Editor's Note: This piece first appeared in Global Trade Magazine.
Perhaps you are familiar with free trade agreements (FTA) that pertain to your home country or your region of the world.
Is it possible that other regional agreements, where your country is not a participant, have some sort of an impact on your business – positive or negative?
Before addressing this question, what are the general benefits of an FTA?
Ultimately, such agreements are intended to grow the economies of the countries who participate in them, first and foremost by eliminating most tariffs among its participants.
In addition, they work to reduce the red tape of non-tariff barriers, such as quotas or export and import license requirements, which can inhibit trade as much as tariffs. They also try to address rules that promote the free flow of trade and capital investment.
Recent agreements have provisions for trade in services, as well as environmental and labor standards.
With the ratification of the recent WTO Trade Facilitation Agreement, new pacts are adopting pieces of the TFA, which is helping facilitate implementation.
There are many key agreements spread around the world, which help paint a global picture of global free trade today.
Starting with Asia, there is the ASEAN agreement covering ten southeast Asian countries – Singapore, Vietnam, Malaysia, Thailand, Indonesia, Philippines, Cambodia, Laos, Myanmar and Brunei Darussalam – and the RCEP, including all of the ASEAN countries plus six more – Australia, New Zealand, China, India, Japan and Korea.
In Latin America, there is the Mercosur, which technically is a trade bloc that includes free trade privileges, and consists of Argentina, Brazil, Paraguay, Uruguay and Venezuela. There is also the Pacific Alliance, which covers Mexico, Colombia, Peru and Chile. This latter agreement covers countries comprising 34 percent of total intraregional trade within Latin America.
For Europe, there is the European Union (EU), which functions as a customs union rather than only a trade agreement.
The EU also enters into its own agreements with other individual countries, including both Canada (known as CETA) and Mexico
Mexico and the EU are now renegotiating their current trade deal to expand it by including some elements more common to recent deals, such as investment, procurement and trade facilitation provisions.
Why Should You Care?
What are the benefits and challenges of trade agreements not in your home country?
Have you considered whether your company is located via a subsidiary within the free trade area? If so, the subsidiary can possibly benefit. If not, as you export into the FTA or import from that FTA, you will be at a relative price or cost disadvantage to other FTA participants.
If your competitors are based or have subsidiaries within an FTA, they possibly maintain an advantage of whatever percent tariff is applied to the particular goods entering or exiting that region. While this may only be a few percentage points, it could significantly affect profit margins.
Meanwhile, many countries with their own free trade blocs via an FTA develop additional agreements with other countries – or even with other blocs with their own FTAs. Perhaps most notable this year are the ongoing discussions between the EU and Mercosur.
Keeping track of these agreements and exploring which ones might benefit you could provide its own rewards.
The ratification of TTIP between the United States and the EU, which is now at a standstill, or a potential US agreement with ASEAN (not now in discussion) are examples of potential opportunities.
Finally, what about revisiting those current agreements where your country is a participant? Evaluating a pertinent agreement every so often – they frequently take multiple years to roll out – may uncover a new opportunity.
The prospect of new bilateral agreements or revisiting an existing agreement is worth consideration.
This trend continues: The number of agreements expands rather than contracts. That’s why you’ll want a systematic way to know when applicable FTA benefits are available.
Bill Ansley is Vice President of UPS Supply Chain Solutions, Customs, and Trade Compliance.