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Next Phase In American Free Trade: Colombia, Panama And South Korea – Analysis

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By Peter John Cannon

Three agreements

The United States has finally ratified three free trade agreements with Colombia, Panama and South Korea. These were approved by Congress on 12 October and approved by the president on 21 October. The administration argues that these agreements could boost US exports by $13bn (£8.25bn) and support tens of thousands of American jobs.

The ratification was welcomed in Colombia, where president Juan Manuel Santos stated: “Today is a historic day for relations between Colombia and the United States.” He added that the agreement with his country would “generate much wellbeing for our peoples.” In Panama, president Ricardo Martinelli commented: “We Panamanians have to prepare to take advantage of this agreement,” while Panama’s Chamber of Commerce, Industries and Agriculture called it: “a historic moment for Panama.” 1

In a statement, US Secretary of State Hillary Clinton claimed “The Obama Administration is constantly working to deepen our economic engagement throughout the world and these agreements are an example of that commitment.” 2 United States Trade Representative Ron Kirk described the agreements as “the leading edge of a job-creating trade agenda “, adding: “This President has gotten trade policy right.” 3 Similarly, the New York Times described the passage of the agreements as “a victory for President Obama.” 4

Three years of delay

The problem with this line of argument was that it was the Obama administration which delayed these free trade agreements by several years. All of these agreements were originally signed under the administration of George W Bush, in 2006 in the case of the agreement with Colombia and in 2007 in the cases of Panama and South Korea. However, the Obama administration insisted on renegotiating the treaties, with protectionism having emerged as a theme of Obama’s presidential campaign.

During his campaign, Obama attacked the North American Free Trade Agreement with Canada and Mexico as a “bad trade deal”, and he criticised his Democratic rival, Hillary Clinton, for having supported NAFTA when it was ratified by her husband. Obama described the agreement, which removed tariff barriers in a third of the USA’s export market, as “an enormous problem.”

According to Obama, NAFTA, far from benefiting the US, “ships jobs overseas.” Obama’s solution was to “fix NAFTA so that it works for American workers,” with the threat that the US would opt-out if this was not done. Obama complained: “year after year, politicians in Washington sign trade agreements that are riddled with perks for big corporations but have absolutely no protections for American workers. It’s bad for our economy, it’s bad for our country, and it will not happen when I am president.” 5

Many of these criticisms were misguided. Far from “shipping jobs overseas,” 1.3 million export-related jobs were created between 1994 and 1998, after NAFTA was signed. 6 NAFTA increased trade from $297 billion to $810 billion. 7 It was a claim of the Obama campaign that trade policy was dictated by ‘special interests’ and only benefited Wall Street, but free trade has in fact been beneficial both to the people of the USA and its trading partners. While Obama was criticising the USA’s trade agreements, exports were adding a percentage point to American GDP growth, offsetting the effects of the decline in home construction at the time of the ‘credit crunch’.

This hostility towards NAFTA paved the way for opposition to the new agreements with Colombia, Panama and South Korea. Democrats in the House of Representatives have continually blocked the passing of a free trade agreement with Colombia, raising human rights concerns over the killing of trade unionists there. When Colombia took steps to address these concerns, the rhetoric would sometimes shift to the protection of “America’s working families”. 8

The administration therefore insisted on renegotiating the agreements to secure greater labour rights and worker protections in Colombia and enhanced tax transparency and labour rights in Panama. 9 These were the first trade agreements passed since the agreement with Peru that was passed in 2007, the same year that Democrats ended Republican control of Congress.

As Hillary Clinton recognised in her statement on the agreements: “The stakes are not just economic. South Korea, Colombia and Panama are three important partners in strategically vital regions.” That is why the delay in ratifying the agreements is a matter for concern. 10

A cooling of relations with Colombia

Nowhere is this clearer than in the case of Colombia.

The long delay in ratifying the treaty with the USA’s closest ally in South America did not go unnoticed.

Eric Farnsworth, vice-president of the Council of the Americas, argued: “The delay in passing this called into question the United States’ reliability as a partner,” Farnsworth says. “There’s a strategic component to this. It’s not just about economics and trade.”
In the meantime, Colombia has sought economic partners elsewhere. Colombia has negotiated a free trade agreement with the European Union and has sought to join the Asia Pacific Economic Cooperation (APEC) forum. Colombia has signed free trade agreements with Chile, Peru, Mexico, and Canada. 11 Canadian prime minister Stephen Harper remarked bluntly at the time: “We can’t block the progress of a country like this for protectionist reasons, and you trying to use human rights as a front for doing that… I think there are protectionist forces in our country and in the United States that don’t care about development and prosperity in this part of the world, and that’s unfortunate. No good purpose is served in this country or in the United States by anybody who is standing in the way of the development of the prosperity of Colombia.” 12

Of potentially more concern to Washington, Colombia also agreed plans with China for a rail link between the Pacific and the Caribbean, with the potential for drawing freight away from the Panama Canal. While the US remains Colombia’s largest export market, sales to China more than doubled in the last year and exports to Brazil have also risen rapidly. Colombian president Juan Manuel Santos has also pursued a more conciliatory policy towards Venezuelan leader Hugo Chavez, who has long posed a threat to Colombia and sought to isolate the country in Latin America. One recent example of this was the extradition of Venezuelan drug lord Walid Makled, who was arrested on a US warrant, to Venezuela rather than to the United States. 13

The delay in ratifying the trade agreement has therefore contributed to a cooling in relations with the closest ally of the United States in South America. When the agreement was originally signed, Colombia was fairly isolated in the Latin American Region and struggling to fight against leftist guerrillas and drug cartels. Now it is the United States which finds itself more isolated and struggling economically.

A more positive path?

Despite the setbacks, that the agreements with Colombia and Panama were ratified indicates that the Obama administration did finally recognise the economic and political logic of completing the free trade agreements signed by the previous government.

It is to be hoped that the final ratification of the agreements signals a more constructive approach to trade and diplomacy with Latin America, and a move away from protectionism.

For Colombia, exports to the United States could increase as much as 14 % over the next three years, according to a study by the country’s central bank. 14 Panama, meanwhile, is the fastest growing economy in Latin America, and has been described as the “Singapore of Latin America.” With corruption and weak institutions remaining a problem, it is expected that the free trade agreement will make public procurement more open and transparent. 15 The agreements should therefore be beneficial for both Latin American states.

In the Americas, the United States now has free trade agreements with Canada and Mexico, the Central American states (excluding Belize, but now including Panama) and the Dominican Republic, Chile, with Peru and Colombia. This is good progress, and the US should continue to speak in favour of the idea of the Free Trade Area of the Americas at next year’s Summit of the Americas in Cartagena, Colombia, despite the opposition of the ALBA (Bolivarian Alliance for the Americas) bloc and most of the Mercosur (Southern Common Market) group. It is encouraging that the United States has now moved back in favour of free trade in the Americas. While the delays have been damaging, US policy is now moving in the right direction.

Author:
Peter John Cannon
is the Latin America Section Director of the Henry Jackson Society

Source:
This article – The Next Phase in American Free Trade: Colombia, Panama and South Korea – was published as a November 2011 Henry Jackson Society Strategic Briefing, and may be accessed here (PDF) http://www.henryjacksonsociety.org/cms/harriercollectionitems/Panama.pdf

Notes:
1 ‘US Congress backs free trade pacts with South Korea, Colombia and Panama’, The Guardian, 13th October 2011, http://www.guardian.co.uk/business/2011/oct/13/ us-free-trade-agreements-korea
2 ‘South Korea, Colombia, Panama Free Trade Agreements’, Hillary Rodham Clinton, State Department, 12th October 2011, http://www.state.gov/secretary/ rm/2011/10/175348.htm
3 ‘Statement By U.S. Trade Representative Ron Kirk On Congressional Passage Of Trade Agreements, Trade Adjustment Assistance And Key Preference Programs’, Office of the US Trade Representative, 12th October 2011, http://www.ustr.gov/about- us/press-office/press-releases/2011/october/statement-us-trade-representative-ron- kirk-congres
4 ‘Congress Ends 5-Year Standoff on Trade Deals in Rare Accord’, Binyamin Appelbaum & Jennifer Steinhauer, New York Times, 12th October 2011, http://www. nytimes.com/2011/10/13/business/trade-bills-near-final-chapter.html
5 ‘Democrats address economic fears’, John M. Broder and Jeff Zeleny, New York Times, 18th February 2008, http://www.nytimes.com/2008/02/18/world/americas/18iht- campaign.5.10162895.html
6 ‘10 Benefits of Free Trade’, World Trade Organisation, http://www.wto.org/english/ thewto_e/whatis_e/10ben_e/10b07_e.htm
7 ‘NAFTA: A Strong Record of Success’, Office of the United States Trade Representative, March 2006, http://www.ustr.gov/sites/default/files/uploads/ factsheets/2006/asset_upload_file242_9156.pdf
8 ‘Change we should not believe in’, Peter Cannon, Infinity Journal, December 2008, http://www.infinityjournal.com/article.php?article=53
9 ‘Statement By U.S. Trade Representative Ron Kirk On Presidential Signature Of Trade Legislation’, Office of the US Trade Representative, 21st October 2011, http:// www.ustr.gov/about-us/press-office/press-releases/2011/october/statement-us-trade- representative-ron-kirk-preside
10 ‘South Korea, Colombia, Panama Free Trade Agreements’, Hillary Rodham Clinton, State Department, 12th October 2011, http://www.state.gov/secretary/ rm/2011/10/175348.htm
1 ‘Is Free Trade Good for Colombia, and is it Good for the United States? Has the Free Trade Agreement Between Colombia and the U.S. Reached a Cross Roads?’, Robert Valencia, Council on Hemispheric Affairs, 30th September 2011
12 ‘Harper lashes out at critics of Canada-Colombia free-trade deal’, Steve Rennie, The Canadian Press, 10th August 2011, http://ca.news.yahoo.com/harper-colombia- talk-trade-deal-kicks-next-week-080009885.html
13 ‘Colombia With a U.S. Trade Treaty It May No Longer Need’, Eric Martin & Blake Schmidt, Business Week, 27th October 2011, http://www.businessweek.com/magazine/ colombia-gets-a-us-trade-treaty-it-may-no-longer-need-10272011.html ‘How Obama is losing Colombia’, José R. Cárdenas, Foreign Policy, 25th April 2011, http://shadow.foreignpolicy.com/posts/2011/04/25/how_obama_is_losing_colombia
14 ‘New trade deals bring challenges and opportunities’, Jim Wyss, Miami Herald, 12th October 2011, http://www.miamiherald.com/2011/10/12/2451429/new-trade-deals- bring-challenges.html
15 ‘A Singapore for Central America?’, The Economist, 14th July 2011, http://www.economist.com/node/18959000

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