Despite having the membership of WTO countries faced issues like high amount of tariff rate quota, tariff escalation, safeguard, rejections fur to Regional Trade Agreement / Tariff Barrier Treatment concerns etc. and hence countries came together to formulate RTA. The RTAs helped towards the reduction in import duty on goods, faster liberalization of services and liberalization of investments and thus helped in formation of production networks promoting the position of SMEs in GMS to move up the value chain. This movement was possible by drawing collective efficiency due to :   

• Scale : purchase of inputs, technology, pool of skilled workers, pooling production capacity to meet large volume orders.
• Specialization : by producing a joint output by diversification of labor.
• Joint Action : collaboration through producer association. Leaning jointly about new market standards.
• Enhance attractiveness as suppliers : reduce transaction cost of buyers sourcing otherwise from small firms.
   

Hence RTAs were found more meaningful than WTO since it provided member countries with a comprehensive legal framework to provide greater market access for goods and services. Negotiations are certainly faster and it allows countries to develop partnerships in areas not covered by WTO.

A trade agreement (also known as trade pact) is a wide ranging tax, tariff and trade treaty that often includes investment guarantees. The most common trade agreements are of the preferential and free trade types are concluded in order to reduce (or eliminate) tariffs, quotas and other trade restrictions on items traded between the signatories.

Business Implications of RTA presence

Since one of the fundamental negotiating agenda of the trading agreements is to provide an exception to the WTO MFN clause, hence the presence of an RTA of the exporting country with the target country will help exporting firms in that country to face lesser tariff as compared to their competing suppliers in case of absence of similar agreement of the target country with the latter.

However, some factors should be taken into consideration by an SME while deciding to use the RTA to best of their business benefit. Below are some considerations including status of the commodity (open/sensitive/negative), time period of concession, difference between MFN duty rate and RTA duty rate, rules of origin etc.

Table below is provided the status of FTA for reference.
 

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