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Agriculture and the Andean FTA: What’s at stake in Colombia?

Rights and Development | Washington Office on Latin America | October 2004

Agriculture and the Andean Free Trade Agreement
What’s at stake in Colombia?

On May 18, 2004, trade representatives from the United States and the Andean region met in Cartagena, Colombia to begin negotiations for a new set of bilateral trade agreements known collectively as the Andean Free Trade Agreement. [1] In preparation for negotiations in agriculture, the Colombian Ministry of Agriculture released a report entitled “Colombian Agriculture before the FTA with the United States” in July 2004. [2] Among the analysis, findings and recommendations, the report issued a strong and striking warning to the negotiators:

“[If]... Colombia [does not take] adequate measures in defense and support of agricultural producers, rural problems could worsen and many of its inhabitants would have no more than three options: migration to the cities or to other countries (especially the United States), working in drug cultivation zones, or affiliating with illegal armed groups. Thus the agreement, if not adequately negotiated, could worsen these three problems that Colombia is trying to remedy and that would be in the interest of the United States to overcome.” [3]

It is not at all apparent from the statements made by U.S. trade negotiators, both before and since the commencement of negotiations, that they or the American public fully appreciate the potential risks to either country of entering into a free trade agreement. On the contrary, the U.S. Trade Representative (USTR) has claimed publicly that the trade negotiations with Andean nations will “advance U.S. goals of helping the Andean countries to combat narco-trafficking, build democratic institutions, and promote socio-economic development.” [4] The USTR made similar claims to Congress in support of two unilateral trade-preference programs, the Andean Trade Preferences Act (ATPA) in 1991 and the Andean Trade Promotion and Drug Eradication Act (ATPDEA)in 2002. [5]

The Colombian Ministry of Agriculture and the USTR present two very different potential outcomes for the Colombian agricultural sector. From the Colombian point of view, proposals that fail to take into account the serious structural crisis that affects the country’s rural sector will lead to more poverty, migration and drug trafficking. But based on what has already been tabled during the agriculture negotiations, it is clear that the U.S. proposals to Colombia consider only the purely economic benefits for U.S. producers and consumers.

For example, in August the U.S. and the Andean countries exchanged offers and requests on the reduction of tariffs on agricultural commodities. Neither the U.S. offers nor U.S. requests were well received by the Andean negotiators. Indeed, the Sociedad de Agricultores de Colombia (SAC), a pro-trade agricultural association representing Colombian producers, accused the U.S. negotiators of “coming out with a proposal that, more than conservative, seemed protectionist.” [6] The SAC was particularly critical of the limited offer on access to the U.S. market, and argued that it must be modified substantially to reflect the asymmetries between the U.S. and the Andean region, if the negotiations are ultimately to bear fruit. At the same time, the U.S. requested immediate tariff reductions on sensitive Colombian products. An exchange of improved offers is expected before the fifth round of negotiations in Ecuador in October.

Colombia’s Rural Sector

In its report, the Ministry of Agriculture provides useful information for understanding the importance of agriculture in the national economy, and the crisis in the Colombian rural sector. While agriculture plays an important role in the economic life of the country, the maldistribution and poor usage of much of Colombia’s fertile land is one of the fundamental causes of the internal armed conflict that has plagued the country for the last 50 years.

Of a population of roughly 42 million people, 27 percent - more than 12 million - live in rural areas. According to the National Household Survey of September 2000, of the 16 million people employed, 3.7 million (23%) worked in the agricultural sector, making agriculture the second largest employer after the service sector (which employs 27%). Agriculture accounts for almost double the employment generated by the manufacturing sector (about 13%). [7] In productive terms, agriculture generates 14 percent of the GDP, a percentage equal to the industrial sector. After ranching, coffee, fruit trees, plantains, rice, corn, flowers, potatoes, bananas, sugar cane, yucca and African palm are the most significant crops, both in relation to total contribution to agricultural production and to employment. Despite its economic importance as a source of national income, the rural sector is home to the greatest levels of poverty. In the rural areas, 83 percent of the population lives in poverty and 43 percent in conditions of extreme poverty. [8]

Colombia’s rural poverty is rooted in the unequal distribution of land. Land ownership is highly concentrated, with 0.4 percent of rural landowners controlling 61.2 percent of the arable land, while 57.3 percent of rural landowners control 1.7 percent. The latter category includes 4.5 million campesinos who live on less than 6,000 pesos a day (little more than $2) and whose parcels are too small to produce an income sufficient for the basic survival of themselves or their families. [9]

The maldistribution of rural land is also a reflection of the fact that, despite several attempts to redistribute land through expropriation or market-based schemes, Colombia has never had an effective land reform process. Land conflicts arising from these conditions of inequality have led to the murder of thousands of campesinos and the displacement of many, many more, as landowners turned to violence to protect and consolidate their holdings. [10] The failure to address the rural crisis is also a major cause of the birth of paramilitary organizations and the continuation of the internal armed conflict. Until the rural crisis is adequately addressed, the conflict will certainly continue in one form or another.

Colombia’s Trade Strategy

Colombia, like all countries, protects its agricultural sector. According to the Ministry of Agriculture’s report, of the $1.143 billion Colombia spent on average on transfers between 2000-2002, 77 percent were in the form of tariffs, non-tariff barriers and export subsidies, 17 percent were internal supports for specific products and 6 percent were general support programs. [11] During the same period, the United States spent $71.269 billion. Of the Colombian major exports, only coffee and cotton fiber receive internal support, with all other products protected entirely by tariff barriers. Additionally, Colombia participates in a regional agricultural price support program, the Sistema Andino de Franjas de Precios (SAFP, Andean Price-Band System), which ensures that the prices of selected agricultural commodities remain within a determined price range through the use of fluctuating duties. The purpose is to protect domestic producers from highly volatile prices and distortions in market prices caused by highly subsidized foreign products.

If one were to compare the internal supports of each country (which are not currently subject to negotiation in the agreement), assuming a scenario in which Colombia and the U.S. eliminated their tariffs and Colombia dismantled the price band, the inequality between the two markets is quite large. A review of major agricultural products in each country amply demonstrates the asymmetry. For example, producers in Colombia would receive 13 cents per ton of corn while U.S. producers would receive 28 dollars due to internal supports. Regarding rice and soy, the Colombian farmer would receive 9 and 4 cents per ton respectively, while the U.S. farmer would receive 99 and 50 dollars per ton. [12] If the price band were to remain in place, the trade inequality would be reduced substantially, except for cotton and meat, which are not covered by the price band system. [13]

Given the vast differences in the markets and productive capacities of the United States and Colombia, the Ministry of Agriculture has identified, among others, several negotiating objectives:

- The maintenance of the unilateral preferences under the ATPDEA.
- The maintenance of a stabilization mechanism for the cost of imports for sensitive goods and the establishment of a special agricultural price safeguard.
- The elimination of export subsidies, including credits and insurance programs.- The introduction of disciplines for internal supports and other practices of equivalent effect that distort the production or the trade of U.S. products.
- The establishment, with resources from the U.S. and multilateral credit bodies, a restructuring/modernization fund with preferential interest rates, grace periods and terms that permit the undertaking of investments needed so that Colombia can (1) meet the quality and sanitary standards of the U.S., (2) to develop agricultural research and (3) to restructure crops that have no chance of competing. [14]

The U.S. Position

In Lima, the U.S. presented its offers and requests to the Andean countries with regard to agriculture. The U.S. took an aggressive position, demanding immediate duty-free access to the Colombian market for many sensitive crops, including basic grains, and the dismantling of the SAFP, while keeping the issue of U.S. internal agricultural supports off the table. At the same time, the U.S. has proposed that its tariffs on several products of interest to the Andean region be identified as sensitive or placed in Basket D, for tariff reduction over a period of more than 10 years. These products include sugar, meat and milk, and their derivative products.

Of particular concern to Colombian producers is the request by the U.S. to throw open the market in basic grains. The U.S. proposed that all of Colombia’s grains except white corn be placed in Basket A, meaning immediate tariff elimination. As explained below, the fear among local grain producers is that they would be undercut by U.S. grain producers who benefit from greater financial support, technical capacity and better technology. Colombia had suggested tariff reduction for corn and sorghum over a period of more than 10 years, and tariff reductions for wheat and barley in 10 years.

Additionally, some products like asparagus, one of Peru’s most important agricultural exports, could face higher tariffs under the current U.S. proposal. Under the ATPDEA, Peruvian asparagus enters the U.S. duty free. Indeed, Vice Minister of Foreign Trade, Pablo de la Flor, has accused the U.S. of holding asparagus “hostage” in the negotiations by excluding it from the negotiations until Peru gives in on certain U.S. priorities. [15] Similarly, the U.S. offered Colombia a 10-year elimination on tariffs on certain cut flowers, even though those same flowers enter the U.S. duty-free under the ATPDEA. [16] The Colombian cut flower industry has been promoted by the United States as a key part of the development strategy and drug crop substitution under the ATPDEA. Increasing tariffs will no doubt harm the very industry the U.S. once encouraged as a vehicle to lower rural unemployment in Colombia.

According to the Colombian Ministry of Agriculture, if the U.S. positions were to prevail, the country would experience a 57 percent reduction in revenue and a 35 percent reduction in agricultural employment. In weighing the potential costs and benefits of the agreement, the Ministry of Agriculture explained:

"The evaluation of the benefits and costs of the FTA in the Colombian agricultural sector indicates that the potential total losses will be reduced substantially if the country maintains the application of stabilization rights such as the SAFP. Moreover, in as much as the necessary expansion in the exportation of nontraditional crops and other potential products is not achieved, the rural sector will be the victim of the FTA if a stabilization system like the SAFP is not preserved." [17]

Producers and Civil Society Respond

Agricultural producers and civil society have responded critically, with many producers expressing their deep concern over the impact of a possible FTA. On August 20, around two thousand rice growers from Huila, Casabare, Meta and Tolima met in Espinal to protest the government’s agricultural policies that they say have depressed the price of rice. According to Angel Maria Caballero, president of Salvación Agropecuaria, an organization representing small farmers, the protest was also provoked by the decision of the government to include rice in the negotiations for a free trade agreement when it is clearly not competitive with the U.S. “Its inclusion in Basket D foretells its disappearance . . . For Salvacion Agropecuaria, all subsidized agricultural products should be excluded.” [18] Caballero also expressed concern for the fate of cotton producers, who also face rapid tariff reductions in the framework of textile negotiations. Among other issues demanded by the protesters were clarity on competition policy, given the fact that beyond subsidies to U.S. farmers, the U.S. supports water consumption and offers loans with low annual interest rates.

Luis Eduardo Quintero, president of FENALCE, a federation that represents grain and legume producers, also expressed grave concerns. “We see the grain sector threatened by the aggressiveness of the U.S. in the negotiations towards better conditions for the products in which they are major sellers. In this sense, the grain sector in the face of the FTA is at high risk, because in Colombia, the grain sector has been systematically unprotected.” [19] FENACLE’s proposal, submitted to the Colombia government, would place all grains and legumes in Basket D, which would mean that tariff reduction would take place over a period of more than 10 years, as well as maintaining the SAFP.

The SAC has also accused the Colombian government of lacking a short, medium or long-term vision with regard to agriculture. Rafael Mejia, president of SAC, criticized the fact that the U.S. was removing tariff quotas but putting in their place new, non-tariff barriers in order to increase its share of trade. Mejia also indicated that zoosanitary and phytosanitary barriers were a big problem with regard to trade with the U.S. On the other hand, Mejia believes that Colombia has made excessive offers with regard to certain products, particularly cotton, corn and rice. Mejia has accused the Colombia government of failing to develop a viable, internal agenda including the development of infrastructure, technology and human resources. [20]

Civil society organizations, such as RECALCA, have leveled similar critiques, anticipating that such an agreement would benefit only a few large producers while impoverishing small and family farms and creating a national crisis in food security. They point to the liberalization of the Colombian market in the 90s, which saw an increase in food imports from 700,000 to 7 million tons. The consequence of this policy, they estimate, was the loss of 900,000 hectares in cultivation and 150,000 jobs. [21] Similarly, trade unions have expressed concern with regard to agriculture and the potential loss of employment.

Conclusions

The failure to develop the rural areas of the Andean regions, and incorporate those areas into national economies, is linked to every issue of concern today, from armed conflict to political stability to drug production. Certainly, the Colombian government bears much of the responsibility for the elaboration of a rural development strategy that would incorporate small and medium size producers and family farmers into the national and international economy. However, the USTR should not to pursue a trade policy agenda that will further exacerbate the region’s agricultural crisis, particularly in a country a volatile as Colombia. Rather, USTR should promote trade in such a way that supports, not weakens, basic human rights. In the context of agriculture, such rights are given full articulation in a trade agreement when:

  1. The country ensures food security for their population. This means that countries should have the right, when necessary, to protect or exclude foods critical to meeting the basic dietary needs of the population.
  2. The country ensures that the labor rights of agricultural workers are fully protected, consistent with core ILO conventions. These rights include the right to free association, collective bargaining, non-discrimination in employment, the prohibition of forced labor and the prohibition of child labor, particular its worst forms most prevalent in the agricultural sector.
  3. The country does not accept obligations that prevent it from adopting national law or policy that promotes small and medium scale agriculture, or otherwise erect barriers to sustainable rural development.

This full issue of Rights and Development, with other articles on the US-Andean FTA talks, is available in PDF (454kb) here

Footnotes:

[1Since May, the U.S. has negotiated with Colombia, Peru and Ecuador. Although Bolivia expected to join the negotiations, it remains an observer. According to the Bolivian Embassy, the U.S. has cited the lack of an internal consensus on the trade agreement, as well as the failure to pass a new law regulating investment in the extraction of natural gas, as barriers to entry in the negotiations.

[2Ministry of Agriculture and Rural Development, Colombian Agriculture Before the Free Trade Agreement with the United States, July 2004.

[3Ibid., 180.

[4See Letter to Honorable J. Dennis Hastert, from Robert Zoellick, Nov. 18, 2003 (available at www.ustr.gov).

[5The ATPA, amended and expanded by the ATPDEA in 2002, permitted preferential, duty-free entry of certain enumerated goods from Colombia, Bolivia, Peru and Ecuador, into the U.S. market. According to reports by the USTR and the U.S. International Trade Commission (USITC), the extent to which the acts helped to combat narcotrafficking or promote economic development in drug cultivating regions, especially in Colombia, was small and indirect at best. See e.g., USTR, First Report to the Congress on the Operation of the Andean Trade Preference Act As Amended, April 2003; U.S. International Trade Commission, Andean Trade Preference Act, Impact on U.S. Industries and Consumers and on Drug Crop Eradication and Substitution, September 2002. Unless renewed, the trade preferences will expire in 2006.

[6Paola Ramírez Leaño, “EE.UU. Más Que Conservador Fue Proteccionista: SAC,” La República, 3 August 2004.

[7Colombian Agriculture, op.cit., 31.

[8Ibid., 32-33.

[9Darío Fajardo Montana, Conflictos de Tierras en Colombia y Zonas de Reserva Campesina: Zona de Reserva Campesina de Pato-Balsillas (draft manuscript, 2003).

[10See Héctor Mondragón, “Colombia: Either Land Markets or Agrarian Reform,” in The Negative Impacts of World Bank Market-Based Land Reform (2003), 108-114.

[11Colombian Agriculture, op.cit., 52.

[12Ibid., 61.

[13Ibid., 64.

[14Ibid., 183-87.

[15“Espárrago peruano se ha convertido en un rehén de EEUU en dialogo por TLC,” El Comercio (Perú), 13 September 2004.

[16Jorge Correa, “EE.UU. Notifica Que en Próxima Ronda de Puerto Rico no se Discutirá la Eliminación de Aranceles,” El Tiempo, 5 September 2004.

[17Colombian Agriculture, supra, at 173.

[18Colprensea, “Protesta en Tolima por Quiebra Arrocera y TLC,” La Republica, 19 August 2004.

[19Paola Ramirez Leaño, “Es Necesario Liberar el Sector de los Cereales,” La Republica, 19 August 2004.

[20Paola Ramírez Leaño, “Al Agro Colombiano le Falta Mas Visión, Advierte la SAC,” La Republica, 2 September 2004.

[21RECALCA, Catorce Razones Para Oponerse al TLC, (available at www.recalca.org.co).


 source: WOLA