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The Path of the Free Trade Agreement between Colombia and the US

By Ariela Ruiz Caro | Americas Program | June 1, 2012

Eight years after negotiations began in May 2004, the U.S.Colombia Free Trade Agreement (FTA) came into force on May 15.

Negotiations began together with the four member countries of the Andean Community that are beneficiaries of the Andean Trade Promotion and Drug Eradication Act (ATPDEA), which permits the entry of products not traditionally tariff-free into the U.S. market. One of Colombia’s central reasons for the FTA lay in ensuring that such tariff preferences were made permanent, since ATPDEA officially expired on December 31, 2006.

Businesses that exported under this program—especially in the textile and floriculture sectors in the case of Colombia—pushed hard for the FTA. They believed that it would allow them to gain competitiveness against other countries that did not enjoy similar preferences, and to be on equal terms with those who already had them.

The governments sought to shield important aspects of economic policy—like the treatment to foreign investment, liberalization of the services sector and strengthening intellectual property protection, among others—against the probable intent that a new administration would try to change them. The consolidation of economic liberalization would, according to authorities, attract foreign investments that generate jobs.

In this evaluation, the Andean governments dismissed the fact that tariffs are not currently the main barriers to access to industrialized country markets. They also did not consider that as the United States continued to sign FTAs such with other countries, as it was clear they would, the Andean region would lose its advantages.

Indeed, the U.S. government, as well as the European Union and Japan, use free trade agreements as a way to establish trade and economic rules that in the multilateral World Trade Organization cannot be implemented because of the resistance of a significant number of developing countries.

The Trade Act or Trade Promotion Authority (TPA) of 2002-which authorized the United States government to negotiate FTAs with other countries, says that the expansion of international trade “is vital to national security. Trade is critical to the country’s economic growth and leadership in the world.”

The same act states that trade agreements maximize opportunities for critical sectors of the U.S. economy, such as information technology, telecommunications, basic industries, capital equipment, medical equipment, services, agriculture, environmental technology and intellectual property. The TPA indicates that trade creates new opportunities for the United States, thus preserving its economic, political and military strength.

The process of meetings to achieve the FTA was extensive. What started as a joint negotiation (Colombia, Ecuador and Peru, with Bolivia as an observer) ended with individual negotiations. Peru was the first to secure the signatures of presidents Toledo and Bush in December 2007 and came into force in February 2009, while Bolivia and Ecuador rejected the FTA following changes in their governments.

Venezuela withdrew from the Andean Community in April 2006 and applied for incorporation into Mercosur, arguing that “the free trade agreements by Colombia and Peru with the United States of America have formed a new legal body that attempts to assimilate the rules of the FTA within the Andean Community, changing de facto its nature and original principles.”

While the presidents of Colombia and the United States, Uribe and Bush signed in 2006, the U.S. Congress did not ratify the act because of complaints from some quarters in Congress and civil organizations that pointed to violations of human rights and labor laws. After lengthy negotiations, and commitments made by acting President Santos, the act was ratified by Congress in October 2011. Meanwhile, the tariff advantages achieved under the ATPDEA were renewed annually.

Myth of the “special relationship” under FTA

With the enforcement of the FTA, Colombian authorities hope to convert the country into an export platform for those countries that “do not enjoy privileged relations with this large market, such as Argentina, Ecuador, Brazil and Venezuela.” Government officials from Peru and Chile had previously expressed the same hope.

However, experience shows that these hopes did not become reality for Colombia’s neighbors. Sales to the U.S. market have lost momentum. In Peru, for example, exports to the United States fell 4% in 2011 over the previous year, although the total exports increased by 28% in that period.

The United States dropped from being the top destination for Peruvian exports, to the third–after China and Switzerland. In 2006 24.2% of Peruvian exports were destined for the U.S. market, in 2011 they were only for 12.7%. By contrast, imports from the United States, which in 2006 represented 16.4% of total imports, in 2011 increased to 19.5%. The U.S. has managed to reverse its trade balance with Peru, which has gone from a surplus favorable to Peru of $3.26 million in 2006 to a deficit of $1.52 million.

It is true that in this evolution the [exchange rates] of local Latin American currencies against the dollar have had a major impact, but the slowdown in growth and consumption in the United States does not predict a scenario favorable for emphasizing exports to the United States.

In his speech to the State of the Union in January this year, President Obama proposed a recovery of the economy based on boosting local manufacturing. He proposed tax cuts to companies that invest in the country, tax increases to those established abroad and measures to increase U.S. global market share, creating “millions of new customers for U.S. products in Panama, Colombia and South Korea.”

Colombia should be asking itself: Who really benefits from the Free Trade Agreement?

Ariela Ruiz Caro is an economics graduate of the Humboldt University in Berlin, with an MA in Economic Integration from the University of Buenos Aires. She does international consulting on trade, integration, and natural resources for ECLAC, the Latin American Economic System (SELA), the Institute for the Integration of Latin America and the Caribbean (INTAL), and other organizations. She worked for the Comunidad Andina from 1985 to 1994, as an advisor to the Commission of Permanent Representatives of MERCOSUR from 2006 to 2008, and is a writer for the Americas Program.

Translated by Yasmin Khan

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