Promoting Small Business Utilisation of Market Access under the Mega-Regionals

Since the WTO’s Doha Round stalled, the world has been awash with mega-regional preferential trade negotiations. These agreements will improve market access by lowering tariffs to firms in participating states. But not all firms will gain equal benefits because the improved access, while largely tariff-free, will not be cost-free. In other words, the administrative burden of demonstrating compliance with cumbersome rules of origin will be disproportionately heavy for small and medium-sized enterprises (SMEs) that make smaller shipments. We discuss how this can be remedied, thereby boosting SME utilisation of these agreements. As background, because of fixed costs of demonstrating compliance with rules of origin, utilisation of preferences shrinks as the size of shipments and tariff levels decline. For example, utilisation of EU preferences is consistently above 50% only for shipments facing tariffs over 15% or with face value over USD 100,000. These costs also limit the potential of electronic commerce to enable smaller firms to “go global.” Small businesses using online platforms and payment solutions reach, on average, 20 to 40 markets . These trade patterns are characterised by many small shipments to many customers in many different markets with the allocation across destinations almost random . The ability to...

Written by Dan Ciuriak, Hanne Melin