Free Trade Agreements: Like Planning a Wedding Reception

“[Negotiating a free trade agreement] is like doing a reception for a wedding, and the bride and groom have very particular tastes themselves, but all of their guests have dietary needs that are all different,” explained Pete Mento, Director of Global Customs and Trade Policy at C.H. Robinson, who was my guest on Talking Logistics recently. “So two people are trying to get to a decision and then there are hundreds of people who want different things, and you really do, unfortunately for this, [have to] please everybody to get this done. You have hundreds of different actors who are, hopefully, all acting rationally…trying to get to a decision that’s in their best interest.”

And that basically sums up the main challenge associated with the two biggest free trade agreements in the headlines today: the Trans-Pacific Partnership and the US-EU free trade agreement (aka the Trans-Atlantic Trade and Investment Partnership). Why are these free trade agreements important? Pete provided some great insights on each, too many to summarize here, but here’s how he contrasted the two agreements being negotiated:

What makes [the Trans-Pacific Partnership] so interesting to a lot of American trade theorists and economists is that there’s a feeling that this may be the last free trade agreement that America really negotiates. It could be the basis for the free trade agreement that we just invite other countries into. So, in a sense, we would create this large global economic sphere that we would allow other like-minded economies to enter into to engage in free trade with us.

In the big picture, when you look at the Trans-Pacific Partnership, it has an immediate, very dense economic opportunity for the United States. [In contrast], because the US and European Union have pretty much gotten where they’re going to be as integrated economies…[the US-EU free trade agreement] isn’t as big an opportunity upfront. Where it pays off massively is down the road. The United States…graduates about 100,000-150,000 engineers a year, that’s about it. The EU is somewhere in that same neighborhood. If you compare that to India that graduates 1.2 million engineers a year, and China…what we’re beginning to slowly do is lose that concept of America being an innovation economy.

[Historically, there have been so many] brilliant inventions that came from American minds — well-educated, insightful, intuitive American minds. We’re not making those engineers anymore. So the US-European free trade agreement is not only important because it solidifies what in effect is the world’s most integrated economy, it also solidifies a more meaningful partnership toward innovation…solidifies that relationship to the point [where] we can move forward together, sharing innovation, sharing ideas.

Of course, for every proponent of free trade agreements there’s an opponent, not only here in the U.S. but in the other countries too. For example, it’s been 20 years since the North American Free Trade Agreement (NAFTA) was ratified, yet NAFTA remains the poster child (or better yet, the punching bag) for opponents of free trade agreements. Why is that? Has NAFTA been a net positive or a net negative for the U.S., Canada, and Mexico? Watch the short clip below for Pete’s perspective on NAFTA.

Finally, I asked Pete for his advice on what actions supply chain and logistics executives should take in the weeks and months ahead to best manage their global trade operations, and how their 3PL partners can help, and here’s some of what he said:

What they need to do is lean on [their 3PL partners] more. There’s been a shift in my industry. When I was a young man, a customs broker was important, a customs broker was a trusted advisor, they were someone that as an importer and exporter you called them to understand the regulatory matters of what was happening around the world. But with the passage of the [Customs] Modernization Act in 1993, people started hiring their own trusted advisors, and we as brokers were no longer responsible for giving advice. No matter what we told an importer, they were responsible, so they stopped asking. And over the course of the past 20 years, we’ve dumbed down brokerage people, we’ve created an environment where they’ve turned customs brokerage and freight forwarding into a commodity.

What we’re seeing now is that the pendulum is starting to swing in the other direction in the brokerage community in particular, but also in freight forwarding and supply chain, where people are saying, “I’m a big-time company, I have big-time issues, but I don’t have the big-time brains and the big-time knowledge that I need here, I need to look for it outside.” And that’s what I would suggest to [supply chain and logistics executives] — to contact their transportation providers and leverage some of the fantastic people, my colleagues and my competition, that have cultivated that knowledge around the world. And to demand of my industry that we make that available as part of our suite of services. And to demand that we’re making better customs brokers, better forwarders, and better transportation professionals because we are more than a commodity, we should be who you reach to to understand these regulatory matters, and it’s only going to happen if the community continues to demand it from us.

I encourage you to watch the full episode of my conversation with Pete for more great insights and advice on this topic, and after you watch, post a comment and share your perspective!

Note: C.H. Robinson is a Talking Logistics sponsor.