Bilateral agreements and fair trade practices: a policy analysis of the Colombia-U.S. free trade agreement (2006).

• Author: Fandl, Kevin J.

This Article brings to the attention of those public servants involved in the design and negotiation of free trade agreements between the United States and developing countries, such as Colombia, the potential benefits and drawbacks of negotiating in a bilateral forum. Rather than critiquing the free trade agreement for its particular provisions, this Article examines the U.S. policy of negotiating bilaterally with developing countries as opposed to multilaterally in the world trade system and what effects such an approach might have on the economic development of the latter. Using an incremental policy analysis, the Article critiques the bilateral approach in terms of economic development and fair trade negotiations using the recent Colombia-U.S. trade agreement as a case study. The Article concludes that a bilateral approach that is disconnected from a broader multilateral context may be detrimental to developing countries and recommends increased oversight of such agreements by the World Trade Organization to ensure a higher degree of fairness.

INTRODUCTION: SIDESTEPPING THE FOREST FOR THE TREES

Colombia is the most politically and economically northern-facing country in South America today. Its ties with the United States go beyond the drug war often associated with its landscape. (1) In fact, Colombia serves as the South American keystone in terms of regional security (2) and stability (3), as well as in terms of bilateral trade with the United States. As the longest-standing democracy in all of Latin America4 and as a major trading partner with the United States, (5) the interests of the two countries are in many ways aligned. (6) With the five-year Plan Colombia program (7) coming to an end and yielding less than desirable results, and the increase of left-leaning politicians in other parts of Latin America, the United States has a strong incentive to strengthen ties with its southern partner. Accordingly, following the unsuccessful negotiation of a regional integration trade agreement between the Americas, negotiations began for the conclusion of a bilateral trade agreement between the two countries. (8)

Following two years of intense talks and attempts to secure a workable agreement, Colombia and the United States signed a bilateral trade agreement on February 27, 2006. (9) This was a momentous occasion for both countries as Colombia, the third-largest Latin American economy, was on the verge of losing its trade preferences under the Andean Trade Preference Act (ATPA), and the United States, which sees Colombia as an important player in its foreign policy, was losing ground in securing a regional trade agreement via the Free Trade Area of the Americas (FTAA). The agreement solidifies many of the trading practices that were in place since 1991 under the ATPA, which was set to expire in December of 2006. (10)

In part, the choice to pursue a bilateral agreement represents a failure on the part of the Bush Administration to secure the FTAA, which had been under negotiation since 1998. (11) Instead, the United States chose to negotiate bilateral agreements with the four Andean countries: Colombia, Bolivia, Ecuador, and Peru. Recent political events in Bolivia (12) and Ecuador (13) indicate the unlikelihood of securing agreements with those countries.

Although the agreement with Colombia has not yet been formalized into law, as it must first be ratified by the U.S. Congress, its supporters offer unquestioning approval of the final terms, and thus, it is likely to be ratified soon. For example, former U.S. Trade Representative Robert Portman said of the deal, "[t]he agreement will help foster economic development in Colombia and contribute to efforts to counter narco-terrorism, which threatens democracy and regional stability." (14) Economists, industry leaders, and politicians on both sides of the agreement have expressed their support for this arrangement. (15)

The agreement is beneficial for U.S. businesses that work with Latin America or that intend to in the future. (16) But is this the best arrangement for Colombia? Will this agreement bring economic growth to the Colombian economy, and will that growth reach the impoverished majority? Would Colombia benefit more from pushing for unification of the Andean Community with Mercosur, uniting two powerful trade blocs and fostering a comprehensive regional trading bloc on par with the European Union and NAFTA?

This paper will explore the use of bilateral trade agreements as a general public policy, seen through the eyes of both the dominant and the subordinate parties to the agreement. It will then explore the Colombian market and its distinctions from a traditional market that may play a role in the establishment and successful operation of a free trade agreement. Subsequently, using an incrementalist policy analysis, the U.S.-Colombia Free Trade Agreement will be explored in context by highlighting the potential benefits and drawbacks of the arrangement to Colombia. Finally, I will draw conclusions and make recommendations in an effort to guide policymakers on the negotiation of other such arrangements in the future, including a proposed merger between the Andean Community and Mercosur.

1. THE USE OF BILATERAL TRADE AGREEMENTS TO PROMOTE FREE TRADE AND ECONOMIC DEVELOPMENT

   Trade policy is one of the key components of any effective foreign policy. The establishment of beneficial trade relationships can facilitate domestic growth and industry expansion, while simultaneously promoting the development of an efficient global marketplace. Bilateral free trade agreements offer each country a set of particularized benefits that will, in theory, increase its position as an exporter to the other party, among other things. These benefits generally include reduced tariffs and quotas on key products exported to the other country, which allow exporters to reduce overall costs.

   The United States has the largest economy in the world, in terms of gross domestic product (GDP). (17) Accordingly, it has the greatest economic influence and impact on other countries when negotiating trade agreements. The strong voices of the U.S. business community and industries such as agriculture and sugar have a substantial impact on the positions taken by the Office of the U.S. Trade Representative (USTR), (18) the key negotiating body for the United States.

   The USTR has marketed free trade as a cure for the severe problems of poverty in many developing countries in which it is negotiating agreements. (19) The logic behind this idea comes from the widely-held belief that economic growth spurs poverty reduction and that free trade agreements bring economic growth. (20) However, several prominent scholars have concluded quite the opposite, and support for this direct relationship has weakened. Free trade may bring growth to certain sectors, but in the majority of cases, the developing country experiences a reduction in economic growth and an expansion of poverty. (21)

   The exceedingly slow process of multilateral trade negotiations, namely that of the World Trade Organization (WTO), encourages developed countries such as the United States to meet their demand for better terms of trade through the use of smaller, less complicated bilateral and regional trade agreements. These agreements promise short-term gains in both trade access and political capital.

   Powerful negotiators such as the United States have a vested interest in seeing economic growth and poverty reduction in developing countries because this creates more secure investment environments and increases the productivity of the world economy. However, if the policy of negotiating bilateral trade agreements to achieve better terms of trade is not adequately reducing poverty nor sustaining economic growth in developing countries, it may be more appropriate to re-evaluate the policy and attempt to identify more effective mechanisms for achieving these goals. Thus, the next step in determining the effectiveness of bilateral trade agreements as a public policy is to consider their impact on a developing economy. Herein, this analysis will focus on the trade dynamics between Latin America and the United States, focusing on Colombia as the case study. Accordingly, we begin with an examination of the development of trade between Latin America and the United States.

2. TRADE POLICY IN THE WESTERN HEMISPHERE

   To fully appreciate the relationship between the United States and Colombia, it is essential to understand the progression of trade development within the Americas. Due to its close proximity, the United States has long held a substantial interest in the economic and political policies of Latin America. Yet this relationship has not always been strong, nor has it always worked to the benefit of the parties. For Latin America, the United States offers a substantial export market, lower shipping costs than those to Europe or Asia, and a population receptive to its goods and services. However, recent shifts in economic development away from hemispheric integration, as well as shifts in political development away from U.S. alignment, have weakened U.S. influence in the region and made the conclusion of trade agreements more difficult. This section attempts to briefly trace' this progression and position Colombia in its relational context with the United States, both historically and in today's global marketplace.

   1. The Development of Latin American Trade Liberalization

      Latin American trade policies throughout the 1970s relied largely upon import substitution and infant industry protection, which involved significant state assistance for new industries and the promotion of industries that do not necessarily have a comparative advantage in trade. (22) The theory behind import substitution is that by limiting foreign imports of manufactured goods and replacing them with domestically produced goods, exports will begin to exceed...