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Free Trade Poised for Global Explosion

With free trade deals with Chile and Singapore already inked and possibly more on the horizon, U.S. small businesses stand to benefit.

Over the past two years, as global economic growth has slowed and terrorism has forced nations to police their borders more closely, some trade experts and businesspeople have predicted that economic globalization--the opening of markets and freer flow of goods, information, and people--would slow down. Yet over the past two months, the United States, along with several of its trading partners, appear to have proved these naysayers wrong. In recent months, America has signed free trade deals with Chile and Singapore, has moved toward a deal with Central America, and has made progress on other trade agreements. All these deals will have a significant impact on U.S. small businesses, which comprise more than 95 percent of all American exporters.

Neither Singapore nor Chile is among the world's 10 largest economies, but they both have become regional economic powerhouses and major markets for American products. Now both will slash their tariffs on more than 80 percent of American goods and reduce most other barriers to American companies and products; the United States will do the same for Singaporean and Chilean businesses. One of the most economically open and business-friendly countries in Asia, Singapore "is trying to make itself into a financial services and shipping hub for the whole region," says Sherman Katz, an expert in international business at the Center for Strategic and International Studies, a Washington, DC, think-tank. "So there is a lot of room for smaller American financial companies or logistics firms to get into the Singapore market."

Singapore also is aggressively trying to position itself as one of the world's leading locations for biotechnology development. The city-state is developing an enormous science park near its national university and offering tax breaks and other incentives to biotech companies that locate facilities in Singapore. Accordingly, America's biotech industry, which is the world's most advanced and is dominated by smaller firms, will have an opportunity to increase exports of biotech-related services, research and equipment to Singapore.

American companies also could use Singapore, which has a population of only 4 million, as a base to export to other, larger Southeast Asian nations, which are developing their own intra-regional free trade deal. Some of the other Southeast Asian countries like Indonesia, with a population of more than 200 million, or Thailand, with a population of more than 60 million, are potentially huge markets, Katz says. Once Southeast Asia has its own internal free trade deal, American companies might be able to piggyback on the U.S-Singapore agreement to gain tariff-free access to countries like Thailand and Indonesia.

What's more, notes Ming-Jer Chen, a business professor and expert in Asian business at the University of Virginia's Darden School of Business Administration in Charlottesville, Virginia, Southeast Asia and China probably will sign a free trade agreement sometime in the next few years, providing opportunities for American businesses to leverage the Singapore agreement as a means of avoiding Chinese tariffs.

Like Singapore, Chile does not possess an enormous population, but it has pursued sound economic and political policies and has become the richest nation in South America, with growth rates of more than 6 percent annually between 1985 and 2001. Accordingly, Chile will be a major market for American high-tech manufacturing equipment and luxury goods, and many of these higher-end items are sold by small firms.

Indeed, the National Association of Manufacturers estimates that more than 90 percent of companies that sell to South America are small or midsized businesses. And as Robert Zoellick, America's chief trade negotiator, has noted, since Chile is one of the world's leading agricultural nations, the trade agreement will provide a large export opportunity for small U.S. producers of farm machinery. Zoellick has noted that, because Chile already had a free trade deal with Canada, until the U.S.-Chile agreement, Canadian tractors sold in Chile faced no tariffs, while American tractors faced tariffs of more than $13,000 each.

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