International business is about being as competitive as possible; however, countless exporters do not take advantage of the benefits of various free trade agreements. Free trade agreements are particularly important for small businesses because they involve the removal or reduction of trade barriers such as tariffs, subsidies and embargoes, which makes an SME more competitive in the foreign markets concerned.
Utilising the benefits provided by the free trade agreements to which your country is a signatory should contribute to the competitiveness of your products in the partner country concerned because you will pay lower or no duties on importation.
For example, suppose your product currently requires duties of 10% to be paid on importation into your buyer’s country, and there exists a free trade agreement that could reduce or eliminate that payment entirely. In that case, utilising the free trade agreement could immediately make you 10% more price competitive! In contrast, competing products from countries with no free trade agreement with the importing country will be subject to the normal duty rate applicable to the product concerned. This article highlights three forms of free trade agreements.
What is a Regional Trading Bloc?
A trading bloc is a type of intergovernmental agreement, often part of a regional intergovernmental organisation, where barriers to trade are reduced or eliminated among the participating states. Think of a trading bloc as a group of countries coming together to form a team in order to boost trade amongst themselves.
What is a Multilateral Trade Agreement?
A multilateral trade agreement is a free trade agreement established between three or more countries with the intention of reducing barriers that limit a nation’s ability to import or export goods. Multilateral trade agreements take a considerable period of time to conclude because of the number of participants who must reach agreement. The time taken to conclude multilateral trade agreements has fuelled the popularity of bilateral trade agreements.
What is a Bilateral Trade Agreement?
A bilateral trade agreement often referred to as an ‘economic partnership agreement’, is a trade agreement between two countries to remove or reduce trade barriers on goods or services between themselves. Bilateral trade agreements are concluded more quickly than either multilateral trade agreements or regional trading bloc agreements as they require only two parties to agree to their terms and conditions.
Free trade agreements form an essential part of ensuring your business is successful internationally. Thankfully, Trade Forward Southern Africa, in collaboration with the International Trade Institute of Southern Africa, has created the TFSA School of Export to get you started on your export journey. The TFSA School of Export has an extensive library of export-related E-learning, including analyses of some of the free trade agreements you could benefit from. Click the links below and sign up for FREE. Join our community, and let’s grow Africa together!
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