Small businesses are the backbone of economies by accounting for most businesses and employment worldwide. According to the International Labour Organization (ILO), small businesses represent about 90% of all enterprises and 70% of all jobs in many countries around the world. However, these businesses participate relatively less in international trade than large firms. To bridge this gap, regional trade agreements (RTAs) with small business language have emerged as an avenue for enabling small businesses to integrate more in regional and international markets. The first small business reference in an RTA notified to the WTO was recorded in the EU – Overseas Countries and Territories agreement in 1971. Since then, RTAs including at least one small business-related provision have increased to more than half of all RTAs notified to the World Trade Organization (WTO) as of now.
RTAs contain provisions that affect trade by businesses of all size. Beyond tariff reductions and trade standardization, RTAs now go further to include small businesses directly with dedicated SME chapters or specific provisions related to small businesses in chapters like investment, e-commerce, intellectual property, competition, government procurement and trade facilitation among others. According to the latest information available in the WTO’s MSME-Related Language in Regional Trade Agreements database, cooperation and government procurement chapters are the ones where RTAs contain the most small business-related provisions. A report by the WTO Secretariat found that over a half (53%) of RTAs with small business provisions contain a reference on cooperation mechanisms for developing small business capabilities and competitiveness, with such mechanisms ranging from human resources and technology adoption to public-private partnerships and better access to finance, information, and institutional support.
RTAs with small business-related provisions offer opportunities for small businesses to engage more in regional and international trade by receiving preferential market access and improved support from public- and private-sector institutions. While most small business provisions have focused on cooperation avenues for developing the trade capacities of small businesses, there is little evidence the latter are aware of how they can benefit from RTAs. For example, the International Institute for Sustainable Development (IISD) has found that lack of information has been a stumbling block preventing Southeast Asian small businesses to fully benefit from the over 90 RTAs led by the Association of Southeast Asian Nations (ASEAN) and its member states. High fixed costs in using tariff benefits are another factor constraining the ability of small businesses to seize market access opportunities through RTAs. A study from the Inter-American Development Bank (IDB) highlighted that smaller firms are less likely to use treaty benefits because they face higher utilization costs than large firms. When larger firms are the ones driving national exports due to their increased use of RTA preferential terms, small businesses can also face higher factor prices for the industry. To level the playing field for small businesses, policymakers need to consider small business needs (see guide on Think Small First Principle) in RTA negotiations and tailor support tools that enable small businesses meet the financial and production requirements to fully reap RTA benefits.