Global Trade drives economic growth and development worldwide. Advances in transportation and communication technologies and developing global supply chains through the World Trade Organization (WTO) and Free Trade Agreements (FTAs) have facilitated international trade over the years. However, global trade can also pose challenges, including the risk of trade imbalances, protectionism, and potential negative impacts on the environment and labor standards.
Free Trade Agreements (FTAs) play an essential role in global trade by promoting economic growth and development by reducing trade barriers and facilitating increased trade and investment between countries. FTAs can also help to promote international cooperation and improve political and financial stability.
There are three types of Trade Agreements.
Free Trade Agreements (FTAs): FTAs are treaties between two or more countries designed to reduce or eliminate certain barriers to trade and investment and to facilitate stronger trade and commercial ties between participating countries.
FTAs aim to create a more level playing field for businesses and increase market access for goods and services by eliminating trade barriers. They often include provisions that promote fair competition, protect intellectual property rights, and address issues related to labor and environmental standards.
FTAs can be bilateral, involving two countries, or multilateral, involving more than two countries. Some examples of FTAs include the North American Free Trade Agreement (NAFTA), the Trans-Pacific Partnership (TPP), and the European Union's Single Market.
Economic Partnership Agreements (EPAs): An Economic Partnership Agreement (EPA) is a type of Free Trade Agreement (FTA) that is negotiated between the European Union (EU) and developing countries or regions. The main goal of an EPA is to promote trade and investment between the EU and the developing country or region by reducing trade barriers and increasing market access.
Association Agreements (AAs): Association agreements exist between the European Union (EU) and a non-EU country or region that establish a framework for cooperation and economic integration. They typically cover many areas, including trade, investment, political cooperation, and social and environmental issues.
Free Trade Agreements (FTAs) can be an effective tool for managing risks associated with international trade. By reducing trade barriers, FTAs can help businesses increase market access and diversify their customer base, mitigating risks associated with relying on a single market or customer.
FTAs can also help businesses reduce costs associated with tariffs and customs duties, improving profit margins and reducing price volatility. In addition, many FTAs include provisions that protect intellectual property rights, which can help businesses protect their research and development investments.
However, FTAs can also introduce new risks for businesses. For example, increased competition from foreign companies can pressure domestic firms, which may need to adjust their strategies to remain competitive. Businesses may also need help navigating complex regulations and rules of origin requirements, which can be costly and time-consuming.
To effectively manage risks associated with FTAs, businesses should carefully assess the potential benefits and drawbacks of participating in an FTA. This may involve conducting a detailed analysis of the market and regulatory environment in the target country, as well as developing contingency plans to mitigate potential risks.
Here’s an example of an FTA under negotiation for the EU (European Union)
According to the European Council, 90% of future global growth is predicted outside Europe (EU and Non-EU). With their significant role in global supply chains, SMEs are well-positioned to leverage this trend.
To ensure that imported products are available at affordable prices, to protect the interests of EU citizens and businesses against unfair trade practices, and to answer concerns raised with specific trade deals, the European Union has taken concrete action. Measures include trade defense instruments and trade provisions protecting the environment and agriculture.
SAP GTS Risk Management is a module within the SAP GTS software suite that enables companies to manage the risks associated with global trade and ensure compliance with regulations while improving supply chain efficiency and reducing costs. Here are some reasons companies should implement SAP GTS Risk Management.
In conclusion, SAP GTS Risk Management is a powerful tool for companies to support exporters in identifying preferential treatment of their goods while meeting all regulatory requirements for customs preferences. Customers of the exporter can import certain goods duty-free or with lower import duty rates based on demonstrated eligibility for preferential treatment, giving the exporter a competitive advantage.
We understand that implementing SAP GTS Risk Management can be complex, requiring expertise in SAP software and global trade regulations. This is where an experienced implementation partner like ArchLynk comes in. As a certified SAP partner with deep global trade and risk management expertise, ArchLynk can help companies implement SAP GTS Risk Management effectively and efficiently, ensuring maximum value and return on investment. We guide and support businesses throughout the implementation process, from initial scoping and requirements gathering to deployment and ongoing support. To know more, speak to an expert.