What is in this article?:
- Empirical evidence shows Free Trade Agreements (FTAs) increased trade among member countries, suggesting that the large number of FTAs that do not include the United States may be eroding the U.S. presence in foreign markets.
Colombian FTAs Pressure U.S. Exports
The impact on U.S. agricultural exports from Colombia’s FTA with the Mercosur countries (Argentina, Brazil, Paraguay, and Uruguay) has been different from the outcomes expected from the ASEAN FTAs. Colombia is the second largest South American market for U.S. agricultural exports; in 2009, exports were $907 million, consisting largely of wheat, corn, soybeans, and soybean products.
The Mercosur countries produce grain and soybeans. As part of the Mercosur-Colombia FTA, Colombia’s tariffs on wheat imports from Mercosur ended in 2009, and corn tariffs are being phased out. However, tariffs remain on imports from the United States. The margin of preference is measured as the difference between the tariff that U.S. exports face and the tariff the FTA partners’ exports face. These preferences appear to have appreciably reduced U.S. shares in these commodity markets in 2009 and 2010, when Mercosur wheat had a 15-percent margin of preference over U.S. exports and corn had a margin of preference between 8.1 and 6.9 percent.
Although Colombian wheat and corn imports from the world market were lower in 2009 than in 2008, imports from the U.S. fell even more disproportionately. U.S. exports of wheat to Columbia dropped by $225 million over the period, while U.S. corn exports dropped by almost $500 million. The United States lost market share to Mercosur countries in corn and to Argentina and Canada in wheat. Argentina, Brazil, and Paraguay increased their exports of corn to Colombia by $203 million, while Argentina and Canada increased their exports of wheat by $36 million. U.S. losses in just these two commodites in the Colombian market due to the Mercosur-Colombia FTA exceed the total projected decline of U.S. agricultural exports ($347 million) to the much larger ASEAN market as a result of the two recently implemented ASEAN FTAs.
More U.S. exports may be in jeopardy if an FTA between Canada and Colombia is implemented. Canada, a major wheat supplier to Colombia, negotiated a free trade agreement with Colombia in 2008 and ratified it in 2010. If Colombia also ratifies the agreement, the import duties on Canadian wheat will be immediately reduced to zero.