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Are Colombians fools?

In the wake of this week’s progress on advancing the U.S.-Colombia free trade agreement, it was to be expected that critics of such accords would speak up. Most of the U.S. criticism, naturally, argues that the agreement is not in the U.S. interest. Two experts from Third Way nicely dispensed with some of the misperceptions ...

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In the wake of this week's progress on advancing the U.S.-Colombia free trade agreement, it was to be expected that critics of such accords would speak up. Most of the U.S. criticism, naturally, argues that the agreement is not in the U.S. interest. Two experts from Third Way nicely dispensed with some of the misperceptions underlying common critiques earlier in the week.

Over on another corner of this site, however, Clyde Prestowitz yesterday took a different tack. He argued that the agreement was not in Colombia's interest. He writes:

I have to say that I have long wondered why Colombia's leaders have wanted to do this deal. I really don't see much in it for Colombia."

In the wake of this week’s progress on advancing the U.S.-Colombia free trade agreement, it was to be expected that critics of such accords would speak up. Most of the U.S. criticism, naturally, argues that the agreement is not in the U.S. interest. Two experts from Third Way nicely dispensed with some of the misperceptions underlying common critiques earlier in the week.

Over on another corner of this site, however, Clyde Prestowitz yesterday took a different tack. He argued that the agreement was not in Colombia’s interest. He writes:

I have to say that I have long wondered why Colombia’s leaders have wanted to do this deal. I really don’t see much in it for Colombia."

Prestowitz’s logic proceeds as follows:

1. Assume free trade agreements are all about tariffs and market access.

2. Note that U.S. preference programs allow 90 percent of goods to enter the United States without paying any tariffs.

3. Conclude that Colombians have naively succumbed to "the same knee-jerk ‘free trade is always win-win’ doctrine" espoused in American universities and are acting against their own self interest.

To Foreign Policy‘s sophisticated readership, it may seem a bit odd that a country like Colombia would devote so much time and effort to negotiating the agreement and seeking its passage without even bothering to assess the country’s current market access terms. And yet, how else can we explain their behavior? What could they be thinking?

One radical approach would be to ask. A couple years back I did just that in the wake of the implementation of the U.S. FTA with Peru. There are important differences between Peru and Colombia, of course, but both enjoyed substantial access to the U.S. market under the same preference programs (Andean trade preferences). I conducted a series of interviews in Lima with those who were instrumental in negotiating the agreement, with academics, and with leaders in key sectors such as pharmaceuticals and textiles.

As one might suspect, they were fully aware of U.S. preference programs and the rules governing market access. However, they had observed that the programs were being renewed for shorter and shorter time periods. They feared that one day, in the midst of Congressional squabbling, the preference programs might be allowed to lapse. They were prescient: in February of this year, Andean trade preferences did lapse. Peru’s access is secure. Colombia is left out in the cold. (USTR Kirk and Secretary of State Clinton issued a call yesterday for a reauthorization of these preference programs. Whether and when that will happen will depend on the broader untangling of the trade agenda impasse).

A far more important lesson of the study, though, was that concerns about U.S. tariff levels were not the principal driving force behind Peru’s push for an FTA with the United States. The Peruvians were focused on attracting investment. Tariffs played a role, of course; uncertain market access served as a deterrent to investment. But issues such as investment policies, services market regulation, rule of law, and signals about Peru’s commitment to economic reforms were given much greater weight. The FTA was a way for Peru to sign up to an internationally recognized set of standards for commercial behavior. As such, it paved the way for Peru to negotiate a quick series of bilateral deals with other countries in its aftermath.

Perhaps the most striking finding of that study was the response to the question: How should the success or failure of this agreement be judged ten years down the road? Most proponents argued that the agreement should be judged on the basis of whether Peru ultimately experiences economic growth and a reduction in poverty, not just on the narrower mercantilist grounds of export growth. The FTA was intended to be the linchpin of Peru’s economic program.

In Prestowitz’ defense, even distinguished trade analysts have fallen prey to the temptation to overemphasize the role of tariffs and market access in North-South FTAs. For example, this is the basis of Jagdish Bhagwati’s attack on preferential agreements as "Termites in the Trading System." For academic trade economists, it is the equivalent of looking for lost keys under the lamppost – that’s where the light is. We have good tools for analyzing tariff reductions, very few for analyzing a bolstering of the rule of law. Academic journals can favor rigor over relevance.

Returning to the case at hand: The Colombians are not fools. The agreement is very much in their interest, though the benefits may have diminished a bit over time. If at first glance it seems to offer nothing for Colombia, that may reflect a failure of imagination more than any shortcoming of the agreement.

Phil Levy is the chief economist at Flexport and a former senior economist for trade on the Council of Economic Advisers in the George W. Bush administration. Twitter: @philipilevy

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