EPAs • Volume 14 • Number 2 • May 2010

EU, Colombia & Peru Clinch Trade Deals

Peru and Colombia have concluded three years of free trade negotiations with the European Union, and the two pacts are expected to be formally signed in May.

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In 2008, the EU was the Andean Community’s second largest trading partner after the US, but the region only accounted for 0.6 percent of EU imports. The trade is heavily lopsided with farm, fuel and mining products accounting for nearly 90 percent of Andean exports, while about the same percentage of their imports from the EU consist of manufactured goods, particularly machinery, transport equipment and chemicals.

Although the jury is still out on the economic significance of the new treaties (the full texts and tariff schedules were not available at the time of writing), some details have been disclosed.

Colombia and Peru gained ‘massive’ tariff savings on sugar and bananas (EU trade commissioner Karel de Gucht dixit; see details under tropical products below), as well as expanded market access for beef, rice and corn. Despite these concessions, there are some voices of discontent, particularly in Colombia. The country’s ranchers are worried about subsidised EU dairy exports overwhelming their small-holder industry. There is also concern over increased imports of European spirits to the detriment of competing local products.

From the EU’s point of view, the biggest market access prize will be duty-free access for all European industrial goods to the two Andean markets within ten years of the treaties’ entry into force (Peru and Colombia are to get full duty-free access immediately). Other areas of the agreement may prove even more significant, including increased protection for intellectual property rights, such as pharmaceutical patents and European ‘geographical indications’.

Parliamentary Approval of Colombian FTA Uncertain

Once the agreements have been signed, they must still be approved by national parliaments. While the Peruvian pact is expected to pass with relative ease, the prospects for Colombia are far more uncertain. A number of parliamentarians, both inside the country and in Europe, oppose it on the grounds that Bogota has not done enough to curb human rights violations. Colombian dairy farmers are also urging the government not to sign the deal until their concerns about a deluge of subsidised EU products have been addressed.

Meanwhile, the European Commission stresses that Ecuador and Bolivia, the other two members of the Andean Community, are welcome to rejoin this ‘common initiative’ whenever they are ready. The talks started as region-to-region negotiations between the two blocs with the intention of concluding an ‘association agreement’ consisting of three pillars: political dialogue, co-operation and trade. The trade agreement was to have a body of common provisions covering a broad array of topics, but differentiated market access commitments for each country. Bolivia and Ecuador suspended their participation in the process due to differences ranging from intellectual property rights to market access, as well as EU financing for development.

Tropical Products Concessions Worry the Caribbean

Many Caribbean Community member states, which signed an economic partnership agreement with the European Union in 2008, have serious misgivings over the Andean deals’ impacts on the trade preferences (full duty-free access) that their exports currently enjoy in the 27-country bloc. In the Peru-Colombia negotiations, the EU agreed to significant tariff reductions on commodities of particular importance to the Caribbean, including bananas, sugar, rum and rice. On bananas, for instance, the duty will be slashed from €148 per tonne today to €75 in 2020, well below the EU’s final most-favoured-nation tariff of €114/t, set to apply as of 2019 at the latest. This means that instead of retaining a post-2019 competitive edge of €114/t over more efficient exporters, such as Colombia, Caribbean banana producers’ preferential margin will be whittled down to just €75 per tonne in 2020. Central American countries, currently in the midst of free trade negotiations with the EU, are expected to get similar concessions on products that compete with Caribbean exports.