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RTAs and MSMEs

What do small businesses matter for RTA negotiations?

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.

How are small businesses included in RTAs?

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.

How can RTAs impact small business and trade?

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.

Where can I access further resources on policy frameworks, guidelines and tools?

  • ITC’s SME Competitiveness Outlook 2017: The International Trade Centre (ITC) provides a flagship report with research and analysis on mechanisms through which RTAs support small business trade and key areas where policymakers can provide technical assistance. Visit this ITC report.
  • WTO’s MSME Provisions in Regional Trade Agreements: The WTO maintains a database of provisions related to micro, small and medium-sized enterprises (MSMEs) included all RTAs notified to the WTO by Members. Visit this WTO website.
  • WTO’s Provisions on Small and Medium-sized Enterprises in Regional Trade Agreements: The WTO offers a working paper that reviews, analyses and categorises the different types of RTA provisions on small- and medium-sized enterprises (SMEs). Visit the WTO paper.

Where can I access good practices and national examples?

  • Benefits of EU Trade Agreements for Small and Medium-Sized Enterprises: The European Parliament provides a framework and assessment on small business awareness of RTA chapters and the latter’s small business benefits. Visit this European Parliament website.
  • Canada’s Approach to Small- and Medium-Sized Enterprises and Free Trade Agreements: The Government of Canada applies a two-pronged approach to integrating small businesses into RTAs by formulated a chapter dedicated to small businesses, and by mainstreaming small business issues through provisions related to small businesses across agreement chapters. Visit this Canada website.
  • ITC’s Business Guide to the African Continental Free Trade Agreement: The International Trade Centre (ITC) offers a guide for small businesses to gain insight in the benefits they can seize from the African Continental Free Trade Agreement. Visit this ITC guide.
  • Malaysia’s Evidence on SME Internationalization through Global Value Chains and Free Trade Agreements: The Asian Development Bank Institute (ADBI) provides an analysis on firm-level factors driving businesses to leverage on RTA provisions to engage in trade, and highlights key areas where policymakers can provide small business support. Visit this ADBI report.
  • OAS’s MSME Provisions in Trade Agreements: The Organization of American States (OAS) maps out provisions on small businesses included in regional trade agreements adopted by countries across the Americas. Visit this OAS website.
  • Philippines’ Doing Business in Free Trade Areas: The Philippines provides a business guide and dedicated portals to guide small businesses through opportunities businesses can explore in free trade areas. Visit this Philippines website.
  • Switzerland’s new Free Trade Agreements (FTA): Opportunities in Asia, Middle East and America for Swiss Exporters: Switzerland provides online tools and for small businesses to explore opportunities through RTAs and assessments of potential economic benefits reaped by RTAs. Visit this Switzerland website.
  • The Representation of SME Interests in Free Trade Agreements: The United Kingdom Trade Policy Observatory and Federation of Small Businesses offer a study with policy recommendations for enabling small business trade through best practices in incorporating provisions on small businesses in RTAs. Visit the UKTPO-FSB report