The most important and contentious trade vote in Congress this year will probably be the free trade agreement the United States has signed with its South American neighbor and ally, Colombia. In his January 28, 2008, State of the Union speech, President Bush called on Congress to approve the agreement this year.
Calling Colombia “a friend of America that is confronting violence and terror, and fighting drug traffickers,” the president warned Congress that “if we fail to pass this agreement, we will embolden the purveyors of false populism in our hemisphere. So we must come together, pass this agreement, and show our neighbors in the region that democracy leads to a better life.”
If all significant trade barriers were unilaterally removed on foreign products, U.S. welfare — as defined by public and private consumption — would increase by approximately $3.7 billion annually. Additionally, U.S. gross domestic product would rise by $1.6 billion, according to a 2007 study by the United States International Trade Commission.
“Trade liberalization has a critical role to play in economic growth by directly stimulating domestic firms to become more productive,” so says the U.S. Federal Reserve. As a result, the incomes of ordinary people typically rise.
In May 2003, a task force commissioned by the International Chamber of Commerce (ICC) began work on revising rules governing letters of credit, with a target date of July 1, 2007. The new regulations are expected to eliminate barriers that have increasingly hampered international trade.
As commerce among nations grew in the early 20th Century, conflicting laws governing letters of credit among countries became major barriers to expansion. The ICC in 1933 created the first Uniform Customs and Practice for Documentary Credits (UCP) rules that brought uniformity to letters of credit.
When market participants attempt to predict currency shifts, they must be wary of applying outmoded assumptions. Projecting currency moves has become increasing challenging in globalized markets. A misinterpretation of trends can lead to poor business decisions.
It is also increasingly difficult to predict the impact currency shifts may have. For example, it used to be thought that as the U.S. dollar fell against other currencies, American exports benefited. That’s because U.S. goods became less expensive when prices were translated into foreign currencies. As a result, American manufacturers became more competitive abroad. At the same time, a relatively weaker U.S. dollar was expected to lead to increased prices in imported goods. For a variety of reasons, these assumptions may be outdated.
As trade between nations rapidly increased in the early part of the 20th Century, a major barrier to expansion were conflicting laws governing letters of credit among countries. In 1933, members of the International Chamber of Commerce (ICC) created the first Uniform Customs and Practice for Documentary Credits (UCP), a set of rules that brought uniformity to letters of credit.
Since its inception, the UCP has become the most successful private set of rules for trade ever developed. Now firmly established, the UCP continues to remain an essential component in international trade. It establishes the conditions under which the majority of banks operate in documentary commercial credit transactions in more than 160 countries.
Shifts in the value of the U.S. dollar can be felt in a variety of ways. Old assumptions regarding the impact of a rising or falling currency may not necessary hold true. In this era of globalization and infinite supply chain strategies, new realities are increasingly painting a different picture.
A weakening dollar traditionally has been assumed to result in less expensive American exports, making them more competitive abroad. A weakened dollar also is expected to cause the price of U.S. imports to rise. Increasingly, however, both U.S. and foreign manufacturers rely on imported components and materials, making the impact of exchange rate fluctuations more nuanced.
The title of this article is the headline of a June 7, 2006 piece in The Straits Times, a Singaporean newspaper. According to a recent survey by the American Chamber of Commerce in Singapore, senior U.S. executives within the six-nation Asean bloc are reported to be “positively exuberant” about operating within southeast Asia, they are “optimistic about their growth and profit prospects this year and in 2007,” and three-quarters of them indicate that their “company’s business will grow in the next two years. No one expects a reduction in business.”
The U.S.-Central American-Dominican Republic Free Trade Agreement, referred to as DR-CAFTA or simply CAFTA, includes Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic. The agreement is anticipated to spur North-South trade and investment while promoting stability and the rule of law in the region.
Prior to the establishment of the accord, the U.S. weighted average tariff rate on CAFTA countries was 2.6 percent, according to the World Bank. This reflected the fact that approximately 80 percent of CAFTA imports already entered the U.S. duty free. On the other hand, the weighted average tariff rate on U.S. goods was 10.1. percent in the Dominican Republic, 5.8 percent in Costa Rica, 6.1 percent in El Salvador, 5.8 percent in Guatemala, 7.3 percent in Honduras, and 2.3 percent in Nicaragua.
In May, the U.S. Department of the Treasury issued its much anticipated, semiannual Report to the Congress on International Economic and Exchange Rate Policies. The report’s key conclusion, that China is not a currency manipulator, was met with incredulity on the part of a number of members of Congress, some who suggested that the Treasury’s inaction would move them closer to enacting provocative legislation to compel China to allow the yuan to rise.
To them, it’s simple. China’s currency is purposely undervalued to encourage Chinese exports and discourage imports. Such “manipulation” explains much of the bilateral trade deficit, which is costing U.S. jobs. Thus, appreciation of the yuan is a matter of such urgency that any adverse consequences of compelling that outcome would be trivial by comparison.
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