The Economist
Saying no to free trade
From the Economist Intelligence Unit
Congress rejects a deal with Colombia
18 July 2007
The US Congress has postponed discussion of free-trade agreements (FTAs) signed with Peru and Panama for several months, while indicating that it will not consider the accord with Colombia at all at this time. This represents a huge setback for the Colombian government of President Alvaro Uribe, who has invested much political capital in his strong alliance with Washington and in promoting a bilateral trade agreement. The deal is now unlikely to be revived until 2008 at the earliest, and could even be put off indefinitely. In the meantime, Canada is stepping into the void with a proposed bilateral trade agreement of its own.
A delegation of US congressmen will visit Peru and Panama in August to meet with lawmakers and get assurances that all legislation and provisions required under the FTAs will be passed and fully implemented. The agreements were modified to include labour rights and environmental provisions demanded by Democrats, who since January control the US Congress. With these provisions now inserted, the accords are thought to have a good chance of ratification in Washington when they are brought up for vote later this year, probably in September of October.
However, the Democratic leadership in the House of Representatives has essentially rejected the Colombia-US FTA, citing concerns about ongoing political violence, particularly against labour activists, as well as the lack of investigations and prosecutions, and the role of paramilitary organisations. The US lawmakers say they want to see “concrete evidence of sustained results on the ground in Colombia [in these areas]... before consideration of any FTA”, according to an official statement. There are no specifics as to what this evidence might comprise.
Many Colombians will see Congress’s act as a betrayal, since Colombia has been the US’s closest political ally in Latin America and a partner in its war on illegal drugs-at a time when some leftist governments have displayed increased anti-US sentiment. Others argue that rejection of the FTA will actually damage US security interests in Colombia. It sends a negative message to the Colombian people, since Mr Uribe had been selling the FTA as important to Colombia’s economic development and an adjunct to the fight against both drug-traffickers and leftist guerrillas. Defeat of the FTA, therefore, acts as a boon to the groups fighting the government.
(On the other hand, some human-rights and other non-governmental groups in Colombia applaud rejection of the trade accord, which they say would further impoverish the population.)
Economically, postponement of the FTA will not have any immediate impact. Colombia will continue to benefit from preferential access to the US market under the Andean Trade Preferences and Drug Eradication Act (ATPDEA), which at the end of June (when it was due to expire) was extended by the US Congress for another eight months. An additional extension next year is possible.
Popularity slips
Still, rejection of the FTA will do little to boost Mr Uribe’s popularity rating, which, though still high, has been declining. It has sunk to 66%, compared with 75% in April, according to an Invamer-Gallup poll released on July 14th. The slippage is attributed to an ongoing scandal involving evidence of close ties between right-wing paramilitaries and a number of high-level officials and government allies in Congress. The scandal has deepened with the opening of an investigation by the Supreme Court into President Uribe’s first cousin, Mario Uribe, a senator.
Another blow to the government was the killing last month of 11 provincial lawmakers held hostage since 2002 by the left-wing Fuerzas Armadas Revolucionarias de Colombia (FARC). The killings spurred huge public demonstrations early in July in Bogotá.
Nonetheless, most Colombians continue to back Mr Uribe’s tough security policies, which have reduced urban crime rates, encouraged greater inflows of foreign investment and stimulated economic faster growth. Support for Mr Uribe led to his re-election in 2006 to a second four-term.
Canada looks south
Meanwhile, Mr Harper’s arrival in Colombia on July 16th-first state visit by a Canadian leader to Colombia-will offset somewhat the disappointment with the FTA setback in Washington and the resulting damage to Mr Uribe. The Canadian prime minister has given his whole-hearted support to Mr Uribe and has defended his efforts against the guerrillas and to promote economic development through trade openness. The start of negotiations on the Canada-Colombia FTA has coincided with his visit. During this six-day trip to the region, Mr Harper will also stop in Chile, Barbados and Haiti. In addition, he has announced the beginning of free-trade talks between Canada and Peru this same week.
Canada cannot hope to rival US economic and political influence in Latin America and the Caribbean, its historic “backyard”. Nonetheless, it can fill some of the vacuum that is begin created by a decline in US credibility and influence in the region, largely the result of failures in US policy towards Latin America, such as the collapse of the Free-Trade Area of the Americas initiative and, recently, defeat of an immigration law reform bill.
Nonetheless, the start of trade talks, along with Mr Harper’s friendliness to Mr Uribe, underscores what appears to be Canada’s new commitment to Latin America, and to a more high-profile role in international affairs. Latin America and the Caribbean now appear to have been promoted to near the top of Ottawa’s foreign-policy agenda, after the US and Afghanistan.
It also reflects the growing importance of Latin American trade for Canada: Trade with the region grew by 79% in the last three years, against an average of 15.5% with the world as a whole. Mexico already is Canada’s fourth-largest trading partner. Colombia is its third-largest export market within South America, with sales amounting to US$446m in 2005. Canadian foreign direct investment in the region is also growing-in mining, tourism, petrochemicals, banking and financial services-and is almost three times that of Canadian investment in Asia. Investment in Colombia totals around US$2bn, mostly in the oil and gas, mining and services sectors. And Latin America and the Caribbean is a major destination for Canadian tourists.
Still, the political implications of Colombia-Canada trade talks will probably be most important in the short term. They provide an opportunity for Canada to increase its influence in the region, and hand Mr Uribe a vote of confidence at a time when he is being assailed both in Washington and at home.