Break Into the Global Marketplace
Preference programs and free trade agreements can provide strategic advantage.
Many small and midsize businesses are hesitant to break into the global marketplace because of the perception that trading on a global scale is cost-prohibitive. But thanks to the recent proliferation of trade programs throughout the world, the savvy entrepreneur can greatly reduce the cost of doing business internationally, especially if that business has anything to do with importing or exporting goods.
One of the first questions an entrepreneur should ask is: Is there a legal way to avoid paying duties on imports from and exports to a particular country? The answer could be yes, as long as the product and the country you plan to do business with are covered under the provisions of a trade program.
Trade programs fall into two categories: preference programs and free trade agreements (FTAs). Preference programs are unilaterally established by one country in favor of another country or group of countries, generally without demanding something in return. Usually created to bolster the economies of developing nations, examples of U.S. preference programs include the Generalized System of Preferences (GSP), which allows for the duty-free importation of thousands of designated products from 144 developing countries, and the Africa Growth and Opportunity Act (AGOA), designed to create new commercial opportunities for people in sub-Sahara Africa.
FTAs, on the other hand, are bilateral or multilateral accords negotiated among nations for the benefits of all parties. While the fine print in each agreement specifies complex rules of eligibility for products and services, the general premise under which most FTAs operate is the promotion of a freer flow of goods and services among participating nations. FTAs, unlike preference programs, offer a two-way (or more) street for global entrepreneurs who understand how to leverage them to strategic advantage.
Currently, the U.S. has implemented two multilateral FTAs. The North American Free Trade Agreement (NAFTA) promotes trade between the U.S., Canada and Mexico; the U.S.-Dominican Republic-Central America Free Trade Agreement (US-DR-CAFTA) promotes trade, which also includes El Salvador, Nicaragua, Honduras, Guatemala and Costa Rica. The U.S. has implemented bilateral FTAs with Israel, Jordan, Chile, Australia, Singapore, Morocco and Bahrain. Agreements with Oman, Peru, Colombia, Panama and Korea are near completion.
Taking full advantage of trade agreements and trade preference programs provides global entrepreneurs a clear competitive advantage. For example, a pair of men's trousers imported into the U.S. from a country with which the U.S. has established normal trade relations (NTR) would come with a duty rate of 16.6 percent. That same pair of trousers imported from Mexico under NAFTA would be duty-free. It's easy to see the advantages of operating in an FTA environment.
So, how do you get started?
First, familiarize yourself with the details of available preference programs and FTAs. The time to start thinking about trade programs is before you embark on your first global venture. Key decisions such as where to source products, how open a market is for exports and whether services can be freely offered in another country are largely dependent on the trade agreements and preferences that exist within a particular country or geographic region.
Second, read the fine print. The devil is in the details with all agreements and trade preferences. Stringent rules for things like local value content, origin of materials and precise recordkeeping must be followed in order to reap program benefits.
Third, participate in the process. Define a clear agenda and get involved in the trade policy formulation process. Become active in trade associations that promote your business goals. If you don't have a legislative tracking arm in your company or in-house government relations professionals, seek out consultants who understand your industry and issues.
Finally, and perhaps most importantly, seize opportunities when they arise.
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