Wednesday, January 25, 2012

The OTHER Free Trade Agreements

A man stands beside a graffiti saying 'No Free Trade Agreement' in central Bogotá. 
With the approval last year of Colombia's free trade agreement with the United States, protests against and public attention to free trade issues seemed to disappear.

But the U.S. deal is only one of many FTAs for Colombia. Some of them, such as ones with Turkey, Switzerland and Iceland are not likely to fundamentally affect Colombia's economy, others might.

And probably the most important deal being negotiated is with South Korea. The Korea FTA's supporters emphasize that Korea has become a major world economy, and one of the planet's most vital economies. In only 60 years, Korea rose from Japanese occupation and, despite enduring a civil war and a hostile, totalitarian neighbor to its north, converted itself into one of the more important and dynamic economies in the world.

Today, despite having few natural resources, Korea's economy is five times the size of Colombia's and it has a per-capita GDP almost six times Colombia's. Korea is home to some of the world's best-known brands, including Samsung, LG and Hyundai.

Bagging export coffee by hand in a small Bogotá coffee factory. Can Colombian industry compete with Korea's
highly-sophisticated manufacturers?
FTA advocates say that Colombia needs to open the door to such an important market, which could also be a gateway to Asia.

But South Korea's success story also contains a lesson for Colombia. Korea grew its economy not on free trade and lassie faire, but with government assistance and protectionism. This 1985 Kellog University paper about Korea's economy said: "In order to secure the domestic market, the government not only placed orders once production began, but also quickly protected the products with an armory of barriers. These included a prohibited list of good, quotas and tariffs...."

The Colombian government argues that Colombia's exports have grown after signing FTAs. But, to Canada, Colombia appears to have exported primarily hydrocarbons and coffee - raw materials or products with limited added value. Economic leaders appear to expect the same from the proposed Korea FTA. The El Colombiano newspaper and ex-Pres. Alvaro Uribe's website - both FTA supporters - predicted that "With the treaty, some economic sectors will win, such as primary materials, and others which could be hurt, such as home appliances and cars, since Korea is a world power in these areas."

It's no surprise, then, that Colombia's engineers, automobile assemblers and manufacturing unions are opposing the Korea FTA.

Sure, by signing the Korean FTA Colombia could export more oil, coal, coffee and bananas. But it'll open the floodgates to cheap Korean-made cars and other manufactured goods. That'll be great for Colombian retailers, but terrible for its unions and manufacturers. And those manufacturing jobs are the ones which create skilled labor and a healthy middle class, instead of the low-wage sales jobs.

You build a healthy economy by putting people to work designing and manufacturing microwaves and refrigerators - not making minimum wage hawking appliances manufactured overseas.

And, besides, do Colombia's leaders really think they'll benefit their nation by clogging Colombia's streets with cheap (and often polluting) which also export Colombian jobs? In other words, if Colombia is going to strangle its cities and poison its air with more cars, at least let them be made here by Colombians!

The Korea FTA's advocates assert that Korea and Colombia have 'complementary economies.' That's true, in a sense: Colombia's economy depends on agriculture and raw materials production; Korea's is based on manufacturing and thinking work. But, to increase its wealth and qualit of life, Colombia needs to make the shift to a manufacturing economy. But if Colombia destroys its incipient manufacturing sector with a flood of cheap foreign-made goods, it'll never make the leap.

Coming up are other FTAs, including one with the European Union, which could bring more cheap manufactured goods, as well as subsidized agricultural products. Find all the signed and possible future treaties on the government's website here:

Here's an excellent commentary in Foreign PolicyWill Colombia be the next free trade victim?

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By Mike Ceaser, of Bogotá Bike Tours

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