We live in a world that is increasingly getting connected. In such a world, trade agreements are bound to expand internationally, and to think and act otherwise would be downright stupid.
These global trade agreements, as such, are either bilateral or multilateral understanding between two or multiple countries and govern the trade policies between them. These agreements have a massive impact on worldwide trade and investments and are one of the major causes responsible for shaping business relationships across the globe. And while such agreements might not affect directly affect the place where you live or operate, being aware of the current trade agreements can definitely uncover numerous opportunities.
Forming up opinions is up to you; we do not intend to initiate an argument over how good or how bad these global trade agreements are. This article aims to get you familiarized with such agreements and tell if your supply chain could be affected or not.
While a few countries have settled upon free trade agreements and are in the process of widening them, a number of other nations have formed common markets and unions; this form of development can a have a thorough effect on small-scale businesses.
Two of the most common agreements are the Trans-Pacific Partnership (TPP) between Australia, New Zealand, Singapore, Canada, Brunei, Peru, Mexico, Chile, Malaysia and Japan, and the North American Free Trade Agreement (NAFTA) between Canada, United States and Mexico.
Now, how such agreements impact your local business’s supply chain depends on a simple fact; whether your business is an importer, exporter or neither.
Scenario 1: You neither import nor export
It’s fairly easy to decide whether you are an importer or not, right? I understand that you do not directly source products from a foreign supplier, and technically speaking, that doesn’t make you an importer. However, trade agreements can still impact you. Your suppliers are directly affected by such regulations, and this vulnerability can affect your supply chain.
Keep the distinction in mind.
Scenario 2: You identify yourself as an importer
Owing to the low cost manufacturing in some countries, many small scale suppliers are able to compete with global giants.
With a trade agreement between two countries, most of the times, the country with lower labour costs benefits when the trade tariffs are lowered or eliminated. With trade agreements, importers usually get to source low-cost goods and it allows for the unrestricted movement of such low-cost goods through higher cost partner nation.
In case, such an agreement is dissolved, an importer would inevitably face a higher cost of goods and thus look for cheaper sourcing options, decrease their operational costs, and ultimately increase the prices, which would be borne by the customers, of course.
Scenario 3: You are an exporter
This even counts if you sell products that another firm exports because at some point or other, taxes would be levied on your sold goods. So how does it affect you? Your customers end up paying higher amounts for your products.
With a trade agreement in place between the country where the product originates and the receiving country, the very same products would move through the receiving nation freely. In such cases, you’d definitely want to keep such an agreement intact and leverage this competitive advantage you have in this particular country bound by trade regulations.
As a small or a medium sized business, it is therefore important for you to identify where your business lies with respect to global trade agreements.