January 2019 Magazine

International Trade: Good For State Economic Development

International

Melvin Torres, Director of Western Hemisphere Trade World Trade Center Arkansas

Arkansas has a diverse economy, ranging from aerospace and defense to agriculture, tourism, retail and services. Total exports of goods from Arkansas increased by nearly 11 percent in 2017 to $6.3 billion, one of the highest annual percentage increases in the state’s history. International trade in Arkansas supported nearly 350,000 jobs — approximately 26 percent of the total employed labor force in Arkansas — as of June 2018 and represented trade with 181 countries.

Trade-related jobs grew six times faster than overall employment. These jobs are at large and small companies, farms, factories and at the headquarters of Arkansas’ globally engaged firms, according to a report from Business Roundtable.

Businesses that are new to exporting increased employment almost four times faster than non-exporting firms. Furthermore, salaries for jobs with exporting companies pay up to 18 percent more than similar non-export jobs. Small businesses account for 80 percent of all exporters in Arkansas, according to the Small Business Administration.

Arkansas farmers export more than $3 billion annually in agriculture products every year. According to data from the ITA’s Global Patterns of State Exports report, more than 43 percent of all agricultural exports from Arkansas go to Canada and Mexico. Canada and Mexico dramatically increased imports in 2017. Canada and Mexico are Arkansas’ largest trading partners by billions of dollars, and trade with the two countries support more than 120,000 jobs in Arkansas.

Canada is Arkansas’ largest export market, followed by Mexico. Arkansas exports to Canada and Mexico amounted to $2.1 billion in goods in 2017 and $281 million in services in 2016, equaling 34 of all Arkansas exports, according to the U.S. Census Bureau. Arkansas exports nearly twice as much as it imports from both Canada and Mexico together in goods. Additionally, Arkansas exports of goods to Canada and Mexico increased by 14 percent from 2016 to 2017. Year-over-year exports of goods to Mexico increased by nearly 24 percent, from $685 million to $851 million, and have grown more than 710 percent since 1993

According to the latest data reports from the Census Bureau and the Economic Department of Mexico, exports from Arkansas to Mexico in 2017 reached one of the highest points in recorded history. Arkansas exports to Mexico are increasing 2.3 times to 3.5 times faster than exports to any other country, depending on the year. Arkansas exports of agricultural commodities have increased by 911 percent since 1994 compared to the rest. This translates into an agricultural export growth rate from Arkansas to Mexico that is 5.46 times higher than its agricultural export growth rate to the rest of the world.

The U.S., Canada and Mexico signed an agreement in principle, updating the 1994 NAFTA treaty, which will be renamed the United States-Mexico-Canada Agreement (USMCA). The agreement needs to be approved by the U.S. Congress, the Mexican Congress and the Parliament of Canada to take effect around the start of 2020. The countries agreed to a 16-year term for the new USMCA agreement, with an opportunity to identify and fix issues and to extend the agreement after six years. Mexico and Canada will increase the amounts that U.S. businesses can export to the two countries without any duties (referred to as de minimus) to $100 for Mexico and $117 for Canada. This aims to help small businesses freely export small-value goods without duty concerns.

The USMCA increases the United States’ access into Canadian milk and pharmaceutical markets, strengthens environmental rights, increases labor minimum wages and provides increased protections for intellectual property rights. The new agreement aims to grow the share of car and truck parts made in North America. It also replaces certificates of origin with origin declaration statements, simplifying the paperwork process.

Recently, the U.S. and China agreed in principle that on January 1, 2019, tariffs on $200 billion worth of products will stay at the current rate of 10 percent, and not raise to 25 percent. In return, China has agreed to purchase a not yet agreed upon, but a very substantial amount of agricultural, energy, industrial and other products from the United States to reduce the trade imbalance between the two countries. China also agreed to start purchasing agricultural products from U.S. farmers immediately. These agreements should immediately benefit Arkansas farmers growing soy beans as well as other agricultural products if included in the expected purchases by China.

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Melvin Torres is the director of Western Hemisphere Trade for the World Trade Center Arkansas. He has managed cross-functional teams as a vice president, a director, and a general manager at some of the world’s strongest companies including Citibank, General Electric and Commerce Bank.

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