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Corporations Are the Real Winners When it Comes to Free Trade Agreements

Companies / Corporate Earnings Oct 14, 2011 - 08:00 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleDavid Zeiler writes: Whether the free trade agreements with Colombia, Panama and South Korea create jobs or destroy them is debatable, but one thing is sure: U.S. corporations will reap the most benefit from the deals.

After years of delay, the U.S. Congress on Wednesday approved the free trade agreements - the largest since 1994's North American Free Trade Agreement (NAFTA) - in a rare instance of bipartisan cooperation.

The deals will cut tariffs and open up markets between the United States and South Korea, Colombia, and Panama.

And while the political arguments focused on the deals' impact on jobs and the U.S. economy, U.S. corporations will emerge as the real winners.

That's why Caterpillar Inc. (NYSE: CAT), a frequent beneficiary of past free trade agreements, was one of the first to applaud the deals.

"Once these agreements go in effect, Caterpillar products produced in Illinois and Mississippi and the Carolinas will be able to be exported to Colombia, Panama and Korea duty-free," Bill Lane, the Washington directorfor the heavy equipment maker, told NPR. "That's a big deal."

The Boeing Co. (NYSE: BA) was equally pleased.

"When commerce increases, downstream that turns into aircraft orders. More movement of people and certainly of goods opens up more opportunity to sell aircraft," Ted Austell, a vice president at Boeing, told Reuters.

Many Winners
U.S. President Barack Obama, who had strongly urged Congress to approve the free trade agreements, said a government study showed the South Korea deal alone would benefit machinery and equipment makers, pork and beef producers, and the chemical and plastic products industries.

The sector with the most to gain in the Panama and Colombia deals is the agricultural industry, which had complained that the delay in approving the agreements - negotiations begun under the Bush administration - was costly.

"We can't underestimate how much U.S. agriculture has lost out," Devry Boughner, director of international business relations for Cargill Inc., told Reuters. "Corn, soybeans and wheat exports from the U.S. have gone from a 78% market share in the Colombian market to 28%, owing in part to the fact that Canada got to Colombia first."

Dozens of large corporations and business groups have actively lobbied Congress for years to pass the free trade agreements to gain access to new markets or make their products cheaper and more competitive in existing markets.

Some of the other large U.S. companies that lobbied for the South Korea deal include AT&T Inc. (NYSE: T), Chevron Corp. (NYSE: CVX), Johnson & Johnson (NYSE: JNJ), Microsoft Corp. (Nasdaq: MSFT), Pfizer Inc. (NYSE: PFE), Prudential Financial Inc. (NYSE: PRU) and QUALCOMM Inc. (Nasdaq: QCOM).

The Latin American Trade Coalition, which supported both the Colombia and Panama free trade agreements, included Caterpillar, General Electric Co. (NYSE: GE), Wal-Mart Stores Inc. (NYSE: WMT), Citigroup Inc. (NYSE: C), International Business Machines Corp. (NYSE: IBM) and Oracle Corp. (Nasdaq: ORCL).

Why so much corporate interest in free trade agreements?

"Let me just put it this way," explained Caterpillar's Lane. "About eight years ago they passed the Chile free trade agreement. Caterpillar exports to Chile tripled. These agreements have real-life implications and what they've all done is increase U.S. exports."

Boost for Economy?
Of course, the trade deals with South Korea, Panama and Colombia weren't promoted as a boon to U.S. corporations, which would have been a tough political sell given the American public's current anti-corporate mood.

Instead, President Obama said the free trade agreements would create more than 70,000 jobs and boost the U.S. gross domestic product by $12 billion annually. The U.S. Chamber of Commerce estimated the cost of not approving the deals would be the loss of 380,000 jobs.

However, some members of the Democratic Party, as well as several big labor unions argued the opposite.

"I've seen first-hand the negative effects that trade agreements have had on our manufacturing sector and this one is estimated to displace 159,000 jobs and increase our trade deficit with Korea by $16.7 billion," Rep. Mark Critz, D-PA, said on the House floor.

Some opponents claimed the free trade agreements would repeat the same mistakes the United States made with NAFTA, which they claim cost the nation 700,000 jobs and dramatically increased our trade deficit with Mexico.

However, other studies, including one by the Council on Foreign Relations in 2009, have found that NAFTA's overall impact on the labor market has been a wash, although some sectors such as manufacturing have suffered disproportionate job losses.

Likewise, the impact on the total U.S. economy is difficult to quantify given the many other factors in play, but the consensus is that it has been relatively insignificant.

In fact -- then as now -- the biggest winners were corporations. With NAFTA, some of the biggest winners were the "Big Three" U.S. automakers - Ford Motor Co. (NYSE: F), Chrysler Group LLC and General Motors Co. (NYSE: GM), as well as Caterpillar and Mary Kay Inc.

The bottom line is that many companies stand to benefit from the free trade agreements, even if the impact on the general economy is negligible.

"The thing about manufacturing companies is that they almost always have a broad, deep supply chain," Peter Bowe, president of Baltimore-based Ellicott Dredges, a maker of mining, navigation and beach restoration equipment, told USA Today. "There are many people who won't even know they are benefitting."

Source :

Money Morning/The Money Map Report

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