TRADE AGREEMENTS

101
www.crnm.org Lincoln Price
2

Strategic Business
Considerations in Trade
Agreements

Strategic Business Considerations in Trade Agreements

 What are trade agreements?
3

… Legal contracts to facilitate trade. Agreements can be

governmentt to
t governmentt or business
b i to
t business
b i (or
( also
l
business to government). This presentation focuses on
Government FTAs.

… These agreements usually commit to eliminating/reducing

customs duties on products of interest of the parties and to
dispute settlement if there are breaches

… Modern trade agreements cover trade in services, as well

as investment, and commit to no exclusive special
treatment (Most Favored Nation‐MFN and National
Treatment‐NT)

Strategic Business Considerations in Trade Agreements

4

WTO trade Report 2009

5

WTO trade Report 2009

6

WTO trade Report 2009

 Why are trade agreements
7
i
important
t t for
f business?
b i ?
… Trade agreements
g can reduce the cost of doingg international
business, eg duties, licences (via eliminating quotas),
transparency and market access for services providers

… Trade agreements can make your product more attractive to

overseas distributors via preferences

… FTAs can p
provide you
y with a first mover advantage
g into major
j
markets

… FTAs also allow more competition on your home soil

Strategic Business Considerations in Trade Agreements
 Why are trade agreements
8
i
important
t t for
f business?
b i ?

… The volume of trade is so large and dynamic, that tariffs

(even “nuisance ones” < 5%) have large impact on profits

… Firms are operating on a more global scale

† i
imported
t d raw materials
t i l
† Imported capital/technology
† Imported human resources (staff/consultants)
† Exported final and intermediate products in a value chain

Strategic Business Considerations in Trade Agreements

 Why are trade agreements
9
i
important
t t for
f business?
b i ?
… taste/preferences
/p more global
g so more international
business opportunities

… Even SMEs are becoming more trade oriented as they

depend on external markets for inputs/markets

… Even though trade duties are being reduced globally

globally,
there are many regions, including LATAM that still have
high tariffs. So FTAs are important to target regions with
high tariffs.

Strategic Business Considerations in Trade Agreements

 Why are trade agreements
10
i
important
t t for
f business?
b i ?
… Trade agreements can eliminate tariffs escalation,
i where
i.e. h value
l added
dd d products,
d suchh as cigars
i
and cigarettes, are charged high tariffs, and
raw/unmanufactured tobacco duty free. (other
examples
l include
i l d green coffee
ff beans
b vs
roasted/ground coffee)

† Do you have other examples?

… Trade agreements allow countries that have

received unilateral preferences to convert those
to WTO compliant trade agreements and preserve
market access for exporters
Strategic Business Considerations in Trade Agreements
 Why are trade agreements
11
i
important
t t for
f business?
b i ?
… FTAs assist in attracting efficiency
seeking FDI as Multilateral firms seek
countries that have the best FTA
coverage

… TNCs export from the countries with the

most favorable trade regimes.

… In these times, TNCs are consolidating in

countries with best market access

Strategic Business Considerations in Trade Agreements

 Structure of a modern trade
12
agreement
g t
… Market Access for goods
† Agriculture
† Manufacturing
† Rules of origin
… Services Market access
… Trade Facilitation ((customs procedures)
p )
… Investment Protection/Promotion
… Technical Barriers/SPS
… Competition policy
… Dispute settlement

Strategic Business Considerations in Trade Agreements

 Structure of a modern trade
13
agreement
g t
… Government Procurement
… Electronic Commerce
… Development Cooperation
… Intellectual property rights
(IPR)/i
(IPR)/innovation
ti
… Personal Date Protection
… L b
Labour
… Environmental protection
(climate change now considered)
Strategic Business Considerations in Trade Agreements
How are trade agreements negotiated?
14 1) ↑ sales
FTA text
2) Improved
b l
balance
Regional sheet
positions
3) ↑ long term
Consultation profitability
fit bilit
TWGs, COTED, etc

OTN(CRNM)

Government

Consensus Private farmer services

sector positions

manufacturer
Strategic Business Considerations in Trade Agreements
 Pyramid of existing trade
agreements
15

CSME

Regional
agreement: e.g.
CARICOM-DR

Unilateral
preferences:
Caribcan

WTO

Strategic Business Considerations in Trade Agreements

 Timing
g of trade negotiations
g
16

… Green Light: (negotiate now)

† Canada Negotiations
† WTO negotiations
… Yellow: (lets wait a little)
† USA
† Mercosur
† Andean
… Red: (No mandate to negotiate)
† Central America
† Chile
† Turkey

Do you agree with this lineup?

Strategic Business Considerations in Trade Agreements
 WTO
17

… Legally
g y bindingg trade agreement
g established
amongst 153 member countries in 1995

… CARICOM (exc the Bahamas) are WTO members

(most export markets are also WTO members)

… Established to prevent global protectionism

which has had severe consequences
q on
business development

Strategic Business Considerations in Trade Agreements

 WTO
18

… Commitments include:
† MFN (no preferences)
† National treatment (treat foreign as
local)
† Binding “capping” tariffs
† Eliminating quotas periodically
† Listing services sectors which will be
opened to foreign participation
† Progressively liberalizing trade through
future “rounds” of negotiations

Strategic Business Considerations in Trade Agreements

 WTO
19

… Doha Round seeks to:

† Further reduce tariffs
† Eliminate
Eli i t trade t d subsidiesb idi
† Further reduce obstacles to trade
in services
† SDT: Allows Special products
which are exempt from tariff
reductions
d ti
† The round is deadlocked in issues
includingg industrial tariffs and
subsidies (the same issues which
Strategic Businessstalled thein Trade
Considerations FTAA) Agreements
 CBTPA-CBI
20

… Unilateral trade preference granted by

USA to most Caribbean and Central
American countries (WTO illegal without
waiver)
i )

… EE.g.
g Cigarettes and other tobacco
products duty free in USA under CBTPA.
MFN duties, 1.89/kg+4.7%

… US FTA negotiations on hold until after

Canada FTA
Strategic Business Considerations in Trade Agreements
 CBTPA
21

… l
launched
h d 1983

… Expanded in 2000 through the US‐

Caribbean Basin Trade Partnership Act
(CBTPA).
(CBTPA)

… However, under US legislation the

termination of the effect of CBTPA was
scheduled 30 September 2008.
2008
Strategic Business Considerations in Trade Agreements
 CBTPA
22

… WTO approved d waiver

i requestt from
f
the US on the CBERA.

… The approval of the waiver which

will remain valid until 2014,
2014
provides the legal authorization for
CARICOM to export goods covered
under CBERA to the US duty‐free.

Strategic Business Considerations in Trade Agreements

 CARIBCAN
23

… non‐reciprocal
non reciprocal preferential trade arrangement that
grants unilateral duty free access to eligible goods
from beneficiary countries in the English‐speaking
Caribbean up to 2011 (WTO illegal without waiver);

… Caribcan covers almost all our trade with Canada

(except dairy, poultry etc)

… EE.g. Cigarettes
Ci and
d other
h tobacco
b products
d duty
d
free in Canada under Caribcan or GSP. MFN duties,
8%

Strategic Business Considerations in Trade Agreements

 CARIBCAN
24

… FTA with Canada to cover:

† Market access (goods and services)
† Investment protection
p
† Trade facilitation
† Trade Remedies (i.e. safeguards, AD/CVD)
† No agreement on side agreements on
„ Labour
„ Environment

… first round was in Nov 9‐12, 2009 in Barbados.

Next round for Q1 2010
Strategic Business Considerations in Trade Agreements
 Economic Partnership
25
Ag
Agreement
t (EPA)
… Trade and Development
p Cooperation
p deal between
CF and the EU

… Deal provides DFQF access to EU for all originating

products (e.g. tobacco pays no duties into EU. ROW
pays 26%, other developing countries pay 9.1%)

… Jamaica will begin

g reducingg duties on select
products from Europe by 2011

Strategic Business Considerations in Trade Agreements

 EPA
26

… Prior to the EPA,

EPA there were five
agreements Lome 1‐4 and the Cotonou
agreement, all temporary and needing
WTO waivers

… EPA, now a more permanent

arrangement

… Europe is the worlds largest trade area

Strategic Business Considerations in Trade Agreements
 LATAM is negotiating FTAs:
27
C t lA
Central American
i
… CACM‐ Customs Union: members include Costa Rica, El Salvador,
Guatemala,
l Honduras,
d andd Nicaragua
… CACM‐Chile
… CACM‐DR‐USA
… CACM‐ Panama
… Mexico‐Nicaragua
… Guatemala‐Mexico
Guatemala Mexico
… Honduras‐Mexico
… El Salvador‐Mexico
… C t Rica‐Mexico
Costa Ri M i
… Costa Rica‐Canada
… El Salvador, Guatemala, Honduras and Nicaragua negotiating with Canada

Strategic Business Considerations in Trade Agreements

 LATAM is negotiating FTAs:
28
D i i
Dominican Rep
R
… DR‐CARICOM
DR CARICOM

… DR CACM
DR‐CACM

… EPA (E
(European Union)
U i )

… Canada‐Underway

Strategic Business Considerations in Trade Agreements

 How do I understand FTAs?
29

1. Know your products tariff code

2. Know the
K th tariff
t iff liberalization
lib li ti schedule
h d l and
d
whether your company's product is liberalized or
not (in trade most favored nation (MFN) means no
special tariff treatment)

3. Know the rules of origin

† These
h are the
h production/harvesting
d i /h i
techniques/procedures that must be followed for the
product to be considered as originating (“made in”) in
the country that is supposed to be getting the duty
concessions
i
Strategic Business Considerations in Trade Agreements
 Tariff Codes: E.g. Cigarettes
30

NB: More digits means more

details
 Rules of Origin
g
31

… Wholly produced

… Tariff jump

… Value added

… Product specific

… Cumulation

Strategic Business Considerations in Trade Agreements

 Caricom-Venezuela
Caricom Venezuela FTA
32

… Provides
P id duty
d t concessions
i for
f select
l t
Jamaican/CARICOM exports to Venezuela from
date 1993

… E.g. Caricom Cigarettes made from Virginia

tobacco (240220) duty free.

… ROW pays 20%

Strategic Business Considerations in Trade Agreements

 Tariff liberalization
33

Strategic Business Considerations in Trade Agreements

 Reading
g tariff schedules in FTAs
34

Health
certificate
required
 Rules of Origin
35

e.g. Cigarettes must be

made from CARICOM
or Venezuela tobacco

Strategic Business Considerations in Trade Agreements

 CARICOM-DR FTA
36

… Provides duty concessions for select

Jamaican/CARICOM
/ products
p with the DR
effective 2001

… Cigars imports duty free for the world to the DR.

… cigarettes
i not included
i l d d in
i duty
d free
f treatment so
Caricom and ROW pays 20%. Also, imports of
cigarettes into JA pay 30%.

Strategic Business Considerations in Trade Agreements

Tariff liberalization
37
 Reading
g tariff schedules in FTAs
38

Strategic Business Considerations in Trade Agreements

 CARICOM-Colombia FTA
39

… Provides
id duty
d concessions
i for
f select
l
Jamaican/CARICOM products with
Colombia effective 1998

… Unmanufactured tobacco allowed duty

free into Ja

… TTobacco
b products
d not duty
d free
f into
i
Colombia

Strategic Business Considerations in Trade Agreements

 CARICOM-Cuba FTA
40

… When ratified will p

provide dutyy
concessions for select
Jamaican/CARICOM products with Cuba

… Raw Tobacco liberalized in this

agreementt

… Cigarettes/cigars
Ci tt / i etc
t nott liberalized,
lib li d so
products still dutiable.

Strategic Business Considerations in Trade Agreements

 CARICOM-Costa Rica FTA
41

… When ratified Provides duty concessions for

select Jamaican/CARICOM exports to
Venezuela

… Cigarettes not liberalized by either party.

Ci
Cigars only
l lib
liberalized
li d in
i Suriname
S i and
d
Trinidad

… prospective cigarette exports are liable for

40% duties in CR and 30% in JA

Strategic Business Considerations in Trade Agreements

 Tariff liberalization
42
 Reading tariff schedules in
FTAs
43
 Rules of Origin
g
44

Strategic Business Considerations in Trade Agreements

 Sources of trade information
45

… www.crnm.org
… www.caricom.org
… www.wto.org
… www.intracen.org
… www.oas.orgg

Strategic Business Considerations in Trade Agreements

 Thank You
46

Please visit our Website:

http://www crnm org
http://www.crnm.org

C t t
Contact:
Mr. Lincoln Price
Private Sector Liaison
lincoln.price@crnm.org
Tel: +1876 908 3922 Fax: +1876 754 2998

Strategic Business Considerations in Trade Agreements