Celebrating Colombia’s Free Trade Agreement

For the last four years, both the Colombians and supporters in the United States have waited for the U.S. congress to ratify the Free Trade Agreement. The Congress approved the FTA on October 23, 2011 and this week, the agreement comes into force. Free trade in goods, services and investment will be introduced gradually over fifteen years. The United States is Colombia’s leading trading partner, but Colombia accounts for less than 1% of total U.S. trade. Given the asymmetric trading relationship, why does this FTA make a difference to the United States?

Colombia, a country of 45.9 million people with access to both the Pacific and Caribbean seas has battled the FARC insurgency and the paramilitary groups for close to three decades. The U.S. government made a significant contribution to the security of Colombia both in the 1980s and then through Plan Colombia. With success in restoring a degree of citizen security and reducing the FARC to a few hundred men, it became important to strengthen the trade relationship. President Uribe asked and Washington responded positively to move beyond a preferential tariff agreement with Andean nations to a full FTA with Colombia. U.S. labor unions and Human Rights Watch demanded an end to judicial impunity for the assassins of teachers and union members. With notable progress in these areas, President Obama agreed to seek Congressional ratification of a FTA with Colombia, as well as South Korea and Panama.

Under the Andean Trade Preference, 80 percent of U.S. goods were imported into Colombia duty free and the remainder entered with substantially lower tariffs. However, this preferential agreement failed to provide the long term and sustained trading relationship within which investors could make long term investment plans. Indeed, in 2011, Congress suspended the Andean Trade Preference for reasons having nothing to do with Colombia. In the eight months suspension, Colombian importers had to pay the full tariff on imported goods; a significant sum of money that the US government has since repaid.

In contrast to a preferential trade agreement, a FTA confirms the trading and investing “rules of the game.” It provides a framework for the Trade Ministers of both countries to engage in permanent interaction and procedures to resolve disputes. A higher degree of predictability provides the certainty needed for U.S. investors to make commitments in earth moving, mining, road building, electrical transmission and hospital equipment. It provides highly skilled U.S. jobs in design, engineering and financial management. It also provides opportunities for Colombia’s burgeoning middle class to access quality education and world-class health care. Colombia, with a growing GDP of approximately 6% a year is rapidly becoming a middle class nation with increased demands for better health care, education, food and consumption goods. U.S. technical knowhow, equipment and management skills will find ready customers among people who, in a post conflict environment, understand the value of contracts and the rule of law.

However, significant challenges lie ahead: Colombian customs’ agencies are not equipped to handle the influx of U.S. goods. Government personnel need to be trained, systems created and bureaucracy made effective in order to avoid bottle necks and delays. Today, in Colombia, government officials are reluctant to make decisions out of fear of reprisal from the judicial system. Bureaucratic paralysis has held back investments in roads, rail and expanded ports. The Instituto Nacional de Concesiones (INCO), responsible for seeking investors in major infrastructure projects had to be disbanded in 2011 for ineffectiveness. In its place, the Agencia Nacional de Infraestructura (ANI) was created to work with the private sector in undertaking major infrastructure projects.

Work has already begun on guaranteeing labor contracts and assuring labor the right to organize. Harassment of workers has declined and labor rights are more likely to be respected. However, the problem of impunity for those who harass organizers for the labor movement remains a problem, albeit one much less than before.

Going forward, the challenge for both the United States and Colombia is to employ the complementary assets of each country so as to compete effectively in a global economy. No longer can Colombian hold on to traditional ideas and frequently look into the rear mirror. Colombian agriculture has been protected by a regime of no-taxes, but it will now face large-scale and more efficient U.S. producers. Small manufacturers will need to invest in computer and electronic equipment to develop their budgets, and marketing strategy. Business education with computer systems must be introduced in order for medium and small enterprises in Colombia to take advantage of the FTA and not sink under U.S. and global competition. A new focus on educating business men and women, as well as the training in new technologies must accompany this FTA. The workers in both countries have the opportunity to develop their business and their markets. The ‘Entry into Force’ of Colombia’s FTA signals the start of a long term commercial relationship.