Tuesday 24 April 2018

There are rewarding deals for those who look further afield

'If talks do not go well, the UK will revert to being a “third country” for the purposes of trading with the EU — essentially it will be treated similarly to the US in terms of imports and exports'. Photo: Jane Barlow/PA Wire
'If talks do not go well, the UK will revert to being a “third country” for the purposes of trading with the EU — essentially it will be treated similarly to the US in terms of imports and exports'. Photo: Jane Barlow/PA Wire

Carol Lynch

It is becoming more important for Irish companies to seek out new and developing markets for opportunities to grow their business. By doing so they can limit their exposure to uncertain and potentially dramatic changes to trading terms imposed by a prime market, such as the UK leaving the EU.

It remains largely unclear what the UK's trade agreement with the EU will be. There is a view that a transitional agreement will be put in place, however this will depend on whether the trade negotiations are proceeding well.

Nothing is certain.

If talks do not go well, the UK will revert to being a "third country" for the purposes of trading with the EU - essentially it will be treated similarly to the US in terms of imports and exports.

Irish traders will face the imposition of customs duties on trade with the UK, the imposition of border controls and complications for importing UK goods in terms of conformity with EU standards. So, with the increasing focus on the additional costs and complications Irish companies will face accessing the UK market in the future, now is a good time to look at leveraging EU Trade Agreements to identify new market opportunities.

The EU is highly active in negotiating trade agreements with other countries and there are significant opportunities for companies looking to diversify their markets outside of the UK and Continental Europe. This year, the European Parliament voted in Strasbourg for the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada, concluding the ratification process of this deal at the EU level.

The resulting agreement eliminates 98pc of all tariffs on goods and services between the EU and Canada, reduces barriers to trade, improves labour mobility, improves access for trade in services and reduces barrier to trade.

The CETA deal now means that Ireland, as part of the EU, has trade agreements in place with two out of the three participating countries of the North American Free Trade Agreement (Nafta), as a preferential trade agreement has been in place with Mexico since 2000 (2001 for services). For the Irish food and drink industry, the Canadian FTA is of particular benefit as it opens up the Canadian market to exporters of cheese, wine and spirits, fruit and vegetables, and processed food products, which is not typical of trade agreements.

There is clear proof of the benefits enjoyed by the EU from free trade agreements. For example, EU exports to South Korea have increased by more than 55pc since the EU-Korea trade deal entered into force in 2011. Exports of certain agricultural products increased by 70pc, and EU car sales in South Korea tripled over this five-year period. It is estimated that EU companies have saved €2.8bn in reduced or eliminated customs duties since this agreement was applied. The Korea agreement was also provisionally applied during its ratification process, which is still ongoing.

Along with the Canadian and South Korean agreements there are many other agreements in place, including with Egypt, Israel, Mexico, and Ukraine.

Iran has great potential as a high-growth marketplace. With a population of 80 million and a GDP of €372bn, its economy is second in the Middle East behind Saudi Arabia. In 2016, imports from the EU included agricultural products of €728m, food and raw materials of €781m, chemicals of €1.83bn, and machinery of €3.81bn.

Since many of the EU sanctions on Iran were lifted by the signing of the Joint Comprehensive Plan of Action (JCPOA), which was implemented in January 2016, many EU companies have been taking advantage of the resulting trading opportunities. Some of the more high-profile examples of this include Siemens AG's investments in the Iranian energy sector and rail network and Airbus signing a contract to supply aircraft to Iran Air.

Negotiations on a Free Trade Agreement between the EU and Japan continue to take place, with both sides working to conclude negotiations in 2017. As it stands, the country is Europe's seventh-biggest export market. EU exports to Japan are dominated by motor vehicles, machinery, pharmaceuticals, optical and medical instruments, and electrical machinery.

One of the most important trade categories for the EU is dairy goods. Japan's appetite for milk and milk-based products has been growing steadily in recent years.

Embarking on business opportunities in these countries is challenging, but if successful the rewards are significant. Global opportunities still exist for those willing to exploit them and given so much uncertainty across the water, there is a lot to be said for stable trading relationships.

Carol Lynch is a Partner in the BDO Customs and International Trade Services department

Sunday Indo Business

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