Factor adjustment implications of a Trade Promotion Agreement between the United States and Colombia

Abstract

PurposeThis paper proposes to use changes in intra‐industry specialization indicators over the period 1996‐2008 to assess the potential for factor adjustment pressures that may arise in the USA if the proposed USA‐Colombia Trade Promotion Agreement (TPA) is implemented. Results show that there is considerable scope for intra‐industry specialization between Colombia and the USA. The TPA should result in a larger increase in US exports to Colombia than US imports from Colombia, because Colombian exporters face much lower tariffs in the USA market than do US exporters in the Colombian market. Given the tariff asymmetry, scope for intra‐industry specialization, the relatively large size of the US market, and the small number of US industries that are likely to encounter factor adjustment pressures, the USA should ratify the agreement immediately.Design/methodology/approachChanges in intra‐industry specialization indicators are used to identify US industries that may face factor adjustment pressures as a result of the proposed USA‐Colombia TPA.FindingsThere is considerable scope for intra‐industry specialization between Colombia and the USA. Few US industries will be candidates for factor adjustment pressures.Practical applicationsThe USA should ratify the TPA.Originality/valueA new methodology is used to assess potential factor adjustment pressures associated with a TPA.