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.