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International trade agreements — sometimes called free trade agreements — play essential roles in facilitating global commerce. They enable cooperation between facilitating nations by reducing or eliminating otherwise burdensome factors such as tariffs and duties. How well do they work, and what should logistics professionals know about them?
Understand the Primary Types of International Trade Agreements
Countries participating in international trade agreements typically abide by one of three types.
The first is unilateral agreements. These are one-sided arrangements granted by developed countries to developing ones. Then, the latter nations enjoy numerous advantages, such as export activity expansion and the associated economic growth accompanying it.
Then, there are bilateral agreements. These mutually benefit the two participating countries, providing the nations with numerous advantages of economic cooperation.
Multilateral agreements are the final primary category. In these cases, three or more countries arrange to ease and promote trade between all participating nations.
All logistics professionals should familiarize themselves with the agreements in force within the nations where they typically operate or plan to soon. That way, they can understand all the particulars and use that knowledge to avoid the pitfalls that could otherwise disrupt their businesses, productivity levels and budgets.
Know the Subcategories of These Agreements
Besides these three main categories, international trade agreements sometimes fall into several subcategories. For example, regional trade agreements occur between at least two regions, affecting the associated economic activity related to goods and services. Additionally, the nations can determine that regional trade agreements will create free trade or preferential trade areas, a customs union, an economic union or a common market.
Then, bilateral investment treaties allow the investing nation to receive the either national or most-favored-nation treatment in the other country, whichever is the superior classification — whichever is the superior classification. Then, the participating nation treats the investing one the same way as its domestic investors or provides treatment equal to other foreign countries with similar attributes to the investor.
The World Trade Organisation also has agreements. They’re legal frameworks for international trade in 164 countries, providing extensive coverage of trade-related matters. Many government leaders use WTO agreements as templates to improve trade in their respective nations.
Some international trade agreements help nations affected by curbing unwanted trade behavior. For example, suspension agreements occur when foreign governments commit to changing trading behavior to stop dumping.
Products affected by dumping get sold in importing countries for much less than their market prices in the exporting nations. These arrangements promote domestic growth in nations benefiting from them because those countries can trade without competing with foreign locations.
Finally, intellectual property agreements allow a product’s creator to retain the respective patent, copyright or trademark while permitting all benefiting nations to use some or all of those IP rights for a fee. These agreements received worldwide attention during the COVID-19 pandemic as people investigated the best ways to get more vaccines in developing countries by boosting domestic production in those nations.
Staying abreast of these subcategories and knowing how they affect trade in places where logistics professionals do business will help those parties maximize their efforts and reduce friction.
Confirm How Newer Developments Will Affect Global Trade
Many people can buy products located across the country and receive them in a few days. Thanks to expedited postal service options, customers also experience such speed when ordering products from abroad. A package’s size and weight may affect the total shipping costs paid by a seller or the receiving customer. However, international developments can simultaneously affect trade and customers’ experiences.
A good example happened in Ireland after Brexit. Since that country is part of the European Union, Irish customers can order from e-commerce sites located in any other European country and not pay customs charges on the delivered items. Once Brexit the United Kingdom left the European Union, many Irish customers got unpleasant surprises when ordering from merchants in the region. Northern Ireland is part of the United Kingdom, but the Republic of Ireland is not.
However, some counties in the Republic are minutes away from the Northern Irish border. A person could easily cross through parts of Northern Ireland and go back to the Republic again several times within five minutes of driving time, never seeing a physical border. The sole visible sign is that the Republic’s road signs’s show distances as kilometers, while Northern Ireland uses miles.
After Brexit, Irish customers ordering products from the North or elsewhere in the United Kingdom received customs charges to pay before the postal service or any courier would deliver their items. Merchants also struggled during this transition, often failing to provide the correct and complete documentation that allowed parcels to clear customs quickly.
Logistics professionals are in excellent positions to educate their customers about developments impacting trade. Offering the details in easy-to-understand language will encourage people to see their chosen logistics providers as authoritative partners.
Take Inspiration From Global Brands
Another practical way to operate in a world defined by numerous international trade agreements is to see what global brands have done and which strategies were most successful. Making progress may require cooperating with stakeholders and working toward mutual goals. When leaders at footwear brand Nike wanted to expand the global supply chain, the first had to overcome a bad reputation developed due to allegations of unethical labor practices.
The decision-makers developed a multipronged approach to create fairer working conditions and reduce the environmental impacts of worldwide production. One of the goals was to create an incentive program that supported and urged suppliers to adopt greener operations.
Additionally, Nike executives engaged with stakeholders to discuss innovations intended to cause systemic changes. Those leaders knew doing anything at a surface level would be insufficient to bring the desired outcomes.
The logistics professionals working with today’s top brands must have in-depth knowledge of international trade agreements. The most popular modern companies receive and send shipments from and to all over the world.
A thorough understanding of the respective trade agreements supports their success. That’s especially true when brands with global footprints move into new countries, or their supply chain professionals create agreements with more suppliers in different nations than where procurement formerly occurred.
