Andean Group - September 2011 (ISSN 1741-4466)

Having signed numerous Free Trade Agreements (FTA) with Western nations, though some, like the one signed with the US in 2006, are still pending ratification and implementation, Colombia’s economic policymakers have now turned their efforts to the East. As we go to print, President Juan Manuel Santos is on an official state visit to Asia where he signed investment agreements with the Japanese government. These have paved the way for discussions regarding a possible FTA, within the framework of a more comprehensive Economic Partnership Agreement (EPA), between the two nations, a discussion that has been underway with South Korea for some time and which could result in a bilateral FTA before year end.

Choo Jong Youn, Korea’s Ambassador to Colombia, believes Santos’s tour of the region is so important to Colombia’s relations with the far east that he said there will be a before and an after to this visit. “Our relationship will make a huge leap forward. [The visit] has a very important meaning [and the relationship] will be more strategic”, he told the local Colombian media. For Choo, the meetings are taking place at an ideal time, when Colombia’s global image has improved markedly from a decade or two ago, prompting widespread interest in Asian companies to begin exploring opportunities to set up business in the Andean nation.

Negotiations for the Colombia-South Korea FTA began in late 2009 and since then, the two countries have had four formal rounds of talks and three more informal “mini-rounds” as described by Choo. Of the FTA’s proposed 22 chapters, negotiators have agreed on the terms of 12 but they have come to a deadlock regarding the specific terms of import duties: Korea is worried about the effects that Colombian dairy products and meat could have on its domestic market, while Bogotá wants to ensure the import of Korean cars and white goods don’t undermine its own domestically assembled products. Nonetheless, bilateral trade between the two has more than doubled since talks began almost two years ago, from US$900m in 2009 to US$1.9bn in 2010. Furthermore, to July 2011, bilateral trade has expanded by a further 30% and officials from both sides believe it could close 2011 at US$2.5bn.

In Tokyo, President Santos and the Japanese Prime Minister, Yoshihiko Noda, signed an agreement for the reciprocal promotion and protection of investments. This document, which was three months in the making, is expected to spearhead Japanese foreign direct investment in Colombia, which reached US$39.4m in the period between 2001 and 2010. Most Japanese investment in the Andean country has been destined for commerce (73%) and the services industry (13%).

With regards to commerce, the record Japanese-Colombian bilateral exchange took place in 2007 (US$1.38bn) but it had been sliding since. That is, until the massive earthquake that hit Japan earlier this year forced the Asian nation to seek alternative sources of energy to address the shortages produced by the nuclear disaster at Fukushima. Colombia’s carbon industry benefitted from added Japanese demand –Carbon is also one of Colombia’s main exports to Korea- which has promised to help bilateral trade in 2011 reach a new record. Until July, bilateral trade had reached US$1.04bn.

Just like Korea, Japan wants to go beyond trade and the Asian nations could become crucial in aiding technological transfer from Asia to South America. Since 2007, a pilot programme with Colombia’s ministry of information technology and communications (TIC) has made it possible for 15 Korean technology teachers to tutor primary and secondary school age children in Colombia. Other education agreements, including the establishment of an Educational Broadcasting System (EBS) are slated for completion during Santos’s visit.

• Striking out zeros

It emerged in mid-September that the Colombian congress may soon consider a bill (34/2010) which proposes the creation of a Nuevo Peso Colombiano. If approved, lawmakers would strike three zeros out of the current Peso as well as begin a process whereby the material used for the country’s coinage would also be replaced. According to local experts, the cost of the materials for making Colombian Peso coins is far higher than the value of the coins themselves. Those who oppose the measure, traditionally aimed at tackling soaring inflation (i.e. Argentina, Brazil and Mexico did it in the 1990s), say the government will incur an unnecessary cost; the law’s defenders say the change should be made now, when inflation is under control and the government has the funds to bankroll the public information campaigns necessary to promote the change.