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POLICY BRIEF
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Korea, Colombia, PanamaPending Trade Accords Oer Economic andStrategic Gains or the United StatesBy Mauricio crdenas and Joshua Meltzer
REUTERS
Atrio o trade agreements now pending beore
Congress would beneft the United States both
economically and strategically. Careully devel-
oped accords with South Korea, Colombia and Panama
will boost U.S. exports signifcantly, especially in the key
automotive, agricultural and commercial services sec-
tors. Among the other benefts are:
increased U.S. competitiveness
enhancement o U.S. diplomatic and economic
postures in East Asia and Latin America
new investment opportunities
better enorcement o labor regulation and
improved transparency in these trading partners regulatory systems.
The pacts are known as Free Trade Agreements, or FTAs. The Korean agree-
ment (KORUS) was negotiated in 20062007 and revised in 2010. The Colom-
bian agreement (COL-US, sometimes known as COL-US FTA) was signed in
2006. The agreement with Panama (PFTA, sometimes known as the Panama
Trade Promotion Agreement) was signed in 2007. All have the support o the
Obama administration.
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Economic Eects othe Korea AgreementThe economic benefts to the United States rom
KORUS are especially signifcant, as the agree-
ment will provide preerential market access to the
worlds 11th largestand a ast-growingeconomy.
In 2010, U.S.-Korea trade was worth $88 billion,
comprising U.S. exports o $39 billion and imports
o $49 billion, making Korea the United States
seventh largest trading partner. According to the
independent, quasi-judicial U.S. International Trade
Commission (ITC), exports resulting rom KORUS
will increase the U.S. gross domestic product (GDP)
by up to $12 billion. This constitutes a remarkable
gain in both real and percentage terms.
To the United States, KORUS oers diverse ec
nomic advantages. Most strikingly, KORUS w
open Koreas service market to U.S. export
allowing the United States to exploit its compe
tive advantages in fnancial services, educatio
and inormation and communications technol
gies. The agreement also will lead to increase
imports rom Korea, which in turn will help th
United States achieve greater economic specia
ization. The likely eects o more specialization
and o increased Korean investment in the Unite
Statesinclude greater U.S. efciency, producti
ity, economic growth and job growth. Meanwhi
U.S. investors will gain new opportunities in th
increasingly active Asia-Pacifc region.
The three FTAs will substantially reduce these
trading partners tariffs on U.S. goods, openinglarge markets for U.S. commerce and profes-
sional services. In combination, they will increase
the size of the U.S. economy by about $15 billion.
Furthermore, they will help reverse a slide in U.S.
market inuence in two important and increas-
ingly afuent regions of the globe.
Approval of all three agreements is in the
national interest. To move forward, both Con-
gress and the administration should take these
appropriate steps:
Congress should approve the trade agree-ments with Korea (KORUS), Colombia (COL-US)
and Panama (PFTA) without additional delays.
To maximize the trade and investment benets
of KORUS, the administration should actively
engage in the KORUS working groups, such as
the Professional Services Working Group.
Similarly, the U.S. Trade Representative should
participate in the Joint Committees scheduled
annual meetings, in order to maintain a high-
level focus on U.S.-Korea trade, drive further
trade liberalization and enable the committee
to serve as a forum for broader discussions on
trade in East Asia.
The ColombiaU.S. Joint Committee should
include representatives of Colombias Trade
and Labor Ministers with their US counter-
parts. The presence of the Labor minister
should facilitate progress under the FTA
through strengthened labor standards and
timely implementation of all elements of the
agreed-upon action plan. This Committee and
specialized working groups could increase the
pace of bilateral interaction and help ofcials
identify important areas for discussion, nego-
tiation and agreement.
Panama has ratified the Tax Information
and Exchange Agreement which entered
into force on April 2011. Panama and the US
should strengthen bilateral communication
so that collaboration in the battle against
money laundering is pushed even further with
greater cooperation.
Recommendations
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The economic
benets to the
United States romKORUS are espe-
cially signicant, as
the agreement will
provide preerential
market access to the
worlds 11th largest
and a ast-growing
economy.
Lately, passage o KORUS has assumed enhanced
importance with the impasse in the World Trade
Organizations Doha Round. No longer can the
United States reasonably anticipate that Doha will
lead to improved access to the Korean market.
Moreover, an FTA between Korea and the European
Union (EU) that took eect July 1st coners preer-
ential access to European exporters, undermining
the competitiveness o U.S. businesses in Korea.
Even beore the European FTA, the United States
had been losing valuable ground in Korea. Between
2000 and 2010, the United States ell rom frst
to third in the ranking o Koreas trading partners
(reversing positions with China), as U.S. products
declined rom 18 to only 9 percent o Korean
imports. Failure to approve the agreement can be
expected to lead to a urther decline.
These moves will strongly assist U.S. producers o
electronic equipment, metals, agricultural products,
autos and other consumer goods. For example,
agricultural exports are expected to rise $1.8 bil-
lion per year.
On the services ront, KORUS will increase U.S.
businesses access to Koreas $560 billion services
market. Financial services providers, the insurance
industry and transportation frms stand to beneftsubstantially. KORUS useully builds on the link
between investment and services by improving the
ability o U.S. law frms to establish ofces in Korea.
In addition, the agreement establishes a Proes-
sional Services Working Group that will address
the interests o U.S. providers o legal, accounting
and engineering services, provided that U.S. rep-
resentatives engage actively in the group. KORUS
also requires that regulations aecting services
be developed transparently and that the business
community be inormed o their development and
have an opportunity to provide comments, which
the Korean government must answer.
On the investment ront, KORUS aords a chance
to strengthen a bilateral investment relationship
that probably is underdeveloped. In 2009, the U.S.
oreign direct investment ow to Korea was $3.4
billion, while there was a net outow o Korean
oreign direct investment to the United States o
$255 million. KORUS supports market access or
U.S. investors with investment protection provi-sions, strong intellectual property protection,
dispute settlement provisions, a requirement or
transparently developed and implemented invest-
ment regulations and a similar requirement or
open, air and impartial judicial proceedings. All
this should markedly improve the Korean invest-
ment climate or U.S. business. It will strengthen
the rule o law, reducing uncertainty and the risk
o investing in Korea.
On the governance side, KORUS establishes vari-
ous committees to monitor implementation o the
agreement. The most signifcant o these is the
Joint Committee that is to meet annually at the
level o the U.S. Trade Representative and Koreas
Trade Minister to discuss not only implementation
but also ways to expand trade urther. KORUS
establishes committees to oversee the goods and
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fnancial services commitments, among others,
and working groups that will seek to increase
cooperation between U.S. and Korean agencies
responsible or regulating the automotive sector
and proessional services. These committees and
working groups, enriched through regular inter-
action between U.S. and Korean trade ofcials,
should increase levels o trust and understanding
o each countys regulatory systems and help of-
cials identiy opportunities to deepen the bilateral
economic relationship.
Strategic Eects o theKorea Agreement
Congressional passage o KORUS will send animportant signal to all countries in the Asia-
Pacifc region that the United States intends to
remain economically engaged with them, rather
than retreat behind a wall o trade barriers, and
is prepared to lead development o the rules and
norms governing trade and investment in the
region. KORUS will provide an important economic
complement to the strong, historically rooted U.S.
military alliance with Korea. It also will signal a
renewed commitment by the United States in shap-
ing Asias economic architecture.
The last decade has seen declining U.S. economic
signifcance in Asia. Just as the United States has
slipped rom frst to third in its ranking as a trading
partner o Korea, similar drops are occurring with
respect to Japan, Indonesia, Malaysia and other
Asia-Pacifc economic powers. In all o Northeast
and Southeast Asia, the United States has only one
FTA in eect, an accord with the Republic o Singa-
pore. Passage o KORUS now would be particularly
timely, both as a sign o U.S. engagement with Asia
and as a mechanism or ensuring robust growth in
U.S.-Asia trade and investment.
To illustrate how KORUS might aect U.S. inter-
ests throughout the region, consider regulatory
transparency. The KORUS transparency require-
ments could serve as a model or how countries
can set and implement standards. They might,
or example, inuence the unolding Trans-Pacif
Partnership negotiations, talks that could set th
stage or a broader Asia-Pacifc FTA. U.S. produ
ers, investors and providers o commercial an
proessional services could only beneft rom
regional trend toward greater transparency an
the liting o barriers that would ensue. Othe
KORUS provisions avorable to the United State
could unction as similar benchmarks in the dev
opment o U.S. relations with Asia-Pacifc natio
and organizations.
Eects o the ColombiaAgreement
COL-US will also strengthen relations with a keregional ally and open a oreign market to a varie
o U.S. products. Bilateral trade between Colomb
and the United States was worth almost $28 b
lion in 2010. COL-US is expected to expand U
GDP by approximately $2.5 billion, which includ
an increase in U.S. exports o $1.1 billion and a
increase o imports rom Colombia o $487 millio
COL-US oers our major advantages:
It redresses the current imbalance in tari
Ninety percent o goods rom Colombia no
enter the United States duty-ree (under th
Andean Trade Promotion and Drug Eradicatio
Act). COL-US will eliminate 77 percent o Colom
bias taris immediately and the remainder ov
the ollowing 10 years.
It guarantees a more stable legal ramework
doing business in Colombia. This should lead
bilateral investment growth, trade stimulatio
and job creation.
It supports U.S. goals o helping Colombia redu
cocaine production by creating alternative ec
nomic opportunities or armers.
It addresses the loss o U.S. competitiveness
Colombia, in the wake o Colombian FTAs wi
Mauricio Crdenas is asenior ellow and director oBrookingss Latin AmericanInitiative.
Joshua Meltzer is a ellowin Global Economy andDevelopment at Brookings.
4 JULY 2011 | POLICY BRIEF no. 183
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Bilateral trade
between Colombia
and the United
States was worthalmost $28 billion
in 2010. COL-US
is expected to expan
U.S. GDP by
approximately
$2.5 billion, which
includes an increase
in U.S. exports o
$1.1 billion and an
increase o imports
rom Colombia o
$487 million.
Canada and the EU as well as Latin American
sub-regional FTAs.
With respect to trade in goods, U.S. chemical, rub-ber and plastics producers will be key benefciaries
o COL-US, with an expected annual increase in
exports in this combined sector o 23 percent, to
$1.9 billion, relative to a 2007 baseline according
to the ITC. The motor vehicles and parts sector
is expected to see an increase o more than 40
percent. In the agriculture sector, rice exports are
expected to increase rom a 2007 baseline o $2
million to approximately $14 million (the corre-
sponding increases would be 20 percent or cereal
grains and 11 percent or wheat).
These and other gains will result rom the gradual
elimination o taris and rom provisions that
reduce non-tari barriers as well. Among the latter,
the most important changes would be increased
transparency and efciency in Colombias customs
procedures and the removal o some sanitary and
phytosanitary (or plant quarantine) restrictions.
With respect to trade in services, Colombia has
agreed to a number o so-called WTO-pluscommitments that will expand U.S. frms access
to Colombias $166 billion services market. For
instance, the current requirement that U.S. frms
hire Colombian nationals will be eliminated,
and many restrictions on the inancial sector
will be removed.
On the investment ront, the potential advan-
tages to the United States also are substantial. In
2009, the U.S. ow o oreign direct investment
into Colombia was $1.2 billion, which amounted to
32 percent o that nations total inows. COL-US
improves the investment climate in Colombia by
providing investor protections, access to inter-
national arbitration and improved transparency
in the countrys legislative and regulatory pro-
cesses. These provisions will reduce investment
risk and uncertainty.
REUTERS
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Besides economic
benets, COL-US
oers sizable strategic
benets. It wouldortiy relations with
an important ally
or regional security
and stability.
COL-US presents signifcant improvements in the
transparency o Colombias rule-making process,
including opportunities or interested parties to
have their views heard. COL-US also requires thatColombias judicial system conorm with the rule
o law or enorcing bilateral commitments, such
as those relating to the protection o intellectual
property. In addition to access to international
arbitration or investors, COL-US includes dispute
settlement mechanisms that the two govern-
ments can invoke to enorce each others commit-
ments. Taken as a whole, these provisions oer an
important benchmark or urther developments in
Colombias business environment. The transpar-
ency requirement alone could reduce corruption
dramatically.
Labor rights have been a stumbling block to con-
gressional approval o COL-US. The labor chapter
o the agreement guarantees the enorcement
o existing labor regulations, the protection o
core internationally recognized labor rights,
and clear access to labor tribunals or courts.
addition, in April 2011, Colombia agreed to a
Action Plan strengthening labor rights and th
protection o those who deend them. In the emonths the plan has been in eect, Colombia h
made important progress in implementation.
has reestablished a separate and ully equippe
Labor Ministry to help protect labor rights an
monitor employer-worker relations. It has enacte
legislation authorizing criminal prosecutions
employers who undermine the right to organiz
or bargain collectively. It has partly eliminated
protection program backlog, involving risk asses
ments. And, it has hired more labor inspectors an
judicial police investigators.
Besides economic benefts, COL-US oers sizab
strategic benefts. It would ortiy relations wi
an important ally in the region by renewing th
commitment to the joint struggle against cocain
production and trade. Under the agreement, sm
and medium-sized enterprises in labor-intensiv
REUTERS
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the PFTA
will strengthen the
U.S.s presence
in the region,allowing or the
stronger promotion
o democratic
institutions and
market-based
economies.
Colombian industries like textiles and apparel
would gain permanent access to the U.S. consumer
market. With considerable investments, Colombia
would be able to compete with East Asia or these
higher quality jobs, swaying people away rom
black markets and other illicit activities.
While Congress deliberates, the clock is ticking.
Colombia is also looking at other countries as
potential trade and investment partners in order
to build its still underdeveloped inrastructure and
reduce unemployment. Complementing its FTAs
with Canada, the EU, and several countries in the
region, Colombia has initiated ormal trade nego-
tiations with South Korea and Turkey and is moving
toward negotiations with Japan. A perhaps more
telling development is Chinas interest in building
an inter-oceanic railroad in Colombia as an alter-
native to the Panama Canal: on July 11th President
Juan Manuel Santos signed a bilateral investment
treaty with China (and the UK) and is expected to
meet Chinese President Hu Jintao in the all.
Eects o thePanama AgreementAlthough Panamas economy is ar smaller than
Koreas or even Colombias, the PFTA will deliverimportant economic and strategic benefts to the
United States. Considerable gains will take place in
U.S. agriculture and auto manuacturing. Moreover,
the PFTA will strengthen the U.S. presence in the
region, allowing or the stronger promotion o dem-
ocratic institutions and market-based economies.
U.S. merchandise exports to Panama topped $2.2
billion in 2009. The PFTAs elimination o taris and
reduction in non-tari barriers will cause this fg-
ure to grow. For example, rice exports are expected
to increase by 145 percent, pork exports by 96
percent and bee exports by 74 percent, accord-
ing to the ITC. Exports o vehicles are expected to
increase by 43 percent. The PFTA also guarantees
access to Panamas $21 billion services market or
U.S. frms oering portolio management, insur-
ance, telecommunications, computer, distribution,
express delivery, energy, environmental, legal and
other proessional services.
Panamas trade-to-GDP ratio in 2009 was 1.39,
highlighting the preponderance o trade in Pan-
amas economy and the international orientation
o many o its sectors. Following passage o the
PFTA, Panama will eliminate more than 87 percent
o taris on U.S. exports immediately. The remain-
ing taris will be removed within 10 years or U.S.
manuactured goods and 15 years or agricultural
and animal products.
PFTA protections to investorssimilar to protec-
tions accorded under KORUS and COL-USare
especially valuable, as Panama receives substan-tial investments associated with sectors that will
beneft rom both rom the expansion o the canal
and rom other inrastructure projects. A air legal
ramework, investor protections and a dispute
settlement mechanism, all eatures o the PFTA,
are almost certain to increase U.S. investments
in Panama. Panamas Legislature also recently
approved a Tax Inormation Exchange Agreement
with the United States and amended current laws
to oster tax transparency and strengthen intel-
lectual property rights. These are crucial steps in
preventing the use o Panamanian jurisdiction asa haven or money laundering activities.
Panamanian laws and regulations prohibiting strikes
or collective bargaining were a concern that initially
delayed implementation o the PFTA. But, these laws
have been changed, with the exception o a require-
ment that 40 workers (not the recommended 20)
are needed to orm a union; the 40-worker require-
ment has been kept partly because labor groups
in Panama support it. The PFTAs labor chapter
protects the rights and principles outlined in the
International Labor Organizations 1998 Declara-
tion on Fundamental Principles and Rights at Work.
Besides oering economic advantages to the
United States, the PFTA is a strategic agree-
ment. Strengthening economic links with Panama
should bolster the U.S. capacity to address cocaine
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Vice President orCommunications
Melissa T. Sklfeld
The Brookings Ofce o
Communications202.797.6105
communications@brookings.edu
The views expressed i this Plicy Brie
are thse the authr(s) ad are t
ecessarily thse the trustees,fcers, r ther sta members
the Brkigs Istituti.
Cpyright 2011
The Brkigs Istituti
POLICY BRIEF no. 183
1775 Massachusetts Avenue, NW | Washington, DC 20036 | 202.797.6000 | ax 202.797.6004 | brookings.e
The Brkigs Istituti is a prft public plicy rgaizati based i Washigt, DC.
Our missi is t cduct high-quality, idepedet research ad, based that research,
t prvide ivative, practical recmmedatis that advace three brad gals:
StrengthenAmericandemocracy;
Fostertheeconomicandsocialwelfare,securityandopportunityofallAmericansand
Secureamoreopen,safe,prosperousandcooperativeinternationalsystem.
Learn more at brookings.eduVisit ur website t fd ivative, practical recmmedatis that matter
r America ad the wrld.
ConclusionAll three FTAs encourage trade by removing tar
and non-tari barriers. All the agreements provid
access to large services markets, oster transpaency and oer signifcant strategic advantages
the United States. Congress should approve eac
o them now.
The authors would like to thank Juan Pablo Cande
for his assistance with this project.
trafcking in the region, in light o Panamas loca-
tion as Colombias gateway to North America.
The importance o the canal, now undergoing an
expansion that will double its shipping capacity,
urther underscores the U.S. need to strengthenbilateral relations with Panama.
The time to act is now. Like Colombia, Panama
has been negotiating with economic powerhouses
other than the United States. It recently signed a
trade agreement with Canada and an Association
Agreement with the EU. Delaying passage o the
PFTA would generate a loss o market share or a
variety o sectors o the U.S. economy.
Recent Policy Bries
Adjusting to China:
A Challenge to the U.S.
Manuacturing SectorMartin Neil Baily
No. 179 (January 2011)
Improving Aghan
War Strategy
Michael E. OHanlon
No. 180 (January 2011)
Opportunity Through
Education: Two Proposals
Grover J. (Russ) Whitehurst
No. 181 (March 2011)
Protecting Civilians in
Disasters and ConfictsElizabeth Ferris
No. 182 (March 2011)
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