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Free Trade Agreement Review Series: Colombia-U.S.

Anthony Randazzo and Devin Roundtree
October 5, 2011, 2:44pm

The White House has said it plans tomorrow or early next week to officially submit to Congress for ratification the three free trade agreements (FTA) on which it has completed negotiations. This is something that we and a chorus of others have argued should be a priority for the White House and we hope that Congress acts on addressing the FTAs immediately. But we do feel it is important to point out that the trade deals are not perfect. In first installment in this three part series yesterday, we looked at some of the benefits of, as well as problems with, the pending South Korea-U.S. FTA

Today in the second installment of the trade pact review series, we praise the value of the United States—Colombia Trade Promotion Agreement, but also establish some rational expectations on what value it will bring to America:

Once approved by Congress, the Colombia-U.S. trade agreement will immediately eliminate 80 percent of tariffs on goods exported from America to Colombia, with the remaining tariffs withdrawn over a 10-year period. An estimated $1.1billion will be added to our exports, which will increase payrolls by the thousands. The trade deal is even projected to increase GDP by $2.5 billion (note: despite the government's recent track record on economic forecasting, the deal will surely bring some positive changes). But as government negotiators are accustomed to doing, the agreement also encourages the exportation of American labor regulations to Colombia—the same kind of regulations that have contributed to the decline in the number of manufacturing jobs in the U.S. as employers seek more business friendly climates elsewhere. (It is worthwhile to note that inflation, low savings, high taxes, and increased efficiency are larger contributors to the decline in the number of manufacturing jobs.)  

The specific language in the agreement that we see adding shackles to business activity includes this clause: “Colombia will change its laws to make it a crime, punishable by imprisonment, for an employer to negotiate special deals (collective pacts) with non-union workers with better terms than union contracts.” The premise for these regulations is the oft-manhandled idea of “workers' rights” yet in a free market workers' rights to demand employment from others don't exist—rather, the threat of losing all potential labor and reputational risk help keep firms from abusing workers. 

Workers have the same rights as any other human being, whether they work or not. To suggest otherwise is to assume that workers have some kind of special ownership over the ideas or employment potential of job creators/business owners. In this sense, workers' rights are nothing more than privileges granted to unions that force businessmen (and woman) to lose their individual rights as soon as they offer someone a job. By making it illegal for non-union workers to negotiate freely with employers, workers' rights ironically strip certain individuals of the right to offer and accept labor/services in a free economy. 

In absence of these regulations, worker-employer relations would be simple: if the workers don't like their employers they are free to quite and vice versa. If the employer treats their employees bad, this reputation will make it difficult for them to hire and produce. Employers that offer low wages and tough working conditions experience high turnover rates, which equates to high labor costs. Profit incentives eventually force employers to find ways to increase worker productivity so higher wages are possible. 

This also leads to safer and more enjoyable working conditions, which create careers out of jobs. All of this explains why and how Henry Ford was able to double wages to $5 a day while cutting working hours from 10 to 8; this also occurred prior to the creation of the Department of Labor. Now, however, American labor regulations turn the process of creating higher wages and better working conditions on its head, and the consequence is increasing labor costs that employers can't offset and outsourcing. 

But we have derailed a bit into labor theory. The point is that this trade pact is promoting the bad parts of labor regulation that we have in the U.S., and would not be beneficial for Colombia. It remains a question how warmly the Colombian government will enforce the provision. If they fully implement this clause of the FTA though, it will slow production of goods sent to the U.S. and raise their prices such that American consumers may never see the price reduction benefits that were a leading reason to pursue this Colombia-U.S. trade promotion agreement. 

See our previous post on the South Korea-U.S. free trade agreement from yesterday for more on free trade theory. Tomorrow we will look at the third and final FTA pending before Congress, between Panama and the U.S. 

Update 5pm:

The Senate Ways and Means Committee approved the Colombia pact 24-12 this afternoon and sent it to the Senate Finance Committee.


Anthony Randazzo is Director of Economic Research

Devin Roundtree is Research Assistant


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