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Latin Leaders Hail FTA Passage

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Leaders of Colombia and Panama -- as well as Korea -- hail the US congressional approval of FTA's.

BY ROBERT MUNKS AND SARAH McDOWALL

The US Congress yesterday (October 12) approved by wide margins three free-trade agreements with Colombia, Panama and South Korea, prompting enthusiasm among the leaders of those countries but also a range of criticisms.

In the House of Representatives, the three free-trade agreements (FTAs)—which were considered as a package at the behest of Republicans—passed by a margin of 262 to 167 (Colombia), 300-129 (Panama) and 278-151 (South Korea). The Senate votes were also conclusive: 66-33 (Colombia), 77-22 (Panama) and 83-15 (South Korea).

At a political level, the passage of the FTAs was welcomed by the leaders of the respective countries. US president Barack Obama described the vote as "a major win for American workers and businesses". In Colombia, President Juan Manuel Santos was equally enthusiastic, declaring that the accord would increase economic growth by 1 percent "for the rest of our lives", while Panamanian president Ricardo Martinelli said that the accord was a "tool for the economic development". South Korean president Lee Myung-bak, currently visiting the US, said that the agreement was a watershed moment for the two countries and that it would increase bilateral trade by more than 50 percent by 2015.

Domestically, the final approval of the FTAs after a tortuous series of negotiations that began in 2006 and 2007, also represents an unusual outpouring of Republican support for Obama, given that even his most vociferous critics on the right voted almost unanimously for the pacts. Opposition came from within his own Democratic Party, many of whom ignored the White House's lobbying and voted against. Particular concerns remained over labour and human rights in Colombia, which will have influenced many Democrats to vote no. California congresswoman Maxine Waters expressed surprise and concern that the US was passing an FTA with a country that had "the world record for murders of trade unionists". Democrats also had an eye on domestic constituencies, expressing fears about potential job losses: Democratic senator Sherrod Brown (Ohio) claimed that the FTAs followed the model of the "failed" 1994 North American Free Trade Agreement (NAFTA), and could particularly affect small businesses. Nevertheless, such objections will have been pushed aside for many legislators by the passage in tandem of a Trade Adjustment Assistance program (TAA), designed to support workers whose jobs may be threatened by implementation of the FTAs.

ECONOMIC CONSEQUENCES

Obama had promoted the FTAs as one element of his attempts to re-energise the weak economic recovery in the US, claiming that free trade would drive growth and job creation. Prior to the vote, the US already had 11 trade agreements with 17 countries, and, according to the White House, these accords should help to create around a quarter of a million jobs and result in export increases to the value of US$13 billion. Job creation remains a goal of the administration, with unemployment figures stubbornly refusing to drop from around 9 percent and the issue becoming a key domestic concern ahead of the 2012 presidential election.

For Colombia, the FTA will fully open up the US market, its principal export destination, in a relationship where bilateral trade is currently worth US$27 billion. Santos declared that it was "the most important treaty ever signed in our history", but admitted that there were challenges ahead. He also claimed that the FTA would lead to the creation of 250,000 extra jobs in Colombia and "a minimum" of 6 percent export growth, while greater investment would also be attracted for infrastructure, industry and rural development. His optimism was not shared by the country's unions, which claimed that job losses of up to two million could occur. Colombia stands to benefit from increased exports of dairy and sugar products, while the US could benefit in the manufactures, chemicals and automotive sectors.

In Panama, the passage of the FTA was also greeted with enthusiasm by business sectors, despite ongoing concerns about its possible effect on agriculture. Panama's economy is booming, with growth forecast in the 7 percent range for coming years as the widening of the Panama Canal aims to increase maritime trade traffic through the country. The declining agricultural sector nevertheless remains an area that could suffer, although the opening of the US market to products such as rum, sugar cane liquors, dairy products and cheeses could offset potential losses from US imports of meat products. Heavy US subsidies to its agricultural sector cannot be replicated by Panama, meaning that the trade advantage lies with the US. Some 89 percent of agricultural products and 100 percent of industrial goods will be exported tariff-free to the US once the FTA takes full effect, although at just US$6.4 billion, bilateral trade is by far the lowest of the three new FTA countries and heavily slanted (95 percent) in favor of the US. Greater US investment in Panama's key banking sector may also be a spin-off.

News of the vote elicited mixed responses in South Korea. The FTA is the largest trade agreement since the 1994 North American Free Trade Agreement and will significantly benefit the South Korean automotive, technology and textile sectors. It also adds to the list of FTAs successfully pursued by President Lee Myung-bak since coming to power in 2008. South Korea already has deals with the EU, the Association of Southeast Asian Nations (ASEAN) and India. Domestic political opposition will mean that ratification of the bill will be no easy task, however. Trade Minister Kim Joong-hoon today (13 October) called for a compromise so that the agreement can be ratified this month and become effective by January 2012. The main opposition Democratic Party (DP), however, has pledged to strongly resist any effort by the government to steamroller the FTA through the legislature, and has been calling for more support measures for the agricultural sector. The DP yesterday organized a joint rally in conjunction with other activists expressing opposition to the bill, which it says is tilted in favor of the US. Despite the ruling Grand National Party (GNP) holding a majority in the legislature, it does not want to be seen to be forcing it through. With general elections approaching in April next year, a repeat of the scuffles that occurred in 2007 is the last thing that Lee needs (see South Korea: 22 April 2009: Scuffles Break Out as South Korean Parliamentary Committee Approves FTA with US).

OUTLOOK AND IMPLICATIONS

Obama has overcome the protectionist urge that is often the result of poor domestic economic indicators to force through the FTAs with Republican support, creating a rare moment of near-bipartisanship in his embattled administration. Nevertheless, the passage of the FTAs does not presage a major trade rebalancing for the US with greater strategic implications: its relationship with Latin America, neglected since the administration of former president George W. Bush, will remain one of tactical calculations in economic issues rather than a wholesale drive to challenge the expanding Chinese presence in the south of the hemisphere. Indeed, the US' principal strategic interests in the region will continue to focus on the two countries with greatest political and economic power, namely Brazil and Mexico, while Colombia and Panama remain—economically speaking—relatively minor partners.  

Robert Munks is a Senior Country Analyst for Americas at IHS Global Insight, while Sarah McDowall is Regional Manager for Asia-Pacific Country Analysis. Republished with permission from IHS Global Insight.

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