Everyone likes the word “free,” whether it refers to the concept of free will or the promise of a free meal. However, the most popular among importers is free trade.
But what exactly is free trade, and why do importers need to know the ins and outs of Free Trade Agreements?
To fully unpack this, we must dive deeper into the foundations of free trade, the major Free Trade Agreements, what they involve, and why understanding these various Free Trade Agreements is crucial for companies wanting to navigate imports and exports.
The fundamentals of Free Trade
To simplify, free trade encourages trade amongst countries due to the limitations of trade barriers. It does not restrict imports and exports and allows countries to trade with one another without having to navigate heavy tariffs.
Like exporters, economists advocate for free trade primarily because it promotes specialization, leading to economic benefits. This makes it attractive to businesses wanting to import and export their products to different countries worldwide.
What are Free Trade Agreements?
For free trade to occur, a Free Trade Agreement is needed. This is a treaty between two or more countries that aims to reduce all trade barriers, promote trade, and expand the market. We can classify Free Trade Agreements into two parts: Bilateral and Multilateral Agreements.
Bilateral Free Trade Agreements are between two countries working to eliminate trade barriers, such as the FTA between the United States and Australia, while multilateral trade agreements are between three or more countries, such as the agreement between the United States, Mexico, and Canada.
The types of bilateral and multilateral Free Trade Agreements
For businesses to successfully navigate their exports, being well-educated about Free Trade Agreements is a must. The most notable include the North American Free Trade Agreement (NAFTA), the European Union Free Trade Agreement, the Trans-Pacific Partnership (TPP) Free Trade Agreement, and afCFTA (African Continental Free Trade Agreement). These agreements strive to drive better-quality products through specialization, and increased efficiency, leading to improved innovation. From an importer’s perspective, it means fewer costs and less admin for goods to cross borders.
United States-Mexico-Canada Agreement (USMCA)
The United States, Canada, and Mexico signed the United States-Mexico-Canada Agreement (USMCA) in 2020, replacing the North American Free Trade Agreement (NAFTA). This agreement is essential due to the countries’ proximity and collective reliance on one another for goods, creating the need for smooth and easy trade. The USMCA further differs from NAFTA, as this agreement reduces trade barriers in the digital technology sector, benefitting tech companies wanting to export.
Comprehensive and Progressive Agreement for Trans-Pacific (CPTPP)
The CPTPP is a Free Trade Agreement among 11 countries, including Australia, Brunei, Canada, Chile, Japan, Malaysia, New Zealand, Peru, Singapore, the United Kingdom and Vietnam. This trade agreement strengthens trade among Asia-Pacific countries, allowing a seamless flow of goods.
The countries involved in this FTA benefit from reduced tariffs on 95% of goods and improved cooperation and regulations, making importing just that much smoother.
The European Union Free Trade Agreement
The European Union is the largest single market area in the world, consisting of 27 member states within Europe, including Germany, France, and Italy. Within the EU, there are limited trade barriers, aiming to provide the free movement of goods and services between other EU member states and encourage trade amongst them.
For example, if you want to ship AI equipment from Germany to France, all tariffs and duties will be free, limiting added costs. Ensuring the AI equipment meets all other regulatory standards is another story that is slightly more complex and time-consuming; however, being aware of the costs and free trade agreements involved is crucial.
The African Continental Free Trade Agreement (afCFTA)
The afCFTA is the largest free trade agreement regarding the number of countries part of the agreement. There are currently 54 countries involved, with the overall framework being to reduce tariffs and create smoother trade facilitation among the different member states, encouraging open trade within Africa.
Simplifying trade flows between African countries helps reduce poverty and creates employment and growth. Reducing tariffs also significantly helps tech companies wanting to import between Africa, allowing for greater access to larger markets.
Benefits of Free Trade Agreements for tech companies
Tech companies must be well educated on Free Trade Agreements, especially with the countries they want to export and import into. Understanding the various Free Trade Agreements among the countries they work with is essential, as navigating customs and supply chains is already tricky. These agreements not only limit importing costs but also allow access to new markets and help streamline operations, maximizing trade to its full potential. The benefits of Free Trade Agreements for tech companies are discussed below:
What can Tech companies do?
So, as a company that imports tech products, maximizing Free Trade Agreements is essential.
Knowing what precisely Free Trade Agreements state, how they impact trade, and what current changes are happening is important from a logistical point of view. Trading amongst countries with established FTAs makes navigating trade cheaper and easier, alleviating the additional stress already caused by customs regulations, including documentation and other requirements for getting tech products through customs.
To stay in the loop of FTAs and manage all tech exports through borders, TecEx trade experts are here to help you get your goods where they need to be.