Laissez faire and international trade: a critique of the proposed United States Colombia free trade agreement.
Relyea, Clint W. ; Tejada, Sandra Liliana ; Fish, Kelly E. 等
ECONOMIC RELEVANCE OF FREE TRADE AGREEMENTS (FTA)
FTAs provide partner nations with reciprocal duty-free access to
each others' markets, effectively creating a common market, thereby
facilitating trade flows and increasing economic efficiencies. The
increase in scope and speed of market access results in faster turnover
and creation of investible domestic surpluses. FTAs normally provide
better and cheaper goods and services through increased competition,
which leads to consumer surpluses for all partners. Economic welfare
gains from a FTA may be viewed as the total of increases in consumer and
producer surpluses net of the changes in revenue from customs tariffs.
There are also other spillover benefits of FTAs including higher levels
of innovation and investment that can contribute to economic recovery,
growth and distribution (Hoekman and Schiff, 2002).
Over 200 regional FTAs now account for about one-third of global
trade. While these generally promote economic growth in member nations,
they can also create obstacles for multilateralism. There is speculation
whether a large number of FTAs will threaten the health of the worldwide
free trade system (Newfarmer, 2005).
THE UNITED STATES--COLOMBIA FTA
The United States-Colombia Trade Promotion Agreement (CTPA) is the
proposed FTA, which is a bilateral commercial treaty for eliminating
obstacles to trade and favoring private investment between the United
States and Colombia. This agreement emerged from failed multilateral
negotiations between the United States, Colombia, Peru, and Ecuador. The
United States concluded negotiations with Peru in December 2005 while
negotiations with Ecuador are continuing. The first bilateral trade
negotiations between United States and Colombia were initiated in May
2004, and the US-Colombia FTA (will be henceforth called the CTPA) was
signed in November 2006. The agreement was renegotiated to include more
rigorous environmental and labor standards via a Protocol of Amendment
that was signed in June 2007 which was presented by both countries to
their respective congresses.
The proposed CTPA is a comprehensive FTA that will address issues
relating to trade commerce, customs administration and trade
facilitation, and remove technical barriers to trade, while safeguarding
intellectual property rights, and labor and environmental standards. It
will additionally include government procurement, investment,
telecommunications and electronic commerce. Under this agreement,
Colombia will eliminate most of its tariffs on US exports, and US
companies will have greater access to Colombia's services sectors
than other World Trade Organization (WTO) members. US companies will
gain an advantage in Colombian markets by the elimination of tariffs on
80 percent of US consumer, industrial and agricultural goods. An
additional 7 percent of US exports will be covered under the duty-free
umbrella within five years of implementation, while the remaining
tariffs will be eliminated ten years after implementation of the CTPA
(Eslava, Haltinwanger and Kugler, 2004).
On the Columbian side, after the CTPA was signed it was submitted
to the Colombian Congress in November 2006 and was approved in June 2007
and became a public law, Ley 143, in July 2007. The Amendment was
subsequently approved by Columbian Senate and House and became public
Law, Ley 1116, in November 2007. The Colombia's Constitutional
Court completed its review in July 2008 and concluded that the Agreement
conforms to Colombia's Constitution.
The CTPA is still languishing in the US Congress. It was not
approved before the change of administration in January 2009, because it
failed to garner bipartisan support. The current administration will
reportedly favor the free trade initiative, provided Colombia can
demonstrate adequate protection of human and labor rights. But there is
no declared timetable yet, to implement the CTPA, given the looming
controversy over the safety of Colombian labor leaders.
This is, however, not the best terms of trade for the US.
Currently, 90% of Colombian products enjoy unilateral free access to US
under the Most Favored Nation tariff rates or the Andean Trade
Preference and Drug Eradication Act (ATPDEA) signed in 2002. On the
other hand, US exporters currently pay tariffs as high as 35 percent to
enter the Colombian market. The CTPA will establish bilateral access and
provide similar benefits to US exporters, thus creating economic
opportunities for US manufacturers, workers, farmers and resource
suppliers related to export businesses. It will generate better incomes
for US Companies and could potentially increase US exports by 13.7
percent or $1.1 billion annually, contributing $2.5 billion to US GDP,
according to the forecast from the US International Trade Commission
(USTR, 2009).
According to the Latin America Trade Coalition's Colombia
Tariff Ticker, the cost of the delay is real because US companies have
paid $2.3 billion in unnecessary duties to the Colombian Treasury in the
3 years since the FTA was signed. The amount of $2.3 billion leads to
higher prices in Colombia for US goods and services and reduced profits
and jobs for US companies. Hence the CTPA can contribute positively
towards the recovery from a long recession since it can offer US
companies better access to Colombia's growing and dynamic market.
Colombia has the potential to be a strong trading partner, since
there are already more than 10,000 US operating exporters, including
8,500 small and medium-sized companies.
US EXPERIENCE WITH ANOTHER FTA
The North American Free Trade Agreement (NAFTA) between the United
States, Canada, and Mexico was initiated in 1994 creating the
world's largest free trade area in geographic terms (Agama and
McDaniel, 2002). Duties and quotas were phased out and have been
eliminated for all trade in NAFTA since 2008. The US-NAFTA trade has
crossed the $1 trillion mark in recent years, as shown in Table 1, and
US exports to NAFTA has almost doubled from $217 billion in pre-NAFTA
1993.
US foreign direct investment (FDI) in NAFTA Countries (stock) was
$348.7 billion, while NAFTA's FDI in the United States was $219.2
billion in 2007. While the expectations in the mid-1990s was that the
NAFTA would improve the US trade balance and result in job gains in the
United States, the US-NAFTA trade deficit has grown recently. The US
goods account trade deficit with NAFTA was $116 billion in 2007 and $143
billion in 2008, while this was only $9 billion in pre-NAFTA 1993. The
US services account however shows a surplus with NAFTA of $26.5 billion
in 2007. Critics claim that the growing current account deficit with
NAFTA may have cost 1 million jobs US-wide (Fernandez-Kelly and Massey,
2007). However this is only a part of the story, since the pattern of
the job losses by geographic location and economic sector is unclear. It
is probable that low skill / low wage jobs were substituted by high
skill / high wage jobs, which is the norm for international trade
related employment and also consistent with the increase in the service
account surpluses.
COLOMBIA'S EXPERIENCE WITH OTHER REGIONAL TRADE ASSOCIATIONS
Colombia joined the general agreement on Tariffs and Trades (GATT)
in 1981 and the country was an active member of this organization.
Later, the Congress of Colombia approved the entry into the WTO, which
replaced the GATT in 1994. Colombia became a party to all the agreements
that are listed by the WTO. Other agreements currently implemented are
(Fernandez, 2003):
* Andean Community
* The Group of Three (G-3)
* Colombia- Chile Agreement
* Andean countries and Mercosur agreement
* Colombia- Caricom Agreement
* Colombia - Panama Agreement
* Colombia and Central America countries
Colombia is a commercially significant market with functioning FTAs
as well as some that are currently being negotiated.
The Andean Trade Preference Act (ATPA) /ATPDEA agreement started in
December 1991 between the United States and four Andean countries
(Bolivia, Colombia, Ecuador and Peru). The purpose of the agreement is
to support the Andean countries in their fight against drug production
and trafficking by expanding their economics alternatives. This
agreement was renewed and amended by The Andean Trade Promotion and Drug
Eradication Act (ATPDEA) enacted in August 6, 2002. The ATPDEA provides
duty-free treatment for certain products previously excluded under the
ATPA. Although this agreement is a one-way preference program, it has
had a positive impact on two- way trade between Colombia and the United
States. Both US imports and exports to and from Colombia grew by an
average of 8 percent per year between 1991 and 2007. Consequently, it
created thousands of jobs in both countries. In addition, Colombia has
been the largest market for US exports at $8.6 billion, which represents
54 percent of US exports to ATPA members (Colombia, Bolivia, Ecuador and
Peru).
FTAs being negotiated are:
1. The Colombia-Canada FTA which is in final negotiations and it
could be implemented next year. Colombia closed the negotiations of a
free trade agreement with Canada in June 7, 2008. This agreement will
benefit both countries; it will provide market access, investment, rules
for trade goods and services. Bilateral trade between Colombia and
Canada accounted $915 million.
2. The Colombia-European FTA (EFTA) Colombia initiated free trade
agreement with EFTA members--Iceland, Norway, Switzerland and
Liechtenstein - in June 2007.
3. Colombia-European Union Agreement The purpose of this agreement
is to intensify and improve co-operation and enhance and facilitate
bi-regional trade and investments.
US-COLOMBIA TRADE PROFILE
Colombia's total exports increased from $12 US billion in 2001
to $30 US billion in 2007, at a compounded annual growth rate of 16.5%,
while total imports have increased from $13 US billion to $33 US
billions, at a compounded annual growth rate of 16.8%, during the same
period.
United States is the largest trading partner of Colombia in both
exports and imports, as shown in Figures 1 and 2. The US was the source
of over one-fourth of Colombia total imports in 2007. In 2007, the
United States exported a record $1.2 billion of agricultural products to
Colombia. The top products were beef, pork, poultry, dairy products,
vegetables, fruits and tree nuts, wheat, barley, rice, soybean, sugar
and sweeteners, processed products, tobacco and cotton.
In the same year, the US accounted for over one-third of all
Columbian exports. Colombia is the third largest trading partner of
United States in the Western Hemisphere outside NAFTA. Colombia
represents a large market with significant import potential. It has the
third largest population (47 million in 2007) and the fifth largest GPD
($171 billion in 2007) in Latin America. It is also the largest export
market for agricultural products in South America (Consulate of Columbia
at Atlanta, 2008).
[FIGURE 2 OMITTED]
The total value of trade in goods and services between US and
Colombia was $18 billion in 2007. As shown in Table 2, Colombia is the
third largest and the fastest growing export market for the US in South
America.
In 2007, US exports represent $8.6 billion, amounting to nearly 30
percent growth over the previous year. US exports to Colombia have
almost doubled as Colombia's economy recovered from a recession in
2000-2001. Bilateral trade agreement between Colombia and the United
States has expanded by 70% over the past decade as shown in Figure 3.
Exports are critical to the stability and growth of US economy. In
2007, US exports contributed to about 30 percent of economic growth.
Trade with Colombia provides an expanded economic opportunity in a
growing and dynamic business climate.
The CTPA will provide benefits for many farm products that will
receive duty- free treatment in Colombia. These include beef, pork,
poultry, cotton, wheat corn, rice, and soybean meal, fruits and
vegetables, including apples, pears, peaches and cherries, as well as
processed food products like frozen french fries, cookies and dairy
products.
[GRAPHIC 3 OMITTED]
SOCIO-ECONOMIC BENEFITS OF TRADE FOR COLOMBIA
Economic progress in Colombia has helped to promote social
development, reduce violence and curb the activities of drug cartels.
Colombia is now more stable and prosperous but illegal elements and
violence remain just below the surface. The CTPA has the potential to
provide viable alternatives to violence and trafficking, through rapid
economic growth, job creation and foreign investments. Colombia has been
fighting corruption and illegal activities, and the approval of the CTPA
can transform it into a reliable partner for the US in the region. This
is borne out by some recent economic indicators, as stated below and
depicted in Figures 4 and 5.
* Unemployment rate has fallen from 16.1 percent in 2001 to 12.4
percent in Jan 2008
* GDP has increased from 1.66 percent in 2001 to 7.62 percent in
2007
* Total imports have increased from $13 US billion to $33 US
billions
* Total exports have increased from $12 US billion to $30 US
billion
MUTUAL GAINS FROM THE CTPA
[FIGURE 4 OMITTED]
The CTPA will provide US businesses, farmers, ranchers, etc. more
cost effective access to the Colombian market, since over 80 percent of
US consumer and industrial goods will enter Colombia duty-free. After
the implementation of the CTPA, Colombia will eliminate its price band
system, making a variety of US goods and services more price
competitive. It will also eliminate barriers to US services, provide a
secure legal framework for investors, protect intellectual property and
improve the environment. Some key elements of the agreement are:
* Uniform market access, for example no agricultural products are
excluded.
* Phased tariff elimination within 15 years, starting with
immediate zero-duty for about 80% of US exports.
* SPS measures have been resolved for agricultural trade (SPS
signifies Sanitary and PhytoSanitary measures set out in the WTO
guidelines, on how governments can apply food safety and animal and
plant health measures within trade agreements).
* Exports subsidies have been precluded by mutual agreement for
products shipped into each others' markets.
The United States and Colombia have been working in tandem to
combat regional terrorism and the illicit trade of narcotics. As a
result, Colombia is more peaceful and prosperous than it was six years
ago, suggesting that economic growth may help to alleviate crime and
other societal maladies. The implementation of the CTPA will provide a
boost for these efforts by serving to validate US endorsement of
Colombia's recent aggressive efforts against crime, besides
contributing to its overall development.
The CTPA enjoys overwhelming (65.5% in a sample of 950) support of
the Colombian people, according to a survey conducted by the consulate
of Colombia in Atlanta. Colombians also feel that stronger ties with the
United States will help the country become more secure, stable and
prosperous, as demonstrated by over 500 responses in 3 months, to a
request for public comment on the CTPA made by US Ambassador Ronald
Kirk. There also appears to be strong support for the CTPA from US
businesses, as evidenced by a spate of opinion pieces in the Business
Week and the Wall Street Journal during 2009.
The CTPA is particularly lucrative for US agriculture, since
Colombia is the largest agricultural market in South America. The
American Farm Bureau and over 40 other agricultural industry and farm
associations recognize the advantages and strongly support the CTPA
since it will provide US products exported to Colombia with the same
duty-free access already granted to Colombian products imported into the
US. For example, producers of corn, which currently attracts a tariff of
68 percent, will have immediate duty free access to Colombia's
market of 2.1 million metric tons, under the CTPA. Similarly, US
horticultural exports like apples, pears and cherries that currently
face a tariff rate of 15 percent, will attract zero tariff upon the
enactment of the CTPA.
Agricultural imports from Colombia were valued at over $1.8 billion
in 2008, with the top products being coffee and coffee products ($847
million), fresh cut flowers ($370 million) and fresh fruits--mainly
bananas ($208 million). Colombia does not pose an import threat to the
US farm sector and there are no current Sanitary and Phytosanitary
barriers preventing the export of US products to Colombia.
PROSPECTIVE RESOLUTION OF OUTSTANDING ISSUES
The main reason for the US opposition to the CTPA is the violence
against union workers by the paramilitary organizations, and the
continuing presence of drug cartels. Although the overall level of crime
in Colombia has been subsiding, US congressional members insist on
concrete evidence of sustained results in reducing the violence and
impunity, before ratifying the CTPA.
Colombia has a poor track record of prosecuting cartels that
threaten, abduct and often assassinate union leaders. There is a history
of labor leaders being assassinated consistently, but scant attempt by
the state to apprehend and prosecute the criminals (Gracia and Zuleta,
2004). While some 4000 trade unionists were murdered since 1986, only
five perpetrators have been convicted. Opponents also point out that
there are continual violation of the rights of Colombian workers by
corporations and paramilitary organizations.
However, recent statistics show a sustained downward trend in
crime, suggesting that the Colombian administration is committed to curb
paramilitary violence, hostility towards union members and judicial
impunity. The Colombian government established a Protection Program in
1997 to improve the safety of vulnerable segments of society. Between
2002 and 2007, the funding for this program increased by 141 percent,
with union members as its core target segment. The protection program
has had a great impact and contributed to the reduction of
assassinations of trade union members in Colombia. While murders in the
country overall decreased by 40 percent, assassinations of union members
have dropped consistently by 80 percent between 2002 and 2007, as shown
in Figure 6.
The Colombian government appears to be committed to employ
significant resources to apprehend and prosecute the perpetrators of
violent acts against union members. A culture of social dialogue has
been accepted and enhanced through the creation of new mechanisms and
the renewal of others including the Tripartite Agreement that consists
of three parties - workers, employers and government--that work
cooperatively to protect labor rights.
The United Nation's International Labor Organization (ILO)
removed Colombia from its labor watch list after 20 years. The
Tripartite Agreement provides the mandate for the work of a new ILO
office in Colombia that the Government authorized in 2006.
The actions to fight impunity include a constitutional reform that
transformed the Colombian judicial system in 2004, with the support of
the US Department of Justice. A new accusatory system will replace the
old inquisitor system. The office of the Prosecutor General created a
special sub-unit within the Unit of Human Rights, to investigate and
prosecute violence against union members. Over 1200 criminal cases have
been registered with a focus on 187 priority cases as determined by the
unions, within one year of the advent of this subunit in February 2007.
Specialized judges have also been assigned exclusively to cases of
violence against union members. The resources allocated to the judicial
branch and the office of the Prosecutor General have increased every
year since 2002. The budget increased by over 70 percent, growing from
US$346 million in 2002 to US$598 million in 2008. During the same
period, the budget of the Judiciary also increased by almost 50 percent.
This has helped the new judicial system to drastically reduce processing
time for cases, for example, the time for homicide cases has dropped by
75 percent and for drug trafficking by 90 percent (Griswold and Hidalgo,
2008).
In 2005, the Colombian Congress enacted the Justice & Peace Law
and Decree 128, to demobilize violent guerrilla and paramilitary groups,
through economic and social incentives, including de facto amnesties.
The government has also extended permanent police presence to all
municipalities of the country in 2007, which was absent in 168
municipalities even in 2002.
Colombia has a robust legal framework to protect the rights of
workers, which includes the core labor standards defined by the ILO,
namely:
* Freedom of Association and the Effective Right to Collective
Bargaining
* Prohibition of Forced Labor
* Effective Abolition of Child Labor
* Non-Discrimination in Employment
Colombia has close to one million unionized workers in Colombia,
and over 7,650 unions registered with Ministry of Social Protection. New
resolutions have expedited the labor union registration process. Workers
are allowed the right to form unions and the right to strike under the
Constitution of Colombia. Colombia continues to reform its labor laws to
achieve consistency with ILO standards. For example, in 2003, the
Constitutional Court annulled various provisions limiting the rights of
industrial unions to collective bargaining (Attanasio, Goldberg and
Pavcnik, 2003).
PROGNOSIS
While member nations do derive economic benefits from regional
FTAs, they can be trade restrictive in the global context, simply
because more remote nations do not have the same ease of access to the
large US or the EU markets. Another negative for a developing nation
could be the amount of resources they spend in negotiating FTAs, for
instance in attaining compliance with standards set by the richer
nation. In the short run, these redirected resources may imply loss of
alternate domestic investment opportunities (Burfisher, Robinson and
Thierfelder, 2001). So, in view of better long term prospects of an FTA
signed between a developed and a developing nation, the higher income
nation needs to safeguard the developmental goals of the lower income
nation. These may take the form of inclusions of agriculture, which
generate gains in rural areas, or lessening the stringencies in
investment and intellectual property laws to lower enforcement costs, or
the simple provision of trade-related technical assistance. The CTPA
appears to be well grounded in these principles.
Although the CTPA is still pending ratification by the US Congress,
it can evidently generate economies of scale and scope for both
countries. In the US, it can potentially create thousands of jobs, which
is vital in a period of economic recession, and considering that US
unemployment rates (over 10 percent) are at historical highs.
The CTPA will benefit Colombia by opening its market to more import
competition, which will provide its consumers with better quality
products at lower costs. It can also promote foreign direct investment
and strengthen its socioeconomic relations with the largest economy in
the world. A recent study by the University of Antioquia shows that not
implementing the CTPA would decrease investment by 4.5 percent and GDP
by 4.5 percent, while unemployment will increase by 1.8 percent and
poverty levels will rise by 1.4 points.
The approval of the FTA would seal a deeper partnership between two
nations that have been long-time friends and great defenders of
market-based democracy. US will be a reliable partner in turbulent times
and support a region where liberal values are under attack. Colombia has
made significant progress in the areas of labor rights and protection
for union members, since 2002. The government has strengthened the
judicial framework of the nation, and improved the legal rights for
trade unions. In addition, the government has reduced violence against
union members, increased funding of the protection program and
intensified the prosecution of violence against union members. The new
challenge for Colombia is to build on the progress that has been made.
The CTPA can provide the economic engine to sustain this momentum.
REFERENCES
Agama, Laurie-Ann and Christine A. McDaniel (2002). The NAFTA
Preference and US-Mexico Trade. Office of Economics Working Paper
2002-10-A, US International Trade Commission.
Attanasio, O., P.K. Goldberg and N. Pavcnik (2003). Trade Reforms
and Wage Inequality in Colombia. NBER Working Paper No. w9830.
Burfisher, Mary E., Sherman Robinson and Karen Thierfelder (2001).
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http://www.consuladodecolombiaatlanta.com/index.php?option=com_poll&id=15: apoyo-el-tlc-colombiausa
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http://www.ustr.gov/trade-agreements/free-trade-agreements/colombia-fta
Clint W. Relyea,
Sandra Liliana Tejada,
Kelly E. Fish,
Gauri-Shankar Guha
Clint W. Relyea, Arkansas State University
Sandra Liliana Tejada, Arkansas State University
Kelly E. Fish, Arkansas State University
Gauri-Shankar Guha, Arkansas State University
Table 1: US--NAFTA trade in billions of current US$
Export Import Total
2007: 452 568 1020
2008: 412 555 967
Table 2 US Exports to Trading Partners in Latin America
Country 2006 US$ billion 2007 US$ billion
Brazil 19.2 24.6
Venezuela 9.0 10.2
Colombia 6.7 8.6
Chile 6.8 8.3
Dominican Republic 5.3 6.1
Argentina 4.7 5.8
Figure 1. Colombian Imports by Country in 2007
All others 23%
China 10%
Mexico 9%
Japan 4%
Brazil 7%
Venezuela 4%
NICs 4%
EU 13%
US 26%
Note: Table made from pie chart
Figure 2. Colombian Exports by Country in 2007
Ecuador 4%
Other European Countries 4%
Peru 3%
Central America 2%
Mexico 2%
China 3%
Caricom 2%
All others 15%
Venezuela 17%
US 34%
EU 14%
Note: Table made from pie chart
Figure 5. Columbia's Recent GDP Growth (Percent)
2001 1.66%
2002 2.26%
2003 4.1%
2004 4.96%
2005 4.74%
2006 6.96%
2007 7.62%
Note: Table made from line graph.
Figure 6. Declining Number of Assassinations of Union Members
2001-2007
2001 205
2002 196
2003 101
2004 89
2005 40
2006 60
2007 26
Note: Table made from bar graph.
