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International trade agreements and competitive global bidding: What you need to know

June 13, 2024

For any capture or bid manager who has found themselves in a new role with a multinational or a company that conducts business internationally, understanding international trade agreements is essential.  These agreements have become game-changers for securing contracts in a global market, having opened up a host of new opportunities across borders.  But they also pose potential challenges so knowing how to leverage trade agreements for successful bidding is helpful for knowing how to navigate them.

Understanding trade agreements

Trade agreements are legally binding pacts between two or more countries or regions that establish the terms and conditions for trade and commerce. These agreements aim to reduce or eliminate barriers to trade, such as tariffs, import quotas, and regulatory hurdles, fostering a more open and predictable business environment.

According to World Economic Forum, there has been 400% growth in the value of global trade since the Global Agreement on Tariffs and Trade removed numerous trade barriers and quotas in 1947.

The main objectives of these agreements are to:

  • reduce or eliminate tariffs and other barriers to trade in goods and services between the participating countries
  • establish rules and guidelines for issues like intellectual property rights, investment, government procurement, and other trade-related areas.
  • promote fair competition and create a more predictable and transparent trading environment for businesses.

Some key types of international trade agreements include:

1. Multilateral Trade Agreements:
– World Trade Organization (WTO) agreements like the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade in Services (GATS), and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
– These agreements establish global rules for trade among the 164 WTO member countries.

2. Regional Trade Agreements:
– Free Trade Agreements (FTAs) between groups of countries to eliminate tariffs and establish common rules, e.g. North American Free Trade Agreement (NAFTA), European Union (EU), etc.
– Customs Unions where members apply the same tariffs to imports from non-members, e.g. the EU Customs Union.

3. Bilateral Trade Agreements:
– Trade agreements between two countries, e.g. U.S. has bilateral FTAs with countries like Singapore, Australia, etc.
– Bilateral Investment Treaties (BITs) focused on protecting investments by firms from one country in the other country.

The benefits of trade agreements include increased market access, reduced costs for importers/exporters, protection of intellectual property, and more predictable regulations. However, they also involve complex rules like rules of origin that exporters must comply with.

Sectoral benefits: the competitive advantage of international trade

Free trade agreements (FTAs) offer significant benefits for procurement by reducing barriers to international trade and investment between participating countries. There are several key sectors that benefit significantly from these agreements:

1. International development: Trade agreements open up new markets for developed countries to support sustainable economic growth for developing countries to ensure no one is left behind. For example, the EU’s Economic Partnership Agreements with African, Caribbean and Pacific countries aim to promote development through trade; and the United Nations Commission on International Trade Law (UNCITRAL) plays a key role in developing that framework in pursuit of its mandate to further the progressive harmonization and modernisation of the law of international trade.

2. Construction: Major infrastructure projects often involve international consortiums leveraging trade agreements. In 2020, a consortium of Vinci, Ferrovial and BAM from Europe won a €1.4 billion Dutch motorway project, benefiting from the EU’s integrated market.

3. Rail: Rail manufacturers and suppliers can expand exports to new markets through trade deals. In 2021, a European-Japanese consortium including Alstom and Hitachi won a £2.8 billion UK train contract, citing the ability to meet environmental standards under the UK-EU trade pact.

4. Agriculture: Farmers and food producers gain improved market access through reduced tariffs and quotas in trade agreements. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) has boosted agricultural trade between members like Australia, Canada and Japan.

5. Manufacturing: Manufacturers can source inputs more cost-effectively and export finished goods to new markets. China’s limited use of trade deals has allowed it to protect domestic industries like textiles, while exporting to markets on WTO terms.

6. Services: Trade agreements increasingly cover services trade, benefiting sectors like finance, telecoms, and IT. The EU-Japan Economic Partnership Agreement provides new opportunities for European service providers in Japan.

7. Digital trade: Emerging digital trade agreements facilitate cross-border data flows and e-commerce. The Digital Economy Partnership Agreement between Chile, New Zealand and Singapore sets new rules for the digital age.

While some sectors may face increased competition, the overall economic gains from trade agreements are substantial, with developing countries, infrastructure, manufacturing, agriculture, services and digital trade among the biggest beneficiaries. Leveraging these agreements is key for companies and countries to boost exports and competitiveness.

researchfdi.com

Source: Everything you need to know about Trade Agreements – ResearchFDI

Leveraging Trade Agreements in Tendering

Trade agreements can have significant implications for tender processes and offer various advantages to companies looking to participate in international bidding. This is often the case with international Consortium bids in public procurement.  In these instances, consortia are able to pool resources, share risks and leverage complementary expertise to deliver complex contracts. Authorities evaluate consortia bids based on value for money, technical merit and alignment with policy objectives.

While trade agreements present exciting opportunities, it’s important to comply with the relevant regulations and be aware of watchpoints:

1. Rules of origin: Understand the rules that determine whether a product or service qualifies for preferential treatment under a trade agreement. Failure to comply can result in fines and penalties.

2. Documentation requirements: Ensure that proper documentation, such as certificates of origin and shipping documents, is in place and accurate to avoid compliance issues.

3. Local content requirements: Some trade agreements may have local content requirements, mandating that a certain percentage of goods or services be sourced from within the participating countries.

4. Environmental and labour standards: Trade agreements often include provisions related to environmental protection and labor rights, which bidders must adhere to.

5. Intellectual property rights: Familiarise yourself with the intellectual property rights provisions in trade agreements to protect your innovations in foreign markets.

6. Digital trade agreements: The rise of digital trade agreements covering areas such as data localization, e-signatures, and AI regulation is an emerging trend to watch.

7. Anti-coercion measures: The EU has proposed a new instrument that would enable it to take countermeasures against foreign interference.

8. Foreign subsidy regulation: The EU is increasingly concerned about the potential for subsidies granted by non-EU governments to distort competition within the EU single market, leading to proposals for extensive disclosure of financial contributions received from non-EU governments.

9. Procurement reciprocity: The EU’s International Procurement Instrument aims to increase reciprocity in access to public procurement, potentially requiring pricing penalties, or exclusions for bids from suppliers in countries with restrictive or discriminatory procurement practices.

10. Sector-specific trends: Monitor sector-specific trends and regulations within trade agreements, as provisions may vary across industries, such as agriculture, manufacturing, services, and digital trade.

The Victorian Government has a very simple guide to international trade agreements in construction procurement which is worth reading if you want to quickly get up to speed.

Key Takeaways for Bidders

Strategically leveraging trade agreements can greatly enhance the functionality and impact of public procurement, bridging transparency with competitive practices and contributing to development, all while accommodating local industrial policy goals. Such alignment can energise procurement reforms by syncing reform advocates, domestic businesses, and global commercial interests.

Trade agreements frequently afford private companies access to government procurement markets typically exclusive to local entities, thereby fostering a level playing field across member nations, as demonstrated under agreements like CETA. This opens up procurement opportunities and can lead to more competitive bidding environments. Tariffs can be a significant expense in tendering for projects; however, trade agreements often offer tariff reductions or eliminations for materials sourced from member countries, thereby lowering bid costs. Moreover, simplified and accelerated customs procedures among trade agreement partners assure timely imports of essential goods, which guarantees reliable project timelines. These agreements may also recognise mutual standards and certifications, easing participation in overseas projects requiring compliance with these standards.

Intellectual Property Rights (IPR) are vital assets, particularly in innovation-driven sectors like technology and pharmaceuticals. Trade agreements serve to safeguard these rights across borders, affording businesses the confidence to bid using their proprietary knowledge. Furthermore, service providers benefit from the ability to offer cross-border services, such for engineering or legal consultancy, often without the need to establish local operations. Investment protection clauses are also invaluable, ensuring foreign investors feel secure against risk of expropriation or discriminatory measures, especially for long-term undertakings requiring substantial initial capital.

Another advantage is the compliance with rules of origin, which can enable bidders to secure preferential treatment to optimise bid costs. Additionally, dispute settlement mechanisms offer recourse against inequalities or obstacles encountered during the tendering process, which can improve bidder confidence. Some trade agreements even adjust local content requisites, offering an additional competitive leg-up to bidders from member countries over non-member participants.

For companies vying for international tenders, understanding and capitalising on the benefits of trade agreements is essential. Forming partnerships with entities from trade agreement countries can consolidate strengths, mitigate risks, and amplify competitive edges in unfamiliar markets. Businesses should remain vigilant to the influx of competitors in their own territories and adapt their strategies to emphasise their unique advantages.

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