Laissez Faire and International Trade: A Critique of the Proposed United States - Colombia Free Trade Agreement

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ABSTRACT

Trade theory advocates that the removal of barriers in a bilateral trade framework increases business flows and improves economic efficiency. Consequent factor market developments lead to new employment as well as capital expansion opportunities, which, when realized, contribute significantly to regional economic growth. In practice, socioeconomic variances and the level of business maturity actually dictate whether the outcome is a net gain for either partner. Colombia is the third largest trading partner of the US and its largest export market for agricultural products in South America. A Free Trade Agreement (FTA) between the United States and Colombia was negotiated and signed in June 2007, and is now awaiting congressional approval in the US. The opposition to this FTA in the US is due to Colombia's track record of human rights violations, although that has improved significantly during recent years. Prima facie indications are that the FTA can benefit both countries, especially during the economic recession. It can also provide the US with a strategically located, democratic government as a trade partner in South-America. This paper explores the benefits and negative facets of the US-Colombia FTA, based on evidence from the last decade.

ECONOMIC RELEVANCE OF FREE TRADE AGREEMENTS (FTA)

FTAs provide partner nations with reciprocal duty-free access to each others' markets, effectively creating a common market, thereby facilitating trade flows and increasing economic efficiencies. The increase in scope and speed of market access results in faster turnover and creation of investitile domestic surpluses. FTAs normally provide better and cheaper goods and services through increased competition, which leads to consumer surpluses for all partners. Economic welfare gains from a FTA may be viewed as the total of increases in consumer and producer surpluses net of the changes in revenue from customs tariffs. There are also other spillover benefits of FTAs including higher levels of innovation and investment that can contribute to economic recovery, growth and distribution (Hoekman and Schiff, 2002).

Over 200 regional FTAs now account for about one-third of global trade. While these generally promote economic growth in member nations, they can also create obstacles for multilateralism. There is speculation whether a large number of FTAs will threaten the health of the worldwide free trade system (Newfarmer, 2005).

THE UNITED STATES - COLOMBIA FTA

The United States-Colombia Trade Promotion Agreement (CTPA) is the proposed FTA, which is a bilateral commercial treaty for eliminating obstacles to trade and favoring private investment between the United States and Colombia. This agreement emerged from failed multilateral negotiations between the United States, Colombia, Peru, and Ecuador. The United States concluded negotiations with Peru in December 2005 while negotiations with Ecuador are continuing. The first bilateral trade negotiations between United States and Colombia were initiated in May 2004, and the US-Colombia FTA (will be henceforth called the CTPA) was signed in November 2006. The agreement was renegotiated to include more rigorous environmental and labor standards via a Protocol of Amendment that was signed in June 2007 which was presented by both countries to their respective congresses.

The proposed CTPA is a comprehensive FTA that will address issues relating to trade commerce, customs administration and trade facilitation, and remove technical barriers to trade, while safeguarding intellectual property rights, and labor and environmental standards. It will additionally include government procurement, investment, telecommunications and electronic commerce. Under this agreement, Colombia will eliminate most of its tariffs on US exports, and US companies will have greater access to Colombia's services sectors than other World Trade Organization (WTO) members. …