In the fashionable neighborhoods of Bogota, the gourmet restaurants, lively nightclubs and luxurious hotels are brimming with foreign executives eager to sign trade and investment deals in South America’s second most populous country. More than ever, those visitors represent U.S.-based companies.
Six months after the U.S. Congress ratified the long-delayed free trade treaty between the U.S. and Colombia, “We are seeing a very significant increase in the number of American businesspeople who are coming here on business missions,” said Camilo Reyes Rodriguez, director general of the Colombian-American Chamber of Commerce. “There is enormous optimism about (increasing) Colombia’s exports of fruits, vegetables, textiles, cotton, sugar, cheeses and butters; and renewable energy.”
U.S. industrial exporters such as Caterpillar, John Deere and Grainger are as optimistic as ever about their long-term prospects to profit from the FTA, he added.
But something is wrong with the picture. Although the U.S. and Colombian business communities heaved a huge sigh of relief after the U.S. Congress ratified the treaty last fall, the treaty won’t actually go into effect for at least another few months, Reyes Rodriguez said. Today’s U.S. free trade agreements are so complex and comprehensive that it can take months — or years, as with the pact with Peru — before all the agencies and courts responsible for enacting key rules in both countries can make the required changes and approvals. (By contrast, the U.S.-South Korea FTA, signed at the same time as the Colombia pact, took effect on March 12. Story, page 14.)
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Even in the absence of the agreement, U.S.-Colombia trade is booming. Last year, bilateral trade in goods amounted to almost $38 billion, and the U.S. bought approximately 38 percent of all Colombia’s exports, making it by far Colombia’s largest market. “We have a very optimistic mood at the business level regarding the business relationship,” Reyes Rodriguez said.
“Although the FTA is not yet in force, we see positive growth in our export volumes because businesses in Colombia and the international community are showing signs of increased confidence in the future of Colombia,” said Carlos Velez, APL’s vice president for Latin America. “The growth we are seeing is primarily on exports from Colombia. The imports of U.S. goods to Colombia are expected to take off once the FTA is finally in force.”
“We feel very, very positive,” Jose Acosta, president of UPS’s Latin America operations and public affairs, agrees. Over the past three years, UPS has doubled the frequency of its flights to and from Colombia and increased its capacity there by replacing smaller freighters with much larger Boeing 767s. “UPS is expanding its customs brokerage offerings, in anticipation that the Colombian economy will grow between 5 percent and 6 percent this year — after expanding 7 percent in 2011.”
Foreign direct investment reached a record $10.8 billion by the third quarter of 2011, and unemployment is in single digits, he added.
U.S. exporters are chomping at the bit, eagerly awaiting the moment when they can enjoy the same low tariffs as their competitors from Canada and the Mercosur nations of Argentina, Brazil, Paraguay and Uruguay, which have free trade pacts with Colombia. “Colombia is a key trading partner” of the U.S., said David Lewis, vice president of Washington-based consultant Manchester Trade. However, he added, “Colombia is gung ho in its determination to trade diversification.”
Colombia signed a bilateral trade pact with Canada last year, and recently negotiated a trilateral pact with the European Union and Peru. In March, Colombia began talks on a bilateral pact with Israel. “They have learned the lesson of too much dependence on the U.S.,” Lewis said.
Because of the delay in implementing the FTA, U.S. corn and wheat exporters already have lost significant market share in Colombia to competitors from Mercosur, especially Argentina, Reyes Rodriguez said. “There is also the risk of U.S. exporters losing market share” to Canadian producers of construction machinery. “We need to have the new FTA in place or we will have a very difficult situation for U.S. products” that compete directly with suppliers from the EU, Reyes Rodriguez said.
Three categories, or tracks, of changes and approvals must be done before the FTA can be implemented. First, the Colombian Legislature must ratify three intellectual property rights treaties: the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure of 1977, as amended in 1980; the International Convention for the Protection of New Varieties of Plants of 1991, known as UPOV 1991; and the Convention Relating to the Distribution of Program-Carrying Signals Transmitted by Satellite of 1974. Each treaty must subsequently be reviewed by its Constitutional Court.
The Constitutional Court is reviewing a fourth required IPR treaty, the so-called Madrid Protocol, which the Colombian Congress already has passed.
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In a second track that can be implemented simply by executive action, Colombia is issuing decrees and will discuss them with the Obama administration to make sure they comply with obligations under the FTA.
A third track addresses a much more contentious issue at the heart of U.S. opposition to the FTA in the past. The Colombian government will enact a Labor Action Plan that will involve hiring up to 450 Colombian government labor inspectors to make sure Colombian workers’ rights are protected in accordance with the FTA.
In a reflection of the labor movement’s low political profile. Colombia has never had a separate, independent Labor Ministry, Reyes Rodriguez said. New Labor Minister Rafael Pardo is a prestigious high-profile figure who previously ran for the Colombian presidency. His high visibility presumably will translate into political influence for his ministry in President Juan Manuel Santos’s government.
How long will it take for all of these changes and approvals to be made? Gabriel Silva, Colombia’s ambassador to the U.S., said recently the U.S.-Colombia FTA wouldn’t be implemented in time for President Obama’s April 14-15 trip to Colombia for the Summit of the Americas. The U.S. business community had viewed the summit as an optimistic target date for completing the implementation process.
Colombian congressional approval of the IPR treaties “won’t take long,” Silva said, but the review process by its Constitutional Court could take between “three months and six months, depending on the workload of the court.”
Although there is “no major problem” with the substance of those IPR provisions, Reyes Rodriguez warned they “must be approved by both houses (of the Colombian Congress) as well as by the Constitutional Court, which must rule on whether the FTA is constitutional.” That means holding a series of public debates, aimed at satisfying Colombian opponents of the FTA, such as agricultural producers who expect to suffer from a surge of imports from the U.S.
“If both countries have the political will, they will have the treaty in force, even before the intellectual property rights provisions are completed,” Reyes Rodriguez said.
In such a case, the FTA could be enacted, and the IPR issues ultimately resolved at a later date. “We should be able to have the FTA in place by September,” he said. “It would be marvelous to have the FTA in place by July, but we really need to have it by September.”
U.S. officials don’t dare provide a precise timetable, nor will U.S. exporters discuss details of pending agreements for highly desired U.S. exports such as industrial machinery.
“We are deep into the process now of exchange of laws and regulations,” said Tim Reif, general counsel of the Trade Representative’s Office. “We are deeply engaged with Colombia, not just with the laws but with all the regulatory changes that may be on the table, (and we are) heavily engaged with the labor issues. Its action plan needs to be in place and implemented before the entry into force.”
Unlike last year, when there was still a serious question of whether the FTA would survive political pressure, the question now is simply when, not if. Despite all the delays, U.S. Trade Representative Ron Kirk assured Congress recently that the Obama administration is aware U.S. exporters will continue to be at a disadvantage until the trade agreement takes effect.
Contact Alan M. Field at email@example.com.