The FTA Takes Off

In theory, the widening of markets — free trade — allows those that participate in it to achieve better results than they would by operating autonomously: the so-called “win-win.” This was mathematically proven by David Ricardo, whose theory of comparative advantage showed that specialization generates surpluses or earnings.

Nevertheless, in all cases, the regional distribution of those earnings is something that remains to be seen, depending on the particularities of each process: Who ends up with what? Over time, a trend toward equalizing prices of factors of production will develop, as those that were abundant before trade cease to be so, and those that were scarce before trade become more common.

The subsidies of agricultural products in the United States that generate price distortions are justified, and thus included in the fine print of the deal. From another point of view, the importation of subsidized products could help to control inflation by improving the buying power of salaries.

It is paradoxical that the free trade agreement is finally entering into force at a time in which the process of European unity, the largest project of economic union carried out under democracy in human history, is falling apart at the seams, with poor expectations that almost threaten its survival. Here in Colombia, we are starting down the same path the Europeans took decades ago. In this case, nevertheless, the effects of what happens there may have a positive result for us, in the case of an eventual international debacle, by displacing investments toward the Americas, encouraging the creation of new jobs. This in spite of the statement of the Colombian Minister of Finance, who anticipated at least a year and a half of hardship as a result of the European crisis.

In spite of positive forecasts, it is difficult to say for sure what the consequences of our FTA will be, thanks to the uncertain impact of factors such as our incipient infrastructure on competitiveness. The maintenance of political, institutional and juridical stability will be decisive to ensure responsibility and a medium- to long-term vision, guarding against the whims of business, labor union and political leaders.

In the short term, nevertheless, this leadership should busy itself with the resolution of two eminently practical matters that could begin to shape our luck in the deal: the revaluation of the peso and the capacity of the customs system to enforce quotas on highly sensitive products.

Starting with the most “simple,” without efficient customs, control of entire sectors of our economy, on which depend thousands of jobs, may disappear: this is the case for some crops (rice, beans, corn) and for the poultry industry. In this case, the systemization of customs is not enough to achieve quantifiable control of quotas in a country with extensive borders, historically and culturally inclined toward contraband.

More complex will be dealing with the peso. While the interest rates in the U.S. will remain close to zero, thanks to a clear intervention by the federal reserve in response to the crisis, rates in Colombia have risen significantly, and this is beginning to damage manufacturing production (we saw a decline of 0.9 percent in March this year, compared to March 2011), along with sales and fundamental sectors such as construction. Let’s not beat around the bush: It looks like it’s time to modify the constitutional functions of the Central Bank of the Republic, adding a mandate to promote growth and employment to the existing task of controlling inflation. This tool is indispensable as we bring the FTA into force. Certainly, the other party to the treaty, the U.S., is using it in an efficient manner.