Canada: Canada Signs Free Trade Deal With Colombia

Copyright 2008, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on International Trade, November 2008

On November 21, 2008, Canada and Colombia officially signed a Free Trade Agreement (FTA) that when implemented will significantly open up the markets of both countries. The FTA will provide Canadian and Colombian investors, importers and exporters with increased economic opportunities, a development which is viewed as particularly significant in light of current economic turmoil in the world markets. Prime Minister Stephen Harper and President Alvaro Uribe signed the agreement in advance of the annual leaders' summit for the Asia Pacific Economic Cooperation (APEC) forum in Lima, Peru.

Canada and Colombia are important trading partners – in fact, Colombia is Canada's third largest export market in South America after Brazil and Venezuela. At present, hundreds of Canadian companies do business with or in Colombia. In 2007, Canadian exports of merchandise to Colombia were valued at C$662.2-million, consisting largely of agricultural goods including wheat, barley and lentils, as well as industrial products, paper products and heavy machinery. Canadian merchandise imports from Colombia in 2007 totalled C$473.5-million including, among other things, coffee, bananas, coal and fuel. In 2007, a total of C$94-million in Canadian service exports were received by Colombia, and Canadians had made C$739-million of investments in the country.

Although many Colombian goods are already exempted from Canadian duties due to Colombia's developing country status, the tariff relief provisions of the Canada-Colombia FTA should be welcome news to Canadian exporters. Lower tariffs are expected to increase the position of Canadian companies in Colombia vis-à-vis competitors and enhance the ability of Canadian companies to reap the benefits of establishing and participating in global supply chains. Once in force, the FTA will require the immediate elimination of tariffs on most Canadian industrial products, which are currently 11.8% on average. Paper, machinery, equipment, textiles, apparel, and some chemicals will all fall into this category. In addition, many Canadian agricultural products will no longer be subject to tariffs, which currently are subject to an average tariff rate of 16.6%. Included in this category will be wheat, barley, peas, and lentils. Within specified volume limits, beans and beef (among other products) will also become duty-free immediately upon the FTA coming into force. 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. Finally, Colombia will eliminate the use of a price-brand mechanism in relation to certain products, including wheat, pork, and barley.

The Canada-Colombia FTA also holds notable advantages for those involved in the cross-border supply of services. Canadian service providers will be able to rely on an increasingly rules-based, transparent, secure and predictable environment for exporting to Colombian markets and will be protected by the principles of fair and equitable treatment. Moreover, Canadian services exporters will benefit from provisions designed to facilitate temporary entry to Colombia – a measure that will impact a broad range of service providers, technicians, contractual workers and independent professions. The FTA also provides a framework for the countries to negotiate mutual recognition agreements respecting licensing and qualification requirements affecting various professionals.

Colombia, partly because of its significant natural resources, is 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. The Canada-Colombia FTA will strengthen the investment ties between the two countries, and represents a noteworthy achievement in advancing rights and protections to Canadians and Canadian businesses that currently have, or that planto make, investments in Colombia. The FTA provides for the free flow of capital to investments, protection against expropriation without compensation and requires Canadian investments and investors to receive fair and equitable treatment. When disputes arise, investors will have the opportunity to access binding international arbitration.

In keeping with Canada's approach to FTA negotiations, Canada and Colombia have also sought to address the social dimensions of economic integration. In addition to the FTA, three other agreements were signed between the two countries: a Labour Cooperation Agreement, an Agreement on the Environment and a Double Taxation Convention. The Labour Cooperation Agreement is targeted at eliminating child labour and forced labour, prohibiting workplace discrimination, and fostering respect for fundamental labour rights including freedom of association and collective bargaining. The Agreement on the Environment obligates both countries to pursue high levels of environmental protection in the context of their trading relationship, prohibiting the relaxation of domestic environmental standards for the sake of trade. The Canada-Colombia Double Taxation Agreement will ensure that Canadian companies doing business in Colombia, and vice versa, Colombian companies doing business in Canada, are not subjected to double taxation of income.

Ratification procedures must be followed in both countries in order to fully implement the four recently signed agreements. In accordance with the Canadian government's policy of parliamentary approval of treaties, the agreements with Colombia will be tabled in the House of Commons for a period of 21 sitting days, during which Members of Parliament may review, debate and vote on the agreements. Implementing legislation will then be introduced and debated by both the House of Commons and the Senate and, if passed, the legislation will go on to receive Royal Assent, thereby officially becoming law in Canada. If all goes well, the Canada-Colombia FTA should be fully implemented by January 2010.

Prime Minister Harper, commenting on the FTA, indicated that "[i]n a time of Global economic instability free trade is more important than ever". The Canada-Colombia FTA, and the three agreements signed alongside the FTA, are part of the government's Global Commerce Strategy, the objective of which is to develop Canada's access to foreign markets through aggressive international negotiations. An important facet of this Strategy is the negotiation of Free Trade Agreements in the Americas. The agreements with Colombia will join those already in place with Chile, Costa Rica, Mexico (NAFTA), and the recently concluded Canada-Peru Free Trade Agreement.

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