GUIDE TO EXPORTING A SERVICE

Identifying Market Opportunities

The national-level reforms that many countries have undertaken to integrate into the global economy and become more interconnected have led to the increased trade and foreign direct investment flows highlighted in the previous section. The services sector continues to play a significant role in connecting the global economy. However, based on observations in the United States, many government-sponsored export workshops, discussions, training sessions, and seminars still focus heavily on trade in manufactured goods and agricultural commodities. Consequently, service providers receive minimal information and training on how to leverage their competitive advantage and identify the opportunities internationally. This chapter fills in that gap by detailing the global market opportunities for service providers that will save them both time and money. The opportunities that reduce the amount of resources that would be expended trying to go it alone are presented by two key mechanisms: 1) reciprocal trade agreements and 2) projects funded by international financial institutions or multilateral development banks.

Opportunity #1: Reciprocal Trade Agreements and Ease of Access

Many business owners and executives have heard of trade agreements. At the same time, few fully understand trade agreements. To fully grasp the opportunities presented by trade agreements, it is important to comprehend their different types. Reciprocal trade agreements (RTAs) refer to those trade deals in which all member countries benefit from preferential access to each other’s markets. That preferential access comes in the form of reduced or eliminated tariffs for goods and fewer technical or regulatory barriers to trade for goods and services.

The RTAs can be structured as a bilateral agreement between two countries such as the U.S.-Chile trade deal and the Mexico-Japan trade agreement. RTAs may also include countries from the same region such as the United States- Mexico-Canada Agreement (USMCA), Association of Southeast Asian Nations (ASEAN), the Southern Common Market (Mercosur), the African Continental Free Trade Area (AfCFTA), and the European Free Trade Association (EFTA). There are also cross-regional RTAs, as in the case of the Comprehensive and Progressive Agreements for Trans-Pacific Partnership (CPTPP) and the Central America-Dominican Republic-United States Free Trade Agreement (CAFTA-DR). Additionally, multilateral trade agreements refer to the trade rules that apply to a larger group of countries from all around the world. The General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services (GATS) exemplify multilateral trade agreements (Table 5-1).

Reciprocal trade agreements differ from unilateral trade programs, which offer one-way preferential access. In other words, in a trade relationship between two parties, only one party would enjoy preferential access to other party’s market. Several unilateral trade programs that provide preferential access to agricultural and goods producers from developing countries to the United States. The Generalized System of Preferences (GSP) was established by the Trade Act of 1974 eliminated tariffs on select products from 119

Table 5.1 Types and Examples of Reciprocal Trade Agreements Signed by the United States

Bilateral

Regional

Cross-regional

Multilateral

Australia

Bahrain

Chile

Colombia

Israel

Jordan

Morocco

South Korea

Panama

Peru

Singapore

North

America:

U.S.-Mexico-

Canada

(USMCA)

Central America- Dominican Republic Free Trade Agreement (CAFTA-DR)

General Agreement on Tariffs and Trade (GATT)

General Agreement on Trade in Services (GATS)

designated beneficiary countries and territories to promote economic growth and development in developing countries. The United States established similar unilateral trade programs for different regions such as the Caribbean Basin Initiative/Caribbean Basin Trade Partnership Act (CBI/CBTPA) in 1983 and 2000 and the African Growth and Opportunities Act (AGOA) in 2000. Services exports are not included in any of these unilateral programs.

In addition to the lack of full understanding of trade agreements, several businesses that could benefit from these trade deals do not use them. A 2015 Thomson Reuters and KPMG survey revealed that most companies that import and/or export do not use the trade agreements that are available to them. Some reasons for not taking advantage of this opportunity include the lack of time and resources, inability to adequately understand the cross-border rules, and failure to integrate technology into their processes and procedures.

In January 2020, the UK Trade Policy Observatory (UKTPO), which studies small and medium-sized enterprises (SMEs) in the European Union, reported that, although the general provisions in trade agreements may reduce trade barriers, they may also increase the costs for the SMEs. Whereas larger firms may still be able to expand successfully, these trade barriers disproportionately affect the SMEs (USITC 2010). The same survey revealed that only 19% of exporters used trade agreements to sell their goods and services beyond the EU. Fifty-two percent of EU-based SMEs reported not using trade deals. The remaining 29% of respondents did not know if they were using trade deals. The SMEs in the European Union that considered using trade agreements weighed the costs and benefits of using a trade agreement versus the administrative costs associated with comprehending the trade agreement provisions and how to leverage them. The costs of the latter outweighed the former for these SMEs. Although the SMEs may find trade agreements costly, not using them leads to costs created by technical barriers to trade, restricted access, and the lack of protection against discriminatory and unfair trade practices.

Having insight into the structure of a reciprocal agreement also helps to comprehend the opportunities that they present to service providers. Reciprocal trade agreements similarly include chapters pertaining to market access for goods, services, foreign investment, intellectual property, among other important areas in cross-border trade. The chapters that impact service providers as they export to other countries are those pertaining to services, investment, government procurement, and intellectual property (Figure 5.1).

National treatment is among the specific provisions that allow for preferential access in the cross-border trade of services. National treatment

General Trade Agreement Structure

Figure 5.1 General Trade Agreement Structure

prohibits any member territory from not allowing for services to be provided by a company from another member territory on the basis that it is a foreign service provider. Most-Favoured-Nation Treatment (MFN) restricts any treatment that is not the same as that offered to service providers from other member territories. Market access refers to the access to other markets through the reduction or elimination of regulatory barriers to trade. Local presence says that the member countries cannot require that a service provider from another member country to set up an office or affiliate, or to be a resident, in its country or territory in order to provide the service. The rule regarding transparency maintains that the policies and regulations should be communicated clearly among the trading partners.

 
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