If George Bush is the friend of Colombia he says he is, here’s what he should be saying right now: “Dear Colombians, as the FTA seems to be hitting the shoals, I’ve been doing some thinking and have noticed that, well, to put it mildly, you’re in the middle of something down there. What with fighting a war, helping us eradicate coca crops and dealing with a displaced population, adjusted for size, would be as if in the US the entire state of Illinois was squatting somewhere. So, I’m gonna make this whole thing easy on you. You know I have a thing for my dad’s administration and always want to make his same stuff, only bigger (Iraq, recessions, you name it…) Well, he came up with the idea of the trade preferences and now this is what I’ll do: I’ll stop the sunset on the trade preferences, or at least fight to have it postponed as far into the future as possible. I’m also gonna extend them to more products so that you get as much access as possible to our markets. That’s what friends are for. Some people will give me grieve over that here but that’s OK. After all, Colombia’s economy is about the size of Queens (and part of it ends up in Harlem, if you know what I mean), so I’ll take my megaphone to explain that we’ll be alright. Plus, the economists at my CEA have explained to me that if we lower our tariffs, it’s actually good for us. So, there you have it: extended trade preferences, bigger, longer, more generous. My donors wanted me to get from you access to your markets but I know that that’s kin’a divisive over there and, I don’t want you to bother with that right now. You know, I’m a uniter, not a divider. You might have noticed how I united two-thirds of the US public opinion into disliking me! So, I won’t push for that right now. As one friend to another, I should tell you though, that maybe you should lower your tariffs to our products. Just as you are better than us at producing some stuff, we’re also better than you at producing other things. It doesn’t make much sense that you try to produce them yourselves if you can get our stuff cheaper and with better quality. That’s something to sleep on. But do it at your own pace. Keep in mind that it’d be foolish for Colombia to try to produce its own hi-tech goods and machinery and… wait, you already buy that stuff from us, so never mind. Anyway, no pressure. Free trade rocks, try it! But in the meantime, I know that what you really, really want is access to the US markets and I’m giving you that. There’ll be plenty of time to talk about intellectual property, biotech and all the other stuff. How’s that for a friend?”
LFM: I appreciate that you are trying to find a constructive solution – I think we all are – but your post lacks the essential understanding of why a trade pact is necessary. Trade preferences can be renewed at political whim. Pacts are permanent. It makes a difference in whether Colombia attracts investment or not.
Here’s the difference: With a pact, you have guarantees of certain investment protections – such as your being treated the same as the Colombian investor in a court of law no matter who is elected president of Colombia along with international recourse if you are not. You only get that with a pact, not preferences.
This is why small businesses benefit most from the pact, big businesses can write these some of these provisos in in some circumstances, but little ones don’t have the lawyer money for that. A pact does everything for them so they don’t have to spend money on lawyers. But big businesses benefit too.
Meanwhile, in the U.S., the permanence is important, too. If the politician in charge of the U.S. feels like extending the pact, it’s a good thing. If the politician in charge doesn’t – say we get a Lou Dobbs clown in office – it won’t happen. With that in mind, no sane investor would invest in a big project in Colombia without pact guarantees. As a big investor, you would wait for the permanent pact or your investment in that new factory or advanced equipment would go to your operation in China instead. Trade pacts are important because they contain investment provisions and guarantees that trade preferences don’t. A pact gives you rights no one can take away from you. A prefererence gives you privileges, revokable at any politician’s whim.
Many US Democrats want the trading privileges extended for long periods of time, because they can keep their fingers in Colombia’s internal affairs without actually having to be accountable to Colombian voters. Do what they say – and the privileges are extended to the vassal state. Do something they don’t like and off with their privileges. You can see the extent of unearned power in that. It’s a form of pith helmet imperialism. A pact is a sovereign act that ensures Colombia’s sovereign rights.
“With a pact, you have guarantees of certain investment protections – such as your being treated the same as the Colombian investor in a court of law no matter who is elected president of Colombia along with international recourse if you are not. You only get that with a pact, not preferences.”
In a sort of reverse echo of LFM, and being that the Democrats just screwed over Colombia, can’t Colombia now just create this environment on her own?
Like Kyle, it’s been a while since I’ve been in Bogota, so could you put in some captions to orient us as to where the photos were taken? The first one looks a bit like Calle 93 (or one of its nearby neighbor Calles) looking east.
One of the others looks like Carrera 30 headed north.
I think they are trying to do that, they are working hard to create a decent investment climate and they are attracting record investment, but they are starting from a low base and as they rise, they have to think about the future – they can’t keep growing at such strong rates forever, they would be more confident if there were the pact to draw a new wave of bigtime investment.
My sense is, for all the good work they are doing, it still doesn’t have the imprimatur of a US signature on it, which comes of a pact, so investors will kind of read the current business climate as ‘fine when Uribe is in office, what about when Petro or Piedad get elected?’
It makes sense. Already these investors have seen the first thing every radical leftist in the hemisphere does when he gets elected – Ortega, Chavez, Morales or Correa – it always starts with broken contracts, expropriations, lawsuits and arbitrary tax hikes and onward toward the full Mugabification. For investors, these represent big losses and not even Exxons fancy lawyers can stop this. I’m sure Exxon, when it plinked down $6 billion in investment did not seriously think it would be ripped off by the brutal dictator as it has been. It had to be pretty confident the investment would be all right. But it was ripped off. That’s how whipsaw these local governments can be. If there were no totalitarian left in Latam, I don’t think it would be a problem. But there is, and its radical leaders tend to see any company that has any success in their countries as somehow ‘robbing’ the regime, and therefore deserving of expropriation without compensation in the name of ‘patria’ or People’s Justice or something. Whatever it is, it’s not fair.
Nothin’ to see here, move along… it’s only a problem if Colombia does it, never mind the others.
Trade pact? Colombia’s the bad guy uber alles, so pay no attention to that man shoving cash from behind the eastern curtain. Pay no attention to what he does, it’s irrelevant. Nothing to see here, move it, move along, move along…
OK. Hopefully this will be my last post on the FTA for a long time to come so cheer up!
Globalization has at least two big components: mobility of goods, mobility of factors (capital and people). In a nutshell, a mainstream economic view on the three mobilities is: first, good with a few caveats, second, maybe yes, maybe no, third, good but not happening anyway because the First World doesn’t want to take in “your tired arms.”
Colombia has done a lot in increasing the first one. We’ve dropped tariffs substantially, although Colombia didn’t have much to drop in the first place because it wasn’t very protectionist to begin with.
A lot of the action of the FTA is then going on in terms of investment (second mobility) and, yes, Camilla, that is the main difference between trade preferences and trade pacts. My point was that, since the goods part is non-controversial, that is, no Colombian wants us to be slapped with higher tariffs by the US, maybe we could get done with that part first. You say that the real bang will occur only with the second but that has some other side-issues and that’s why I say that, in deference to Colombia’s plight, and not to make its political process more complicated than it already is, extending trade preferences as long as humanly possible would be the obvious thing to do.
All else equal, I would like Colombia to receive as much foreign capital as possible. Notice that trade preferences actually help because now US firms (or firms from any other country, for that matter) know that if they ship some of their operations to Colombia, they can bring those goods to the US with low tariffs. That was the main rationale for NAFTA among those who believed, like Brad de Long, that NAFTA would create a major flow of investment into Mexico (which didn’t really happen, but that’s another story).
The problem is that not all things are always equal. We’ve learned that capital sometimes moves too fast both in and out and that this can create a lot of unwanted volatility. Second, sometimes you may want to be able to tax capital (both domestic and foreign) a bit higher than you’ve been doing. In that case, it may not be a good idea to lock in all the elements of how you treat investment. Of course, economic conservatives believe that this is always and everywhere a stupid idea. To which I retort that it strains credulity to believe that no tax on capital will ever accomplish anything good (after all, First World countries do have them) and that, even if you can screw up big time, democratic countries should be allow to find the level of taxation they feel comfortable with, as opposed to just setting it in cruise-control at the behest of foreigners. Yes, yes, yes. That’s less “judicial stability” and therefore less investment. But it doesn’t have to mean zero stability and zero investment. As a citizen, if my country decides that it rather works with less foreign investment rather than more, because those who do come in pay more taxes that we can all use, I’m OK with that. Why am I confident that some will come? Well, it’s happened and also, countries have specificities. If you really, really want to serve the Bogotan market, sometimes you need to be there (or close enough), so it’s not like the country would be entirely drained of resources. I believe in societies being allowed to try different things and change course. That’s a major difference between me and many conservatives: they don’t trust the political process enough to “self-correct” the way markets (in their view) always do. (Turns out that markets are not that great at the self-correction thing, but, again, long story…) I know this is a major philosophical difference and no amount of posts will take care of it.
That is, at the end of the day, my most important caveat toward the FTA. I want Colombia to be able to attract foreign investment, but also want it to be able to negotiate the terms in which it will do it. I want Colombia to be able to decide in the future if it wants to try out some new, promising industrial development (we haven’t found any yet, but we should keep looking) in some specific sector and, if that implies stepping aside from pure free trade for a while, so be it. I don’t believe in extreme protectionism, as I’ve said before, but I trust that Colombians will not go for it. They’ve never had.
At the risk of endangering this rare moment of civility, I’ll say a few things about the politics of the FTA. The issue of violence against trade unionists is real. Sorry, but it is the high of disingenuousness to make up stats to fudge the matter. It is happening. Probably at lower rates (which are increasing again, by the way), but still pretty alarming. To its credit, the Uribe administration is not using the lifeline its supporters have thrown it with the bogus stats. It has been more forthright than others in acknowledging that there’s an issue there.
Is that a reason to block the FTA? I don’t know and don’t care. Since I’m a socialist, were I to run the country (heaven forbid), we would have no violence against unionists but still I wouldn’t go for a full-blown FTA. So, this whole thing is to me a tactical stance that doesn’t address the long-run issues behind the FTA. Maybe this year the Fiscalia will solve each and every crime of unionists, maybe not. Still, my stance (mildly) against the FTA comes from deeper, long-run economic concerns.
Now, I’m happy that American unions are pointing this out. “Proletarians of all countries, unite!” Yes, Camilla, I just love making conservatives cringe with stuff like this. I hope you don’t disappoint…
At any rate, thanks to this display of “proletarian internationalism” those of us in Colombia who wanted to wait on the whole FTA thing found an unexpected, unlikely and probably unreliable ally for some time in Congressional Democrats. Fine by me. That’s politics. After all, it’s not like we’re the only ones who do it.
You said, “All else equal, I would like Colombia to receive as much foreign capital as possible.”
in the previous post you said,
“While weâ€™re at it, right now Colombia has a sizable trade deficit that, while it is a good thing right now, may become a cause of concern down the road. One likely short-run effect of the FTA would be to add more to the deficit. Is this really what we need right now, pronto, or else?”
You seem to be contradicting yourself…
You also say, in a defense of high tax on capital, “If you really, really want to serve the Bogotan market, sometimes you need to be there (or close enough), so itâ€™s not like the country would be entirely drained of resources.”
That’s a pretty low bar to set. Not exactly a high growth strategy.
“I believe in societies being allowed to try different things and change course.”
Well, that’s great. They will find out protectionist, high tax, welfare state policies are a disaster and hopefully change course.
“Sorry, but it is the high of disingenuousness to make up stats to fudge the matter. It is happening.”
Who is making up stats? The FACTS say violence against unionists is down dramatically since Uribe took office.
Now, Iâ€™m happy that American unions are pointing this out. â€œProletarians of all countries, unite!â€
Nice. The Chavista thugs who have infiltrated the American labor movement agree wholeheartedly.
“the whole FTA thing found an unexpected, unlikely and probably unreliable ally for some time in Congressional Democrats.”
I dont know why you say that. The unions own the Democrats, and the unions hate having to compete against the world like the rest of us. Besides, like I said, there are radicals within the union movement working with the Venezuelan government, and probably the FARC, to make sure this FTA doesn’t pass, else it would strengthen Uribe.
No contradiction there. That’s why I have the clause “all else equal.” At this point, since Colombia is running a trade deficit, as a matter of accounting it is receiving surplus foreign investment. I guess that’s why you sniff a contradiction. But I’ve never been comfortable with such situations; they don’t seem sustainable in the long run. Long-run sustainability is one of the things that I would like to “see equal.” Maybe we’ll be fine. But last time we ran such deficits, they unraveled pretty badly, so I’m still nervous. If I were seeing right now that the trade deficit (and its mirror-image excess “investment”) is going into upgrading Colombia’s capital stock, great. But I have the feeling that the “investment” is being blown in a shopping spree of conspicuous consumption and luxury housing. I’m agnostic and rather cautious about the whole thing.
That’s the whole point of being a democrat: believing that, if you allow basic political freedoms, the polity will find what it likes best. I’m no big fan of hamstringing a whole country with my economic theory of choice, whether they like it or not which is what a lot of this automatic clauses (FTAs, etc.) end up doing.
OK, here we go again. The facts say that violence against unions is down (but again, the same facts suggest that it’s going up again). But there is no denying that it is pretty appalling right now. Even the government acknowledges that. I don’t know why the whole sophistry of comparing rates across fictitious partitions to deny something that Uribe himself acknowledges. Is it getting better? If true, great. But that doesn’t mean that there is no issue.
Funny you mention it. I’m beginning to like more and more the Venezuela experiment (not so much Chavez himself who often creeps me out). I’ve gone from fence-sitter to critical supporter (that’s the only kind of support I ever give to anything, by the way…) But, let’s not make this an exchange about Chavez, shall we? I know those things never end.
“But I have the feeling that the â€œinvestmentâ€ is being blown in a shopping spree of conspicuous consumption and luxury housing. Iâ€™m agnostic and rather cautious about the whole thing.”
We’ve been hearing the same thing in the US since the 1980’s.
“I donâ€™t know why the whole sophistry of comparing rates across fictitious partitions to deny something that Uribe himself acknowledges.”
Uribe acknowledges a tremendous drop in overall union assassinations, between 79-86% depending on the numbers you use, since he took office. Absolutely nothing sophist about it; that isn’t some random fluctuation. Alot of it has to do with the (partial) demobilization of paramilitaries, an effective counterinsurgency against the FARC, and a doubling in number of people enrolled in the government’s protection program. You’re simply being disengenuous when you try to spin that success away.
“Funny you mention it. Iâ€™m beginning to like more and more the Venezuela experiment”
Then you’d be in the minority if you were a Venezuelan.
“The Dems brought us NAFTA.”
In one of his few moments of grandeur, Bill Clinton signed the NAFTA agreement he inherited from previous administrations. A majority of Democrats in the Congress voted against it.