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Economy

Colombia trade pact with South Korea stalled amid industry opposition

posted by Nina Damsgaard
Colombia trade pact with South Korea stalled amid industry opposition

(Photo: Wikipedia)

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Pressure by labor rights groups and high-ranking businessmen is effectively stalling the ratification of a pending free trade agreement (FTA) between Colombia and South Korea, amid concerns the pact could hurt Colombian businesses and jobs.

Signed by the two countries in February 2013, the trade pact has been held up in the Colombian Congress three times, and continues to face a difficult path ahead of it toward passage.

MORE: South Korean lawmakers ratify trade deal with Colombia

“Opponents are sure that the signing of this agreement is going to bankrupt businesses and that everyone is going to lose their jobs, because they know they cannot compete with the Korean industry.” Maria Angelica Prada, professor of international economic law at the leading Los Andes University told Colombia Reports.

Opposition from all levels of the industry

Prada explained that, while Colombia’s 2012 FTA with the United States was opposed mainly by the agrarian sector, the South Korean agreement has drawn opposition from all sides of industry, from farmers, to motor workers, to various labor unions and even top industrial businessmen who typically favor free trade policies.

MORE: Colombia signs free trade agreement with South Korea

Mario Alejandro Valencia of the Cedetrabajo think tank told Colombia Reports that in the case of the FTA with South Korea, the only business association in favor of the pact has been the large farm owners’ association.

Business associations representing manufacturing interests like textile, electronics, leather and car parts have all joined hands to stop the FTA from being ratified, said Valencia.

Companies will have to close

The government’s argument that consumers will benefit because products originating from South Korea will be cheaper has also found opposition among workers and employers. Opponents have argued that the jobs lost because of the agreement will negate any such increased buying power.

Francisco Jose Montoya, CEO of the Ciemco Lmtd. Ciemel and CIA S.C.A business group, itself a multinational company, told this website that he is convinced that the consequences of the FTA with South Korea will be serious.

“I think most of the companies will gradually disappear because it is impossible to compete” with South Korea, the businessman said. According to Montoya, previous FTAs with other countries have all had a similarly deleterious effect on Colombian industry.

Internal costs are too high

Montoya claimed that domestic production costs are too high for Colombia to be competitive with countries like South Korea, well-know for its highly developed industry. Poor infrastructure and high costs of energy, in particular, are prohibitive factors for Colombia’s international competitiveness.

“Our cost of energy is 13-15 cents. In other countries it is about 6-8 cents. That makes it impossible to compete. Another aspect is the taxes. The industry all over the world is subsidized. But we do not receive any subsidies from the government. So we are importing subsidized goods while we have to compete with them. It is very difficult.”

MORE: Colombia’s exports to US drop 13% after FTA

Montoya explains how 85% of the energy in Colombia is generated with clean energy, meaning the country could become a very important industrial hub. “Colombia is a country that has huge potential for hydroelectric power, clean energy, but Colombia became an exporter of oil and mining products. And we export our products with no added value and then we import products with added value. We are limiting ourselves by importing everything into our country instead of setting up industrial activity here with clean energy,” he explains and continues:

“The country has accepted free market as the flagship of the state. And we don’t disagree that we have to have an open economy. But we cannot make bad deals.”

The government lacks planning, out of touch with reality

Montoya believes it is important that trade agreements are followed-up on and require more planning before the FTAs, like the one with South Korea, come to force. “We should not complete trade agreements until we have a clear path,” said the businessman.

Montoya explained that the government needs to renegotiate the trade agreements that are affecting the country in a negative way, a step many protesters in ongoing rural demonstrations have also called for. 

“We don’t want to close the economy but we do need to have fair trade.”

According to the businessman, a “lack of planning, failure to act and corruption” has weakened Colombia’s competition with countries that previously signed free trade agreements with the South American country.

“So we have no rails and no roads to use for export. We are receiving all these products from abroad, but we cannot export our own products. Because our country is not competitive. Not because our companies are not competitive, but because our country is not competitive.”

According to Montoya, the government has a certain image of the country while the reality is completely different. The ideas of the country’s leadership in the capital Bogota are not in touch with the Colombian society or economy, he claimed.

Government postponing because of elections

According to Prada, election set to be held in Colombia on May 25 are contributing to Congress’ apparent failure to push the FTA bill towards ratification.

“I think they are trying to postpone the decision to after the election because they have realized that it is affecting the presidential candidates.”

Candidate for the presidential election on May 25 Enrique Peñalosa, is against the FTA beacuse it according to him will affect 25,000 workers in the motor industry, newspaper El Colombiano reported. In the interview, Peñalosa underlined that none of the giants in the international car industry, Mexico and Brazil, signed FTAs with South Korea because it is just too difficult to compete in this sector.

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