BY JOHN GOYER
Observers have correctly pointed out the significant market access that U.S. agricultural and manufactured goods will gain as a result of the U.S.-Colombia Free Trade Agreement (FTA). Less noticed, but equally if not more important, are the gains to be had by both countries’ service sectors.
Services such as banking and insurance, telecommunications, express delivery, information technology, and many others are inputs into virtually all products, including those in manufacturing and agriculture. They are a fundamental part of the economic infrastructure, and impact a country’s ability to efficiently produce and export goods and agricultural products, as well as other services. Efficient, high quality services are essential to competitiveness in the global economy.
Services make up the largest portion of both the U.S. and Colombian economies; by opening up two-way trade and investment in services, the U.S.-Colombia Free Trade Agreement will benefit both countries.
Colombia’s service sector makes up 54 percent of its economy, and employs 59 percent of its workforce. Key Colombian service industries include financial services, tourism, retail trade, transportation and telecommunications, and other services.
The FTA will spur the further development of Colombia’s service sector. It will boost Colombia’s crossborder services trade, which totaled a $7.8 billion in 2006, and at the same time, it will make Colombia more attractive to foreign investment in service industries, which will bring in capital, technology, managerial expertise, higher-paying jobs, educational and training opportunities, and other benefits.
The FTA will improve Colombia's competitiveness in many ways. For example, liberalizing logistics services substantially reduces shipping costs, making exports internationally competitive. Telecommunications services are an absolute necessity in a wide range of economic activities within services and beyond, and lower-cost access to such services promotes growth by linking producers with customers quickly and efficiently. Banking, insurance, and other financial services provide the access to capital and the risk management to make these transactions possible, and as in other sectors, enhanced competition in financial services stimulates modernization, and provides consumers with the broadest range of products and services at the lowest cost.
In recognition of the growing importance of its service sector, last year Colombia hosted the third World Services Congress, a gathering of business people, government negotiators, services trade experts, and other specialists from around the world. The event focused on developing countries’ experience in services trade liberalization, and the contributions that services trade has made to economic development.
For the United States, services are equally important. The service sector produces 80 percent of U.S. economic output, and employs roughly the same share of the U.S. private sector workforce. In every single U.S. Congressional district, the majority of the workforce is employed in services. U.S. crossborder exports of private services last year were $455 billion, with a surplus of approximately $123 billion, partially offsetting the US’ substantial deficit in goods trade. The U.S. economic interest in this agreement is clear.
The U.S.-Colombia Free Trade Agreement opens many previously restricted service sectors to cross-border trade. The agreement will open up the Colombian market for asset management and pension services, insurance services, express delivery services, audiovisual services, telecommunications services, and IT services, among others. It will also afford U.S. service providers open, transparent, and nondiscriminatory access to the Colombian government procurement market.
The FTA also contains important provisions on investment. Foreign direct investment is particularly important for trade in services because many services can only be “traded” by establishing a commercial presence in a foreign market. The agreement will create significant new market access for U.S. services investment in Colombia, and will provide high-standard protections for such investment.
In addition, the FTA requires transparency in domestic regulation. It will commit Colombia to making the rules, regulations, and practices by which service industries are governed open, clear, and measurable. Nowhere is transparency in domestic regulation more important than in the services sector, where government regulation is prevalent.
US INVESTORS IN COLOMBIA
For all these reasons, leading US companies in a range of service industries are supporting the U.S.-Colombia Free Trade Agreement.
UPS reports that it has enjoyed an average 18 percent increase in its export volumes to countries with which the United States has recently brokered free trade agreements. This means US jobs; UPS points out that with every 40 U.S. import or export packages added to its system, the company adds one new job with full benefits to its U.S. workforce. The FTA will mean modernized and expedited customs procedures, crucial to express delivery operations. With the availability of express delivery services, Colombian and U.S. businesses of all sizes can export their goods and services virtually anywhere in the world. For example, the cut flower industry, which employs an estimated 182,000 Colombians, relies on express shipping to deliver its output to the United States and other markets.
Colombia’s insurance market, while relatively small, is growing rapidly, with total premiums in the life insurance sector growing an average of 15-17 percent over the past four years, to an estimated $1.8 billion this year. In the last three years, the general insurance market has grown an average of 19 percent to $2.5 billion. U.S. insurers such as AIG, which has both life and non-life operations in Bogota, Medellin, Cali, Pereira, Barranquilla and Bucaramanga, will benefit from the FTA’s provisions, which ensure that U.S. companies will have no limitations on foreign equity investment, will have the right to establish in the juridical form of their choice, and will benefit from enhanced regulatory transparency. With a low penetration of individual life insurance to GNP (1.3 percent), Colombians will gain access to a broader array of insurance products at lower cost.
IN BOTH COUNTRIES' INTEREST
The U.S.-Colombia Free Trade Agreement is unquestionably in both countries' interest. It provides market access for U.S. service providers, important investor protections, and a stable legal framework for U.S. investors. It eliminates discriminatory treatment against U.S. companies and their employees, and commits Colombia to transparency in its regulatory practices. For Colombia, the Agreement will help consolidate and solidify the impressive economic gains the country has made since the late 1990s, while encouraging greater trade and investment between the two countries, not only in services but in other areas as well. Colombia’s inflation rate is at its lowest level in decades (5.7 percent in 2007, compared with 17.7 percent a decade earlier). Unemployment has decreased steadily, and was 9.9 percent last year, compared with 16 percent in 2002. The portion of the population living in poverty has fallen by 13 percent since 1999.
Last year, in recognition of the central role that services play in the U.S. economy, a Congressional Services Caucus was formed in the House of Representatives. In a March 2007 letter from the Caucus co-chairs to U.S. Trade Representative Susan Schwab, the Caucus said that the service industry is the backbone of the U.S. economy, and that "It is critical that our trade policy reflects the role services plays in our country's economic growth...We must work to break down global barriers that serve to stifle trade in order to access new customers, support and create jobs here at home and abroad, and maintain the U.S. position as the world's top services provider. Trade negotiations offer the greatest opportunity to achieve these goals."
In a gloomy U.S. economy, exports have been a rare bright spot; services exports have been an even brighter spot. This deal needs to be approved.
John Goyer is Vice President of International Trade Negotiations & Investment at the Coalition of Service Industries (CSI), a U.S. industry group that works for the reduction of barriers to services exports. He wrote this column for Latin Business Chronicle.
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