral (signed)
1,506
573
0.26
0.10
Philippines
8,224
1.42
Singapore
20,724
3.57
9
Switzerland
6,286
1.08
Taiwan
Thailand
36,434
22,188
6.27
3.82
6,516
1.12
101,169
17.42
305,973
52.69
173,577
29.89
Vietnam
AJCEP* (in force since 2008);
bilateral (in force since 2009)
Exports to territories with which an FTA is in force
Exports to territories with which an FTA is planned**,
signed or under negotiations, but not yet in force
Exports to other territories
Total Exports
580,719
100.00
Notes:
(*) The entry into force of the Asean-Japan Comprehension Economic Partnership
Agreement (AJCEP) depends on the respective territory’s ratification process.
(**) Includes consultations, feasibility studies, joint working groups and negotiations in
preparation.
Source: OECD (http://stats.oecd.org/Index.aspx; accessed September 15, 2011),
Japanese Ministry of Foreign Affairs (www.mofa.go.jp/policy/economy/fta/index.html;
In 2009, Japan exported goods worth 581 billion USD, of which 17 percent were exported
to one of Japan’s FTA partner territories. This compares to 71 percent in the case of
Switzerland.
2.3 External Trade of Japan and Switzerland
In spite of the fact that both Japan and Switzerland experienced a significant appreciation
of their currencies following the global financial crisis, both territories’ exports to the world
exceeded imports from the world in 2009 (table 2-3).
Table 2-3: Japan’s and Switzerland’s exports to and imports from the World
Exports to the World (2009, in M USD)
Japan
Switzerland
580,719
172,474
Imports from the World (2009, in M USD)
Balance (2009, in M USD)
551,981
28,738
155,378
17,096
Source: OECD (http://stats.oecd.org/Index.aspx; accessed September 15, 2011).
There is, however, a marked difference between Japan and Switzerland with regard to the
importance of foreign trade to their national economies. While the relation of exports of
goods and services to the gross domestic product in 2009 amounted to 52 percent in
Switzerland, it was only 13 percent for Japan 20. Switzerland is therefore more dependent
20
Source: World Bank (http://data.worldbank.org/; accessed September 15, 2011: World Bank national
accounts data and OECD National Accounts data files).
10
on foreign trade for its economic welfare than is Japan, also due to its relatively small
domestic market.
Figure 2-1 shows the trade activities between Japan and Switzerland from 1988 to 2010.
The trade flow from Switzerland to Japan has more than doubled over this period of time
and experienced a strong increase even before the entry into force of the JSFTEPA.
Switzerland may have tried to negotiate an FTA with Japan because of the already strong
increase in trade (compare Baier and Bergstrand, 2002)21. The trade flow from Japan to
Switzerland has remained stable, resulting in a significant trade deficit for Japan with
regard to Switzerland. The development of the Japanese exports can be explained by
both the slow-down of the Japanese economy following the stock market and real estate
bubble, and the fact that Japanese companies have outsourced substantial parts of their
production to other territories in Asia or Eastern Europe due to comparative advantages22.
Figure 2-1: Trade Flows between Japan and Switzerland
Trade Flows between Japan and Switzerland,
1988-2010 (million CHF)
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20
Trade Flow from Japan to Switzerland
Trade Flow from Switzerland to Japan
Source: Swiss-Impex Database, Swiss Federal Customs Administration.
2.4 Overview of the Japan-Switzerland Free Trade and Economic
Partnership Agreement
The Japan-Switzerland Free Trade and Economic Partnership Agreement (JSFTEPA) is
Switzerland’s third FTA with a territory in Asia, after the FTAs with Singapore and Korea.
In terms of export value, the JSFTEPA is Switzerland’s most important FTA after the one
21
This assumption is supported by an analysis of the Swiss State Secretariat for Economic Affairs (SECO),
stating that it would be worthwhile for Switzerland to focus more on dynamic emerging countries, especially
in Asia, and that it would be advantageous for Switzerland “to continue to align its free trade policy towards
partners in regions experiencing dynamic growth” (The Foreign Economic Policy Report, 2010: 13).
22
Compare footnote 15.
11
with the European Communities which entered into force in 1972. For Japan, the
JSFTEPA is the first FTA with a European territory.
Separate and joint feasibility studies on a JSFTEPA were conducted in 2003-2004 and
2005-2006, respectively. The negotiations for the JSFTEPA were officially launched in
January 2007, and the first round took place in May 2007. The JSFTEPA was signed after
eight rounds in February 2009, and entered into force on September 1, 2009.
While most of Switzerland’s FTAs are concluded in the framework of EFTA, the JSFTEPA
is a bilateral FTA between Japan and Switzerland. The trade structures between Japan
and the EFTA States did not allow for an inclusion of other EFTA members into the
negotiations. However, provisions on trade in goods do apply to the territory of
Liechtenstein due to the Customs Union Treaty of 1923 between Switzerland and
Liechtenstein. The content of the JSFTEPA covers trade in goods, trade in services,
investment, protection of intellectual property rights, movement of natural persons,
government procurement, competition and e-commerce. The legal text of the JSFTEPA
consists of the basic agreement and ten annexes23.
Since the focus of the subsequent chapters is on trade in goods, the following paragraphs
provide an overview of the JSFTEPA’s content on trade in goods, including the rules of
origin (ROO), the provisions on evidence of origin, and tariff reductions. Appendix A-1
contains a general overview on the technical aspects of ROO.
The ROO are defined in Annex II of the JSFTEPA. To qualify for preferential treatment
under the JSFTEPA, products either have to be wholly obtained or have to undergo
sufficient working or processing in the customs territory of the Parties (Article 2, Annex II).
A product is sufficiently worked or processed if it satisfies one of the following criteria: (a)
the value of the non-originating materials used in the production does not exceed 60
percent of the ex-works price of the product, (b) all non-originating materials used in the
production have undergone a change in tariff classification (CTC) on the level of tariff
headings, or (c) a product satisfies the product specific ROO as set out in Appendix 1 to
Annex II (Article IV, Annex II). The ROO allow for bilateral accumulation (Article V, Annex
II).
In order to receive preferential treatment, an originating product has to meet the
consignment criteria which state that a product has to be transported directly from the
customs territory of the exporting party to the importing party. The product can also be
transported through one or more non-Parties for the purpose of transit or temporary
storage in warehouses, provided that it does not undergo operations other than splitting
up of the consignment, unloading, reloading and any other operation designed to preserve
it in good condition (Article XIV, Annex II). If a product is transported via a third territory, it
has to be stored under customs surveillance.
A company can provide evidence of preferential origin in either of two ways: (a) a
certificate of preferential origin (COO) or (b) an origin declaration (Article XV, Annex II).
The origin declaration, which does not require a signature, may be produced only by an
exporter who is authorized by the competent governmental authority (“approved exporter”).
23
The legal text can be found at
www.seco.admin.ch/themen/00513/02655/02731/02970/index.html?lang=de; accessed September 15, 2011.
12
The text of an origin declaration is provided in Appendix 3 to Annex II of the JSFTEPA and
can be typed, stamped or printed on the invoice, the delivery note or any other commercial
document which describes the product concerned in sufficient detail to enable it to be
identified. The text provides information on the authorization number of the approved
exporter and the origin of the products. In order to register as an “approved exporter” with
the respective authorities, a company has to satisfy certain requirements defined by the
FTA. The JSFTEPA for example requires “approved exporters” to make frequent
shipments of originating products of a party, among others (JSFTEPA, Annex II, Article
XIX). A preferential origin declaration is not required for consignments below a specified
value. While the JSFTEPA is Japan’s first FTA to allow for the status of the “approved
exporter”, this status is very common in FTAs negotiated by Switzerland or EFTA.
Tables2-4 and 2-5 report data on the most-favored-nation (MFN) tariffs for both Japan and
Switzerland24.
Table 2-4: Tariff profiles of Japan and Switzerland
Japan
Simple average of
final bound duties
excluding unbound
tariff lines (in %)
Simple average of
MFN applied
duties (2009, in %)
HS six-digit MFN
tariff averages
weighted with HS
six-digit import
flows (2008, in %)
Switzerland
Agricultural NonTotal Agricultural NonTotal
Products
Agricultural
Products
Agricultural
Products
Products
22.2
2.5
5.1
48.0
2.0
8.0
21.0
2.5
4.9
36.9
1.9
6.5
12.5
1.2
2.0
37.3
1.3
3.4
Source: WTO Trade Profiles.
Both Japan and Switzerland impose significant tariffs on agricultural products. The tradeweighted average ad-valorem MFN tariffs for agricultural products are 12.5 and 37.3
percent for Japan and Switzerland, respectively. The tariffs on industrial goods, by
contrast, are comparatively low, with trade-weighted averages of 1.2 and 1.3 percent for
Japan and Switzerland, respectively. The differences between the bound and applied
MFN tariff rates for industrial goods are negligible for both Japan and Switzerland.
24
Swiss import duties are converted into ad valorem equivalents. The units of Swiss import duties are CHF
per 100kg, per piece, per unit, per liter, per meter and per MWh, depending on the respective products.
13
Table 2-5: Tariffs by import product groups
Maximum ad valorem applied MFN
duty
More than 95% of total imports of
the following product groups are
imported already duty-free under
MFN
Japan
Switzerland
641% (agricultural
products)
Cotton, petroleum,
electric and nonelectric machinery,
transport equipment
>1000% (agricultural
products
Cotton, petroleum
Less than 5% of total imports of the Animal products, fish
Animal products, dairy
following product groups are
and fish products,
products, sugars and
imported already duty-free under
clothing
confectionery, textiles,
MFN
clothing, leather, footwear
Note: The product groups do not correspond with the chapters of the HS Nomenclature.
Source: WTO Trade Profiles.
The applied MFN tariff rate of Japan is zero already for more than 95 percent of imports of
the following product groups: cotton, petroleum, electric and non-electric machinery and
transport equipment. By contrast, less than 5 percent of animal products, fish and clothing
can be imported duty free into Japan under MFN.
The applied MFN tariff rate of Switzerland is zero already for more than 95 percent of
imports of the following product groups: cotton and petroleum. By contrast, less than 5
percent of animal products, dairy products, sugars and confectionary, textiles and clothing,
leather and footwear can be imported duty free into Switzerland under MFN.
Under the JSFTEPA, Switzerland eliminated all customs duties for industrial goods upon
the entry into force of the JSFTEPA25. Similarly, Japan abolished most customs duties
immediately. The remainder will be eliminated after a transitional period. With regard to
agricultural products, Japan grants preferential market access for cheese, dried meat,
chocolate, wine and cigarettes, while Switzerland does so for ornamental plants, high
quality gift fruits, rice wine and cigarettes.
25
With the exceptions of casein, albumins and dextrin of HS 35 and miscellaneous chemical goods of HS
Chapter 38.
14
3 Utilization of Free Trade Agreements and Firm
Characteristics: A Company Survey26
3.1 Introduction and Literature Review
With the increasing proliferation of FTAs in Asia over the last ten years, company surveys
have become a popular method to examine Asian FTAs. In Japan, surveys examining
companies’ utilization of FTAs are being conducted on a regular basis by JETRO 27 and
JBIC28. While the main focus of these surveys is the business environment in general,
they contain questions related to FTAs since around 2002 29 . While these surveys do
usually not go beyond the presentation of the collected data, other studies use their data
to perform analyses 30 . However, not all questions are asked each year, making
comparisons rather difficult. Focusing on the utilization of Japan’s major FTAs, these
surveys find the number of companies utilizing or planning to utilize FTAs on the increase.
JETRO’s surveys on the International Operations of Japanese Firms, for example, report
an increase in the utilization rate from 13 percent to 38 percent between 2006 and 2010
(JETRO, 2011). The utilization rates provided by such surveys typically depend on the
sample of companies, the FTAs and industries covered, whether or not “plan to utilize
FTAs” is counted as “utilization”, and whether or not a company which is included in the
sample is required to have trade relations with a specific FTA partner territory at all. In
spite of these limitations, most surveys show a strong increase in the utilization of FTAs in
Asia over the past couple of years, reflecting not only the strong proliferation of FTAs but
also increasing margin pressure, as well as increasing public awareness of FTAs.
With regard to surveys inquiring the JSFTEPA, JETRO has collected data in 2009 and
2010 (JETRO, 2010 and JETRO, 2011). Looking at trade flows from Japan to Switzerland
for specific industries, the highest utilization rate is enjoyed by the automobile industry
with 67 percent, followed by textiles and clothing with 33 percent and general machinery
with 25 percent. These numbers are comparable to utilization rates of other FTAs
negotiated by Japan. However, due to the very small number of companies in some of the
subsamples by industry, one should exercise caution when interpreting the percentages.
Unlike Japan, Switzerland does not have a tradition of conducting surveys to measure
utilization rates of FTAs. To my knowledge, there is only one recent survey which
measures the utilization rate of Switzerland’s FTAs. This survey was conducted by
economiesuisse and revealed that, depending on the respective FTA, 50 to 70 percent of
26
I presented extracts of this chapter at the occasions of a seminar on the evaluation of the JSFTEPA at
JETRO headquarters and at a Business Luncheon with the Swiss Chamber of Commerce and Industry in
Japan in September 2011 in Tokyo.
27
Annual surveys on the International Operations of Japanese Firms and on Japanese-Affiliated Firms in
Asia and Oceania. The first surveys which contained questions on FTAs were JETRO (2003) and JETRO
(2006).
28
Annual Surveys on Overseas Business Operations by Japanese Manufacturing Companies: Outlook for
Japanese Foreign Direct Investment. The first survey containing questions on FTAs is JBIC (2002).
29
Japan’s first FTA, the Agreement between Japan and the Republic of Singapore for a New-Age Economic
Partnership Agreement, entered into force in 2002.
30
Examples of a more detailed analysis of these survey data include studies by Hayakawa et al. (2009), and
Kajita (2004).
15
companies in Switzerland utilize Switzerland’s FTAs, with the JSFTEPA having a
utilization rate of about 60 percent (economiesuisse, 2010).
Apart from pure surveys, there are increasingly studies which look at the effects of FTAs
on specific companies. These studies can be split into two generations. Studies of the first
generation approach the topic from a qualitative perspective and are helpful in
understanding the mechanisms of FTAs. The second generation of studies go further to
examine the relationship between firm characteristics and the utilization of FTAs, either by
qualitatively comparing essential characteristics of FTA-users and non-users, or by
employing multivariate statistics.
Examples of studies of the first generation include the study by Hiratsuka et al. (2009)
which apply a small sample survey to examine the Japanese automobile, electronics and
textile industry with regard to the impact of FTAs. Positive effects such as increase in
sales are contrasted with ensuing documentation cost. While these studies are rather
qualitative in nature, studies of the second generation are more quantitatively oriented.
One of the first studies to examine the relationship between firm characteristics and
utilization of FTAs are Takahashi and Urata (2008)31 who employ a probit model. Kawai
and Wignaraja (2009) 32 use a two-sample independent t-test with equal variances to
compare the central tendencies of firm characteristics and find statistically significant
differences between FTA-users and non-users. Wignaraja et al. (2010) utilize a probit
model to demonstrate that there is a relationship between firm characteristics and the use
of the Asean FTA.
The present study follows the tradition of the second generation firm-level research.
However, since this study focuses on only one FTA, a more in-depth examination is
possible. With regard to quantitative analysis, the inclusion of new explanatory variables
allows for inductive theory building. Methodologically, the individual variables are tested
for normality and categorized according to the level of measurement to perform the
appropriate tests. To my knowledge, this is the first second generation study including
data from companies located in Switzerland, and the first of its kind between two
developed countries. Unlike developing countries, developed countries have more often
reduced their MFN tariff rates unilaterally to zero across many tariff lines. Therefore, when
explaining the utilization rate of the JSFTEPA, particular attention will have to be paid
when examining the reasons for which companies find it unnecessary to utilize the
JSFTEPA.
The following section presents the research design and the profile of companies which
responded to the JSFTEPA survey. Section three and four introduce the dependent and
independent variables, respectively, develop the hypotheses and present the methodology.
Section five discusses the results of the study, and section six provides some concluding
remarks.
31
“Using the same research design, Takahashi and Urata replicated their effort in 2010 with a larger sample
(Takahashi and Urata, 2010).
32
Findings of this study are based on data originally collected for individual country papers: Japan
(Hiratsuka et al., 2009), Philippines (Wignaraja et al., 2010) and China (Zhang, 2010).
16
3.2 Research Design and Profile of Respondents
Units of analysis: Rather than examining individual firms, the units of analysis of this study
are directional trade flows. Consequently, trade flows originating from a single company
exporting goods from Switzerland to Japan and importing goods from Japan into
Switzerland will be analyzed separately. This procedure was chosen to make the result of
the analysis more meaningful. The study focuses on companies trading in goods as this
necessarily guarantees a company’s awareness of the JSFTEPA when utilizing it. In other
fields, such as trade in services, investment protection, protection of intellectual property
rights, or movement of natural persons, companies need not necessarily be aware of the
fact that they are utilizing an FTA, as benefits accrue automatically once the FTA has
entered into force33. When trading goods, however, companies receive benefits only once
they have proven that the goods satisfy the respective rules and requirements, and are
thus necessarily aware of the FTA34. When conducting a survey on the utilization of FTAs,
awareness is of utmost importance to achieve a meaningful result.
Data collection: Data was collected by way of an online survey. Companies surveyed
consisted of 300 members of the Swiss Japanese Chamber of Commerce in Switzerland
and 90 members of the Swiss Chamber of Commerce and Industry in Japan. An email
containing an internet link (URL) to an online questionnaire form was sent to all
companies. A follow-up by phone was made if a company did not reply or if a respondent
indicated to be open for more in-depth questions. In order to cross-validate and
complement the survey, annual reports and websites of specific companies as well as
company databases were consulted35.
Online questionnaire: The online questionnaire contained a total of 92 questions (compare
appendix A-2). The questionnaire contained both open-ended questions and questions
with pre-determined answer choices. Due to the use of a conditional tree structure,
however, only a fraction of these questions had to be answered by individual survey
participants, with the exact number depending on the area of business and whether or not
a company was utilizing FTAs. The structure of the survey is shown in appendix A-3. Apart
from questions related to the utilization of the JSFTEPA, the survey also contained
questions on the management of FTAs (compare chapter 4), and such which are relevant
for policy makers. The questions which are relevant for policy makers will not be further
dealt with here; however, the respective responses of companies are listed in appendix A4. The survey could be completed anonymously. Answers were collected from October 3,
2010 until February 21, 2011. The survey was sent to companies in both Switzerland and
33
In the area of trade in services, once the barriers to market access have been removed, a company in the
FTA partner territory does not face additional FTA-related costs to enter the market. Similarly, once
additional intellectual property protection has been implemented in local law, companies do not face FTArelated costs to benefit from enhanced protection. In the area of movement of natural persons, intracorporate transferees would not need to know that their stay is only possible because of the FTA.
34
“Benefits from FTAs in trade in goods” refer only to tariff benefits. Other benefits, such as simplified
customs procedures, would also apply to all companies.
35
Databases consulted were OneSource, Corporate Information, AG für Wirtschafts-Publikationen, and
Swiss Firms. In order to obtain information on the international presence of companies, annual reports and
websites were consulted. Compare also section 3.4.1 on the description of the independent variables.
17
Japan36 and designed such that respondents located in Switzerland and Japan received
the same set of questions, while at the same time accounting for their respective location 37.
Respondents were only required to answer questions which used skip logic.
The survey questions related to the study of firm characteristics were designed in order to
test hypotheses which were developed in either of two ways:
a) Hypotheses were derived and adapted from previous studies in order to allow for a
comparison of outcomes
b) New hypotheses were either derived from anecdotal evidence which resulted from
an earlier pilot study conducted by the author, or were developed to bridge gaps in
incumbent explanations.
In total 79 out of 390 companies replied to the survey, resulting in a response rate of 20.3
percent. Table 3-1 provides an overview on the sectoral distribution of the companies.
Table 3-1: Number of replies by sectoral distribution of companies
Sectors
Number of Replies
Logistics provider
Service provider
5
15
Other company without trading activities
Importer, distributor or manufacturer with trading activities
3
56
Total
Source: Survey Data.
79
Appendix A-5 contains a list of the companies, the respondents, and the respondents’
positions and functions.
Out of the 79 companies which replied to the survey, 56 are trading in goods and are thus
relevant for this study. Of the 56 companies, 8 companies indicated that they trade both
from Switzerland to Japan and vice versa, resulting in a sample size of 64 based on the
count of unidirectional trade flows, henceforth referred to as trade flow based responses
(TFBRs). Table 3-2 shows the number of TFBRs by direction of trade and manufacturer/
importer. Due to the fact that there were no responses from manufacturers located in
Japan, trade flows from Japan to Switzerland are only represented by importers and
distributors located in Switzerland. By contrast, 23 out of 33 trade flows from Switzerland
to Japan stem from manufacturers located in Switzerland. While importers/ distributors are
likely to indicate correctly whether or not they utilize the JSFTEPA, manufacturers are not
able to know with absolute certainty whether or not the importer/ distributor or the
manufacturer’s own importing entity would show the certificate of origin to customs and
36
Theoretically it would have been possible that one or both of a specific company’s trade flows were
covered by two different datasets, one each from Japan and Switzerland. However, this has not occurred as
far as the companies are concerned which identified themselves (only three companies chose to complete
the survey anonymously).
37
In general, the different wording accounted for the different perspectives with regard to “exporting”/
“importing” “from”/”to” and “Japan”/”Switzerland”. For general questions about FTAs, the Swiss version of the
survey referred to “FTAs” while the Japanese version used the terminology “Economic Partnership
Agreement (EPA)” which is more common in Japan.
18
claim the duty back. As a result, the utilization rate of the JSFTEPA for trade flows from
Switzerland to Japan may be overestimated. However, no impact is expected on the
empirical results with regard to the characteristics of companies utilizing or not utilizing the
JSFTEPA.
In terms of TFBRs – 33 TFBRs from Switzerland to Japan and 31 from Japan to
Switzerland – the sample is well balanced.
Table 3-2: Number of TFBR by direction
Direction of Trade
Total Number of
Flows
Datasets
Manufacturer Importer/ Distributor
Switzerland to Japan
33
23
10
Japan to Switzerland
31
0
31
Total
64
23
41
3.3 Dependent Variable
The dependent variable measures whether or not companies are utilizing the JSFTEPA.
“Utilizing the JSFTEPA” refers here, as defined in the introduction, to companies trading in
goods. As an exporter, a company is utilizing the JSFTEPA by either applying for a COO
or printing a declaration as to preferential origin on the invoice if it is an approved exporter.
An importer is utilizing the JSFTEPA when presenting proof of origin to the customs.
Table 3-3 lists the replies of the companies.
Table 3-3: Utilization Rates of the JSFTEPA by TFBRs
Question: Do you use the
JSFTEPA when exporting/
importing goods to/ from Japan/
Switzerland?
1. Utilizing the JSFTEPA
2. Not currently utilizing the
JSFTEPA, but maybe in future
TFBRs from
TFBRs from
Switzerland to
Japan to
Japan
Switzerland
Number of cases (%)
[90% confidence interval in %]
18 (54.5)
[39.1; 69.3]
5 (15.2)
[6.6; 29.8]
14 (45.2)
[30.0;61.2]
1 (3.2)
[0.2;15.5]
32 (50.0)
[40.0; 60.1]
6 (9.4)
[4.4; 18.1]
5 (15.2)
[6.6; 29.8]
3 (9.1)
[2.8; 22.6]
12 (38.7)
[24.4; 55.0]
0 (0)
[0; 10.8]
17 (26.6)
[17.9; 37.3]
3 (4.7)
[1.5; 12.2]
2 (6.1)
[13.0; 18.8]
4 (12.9)
[4.9; 27.7]
6 (9.4)
[4.4; 18.1]
33
31
64
3. Not currently and no plans to
utilize the JSFTEPA in future
4. I do not know as our logistics
provider/ freight forwarder decides/
takes care of the use of FTAs
5. I do not know
Total
Total
Source: Survey data.
19
Of a total of 64 TFBRs, 32 (50 percent) were covered by the JSFTEPA, while 23 (36
percent) were not covered. 9 TFBRs (14 percent) checked one of either “Don’t know”
answer options 4 and 5. Examining TFBRs separately by direction of trade, 18 (55 percent)
TFBRs from Switzerland to Japan benefited from the JSFTEPA, and 14 (45 percent)
TFBRs from Japan to Switzerland. The average utilization rate of 50 percent is slightly
higher than findings reported in previous studies. However, looking at the 90 percent
confidence interval for this binary variable [40.0; 60.1], the lower boundary is well within
the range of previous studies.
The subsequent analysis counts TFBRs in answer options 2 and 3 as “not utilizing” and
eliminates TFBRs in answer options 4 and 5. In order to maximize explanatory power
between utilization of the JSFTEPA and firm characteristics, the sample only includes
TFBRs which could have, theoretically, benefited from the JSFTEPA. TFBRs were
eliminated from the sample for tariff lines which were not covered by the JSFTEPA 38, or
where MFN tariffs were already zero prior to the JSFTEPA’s entry into force39. Thus, the
analysis of the relation between utilization of the JSFTEPA and firm characteristics is more
accurate as potential biases with regard to factors that are not subject to respondents’
control are avoided.
Reasons as to why answer options 2 or 3 were selected are stated in table 3-4.
Table 3-4: Reasons for not utilizing the JSFTEPA
TFBRs from
Switzerland to
Japan
TFBRs from
Japan to
Switzerland
Total
Difficulties to satisfy the requirements of the
ROO/ too difficult to apply for a COO
Not aware of the JSFTEPA
2
3
5
3
3
6
No answer
Adjusted non-utilization
1
6
6
1
12
MFN tariffs zero
3
4
7
Product not covered by the JSFTEPA
1
Completely manufactured outside of Japan/
Switzerland
Total non-utilization
10
1
3
3
13
23
Out of 23 TFBRs which did not utilize the JSFTEPA, 12 could have, theoretically, utilized it.
They did not do so because of a lack of awareness or because the utilization of the
JSFTEPA would have been too cumbersome with regard to complying with the ROO or
38
39
In this case it would have been impossible for a company to utilize the JSFTEPA.
In this case it would have been unnecessary for a company to utilize the JSFTEPA.
20
applying for a COO 40 . In addition, transfer pricing policies of countries may prevent
companies from satisfying ROO by simply adding the profit margin of a manufacturing
process which takes place outside of the free trade area. Another 11 TFBRs were not able
to utilize the JSFTEPA because MFN tariffs were already zero, the respective goods were
not covered by the JSFTEPA, or the products were manufactured outside of Japan or
Switzerland41.
After adjusting the data accordingly, 44 TFBRs remain in the sample (table 3-5)42. The
adjusted utilization rates are as follows: 75 percent of trade flows from Switzerland to
Japan were covered by the JSFTEPA, while 70 percent of trade flows from Japan to
Switzerland were covered. The combined utilization rate of both trade flows was 73
percent.
Table 3-5: Adjusted Utilization Rates of the JSFTEPA
Question: Do you use the JSFTEPA
TFBRs from
TFBRs from
when exporting/ importing goods to/
Switzerland to Japan to
from Japan/ Switzerland? (Adjusted
Japan
Switzerland
utilization rate)
Number of Cases (%)
Utilizing the JSFTEPA
[90% Confidence Interval in %]
18 (75.0)
14 (70.0)
[56.3; 88.0]
[49.1; 85.5.]
Not utilizing the JSFTEPA
6 (25.0)
[12.0; 43.7]
24
Total
6 (30.0)
[14.5; 50.9]
20
Total
32 (72.7)
[59.4; 83.1]
12 (27.3)
[16.9; 40.6]
44
Reasons for utilizing the JSFTEPA are reported in table 3-6 (multiple responses possible).
40
One respondent specifically mentioned that all imports of finished goods from Japan into Switzerland
benefit from the JSFTEPA. Spare parts, by contrast, do not, as costs of utilizing the JSFTEPA for spare
parts are higher than benefits, partially due to Switzerland’s weight-based tariff system.
41
Some Japanese companies from the electronics and automotive industries replied that they outsourced
their production to territories in Southeast Asia or Europe, and were therefore not in a position to utilize the
JSFTEPA.
42
Of the 64 TFBR, 9 TFBR were eliminated under answer options 4 and 5 (I do not know), and 11 under
answer options 2 and 3 (not utilizing the JSFTEPA because it was not possible or not necessary).
21
Table 3-6: Reasons for utilizing the JSFTEPA
Question: Why does your company use the JSFTEPA for exports/
imports to/ from Japan/ Switzerland?
Number
of TFBRs
In %
To avoid paying Swiss/ Japanese import tariffs/ reduce landed costs
Because our customer(s) in Japan/ Switzerland wish to claim back
import tariffs
6
5
28.6
23.8
Expected increase in sales to customer through enhanced price
competitiveness of our goods
Higher profit-margin when selling goods to our subsidiaries in Japan/
Switzerland
4
19.0
3
14.3
To make use of cumulation possibilities when re-exporting the goods
Note: Multiple replies possible.
3
14.3
With regard to the consistency of utilizing the JSFTEPA, 22 TFBRs provided information
on how regularly they were utilizing the JSFTEPA (table 3-7). The majority of the trade
flows was consistently accompanied by a proof of preferential origin.
Table 3-7: Consistency of utilizing the JSFTEPA
Question: When exporting/ importing goods from/ to Japan/
Switzerland that fulfill the preferential rules of origin stated in the
JSFTEPA, we provide proof of origin…/ We ask our supplier(s) for proof
of origin...
Always
We ask our supplier(s) only when we see savings potential in form of
lower/no import duties under the JSFTEPA
Only if a customer/ final buyer asks
Randomly
Total
Number In %
of
TFBRs
13
59.1
4
18.2
3
13.6
2
9.1
22 100.0
3.4 Independent Variables: Determinants of the Utilization of Free
Trade Agreements
3.4.1 Description of Variables and Development of Hypotheses
In order to examine the impact of the size of a firm on the utilization of the JSFTEPA, the
number of permanent staff the company is employing globally as a fulltime equivalent
(EMP) is used as a proxy. Other firm characteristics such as the turnover of a company
could have been chosen as well. However, the turnover was quite unstable during the
economic downturn in the wake of the financial crisis of 2008/ 2009 and was therefore not
considered. Since companies require human, financial and other resources to deal with
FTAs and also face considerable fix costs for example in the area of training and
22
education, it is assumed that larger companies are more likely to utilize FTAs than smaller
ones. In addition, due to economies of scale, it is assumed that larger companies are
more likely to have specialized staff to deal with FTAs.
International exposure increases a company’s awareness of international trade practices.
Therefore, it is hypothesized that companies with a higher international exposure are more
likely to utilize the JSFTEPA than companies with a lower international exposure. This
study utilizes several variables to examine the effect of international exposure. Firstly, the
trade intensity (TIN) measures the approximate relation of exports/ imports (overseas
sales/ procurement) to total sales/ procurement for the operations in Switzerland/ Japan
as indicated by the respondents. Secondly, it is assumed that international
representations have a positive impact on the utilization of FTAs43. Therefore, the study
examines whether or not a company has at least one international representation (IRP),
regardless of whether the representation is majority owned or not (including agents). The
study also examines how many countries a company is represented in (CRP)44, and how
many countries a company is represented in by a majority owned entity (CRO). CRO is
similar to CRP but excludes minority owned entities, 3rd party agents and distributors.
Thirdly, and related to CRO, since the exporter has the burden of proving preferential
origin while the importer gets the benefits in terms of lower tariffs, it is assumed that intrafirm trade flows are more likely to utilize FTAs as the savings stay within the company45.
The study examines the total intra-firm intensity of trade (IIN) as the share of intra-firm
exports/ imports to total exports/ imports. In addition and more specific to the JSFTEPA, it
is assumed that trade flows are more likely to utilize the JSFTEPA if a company has
majority owned business entities in both Japan and Switzerland (OBE)46. Lastly, a learning
effect is assumed where a company already utilizes other FTAs. The study examines how
many other FTAs a company already utilizes apart from the JSFTEPA (UOF)47.
Prior to FTA negotiations, policy makers usually invite companies to provide input.
Companies participating in such consultations are already interested in utilizing FTAs. In
addition, such companies may address problems they foresee, thus increasing the
likelihood of being able to utilize the respective FTA. Hence, it is assumed that companies
which participated in consultations with the government or respective agencies (CON) are
more likely to utilize the JSFTEPA. When companies are trading goods via third territories,
goods may lose preferential origin if they are not stored under customs supervision. It is
thus assumed that companies which transport goods directly (DIR) between Japan and
Switzerland are more likely to utilize the JSFTEPA. The study also examines whether the
direction of trade flows (TFL) or the location of the global headquarters (GHQ) have an
impact on the utilization of the JSFTEPA. Whether or not there is also an industry effect is
43
Data on international representations of companies were collected via annual reports and websites of
companies, as these were considered to be more reliable sources than the survey.
44
For this variable, companies with more than 10,000 employees were not considered, as such companies
are assumed to be represented globally.
45
Intra-firm trade flows are exports/ imports to/ from an affiliated company or subsidiary. The exporter would
only have an interest in utilizing FTAs for non intra-firm trade if export competitiveness is crucial.
46
This question was asked in the survey and verified via annual reports and websites of companies.
47
UOF measures the number of FTAs, not the number of countries with FTA relations. Therefore, FTAs with
Asean, EFTA, the EU and SACU were each counted as one FTA.
23
analyzed qualitatively due to insufficient data. Table 3-8 provides an overview of the
independent variables and a preliminary formulation of the respective hypotheses.
Table 3-8: Explanatory variables and hypotheses
Var. Definition
Null Hypothesis
EMP
Number of permanent
employees
TIN
Trade Intensity (Exportand Import Intensity)
CRP
There is no statistically significant difference in the
number of employees working in companies which (do
not) utilize the JSFTEPA
export/import intensity between companies which (do not)
utilize the JSFTEPA
Number of countries a
company is
represented in
CRO Number of countries a
company is
represented in with an
own business unit
number of representations abroad between companies
which (do not) utilize the JSFTEPA
number of own business units abroad between
companies which (do not) utilize the JSFTEPA
IIN
There is no statistically significant difference in the intrafirm intensity of trade between companies which (do not)
utilize the JSFTEPA
number of other FTAs used between companies which
(do not) utilize the JSFTEPA
UOF
Intra-firm intensity of
trade (exports or
imports)
Number of other FTAs
utilized
CON Consultations with the
Government
OBE
Own business entities
in both Japan and
Switzerland
IRP
International
Representation
DIR
Direct Transportation
TFL
Trade flows from
GHQ Location of global
headquarters in
Switzerland
There is no statistically significant association between
participation in government consultations and utilization
of the JSFTEPA
having own business entities in both Japan and
Switzerland and utilization of the JSFTEPA
being internationally represented and utilization of the
JSFTEPA
goods being transported directly and utilization of the
JSFTEPA
the direction of trade flows and utilization of the
JSFTEPA.
the location of the global headquarters and utilization of
the JSFTEPA.
24
3.4.2 Methodology of Analysis of Independent Variables
Table 3-9 provides an overview of the independent variables’ sample sizes by TFBR
which utilize and which do not utilize the JSFTEPA. Trade flows which were not able to
utilize the JSFTEPA, because it was impossible or unnecessary, were eliminated from the
sample (compare section 3.3).
The total number of TFBRs varies considerably depending on the respective independent
variable. This is due to the fact that respondents were only required to answer questions
with skip logic. The maximum number of TFBRs is 44 which takes into account eliminated
responses.
Table 3-9: Sample sizes of independent variables, by TFBR
Variables TFBRs Utilizing the JSFTEPA
TFBRs not Utilizing the
JSFTEPA
Total TFBRs
CON
CRO
27
15
8
10
35
25
CRP
15
10
25
DIR
28
10
38
EMP
GHQ
32
29
12
12
44
44
IIN
14
5
19
IRP
31
12
43
OBE
TFL
32
32
12
12
44
44
TIN
UOF
16
25
6
6
22
31
The aim of the present study is to establish differences in firm characteristics between
TFBRs which do and do not, respectively, utilize the JSFTEPA. In order to examine these
differences, either parametric or non-parametric tests can be used. Parametric tests are
more powerful than non-parametric tests with regard to their ability to detect a difference
between two groups when a difference actually exists. A parametric test may thus find a
statistically significant difference between two groups which a non-parametric test may not
find.
Therefore, independent variables were analyzed by employing the two sample
independent t-test with equal variances whenever the assumptions were met. The t-test
assesses whether the means of two groups (here JSFTEPA users and non users) are
statistically significantly different from each other. The assumptions of the t-test include,
firstly, that the data is sampled independently. Secondly, the dependent variable is a twolevel categorical variable while the independent variables are measured on numeric level.
Thirdly, the two populations compared need to follow a normal distribution. And fourthly,
the two populations compared need to have equal variances.
25
If one or several of these assumptions are not met, comparable non-parametric tests are
used. Numeric variables which are non-normally distributed will be examined by
employing the Mann-Whitney U test, a rank-order test which compares the group medians
instead of the group means. Variables on categorical level are examined by using the
Pearson’s Chi Square test, or Fisher’s Exact test, respectively, if there is one or more
value with an expected count of less than five48. The Chi Square test tests whether or not
there is an association between two variables. The strength of the association between
the independent and the dependent variable is not examined in this study.
The various tests are performed with SPSS 18.0.
Table 3-10 provides an overview of the tests used depending on the independent
variables’ level of measurement and distribution.
Table 3-10: Tests, variable’s level of measurement and distribution
Level of
Distribution Applicable
Test
Measurement
Statistics
Numeric
Normal
Parametric
Numeric
Non-normal
Non-parametric
Two sample independent t-test
with equal variances
Mann-Whitney U test
Categorical
n.a.
Non-parametric
Pearson’s Chi Square test
Note: (n.a.) not applicable.
Since parametric tests are more powerful, the independent variables are examined with
regard to them satisfying the assumptions of the t-test.
The first assumption of the two sample independent t-test, that data is sampled
independently, is satisfied for all variables, as there is no overlap between TFBRs which
do and which do not utilize the JSFTEPA.
With regard to the second assumption, the independent variables EMP, TIN, CRP, CRO,
IIN and UOF are measured on numeric level, while CON, OBE, IRP, DIR, TFL and GHQ
are measured on categorical level. Therefore, only the first six variables satisfy the second
assumption.
Thirdly, the two groups being compared for each variable are to follow a normal
distribution. Generally, statistical test are robust to mild violations of the assumption of
normal distribution. However, when the departure from normality is considerable and the
sample size is small, parametric tests may not work well 49. Since more than half of the
sample sizes are smaller than 20 and the maximum sample size is 32 (table 3-9),
normality will be examined50.
In order to reach a more substantive conclusion, the distribution of the independent
variables is examined by employing both graphical and numeric methods. Graphically, the
48
When the expected cell frequencies fall, the Chi Square test estimates the probabilities in each cell with
insufficient precision. Therefore, literature suggested a minimum expected cell count of five (Siegel, 1956).
49
For large data sets, by contrast, the central limit theorem would provide reason to assume normality.
50
However, small samples have little power to determine whether or not the sample originates from a
normal distribution.
26
study examines histograms in order to understand the distribution of the data. Numerically,
several indicators are examined51. The skewness indicates the level of symmetry of the
distribution of the data. If the distribution is symmetric, skewness is zero or close to zero.
A positive value indicates a skew to the right, a negative value a skew to the left. With
regard to whether or not a skew is a matter of concern, literature suggests that a
skewness of greater than |1| points to a highly skewed distribution, a Skewness between
|0.5| and |1| to a moderately skewed distribution, and a skewness between 0 and |0.5| to
an approximately symmetric distribution (Bulmer, 1979).
Apart from the skewness, the Shapiro-Wilk test (SW) and the Kolmogorov-Smirnov test
(KS) were used to assess normality. These tests differ in how they quantify the deviation
of the actual distribution from a normal distribution. The null hypothesis (H0) of these tests
states that data are sampled from a normal distribution, i.e. that there is no difference
between the distribution of the data set and a normal one. If the p-value is above the
determined significance level, H0 cannot be rejected. If the p-value is below the
determined significance level, H0 is to be rejected, i.e. data significantly deviate from a
normal distribution. The SW test works better for small sample sizes and is therefore
suitable for the present study. A potential problem with this test is the fact that there are
some ties in the data which makes the test work less well. The KS test can be modified to
serve as a goodness of fit test to test for normality. Disadvantages of this test include the
fact that even in the corrected form52 the test is less powerful for testing normality than the
SW test53. Other tests are not considered due to various shortcomings54.
Whenever the graphical and numerical methods gave reason to assume that the sampled
data were likely to stem from a severely non-normally distributed population, a non-linear
transformation technique was used and the effect on normality compared with the original
values 55 . Since most of the non-normally distributed data were skewed to the right,
logarithm and square root transformation was chosen since these transformations reduce
large values proportionally more than smaller values. When taking the logarithm, this
study used the natural logarithms – although the basis of the logarithms does not have an
impact with regard to the achievement of normality. In cases of zero or negative values, a
constant was added to each value, making them positive and non-zero. The testing of the
hypotheses was only performed after the respective data were transformed.
Section 3.5.1 will present the means assessed by the t-test in two ways. The means of the
transformed data which were used for hypotheses testing are presented in their
transformed form. Since the means of the transformed data do not show the actual
magnitude, the means of the original data are presented as well.
51
The kurtosis is not considered here as it is of little use when comparing distributions of different degrees of
symmetry (Bulmer, 1979), although recent attempts show that it may be possible to remove the effect of
skewness when measuring the kurtosis - see for example Blest (2003).
52
SPSS 18.0 reports the Dallal-Wilkinson-Lilliefors corrected p-value.
53
See for example Stephens (1974).
54
The D’Agostino-Pearson test, for example, is only powerful for samples above 50. Below this threshold it
has the tendency to be unable to reject normality. Similarly, the Jacque-Bera and Chi-Square tests are not
very powerful for small samples below 20.
55
For an introduction to data transformation, see for example Aron and Aron (2002).
27
Table 3-11 reports the outcome of the tests for normality of the numeric independent
variables. The respective histograms are plotted in appendix A-6.
Table 3-11: Tests for normality of independent variables on numeric level
Variable Data
Graphic
Numeric
Histogram (user/
non-user)
EMP
CRP
CRO
Sample
Skewness
(user/
non-user)
KolmogorovSmirnov including
Lilliefors
Significance
Correction [Sig.]
(user/ non-user)
ShapiroWilk
[Sig.]
(user/
nonuser)
Original data
Right skewed/
right skewed
1.77
/ 2.26
0.000
/ 0.000
0.000/
0.000
Logarithm
transformation
Square root
transformation
Left skewed/
symmetric
Right skewed/
right skewed
-0.92
/ -0.32
1.09
/ 1.67
0.200*
/ 0.200*
0.001
/ 0.034
0.028/
0.594
0.000/
0.004
Original data
Right skewed/
right skewed
Logarithm
Left skewed/
transformation left skewed
1.53
/ 1.31
-0.61
/ -1.36
0.015
/ 0.113
0.129
/ 0.005
0.005/
0.142
0.086/
0.008
Square root
symmetric/
transformation symmetric
Original data
Right skewed/
right skewed
0.36
/ -0.38
0.85
/ 0.97
0.200*
/ 0.200*
0.040
/ 0.031
0.414/
0.368
0.080/
0.005
Logarithm
transformation
Square root
transformation
Left skewed/
right skewed
symmetric/
right skewed
-0.82
/ 0.29
-0.23
/ 0.49
0.052
/ 0.005
0.200*
/ 0.008
0.025/
0.007
0.246/
0.011
UOF
Original data
Not identifiable/
right skewed
0.13
/ 0.97
0.000
/ 0.002
0.001/
0.001
IIN
Original data
Not identifiable/
right skewed
0.07
/ 2.24
0.035
/ 0.001
0.017/
0.000
TIN
Original data
Not identifiable/
right skewed
-0.43
/ 0.97
0.005
/ 0.002
0.001/
0.001
Notes:
The upper entry refers to TFBRs utilizing the JSFTEPA, the lower entry to TFBRs not
utilizing the JSFTEPA.
(*) This is a lower bound of the true significance.
None of the numeric variables’ original data seemed to be distributed normally. However,
when transforming the data, the variables EMP, CRP and CRO were close to normality.
28
For the original data of EMP, the histograms suggest a clear skew of the distribution to the
right. This finding is supported by the numeric values of skewness which are 1.77 and
2.26 for TFBRs utilizing and not utilizing the JSFTEPA, respectively, pointing to a highly
skewed distribution. Similarly, both the SW and the KS test suggest that H0 can be
rejected at the 1 percent significance level. While a square root transformation did not lead
to a more normal distribution, the log transformation resulted in distributions which were
only slightly skewed to the left (TFBRs utilizing the JSFTEPA) or even approximately
symmetric (TFBRs not utilizing the JSFTEPA). The KS test suggests that H0 cannot be
rejected. Looking at the SW test, H0 can be rejected at the 5 percent significance level for
TFBRs utilizing JSFTEPA, but not for TFBR not utilizing the JSFTEPA. Taking both the
graphic and numeric methods into consideration, data on employees seem to come from a
lognormal distribution since they are approximately normally distributed after being log
transformed. The highly skewed distribution of the size of companies has received much
attention in the literature, leading researchers to conclude that firm sizes are lognormal or
even power-law distributed56.
Similar to EMP, the histograms, the skewness and both the SW and KS test suggest that
the original data of CRP are highly skewed. A square root transformation of the data leads
to an approximately symmetric distribution. The skewness of the transformed data
amounts to 0.36 and -0.38 for TFBRs utilizing and not utilizing the JSFTEPA, respectively.
With regard to both the SW and KS test, H0 cannot be rejected. These findings suggest
that the square root transformed data of CRP are approximately normally distributed.
While CRP measures the number of countries a company is represented in, CRO limits
the number of countries to those in which a company is represented with own business
units. Similar to CRP, the findings suggest that the square root transformed data of CRO
are approximately normally distributed.
As a conclusion, EMP, CRP and CRO seem much more likely to have come from a
population with a normal distribution after the transformation took place. The square root
transformation seems to fit better when the original data differ only moderately from
normality, while the log transformation fits better when the original data deviate
substantially from normality.
For the variables UOF, IIN and TIN, a normal distribution could not be achieved by
transforming the data. Looking at the numeric analysis, it is not clear as to whether or not
the variables are normally distributed. However, when examining the respective
histograms, U- and W-shaped distributions point to a severely skewed distribution.
The last assumption of the two sample independent t-test is that the two groups should
have equal variances. Generally, the t-test is highly robust to the presence of unequal
variances if the sample sizes are roughly equal. However, since the sample sizes in this
study are quite unequal (compare table 3-9), homoscedasticity will have to be tested for.
56
Literature suggests that economic phenomena often follow a lognormal or a power-law distribution rather
than a normal distribution. For a discussion on power-law versus lognormal distributions in general see for
example Mitzenmacher (2003). Clarke (1979) provides evidence for the appropriateness of the assumption
of log normality for firm size distributions based on employment. Log normality can also be observed when
taking sales or paid-in capital as a proxy for size. Later studies have found that the size distribution of firms
are right-skewed and generally follow a lognormal distribution, but behave more like a power law distribution
between certain parts of the curve – see for example D’Hulst and Rodgers (2001) or Growiec et al. (2008).
29
Homoscedasticity is tested by employing Levene’s test for equality of variances, with H0
stating that variances are equal. If the p-value is above the defined level of significance,
H0 cannot be rejected. Table 3-12 reports the respective values.
Table 3-12: Levene’s test for the equality of variances
Variable
Data
F-statistics
Sig.
EMP
CRP
Log transformed data
Square root transformed data
0.038
0.192
0.846
0.665
CRO
0.675
0.420
Levene’s test for the equality of variances indicates that H0 cannot be rejected since the
p-value is very large and the F-statistics comparatively small. Variances are therefore
assumed to be equal for EMP, CRP and CRO. These three independent variables thus
satisfy the assumptions which are necessary to employ a two sample independent t-test.
In order to identify the main explanatory variables and to deal with possible
multicollinearity, the applicability of principle components analysis was examined.
However, given that 36 out of 44 observations contained missing values for one or more
variables, such an analysis was not performed.
3.4.3 Overview of Variables, Tests and Hypotheses
Table 3-13 provides an overview of all independent variables and the respective tests
which can be performed.
Table 3-13: Tests, independent variables’ level of measurement and distribution
Variables
- EMP (log transformed)
- CRP (square root
transformed)
- CRO (square root
transformed)
- TIN
- IIN
- UOF
- DIR
- TFL
- GHQ
- IRP
- OBE
- CON
Level of
Measurement
Numeric
Distribution
Numeric
Categorical
Note: (n.a.) not applicable.
30
Applicable
Statistics
Parametric
Test
Non-normal
Nonparametric
n.a.
Nonparametric
MannWhitney U
test
Pearson’s
Chi Square
test
Normal
Two sample
independent
t-test with
equal
variances
Three independent variables on numeric measurement level were found to satisfy the
assumptions of the two sample independent t-test with equal variances. Another three
numeric variables were found to be heavily skewed, and are therefore analyzed with the
Mann-Whitney U test. The remaining six variables are measured on categorical level and
are thus analyzed with the Pearson’s Chi Square test.
Tables 3-14 – 3-16 are extensions of table 3-8, providing the substantiated hypotheses
and expected relations between TFBRs which utilize the JSFTEPA, and such which do
not.
Table 3-14: Normally distributed explanatory numeric variables with hypotheses
Var. Definition
Null Hypothesis
Expected
Relation
EMP Number of permanent
employees
CRP
There is no statistically significant
difference between the mean number of
employees working in companies which (do
Number of countries a There is no statistically significant
company is
difference in the mean number of
represented in
representations abroad between firms
CRO Number of countries a
company is
represented in with an
own business unit
difference in the mean number of own
business units abroad between companies
Mean
(User) >
Mean (NonUser)
Mean
(User) >
Mean (NonUser)
Mean
(User) >
Mean (NonUser)
Table 3-15: Non-normally distributed explanatory numeric var. with hypotheses
Var.
Definition
Null Hypothesis
TIN
Trade Intensity
(Export- and Import
Intensity)57
difference in the median export/import
intensity between companies which (do
Expected
Relation
Median
(User) >
Median (NonUser)
IIN
Intra-firm intensity of
trade (exports or
imports)58
difference in the median intra-firm intensity
of trade between companies which (do not)
utilize the JSFTEPA
difference in the median number of other
FTAs used between companies which (do
Median
(User) >
Median (NonUser)
Median
(User) >
Median (NonUser)
UOF Number of other FTAs
utilized
57
58
The categories 0-25%, 26-50%, 51-75% and 76-100% are recoded to 1, 2, 3 and 4.
The categories 0-25%, 26-50%, 51-75% and 76-100% are recoded to 1, 2, 3 and 4.
31
Table 3-16: Explanatory binary variables with hypotheses
Var.
Definition
Null Hypothesis
Expected
Relation
CON Consultations with the There is no statistically significant
Government
association between participation in
government consultations and utilization of
the JSFTEPA
OBE Own business entities There is no statistically significant
in both Japan and
association between having own business
Switzerland
entities in both Japan and Switzerland and
utilization of the JSFTEPA
Yes:No
(User) >
Yes:No (NonUser)
Yes:No
(User) >
Yes:No (NonUser)
IRP
International
Representation
association between being internationally
represented and utilization of the JSFTEPA
DIR
Direct Transportation
association between goods being
transported directly and utilization of the
JSFTEPA
Yes:No
(User) >
Yes:No (NonUser)
Yes:No
(User) >
Yes:No (NonUser)
TFL
Trade flows from
association between the direction of trade
flows and utilization of the JSFTEPA.
association between the location of the
global headquarters and utilization of the
JSFTEPA.
GHQ Location of global
headquarters in
Switzerland
?
?
3.5 Results
3.5.1 Presentation and Discussion of Findings
Tables 3-17 – 3-19 provide an overview of the results of the analyses. Table 3-17 reports
the results of the variables which were analyzed using the two sample independent t-test
with equal variances; table 3-18 those employing the Mann-Whitney U test, and table 3-19
the ones using the Pearson’s chi-square test or Fisher’s Exact test, respectively59.
59
Additional tests performed by the author have shown that for the hypotheses tested in this study the
statistical significance of the respective relationships did not change in the following cases: When nonnormally distributed variables were tested with the t-test instead of the Mann-Whitney U test; when equal
variances were not assumed; and when variables with at least one expected frequency below five were
analyzed with the Chi-squared test instead of Fisher’s exact test.
32
Table 3-17: Variables tested with two sample independent t-test
Variable
Transformed Data
Mean User
t-value Original Data
EMP a
3.65
Mean
Mean NonUser
User
2.72 2.297** 30,941
5,117
b
4.72
3.26
5.27
2.10
CRP
CRO b
Mean Non-User
-0.383
1.256
34.3
14.9
37.7
9.7
Notes:
Sig. Codes: *** 1%, ** 5%, * 10%.
(a) In order to achieve a normal distribution to test the hypothesis, this variable was log
transformed.
(b) In order to achieve a normal distribution to test the hypothesis, this variable was
square root transformed.
The t-value refers to the transformed data. The means of the original data are indicated
for reasons of interpretation.
Table 3-18: Variables tested with Mann-Whitney U test
Variable
Median User Median Non-User Mann-Whitney U
UOF
IIN
10
2.5
TIN
3
Note: Sig. Codes: *** 1%, ** 5%, * 10%.
z-value
1
1
28.000
19.500
-2.383**
0.122
1
35.000
0.302
Table 3-19: Variables tested with Pearson’s chi-squared test or Fisher’s exact test
Variable
CON
User Non
Number of Cells with an Expected Chi-squared
User
Count of less than Five
value
0.8
0.0
1
0.032** (Fisher)
OBE
IRP
7.0
9.3
1.0
5.0
1
2
0.015*** (Fisher)
0.608 (Fisher)
DIR
TFL
1.8
1.3
1.5
1.0
1
0
1.000 (Fisher)
0.138
1
1.000 (Fisher)
GHQ
3.8
3.0
Note: Sig. Codes: *** 1%, ** 5%, * 10%.
Company Size:
Looking at EMP as a proxy for the size of a company, the average number of employees
of JSFTEPA-users is 30,941, whereas the same value for JSFTEPA-non users is 5,117.
At the 5 percent significance level, H0 (that there is no difference in means between FTA
users and non-users) can be rejected. The average number of employees of a company is
therefore statistically different between JSFTEPA-users and non-users. The statistical
significance refers to the transformed data.
33
International Exposure:
With regard to own business entities, OBE shows that a JSFTEPA-user is seven times
more likely to be represented with own entities in both Japan and Switzerland than not,
while a JSFTEPA-non user is as likely to be represented in both countries as not. In
addition, at the 1 percent significance level, H0 can be rejected. The number of FTAs a
company is already utilizing (UOF) shows a median of 10 for JSFTEPA-users, and only 1
for JSFTEPA-non users. At a 5 percent significance level, H0 can be rejected. The median
of the number of FTAs a company is utilizing is therefore statistically different between
JSFTEPA-users and non-users.
There is no statistical evidence for the following relationships: IRP suggests that
JSFTEPA-users are nine times more likely to be represented abroad than not, while
JSFTEPA-non users are only five times more likely. When comparing the number of
countries a company is represented in, CRP suggests that the average number of
countries a company is represented in is higher for JSFTEPA-non users. However, when
looking at the average number of countries a company is represented in excluding third
party agents and distributors (CRO), the figure is higher for JSFTEPA-users. Both the
trade intensity (TIN) and the intra-firm trade intensity (IIN) show a higher median for
JSFTEPA-user than non-user with about 25 to 75 percent and 0 to 25 percent,
respectively.
Further determinants:
A JSFTEPA-user is more likely to have participated in consultations with the government
to provide input for the JSFTPA negotiations (CON) than a non user. H0 can be rejected
at the 5 percent significance level.
There is no statistical evidence for the following relationships: JSFTEPA-users seem to be
more likely to trade their goods directly (DIR) than JSFTEPA-non users. Trade flows from
Switzerland to Japan (TFL) seem to be more likely to benefit from the JSFTEPA than
trade flows from Japan to Switzerland. Finally, companies which have their global
headquarters in Switzerland (GHQ) seem to be more likely to benefit from the JSFTEPA
than companies which have it in Japan. TFL and GHQ may be related to the fact that
Switzerland has a longer tradition of FTAs. In addition, self-certification in the form of the
“approved exporter” is more established in Switzerland – self-certification makes it
considerably more straightforward for a company to provide evidence of preferential origin.
However, none of these relationships are statistically significant.
The utilization of the JSFTEPA with regard to industries is discussed against the
background of existing literature in the following paragraph.
3.5.2 Comparison with Earlier Studies
Looking at existing literature, a major conclusion is that size and international exposure
help explain whether or not a specific company is utilizing FTAs. Table 3-20 provides an
overview of selected findings from previous studies. The reported effects (+/-) is a
simplification to show the direction of the effect.
34
Table 3-20: Selected findings of previous studies
Takahashi and
Urata (2010)
Takahashi Wignaraja et
and Urata al. (2010)
(2008)
Kawai and
Wignaraja
(2009)
Method
Probit Model
Probit
Model
Probit Model
FTAs examined
Japan-Mexico/
Japan-Malaysia
JapanSingapore
Asean FTA
Two sample
independent
t-test
FTAs of
Japan
Utilization Rate
32.9%/ 12.2%
3.6%
45.2%
29.0%
Number of Employees
+***/ +***
+***
+
+**
Owning business
bases in respective FTA
partner territory
Ratio of overseas sales to
total sales
+***/ +***
+***
Participated in
consultations
Transportation Machinery
+
+***
+***/ +***
Machinery/ Electronics
-/ -
Chemical
-/ -
+***
Notes:
The actual values were replaced by the direction of the effects.
Sig. Codes: *** 1%, ** 5%, * 10%.
The unadjusted utilization rate found in the present study on the JSFTEPA is 55 percent
for trade flows from Switzerland to Japan and 45 percent from Japan to Switzerland
(compare table 3-3) and thus higher than in previous studies60. However, when looking at
the lower boundaries of the 90 percent confidence intervals for this variable (39 for trade
flows from Switzerland to Japan and 30 for trade flows from Japan to Switzerland –
compare table 3-3), the utilization rate is in the range of previous studies 61 . That the
utilization rate for trade flows from Switzerland to Japan was higher may be due to the fact
that Switzerland has a longer tradition of FTAs, and thus companies are more familiar with
them. In addition, the system of the “approved exporter”, which simplifies the utilization of
FTAs considerably, is more established in Switzerland and may contribute to a more
consistent utilization of FTAs. The JSFTEPA is Japan’s first FTA which provides for the
“approved exporter” status.
With regard to reasons as to why companies did not utilize the JSFTEPA, the present
study found that close to 50 percent of TFBRs indicated that it was impossible or
60
The unadjusted utilization rate is reported here in order to allow for a comparison with previous studies.
Substantially lower utilization rates may be explained by the fact that some territories have almost no tariff
lines which are dutiable under MFN (Singapore), or that FTAs involving developing countries usually have a
low coverage of goods.
61
35
unnecessary to utilize the JSFTEPA (compare table 3-4). Around 21 percent mentioned a
lack of awareness and 26 percent reported difficulties related to the ROO or the
application for a COO. A comparison with other studies is rather difficult, as these usually
allow for multiple replies. However, a comparison of the approximate importance is still
possible. Takahashi and Urata (2010) report that across Japan’s FTAs with Mexico and
Malaysia 21 to 24 percent of respondents did not utilize the respective FTAs due to
difficulties related to the ROO or the COO – this is within the range of the findings of the
present study. Similarly, 26 to 28 percent of companies indicated a lack of information or
knowledge. 30 percent of TFBR of the present study did not utilize the JSFTEPA as MFN
tariffs were already zero. This is a marked difference to previous studies examining
Japan’s FTAs. In the case of Japan’s FTAs with Malaysia and Mexico, Takahashi and
Urata (2010) report that only 6 to 11 percent of companies indicated that tariff preferences
by FTAs were too small or that the MFN rate was lower than the FTA rate. A possible
explanation of this difference is that most of Japan’s other FTA partner territories are
developing countries, which maintain higher MFN tariff rates on average. This explanation
is supported by Kawai and Wignaraja (2009) who report that small margins of preference
were indicated as a reason not to utilize FTAs by only 17 percent and 13 percent of
companies in Thailand and the Philippines, respectively. When explaining the utilization
rate of developing countries’ FTAs, rather than low MFN tariff rates, other preferential
schemes such as export processing zones seem to be more relevant – 27 percent of
companies in the Philippines mentioned such schemes as a reason for not utilizing the
Asean FTA (Kawai and Wignaraja, 2009).
With regard to the number of employees, the results of previous studies correspond with
the findings of the present study. Larger companies are more likely to utilize FTAs.
Improving the utilization rate among small and medium sized companies is therefore a
challenge that policy makers have to deal with in order to create a level playing field for
smaller companies.
International exposure in terms of trade intensity (or ratio of overseas sales) and having
own business bases in the respective FTA partner territory is positively related with the
utilization of FTAs, although only the latter relationship is statistically significant. These
findings are consistent across previous literature and the present study.
Participations in government consultations prior to FTA-negotiations, too, have a
significantly positive effect on utilization of FTAs, both in the present and existing studies.
With regard to the different industries, all previous studies found that companies operating
in the transportation machinery industry62 are more likely to utilize FTAs. This may be due
to generally higher MFN tariff rates, as well as a comparatively competitive environment.
However, previous studies did not examine if the high utilization rate is related to the fact
that companies in this industry are generally comparatively large, and therefore a size
rather than an industry effect exists. With regard to the present study, all four TFBRs from
Japan to Switzerland in the transportation machinery industry were covered by the
62
This industry includes vehicles (both rail mounted and non-rail mounted), ships, boats, aircraft,
spacecrafts and parts thereof.
36
JSFTEPA, although Switzerland maintains relatively low import tariffs. A possible
explanation for the high utilization rate may be the fact that the Japanese companies in
this industry are experienced in utilizing FTAs since most of Japan’s other FTA partners
have relatively high MFN tariffs. Thus, utilizing FTAs may be a standard procedure for
these companies.
Previous studies found that the utilization rate of companies in the machinery and
electronics industry is comparatively low. A possible explanation may be the fact that this
industry faces above average compliance costs with regard to the ROO due to relatively
complex bills of material63. Another explanation is put forward by the present study: Trade
flows which were not covered by the JSFTEPA often benefited already from the
Information Technology Agreement (ITA), to which both Japan and Switzerland are
signatories. Under the ITA, signatories are required to eliminate tariffs on most information
technology-related products unilaterally. After deducting the trade flows which fall under
the ITA (adjusted utilization rate), the present study finds that a small majority of seven
trade flows were covered by the JSFTEPA, while six were not. It would be interesting to
know if previous studies had a higher utilization rate if they had deducted trade flows
which were not able to utilize FTAs because of the ITA64.
With regard to the chemical and allied industries, previous studies found that such
companies are unlikely to utilize FTAs. The study on the JSFTEPA, by contrast, found that
nine TFBRs in the chemical and allied industries were covered by the JSFTEPA, while
only two were not. After having eliminated trade flows which were not able to utilize the
JSFTEPA (adjusted utilization rate) 65 , no TFBRs were left which did not utilize the
JSFTEPA. The present study thus results in a 100 percent utilization rate for the chemical
industry. Possible reasons include the fact that chemical companies often produce only
relatively few different products which are exported in large volumes, thus benefiting from
economies of scale. In addition and contrary to the machinery industry, chemicals are
often standardized products which usually contain a relatively small number of different
materials, making the examination of ROO less complex and costly.
3.6 Conclusion
Findings of the study
When deducting the responses of companies which could not utilize the JSFTEPA as it
was unnecessary or impossible, this study finds a substantially higher utilization rate
compared with previous surveys. The adjusted utilization rate has the advantage of
allowing for a more accurate comparison of different FTAs. Especially when comparing
territories with very different tariff profiles, for example with regard to the number of tariff
lines liberalized under MFN, the adjusted utilization rate reports the share of trade which
63
The longer the bill of material, the more time is needed to examine the individual positions with regard to
compliance with the ROO. This is an even bigger problem when sources of suppliers and prices change
frequently.
64
Malaysia, for example, is also a signatory to the ITA.
65
Similar to the ITA in the electronics industry, Japan and Switzerland are both signatories to the
Pharmaceutical Tariff Elimination Agreement.
37
could have, theoretically, utilized an FTA (i.e., tariff lines liberalized under MFN would be
excluded from the total imports).
With regard to firm characteristics, the company size measured by the number of
permanent employees is statistically significantly different between companies which
utilize the JSFTEPA and such which do not. In terms of international exposure, companies
which utilize the JSFTEPA are seven times more likely to be represented in Japan and
Switzerland with own business entities, while companies which do not utilize the JSFTEPA
are as likely to be represented in both countries as not. In addition, companies which
utilize the JSFTEPA are utilizing significantly more other FTAs than companies which do
not. These findings suggest that a size effect, an intra-firm effect and a learning effect can
impact the utilization rate of the JSFTEPA. By contrast, the international exposure is not
statistically significantly related to the utilization of the JSFTEPA. In combination with the
size effect, this finding suggests that absolute numbers are more decisive when it comes
to the utilization of the JSFTEPA than relative ones. Future studies may have a closer look
at the absolute export values of companies, rather than the export intensity.
When looking at the industry level, a qualitative analysis showed that industry
characteristics such as relatively standardized products, bulk shipments, as well as
comparatively low profit margins generally lead to a higher utilization of the JSFTEPA.
Most of above findings suggest that large companies are more likely to utilize FTAs than
smaller ones.
Recommendations for Policy Makers
Large companies usually enjoy a substantial international exposure. The study finds that
exactly such companies are utilizing FTAs relatively often, while smaller companies seem
to be at a disadvantage. Improving the utilization rate among small and medium sized
enterprises (SMEs) is therefore a challenge for policy makers. Especially if FTAs are
understood as an instrument to help SMEs internationalize, they have to be designed in a
way to create a level playing field for SMEs.
When reviewing or negotiating FTAs, policy makers should be aware of the difference
between the adjusted and the non-adjusted utilization rates. Policy makers should aim at
increasing the adjusted utilization rate of FTAs by designing the ROO to make them fit
international production and distribution networks. In addition, the provision of information
and resources to companies is important when aiming at a higher utilization rate.
Except for the agricultural sector, the JSFTEPA is very inclusive in terms of product
coverage. Tackling the remaining agricultural products may be a key challenge in future
reviews of the JSFTEPA.
Limitations of the Methodology
While surveys provide insight on a level of detail which pure trade data cannot, surveys
suffer from several shortcomings.
38
Firstly, respondents might wrongly state that their company is “not utilizing” an FTA when
it actually does66, or “utilizing” an FTA when it actually does not67. While both cases may
distort the survey results, the latter case is less severe as the researcher will most likely
realize that the answer is wrong when looking at the replies given to the subsequent
questions. However, the first case will most likely not be identified as a mistake.
Consequently, there will be a bias towards a lower utilization rate.
Secondly, surveys with voluntary participation may suffer from a sample selection bias
towards a higher utilization rate. Surveys are more likely to be filled in if respondents are
knowledgeable about the topic or if it is of concern to them. Therefore, respondents which
are familiar with FTAs, for example because FTAs are already utilized by their respective
companies, are assumed to be more likely to reply to a survey than respondents which are
not familiar with FTAs.
Thirdly, surveys themselves may influence the response of a respondent. This can
happen by asking suggestive questions or by providing a choice of pre-determined reply
options. A concern of the present study was related to the very central question of whether
or not a company utilizes the JSFTEPA. A respondent’s answer to this question could
have been “not yet utilizing but planning to do so”. It could well be that the respective
company indeed had plans to utilize FTAs. However, it is also conceivable that the
respective respondent was unaware of FTAs prior to the survey, and only learned about
FTAs through the survey. From this point of view, a survey is not adequate when trying to
establish how a company will be acting in the future68.
Finally, this specific survey may suffer from an additional bias since responses for trade
flows from Japan to Switzerland were provided exclusively from importers and distributors
located in Switzerland, while 23 out of 33 trade flows from Switzerland to Japan were
collected from manufacturers located in Switzerland. While importers/ distributors are
likely to indicate correctly whether or not they utilize the JSFTEPA, manufacturers are not
able to know with absolute certainty whether or not the importer/ distributor or the
manufacturer’s own importing entity would show the certificate of origin to customs and
claim the duty back. As a result, the utilization rate of the JSFTEPA for trade flows from
Switzerland to Japan may have been overestimated. However, no impact is expected on
the empirical results with regard to the characteristics of companies utilizing or not utilizing
the JSFTEPA.
Future research
This study has not dealt with possible correlations between the independent variables. As
an example, a prerequisite for companies which are utilizing many other FTAs in addition
to the JSFTEPA is that they export to all of these markets and are thus also comparatively
large. Similarly, companies in the chemical and transportation industry are also rather
66
Respondents who do not know whether or not their company is utilizing an FTA may tick “no” instead of “I
do not know”.
67
Respondents may have other preferential schemes in mind, such as free trade zones or export processing
zones.
68
Therefore, this survey merged the two categories of “not utilizing FTAs currently but plans to do so in
future” with “not utilizing FTAs currently and no plans to do so in the future” into “not utilizing”.
39
large compared with companies in the machinery and electrical industries. Therefore,
future research might have a closer look into the correlations of the independent variables.
40
4 Management of Free Trade Agreements: How do Companies
Utilize Them?
4.1 Introduction
The theory of comparative advantages suggests that companies base their decisions of
location choice on factor endowments and factor prices. Likewise, the fragmentation
theory explains the occurrence of cross-border production and distribution networks by the
fact that companies distribute their production across different territories to save costs. A
buyer driven approach to explain international production and distribution networks is the
Global Commodity Chain approach which suggests that buyers may require their suppliers
to have production facilities in different host countries (Yeung, 2001). Once a company
maintains an international production and distribution network, it will try to minimize related
transaction costs and may therefore consider the utilization of FTAs. However, the
utilization of FTAs does not only lead to lower costs in the form of reduced or eliminated
import tariffs, but also to new costs in various forms. Whether or not companies are
utilizing FTAs is therefore largely determined by the relation of benefits and costs of
utilizing FTAs.
In a first step, this study tries to categorize costs and obstacles which companies face
when utilizing FTAs, or which make them not utilizing FTAs at all. The respective
categories of costs and obstacles are drawn from existing literature as well as from a pilot
study conducted by the author. In a second step, the study focuses on companies
surveyed for the JSFTEPA and examines how companies which have utilized the
JSFTEPA manage these costs and obstacles. Thus, the focus of this paper is how, rather
than if, companies are utilizing FTAs. The study attempts to draw general conclusions on
the management of FTAs by understanding their mechanisms.
The following section presents an overview of the existing literature with regard to
obstacles companies face when utilizing FTAs. Section three presents the research
design and the profile of companies which responded to the JSFTEPA survey. Section
four discusses the costs and benefits of utilizing FTAs, while sections five and six look into
factors which influence the management of FTAs, or create challenges to managing them,
respectively. Finally, section seven provides some concluding remarks.
4.2 Literature Review
Existing studies which examine the costs of utilizing FTAs usually focus on the compliance
costs related to the ROO. Often, such studies find it to be quite expensive to satisfy and to
document the ROO69 and point to the fact that ROO can reduce the overall benefit of trade
agreements70. One of the earliest studies to estimate the costs of ROO is Herin (1986)
69
See for example Breton and Manchin (2002) who examine the Generalized System of Preferences of the
EU.
70
See for example Mattoo et al. (2002) who argue that the medium term benefits of the Africa Growth and
Opportunity Act enacted by the U.S. would have been almost five times greater without restrictions on
market access.
41
who suggests that the documentation and administration costs of ROO amount to about 3
percent of the value of the goods traded. In addition, costs of around 3 to 5 percent of the
value of the goods incur due to the fact that companies are not able to use a costminimizing input or to benefit from economies of scale when trying to satisfy the ROO.
Anson et al. (2005) examine the utilization rate of NAFTA and find that average
compliance costs of FTAs amount to approximately 6 percent of the value of goods traded,
while the average tariff preference is only 4 percent. Carrère and de Melo (2004) find that
preference margins of about 10 percent are needed to compensate for a regional value
content rule, while the change in tariff classification rule is less restrictive. Studying the
Asean FTA, Kohpaiboon (2010) finds costs of utilizing FTAs in the range of 10 percent for
exporters of the Thai manufacturing sector to Indonesia. Manchin and Pelkmans-Balaoing
(2008) find that compliance costs of the Asean FTA can reach up to 10 to 25 percent.
A relatively new method to estimate the costs of the utilization of FTAs is to survey
companies directly. In its 2008 company survey, JETRO asked companies about the
margin of preference which is decisive for them to utilize FTAs (JETRO, 2009). Table 4-1
reports the margins of preference and the respective percentage of companies as
reported in the JETRO survey.
Table 4-1: Margin of preference decisive in utilizing preferential tariff rates
Margin of preference
<1%
1% to
5% to
9% and
No
<5%
<9%
above
answer
Percentage of respondents 10.6%
Note: N = 208.
Source: Adapted from JETRO (2009).
36.6%
20.6%
13.5%
18.8%
The survey shows that more than 10 percent of companies are willing to utilize FTAs even
if the margin of preference is less than 1 percent. 37 and 21 percent of respondents would
utilize FTAs if the margin is between 1 and 5, or 5 and 9 percent, respectively. 13.5
percent of respondents would utilize FTAs only if the margin of preference is 9 percent or
above. These percentages can be interpreted as tariff savings needed to compensate a
company for all costs incurred by utilizing FTAs.
As a conclusion, existing studies suggest that companies face costs of utilizing FTAs in
the range of around 1 to 10 percent of the value of the goods traded.
However, studies examining concrete threshold margins are usually based on either
indirect measures or on surveys with a potential sample selection bias (Pomfret et al.,
2010). An additional problem when studying individual companies’ utilization of FTAs is
the fact that the utilization of FTAs varies greatly depending on firm characteristics such as
size or export volume. Therefore, general information on costs of utilizing FTAs is of
limited value for this study. A method which would allow for a very detailed insight into a
company’s costs and benefits is the case study method. However, the insight offered by a
case study is very much limited to the company examined.
Therefore, the present study does not attempt to estimate the concrete costs and benefits
of utilizing FTAs. Rather, an attempt is made to understand the mechanisms of FTAs from
42
a company perspective by studying how companies are utilizing or managing FTAs. Two
factors are assumed to influence the management of FTAs by companies. Firstly, the size
or trade volume of a company seems decisive against the background of the different
structures of costs and benefits of utilizing FTAs, and secondly, the decision-making
process which led to the decision to utilize FTAs in the first place. The specific challenges
with regard to the management of FTAs are developed during the course of the chapter.
4.3 Research Design and Profile of Respondents
Units of analysis: Depending on the respective question examined, the units of analysis of
this study are either companies or unidirectional trade flows, henceforth referred to as
trade flow based responses (TFBRs).
Data collection: Data was collected by way of an online survey. Companies surveyed
consisted of 300 members of the Swiss Japanese Chamber of Commerce in Switzerland
and 90 members of the Swiss Chamber of Commerce and Industry in Japan. An email
containing an internet link to an online questionnaire form was sent to all companies. A
follow-up by phone was made if a company did not reply or if a respondent indicated to be
open for more in-depth questions.
Online questionnaire: The online questionnaire contained a total of 92 questions (compare
appendix A-2). The questionnaire contained both open-ended questions and questions
with pre-determined answer choices. Due to the use of a conditional tree structure,
however, only a fraction of these questions had to be answered by individual survey
participants, with the exact number depending on the area of business and whether or not
a company was utilizing FTAs. The structure of the survey is shown in appendix A-3. The
questions related to the management of FTAs were referring either to the JSFTEPA itself
or to FTAs in general71. Apart from questions related to the management of FTAs and the
JSFTEPA, the survey also contained questions on the firm characteristics (compare
chapter 3), and such which are relevant for policy makers. The questions which are
relevant for policy makers will not be further dealt with here; however, the respective
responses of companies are listed in appendix A-4. The survey could be completed
anonymously. Answers were collected from October 3, 2010 until February 21, 2011.
Respondents were only required to answer questions which used skip logic.
The survey questions for this chapter were designed based on both existing literature and
a pilot study conducted by the author in the form of a survey. The findings of the existing
literature and the pilot study led to the identification of reasons for which companies did
not utilize FTAs in the past. Companies which utilized the JSFTEPA were then asked how
they overcame and managed these challenges.
In total 79 companies replied to the survey, of which three replied anonymously. Table 4-2
provides an overview on the sectoral distribution of the companies.
71
Questions on the assignment of FTA responsibilities or the FTA compliance process were general in
nature, while questions on the production and distribution network were JSFTEPA-specific.
43
Table 4-2: Number of replies by sectoral distribution of companies
Sectors
Number of Replies
Logistics provider
Service provider
5
15
Other company without trading activities
Importer, distributor or manufacturer with trading activities
3
56
Total
79
Appendix A-5 contains a list of the companies, the respondents, and the respondents’
positions and functions.
This study only examines companies and TFBRs in the area of trade in goods which
utilized the JSFTEPA. Therefore, 26 companies with 32 TFBRs are relevant for this study
(compare table 3-5 in chapter 3).
4.4 Costs and Benefits of Utilizing Free Trade Agreements
In order to decide whether or not to utilize FTAs, a company will have to evaluate the
costs and benefits of utilizing FTAs. If the net benefit is negative, a company will keep on
paying the MFN tariff rate. If the net benefit is positive, a company may consider utilizing
an FTA and complying with the respective requirements. The following two sections will
identify and categorize some costs and benefits of utilizing FTAs.
4.4.1 Costs
Several existing studies72 report reasons as to why companies did not utilize FTAs at all,
or at least not to the full extent possible. This section combines these reasons with
findings of a pilot study conducted by the author, and divides them into (i) challenges
which make it impossible or unnecessary for a company to utilize FTAs, (ii) challenges
which are not directly cost-related, and (iii) challenges which are either cost- or timerelated. Subsequently, only the challenges under (iii) will be further analyzed.
(i) Challenges which make it impossible or unnecessary for a company to utilize FTAs
Companies are not utilizing FTAs if it is impossible or unnecessary. This is the case if
FTAs do not cover the products a company is trading with, or if the tariffs of the respective
tariff lines have already been eliminated unilaterally, for example due to a sectoral
agreement such as the Pharmaceutical Tariff Elimination Agreement or the ITA. Further
reasons in this category include cases where companies already make use of other
preferential schemes, such as free trade zones or export processing zones.
(ii) Challenges which are not directly cost-related
Challenges which do not make the utilization of FTAs impossible or unnecessary and
which are not directly cost-related are mainly related to authorities and suppliers.
72
See for example Takahashi and Urata (2010), Wignaraja et al. (2010) or Kawai and Wignaraja (2009).
44
With regard to authorities, companies may not utilize FTAs due to fear of government
exposure. Specifically, the fear of a lack of confidentiality of customs when sensitive data
are concerned on costing, procurement sources or production processes may prevent a
company from utilizing an FTA. Further challenges include differing interpretations of HS
Codes by the authorities of the exporting and importing territory, respectively. Finally,
authorities of the importing territory may show a lack of tolerance accepting COO with
discrepancies, for example due to spelling errors.
Supplier-related problems include suppliers which do not want to or do not know how to
confirm preferential origin of their parts. Companies may also face difficulties validating a
supplier’s confirmation of preferential origin.
(iii) Challenges which are either cost- or time-related
The present study found challenges which are either cost- or time-related to be quite
diverse in nature. Therefore, these challenges are further categorized into costs related to
(a) the production and distribution network of a company, (b) the FTA compliance process,
and (c) the allocation of responsibilities.
(a) Challenges related to the production and distribution network refer to goods which do
not satisfy the ROO of a specific FTA, unless the production and distribution network is
adapted. Such adaptation may relate to the procurement of parts or raw materials, the
export destinations of final products, and the direct transportation rule 73. If the production
and distribution network has to be changed in order to utilize an FTA, additional
constraints have to be dealt with which may increase the unit costs of goods.
(b) In most studies, the majority of reasons for which companies do not utilize FTAs are
related to the process of FTA compliance. This process starts with the costs of information,
which accrue whenever a new FTA enters into force or an existing one is reviewed.
Thereafter, the MFN and FTA tariff rates have to be compared for every product
concerned, including possible staging processes. A company also has to check if its
products satisfy the ROO of the respective FTAs. Depending on the ROO, companies may
have to check the preferential origin of the parts with their suppliers as well as the
respective values and HS Codes. This is especially cumbersome and time-consuming
when the bills of material are long, the prices and origin of the parts are subject to frequent
changes, and when many different products have to be checked as ROO are often
product specific (HS Code 6-digit level). Depending on the provisions in the respective
FTA, a company may have to apply for an authorized COO with customs prior to the
exportation of a specific good. Such a COO needs to be issued for each type of good on
HS Code 6-digit level 74 and each shipment. An authorized COO has to be signed or
73
The direct transportation rule in FTAs stipulates that goods have to be transported directly from the
territory of export to the territory of destination. If goods are transported via a third territory, for example a
distribution hub, they might not receive preferential treatment upon importation into the FTA partner territory,
unless it is stored under (costly) customs supervision and accompanied by a non-manipulation certificate
from the customs of the third territory.
74
If goods are different on HS Code 6-digit level (e.g. with regard to color or flavor), companies may be
required to apply for a separate COO for each type.
45
stamped by both a company representative and a customs official 75 . In addition, a
company may be required to hand in a cost statement for each type of good on HS Code
6-digit level on a yearly basis. FTAs which allow for self-certification by the exporter, by
contrast, do not require an authorized COO, and thus make the utilization of FTAs
considerably more straightforward. Both procedures, however, require companies to keep
all records and documents related to the proof of origin and utilization of an FTA for a
specified number of years in view of a possible customs inspection. Finally, a change of
the parts’ origin or a change of the production process may lead to the final good no
longer satisfying the ROO. Therefore, a company needs to make sure that goods which
are found to satisfy the ROO are doing so consistently.
(c) The allocation of responsibilities seems to have an impact on the utilization of FTAs on
two levels: On the geographical level, companies mention management-related issues as
reasons for not utilizing FTAs, for example a lack of implementation by local subsidiaries,
or a lack of management support. The functional responsibility is closely linked to the FTA
compliance process. Staff has to be educated and trained in order to understand and
comply with the regulatory requirements. While education and training of staff is costly, it
will prevent cases where preferential treatment is claimed although it does not apply –
which may incur severe penalties. Not claiming preferences where it would be possible out
of ignorance or fear of doing something wrong, by contrast, would incur unnecessary
costs in form of tariffs.
4.4.2 Benefits
This study only considers benefits from trading in goods which do not accrue automatically
to all companies when an FTA enters into force. Benefits such as a simplified customs
procedures or elimination of duplicative testing are thus not examined here as a company
does not face any of above-mentioned costs and does not even have to be aware of the
existence of an FTA to reap such benefits.
The benefit of utilizing an FTA is therefore the tariff difference between the applied MFN
and FTA tariff rate, or, where there is no difference between the applied MFN and FTA
tariff rate, the assertion that the applied MFN tariff rate would not be increased to the level
of the bound rate.
Both importers and exporters benefit from FTAs in form of lower transaction costs.
Specifically, an importer benefits from FTAs by enjoying lower landed costs of the imports.
Whether the duties saved are being passed on to customers or used to increase the profit
margin depends on the competitive environment. An exporter who utilizes FTAs is more
export competitive. In the case of intra company trade, the utilization of an FTA can result
in either a higher profit margin or an increase in competitiveness.
With regard to the development of the business performance among the respondents to
the JSFTEPA survey, five companies found an increase in sales, while another five an
increase in profits but not in sales. An increase in profits but not in sales could point to a
75
Respondents to the survey indicated that the costs of the certificates of origin as such were negligible
compared with the time used to administer them.
46
diversion of financial transfers from the government (tariffs) to the importers (profit margin).
Consequently, in an environment which is not very competitive, FTAs may not create what
Meade (1955) called a consumption effect.
4.5 Factors Influencing the Management of Free Trade Agreements
4.5.1 Trade Volume
While the benefit of utilizing FTAs in the form of tariff savings is proportional to the value of
goods traded, the costs of utilizing FTAs are often independent of the value of the goods
traded.
Costs which are independent of the number of FTAs used, and the value and frequency of
the goods traded include basic education and training of staff with regard to FTA
compliance.
Costs which are independent of the value and frequency of shipments, but vary with the
number of different FTAs used include information costs, the time spent to compare MFN
and FTA tariff rates, the examination of the ROO and the management of the preferential
status in general.
Costs which are independent of the value of the goods traded, but vary with the frequency
of the shipments include costs and time related to the application for an authorized COO
as well as the maintenance of records and documents for customs inspection.
All of above-mentioned costs are independent of the value of the goods traded, and only
relatively few are dependent on the frequency of shipments. By contrast, costs seem to
vary with the number of FTAs a company utilizes 76, although a learning effect can certainly
be expected.
Costs of utilizing FTAs therefore seem to be characterized by economies of scale.
Provided companies trade the same goods, those with comparatively large and frequent
shipments will have the costs of utilizing FTAs compensated much sooner than companies
with relatively small and infrequent shipments. With regard to the terminology, the
subsequent analysis assumes that a “large company” has on average a higher export
volume than a “small company”.
4.5.2 Decision-Making Process
The first models to explain decision-making processes were based on a rational choice
perspective. The theory of expected utility (Savage, 1954) assumes that individuals
maximize a target function and organizations perform comprehensive analyses of the
internal resources, the environment and alternatives before taking a decision. These
assumptions are questions by behavioral researchers who argue that it is very unlikely for
an organism to be aware of all alternatives and consequences and thus to have perfect
and complete information. In order to account for cognitive limitations, theories of bounded
rationality therefore relaxed assumptions of the expected utility theory and suggested that
decisions were made by heuristics and satisficing. Simon describes the search for a
76
Kawai and Wignaraja (2009) find that large companies which export under many FTAs with different ROO
are more likely to complain about multiple ROO than smaller companies.
47
satisfactory rather than an optimal solution in that organisms usually adapt well enough to
“satisfice”, not to “optimize” (Simon, 1956: 129). Similarly, business decisions are based
on satisficing behavior by an organism of limited knowledge and ability (Simon, 1955, and
Simon, 1979). From a behavioral perspective, a decision-making process thus comes to
an end as soon as a satisfactory solution is found.
This approach has been criticized by Boer et al. (2006) as being too re-active. In order to
tackle the “satisficing”, they suggest a model according to which solutions would be taken
in a more pro-active way by suggesting several alternatives of which the optimal solution
is chosen. Their suggestion is therefore not as radical as the rational choice perspective,
but allows for a more comprehensive evaluation of alternatives than pure “satisficing”. In
the following, the pro-active model by Boer et al. (2006) is contrasted with a “satisficing”
model used by Mintzberg et al. (1976) which fits the situation of companies deciding on
whether or not and how to utilize FTAs.
Mintzberg et al. (1976) use empirical research to suggest a general model which
describes strategic, unstructured decision-making processes. “Unstructured” is understood
as a contrast to a routine operation decision which “has not been encountered in quite the
same form and for which no predetermined and explicit set of ordered responses exists in
the organization” (Mintzberg et al., 1976: 246). “Strategic” means important, in terms of the
actions taken and the resources committed (Mintzberg et al., 1976: 246). According to this
model, the process of decision-making is evoked by stimuli, followed by solutions and
process. In contrast to many behavioral researchers which use processes with feedback
loops or even chaotic processes77, Mintzberg et al. (1976) suggest a process based on
sequential phases. The individual phases are “identification” of an opportunity, problem or
crisis, “development” of one or more solutions, and “selection” (Mintzberg et al., 1976:
252). The “decision process” is defined as a “set of actions and dynamic factors that
begins with the identification of a stimulus for action and ends with the specific
commitment to action” (Mintzberg et al., 1976: 246).
The combination of the models by Mintzberg et al. (1976) and Boer et al. (2006) is
presented in figure 4-1.
Figure 4-1: Comparison of a “satisficing” and a pro-active decision-making process
Decision-Making Process
Identification of
opportunity,
problem or crisis
Stimulus:
Proliferation of
FTAs perceived
as opportunity or
threat to a
company
Development of
Selection
one or more
solutions
Satisficing: The first solution is the final
selection
Pro-Active
Evaluation of
Approach:
alternatives and
Creation of
choice of optimal
alternatives
solution
Source: Own illustration, following Mintzberg et al. (1976) and Boer et al. (2006).
77
See for example the garbage can model of Cohen et al. (1972).
48
The decision of whether or not and how to utilize FTAs can be called “unstructured” as it is
not a routine operation and in addition characterized by a certain level of uncertainty as
the costs are relatively difficult to estimate and may sometimes even appear as intangibles.
The decision is certainly also “strategic” as a tariff reduction can lead to a potentially
decisive competitive advantage, especially for companies which are facing low profit
margins. In addition, the stimulus of the decision-making process – the proliferation of
FTAs – is perceived by companies as either an opportunity or a threat to business.
Whether or not a company perceives FTAs as opportunities or as threats depends largely
on whether or not its competitors utilize the respective FTA(s). Since the two approaches
towards decision-making – “satisficing” (Mintzberg et al., 1976) and pro-active (Boer et al.,
2006) – reflect the behavior of the companies surveyed well, they are used in this study to
guide the research.
The following example serves as an illustration to contrast a “satisficing” with a pro-active
decision-making process with regard to whether or not to adapt the production and
distribution network in order to utilize an FTA (table 4-3).
Table 4-3: Illustration of a “satisficing” and a pro-active decision-making process
Export of beta hydroxy napthoic acid (HS Code 29182920) from Singapore to India
Trade Regime
Rules of Origin
Import Tariff
MFN
No ROO
India-Asean
FTA
India-Singapore
FTA
35% regional value added and change in tariff
classification on HS Code 6-digits
40% bilateral value added and change in tariff
classification on HS Code 4-digits
10%
6%
0%
A company which is exporting beta hydroxy napthoic acid from Singapore to India can do
so under three different trade regimes. Under MFN, the company pays 10 percent import
tariffs in India. Under the India-Asean FTA the company pays only 6 percent import tariffs,
however, it has to comply with a 35 percent regional value added and a change in tariff
classification (CTC) on the HS Code 6-digit level. Under the India-Singapore FTA, the
company does not need to pay any import duty upon importation into India, but has to
satisfy the ROO which stipulate a 40 percent bilateral value added and a CTC on the HS
Code 4-digit level. The company would save most import tariffs by utilizing the IndiaSingapore FTA. The ROO under this FTA, however, are also the most restrictive ones.
Assuming the current production and distribution network of the company allows it to
satisfy only the ROO under the India-Asean FTA (for example because it only reaches a
value added of 40 percent if inputs sourced from Malaysia are counted as originating), a
“satisficing” decision-making process would stop as soon as the company realizes that a
net-benefit results by utilizing the India-Asean FTA. A pro-active approach, by contrast,
would evaluate other alternatives in addition. To illustrate a pro-active decision-making
process, the company could consider a change of the production and distribution network
49
and compare the costs incurred by the change with the additional tariff savings. Instead of
sourcing inputs from Malaysia, the company could source them from Singapore or India
(which are both part of the bilateral cumulation area under the India-Singapore FTA) to
reach the 40 percent bilateral value added. A pro-active decision-making process would
evaluate such alternatives and compare the costs of changing the production and
distribution network (most likely higher input costs when sourcing from Singapore) with the
additional benefit (4 percent tariff savings).
4.6 Challenges to the Management of Free Trade Agreements
The question of how FTAs are utilized or managed is well suited to be analyzed by the
decision-making approach which was used to decide if FTAs should be used at all, and a
company’s trade volume.
The following sections examine the three categories of challenges which were identified in
section 4.4.1 to be either cost- or time-related. These are
(a) the production and distribution network,
(b) the FTA compliance process, and
(c) the allocation of functional and geographical responsibilities.
4.6.1 Production and Distribution Networks
The design of the production and distribution network can be decisive when it comes to
the utilization of FTAs. ROO may require a company to change the sourcing pattern of
parts or raw materials in order to allow the finished products to receive preferential
treatment in FTA markets. In addition, the direct transportation rule may require a
company to transport goods directly or to pay higher fees for storage under customs
supervision in the third territory.
Dense international production and distribution networks are quite prevalent in Asia –
described by Baldwin (2008: 449) as the “Factory Asia”. With regard to Japanese
companies, a survey by JBIC (2009) found that Japanese companies were much more
likely to strengthen their overseas operation than their operations in Japan itself 78. This
situation was reflected in the replies to the JSFTEPA survey. Quite some companies
mentioned that they were not able to utilize the JSFTEPA due to the fact that they had
outsourced their complete production to other Asian territories or Eastern Europe.
Against this background, the JSFTEPA survey asked companies whether or not they did
or would consider changing and optimizing their production network or their manufacturing
strategy as a response to FTAs in general (table 4-4). Half of the companies which replied
to this question did or would consider such changes.
78
Compare footnote 15.
50
Table 4-4: Companies’ opinion on a change of the production network, by
companies
Question: Did or would your company consider changing
Number of Companies
and optimizing the production network/ manufacturing
which Utilized the
strategy as a response to FTAs?
JSFTEPA
Yes
No
4
4
No answer
Total
18
26
In-depth interviews revealed, however, that an evaluation of the production and
distribution network would not be based solely on FTA considerations. Rather, such an
evaluation would include other aspects of a tax efficient supply chain management, too. In
addition, transportation and storage costs would also be taken into consideration when
calculating the net benefit of an adaptation of the network. With regard to the production
as such, tax advantages are generally not seen as a reason to relocate production sites.
Rather, FTAs aim at optimizing existing structures.
Apart from changing the sourcing of parts to reach a certain local value added, companies
may also need to review the production and distribution network with regard to the direct
transportation rule. A company may need to compare the costs and benefits of
transporting goods directly versus transporting them via a distribution center or a hub in a
third territory. A cost-benefit analysis would compare benefits from utilizing an FTA with
either the costs of storing the goods under customs supervision in the third territory79 or
the efficiency loss resulting from abandoning a hub strategy. Table 4-5 shows that 18 out
of 32 TFBR indicated that goods were transported directly between Japan and
Switzerland, while ten replied that they passed through a third territory.
Table 4-5: (In)Direct transportation of goods under the JSFTEPA, by TFBRs
Question: When exporting goods from Switzerland/ Japan to
Japan/ Switzerland, do you transport the goods directly or via
third countries?
Number of TFBRs which
Utilized the JSFTEPA
All our goods are being transported directly
Some or all of our goods are being transshipped via one or
several third countries
18
No answer
Total
4
32
10
79
Some companies replied that they rather pay the MFN tariff than to store the goods in the customs transit
zone as it is too costly.
51
Since Switzerland does not have sea access, the survey respondents’ goods which were
not flown by air were transported via third territories such as Belgium, France, Germany or
the Netherlands80. In addition, two companies replied that they were operating hubs in
Malaysia and Singapore. Respondents of the survey mentioned that the direct
transportation rules in earlier FTAs were much more restrictive than in recent FTAs.
Recent FTAs reflect the architecture of production and distribution networks in a much
better way – partially due to the feedback provided by companies to customs officials. The
JSFTEPA, for example, allows for a split-up of consignments in bonded warehouses of
third territories. If such goods are accompanied by a certificate of non-manipulation upon
importation into the FTA partner territory, they do not lose preference.
Another aspect of the production and distribution network with regard to the utilization of
the JSFTEPA is the subsequent re-export of products imported from either Switzerland
into Japan or Japan into Switzerland. Products which are imported into Japan or
Switzerland under the JSFTEPA can generally not utilize other FTAs when being reexported81. Two examples illustrate how Japanese re-exports from Switzerland can still
benefit from the JSFTEPA. Firstly, the production of goods which face high tariffs when
imported from Japan into the EU may be (partially) shifted to Switzerland. After a
substantial transformation has taken place, the final products may benefit from the
preferential treatment granted by the EU. Secondly, Japanese companies may ease their
cash flow situation by utilizing the JSFTEPA for goods bound to the EU. Upon importation
into Switzerland, the goods are stored there and only re-exported to the EU when required
by the buyer. Using this approach, Japanese companies may defer payment of EU import
tariffs until the goods are actually sold, while at the same time still having a short lead time
to supply their customers.
Table 4-6 reports the TFBRs with regard to the final destination of products traded
between Japan and Switzerland. Goods exported from Switzerland to Japan seem to be
bound predominantly for the Japanese domestic market. Goods which are traded from
Japan to Switzerland, by contrast, are more likely to be re-exported to the EU later,
partially by utilizing the EU-Switzerland FTA after substantial transformation has taken
place82.
80
Switzerland is Japan’s only FTA partner territory so far which does not have sea access. The fact that
most products are therefore transported via third territories seemed to have created some confusion at the
Japanese customs. At the time the survey took place, however, most of the problems in this regard were
solved.
81
Some of Switzerland’s FTAs are part of the Pan-Euro-Med cumulation of origin system which allows for
diagonal cumulation. The JSFTEPA, however, does not belong to this system and therefore only allows for
bilateral cumulation between Japan and Switzerland.
82
The companies which re-export to the EU utilizing the EU-Switzerland FTA belong to the chemical, the
dental and the precision industries. Rather than combining the JSFTEPA and the EU-Switzerland FTA
strategically, however, these companies seem to import raw materials from all over the world (including
Japan) for further manufacture in Switzerland and subsequent exportation of the final products globally
(including the EU).
52
Table 4-6: Destination of products traded between Japan/ Switzerland, by TFBRs
Question: What happens to the goods you
import from Japan/ Switzerland into Switzerland/
Japan?
All the goods we export to/ import into Japan/
Switzerland are sold in the domestic market
All or some of the goods we export to Japan/
Switzerland are later re-exported to other
countries in Asia/ the European Union
All or some of the goods we import into/ export to
Switzerland/ Japan are further processed in
Switzerland/ Japan and then exported to the
European Union/ to other countries in Asia
Number of TFBRs which Utilized
the JSFTEPA
Trade flows
from
Switzerland
to Japan
13
1
… by utilizing the EU-Switzerland free trade
agreement (i.e. claiming Swiss preferential
origin)/ by using the respective FTAs (i.e.
claiming Japanese preferential origin)
No answer
Trade flows
from Japan
to
Switzerland
Total
Number
of
TFBRs
4
17
5
6
2
2
3
3
4
Total
18
4
14
32
Conclusion: How a company manages the production and distribution network seems to
be primarily a question of the decision-making process. A satisficing approach to decisionmaking may simply look at benefits which can be extracted from utilizing FTAs for existing
trade flows. With regard to the direct transportation rule, a satisficing decision-making
process may find that there is a net benefit utilizing an FTA and storing the goods in a
bonded warehouse, without even looking into the possibility of transporting the goods
directly. A pro-active approach, by contrast, may look into the costs and benefits of
redesigning and optimizing the production network in order to maximize the benefits which
FTAs can provide. With regard to re-exports, a pro-active approach may come up with
creative ideas on how to combine several FTAs.
4.6.2 Compliance Process
The majority of reasons for which companies do not utilize FTAs are related to the FTA
compliance process – from collecting information on FTAs to ensuring that goods which
are found to satisfy the ROO are doing so on a consistent basis (compare section 4.4.1).
Such a process needs to satisfy two requirements. Firstly, the process should ensure that
a company complies with the rules and regulations governing the respective FTAs, and
secondly, it should be as cost-efficient as possible.
53
Table 4-7 shows how the companies surveyed manage FTAs from a process point of view.
Of the nine companies which replied to this question, seven replied to have automated the
FTA process with either an internally developed or commercially available software. Two
companies replied to employ a manual process.
Table 4-7: Type of process to manage FTAs, by companies
Question: How does your company manage FTAs? Number of Companies which
Manually
With an internally developed software
2
1
With a commercial software
6
No answer
17
Total
26
Companies which reported utilizing a manual FTA process utilized the FTAs only for a few
different products and exported these products to relatively few FTA partner territories.
Disadvantages of this method include the possibility of (human) errors and inconsistencies,
the time-consuming administration (including examination of the ROO) and documentation,
and risks with regard to compliance. Companies which exported a substantial number of
products to several FTA partner territories often used an automated system. The
advantages of automated systems include the reliability regarding a consistent utilization
of FTAs, the fact that automated systems are less error-prone, and the time saving,
especially when many different products have to be administered. Disadvantages include
challenges regarding the interfaces with the ERP and the complex programming of ROO,
especially when the software is internally developed. In addition, some software does not
allow for the programming of more than one ROO per product, and therefore cannot cope
with multiple ROO across different FTAs. Furthermore, software is quite expensive –
especially for smaller companies an obstacle to employ an automated FTA process.
Whether or not automated solutions work depends on how preferential origin can be
proven. When companies’ signatures on cost statements and customs’ stamps on
authorized COO are required, the FTA process may not be made fully automated. A fully
automated process is only possible when FTAs allow for self-declaration, for example by
providing for an “authorized exporter” status as in the JSFTEPA. Companies which are
registered as “approved exporters” may print a declaration as to the preferential origin of
the goods on the invoice instead of applying for a COO with customs. While Switzerland’s
FTAs usually allow for self-declaration in the form of the “approved exporter”, the
JSFTEPA is Japan’s first FTA which contains this provision 83 . In the survey this is
reflected by the fact that only companies located in Switzerland indicated that they were
83
Self-declaration of origin is very common in Europe (“approved exporter”) and North America. Crossregional FTAs such as the U.S.-Singapore FTA or the EFTA-Korea FTA provide for self-declaration of origin,
too. Intra-Asian FTAs, however, usually require an authorized COO, signed or stamped by customs officials
and a company representative.
54
approved exporters84. Table 4-8 shows that five out of eight companies which replied to
this question are “approved exporters”.
Table 4-8: Approved exporter status, by companies
Question: Does your company export goods to Japan/
Switzerland under the "approved exporter" status?
Yes, we export under the "approved exporter" status
No, but we plan to apply for the "approved exporter" status
No, and we do not plan to apply for the "approved
exporter" status as we are fine with applying for
preferential certificates of origin
No, our company was not able to get the "approved
exporter" status
No answer
Total
Companies which Utilized
the JSFTEPA
5
1
1
1
18
26
The advantage of a company being an approved exporter and thus able to automate the
FTA compliance process becomes clear when looking at the time needed to comply with
the rules and requirements. Companies were asked to indicate the time they needed to (a)
check if the ROO are satisfied, (b) prepare the cost statement, and (c) demonstrate the
proof of origin per product on HS Code 6-digit level. Companies which exported under the
“approved exporter” status required on average less than 5 minutes for each (a), (b) and
(c). By contrast, an exporter which was not able to get the “approved exporter” status
required between one to three hours to check if the ROO were satisfied, and 31 to 59
minutes to prepare the cost statement. It seems that utilizing FTAs can be very timeintensive. Companies which are “approved exporters” and therefore able to automate the
FTA process save a significant amount of time and thus costs when utilizing FTAs.
Conclusion: Whether or not a company employs an automated FTA process is primarily a
question of the trade volume of a company. Firstly, the fix costs of software which allows
for an automated process are reported to be quite substantial, which is why predominantly
companies with a high export volume will be able to justify these expenditures. Secondly,
a fully automated FTA process is only possible when self-certification is possible. In the
case of the JSFTEPA, however, only companies which make frequent shipments will be
able to get the “approved exporter” status. Small companies with a comparatively low
export volume and infrequent shipments will therefore have to employ a manual process
with all the disadvantages reported above.
84
Some companies in Japan mentioned the cumbersome process of applying for an authorized COO as an
obstacle. This may be an indication that the status of the “approved exporter” is not yet well known and
established in Japan.
55
4.6.3 Responsibilities
4.6.3.1 Functional Responsibility
Whether or not an FTA can be utilized depends on where the raw materials are procured
from, how the manufacturing process looks like, and where the final products are sold to.
Therefore, from a functional perspective, the whole supply chain is involved. This section
examines the companies surveyed with regard to the functions they assign the primary
FTA responsibility to. The primary FTA responsibility refers to the general overview of the
FTA process, the responsibility for compliance, and/ or the signing of the COO (if
applicable).
When examining the supply chain of a company it is important to define where the supply
chain begins and where it ends. According to Hesse and Rodrigue (2004) two
components are of utmost importance: Firstly, the physical distribution which includes
transportation, transshipment, warehousing and trade; and secondly, the management of
the materials, including production, production planning and purchasing. Increasingly,
parts of the supply chain are being outsourced, with purchase and order agents such as
shipping companies or freight forwarders having the actual “supply chain power” (Hesse
and Rodrigue, 2004: 181). The reasons for outsourcing parts of the supply chain to
logistics services or third party logistics providers usually include cost savings and
improved services (Bhatnagar et al., 1999).
Table 4-9 shows the replies of companies surveyed with regard to the primary functional
responsibility for FTAs. While there is certainly not only one approach, a majority of six out
of eight companies which replied to this question assigned the primary functional FTA
responsibility to some part of the supply chain. The remainder assigned the responsibility
to staff dealing with foreign trade and customs relations or finance, respectively.
Table 4-9: Functional FTA responsibility, by companies
Question: Who is primarily responsible for certifying Number of Respondents which
origin and FTA-compliance in your company?
Supply Chain (excluding sales)
Sales
4
2
Foreign Trade/ Customs Relation
Finance
1
1
No answer
Total
18
26
Some companies which were utilizing FTAs on a consistent basis mentioned that they
have assigned FTA responsibility to a staff which is employed specifically to deal with
compliance issues such as the FTA process or export control. The advantage of having
such FTA experts or FTA coordinators is that they oversee the whole FTA process along
the supply chain and can thus easily identify further opportunities and improvements with
regard to the FTA process or the utilization of FTAs.
56
Other companies added the FTA responsibility to an existing job profile. In such cases, the
respective staff could only dedicate 5 to 10 percent of time to FTAs. During periods of
heavy workload, such companies were facing problems when the respective staff could
not perform FTA-related duties. Of the companies surveyed which did not know whether
or not they were utilizing the JSFTEPA, a third indicated that external resources such as
logistics providers or freight forwarders take care of international trade, including FTAs.
Since the FTA responsibility is always with the company, an outsourcing of such services
may create compliance-related problems.
Conclusion: How a company manages functional FTA responsibility seems to be a
question of both the decision-making process and the trade volume of a company. Firstly,
a satisficing approach to decision-making may assign the functional FTA responsibility to
staff that already has a full-time job. Such staff may perceive their FTA-related duties as a
side job which does not need particular attention. Apart from potentially not utilizing FTAs
to the full extent possible, such an approach may result in considerable compliancerelated risks. Similarly, assigning FTA responsibility to external resources dealing with
international trade may incur compliance-related problems. A pro-active approach, by
contrast, may result in a specific FTA or compliance position, thus reducing the
compliance related risks and ensuring that FTAs are utilized to their full potential.
Secondly, the assignment of functional responsibility also depends on the size of a firm. A
company with only few products and few exports may find that the expenditures of having
staff specifically responsible for FTAs may not be justified by the expected additional tariff
savings or the increased level of compliance. Such companies may opt to add FTA
responsibility to an existing job profile.
4.6.3.2 Geographical Responsibility
Apart from the functional FTA responsibility, geographical FTA responsibility is of crucial
importance when examining the management of FTAs. From a geographical point of view,
the responsibility related to the utilization of FTAs can be assigned to either the global
headquarters or the local subsidiaries solely, or shared by both the global headquarters
and the local subsidiaries.
To what extent a company can utilize FTAs depends, among other factors, on whether
and how a company develops an FTA strategy. In order to design an FTA strategy,
information on the local trading environment is required. In addition, to implement the FTA
strategy, a company has to rely on local staff. Therefore, the survey asked companies how
they decided on an FTA strategy. Table 4-10 shows that four out of nine companies which
replied to this question involved the global headquarters and local subsidiaries in the FTA
strategy making, while three and two companies left the FTA responsibility with either the
global headquarters or the local subsidiaries, respectively.
57
Table 4-10: Geographical FTA responsibility, by companies
Question: How is your company's strategy regarding use
of FTAs decided?
Number of Companies
which Utilized the JSFTEPA
Global headquarters and overseas subsidiaries/ affiliates
Global headquarters decides alone
4
3
Overseas subsidiaries/ affiliates decide by themselves
No answer
2
17
Total
26
Some companies which were utilizing FTAs on a consistent basis mentioned that the FTA
responsibility was shared between the global headquarters and the local subsidiaries. The
responsibility of the headquarters included the alignment of the global supply chain with
the FTA strategy and the management of information technology systems, especially the
interfaces, to ensure that classification codes are standardized globally and that the origin
of goods is set up in the master data. The responsibility of local subsidiaries included the
provision of information to headquarters regarding the development of the local trading
environment, the implementation of procedures according to the situation in the respective
territories, and the compliance with the local rules and regulations. Such an arrangement
of responsibilities guarantees an effective utilization of FTAs globally. By contrast,
companies which tried to manage FTAs out of the global headquarters or the local
subsidiaries alone were less successful with regard to a consistent utilization because
either the local implementation was difficult, or the global or regional perspectives were
missing85. In addition, without support from headquarters, subsidiaries found it difficult to
introduce an organization which could handle FTAs.
Companies which were sharing the responsibility for FTAs between the global
headquarters and the local subsidiaries had dedicated staff at both headquarters and the
local subsidiaries to ensure global strategy making and local implementation.
Nevertheless, some of these companies reported problems with regard to moral hazard as
described by the agency theory. When headquarters depends on information provided by
the local subsidiaries, headquarters (the principal) cannot be sure if the local subsidiaries
(the agents) are acting in its interest. A study by O’Donnell (2000) found that a subsidiary
of a multinational company which is located geographically far away from headquarters
poses difficulties to manage, both when it comes to getting information and when
supervising the subsidiary’s management. This is specifically the case if goal
incongruence exists between headquarters and subsidiary. O’Donnell finds that
monitoring mechanisms such as direct supervision and financial incentives do not work for
subsidiaries abroad due to the absence of close proximity and difficulties with regard to
85
Since the burden of proving origin is with the exporter while the importer gets all the benefits in form of
tariff savings, FTAs may not even be utilized for intra-firm trade if the local exporting subsidiaries do not see
a benefit for themselves. The global headquarters, by contrast, can more easily establish the net-benefits
across exporting and importing subsidiaries. In the case of third-party exports, a respondent to the survey
indicated that his company applies for a COO by request of the importer – against a nominal fee to
compensate for the burden of proving origin.
58
the measurement of the financial performance in an interdependent world. Rather,
O’Donnell suggests approaching the agency problem with social control methods as
suggested by the social identity theory. He found that cooperative behavior of the
managers can be raised through increased identification with the company. Identification
can be strengthened through vertical integrating mechanisms such as contacts between
managers of foreign subsidiaries and headquarters, or through lateral integrating
mechanisms such as personal interactions among managers of different foreign
subsidiaries.
Both the setting of and the action taken by the companies surveyed are comparable to the
findings by O’Donnell (2000). As suggested by the agency theory, respondents’ replies
indicated that goal incongruence between headquarters and subsidiaries with regard to
the utilization of FTAs indeed exist. For example, although headquarters instructed a local
subsidiary to utilize certain FTAs, the local subsidiary did not do so. The subsidiary argued
that the utilization of FTAs would lead to an increase in the work load, while there were no
benefits. The fact that lower landed costs of other subsidiaries would lead to an increase
in the company’s competitiveness was of no immediate relevance to the subsidiary
supposed to certify origin. To prevent such incidents from happening, the respective
company’s headquarters used social control methods – both vertical and lateral. Vertical
integration mechanisms included visits by staff responsible for FTAs at headquarters to
local subsidiaries in order to establish and maintain personal relations with local staff. With
regard to vertical integration, regional education and training seminars were organized for
staff responsible for FTAs at local subsidiaries. In addition, and specifically aiming at an
increased identification among members of distributed virtual FTA teams, regular phone
conferences among local FTA staff in the respective countries were held.
Conclusion: How a company manages the geographical FTA responsibility is a question of
both the decision-making process and the trade volume of a company. Firstly, a satisficing
approach to decision-making may leave the geographical responsibility to either the global
headquarters or the local subsidiaries, risking that FTAs are not utilized to the full extent
possible. A pro-active approach, by contrast, would consider the assignment of the
geographical responsibility to both the global headquarters and the local subsidiaries.
Such a solution may require considerable resources to ensure local implementation and
coordination between global headquarters and local subsidiaries. Nevertheless, the
increase in tariff savings may justify the additional costs. Secondly, the management of
the geographical responsibility also depends on the size of a company. A firm with smaller
subsidiaries abroad may find that the expenditures of having staff responsible for FTAs
abroad – even if only partially dedicated to FTAs – are not justified by the expected
additional tariff savings.
4.7 Conclusion
While chapter 3 examined the firm-characteristics of companies utilizing or not utilizing the
JSFTEPA, this chapter studies how companies are utilizing the JSFTEPA and draws
general conclusions on the management of FTAs.
59
Drawing on previous literature and a pilot study conducted by the author, three categories
of challenges with regard to the management of FTAs are identified, namely the
production and distribution network, the FTA compliance process, and the allocation of
responsibilities. The study finds that the management of these three categories of
challenges is well suited to be analyzed with regard to the decision-making approach
which was used to decide if FTAs should be used at all, and a company’s size or trade
volume. Table 4-11 reports the findings by category of challenge.
Table 4-11: Challenges companies face, decision-making process and trade volume
Category of
Decision-Making Process Trade Volume of the Company
Challenge
“Satisficing”
Pro-active
Companies with
Companies with
small trade volumes
large trade
volumes
No impact
Coverage of
the production
and
distribution
network
Benefits from
utilizing
existing
trade flows
Assessing
costs and
benefits of
optimizing
production
network
No impact
FTA
Compliance
Process
No impact
No impact
Manual approach as
-fixed costs related
to automation of
process
comparatively high
- “approved exporter”
status requires
frequent shipments
(specific to
JSFTEPA)
Assigned to existing
job profile due to
high costs of
additional staff and
low benefits from low
trade volumes
Automated process
since fix costs of
software can be
compensated by
tariff savings
created by high
export volume
Assigned to global
headquarters or local
subsidiaries as low
trade volumes do not
justify coordinated
approach
Considering to
assign to both
global
headquarters and
local subsidiaries
as export volumes
justify coordinated
approach
Assignment of Assigned to
functional FTA existing
responsibility
internal or
external job
description
Considering
to assign to
FTA
coordinator
Assignment of
geographical
FTA
responsibility
Considering
to assign to
global
headquarters
and local
subsidiaries
Assigned to
global
headquarters
or local
subsidiaries
60
Considering to
assign to FTA
coordinator as
export volumes
may justify
additional costs
How a company manages the production and distribution network seems to be primarily a
question of the decision-making process. The FTA compliance process, by contrast,
depends mostly on the trade volume of a company.
Finally, the assignment of functional and geographical responsibilities depends on both
the decision-making process and the trade volume.
With regard to the decision-making process, a “satisficing” solution has several
disadvantages across the categories of challenges. The two most important ones are
compliance issues and inconsistencies when utilizing FTAs. Compliance issues can arise
when the functional responsibility is assigned to an existing job profile and thus perceived
as just some other task, or when there is no coordination between the global headquarters
and the local subsidiary. Inconsistencies of utilizing FTAs can occur for the same reasons.
A pro-active approach, by contrast, would ensure a consistent utilization of FTAs, for
example by optimizing the production network, or by assigning the functional responsibility
to a dedicated staff. In addition, a pro-active approach may consider sharing the
geographical responsibility between the global headquarters and the local subsidiaries,
thus ensuring that a strategy and systems are available for a consistent utilization of FTAs.
Furthermore, a company will find compliance with FTAs easier when a dedicated staff is
dealing with FTAs.
The two approaches to management of FTAs with regard to the trade volume of a
company can be compared, to some degree, with the two approaches towards the
decision-making process. Regarding both the compliance and the consistency of utilizing
FTAs, companies with small trade volumes seem to be at a disadvantage. Firstly, since
small companies will find it difficult to automate the FTA process, they would have to
resort to a manual process which is more error-prone and less reliable in terms of covering
all FTAs and trade flows. Secondly, assigning the functional FTA responsibility to a
dedicated staff may not be feasible for small companies out of considerations of costs.
Thirdly, the costs of coordinating geographical FTA responsibility between the global
headquarters and the local subsidiaries may not be justified by the low trade volumes. By
contrast, companies with comparatively large trade volumes may find these efforts
worthwhile because they are justified by relatively large tariff savings.
The assumption of perfect competition would lead to the expectation that all tariff savings
should be passed on to the customers. Consequently, an increase in sales and not more
than a proportional increase in profits should be the result in terms of business
performance. However, a number of companies surveyed reported that there was no
change in sales, but an increase in profit, which could hint at the possibility of companies
keeping the difference between the MFN and JSFTEPA tariff rates in the form of a higher
profit margin. Instead of being passed on to the customers, the reduction in tariff savings
was therefore simply diverted from the government to the respective companies.
Recommendations for Policy Makers
The findings of chapter 3 with regard to the fact that larger rather than smaller companies
benefit from FTAs is supported by this study. It appears that fixed costs mainly related to
61
the FTA compliance process, but also with regard to education and training of staff, act as
entry barriers for SMEs which prevent them from utilizing FTAs.
If SMEs are expected to utilize FTAs, policy makers would need to address their concerns
when negotiating FTAs. However, even after an FTA has entered into force, SMEs require
support to utilize FTAs, especially with regard to the initial fixed costs. Governments
increasingly offer FTA information sessions and to some degree also training seminars.
While this is a positive development, even more important is the offer of solutions
regarding the implementation of an FTA process which suits the needs of SMEs. Such a
process could start by offering an FTA tariff calculator on the respective Customs’ website,
but should be continued offline inside the company in the form of a simple program to
guide through the steps of the FTA utilization. Support and coordination may be provided
by a centralized agency, either publicly or privately run, with regard to assisting companies
to utilize FTAs.
Finally, against the background of increasingly international production and distribution
networks, bilateral FTAs require companies to re-design and optimize their networks if
they want to make use of FTAs. Policy makers may therefore aim at negotiating regional
instead of bilateral FTAs, or at least FTAs with ROO which allow for regional cumulation,
such as the Pan-European-Mediterranean FTAs which allow for diagonal cumulation.
Limitations of the methodology and future research
Most of above findings are based on the replies of a relatively small number of companies
which took part in the JSFTEPA survey. Although the theoretical conclusions are largely
generalizable, it may be argued that some of the individual findings are only based on
anecdotal evidence. Therefore, a quantitatively oriented study based on the findings of
this examination could be carried out, including further aspects which may have an impact
on the management of FTAs. A larger sample of companies across several different FTAs
would certainly add value to such a study.
62
5 Utilization of Free Trade Agreements: Analysis of Customs
Data86
5.1 Introduction
The previous chapters suggested that the utilization of FTAs is characterized by both firmand industry-specific effects. This chapter tries to address some of the shortcomings of the
two previous approaches, namely the limited sample size which made it impossible to
perform an analysis on industry level, as well as the potential selection bias of the
respondents.
Highly disaggregated data of the Swiss Federal Customs Administration allows for a direct
calculation of the JSFTEPA’s utilization rate per tariff line on the HS 8-digit level.
Specifically, this chapter examines the relationship between the utilization rate and both
relative and absolute tariff savings.
The following section presents an overview of the existing literature. Sections three and
four present the data on import values, margins of preference and utilization rates. Section
five introduces the hypotheses and the resulting model, while section six presents the
results of the analysis. Finally, section seven provides some concluding remarks.
5.2 Literature Review
Previous studies on the utilization rate of FTAs based on administrative records from
Customs were mainly concerned with the impact of the restrictiveness of the ROO on the
utilization rate. For a study involving NAFTA see for example Anson et al. (2005). In Asia,
Kohpaiboon (2010) examined exports by Thai manufacturers to Asean members. From
2003 to 2008 he found an increase in the utilization rate of exports to Indonesia from 20 to
60 percent. For Australia, Pomfret et al. (2010) studied import data from 2000 to 2009
under six FTAs, including the ones with Chile, New Zealand, Singapore and the U.S. The
study finds that, in the long run, the utilization rates of most FTAs decreased substantially
due to an increase in tariff lines which Australia liberalized unilaterally under MFN. In 2009,
the utilization rate of Australia’s FTAs with regard to imports reached from below 10
percent for the ones with Singapore and Chile to up to 50 percent for the one with New
Zealand. The U.S. – Australia FTA had a utilization rate of around 25 percent.
Whether or not there is an increase in the utilization rate over time depends on the time
period examined and the structure of the tariff reduction schedule. Tariffs in FTAs between
developing countries are usually phased out over a number of years, which is why a longterm time effect can usually be observed (see for example Kohpaiboon, 2010). By contrast,
the U.S. – Australia FTA reached a stable level of around 25 percent after one year
already (Pomfret et al., 2010).
86
This chapter was written by Prof. Dr. Mun Heng Toh and Matthias Schaub.
63
With the JSFTEPA we examine an FTA between two developed countries. To our
knowledge, this is the first study which analyses and compares relative and absolute tariff
savings. In addition, utilization rates are only calculated on those imports which can,
theoretically, benefit from the JSFTEPA.
5.3 Data Collection and Presentation
Unlike chapter three and four, this chapter does not work with individual company data.
Rather, data on imports from Japan into Switzerland were provided by the Swiss Federal
Customs Administration 87 . Data cover all imports from Japan into Switzerland from
September 1, 2009 to December 31, 2010, on the HS 8-digit level. Data were provided on
a monthly basis, i.e. 16 months are covered. Each tariff line contained the value of imports
in Swiss Francs (CHF) under the various import regimes, the amount of imports measured
in the respective measurement unit, and customs revenue data for the respective imports.
Data on tariffs under the MFN88 and the preferential JSFTEPA rate were also provided by
the Swiss Federal Customs Administration. The majority of the tariff lines apply a weightbased tariff, indicated in CHF per 100 kilogram gross. Further units of measurement are
CHF per piece, CHF per usual unit, CHF per liter, CHF per meter and CHF per MWh. In
order to calculate the ad-valorem tariff rates, the customs revenue per tariff line was
divided by the respective value of imports under the normal rate per tariff line on the HS 8digit level.
Total imports from Japan into Switzerland from September 1, 2009 to December 31, 2010
amounted to CHF 4,862 M. Thereof, 99 percent were covered by the top eight industries
as defined by the HS Nomenclature.
Table 5-1 lists the respective industries’ trade values.
87
The data published by the Swiss Federal Customs Administration refer to the country of creation of a
specific good. The country of creation equals the country of origin if the goods have not entered the market
of a third country.
88
In the terminology of the Swiss Federal Customs Administration, the MFN rate is also known as the
“normal rate”. The normal rate consists of the bound MFN duties as well as the autonomously reduced
duties (applied MFN tariffs).
64
Table 5-1: Total imports by industries from September 2009 to December 2010
HS Codes
Description
Imports from Japan into
(Industries)
Switzerland, September 2009
to December 2010
86-89
Transportation: Vehicles (both rail
mounted and non-rail mounted), ships,
boats, aircraft, spacecrafts and parts
thereof
68-71
Pearls, stones, precious metals, jewelry,
glass and glassware, ceramic products,
articles of stone, plaster, cement
Chemicals and allied industries:
Inorganic and organic chemicals,
pharmaceuticals, fertilizers, dyes, paints,
oils, perfumery, cosmetics
M CHF
In % % cumulated
1,381.77 28.42
28.42
1,373.36 28.25
56.67
885.20 18.21
74.87
Machinery and mechanical appliances,
computers, electrical machinery and
parts, telecommunications, recorders
Miscellaneous: Instruments (optical,
photographic, measuring, precision,
medical, musical), clocks and watches,
furniture
646.77 13.30
88.17
334.41
6.88
95.05
39-40
72-83
Plastics and rubbers and articles thereof
Metals such as iron, steel, aluminum,
lead and articles thereof
106.69
67.89
2.19
1.40
97.24
98.64
50-63
Textiles: Silk, yarn, wool, cotton, artificial
fibers and woven fabrics thereof, carpets,
fabrics, apparel
Animal and animal products, vegetable
products, foodstuffs
25.79
0.53
99.17
21.72
0.45
99.62
44-49
41-43
Wood, wood products, paper and books
Raw hides, skins, leathers and furs
7.46
6.11
0.15
0.13
99.77
99.90
64-67
25-27
Footwear, headgear
Mineral products
4.49
0.29
0.09
0.01
99.99
100.00
28-38
84-85
90-97
01-24
All Industries
Note: Industries are based on the HS Nomenclature.
Source of Data: Swiss Federal Customs Administration.
4,861.95 100.0
When excluding imports which cannot benefit from the JSFTEPA due to the nature of the
agreement and/or the tariff structure, we arrive at 3,677 M of imports which could have, at
least theoretically, utilized the JSFTEPA. Thereof, 99 percent were covered by the top
65
eight industries as defined by the HS Nomenclature. Table 5-2 lists the respective
industries’ trade values.
Table 5-2: Imports which could have, theoretically, benefited from the JSFTEPA, by
industries from September 2009 to December 2010
HS Codes
Description
Imports from Japan into
(Industries)
Switzerland, September 2009
to December 2010
86-89
Transportation: Vehicles (both rail
mounted and non-rail mounted), ships,
boats, aircraft, spacecrafts and parts
thereof
68-71
Pearls, stones, precious metals, jewelry,
glass and glassware, ceramic products,
articles of stone, plaster, cement
Machinery and mechanical appliances,
computers, electrical machinery and
parts, telecommunications, recorders
84-85
M CHF
In % % cumulated
1,373.91 37.36
37.36
1,342.48 36.51
73.87
365.59
9.94
83.81
Miscellaneous: Instruments (optical,
photographic, measuring, precision,
medical, musical), clocks and watches,
furniture
Chemicals and allied industries: Inorganic
and organic chemicals, pharmaceuticals,
fertilizers, dyes, paints, oils, perfumery,
cosmetics
208.66
5.67
89.48
170.63
4.64
94.12
39-40
72-83
Plastics and rubbers and articles thereof
Metals such as iron, steel, aluminum,
lead and articles thereof
105.86
65.14
2.88
1.77
97.00
98.77
50-63
Textiles: Silk, yarn, wool, cotton, artificial
fibers and woven fabrics thereof, carpets,
fabrics, apparel
Animal and animal products, vegetable
products, foodstuffs
21.62
0.59
99.36
8.72
0.24
99.60
41-43
44-49
Raw hides, skins, leathers and furs
Wood, wood products, paper and books
5.01
4.98
0.14
0.14
99.74
99.88
64-67
25-27
Footwear, headgear
Mineral products
4.46
0.06
0.12
0.00
100.00
100.00
90-97
28-38
01-24
All Industries
3,677.12 100.0
Note: Industries are based on the HS Nomenclature.
66
There are several reasons for which some imports cannot benefit from the JSFTEPA due
to the very nature of the agreement and/or the tariff structure. Firstly, certain tariff lines are
not covered by the JSFTEPA. Secondly, for certain tariff lines the applied MFN tariff rate is
already zero or equal to the rate under the JSFTEPA. Thirdly, regardless of the tariff line,
certain imports enjoy duty free status when imported into Switzerland according to the
Swiss Customs Law 89 , including imports affected by inward or outward processing,
imports which are domestic or foreign returned goods, imports with a specific end use
depending on the respective relief codes, and other imports such as those of not for profit
organizations.
The difference between the total imports and the imports which could, theoretically, benefit
from the JSFTEPA can be quite high, as exemplified by the chemicals and allied industries
(HS 28-38). The total imports amount to CHF 885 M, while the imports which could benefit
from the JSFTEPA stand at CHF 171 M. This difference can be explained to a large extent
by the fact that all duties under HS 30 (pharmaceutical products) are already eliminated
due to the pharmaceutical tariff elimination agreement under the WTO. Similarly, the
imports of machinery and electronics (HS 84-85) show quite a big difference, which can be
traced back to the WTO information technology agreement which eliminates tariffs on
most IT-related goods.
Table 5-3 provides an overview of the average margins of preference by industries.
Table 5-3: Average margins of preference of the JSFTEPA for imports from Japan
into Switzerland from September 2009 to December 2010, by industries
HS Codes
Brief Description
Average Margin of Preference as Ad(Industries)
Valorem Duty under the JSFTEPA
(in %)
01-24
25-27
Animals, foodstuffs
Mineral products
3.31
0.36
28-38
39-40
Chemicals and allied industries
Plastics and rubbers
0.27
0.31
41-43
Skins and leathers
0.46
44-49
Wood products
1.02
50-63
64-67
Textiles
Footwear and headgear
1.23
0.22
68-71
72-83
Stone and glass
Metals
0.02
0.41
84-85
86-89
Machinery and electrical
Transportation
0.35
0.29
90-97
Miscellaneous
0.28
All Industries
0.26
89
Article 8 and Article 10-14, Swiss Customs Law, SR 631.0.
67
Since the Swiss import tariffs are based on measurement units90, the margin of preference
(ad-valorem value) was calculated by dividing the customs revenue per tariff line by the
respective value of imports per tariff line on the HS 8-digit level for data from September
2009 to December 2010.
The average margins of preference for industries reach from 0.02 percent to 1.23 percent.
The maximum margins of preference which Switzerland grants Japanese imports across
all tariff lines are between 35 and 40 percent and concern wood products, paper and
textiles.
5.4 Utilization Rates: Conceptual Construction
The dependent variable is the utilization rate of the JSFTEPA, based on the value of the
imports91. In order to make the analysis more meaningful, the utilization rate is measured
in both a general and an adjusted form. The general utilization rate (G-UR) of the
JSFTEPA is defined as the ratio of goods imported from Japan into Switzerland under the
JSFTEPA to the total imports from Japan into Switzerland.
In order to adjust for imports which are, by the very nature of the agreement or the Swiss
tariff structure, excluded from benefiting from the JSFTEPA, the adjusted utilization rate
(A-UR) is introduced.
While the G-UR is based on the total imports from Japan into Switzerland, the A-UR is
only based on those imports which could have, theoretically, benefited from the JSFTEPA,
as described in this chapter, section three92.
90
CHF per 100 kg, CHF per piece, CHF per usual unit, CHF per liter, CHF per meter and CHF per MWh.
Depending on the respective HS Codes, the utilization rate based on the weight of imports is usually
substantially higher than the one based on the value. However, since several chapters use units of
measurements other than weight (HS 01, 05, 20, 22, 27, 37, 87 and 91), it is not possible to indicate a single
utilization rate across all tariff lines in terms of units of measurement.
92
Pomfret et al. (2010) employed a similar concept. Their adjusted utilization rate, however, was calculated
as the sum of imports under FTAs plus imports which already enjoyed zero tariffs under MFN, divided by the
total imports. The adjusted utilization rate in this formula indicates the imports which entered duty free into
Australia, but not necessarily because of an FTA. Therefore, their adjusted utilization rate overstates the
actual adjusted utilization rate.
91
68
Table 5-4 shows a comparison of the two concepts.
Table 5-4: Comparison of the concepts of G-UR and A-UR
General Utilization
Adjusted Utilization Rate (A-UR)
Rate (G-UR)
Numerator
Goods imported from
Japan into Switzerland
under the JSFTEPA
Denominator Total imports from
Japan into Switzerland
Goods imported from Japan into Switzerland
under the JSFTEPA
Total imports from Japan into Switzerland
excluding imports
- under tariff lines which are not covered by
the JSFTEPA
- under tariff lines for which the applied MFN
tariff rates are already eliminated unilaterally
or for which the applied MFN rates are the
same as the JSFTEPA tariff rates
- affected by inward or outward processing
- which are domestic or foreign returned
goods
- with a specific end use (relief codes)
- other imports which enjoy duty free status
outside of the JSFTEPA
69
Table 5-5 reports imports from Japan into Switzerland from September 2009 to December
2010 under the respective import regimes as a percentage of total imports93. Tariff lines
were not taken into consideration when there were no imports in the respective period of
time.
Table 5-5: Imports from Japan into Switzerland by industries and import regimes
from September 2009 to December 2010 (in %)
HS Codes
Normal Normal
Duty Free
(Industries) Tariff
Tariff
Normal
JSFTEPA Out-/ Inward
Othera
(MFN)
(Preferential) Tariff (MFN)
Processing
01-24
50.62
1.80
3.86
2.30
31.87
9.55
25-27
28-38
22.56
13.3
0.00
2.71
77.44
77.98
0.00
3.31
0.00
0.00
0.00
2.74
39-40
41-43
56.0
81.92
0.00
0.00
0.57
0.04
43.22
0.00
0.08
0.00
0.13
18.03
44-49
50-63
57.93
43.68
0.00
0.70
32.46
0.01
8.74
39.46
0.00
0.01
0.87
16.14
64-67
68-71
14.48
58.65
0.00
38.93
0.00
0.00
84.92
0.17
0.00
0.00
0.60
2.24
72-83
51.53
0.19
2.49
45.44
0.00
0.35
84-85
49.95
0.00
39.91
6.57
2.21
1.36
86-89
90-97
26.87
61.32
0.00
0.00
0.56
20.09
72.56
1.07
0.00
0.00
0.01
17.52
All
40.09
11.51
21.17
24.12
0.44
Industries
Note: (a) Foreign and domestic returned goods, other preferential treatment.
2.68
The fourth column (“Normal Tariff (MFN)”) in table 5-5 reports the imports which enjoyed
duty free treatment under the normal rate. Relatively high percentages of duty free imports
under the normal rate can often be traced back to sectoral WTO agreements, specifically
the pharmaceutical tariff elimination agreement (HS 28-38) and the information technology
agreement (HS 84-85).
The fifth column (“JSFTEPA”) in table 5-5 shows imports which benefited from the
JSFTEPA as a percentage of total imports (G-UR).
93
Imports which are imported under the JSFTEPA on a reduced tariff (but not duty free) are marginal and
limited to the agricultural industry.
70
Table 5-6 condenses these data and adds the average adjusted A-UR for imports from
Japan from September 2009 to December 2010 by industries and HS chapters.
Table 5-6: Average G-UR and A-UR of the JSFTEPA for imports from Japan into
Switzerland by industries from September 2009 to December 2010
HS Codes
Brief Description
General Utilization
Adjusted Utilization
(Industries)
rate (G-UR), in %
rate (A-UR), in %
01-24
25-27
Animals, foodstuffs
Mineral products
2.30
0.00
4.10
0.00
28-38
Chemicals and allied
industries
3.31
17.18
39-40
Plastics and rubbers
43.22
43.56
41-43
44-49
Skins and leathers
Wood products
0.00
8.74
0.00
13.11
50-63
64-67
Textiles
Footwear and headgear
39.46
84.92
47.07
85.43
68-71
72-83
Stone and glass
Metals
0.17
45.44
0.18
46.77
84-85
Machinery and
electrical
6.57
11.63
86-89
Transportation
72.56
72.97
90-97
Miscellaneous
All Industries
1.07
24.12
1.72
31.85
Table 5-6 shows that across all imports from Japan, the G-UR is 24.1 percent and the AUR somewhat higher with 31.9 percent. The spread between the G- and the A-UR can be
quite high, as exemplified by the chemicals and allied industries (HS 28-38), for which the
A-UR is more than five times higher than the G-UR. While the G-UR states that only 3.3
percent of goods imported under this industry are utilizing the JSFTEPA, the A-UR shows
that actually 17 percent of all goods which can theoretically utilize the JSFTEPA do so
already. This difference can be explained by the fact that all duties under HS 30
(pharmaceutical products) are already eliminated due to the pharmaceutical tariff
elimination agreement and are therefore not counted for the calculation of the A-UR.
A closer look at individual industries reveals that there are marked differences in terms of
utilization rates among industries. Comparatively low G- and A-UR can often be explained
by low MFN tariffs or because the Swiss weight-based tariff system may not translate into
substantial savings, for example for leather products (HS 41-43) or clocks and watches
(HS 91) 94 . In addition, the fact that the movements of Japanese watches are often
94
Under HS chapter 91, the highest MFN tariff rate imposes a tariff of CHF 3,863 per 100 kg for watch
straps, bands or bracelets of precious metal or of metal clad with precious metal (HS 9113.1000). The
71
produced outside of Japan and as a result watches cannot reach the qualifying content
could serve as another explanation for the low utilization rate.
Industries with comparatively high G- and A-UR are plastics and articles thereof (HS 39)
and especially vehicles other than railway (HS 87). The small difference between the Gand the A-UR of HS 39-40 and HS 86-89 can be traced back to the fact that there are
almost no duty free imports into Switzerland other than under the JSFTEPA.
From a temporal perspective, the utilization of the JSFTEPA is not expected to show a
time effect in the long-term. With the exception of the agricultural industry – whose share
of total bilateral trade is very small – all tariffs included in the JSFTEPA were eliminated
upon entry into force of the JSFTEPA. A short-term effect may, however, be observed:
Since the period of time between the signature of the legal text and the entry into force of
an FTA is usually rather short95, not all companies may be aware of its existence once it
enters into force. In addition, even companies that are aware of an FTA will need time to
examine whether their production processes and production networks satisfy the rules and
requirements of an FTA.
Figures 5-1 and 5-2 show the share of imports benefiting from the JSFTEPA from January
2009 to December 2010 by months. Figure 5-1 depicts the G-UR and figure 5-2 the A-UR
of the JSFTEPA across all imports from Japan into Switzerland. The JSFTEPA entered
into force on September 1, 2009.
Figure 5-1: G-UR of the JSFTEPA for all imports from Japan into Switzerland
Normal Tariff
Normal Tariff (Preferential)
Duty free (other than Normal Tariff or JSFTEPA)
Duty Free (Normal Tariff)
Dec10
Nov10
Sep10
Oct10
Jul10
Aug10
Jun10
Apr10
May10
Mar10
Jan10
Feb10
Dec09
Nov09
Sep09
Oct09
Jul09
Aug09
Jun09
Apr09
May09
Mar09
Jan09
Duty Free (JSFTEPA)
Feb09
Imports from Japan into Switzerland
Total; G-UR (Value)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Note: “Duty free (other than Normal Tariff or JSFTEPA)” includes imports affected by
inward and outward processing, imports consisting of foreign and domestic returned
goods, imports with a specific end use (relief codes) and other imports which enjoy duty
free status outside of the JSFTEPA.
Source: Author.
second highest MFN tariff rate imposes a tariff of CHF 419 per 100 kg for springs (HS 9114.1020), and the
third highest a tariff of CHF 327 per 100 kg for complete movements of watches.
95
The JSFTEPA, for example, was signed in February 2009, and entered into force on September 1, 2009.
72
Figure 5-2: A-UR of the JSFTEPA for all imports from Japan into Switzerland
Normal Tariff
Normal Tariff (Preferential)
Dec10
Nov10
Sep10
Oct10
Jul10
Aug10
Jun10
Apr10
May10
Mar10
Jan10
Feb10
Dec09
Nov09
Sep09
Oct09
Jul09
Aug09
Jun09
Apr09
May09
Mar09
Jan09
Duty Free (JSFTEPA)
Feb09
Imports from Japan into Switzerland
Total; A-UR (Value)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Source: Author.
There is a notable shift in the utilization rate from January 2010 to February 2010 from
around 20 percent to 40 percent under the A-UR. A closer look at the individual industries
reveals that this shift can be traced back to the transportation industry (HS 86-89) which
accounts for more than 35 percent of imports that could theoretically benefit from the
JSFTEPA. A possible explanation for this shift may be that some car manufacturers have
automated the utilization of FTAs and started utilizing the JSFTEPA at the beginning of
the new year, i.e. January 1, 2010. The utilization of the JSFTEPA is then reflected in
Switzerland’s import figures one to two months later – the period of time expected to ship
cars from Japan to Switzerland.
After about six months, both the G- and the A-UR seem to have reached a stable level;
the G-UR slightly below 30 percent, and the A-UR close to 40 percent96. Similarly, Pomfret
et al. (2010) find that the U.S. - Australia FTA, which entered into force in January 2005,
reached a stable utilization rate of between 20 to 25 percent from 2006 97. Other previous
studies based on administrative records found a substantial increase in the G-UR over
several years. For exports from Thailand to Indonesia and the Philippines, Kohpaiboon
(2010) finds an increase from 30 to 60 and 30 to 48 percent, respectively, from 2003 to
2008. A possible explanation may be that Kohpaiboon (2010) studied FTAs between
developing countries. Such FTAs typically phase out large numbers of tariffs over longer
periods of time, while FTAs between developed countries, such as the JSFTEPA, often
eliminate all tariffs immediately upon the entry into force of the FTA. Therefore, in the case
of the JSFTEPA, a phasing-out effect cannot be expected in the long-term98.
For the subsequent analyses, the dependent variable will be the adjusted utilization rate
(A-UR). Focusing only on tariff lines which could benefit from the JSFTEPA, on HS 8-digit
96
A relatively strong fluctuation of the utilization rates within some HS chapters over time may be due to the
fact that there are only few companies involved in importing goods under certain HS Codes. One or two
importers utilizing or not utilizing the JSFTEPA, respectively, may have a profound impact on the utilization
rate.
97
However, since Pomfret et al. (2010) collected data only on a yearly basis, it could well be that the stable
rate was reached already after six months.
98
Sporadically, individual companies may adapt their production and distribution network to fit the JSFTEPA
if benefits of doing so exceed costs. However, no substantial increase in the utilization rate is expected from
such changes.
73
level a total of 2,407 tariff lines showed trade flows in the period from September 2009 to
December 2010. However, for any specific month, the number of tariff lines showing trade
flows was between 914 (February 2010) and 1,072 (March 2010), with an average of 995
tariff lines per month.
5.5 Development of Hypotheses and Model
Companies base the decision on whether or not to utilize FTAs on a cost-benefit analysis.
Section two in chapter four has shown that existing literature estimates the costs of
utilizing FTAs in the range of one to ten percent of the value of the goods traded. However,
rather than studying the costs of utilizing FTAs, this chapter will focus on the benefits
which companies can extract from FTAs.
We begin with a multiple regression model where the utilization rate (UR) is specified to be
dependent on the margin of preference (MOP) and the value of the imports (VIMP).
It is expected that a higher margin of preference is related to a higher utilization rate.
Hypothesis 1: All other things being equal, the higher the margin of preference between
the MFN and JSFTEPA tariff rates, the higher the utilization rate.
Section 5.1 of chapter four found that the costs of utilizing FTAs are largely fixed costs
which are independent of the value of the goods traded. By contrast, the benefit, the
difference between the MFN and FTA tariff rate, is proportional to the value of the goods
traded99. Therefore, it may be argued that there is a threshold above which it is worthwhile
to utilize an FTA. Such a threshold exists for each shipment (for example with regard to
the costs and time required to apply for a COO), and each product (for example with
regard to the costs and time required to comply with the respective ROO) 100. Therefore,
the higher the value of the goods imported from Japan into Switzerland from September
2009 to December 2010, the more likely is a company in a position to compensate the
fixed costs of utilizing the FTA by the respective tariff savings.
Hypothesis 2: All other things being equal, the higher the value of imports (and thus the
possible absolute tariff savings) per tariff line, the higher the utilization rate.
Since no data are available on companies’ individual trade transactions, the study will
examine the trade flows per tariff line on the HS 8-digit level by month for the first 16
months since the entry into force of the JSFTEPA. Although the disaggregation level
chosen for this study is quite high and the respective time periods quite short, it may be
argued that it is unrealistic to assume a specific product is traded only by one specific
company in a specific month. This is, however, of a minor concern here as it is assumed
that, on average, large absolute trade flows can be traced back to large shipments or
99
Other benefits such as simplified customs procedures or the elimination of duplicative testing are not
considered here as the realization of such benefits does not create corresponding costs to a company.
100
It is assumed that most of the Japanese exporters face these costs since the status of the “approved
exporter” is not yet well established in Japan and therefore an automated process not feasible; and even if
the status was established well, only companies with frequent shipments would be able to become an
“approved exporter” (JSFTEPA, Annex II, Article XIX).
74
large trade flows of specific firms. In addition, small trade flows can, by their very nature,
only be caused by small trade flows of specific firms or a specific firm. In other words, if a
trade flow under a specific tariff line is 10 times bigger than a trade flow under another
tariff line, the assumption is that the first trade flow is caused by less than 10 times the
number of companies. Therefore, the absolute import values between September 2009
and December 2010, on HS 8-digit level by month, serve as a proxy for trade values of
individual companies.
Table 5-7 provides an overview of the analytical framework.
Table 5-7: Overview of the analytical framework
Hypothesis 1
Hypothesis 2
Assumption
Dependent
Variable
Independent
Variable
All other things being equal,
All other things being equal, the higher
the higher the margin of
the value of imports (and thus the
preference between the MFN
possible absolute tariff savings) per tariff
and the JSFTEPA tariff rates,
line, the higher the utilization rate.
the higher the utilization rate.
A-UR on a monthly basis from September 2009 to December 2010;
measured as a percentage
Margin of preference (the
difference between the MFN
and the JSFTEPA tariff rate);
measured as a percentage
Value of imports from Japan into
Switzerland on a monthly basis from
September 2009 to December 2010;
measured in million CHF
Symbolically, the regression model is written as:
UR =  + 1MOP + 2VIMP
(1)
The coefficients 1 and 2 are expected to be positive.
In another version of the model, we allow for the possibility that the coefficients 1 and 2
can vary with MOP and VIMP
1 = 1MOP + 2VIMP
2 = 3MOP + 4VIMP
(2)
(3)
Substituting (2) and (3) in the original equation (1) leads to
UR =  + (1MOP + 2VIMP) MOP + (3MOP + 4VIMP) VIMP
UR =  + (1+ 3) MOP + (2+ 4) VIMP + 1MOP2 + 3VIMP2 +
(1+ 3) MOP*VIMP
UR =  + 1MOP + 2VIMP + 1MOP2 + 2VIMP2 + 3MOP*VIMP
(4)
Subsequently, the following models are estimated.
In model 1 (5), the utilization rate is simple function of MOP and VIMP with
UR =  + 1MOP + 2VIMP + error
(5)
75
In model 2 (6), separate constant terms are assumed for each of the 13 industries.
UR = 1MOP + 2VIMP
+ Dummies for HS Classification
+ Fixed Effect Dummies for Month
+ error
(6)
The fixed effects attributable to time and industrial grouping are included as explanatory
variables. The parameter for the constant term () is dropped when the fixed effect for
each time period is included in the model.
In model 3 (7), squares and cross product terms are added as explanatory variables.
UR = 1MOP + 2VIMP + 3MOP2 + 4VIMP2 + 5MOP*VIMP
+ error
(7)
Non-linear effects of MOP and VIMP are taken into account by the inclusion of squared
and cross product of variables in the specification.
Model 4 (8) estimates the propensity of the utilization rate with respect to MOP and VIMP
in each industry.
UR = 1MOP*IND_01 + 2MOP*IND_02 +…+ 13MOP*IND_13
+ 1VIMP*IND_01 + 2VIMP*IND_02 +…+ 13VIMP*IND_13
+ 1MOP2 + 2VIMP2 + 3MOP*VIMP
+ error
(8)
IND stands for the industries examined as described in table 5-8. The definition of the
various industries follows the standard of the HS Nomenclature.
Table 5-8: Description of industries examined
Industries HS Chapters Brief Description
IND_01
HS 01-24
Animal & Animal Products/ Vegetable Products/ Foodstuffs
IND_02
HS 25-27
Mineral Products
IND_03
HS 28-38
Chemicals & Allied Industries
IND_04
HS 39-40
Plastics, Rubbers
IND_05
HS 41-43
Raw Hides, Skins, Leather & Furs
IND_06
HS 44-49
Wood & Wood Products
IND_07
HS 50-63
Textiles
IND_08
HS 64-67
Footwear, Headgear
IND_09
HS 68-71
Stone, Glass
IND_10
HS 72-83
Metals
IND_11
HS 84-85
Machinery, Electrical
IND_12
HS 86-89
Transport
IND_13
HS 90-97
Miscellaneous
76
The MOP marginal propensity is the differential of the UR with respect to MOP
UR/MOP = 1 + 21 MOP + 3VIMP
(9)
Similarly, the VIMP marginal propensity is given by
UR/VIMP = 2 + 22 VIMP + 3MOP
(10)
5.6 Results of Analysis
Our time-series – cross-section analysis is based on an unbalanced panel as there are
missing values (no imports in specific months under specific HS Codes) and varying
numbers of tariff lines across the 13 industries examined. We use White
Heteroskedasticity-consistent standard errors, a consistent estimator of standard errors
which corrects for heteroskedasticity without altering the values of the coefficients.
The results of the equations of models 1 to 4 estimated by Eviews are reported in table 59. More detailed results for model 4 are reported in appendix A-7.
Table 5-9: Results of estimations for models 1 to 4
Variable
Model 1
Model 2 Model 3
Model 4
Constant
4.8947
t-statistics
31.1707
MOP
0.3071
0.3692
1.1881
t-statistics
5.8935
8.8549
5.5686
MOP^2
-0.0308
-0.0125
t-statistics
-7.2355
-2.7775
VIMP
0.9274
0.6751
1.3467
t-statistics
5.1244
5.5205
5.4237
VIMP^2
-0.0244
-0.0154
t-statistics
-6.1323
-3.7007
MOP*VIMP
3.5257
5.3991
t-statistics
14.2398
6.6714
IND_Dummies
Time_Dummies
MOP coefficient for individual
industries
VIMP coefficient for Individual
industries
R-squared
Adjusted R-squared
S.E. of regression
Log likelihood
Durbin-Watson stat
No
No
No
Yes
Yes
No
Yes
Yes
No
Yes
Yes
Yes
No
No
No
Yes
0.0041
0.0040
22.4562
-71203.9
1.3530
77
0.0918
0.0902
21.4256
-70478.9
1.4664
0.1344
0.1326
21.0807
-70705.3
1.5283
0.2283
0.2255
19.7282
-69217.7
1.5413
Model 1 includes a constant term as well as two independent variables, MOP and VIMP.
As expected, UR varies statistically significantly positively with both MOP and VIMP. Rsquared is, however, rather low with 0.0041.
Moving from model 1 to model 2, the coefficient of determination increases to 0.0918.
This substantial increase in explanatory power can be explained by the introduction of
time and industry dummies. In addition, the statistical significance of both independent
variables increases as compared to model 1.
In model 3, we include squares and cross product terms. Both MOP 2 and VIMP2 are
statistically significant, indicating a non-linear relationship. Since the coefficients of MOP2
and VIMP2 are negative, we note that the impact of MOP and VIMP diminishes as the
magnitudes of the latter two variables become larger, effectively pointing to a diminishing
marginal increase in UR with an increase in either MOP or VIMP. The cross product term
of MOP and VIMP is statistically significantly positively related to UR. This result points to
the fact that MOP and VIMP together have an impact on the UR as well. On the one hand,
a very small MOP will result in a low utilization rate, regardless of how large VIMP is. On
the other hand, a very small VIMP will also result in a low utilization rate, regardless of
how large MOP is. This exemplifies that companies’ utilization of the JSFTEPA depends
on the absolute savings extracted. The inclusion of squares and cross product terms
results in a stronger explanatory power compared to model 2 (0.1344 as compared to
0.0918).
The full estimation result of model 4 is reported in appendix A-7. As a result of the
inclusion of the propensity of UR with respect to MOP and VIMP in each industry, the
proportion of variability which is accounted for increases to 0.2283. Equations (9) and (10)
illustrate that the propensities vary with MOP and VIMP. We compute the propensities at
the mean values of the MOP and VIMP. The results of the computation are shown in table
5-10.
Table 5-10: MOP and VIMP marginal propensities
HS Codes
Brief Description
(Industries)
01-24
Animal & Animal Products/ Vegetable
Products/ Foodstuffs
25-27
Mineral Products
28-38
Chemicals & Allied Industries
39-40
Plastics, Rubbers
41-43
Raw Hides, Skins, Leather & Furs
44-49
Wood & Wood Products
50-63
Textiles
64-67
Footwear, Headgear
68-71
Stone, Glass
72-83
Metals
84-85
Machinery, Electrical
86-89
Transportation
90-97
Miscellaneous
Note: (a) Rescaled to 1,000 CHF.
78
Marginal Propensities
UR/ MOP UR/ VIMPa
0.313
0.0685
-2.801
0.492
2.871
0.166
0.271
1.693
-0.813
11.611
2.102
1.734
7.094
1.808
0.0438
0.0185
0.0511
0.0023
0.2455
0.2594
0.2410
0.0040
0.1311
0.0075
0.0075
0.0016
As expected, for the majority of industries MOP and VIMP marginal propensities are
positive. As an example, a one percent increase in MOP of HS 01-24 will increase the
corresponding UR by 0.313 percentage points, holding other things constant. If the import
values increase by CHF 1,000, UR will increase by 0.0685 percentage points.
For mineral products (HS 25-27), UR/ MOP is negative and thus does not conform to
theoretical expectations. However, the respective utilization rate is negligible (table 5-6)
and the import value is very low (CHF 0.06 M, table 5-2). In addition, we noted that the
coefficient associated with MOP is not statistically significant for this industry (appendix A7).
Raw hides, skins, leathers and furs (HS 41-43) show the smallest positive propensity of
UR with regard to MOP, and the second smallest with regard to VIMP. However, the
import value is quite low (CHF 5.01 M, table 5-2). This may result in individual companies’
behavior having a profound impact on UR.
In addition, the utilization rate is negligible (table 5-6). Specifically, only a few small
shipments of leather handbags have been imported under the JSFTEPA, just after its
entry into force. The tariff savings resulting from the JSFTEPA were below CHF 1,
reflecting the minor impact of a weight-based tariff on comparatively light and expensive
leather products. After these initial shipments, the JSFTEPA has not been used anymore,
probably because the absolute savings did not justify the costs of utilizing the JSFTEPA.
The negative relation between VIMP and UR stems from the fact that the very few
shipments which utilized the JSFTEPA were quite small.
The largest propensity with regard to VIMP is associated with textiles (HS 50-63). Import
values are comparatively low (CHF 21.62 M, table 5-2). The utilization rate for this industry
is over 47 percent (table 5-6) and the average margin of preference 1.23 percent (table 53), the second highest after agricultural goods. The large propensity with regard to VIMP
may therefore be explained by the impact of the high margin of preference on absolute
tariff savings when import values increase.
For footwear and headgear (HS 64-67), UR/ MOP is negative and thus does not
conform to theoretical expectations. However, as reported in appendix A-7, the coefficient
associated with MOP is not statistically significant on the 5 percent level. In addition,
import values in this industry were quite low (CHF 4.46 M, table 5-2). By contrast, the
propensity with regard to VIMP is positive and the third largest after textiles and wood
products. A utilization rate of above 85 percent (mostly for larger shipments) supports this
finding (table 5-6).
The largest propensity with regard to MOP corresponds to stone and glass (HS 68-71).
While the import value is comparatively high (table 5-2), both the utilization rate (0.18
percent, table 5-6) and the margin of preference (0.02 percent, table 5-3) are very low. In
79
addition, the coefficient associated with MOP is not statistically significant; possibly due to
the low margin of preference.
5.7 Conclusion
Utilization rate: The utilization rates found in this study are comparable to results of
existing literature on FTAs between two developed countries101. However, when looking at
FTAs involving developing countries, the G-UR is somewhat higher 102 . A possible
explanation is that, on average, developing countries maintain higher MFN import tariffs
and have liberalized less tariff lines unilaterally. The A-UR of the JSFTEPA for Japanese
imports into Switzerland varies strongly across industries. The A-UR is particularly high in
the areas of transportation/ vehicles, plastics and rubber.
Benefits: We put forward the following hypotheses:
Hypothesis 1: All other things being equal, the higher the margin of preference between
the MFN and JSFTEPA tariff rates, the higher the utilization rate.
Hypothesis 2: All other things being equal, the higher the value of imports (and thus the
possible absolute tariff savings) per tariff line, the higher the utilization rate.
For all industries, the marginal propensity of UR with regard to the value of imports is
positive. The same is true regarding the margin of preference, with the notable exception
of mineral products (HS 25-27) and footwear and headgear (HS 64-67). This result points
to the fact that companies are not only interested in FTA-related savings which are
proportional to the value of trade, but also take into consideration the fixed costs of
utilizing FTAs.
With regard to the model itself, explanatory power increases with the inclusion of industry
and time dummies, squares and cross product terms, as well as with the differentiation
between industries.
Findings of the study compared to the findings in chapter 3 (company survey)
Chapter 3 presented the utilization rates of the JSFTEPA reported by a survey conducted
between October 2010 and February 2011. Comparing the utilization rates of this survey
with the utilization rates extracted from customs data, it appears that the survey overstated
both the G-UR and the A-UR by about 100 percent. The survey reported a G-UR of 45
and an A-UR of 70 percent for trade flows from Japan to Switzerland, while the analysis of
customs data results in an average G-UR of 24 and an average A-UR of 32 percent.
Looking at the lower boundaries of the 90 percent confidence intervals of the survey
responses (G-UR 30 percent; A-UR 49 percent), the findings from customs data are not
101
Compare for example Pomfret et al. (2010) who found a G-UR of 20 to 25 percent for imports under the
U.S. – Australia FTA.
102
Kohpaiboon (2010) found a utilization rate close to 60 percent for exports from Thailand to Indonesia
under the Asean FTA.
80
even within this 90 percent confidence interval. A possible sample selection bias in the
survey may therefore serve well as an explanation for the difference.
The two methods come to similar conclusions with regard to industry characteristics.
Specifically, both methods find that the transportation industry’s (mainly vehicles) A-UR is
exceptionally high, and that the machinery and electrical industry seems to face some
challenges with regard to utilizing the JSFTEPA103.
In addition, both methods conclude that the size of a firm (measured in terms of
employees, or proxied by import values, respectively) is significantly positively related to
the utilization of the JSFTEPA.
Future research
Our model includes time and industry dummies, squares and cross product terms, and
controls for different industries. However, the model only accounts for 23 percent of
variability in the data set. Future research could therefore make an attempt to include
more explanatory variables. Specifically, costs of utilizing FTAs, such as the
restrictiveness of rules of origin (ROO), were not considered in our study. Existing
research suggests that ROO may act as a non-tariff barrier to trade, replacing the import
tariffs as a new protectionist measure (Krueger, 1993). Although the general ROO of the
JSFTEPA applies to more than two thirds of all tariff lines, a relationship between the
restrictiveness of the ROO and the utilization rate may still exist, specifically in the area of
agriculture.
In addition, research could be carried out as to whether or not there is a computable
threshold above which an FTA is utilized more often, and to what extent such a threshold
differs among companies and industries.
103
The comparatively high A-UR of the transportation industry and the comparatively low A-UR of the
machinery and electrical industry may be explained by the absolute size of trade volumes on a highly
disaggregated level. While the transportation industry imports standardized goods (mostly cars) in large
quantities, machinery and electrical products are usually exported less frequently and in smaller volumes per
product. In addition, customs data supported statements made by survey respondents that final products
(cars, motorcycles) rather than parts are imported under the JSFTEPA – even though parts are subject to
higher ad-valorem tariffs than final products.
81
82
6 Location Choice and Homogeneity of Rules of Origin104
6.1 Introduction
Against the background of a stalling WTO Doha Round, individual territories increasingly
pursued bilateral and regional FTAs. In the area of trade in goods, the aim of negotiating
FTAs is to provide exporting manufacturers a preferential market access to other
territories. Thereby, territories try to increase their attractiveness as a manufacturing
location. From a global point of view, the increasing number of bilateral and regional FTAs
leads to a hub-and-spoke network with incoherent trading rules. From a company’s point
of view, FTAs aim at reducing transaction costs for cross-border production and
distribution networks. While the purpose of FTAs is to reduce transaction costs in the form
of non-tariff and tariff barriers to trade, it may well be that new transaction costs come into
existence if a territory’s FTAs contain different or multiple ROO.
From an exporting manufacturer’s point of view, transaction cost theory therefore suggests
that a company choosing a location to set up a production site to produce goods for
exportation would, c.p., prefer a location with a large number of FTAs. If there are several
territories with large numbers of FTAs, transaction cost theory further suggests that such a
company would, c.p., prefer the territory with the most homogeneous ROO as these would
create the least ROO-related compliance costs. Therefore, territories should aim at
negotiating FTAs with homogeneous ROO.
To my knowledge there are so far no previous studies which directly address the question
of homogeneity of ROO of specific territories. This is an important gap in the literature
which this paper is trying to close by developing both a theoretical and empirical approach
to the topic. In order to empirically analyze the homogeneity of the ROO, this study will
focus on two products on the HS 6-digit level.
The following section introduces the theoretical foundation and develops a framework
which allows for an analysis of the topic. Section three presents the research design and
methodology, while section four discusses the results of the study. Finally, section five
provides some concluding remarks.
104
I presented an earlier version of this chapter as a paper at the Singapore Economic Review Conference
(August 2009), entitled “Trade Facilitation through Homogenization of Preferential Rules of Origins - How
companies and territories can capitalize on Free Trade Agreements amidst a Hub-and-Spoke Bilateralism”. I
am grateful for the feedback I have received during the conference. Compared with the previous version,
both the methodology and the content of the study have changed slightly.
83
6.2 Theoretical Foundation and Framework Development
6.2.1 Location Choice
This chapter assumes that a company has already decided to set up a manufacturing site
abroad to produce goods for exportation. The specific location of the foreign direct
investment (FDI), however, is not yet decided.
Extensive research has been conducted on the interaction between country and firm
specific factors as sources of global competitive advantage. A well-known conceptual
framework is the eclectic paradigm developed by Dunning (1980, 1988a, 1988b). In order
for FDI to take place, this framework requires the presence of ownership, location and
internalization advantages. While ownership and internalization advantages are assumed
to be met, location advantages in the form of existing FTAs are examined in this chapter.
Studies by Crookell (1987) suggest that location decisions of companies are indeed
influenced by government controlled changes in tariff regulations resulting from
international agreements such as FTAs (Crookell, 1987) 105 . Similarly, the World Trade
Report 2008 concludes that the process of international fragmentation of production can
be explained, partially at least, with the decline in absolute costs of trading, including the
reduction in tariff rates (World Trade Report 2008).
Another conceptual framework, the national diamond approach developed by Porter
(1990), describes why territories succeed or fail in developing a competitive advantage for
FDI. Porter’s model incorporates macroeconomic factors (factor endowment and demand
conditions), the relationship and support of industries as well as a firm’s strategic response,
structure and rivalry. Exogenous factors are chance events (they can create shifts in
competitive positions) and government (able to influence demand conditions and
competition between firms). These six factors interact with each other and can lead to
improved competitiveness. Apart from poorly specified theoretical relationships and
concepts and a lack of precision (see for example Grant, 1991), Porter’s original
framework was also criticized for not considering multinational activities sufficiently.
Dunning (1992) and Moon (1994) therefore extended Porter’s framework to include not
only market-seeking global strategies but also production-seeking ones. Moon, Rugman
and Verbeke (1995) developed the national diamond further into a generalized double
diamond model which analyses both the home diamond as well as the diamond of a
territory’s largest trading and investment partner. This approach incorporates multinational
activities, among them inbound and outbound FDI.
From an economic geography perspective, studies by Forslid and Wooton (2003) and
Puga and Venables (1997) examine the location choice of companies theoretically. Forslid
and Wooton (2003) show that high trade costs lead to a dispersion of production,
intermediate costs create an agglomeration effect, and low trade costs lead, again, to a
dispersion of production. Therefore, their conclusion is that trade liberalization may or may
not lead to more concentrated production. However, looking at the effects of
105
Crookell studied subsidiaries whose only purpose was to reach foreign markets protected by tariff
barriers. Upon conclusion of an FTA, the very “raison d’être” of the respective subsidiary was therefore lost,
forcing the subsidiary to make fundamental strategic changes (Crookell, 1987).
84
discriminatory trade policy on the location of industry, Puga and Venables (1997) show
that preferential trade liberalization makes industry relocate into the integrating territories,
whereby a hub-and-spoke arrangement results in a shift of industry into the hub rather
than the spoke. Compared with companies located in the spokes, those located in the hub
have preferential access to more markets and therefore face less transaction costs in the
form of tariffs.
Given the uncertainties with regard to the developments on WTO level, from a point of
view of an individual territory, FTAs are considered a “rational” response to advance
development in economic cooperation (Toh, 2006: 260). Therefore, many territories
started to establish free trade relations with a large number of other territories in order to
capitalize on being a hub of overlapping arrangements. A good example of such a territory
is Singapore (see for example Rajan and Sen, 2002, or Rajan, 2005). Singapore’s
intention was to “spin a web of interlocking free trade agreements between APEC
members, which could help move the organization toward achieving free trade in the AsiaPacific” 106 . Similarly, but more recently, IE Singapore, Singapore’s trade development
agency, stated that Singapore’s FTAs provide more benefits for Singapore exporters and
that Singapore’s extensive network of FTAs “reaffirms Singapore's position as a territory
which is well-connected and plugged into the global economy” 107 . For the subsequent
analysis, territories which are party to a large number of FTAs or which are connected to a
large number of FTA partner territories will henceforth be called “FTA hubs”.
As a conclusion, transaction cost theory suggests that a company choosing a location to
set up a production site to produce goods for exportation would, c.p., prefer a location with
a large number of FTAs – an FTA hub.
6.2.2 Rules of Origin and the Spaghetti Bowl
The pursuit of FTAs and the resulting overlapping memberships was in the best interest of
individual territories – specifically small and open trading nations. However, from a
regional or global perspective, this process led to a web of incoherent trading rules and
standards, also known as the Spaghetti Bowl (see for example Bhagwati, 1996) or
“Noodle Bowl Syndrome” (Baldwin, 2008: 450) in the Asian context. As a result, many
territories are members of several bilateral, intra-regional and extra-regional FTAs.
Between certain pairs of territories there are even two or more FTAs in place 108 .
Regardless of whether such a web of FTAs has a network character without central
players or a hub-and-spoke character with central players, the costs of administration and
transportation are likely to be higher in a network than in a free trade area (Kowalczyk and
106
Then Singapore Prime Minister Goh Chok Tong, Straits Times, January 26, 2001, quoted in Dent (2006).
Wong Toon Joon, deputy director for the exports and re-exports group at IE Singapore, Singapore
Business Times, ‘More FTAs equals more benefits’, September 24, 2009.
108
As an example, Singapore and New Zealand are connected by three different FTAs: A bilateral one and
two regional ones (the Australia-New Zealand-Asean FTA and the Transpacific Strategic Economic
Partnership).
107
85
Wonnacott, 1992). While economic integration takes on different forms intra-regionally109,
bilateral FTAs increasingly take over the function of “connectors” between these regions110.
The Spaghetti Bowl is not only characterized by its network structure but also by FTAs
which are very different from each other in terms of content, rules and requirements. In the
area of trade in goods, FTAs are characterized by different procedures to prove origin,
different COO and varying requirements regarding the length to keep documents and
records related to the preferential treatment of a product. In addition, multiple ROO may
lead to situations in which goods which satisfy the ROO of certain FTAs do not necessarily
fulfill the ROO of other FTAs – forcing a company to either source parts and raw materials
according to the specifications in the respective FTAs, or to pay the MFN import tariff.
Since the ROO have the most profound impact on an exporter’s ability to utilize FTAs, the
subsequent analysis will focus on ROO, and specifically multiple ROO111.
Anecdotal evidence suggests that multiple ROO resulting from the Spaghetti Bowl are
indeed a burden for companies and increase transaction costs which FTAs are supposed
to reduce. As an example, respondents to the JSFTEPA survey indicated that some IT
systems were not able to cope with more than one ROO per product – urging companies
to program the ROO depending on the export market.
More insightful is a study by Kawai and Wignaraja (2009) which surveyed companies in
five Asian territories (Japan, Korea, the Philippines, Thailand and Singapore) on the
utilization of the respective FTAs and companies’ perceptions of the burden created by
multiple ROO. The lowest utilization rates across a territory’s FTAs were found in
Singapore (17.3 percent) and the highest in Japan (29.0 percent). The study also found
that companies located in Singapore reported the highest burden resulting from multiple
ROO and at the same time also the strongest demand for harmonized ROO (57.1 percent).
Companies in Japan, by contrast, reported the lowest desire for harmonized ROO (28.6
percent). The study also found that large companies were more likely to express concerns
about multiple ROO adding to business costs than were small companies. This is probably
due to the fact that large companies more often export to multiple markets and are
therefore more likely to be affected by multiple ROO than small firms. Multiple ROO
therefore seem to be an issue for large companies which export to several markets. This
is in spite of the fact that large companies usually have more FTA specific resources
available – such as FTA experts and automated systems – than small ones.
109
Economic integration in Europe (with the EU single market and the Pan-European-Mediterranean zone
allowing for diagonal cumulation), North America (NAFTA), South America (Mercosur and the Andean
Community) and to some degree also Africa (customs unions) is characterized by large integrated economic
areas. By contrast, the Asia-Pacific region is fragmented by many bilateral and regional FTAs.
110
See for example Solis and Katada (2008) who argue that economic integration seen as region-bound is
outdated. After consolidating their regional blocs, territories in Europe and North America have pursued
cross-regional FTAs. Territories in Asia launched both regional and extra-regional FTAs later, but in parallel.
111
Appendix A-1 contains a general overview on technical aspects of ROO.
86
6.2.3 Rules of Origin and Location Choice
A company which is exporting goods to an FTA partner territory may be able to satisfy the
ROO and benefit from preferential import tariffs. However, in order to satisfy the ROO, the
company may face higher costs of sourcing as well as documentation costs. If a costbenefit analysis shows that the costs of utilizing the FTA are higher than the benefits, the
company may opt to pay the MFN import tariff in the importing territory. The more
restrictive the ROO, the less likely is a company to satisfy them. Comparing FTAs with and
without ROO theoretically and under a partial equilibrium model, Krishna (2005) finds that
an FTA with ROO creates large changes in investment flows, while an FTA without ROO
would cause large changes in trade flows as all imports would enter the FTA via the
territory with the lowest import tariffs.
ROO prevent a simple transshipment of goods via the territory with the lowest tariffs.
Taking into account the international production processes, however, ROO do not require
goods to be produced entirely in one of the territories party to an FTA. However, goods
must have been sufficiently worked or processed and thus undergone substantial
transformation in a member territory of the FTA. This provision requires that the final
processing is performed within the territory of one or all the parties in order for the good to
enjoy preferential treatment.
Each FTA specifies the applicable ROO – either as a general rule or a product specific
rule of origin on the level of chapter, heading or subheading of the HS Nomenclature.
Depending on the respective FTA, goods usually have to fulfill one or several of the
following ROO112. A change in tariff classification (CTC) requires the final product to fall
under a different HS Code than all non-originating input materials in order to be conferred
origin113. If a product results from a process (e.g. chemical transformation), the process
rule (PR) establishes that the transformation takes place in a party to the FTA. If the value
added rule (VA) applies, a minimum percentage of the value added in the final product
needs to be originating in order for the final product to utilize the FTA. As a result of a
Spaghetti Bowl, a company located in a territory which is party to several FTAs may be
required to satisfy multiple ROO in order to utilize all FTAs. Referring to the national
diamond framework introduced earlier (Porter, 1990), the reduction or elimination of
barriers to trade due to FTAs may lead to larger diamonds114. However, multiple ROO may
increase the costs for a company which tries to make use of several larger diamonds.
For the remainder of this paper, the following definitions apply. The term preferential rules
of origin (ROO) will refer to a rule as specified in the legal text of an FTA (e.g. VA 40% exworks price, CTC-4, PR etc.). “VA”, “CTC” and “PR” are the types, “40%”, “-4” the
respective values, and “ex-works price” or “FOB” (free on board) the basis of the
calculation. Full rules of origin (F-ROO) will refer to the types of ROO as written in the
legal text115. The components of F-ROO will be called single rules of origin (S-ROO)116.
112
The requirement of “wholly obtained” which applies for goods such as agricultural or mining products is
not examined in this study.
113
As an example, CTC-4 would refer to a change in tariff classification on the 4-digit level.
114
As an example, the Canada-US FTA led to the North American diamond (Rugman and Verbeke, 1993).
115
F-ROO can consist of any single one or combination of CTC, PR and VA. Examples of F-ROO might be
VA AND CTC; VA OR CTC; CT OR [VA AND CTC] etc.
87
Territories aiming at a business environment which is as business friendly as possible with
regard to ROO have basically three alternatives: Firstly, on a global level, territories could
contribute towards liberalization via the WTO. Dieter (2009) suggests measures such as a
multilateralization of commitments which territories have made in FTAs, or a renunciation
of the single undertaking approach of the Doha Round. Secondly, on a regional level,
territories could help making the Spaghetti Bowl disappear via a regional negotiation and
standardization process. Such a process could lead to either regional FTAs or individual
territories adjusting their bilateral and regional FTAs to a commonly accepted
amalgamation (Scollay, 2007). Such solution would suggest that FTAs are stepping
stones towards a more inclusive liberalization117. Other studies suggest a convergence of
the ROO based on the concept of a variable geometry (Cornejo and Harris, 2007). A
commonly accepted standard, however, will not exceed the concessions which the least
open territories are willing to make. Thirdly, territories may aim at negotiating ROO which
are as homogeneous as possible across their different FTAs by insisting on a consistent
template in each FTA they negotiate. Rather than adopting a variety of different ROO from
their FTA partners, such territories may impose their template on other territories.
In order to improve the business environment via the first two alternatives, all or a number
of territories have to act in concert to reach a solution. Individual territories are spectators
rather than actors in this process. The third alternative, by contrast, allows individual
territories to directly influence the business environment. The third alternative will therefore
be examined in this study.
As a conclusion, transaction cost theory suggests that an exporting manufacturer which
chooses a location to set up a production site would, c.p., prefer a location with a large
number of FTAs – an FTA hub. If there are several FTA hubs, transaction cost theory
further suggests that such a company would, c.p., prefer the FTA hub with the most
homogeneous ROO. From a company’s point of view, the more homogeneous the ROO,
the lower the ROO-related compliance costs, and the more business friendly the trading
environment.
From an individual company’s point of view, the most important criterion with regard to
preferential market access is the actual share of exports which is covered by FTAs with
potentially homogeneous ROO. However, since this study looks at the homogeneity of
ROO from a theoretical point of view, it is assumed that the better connected a territory is
in terms of FTAs, the more benefits accrue to a company operating in its territory. Similarly,
the study does not take into consideration the fact that in different parts of the world
international production networks of companies are of different importance. Finally, the
impact of the size of the domestic market on the homogeneity of FTAs will be examined
later in the context of the negotiation power of territories.
116
A company can comply with the F-ROO VA OR CTC by simply fulfilling one of the S-ROO VA or CTC.
However, the F-ROO VA AND CTC requires a company to fulfill two S-ROO at the same time, namely VA
and CTC.
117
For an overview of the discussion as to whether FTAs are stepping stones or stumbling blocks, see for
example Park (2006).
88
6.2.4 Restrictiveness versus Homogeneity of Rules of Origin
Studies about compliance costs of ROO often examine the restrictiveness of individual
ROO118. When comparing the ROO of different territories with regard to their business
friendliness, however, the restrictiveness of individual ROO is not as decisive since the
respective territories’ FTA partner would have exactly the same restrictiveness on the level
of individual ROO119. Rather, from a locational point of view, the homogeneity of ROO
seems to be more important. This does not imply, however, that the restrictiveness of the
ROO is not of importance. It is simply proposed here to first look at the homogeneity of
ROO and only at a later stage at their restrictiveness. This section provides a brief
overview on the conceptual differences between the restrictiveness and the homogeneity
of ROO.
From a company perspective, both homogeneity and restrictiveness of the ROO are
closely related in the sense that both concepts measure the difficulty of utilizing FTAs.
Table 6-1 shows the conceptual difference between the restrictiveness and homogeneity
of ROO.
Table 6-1: Differences between the concepts of restrictiveness and homogeneity of
ROO
Restrictiveness of a ROO Homogeneity of ROO
Description Difficulty of a company to
of
satisfy the ROO of a
Concepts
specific product exported to
a specific FTA partner
territory
Examples
A value added of 50% is
more restrictive than a value
added of 40%
Difficulty of a company to satisfy the ROO of
a specific product exported to several FTA
partner territories
ROO are considered to be homogeneous if
they have the same requirements. By
contrast, ROO are considered
heterogeneous if their requirements are
different.
The restrictiveness of a ROO describes the difficulty of a company to satisfy the ROO of a
specific product to a specific FTA partner territory. As an example, a ROO which requires
a value added of 50% is more restrictive (more difficult to achieve) than a ROO which
118
Estevadeordal (2000) was the first to develop a synthetic restrictiveness index for ROO. The index is
based on ex ante data, derived exclusively from the structure of the ROO themselves. When the utilization
rates are available, the restrictiveness of the ROO may be based on ex post data on the utilization rate (see
for example Cadot et al., 2005). An extensive overview on research on restrictiveness of the ROO provides
Harris (2007).
119
Rather, studies suggest that restrictive ROO replace tariffs as a protectionist measure once tariffs are
eliminated due to an FTA. One of the early theoretical works includes Krueger (1993) who finds an important
protectionist bias inherent in FTAs which is not present in custom unions. Krishna and Krueger (1995)
suggest that even if ROO are not restrictive, i.e. do not raise costs of production, they still have a very
pronounced effect on trade flows – pointing to the fact that ROO can act as hidden protectionism and induce
a switch in demand from low-cost external inputs to higher-cost partner inputs to ensure final products
actually receive duty free access.
89
requires a value added of 40%120. By contrast, the homogeneity of ROO describes the
difficulties companies face when exporting a specific product to several different FTA
partner territories 121 . In order to illustrate the idea, it is assumed that a territory has
concluded FTAs with three other territories. If the ROO of all three FTAs require a value
added of 40% for a specific product, the ROO are very homogeneous, and a company has
to examine and satisfy only one ROO for all three export markets. By contrast, if the three
FTAs have different ROO for a specific product and are thus very heterogeneous, the
company has to examine and satisfy three different ROO to assess whether its products
can utilize all three FTAs. Consequently, the administration in terms of costs statements
and the consistent compliance with the ROO becomes more time-consuming. In addition,
software which can only be programmed for one ROO per product would have to be reprogrammed depending on the export destination. Software which allows for several
different ROO per product would need to be programmed accordingly.
The ROO can be relatively restrictive and homogeneous at the same time. If all FTAs of a
territory require a local value added of 70%, for example, it will be comparatively difficult
for a company to satisfy this requirement. Once the requirement is satisfied, however, all
FTAs can be utilized.
6.3 Research Design and Methodology
Geographical scope: The study examines all WTO members. Since members of the EU
do only negotiate FTAs in the framework of the EU, individual EU members are not
examined.
Goods examined: Rather than having one general ROO which is applicable to all goods,
most FTAs apply product specific ROO. In order to compare the homogeneity of ROO
across FTAs, two goods on the HS Code 6-digit level (subheadings) were selected as
case studies. The HS Codes selected are HS 300490 (medications not elsewhere
specified, in dosage) and HS 870323 (automobiles, spark ignition engine of 1500-3000 cc).
Within their respective HS chapters (pharmaceutical products and vehicles other than
railway or tramway rolling stock), these two goods serve as case studies as they are
representative in terms of export value; they accounted for the largest combined export
shares of the territories selected as “FTA hubs” in section 6.4.1122.
Scope of FTAs: The study examines FTAs which are currently in force. FTAs examined
include bilateral FTAs between two territories, bilateral FTAs between a territory and a
regional trade agreement, as well as regional FTAs. Non-reciprocal trade agreements,
such as the GSP or the India-Nepal agreement, are not included in the study. In addition,
if an FTA did not cover one or both of the examined goods, it was excluded from the
120
Based on Estevadeordal (2000), studies found that a change in tariff classification is causing least
compliance costs, followed by value added and process rules (Carrère and De Melo, 2006; Anson et al.,
2005).
121
It would also be possible to examine the homogeneity of ROO across one FTA. However, this is not
within the scope of the present study.
122
The data on the export value were retrieved from UNCOMTRADE for 2009 (http://comtrade.un.org/;
90
analysis of the respective good’s ROO. Since the purpose of this study is to compare
ROO across FTAs, it is not examined whether or not and to what extent a good enjoys
tariff preferences under a specific FTA123. If there is more than one FTA in force between
two territories and the FTAs have different S-ROO for the same good, the S-ROO are
combined into a new F-ROO124.
Analysis: The analysis of the ROO’s homogeneity begins with the identification of FTA
hubs. FTA hubs are defined as territories which are exceptionally well connected with
other territories in terms of FTAs. Focusing on FTA hubs guarantees that the number of
FTAs a territory has negotiated and the number of FTA partner territories a territory is
connected to is controlled for when analyzing the homogeneity of the ROO. A territory is
called an FTA hub if it is party to more than 10 FTAs, or if it is connected to at least 20
FTA partner territories, provided it is a party to at least eight FTAs125. Once the FTA hubs
are identified, the respective territories’ FTAs are examined with regard to the
homogeneity of the types of the S-ROO and F-ROO. The homogeneity of S-ROO is
indicated by two coefficients. Coefficient CT measures the number of FTA partner
territories a company can export to by complying with just one specific S-ROO 126 in
relation to the total number of FTA partner territories (equation 1).
Number of FTA partner territories
a company can export to by complying with one specific S-ROO
CT = ------------------------------------------------------------------------------------------------------------ (1)
Total number of FTA partner territories
Coefficient CF measures the number of FTAs a company can utilize by complying with just
one specific S-ROO in relation to the total number of FTAs (equation 2).
Number of FTAs a company can utilize by complying with one specific S-ROO
CF = ------------------------------------------------------------------------------------------------------------ (2)
Total number of FTAs
123
Certain territories may have eliminated their MFN tariffs unilaterally or via sectoral agreements such as
the Pharmaceutical Tariff Elimination Agreement. While there may be a correlation between the margin of
preference and the restrictiveness of the ROO (see for example Krishna and Krueger, 1995), no correlation
is assumed between the margin of preference and the homogeneity of ROO which is examined here.
124
If there are several FTAs in force between two territories, a company may choose which one to utilize. As
an example, if one FTA requires a VA and the other one a CTC, the combined F-ROO is VA OR CTC. If
there are two FTAs with different ROO in force between two territories, the applicable margins of preference
may be different, too. However, tariff preferences are not within the scope of this study.
125
To define a minimum number of FTAs serves two purposes. First, it guarantees that a territory which is
party to a regional FTA with many other parties is not called an FTA hub just because of one FTA. Second,
regional FTAs with a large number of members might distort the findings and hide potentially homogeneous
ROO a territory might have on the bilateral level. The numbers necessary to qualify as an FTA hub are set
arbitrarily and serve the purpose of a meaningful examination.
126
The respective S-ROO is always the one which appears the most among the different FTAs and thus
allows a company to utilize the maximum number of FTAs possible by complying with only one S-ROO. For
this exercise, FTAs were only considered when the F-ROO did not contain an “and” requirement, as this
makes it impossible to find only one S-ROO which would allow a company to satisfy the F-ROO.
91
The higher the coefficients CT and CF, the more homogenous the S-ROO – a value of 1
indicates that a company which complies with one S-ROO can utilize all FTAs and export
to all FTA partner territories. CT and CF can also be interpreted as the percentage of FTA
partner territories a company can export to, or the percentage of FTAs a company can
utilize, respectively. Apart from the types, S-ROO will also be analyzed with regard to their
values and calculation bases.
In addition to the S-ROO, the homogeneity of the F-ROO will be examined as well.
However, since the F-ROO are not as decisive for companies as the S-ROO, the F-ROO
are only discussed briefly.
The analyses of territories’ FTAs with regard to the homogeneity of the S- and F-ROO will
then lead to a conclusion on whether or not territories follow a template when negotiating
the ROO in their FTAs, and to what extent territories can impose their template on other
territories.
Data collection: Data were collected through the WTO’s RTA Information System 127 ,
UNESCAP’s trade agreement database128 and individual territories’ homepages. The legal
texts of the respective FTAs served as source of information on ROO.
6.4 Results and Discussion
6.4.1 Statistics
Territories which emerged as FTA hubs according to the defined criteria are listed in the
first column in table 6-2. Bilateral and regional FTAs concluded by these territories are
listed in appendix A-8. In addition, appendix A-9 lists the members of the regional FTAs
indicated in appendix A-8.
Table 6-2: Number of FTAs and FTA partner territories of FTA hubs
Territory
Number of FTA Partner Territories
Number of FTAs
Australia
Chile
24
60
8
21
China
EU
20
23
9
21
India
Japan
21
14
11
12
Mexico
New Zealand
52
25
13
9
Singapore
Switzerland
24
54
18
22
U.S.
17
11
127
128
http://rtais.wto.org/UI/PublicMaintainRTAHome.aspx (accessed June 29, 2011).
http://www.unescap.org/tid/aptiad/agg_db.aspx (accessed June 29, 2011).
92
The second column in table 6-2 reports the number of FTA partner territories a territory is
connected to, while the third column shows the number of FTAs a territory is party to.
Chile, the EU, Japan, Mexico, Singapore, Switzerland and the U.S. are all party to more
than 10 FTAs. Australia, China, India and New Zealand are all connected to at least 20
FTA partner territories and are party to at least eight FTAs129.
The territories which are identified as FTA hubs are further examined regarding the
homogeneity of their FTAs’ ROO.
Tables 6-3 and 6-4 report statistics about the S-ROO by territory – parts a) of tables 6-3
and 6-4 show the number of FTA partner territories a company can export to by complying
with only one S-ROO, while parts b) indicate the number of FTAs a company can utilize by
complying with only one S-ROO. Table 6-3 shows the numbers for HS Code 300490, and
table 6-4 for HS Code 870323. For HS Code 300490, part a) of table 6-3 compares the
eleven territories’ number of FTA partner territories a company can export to by complying
with one specific S-ROO. India, Japan and Mexico emerge as territories with very
homogeneous ROO, as companies in these territories can export to all their FTA partner
territories by simply fulfilling one S-ROO – in the case of India the value added rule (VA),
in the cases of Japan and Mexico the CTC rule.
By contrast, when complying with the most widely used S-ROO (VA), a company in Chile
can only export to 23 out of Chile’s 31 FTA partner territories. In order to export to all FTA
partner territories, a company in Chile would have to satisfy both the value added and the
CTC rule. Part b) of table 6-3 compares the eleven territories’ number of FTAs a company
can utilize by complying with one specific S-ROO. Again, India, Japan and Mexico emerge
as territories with very homogeneous ROO, as companies in these territories can utilize all
FTAs by simply fulfilling one S-ROO. A company in Chile, however, can only utilize 12 out
of 18 FTAs by complying with the most widely used S-ROO (VA). The number of FTA
partner territories and number of FTAs for the EU shows zero due to the fact that all FROO of HS Code 300490 across all FTAs of the EU contain an “and” requirement –
therefore there is no specific S-ROO which would allow the satisfaction of the F-ROO. The
numbers of FTA partner territories and numbers of FTAs are often lower in tables 6-3 to 66 than in table 6-2 for the same reason.
129
Other territories which fulfil above criteria are Iceland, Liechtenstein, Norway, Turkey and the Ukraine.
Switzerland, Iceland, Liechtenstein and Norway are members of EFTA. Their FTAs are therefore identical,
except that Switzerland has negotiated additional FTAs outside of EFTA.
93
Table 6-3: Number of FTAs and FTA partner territories for HS 300490a, by FTA hub
Exporting
Territory
Part a) Territories
Part b) FTAs
Number
of FTA
partner
territoriesa
Australia
Number of FTA
partner
territories a
company can
export to by
complying with
one specific SROO
(respective SROO)
24
22 (VA)
Types of SNumber
ROO a
of FTAs b
company
needs to
satisfy in
order to be
able to export
to all FTA
partner
territories
VA, CTC
8
Number of
FTAs a
company can
utilize by
complying with
one specific SROO
(respective SROO)
Chile
China
31
20
23 (VA)
17 (VA)
VA, CTC
VA, CTC
18
9
12 (VA)
6 (VA)
EU
0
n.a.
n.a.
0
n.a.
India
9
9 (VA)
VA
2
2 (VA)
Japan
Mexico
13
21
13 (CTC)
21 (CTC)
CTC
CTC
11
11
11 (CTC)
11 (CTC)
New Zealand
25
22 (VA)
VA, CTC
9
7 (CTC)
Singapore
23
20 (VA)
VA, CTC
17
12 (VA)
Switzerland
U.S.
10
17
9 (VA)
12 (CTC)
VA, CTC
VA, CTC
6
11
5 (VA)
6 (CTC)
5 (CTC)
Notes:
(a)
Medications not elsewhere specified, in dosage.
(b)
FTAs were only counted when the F-ROO did not contain an “and” requirement, as
an “and” requirement makes it impossible to find only one S-ROO which would allow a
company to satisfy the F-ROO.
(n.a.) not applicable.
For HS Code 870323, table 6-4 reports the number of FTA partner territories a company
can export to by complying with one specific S-ROO, as well as the number of FTAs a
company can utilize by complying with one specific S-ROO.
Contrary to HS Code 300490, for HS Code 870323 most of the FTA hubs seem to have
negotiated homogeneous ROO. With the exception of China, New Zealand and
Switzerland, companies in the respective territories can export to all FTA partner territories
and utilize all FTAs by complying with just one S-ROO.
94
Table 6-4: Number of FTAs and FTA partner territories for HS 870323b, by FTA hub
Exporting
Territory
Part a) Territories
Part b) FTAs
Australia
Number of FTA
partner
territories a
company can
export to by
complying with
one specific SROO
(respective SROO)
22
22 (VA)
Chile
China
55
18
55 (VA)
16 (VA)
VA
VA, CTC
16
7
16 (VA)
5 (VA)
EU
23
23 (VA)
VA
21
21 (VA)
9
9 (VA)
VA
2
2 (VA)
Japan
Mexico
12
42
12 (VA)
42 (VA)
VA
VA
10
4
10 (VA)
4 (VA)
New Zealand
23
23 (VA)
VA
6
4 (VA)
Singapore
22
22 (VA)
VA
14
14 (VA)
Switzerland
U.S.
54
12
53 (VA)
12 (VA)
VA, CTC
VA
22
7
21 (VA)
7 (VA)
India
Number
of FTA
partner
territoriesa
Types of SNumber
ROO a
of FTAs b
company
needs to
satisfy in
order to be
able to export
to all FTA
partner
territories
VA
4
Number of
FTAs a
company can
utilize by
complying with
one specific SROO
(respective SROO)
4 (VA)
Notes:
(a)
Automobiles, spark ignition engine of 1500-3000cc.
(b)
In order to perform a meaningful analysis of above information, the coefficients C T
(equation 1) and CF (equation 2) are calculated. Coefficient CT measures the number of
FTA partner territories a company can export to by complying with just one specific SROO in relation to the total number of FTA partner territories (equation 1). CF measures
the number of FTAs a company can utilize by complying with just one specific S-ROO in
relation to the total number of FTAs. The respective values of C T and CF are reported in
tables 6-5 and 6-6 for HS Codes 300490 and 870323, respectively. The values of
coefficients CT and CF lie between close to 0 and 1. The more homogeneous the ROO are,
the closer the values to 1. A value of 1 indicates that compliance with one specific S-ROO
would allow a company to utilize all FTAs and to export to all FTA partner territories. The
minimum values of coefficients CT and CF depend on a specific territory’s total number of
FTA partner territories and total number of FTAs, respectively.
95
For HS Code 300490 (table 6-5), CT is 1 under both parts a) and b) for India, Japan and
Mexico, indicating that these territories have negotiated very homogeneous S-ROO across
their FTAs. While this result has already emerged in table 6-3, CT in addition allows for a
ranking of territories with regard to the homogeneity of their ROO. When complying with
only one specific S-ROO, companies can export to less than 90 percent of the FTA
partner territories of Chile (74 percent), China (85 percent), New Zealand (88 percent),
Singapore (87 percent), and the U.S. (71 percent). These values are even lower when
looking at the number of FTAs a company can utilize by complying with only one specific
S-ROO.
Table 6-5: Coefficients CT and CF for HS 300490a, by FTA hub
Exporting
Territory
Part a) Territories
Australia
24
Number Number of
CF
b
of FTAs
FTAs a
company can
utilize by
complying with
one specific SROO
22 0.92
8
5 0.63
Chile
31
23 0.74
18
12 0.67
China
20
17 0.85
9
6 0.67
EU
India
0
9
n.a.
9
n.a.
1
0
2
n.a.
2
n.a.
1
Japan
Mexico
13
21
13
21
1
1
11
11
11
11
1
1
New
Zealand
Singapore
25
22 0.88
9
7 0.78
23
20 0.87
17
12 0.71
Switzerland
10
9 0.90
6
5 0.83
U.S.
17
12 0.71
11
6 0.55
Number
of FTA
partner
territoriesa
Part b) FTAs
Number of FTA
partner territories a
company can export
to by complying with
one specific S-ROO
CT
Notes:
(a)
(b)
96
The values of CT and CF for HS Code 870323 are presented in table 6-6.
Table 6-6: Coefficients CT and CF for HS 870323a, by FTA hub
Exporting
Part a) Territories
Part b) FTAs
Territory
Number
Number of FTA
CT
Number
Number of
of FTA
partner
territories
a
partner territories a
company can export
to by complying with
one specific S-ROO
of FTAs
b
CF
FTAs a
company can
utilize by
complying with
one specific SROO
Australia
22
22
1
4
4
1
Chile
China
55
18
55
16
1
0.89
16
7
16
5
1
0.71
EU
India
23
9
23
9
1
1
21
2
21
2
1
1
Japan
Mexico
12
42
12
42
1
1
10
4
10
4
1
1
New
Zealand
23
23
1
6
4
0.67
Singapore
22
22
1
14
14
1
Switzerland
U.S.
54
12
53
12
0.98
1
22
7
21
7
0.95
1
Notes:
(a)
(b)
In addition to the types of S-ROO which were analyzed above, the values and calculation
bases are important indicators for the homogeneity of ROO, too. The values and
calculation bases of territories’ ROO are reported in table 6-7. With regard to the
homogeneity of ROO, a low number of different values and calculation bases points to
homogeneous ROO. The restrictiveness of the ROO is not being discussed here130.
130
A good which satisfies the VA 50% rule automatically satisfies the VA 40% rule. Similarly, a good which
satisfies the CTC-4 rule automatically satisfies the CTC-6. Whether or not a company decides to always use
the most restrictive ROO across all FTAs or the most liberal ROO for each FTA touches the restrictiveness
of the ROO (rather than their homogeneity) and is therefore not further discussed here.
97
Table 6-7: Values and bases of calculations of FTA hubs, HS 300490a and 870323b
Exporting
Territory
Values
Australia
VA: 40%, 50%;
CTC-6
Chile
HS Code 300490
Calculation Bases
HS Code
870323
VA: 40%, 50%;
CTC-4
HS Code
300490
FOB, ex-factory
cost
HS Code 870323
VA: 30%, 40%,
50%; CTC-4, -6
VA: 20%, 26%,
30%, 32%,
40%, 45%,
60%; CTC-4
FOB, ex-works
price
FOB, ex-works
price, adjusted
value, net cost
China
VA: 40%, 45%,
50%; CTC-4, -6
VA: 40%, 45%,
50%
FOB
FOB
EU
India
VA: 50%; CTC-4
VA: 35%, 40%,
45%, 50%; CTC4, -6
VA: 60%
VA: 35%, 40%,
45%, 50%;
CTC-4, -6
ex-works price
FOB
ex-works price
FOB
Japan
VA: 30%, 35%,
40%; CTC-4, -6
VA: 30%, 35%,
40%, 60%,
65%; CTC-4, -6
FOB, ex-works
price
FOB, ex-works
price
Mexico
VA: 50%
VA: 26%, 32%,
40%, 50%, 60%
FOB, ex-works
price
FOB, ex-works
price
New
Zealand
Singapore
VA: 40%, 50%;
CTC-2, -4, -6
VA: 35%, 40%,
50%; CTC-4, -6
VA: 40%, 45%,
50%; CTC-4
VA: 35%, 40%,
45%, 55%,
60%; CTC-4, -6
FOB, ex-factory
cost
FOB, ex-factory
cost, ex-works
price
FOB, ex-factory
cost
FOB, ex-factory
cost, ex-works
price
VA: 40%, 60%;
CTC-4
VA: 30%, 35%,
50%; CTC-4
ex-works price
ex-works price
FOB, ex-factory
cost
FOB, ex-factory
cost
Switzerland VA: 40%, 50%;
CTC-4, -6
U.S.
VA 35%; CTC-4,
-6
FOB, ex-factory
cost, adjusted
cost, net cost
Notes:
(a)
(b)
(FOB) free on board.
Companies in territories such as Chile and Singapore face a huge variety of different
values and calculation bases. By contrast, companies in the EU, India and Mexico are
dealing with a limited number of values and calculation bases, depending on the
respective good. These findings mirror the examinations of the types of the homogeneity
of the S-ROO.
98
In addition to the analysis of S-ROO, the extent to which territories try to negotiate
homogeneous F-ROO is examined. Table 6-8 lists the number of different F-ROO by
territory and goods131.
Table 6-8: Number of different F-ROO by FTA hub and HS 300490 and 870323
Exporting
HS Code 300490: Medications not HS Code 870323: Automobiles,
Territory
elsewhere specified, in dosage
spark ignition engine of 1500-3000cc
Australia
Chile
3
6
2
3
China
4
2
EU
1
1
India
Japan
2
4
2
3
Mexico
New Zealand
4
4
3
4
Singapore
Switzerland
6
4
3
3
U.S.
4
3
The EU emerges as a territory with very homogeneous F-ROO. For both goods examined,
the EU is the only territory which has negotiated the same F-ROO across all FTAs. All
other territories have at least two different sets of F-ROO, with Chile and Singapore up to
six for HS Code 300490. While the F-ROO are insightful when it comes to a territory’s
template with regard to ROO, a company will find the homogeneity of the S-ROO of more
practical relevance.
6.4.2 Rankings of Territories according to the Homogeneity of Rules of Origin
The examined territories are ranked in order to establish their relative position with regard
to the homogeneity of the S- and F-ROO (table 6-9). The higher a territory is ranked, the
more homogeneous are the S- and F-ROO across its FTAs, and thus the more business
friendly the export environment. Generally, the relative position of territories depends on
the good and the criterion one is looking at. However, certain patterns can be detected:
Whenever data on the S- and F-ROO are available, the EU, India, Japan and Mexico
seem to have negotiated quite homogeneous ROO across their FTAs. By contrast, Chile,
China, New Zealand, Singapore and the U.S. emerge as territories with relatively
inhomogeneous ROO. Australia and Switzerland are not clearly attributable. From a
company perspective the homogeneity of S-ROO is more relevant than that of the F-ROO.
Therefore, among the FTA hubs, companies would find the most business friendly
environment with regard to the homogeneity of ROO in the EU, India, Japan and Mexico.
131
The homogeneity of F-ROO is not calculated separately for the number of FTA partner territories and
number of FTAs as there is no difference.
99
Table 6-9: Relative position of FTA hubs regarding the homogeneity of FTAs’ ROO
Relative HS Code 300490: Medications not HS Code 870323: Automobiles, spark
Position elsewhere specified, in dosage
ignition engine of 1500-3000cc
S-ROO
CT
1. IN, JP,
MX
F-ROO
S-ROO
CT
CF
IN, JP,
MX
EU
F-ROO
CF
AU, CL, EU, AU, CL,
IN, JP, MX,
EU, IN,
NZ, SG, U.S. JP, MX,
SG, U.S.
2.
IN
3.
4. AU
CH
AU
CN, JP, MX,
NZ, CH, U.S.
5. CH
NZ
6. NZ
SG
7. SG
CL, CN
EU
AU, CN, IN
CL, JP, MX,
SG, CH, U.S.
8. CN
9. CL
10. U.S.
11.
n.a. EU
AU
U.S.
CL, SG
CH
CH
CN
CN
NZ
NZ
EU
Notes:
(AU) Australia; (CH) Switzerland; (CL) Chile; (CN) China; (IN) India; (JP) Japan; (MX)
Mexico; (NZ) New Zealand; (SG) Singapore.
6.4.3 The Emergence of Templates
Above analysis suggests that some territories which were identified as FTA hubs may
apply a template when negotiating the ROO in their FTAs. When examining the ROO
across all FTA hubs’ FTAs, certain territories indeed appear to follow a template (table 610).
100
Table 6-10: Templates of FTA hubs for ROO of HS 300490 and 870323
Template for HS Code 300490a
No obvious template
No obvious template
Template for HS Code 870323b
No obvious template
No obvious template
China
EU
No obvious template
No obvious template
VA ex-works price AND CTC
VA ex-works price
India
Japan
VA FOB AND CTC
VA FOB OR CTC
VA FOB AND CTC
VA FOB OR CTC
Mexico
New
Zealand
VA FOB OR CTC
No obvious template
VA FOB AND CTC
No obvious template
Singapore
Switzerland
No obvious template
No obvious template
VA ex-works price AND CTC
No obvious template
VA ex-works price
No obvious template
Territory
Australia
Chile
U.S.
Notes:
(a)
(b)
Australia: For HS Code 300490, early FTAs are usually based on VA, while later ones
adopt a choice between VA and CTC. For HS Code 870323, Australia’s early FTAs and
the FTA with Asean require a VA, while later ones, specifically those based on the
NAFTA-template with Chile and the U.S., require VA AND CTC. Therefore, no clear
template can be detected.
Chile: Chile seems to have adopted the templates of the respective FTA partner territories.
China: For both HS Codes 300490 and 870323, China negotiated VA 40% FOB in its
FTAs with Asean, Singapore and Pakistan. However, different types of ROO are used in
the FTA with New Zealand and the recently concluded one with Peru. Therefore, a
template for ROO does not seem to exist.
EU: The EU, by contrast, negotiated CTC-4 and 50% ex-works price for HS Code 300490
and 60% ex-works price for HS Code 870323 consistently across all FTAs.
India: With regard to both HS Codes 300490 and 870323, India’s template seems to be
VA AND CTC. Even when negotiating with Asean – which usually pushes its own template
of VA or VA OR CTC through – India negotiated a VA AND CTC. The only FTAs in which
India could not negotiate VA AND CTC as a general ROO are the India-Mercosur FTA and
the Asia-Pacific Trade Agreement. However, both FTAs have a very low coverage of
goods and a low margin of preference for the few goods covered 132. Neither HS 300490
nor HS 870323 are covered by these FTAs.
Japan: Almost all of Japan’s FTAs require VA OR CTC for HS Code 300490 and VA or VA
OR CTC for HS Code 870323133. The calculation base is almost always FOB. The only
132
The India-Mercosur FTA covers only 450 tariff lines on the HS 8-digit level.
Interestingly, for HS Code 870323, Japan’s bilateral FTAs with members of Asean contain the standard
VA 40% OR CTC-4 rule, while the regional Asean-Japan FTA contains a seemingly more restrictive VA 40%
133
101
exceptions to these templates are Japan’s FTAs with India, Mexico and Switzerland. In the
FTA with India, Japan had to accept India’s template (the more restrictive VA AND CTC
rule) for both HS Codes. Similarly, in the FTA with Mexico, Japan had to accept the VA
AND CTC rule for HS Code 870323, which is the NAFTA-template. The FTA with
Switzerland is the only one were Japan negotiated ex-works price instead of FOB as a
basis of calculation. The “ex-works price” is the standard basis of calculation in FTAs
negotiated by Switzerland and the EU.
Mexico: For HS Code 300490, Mexico consistently negotiated the NAFTA-template of VA
OR CTC, with the calculation based on FOB. Only the FTAs with the EU and Switzerland,
or EFTA, respectively, deviate by requiring VA AND CTC. HS Code 870323 predominantly
uses VA AND CTC – the NAFTA-template. However, the NAFTA-template seems
challenged in the FTAs between Mexico and South American territories. In both the Latin
American Integration Association (LAIA), which Mexico is part of, and the FTA with Chile,
a VA OR CTC rule is found. In addition, similarly to HS Code 300490, the FTAs with the
EU and Switzerland adopt the EU template of VA based on ex-works price, whereas
Mexico’s standard is FOB.
New Zealand: New Zealand does not seem to have a particular template for ROO.
Singapore: Similarly, Singapore seems to have adopted the templates of the respective
FTA partner territories.
Switzerland: With a few exceptions, the templates of Switzerland, or EFTA, respectively,
are similar to the ones of the EU. Exceptions occur in industries where interests between
EFTA and EU members differ, such as in the automobile industry. The template for HS
Code 300490 (VA AND CTC) could not be followed in the FTAs with Japan and Korea,
where a VA OR CTC rule was negotiated. In addition, the FTAs with Canada, Chile, SACU
and Singapore contain either a VA or a CTC rule. Similarly, for HS Code 870323,
Switzerland follows the template of the EU (VA), with the exception of the FTAs with
Canada, Japan and Korea.
U.S.: The U.S. does not seem to have a particular template for ROO.
Out of 11 territories which were identified as FTA hubs, the five which seem to follow a
ROO template are the EU, India, Japan, Mexico and Switzerland. Switzerland follows
largely the template of the EU. Since templates point to homogeneous ROO and therefore
provide for a more business friendly trading environment, territories would be expected to
follow a certain template when negotiating the ROO in their FTAs. Possible explanations
as to why certain territories seem to be able to follow a template while others do not are
discussed subsequently.
Firstly, territories which are highly dependent on trade are assumed to be more likely to
follow a ROO template. Dependency on trade is measured as exports of goods and
services in percent of the gross domestic product (GDP). The figures in table 6-11,
however, do not seem to support this assumption.
rule. However, the ROO in the regional FTA may only seem to be more restrictive as companies in fact may
be able to cumulate local value added among Asean member states.
102
Table 6-11: Export of goods and services in % of GDP, 2008 and 2009, by FTA hub
Territories
Export of Goods & Services in % of GDP
2008
Territories for which a
ROO template could be
identified
Switzerland
56
52
EU
Mexico
47
28
41
28
India
Japan
23
18
20
13
221
45
--38
China
New Zealand
35
31
27
28
Australia
U.S.
20
13
--11
134
Territories for which a
ROO template could not
be identified
2009
Singapore
Chile
Source: World Bank National Accounts Data (http://data.worldbank.org; accessed
September 15, 2011).
Secondly, it is assumed that the negotiating power of a territory is positively related to the
homogeneity of the ROO. Table 6-12 reports the gross domestic product for 2010 in billion
USD by FTA hubs as a proxy for the negotiating power.
Table 6-12: Gross domestic product of FTA hubs in 2010, by FTA hub
Territories
Gross Domestic Product (2010, billion USD)
Territories for which
a ROO template
could be identified
Territories for which
a ROO template
could not be
identified
EU
Japan
16,070
5,459
India
Mexico
1,538
1,039
Switzerland
Median
524
1,538
U.S.
China
14,660
5,878
Australia
Singapore
1,236
223
Chile
New Zealand
203
140
Median
730
Source: CIA World Factbook (https://www.cia.gov/library/publications/the-world-factbook/;
134
Approximated by the respective figures for Germany, the biggest economy within the EU.
103
Territories for which a ROO template could be identified tend to have a higher GDP than
territories for which a ROO template could not be identified. The respective medians are
1,538 billion USD and 730 billion USD for territories with and without a ROO template,
respectively. This difference becomes even larger when accounting for the fact that
behind the templates of Switzerland, Mexico and the U.S. are the templates of the EU and
NAFTA. The negotiating power of a territory helps explain why the EU, Japan, India,
Mexico and Switzerland have ROO templates and thus comparatively homogeneous ROO
across their FTAs. A lack of negotiating power explains why territories such as Singapore,
Chile and New Zealand face problems when negotiating ROO – although they are highly
dependent on trade. The negotiating power, however, cannot explain why the U.S. and
China do not follow a ROO template in their FTAs.
Thirdly, apart from economic motivations, territories may negotiate FTAs for political or
strategic reasons.
Specifically, the U.S.’ FTAs with comparatively small territories in the Middle East and
Latin America may be motivated by political rather than economic reasons 135. Among the
U.S.’ political and strategic interests in FTAs, Feinberg (2006) identifies security interests,
support of democratic regimes, and rewards of countries for their foreign policy loyalty.
When it comes to China, political and strategic interests in FTAs may include the
consolidation of China’s regional influence, specifically against the background of its
historical influence in Southeast Asia and the rivalry with Japan (Hoadley and Yang, 2008).
Yang (2010) questions whether China has a coherent FTA strategy since political and
economic interests vary depending on the different stages of the policy making progress.
Such an approach, however, makes China flexible regarding the structure and the
coverage of its FTAs, allowing for vague framework agreements with developing countries,
and comprehensive agreements with developed countries (Ravenhill and Yang, 2009).
6.4.4 The Clash of Templates
While early FTAs were predominantly concluded intra-regionally, they are increasingly
negotiated on a global scale. Thus, the chances of territories with specific templates
meeting in FTA negotiations are growing. A crucial question is therefore to what extent
territories can push their templates through.
Table 6-13 lists FTA activities among territories which were identified as both FTA hubs
and following a specific template for HS Codes 300490 and 870323.
135
The U.S. maintain FTAs with territories such as Bahrain, Jordan or Oman in the Middle East, and with
Costa Rica, El Salvador, Honduras or Nicaragua in Latin America.
104
Table 6-13: FTA activities among FTA hubs using a ROO template for HS 300490a
and 870323b
EU
Switzerland (EFTA)
FTA under negotiation FTA under negotiation India
FTA under negotiation FTA in force
FTA in force Japan
No FTA
FTA in force
FTA in force
FTA in force Mexico
Notes:
(a)
(b)
FTAs are in force between the following territories: EU-Mexico, Switzerland-Japan,
Switzerland (EFTA)-Mexico, India-Japan and Japan-Mexico. There are currently no FTAs
in place between the following territories: EU-India, EU-Japan, Switzerland-India and
India-Mexico. Table 6-14 lists the FTAs which are currently in force, including the
respective templates for HS Codes 300490 and 870323, where applicable.
Table 6-14: Adopted ROO templates among FTA hubs
FTA
Mexico-EU
HS Codes 300490a
Template of the EU
HS Codes 870323b
Template of the EU
Mexico-Switzerland (EFTA)
Template of Switzerland
Template of Switzerland
Japan-India
Template of India
Template of India
Japan-Mexico
Japan-Switzerland
No specific template
Template of Mexico
Notes:
(a)
(b)
The ROO in Mexico’s FTAs with the EU and Switzerland were negotiated according to the
templates of the EU and Switzerland for both goods, with Switzerland’s template largely
following the one of the EU. The Japan-India FTA adopted the ROO template of India for
both HS Codes, while the Japan-Mexico FTA adopted the ROO template of Mexico for HS
Code 870323. No specific template was used in the case of the Japan-Switzerland FTA136.
Comparing this result with the negotiating power in terms of GDP (table 6-11), it is
surprising that Japan, being almost four times larger than India, could not push through its
own template. It may therefore be speculated whether the negotiating power is proxied
best by the current GDP, or rather by the future expected growth, proxied by the size of
the population.
136
The ROO in the Switzerland-Japan FTA (for both HS Codes a VA 40% ex-works price or a CTC-4) could
be interpreted as a compromise: The VA OR CTC rule stems from Japan’s ROO template, while the basis of
the calculation corresponds to the template of Switzerland (and the EU).
105
As a conclusion, a company choosing a location to set up a production site to produce
goods for exportation would, c.p., prefer the FTA hub with the most homogeneous ROO.
In a world with several templates and inter-regional FTAs, the most homogeneous ROO
are held by the territory with the most dominant template, i.e. by a territory which is able to
impose its template on all other territories.
6.5 Conclusion
Transaction cost theory suggests that an exporting manufacturer choosing a location to
set up a production site would, c.p., prefer a location with a large number of FTAs – an
FTA hub. If there are several FTA hubs, transaction cost theory further suggests that such
a company would, c.p., prefer the FTA hub with the most homogeneous ROO. In world
with several ROO templates and inter-regional FTAs, the most homogeneous ROO can be
found in the territory with the most dominant template. Such a territory is able to impose its
template on all other territories.
Out of all WTO members, eleven territories were identified as FTA hubs. The territories
identified were Australia, Chile, China, the EU, India, Japan, Mexico, New Zealand,
Singapore, Switzerland, and the U.S. These territories were then ranked with regard to the
homogeneity of the ROO across their FTAs. In addition, it was studied to what extent
these eleven territories follow a template when negotiating ROO in their FTAs.
Territories with relatively homogeneous ROO and ROO templates were the EU, India,
Japan, Mexico and Switzerland. By contrast, Australia, Chile, China, New Zealand,
Singapore and the U.S. did not seem (to be able) to apply or follow a template when
negotiating the ROO in their FTAs. Possible explanations as to why certain territories
manage to follow a template while others do not include the negotiating power measured
in terms of GDP. According to the procedures applied in this study, the territories with the
most dominant templates are the EU and India. An FTA between these two territories is
currently being negotiated.
Small territories seem to be at a disadvantage when it comes to following a ROO template.
Unless such territories can follow a specific template of a larger territory, they will have to
accept whatever template the larger territories are willing to offer them. In this regard,
Switzerland escaped the fate of small territories due to the fact that it shares its template
with the EU, a large territory. Small territories which are not clearly attributable to a region
of a larger territory, however, are being ground between the different templates. Such
territories include Chile, New Zealand and Singapore – small territories which heavily
depend on trade. Recognizing the potential effects of FTAs, these territories started
negotiations comparatively early. However, if they do not take into consideration the
homogeneity of the ROO, companies may find themselves confronted with multiple ROO.
This in turn may lead to overlapping FTA memberships not being a locational advantage.
Recommendations for policy makers
Governments of large territories may take the initiative to negotiate harmonized templates
of ROO on a global level. This, however, may be a difficult undertaking due to the fact that
106
ROO and tariff reductions are usually very carefully balanced to cater to the specific
circumstances of the territories involved.
In the absence of a global effort to liberalize trade or to harmonize ROO, policy makers in
small territories could therefore try to either follow the template of a larger territory137, or to
only negotiate FTAs within a regional framework which increases the likelihood of
homogeneous ROO. If small territories do not manage to do so, their companies are at a
competitive disadvantage compared with companies in larger territories due to higher
compliance costs stemming from inhomogeneous ROO. Since large territories have the
negotiating power to impose their templates on smaller territories, policy makers of large
territories should be aware of their role as leaders. Their templates should therefore be
designed as liberal as possible. The EU and India seem to have quite dominant templates
when it comes to ROO. Therefore, their individual templates may be adopted as a global
template for harmonized ROO. Unfortunately, their templates are comparatively restrictive
and thus not the optimal solution for globally harmonized ROO.
In order to help companies deal with the incoherent ROO, governments or their appointed
agencies may offer assistance in the form of information sessions, training seminars, and
the provision of solutions regarding the implementation of an FTA process within
companies.
Future research
Comparing Japan and Singapore, the study by Kawai and Wignaraja (2009) found that
multiple ROO are of concern, primarily to companies in Singapore, while companies in
Japan were less concerned about added business costs by multiple ROO. The present
study found that ROO in Singapore are among the least homogeneous, while Japan
seems to have quite a dominant ROO template. This result indicates that the methodology
used in the present study mirrors companies’ assessment from a theoretical perspective.
However, there was no statistical test performed to suggest that it is generalizable. Future
research may therefore attempt to statistically test the relationship between the
homogeneity of the ROO and the actual utilization rates of the respective FTAs138.
In addition, instead of an ad-hoc ranking of territories, future research may test the
relationship between the homogeneity of the ROO and the negotiating power in a more
structured way, for example by employing a rank-order test. Moreover, additional variables
which might explain the level of the homogeneity of ROO may be examined.
The two goods examined in this study (HS Codes 300490 and 870323) do not allow for a
cross-industry analysis. Therefore, future research may analyze more industries and HS
137
Anecdotal evidence suggests that the negotiating power of a small territory which follows the template of
a large territory depends on whether it negotiates an FTA before or after the larger territory does so:
Switzerland negotiated FTAs with the NAFTA members Mexico and Canada. In the case of Mexico,
Switzerland could impose its template on Mexico. By contrast, Canada imposed its template on Switzerland.
While the FTA with Mexico was negotiated after the EU has done so, the EU has not entered into
negotiations with Canada until this day. Similarly, Switzerland could not impose its template on Korea,
Singapore and Japan – territories with which the EU has not concluded FTAs at the time Switzerland was
negotiating its FTAs. It therefore seems that small territories which follow a large territory’s template have a
first-mover disadvantage.
138
For such a study, the utilization rates of all FTAs of the territories examined would be required.
107
Codes in order to compare the homogeneity of ROO not only across territories but also
across industries.
Finally, more research is necessary on how the ROO templates of large territories can be
harmonized on a global level.
108
7 Conclusion
7.1 Recommendations for Policy Makers
The fact that mainly large companies are found to utilize FTAs should be of a concern to
policy makers, especially if trade policy in the form of FTAs is supposed to address the
topic of internationalization of SMEs. The main reason for this finding is the fact that
relatively high initial fixed costs arise in order to benefit from FTAs in the long-term. These
fixed costs include education of staff, infrastructure, systems and resources and can be
seen as an entry barrier to access the world of FTAs. Increasing the utilization rate of
FTAs among SMEs is therefore a key challenge for policy makers. With regard to an
automated FTA-process, governments may provide information on respective information
technology and software. Alternatively, governments may commission the development of
software which suits the needs of SMEs. With regard to the JSFTEPA, the promotion of
the authorized exporter scheme as a fundamental precondition to automate the FTAprocess is of utmost importance. Unless SMEs are supported in the initial stage, they will
find the costs of utilizing FTAs to be higher than the benefits, and thus rather pay the MFN
import tariff. Thereby, they may forfeit their competitive position.
While large companies are found to utilize FTAs more often, they, too, face challenges,
especially when exporting to several markets. Multiple ROO are adding to business costs
– for example with regard to the automation of the FTA process – and should thus be
avoided by negotiators. However, due to the negotiating power of large territories, small
territories may find themselves unable to follow a template on ROO. Therefore, in the
absence of a global effort to liberalize trade or to harmonize ROO, policy makers of small
territories could try to either follow the template of a larger territory, or to only negotiate
FTAs within a regional framework. If small territories do not manage to do so, their
companies are at a competitive disadvantage compared with companies in larger
territories due to higher compliance costs stemming from inhomogeneous ROO.
Another topic which policy makers should pay attention to is the prevalence of
international production and distribution networks. Since FTAs usually only allow for
cumulation of origin between the members of the respective FTA, regional FTAs are
preferable to bilateral ones. In the absence of regional FTAs, ROO should be designed as
liberal and homogeneous as possible or even include the possibility of some form of
diagonal cumulation as currently practiced in the Pan-European-Mediterranean zone.
7.2 Comparisons of the Methodologies
In order to analyze the mechanisms of FTAs from a company perspective, this dissertation
has employed different methods to provide as much insight into the topic as possible. At
the same time, the advantages and disadvantages of the various methods became
apparent.
Qualitative surveys are well suited if the researcher is interested in the collection of
anecdotal evidence which subsequent studies may utilize as a basis for a more broadbased research. Qualitative surveys may also provide insight on a level of detail which
109
quantitatively oriented studies cannot. In addition, a qualitative approach suits well if the
study is of exploratory nature without pre-determined answers. Finally, the replies of
respondents will necessarily be more accurate than in the case of a quantitative survey as
the researcher can ask follow-up questions immediately.
Quantitative large-scale surveys, by contrast, are well suited if a researcher is interested in
findings which are more general in nature and which should allow for a statistical analysis.
Questions of such surveys are usually pre-determined, with occasional possibilities for
comments. However, drawbacks of this method include possible sample selection biases
and incorrect replies by the respondents, be it due to ignorance because the wrong
person received the survey, or due to an undue influence by the survey design or
questions. While this method helps understand mechanisms and relations between certain
variables, it is not suitable for the collection of authentic data.
Finally, quantitative data collected via an administrative process appears to provide the
most reliable insight into the topic examined. Having said that, trying to understand how
exactly the data have been collected helps interpret the outcome of an analysis. A
drawback of this method is that it may be difficult to identify explanatory variables which
should be included in the model. As an example, identifying possible reasons for a high or
a low utilization rate may be difficult without having the input of the companies which were
utilizing or not utilizing an FTA. In this regard, surveys provide a good opportunity to get
an initial understanding of the variables which may be of explanatory power.
As a conclusion, all three methods are equally necessary to get a complete picture on a
research topic. However, not all methods are suited for all stages of the research process.
7.3 Considerations of the Effect of a Free Trade Agreement on Trade
Traditionally, effects of FTAs are measured with regard to their impacts on trade flows.
This section presents reasons collected from above chapters as to why FTAs do not
necessarily need to have an impact on trade flows. Situations where an FTA has no
impact on trade flows can occur regardless of whether companies do not utilize it (a) or
utilize it (b).
a) Companies do not utilize an FTA
Firstly, Companies may not utilize an FTA because it is impossible if certain tariff lines are
not covered by the FTA. Secondly, a company may find the utilization of an FTA
unnecessary, for example when tariffs are already eliminated under MFN. Thirdly,
companies may face obstacles which are not directly cost-related, such as fear of
government exposure. Finally, a company may find the costs of utilizing an FTA to be
higher than the benefit, for example when ROO require a company to change the sourcing
pattern or the distribution network in order to utilize the FTA.
b) Companies do utilize an FTA
Even if companies utilize an FTA, i.e. claim preferential treatment, there may be no effect
on trade. Firstly, if the price-elasticity of demand is too small to create a consumption
110
effect as described by Meade (1955), there is no increase in trade139. Secondly, when the
competitive environment is comparatively weak and the price-elasticity of demand
relatively low, companies may choose not to pass on the tariff savings to the consumers,
but to keep it in the form of a higher profit margin. In this case, whether or not a trade
effect can be expected in the future would depend on how the company spends the tariffs
saved. If the savings are invested in marketing or product innovation because the
respective market becomes more attractive, an effect on trade may be possible in the
long-term.
Consequently, an FTA only has an impact on trade if the following three requirements are
satisfied: Companies do not face obstacles which prevent them from utilizing it, companies
pass the tariff savings on to their customers, and the reduction in the selling price leads to
an increase in the demand for the respective product from the FTA partner territory.
Therefore, even when an FTA is utilized, there is not necessarily a trade effect to be
observed. By contrast, a trade effect due to an FTA will require some utilization of the FTA.
However, the magnitude of the utilization cannot be established by simply examining trade
effects.
139
However, it is possible that a welfare effect may be observed due to the lower price of the product and
thus the higher spending power of consumers.
111
112
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Appendices
A-1: Preferential Rules of Origin
FTAs contain provisions on preferential rules of origin (ROO) in order to prevent trade
diversion in the sense of a simple transshipment of goods from third territories via the FTA
member with the lowest external tariff to the higher tariff territory. They ensure that only
goods originating from a certain territory benefit from tariff concessions under the FTA. A
good can achieve originating status in two ways:
1. Goods which are wholly obtained in a member territory of the free trade area, such as
agricultural or mining products, enjoy preferential treatment.
2. Goods which were manufactured in a party to the FTA and thus may contain originating
as well as non-originating materials must have been sufficiently worked or processed in
the party. Sufficiently worked or processed refers to the last substantial transformation.
Depending on the respective agreement and the product, one or several of the following
requirements have to be satisfied by the product in order to receive preferential treatment:
- A Change in Tariff Classification (CTC) requires the final product to fall under a
different tariff classification code than all non-originating input materials in order to
be conferred origin. Whether a tariff change is necessary on the 2- (chapter), 4(heading) or 6-digit (subheading) HS level depends on the product and the
agreement.
- If products result from reaction or transformation (e.g. chemical reaction), the
Processing Rule establishes that the chemical reaction takes place in a member
territory of the free trade area in order for the final product to achieve origin.
- If the Value-Added Rule applies, a minimum percentage of the input in the final
product needs to be originating in order to confer origin to the whole product.
Depending on the respective FTA, there is either one set of ROO which applies to all
products, or there are product specific ROO.
The ROO usually also contain one or several of the following provisions
- Territoriality principle: Generally, products are not allowed to leave the free trade
during the production process.
- Outward processing: Certain agreements allow for processing in non-parties for
certain stages of the production process.
- Direct transportation rule: Products have to be transported directly between the
parties of an FTA. If they are transported via a third territory, evidence has to be
provided that no processing occurred in the third territory.
- Cumulation: Provisions which establish whether or not and to what extent the value
added in other members of the FTA can be counted towards preferential origin.
121
A-2: Survey Questions
Remarks
Companies located in Japan and Switzerland received the survey questions via two
separate web-links. The survey questions where the same, except
- where location mattered, the versions were slightly different. The respective
adaptations for companies located in Japan are highlighted in italic
- that the questions for companies located in Japan referred to “Economic
Partnership Agreements” (EPA) instead of “Free Trade Agreements” (FTAs), as the
terminology “EPA” is more common in the Japanese context
“JSFTEPA” refers to the Japan Switzerland Free Trade and Economic Partnership
Agreement. Due to the conditional tree structure, several questions appear twice. For an
overview of the structure of the survey, compare appendix A-3.
General information I
1. Information on respondent [if you prefer to complete this survey anonymously,
please leave these fields empty]
- Company name
- Your name
- Your position and function
- Your contact details (email/phone)
2. Which sector is your company active in?
General information II
1. How many permanent staff does your company employ globally (fulltime
equivalent)? [please indicate approximate number]
2. How many permanent staff does your company employ in Switzerland [Japan]
(fulltime equivalent)? [Please indicate approximate number]
3. How many years has your company been operating in Switzerland [Japan]?
[please indicate number of years]
122
4. What kind of activities/ functions do you perform in Switzerland [Japan] and/or
Japan [Switzerland]? [please tick all appropriate boxes]
Global
ManuSales/
RepresenR&D
Agent/
Headfacturing Support tative Office/
Distributor
quarter
Site
Office
Branch
(3rd Party)
Switzerland
[Japan]
Japan
[Switzerlan
d]
Comment (if any)
Area of Business
1. What is your company's area of business? [please tick one]
- Manufacturing in Switzerland [Japan]
- Logistics provider forwarding goods between Switzerland [Japan] and Japan
[Switzerland] for another company
- Importing/ distributing goods from Japan [Switzerland] into/ in Switzerland [Japan]
- Service provider, e.g. financial services, telecommunications etc
Exports
1. Does your company export goods produced in Switzerland [Japan] to Japan
[Switzerland]? [please tick one]
- Yes
- No
- I do not know
Your company exports goods out of Switzerland [Japan] to Japan [Switzerland]
1. What is the approximate relation of exports (overseas sales) to total sales from
your operations in Switzerland [Japan]? [please tick one]
- 0-25%
- 26-50%
- 51-75%
- 76-100%
- I do not know
2. What is the share of intra-firm exports (i.e. exported to an affiliated company or
subsidiary abroad) to total exports globally? [please tick one]
- 0-25%
- 26-50%
- 51-75%
- 76-100%
- I do not know
123
3. When exporting goods from Switzerland [Japan] to Japan [Switzerland], do you
transport the goods directly or transship them via third countries? [please tick one]
- All our goods are being transported directly to Japan [Switzerland]
- Some or all of our goods are being transshipped via one or several third countries
If your goods are being transshipped via third countries, please specify the countries
involved and whether you keep the goods within the customs transit zone
4. Do you use the JSFTEPA when exporting goods to Japan [Switzerland] (i.e. apply
for preferential certificates of origin or print a declaration as to preferential origin on
the invoices)? [please tick one]
- Yes, we sometimes or always use the JSFTEPA for exports to Japan [Switzerland]
- Not currently, but we have plans to maybe use the JSFTEPA in future
- Not currently, and no plans to do so in future
- I do not know as our logistics provider/ freight forwarder decides on the use of the
JSFTEPA for exports to Japan [Switzerland]
- I do not know
- I am not aware of the fact that exports to Japan [Switzerland] may benefit from the
JSFTEPA
Your company uses the JSFTEPA for exports to Japan [Switzerland]
1. Which of the following statements is true for your company? When exporting
goods to Japan [Switzerland] that fulfill the preferential rules of origin stated in the
JSFTEPA, we attach a preferential certificate of origin or print an invoice declaration
as to preferential origin... [please tick one]
- always
- randomly
- only if a customer asks
- I do not know
2. Does your company export goods to Japan [Switzerland] under the "approved
exporter" status? [please tick one]
- Yes, we export under the "approved exporter" status
- No, our company was not able to get the "approved exporter" status
- No, but we plan to apply for the "approved exporter" status
- No, and we do not plan to apply for the "approved exporter" status as we are fine
with applying for preferential certificates of origin
- I do not know
Comment (if any)
124
3. Why do you use the JSFTEPA for exports to Japan [Switzerland]? [please tick all
appropriate boxes]
- Because our customer(s) in Japan [Switzerland] wish to claim back import tariffs
- Expected increase in sales to customer through enhanced price competitiveness of
our goods
- Higher profit-margin when selling goods to our subsidiaries in Japan [Switzerland]
- To circumvent import quota in Japan [Switzerland]
- I do not know
Other (please specify)
Your company uses the JSFTEPA for exports to Japan [Switzerland]
1. Do you face difficulties using the JSFTEPA for exports to Japan [Switzerland]
when your goods are transshipped via third countries? Which countries are
involved and what problems do you face?
2. What other problems/ difficulties do you face when using the JSFTEPA for
exports to Japan [Switzerland]?
3. When exporting a good to Japan [Switzerland], how much time do you need on
average to... [please tick one per line]
<5min 5311>3h I do not
30min 59min
3h
know
…check if the rules of origin of
JSFTEPA are satisfied?
…prepare the cost statement?
…apply for a preferential certificate
of origin for this good?
Comments (if any)
4. Does your company analyze the savings of using the JSFTEPA and/or the
impacts on your business? [please tick one]
- Yes
- No
- I do not know
Your company analyses the benefits of the JSFTEPA (exports)
1. What are the effects of using the JSFTEPA so far? [please tick one]
- No clear effect so far
- Increase in sales but no change in profit
- Increase in sales and in profits
- I do not know
Others (please specify)
125
2. What are your approximate savings from the JSFTEPA for exports to Japan
[Switzerland]? [please tick one]
- <10,000 CHF [<1M JPY]
- 10,000-100,000 CHF [1M-10M JPY]
- 100,001-1M CHF [>10M-100M JPY]
- >1M CHF [>100M JPY]
- No savings; we pass benefits on to clients
- I do not know
Comment (if any)
3. What share of your exports to Japan [Switzerland] enjoys preferential treatment/
uses the JSFTEPA? [please tick one]
- <5%
- 5-50%
- 51-95%
- 96-100%
- I do not know
Comments
Your company may make use of the JSFTEPA for exports to Japan [Switzerland] in
future
1. Why has your company not (yet) used the JSFTEPA for exports to Japan
[Switzerland]? [please tick all appropriate boxes]
- No incentives (e.g. margin of preference too small, small trading volume, other
preferential schemes etc)
- No interest from our side as exporter needs to prove preferential origin while
importer gets all the benefits
- Too much time needed for administration/ compliance
- Costs of using the JSFTEPA are too high
- Rules of origin are too restrictive
- Our supplier(s) cannot or do(es) not want to confirm preferential origin
- Compliance-related problems
- Lack of awareness of JSFTEPA
- Lack of information on JSFTEPA
- Lack of management support
Specifications or other reasons (please specify)
2. Did your company face difficulties using the JSFTEPA for exports to Japan
[Switzerland] because the goods were transshipped via third countries? Which
countries were involved and what problems did you face?
3. Please describe the plans of your company with regard to using the JSFTEPA for
exports to Japan [Switzerland] in future
126
Your company does not use the JSFTEPA for exports to Japan [Switzerland]
1. Why has your company not used the JSFTEPA for exports to Japan [Switzerland]
so far? [please tick all appropriate boxes]
- No interest from our side as exporter needs to prove preferential origin while
importer gets all the benefits
2. Did your company face difficulties using the JSFTEPA for exports to Japan
Re-export of goods
1. What happens to the goods you export to Japan [Switzerland]? [please tick all
appropriate boxes]
- All the goods we export to Japan [Switzerland] are sold in the domestic market.
- All or some of the goods we export to Japan [Switzerland] are later re-exported to
other countries in Asia [the European Union]
- All or some of the goods we export to Japan [Switzerland] are further processed in
Japan [Switzerland] and then exported to other countries in Asia [the European
Union]
- All or some of the goods we export to Japan [Switzerland] are further processed in
Japan [Switzerland] and then exported to other countries in Asia [the European
Union] by using the respective FTAs (i.e. claiming Japanese preferential origin) [the
EU-Switzerland free trade agreement (i.e. claiming Swiss preferential origin)]
- I do not know
Comments (if any)
Imports
1. Does your company import goods from Japan [Switzerland] for further
processing at your manufacturing site in Switzerland [Japan]? [please tick one]
- Yes
- No
- I do not know
127
Your company imports goods from Japan [Switzerland] into Switzerland [Japan]
1. What is the approximate relation of imports (overseas procurement) to total
procurement for your operations in Switzerland [Japan]? [please tick one]
- 0-25%
- 26-50%
- 51-75%
- 76-100%
- I do not know
2. What is the share of intra-firm imports (i.e. imported from an affiliated company
or subsidiary) to total imports? [please tick one]
- 0-25%
- 26-50%
- 51-75%
- 76-100%
- I do not know
3. When importing goods from Japan [Switzerland] into Switzerland [Japan], do you
- All goods are being transported directly from Japan [Switzerland]
- Some or all goods are being transshipped via one or several third countries
If the goods are being transshipped via third countries, please specify the countries
4. Do you use the JSFTEPA when importing goods from Japan [Switzerland] (i.e. do
you make sure you have preferential certificates of origin or declaration as to
preferential origin on invoice from your supplier(s))? [please tick one]
- Yes, we sometimes or always use the JSFTEPA when importing from Japan
[Switzerland]
- Not currently, but we have plans to maybe use the JSFTEPA in future
- Not currently, and no plans to do so in future
- I do not know as our logistics provider/ freight forwarder decides on the use of the
JSFTEPA for imports from Japan [Switzerland]
- I do not know
- I am not aware of the fact that imports from Japan [Switzerland] may benefit from
the JSFTEPA
128
Your company uses the JSFTEPA for imports from Japan [Switzerland] into
Switzerland [Japan]
1. Which of the following statements is true for your company? We ask our
supplier(s) for preferential certificates of origin or declarations as to the preferential
origin of the goods... [please tick one]
- always
- randomly
- never
- only when we re-export the goods later or use it for cumulation
- I do not know
Comment (if any)
2. Why does your company use the JSFTEPA for imports from Japan [Switzerland]?
[please tick all appropriate boxes]
- To avoid paying Swiss [Japanese] import tariffs/ reduce landed costs
- To circumvent import-quota in Switzerland [Japan]
- To make use of cumulation possibilities when re-exporting the goods
- I do not know
3. Do you face difficulties using the JSFTEPA for imports from Japan [Switzerland]
when the goods are transshipped via third countries? Which countries are involved
and what problems do you face?
imports from Japan [Switzerland]?
Your company uses the JSFTEPA for imports from Japan [Switzerland] into
Switzerland [Japan]
1. How much time do you need to solicit a preferential certificate of origin from your
supplier(s) in Japan [Switzerland] per shipment? [please tick one]
- <5min
- 5-59min
- 1-3h
- >3h
- I do not know
- Our supplier(s) always declare preferential origin unasked
Comments (if any)
- Yes
- No
- I do not know
129
Your company analyses the benefits of the JSFTEPA (imports)
- I do not know
2. What are your approximate savings from the JSFTEPA for imports from Japan
[Switzerland] into Switzerland [Japan]? [please tick one]
- <10,000 CHF [<1M JPY]
- 10,000-100,000 CHF [1M-10M JPY]
- 100,001-1M CHF [>10M-100M JPY]
- >1M CHF [>100M JPY]
- No savings; we pass benefits on to customers
- I do not know
Comment (if any)
3. What share of your imports from Japan [Switzerland] enjoys preferential
treatment/ uses the JSFTEPA? [please tick one]
- <5%
- 5-50%
- 51-95%
- 96-100%
- I do not know
Comments
Your company may make use of the JSFTEPA for imports from Japan [Switzerland]
in future
1. Why has your company not (yet) used the JSFTEPA for imports from Japan
[Switzerland]? [please tick all appropriate boxes]
130
2. Did your company face difficulties using the JSFTEPA for imports from Japan
3. Please describe the plans of your company with regard to using the JSFTEPA for
imports from Japan [Switzerland] in future
Your company does not use the JSFTEPA for imports from Japan [Switzerland]
1. Why has your company not used the JSFTEPA for imports from Japan
[Switzerland] so far? [please tick all appropriate boxes]
2. Did your company face difficulties using the JSFTEPA for imports from Japan
Re-export of goods
1. What happens to the goods you import from Japan [Switzerland] into Switzerland
[Japan]? [please tick all appropriate boxes]
- All the goods we import into Switzerland [Japan] are sold in the domestic market.
- All or some of the goods we import into Switzerland [Japan] are later re-exported to
the European Union [other countries in Asia]
- All or some of the goods we import into Switzerland [Japan] are further processed
in Switzerland [Japan] and then exported to the European Union [other countries in
Asia]
Asia] by using the EU-Switzerland free trade agreement (i.e. claiming Swiss
preferential origin) [the respective FTAs (i.e. claiming Japanese preferential origin)]
- I do not know
Comments (if any)
131
Internal Environment I
Only to be filled in if your company uses FTAs for either exports or imports; otherwise click
"Next"
1. How is your company's strategy regarding use of FTAs decided? [please tick all
appropriate boxes]
- Headquarters decides alone
- Headquarters and overseas subsidiaries/ affiliates
- Overseas subsidiaries/ affiliates decide by themselves
- There is no strategy
- I do not know
2. Who is primarily responsible for certifying origin and FTA-compliance in your
company? [please tick one]
- Supply chain
- Sales department
- Finance department
- Legal department
- Project assistant/ specially assigned staff
- Nobody is responsible
- I do not know
Others and/or comments (if any)
3. How does your company manage FTAs? [please tick all appropriate boxes]
- Manually
- With an internally developed software
- With a commercial software
- Outsourced to a third party
- We do not manage them systemically
- I do not know
Internal Environment II
Only to be filled in if your company uses FTAs for either exports or imports; otherwise click
"Next"
1. Did or would your company consider changing and optimizing the production
network/ manufacturing strategy as a response to FTAs? [please tick one]
- Yes
- No
- I do not know
Comment (if any)
132
2. The JSFTEPA contains provisions on the entry and temporary stay of natural
persons, specifically for business purposes [please tick one]
- Our company is aware of these provisions, and we have already referred to them
when dispatching employees to Japan [Switzerland]
- Our company is aware of these provisions, but so far we have not referred to them
- Our company is not aware of these provisions
Comment (if any)
Your company provides logistics services between Switzerland [Japan] and Japan
[Switzerland] (Export Processing)
1. What roles do Switzerland [Japan] and Japan [Switzerland] play in your business
model? Some or all of the goods we forward between Switzerland [Japan] and
Japan [Switzerland]... [please tick all appropriate boxes]
- are produced in Switzerland [Japan]
- are produced in Japan [Switzerland]]
- are being transshipped via Switzerland [Japan]
- are being transshipped via Japan [Switzerland]
- end up in Switzerland [Japan]
- end up in Japan [Switzerland]
- I do not know
2. When forwarding goods between Switzerland [Japan] and Japan [Switzerland], do
you transport the goods directly or transship them via third countries? [please tick
one]
- All goods are being transported directly
involved and whether you keep the goods within the customs transit zone:
3. Which of the below statements are true with regard to your clients? [please tick
all appropriate boxes]
- Some or all of our clients in Switzerland [Japan] and/or Japan [Switzerland] have
outsourced all international trade operations; therefore our company performs all
export/import documentations for them
- Some or all of our clients perform all export/import documentation by themselves
- I do not know
Other and/or comments (if any)
4. Does your company support clients with regard to exports/ export processing?
[please tick one]
- Yes
- No
- I do not know
133
Your company supports clients with regard to export processing
1. Do all or some of your clients in Switzerland [Japan] and/or Japan [Switzerland]
ask your company to apply for a preferential certificate of origin on their behalf
when exporting to Japan [Switzerland] or Switzerland [Japan], respectively? [please
tick one]
- Yes, but less than 5% of our clients
- Yes, approximately 50% of our clients
- Yes, more than 95% of our clients
- No, our clients never ask
- I do not know
Comments (if any)
2. Does your company actively advise clients to make use of the JSFTEPA when
exporting to Japan [Switzerland] or Switzerland [Japan] (i.e. applying for
preferential certificates of origin, printing a declaration as to preferential origin on
the invoice or claiming back import tariffs)? [please tick one]
- Yes, we always or usually mention that by using the JSFTEPA the client may have
to pay less/no import duties
- Yes, but we advise the client to use the JSFTEPA only when we see some savings
potential
- No, we never advise clients to use the JSFTEPA, because we do not see any
benefits in using FTAs
- No, we never advise clients to use the JSFTEPA, because we are not familiar with
FTAs
- No, we never advise clients to use the JSFTEPA
- I do not know
3. What problems/ difficulties do you face when using the JSFTEPA with regard to
export processing?
4. Do you face difficulties using the JSFTEPA when goods are transshipped via
third countries? Which countries are involved and what problems do you face?
Your company provides logistics services between Switzerland [Japan] and Japan
[Switzerland] (Import Processing)
1. Does your company support clients in Switzerland [Japan] and/or Japan
[Switzerland] with regard to imports/ import processing? [please tick one]
- Yes
- No
- I do not know
134
Your company supports clients with regard to import processing
1. Do all or some of your clients in Switzerland [Japan] and/or Japan [Switzerland]
ask your company to check with their suppliers in Japan [Switzerland] or
Switzerland [Japan], respectively, for proof of preferential origin of the imported
goods? [please tick one]
- Yes, but less than 5% of our clients
- Yes, approximately 50% of our clients
- Yes, more than 95% of our clients
- No, our clients never ask
- I do not know
2. Does your company actively ask manufacturers in Switzerland [Japan] and/or
Japan [Switzerland] for a proof of preferential origin prior to importing their goods
into Japan [Switzerland] or Switzerland [Japan], respectively? [please tick one]
- Yes, we usually ask manufacturers in Switzerland [Japan] and/or Japan
[Switzerland] if they can provide proof of preferential origin when exporting to Japan
[Switzerland] and/or Switzerland [Japan] as their goods might benefit from lower/no
import duties
- Yes, but we ask manufacturers only when we see savings potential in form of
lower/no import duties
- Yes, but only if the final buyer is asking for it
- No, we never ask manufacturers, because we do not see any benefits in using
FTAs
- No, we never ask manufacturers, because we are not familiar with FTAs
- No, we never ask manufacturers
- I do not know
3. What problems/ difficulties do you face when using the JSFTEPA with regard to
import processing?
4. Do you face difficulties using the JSFTEPA when goods are transshipped via
third countries? Which countries are involved and what problems do you face?
Your company imports/ distributes goods from Japan [Switzerland] into/in
Switzerland [Japan]
1. How does your business model look like? [please tick one]
- We import goods from Japan [Switzerland] into Switzerland [Japan]
- We distribute goods from Japan [Switzerland] in Switzerland [Japan]
- We import and distribute goods from Japan [Switzerland] into/in Switzerland [Japan]
- I do not know
135
2. When importing goods from Japan [Switzerland] into Switzerland [Japan], do you
- All goods are being transported directly from Japan [Switzerland]
3. Who is paying the import tariffs/ duty in Switzerland [Japan] when there is no
proof of preferential origin as stated in the JSFTEPA?
Your company imports/ distributes goods from Japan [Switzerland] into/in
Switzerland [Japan]
1. Does your company actively ask producers in Japan [Switzerland] for a proof of
preferential origin under the JSFTEPA prior to importing and/or distributing their
goods in Switzerland [Japan]? [please tick one]
- Yes, we usually ask producers in Japan [Switzerland] if they can provide proof of
preferential origin when exporting to Switzerland [Japan] as their goods might
benefit from lower/no import duties under the JSFTEPA
- Yes, but we ask producers only when we see savings potential in form of lower/no
import duties under the JSFTEPA
- Yes, but only if the final buyer is asking for it
- No, we never ask producers, because we see no benefits in using FTAs
- No, we never ask producers, because we are not familiar with FTAs
- No, we never ask producers
- I do not know
- Yes
- No
- I do not know
Your company analyses the benefits of the JSFTEPA (imports/ distribution)
- I do not know
136
2. What are your approximate savings from the JSFTEPA for imports from Japan
[Switzerland] into Switzerland [Japan]? [please tick one]
- <10,000 CHF [<1M JPY]
- 10,000-100,000 CHF [1M-10M JPY]
- 100,001-1M CHF [>10M-100M JPY]
- >1M CHF [>100M JPY]
- No savings; we pass benefits on to clients
- I do not know
Comment (if any)
3. What share of your imports from Japan [Switzerland] enjoys preferential
treatment/ uses the JSFTEPA? [please tick one]
- <5%
- 5-50%
- 51-95%
- 96-100%
- I do not know
Comments
4. Do you face difficulties using the JSFTEPA for imports from Japan [Switzerland]
when the goods are transshipped via third countries? Which countries are involved
and what problems do you face?
imports from Japan [Switzerland]?
Re-export of goods
1. What happens to the goods you import from Japan [Switzerland] into Switzerland
[Japan]? [please tick all appropriate boxes]
- All the goods we import into Switzerland [Japan] are sold in the domestic market.
- All or some of the goods we import into Switzerland [Japan] are later re-exported to
the European Union [other countries in Asia]
Asia]
Asia] by using the EU-Switzerland free trade agreement (i.e. claiming Swiss
preferential origin) [the respective FTAs (i.e. claiming Japanese preferential origin)]
- I do not know
Comments (if any)
137
Service providers
1. Was your company aware of the currently existing FTA between Switzerland
[Japan] and Japan [Switzerland]? [please tick one]
- Yes, and we were aware that the FTA also addresses service-related issues
- Yes, but we were not aware that the FTA also addresses service-related issues
- No, we were not aware of an FTA between Switzerland [Japan] and Japan
[Switzerland]
- I do not know
Comment (if any)
External Environment I
1. Has your company ever been involved in consultations with the government or
its agencies to provide input to negotiations on FTAs? [please tick one]
- Yes
- No
- I do not know
Comment (if any)
2. Via which channels do you get information on FTAs currently, and which ones
should be more active in providing information? [please tick all appropriate boxes]
Ministries/
Business
Private
Agencies
Associations
Consultants
Currently we get
information from…
It would be good
to get more
information from…
3. Do you face problems when interacting with the Swiss [Japanese] or Japanese
[Swiss] Customs regarding the JSFTEPA? [please tick one]
- No, we do not face any problems at all
- In the beginning we faced problems, but they are solved now
- We still face minor difficulties
- We still face major difficulties which do not allow us to use the JSFTEPA
If you face difficulties, please describe them here
4. Do you have any suggestions which would simplify the use of FTAs?
138
External Environment II
1. Which of the below countries do you trade with? Do you use FTAs when
exporting or importing? [please tick all appropriate boxes]
We export We import We use
We use
I do not
to…
from…
FTAs for
FTAs for
know
exports
imports
to…
from…
Canada
Chile
Croatia
Egypt
EU/EEA
Faeroe Islands
Israel
Jordan
Korea
Lebanon
Macedonia
Mexico
Morocco
Palestinian Authority
Singapore
Tunisia
Turkey
South African
Customs Union
(Botswana, Lesotho,
Namibia, South
Africa, Swaziland)
Developing
Countries
(Generalized
System of
Preferences (GSP))
Comments (if any)
139
We export
to…
We import
from…
We use
FTAs for
exports
to…
We use
FTAs for
imports
from…
I do not
know
Brunei
Cambodia
Chile
Indonesia
Laos
Malaysia
Mexico
Myanmar
Philippines
Singapore
Thailand
Vietnam
Developing
Countries
(Generalized
System of
Preferences (GSP))
Comments (if any)
2. With which other countries should Switzerland [Japan] negotiate FTAs?
External Environment
1. Has your company ever been involved in consultations with the government or
its agencies to provide input to negotiations on FTAs? [please tick one]
- Yes
- No
- I do not know
Comment (if any)
2. Via which channels do you get information on FTAs currently, and which ones
should be more active in providing information? [please tick all appropriate boxes]
Ministries/
Agencies
Business
Associations
Currently we get
information from…
It would be good to get
more information from…
140
Private
Consultants
3. Do you face problems when interacting with the Swiss [Japanese] or Japanese
[Swiss] Customs regarding the JSFTEPA? [please tick one]
- No, we do not face any problems at all
- In the beginning we faced problems, but they are solved now
- We still face minor difficulties
- We still face major difficulties which do not allow us to use the JSFTEPA
If you face difficulties, please describe them here
4. Do you have any suggestions which would simplify the use of FTAs?
Possible review of the JSFTEPA
Below please provide input for a possible review of the JSFTEPA
1. Are there any regulatory obstacles to market access which should be addressed
in a future review of the JSFTEPA? Is there red tape which makes it more
burdensome or more costly for Switzerland [Japan]-based companies to sell into
Japan [Switzerland] or to provide services from Switzerland [Japan]? Are there
instances where either Japanese [Swiss] competitors, or those of countries with
which Japan [Switzerland] has concluded an FTA, get better treatment? Are there
instances where Japanese [Swiss] authorities do not recognize Swiss [Japanese]
standards, or require double testing?
2. Do you have any general remarks or problems?
3. Which areas of the JSFTEPA are of importance to your company and/or should
be reviewed? [please tick all appropriate boxes]
Are of importance to us Should be reviewed
Elimination/ reduction in tariffs
Elimination/ reduction in non-tariff
barriers
Mutual recognition of standards,
certifications
Trade in services
Protection of investments
Movement of natural persons
Government Procurement
Protection of intellectual property
rights
Others and/or comments
141
A-3: Structure of the Survey
Explanations
White boxes Questions to be answered by respondents
Grey boxes Reply options
DNK
I do not know
NA
Not aware
Source: Structure and programming by the author.
142
A-4: Topics of Interest to Policy Makers
1. Importance of the JSFTEPA’s Content
Question: Which areas of the JSFTEPA are of importance to your company and/or should
be reviewed? (multiple replies possible)
Of Importance
Should be reviewed
Elimination/ reduction in tariffs
Elimination/ reduction in non-tariff barriers to
trade
32
19
5
7
Mutual recognition of standards, certifications
27
3
Protection of intellectual property rights
21
0
Trade in services
Protection of investments
11
12
1
5
Movement of natural persons
Government procurement
16
6
1
4
2. Movement of Natural Persons
Question: The JSFTEPA contains provisions on the entry and temporary stay of natural
persons, specifically for business purposes (N = 22)
Number of
Respondents
Our company is aware of these provisions, and we have already
referred to them when dispatching employees to Japan
Our company is aware of these provisions, but so far we have
not referred to them
5
Our company is not aware of these provisions
8
9
3. Problems Companies are facing with regard to the JSFTEPA
Various questions on problems/ difficulties companies face when utilizing the JSFTEPA
Intertemporal view
- 9 companies initially were facing problems (but they are solved now)
- 5 companies still face minor difficulties
- 5 companies still face major difficulties which do not allow them to use the
JSFTEPA.
143
Problems companies face include
- Lack of information
- Restrictive ROO
- Multiple ROO (which is also a challenge to automate the FTA-process)
- Costs of utilizing FTAs are higher than benefits, specifically for spare parts of
machinery
- Support needed with regard to the implementation of a process in the company
- Confidentiality of sensitive date of exporting company (observer in FTA partner
territory, lack of trust in counterpart customs)
- Companies in Japan or companies importing into/ exporting out of Japan are
facing problems with regard to
o recognition of international standards
o double testing
o technical regulations and product registrations
o difficulties getting the certificate of origin from suppliers in Japan and
applying for the certificate of origin in Japan (approved exporter status
seems not yet well established in Japan)
- Companies in Switzerland or companies importing into/ exporting out of Switzerland
are facing problems with regard to the movement of natural persons, e.g. issues
regarding cantonal work permits for Japanese nationals, social insurance etc.
4. Sources of Information on FTAs in General
Question: Via which channels do you get information on FTAs currently, and which ones
should be more active in providing information? (multiple replies possible)
Business Associations
and Chambers of
Commerce
Currently More Expected
Government
Ministries and
Agencies
Private Consultants
and Trade Lawyers
Companies
located in
Switzerland
32
Currently More
Currently More
Expected
Expected
8
21
15
7
2
Companies
located in
Japan
10
5
7
144
6
2
0
5. Negotiation of other FTAs
Question: With which other countries should Switzerland negotiate FTAs? (multiple
replies possible)
Territory
Number of Respondents
Argentina
Asean
1
1
--- Thailand
--- Vietnam
3
1
Australia
2
Brazil
7
China
India
10
5
Mercosur
New Zealand
1
1
Russia
Taiwan
5
1
U.S.
As many as possible
2
2
Question: With which other countries should Japan negotiate FTAs? (multiple replies
possible)
Territory
Number of Respondents
China
European
Union
4
3
India
Korea
1
1
U.S.
2
145
A-5: Survey Directory of Sampled Companies
Company
Respondent
Position and Function
Ajinomoto Switzerland AG
AKRIS Japan Limited
Ernie Good
Chieko Ino
General Manager
President
Aon Insurance Services
(Switzerland) AG
arushi GmbH
Tadashi Yamanaka
Senior Account Manager &
Director
President
Ascar AG
Attexor Tools S.A.
R. Hüsser
Hans Bergkvist
Director
Chief Executive Officer and
President
BASF Schweiz AG
British American Tobacco
International
Charles Zollinger
Stuart Kidd
Head International Trade Affairs
Finance Director
Brother Schweiz AG
Buhler K.K.
not available
Max Klinger
not available
Managing Director
Bühlmann Laboratories AG
Canon (Schweiz) AG
Thomas Hafen
not available
Chief Operating Officer
not available
Chocolats Camille Bloch SA
Volker Kremser
Head of Export
Chromos Ltd
Daniel Broglie
Chief Executive Officer
Clariant International AG
E. Hunziker
DKSH Japan K.K.
Rune Foldnes
Senior Expert Customs and
Foreign Trade
Country Finance Manager
DSM Nutritional Products Ltd
Feintool International Holding
AG
Cajetan Hürzeler
not available
Head International Trade Affairs
not available
Fibag AG
Furrer-Jacot AG
Freddy Oswald
Niklaus Bieri
Board Member
Gaipro, Inc.
Martin Stricker
President
Geberit Shanghai Trading Co.,
Ltd
Manfred
Koenigslehner
Technical Director Asia-Pacific
Genedata K.K.
Georg Fischer AG
Frank Staubli
Urs Werner
Managing Director
not available
Gessner AG
Helmut Fischer AG
Eugen Weibel
Walter Mittelholzer
Director Marketing and Sales
Hiestand Japan Co Ltd
Hilti AG
Robert Grimme
Rainer Moosmann
Managing Director
Teamlead Export
Hirotec Europe GmbH
Toshifumi Uno
Managing Director
Hitachi Medical Systems
Europe Holding AG
Concettina Frijia
Assistant to Chief Executive
Officer
Gregory Glanzmann
146
Honda Automobiles (Suisse)
SA
Francois Launaz
General Manager
Invoclar Vivadent AG
Christoph Linder
John Lay Electronics AG
not available
Senior Area Sales Manager
Japan/ Korea
not available
Josef Binkert AG
Japan Tobacco International
S.A.
not available
Hisashi Sekiguchi
not available
Japan Affairs Manager
KLAS S.A.
Knecht & Müller AG
Akemi Takayama
not available
General Manager
not available
L. Kellenberger & Co. AG
Lonza AG
Sandro Mock
Ivana Helbling
Sales Manager
Foreign Trade Affairs
Mana Pearl KK
Maxon Japan Corporation
Nicolas Savary
Sumio Kaneko
Managing Director
President
Mayekawa Intertech AG
Medala K.K.
not available
Ryoji Sugihara
not available
President
Metrohm AG
Heinz Honsell
MM Automobile Schweiz AG
Bernd Hoch
Senior Manager Sales
Administration
Managing Director
Naiman Trust Solutions Ltd
Nestlé S.A.
Alyona Friedel
Kenji Holzer
Japan Desk Consultant
Regional Assistant Manager –
Zone AOA
Nihon Buchi K.K.
Nippon Express (Switzerland)
Ltd
Joerg Duppenthaler
Tsutomu Masuda
President
Deputy Managing Director
Nishi’s Japan Shop
Novartis International AG
Yoshiko Nishihama
Stephan Bruni
Owner
Head of Corporate Trade Affairs
Pentel Papeteriewaren AG
Rausch AG
John Ayuse
Iris Kesselring
Managing Director
Executive Export Manager
Reishauer KK
Martin W. Browne
Roellin Books
Martin Roellin
Chief Executive Officer and
Representative Director
Owner
Sato Furnishings AG
Sekisui Alveo AG
Erwin Zehnder
Hiroshi Suganami
Managing Director
Director Corporate Planning
Shiseido S.A.
SIX Telekurs
Yukihiro Yamada
Alain Delfosse
President
Managing Director
Snowflake Co., Ltd
Sony Overseas AG
Thomas Schläpfer
Gregory Glanzmann
Market & Business Analyst
Stoll Giroflex AG
Swarovski AG
Tobias Gerfin
Thomas Mersch
Head of Global Planning &
147
Procurement Consumer Goods
Business
Swiss International Air Lines
Ltd
Swiss Japanese Society
Noboru Okabe
General Manager (Japan)
Herbert Haag
President
Sysmex Digitana AG
Systag AG
not available
Matthias Haas
not available
Engineering Manager
TecDev
UBP Investments Co., Ltd
Jean Pierre Bloch
Kazuhito Yoshihara
Director
CEO and President
UBS AG
Michael Viana
UHNW/ Market Head
Union Tool (Europe) SA
Nicolas Wenger
Accounting, IT & Operations
Manager
Victorinox AG
Vischer & Bolli AG
Carl Elsener
not available
not available
Walter Meier Ltd
WEKA AG
Lehner Urs
Fridolin Holdener
Head of Sales and Marketing
General Manager
Wide Concept Sàrl
Anonymous
Haruo Hasegawa
not available
Director
not available
Anonymous
not available
not available
Anonymous
not available
not available
148
A-6: Distribution of Independent Variables
Trade flow based responses (TFBRs)
utilizing the JSFTEPA
Number of permanent employees (EMP)
Original data
Trade flow based responses (TFBRs) not
utilizing the JSFTEPA
TFBR not utilizing the JSFTEPA,
original data
25
20
15
10
5
0
Frequency
Frequency
TFBR utilizing the JSFTEPA, original
data
0
00
25
0
00
75
00
50
2
1
00
50
7
1
M
12
10
8
6
4
2
0
e
or
0
00
25
0
00
75
00
50
12
Bin
00
50
17
M
e
or
Bin
Log transformed data
TFBR not utilizing the JSFTEPA, log
transformed data
TFBR utilizing the JSFTEPA, log
transformed data
4
Frequency
5
10
Frequency
12
8
6
4
2
0
3
2
1
0
1
2
3
4
5
More
1
2
3
Bin
4
5
More
Bin
Number of countries a company is represented in with an own business unit (CRO)
Original data
original data
8
6
4
2
0
Frequency
Frequency
data
20
40
60
80
100
120
140 More
5
4
3
2
1
0
20
40
60
80
Bin
100
120
140
More
Bin
square root transformed data
4
6
4
2
0
Frequency
Frequency
TFBR utilizing the JSFTEPA, square
root transformed data
2
4
6
8
10
12
3
2
1
0
More
2
Bin
4
6
8
Bin
149
10
12
More
Number of countries a company is represented in (CRP)
Original data
original data
Frequency
Frequency
data
8
6
4
2
0
8
6
4
2
0
5
20
40
60
80
100
120
15
140 More
25
35
45
M
e
or
Bin
Bin
square root transformed data
6
7
M
e
or
or
e
5
M
4
7
3
6
2
1
1
0
5
0
2
4
2
4
3
4
6
2
6
Frequency
Frequency
TFBR utilizing the JSFTEPA, square
root transformed data
Bin
Bin
Number of other FTAs utilized (UOF)
Original data
original data
More
24
20
22
18
14
16
10
Bin
12
8
2
24
More
22
20
18
16
14
12
10
8
6
4
0
4
5
5
4
3
2
1
0
6
Frequency
10
2
Frequency
data
Bin
Intra-firm intensity of trade (IIN)*
Original data
original data
6
Frequency
Frequency
data
4
2
0
1
2
3
4
More
6
4
2
0
1
Bin
2
3
Bin
150
4
More
Trade Intensity (TIN)*
Original data
8
6
4
2
0
original data
Frequency
Frequency
data
1
2
3
4
6
4
2
0
1
More
2
3
4
More
Bin
Bin
(*) These variables were recoded: 1 = 0-25%; 2 = 26-50%; 3 = 51-75%; 4 = 76-100%.
151
A-7: Detailed Results of Model 4
Dependent Variable: UR?
Method: GLS (Cross Section Weights)
Included observations: 2367
Number of cross-sections used: 16
Total panel (unbalanced) observations: 15831
White Heteroskedasticity-Consistent Standard Errors & Covariance
Variable
MOP?^2
VIMP?^2
MOP?*VIMP?
MOP?* IND_01
MOP?*IND_02
MOP?*IND_03
MOP?*IND_04
MOP?*IND_05
MOP?*IND_06
MOP?*IND_07
MOP?*IND_08
MOP?*IND_09
MOP?*IND_10
MOP?*IND_11
MOP?*IND_12
MOP?*IND_13
VIMP?*IND_01
VIMP?*IND_02
VIMP?*IND_03
VIMP?*IND_04
VIMP?*IND_05
VIMP?*IND_06
VIMP?*IND_07
VIMP?*IND_08
VIMP?*IND_09
VIMP?*IND_10
VIMP?*IND_11
VIMP?*IND_12
VIMP?*IND_13
Coefficient
Std. Error
t-Statistic
Prob.
-0.0125
0.0045
-2.7775
0.0055
-0.0154
0.0041
-3.7007
0.0002
5.3991
0.8093
6.6714
0.0000
0.4104
0.1495
2.7459
0.0060
-2.8202
3.8483
-0.7328
0.4637
-0.0610
0.1939
-0.3147
0.7530
2.3561
0.9567
2.4627
0.0138
0.0660
0.0832
0.7937
0.4274
0.2541
0.1727
1.4710
0.1413
1.7030
0.2659
6.4060
0.0000
-0.8732
0.5163
-1.6913
0.0908
2.3209
1.3178
1.7612
0.0782
1.9439
0.7207
2.6974
0.0070
1.2507
0.4875
2.5658
0.0103
-2.9220
0.8527
-3.4267
0.0006
1.3109
0.3038
4.3143
0.0000
35.4964
19.0849
1.8599
0.0629
42.9129
42.2440
1.0158
0.3097
15.7288
3.3885
4.6418
0.0000
46.8127
5.3479
8.7535
0.0000
-4.7179
1.1465
-4.1151
0.0000
237.3246
85.4668
2.7768
0.0055
243.2097
37.4305
6.4976
0.0000
231.3260
51.9322
4.4544
0.0000
0.9177
0.2315
3.9645
0.0001
127.8660
16.7994
7.6113
0.0000
4.5473
1.5488
2.9361
0.0033
-1.2343
0.6737
-1.8322
0.0669
-2.0401
0.6546
-3.1166
0.0018
152
IND_02
IND_03
IND_04
IND_05
IND_06
IND_07
IND_08
IND_09
IND_10
IND_11
IND_12
IND_13
Fixed Effects
N0909--C
N0910--C
N0911--C
N0912--C
N1001--C
N1002--C
N1003--C
N1004--C
N1005--C
N1006--C
N1007--C
N1008--C
N1009--C
N1010--C
N1011--C
N1012--C
Weighted Statistics
R-squared
Adjusted R-squared
S.E. of regression
Log likelihood
Durbin-Watson stat
1.5501
3.3854
3.2620
1.0105
2.3271
0.3399
3.7924
1.2547
4.1973
2.1340
29.6160
2.9676
0.9308
0.6482
1.0698
0.5208
0.8691
0.9851
1.6280
0.8931
0.8217
0.5915
2.0560
0.5756
1.6653
5.2223
3.0491
1.9401
2.6776
0.3450
2.3294
1.4048
5.1082
3.6078
14.4044
5.1560
0.0959
0.0000
0.0023
0.0524
0.0074
0.7301
0.0198
0.1601
0.0000
0.0003
0.0000
0.0000
-4.318565
-3.272913
-2.358575
-2.542517
-1.459997
-0.468241
-0.458909
0.042668
0.390361
1.389781
1.168628
2.223352
0.826274
1.429392
1.822157
0.915223
0.2283
0.2255
19.72815
-69217.69
1.5413
Mean dependent variable
S.D. dependent variable
Sum squared residuals
F-statistic
Prob(F-statistic)
153
6.3015
22.4174
6139237
116.6483
0.0000
A-8: Bilateral and Regional FTAs of Territories Identified as FTA Hubs
Territory
Entry Into Force of
FTA’s Trade in
Goods Chapter
(Review)
Australia
Bilateral FTAs (one partner territory)
Chile
New Zealand
2009
1983 (2007)
Papua New Guinea
Singapore
1991
2003
Thailand
U.S.
2005
2005
Bilateral FTAs (several partner territories)
Asean-Australia-New Zealand FTA (AANZFTA)
2010
Regional FTAs
South Pacific Regional Trade and Economic Cooperation
Agreement (SPARTECA)
1981
Chile
Australia
Canada
2009
1997
China
Colombia
2006
2009
Costa Rica
El Salvador
2002
2002
Guatemala
Honduras
2002
2002
India
Japan
2007
2007
Korea
Mexico
2004
1999
Nicaragua
Panama
2002
2008
Peru
Turkey
2009
2011
U.S.
2004
European Union (EU)
2003
154
European Free Trade Area (EFTA)
2004
Regional FTAs
Latin American Integration Association (LAIA)
1981
Trans-Pacific Strategic Economic Partnership (TPSEP)
China
2006
Chile
2006
Hong Kong
Macao
2004
2004
New Zealand
2008
Pakistan
2007
Peru
Singapore
2010
2009
Asean-China FTA (ACFTA)
Regional FTAs
Asia Pacific Trade Agreement (APTA)
2005 (2006)
2002
European Union
Albania
Algeria
2009
2005
Bosnia and Herzegovina
Chile
2008
2003
Croatia
Egypt
2005
2004
Faroe Islands
Former Yugoslav Republic of Macedonia
1997
2004
Israel
2000
Jordan
2002
Lebanon
Mexico
2006
2000
Montenegro
Morocco
2010
2000
Palestinian Authority
Serbia
1997
2010
South Africa
Switzerland (Liechtenstein)
2000
1973
Syria
Tunisia
1977
1998
Regional FTAs
155
European Economic Area (EEA)
1994
India
Afghanistan
Chile
2003
2007
Japan
Korea
2011
2010
Singapore
Sri Lanka
2005
2001
Thailand
2004
Asean-India FTA (AIFTA)
Southern Common Market (Mercosur)
2010
2009
Regional FTAs
Asia Pacific Trade Agreement (APTA)
2002
South Asian Free Trade Agreement (SAFTA)
Japan
2006
Brunei
2008
Chile
India
2007
2011
Indonesia
Malaysia
2008
2006
Mexico
Philippines
2005
2008
Singapore
Switzerland
2002 (2008)
2009
Thailand
2007
Vietnam
2009
Asean-Japan FTA (AJCEP)
2009
Mexico
Chile
Costa Rica
1999
1995
Israel
Japan
2000
2005
Nicaragua
Colombia
1998
1995
El Salvador
2001
156
Guatemala
2001
Honduras
2001
European Union (EU)
2000
2001
Regional FTAs
Latin American Integration Association (LAIA)
1981
North American Free Trade Agreement (NAFTA)
New Zealand
1994
Australia
1983 (2007)
China
Hong Kong
2008
2011
Malaysia
Singapore
2010
2001
Thailand
2005
Regional FTAs
2010
South Pacific Regional Trade and Economic Cooperation
Agreement (SPARTECA)
1981
2006
Singapore
Australia
China
2003
2009
India
Japan
2005
2002 (2008)
Jordan
Korea
2005
2006
New Zealand
Panama
2001
2006
Peru
U.S.
2009
2004
2010
Asean-China FTA (ACFTA)
2005 (2006)
Asean-India FTA (AIFTA)
2010
Asean-Japan FTA (AJCEP)
Asean-Korea FTA (AKFTA)
2009
2007
157
2003
Regional FTAs
Asean Trade in Goods Agreement (ATIGA)
Switzerland
1993-1999
2006
Albania*
2010
Canada*
Chile*
2009
2004
Croatia*
2002
Egypt*
2008
Faroe Islands
Former Yugoslav Republic of Macedonia*
1995
2002
Israel*
Japan
1993
2009
Jordan*
Korea*
2002
2006
Lebanon*
Mexico*
2007
2001
Morocco*
Palestinian Authority*
1999
1999
Serbia*
Singapore*
2010
2003
Tunisia*
Turkey*
2006
1992
European Union (EU)
1973
Southern African Customs Union (SACU)
2008
Regional FTAs
U.S.
1960
Australia
2005
Bahrain
Chile
2006
2004
Israel
Jordan
1985
2001
Morocco
Oman
2006
2009
Peru
2009
158
Singapore
2004
Regional FTAs
Dominican Republic - Central America - US FTA (CAFTA-DR)
North American Free Trade Agreement (NAFTA)
Note: (*) FTAs which Switzerland negotiated within the framework of EFTA.
159
2006-2009
1994
A-9: Regional Free Trade Agreements and Member Territories
Free Trade Agreement
Abbreviation
Territories Party to the Agreement
Asean Trade in Goods
Agreement/ Asean FTA
ATIGA
Asean-Australia-New
Zealand FTA
AANZFTA
Brunei, Cambodia, Indonesia, Laos,
Malaysia, Myanmar, Philippines,
Singapore, Thailand, Vietnam
Asean members, Australia, New Zealand
Asean-China FTA
Asean-Japan FTA
ACFTA
AJCEP
Asean members, China
Asean members, Japan
Asean-Korea FTA
Asean-India FTA
AKFTA
AIFTA
Asean members, Korea
Asean members, India
Asia Pacific Trade
Agreement
Dominican Republic Central America – U.S.
FTA
APTA
CAFTA-DR
Bangladesh, China, India, Korea, Laos,
Sri Lanka
Costa Rica, Dominican Republic, El
Salvador, Guatemala, Honduras,
Nicaragua, U.S.
European Union
European Economic Area
EU
EEA
European Community (27 territories)
EU, Iceland, Liechtenstein, Norway
European Free Trade Area
EFTA
Latin American Integration
Association
LAIA
Iceland, Liechtenstein, Norway,
Switzerland
Argentina, Bolivia, Brazil, Chile,
Colombia, Cuba, Ecuador, Mexico,
Paraguay, Peru, Uruguay, Venezuela
Southern Common Market
North American Free Trade
Agreement
MERCOSUR
NAFTA
Argentina, Brazil, Paraguay, Uruguay
Canada, Mexico, U.S.
Southern African Customs
Union
SACU
Botswana, Lesotho, Namibia, South
Africa, Swaziland
South Asian Free Trade
Agreement
SAFTA
Bangladesh, Bhutan, India, Maldives,
Nepal, Pakistan, Sri Lanka
South Pacific Regional
Trade and Economic
Cooperation Agreement
SPARTECA
Trans-Pacific Strategic
Economic Partnership
TPSEP
Australia, Cook Islands, Fiji, Kiribati,
Marshall Islands, Micronesia, Nauru,
New Zealand, Niue, Papua New Guinea,
Samoa, Solomon Islands, Tonga, Tuvalu,
Vanuatu
Brunei, Chile, New Zealand, Singapore
Source: WTO RTA Database.
160
Curriculum Vitae
Matthias Schaub
Date of Birth: 22 April 1979
Nationality: Swiss
[email protected]
1, Pearl Bank, #33-14
Singapore 169016
EDUCATION
Since 10.2006
University of St.Gallen (HSG), St.Gallen, Switzerland
Doctoral Program in International Affairs
 Specialization in International Trade
 Research Interests: International Trade, Free Trade Agreements,
Regional Economic Integration from a Company Perspective
 Acceptance of Proposal: 09.2008
Since 08.2007
National University of Singapore (NUS), Singapore
Attachment to NUS Business School
07.2010
EcoMod Modeling School, Istanbul, Turkey
Practical Techniques in CGE Modeling with GAMS (July 12-16, 2010)
10.1999 - 12.2005 University of St.Gallen (HSG), St.Gallen, Switzerland
Master of Arts (M. A. HSG) in International Affairs and Governance
 Graduate Studies in International Affairs and Governance:
International Economics, International Law, Public Management,
Political Science
 Undergraduate Studies: Accounting, Controlling, Finance, Human
Resources,
Marketing,
Organization,
Risk-Management,
Technology-Management
01.2004 - 04.2004 Chinese University of Hong Kong, Hong Kong, China
 International Asian Studies Program (Student Exchange)
03.2003 - 06.2003 The Graduate Institute of International Studies (HEI), Geneva
 Courses in International Trade, Chinese Politics (Student
Exchange)
08.1995 - 12.1998 Gymnasium Liestal, Switzerland
 12.1998 Graduation: Matura (General qualification for university
entrance): Type E (Economics)
161
PROFESSIONAL EXPERIENCE
Since 03.2006
University of St.Gallen, Singapore
 Position: Representative
 50% Assignment
 Alumni and Corporate Relations, Student Recruiting
 Regional Responsibility
12.2007 - 11.2009 Ciba (Singapore) Pte Ltd, Singapore
 Position: Head Free Trade Agreement Coordination Asia-Pacific
 35% Assignment (External Consultant)
 Assisting Business Segments in using FTAs
 Providing Training (Singapore, Shanghai)
 Coordination of Virtual FTA-Team at Group Companies in AsiaPacific
 Reporting to International Trade Affairs, Basle, Switzerland
05.2004 - 07.2004 Consulate General of Switzerland in Hong Kong, China
 Position: Internship
 Responsible for Projects in the Fields of Culture & Economy
06.2002
Soberman Isenbaum Colomby Tessis Inc., Toronto, Canada
 Position: Internship
 Department for Bankruptcies
10.2001 - 03.2002 PricewaterhouseCoopers Ltd., Basle, Switzerland
 Position: Internship (Auditing Department)
 Auditing Team Member
PUBLICATIONS, CONFERENCES, SEMINARS AND GUEST LECTURES
-
-
Speaker: “The Free Trade and Economic Partnership Agreement between
Switzerland and Japan (JSFTEPA) in Practice: Results from a Company Survey –
Firm-Characteristics and Management”, Seminar on the Evaluation of the
JSFTEPA, in cooperation with the Japan External Trade Organization (JETRO),
University of Zurich, the Swiss Embassy in Tokyo and the Swiss Business Hub
Japan, Tokyo, 16 September 2011
Speaker: “The Free Trade and Economic Partnership Agreement between
Switzerland and Japan (JSFTEPA) in Practice: Results from a Company Survey –
Firm-Characteristics and Management”, Business Luncheon on the Evaluation of
the JSFTEPA, in cooperation with the Swiss Chamber of Commerce and Industry in
Japan (SCCIJ), Tokyo, 15 September 2011
162
-
-
-
-
-
-
-
Speaker: “Free Trade Agreements – Economic Integration in Asia”, Guest Lecture
at University of St.Gallen’s Asia Term, Course Business Study Mission, Singapore
Management University, Singapore, 31 August 2011
Speaker: “Evaluation of the Free Trade and Economic Partnership Agreement
Switzerland – Japan – A preliminary Assessment”, Seminar on the Free Trade and
Economic Partnership Agreement between Switzerland and Japan, in cooperation
with the University of Zurich, the Swiss-Japanese Chamber of Commerce (SJCC),
the Swiss State Secretariat for Economic Affairs (SECO), Business Network
Switzerland (Osec) and the Japan External Trade Organization (JETRO), Zurich
and Lausanne, Switzerland, 10-11 November 2010
Speaker: “Utilizing FTAs: Problems, Benefits & Best Practice for Companies”, V&P
Breakfast Briefing, Vriens & Partners, 3 November 2010
Speaker: “Companies’ Use of Free Trade Agreements”, Business Luncheon with
the Swiss Business Association Singapore, on the occasion of the Third Joint
EFTA-Singapore Committee Meeting, 6 July 2010
Article: “EFTA remains relevant to businesses”, Singapore Business Times, 4 May
2010; written together with Ambassador Joerg Al Reding on the occasion of the
50th Anniversary of EFTA
Article: “Präferentielle Handelsabkommen in der Praxis: Herausforderungen bei der
Umsetzung”, Die Volkswirtschaft, October 2009: State Secretariat for Economic
Affairs (SECO), Federal Department of Economic Affairs (FDEA)
Paper and Presenter: “Trade Facilitation through Homogenization of Preferential
Rules of Origins - How companies and countries can capitalize on Free Trade
Agreements amidst a Hub-and-Spoke Bilateralism“, Singapore Economic Review
Conference, Singapore, 6-8 August 2009
Paper and Presenter: “Economic Analysis of Law – Special Focus on Intellectual
Property Chapters in Free Trade Agreements”, Workshop on IP Aspects of Free
Trade Agreements in the Asia Pacific Region, Centre for Comparative Law and
Development Studies in Asia and the Pacific (CLDSAP), University of Wollongong,
Australia, in cooperation with the Max Planck Institute for Intellectual Property
Competition and Tax Law, 25-26 November 2008
RESEARCH AND CONSULTING PROJECTS
2009 - 2011: Various Research and Consulting Projects with Business Associations and
Multinational Corporations, mainly with regard to regional economic integration and
specifically also the currently negotiated FTA between the European Union and Singapore.
163

Utilization of Free Trade Agreements

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