Colombia / US Free Trade Agreement

Courtesy of The Financial Times, a look at the US Free Trade agreement with Colombia:

The long-awaited US Free Trade Agreement is no longer over the horizon for Colombia: as of May 15 it became a fact of life and despite all the optimism coming from the authorities it remains a leap in the dark.

Owing to its open attitude towards trade and commerce Colombia already has similar agreements with a variety of countries including Canada, Chile and Mexico, while there is one pending with the EU and a host of others such as South Korea and Turkey are under discussion. But with all respect to the others mentioned, the United States is a different animal. It was the Holy Grail for many years, it is already an enormous trading partner and this represents a tremendous opportunity for the country which, hopefully it is ready to grab with both hands.

Since I arrived here in 2005 the US FTA has been a constant topic of discussion. Beside the attainment of investment grade and the quelling of the guerrillas, this was seen as one of the key components required to drive the economy forward.  Yet the FTA was always around the corner, kept there by lobby groups in the US Congress and various groups who never tire of championing workers’ rights in a country where the predicted job expansion a FTA will bring can only help their bargaining position with employers. While all this frustrated investors, many locally were happy with the delays.

My housemaid several years ago approached me to help with her son’s homework. The subject matter was “US FTA: 10 bad things and two good ones”. She was staggered to hear more arguments in favour than against – but such was the opinion of the masses at that time and there is still a lot of convincing to do when it comes to the populous in general and a tremendous amount of work needed in general if the FTA is to be a success.

Hernando José Gomez, the FTA Tsar, talks about a 35-40 per cent increase in exports to the US over the next two years and Sergio Diaz-Granados, trade minister, talks about a tripling of the same sales over the next 10 years. But these are no more than guesstimates subject to the vagaries of the global economy. While the outlook is unquestionably promising it should be remembered that this is a bi-lateral agreement and there will be costs locally – some sectors are going to have to modernise to survive.

President Juan Manoel Santos may talk about hundreds of thousands of jobs being created in the short term but more important will be the net number, as some will surely lose out and their only hope will be to adapt to new a sector for which education and training will have to be provided.

In terms of infrastructure the agreement has certainly come too early. Locals may have beavered away building warehouses at a ferocious rate in anticipation of the expected increase in trade. But first you have to get the goods to those locations and the truth is that, while the ports can fight a rearguard action, at the moment the internal road system is broken. Two devastating winters since 2010 proved to be the Waterloo for a network of highways that all too frequently were originally build for mules and that now find themselves carrying juggernauts.

According to the World Economic Forum, Colombia is ranked 95th in the world in terms of overall infrastructure and 108th in terms of roads. The government does have plans to improve this situation – around $25bn of them in fact – but to circumnavigate the corruption that has bedeviled the tendering process over the years and which reared its ugly head in spectacular style with the arrest of the Nule family and the ex-Mayor of Bogota Samuel Moreno, the authorities have had to overhaul the various bodies managing the process of handing out licences.

While those bodies are now up and running they remain in their infancy and those at the ANI (National Agency for Infrastructure) expect another year to pass before licences are awarded for the first wave of highway projects and from there a further year of delays can be expected as environmental licences are sought – a surprisingly tough process in Colombia.

That means it will be close to 2014 before work begins in earnest on highways that were needed yesterday. The government will fight fires but it is not uncommon to find children with shovels filling holes along the road of major highways in return for tips, much of this a consequence of disagreements between the various layers of local authorities as to who is responsible for which repairs and more importantly who is going to pay for them. This is classic emerging market politics and it is not going to change anytime soon, so the authorities will be working against this backdrop while trying to drag the highway system into the 21st century. This is a country almost completely bereft of railroads and while there are rivers as navigable as the Rhine those waterways remain largely silted up.

The US FTA is here. Now and the challenge for the authorities is to make sure the country is fully up to speed as fast as possible. Infrastructure is one of Santos’s locomotives of growth. Now would be as good as time as any to get that engine out of the sidings to ensure the FTA is the success it should be.

This entry was posted on Monday, May 21st, 2012 at 2:54 am and is filed under Colombia.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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