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Legal Update

The US Congress Approves Free Trade Agreements with South Korea, Colombia, and Panama

17 October 2011
Mayer Brown Legal Update

On Wednesday October 12, the US Congress passed free trade agreements (FTAs) with South Korea, Colombia, and Panama, culminating more than six years of negotiation and political wrangling across two US administrations. However, the agreements will not enter into force until the three other parties to the accords conform their laws to the treaties’ requirements. This process could take anywhere from three months to a year or more. Passage of the agreements was accompanied by extension of the Trade Adjustment Assistance (TAA) and the Generalized System of Preferences (GSP) programs.

The treaty with Korea would be the United States' largest free trade agreement since the North American Free Trade Agreement in 1993. The three deals represent a means for the US to catch up with competitors' moves to open these markets for their exporters. During its deliberations, the US was leap-frogged by the European Union, which signed a free trade pact with Korea in 2009. Colombia implemented FTAs with Mercosur in 2009 and with Canada in August 2011.

Political quarrelling between Democrats and Republicans meant that passage of the FTAs had to be preceded by an agreement to extend Trade Adjustment Assistance for three years. TAA provides benefits and training to workers hurt by increased imports. The legislation extending TAA also renewed the US Generalized System of Preferences program, extending it through July 31, 2013. GSP provides for duty-free imports for certain products from designated developing countries. The reinstatement is retroactive to January 1, 2011. The program had expired on December 31, 2010.

The three FTAs are expected to increase US goods exports by more than $10.8 billion per year and agriculture exports by more than $2.3 billion. Services exports are also expected to increase dramatically.

Korea would be the primary destination for these increased exports. The US International Trade Commission (ITC) projects that the Korea agreement will increase US goods exports by at least $9.7 billion. The United States sent $38.8 billion of exports to Korea in 2010.

These gains would result from the Korea agreement's elimination of 95 percent of tariffs on consumer and industrial products between the countries within three years, and on most remaining products within 10 years. The deal would immediately eliminate tariffs on two-thirds of US agriculture exports to Korea; it would open the Korean market to US financial, accounting, and insurance services; US cars would see lower tariffs; and Korea would also reduce tariffs on US beef, long a point of contention between the countries, eliminating the 40 percent tariffs over five years.

The Colombia FTA represents a major development in US trade ties with Latin America. Colombia is the third-largest destination for US exports in South America and the second-largest market for US agricultural products in that region. The ITC predicts that the Colombia agreement will increase US goods exports by more than $1.1 billion per year. The United States exported $12 billion in goods to Colombia in 2010.

The agreement would immediately make most US agricultural exports to Colombia duty-free, including major categories of beef products. Almost all remaining tariffs would disappear within 15 years. The agreement would also increase US access to Colombia's $166 billion services market.

The Panama agreement also offers substantial potential benefits for US exporters. The agreement would immediately eliminate duties on more than 87 percent of US consumer and industrial exports to Panama, and remove remaining tariffs within 10 years. It would remove duties on most agricultural trade immediately, including major beef products, and phase out the rest within 15 years. The Obama administration expects that the Panama FTA will increase US access to more than $15 billion in Panama infrastructure projects, including the Panama Canal expansion, and to Panama’s $20.6 billion services market.

Despite US government approval, implementation of the agreements may face substantial delays. The Korea agreement still faces a potentially contentious approval process by the Korean government. Before the agreements go into effect, the US President must find that the three governments have made necessary legal changes to comply with the agreements. The President may not officially agree to put the agreements into force until January 1, 2012. Further, the US administration has stated that the Colombia agreement will not go into effect until Colombia satisfies a labor action plan. The plan requires Colombia to implement new legal protections for workers. Companies with business in these countries should watch these developments closely, and plan to make use of the new trade regimes.

For more information about the free trade agreements, or any other matter raised in this Legal Update, please contact , , or .

Learn more about our Global Trade practice.

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