More American jobs, increased U.S. exports, and enhanced U.S. competitiveness are some of the anticipated outcomes of three new bilateral free trade agreements (FTAs). Negotiated by the Bush Administration and signed into law by President Obama in October, the three FTAs—with Colombia, Panama, and South Korea—will eliminate tariffs and other barriers to U.S. exports, expand trade between the two respective countries, and promote economic growth for all countries involved.

By reducing tariffs, the FTAs are said to be worth billions of dollars to U.S. exporters. An estimated 70,000 to 250,000 jobs are expected to be created as a result, according to the Office of the U.S. Trade Representative (USTR).

“All the FTAs will benefit the U.S. economy, not only with increased exports but also with overseas business expansion opportunities and greater investment in U.S. industries by foreign entities,” agrees Anthony Hardenburgh, VP of global trade content at Amber Road (formerly Management Dynamics).

“While the Korean market is a giant compared to Colombia and Panama, both of these countries have rapidly growing economies, leading to larger U.S. economic benefits over time,” Hardenburgh explains. “Colombia is the third largest economy in South and Central America, and Panama is one of the fastest growing economies in the region. All three countries will benefit from these FTAs.”

In addition, the Obama Administration secured greater U.S. access to the Korean auto market; significantly increased labor rights and worker protections in Colombia; and enhanced tax transparency and labor rights in Panama. The agreements will enter into force only if trading partners are meeting their commitments.

Read on for the specifics of each agreement and what they can mean for your company.

Colombia

The U.S. International Trade Commission (ITC) estimates that the tariff reductions in the FTA with Colombia will expand exports of U.S. goods alone by more than $1.1 billion and increase the U.S. GDP by $2.5 billion. Additionally, it will provide significant new access to Colombia’s $166 billion services market, supporting increased opportunities for U.S. service providers.

Over 80 percent of U.S. exports of consumer and industrial products to Colombia will become duty-free immediately upon the FTA’s entry into force, with the remaining tariffs phased out over 10 years. With average tariffs on U.S. industrial exports ranging from 7.4 to 14.6 percent, this will substantially increase U.S. exports, according to the USTR.

Many agricultural commodities will also benefit, as more than half of current U.S. farm exports to Colombia will become duty-free immediately upon the FTA’s entry into force, with virtually all remaining tariffs eliminated within 15 years.

Colombia will benefit from the FTA as well. According to government estimates, the FTA is expected to create 250,000 jobs in Colombia and boost exports by 6 percent.

“Colombia is a big exporter of primary goods to the U.S., and the two countries have complimentary traded products,” explains Hardenburgh. “Colombian products will now be more competitively priced in the U.S. market—particularly against goods from Peru, Chile, Mexico, and Central America, all of which have FTAs with the U.S. Many Colombian companies are experienced with the U.S. market, and the FTA will further solidify their market position. However, the benefits to Colombia go beyond increased exports and market presence. William Colglazier, science and technology advisor to Hillary Clinton, sees the FTA having a large impact on the country’s science and technology sectors, particularly in research and intellectual property protection.”

Panama

U.S. industrial goods currently face an average tariff of 7 percent in Panama, with some tariffs as high as 81 percent. Meanwhile, U.S. agricultural goods will likely encounter an average tariff of 15 percent, with some tariffs as high as 260 percent.

Over 87 percent of U.S. exports of consumer and industrial products to Panama will become duty-free immediately upon the FTA’s entry into force, with remaining tariffs phased out over 10 years. Additionally, nearly 56 percent of U.S. agricultural exports will receive immediate duty-free treatment upon the FTA’s entry into force, with most of the remaining tariffs to be eliminated within 15 years. Elimination of these tariffs will boost exports to Panama.

The FTA also guarantees access to Panama’s $20.6 billion services market, including financial, telecommunications, computer, distribution, express delivery, energy, environments, and professional services.

Panama’s location as a major shipping route also enhances the importance of the FTA, according to the USTR. Approximately two-thirds of the Panama Canal’s annual transits are bound to or from U.S. ports.

The FTA also provides significant infrastructure opportunities, according to the USTR. In addition to the ongoing Panama Canal expansion project, the Government of Panama identified almost $10 billion in other significant infrastructure projects.

Construction equipment and infrastructure machinery used in such projects accounted for $280 million in U.S. exports to Panama in 2010. Tariffs for this sector average 5 percent with almost all being eliminated upon the FTA’s entry into force. This represents a significant opportunity for U.S. manufacturers of such machinery.

Panama will see benefits beyond that of its economy with the FTA.

“The FTA improves Panama’s image and integrates it into the worldwide financial system due to the Tax Information Exchange Agreement (TIEA) it entered into as part of the agreement,” explains Hardenburgh. “Currently Panama is seen as a tax haven. However, as a result of this agreement, the OECD removed Panama from its ‘gray list’ [of] countries that have yet to comply with an international tax transparency standard, a practice the organization considers anti-competitive. The FTA will also push Panama to reform its labor and environmental laws, attracting more foreign direct investments and foreign workers.”

South Korea

The FTA with South Korea provides new market access and levels the playing field for U.S. auto manufacturers and workers, according to the USTR.

The ITC estimates that the reduction of Korean tariffs and tariff-rate quotas on goods alone will add $10 billion to $12 billion to the annual U.S. GDP and around $10 billion to annual merchandise exports to Korea.

Under the FTA, nearly 95 percent of bilateral trade in consumer and industrial products will become duty-free within five years of the FTA’s entry into force, with most remaining tariffs eliminated within 10 years.

“U.S. companies will have a much easier time establishing operations in Korea,” says Hardenburgh. “The Korea FTA also opens up a huge consumer market for U.S. companies—49 million people live in Korea—which will increase U.S. exports. The automotive sector is expected to benefit the most, although the agricultural and other manufacturing sectors will also profit.”

For agricultural products, the FTA will immediately eliminate or phase out tariffs and quotas on many products, with almost two-thirds (by value) of Korea’s agriculture imports from the U.S. becoming duty-free upon the FTA’s entry into force.

For services, the FTA will provide meaningful market access commitments that extend across virtually all major service sectors, including greater and more secure access for international delivery services.

The FTA will also address non-tariff barriers in a wide range of sectors and includes strong provisions on competition policy, labor and environment, and transparency and regulatory due process.

Drawbacks of the FTAs

Because the FTA with South Korea allows goods shipped to the U.S. to contain as much as 65 percent foreign content, some opponents of the FTA are concerned that it will allow China to gain back-door access to the U.S. economy, duty-free. One example would be cars that are assembled in Korea containing parts manufactured in China.

“That’s already happening,” states William McNeill, senior research analyst at Gartner. “Only about 5 percent of ocean containers are physically inspected. But yes, [the FTA with South Korea] could potentially increase the chances of that happening. It also applies to goods that are manufactured in North Korea on behalf of Chinese companies. Reputable companies do their best to trace back their products to the original source. But this can often be a difficult task when we’re talking about China. I don’t think this is a good enough reason not to support the FTA. Disreputable Chinese companies will just find other ways [to get their products into the U.S.]”

How will other countries with which the U.S. has FTAs be affected by these new agreements?

“It shouldn’t affect other countries, per se, unless that country is disproportionately dependent on one or two exports that are covered by a specific FTA,” explains McNeill. “Then yes, it might affect that other country. Other countries would also be affected if an industry or large number of countries decided they could get huge advantages by switching sources to the countries listed above. Most companies don’t do this however, and some industries are not nimble enough to even switch providers on short notice.”

“One interesting point is that all three countries were in preferential programs with the U.S. before these bilateral agreements were signed,” explains Hardenburgh. “Colombia and Korea are part of the Generalized System of Preferences. Panama is part of the Caribbean Basin Economic Recovery Act, and Colombia is also part of the Andean Trade Preference Act. However, these recently signed bilateral agreements with the U.S. are more expansive than the programs mentioned above. With these additional agreements, though, Colombia, Korea, and Panama’s terms within their other preferential programs may change. We won’t fully know the effects of these new agreements until the Rules of Origin for each are published.”

Looking to the future

Individual companies can benefit from the new FTAs, but McNeill finds that most companies don’t take time to figure out what the FTAs mean for them.

“We’ve found at a company level…not enough companies analyze FTAs from a strategic perspective and are often leaving profits on the table by not properly using them from a sourcing perspective,” McNeill explains.

The future for these FTAs looks bright, but the U.S. isn’t done yet.

“The number of worldwide FTAs continues to expand at an ever-increasing pace,” says Hardenburgh. “There are many FTA negotiations, both multi-country and bilateral, in progress. The Korean bilateral agreement is one of the first in the region and it will be a model for more FTAs in Asia. The U.S. is very interested in expanding the number of its agreements it has in the Middle East and Asia, particularly with Japan.”  wt