USD 89 Bn Lost in Underuse of European Free Trade Deals

January 29, 2018

The full potential of European Union free trade agreements (FTAs) remains untapped to the tune of almost EUR 72 billion (USD 89 billion), UNCTAD and the National Board of Trade Sweden say in a new report.

This is the amount that European exporters overpaid because they did not take full advantage of the reduced tariffs offered by the FTAs that the EU as a bloc has signed with a variety of both developed and developing countries.

“This report challenges some enduring myths on preference utilization in free trade agreements,” UNCTAD Secretary-General Mukhisa Kituyi and Anna Stellinger, Director-General of the National Board of Trade Sweden, write in the preface to the report. “For example, it is commonly believed that FTAs, in general, are not used to a high degree.”

However, empirical data presented in the report indicates that companies in the EU mostly take advantage of FTAs with other countries.

The report concludes that, while some potential in the agreements remains untapped, companies are for the most part making use of them.

“The EU’s exporters use the agreements for 67 percent of their exports to countries with which FTAs exist,” co-author Stefano Inama of UNCTAD said.

“But we can also note that the EU’s importers use the free trade agreements to an even greater extent. In 90 percent of cases where tariff reductions can be used, they are,” co-author Jonas Kasteng of the National Board of Trade Sweden said.

A large proportion of this under-utilization is in exports from the EU to major free trade partners such as Switzerland and the Republic of Korea, while the biggest share of unused tariff reductions to the EU is in imports from Switzerland, Turkey, South Korea and Mexico. This hits imports to a value of EUR 10.5 billion (USD 12.9 billion).

In total – if all free trade agreements are considered – the EU’s importers forfeit EUR 600 million (USD 742 million) in reduced tariffs every year. This ultimately means higher prices for the manufacturing industry and for consumers.