Conventional Trade Wisdom
Jun 02, 2011
By John Reifsteck – Champaign, Illinois (www.truthabouttrade.org)
There must be a university that offers doctoral degrees in the obvious, judging from a few recent research papers. One showed that talking on the phone leads to poor driving. Another demonstrated that bullies pick on unpopular kids. A third revealed that performance-enhancing drugs enhance athletic performance.
Yet sometimes the conventional wisdom is worth proving because the stakes are so high. A good example is a new study from the Department of Agriculture. It asks an important question in its title: “Are Competitors’ Free Trade Agreements Putting U.S. Agricultural Exporters at a Disadvantage?”
The answer, of course, is yes. The real shocker is that our political leaders don’t seem concerned enough to do anything about it.
Free-trade agreements are an effective way for economic partners to exchange goods and services across borders, as they lower trade barriers by mutual consent. Just about every country on the planet is party to at least one FTA. Last December, according to the World Trade Organization, 290 FTAs were in force. Most had been negotiated since 2000 and more are on the way.
President Obama made the case for FTAs earlier this year, in his State of the Union address: “The more we export, the more jobs we create here at home.”
Once upon a time, the United States worked hard to boost exports by striking trade deals. Between 2003 and 2007, it finished FTAs with 16 countries, including individual pacts with Australia, Bahrain, Chile, Morocco, Oman, Peru, and Singapore as well as the regional Central American Free Trade Agreement with Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua.
The benefits are crystal-clear. On May 19, a company in Chile agreed to buy five new airplanes from Boeing for almost $822 million, in a transaction that will help keep plenty of American workers busy. This is a direct result of the U.S.-Chile FTA, approved in 2004. One of its provisions eliminated Chilean tariffs on the purchase of commercial aircraft.
Despite this stunning success, the United States has practically quit the business of trade diplomacy. It has concluded agreements with Colombia, Panama, and South Korea but they’ve languished for years, waiting for the congressional approval that never seems to come.
The delay has punished American farmers, according to the USDA report.
That’s because the rest of the world isn’t waiting for the United States to jump back into the trade game. Other countries continue to negotiate FTAs. Every deal that doesn’t include the United States has the potential to put our producers at a competitive disadvantage.
Consider the case of Colombia. It’s the most important South American market for U.S. farm exports. Each year, Colombians buy almost $1 billion in wheat, corn, soybeans, and other American-grown products.
Recently, Colombia signed an FTA with the Mercosur trading bloc, whose members include Argentina, Brazil, Paraguay, and Uruguay. These countries gained an immediate advantage over U.S. agricultural goods--a margin of 15 percent for wheat and 7 to 8 percent for corn.
“These preferences appear to have appreciably reduced U.S. shares in these [Colombian] commodity markets in 2009 and 2010,” says the USDA report. The cost to American farmers’ totals hundreds of millions of dollars--and it’s a price we’ll keep on paying until Washington resolves to correct it.
The news could go from bad to worse because Canada and Colombia are on the verge of their own FTA. It would make Canadian farm products sold in Colombia less expensive than U.S. farm products. It doesn’t take a Ph.D. in the obvious to know the result: Canadian exports will surge and American exports will slump.
The solution is staggeringly simple. Congress must approve the free-trade agreement with Colombia that we negotiated years ago. That way, American farmers will compete on a level playing field with our competitors in Canada and South America. A similar logic works for the FTAs with Panama and South Korea.
Yet our leaders in Washington refuse to cooperate with this reality or with each other. The latest hold-up is a dispute over Trade Adjustment Assistance, a $2-billion program of questionable effectiveness that attempts to help workers displaced by foreign trade.
Unless the politicians solve these squabbles, voters may decide they need new leadership. It’s obvious.