The Importance of Free Trade in Aerospace
The debate on free trade agreements (FTAs) is almost as old as trade itself. Some love it, some hate it and others fear it. While FTAs were mainly used to protect traders and their goods in ancient empires, they nowadays serve as a means to open access to international markets and industries, reduce barriers to trade and foster competitiveness and innovation amongst companies.
For the aerospace sector, as a truly international industry, free trade is essential. In order to invest in product development and commercialization, companies need to be certain to be competitive enough to find an outlet for their products. In global trade, their competitiveness is often affected externally by restrictions to free trade such as tariffs and non-tariff barriers, which can have a devastating impact on the companies, their stakeholders and a country’s industry as a whole. Take the example of Canadian aerospace exports to South Korea, which dropped by 80% between 2011 and 2012 due to a FTA removing tariffs for companies from Europe and the US. Canada signed a FTA in the following years to remedy this situation.
A level playing field is a crucial factor not only for a company’s success, but for the industry as a whole. With the potential to optimize global supply chains, capital investments and the mobility of qualified workers, the gains from the industry will transpire on a national level, benefiting economies and people through increased economic activity and an improved standard of living.
Finally, free trade allows entities, both private and public, to have suppliers compete on an added-value basis and force innovation amongst them, rather than simply relying on tariffs to protect their competitive advantage. Also, companies can use gains from optimized supply chains and reduced inventory carrying cost to invest in aspects of their business where the return is higher, hence optimizing the use of their capital. In aerospace, agreements on international norms and regulations between countries not only help with navigation through the paper jungle, but also increase flexibility in revenue generation as the supply can shift more easily towards where the demand is.
In conclusion, free trade agreements tend to bring out the best in companies and industries as a whole as they strive for innovation and optimization, knowing they will be allowed to compete on a level playing field and reap the benefits of their effort.
So let’s all sit down and discuss how to improve trade, as we did recently at a round table discussion with The Honourable Chrystia Freeland, Canada’s Minister of Foreign Affairs!