Focus: Free Trade Agreements

Level Playing Field

Level Playing Field

Jun. 10, 2013


After years of negotiations, on May 15, 2012, an FTA between the US and Colombia came into effect. Before this date, over 80% of US consumer and industrial exports to Colombia were subject to duties. The majority of products had duties immediately eliminated when the FTA came into effect, while the remaining duties will be phased out over a period of 15 years. Colombia managed to avoid some of the duties in place before the FTA due to its membership of the Andean Trade Preference Act (ATPA). The aim of this group was to help countries affected by drug cartels and trafficking—Bolivia, Colombia, Ecuador, and Peru—by expanding economic activities. The new FTA will expand the list of duty-free imports to a wider range of products. Key US exports to Colombia include agricultural and construction equipment, aircraft and parts, auto parts, fertilizers and agrochemicals, IT equipment, and medical and scientific equipment. While in the other direction it is largely agricultural products, such as tropical fruits. The delay in finalizing the FTA proved costly to the US as other trading partners came in to secure early market positions. Exports of agriculture exports from the US to Colombia dropped by 53% between 2008 and 2010, which was largely taken by Argentina. However, the FTA is widely expected to increase the value of US exports to Colombia by $1.1 billion. The US Embassy in Bogotá stated that since May 2012, total trade with Colombia went up 10% and US exports to Colombia increased by 22% or $4.3 billion, while Colombian exports grew by 6.7%. The agreement is also expected to create 500,000 jobs as well as increase the GDP for Colombia between 0.5% and 1%. The FTA will not just benefit large corporations; according to studies a FTA can be especially helpful to SMEs as it introduces more transparent processes and rules. It also removes some of the fixed costs involved with regulations, which can be much more burdensome for smaller companies.

The agreement with the US is not the only FTA that Colombia is interested in. According to Sergio Díaz-Granados Guida, Minister of Trade, Industry and Tourism, the FTA between the EU and Colombia and Peru was agreed in May 2012 and was signed in June 2012. “Colombia's exports to this bloc grew 4.1% in the first nine months of 2012, which yielded a positive trade balance of over $1.19 billion," Guida explained to TBY. Bilateral trade between the EU and Colombia was €8.6 billion in 2010. Both sets of countries will be looking to increase their presences in the other as markets around the world continue to contract. An agreement with the EU would be extremely beneficial to all involved. The EU consumer market is larger than the US and Japanese markets combined, and it is accessible to Colombia's manufacturing, industrial, and fishery sectors at 99.9% tariff free. It also allows key agricultural exports, such as sugar, flowers, coffee, bananas, and beef to enter the EU market tariff free, as well as protect some of Colombia's more sensitive products from imports, such as pork, poultry, corn and rice.

It is also of a significant benefit for the EU as well. Exporters from the EU will save at least €270 million a year on tariffs. In addition to this, it also provides a substantial export market for key European sectors, such as automotive, chemicals, pharmaceuticals, telecommunications, alcoholic beverages, and the service sectors. The EU is now able to compete on a level playing with the US, since the sector that the EU is highly competitive in are now tariff free. The FTA will promote growth, increase jobs, and highlight the global competitiveness of the EU and Colombia.

Although Colombia has major FTAs set up with two of the largest markets in the world, the country also has agreements with many other nations. In 2005, a trade accord with MERCOSUR was ratified; the group includes Brail, Argentina, Paraguay, and Uruguay. The FTA gives Colombia access to a market of 230 million consumers. It will also allow Colombia to import materials and capital goods with reduced tariffs. This agreement, however, is more in Colombia's favor since the gradual reduction of tariffs allows time for its industries to adapt to the changing market and requirements of the agreement. In June 2012, an FTA was signed with South Korea reducing tariffs on automotive imports and coffee exports. Colombia also has a FTA with Canada and is in negotiations with Japan at the moment.

The FTAs Colombia has established are proving to the world that it is a stable and reliable economy to do business with. In light of this, the government is not resting on it laurels, “We have set the goal of having a total of 18 trade agreements negotiated by 2014," Sergio Díaz-Granados Guida explained to TBY. While setting up these new FTAs, the government will have to ensure that it is able to protect its more vulnerable sectors and promote broad-scale development.