NCPA - National Center for Policy Analysis

Colombia Free Trade Agreement

August 31, 2010

Under the provisions of the Andean Trade Promotion and Drug Eradication Act, 90 percent of Colombian goods enter the United States duty-free.  This means that a free trade agreement would have no major negative economic impact for American companies, since they already compete with Colombian goods domestically.  In Colombia, however, American companies still pay tariffs for U.S. goods to enter.  The agreement would eliminate this obstacle and immediately boost U.S. exports, says Rafael Gomes, a graduate student fellow with the National Center for Policy Analysis. 

According to the U.S. International Trade Commission, under the Colombia free trade agreement: 

  • More than 80 percent of U.S. manufacturing exports would immediately enter Colombia duty-free.
  • U.S. gross domestic product (GDP) would increase roughly $2.5 billion.
  • U.S. exports would rise $1.1 billion. 

Most of the negative economic consequences of not ratifying the deal would fall on Colombia, a democratic U.S. ally. According to a study conducted by the University of Antioquia in Colombia: 

  • If the United States does not pass the trade agreement, foreign investment in Colombia would fall 4.5 percent.
  • Colombia's economy would expand more slowly, with GDP growth falling from 4.97 percent to 4.16 percent a year.
  • The country's unemployment rate would increase 1.8 percentage points, which means the loss of about 460,000 jobs.
  • The poverty rate would rise 1.4 percentage points. 

On the other hand, the United States would share in the economic benefits.  For example, the United States would secure immediate duty-free access to the Colombian market for more than half of its agricultural exports.  Since Colombian agriculture is protected by extensive tariffs, ratification of the agreement would represent an inevitable welfare gain for the United States, says Gomes. 

However, not everything in the agreement would benefit Colombia.  Under current provisions of the trade pact, the United States could continue to maintain its agricultural subsidies, whereas farmers in Colombia would not receive government aid, says Gomes. 

Source: Rafael Gomes, "Trade Agreements with Colombia, Panama and South Korea: What Are We Waiting For?" National Center for Policy Analysis, Brief Analysis No. 720, August 31, 2010. 

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