BENEFITS OF THE COLOMBIAN TRADE AGREEMENT
September 11, 2008
Both the United States and Colombia will benefit from the competition and economic efficiencies gained from the Colombia Free Trade Agreement (COLFTA). Almost 90 percent of Colombian exports have enjoyed tariff-free access to U.S. markets since 1991, due to the Andean Trade Promotion Act. But American exports do not get the same privileges. Thus, ratifying the Colombia trade agreement would mostly benefit the United States by making 80 percent of U.S. exports to Colombia duty free immediately and by phasing out the remaining tariffs over 10 years, say Arnold C. Harberger, a professor of economics at the University of California, Los Angeles and D. Sean Shurtleff, a policy analyst with the National Center for Policy Analysis.
According to the U.S. International Trade Commission, the Colombia trade pact would:
- Increase U.S. exports to Colombia by $1.1 billion (or 13.7 percent).
- Increase Colombian exports to the United States by $487 million (5.5 percent).
On the other hand, failure to pass COLFTA would have devastating effects on the Colombian economy, because the Andean Trade Promotion Act is set to expire at the end of 2008. According to estimates from the University of Antioquia cited in a 2008 Cato Institute study:
- Investment in Colombia would decrease by 4.5 percent.
- Unemployment would rise by 1.8 percentage points, a loss of 460,000 jobs.
- Gross domestic product would fall 4.5 percent, and poverty would climb 1.4 points.
However, if the United States fails to ratify the trade agreement with Colombia, other countries are ready to step in. Canada, for instance, signed an agreement with Colombia in June 2008.
Due to political realities, full trade liberalization will only happen through incremental changes. Well-designed free trade agreements serve this function. Although imperfect, they create trade and foster an environment for economic growth by exposing firms to greater competition, say Harberger and Shurtleff.
Source: Arnold C. Harberger and D. Sean Shurtleff, "Economic Benefits of the U.S.-Colombia Free Trade Agreement," National Center for Policy Analysis, Brief Analysis No. 632, September 11, 2008.
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