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Colombia 2014 | INDUSTRY | FOCUS: US FTA EFFECTS

The US-Colombia FTA is one of many trade agreements signed under the Santos administration, bolstering the economy through lowered tariffs and restrictions.

In May 2012, the US-Colombia Free Trade Agreement (FTA) was finally implemented officially. A lengthy negotiation process under different governments on either side of the treaty dealt with complex obstacles such as labor reform and intellectual property rights, but by 2011, the Santos and Obama administrations were ready to apply the necessary amendments. The results of the FTA over 2013 have been positive on the whole, though particular external economic factors hampered exports from the Colombian side, meaning that a conclusive survey of its effects will have to wait.

Though initially signed in 2006 under the Uribe and Bush governments, congressional approval remained elusive. In 2007, the Colombian congress endorsed the document, but in the same month new US conditions for FTAs were introduced, requiring amendments that were to take some time to complete. Specifically, provisions for the protection of the environment and labor market were made necessary. In 2008, these changes were understood to be compatible with the Colombian constitution, and it was ratified in July of that year. Slow progress in the area of labor reform, a subject which over the course of the country's internal conflict has become extremely politicized, was made in subsequent years, with improvements being accepted by the US Congress in 2011.

The aim of the FTA is to eliminate tariffs and trading barriers, resulting in increased economic growth for both partners. Around 250 US companies operate in Colombia, and since the promulgation of the FTA these have benefited considerably. Imports into Colombia rose by 15% between mid-2012 and 1Q2013, and have risen by an average of 10% from 2012 to 2014, according to DANE, the state statistics body. FDI from the US is focused on mining and manufacturing. Colombian exports are based around petroleum, with $13.1 billion worth of crude oil exported in 2012, a figure that represents 61.87% of exports to the US. Other key areas include refined petroleum, coal, and gold.

However, with such a reliance on the export of oil, Colombia has been subject to the fluctuations in global energy prices, and subsequently did not experience noticeable benefits from the agreement in 2013. Overall, exports to the US dropped from $21.9 billion in 2011 to $18.4 billion in 2013. The US went from representing 35.32% of Colombia's export markets in 2012 to 31.4% in 2013. The value of the peso has affected performance at the same time, but after one year of the FTA, exports had dropped by a full 13%. Similar reductions in trade volume have occurred with other partners, however.

Despite all of this, however, Colombia is hopeful that it will prove to be a sensible agreement, and it has reason to be. Though manufacturing and energy underperformed, agricultural production was high for the year and represents a growing share of the export basket, with flowers, coffee, and unique products such as palm oil always welcome in partner markets. The pacification of rural areas in the course of peace negotiations will open up more land for cultivation, allowing the further diversification of the economy to encompass agricultural and chemical products and more. With less vulnerability to international market forces, the Santos' administration's prediction of an approximate 10% increase in exports to the US. The government remains confident in its FTA strategy, and has been pursuing bilateral agreements with such diverse trade partners as Panama, South Korea, Japan, and the EU. Provided it invests as much effort into augmenting its economy with more value-added products and by encouraging new sectors, perhaps these agreements will show positive results within a shorter space of time.