Free Trade Agreements boost SMEs’ growth prospects

Last month, Australia and New Zealand, along with nine other Asia-Pacific nations, signed one of the largest and most progressive Free Trade Agreements – FTA – in history, the CPTPP (Comprehensive and Progressive Agreement for Trans Pacific Partnership).

For those who might be wondering what a free trade agreement or an FTA is, it’s essentially an agreement between at least two countries in which they agree to mutually reduce or eliminate trade barriers such as tariffs and import quotas, on goods and services between themselves. The range of goods and/or services covered under these agreements can vary widely.

This particular agreement opens up a raft of new trade opportunities for SMEs based in Australia and New Zealand. It will improve the conditions of access for exporters over some previous FTAs, and includes access to new markets with which neither Australia nor New Zealand have previously had an FTA, notably Canada and Mexico.

These changes in market access and reductions in tariffs, mean that smaller businesses looking to export will want to consider any new comparative advantage the agreement opens up, as their products and services may now enjoy lower tariffs versus their competitors. A previously unattractive market may now afford a company a competitive advantage. The counterfactual is also true: that a reduction in domestic tariffs also enables greater foreign competition in the domestic Australian and New Zealand markets, although admittedly, Australia and New Zealand generally have very low or non-existent tariffs anyway.

In numbers, the agreement covers markets to which Australia exported a massive $87.9 billion, and from which it imported $76.1 billion, or $164 billion in two-way trade, representing a massive 22.3 per cent of all Australian trade in 2016-17. For New Zealand, the deal is even more significant, with the CPTPP member countries taking a whopping 31 per cent of New Zealand’s goods and services exports, at NZ$15.2 billion and NZ$6.9 billion respectively.

The CPTPP itself covers a wide-range of areas, including trade in goods, such as manufactured products and agricultural exports, to investment, health, resource & energy, transport & logistics, and trade in services including financial services. Importantly, the “progressive” part of the title refers to inclusions around environmental, labour, anti-corruption and transparency measures, with special attention being paid to the needs of SMEs.

The reduction in red-tape for SMEs in applying for Australian Government contracts is one example of this new emphasis on helping SMEs to take advantage of FTA benefits and participate in global value chains.

Although some of the details are different for each country, in essence the agreement reduces costs for Australian and New Zealand exporters doing business with member countries by streamlining bureaucracy and reducing or eliminating the tariffs levied on their products and services when they cross the border. This is a good thing for Australian and New Zealand based businesses.

Although the effects of the CPTPP will not be felt fully until the agreement enters in to force over the next 6-12 months, SMEs should be looking to prepare from today. Navigating the seas of international trade can be tricky and the appropriate due diligence needs to be undertaken.

Ultimately, for those that act swifty and sensibly, the CPTPP provides a real opportunity for Australian and New Zealand businesses to boost their revenues over the long-term.

Sam Lawrence, Senior Manager – Global Trade & Customs, Findex

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