The Positives and Negatives of Trade Agreements

In 2012, the U.S. and South Korea implemented a fairly inconspicuous free trade agreement, the provisions of which you can read here. It generated little buzz in the news, and it has gone unnoticed since it went into force on March 15, 2012.

As dairy prices continue to rise, however, forcing rising prices on everything from gallons of milk to cheese-laden take-out pizzas, people are starting to take note of the agreement. Specifically, the South Koreans' love of suddenly competitive American-sourced cheese. Pizza is huge in South Korea, with the top four of the country's 70 pizzeria chains operating exclusively with American-made mozzerlla. Pre-packaged string cheese, most commonly purchased from convenience stores, is becoming a staple in the country as well.

So great is the impact of the increased purchasing that South Korea entered the top 10 importers list in 2011 and, by 2013, was the number two importer, surpassed only by Mexico. 

The end result is that dairy prices are up 17% year over year, which will have an impact on food producers budgets, as they're now paying 17% more for dairy products. All because of a trade agreement that got next to no press or publicity.

The impact of tariffs and agreements established, the question turns to how is your company preparing for them? 

Is someone monitoring the political landscape and looking for agreements and laws that can have an effect on your budgets? Your suppliers' budgets? Their suppliers' budgets?

Is someone monitoring invoicing to see if a price has been lowered to reflect reduced trade costs resulting from an agreement?

Are contracts, current and future, written to fairly account for the impact agreements like these can have?

It's easy to focus on the impact newsworthy conflicts can have - such as Russian action on the Black Sea - and how force majeure clauses should be constructed in conflict areas. They are areas of strife and conflict, and they're constantly in the news. Agreements between allies and partner nations, particularly agreements that loosen up trade, should not go unnoticed. Once identified, any such trade agreements should be analyzed for both potentially negative and potentially positive impacts to current and future contracts. 

To supplement my aforementioned point about South Korea's love of cheese - check out this article from SeriousEats.com listing some of the country's pizza offerings. Triple-layered cheese pizza! Cookie crusts topped with shrimp and potato!!