Understanding Opportunities and Challenges of Fair Trade Agreements

Protectionist policies shelter domestic companies from outside competitors. Given today's already highly global marketplace, protectionism is difficult to achieve, at best. And the potential downsides, including rising consumer prices, are difficult to swallow in a recession.

Enter the fair trade agreement, which is becoming an increasingly popular way for countries to favor domestic companies but also enjoy the benefits of cross-border coopetition. FTAs are agreements between specific countries that lower or drop tariffs on selected goods. I'll reduce my tariff on steel you export to my country if you similarly agree to to ease charges on my exported wheat crop.

FTAs offer new opportunities but also interesting challenges to business leaders in these countries. For example:

"Executives presented with new low-tariff opportunities ... need to be sure that the potential gains outweigh the costs of following stringent rules about where products' components come from," writes Harvard Business School professor Regina M. Abrami in the lastest edition of Harvard Business Review.