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Industry Touts Free-Trade Deals

Pact with Colombia would immediately remove tariffs on most U.S. chemical exports

by Glenn Hess
May 9, 2011 | A version of this story appeared in Volume 89, Issue 19

Credit: Shutterstock
Officials estimate that a free-trade agreement with Colombia could increase U.S. exports by $1 billion per year.
Credit: Shutterstock
Officials estimate that a free-trade agreement with Colombia could increase U.S. exports by $1 billion per year.

Chemical manufacturers and other U.S. industries are calling on Congress to swiftly ratify a long-delayed free-trade agreement with Colombia, as well as pending deals with South Korea and Panama, saying the market-opening pacts will increase exports and give a boost to the still-struggling domestic economy.

The Obama Administration wrapped up talks with Colombia on a reworked trade agreement last month and concluded a revised deal with South Korea in December (C&EN, Jan. 24, page 27). U.S. officials also recently finalized a smaller accord with Panama, clearing the way for the trio of agreements to be sent to lawmakers for up-or-down ratification votes.

Two-way U.S. goods trade with Colombia totaled close to $28 billion in 2010, up sharply from around $21 billion during the global recession year of 2009. U.S. goods exported to Colombia surpassed $12 billion in 2010, led by shipments of chemicals, plastics, and electrical equipment. Colombia exported about $15.6 billion worth of goods to the U.S. last year, more than half of which was crude oil.

The U.S. has exported nearly $2.5 billion worth of chemicals to Colombia per year on average since 2008. But U.S. chemical companies currently face tariffs averaging 7.6%—and ranging up to 20%—on their shipments to Colombia.

Nearly one-third of U.S. industrial exports to Colombia are in the chemical sector. As soon as the trade pact takes effect, more than 86% of U.S. chemical products will receive duty-free treatment, including such high-value items as agrochemicals, fertilizers, and soda ash. All remaining tariffs will be phased out over 10 years.

The free-trade pacts were originally negotiated and signed when former president George W. Bush was in the White House. However, they were never submitted for congressional approval because of economic and labor concerns raised by Democrats and their union allies.

President Obama and President Santos
Credit: The White House
Video no longer available

President Barack Obama opposed all three deals during his 2008 presidential campaign. After taking office a year later, he promised to renegotiate the pending agreements. Now eager to promote U.S. exports as a way to bring down unemployment, Obama has launched a national export initiative and set a goal of doubling U.S. exports within five years.

White House officials announced the new agreement with Colombia in early April after the Latin American nation agreed to do more to ensure workers’ rights and protect union organizers from violence.

“It bolsters efforts to punish those who have perpetrated violence against union members and, we think, substantially strengthens their laws and enforcement,” U.S. Trade Representative Ron Kirk said in a statement. The trade deal, he added, will have a “positive effect on American jobs.”

Colombia is home to 45 million consumers and is one of the largest economies in Latin America. It is also a major export market for U.S. manufacturers. The International Trade Commission has estimated that the tariff reductions in the agreement alone will expand exports of U.S. goods by more than $1.1 billion annually and support thousands of additional American jobs.

The trade agreement with Colombia would immediately allow 80% of U.S. goods to be exported there duty-free, something U.S. manufacturers have long sought. Most Colombian goods are already sold duty-free in the U.S.

Colombia has had preferential access to the U.S. market since the early 1990s under the Andean Trade Preference Act. However, that law expired in February, and its renewal has been delayed in a Republican bid to put pressure on the White House to send the free-trade pact to Congress.

“This agreement is essential to job creation and our global competitiveness,” says Jay Timmons, president of the National Association of Manufacturers, the nation’s largest industrial trade group. “Exports are driving the economic recovery, and the Colombia agreement is critical to meeting the President’s goal of doubling exports.”

For Dow Chemical, which has operated in the Andean nation for 51 years, the agreement will eliminate tariffs on 90% of the more than $200 million worth of manufactured goods the company annually exports to Colombia.

“Commitment to move forward is a critical component of the U.S. national export initiative and a strategic recognition of Colombia’s vital partnership with the U.S.,” says Andrew N. Liveris, chairman and chief executive officer of Dow, the largest U.S. chemical maker.

“We congratulate both administrations for their work and urge the U.S. Administration and Congress to move forward quickly on a positive vote to approve this agreement and to continue to grow our bilateral economic partnership,” Liveris remarks.

The agreement will also eliminate tariffs on 60% of U.S. exports of resin and manufactured plastics immediately upon implementation, and almost all remaining tariffs in this category will be eliminated over seven years.

The trade pact also provides for improved standards for the protection and enforcement of a broad range of intellectual property rights, according to the White House trade office. Such improvements include requirements for “robust patent and test data protection” and state-of-the-art protection for U.S. trademarks.

“We are very pleased with the recent development on Colombia,” says Justine Freisleben, government relations manager for international trade and advocacy at the Society of Chemical Manufacturers & Affiliates (SOCMA), a trade group representing the batch, custom, and specialty chemical industry. “There are very real benefits for U.S. manufacturers with all three of these agreements,” she says.

Latin American countries are among the fastest-growing markets for U.S. chemical manufacturers, Freisleben notes, with Brazil and Colombia ranked among the 20 largest export markets for the industry worldwide, with Argentina, Peru, and Chile close behind.

“Any agreement that can increase market access while providing high standards for intellectual property protection, investment, and enforcement is important for the sustainability of the industry,” she remarks.

Colombia implemented a trade accord with Brazil, Argentina, Paraguay, and Uruguay in 2009 (the Mercosur agreement), and pacts with Canada and the European Union (EU) will soon enter into force. Colombia has also initiated trade talks with South Korea and will begin negotiations with Japan later this year.

Republican lawmakers have been pushing the White House to submit legislation to implement the agreements with Colombia, South Korea, and Panama as a package before July 1. That’s when several rival free-trade deals take effect, including the EU’s pact with South Korea and Canada’s deal with Colombia.

“We can’t afford further delay,” says U.S. Chamber of Commerce President and CEO Thomas J. Donohue. “Other nations are racing to clinch their own trade deals with Colombia and put American workers at a competitive disadvantage.”

U.S. Chemical Trade With Colombia

■ Colombia is the 14th-largest market for U.S. chemical exports.

■ The chemical sector accounted for nearly $2.5 billion in annual U.S. exports to Colombia on average from 2008 through 2010.

■ Estimated duties paid on exports of U.S. chemical products to Colombia were nearly $480 million from 2008 to 2010.

■ More than 86% of U.S. chemical exports to Colombia would receive duty-free treatment immediately upon implementation of the trade agreement; tariffs on the remaining 14% would be phased out over 10 years.

■ Colombian tariffs on chemicals currently average 7.6% and range up to 20%.

■ Top U.S. chemical exports to Colombia include organic chemicals, medications, polymers and resins, and fertilizers.

SOURCE: Department of Commerce

A Chamber of Commerce study issued in September 2009 warned that the U.S. will lose more than 380,000 jobs and $40 billion in export sales if the pending trade agreements suffer further delays.

The July 1 deadline is particularly important to chemical manufacturers, Freis­leben notes, because many of SOCMA’s 300 member companies face their biggest competition from counterparts in the EU.

“Implementation of the EU-Korea agreement before the U.S.-Korea agreement will give the EU an advantage over our manufacturers,” she says. The tariff for EU chemical producers exporting to South Korea will be 0.7%, whereas the current tariffs for U.S. producers range from 6.1% to 50%.

Kirk is optimistic that Congress will ratify all three trade agreements. The deals are part of a larger strategy to expand U.S. trade around the world, he said in remarks to reporters on April 20. Currently, the U.S. has free-trade agreements in place with 17 countries.

“We’ve given notice to Congress that we’re ready to start the informal and formal process on Korea, Panama, and soon Colombia,” Kirk said. But he indicated that the pacts would be sent to Capitol Hill separately.

“Even though I’m very confident they’ll pass, we would run the risk of all three being knocked down by a point of order,” he said, referring to a parliamentary maneuver. “So what we’re talking with Congress about is staging and timing,” Kirk remarked.

The deal with South Korea is expected to win bipartisan support, as is the accord with Panama, which was cleared to advance when the Panamanian government approved an agreement that would block would-be tax evaders from using Panamanian banks as tax havens.

Building support for the deal with Colombia has been more difficult, though, because of organized labor’s strong opposition. The AFL-CIO, the nation’s largest labor union and a key contributor to the Democratic Party, has made defeat of the Colombia agreement one of its top political goals.

The organization argues that an “action plan” the Administration agreed to as a side deal does not go far enough to address labor and human rights issues in Colombia. More than 2,850 union workers have been murdered in the past 25 years, including 51 last year, according to the AFL-CIO.

“The Colombian government has failed in enforcing the rule of law and protecting the safety of its citizens as they exercise their internationally recognized human rights to form unions and bargain collectively,” AFL-CIO President Richard L. Trumka says. “These problems are deeply ingrained, and they cannot be solved by commitments on a piece of paper.”

Kirk said he hopes to ultimately win union support for the agreements, but the Administration intends to push forward for congressional approval whether “our friends from labor” are on board or not. “We have addressed a number of their concerns,” he said.


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