Last month, President Obama signed Free Trade Agreements with Panama, Colombia and South Korea. While the FTA with South Korea is America’s largest since the North American Free Trade Agreement with Mexico and Canada in 1994, the Latin American agreements will stimulate economic growth in the region, as well as in the United States. This is good news for air cargo.
The Colombia and Panama FTAs create a nearly uninterrupted free trade zone from Canada to Chile. From a cargo perspective, opening doors and facilitating trade in these countries (and others) is a good thing – good for forwarders, carriers and their operations. Why? These economies are growing fast, with larger middle classes to consume foreign goods and growing industries that rely on air cargo to move their products throughout the world.
FTAs give a big boost to trade and commerce. Between 1985 and 2008, for countries with which the U.S. holds FTAs, trade grew on average 25.6 percent in the first three years after the FTA was signed. For the most recent FTAs, that’s $12 billion surging into the American economy.
Colombia Free Trade Helps U.S. Exports
The United States is Colombia’s largest export market, with 2010 sales showing 30 percent growth from a year prior. The new FTA with Colombia is expected to raise U.S. exports to the country by another $1.1 billion annually.
Congress passed the Andean Trade Preference Act in 1991, offering preferential tariff access to Bolivia, Colombia, Ecuador and Peru. Without an FTA with Colombia, however, U.S. exporters did not receive reciprocal access to these countries’ markets. Now, Colombian markets are open to U.S. exporters, and lower tariffs will make American products more competitive in the country and region. With the FTA, Colombia will also join the World Trade Organization’s (WTO) Information Technology Agreement (ITA), which removes tariffs on information technology products. This will also serve to make U.S. exports more competitive in Colombian markets.
The FTA with Colombia is also good news for Florida. Florida’s fourth-largest export market ($4.5 billion) is Colombia, and in Miami, Colombia is the second largest trade partner. Miami is at the crossroads of north-south, east-west trade lanes, which by 2035 could offer access to more than 1 billion consumers in the Western Hemisphere. As markets open and Miami sees an uptick in trade and commerce, it will help power the city’s growth and prosperity, creating new opportunities to strengthen the state as a global hub for trade and investment.
Panama FTA and Expanded Canal Offer New Opportunities
Panama’s economy is one of the fastest growing in Latin America. Infrastructure development and construction make it an investment-friendly, democratic market. Yet, before the FTA, there were 7 percent tariffs on manufactured imports and 15 percent on agricultural products. This raised the cost of goods imported from the United States, making it difficult for U.S. exporters to compete in Panama’s economy.
Panama brings in another piece of the equation – the canal. In 2007, Panama began a $5.25 billion expansion of the canal, the Third Locks Project, expected to be completed by 2014. The expansion will allow the canal to handle more and larger ships, which means cargo from Asia and South America can take a shorter (and cheaper) path from the Pacific to the Atlantic Ocean.
This is an opportunity for forwarders and shippers. A wider canal means cargo-laden ships can avoid the lengthy trip around the Cape of Horn, South America’s southern tip. Cargo may also be shipped to Panama and from there, flown to destinations around the world. We will see new products and different types of businesses (many from Asia) taking advantage of the shorter route, consequently bringing new cargo to new markets. The FTA with Panama supports this, stripping away expensive tariffs and facilitating trade. The FTA and the wider canal are going to make things a lot easier and more profitable.
We’ve Only Just Begun
American has serviced customers in nearly every country in Latin America for almost 25 years. Yet, we see this as just the beginning. These economies are growing fast and poised to grow stronger. The new FTAs mean more trade is on the way, and for shippers, forwarders and carriers, this is an opportunity to reach new markets and develop new business.
While the FTAs make international commerce much easier and more lucrative, operating in Latin America requires expertise in working with customs agencies and understanding the culture of commerce and regulation. This is gained through decades of experience, and it is critical to prosperity in these growing markets. Partnerships between shippers and logistics providers will advance new opportunities and help navigate the pitfalls in this developing region.