America’s oldest Free Trade Agreement (FTA) with Israel is marking its 30th anniversary this September. Over the past 30 years, FTAs have thrived in facilitating international trade, fueling economic growth, raising living standards and allowing American families to gain access to affordable goods and services.
Perhaps the most important benefit of trade agreements is that they level the transactional playing field and promote exports to partner countries, chiefly by eliminating burdensome tariffs and removing non-tariff barriers. With trade deals in force, regulatory bodies agree to a set of rules that prevent a country from having an unfair advantage over the other.
Since the U.S.-Israel FTA was enacted on September 1, 1985, the U.S. has entered into an additional 14 FTAs with 19 countries, which opens up a world of opportunities for U.S. businesses. You can find the complete list of all of the existing trade agreements on the United States Trade Representative website. Some of the most well-known U.S. trade agreements include The North American Free Trade Agreement (NAFTA) between our neighbors Canada and Mexico (which has generated $1.2 trillion in trade and supported 14 million U.S. jobs since it was created in 1994), as well as the U.S.-Australia Free Trade Agreement (which has totaled about $65 billion in trade). More recent FTAs include agreements with South Korea, Colombia and Panama.
As a U.S.-based business owner looking to sell your goods abroad, how do you find out which of the existing agreements are most beneficial? It depends on what country your business is looking to trade with and what products or services you’re selling. If you are successfully selling a product in the U.S., it makes sense to sell internationally to countries that may have similar demand for the product. For example, both Australia and the U.S. have comparable taste in food so U.S. food and beverage companies are seeing success exporting to Australia; Australia imported $10.3 billion of U.S. food and beverage products in 2011, excluding retail sales of U.S.-based foodservice chains such as McDonald’s. The U.S.-Australia FTA makes food and beverage imports from the U.S. duty-free.
Whether to sell your goods abroad to an U.S. FTA partner also depends on whether there is zero or low import tariff rates on the goods that you would like to export out of the U.S. and into a FTA partner. The United States has one of the most open economies in the world, with an average applied tariff of 1.4 percent. In fact, nearly 70 percent of the products we import do not face any tariffs at all. However, when U.S. exporters work to sell Made-in-America goods to other countries, they’re burdened with tariffs over twice as high on average. More recent FTAs have zeroed out tariffs on certain products for participating countries, which have reduced the costs of exporting for U.S. business. These costs reductions provide a pathway for more U.S. exporters to enter FTA partner markets.
Determining if you should sell your goods abroad to an U.S. FTA partner also depends on whether the existing FTA will provide regulatory transparency that will allow your good to be accepted into the country. The most recent Korean FTA set rules for the harmonized review recommendations and determinations regarding certain products’ pricing and to improve transparency in the process for making those determinations. These regulatory agreements ensure that certain U.S. products receive the same treatments as Korean products.
FTAs have proven to be one of the best ways to open up foreign markets to U.S. exporters – but there is still much room for growth. There are several major trade negotiations currently underway, including the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP) and the Trade in Services Agreement (TISA). If these agreements are passed it would present enormous opportunities for the U.S. economy. For instance, the countries participating in TPP talks include the U.S., Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, all of which are projected to be home to more than 60 percent of the world’s middle class population by 2030. American manufactured goods face tariffs of up to 100 percent on certain goods in TPP markets, and American agriculture exports face tariffs over 700 percent on some products. TPP and TTIP would zero out tariffs on most products and open up important market access for U.S. companies to tap in to.
Ultimately, FTAs make exporting to partner markets easier and more cost effective for U.S. companies. Leveraging agreements that fit your company’s product and exporting goals can catapult your business to the next level, just as FTAs have done for the U.S. economy and our FTA partners.