The small business opportunity of Free Trade Agreements

Eighteen months on from the UK’s official exit from the European Union, the signing of the Free Trade Agreement with Australia signals a new kind of opportunity for UK businesses exploring new markets as they look for growth. There is no doubt that Brexit prompted companies around the UK to completely rethink their export strategies, and Free Trade Agreements (FTAs) have been heralded as one of the key ways for businesses, particularly SMEs, to expand successfully into new markets. But in practical terms, what benefits do they bring to businesses, and should organisations be making them a focal point of their export strategy?

Broadly, FTAs offer a number of important benefits to businesses as they drive economic activity, increase investment and create more jobs for the countries that sign them. The most obvious plus for businesses are financial, in that these deals reduce or even remove tariffs. The signing of the FTA with Australia is expected to see trade increase by 53%, boosting the economy by £2.3billion and adding £900million to UK household wages in the long run, according to UK government figures.

But FTAs can also eliminate or lower non-tariff barriers.  For example, this might mean harmonising regulations on different types of products such as food, drink and electronics, or changing packaging restrictions or requirements.

Likewise, countries that are party to an FTA might also remove import bans, quotas or limitations and this can expand markets and open up new ones. They also bring opportunities for companies in one country to bid for contracts for government procurement and tenders for public projects in another. For example, in the case of the UK-Australia FTA, UK firms are guaranteed access to bid for £10 billion worth of Australian public sector contracts per year.

Last year, according to government figures, the total trade in goods and services between the UK and Australia was £14.4billion, £9.8billion of which were exports from the UK to Australia. This is an increase of £315million compared to 2020 and shows that the opportunity for businesses looking to expand into this market is significant. With Australian demand for imports expected to grow by nearly a third in real terms over the next decade, businesses exploring this market now will be able to take advantage of some certainty for this trade lane over the coming years.

Looking to the future, the Australia deal could provide businesses with a gateway into the fast-growing Indo-Pacific region, particularly if the UK’s bid to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is successful. This is one of the largest free trade areas in the world, covering £8.4trillion of GDP and 11 Pacific nations including Canada, Mexico and Singapore, and clearly presents a huge opportunity for businesses tapping into these agreements as they develop.

Similarly, the Government has also signed FTAs with New Zealand and Japan, which are expected to create £800m and £15.2bn of opportunity respectively, as reduced red tape and tariff-free exports become a reality for those exploring these trade lanes. Both deals represent significant opportunities to develop bilateral trade or create new partnerships with these countries across a wide range of industries.

While it’s likely that not every FTA will be made with a country already part of a business’ export strategy, the opportunities they offer mean that it is worth exploring them when considering which markets to expand into over the coming years. Working alongside expert partners like DHL Express can help smaller businesses particularly to understand and unlock the rapidly emerging opportunities that these FTAs – and future agreements – will present, helping them to get ahead of the competition and take full advantage of opportunities for growth.

By Ian Wilson, Chief Executive Officer UK&I, DHL Express