What Is Market Access?
Market access refers to the ability of a company or country to sell goods and services across borders. Market access can be used to refer to domestic trade as well as international trade, although the latter is the most common context. Market access is not the same as free trade.
The ability to sell in a market is often accompanied by tariffs, duties, or even quotas, whereas free trade implies that goods and services flow across borders without any extra costs imposed by governments. Even so, market access is seen as an early step toward deepening trade ties. Market access is increasingly the stated goal of trade negotiations as opposed to true free trade.
- Market access refers to the ability of a company or country to sell goods and services across borders.
- Tariffs, duties, and quotas may all be a component of market access, which should not be confused with the term "free trade."
- Market access is often negotiated between countries for their mutual benefit, but it may not necessarily result in freer trade.
Understanding Market Access
International trade involves complex negotiations between two or more governments. Throughout these negotiations, participants typically push for market access that favors their particular export industries while also attempting to limit market access to import products that could potentially compete with sensitive or politically strategic domestic industries. Market access is often facilitated through trade agreements and trade promotion efforts, but it can also be influenced by political and geopolitical factors that shape diplomatic relations between countries.
Market access is considered distinct from free trade because the process of negotiation is aimed at beneficial trade that may not necessarily be freer trade. Market access encompasses the conditions, regulations, and barriers that determine the ease or difficulty of participating in global commerce.
Market access is critical for businesses seeking to expand their reach and tap into new customer bases across borders. It involves addressing a wide range of factors including trade barriers, compliance with regulations, and customs procedures.
Importance of Market Access
Market access in international trade is critically important for numerous reasons.
- Revenue and Growth. Access to foreign markets allows businesses to expand their customer base and revenue streams. It provides opportunities for companies to grow, especially when domestic markets may be saturated or limited in scope.
- Diversification. International trade enables businesses to diversify their sources of income. Relying solely on domestic markets can make a company vulnerable to economic downturns or changes in consumer preferences. This is especially true in light of different economies having different conditions, health circumstances, and long-term outlooks.
- Economic Development. For countries, market access is vital for economic development. It can stimulate investment, job creation, and economic growth by facilitating the export of goods and services. Unless companies are able to manufacture, trade, and reside in international markets, those benefits would otherwise be confined to single markets.
- Supply Chain Capabilities. Businesses often rely on global supply chains to source components or raw materials. Market access potentially ensures the flow of these materials across borders as companies may have greater capabilities to receive particular goods at specific times according to its manufacturing needs.
- Economies of Scale. Access to larger markets can lead to economies of scale, enabling businesses to produce goods more efficiently and at lower costs. As companies grow, it may become more financially efficient to incur costs and make capital investments. All else being equal, greater market access may give companies more potential to leverage growth.
- Cultural Exchange. International trade fosters cultural exchange and cross-cultural understanding as products, ideas, and practices are shared across borders. This may help spur innovation and creativity as consumers may gain access to goods they otherwise would not have had access to.
The United States has historically operated as a net trade deficit, meaning it traditionally imports more goods than it exports.
Market Access and Trade Barriers
There are a number of ways that market access in international trade is not achieved. The two main categories of restricting market access are related to tariff and non-tariff barriers, and more specifics of each are discussed below.
Import tariffs are taxes or duties imposed on goods when they enter a country. These tariffs increase the cost of foreign products, making them more expensive compared to domestically produced goods. Alternatively, export tariffs are imposed by a country on products leaving its borders. These tariffs can reduce the competitiveness of domestic goods in international markets by raising their prices.
There are other types of tariffs that further restrict market access. Specific tariffs are set as a fixed amount per unit of a product, regardless of its value. For example, a country might impose a $5 tariff per kilogram of a specific imported item, disproportionately affecting lower-value products.
Countries can also impose tariff rate quotas. Tariff rate quotas establish a two-tiered tariff system. Below a certain import quantity, a lower tariff rate applies, encouraging imports. However, once the quota is exceeded, a higher tariff rate is imposed, restricting further imports. Tariff rate quotas can limit market access by effectively capping the volume of imports, though it does make full market access more difficult, especially for those seeking international trade.
There are also a number of non-tariff barriers a country can enact that restrict or prohibit market access. Quotas are quantitative restrictions placed on the volume of a specific product that can be imported within a given period. Once that cap is met, no further goods can enter international markets for that given period.
Instead of restricting a quantity, countries can impose restrictions making it more difficult to trade a specific good. Some countries require businesses to obtain licenses or permits to import specific products. Others impose regulations and standards related to product safety, quality, and technical specifications that make it harder to export a good.
Last, there may also be financial barriers holding back market access. Some countries provide subsidies or financial assistance to domestic industries, giving them a competitive advantage over foreign competitors. Others may restrict foreign exchange transactions or impose currency controls or limitations on repatriation of profits.
Market Access and Trade Liberalization
Though it may feel obvious that market access to international trade can be enhanced by simply avoiding the tariff and non-tariff barriers mentioned above, there are many steps a country can take to promote market access. Many of the ways are listed below, though the list is not meant to be exhaustive. Countries can:
- Participate in Trade Agreements. Engaging in trade agreements, whether bilateral, regional, or multilateral, is a fundamental approach to liberalizing trade. These agreements often involve the negotiation of reduced tariffs, harmonization of rules, and commitments to eliminate various trade barriers.
- Reduce Tariffs. Countries can choose to unilaterally lower their import tariffs. By doing so, they signal their commitment to free trade, which may encourage other nations to reciprocate by reducing their own tariffs.
- Invest in Infrastructure. Investing in trade-related infrastructure such as ports, roads, railways, and logistics centers helps streamline the movement of goods.
- Simplify Licensing and Permit Processes. Streamlining licensing and permit procedures simplifies market access for foreign businesses. Reducing bureaucratic hurdles and processing times can make it easier for companies to obtain the necessary authorizations and gain access to foreign markets.
- Safeguard Intellectual Property. Strengthening intellectual property rights protection and enforcement assures foreign investors and businesses that their intellectual property will be safeguarded, encouraging investment and innovation without fear of international competitors stealing valuable information.
- Strengthen Trade Finance. Ensuring access to trade finance instruments like letters of credit and export credit insurance helps mitigate the risks associated with international trade and facilitates cross-border transactions.
- Reform Regulation. Implementing transparent and predictable regulatory frameworks reduces uncertainty for businesses and investors, making it easier for them to plan and invest in international trade with confidence.
Market Access As the New Trade Reality
The give and take surrounding market access negotiations characterizes?international trade today and explains why most negotiations?seek?broader market access rather than freer trade. After decades of increasing global trade, there is evidence that large swaths of people no longer support universally free trade due to concerns over domestic job security.
The United States, a long-time proponent of freer global trade, has seen changes in free trade in conjunction with the rapid growth of its trading partners’ economies, particularly Mexico and China. However, a majority?still want the benefits of international trade, such as a?wide variety of competitively priced goods and a strong export market for domestically produced products.
Consider the goods and services trade deficit for the United States. Prior to the pandemic, the United States imported roughly $260 billion per month between 2018 and 2020. After the sharp economic downturn as part of the pandemic, the United States has since importing materially more goods, peaking at roughly $350 billion in a given month.
A similar trend has occurred on the export side as well. Trade dropped during the pandemic; since then, exports have increased to roughly $250 billion per month, greater than the average exports per month prior to the pandemic.
Market Access and the Role of the World Trade Organization (WTO)
The World Trade Organization (WTO) is an international institution created in 1995 that oversees the trade rules among nations for the global good. The WTO affects market access by providing a platform on which member governments can negotiate and resolve trade issues with other members. For example, the WTO has lowered trade barriers to improve market access among member countries and has also maintained trade barriers when it made sense to do.
The WTO aids market access in international trade by facilitating negotiations, monitoring trade policies, and offering technical assistance. The WTO has dispute settlement mechanisms as well as accessibility programs to promote action in service sectors. Overall, the WTO plays a central role in promoting transparency, reducing trade barriers, and fostering cooperation among nations to improve market access for businesses and foster economic growth worldwide.
How Do Trade Agreements Facilitate Market Access?
Trade agreements, whether bilateral, regional, or multilateral, lower or eliminate trade barriers among participating countries. They create a more favorable environment for market access by reducing tariffs, harmonizing standards, and addressing non-tariff barriers.
How Do Technical Regulations and Standards Influence Market Access?
Technical regulations and standards define product specifications and safety requirements. Divergent standards can create barriers for exporters, while harmonized standards ease market access by reducing the need for costly modifications.
What Are Preferential Trade Agreements and Their Impact on Market Access?
Preferential trade agreements are trade deals between specific countries that grant each other preferential treatment, such as reduced tariffs or non-tariff barrier concessions. They improve market access for participating countries' products within the agreement.
What Are the Benefits of Market Access for Exporting Countries?
Market access offers exporting countries several benefits, including increased sales opportunities, revenue growth, diversification of markets, job creation, and access to new technologies and knowledge from global partners.
The Bottom Line
Market access in international trade refers to the ability of businesses and countries to enter foreign markets by overcoming trade barriers, including tariffs and non-tariff barriers. It is crucial for expanding commercial activities, diversifying revenue sources, and stimulating economic growth.