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Trade Agreements

Governments negotiate trade agreements to facilitate the efficient management of trade between them. There are bilateral trade agreements, multi lateral trade agreements, regional trade agreements and world trade agreements. The latter are administered by the World Trade Organization.

The agreements work in a hierarchical organisation. World trade agreements take priority over regional trade agreements, which take priority over multi lateral, etc.

Trade agreements deal with specific sectors of trade, services or industry; in many cases they break the sectors down to subsectors. However, the agreements are necessarily phrased in general terms. A particular company may, for example, manufacture items which may fall into a defined sector or subsector, but which is not specifically mentioned in the trade agreement. This becomes important where trade agreements specify maximum tariffs, which may be applied to nominated goods or services between the respective parties to that agreement.

Free Trade Agreements

In many cases, current rates of tax are below the maximum rates specified in the agreement. The maximum rates specified therefore provide a “worst case scenario” for future planning. Alternatively, trade agreements might specify lower tariffs than those currently enforced and a timescale by which the lower tariffs must be applied. This again affects future planning and forecasts of profitability.
Knowing where each item of production or service offered fits into this matrix of trade agreements, therefore, becomes important in terms of future corporate profits and strategic planning. We are happy to facilitate such strategic reviews and to assist in getting judgements as to where within each agreement specific products or services may be defined.
Proper prior planning can significantly affect future profitability. Each company’s circumstances are different. Please contact us for a personalised discussion.

Related Links

Double Taxation Agreements
Transfer Pricing Agreements