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SMEs can grow as trade barriers are removed

Markets with advantaged access

While a bit stop-and-start in more recent years, trading agreements between economies have provided improved SME access to off-shore markets.

The expansion of SMEs into overseas markets is an important policy objective for many governments.

A paper published in 2014 explores the way free trade agreements (FTAs) and other policies in the EU have taken aim at lifting the number of SMEs pursuing markets outside their own economy, or at encouraging an exporting SME to pursue more than a single overseas market to reach more international consumers.

FTAs aim to greatly reduce or eliminate protective tariffs abroad or reduce the barriers presented by non-tariff measures that otherwise inhibit trade. Some FTAs may even contain specific SME provisions to:

acknowledge the importance of promoting an environment that facilitates and supports the development, growth and competitiveness of SMEs, recognising their participation in domestic markets as well as in international trade. (DFAT 2018)

The TPP-11 (also known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership) features a dedicated SME chapter encouraging SME participation in government procurement opportunities in all TPP countries.

Benefits to SMEs

SMEs exporting to the partner country of an FTA obtain benefits over businesses trading without the benefits of a trade agreement by being able to access partner economies at low cost, streamlined cross-border procedures and generally fewer barriers. It’s important for SMEs wishing to trade at an international level to identify and make use of tariff preference and market access benefits of FTAs.

Tariff reductions or elimination have the effect of reducing the price of items entering the partnering economy, making the goods more attractive to consumers in that market.

SMEs from FTA partnering economies can gain additional benefits from FTAs in the form of:

  • Better (preferential) market conditions and competitive advantage over SMEs from non-partnering economies
  • Stability and predictability in the rules for trading goods and services between the partnering countries
  • Reduced input costs in obtaining materials and processing technology to lower production costs and improve competitiveness
  • More efficient, transparent and responsive customs arrangements that reduce red-tape, lessen compliance and ‘behind the border’ costs and streamline storage and cross-border operations. (ConnectAmericas 2018)

Advice to SMEs

The advice to SMEs considering taking advantage of the preferential treatment an FTA can offer is to be in a position to act swiftly and sensibly, be informed about current and future FTAs to understand the opportunity and have assessed any new comparative advantage the agreement opens up as part of a proper due diligence.

An FTA may mean an SME’s products may now benefit from lower tariffs than their competitors, providing a competitive edge in a previously unattractive market. The opposite can also be true: > a reduction in domestic tariffs also enables greater foreign competition in the domestic Australian and New Zealand markets. (Lawrence 2018)

SME engagement in trade

While SMEs made up 87.8% of Australia’s total number of goods exporters, they represented just 5.3% to Australia’s total value of goods exports in 2015–16 (up from 3.9% in 2013–14).

This upward trend in SME engagement in exporting is positive, and it is expected that initiatives on e-commerce and an active trade negotiation and promotion agenda will generate further SME export growth.

Industry chambers and consultants urge SMEs operating in FTA partnering countries to take advantage over other businesses operating from countries that are yet to sign FTAs with target markets.

They warn of an increase in interest amongst a number of countries seeking bilateral FTAs with target markets and more FTAs in the pipeline.

It is clear that early exporters will gain the advantage:

If you don’t take advantage of this opportunity now or in the near future, you will lose it. (ABCS 2014)

Your task

Explore whether your SME or one you’re familiar with is able to enter a new international market with advantaged access via a trade agreement.

In the comments, share your experience of identifying an FTA of relevance and if the specific goods or service supplied by the SME is covered by the agreement.

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This article is from the free online course:

SMEs and New Markets: Trade, the Chinese Powerhouse and Online Opportunities

Deakin University