Regional Trade Agreements and Enterprises in Southeast Asia

The spread of regional trade agreements (RTAs) in Southeast Asia has ignited a debate about their impact on business, and ways to avoid raising the business costs from the Asian ‘noodle bowl’ effect. This paper undertakes a comparative and firm-level analysis of the impact of RTAs in Indonesia, Malaysia, and the Philippines including: a descriptive analysis of patterns of RTA use at the firm level and econometric analysis of factors affecting firm-level RTA use. The paper finds that firm-heterogeneity matters in RTA use. Acquiring knowledge about RTAs through in-house efforts and actively forging links with RTA support institutions, building technological capabilities, and membership of industrial clusters show up as significant factors affecting the likelihood of firm-level RTA use. A lack of information about RTAs and the absence of RTAs with major trading partners are the main reasons for non-use of RTAs. Key policy implications include the need to improve business support for RTAs, to conclude RTAs with major trading partners, and to create a database on preference use in RTAs.