Virtually all of Colombia's exports enter the United States tariff-free, a fact that is advertised in the USTR web site to assuage US critics who worry about adverse employment implications in this country. But of course the same fact suggests Colombia is not getting much out of the proposed FTA either (or at least any more than what it could have gotten on its own). Kevin Gallagher writes:
The U.S.-Colombia Free Trade deal is one of the most deeply flawed trade pacts in U.S. history. It will hardly make a dent in the U.S. economy, looks to make the Colombian economy worse off and accentuate a labor and environmental crisis in Colombia. The Democratic majority in Congress is right to oppose this agreement and call for a rethinking of U.S. trade policy.
According to new estimates by the United Nations Economic Commission for Latin America, the net benefits of the agreement to the U.S. will be a miniscule 0.0000472 percent of GDP or a one-time increase in the level of each American's income by just over one penny. The agreement will actually will make Colombia worse off by up to $75 million or one tenth of one percent of its GDP; losses to Colombia's textiles, apparel, food and heavy manufacturing industries, as they face new competition from U.S. import, will outweigh the gains in Colombian petroleum, mining, and other export sectors, it concludes.
I haven't checked the ECLAC study, but I think it is safe to assume that the conventional economic gains from the agreement are not too different from zero for both partners.
So it must be the politics right? Daniel Drezner makes the by-now standard lock-in argument for FTS:
FTAs matter more than unilateral reductions of trade barriers because they decrease the likelihood of policy reversals (which, again,is why Hillary Clinton's proposals to renegotiate FTAs every five years or so is such a God-awful idea). Ratifying the FTA with Colombia increases the likelihood that labor killings will continue to decline.
"Hmm..." is the thought that comes to mind.
But the lock-in notion needs to make a distinction between two different kinds of settings--one of which is much more defensible on traditional "delegation" grounds than the other. Let me quote myself:
Consider first the case where the government faces a "time-inconsistency" problem. It would like to commit to free trade ... but realizes that over time it will give in to pressure and deviate from what is its optimal policy ex ante. So it chooses to tie its hands through external discipline. This way, when protectionists ... show up at its door, the government says: "sorry, [the FTA with the US] ... will not let me do it." Everyone is better off, save for the lobbyists and special interests. This is the good kind of delegation and external discipline.
Now consider the second kind. Here, the government fears not its future self, but its future opponents: the opposition party (or parties). The latter may have different views on economic policy, and if victorious in the next election, may well choose to shift course. Now when the incumbent government enters an international agreement, it does so to tie the hands of its opponents. From an ex-ante welfare standpoint, this strategy has much less to recommend itself. The future government may have better or worse ideas about government policy, and it is not clear that restricting its policy space is a win-win outcome. So next time you hear the external-anchor argument, ask yourself whether the government in question wants to "import" external discipline for the first reason or the second.
So what's the real reason the Colombian government wants this deal?
UPDATE: My colleague Maurice Kugler send this clarification:
There is an interview with the Colombian chief trade negotiator that illustrates the thinking of Colombian technocrats by and large. Some of the arguments are precisely the ones you mention. More investment, particularly FDI, due to perception of permanent removal of trade frictions. Also, there is a view that the FTA may contribute to the business environment though political stability. Other additional arguments in favour include the fact that Colombian
producers will have access to cheaper intermediate inputs (currently the average effective tariff is 20% in manufacturing), and the expectation that food prices will drop (though as you point out in your piece on Zoellick, this may cut both ways). Personally, I would be cautious about how large the above purported
benefits can be. However, I believe that market access for Colombian entrepreneurs may make structural transformation more likely as investments and explorations for new exports would have a higher return.
Under APTDEA (with its extension due to expire next year), 90% of Colombian exports enter the US market dutyfree. Under the FTA, 99.98% of manufactures would have been allowed dutyfree. While current exports enter largely without tariffs, it may be that potential exports are supressed by existing tariffs. If potential exporters/investors perceived a permanent drop in tariffs for all manufactures, they may be more likely to sink costs needed to diversify Colombia's export supply.