Introduction
In a globalized world, various free trade agreements (FTAs) are established to facilitate and increase trade between countries. These agreements typically involve the reduction or elimination of tariffs, the removal of trade barriers, and the liberalization of trade. Spare parts exports are one of the sectors directly affected by these agreements. This research paper examines the impacts of free trade agreements and tariffs on spare parts exports.
The Impact of Free Trade Agreements
Free trade agreements aim to liberalize and facilitate trade between countries. These agreements generally include the reduction or complete elimination of tariffs, the removal of trade barriers, and the liberalization of trade. The spare parts export sector benefits directly from these agreements.
- Reduction or Elimination of Tariffs: FTAs enable spare parts exporters to sell their products at more competitive prices. The reduction or elimination of tariffs lowers export costs, which positively impacts the final prices of products. For example, the free trade agreement between the European Union and South Korea resulted in the elimination of tariffs on automotive spare parts, which increased spare parts exports from Europe to South Korea.
- Market Access and Competition: FTAs facilitate exporters’ access to new markets and provide a competitive advantage. For instance, under NAFTA (North American Free Trade Agreement), trade in spare parts between the USA, Canada, and Mexico became more liberalized, significantly increasing the trade of spare parts among these countries.
The Impact of Tariffs
Tariffs are crucial elements that directly affect spare parts exports. These taxes increase the costs for exporters and reduce the competitiveness of products in the target market.
- Increased Costs: High tariffs increase the costs for spare parts exporters. This leads to higher prices for their products, which reduces their competitive edge. High tariffs in developing countries, in particular, can adversely affect spare parts exports.
- Reduction in Trade Volume: High tariffs can reduce trade volume. In countries with high tariffs, the appeal of doing business diminishes for spare parts exporters, leading to a decrease in trade volume. For example, high tariffs in China limit the export of spare parts from some countries to China.
