The Benefits of Free Trade Agreements

The 20 countries that have signed Free Trade Agreements with the United States only represent about 10% of world GDP, but they represent almost half of total US Exports in 2012, and exports to these countries grew nearly twice as fast as to to the rest of the world.

Why do we have free trade agreements and how are countries we have them with better for exports?

First of all, it is important to understand the basic premise of an FTA. It is an agreement between two or more countries that reduces the overall tariffs of most goods- usually making them duty free within a certain period of time. (There are commodities that are not subject to these tariff reductions and that is where a lot of the politics enters.)

For those who think that FTA’s means jobs being shipped overseas, remember that US tariff rates are actually relatively low, so the US is a big beneficiary in these FTA’s. High quality, desirable US goods are less expensive to import into FTA countries and are ultimately more competitive with other products, both domestic and imported.

With this in mind, if you are looking to export for the first time, looking for a market in one of our FTA partners is a great start. Here’s an example:

If you manufactured Mouth Organs in the US and wanted to ship them to Germany, you would have to add 3.7% in tariffs not to mention VAT tax and potentially some other charges. If you wanted to ship them to South Korea before we had a Free Trade Agreement, they would have a duty rate of 8%. Now that there is the Free Trade Agreement in place, the duty rate is zero. 

If you have any questions about exporting to FTA countries, let us know and we’ll be happy to answer them!