cardenas meltzer

7/29/2019 Cardenas meltzer

1/8

POLICY BRIEF

T receive a weekly e-mail

abut Brkigs ews, evets,

ad publicatis, sig upr the Brkigs Alert at

www.brkigs.edu

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.

JULY 2011 | no. 183


2/8

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

2 JULY 2011 | POLICY BRIEF no. 183


3/8

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

POLICY BRIEF no. 18

brkigs.edu


4/8

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.



5/8

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

POLICY BRIEF no. 18

brkigs.edu


6/8

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



7/8

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

POLICY BRIEF no. 18

brkigs.edu


8/8

Vice President orCommunications

Melissa T. Sklfeld

The Brookings Ofce o

Communications202.797.6105

[email protected]

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)

8

cardenas meltzer

Documents