MAPI Report: Free Trade Agreements in Asia Threatening U.S. Exports

Free trade agreements 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 Manufacturers Alliance/MAPI report, Free Trade Agreements in Asia: U.S. Exports at Risk and Much More.

Ernest Preeg, senior fellow in Trade and Productivity and report author, writes that the July 2009 Korean FTA with the European Union will give a price advantage to European exports, which are already larger than U.S. exports to South Korea. 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.

"The short-term challenge 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," said Thomas J. Duesterberg, MAPI president and CEO. "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.

Preeg compares Korean imports from the United States and China in 2004 and in 2007 to demonstrate the disparity. In 2004, imports of manufactured goods were roughly at parity, with $22.2 billion from the United States and $23.4 billion from China. But only three years later, in 2007, imports from China were up by 126 percent, to $53.0 billion, while imports from the United States were up by only 29 percent, 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 United States, 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.