09 March 2018

Asia economy - Hong Kong and ASEAN sign FTAs

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On November 12th 2017 representatives from Hong Kong and the Association of South‑East Asian Nations (ASEAN) signed a free‑trade agreement (FTA) and associated investment agreement at Pasay City in the Philippines.

The long-expected agreements had been under discussion since 2014, and should disproportionately benefit Hong Kong, given that the territory already offers almost all ASEAN goods duty-free entry to its own market. The agreements should help to ease potential regulatory friction for the transshipment of goods between China (which already has an FTA with ASEAN) and ASEAN through Hong Kong. Nevertheless, trade in goods is among the least important aspects of the agreements, and most ASEAN member states party to the deal will have many years to phase in the commitments on that side (up to 14 years for the more developed ASEAN economies, and 20 for the less developed members).

The bigger benefits will come on the services side, where Hong Kong and ASEAN member states have committed to the equal treatment of service providers, as well as a reduction of restrictions on foreign investment in service sectors. This will reduce barriers to entry for service providers in both directions. It remains to be seen how effectively this will be implemented; some ASEAN states have not been very effective at implementing market-opening measures in services under ASEAN's current internal economic architecture. (Negotiations for the ASEAN Trade in Services Agreement are still ongoing.) Perhaps the biggest benefit on the ASEAN side will be an easing of restrictions on travel and employment in Hong Kong for its citizens.

The deals should provide significant regulatory support to the burgeoning trade and investment flows between Hong Kong and ASEAN. According to the Hong Kong government's figures, merchandise trade between the territory and ASEAN amounted to HK$833bn (US$106.8bn) in 2016, while services trade in 2015 stood at HK$121bn. In 2015 ASEAN states had a stock of HK$555bn of investment in Hong Kong, with the stock from Hong Kong into ASEAN standing at HK$218bn.

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