Senate passes Peru free trade deal

More from FSB

Help wanted for HR firm A CEO and rodeo queen King of the mountain bike

Current Issue

(Fortune Small Business) WASHINGTON, D.C. -- The Senate approved a free trade agreement with Peru yesterday by a vote of 77 to 18, clearing the way for the deal to become law within weeks.

While U.S. labor and environmental advocates generally opposed the deal, some small businesses cheered the idea of opening up another market for their products.

"Every time we put together a trade agreement, our demand goes up," says Joy Philippi, who raises pigs on her family farm in Bruning, Nebraska. While Philippi's company, Pine Alley, doesn't export, she will benefit from the 83 cents that the Peru deal will likely add to international pig prices, which currently hover around $110.

For Philippi, whose business has been suffering as domestic pork demand wanes, trade deals mean steady income. "If my barn is full, that's job security," she says.

Last year Peru accounted for just $2.9 billion of the $1.4 trillion global market for U.S. goods and service worldwide. And 98% of Peru's exports already enter the U.S. duty free, according to the United Stated Trade Representative's Office. As a result, the deal seems unlikely to generate much additional competition for American companies.

The deal is a victory for the Bush administration's free trade agenda. About 38% of U.S. exports to Peru came from small and medium-sized businesses in 2005, according the Small Business Administration. Overall 10,000 small businesses exported around the world that year, generating 29% of total U.S. exports in dollar terms.

Free trade agreements such as the Peru deal tend to benefit U.S. companies in specialty markets that face competition from other industrialized countries. Quality Float Works (covered in the June issue of FSB) has been manufacturing specialty plumbing equipment for the past 92 years, but the Schaumburg, Ill.-based firm only put together an exporting plan three years ago, says vice president Jason Speer.

The growing middle class in markets such as Southeast Asia and Central America has boosted demand for Quality Float's products, Speer says. The company, which grossed $2.2 million last year, saw exports grow to 16% of total sales in 2006, up from 3% in 2003.

Because Quality Float Works only has about a dozen competitors worldwide, country-specific trade deals like the Peru agreement help the 22-person company grow. "We follow these trade pacts closely, because every little bit helps," says Speer.

Some luxury good exporters also benefit from free trade agreements. San Diego-based Cange International exports high-end kitchen equipment from Viking and other manufacturers. Cange has been exporting to Peru for the past five years, despite tariffs of as much as 20%. Co-founder Kimberly Benson expects the new trade deal to boost Peruvian demand for her goods.

"Every international market means something to us, since we're not trying to mass market these products," says Benson, who launched Cange with her husband in 1991.

Opponents of the Bush administration's trade agenda argue that such stories reflect only a fraction of the U.S. economy. In an October statement opposing the Peru deal, presidential candidate John Edwards argued that while the agreement might help a few U.S. exporters, it would also weaken food safety protections and give U.S. firms more incentive to move jobs abroad.

Congressional Democrats who voted against the Peru deal voiced similar concerns. Increasingly vocal resistance to free trade may make it harder for the Bush administration to win congressional approval for trade deals that it has already negotiated with Panama, Colombia and South Korea.