Monday, November 29, 2010

A Trade Agreement Even a Mercantilist Could Love

In all the hoopla surrounding the ongoing soap opera that is US-Korea FTA, many of us have lost sight of another completed-and-signed-yet-still-not-implemented-for-no-good-reason deal - the US-Colombia FTA.  Fortunately for us, the WSJ's Mary Anastasia O'Grady helpfully reminds us today about Colombia.  Her column is definitely worth reading in full, but here are my favorite parts:
Asked about the president's failure to get the amendments he wanted on the signed U.S-South Korea free trade agreement in Seoul, Mr. Locke asserted that the U.S. can't accept "a deal for the sake of a deal" and complained that as it stands now, it doesn't open Korea enough to U.S. producers.

This is mercantilism, a trade philosophy that promises national prosperity through exports. If you are not familiar with the term, it may be because it was last in vogue in the 18th century. It gradually went out of style when policy makers learned that by opening to foreign goods, they could increase the competitiveness of local producers and build wealth.

It is true that mercantilism—a form of economic nationalism—made a comeback in the 20th century under fascism in Europe and Latin America. But that too ended in tears. After World War II, countries relearned the lesson that when both consumers and producers are able to choose from the globe's output, they have the advantage over their counterparts in closed economies. Chile became an export powerhouse by unilaterally opening its markets to the world....

But let's assume the Obama administration is mentally stuck in 1930s Italy and thinking only of exports. It still can't justify its position on Colombia, the third largest market for agricultural imports in Latin America. American farmers now pay an average 16.5% tariff on exports to Colombia. As a result, according to Colombia's ministry of trade, "countries like Argentina [which is part of an FTA] are rapidly displacing U.S. producers. In 2008 American farmers had 46% of the Colombian market; today that share has diminished to 22%."

Next year, Ottawa's Colombia free trade agreement will enter into force, and Canadian producers will join the list of competitors who have an advantage over Americans in the Colombian market. The European Union and South Korea have also signed FTAs with Colombia and will have advantages on the industrial production front.

It's hard to understand what Mr. Obama is thinking about besides his loyalty to the AFL-CIO. But Colombia's plans are clear. It wants to trade with the U.S. But if it is rejected, it will simply buy and sell with the rest of the world.
Good stuff.  Be sure to read it all here.

So to recap: the White House won't move an economically-massive, two-sided agreement in the KORUS because it still doesn't fit their (widely-discredited) mercantilist framework.  Yet they also won't move a smaller, totally-lopsided agreement in the US-Colombia FTA, despite the fact that it's a mercantilist's dream.  Meanwhile, South Korea and Colombia are entering into FTAs with each other and the United States' biggest competitors.

(And as for the US-Panama FTA, well, it's apparently a figment of our collective imagination.)

This all makes perfect sense, wouldn't you say?

1 comment:

John B. said...

Why don't you write something about Lori Wallach's specious Huffington Post column of yesterday about investor-state dispute resolution in the KORUS FTA? She claims that it would allow Korean companies to challenge US laws in "foreign tribunals" and be compensated by the US government if they prevail. She uses the identical investor-state language in NAFTA as evidence. According to her own data, though, no Mexican or Korean company has prevailed over the US government, even though they have filed 20 claims against it since NAFTA took effect. U.S. firms, meanwhile, have prevailed over Canada and Mexico eight times in 43 attempts and won a total of $326.9 million in compensation. I tried to comment to the HuffPost, but they rejected it. I guess only positive comments are allowed.