Colombia: Primed to compete
With the free trade agreement (FTA) between the US and Colombia in full swing after its May 15 start date, both countries are planning how to benefit from closer trade relations.
A wide variety of US industries will profit from the trade accord. Aircraft and parts, agricultural and construction equipment, auto parts, fertiliser, scientific and medical equipment, and about half of US farm exports gained duty-free status after May 15. Major gains were in transportation equipment and infrastructure and machinery, which were previously taxed at rates of 12.7% and 11.1%, respectively. Overall, the US expects the deal to lead to a $1.1bn increase in exports and a $2.5bn increase in GDP.
Colombia, too, should experience an important reduction in tariffs. Before May 15, more than 80% of Colombian exports entered the US duty-free; now nearly 100% of Colombian exports are received duty-free in US ports. Another obvious “win” for Colombia is the increase in the availability of affordably priced consumer goods that should result from the FTA.
US President Barack Obama’s description of the deal as a “win-win” is linked with the fact that the two countries’ trade relationship is more complementary than competitive. For example, the US exports grains to Colombia while importing Colombian tropical fruits. The FTA will strengthen bonds such as this.
The agreement is not without its critics, however. Labour union leaders in the US argue the deal will lead to the loss of US jobs. While the US critique seems more speculative than tangible, certain Colombian industries are preparing to suffer the reality of inevitable losses.
Agriculture in Colombia is likely to be most profoundly affected by the deal’s initial elimination of tariffs on half of US farm exports. Additional tariff reductions will be phased in over a 15-year period, giving local producers time to prepare for the increased competition. The Colombian government is also providing the sector with support. The Ministry of Agriculture will provide the Colombian Institute of Agriculture with a $1bn budget to support the sector’s modernisation.
Similar concerns have led some to speculate if Colombia is ready for a trade accord of this calibre as the nation will be able to take advantage of the FTA only if it is ready to compete. Currently, the country has maintained its 68th place ranking for the past two years on the World Economic Forum’s Global Competitiveness report. This puts Colombia behind other regional leaders such as Chile (31st place), Panama (49th), Brazil (53rd) and Peru (67th).
Deficiencies in education and infrastructure are the problems most inhibiting Colombia’s ability to compete. The country experienced major student protests in October 2011 over problems in the higher education system, which is likely to undergo reforms in the coming years. The lack of infrastructure, however, may take decades to repair and require funding equivalent to a 10-15% tax. Some estimate infrastructure problems could be costing Colombia up to 1% of GDP annually.
Finally, there have been concerns that Colombia’s labour unions are unprepared for the FTA. Dan Kovalik, a lawyer with the United Steelworkers’ union in the US, told press in April the FTA was “premature in light of the continued violence against unionists [in Colombia]”.
Both countries’ governments have made an effort to reassure constituents. Over the last year, the two nations have worked together on implementing a “labour action plan,” a series of reforms aimed at protecting the rights of workers and labour unions. Accomplishments under the plan include the creation of a new Colombian Ministry of Labour and an expanded government protection programme for union leaders and labour activists.
Apart from these accomplishments, perhaps the biggest “win” for the new FTA will be how it motivates Colombian lawmakers and private sector leaders to make the changes necessary to compete in the global economy.