By Lucien Chauvin
A change of mood in the US could spell disaster for pan-American trade. Colombia is a case in point
In Washington these days, it’s not easy to mention free trade without risking a backlash of some sort. While policy-makers and businesses vainly pin their hopes for a flagging economy on a surge in US exports, the protectionist mood among lawmakers threatens to scupper a series of high-profile foreign trade deals.
The implications for pan-American trade are profound. A decade ago, the United States and 33 countries in Latin America and the Caribbean hoped to negotiate an all-embracing Free Trade Area of the Americas (FTAA). But such faith now seems woefully misguided. The Democrats are mistrustful of trade agreements, reflecting widespread fears that globalization has made jobs more insecure in the US.
While the attitude in Washington hardens, across Latin America pragmatism reigns. Mercosur, the trade block led by Brazil, chose to back away from an FTAA in favour of the Doha round of WTO talks, but these have stalled too. All this comes as some governments in Latin America, led by Venezuela’s Hugo Chavez, are turning their backs on open trade.
Others have negotiated bilateral free trade agreements (FTAs) with the US, but the Bush administration has struggled to persuade Congress to ratify them: even before the Democrats took control, the Central American Free Trade Agreement (known as CAFTA-DR) passed by just two votes.
In an interview with Emerging Markets last October, leading Democrat congressman Barney Frank was unambiguous about the scale of the problem. “You’re not going to solve it by preaching to people that they need to be more international,” said Frank, who chair’s the powerful House Financial Services Committee. “You’ve got to put into place public policies that help them to give people a better share of globalization or else that [backlash] will happen.
“Globalization has become very unpopular in many countries, and the answer has to be a better job distribution within each country of the benefits of globalization” or else global trade will not gain political backing.
Bitter in Bogota
When the Bush administration proposed a free-trade treaty with Andean countries at the start of the decade, Colombia was considered a shoe-in, while Peru and Ecuador were iffy at best. But that logic did not pan out. The Peru pact, officially known as the PTPA, was signed in December 2007 and will be implemented at the start of next year, while Colombia’s agreement is languishing in the US Congress. Ecuador stopped negotiations two years ago.
The bitter irony is that Colombia is widely considered the closest US ally in South America, with presidents Alvaro Uribe and George W Bush sharing ideological, economic and social positions. Colombian and US administration officials are lobbying hard for passage of the agreement, but it is going to be tough to sell, given Bush’s lame-duck status and the rhetoric of the US presidential campaign, with the Democratic Party frontrunners hammering away at the generic concept of free trade.
Not only are senators Barack Obama and Hillary Clinton opposed to the Colombia agreement, they have both promised to review the breakthrough North America Free Trade Agreement (Nafta) signed with Canada and Mexico in 1994.
At stake
There are dire predictions from both governments if US lawmakers fail to approve the Colombia treaty. One argument is that regional security itself is threatened, in the wake of the early March flare-up of tensions between Colombia, Ecuador and Venezuela over Colombia’s bombing of a guerrilla camp inside Ecuadorian territory. A resolution condemning the bombing was passed by the Organization of American States on March 4, with only the United States voting against it.
Supporters of the Colombia Trade Promotion Agreement (CTPA) say failure to pass it is nothing more than a gift to Venezuelan president Hugo Chavez and could further strengthen his hand in the region. Venezuelan influence was credited a few years back with solidifying opposition to free trade agreements with the US in Ecuador and Bolivia.
“The importance of Colombia has grown in recent years given the ideological battle taking place in the Andean region. With the ascendancy to power of populist, left-leaning presidents in South America, President Uribe stands as the closest US ally ... Colombia is now surrounded by two anti-American presidents” in Ecuador and Venezuela, reported the Washington-based Center for Trade Policy Studies in February.
After a late February meeting with trade officials from former Republican and Democratic administrations, Bush said “a defeat of the trade bill with Colombia would send a contradictory message. It would embolden the false populism that exists on the continent. It would send a chilling signal to our allies, and it would harm national security of the United States.”
Administration officials stress that Colombia has stood with the United States in supporting anti-terrorism and anti-drug initiatives. Colombia has been the recipient of billions of dollars in US aid since the late 1990s, when Plan Colombia was introduced as a way of controlling the flow of cocaine, heroin and marijuana from Colombia to the United States.
Colombia produces the lion’s share of the world’s cocaine, with the other two producers, Bolivia and Peru, lagging far behind. Colombia can produce an estimated 610 metric tons of cocaine, according to the US State Department’s annual narcotics report. It seized 126 tons in 2007, more than Bolivia’s estimated production of 115 tons. Peru can produce an estimated 280 tons. Colombia also produces 4.6 tons of heroin.
The Colombian government has tried to steer clear of further exacerbating tensions with Venezuela, which have been running high for months, and has focused instead on the economics of free trade and the long-standing relationship with the United States.
The case for
“Colombia is one of the most important political and economic partners of the United States in Latin America, and not approving the free-trade agreement would limit this long-standing relationship between our countries,” commerce, industry and tourism minister Luis Plata tells Emerging Markets.
The two governments have tried to focus on pocket-book issues and what would happen without free trade. Two-way trade between the two countries was above $17 billion last year, with Colombia running a slight surplus. The United States is the principal destination of Colombia’s exports, receiving 34.8% of its goods for a value close to $9.4 billion.
Nearly all of Colombia’s exports to the United States – the bulk made up of hydrocarbons, coal and farming products – enter tariff free thanks to the Andean Trade Promotion and Drug Eradication Act (ATPDEA), which has been in place under different names since 1991 and was extended in early March for another 10 months. ATPDEA also applies to Bolivia, Ecuador and Peru. “The effects would be devastating if the United States were to apply its maximum tariffs to our products, increasing prices and causing us to lose our competitive edge, which means loss of market,” says Plata.
The Bush administration has also focused on the economics, saying that the CTPA is essential to creating more markets for US products and balancing the 16 years of unilateral trade perks benefiting only Colombian producers. In remarks to the US Congress in late February, US trade representative Susan Schwab said, “92% US imports from Colombia face absolutely no duty at all as a result of unilateral US preference programmes. At the same time, Colombia’s tariffs on most imports from the United States range from 5% to 15%, with some as high as 35%.”
Schwab says that the agreement would immediately eliminate tariffs on 80% of goods exported to Colombia and provide duty free access to US farm commodities. Schwab and Plata stress the impact on jobs – positive if passed, negative if rejected – of the CTPA, using the arguments to counter charges of US labour activists and politicians, primarily from the majority Democratic Party that Colombian authorities have done nothing to protect unionists from political violence.
Not so fast
Democrats in Congress and their allies in organized labour have repeatedly raised the murders of labour activists as a reason to look carefully at Colombia. Nearly 1,000 union members have been assassinated this decade.
While recognizing this, the office of the US trade representative (USTR) has pointed out that the Uribe government has made major strides in combating violence against unions, as well as violence in general since taking office. There was an 88% drop in assassinations of labour leaders between 2002, when 205 were killed, and 2007, when only 25 were killed. There was a 40% drop in homicides and an 83% drop in civilians killed by armed forces – paramilitaries or rebels from the Revolutionary Armed Forces of Colombia and the National Liberation Army – during the same period.
Plata says that Colombian workers would pay a high price without the CTPA or the trade preferences, which expire at the end of this year and are unlikely to be extended again. “There would be a huge impact on jobs, with companies forced to reduce the number of workers.”
He says that US lawmakers should also take into account that the amendments on environmental, labour and intellectual property rights hammered out last May by the Bush administration and congressional Democrats to pave the way for the agreement with Peru would also apply to Colombia. These changes were credited with the lopsided passage of the PTPA – 285 votes in favour to 132 against – the biggest margin for a trade agreement with any country in the hemisphere. The Senate passed it by a 77 to 18 vote. Democratic presidential candidates Obama and Clinton did not cast votes.
Plata, however, prefers to focus on the positive impact the CTPA would have on the economy and labour. He says that there have been a number of government and independent studies on the influence the trade agreement would have on the Colombian economy. The most conservative estimates state that the agreement would add 0.5% to Colombia’s GDP annually, while the most positive see a massive 4.2% jump.
“Each model projects positive effects on GDP growth, employment and foreign investment,” says Plata, who estimates that the CTPA would create a minimum of 380,000 new jobs and attract an additional $2 billion in foreign investment just from the United States in the final years of the decade.
“Approval of this constitutes a clear sign of support for Colombia, because it complements and deepens the relationship the country has with the United States on economic, political, institutional and diplomatic issues, as well as in the fight against terrorism and drug trafficking,” says Plata.