Geopolitical Advantage – Trade Agreement Markets

Unlocking international growth for small and medium size enterprises in the food and drink industry starts with your natural markets. Markets that have great potential and minimal implementation challenges.

Not all the categories and products are the same and neither is the geographical position of a country nor its relationship with other nations, all of which can influence the type of markets you should aim for!

• There are 5 key advantages that can position your Company for success.
• Then, there are 10 types of markets that can enable your brand or product to have a competitive advantage for a certain target market.

If you want to know more, please read my newsletter #41 about “The 5 Competitive Key Advantages & 10 Types of Natural Markets to Export”.

In the next newsletters, I will be going deeper into the competitive advantages for each type of Market.

The next Geopolitical Advantage is Trade Agreement Markets.

Trade Agreement Markets

A trading block is an agreement between nations where trade tariffs are reduced or eliminated between members states. The goal is to liberalize trade, but it can go further as it did in the European Union.

The reason nations want to be part of a trading block is to access free trade within the block so each of its members can take advantage of the division of labour based on the comparative advantage and economics of scale.

The specialization of production and access to bigger demand will result in an increase in consumption at lower prices.

The trading block advantages are not only expressed through the exemption of trade tariffs within the block but also by the adoption of similar standards regarding legislation, packaging compliance, rules of origin, and sanitary inspections for food and drink products.

Certainly, there are also some exceptions. Some countries within trading blocks, may impose additional barriers or restrictions that can affect trade. These barriers can include Environmental standards (i.e.: recycling systems), Cultural or religious considerations (i.e.: Halal certification requirements) or specific labeling requirements (i.e.: Nutritional information or product claims).

These additional barriers illustrate how, despite the benefits of trading blocks in harmonizing regulations, there can still be challenges in exporting products within a Trading Block.

What types of Trading Blocks are there?

Trading blocs come in different shapes and sizes, with varying levels of integration. Some common types of trading blocks, include:

• Preferential Trading Areas (PTAs) – The simplest form of a trading block is a preferential trading area, or PTA. These agreements are relatively flexible. Within preferential trading areas, certain trade barriers like tariffs and quotas are reduced for some, but not all the goods, among member countries.
• Free Trade Areas (FTAs) – In free trade areas, there are no restrictions or trade barriers between the participating countries. Each member retains the freedom to decide how to conduct trade with countries or groups outside the agreement. (I.e. The USMCA is an FTA).
• Customs Unions – Customs unions are agreements between trading blocks or nations. In addition to removing trade barriers among themselves, members of a customs union also agree to apply the same import regulations to countries outside the union. (ie. There's a customs union between the European Union (EU) and Turkey).
• Common Markets – Customs union rules are broadened through what is known as a common market. In a common market, trade barriers are removed, and there's free movement of labour and capital among member countries. (ie. In the European Union (EU), all 27 countries can freely trade with each other and allow unrestricted movement of capital and labour).
• Economic Union – Another term for a beneficial union is a "monetary union," which is essentially an extension of a common market. Removing trade barriers, enabling free movement of goods and labour, and the adoption of a common currency are the hallmarks of a Monetary Union. (i.e. There 19 markets in the European Union (EU) that share the same currency – The Euro).

Trading Blocks examples in the Food and Beverage Industry

• European Union (EU) – The EU stands as the largest trading block globally, composed of 27 member nations. It champions the unrestricted flow of goods, services, capital, and people within its territory, forming a unified market with over 450 million consumers. Established in 1951, the European Union is the most interconnected trade block worldwide, fostering a unified market across Europe and introducing the Euro as a common currency for intra-regional trade. In 2022, the EU members exported Food and Drink goods valued at $635,5 billion. Exports intra EU countries represented 2/3 of total value.
• United States-Mexico-Canada Agreement (USMCA) - The USMCA (former NAFTA), aimed to eliminate trade barriers among the 3 neighbouring countries fostering trade across various sectors. In 2022, the exports Food and Drink goods reached $292,5 billion. The United States is the most prominent trading partner in the world.
• Association of Southeast Asian Nations (ASEAN) – ASEAN is a regional association consisting of ten Southeast Asian countries aimed at promoting economic integration and cooperation to enhance trade and investments in the area. Indonesia stands as the largest trading partner within ASEAN in the Food & Drink industry. Trade figures for 2022 show that ASEAN exported Food and Drink goods worth $180,3 billion globally.

There are other Trading Blocks with different levels of integration. Depending on your Products and your country of Origin you can profit from those agreements when exporting your products or brands abroad.

Other Trading Blocks are the Southern Common Market (Mercosur), Asia-Pacific Economic Cooperation (APEC), BRICS, Gulf Cooperation Council (GCC), South Asian Association for Regional Cooperation (SAARC), Common Market for Eastern and Southern Africa (COMESA) and Southern African Customs Union (SACU). ?

Compounding Competitive Advantages

As your Product or Brand for a specific target market can have multiple competitive advantages and be from different types of market characteristics, the more advantages your product has, the more your Value Proposition is reinforced.

In other words, a higher economic integration (Geopolitical Advantage – Trade Agreement Markets) with neighbours (Geopolitical Advantage – Neighbouring markets), is likely to result in a corresponding enhancement of total export volume to a target market.

Please share your thoughts on what competitive advantages your company has and in which types of markets, your brand already succeeds in!

In the next newsletter, I will explore the Brand Awareness Competitive Advantage regarding the Diaspora Markets.

Sources:

• “What are the top trading blocs in the world?” from TradeImeX Blog (2023)
• “Data & Trends EU Food and Drink Industry” from Food & Drink Europe (2023 Edition)