Central Mass. Businesses Applaud Free Trade Agreements
For a company like Quad Tech, the Marlborough-based manufacturer of electrical testing and measuring equipment, free trade agreements that the United States government recently signed with South Korea, Colombia and Panama are good news.
The company already does about 40 percent of its business internationally. With countries the U.S. does not have free trade agreements (FTAs) with, the duties, tariffs and other taxes assessed on U.S. exports can make business prohibitive.
Tariffs on products going to South Korea, for example, can be subject to a 13-percent tax because they’re imports. Based on almost $900 million worth of goods that are shipped from Massachusetts to South Korea each year, that’s an extra $115 million in tariffs slapped on products made here. When businesses are already competing against Asian countries that produce cheap knock-off products, having an extra tax on your product doesn’t help business.
But the recently signed FTAs could change that.
“Anything that helps reduce these barriers to international trade is a good thing for our business,” said Len Schalkwyk, vice president of worldwide sales for Quad Tech, which employs 30.
Many other local businesses that ship internationally across Central Massachusetts agree.
The main thrust of an FTA is to lower tariffs, duties and other taxes and charges that are applied to internationally shipped items.
While the amount of tariffs can vary depending on the product and country of origin, Kristen Rupert, executive director of the Associated Industries of Massachusetts’ International Business Council, said certain products can have tariffs ranging from a small, single-digit percent to more than half the cost of the product. For example, there’s a 45-percent tariff on fresh blueberries and peaches from the United States that go to South Korea. And Schalkwyk said there’s an 18-percent combined duty charge and tax on electronic products going to the East Asian country. Both levies are expected to be phased out during the next five years as part of the new FTA, Rupert said.
Still, while the free trade agreements are important and beneficial to businesses that ship internationally, they’re not a panacea to expand U.S. exports.
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The primary factor a business must analyze before selling a product internationally is to determine if there’s an overseas market for it, said Jim Freeze, chief marketing officer and vice president of business development for Boxborough-based IT firm Crossbeam. The company makes data center equipment used by telecommunications carriers to operate security systems. About half its revenues come from international markets they review first.
“If there are levies on our product that make them uncompetitive, that’s certainly something we would take a look at,” he said. “We want to make sure we have a solid opportunity to win business.”
Other international business experts expect the recently signed FTAs will open more people’s eyes to trade with these countries.
Take Mike Schmitt, for example, president of VenMill Industries in Uxbridge. His company makes cleaning materials for compact discs, DVDs and blu-ray discs. He already sells his products in Mexico, Australia, the United Kingdom and across Europe.
“I hadn’t though too much about going to (South) Korea, but now I’ll definitely look at those markets,” he said.
Officials with other businesses that already have trade operations set up in Latin America, including Harvard Apparatus, a Holliston-based manufacturer of scientific and life science research tools, say the Latin American markets make up such a small portion of their business, they don’t expect the FTAs to have a major impact. President David Green said his main customers are high-tech businesses doing advanced research, and there just are not that many customers in Latin America.
Last year, Bay State companies shipped $26.2 billion worth of goods overseas, with the U.K. by far the top ship destination.
South Korea is among the top 10 export destinations for Massachusetts businesses, with more than $892 million in Massachusetts products shipped to that country in 2010, according to the Massachusetts Export Center.
“Korea is a sophisticated technology market, so a lot of our products fit there,” said Julia Dvorko, the central Massachusetts and MetroWest regional coordinator for the export center.
Industries that see particularly strong sales in South Korea include conductors, medical, surgical and electronic integrators.
Colombia, by comparison, received $75 million in Bay State exports in 2010, with Panama getting only $15 million. Exports to Panama have increased 45 percent in the last two years, however, representing strong growth.
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