International business is very much dependent on the conditions in different trade agreements. Do you know the most relevant ones?

The most famous among Trade Agreements, WTO:

The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to ensure that trade flows as smoothly, predictably and freely as possible. Link.

ASEAN:

The Association of Southeast Asian Nations, or ASEAN, was established on 8 August 1967 in Bangkok, Thailand, with the signing of the ASEAN Declaration (Bangkok Declaration) by the Founding Fathers of ASEAN: Indonesia, Malaysia, Philippines, Singapore and Thailand. Brunei Darussalam joined ASEAN on 7 January 1984, followed by Viet Nam on 28 July 1995, Lao PDR and Myanmar on 23 July 1997, and Cambodia on 30 April 1999, making up what is today the ten Member States of ASEAN. Link.

EU:

The Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs helps the internationalisation of European businesses and their competitiveness in order to generate growth and jobs. The mission goes beyond the need to explore opportunities in foreign markets. It also lies in the necessity to work for the good integration of EU companies in international value chains and to ensure a level playing field. Link

MERCOSUR:

The Southern Common Market (MERCOSUR for its Spanish initials) is a regional integration process, initially established by Argentina, Brazil, Paraguay and Uruguay, and subsequently joined by Venezuela and Bolivia* -the latter still complying with the accession procedure.

Its official working languages are Spanish and Portuguese. The working documents’ official version will be that of the host country language of each meeting. As of 2006, through the Decision CMC No. 35/06, Guarani was incorporated as one of the languages of the Bloc.

MERCOSUR is an open and dynamic process. Since its creation, its main objective has been to promote a common space that generates business and investment opportunities through the competitive integration of national economies into the international market. As a result, it has established multiple agreements with countries or groups of countries, granting them, in some cases, the status of Associated States – this being the situation of the South American countries. These participate in activities and meetings of the Bloc and have trade preferences with the States Parties. MERCOSUR has also signed commercial, political or cooperation agreements with a diverse number of nations and organizations on all five continents. Link

USMCA:

The U.S. – Mexico – Canada Agreement (USMCA) is a trade agreement between the named parties. The USMCA replaced the North American Free Trade Agreement (NAFTA).

U.S. Customs and Border Protection (CBP) has launched a USMCA Center to serve as a one stop shop for information concerning the USMCA. The USMCA Center coordinates CBP’s implementation of the USMCA Agreement, ensuring a smooth transition with consistent and comprehensive guidance to our internal and external stakeholders. Link

Are there any more Trade agreements relevant for the procurement community? Contact Fredrik Axelsson and we will update this post!

Trade Agreements and Procurement: A Strategic Overview

As a procurement manager with expertise in trade agreements, I understand that these agreements are crucial in enhancing the efficiency and cost-effectiveness of international trade. They significantly impact procurement departments in various ways:

Reducing Tariffs and Trade Barriers

Trade agreements often lead to the reduction or elimination of tariffs and trade barriers, resulting in lower costs for sourcing materials or products from abroad. This reduction allows procurement departments to secure goods at more competitive prices, thereby improving the overall cost structure and enhancing profitability.

Streamlining Customs Procedures

Many trade agreements streamline customs procedures, making it quicker and easier to import goods. This reduction in delays boosts supply chain efficiency, ensuring that procurement departments can rely on timely deliveries and maintain smooth operations.

Increasing Market Access

Trade agreements open new markets by enabling companies to trade with countries previously inaccessible. This expanded market access allows procurement departments to diversify their supplier base, reduce dependency on single markets, and negotiate better terms due to increased options and competition.

Improving Standards and Compliance

Harmonization of standards across countries is another benefit of trade agreements. This standardization simplifies the procurement process by ensuring consistent product quality, safety, and regulatory compliance, reducing the complexity of dealing with international suppliers.

Strategic Considerations for Procurement Professionals

Impact of Trade Agreement Changes:

What if a key trade agreement your company relies on is suddenly renegotiated or abolished? How would this impact your procurement strategies?

Balancing Cost and Quality:

What if new trade agreements open markets with significantly lower production costs but different quality standards? How would you balance cost versus quality?

Supplier Diversification:

How would the removal of certain trade barriers impact your supplier diversification strategy? Would you consider suppliers from regions previously deemed unfeasible?

Customs Procedures and Supply Chain Planning:

What if streamlined customs procedures under a trade agreement are revoked, leading to longer lead times? How would this affect your inventory management and supply chain planning?

Importance for Professional Buyers

Understanding the nuances of trade agreements is essential for procurement professionals. These agreements offer opportunities for cost savings and efficiency gains but also present challenges that require strategic planning and foresight. Staying informed about the global trade environment and being adaptable to changes in trade policies are key to maintaining a robust and effective procurement strategy.

Trade agreements not only facilitate easier and cheaper trade but also necessitate a strategic approach to procurement that anticipates and mitigates potential risks. By leveraging the benefits of trade agreements and preparing for their potential changes, procurement professionals can enhance their strategic value within their organizations and ensure sustainable, efficient, and cost-effective procurement operations.

Want to learn more about Global Sourcing? 

Today we live in a globalized world and technology have made communication very fast. It requires Purchasing function to have the capability to source globally. What are the factors leading to increased globalization? How to approach purchasing on a global market? Which are the special challenges in low cost country sourcing. These questions are adressed in the online course Global Sourcing – introduction by EFFSO delivered by Learn How to Source. 

About Learn How to Source

Learn How to Source (LHTS) is an online platform based in Sweden, offering a range of procurement courses accessible globally. It serves as a community where procurement experts share their knowledge through online courses, designed for various experience levels from introductory to expert. Courses are concise, about 30 minutes each, and cover different aspects of procurement, tailored for different buyer roles. The courses focus on practical knowledge, presented by seasoned professionals, and include quizzes and certificates. They can be accessed from any device, emphasizing microlearning for flexibility and efficiency.