By Karen R. Dickinson
Arizona companies are regularly dealing with customers and competitors from outside the United States. Technology companies know better than most that dealing globally is an economic imperative. That’s why understanding U.S. treaty negotiations that have been in the news this year—and will continue to be so—can be a game changer for tech companies expanding globally.
Free Trade Agreements
The U.S. has 20 Free Trade Agreements (FTAs) with other countries. FTAs generally require that countries reduce tariffs, protect intellectual property and provide market access to non-local companies. FTAs also address technical regulations and standards that unnecessarily restrict trade. Because the U.S. has the lowest tariffs globally and provides market access to many foreign industries, FTAs particularly benefit U.S. companies selling globally. Arizona exports to FTA countries totaled $12.4 billion, or 59 percent, of Arizona’s exports in 2014. From 2005 to 2014, exports from Arizona to FTA markets grew by 61 percent, with NAFTA countries (U.S., Mexico and Canada) and FTA countries Korea, Israel, Australia and Chile showing the largest dollar growth during this period.
Trade In the News
Think of the recent trade negotiations as FTAs on steroids. These agreements help U.S. companies expand sales overseas by leveling the competitive playing field in many different countries at once. Here is a “cheat sheet” so you can understand the alphabet soup used when discussing current trade issues and the potential opportunities for tech companies:
- Trade Promotion Authority (TPA): The Foundation – Reauthorized by Congress earlier this year, TPA gives the president the continuing flexibility to negotiate trade agreements on behalf of the U.S., subject to Congress’ pre-defined negotiating objectives, oversight and consultation.
- Trans-Pacific Partnership (TPP): Asia-Pacific FTA – The TPP is a multi-country FTA that covers the U.S., Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. TPP will expand current FTAs and create new agreements with some of these countries. TPP negotiations have concluded and each country is reviewing the terms internally to decide if it will agree to incorporate TPP into its laws. (A summary of the terms can be found here.) Congress is reviewing TPP to determine if it will approve the U.S. taking part. In 2014, Arizona exported $21.2 billion in goods to the world, with 61 percent of Arizona’s goods going to the TPP countries. This does not count exports of services such as software licensing, financial and tourism provided by Arizona companies to foreign customers. TPP will eliminate foreign tariffs in the nations that are part of the agreement, which will help Arizona companies expand sales in those countries by reducing final prices to customers. For example, today there are tariffs as high as 35 percent on U.S. Information and Communication Technology (ICT) products imported into some TPP countries. Under TPP, 99.6 percent of all U.S. goods exported will have zero tariffs in TPP countries. TPP also will expand market access and investment opportunities in a number of service sectors, including entertainment, telecommunications, software licensing and Internet industries. Reduced tariffs and expanded market access will mean opportunity for Arizona technology companies and an increase in high tech jobs in Arizona.
- Transatlantic Trade and Investment Partnership (T-TIP): The European FTA – Surprisingly, while the U.S. has FTAs with certain countries in Europe, there is no overarching FTA despite the fact that the transatlantic economic relationship accounts for nearly half of global economic output. Negotiations of T-TIP are ongoing, with negotiators hoping to conclude in 2016 for each country’s final approval. Arizona exported an average $3.2 billion annually in goods to the European Union (EU) from 2012 to 2014. The ICT sector accounted for 19 percent of Arizona’s total exports to the EU between 2012 and 2014, averaging $572 million per year. The EU currently has tariffs on ICT products as high as 14 percent. Arizona tech companies would benefit from reduced tariffs in this sector as a result of T-TIP. Exports from Arizona also could benefit from related efforts to achieve new market access commitments in services and investment, improve the regulatory environment, and establish global best practices.
If the winners in the next economy will be those who tap new global markets, what can you do? Consider how your products, technologies and services could be used outside our country, especially in countries with which the U.S. already has an FTA. These are “low hanging fruit” for Arizona companies expanding globally. And, keep an eye on the news. As Congress reviews—and hopefully approves—TPP and T-TIP, find out how these new treaties can benefit your tech company.