Dr. Eugene Laney Jr.
Vice President of International Trade Affairs
DHL Express U.S.
There is plenty of evidence that the free trade agreements (FTAs) with Colombia, Panama, and South Korea will provide a much-needed boost to the still-stagnating U.S. economy – along with a vital avenue toward long-term economic growth and stability for U.S. companies in an increasingly global marketplace. In fact, policy experts, business organizations, and community leaders across the spectrum have been pushing the U.S. Congress to ratify these FTAs that were completed several years ago, publicly urging action and an agreement on the one big sticking point – funding for Trade Adjustment Assistance, a worker assistance program that helps to retrain U.S. workers who lose jobs as a result of international trade. In newspaper editorials across the country, calls have been made time and again for legislators to compromise on worker assistance, and to embrace free trade for the good of local companies and international commerce, and in the name of job creation.
But while businesses advocate making these long-awaited FTAs a reality, they should also ensure they are fully prepared to take advantage of them when and if they are approved.
Trade with Colombia and Panama
When it comes to trade with Latin America specifically, the Colombia and Panama FTAs promise good things for U.S. companies – and the U.S. workforce. According to the Congressional Research Service and U.S. Department of Commerce data, growth in U.S. trade with Latin America over the last decade has exceeded that of all other regions. Between 1998 and 2009, total U.S. merchandise trade (exports plus imports) with Latin America grew by 82% compared to 72% for Asia and 51% for the European Union. Over the last 15 years, the United States has signed FTAs with 11 Latin American countries, implementing nine of them. Ratifying the outstanding two trade agreements – with Colombia and Panama – should serve to improve growth along these Latin American – US trade lanes by immediately eliminating most tariffs on U.S. exports of goods and services, with a phase-out of all remaining tariffs over time.
Ultimately, the FTAs will create a level playing field for U.S. companies of all sizes looking to do business in some of the most rapidly growing economies in Latin America – and with more business comes more jobs for U.S. workers. The U.S. International Trade Commission estimates that the trade agreements with Colombia, Panama and South Korea combined would increase exports from the U.S by $13 billion, and for every $1 billion in exports, 6,000 jobs are estimated to be created. And while the U.S. trade pacts are stalled, other nations with whom we compete are moving forward with their own pro-trade agendas. On July 1, for instance, a trade agreement with the European Union and Korea went into effect, and agreements between the EU and Colombia, as well as Canada and Colombia, are expected soon. In the first two weeks of the EU-Korea FTA in effect, according to Korean Customs, trade between Korea and the EU increased almost 20% both ways.
The value of Colombia and Panama as trade partners cannot be underestimated. The agreement with Colombia alone is expected to generate demand for American goods on the order of $1.1 billion, according to the U.S. International Trade Commission. Colombia’s economy is the third largest in South America, and includes strong opportunities in agriculture and related products and services, as well as oil and gas-centered businesses. Even without the FTA in place, U.S. goods exports to Colombia totaled more than $12.0 billion in 2010.
Panama also has one of the fastest growing economies in Latin America, expanding at 6.2 percent in 2010, according to the Office of the United States Trade Representative. Along with the construction, mining and milling industries, Panama is increasingly gaining attention as a logistics hub and a center of financial services in Latin America. With the expansion of the Panama Canal set for completion in 2014, and with significant new investments in Panama City’s Tocumen International Airport, the country is fast becoming and economic powerhouse. Congressional approval of the free trade agreement will give U.S. businesses valuable access to this growing market, where the U.S. dollar is the official currency and English is widely spoken.
Preparing for Implementation
For U.S. businesses looking to do business in Colombia and Panama for the first time, preparing now for the implementation of the FTAs is critical. Likewise, those companies already exporting goods or providing services in these markets should take steps to make certain that they will qualify to take advantage of the elimination of tariffs under the agreements. By preparing early and understanding the requirements for compliance with the rules of the agreements, businesses will be able to quickly adjust to the new trade paradigm when it is eventually realized.
First and foremost, U.S. companies must understand the rules of the trade pacts as they relate to “country of origin.” Like all free trade agreements, the Colombia and Panama agreements provide their own specific requirements for products to be qualified for preferential tariff rates, and businesses must familiarize themselves with these requirements. While the specific regulations on the rules of origin have yet to be written because Congress has not ratified the agreements, the general rules are already documented in the FTA text available on the U.S. Trade Representative’s website: www.ustr.gov
Companies that are exporting or will export products should ensure that they have the proper documentation from all suppliers within the supply chain to demonstrate that the finished product in question meets the requirements related to, for example, minimum percentage of local/regional content. If a company’s product does not currently meet the country of origin requirements of the FTAs, then the company may want to find new suppliers for component parts, for example, in order to achieve compliance as soon as possible. For businesses big and small, examining the supply chain and understanding regulatory documentation is vital.
Supplier documentation will allow those exporting to Panama and Colombia to assess the classification of their products according to the Harmonized Tariff Schedule – a numerical coding system recognized throughout the world to classify commodities for importing and exporting. Businesses must make certain that they have determined the harmonized code number for each of their products, and should confirm that – based on the codes – their duty assessments will in fact be the preferred assessments under the FTAs.
Compliance with the FTAs and import/export rules in general also requires that products be properly valued for customs purposes. For companies exporting for the first time, ensuring the correct valuation of their products is key, and may of course directly impact duty rates. In addition, it is critical to determine whether or not a product requires a special license under U.S. export control laws.
Businesses should also understand that special tariff rates and procedures may apply to the shipment of product samples, and that specific customs forms may be required in the case of sample exports.
How Small Businesses Can Prepare
Increased opportunities for trade benefit companies of all sizes, but small and medium sized businesses are big winners when markets open and barriers are reduced. According to the U.S. Department of Commerce, 97 percent of identified U.S. exporters are small businesses. If high tariffs and regulatory barriers were reduced in more regions of the world, many additional small companies could better compete in the global marketplace. The fact is, a great number of small firms just do not have the capital to navigate through the complex trading system, and do not export as a result.
There are, however, resources and new exporting platforms available to small companies, and in preparation for the approval of the Colombia, Panama and South Korea FTAs, these organizations should familiarize themselves with these important tools.
First, in order to understand the key requirements of the FTAs, including country of origin requirements and classification procedures, businesses can seek guidance from local trade experts through the U.S. government’s Export Assistance Centers (EAC) at www.export.gov. Located in metropolitan areas across the country, more than 100 EACs provide advice and support to small and medium-size businesses seeking to engage in trade on a global basis. Each center is staffed by experts with ties to various agencies.
New technology and more abundant, easy-to-use shipping options are also bringing more small companies into the business of exporting. The Small Business Administration, for instance, offers the Export Business Planner software to help companies take part in the $1.7 trillion export market. At the same time, express carriers and freight forwarders offer new technology tools, access to their global network and hands-on assistance to make exporting easier. By using express delivery service providers, for instance, a small business can access over 90% of the world’s GDP within 2 to 3 days shipping time. DHL Express serves over 220 countries and territories and by using DHL, a small business in the U.S. Midwest can reach the same markets overseas as any large Fortune 500 company.
According to the Business Roundtable, more than 70 percent of the world’s purchasing power lies outside the United States. As the global middle class expands, the value of international business will only grow. Companies that are ready to take advantage of the new FTAs immediately upon their implementation will be in a better position to benefit, and to drive their organizations, and the U.S. economy, forward.