Globalization is not only driving a new business paradigm for large companies and e-commerce startups, it’s also fueling a vigorous national debate on the parameters of free trade. Recent executive orders even direct the U.S. secretary of commerce to review each of the country’s free trade agreements, measuring their past and potential economic value.
While we won’t have the results of the official review for six months, one thing is already clear: technology, advanced logistics, and the removal of trade barriers have forever changed the global marketplace, giving more U.S. companies than ever before an opportunity to reach the 95 percent of consumers who live beyond U.S. borders.
Free trade agreements were from the very beginning designed to give U.S. businesses – and the thousands of employees who rely on them – an advantage by making it more cost-effective to export. To get a sense of how important free and open trade is and why free trade agreements should exist, consider the fact that approximately 300,000 U.S. companies are involved in international trade, and that more than 98 percent of them are small and mid-sized companies. Also, consider the thousands of additional entrepreneurs who are now just laying the groundwork to go global.
Today, the United States has 14 free trade agreements in force with 20 different countries. Trade policy should continue to support the original goal behind their adoption: to help U.S. companies compete in a complex global environment. That is not to say that these free trade agreements do not need to evolve like the global marketplace in which they operate. Clearly, new trade policies should be enacted to modernize the way that the U.S. regulates and enforces the movement of goods across borders with its trading partners, while keeping the frameworks of the trade agreements in place.
When you consider that the oldest free trade agreement in the United States was signed in 1985 with Israel, and that the North American Free Trade Agreement (NAFTA) went into effect more than 20 years ago, it makes sense to revisit current free trade agreements to make sure that they are constantly improving. Those agreements predate the entire e-commerce marketplace and failed to address the delays, costs and complexities that can make it challenging for smaller U.S. exporters. Tariff reductions must now be joined by other factors such as border facilitation procedures, the treatment of services, intellectual property, product standards, investments, and even data flows in order to support a growing economy.
New technological tools and electronic border clearance systems have been developed in the meantime, and trade agreements should specifically encourage their quick implementation in order to reduce barriers at the border. The goal, then, should be to make it easier for U.S. businesses to bring their goods to consumers abroad, further leveling the international trade playing field.
That means modernizing the standard framework of free trade agreements while tailor-fitting them based on bilateral and multilateral interests. For example, there should be cooperation between U.S. Customs and Border Protection and trading partners’ border clearance agencies, barriers for low-value goods should be removed, and the implementation of pre-clearance border processes with partners should be encouraged.
In fact, many of the principles that should guide these free trade agreements are included in the World Trade Organization’s recent Trade Facilitation Agreement (TFA), ratified by member countries, including the United States. The TFA promotes the implementation of advanced automation in the processing of goods, along with the adoption of cooperative rules, regulatory harmonization and Customs data exchanges between countries.
In addition, free trade agreements should be reviewed to ensure that they are meeting the unique demands of e-commerce, and that small and medium-sized businesses are encouraged to leverage their benefits. Prioritizing the processing of low-value shipments is especially critical for online retailers and their customers, as is ensuring that innovations are protected overseas. Digital trade and the global efforts of smaller companies will define the growth and future of exporting, and trade agreements should reflect this reality.
The fact is, free trade agreements have proved to be one of the best ways to open up international markets to U.S. exporters, and they do this not simply through the regulation of duties and tariffs, but most important by simplifying the cumbersome rules and procedures involved in clearing goods across borders. In other words, where free trade agreements create regulatory harmonization between countries, and where they promote cooperation and automation between border clearance agencies, they are most effective. By establishing a rule of law that allows for the faster and more cost-effective movement of goods, free trade agreements make it easier for companies to operate – especially smaller companies that have less staff and fewer administrative resources available to comply with varying trade rules.
Ultimately, it makes sense to modernize the United States’ free trade agreements to increase U.S. exports, prioritize the streamlining and harmonization of trade regulations between the U.S. and its trade partners, and meet the demands of the digital economy. This way, U.S. companies will get a global boost at the very time when international expansion makes more sense than ever.
This article originally appeared in The Hill.