The U.S.-Colombia free trade agreement completed in November of 2006 has been withheld from the U.S. Congressional approval process because of concerns over labor rights issues in Colombia. While these issues are somewhat unique to Colombia, the current effort by the Obama Administration to gather support for an amended agreement reflects how trade policy conditions are changing in both countries and the world. Colombia has learned from advanced developing countries that agricultural imports can improve the standard of living of its citizens.

 

Colombia already has preferred access to U.S. markets. Since 1991, the U.S. has provided mostly duty-free access for products from Colombia, Peru, Ecuador and Bolivia under the Andean Trade Preference Act to fight illegal drug production and trafficking by creating positive economic opportunities. ATPA was reauthorized for one year in December 2009 and further Congressional action is pending. A free trade agreement would make access permanent rather than requiring continual votes by Congress. The U.S.-Peru FTA was approved by Congress in late 2007.

Colombia has not been on the trade policy sidelines for the last four and a half years waiting for the U.S. to act. They have a free trade agreement with Mercosur countries Argentina and Brazil which entered into force in January 2009 and for 2011 provides a 60 percent reduction in tariffs for corn and other products. They have also negotiated an agreement with Canada for a zero tariff on wheat which could take effect July 1 of this year and one with the EU to be implemented later.

Republican takeover of the U.S. House of Representatives has been the catalyst to move the Obama Administration forward on the U.S.-Colombia FTA. The Administration wants to move a revised U.S.-Korea FTA, but Republicans have pushed to move the Korea, Colombia and Panama agreements at the same time. Since the only issue holding up the Colombia agreement was the labor items, the Administration has had to resolve those concerns.

The interest in trade by the Administration also reflects the reality of continuing relatively high unemployment in the U.S. Free trade agreements generally do not significantly add to total employment. The overall level of employment in an economy is determined by tax policies, government regulations on businesses and monetary policy by the central bank. Trade agreements do improve economic efficiencies, lower production costs, increase wages and lower costs for consumers.

That Colombia has waited four and half years and responded to concerns about domestic labor policies is an indication of how much they value permanent access to the U.S. market, over 20 percent of world GDP. Their proximity to the U.S. and the reliability of U.S. suppliers makes the U.S. a good source of agricultural and non-agricultural products. The two countries are natural trading partners.
The labor agreement has two parts, one to be implemented before the FTA is ratified and the other in the body of the agreement. Outside the agreement, the Colombian government has pledged to seek reforms by the Colombian Congress before June 15, 2011. A specialized Labor Ministry will be created; labor issues are now handled by the Ministry of Social Protection. The government will hire 480 new labor inspectors over the next four years, including 100 in 2011. The Finance Ministry will reallocate funds by April 15, 2011 to hire the first 100 inspectors. The “Action Plan” has eight pages of detailed activities for the Colombian government, including changes to the criminal code and other legislation.

The Action Plan fact sheet released by the White House included a sentence, “Successful implementation of key elements of the Action Plan will be a precondition for the Agreement to enter into force.” The implementation act for the agreement to be voted on by the U.S. House and Senate is likely to include similar language and could delay the often discussed July 1, 2011 starting date.

The trade agreement itself includes the previously agreed to May 10, 2007 bipartisan Congressional-Executive agreement between the Bush Administration and the Democrats in Congress. This includes the five fundamental workers’ rights as established by the International Labor Organization of the UN. The Colombian government also commits to enforcing wage and hour and occupational safety and health laws, improving labor standards and providing for dispute settlement on labor obligations similar to commercial obligations.

The provisions of the agreement for U.S. agriculture are similar to other FTAs. All products are now subject to tariffs and none are excluded from the agreement. Colombia has agreed to eliminate its price band tariff system that varies with world prices to hold domestic prices in a narrow range affecting more than 150 products.

Total U.S. agricultural exports to Colombia in 2010 were $848 million, half the 2008 value of $1.7 billion, led by wheat at $164 million, coarse grains (mostly corn) $118 million, soybeans and products $102 million and cotton $100 million. The tariffs for wheat, cotton, soybeans and meal will be immediately reduced to zero. Crude soybean oil will have a 31,200 metric ton tariff rate quota (TRQ) that will increase 4 per year. For yellow corn, a 2.1 million metric ton TRQ at a zero tariff will grow at 5 percent per year. The 25 percent over quota tariff will be reduced over 12 years. White corn will have a separate 136,500 metric ton TRQ to grow 5 percent per year. Other products receive immediate tariff free access or have TRQ for 5 to 19 years. The Economic Research Service of USDA estimates annual U.S. exports will increase by 44 percent when the agreement is fully implemented.

The U.S.-Colombia FTA, except for the labor issues, is a typical effort by a developing country seeking to buy products it needs, while shielding some domestic producers from sharp import increases in the first few years of the agreement. Free trade agreements are political issues and it is no surprise that changing political conditions led to an agreement. Four and half years ago the U.S. was leading trade policy changes for developing countries; now it is trying to catch up to Canada, the EU, South Korea and others.