The Benefits of a U.S.-Colombia Free-Trade DealBy
Economists estimate that the free-trade pact with Colombia, which received White House endorsement on Apr. 7 and awaits approval from Congress, could boost U.S. gross domestic product by $2.5 billion a year. Caterpillar (CAT) would be a bigger beneficiary than most. Colombia's booming mining business has made the nation one of the top 10 export markets for the Peoria (Ill.) manufacturer of construction equipment. Removing the country's tariffs on such goods, which range from 5 percent to 15 percent, would cut $100,000 from the $2 million price tag for Caterpillar's D11 bulldozer. Buyers of one of the company's behemoth trucks, which go for $2 million or more, would save $300,000 without the tariffs.
The Colombia pact is one of three free-trade deals signed during the George W. Bush Administration and still awaiting approval. Barack Obama criticized the Colombian agreement, as well as those with Panama and South Korea, while campaigning for President in 2008. Once elected, he pledged to rework all three. Democrats demanded that Colombia take greater steps to protect union activists, who are routinely harassed and sometimes assassinated by right-wing militia in a country emerging from a decades-long conflict with leftist guerrillas. Obama took little action on any of the pacts until the end of last year, when he turned his attention to the one with South Korea. The largest pact since NAFTA in 1994, it is expected to boost exports by $11 billion a year, 10 times that of the Colombia deal. Obama gave it his blessing in December after Korea made concessions to the U.S. auto industry.
As the South Korean deal advanced, Caterpillar's lobbying machine kicked into gear. The company took out a full-page advertisement in Politico on Dec. 16, saying that approving the Korean deal while letting the Colombian one languish was akin to "kicking a field goal on second down." Employees sent more than 30,000 letters to lawmakers urging them to approve all three agreements. The Colombia accord "has been in the works for four and a half years," Douglas R. Oberhelman, Caterpillar's chief executive officer, said on Mar. 30. "Our competitors in Asia have not waited."
The Colombian trade agreement now is much closer to the end zone. After weeks of negotiations, the Apr. 7 pact signed by Obama and Colombian President Juan Manuel Santos will expand protections for union activists. With the pledges in place, U.S. Trade Representative Ron Kirk said Congress should vote in favor.
Caterpillar wouldn't be the only beneficiary. General Electric (GE) faces tariffs of 7 percent to 10 percent on its health-care and energy equipment sales in Colombia, and eliminating them would give GE an advantage over European competitors such as Siemens (SI), says Del Renigar, GE's senior counsel for international policy and trade. Wal-Mart (WMT) is a top purchaser of Colombian flowers. The U.S. suspension of import tariffs on roses and carnations expired in the middle of February; the trade deal would reinstate that cut permanently.
Economists expect the agreement to increase the flow of goods and services between the two countries by $1.6 billion, creating more demand for trade financing from U.S. banks. The free-trade pact also "locks in protections" for foreign investors, says Laura Lane, head of international government affairs at Citigroup (C). "We also hope it will grow the market, and that will benefit Citi."
Unions still oppose the deal. Says United Steelworkers President Leo W. Gerard: "We should not be rewarding a country that still murders more labor leaders than any other nation." Last year, 52 activists were killed there, according to a union statement. Democrats in Congress may still hinder the agreement. Caterpillar is sanguine about its chances. "I'm not saying we're all singing Kumbaya," says William Lane, the company's top lobbyist in Washington. "But we're starting to hum it."
The bottom line: A free-trade deal with Colombia could boost U.S. exports by $1.1 billion. Caterpillar, GE, Wal-Mart, and Citigroup would be big beneficiaries.