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

By Relyea, Clint W.; Tejada, Sandra Liliana et al. | Journal of International Business Research, March 2011 | Go to article overview

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


Relyea, Clint W., Tejada, Sandra Liliana, Fish, Kelly E., Guha, Gauri-Shankar, Journal of International Business Research


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 investible 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. US companies will gain an advantage in Colombian markets by the elimination of tariffs on 80 percent of US consumer, industrial and agricultural goods. An additional 7 percent of US exports will be covered under the duty-free umbrella within five years of implementation, while the remaining tariffs will be eliminated ten years after implementation of the CTPA (Eslava, Haltinwanger and Kugler, 2004).

On the Columbian side, after the CTPA was signed it was submitted to the Colombian Congress in November 2006 and was approved in June 2007 and became a public law, Ley 143, in July 2007. The Amendment was subsequently approved by Columbian Senate and House and became public Law, Ley 1116, in November 2007. The Colombia's Constitutional Court completed its review in July 2008 and concluded that the Agreement conforms to Colombia's Constitution.

The CTPA is still languishing in the US Congress. It was not approved before the change of administration in January 2009, because it failed to garner bipartisan support. The current administration will reportedly favor the free trade initiative, provided Colombia can demonstrate adequate protection of human and labor rights. But there is no declared timetable yet, to implement the CTPA, given the looming controversy over the safety of Colombian labor leaders.

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