Renegotiation of the FTA with the United States: how viable is it?
In recent statements, President Gustavo Petro announced the beginning of the renegotiation of the FTA (Free Trade Agreement) with the United States. The announcement took the country by surprise, after the government repeatedly spoke of revision and not renegotiation.
In addition to the unexpectedness of the announcements, serious doubts remain as to their viability. In this regard, the Colombian-American Chamber of Commerce (AmCham) has warned that “a renegotiation of the FTA requires the will of both governments”.
With elections looming in 2024 in the United States, it seems unlikely that Congress will approve a renegotiation of the FTA with Colombia, according to AmCham.
Contradictory messages from the government on the renegotiation of the FTA with the U.S.
On May 25, in declarations to Caracol, the Minister of Commerce, Industry and Tourism, Germán Umaña, said about the FTA that “it is not being renegotiated; the analysis is being made after 11 years of that and comprehensively we are creating the balances in front of the new international situation”.
According to the aforementioned media, the Minister affirmed that “each chapter is being analyzed to end up with a Trade Commission, because after 10 years there will be things that can be improved with memorandums of understanding, there will be things by agreements that can be made within the framework of the FTA, and there will be things that cannot be done because they have to go to the US Congress or to the National Congress”.
In a dialogue with the radio station Blu Radio, at the beginning of 2023 the Minister of Commerce stated: “We are not doing a renegotiation, what we are doing is a friendly conversation with our partner, with some terms that each chapter of the Free Trade Agreement talks about, in order to improve the conditions for both countries […]. In the sense of making trade and investment more transparent, agile and convenient […]. There has never been any talk of renegotiation”.
On June 22, in the presentation of the Foreign Trade Policy for the Internationalization and Sustainable productive development, it was expressed not the renegotiation but the revision of the FTAs.
In this presentation it was stated that “progress is being made in the comprehensive review of the agreements with partners such as the United States, and will also do so with the European Union, Mexico, Brazil and Argentina. The objective is to identify trade or regulatory imbalances in order to improve them and make more and better use of these instruments”.
The road to NAFTA renegotiation
To begin a renegotiation process, according to the mechanisms established in the Treaty, the first step is to review the points in dispute through the FTA Administrative Commission.
If it is not possible to reach agreements in this instance, it is possible to initiate a renegotiation process of the FTA. In order for this to be possible, there must be political will in both countries, which in the United States requires congressional approval.
In addition, this process must be done with the participation of the private sector and social sectors, which also participated in the negotiation.
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It is well known that the FTA with the United States does not allow tariffs to be raised or reestablished. To do so would mean a renegotiation not only of this issue, but of the entire Agreement, since the text was negotiated with the approach that nothing was agreed as long as everything as a whole was not agreed.
A rethinking of the FTA cannot be done within the different administrative bodies of the Treaty, since they do not have the power to increase tariffs, but only to decrease them. In the case of a more rapid decrease, tariffs can be increased again, but only up to the previously agreed levels.
Within the framework of the FTA with the United States, temporary safeguards may be applied to certain products, but only for the duration of the tariff reduction, at the end of which no safeguard is valid. In addition, such safeguards are applied when the quantities of imported products abnormally exceed those traditionally imported.
Accumulated trade deficit of USD $15.31 billion between 2014 and 2022
According to DANE data, in 2012, when the FTA with the United States came into effect, Colombia’s trade balance with that country had a surplus of about USD $8.2 billion. Since 2014, the trade balance became a deficit, and between that year and 2022 the accumulated deficit was USD $15.31 billion.
Most of the tariff items have already been removed, but there are only a few products that will be subject to zero tariffs in the coming years: chicken and chicken hindquarters (2030), powdered milk, cheese and yogurt (2026), butter and ice cream (2023) and rice (2031).
The mere existence of a “fatal” date for the free arrival of these products may discourage investment or turn domestic production into an appendage of the companies that bring them in.
The FTA provides for severe retaliation, sanctions and costly lawsuits in international courts if Colombia unilaterally fails to comply with the U.S. tariff agreements.
An uncertain renegotiation
Colombian foreign trade with FTA countries accounts for more than half of Colombia’s imports. So far, what the government has proposed is to maintain the international agreements in force and apply a “smart” tariff policy, which would only affect those countries with which it does not have treaties, such as China, Russia, and India, among others.
It is possible that the government has already reviewed the FTA with the United States and has concluded that what is needed is a renegotiation. But the review, if it exists, has not been made public and it should not be limited to the tariff part, given the same structure of the Treaty, but to the 23 chapters of the same.
It is advisable to provide detailed and complete information on the renegotiation of the FTA, which should involve the interested parties, especially the affected productive sectors.
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