o you locate in a country just because an agreement allows tariff-free trade? Probably not – unless, of course, you do.
   The answer depends on the nature of the business you are in. For lower-value manufacturing operations, such as textile and garment production, the difference between a 10-percent tariff and zero tariff could mean the difference between profit or loss. For other, high-margin, high-value sectors such as software production, the existence of an agreement may have little impact.
   Several free trade pacts await ratification by the U.S. Congress following agreements negotiated between the White House and other governments, including the Colombia Trade Promotion Agreement, the Panama Trade Promotion Agreement and the Korea-U.S. Free Trade Agreement (KORUS).
   Congress approved a fourth pact, the Peru Trade Promotion Agreement, in December 2007. Once it goes into force, 80 percent of U.S. exports of consumer and industrial products to Peru will become duty-free immediately, with remaining tariffs phased out over 10 years. The new TPA gives U.S. investors the right to establish, acquire and operate investments in Peru on an equal footing with local investors, according to the Office of the U.S. Trade Representative.
   In the services sector, Peru has agreed to eliminate measures that require firms to hire national rather than U.S. professionals, meaning companies could send in a senior management corps from the U.S. The agreement also removes a requirement to purchase Peruvian goods.    Trade and industry experts alike anticipate that the debate over the Colombian agreement will happen before action on the others. According to Sean Spicer, assistant U.S. trade representative, "There are no problems on our side with the Panama agreement, but it is on hold because the president of Panama's senate has been indicted." Pedro Miguel González, the head of Parliament, is wanted in the U.S. on murder charges. Panamanian government officials have been occupied by issues other than free trade because of this, he says.
   Although President Bush recently sent the Colombia agreement to Congress, industry insiders are less optimistic over time frames.
   "Korea won't happen before Colombia," says Nate Herman, vice president of international trade for the American Apparel and Footwear Association. And Colombia could be delayed because "There is a stand-off between President Bush and the Democratic leadership of Congress," he says.
   Election-year politics and the economic downturn have re-opened the populist debate over whether free trade has helped or hurt Americans and the U.S. economy. The closer we get to the election, the less likely it is that members of Congress would approve new free trade agreements, he notes. Democratic congressional leaders have indicated to the president that they do not want to consider any new free trade pacts during the current session.    The situation has put some companies in location limbo. Since 1991, when the Andean pact allowing duty-free imports to the U.S. went into force, many U.S.-based apparel and footwear companies have operated in Colombia. In addition to the zero-tariff access to the U.S., Colombia offered lower production costs, logistics advantages and a deep tradition of textile expertise.
   But the renewable pact has become a major headache, particularly as changing political winds have increased the uncertainty around renewal.
   "The pact was renewed this past year only 12 hours before it was due to expire," Herman says. "The year before, it was signed less than two hours before it would have expired."
   Herman says that the nature of the apparel and footwear production cycle, requiring sourcing decisions six to eight months out, does not align with a trade agreement that has to be renewed with such frequency – or with such drama.
   Adds John Murphy, vice president of International Affairs with the U.S. Chamber of Commerce, "There was a time last summer when it seemed that the Andean pact would not be renewed at all. So, companies might have gone from zero-percent tariffs to 20-percent tariffs immediately. This is very significant, particularly for apparel companies and the like with low margins."    It's a complex location dilemma, because Colombia offers a major geographic advantage for firms dependent on ephemeral consumer tastes. A Colombia location lets apparel companies respond rapidly to, say, a hot design idea from the latest episode of "Project Runway"– they can design, prototype, produce goods and place them on retail floors in malls across America within a single week.
   But uncertainties do not make investors happy. The result, according to Herman: "A lot of our members are saying it's not worth this worry about whether trade pacts will be renewed or made permanent, and they are closing up shop in Colombia and moving to Asia."
   Statistics provided by AAFA reveal that Colombia exported 20 percent fewer finished apparel and footwear goods to the U.S. in 2007, following a 14-percent decline in 2006 – drop-offs that coincide with the drama surrounding renewal of the Andean Pact./
   And with little clarity on the mood of Congress as the November elections loom, there's no guarantee that a permanent free trade pact will happen soon. Although Asian locations may not provide duty-free access, lower labor costs in Asia balance out the cost differential, Herman says.
   Meantime, uncertainty over ratification of KORUS could be causing Korean companies to consider locations outside of U.S. borders, as demand grows for their consumer goods. According to Adam Prager, a specialist in Asian site selection whose consulting firm advises the Korean government on economic development strategies, "There is change afoot. While the U.S. is still important, Korean attentions are being pulled elsewhere." Firms could decide to locate in Mexico, for instance, as a less complicated and lower-cost way to access U.S. markets, he says.    Still, the cost of trade is just one more criteria in an international location decision-making process. "There's a myriad of factors to consider, including logistics, competition, demand, incentives and free trade," Prager says. "These factors are like tectonic plates that continue to move." When there's a shift in one – such as the exponential rise in logistics costs due to commodities price increases – the impact of others – such as free trade – is lessened, he says.
   The trade issue is also linked to the broader context of business environment, and, despite other location positives, a number of countries fall short in this critical area, experts suggest.
   "Colombia has one of the more complex tax regimes in Latin America," notes Daniel Villar, an economist and senior risk specialist with MIGA, the World Bank's investment promotion and political risk insurance arm. "The government tends to modify the regulatory framework frequently."
   Villar says that these broader problems often resonate more than narrow tariff issues with companies in search of a location.
   "You can't change the laws frequently and expect long-term corporate investment. Investors need to know what they will face," he says.
   He suggests that countries poised to be big winners following ratification of free trade agreements are those that already offer strong advantages for firms in search of an international site: access to new markets; reliability of quality, low-cost supplies; skilled, productive work forces; developed transportation infrastructure and electricity grids; rational tax structures, attractive incentives and stable governments.
   Case-in-point: the countries of Central America. Following the enactment of CAFTA-DR (the Central America-Dominican Republic Free Trade Act), many Central American governments believed that they would see an immediate influx of foreign direct investment from the U.S.
   "But while low or no tariffs were helpful, they are not necessarily the only reason, or even the most important reason, that companies looked for," Villar says. Nicaragua, for instance, has seen little new investment following CAFTA enactment, "due to reasons such as a lack of skilled labor, a shortage of management expertise and poor infrastructure."
   Contrast the Nicaragua experience with Costa Rica.
   "Costa Rica, with decent infrastructure, adherence to the rule of law and a good business environment, has been most successful in attracting new FDI," including Intel and Abbott Labs, Villar says. That success continued in late 2007 with investment announcements creating 1,750 new jobs from Continental AG and Boston Scientific.
   Another country that could become a location of choice for more firms is Uruguay, if free trade talks pan out into a substantive agreement, says Villar.
   "Uruguay is already getting a lot of software development investment from India. It has a well educated work force, low crime, stable politics and strong infrastructure. For U.S. companies, these positives would be accentuated by a free trade pact," he says.
   Villar concurs with Murphy that the extent to which a free trade pact will influence a location decision depends on the industry sector and on the size of profit margins.
   "In the textile industry, with very thin margins, 10-percent tariffs make all the difference, and companies will move between countries because of this. But higher up in the value chain, it makes less of a difference," he says.