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How Free Trade Agreements (FTAs) are opening opportunities across Asia

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The Covid-19 pandemic and geopolitical tensions have disrupted global supply chains and forced many companies to rethink their international networks. As this realignment continues, trade policy is becoming a bigger consideration for businesses than it was even five years ago. Across Asia Pacific, companies are responding to an evolving web of tariffs and incentives. While lean manufacturing and international supply chains remain key components in a competitive, cost-conscious marketplace, companies cannot ignore the geopolitical push for more resilient supply chains.

Free trade agreements (FTAs) are an important source of opportunity for companies that rely on cross-border partnerships.

The World Trade Organization has catalogued over 350 active trade agreements globally in 20241. Two of the largest are centred in Asia Pacific: the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP). RCEP was an ASEAN-led initiative that now covers about 30% of global GDP and the populations producing it – some of the largest economies in Asia are signatories, including China, Indonesia, Japan, and South Korea.2 Seven countries belong to both groups.

Country

RCEP Member

CPTPP Member

Australia

Brunei

Cambodia

Canada

Chile

China

Indonesia

Japan

Laos

Malaysia

Mexico

Myanmar

New Zealand

Peru

Philippines

Singapore

South Korea

Thailand

Vietnam

Both the CPTPP and RCEP are comprehensive, greatly reducing or eliminating trade tariffs between signatories, and setting rules for cooperation and dispute settlement while laying out intellectual property protections that businesses need for growth. More progress is likely in 2024: China has also applied to join the CPTPP, and the UK is working through the approval process for full membership.3

FTAs grease the wheels of commerce by simplifying processes and reducing frictions in international transactions – such as tariffs and even more punitive non-tariff barriers to trade. The CPTPP and RCEP are expected to eliminate or greatly reduce import levies on 90% or more of goods traded between their members over the coming years.4

By 2035, estimates from the World Bank suggest that productivity gains and growing FDI flows from RCEP could help raise real incomes by 5% in economies such as Thailand, Vietnam, and Malaysia.5 The agreement has the potential to lift 27 million additional people to middle-class status by then, according to a study published last year.6

FTAs can be especially beneficial for small to medium-sized enterprises (SMEs) that play critical roles in cross-border supply chains. Complying with FTA rules of origin requirements, for example, can allow manufacturers, exporters, or logistics firms to capitalise on emerging market opportunities.

In RCEP, a single set of rules and procedures apply to goods originating in any member economy. That means goods made from resources exported from one country can benefit from preferential tariffs when processed in a second RCEP party and exported to a third.

How businesses benefit

Businesses that can align their supply chain strategies with FTA provisions stand to gain a competitive advantage. This may include how they source materials or components from any FTA member country, allowing them to benefit from preferential tariff rates or to optimise production and distribution networks.

Although the opportunities are clear, risk and uncertainty are too, particularly for businesses in Asia that are considering expanding into the high-growth ASEAN region. In a 2024 HSBC survey, 66% of businesses in ASEAN said they planned to expand into new markets within the bloc. But 30% said a lack of local technological capabilities was a major barrier, while 28% cited supply chain challenges – highlighting the challenges faced by businesses in ASEAN and further afield.7

With a long history in ASEAN and the wider region, HSBC is ideally positioned to help unlock opportunities from international expansion. We have been on the ground in the six major ASEAN markets for more than 135 years, and in China since 1865, building local knowledge, regulatory understanding and commercial partnerships that can help our clients achieve their ambitions in the region and beyond.8

Guangdong Haid Group, an aquatic and agricultural engineering and feed company from China, is an example of a small company that has grown substantially by expanding into RCEP markets. HSBC first helped the company to open operations in Vietnam; it has now expanded across Southeast Asia, building shrimp-seedling farms in Malaysia and Indonesia. And it has gone on to use that base to expand into India and even Ecuador – leveraging HSBC’s supply chain solutions, financing support and local knowledge to establish operations in more than 10 countries today.9

“In the future we will invest more in research and development and continue to expand our network internationally,” said Guangdong Haid’s Group Treasury Director Bao Li Ding “Whenever our business sets foot in a new country, we always seek support from HSBC.”

Steps for success

As FTAs help remove geopolitical obstacles, enterprises can diversify manufacturing bases and work with more suppliers of varying sizes, capabilities, or locations.

The first step for any company rethinking its international footprint is to ensure they are aware of the latest developments in FTAs and trade policies.

In a 2023 HSBC survey of perceptions towards ASEAN markets, 67% of international companies said they intended to make use of the CPTPP, up from 55% in 2022. Similarly, 66% intend to use the RCEP, compared to 53% in 2022.10

Still, a knowledge gap exists. One in 10 international businesses said they were unaware of the RCEP, according to the same survey.

Smaller businesses are often less equipped to stay on top of these opportunities and may need help navigating an overlapping array of import and export frameworks. Australian companies, for instance, can rely on the terms of the RCEP agreement or any of the 10 different FTAs with the 15 countries in the regional partnership, each with its own rules and procedures.11

A banking partner that is familiar with the range of regulations across regions and FTAs is vital to leveraging growth opportunities. As a global trade bank, HSBC can help you navigate this complex environment.

  • We process more than USD1 million of trade turnover every minute.12
  • With our global footprint in more than 50 markets, HSBC has unique insights into cross-border trade dynamics to help clients spot opportunities and deal with issues as they arise.
  • We can provide expert guidance on navigating regulatory landscapes, trade tariffs and market entry strategies.
  • HSBC can help provide access to capital for expensive new factories, expansion projects, and research and development initiatives.
  • We offer sophisticated cash management solutions, particularly for managing exposure to new currencies and optimising liquidity.

The digital dividend

A second important lever to unlock the potential value of FTAs is the wave of digitalisation sweeping through the trade, commerce and financial sectors. From customer relations and e-commerce to supply chains and logistics, and from risk assessment and regulatory compliance to trade settlement and inventory optimisation, digital platforms enable companies to maximise the benefits of FTAs. And increasingly, these platforms are converging into seamless and interoperable solutions that seek to address the full range of pain points our clients face. This is especially relevant in Asia Pacific, where the region’s advanced payments infrastructure allows companies to manage cross-border cashflows efficiently and supports streamlined reporting and compliance processes.

HSBC highlighted the potential benefits to businesses with the launch of a 100% digital trade finance solution that simplifies and streamlines loan/financing drawdowns and allows faster, direct payment of suppliers. HSBC TradePay debuted in Hong Kong, Singapore and the United Arab Emirates in 2023.13

Digital platforms can integrate new FTA rules as well, verifying documentation of sources or labour practices. If supply chain processes are digitalised, technologies such as AI, Internet of Things (IoT) and blockchain can enable real-time tracking to trigger payments and smooth cashflows.

Businesses that are among the first and most agile in adapting to the new Asia Pacific trade landscape will be best placed for sustained growth and resilience in the competitive global marketplace.

Global Research

HSBC Global Research provides information, insights and thought-provoking ideas.
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