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Aviation and Agriculture Are Winners in New US Trade Pacts

From aviation to agriculture, a broad cohort of US industry is looking forward to the passage of US trade deals with Colombia and Panama next week.

Bogota, Colombia
Robert Frerck | Stone | Getty Images
Bogota, Colombia

"It's an automatic market access gain, and it levels the playing field," said Devry Boughner, director of international business relations at Cargill.

The free trade agreements are projected to expand US exports northward of $1 billion and boost GDP by $2.5 billion, according to government estimates. Of the 1,200 US organizations supporting the pacts under the Latin America Trade Coalition, are household names like Wal-Mart , IBM, and Citigroup to independent small businesses and farm and ranch groups.

"Where we've had our hands tied behind our backs not being able to access those markets, we'll now have greater opportunity for American workers, manufacturers, farmers and ranchers to increase their market share vis a vis foreign competitors in those markets," said Cargill's Boughner.

Average tariffs on US industrial exports to Colombia currently range from 7.4-14.6 percent, but if the deal passes, over 80 percent of US exports to Colombia will become duty free immediately.

American agribusiness has lost more than $1 billion in sales from delays in approving the trade agreement— most pointedly after Canada finalized its own trade deal on Aug. 15.

Currently, the US is the only major wheat provider not benefiting from permanent duty-free access to that market, according to the US Chamber of Commerce.

"Colombian millers said they want to buy US wheat, but because of the tariff disadvantage they won't be able to afford to buy as much of it," said David Mercer, of US Wheat Associates. "The tariff on US wheat is anywhere from 5-10 percent, and that's on a per ton basis, so 5-10 percent of wheat prices which are fairly close to $300 a ton— that's a lot of money."

Congress is expected to pass the trade agreements next Wednesday, after years of political deadlock dating back to the George W. Bush Administration.

On the industrial front, Boeing supports the trade agreements for macroeconomic reasons.

"Anytime you take barriers to trade down, you make the global economy more efficient, and that drives economic growth around the world, which in turn drives the demand for airplanes," said Tim Neale, a spokesman for Boeing.

One unintended byproduct of signing free trade pacts with Colombia and Panama is enhancing US competitiveness with other trading nations and blocs in the Southern hemisphere.

For one, Panama's strategic location as a major shipping route enhances the importance of the agreement. Approximately two-thirds of the Panama Canal's annual shipments are bound to or from US ports. Plus, the pacts help the US gain ground with China—which has encroached upon US influence in the region, pointed out Antonio Alves, head of short-term finance for Latin America at the International Finance Corp. (IFC).

"This will give more competitiveness to the US in its own backyard," he said.

Today China is one of the top two trade partners for many Latin American countries like Argentina, Brazil, Chile, Colombia, Panama, and Peru.

And some view China's growing export share in Latin America coming at the expense of the US.

"It's one thing if it occurs on an equal playing ground—and another if China uses unfair advantages to achieve that business," said James Paulsen, chief strategic officer at Wells Capital Management, who recently made bullish calls on emerging markets— particularly Central America.

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