Copyright 2011, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on International Trade & Investment, August 2011
The Canada-Colombia Free Trade Agreement (CCOFTA) comes into force on August 15, 2011, significantly liberalizing trade between Canada and Colombia, and opening up markets for businesses in both countries.
Canada and Colombia signed the bilateral free trade agreement on November 21, 2008, but the CCOFTA could not enter into force until the provisions of the CCOFTA were incorporated into Canada's domestic law through implementing legislation. The CCOFTA's implementing legislation is Bill C-2, the Canada-Colombia Free Trade Agreement Implementation Act, which was introduced on March 10, 2010 and received Royal Assent on June 29, 2010. It is scheduled to come into force on August 15, 2011.
By implementing the bilateral trade agreement, the parties will begin to enact market access reforms, trade in services liberalization and a strengthened international investment regime. These trade and investment liberalization measures, among others, will provide Canadian and Colombian investors, importers and exporters with increased and enhanced economic opportunities.
Upon implementation, the CCOFTA will immediately eliminate tariffs on the vast majority of Colombian imports to Canada, including textiles, industrial goods and most agricultural products. The balance will have their duties eliminated over various staged tariff phase‑out periods of three, seven or 17 years, with the exception of Tariff Rate Quota items, including certain dairy, poultry and refined sugar products, which are exempt from tariff elimination.
Reciprocally, Colombia will reduce its barriers to Canadian imports. Colombia will immediately eliminate tariffs on many non-agricultural imports, with the balance to be eliminated over various staged phase-out periods, lasting either five, seven or 10 years. This will dramatically open up the Colombian market to Canadian manufacturers, as the average pre-CCOFTA tariff rate for Canadian industrial products was 11.8%. Not all agricultural tariffs will be eliminated. That said, a range of staged tariff phase-out periods, from three to 22 years in duration, will apply such that most Canadian agricultural products will eventually be duty-free. This will be a boon to Canadian agricultural exporters who face a current average tariff rate of 16.6%. Wheat, barley, peas, lentils and, within specified volume limits, beans and beef (among other products) will become duty-free immediately. Over time, the tariffs on other products will be gradually eliminated, including those on pork, canola oil, other oilseeds, animal fat, frozen french fries and whiskey.
In addition, Colombia will eliminate the use of the Price Band System in relation to certain products immediately. It is worth noting that if the Trade Promotion Agreement between the United States and Colombia, signed on November 22, 2006, comes into force within two years of the CCOFTA coming into force, a variety of the CCOFTA tariff elimination periods will be altered.
Liberalized Trade in Services
The CCOFTA also offers benefits to those involved in the cross-border supply of services. Upon implementation, Canadian service providers will be able to rely on a rules-based, transparent, secure and predictable environment for exporting services to Colombian markets, and will be protected by the principles of fair and equitable treatment. Canadian service exporters, such as technicians, contract workers and independent professionals, will further benefit from provisions that facilitate temporary entry to Colombia. The CCOFTA also provides a framework for the countries to negotiate mutual recognition agreements respecting the licensing and qualification requirements that apply to various professionals.
Improved International Investment Regime
The implementation of the CCOFTA will strengthen the investment ties between the two countries. It markedly advances the rights of, and protections available to, Canadians and Canadian businesses that currently have or are contemplating investments in Colombia. The CCOFTA facilitates the free flow of capital to foreign investments, establishes minimum standards of treatment for foreign investors, provides protection against expropriation without compensation, and ensures access to binding international arbitration where disputes arise between investors and the host state.
Canada-Colombia Trade and Investment Context
Canada and Colombia are important trading partners. As of 2010, Colombia is Canada's second largest South American export market, after Brazil. At present, hundreds of Canadian companies do business with or in Colombia. The total value of Canadian exports of merchandise to Colombia in 2010 was C$644.3‑million, consisting largely of agricultural goods including wheat, barley and lentils, as well as industrial products, paper products and heavy machinery. Canadian services exported to Colombia in 2010 were valued at C$102‑million. Canadian merchandise imports from Colombia in 2010 totalled C$717.2-million including, among other things, coffee, bananas, coal, fuel and flowers.
Colombia, partly because of its significant natural resources, is also an important investment destination for Canadian companies involved in mining and oil exploration. As of 2007, the accumulated value of Canadian investment in Colombia was C$739-million, consisting primarily of investments in the oil and gas and mining sectors. Canadian investment in the printing sector is also sizeable. In 2010, Canadians made C$824-million of stock investments in Colombia.
Concurrent with their efforts to open up markets and liberalize their trade relationship, Canada and Colombia have attempted to address some of the social dimensions of economic integration. In addition to the CCOFTA, the two countries signed two side agreements: the Agreement on the Environment between Canada and the Republic of Colombia and the Agreement on Labour Cooperation between Canada and the Republic of Colombia. The Agreement on Labour Cooperation is targeted at: improving working conditions; encouraging a commitment to internationally recognized labour principles and rights; promoting compliance with and effective enforcement of labour laws; promoting social dialogue on labour matters among workers, employers, labour organizations, business organizations and governments; and fostering co‑operation and exchange of information with regard to the countries' labour laws. The Agreement on the Environment obligates both countries to pursue high levels of environmental protection in the context of their trading relationship, prohibits the relaxation of domestic environmental standards for the sake of trade, promotes the development of effectively enforced environmental laws, encourages conservation and sustainable use of resources, seeks to protect biological diversity, and encourages co-operation and transparency on environmental matters.
The implementation of the free trade agreement with Colombia brings Canada's total number of implemented free trade agreements to eight: the Canada-Chile FTA, the Canada-Colombia FTA, the Canada-Costa Rica FTA, the Canada-European Free Trade Association FTA, the Canada-Israel FTA, the North American FTA (Canada, Mexico and the U.S.), the Canada-Peru FTA, and the Canada-United States FTA (superseded by NAFTA).
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