Free-Trade Agreements

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Free-trade agreements are back on the nation’s front burner. That’s good news for businesses and workers because FTAs help to open markets for exporters by slashing tariffs and tearing down other trade barriers.

“A free-trade agreement can make the difference between being able to export successfully and being frozen out of a foreign market,” says Jonathan Huneke, vice president for communications and public affairs with the
U.S. Council for International Business.

United States and Korean negotiators reached a final accord on the United
States-Korea Free Trade Agreement in December. The deal will expand market access for U.S. companies in the world’s 12th-largest economy and would be the largest FTA for the U.S. after the North American Free Trade Agreement (NAFTA) with Canada and Mexico. In his State of the Union address on Jan. 25, President Obama said the Korea FTA will support at least 70,000 jobs in the United States. Congress is expected to ratify the agreement by midyear.

Next on the agenda are FTAs with Colombia and Panama, the basic agreements for which were negotiated during the second term of former President George W. Bush. Bush never sent the agreements to Congress because of strong Democratic opposition. Then-House Speaker Nancy Pelosi charged that the Bush administration should be giving priority to protecting American workers. It’s expected that U.S. negotiators should be able to reach final agreements this year with Colombian and Panamanian officials that would ease the objections of enough Democrats so that these measures could receive Congressional approval.

Huneke says small and medium businesses would benefit from FTAs because 95 percent of the world’s consumers, and numerous fast-growing emerging markets, are located outside the U.S. “The size threshold for doing business internationally has fallen dramatically in recent years,” Huneke says. “An FTA like the Korea agreement can really open up an important market for SMEs.”

 The expanded access to foreign markets afforded by FTAs is critical if the U.S. is to achieve President Obama’s goal of doubling exports within five years. The U.S. got off to a good start last year when exports were up about 20 percent, though that comparison was somewhat distorted by a very weak performance in 2009. The weak dollar and strong economic growth in some major markets, including China — the third-largest destination for U.S. exports after Canada and Mexico — spurred the growth in exports.

While this is expected to be another good year for U.S. exports, it will be hard to match last year’s gains and even harder to sustain that momentum in future years without freer trade. Other nations have been busy forging new FTAs while the U.S. has taken “a time-out on trade,” says Tami Overby, vice president, Asia, at the U.S. Chamber of Commerce.  China and India,
for example, have free-trade agreements with the Association of Southeast Asian Nations, while a free-trade deal between Korea and the European Union is set to take effect on July 1. The EU also hasa free-trade agreement with Colombia, putting U.S. exporters at a competitive disadvantage because European exports enjoy far lower tariffs in the Colombian market.

Meanwhile, U.S. negotiators are in talks with eight other nations, including four with which the U.S. already has FTAs — Australia, Chile, Peru and Singapore — plus Malaysia, Vietnam, New Zealand and Brunei, aimed at creating a TransPacific Partnership. Japan is also considering joining the talks. U.S. officials hope to achieve a TPP framework by November, when leaders from the 21 Asia-Pacific Economic Cooperation (APEC) nations will gather in Honolulu for their annual summit.