Colombia’s free-trade deal
A long-awaited pact comes into force
SHORTLY before midnight on May 14th a planeload of freshly cut roses, carnations and lilies took off from Bogotá and headed for Miami. By the time it landed a free-trade agreement had come into effect, allowing the flowers, and thousands of other Colombian products, tariff-free entry into the American market.
This prompted celebrations of a new era in trade between the two nations. In fact the flowers would have avoided tariffs anyway, thanks to decade-long trade preferences under the Andean Trade Promotion and Drug Eradication Act. This already covered nearly 80% of Colombian exports, in exchange for efforts to reduce the supply of drugs. The new pact makes those benefits permanent, and extends them to almost everything else. Meanwhile American farm products such as soyabeans, top-quality beef, bacon, cotton and most fruit and vegetables can now enter Colombia duty-free, as can machinery, some vehicles, and textiles. The deal should also encourage investment in Colombia, both by American companies and by firms using the country as a base from which to export to the United States.
It has been a long time coming. The pact was signed in 2006 under George Bush and Álvaro Uribe. A change of administration in Washington held it up, as campaigners in both countries pressed their governments to make the deal conditional on better treatment of Colombia’s trade unionists. That row is still simmering: Colombia’s National Trade-Union School, an NGO, says the government has yet to implement nine of its 37 commitments in this area. Even so, Barack Obama and his Colombian counterpart, Juan Manuel Santos announced last month that the deal would be implemented.
As ever, there will be some losers. Colombia’s rice growers and poultry farmers look to be on the wrong side of comparative advantage. The poultry industry association, Fenavi, calculates that American chicken will come in at half the price of the Colombian stuff. In any case, adds Jorge Quintero, general manager of Quinsagro, a poultry producer in Bucaramanga, Colombia “can’t sell a single feather in America” because its hygiene certificates are not recognised there. The trade minister, Sergio Díaz-Granados, has offered help to industries that suffer.
Overall, Colombia should benefit greatly. The government thinks the pact will add 10% to exports and one percentage point of economic growth this year, creating around 300,000 new jobs. The American government calculates that the value of exports to Colombia could rise by $1.1 billion (last year’s bilateral trade was worth $35 billion). The United States sends machinery, chemicals, oil derivatives, and cars south, while Colombia sends oil, gold, flowers and coal in the other direction.
For Colombian exporters such as Jaime Ochoa, who produces handmade shoes for children in his small workshop in a suburb of Bucaramanga, the value of the agreement lies in knowing that access to the American market will be permanent: the renewal of the unilateral trade preferences had become enmeshed in Washington politics and the threat that they would lapse kept Colombian exporters on edge. Now the government is hungry for more. Before the first tariff-free American chicken could be turned into ajiaco, Mr Santos announced that he would be seeking a trade deal with China, too.