Free Trade Pact: Challenge or Opportunity?

As pointed out in an article in Global Logistics & Supply Chain Strategies last summer, a proliferation of bilateral and regional trade agreements in recent years has made it more difficult than ever for companies to understand the many duty-avoidance options they might leverage to lower the total landed cost of imported goods, which is important given the current downturn and the fact, as pointed out in Sourcing Innovation’s recent Illumination on Why You Need Trade Visibility, that global trade losses can be significant if your cost-avoidance options are not maximized.

While bilateral (and regional) trade agreements go against the WTO‘s support of broad, multi-lateral trade pacts, the (agonizingly) slow pace of the Doha multilateral negotiations (which broke down last July after failing to reach a compromise on agricultural import rules and which were suspended until sometime this year) has made the (relatively) rapid time-to-benefit of bilateral agreements an attractive option (and many WTO members are already party to 10 or more such agreements). These agreements are so attractive that the WTO estimates that there will be around 400 such agreements by 2010.

These preferential agreements offer significant savings opportunities to companies that are able to manage them effectively. For example, Black & Decker increased it’s NAFTA savings by 240 percent, from 3M to 7M, simply by insuring that over 95% of eligible products are taking advantage of NAFTA benefits. An importer who took advantage of Free Trade Zones to accumulate multiple shipments imported during a 7-day period and combine them into a single shipment and saved hundreds of thousands of dollars in broker’s fees and merchandise processing fees (as detailed in Creating a Competitive Advantage in Global Trade by GDM). But these benefits are available only to those who know how to find them … and for that, you need an appropriate trade visibility system.