March 6, 2006

U.S. Comes Out on Top in Trade Deal with Colombia

by Garry Leech

A rather strange sequence of events occurred in the final days of February related to the so-called free trade agreement negotiated between the Bush and Uribe administrations. With great fanfare, both the U.S. and Colombian governments announced that they had finally reached agreement on a free trade pact on February 27. Among other things, the deal calls for Colombia to eliminate tariffs on 82 percent of U.S. imports with the remainder to be phased out over ten years. The next day, however, the Uribe administration announced that the government would begin providing subsidies and loans to farmers who are likely to be hurt by the free trade deal. In reality, the proposed subsidies amount to little more than a band-aid applied to a major hemorrhaging of Colombia’s protectionist barriers.

Under the free trade deal announced on February 27, the Bush administration clearly got its way on most issues as the Colombian government conceded on the key components for which it was fighting. The free trade deal permanently entrenches the preferential access that some Colombian goods currently enjoy to the U.S. market as part of Bogotá’s cooperation in Washington’s war on drugs. In other words, the new deal forces Colombia to open its markets to U.S. goods in return for access to U.S. markets that it already enjoys as Washington’s drug war partner.

Even though Colombia’s current preferential trade status is due to expire at the end of this year, there is no reason that the Bush administration could not have renewed it, as it has done in the past, in return for Colombia’s continued cooperation in the war on drugs. Instead, the Bush administration decided that cooperation in the war on drugs is not enough; Bogotá must also cooperate with White House efforts to further the economic interests of U.S. big business.

The new trade deal calls on Colombia to open its market by eliminating tariffs on 82 percent of U.S. industrial and agricultural products. The Bush administration succeeded in getting Colombia to agree to initially lower, and eventually remove entirely, tariffs on U.S. poultry, corn and rice. Consequently, heavily subsidized U.S. farmers will be able to flood the Colombian market with these products, threatening the livelihood of their Colombian counterparts. As a result, the free trade agreement may undermine drug war efforts as Colombian farmers will likely turn to illicit drug cultivation in order to survive. As Rafael Hernandez, head of Colombia’s rice growers association, notes, “Our worry is that with the disappearance of rice, there will be more cultivation of coca.”

Colombian trade negotiators not only caved on the issue of poultry, corn and rice tariffs, they also acquiesced on their demand that the Bush administration allow a significant increase in the amount of Colombian sugar that is imported into the United States. The Uribe administration had demanded that the United States allow the importation of 350,000 metric tons of Colombian sugar annually. In the final deal, however, Colombia agreed to only export 50,000 metric tons annually to the U.S. market.

Colombian negotiators also caved on the issue of intellectual property rights. As a result, patents held by U.S. pharmaceutical companies will now be more comprehensively protected in Colombia, which means that cheaper generic drugs will likely be replaced with the more expensive U.S.-produced versions. Stephanie Weinberg, a policy adviser for the aid organization Oxfam International, warned that the trade agreement “could dangerously hinder Colombia’s access to important lifesaving drugs at affordable prices.”

The deal also permits U.S. companies to purchase privatized public utility companies and allows more Colombian flower exports to the United States. Interestingly, the greatest benefactor of increased Colombian flower exports will be the country’s largest flower producer: the Dole Food Company, a U.S. multinational that controls 25 percent of the Colombian flower industry.

Some U.S. and Colombian officials lauded the agreement as a boon for for both countries. House Speaker Dennis Hastert, a Republican from the state of Illinois, declared: “This deal opens new markets and opportunities for America’s small businesses, particularly agricultural communities like those I represent in Illinois. Colombia is one of the largest agricultural markets for the United States, and this agreement clears another hurdle so that American farmers can succeed abroad.”

Meanwhile, according to Colombia’s Minister of Trade Humberto Botero, the trade deal will lead to increased Colombian exports to the United States, which he claims will add a full percentage point to Colombia’s gross domestic product (GDP). Botero’s claim seems unrealistic given that any rise in Colombia’s GDP due to increased exports will likely be more than offset by production decreases in those areas of domestic industry and agriculture that cannot compete with cheap imported U.S. goods. Furthermore, as previously noted, Colombia already enjoys access to the U.S. market in most of the areas covered under the new trade deal. Consequently, it is difficult to see how Colombian exports to the United States will increase significantly.

Even if Botero were to be proven right and Colombia’s GDP were to increase, this does not mean that the additional wealth would be evenly distributed amongst the population. In fact, Colombia’s historical record suggests that just the opposite is likely to occur and that the 64 percent of Colombians living in poverty would see little, if any, of this increased wealth.

In a curious move by a pro-free trade government, the Uribe administration declared the day after the trade deal was announced that it would provide $222 million a year in subsidies and loans to farmers who will suffer under the new agreement. The move seems to be little more than an attempt to moderate the political fallout that will inevitably occur given that polls showed 43 percent of Colombians opposed the signing of a free trade agreement with the United States, while only 38 percent supported it.

While the subsidies may partially placate some in the country’s agricultural sector, they fly in the face of the free trade rationale that is supposedly at the heart of the trade deal. Furthermore, the subsidies do nothing to protect those sectors of Colombian industry that will be hurt by increased imports of U.S. industrial products. The government also said it would not impose any new taxes to finance the farm subsidies. Consequently, says Juan Camilo Chaparro, an analyst at Bogotá-based Fedesarrollo, an independent think-tank for economic studies, “The question now is what other important sectors such as education will be hurt as Colombia diverts this significant amount of resources to protect farmers.”

Even with the subsidies to specific agricultural sectors, it is difficult to see how most Colombians will benefit under the new free trade deal. The $222 million that the Uribe administration intends to spend on farm subsidies is minuscule when compared to the more than $20 billion in agricultural subsidies that U.S. producers receive annually. Consequently, even with the subsidies, Colombian farmers will find it difficult to compete with cheap U.S. imports. Furthermore, given the increased access to the Colombian market that U.S. industrial products will enjoy under the trade agreement, it is inevitable that increasing numbers of Colombian industrial workers will soon find themselves unemployed.

While the new agreement dramatically opens the Colombian market to U.S. producers, it only allows a slight increase in access to the U.S. market for Colombians. Furthermore, given the continued massive subsidization of U.S. agricultural producers, the new “free trade” agreement clearly will not result in free trade between the two countries. In fact, it further entrenches the inequalities and hypocrisies evident in Washington’s so-called free trade agenda.

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