World Trade Week 2011 came and went.  Despite the Obama administration’s pledge to double U.S. exports by 2015, the pending U.S. FTAs with South Korea, Colombia and Panama continue to be held hostage due to political in-fighting.  The Administration and congressional Democrats want the renewal of benefits for U.S. workers displaced by trade rolled into the trade agreements as a package deal while Republicans want them considered separately.  As election rhetoric starts to heat up the odds of getting these FTAs in place becomes increasingly remote.

The impact is not insignificant.  Currently, Colombia and Panama apply tariffs of 15% and 7.1% on U.S. exports of manufactured goods and 17% and 15% on agricultural goods.  This year alone U.S. exporters have already paid more than $3.5 billion in tariffs that would be eliminated upon full implementation of these agreements.

Not only are American companies competing head-to-head with European, Japanese, Canadian, Chinese, Mexican and many others for market share, but failing to pursue increased market opening opportunities negatively impacts jobs and economic growth.  The International Trade Commission estimates that implementation of the South Korean, Colombian and Panamanian FTAs would increase U.S. exports by at least $13 billion and add $10 billion to the U.S. gross domestic product. Such an increase in U.S. exports could create 250,000 American jobs.

And when it comes to trade, the rest of the world is not waiting around for the U.S. to lead the way.  In fact, quite the opposite.  On July 1^st, the EU-Korea and Canada-Colombia FTAs take effect and Mexico already has an FTA with Colombia, a partial agreement with Panama and is in the process of negotiating FTAs with South Korea and Brazil.  In fact, Mexico, with 11 FTAs covering 44 markets, has more trade agreements in place than any other country in the world.

This fact should not be lost on companies in search of a good place to invest.   As more and more economies open up and modernize they are able to offer competitive deals to companies looking to access local markets and / or take advantage of that country’s FTAs to gain preferential access to other markets.   In Mexico’s case, its FTAs give manufacturers access to 66% of the world’s GDP from a single place.  Some U.S. companies are already taking advantage of this by doing their R&D and design in the United States and their fabrication in Mexico in order to sell their product to Brazil (Mexico already has a partial FTA with Brazil and is negotiating a full FTA).

If you decide to invest overseas to take advantage of another country’s FTA agreements, of course certain rules apply.  In order for your product to qualify it must meet certain ‘preferential rules of origin’ standards. In other words, the finished product must have a minimum percentage of local/regional content, which means, in most cases, having a local manufacturing or value-added partner.  In Mexico’s case, depending on your export destination, you might also need a Certificate of Origin from the Ministry of Economy.  But, they’ve made the process fairly simple by offering on-line forms and a promised turn-around time of one day.

While free-trade agreements have been an integral part of U.S. trade policy since 1985 they continue to be controversial because they are accused of hurting U.S. labor interests and sending jobs overseas.  Not to diminish the very real pain felt by those that lose their jobs for any number of reasons, the fact is we live in an increasingly competitive globalized world and FTAs can allow for greater profit margins for small businesses by eliminating tariffs and other barriers on goods and services.  In sum, if the U.S. continues to sit on the sidelines, companies should look seriously at other investment locations in order to realize their full export potential.