Expanding your company’s goods or services beyond your
national borders is good for your bottom line, if done well. Companies that
export are 17% more profitable than those that do not, reports the US
Department of Commerce. Operating in more than one country allows your company
to smooth out its business cycles; when sales are low in one country they are
likely to be high in another.

Even if you are a US-based company, consider these facts –

·         95% of the world’s consumers live outside of the
United States.

·         99% of US companies do not export.

·         58% of those who export do so only to Canada and
Mexico.

While geographic proximity may be a factor, what makes these
two markets very attractive has been the North American Free Trade Agreement (NAFTA), soon to become the “U.S.-Mexico-Canada Agreement (USMCA). Companies need to do a better job of maximizing the opportunities that Free
Trade Agreements (FTAs) provide. In fact, the United States has FTAs in force
with 20 countries.
World-wide, there are almost 300 FTAs in force.

Free Trade Agreements
& Global Expansion

Free trade agreements (FTAs) eliminate or reduce tariffs and
the regulatory barriers to the flow of goods and services between countries. Reduced
tariffs and barriers mean lower costs of doing business. Entire sectors closed to
foreign competition may now be open to your goods or services. Companies interested
in global expansion can find the best opportunities in those markets with which
the country in which they operate has signed an FTA.

For example, the United States, the European Union, and
Canada have each signed FTAs with South Korea. Here are some provisions in
these Agreements:

·        
Under the terms of the US-Korea Free Trade
Agreement (KORUS), US chemical companies are now able to export the majority of
their products to Korea duty-free, avoiding the Korean tariffs that average
6.1% and range as high as 50%.

·        
In services, KORUS relaxes foreign ownership
requirements and opens up opportunities to US companies in several sectors,
including express delivery, legal, accounting, health care and education
services.

·        
The EU-Korea FTA opens up opportunities to EU
companies in such service sectors as environmental, maritime, and financial
services and for European SMEs to participate in government tenders on the same
terms as Korean SMEs.

·        
The Canada-Korea FTA removes duties on 98.2% of
Canadian goods entering Korea and 98% of Canadian duties on Korean goods and
strengthens opportunities for joint investments by facilitating the movement of
business persons between the two countries.

FTAs often also incorporate provisions addressing the use of
technical standards, respect for intellectual property, and mechanisms to
resolve commercial disputes if they develop.

Where are the Best
Opportunities for Global Expansion?

The best opportunities exist in markets with low barriers to
entry as well as a sizeable population that can afford your product or service.
The economies of Asia and Africa are expanding rapidly with a growing middle
class.

Asia is the largest and most populated continent on Earth,
currently holding 60% of the world’s population. By 2030, some estimate that five
of the world’s twenty largest economies will be in Asia. Africa is the world’s
second-largest and most-populous continent, accounting for about 15% of the
world’s population. Due to its abundant natural resources and robust demand for
consumer goods and services from a growing middle-class Africa has experienced remarkable
economic growth since 2000. Six of the world’s
top ten fastest growing economies in 2018 are located on the African continent.
The Latin American & Caribbean region contains 9% of the world’s population
and three of the world’s top emerging economies.

Even if your home country has not signed an FTA with a
market that interests you, your company may nevertheless be able to take
advantage of the regional trade agreements signed among these countries to
improve their business environment.

Asia-Pacific Economic (APEC), for example, comprises 21
countries bordering the Pacific Ocean which have focused on reducing trade barriers and
harmonizing domestic regulations aimed at making it easier for APEC members to do business
amongst themselves. Average tariffs fell from 17% in 1989 to 5.6% in 2014.
Eleven of these countries have since negotiated the Comprehensive
and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (Trans-Pacific Partnership Agreement minus the United
States).

Managing Challenges
& Risks

While FTAs provide opportunities for global expansion, they
also contain rules and requirements that must be followed. Notably, goods must
meet origin requirements and be certified. Other key considerations include the
country’s legal environment for operating businesses, respect for intellectual
property, and enforceability of contracts. Bilateral
Investment Treaties (BITs) provide another layer of support that help to
protect private investment by the nationals and companies of the parties to the
BIT. The United States has BITS in force with 40
or so countries. Canada with 44 countries;
and the European Union with 75
countries. Political risk insurance and knowledge of the
culture – best acquired through use of local talent – are also essential tools.

Your government also provides a number of resources to help
companies take advantage of these agreements as they explore global expansion.
These may include access to market research and support for trade missions.

While going global is not
without risk, knowledgeable advisors and a good game plan minimize those risks.
Contact us for assistance with –

·        
Cost-effective compliance with the rules of doing
business internationally;

·        
Negotiation and drafting of contracts to protect
your interests in international transactions.