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Central America News: Betting on Free Trade

Companies and business groups alike are hoping U.S. Congress passes free trade pacts with Colombia and Panama soon.

DHL hopes the Colombia-FTA free trade agreement will help boost its already booming Colombia business

As U.S. lawmakers are busy focusing on domestic politics and the U.S. presidential elections in November, major multinationals like DHL and business groups like the National Association of Manufacturers (NAM) are anxious to see Congress move on free trade agreements with Colombia and Panama.

"For us it's really important to have more FTA's," says Antonio Arranz, vice president of operations at DHL Express International Americas, the market leader in Latin America. "Every time we have seen an FTA in place, we have seen an increase in business."

The congressional passage of the U.S.-Peru free trade agreement in December, for example, is helping boost the bottom line there. Although it still hasn't been implemented, the expectations of its approval have led to strong interest from foreign companies as well as significant confidence among Peruvian consumers and companies alike. "Our outlook for Peru looks very good," Arranz says. "We expect to grow [this] year because we have [the FTA]."

U.S. trade with Peru reached $8.8 billion in 2006, an increase of 18.5 percent from 2005, according to the U.S. Census Bureau. U.S. lawmakers may approve U.S. free trade agreements with Panama and Colombia as well, possibly this year.

Also the Panama FTA would help boost DHL's business there, which is already doing well. U.S. trade with Panama reached $3.1 billion in 2006, an increase of 23.9 percent from 2005, according to the U.S. Census Bureau.

KEY PRIZE: COLOMBIA
 
But the big prize for DHL and other companies is Colombia. U.S. trade with Colombia reached $16.0 billion in 2006, an increase of 11.6 percent from 2005, according to the U.S. Census Bureau. That's 34.5 percent more than U.S. trade with Panama and Peru combined, according to a Latin Business Chronicle analysis of Census Bureau data. "Everyone expects the free trade agreement to help Colombia grow really fast," says Arranz, who is a former country manager for DHL in Colombia. "Colombia has great potential. A lot of international companies are interested in doing more business in Colombia."

Arranz's statements echo those by CEO's of major U.S. companies like General Motors, Coca-Cola and Citibank that last month sent an open letter to the U.S. Congress asking for approval of the Colombia agreement.

They also reflect the views of major business groups like NAM. "Peru was very good start," says Doug Goudie, NAM's director of trade policy. But "Colombia is a very much stronger and more important agreement [for] the U.S. economy...Every day we wait is a day our products don’t go to Colombia tariff free."

HELPS US EXPORTS
The Colombia free trade agreement will enable more than 80 percent of U.S. exports of consumer and industrial products to Colombia to enter that market duty-free immediately, with remaining tariffs phased out over 10 years.

Meanwhile, Colombian exporters already benefit from duty-free access to the U.S. market for most of their products thanks to the the Andean Trade Preferences and Drug Eradication Act (ATPDEA). But the ATPDEA is renewed for limited periods (the current one expires in March) and provides no long-term guarantees for Colombian exporters.
 
 
Passing the Colombia and Panama FTA's are also important for political reasons, since they will help bolster two key U.S. allies, Goudie says. He recently attended a fact-finding mission to Colombia that included companies like Wal-Mart, Caterpillar and UPS and other business groups. In addition to meeting President Alvaro Uribe and key officials, the group met with Colombian unions. And although much of the opposition against the U.S.-Colombia FTA comes from U.S. unions, Goudie had the chance to meet with local unions that supported the free trade agreement. While state-sector unions generally are against the FTA, private-sector unions are in favor, he points out. 

AGRICULTURE SUPPORT

Major business organizations like the Coalition of Service Industries, the National Pork Producers Council and the National Farm Bureau have also urged Congress to pass the Colombia and Panama FTA's. "We encourage Congress to now move ahead with the Colombia and Panama trade agreements, which are also important for U.S. agriculture," the National Farm Bureau said in a statement last month. "It is critical that we continue opening markets for our products, while reaching out to new trading partners."

So, how likely is approval of the free trade agreements? If the U.S. Congress were to vote on them today, they would pass, Goudie says. However, the problem now is that the congressional leadership is opposed to putting up the agreements for a vote, he says. If the U.S. Congress fails to pass the agreements this year, it will be up to the next U.S. president - chosen in November - to spearhead the effort to get them passed, Goudie says.

Republican candidates like Mitt Romney and John McCain have strongly favored Latin America free trade agreements, while Rudy Giuliani has only recently appeared to favor them, according to a Latin Business Chronicle analysis of their past records and current platforms. Meanwhile, on the Democratic side, both Senators Barack Obama and Hillary Clinton have generally negative records on free trade.  The two were among the five senators that didn't vote on the U.S.-Peru FTA, which got overwhelming support in the Senate. They also voted against CAFTA in 2005 and have frequently criticized NAFTA.

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