Preference programs and free trade agreements can offer strategic advantage.
Many small and midsize companies are hesitant to break right into the global marketplace due to the perception that trading on a worldwide scale is cost-prohibitive. But because of the recent proliferation of trade programs across the world, the savvy entrepreneur can help reduce the cost of conducting business internationally, particularly if that business has anything regarding importing or exporting goods.
Among the first questions a business owner should ask is: Will there be a legal means of avoiding paying duties on imports from and exports to a specific country? The answer could possibly be yes, so long as the product and the united states you plan to accomplish business with are covered beneath 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 and only another country or band of countries, generally without demanding something in exchange. Usually created to strengthen the economies of developing nations, types of U.S. preference programs are the Generalized System of Preferences (GSP), that allows for the duty-free importation of a large number of designated products from 144 developing countries, and the Africa Growth and Opportunity Act (AGOA), made to create new commercial opportunities for folks in sub-Sahara Africa.
FTAs, however, are bilateral or multilateral accords negotiated among nations for the advantages of all parties. As the small print in each agreement specifies complex rules of eligibility for services and products, the overall premise under which most FTAs operate may be the promotion of a freer flow of goods and services among participating nations. FTAs, unlike preference programs, provide a two-way (or even more) street for global entrepreneurs who learn how to leverage them to strategic advantage.
Currently, the U.S. has implemented two multilateral FTAs. The UNITED STATES Free Trade Agreement (NAFTA) promotes trade between your U.S., Canada and Mexico; the U.S.-Dominican Republic-Central America Free Trade Agreement (US-DR-CAFTA) promotes trade, which also contains 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 benefit of trade agreements and trade preference programs provides global entrepreneurs a clear competitive advantage. For instance, a set of men’s trousers imported in to the U.S. from a country with that your U.S. has generated normal trade relations (NTR) would have a duty rate of 16.6 percent. That same couple of trousers imported from Mexico under NAFTA will be duty-free. You can see the benefits of operating within an FTA environment.
So, how would you get started?
First, become acquainted with the facts of available preference programs and FTAs. Enough time to start considering trade programs is before you attempt your first global venture. Key decisions such as for example where you can source products, how open market is for exports and whether services could be freely offered internationally are largely reliant on the trade agreements and preferences which exist within a specific country or geographic region.
Second, browse the small print. The devil is in the facts with all agreements and trade preferences. Stringent rules for things such as local value content, origin of materials and precise recordkeeping should be followed so that you can reap program benefits.
Third, take part in the procedure. Define a clear agenda and try the trade policy formulation process. Become active in trade associations that promote your business goals. Unless you have a legislative tracking arm in your company or in-house government relations professionals, look for consultants who understand your industry and issues.
Finally, as well as perhaps most of all, seize opportunities if they arise.