Actividad de aprendizaje 11

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

Es de suma importancia en este proceso de aprendizaje, conocer muy bien los tratados de libre de
comercio que se tienen en un país, antes de iniciar cualquier operación de importación y/o
exportación.

Para desarrollar esta evidencia es importante que lea y analice previamente el material de
formación denominado The sentence, además del siguiente material complementario:

English sentence structure and entity-relationship diagrams.

Sentence structure.

Posterior a estas lecturas, elabore un ensayo en inglés de mínimo tres (3) páginas, que dé
respuesta a lo siguiente:

Investigue sobre los tratados de libre comercio que Colombia tiene vigentes con los
Estados Unidos.

Escriba las ventajas y desventajas de estos tratados para Colombia.

Solution

Ince 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.

If you are not sure what the Treaty is, what it serves or how it might affect it, do not worry, in
Colombia Digital we give you ten answers to the basic questions about the FTA between Colombia
and the United States.

1- What is FTA?
A Free Trade Agreement (FTA) is an agreement between two or more countries, signed after
several rounds of negotiation, that seeks to accelerate the economy through the opening up of the
domestic market for foreign supply.

Basically, an FTA seeks to increase trade-derived capital flows between countries, promote foreign
investment, and thus incentivize the economic and social development of the nations involved.

In the case of the agreement signed between Colombia and the United States, it is known as the
FTA, although its technical name was Trade Promotion Agreement (TPA). The basic objective of
this treatment is to reduce tariffs and taxes so that producers in the two countries can trade freely.
Under this treaty, Colombia eliminated tariffs on entry into the country of about 82% of industrial
products produced in the United States, for its part, the U.S. eliminated them for nearly all of
Colombian products that cross its borders.

2. What other trade treaties has Colombia signed?

The FTA signed with the United States is neither the first nor the last of the trade agreements that
Colombia has agreed to. As seen in the table taken from the book "The FtAColombia – United
States and Telecommunications", free download on our website, eight treaties are currently in
force, and many others are at different stages of negotiation. Each of these treaties has gone
through a similar negotiation process and each has particular rules and has generated specific
state policies to take advantage of the guarantees they offer.

3. What is the Colombia-U.S. FTA made of?

This FTA, like the other agreements signed by Colombia, consists of rules and procedures derived
from them, which are applicable on an equal footing for the two countries. NAFTA is not a Law, nor
is it made up of them; however, according to our country's Political Constitution, international
agreements have all the rigor and must be complied with like any other current regulations.

Nafta is a kind of methodological guide to how to export – import between signatory countries, with
general recommendations and criteria that determine the framework under which each country can
act to obtain the greatest benefits. In this sense, on the one hand, it is necessary for the two
countries to issue legislation on specific issues that take advantage of bilateral conditions; on the
other hand, each country is free to dictate its national economic policies and take such measures
as it deems relevant to boost international trade and especially to protect and promote the export
of its products.
4. How is this FTA organized?

The current agreement with the United States is organized in a twenty-three-chapter document,
each dedicated to specific topics, as follows:

5. What is the validity of the Colombia-U.S. FTA?

The FTA signed with the United States took effect on May 15, 2012, as agreed by Presidents Juan
Manuel Santos and Barack Obama at the Summit of the Americas later this year. This Agreement,
like other FTAs, does not have an "expiration date", but either party may request the other to
request its reform or termination following the procedure contained in the final document of the
Agreement.

6. What are the advantages of signing this FTA?

It is still too early to assess the advantages or difficulties arising from the signing of the Treaty,
however it is possible to take an overview according to the projections of international trade
specialists:

Increased and accelerated economic growth from increased capital flow.

Increased exports, especially those of products and services that were not previously considered
"traditional" in the market.
Increased competitiveness of the domestic industry due to access to new technologies, raw
materials and knowledge from the other country at lower costs.
Stability of the labour market in the industrial sector, to the extent that companies will require their
staffing plant to produce the goods they will export. There is also the possibility of generating more
employment as sales in the foreign market expand.
Increased investor confidence.
Modernization of the State and organizations related to foreign trade.

7. What are the disadvantages?

As with the advantages, the problem and risk landscape is not easy to predict, but experts suggest
paying special attention to the following points:

Unbalance of the domestic economy and the protection of productive sectors which are little
benefited by the negotiation of the Treaty.
Mismatch in tax revenues, as eliminating entry tariffs on foreign products would no longer receive
taxes for this concept, which could deepen the national fiscal deficit; however, analysts expect this
money to recover from VAT and income tax from the larger movement of the economy.
Little capacity to adapt domestic companies to international production standards, generating
monopolies and market capture by the North American supply entering the country.

8. What opportunities really open up for Colombian entrepreneurs?

Once the Agreement came into force, the great opportunity for entrepreneurs, traders, and
generally anyone who can provide a product or service to the United States lies in being able to
access a market of more than three hundred million inhabitants with a GDP per $46,715, willing to
get the best cost-benefit ratio.

Not all products and services are covered by the FTA, i.e. not everyone will be able to cross
borders without paying tariffs. Proexport published the official lists of taxed goods and services,
classifying them between agricultural and non-agricultural. As already mentioned, the United
States deducted the entry of almost all industrial products produced by Colombia, so large sectors
of the economy will be able to benefit from this Treaty.

With the information provided by Proexport, El Tiempo produced a map that locates the business
opportunities in the United States available to domestic entrepreneurs.
9. What are the challenges for Colombian producers?

It is true that entering the North American market not only requires an FTA but poses a series of
challenges that domestic industry will have to navigate to be competitive in the United States while
maintaining leadership in the country. Some of the challenges that Colombian producers have are:

Compliance with international quality standards.

Improved production systems to ensure quality while reducing costs.
Adoption and intensive use of new technologies.
Training of staff to respond to the specific demands of the domestic and foreign markets.
Knowledge of international trade law.
Decentralization of operations and settlement in the United States.

10. As a citizen of the common, how does the Treaty benefit me?
No doubt the biggest beneficiaries of the two countries will be consumers, to the extent that they
will be able to choose between the best products and the most favorable prices. While producers
will have access to a mass of buyers eager to spend their money, ordinary citizens will be able to
start seeing new products, which meet international standards, with attractive prices in sectors
such as food, clothing, manufactures and even some specific services.

Likewise, in the area of direct purchases of foreign products, citizens will have at their disposal
shopping lists, mostly free of tariffs, which they can access through e-commerce services. In this
case, keep in mind that even though inbound taxes can be eliminated, shipping costs will always
be in place that can increase the final value of a product. Wholesale importers here have to win
because they will be able to offer the usual products, and many others at a lower price, and
customers will be able to save the tariffs and direct shipping costs.