Free trade agreements (FTAs) in Asia, particularly by South Korea and India, pose a threat to U.S. manufactured exports that will continue to be subject to relatively high tariffs, according to a new study by the Manufacturers Alliance/MAPI.
The July 2009 Korean FTA with the EU will give a price advantage to European exports, which are already larger than U.S. exports to South Korea, according to the report author Ernest Preeg, Senior Fellow in Trade and Productivity, MAPI. In addition, Indian FTAs concluded with South Korea and Singapore, and currently being negotiated with the EU and Japan, pose a similar threat to U.S. exports to the rapidly growing Indian market he says.
"The short-term challenge," said Thomas J. Duesterberg, MAPI CEO, "is that U.S. exports, particularly manufactured goods, are being put at risk in high-growth Asian markets without U.S. participation, as FTA participants gain a duty-free price advantage. As we struggle to find ways to spur growth in the U.S. economy, access to Asian markets is crucial."
To stem the head winds, Preeg argues for early congressional approval of the pending U.S.-Korea FTA that would level the playing field in that market. Of particular concern, Preeg compares Korean imports from the U.S. and China in 2004 and in 2007. In 2004, imports of manufactured goods were roughly at parity, with $22.2 billion from the U.S. and $23.4 billion from China. But only three years later, in 2007, imports from China were up by 126%, to $53.0 billion, while imports from the U.S. were up by only 29%, to $28.7 billion.
"U.S. exporters need all the help they can get to fend off Chinese competitors, and early implementation of the U.S.-Korea FTA would be a significant help," he says. "The current U.S. standstill on FTAs, while others proceed with agreements excluding the U.S., is clearly a false step for U.S. exporters. It is also a false step away from U.S. leadership in the world trading system over the past 60 years."
The report recommends a broader FTA strategy beyond approval of the three current pending agreements with South Korea, Colombia, and Panama. Preeg advocates pursuing a two-track trade policy. Most pressing beyond approval of these three pending FTAs is to establish a bilateral study group for a U.S.-India FTA that would provide the basis for considering an FTA in the new Indian trade policy setting.
The multilateral trade objective would be the consolidation of the growing number of FTAs within a "plurilateral" FTA for the non-agricultural sector among all mature and newly industrialized nations.
"By standing still on trade agreements with Asia," Preeg said, "we are falling behind our competitors in Europe, China, and India."