How Free Trade Agreements Shape the Future of Maritime Commerce

The global shipping and maritime trade sector stands as a fundamental pillar supporting the world economy, playing a critical role in its growth. This significance arises from the reality that a substantial majority, if not all, of the products and resources we rely upon daily are either currently transported or will be conveyed via sea routes, encompassing both finished goods and raw materials. Furthermore, considering the absence of self-sufficiency in any nation, maritime trade serves as the vital link that facilitates the exchange of goods, enabling individuals and countries to access necessary commodities and engage in international commerce.

Furthermore, as the global population continues its persistent growth trajectory, the imperative of efficient and cost-effective maritime transportation becomes paramount. It emerges as the linchpin for fostering sustainable progress in both advanced and developing economies. The standard of living in developed nations and the economic livelihoods of those in developing regions hinge significantly upon the pivotal role of ships and maritime transportation. This industry has played an instrumental part in driving substantial enhancements in global living standards and has, over time, provided an essential avenue for millions of individuals to escape dire poverty. In essence, despite often going unnoticed, shipping stands as an indispensable cornerstone of our interconnected world.

How Free Trade Agreements Influence Maritime Commerce

Even as technology advances, the physical distance between countries stays the same. However, factors like lead time and transfer capacity continue to increase in logistics. As the capacity of commercial vessels progressively increases over time, so does the potential for international trade. This is where free trade agreements (FTA) come in to maximise such ever-growing capacities and influence many other aspects of the maritime industry that will shape its future.

Promote Decarbonisation Efforts

For starters, several key areas of concern are already directing the course of maritime commerce today, as covered in the recent 2022 Global Maritime Issues Monitor survey. Although respondents were asked to consider the risks from a near-term perspective, current events played a significant role in the results.

The survey determined that the foremost issues facing the maritime industry in the upcoming ten years continue to be navigating new environmental regulations, decarbonisation of shipping, and climate change mitigation and adaptation. These are the three challenges people in the industry believe they are the least prepared for. However, given their genuine commitment to engaging with ESG issues and taking action, meeting the mandatory environmental regulations should be more than feasible as they need only guidance on where their next steps should be.

FTAs could provide such guidance as studies point out that it may help play a role in effectively reducing greenhouse gas (GHG) emissions. This reduction is also one of the vital and emergent challenges for creating sustainable supply chains. Besides FTAs, other key factors must be considered in order to realise these supply chains, namely carbon taxes and tariffs.

As of today, carbon taxes have been introduced in many countries and have been successful in achieving large-scale emission reductions. Meanwhile, manufacturers have long had to take into account different tariffs in their operations and whether there are existing FTAs that can help eliminate or reduce them. One of the primary benefits of FTAs is that they can absorb the additional procurement costs stemming from carbon taxes by exempting customs duties. The effects of such advantages can be more pronounced when introduced into a decision support model for constructing a global low-carbon supply chain with carbon taxes and tariffs in a way that reduces GHG emissions.

Combat Rising Costs

Transporting goods to the other side of the world is one of the highest costs in maritime commerce. With fuel prices still on the rise today and well into the near future, the rate of ocean freight has been re-evaluated upwards and will thus significantly impact the final pricing of goods. With more FTAs in place, the lowered tariff and non-tariff barriers can help ease the rising costs of freight shipping and ensure that businesses maximise the increase in trade potential that the agreements bring.

Spur Industrial Development and Future-Proof Member Nations

Free trade agreements naturally increase the demand for maritime transport (along with other modes of transportation), which in turn ramps up investment requirements for equipment and infrastructure like vessels and ports. They emphasise the critical need to develop and finance the transport infrastructure and services essential to supporting maritime connectivity and fully realise the benefits of the agreement. Lastly, transport logistics development creates a spillover effect that promotes trade even with non-members of the agreement, ultimately bolstering its regional and global trade development.

Such a phenomenon is apparent in the recent African Continental Free Trade Area (AfCFTA) agreement, which began last 2021 and has eliminated import duties to increase intra-African trade and is set to double it once non-tariff barriers are reduced. Of course, even older FTAs can also enjoy the same degree of benefits through renewals or upgrades, which is what happened to the ASEAN-China Free Trade Area (ACFTA) last year. The upgraded ACFTA signals to all stakeholders and the private sector that all participating nations are committed to making the ACFTA future-ready, more responsive to global challenges, and more relevant to businesses. The upgraded ACFTA covers many areas of mutual interest, including but not limited to green economy, digital economy, green economy, competition, consumer protection, supply chain connectivity, and Micro, Small, and Medium Enterprises (MSMEs).

Conclusion

Maritime trade serves as the linchpin of the global economy, facilitating the exchange of commodities that sustain our daily lives. With the world population on a continuous upward trajectory, the efficiency of maritime transport remains indispensable for the sustainable advancement of nations, resulting in improved living standards and the mitigation of poverty.

Additionally, the impact of free trade agreements (FTAs) on maritime commerce is irrefutable. They harness the expanding capacity of commercial vessels, address environmental concerns, and combat rising costs. FTAs also promote industrial development and future-proof member nations, exemplified by agreements like the African Continental Free Trade Area (AfCFTA) and the upgraded ASEAN-China Free Trade Area (ACFTA).

In essence, FTAs play a pivotal role in shaping the future of maritime trade, enabling nations to navigate challenges, reduce emissions, and foster economic growth on a global scale.

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