July 26, 2016 Steering A New Course

Volume 10 | Issue 3

Central and South American Trade Pacts; Panama Canal Expansion Connect the U.S. To More Trade Opportunities

When it comes to the Americas and manufacturing, we’re all in this together. Manufacturers in the United States are bound tightly to the markets and consumers of Latin America, economic ties that benefit the entire Western Hemisphere. Expanded trade has strengthened these ties, from the 1994 enactment of NAFTA to the 2004 bilateral agreement with Chile and last year’s adoption of the Central American Free Trade Agreement.

Now, with Congress having reached a bipartisan framework that permits action on new Free Trade Agreements with Peru, Colombia and Panama, the future looks bright for even greater sales and even closer ties – if we have the wisdom to embrace the opportunity.

Ultimately, renewal of the President’s Trade Promotion Authority, allowing the Administration to negotiate trade agreements and submit these to Congress for an up-or-down vote, is key to progress on the trade front in Latin America and throughout the world.

Yet, even with the new, bipartisan congressional framework on labor standards, trade agreements remain the subject of tough political disputes. Time and again, we hear that trade hurts Americans, destroys jobs and benefits just a wealthy few. The Latin American left fights free markets; anti-trade forces in the United States fight a dynamic global economy.

But they’re fighting reality. Experience shows that when it comes to U.S.-Latin American trade agreements, trade simply works. More goods and services flow both ways, the volume of U.S. exports rises, and manufacturers in the United States find new markets.

CAFTA: A first-year success
Consider CAFTA. The Central American Free Trade Agreement has proved a resounding success its very first year, disproving all the dire warnings made by Congressional opponents of expanded trade. In 2006, U.S. exports to the
four countries that had implemented CAFTA-DR – El Salvador, Guatemala, Honduras and Nicaragua – soared to $10 billion, an 18.1 percent increase over the previous year.

The $1.2 billion trade deficit had with the region in 2005 turned into a $1 billion surplus, in a single year. And in March, the Dominican Republic implemented the agreement, adding the U.S.’s largest trading partner in the region to CAFTA – a topic of much optimistic discussion when I spoke to the Puerto Rican Manufacturing Association in early June.

Secretary of Commerce Carlos Gutierrez states the case with simple force: “CAFTA-DR and the other free trade agreements in the hemisphere mark another advance toward bringing our nations closer together and securing the benefits of trade for all.”

But that’s an anomaly, critics will say, a one-year exception that will never stand the test of time.
But then look at Chile. The U.S.-Chile Free Trade Agreement has proved a boon to U.S. exporters, especially in the manufacturing and agricultural sectors: Last year, bilateral trade between the United States and Chile officially doubled from the levels before the agreement went into effect (Jan. 1, 2004).

Total trade reached $16.4 billion in 2006, a 154 percent increase over the pre-FTA trade levels of 2003. The sector-by-sector gains are remarkable, clear evidence that free trade works. As an example: U.S. exports of trucks and other commercial transportation vehicles to Chile have soared 453 percent since 2003, totaling $314 million in 2006.
Dallas-based Occidental Chemical has increased sales to its Chilean subsidiary, OxyChile, of caustic soda – used in the pulp industry – by an annual average of 35 percent since enactment of the U.S.-Chile FTA. General Manager Artie Lynnworth says the FTA made caustic soda immediately duty-free, putting the company on much better footing against its competing suppliers from Peru and Argentina.

Panama Canal: Gateway to trade
Panama well illustrates the rich possibilities in U.S.-Latin American trade and investment. This small but vital country is home to a major project of far-reaching importance for U.S. manufacturers: the expansion of the Panama Canal.

The 50-mile-long Panama Canal carries 5 percent of total global trade, much of it originating from the ports of New York City, Los Angeles and Miami. Today, Panama is embarked on a major, $5.5 billion expansion of the canal, adding a new lane of traffic and set of locks, doubling tonnage capacity and allowing the transit of the new generation of super cargo ships.

In and of itself, the project will aid manufacturers by allowing expedited and more efficient shipping of U.S.-produced goods. The canal expansion is also the biggest construction project in the world since the Three Gorges Dam in China.

The canal’s expansion and the pending U.S.-Panama Free Trade Agreement are closely linked, says Tom Gales, Caterpillar’s vice president for Latin America. The potential economic gain for his company, the largest equipment manufacturer in the world, and other U.S. and Panamanian businesses and consumers are significant, he recently told the International Trade Commission.

“If enacted, a Panamanian Free Trade Agreement would immediately eliminate tariffs ranging from 3 to 15 percent on Caterpillar products, benefiting both the company and its customers,” he said.

Gales also spoke up for the Peru and Colombia pacts. “Free trade has the ability to help transform these regions by improving living standards because more products could be offered at lower prices,” he said. “Free trade will also help promote peace and prosperity in these countries, bringing us all closer together.”

That’s exactly right. While economic benefits make the case for trade, neither should we forget political considerations. With anti-American, leftist leaders in power in Venezuela and Bolivia, strengthening our ties with Latin American democracies becomes a foreign-policy priority.

Colombia is perhaps the clearest case, having struggled for decades against violent drug cartels and a brutal guerilla movement. When President Bush traveled to Colombia in March, and President Alvaro Uribe returned the visit at the White House in May, democracy and commerce were both on the agenda with the U.S.-Colombia Free Trade Agreement.
“This agreement has strategic implications,” Bush said in Washington. “It is very important for this nation to stand with democracies that protect human rights and human dignity.”

The broader context for all these pacts and the authority that made them possible should also be a pressing concern.
The lapsing of the President’s Trade Promotion Authority on June 30th poses a major obstacle to future negotiations with potential trade partners worldwide. Presidents of both political par

In the end, I am optimistic for the future of U.S.-Latin American trade. Democracy, commerce and manufacturing – the case is clear and powerful for free-trade agreements with our partners to the south. The evidence is there, the Congressional framework for moving forward is in place, and manufacturers are waiting.
Let’s seize the opportunity.

John Engler is president of the National Association of Manufacturers, whose mission is to enhance the competitiveness of manufacturers by shaping a legislative and regulatory environment conducive to U.S. economic growth and to increase understanding among policymakers, the media and the general public about the vital role of manufacturing to America’s economic future and living standards. Visit: http://www.nam.org

The figures for automotive exports are certainly impressive. Exports of U.S.-manufactured passenger vehicles and motor cars reached $129 million last year, a 144 percent jump over 2003.

I recently visited Indiana, a trip that included an illuminating stop at the Subaru plant in Lafayette. The SUVs made there are shipped to Colombia, among other countries, where they encounter an 8 percent tariff. Drop that tariff through enactment of a U.S.-Colombia Free Trade Agreement, and the vehicles immediately become 8 percent cheaper. Already strong export sales would increase.

Though large international companies like equipment manufacturers, automakers and chemical companies obvious gain from Free Trade Agreements with our southern neighbors, exporters of all shapes and sizes stand to benefit.

In addition, the U.S. Census Bureau reports that small and medium-sized companies represent 96 percent of all manufacturing companies involved in exporting. As The Orlando Sentinel editorialized in May, praising the new Congressional-Administration trade framework, future Latin American trade agreements means broad economic benefits here at home.

“In Florida, tens of thousands of businesses – most with fewer than 500 employees – sell their goods and services abroad,” The Sentinel wrote. “Hundreds of thousands of state residents owe their livelihoods to international trade and investment.”

Commerce Department Offers Assistance

The U.S. Department of Commerce’s Commercial Service is an excellent resource for small and medium-sized U.S. firms looking to begin or increase their export sales to Latin America. Its experts, located in 108 U.S. cities and in U.S. Embassies in most countries in the region, can provide customized market research, trade leads, lists of recommended distributors and agents, and pre-arranged business meetings with key contacts in any Latin American country. U.S. manufacturers can find full information on Commercial Service assistance and a list of the agency’s offices on www.export.gov.

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