The Colombia-E.U. free trade agreement (FTA) was signed May 19, and will have important symbolic significance for Colombia. Its economic implications will be even more significant, but felt gradually.
Colombia's exports declined substantially in the recent global recession, with exports experiencing their first annual decline of the decade, from $8.7 billion in 2008 to $7.6 billion in 2009. However, the government expects them to recover to over $9 billion in 2010.
The E.U. is Colombia's most important commercial partner, after the U.S. Therefore, conclusion of negotiations by the governments of Colombia and Peru in February for the recently signed FTA was very significant from the Colombian perspective. The agreement requires parliamentary ratification in both Colombia and the E.U. (European Parliament). This creates potential for a year or more of delay, particularly if European parliamentarians continue to focus on the Colombian government's human rights record and guarantees.
The FTA is important for Colombia in several respects, by providing:
--a level playing field with other Latin American countries (e.g., Chile) that have negotiated FTAs with the E.U., or are likely to do so;
--long-term certainty for exporters that currently benefit from the E.U.'s "Generalized System of Preferences Plus" program, which is scheduled to expire for Colombia in 2015;
--reduction of tariff and non-tariff barriers across a range of export and import sectors; and
--closer, more formalized collaboration with the E.U. on sensitive issues, such as labor and human rights.
In Colombia, the most vociferous opposition to the E.U. agreement has come from dairy farmers, because the large majority of dairy farms in Colombia are family-run or small-scale businesses, which are unlikely to be able to compete against more efficient, larger-scale European producers of high-quality milk products. The FTA envisages phased reduction over 17 years of Colombian tariffs on E.U. products in the sector.
In response, a parallel agreement provides for E.U. assistance in raising the level of competitiveness of the Colombian dairy products sector. According to the Colombian government, the E.U. will provide 30 million euros ($37.2 million U.S.) over seven years toward this objective.
While an important symbolic gesture, this is likely to be insufficient to assist all small-scale farms, with the livelihoods of an estimated 480,000 families likely to be affected to some degree.
The signing of the E.U. accord comes as a welcome respite for the Colombian government in its hitherto heavily U.S.-focused trade agenda. Exasperation within the Colombian government at U.S. government failure to pursue a vote in Congress on the Colombia-U.S. FTA recently has shifted toward a sense of resignation that ratification will likely not take place before 2011.
U.S. President Barack Obama has suggested that greater political capital may soon be expended in pursuit of ratification. This chimes with his new trade policy agenda, announced March 1, which is being referred to as the "National Export Initiative." It aims to double U.S. exports within five years, creating 2 million jobs.
Apart from the E.U. FTA, Colombia already has established deeper trade regimes with Chile, El Salvador, Guatemala, Honduras and Mexico. An agreement with Canada currently faces opposition in the Canadian parliamentary ratification process over human rights concerns.
Looking to the future, the Colombian government has been working to deepen trade ties with numerous global powers, including India, Russia and China, as well as continuing serious talks with Panama and South Korea. Colombia also hopes soon to be admitted to the Asia-Pacific Economic Cooperation.
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