Schwab: Exports Equal U.S. Growth
In the coming months, the Bush administration will work with Congress for the approval of free-trade agreements with Peru, Colombia, Panama and Korea. These agreements are important to U.S. consumers and all Americans whose jobs in the agriculture, manufacturing and service sectors depend on export-led growth in the U.S. economy. The votes on these agreements, and other Congressional actions in the trade area, also present important tests of American global leadership and our commitment to freedom, democracy and the rule of law, the effects of which will extend well into the next administration.
Trade contributes significantly to U.S. economic growth and jobs. Over the past year, exports have accounted for 40 percent of U.S. economic growth and have helped offset the housing slump. The four pending free-trade agreements represent new opportunities for U.S. workers and consumers to build on this successful growth. Now — when exports are so important to sustain economic growth — is the wrong time for lawmakers to retrench in the trade arena.
The free-trade agreements with Peru, Colombia and Panama represent a combined market of 78 million consumers. These are markets that are just beginning to enjoy the benefits of economic growth and political stability as demand for U.S. goods and services is increasing. The American Farm Bureau, for example, estimates that U.S. farm exports to Peru, Colombia and Panama will rise by nearly $1.7 billion per year under the agreements, with gains spread among all sectors of U.S. agriculture. These also are significant new markets for exports of certain manufactured goods and services. The U.S.-Korea Free Trade Agreement will open a market of 48 million increasingly prosperous consumers. A recent International Trade Commission report stated that U.S. gross domestic product would likely increase by $10.1 billion to $11.9 billion solely as a result of the removal of tariffs and tariff rate quotas under the KORUS FTA. The positive effect on GDP could be even more significant when non-tariff barriers and increased trade in services are taken into account.
Despite claims that rejecting the FTAs will protect U.S. jobs, 90 percent or more of the goods from Peru, Colombia and Panama already enter the United States on a duty-free basis through the Andean Trade Preference Act, the Caribbean Basin Initiative and the Generalized System of Preferences. These programs have many benefits, including their contribution to the economic development of our developing-country trading partners.
But the terms of trade have been lopsided, where only 31 percent of U.S. exports to Panama enter duty-free, 4 percent to Peru and 2 percent to Colombia. But these nations, in exchange for the increased certainty and development benefits of permanent preferential access, are now prepared to make access a two-way street. In short, those who oppose the FTAs are advocating against U.S. companies, farmers and workers that stand to gain from leveling the playing field.
South Korea, whose citizens have a per-capita income of close to $20,000 a year, at last will be more open to U.S goods and services, just as the United States has long been open to Korean goods and services. Currently, less than 10 percent of our exports enter Korea duty-free — after the FTA is fully implemented, 95 percent of U.S. industrial goods will enter Korea duty-free.
Expanded trade has given American consumers more choices and helped to spur economic opportunities for developing countries. In Latin America, millions of people have moved out of poverty and shifted away from activities associated with illegal narcotics to legal, safer and more sustainable commercial pursuits.
With the declaration that they are ready to open their markets to U.S. goods and services, these four countries are showing they understand that their manufacturing and services sectors will become more competitive and that their consumers and workers will benefit by having better access to American goods and services.
Another objective of these agreements is to strengthen the rule of law and improve transparency in regulatory and judicial proceedings. They also will help ensure respect for internationally recognized labor rights and strengthen protection of the environment. These improvements will benefit American business and agriculture, but even more important they can help build a Latin-American middle class to support further long-term progress on democracy and human rights. The KORUS FTA will provide a modern economic foundation for a key strategic alliance in Asia that goes back more than a half-century.
The principle that trade benefits all participating nations is an ancient one. The growth of civilization and democracy tracks closely with the development of commerce between nations. In modern times, the United States has played a leading role in promoting the expansion of trade, and we have seen the benefits both here at home and abroad. Since World War II, trade liberalization has helped raise U.S. annual incomes by $1 trillion, or $9,000 per household. As more nations have become part of the global trading system in recent decades, prosperity has often contributed to political freedom.
Colombia is a staunch ally in the Western Hemisphere. Its democratically elected leadership has bravely stood up to guerrillas and narcotics traffickers. Members of Congress who have been to Medellín recently have seen a city transformed from a drug lord’s fiefdom to a community where families and children can thrive in safety. From 2002 to 2006, violent crime and terrorism dropped by nearly half; violence against labor leaders decreased close to 70 percent; and between 2000 and last year, a quarter of the Colombian population moved out of poverty — a historic achievement that is transforming Colombian society.
Similarly, in Panama and Peru, democratically elected governments have brought greater stability and peace and attracted foreign investment. In Korea, leaders have recognized that trade and internal economic reforms will improve their country’s position as a major economic power.
In many ways, the leaders of these four countries have chosen to transform their countries and are hoping the FTAs will help in that process. As these nations seek our partnership in these historic steps to economic success and democratic change, it would be unthinkable and irresponsible for the United States to walk away and turn our back on our valued friends and allies.
Unfortunately, democratic ideals and market principles are under assault from demagogues and ideologues around the world. While we encourage the free and fair flow of commerce and the rule of law, others seek to stifle free enterprise and democracy. Today, more than ever, we must show the world that the United States rejects the policies of isolation, economic retrenchment and fear.
This administration has shown its determination to work with Congressional leaders on a bipartisan basis to find a way forward on trade. As part of a historic breakthrough with lawmakers last spring, the administration and Congressional leadership agreed to include strong new protections for labor rights and environmental standards in our four pending FTAs. This package was designed to resolve a decade-long political impasse and restore bipartisanship to U.S. trade policy. It cleared the way for the imminent approval of the Peru FTA, and set a clear and reasonable path for Congressional approval of the other free trade agreements as quickly as possible.
The United States is a prosperous nation because we are an open market and free people. When countries commit to democracy and prosperity at home and promote development in their countries, they deserve our respect and cooperation, not the back of our hand. To do otherwise would betray their overtures and our principles. I am confident the U.S. Congress will maintain our bipartisan leadership in the international economic arena and deepen our economic and political partnerships abroad.
Susan Schwab is the United States trade representative.