FPI Bulletin: High Time for Free Trade with South Korea, Colombia and Panama
From FPI Policy Analyst Patrick Christy
After much delay, President Obama may soon submit for congressional approval three pending free-trade agreements (FTAs) with South Korea, Colombia and Panama. At a time when America’s economy is stagnating, these trade pacts could provide a powerful boost—ending barriers that inhibit market access for American businesses, increasing U.S. exports by as much as $14 billion annually, and creating well over 70,000 jobs. Congressional leaders have long supported passage of these agreements. So, what’s the hold up?
Economic Benefits to the United States.
The passage of the free-trade agreements with South Korea, Colombia and Panama should be a no-brainer. Indeed, all three pacts offer strong economic benefits to the United States.
The U.S. International Trade Commission reports that the U.S.-South Korean agreement will likely expand America’s annual exports by roughly $10 billion, add 70,000 U.S. jobs, and grow America’s gross domestic product (GDP) by as much as $11 billion.
The U.S.-Colombian agreement will immediately open new markets for American workers, and expand duty-free access to sectors ranging from agriculture to manufacturing. For example, Businessweek reports that Illinois-based Caterpillar would see the six-figure tariffson every bulldozer and truck sold in Colombia eliminated overnight. In addition, the trade deal’s impact on America’s GDP could amount to as much as $2.5 billion annually.
And as the Panamanian government continues its multi-billion dollar project to expand the Panama Canal, the free-trade agreement will eliminate nearly all tariffs on much-needed, American-made construction machinery and equipment for that project. Furthermore, the White House notes that “[o]ver half of current U.S. agricultural trade will also receive immediate duty-free treatment.”
Unfortunately, these trade deals have sat in limbo for years, and in that time, America’s global economic competitors have moved forward with tariff-slashing agreements of their own, designed to spur economic growth and create jobs. Such a trade pact between Canada and Colombia recently took effect. And an agreement between the European Union and South Korea entered into force in July 2011.
Frustrated with Washington’s slow pace, Colombian Trade Minister Sergio Díaz-Granados said that his nation can no longer “sit with its arms crossed, waiting.” Indeed, Colombia has actively pursued investment from China and other nations, even passing legislation to provide further legal guarantees and protections to Chinese investments. As a result, whereas China was Bogota’s 12th largest trading partner when negotiations for the U.S.-Colombia trade agreement began, it now ranks second—right behind the United States. In short, it’s clear that if the United States doesn’t take advantage of trade opportunities with South Korea, Colombia and Panama, other countries will.
Strategic Benefits to the United States.
Passage of these free-trade agreements would also further cement geopolitical relations with three key American allies.
The South Korean agreement would bolster an already solid relationship with a longstanding U.S. ally, enhancing economic ties and further expanding the scope of bilateral relations. While South Korea ranks as America’s 7th largest trading partner, Washington’s growing economic relationship with Seoul doesn’t get the attention that their military alliance does. The free-trade pact could change this. Moreover, the deal would reiterate—not only to U.S. allies and friends in the Asia-Pacific, but also to potential adversaries—America’s future commitment to and presence in the region.
For over a decade, Colombia’s democratic government has been a stalwart ally of the United States in a region where America’s friendship is not always welcomed. Indeed, Colombian President Juan Manuel Santos is deeply committed to free-market principles and the rule of law. A long-term trade agreement would ensure economic ties with one of Latin America’s fastest-growing economies.
Finally, an agreement with Panama, Colombia’s neighbor to the north, would enhance America’s longstanding ties with a nation increasingly fearful of the rapidly expanding drug war that is threatening governments across Central America.
In sum, the pending free-trade agreements with South Korea, Colombia and Panama will strengthen important economic and strategic ties with three important democratic partners.
Why Hasn’t Obama Sent the Free-Trade Pacts to Congress?
In recent talks over the free-trade agreements with South Korea, Colombia and Panama, a major point of contention between the White House and Congress has been the extension of the Trade Adjustment Assistance (TAA) program. Founded in 1962, the TAA program has been used for decades to re-train workers displaced by international trade. However, the TAA program expired in February 2011, and now requires congressional action to extend it. Yet it wasn’t until May 2011 that the Obama administration decided to make the extension of the TAA program a pre-condition for the President’s formal submission of these free-trade pacts.
Initially, some GOP lawmakers balked, citing the TAA program’s imperfect track record and sizeable expansion under the 2009 stimulus bill. Others on Capitol Hill countered that the free-trade agreements and the TAA program’s extension should be de-linked and debated on their own merits. But after lengthy negotiations, Democratic and Republican congressional leaders recently announced that they now have the votes to pass both the TAA program’s extension and the free-trade agreements:
- Senate Majority Leader Harry Reid (D-NV) said on August 3, 2011: “My staff and Senator McConnell’s staff have been in discussions for weeks over the Trade Adjustment Assistance program and the three outstanding FTAs. We believe those discussions have provided a path forward in the Senate after we return for passage of the bipartisan compromise on the Trade Adjustment Assistance program, followed by passage of the three FTAs.”
- Senate Minority Leader Mitch McConnell (R-KY) said on August 3, 2011: “I agree with the Majority Leader that we have a path forward on TAA and the Free Trade Agreements. I have long supported passage of the long-delayed FTAs, and I know that I speak for many on my side of the aisle that we are eager to get moving and finally pass them. Although I do not personally support TAA, I know there is bipartisan support for this program.”
- And House Speaker John Boehner (R-OH) said on August 3, 2011: “Upon reaching a path forward for the three pending Free Trade Agreements in the Senate, Senate leaders have cleared an important hurdle. Expanding markets for U.S. small businesses is a critical component of the Republican Plan for America’s Job Creators, and further delay of these job-creating trade bills is unacceptable. I look forward to the House passing the FTAs, in tandem with separate consideration of TAA legislation, as soon as possible.”
But despite these statements of bipartisan good will on Capitol Hill, President Obama surprised lawmakers in his Weekly Address of August 20, 2011, when he claimed that partisan gridlock was still preventing congressional passage of these free-trade agreements:
“There are things we can do right now that will mean more customers for businesses and more jobs across the country…. [L]et’s pass trade deals to level the playing field for our businesses…. The only thing preventing us from passing these bills is the refusal by some in Congress to put country ahead of party.”
However, as The New York Times reported on August 26, 2011, “Mr. Obama is not technically correct when he says that Congress is fully able to vote on the bills, as his administration has not sent them there in the first place.” In his Washington Post “Fact Checker” weblog, reporter Glenn Kessler elaborated:
“The administration has clearly played a balancing act, trying to attract Democratic support without losing significant Republican backing. We’re not going to judge who is more right on the history leading up to this point, but we do think it is a highly selective recounting of that history for the president to suggest GOP lawmakers are blocking the deal because they are putting party before country. There is actually strong support for these agreements within the Republican Party…. There may be a philosophical dispute over aid for companies harmed by free trade, but the administration in the end is responsible for making passage of TAA a condition for submitting the trade deals. Moreover, Obama leaves the distinct impression that Congress is sitting on the bills, when in fact they have not yet been officially submitted for consideration.”
Pending free trade agreements with Colombia, Panama and South Korea have languished long enough. Indeed, these free-trade deals are in America’s economic and strategic interest, and thus deserve—with or without the TAA program’s extension—an up-or-down vote in the Congress.
Happily, congressional leaders have made clear that there is consensus on how to pass both the TAA program’s extension and the free-trade pacts. As Senator McConnell reiterated in a Washington Post op-ed on September 6, 2011, “I and others have told the President we are prepared to allow this [Trade Adjustment Assistance] program to move ahead for a vote as a sign of good faith and to move the trade deals forward.”
Obama should thus take advantage of this opportunity, and submit these agreements immediately. Indeed, if the White House further delays submission, it will risk looking like it’s once again holding hostage the free-trade pacts in return for political ransom.
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