The Proliferation of World Wide Free Trade Agreements - What it Means for U.S. Businness

Implications: While the U.S. Congress may be putting the breaks on the prospect of any future U.S. Free Trade Agreements, non U.S. FTA deals continue to proliferate around the world.  Over 400 new FTA's have been notified to the World Trade Organization, three quarters of those since 1997.  With the looming failure of the WTO's Doha Trade Round, countries like Brazil have said they will accelerate the pace of FTA negotiations with countries around the world. Given the increasingly complex web of bilateral free trade agreements, it is critical that companies involved in international trade and investment understand the implications of these deals on their trading and investment decisions.  In addition to the elimination of import duties, these FTA deals frequently include the simplification or elimination of technical barriers to trade.  In the future, companies will need a consolidated and integrated base of tariff and technical information to make smart decisions on sourcing and investment.  

Analysis: The multilateral trading system, in place since WW II, is characterized by a common set of tariffs and trading regulations applied to trade between a large number of countries.  This system of multilateral trade is increasingly being replaced by a large and growing number of bilateral and regional free trade agreements (FTAs). Under these FTAs, import duties are gradually reduced or eliminated, and regulatory barriers to trade are also often simplified or eliminated. 

The growing web of world wide FTAs creates both challenges and opportunities for companies engaged in international trade and investment.  To understand and manage the increasingly complex world of FTAs, companies must be prepared to 1) identify the trade and investment opportunities created by the elimination of import duties between two countries, 2) identify the opportunities created by the elimination of non tariff trade barriers and 3) identify the potential trade and investment opportunities created by the many future FTAs that are now under negotiation in countries around the world. 

From a practical standpoint, this means that in the future company must be prepared to build and integrate their base of information on inernational tariffs, import fees, technical barriers to trade, import documentation, etc. in a way that contributes to short and long term regional and global strategic planning.