It is an exciting time for Colombia, the third largest economy in Latin America. After several years of procrastination, the US finally ratified the US-Colombian Free Trade Agreement (FTA) on Wednesday 12th October. The agreement is intended to come into force in the first half of 2012. (See this and this for an overview of the agreement)
This agreement came as a bit of a surprise to Colombia and holds exciting prospects for the country’s economy; the country has one of the lowest exporting rates out of all the Latin American economies. With Colombia’s unemployment rate around 10%, and optimistic forecasts for the country’s continued growth, this agreement will be very important for Colombia’s future.
The ratification of this trade agreement is a strategic move by the Obama administration. Unemployment in the US is currently at 9.1%, and the country is forecasted sluggish growth over the coming years. This depressing state of affairs appears to have galvanised the administration to push this trade agreement through, as well as others, including ones with South Korea and Panama.
The FTA is forecasted to create jobs and numerous benefits for both the US and Colombia. The Office of the United States Trade Representative goes into some detail on a number of key benefits here, thorough analysis of benefits here. I have highlighted some below:
- US exports to Colombia forecasted to increase $1.1 billion
- Access to robust services market – US service providers will be granted new access to Colombia’s $166 billion services market
- New opportunities for agriculture – Agricultural tariffs for US farmers will be reduced, and eventually removed, opening up new business opportunities to both American and Colombian farmers
- Galvanise the industrial export market – Industrial tariffs for US exports range from 7.4 to 14.6. 80% of all industrial exports will become duty free with immediate effect, and the rest will be phased out over the following decade
- Greater protection for Intellectual Property rights – Colombia will improve level of standards for IP protection, closer in line with US and international standards
- The Colombian FTA will result in a $2.5 billion increase in the US GDP
For the number of supporters the agreement has, it also has an equal number of critics. Indeed, there are a number of potential drawbacks to the US-Colombia FTA as well. In addition, previous FTAs have also drawn criticism. The North American Free Trade Agreement (NAFTA), for example, has been criticised for increasing the US deficit, which has led to job losses within the States. If you’re keen on the subject read Joseph Stiglitz’s, Globalization and Its Discontents, which gives a fascinating insight into the challenges, failures, and often huge bias’s of US-led free trade initiatives. In this respect, Colombia must be cautious when moving forward with the agreement, and ensure that it works collaboratively with the US, and maintains an open and frank dialogue on related issues.
There is a myriad of considerations to take into account for the successful implementation of the US-Colombia FTA. Take security and human rights abuses for example, which have been high on the agenda for both the previous Colombian president, Álvaro Uribe, and the incumbent, Juan Manuel Santos. Colombia’s record for human rights abuses and attacks on trade unionists is worrying. The exceptionally high number of trade unionist murders has grown over recent years, and is showing no sign of abating. Despite mixed views on the progress made by Colombia’s Democratic Security Policy, which is supported by the US, this specific issue is being tackled as one conditional facet of the FTA’s implementation by Washington. (Progress and summaries can be seen here)
Opening up the Colombian economy to increased levels of competition from the US does also have the potential to do a great deal of harm to vulnerable sectors within the country. Agriculture is a significant area of concern for Colombia in this context. Colombia’s agriculture minister has warned that many small businesses are not ready for the impacts the FTA will have, and are not in a strong enough position to effectively compete with similar businesses based in the US.
Under the Uribe presidency, a programme to subsidise these small enterprises was initiated for the sole purpose of counteracting concerns about competition from American farmers. Unfortunately for Colombia, the agriculture minister at the time, Andrés Felipe Arias, was found to have diverted much of this financing to his own party supporters, and was consequently jailed for this behaviour, which he adamantly denies.
The issue of corruption is not just a problem Colombia faces alone, but is prevalent across the majority of South and Central America. Transparency International’s Corruption Perception Index shows annual figures for the levels of corruption by country. The index shows Colombia comes 78th out of 178 – the higher the position, the more corrupt. Considering the UK and the US come in 20th and 22nd, respectively, there is still much room for improvement.
On paper, the US-Colombia FTA appears to be a win-win for both parties. With the possibility of the Obama administration being replaced in the near future, the agreements sustainability remains in the hands of the controlling party, and primarily, in the support of the US people the agreement will benefit.
The FTA’s long-term survival is not a certainty; its sustainability depends on its success. This I am hopeful for. The benefits for Colombia will not just be confined to US-Colombian relations either, some say this trade agreement will be a stepping stone for Colombia to open up its markets to other global economies and regions. With this in mind, let’s hope both sides take it slow and iron out all the creases as they go.