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Free Trade Agreements in Limbo

03.23.11

Free Trade Agreements in Limbo

03.23.11
Pete SouzaPete Souza

The Obama administration recently named Gary F. Locke as ambassador to China replacing Ambassador Jon M. Huntsman Jr. Huntsman who is stepping down for a presumed presidential run against his soon to be former employer. The nomination of Gary Locke leaves the position of Commerce Secretary vacant for the foreseeable future. Senate Republicans have threatened to block the confirmation of a replacement until President Obama submits, for Senate consideration; the Panamanian and Columbian free trade agreements. The Obama administration has yet to do this. The United States-Korea Free Trade Agreement (KORUS FTA) has been finalized but is being held up until the other two are finished and submitted to the Senate.

With Republicans holding 44 seats in the Senate, if the caucus can remain united, they will succeed in forcing the administration’s hand. Former trade representative under President Bush, Sen. Rob Portman (R-OH), suggested of the Republican strategy, “We’re trying to help the president to do what he has talked about, of doubling exports over the next five years.” Portman continued, “We can only do it by opening more markets to U.S. workers and farmers and service providers. And these three agreements are a great way to do it.”

Chairman of the Finance Committee, Sen. Max Baucus (D-MT), counters, “This tactic is a diversion from our goal and is simply not the way to ensure their passage…It is time for us to work together to approve these agreements.” The hyper-partisan atmosphere on Capitol Hill has put a number of common sense initiatives on hold. Traditionally, trade and arms control agreements could be insured easy passage. Republican wins in the 2010 midterm election insure that the GOP’s voice is heard. Democrats, in the past legislative session, only needed the support of a handful of GOP senators to pass controversial pieces of legislation.

Despite the stalled negotiations over the Colombia Free Trade Agreement (FTA), the U.S. still believes that an agreement can be reached with the Columbian government. Enforcement of labor laws and effective prosecution of crimes committed against trade unionists have been the major sticking points. U.S. officials believe that Columbian President Juan Manuel Santos has taken the necessary steps to implement labor laws and other measures that would placate American human rights and pro-union activists.

During a meeting of the National Lieutenant Governors Association, the general council at the U.S. Trade Representative’s Office, Tim Reif, said, “We remain hopeful…But there are core values that the American people expect to be included in their trade policy.” Meetings between U.S. and Columbian officials have been ongoing and will continue until an agreement is reached. During Obama’s first ever trip to the Americas, Chilean President Sebastian Pinera, personally urged Obama to push for completion of the Colombian and Panamanian free trade agreements that were holdovers from the former Bush administration. Obama has said that the agreements must be completed in a way that is “consistent with our values and with our interests.”

Arguments for free trade agreements have resonance with policymakers. Therefore, the final agreement with Colombia is likely to pass quickly. Exports from Colombia to the U.S. are typically duty-free so any agreement would open potential markets for U.S. producers. Policymakers are already attuned to the idea of generating revenues and other measures to increase economic growth without having to address the need to raise taxes. It has been estimated by the U.S. International Trade Commission that a Colombian trade agreement would see U.S. exports to Colombia rise by $1.1 billion yearly. While this initial economic benefit would be small by comparison to the overall U.S. economy, the long-term effects would be beneficial. Further, the U.S. International Trade Commission argues, “[T]he overall effect of the U.S.-Colombia [trade deal] is likely to be small because of the small size of the Colombian market relative to total U.S. trade and production.” When passed, the agreement will see Colombia remove trade barriers on a variety of products and services.

Additionally, according to the U.S. State Department, “Colombia will remove barriers to trade in services, provide a secure, predictable legal framework for U.S. investors operating in Colombia, provide for effective enforcement of labor and environmental laws, protect intellectual property, and provide an effective system to settle disputes. In 2007, the U.S. imported $9.3 billion in goods from Colombia and exported goods valued at $8.6 billion to Colombia.”

When NAFTA was negotiated by the Clinton administration, efforts were made to win over unions and other domestic opponents of free trade. Today, unions are much weaker than they were in the 1990s. The White House and policymakers will face less blowback by passing three significant trade agreements. Human rights activists have important concerns about abuses in Colombia and Panama. However, economic arguments in favor of efforts to generate economic activity will inevitably prevail in any debate. Specifically, policymakers are going to favor efforts to increase economic activity when many of their constituents are unemployed.

The Panamanian free trade agreement much like the Colombian agreement was agreed to by the Bush administration. However, the Senate did not take up passage of either agreement. According to the State Department, “The agreement will eliminate nearly 90% of Panama’s tariffs on industrial goods immediately, with remaining tariffs phased out over 10 years. In 2007, the U.S. exported $3.7 billion in goods to Panama while importing $361 million in Panamanian products.” Additionally, the agreement will provide U.S. firms with more access to the Panamanian economy. Bilateral trade agreements often carry more economic benefits than multilateral trade agreements. While membership in institutions like the WTO carries significant economic benefits, bilateral agreements are narrower in scope and therefore address specific issues related to trade.

The Obama administration’s attempt to push for the completion of the Panamanian, Colombian and Korean trade agreements is a win-win for the administration. Any Democratic opposition is likely to be nullified by support from Democrats and Republicans who are free trade advocates. The administration can also rely on support from the U.S. Chamber of Commerce. The Chamber’s president, Thomas Donohue, has said, “Four years of delay on these trade agreements with Colombia and Panama have cost thousands of American jobs and battered U.S. market share in these countries…The time for talk is over.” Brian Wingfield of Forbes makes a point about the inevitability of passage of the agreements by pro-business Republicans, “the House Ways & Means Committee held a hearing to discuss the Korea, Colombia and Panama trade deals. Republicans, who set the agenda for the hearing, invited witnesses from the National Association of Manufacturers, FedEx, MetLife, Ford Motor Company and the American Farm Bureau Federation. All of favored passage of the three pending agreements.” Support from the business community is key to their passage.

Finally, what inevitably could be a final component to insure passage of these agreements in the Senate would be renewed focus by Obama. Obama’s foreign trip to the Americas illustrates that his administration considers relations with the Americas to be key to America’s economic future. To insure that this is the case, the administration should put a renewed focus on passing these agreements that are advantageous to the U.S., Panama, Colombia and South Korea. This would also insure that the key position of the Commerce Secretary is filled in the near term.

3 comments
6 comments
Gwenda Blakstad
Gwenda Blakstad

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Gwenda Blakstad
Gwenda Blakstad

I’d have to check with you here. Which is not something I usually do! I enjoy reading a post that will make people think. Also, thanks for allowing me to comment!

Gregoria Mosha
Gregoria Mosha

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Gregoria Mosha
Gregoria Mosha

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Kelly B
Kelly B

Very interesting article. Maybe it was important for Obama to visit the Americas just wish he had not had to make the Lybia announcement from there. Timing is everything and most events we can't control. My husband and I like your reviews, updates and analysis. KB

Kelly B
Kelly B

Very interesting article. Maybe it was important for Obama to visit the Americas just wish he had not had to make the Lybia announcement from there. Timing is everything and most events we can't control. My husband and I like your reviews, updates and analysis. KB

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