China-Colombia FTA, a long and bumpy road?

First it was Deng Xiaoping catapulting China’s growth in 1978 by conceding private enterprise and freeing up foreign trade and investment. Then, after a 15-year institutional process, China formally acceded to the WTO in 2001 as a way to step up its global economic integration.

Today, with the Doha Round stalled, China has used a creative and pragmatic documentary approach to effectively integrate into the global economy:

(i) Memorandums of Understanding (MOUs) and

(ii) Free Trade Agreements (FTAs).

On MOUs

Since not every country in the world is in need, has the will or believes in FTAs, the MOUs are used by China to create visible and politically enforceable agreements on issues that temporarily will add value or strengthen bilateral trade, investment or economic and technical Cooperation.

MOUs cover issues such as the identification of areas of mutual interest or concrete measures for expanding economic cooperation, trade or investment. Any bilateral or plurilateral leaders meeting on said issues will always generate at least one MOU as a reflection of political momentum and will mark a way forward.

There is no official database on the number and scope of all MOUs entered into by China with the world probably because their strategic and political value, among others, relies on the flexibility on strict compliance.

MOUs are the best Chinese instruments to rapidly engage on economic, trade and investment issues with countries that may either oppose to FTAs by ideology, e.g., Venezuela or Bolivia; or simply don´t see the national benefit to having one with China, e.g., Mexico.

Just with Venezuela, a country with no ideological space for FTAs, China has signed a total of 460 MOUs, 98% of which have been entered into by the Chavez administration.  

On FTAs

Since the beginning of the XXI century, FTAs are also used by China to speed up efforts to expand its free trade platform and to supplement its multilateral trading system approach.

China has also made significant regional engagement achievements in Latin America via FTAs in the past decade.

The official "China FTA Network" website states that currently "China has 14 FTA partners comprising of 31 economies, among which 8 Agreements have been signed already".

Out of those 14, 3 FTAs are in force with 3 Latin American key free trade players, which do not make part of the Bolivarian Alternative of the Americas (ALBA) countries – all of which are users of MOUs with China-. The 3 FTAs are:

1. China-Chile FTA in force since October 1, 2006;
2. China-Peru FTA in force since March 1, 2010; and, 
3. China-Costa Rica FTA in force since August 1, 2011.

Colombia is now on the FTA platform of China

The China-Colombia economic relationship has also been enhanced with MOUs and enforceable agreements (e.g. 1983 -Trade Agreement and 1988 – Economic Cooperation Agreement).

EAFIT, a private Colombian university actively engaged with Chinese affairs, prepared in 2011 an exhaustive list of more than 30 binding and non-binding (MOUs) bilateral agreements signed since 1980, when China and Colombia formally established diplomatic relations. 

One very important milestone in the China Colombia FTA convenience assessment is the bilateral investment treaty.

On November 22, 2008, Chinese President Hu Jintao and his counterpart at that time, President Alvaro Uribe, attended the signing ceremony of the most important bilateral agreement to date: the Promotion and Protection of investment Agreement ("APPRI" in Spanish), which is in force since July 2, 2012, with unfortunate low media visibility.

President Uribe believed that while Colombia was negotiating broad based FTAs with main trading partners, such as the United States and the European Union, the assessment on the need of any binding sectorial Agreement (e.g. an agricultural agreement), a Free Trade Agreement or simply keeping the MOUs unique or mixed approach with China on particular projects or measures, needed further national discussion both in the Colombian public and private sector.

Instead, Uribe was convinced that before thinking on negotiating tariff reductions with China, a bilateral investment agreement, one of today´s components of the new generation of FTAs signed by Colombia, was the right and most important step to induce the Chinese government to further encourage Chinese companies to invest its capital in Colombian key areas such as infrastructure construction, agriculture, telecommunications and energy.

With a different approach, President Juan Manuel Santos visited China last May 2012 for the first time since being elected president in 2010. On that occasion, President Hu Jintao and Santos witnessed the signing of nine memorandums of understanding, one of which was to establish a consultative group to evaluate, in a one year period, the feasibility on a FTA between the two countries.

At the same time, on that same visit, Colombia lost a golden opportunity to negotiate China's market economy status recognition before the WTO, as Brazil and other Latin American countries had previously done in exchange of concrete economic results.

For President Santos the mere act of signing the FTA Feasibility Study MOU seemed to be a legitimate and non binding way to publicly announce the start of mutual analysis on the need of an FTA to increase trade and investment.

What he did not realize is that he triggered the beginning of a long and bumpy road of free trade agreement negotiations with China without considering issues such as the use of alternative binding bilateral agreements in force combined with strategic MOUs or the time an FTA negotiation process will take in Colombia´s circumstances.

Today, Colombia is glued to the FTA option with China. The discussion is not whether we will have a China-Colombia FTA. President Santos passed the point of no return. After the Feasibility Study with this Asian partner, we are not in the position to tell China: "An FTA, no thank you".

Even if the theory admits the contrary, there is no historical record in China or in Asia, where an MOU with such purpose is signed with the conviction on the Asian side that the feasibility report on the FTA will or may be negative. No Asian leader is willing to lose time and face failing to initiating a FTA negotiation after such a consultation process is executed. Or would you deem possible having China proposing Venezuela to run a feasibility study on a FTA?

The long and bumpy road

The road to setting up an FTA in force between China and Colombia is long and bumpy. It will be full of ups and downs because China is seen in Colombia both as an opportunity for some sectors and a threat to others, like the industrial sector. The MOU announcement during Santos´ State visit divided the private sector opinions.

It will also be long and slow. To start, just when Santos was leaving China expressing his readiness to work on the FTA feasibility study, Colombia´s 1-year old Ambassador to Beijing gave notice of his irrevocable resignation to the President. Shortly after, the experienced Proexport Commercial Office Director also quitted.

While the new Colombian Ambassador presents its credentials and starts to work, and a new Commercial Director is also appointed, this diplomatic impasse will produce a 3 to 6 month delay on the initiation of the 1 year plan of consultative work on the FTA feasibility study.

Not until then, the Colombian private sector will know the mechanics of the study group nor it will know if it will be invited to formally participate in the study sessions with its own perspective.

What we can all be sure is that under the Santos Government, either by the end of 2013 or early 2014, there will be another media opportunity to report on the positive conclusions of the Feasibility study. It will read something like this:

"1. The study shows that the FTA will be conducive to both countries’ economic development and social prosperity improvement. Given the significant complementarities that exist between the Chinese and Colombian economies, the FTA would benefit the people and economies of both countries. For China, the FTA will strengthen its economic and trade relations with Latin America. For Colombia, it is a crucial step towards its true engagement with the Asia Pacific region.

2. Under the single-undertaking principle, the future negotiations should take into account the interests, asymmetries and sensitivities of both sides. Appropriate arrangements should be considered to address the sensitivities of each side and balance of interests and mutual benefit should be achieved.

3. In conclusion, to ensure the friendly relationship and bilateral economic ties, the Joint Study Group recommends that negotiations on an FTA between China and Colombia covering goods, services and economic cooperation, among others, should commence as soon as possible."

All of the above indicates that the FTA negotiation duration with China will be longer than a five year Chinese plan:

2012 - Signing of MOU and FTA Feasibility Study kick-off
2013 - Announcement of Positive Conclusions of the FTA Feasibility study
2014 - Announcement of FTA negotiations commencement - Presidential elections in Colombia -.
2015-2017 - 2 year negotiating process completion - Minimum of 6 rounds of talks
2017-2018 - Signing, legal scrub and Internal Ratification Procedures (In Colombia, Congress Approval and Constitutionality review by the Constitutional Court)

In conclusion, we will always claim that President Santos did not give Colombia the opportunity to take a more convenient and different approach to a FTA with China.

Is a fact that Santos lost the golden opportunity last May 2012 to cash in economic results, framed under MOUs, against a negotiated concession of the market economy recognition to China. Wisely, China knew that with the MOU FTA feasibility study that will lead to an FTA negotiation, Colombia must soon or later grant China such prior market economy condition; and such official concession will probably occur around 2015 when there is no value for Colombia in negotiating it.

It is too late to take the Brazilian engagement approach with China: no FTA, negotiated market economy recognition, and effective and intelligent use of the bilateral and multilateral binding framework propelled by MOUs. But it is too late now, the bumpy ride towards an FTA has started without any payback for a soon to give market economy recognition to China.

Expanding P3 Opportunities in Colombia

Colombia paved the way for the use of public-private associations/partnerships (P3s) to encourage and facilitate privately financed initiatives for public infrastructure projects when it enacted legislation last 10th of January 2012 (Law 1708 - The P3 law) giving public entities, at the national and regional level, the ability to contract with the local and foreign private sector the provision of public infrastructure and its related services.

The new legislation, which includes the new Decree 1467 issued last 06 of July, provides a broad-based framework that authorizes new P3s in infrastructure development for Colombia, in a true effort to jumpstart much needed projects to fill in the painful infrastructure gap, to speed up design and construction timelines and to give private local and foreign enterprises the opportunity to propose and innovate on much needed infrastructure endeavours.

As in many other non-P3 jurisdictions, Colombia has suffered from inadequate consideration of life-cycle costs when designing, constructing, operating and maintaining an infrastructure asset. Predominantly, each component has been dealt and paid as a separate process with scarce public budgets. In addition, the country has adhered to cost-based contracts that have created perverse incentives for contractors to increase and adjust costs without any budget limits. It has been constant to see inefficient allocation of project resources and risks.

Colombia has also lacked of institutional capacity to develop and retain official internal expertise to design, structure or manage large P3 projects.

Today Colombia has made the right legal and institutional changes. The National Infrastructure Agency (ANI), www.ani.gov.co which was established at the end of 2011, is leading the P3s drive under the new legal framework, together with the policy guidance of the Ministry of Transport.

The most important contributions of the new legal framework in force to P3 projects are:

- It applies to all types of infrastructure projects. Hard, soft, social or productive infrastructure projects are covered.

- Projects must have a minimum size of 6.000 minimum monthly legal wages, which is equivalent to approximately US$1,76 million.

- Project origination may be either public or private. Each initiative will have a clear and expedient awarding process.

- A private initiative will only apply for new projects, which excludes proposals on ongoing contracts and concessions or on projects that have been previously structured by the government.

- The maximum agreement term including extensions is 30 years, except as for special cases that need to be approved by CONPES if they require a longer term.

- Investors may submit P3 proposals financially supported on irrevocable investment commitments from private equity funds. Such funds shall have among its investors a local or foreign pension fund. If it is a commitment from a foreign Private Equity fund, such fund must meet the investment admissibility requirements established by the Financial Superintendency for Pension Funds.

- It establishes limitations to contract additions and extensions to a maximum of 20%.

- All P3 contractual payments are subject to project achievements tied to: (i) Infrastructure availability; (ii) level of service compliance and/or (iii) quality standards.

- It is mandatory that project funds be managed by a fiduciary trust.

- The law establishes budgetary changes in order to secure future payments ("vigencias futuras").

All the above legal terms and conditions may soon bring the private capital to serve Colombia´s hard infrastructure goals to be met by 2014, which are: 100% increase in 4-lane highways; 50% increase in length of railways in operation; airport passenger movement increase by 35% and moving up handling capacity at the country’s ports by 50%.

Although no unique foreign P3 experience is fully applicable to Colombia, local private and public sectors need to rely on foreign world-class expertise and capital in upcoming P3 initiatives.

Thanks to its successful deal history and P3 institutions, Canada has for Colombia a positive and solid P3s track record and reputation. Canadian P3 deal makers, such as finance, legal, engineering or construction companies, have huge advantages with Colombia among other foreign P3 competititors.

Canadian and Colombian companies may rely on a mutual comprehensive legal framework. A Free Trade Agreement with services and investment chapters, a labour Agreement and an Environmental Cooperation Agreements are all in force. In addition, a convention for the avoidance of double taxation with respect to taxes on income and on capital will be in force between the two countries in fiscal year 2013.

If you have further questions on P3s legal issues or opportunites, please contact Ricardo Duarte Duarte at rduarte@col-law.com (Duarte Garcia Abogados) www.col-law.com

De la negociación al aprovechamiento de los TLC

Colombia terminó el siglo XX como una economía preponderamente cerrada, con pocos vínculos con los mercados internacionales. A partir del año 2002, el país desplegó una agresiva estrategia deinserción en la economía global. El objetivo fue maximizar, entre otros, los beneficios de un acceso preferencial, estable y de largo plazo a los grandes mercados del mundo; atraer más inversiones y lograr un apropiado aprovechamiento de los factores productivos.

Lo anterior fue pieza fundamental para alcanzar el mayor desarrollo económico - más confianza inversionista - y una cohesión social apalancada en empleos de calidad y reducción de pobreza.

Sorprendía que en el 2002 Colombia solamente había logrado consolidar pocos acuerdos comerciales. Los tenía con la Comunidad Andina y México; y bajo el marco de la ALADI, preferencias arancelarias parciales con el resto de de países de América del Sur. Era tímida la dimensión de nuestra internacionalización.

El gobierno Uribe centró su trabajo en ampliar en número y profundidad los acuerdos comerciales (TLC) con los principales y más relevantes socios comerciales, de la mano con los acuerdos de protección y promoción de inversiones y los de desmonte de la doble tributación. Todos eran instrumentos y señales de alta visibilidad para generar y consolidar confianza inversionista en Colombia.

Uribe lideró un proceso de internacionalización de la economía cuyos principales objetivos fueron la diversificación de mercados y de exportaciones para ampliar y consolidar procesos de inversión y de empleo. Paralelamente construyó el andamiaje de la competitividad bajo un sistema cuya institucionalidad fue consolidando y reconocida internacionalmente; y la transformación productiva de distintos sectores de bienes y servicios, en un programa que se convirtió en política de estado y que hoy se anida como programa de desarrollo en Bancoldex.

El Presidente Uribe le entregó a su sucesor en 2010 nada menos que nueve (9) tratados (vigentes o con negociación cerrada) -CAN, México, Chile, Mercosur (Brasil, Argentina, Uruguay y Paraguay), Triángulo Norte de Centro America (Guatemala, El Salvador y Honduras), Estados Unidos, Canadá, Asociación Europea de Libre Comercio y la Unión Europea - y dos (2) en negociación -Corea y Panamá-, para un total de 47 países con acceso preferencial.

En otras palabras, salvo los tratados de Turquía e Israel, hoy en negociación, que son de la iniciativa exclusiva del gobierno Santos, todos los demás acuerdos comerciales que hoy le dan tanta visibilidad a Colombia, que incluyen los de Suiza (vigente desde 1 julio 2011), Unión Europea (firmado el 26 junio 2012), Estados Unidos (vigente desde 15 mayo 2012) y Canadá (vigente desde el 15 de agosto de 2011), fueron cerrados o iniciadas sus negociaciones durante el Gobierno Uribe.

Enhorabuena, la foto de la entrada en vigor de los más importantes tratados comerciales de Colombia le ha tocado a Santos, mientras que el trabajo de inicio o cierre de todas las negociaciones comerciales que tiene Colombia hoy, salvo con Turquía e Israel, fue del Gobierno Uribe.

Como con la seguridad, la internacionalización de Colombia vía acuerdos comerciales le llegó a Santos con una inercia, cobertura y tal número de TLC, que le han permitido que hoy los colombianos perciban que la internacionalización e integración comercial del país es algo destacable. 

En la era Santos es cierto que entró en vigencia el TLC con Estados Unidos después de 5 años de espera y que le tocó la firma y el proceso interno de aprobación del TLC con la Unión Europea. Estos momentos de trámite, de acuerdos concluidos en la era Uribe, se agilizan más que por destreza diplomática, por la inmensa necesidad de estos socios, que en desaceleración profunda de sus economías y su necesidad de engancharse con una economía latina y emergente, necesitan acceso a nuevos mercados para reactivarse.

El 4 de abril de 2011 se refrescó la agenda Santos de negociaciones comerciales de Colombia en una sesión del Consejo Superior de Comercio Exterior (CSCE) y se renovó la lista, en orden de conveniencia, de los 20 países con los que se recomendaba hacer negociaciones comerciales. Se excluyeron de la lista a Corea y Turquia por tratarse de procesos que ya se haían iniciado. Ver Acta

De esa lista, a julio de 2012, el Gobierno Santos solo ha iniciado negociaciones comerciales con Israel, en el lugar No 6. Con todos los demás 19 países se está ya sea a nivel de estudios, de anuncios o tratativas, o simplemente no se ha hecho nada. El próximo país escogido de la lista para iniciar negociaciones será el número 12, Costa Rica.  

En cuanto a la estrategia con el Asia Pacífico, es cierto que el gobierno Santos concluyó la negociación del TLC con Corea, iniciada en el gobierno Uribe. Es un paso importante. Pero si miramos qué hay detrás de los titulares de prensa de lo que adicionalmente se ha hecho en este frente, encontramos:

- Con Japón y China, puestos 2 y 5 de la lista de paises prioritarios de la agenda comercial del CSCE, se adelantan estudios bilaterales de factibilidad para la negociación de un TLC.

Con Japón se inició hace más de un año, pero su reporte definitivo aún no se conoce. Este TLC no estará vigente por el tiempo que toma un proceso negociador antes de 2014.

Con China, también se inició un proceso idéntico de estudio luego de firmarse un memorando el pasado 9 de mayo. El estudio estaba planeado para un año, pero cumplidos ya dos meses luego de la visita, aún no se inicia. Así las cosas, por la lentitud con la que avanza el proceso y ante la complejidad y el seguro debate nacional frente a la negociación de un TLC con China, es claro que tampoco habrá un TLC vigente con este socio antes de 2014.

- Se puso en marcha la Alianza del Pacífico, con México Chile y Perú, lo que es el más importante proceso de integración regional, por fuera de las estructuras y planes del ALBA. Pero qué tanto servirá a Colombia para integrarse al Pacífico está por verse.

Basta con señalar que todos los socios de la alianza, salvo Colombia, son economías miembro de un club de integración económica denominado APEC y, además, son parte de las negociaciones del TLC pluripartito más importante del Asia Pacífico denominado Trans-Pacific Partnership. Como vienen las gestiones y las coyunturas, puedo anticipar que Colombia tampoco será miembro pleno de APEC ni parte del TPP antes de 2014, pero siempre se podrá decir que ahí queda la Alianza, ojalá aprobada por nuestro Congreso, para empujar nuestras membresías.

- Si a Turquía se le mete en el paquete de la estrategia con el Asia Pacifico, sin ser del Pacífico, solo quiero destacar que esta negociación, que se inició en marzo de 2011, no respondió a una recomendación de conveniencia del Consejo Superior de Comercio Exterior sino al interés del Presidente Santos, acompañado luego por su Gobierno, de iniciar negociaciones comerciales con la T de una sigla: CIVETS. Será siempre un recuerdo histórico de que pesan más los acrónimos de las revistas, que los estudios y recomendaciones institucionales para iniciar una negociación comercial, acuerdo que, agrego, tampoco entrará en vigor antes de 2014.

Y con Venezuela, luego del retiro de la CAN en 2006 y de relanzarse una nueva relación sui generis, sin pago total de las deudas a nuestros exportadores, se han suscrito un sinnúmero de memorandos de entendimiento aprovechando la visibilidad de las Cumbres bilaterales y se ha negociado un Acuerdo de Alcance Parcial- bajo reglas Aladi-, que esperamos sirvan para amainar la desconfianza e incertidumbre de los empresarios en cuál es realmente el marco legal aplicable, si es que lo hay, para el comercio y la inversión con esa nación, que hoy apuesta más al Mercosur que a sus socios andinos.

En el inmediato futuro, el Gobierno seguirá haciendo anuncios de que tiene interés en negociar más acuerdos comericiales con países como Australia, Rusia, Sudáfrica y Kenia -que no está en la lista del CSCE- en Africa, República Dominicana o Caricom (que agrupa a varias islas del Caribe), esfuerzos que deben continuarse como lo indica la agenda del CSCE.

Pero no queda duda que el foco del ejecutivo para lo que queda de gobierno debería centrarse más en el aprovechamiento de los acuerdos existentes y en vigor, que en la negociación de unos nuevos. Para eso ya hay zar e instituciones nuevas y viejas.

El aprovechamiento de los acuerdos debe ser la gran fuerza impulsora de la acción gubernamental, del sector privado con sus gremios, y la academia en lo que queda de gobierno.

Cada vez más toma más fuerza el desarrollo económico empresarial y sectorial del país. Acciones como recuperar y reactivar el sistema nacional de competitividad, construir la infraestructura, mejorar la logística, dinamizar la transformación productiva, incentivar el emprendimiento de alto impacto, atraer más inversión con responsabilidad social, promover la formalidad y destrabar la locomotora de la innovación, son apenas unos ejes fundamentales y prioritarios de lo que implica ponerse efectivamente en Modo-Aprovechamiento de los TLC que Colombia ya tiene.