Evidencia 3: Ensayo “Free Trade Agreement (FTA): advantages and disadvantages”

Fase Ejecución. Guía de aprendizaje 11

Julie Paola Yepes Acuña

Ficha No. 1667858

Servicio Nacional de Aprendizaje SENA

Centro de Desarrollo Agroindustrial y Empresarial

Tecnólogo en Negociación Internacional

Bogotá, D.C.

2019
Since 15 May 2012, the Free Trade Agreement (FTA) signed by Colombia and the United

States with the aim of promoting trade between the two countries has entered into force. The

Treaty affects all sectors of the economy and national productive life, including ICTs.

But that is a free trade agreement is a Free Trade Agreement (FTA) is an agreement between

two or more countries, signed after several rounds of negotiation, which seeks to accelerate the

economy through the opening of the domestic market for foreign supply.

Basically, an FTA seeks to increase capital flows from trade between countries, promote

foreign investment and, consequently, incentivize the economic and social development of the

nations involved

Colombia currently has 13 trade agreements in force, including those of a bilateral, multilateral

or regional bloc nature. Of these, only three are not countries in the Americas (European Free

Trade Association, European Union and South Korea), indicating some concentration of their

attention in their geographical and historical-cultural region.

Colombia, which had participated in all Latin American integration processes (Free Trade Area

of the Americas, Andean Community of Nations, the Group of Three) raised the need for a

bilateral agreement with the United States, assuming that this would bring huge and almost

immediate favorable results for its economy. However, various groups - politicians, academics

and the population - expressed opposing positions to the project, as it was regarded as a

disadvantageous and asymmetrical agreement. The central argument was that the free

competition sought was not such, given that non-tariff barriers that distort multilateral free

trade persist in the United States.

Among the advantages The FTA opens up for Colombia the largest market in the world in

goods and services, with more than 308 million inhabitants with an annual per capita income

of US$47,400.
- The FTA creates a long-term regulatory framework, thus promoting domestic and foreign

investment in Colombia. The FTA is a permanent instrument that, unlike ATPDEA, does not

require periodic renewals and thus provides stability and predictability in the rules of the game

of trade in goods and services between the two countries.

At the conclusion of the FTA negotiations with the United States, multiple studies were

developed showing the positive impact of the agreement on economic growth, increased

exports, and skilled and unskilled employment generation. More than four years later,

Colombia is a more competitive country, substantially more open to the world, with a

productive sector that has matured and that today has better conditions to attract productive

investment and conquer foreign markets.

- The United States is the main destination for Colombian exports, with a 42% shareholding.

In 2010, despite enjoying Andean tariff preferences, Colombian exporters of goods paid more

than US$9 million in U.S. entry tariffs. After the ATPDEA expires, that figure could rise to

about US$125 million. The FTA guarantees total and permanent rebate on all Colombian goods

exported to that country.

- The agricultural sector will benefit from greater access to the US market, not only by the

permanent elimination of tariffs but also by the establishment of clear rules of play in sPS

matters to support real access to our agricultural and agro-industrial production. The U.S.

undertook to give timely attention to Colombian requests, to take into account technical

assessments made in our country and to provide technical cooperation to put our systems at the

level required to have real access to their market.

- The agreed tariff reduction scheme for the industrial sector maximizes the competitive

opportunities of our production apparatus. Open duty-free access for 99% of Colombian export

products immediately. Colombia grants immediate rebate for 82% of our US imports, most of

them capital goods or goods not produced in the country.

- The FTA ensures greater access of the Colombian production apparatus to the acquisition of

capital goods, mainly machinery and equipment imported from the United States by the

immediate elimination of the vast majority of tariffs (between 5% and 20%). The effect will be

an increase in competitiveness for the entire national production apparatus, both industrial and

agricultural, and a special benefit for SMEs.

- Consumers will be one of the groups most benefiting from this treaty. In all segments of the

economy consumers will have greater choices in terms of quality and price, which will increase

the purchasing power of Colombians

Similarly, the establishment of such a free trade agreement represented for Colombia a serious

comparative and competitive disadvantage, with respect to the size and scope of both

economies. This would primarily affect Colombia's weaker economy. When talking about

competitive and comparative disadvantages, it was said that the technological advancement of

the United States, coupled with political influence, would leave the South American country

with a disadvantageous treaty, because it did not have the tools to be able to compete in

commercial terms within the U.S. market, because the reality is that it was not just about

competing only with U.S. products, but also with those of producers around the world, who

have a presence and struggle to take a share within the largest and most attractive market in the

world. However, despite popular rejection, the Colombian government went ahead until the

agreement was reached.

The immediate consequences of the entry into force of the Colombia-U.S. free trade agreement

in 2012 were highlighted by having a negative impact on the trade balance. The first was an

increase in the trade deficit. In 2012, there was a slight drop in total exports from Colombia to

the United States of just 0.69%. However, by 2015 the drop had widened to 55.1%. That is, the

surplus recorded in 2012, became a deficit in 2015, partly due to the lack of complementarity
between the two economies, but above all because of the lack of competitiveness of Colombian

products.

Still, the truth is, it hasn't all been negative. According to data published by the National

Administrative Department of Statistics, Colombia's bilateral negative trade balance with the

United States has been declining in recent years. If Colombia's trade deficit with the United

States amounted to $4801 million in 2015, by 2016 it had fallen to $1270 million, and so far in

2017 the deficit reached about $627.5 million. If the trend continues, in 2017 its trade deficit

with the U.S. economy will not exceed $1.5 billion. These figures show an improvement in the

bilateral trade balance, despite the lack of complementarity between the two economies.