Free Trade Agreement
Introduction
One of the largest shake-ups in the history of trade between Colombia and the EU is currently underway with the ratification and implementation of the Free Trade Agreement between the EU, Colombia and Peru (‘the FTA’). The FTA was signed by all parties on 26th June 2012 and received European Parliamentary consent at its vote in Strasbourg on 11th December 2012. The EU is the second largest trading partner of the Andean region after the US, which already has a free trade agreement with Colombia in effect as of 15th May 2012.
With the imminent implementation of the FTA, timings for which are discussed below, the impact for businesses on both sides of the Atlantic needs to be discussed.
The Current Trading Climate
Andean Countries[1] export predominantly primary products (agricultural products (38%), fuels and mining products (54%)) to the EU whilst EU exports consist mainly of manufactured goods, notably machinery and transport equipment (50%), as well as chemical products (19%).[2] Within this macro picture bilateral trade in goods between the EU and Colombia / Peru in 2011 amounted to €21.1 billion. Breaking these figures down the EU in 2011[3]:
(i)Exported €5.0 billion to Colombia and imported €6.9 billion;
(ii)Exported €2.8 billion to Peru and imported €6.4 billion.
TheImpact of the FTA
Over the next two years, 90% of world demand will be generated outside the EU highlighting the importance of the FTA for businesses in the EU. Benefits of the FTA include (i) Tariff Elimination; (ii) Technical and Regulatory Standardisation; (iii) Opening of the government procurement market in Colombia and Peru; and (iv) An efficient and streamlined dispute resolution system.
As part of the elimination of tariffs under the FTA, EU exporters of industrial and fisheries products will be relieved of paying all customs duties on products to Peru and Colombia. Up to 10 years after the FTA’s entry into force, it is estimated that EU exporters of these products will be saving at least €250 million annually in tariffs to Colombia and Peru.[4] Over a slightly longer period (up to 17 years) an additional €22 million is estimated to be saved annually on exports of agricultural and processed agricultural products, bringing the total benefit for the EU export sector at the end of the transition period to more than €270 million a year.
Sectors where EU businesses can make real gains in the new FTA landscape include:
(i)Exports in the automotive and car parts sector which will be relieved of over €33 million in tariffs;
(ii)EU chemical producers that export to Peru and Colombia which will save more than €16 million on duties each year;
(iii)The textiles industry which will see significant savings of over €60 million annually;
(iv)The telecoms equipment industry which alone will save €18 million annually notwithstanding the basis created for supporting the development of an EU telecommunications services industry in the region; and
(v)Pharmaceuticals products which will be relieved of the current €16 million in duties that are paid annually.[5]
Of course, tariff elimination would be meaningless if other technical or procedural obstacles to trade continue to hamper EU exports. The FTA therefore seeks to addresses these matters beyond the existing commitments in the WTO by ensuring that Colombia, Peru and the EU will cooperate on market surveillance, improving transparency through enhanced communication and cooperation in the area of technical regulations, standards and conformity assessment.
New Market Opportunities
The immediate elimination of EU tariffs will give Andean exporters of industrial goods and fisheries open access to some 500 million consumers within the EU market. The FTA is therefore estimated to boost Colombian GDP by 1.3% and Peruvian GDP by 0.7%[6] with both imports and exports of these countries likely to increase by 6% in the medium term and 8% in the longer term. As can be seen from these figures,the opportunity for businesses on both sides of the Atlantic cannot be overstated.
New market opportunities will arise for local agricultural producers and the processed agricultural goods sector as well as manufacturers of light industrial goods such as textiles, clothing and leather goods and the mining and heavy industrial goods sector. Although concerns have been raised about the adequacy of anti-money-laundering provisions within the FTA, the agreement has managed to address labour and environmental concerns by including firm commitments to effectively implement core labour standards, as contained in the ILO Fundamental Conventions as well as eight key environmental international conventions.
Date of Implementation
Both the EU and Peru have completed their ratification and notification processes and all eyes now rest on the Colombian Congress to carry out the necessary procedures in order for the parties to set a date for FTA implementation. Colombia’s President, Juan Manual Santos is optimistic[7] that the Congress will ratify the FTA imminently and the sentiment on the ground in Bogota is that this process will be completed before the end of June 2013. The standard procedure is forimplementation to become effective the first day of the monthfollowing notificationby Colombia that it has ratified the FTA.
Provisional ratification is all that is required at this stage in order for businesses to rely on the substantive elements of the FTA, such as the elimination of tariffs. It should be stressed that businesses do not need to wait for full ratification of the FTA by all 27 member states of the European Union in order to rely on the substantive effects of the agreement. Subject to Colombian ratification, therefore, businesses should be able to make the most of new markets and favourable trading terms under the FTA by the latter half of this year.
For further information regarding theimpact of the FTA on businesses in the EU and Colombia and Peruas well as the latest developments on the FTA’s ratification, a breakfast seminar will take place on 25th April 2013 at the offices of Berwin Leighton Paisner LLP, London. To sign up for this breakfast seminar please register here.
William Haggard Salazar
Employed Barrister
1st February 2013
1
[1] Colombia, Peru, Ecuador, Bolivia
[2]
[3]
[4]
[5]
[6] Ibid
[7]