For now, economics make the Suez Canal the all-water route of choice in the Asia-U.S. trade. But Panama’s transit time advantage eventually will win out.

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COMMENTARY

34 THE JOURNAL OF COMMERCE www.joc.com

Pete Mento

APRIL 15.2013

FREEING UP FREE TRADEONE OF THE best things about social media is that it allows trade nerds like me to debate topics with peo-ple all over the world without ever leaving the comfort of my mom’s basement or changing out of my pajamas.

OK, I may not have been in my parents’ basement, but I do find myself on Twitter and Facebook daily discussing matters of interna-tional trade and the global economy with my counterparts in the industry and academia. The slow global recov-ery coupled with the uncertainty of European and Chinese economies have markets, corporations and con-sumers on edge. The blogosphere and the traditional media are abuzz with proposed remedies for the stumbling economy.

Lately, the role of free trade agreements in the recovering econ-omy seems to be one of the most discussed topics. Given the state of the American political debate, it’s no surprise that focus has been more toward domestic issues than on expanding duty-free treat-ment overseas. Issues such as high unemployment, revenue shortfalls and the general adversarial state of Congress have taken the lion’s share of energy from our “body politic.”

As an economist, I usually look at what we need to foster export growth and expand our economy. Time and again, that analysis has me evaluating our stance on FTAs. My recent conversations with other policy geeks tend to fall into two discussions: working on improving existing agreements and emphasiz-ing the need to create new FTAs.

Focusing on existing FTAs is a great place to start. Given rising labor, energy and transportation costs, more of our clients are tak-ing a second look at Mexico and the duty-free treatment afforded by the North American Free Trade Agree-ment. In the course of one day this

December in China, I counseled four companies on the intricacies of unbolting their production machin-ery in Shanghai in order to export them to Mexico, where they would be reassembled and put into opera-tion to near-source duty-free goods for the U.S. auto market.

Given the reduced transpor-tation costs, reduced cycle times, lower duties and merchandise processing fees, and faster speed to market, the only surprise is that it took so long for this to happen. Most clients consistently point to the dramatic increase in Chinese labor costs over the past fi ve years as the biggest reason for the move.

Of course, there was just as much caution as exuberance in my discussions. NAFTA is one of the most misused and incorrectly claimed FTAs we see in the course of auditing our clients’ import processes. Issues related to cartel-driven violence and the need to cross-dock U.S.-bound cargo from Mexico complicate the opportu-nity. Although it isn’t all rosy on the southern border, the news is improving, and a fresh light is being cast on opportunities in Mexican manufacturing for the U.S. market.

We also learned how devastat-ing letting the Generalized System of Preferences slip could be. Because the GSP is a special trade program and not an FTA, it requires periodic congressional approval. Our politi-cal process and constituent pressure recently resulted in months of U.S. importers not being able to employ this duty-minimization strategy available on imports of thousands of commodities from 127 countries.

Imagine if a similar fate befell NAFTA every few years? It might be time to make the GSP permanent while expanding the number of prod-ucts provided duty-free treatment.

When it comes to the really heated arguments, though, we tend

to foam at the mouth on the direc-tion of new FTAs.

The prospect of a U.S.-European Union FTA dazzles the imagina-tion. The thought of the world’s two most dominant economies entering a duty-free agreement where each side exports similar products and com-petes for the same business seems too good to be true. Aside from the economic opportunities it could pres-ent for both, it would set the stage for developing numerous rules on global issues facing both regions, including climate change, banking, energy shortages and infrastructure.

How likely are we to see a deal in the near term? That’s diffi cult to say. The EU and Canada have been working on a Comprehensive Eco-nomic and Trade Agreement for some time, and, although they’re close, sig-nifi cant gaps remain. Many people believe the EU doesn’t want to give up too much, fearing this agreement will become the blueprint for the U.S. and Europe. Moreover, we can look at how hotly contested the U.S.-South Korea FTA passage was for insight into the diffi culties this pact might face. Disagreements on agriculture and automotive exports alone would be problematic to navigate.

Questions remain about why the U.S. wouldn’t push harder for an FTA with other large economies. Japan is the most common example. The U.S. and Japan have had a long, slow road to recovery, and both could benefi t from further promot-ing bilateral trade. While we’re at it, why not continue to explore a com-prehensive Pacifi c Rim deal to make the largest impact possible?

For now, the debate will rage on. With so much at stake, the issues will be hotly contested. If you need me, I’ll be in the basement. JOC

Pete Mento is director of global customs and

trade policy at C.H. Robinson. Contact him at

pete.mento@chrobinson.com.

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