Finally, a Breakthrough on the Colombia Trade Agreement
To no great surprise, the Obama administration announced today that it has cut a deal with the government of Colombia to address concerns about labor protections and to finally move toward enacting the long-stalled free-trade agreement between our two countries. This is welcome news for trade expansion and for strengthening our ties to a key Latin American ally.
Colombian President Juan Manuel Santos is expected to arrive later this week in Washington to cement the deal. In exchange for the agreement, Colombia has reportedly agreed to expand its efforts to protect union members from violence and to more vigorously prosecute those responsible.
As my Cato colleague Juan Carlos Hidalgo and I documented in a Cato study earlier this year, concerns about labor protections were never a valid reason for holding up this agreement. The overall murder rate in Colombia has declined dramatically in the past decade, and the murder rate against members of labor unions has declined even more rapidly. A union member in Colombia today is one-sixth as likely to be a victim of homicide as a fellow citizen who does not belong to a union. Meanwhile, the Colombia government has increased convictions for homicides against union members by eight-fold in the past three years.
As Democratic Senators John Kerry and Max Baucus pointed out in an op-ed this week that endorsed the agreement, the International Labor Organization has certified that Colombia is complying with its international labor agreements.
The obstacle of labor violence was just a political smokescreen that had been raised by labor-union leaders in the United States looking for any shred of an argument to oppose the agreement. Even the agreement announced this week is not going to win over the AFL-CIO. The Colombia government could have raised a hundred murdered union members from the dead, and organized labor in American would still chant that not enough was being done.
The breakthrough this week clears the path for Congress to approve, by what I predict will be comfortable bipartisan majorities, the pending trade agreements with Colombia, Panama, and South Korea.
Promoting Free Trade–Sort Of
The U.S. and South Korean governments have agreed to changes in the free trade agreement negotiated by the Bush administration. The president rightly lauded the FTA as a good deal for Americans:
“This agreement shows the U.S. is willing to lead and compete in the global economy,” the president told reporters at the White House, calling it a triumph for American workers in fields from farming to aerospace.”
Approving the FTA has taken on added urgency after the European Union negotiated a similar accord with the South. Once that agreement takes effect, Europeans would have better access than Americans to the world’s 13th largest economy. Protectionism is always foolish, but especially so when one’s competitors are promoting open markets.
The accord also offers important geopolitical benefits. With much nervousness in the U.S. and throughout East Asia over an increasingly assertive China, Washington should work to break down barriers to Americans trading with China’s neighbors. Already Koreans do more business with China than the U.S. While the FTA won’t reduce the appeal of products from next door China in South Korea, it will allow American producers to compete more freely in that market.
The president deserves credit for pushing the agreement forward, but he also needlessly held up ratification by two years. Moreover, his “fix” punishes American consumers. As the official government fact sheet explains:
Car Tariff Elimination: The 2007 agreement would have immediately eliminated U.S. tariffs on an estimated 90 percent of Korea’s auto exports, with remaining tariffs phased out by the third year of implementation. The 2010 supplemental agreement keeps the 2.5 percent U.S. tariff in place until the fifth year. At the same time, Korea will immediately cut its tariff on U.S. auto imports in half (from 8 percent to 4 percent), and fully eliminate that tariff in the fifth year.
Truck Tariff Elimination: The 2007 agreement would have required the United States to start reducing its tariff on Korean trucks immediately and phase it out by the agreement’s tenth year. The 2010 supplemental agreement allows the United States to maintain its 25 percent truck tariff until the eighth year and then phase it out by the tenth year – but holds Korea to its original commitment to eliminate its 10 percent tariff on U.S. trucks immediately.
That is, the Obama administration forced a delay in the reduction of U.S. auto tariffs. This obviously hurts Korean exporters, but the highest price will be paid by American consumers. The provision is simply a special interest payoff to the auto industry, which already has benefited from a big federal financial bail-out. So much for bringing “change” to Washington.
Free trade is good for Americans. That means bringing down foreign trade barriers. It also means bringing down U.S. trade barriers.
Upcoming G20 Summit in Seoul Raises Stakes for U.S.-Korea Trade Deal
The next G20 Summit, to be held November 11-12 in South Korea, is right around the corner. For free traders, the summit has taken on added meaning because of the promise President Obama made during the most recent G20 Summit held last June in Toronto to advance the U.S.-Korea free trade agreement (FTA):
The last time I was in Korea, I said that I would be committed to moving [the FTA] forward. And today I indicated to President Lee that it is time that our United States Trade Representative work very closely with his counterpart from the ROK to make sure that we set a path, a road, so that I can present this FTA to Congress…. I want to make sure that everything is lined up properly by the time that I visit Korea in November. And then in the few months that follow that, I intend to present it to Congress. It is the right thing to do for our country.
We agree, Mr. President. To help policymakers understand the high stakes and potential gains of the agreement, Cato Senior Fellow Doug Bandow has authored the new Cato Trade Briefing Paper, “A Free Trade Agreement with South Korea Would Promote Both Prosperity and Security,” released today.
A preview of Doug’s analysis also was published yesterday in the Daily Caller, under the title “South Korea Free Trade Agreement Key to Prosperity and Security.”
Free the Colombia Trade Agreement
Thirty-nine members of Congress from both major parties sent a letter to President Obama this week urging him to seek passage of the long-stalled free trade agreement with our South American ally Colombia.
The agreement to eliminate trade barriers between our two countries was signed in November 2006, but under the influence of their trade-union allies, Democratic leaders in the House have refused to even allow a vote.
As signers of the letter point out (go here for a Cato analysis), the agreement would be good for our economy and good for U.S. foreign policy. So far, the delay in passage has forced U.S. exporters to Colombia to pay $2.7 billion in extra duties that would have been eliminated if the agreement had become law.
The bipartisan supporters also rightly note that Colombia is a key ally, standing as a democratic alternative to both the Marxist FARC guerrillas and their authoritarian friend, President Hugo Chavez of Venezuela. As the letter correctly states:
Colombia has made remarkable progress on many fronts, emerging as a major growth market and leading center for Latin American business. In a region that has seen a disturbing increase in hostility to U.S. interests and values, Colombia has consistently proven itself to be an important friend, a reliable partner and a bulwark for democracy.
With Colombia in the process of electing a new president after eight years of progress under Alvaro Uribe, it is more important than ever that we strengthen our ties with Colombia through peaceful commerce.
The 20 House Democrats who signed the June 2 letter prove that this need not be a partisan issue. If President Obama is serious about boosting U.S. exports, building friendships abroad, and reaching across the aisle for the good of the country, he should heed the wise words of this letter.
Ron Paul, the Chamber of Commerce, and Economic Freedom
Tim Carney has a blog post at the Examiner that’s worth quoting in full:
The U.S. Chamber of Commerce has issued its 2009 congressional scorecard, and once again, Rep. Ron Paul, R-Tex. — certainly one of the two most free-market politicians in Washington — gets the lowest score of any Republican.
Paul was one of a handful of GOP lawmakers not to win the Chamber’s “Spirit of Enterprise Award.” He scored only a 67%, bucking the Chamber on five votes, including:
- Paul opposed the “Solar Technology Roadmap Act,” which boosted subsidies for unprofitable solar energy technology.
- Paul opposed the “Travel Promotion Act,” which subsidizes the tourism industry with a new fee on international visitors.
- Paul opposed the largest spending bill in history, Obama’s $787 billion stimulus bill.
(Rep John Duncan, R-Tenn., tied Ron Paul with 67%. John McHugh, R-N.Y., scored a 40%, but he missed most of the year because he went off to the Obama administration.)
I wrote about this phenomenon last year, when the divergence was even greater between the Chamber’s agenda and the free-market agenda:
Similarly, Texas libertarian GOPer Rep. Ron Paul—the most steadfast congressional opponent of regulation, taxation, and any sort of government intervention in business—scored lower than 90% of Democrats last year on the Chamber’s scorecard.
Sen. Jim DeMint, R-S.C., had the most conservative voting record in 2008 according to the American Conservative Union (ACU), and was a “taxpayer hero” according to the National Taxpayer’s Union (NTU), but the U.S. Chamber of Commerce says his 2008 record was less pro-business than Barack Obama, Joe Biden, and Hillary Clinton.
This year’s picture was less glaring, but it’s still more evidence that “pro-business” is not the same as “pro-freedom.” The U.S. Chamber is the former. Ron Paul, and the libertarian position, is the latter.
I suspect that on issues such as free trade agreements and immigration reform, I might be closer to the Chamber’s position than to Ron Paul’s. But to suggest that Paul is wrong to vote against business subsidies — or that DeMint was wrong to vote against Bush’s 2008 stimulus package and the $700 billion TARP bailout – certainly does illustrate how much difference there can be between “pro-business” and “pro-market.” Instead of “Spirit of Enterprise,” the Chamber should call these the “Spirit of Subsidy Awards.”
Was Bill Clinton Also an “Extremist” on Trade?
This has not been a good week for the national Democratic Party. Along with losing the Massachusetts Senate seat, the party took another step toward making hostility to trade liberalization a plank of party orthodoxy.
As my Cato colleague Sallie James flagged earlier today, the Democratic Congressional Campaign Committee issued a press release yesterday criticizing a Republican candidate in upstate New York for contributing to the Cato Institute. And, of course, everyone knows that Cato is “a right wing extremist group that has long been a vocal advocate for extremist, unfair trade policies that would allow companies to ship American jobs overseas.”
Among our sins, in the eyes of the DCCC, is that Cato research has supported tariff-reducing trade agreements, such as the North American Free Trade Agreement (NAFTA). Our work has also advocated unilateral trade liberalization—getting rid of self-damaging U.S. trade barriers regardless of what other countries do—which violates the conventional Washington wisdom that we can’t lower our own barriers without demanding “reciprocity” and “a level playing field” from other nations
There is nothing extreme about our work on trade. It fits comfortably within mainstream economics expounded not only by Adam Smith and Milton Freidman but by such liberals as Paul Samuelson and Larry Summers.
In fact, for decades, the Democratic Party embraced lower barriers to trade:
- In the 1930s and ’40s, President Franklin Roosevelt and his Nobel-Peace-Prize-winning Secretary of State Cordell Hull lead the United States away from the disastrous protectionism of President Hoover and a Republican Congress.
- Democratic Presidents Kennedy, Johnson, and Carter all supported successful agreements in the General Agreement on Tariffs and Trade to reduce trade barriers at home and abroad.
- Bill Clinton, the only Democrat to be re-elected president since FDR, persuaded a Democratic Congress to enact NAFTA in 1993 and the Uruguay Round Agreements Act in 1994, which created the World Trade Organization. Clinton also championed permanent normal trade relations with China in 2000, which ushered that nation into the WTO.
- In the previous Congress, scores of House Democrats co-sponsored “The Affordable Footwear Act,” which would have unilaterally lowered tariffs on imported shoes popular with low-income Americans. Liberal Democrat Earl Blumenauer of Oregon visited the Cato Institute in July 2008 to speak in favor of the bill. (Will he be the next target of a DCCC press release for cavorting with “extremists”?) In the current Congress, a similar bill in the Senate is currently co-sponsored by such prominent Democrats as Dick Durban (Ill.), Chuck Schumer (N.Y.), and Mary Landrieu (La.).
To learn more about why Democrats (and Republicans) should support free trade, I highly recommend two books: Mad about Trade: Why Main Street America Should Embrace Globalization, by yours truly; and Freedom From Want: Liberalism and the Global Economy, by Edward Gresser, a trade expert with the Democratic Leadership Council.
Colombia Trade Deal Enters Fourth Year of Limbo
Sunday marked the third anniversary of the signing of a free trade agreement between the United States and Colombia. It is an embarrassment to our great nation that this agreement with an important Latin American ally still sits on the shelf three years later, a victim of congressional trade politics.
As my Cato colleague Juan Carlos Hidalgo and I argued in a 2008 Free Trade Bulletin, and as I wrote in a more recent op-ed, the FTA with Colombia is a win-win for Americans. It fully opens the Colombian market and its 44 million pro-American consumers to our exports, while deepening our ties with one of our most dependable allies in the Western Hemisphere.
The AFL-CIO and other opponents of the agreement demand that Colombia further reduce violence against trade unionist before approval can be considered, and the president and Democratic congressional leaders have dutifully agreed. Never mind that the number of trade union members murdered in traditionally violent Colombia has declined dramatically under President Alvaro Uribe. Congress and the administration keep moving the goal posts, much to the frustration of the Colombian government.
Meanwhile, since the agreement was signed, U.S. companies have paid $2.3 billion in unnecessary duties, according to the “Colombia Tariff Ticker” sponsored by the Latin America Trade Coalition. On the foreign policy front, Colombia faces continued threats from the Marxist FARC guerrilla movement and its anti-American neighbor, President Hugo Chavez of Venezuela.
Refusing to enact the trade agreement with Colombia only reinforces suspicions in Latin America that the U.S. government is unreliable.
Democrats Favor Trade Sanctions on Americans
Scott Lincicome sharpens his pencil today and calculates that Congressional failure to ratify the U.S.-Colombia Free Trade Agreement–a deal that was signed almost three full years ago–has so far cost American exporters $2 billion. That tally increases $1.9 million each and every day.
Since that time [the trade agreement signing], American exporters have paid approximately $1.9 million per day in Colombian tariffs that they wouldn’t have paid if the Democrat-controlled Congress had just passed the FTA back then and thus allowed it to enter into force. By my math, that means that Congress’ and (now) the President’s partisan stalling has resulted in a pointless tax on American businesses of almost $2 billion ($1.9798 billion = 1042 days times $1.9 million) and counting.
My colleague Dan Griswold explained yesterday how U.S. trade policy punishes poorer people abroad, and amounts to a regressive tax here at home:
America’s highest remaining trade barriers are aimed at products mostly grown and made by poor people abroad and disproportionately consumed by poor people at home. While industrial goods and luxury products typically enter under low or zero tariffs, the U.S. government imposes duties of 30 pecent or more on food and lower-end clothing and shoes — staple goods that loom large in the budgets of poor families.
The Obama administration and Congress could easily remove the sanctions that burden America’s exporters and lower-income consumers. But until they’re convinced that they can make up the revenues lost by crossing Big Labor, the Democratic Party playbook counsels more of the same disingenuous rhetoric of fraternity with the common man and more exaggerations about evil foreign labor practices.
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