Case Study: Free Trade Agreement

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Recommended: Advantages and disadvantages of trade agreements

1. What is a free trade agreement? Free trade agreements are a group of countries that remove all trading barriers such as tariffs and quotas among them. Free trade agreements allow member countries to focus on exporting goods at which they hold competitive advantage and importing goods at which they have the competitive disadvantage, thus improving each country´s efficiency and enhancing overall economic welfare. Free trade agreements have proved to be an effective tool for exporters to penetrate foreign markets; the reductions of trade barriers facilitate the exporting process and make it cheaper for producers to export goods and services to trading partners. The US currently has twelve Free Trade Agreements in place with Australia, Bahrain, Chile, DR-CAFTA, Israel, Jordan, Morocco, NAFTA, Oman, Peru, and Singapore, that accounts for 43% of total exports and an annual growth of 11.1% since the year 2000. On the other hand Colombia has nine Free Trade Agreements: Mexico, El Salvador-Guatemala-Honduras, CARCOM, CAN, MERCOSUR, Chile, Canada, Cuba, EFTA. 2. United States-Colombia Free Trade Agreement (CFTA) Background The Colombian and United States Free Trade Agreement was developed in 2004 during the US-Andean Free Trade Agreement that involved Colombia, Ecuador, and Peru. After several negotiation rounds, the three countries failed to reach an agreement and eventually fell apart, however Colombia continued negotiations with the United States until eventually a bilateral Free Trade Agreement was signed in 2006. It wasn’t approved by the US congress until October 2011 for two reasons: • Protection of workers rights • Guard against violence toward labor union leaders. Another issue that delayed the approval of the... ... middle of paper ... ...olombia but the US as well since most of the coca produced in Colombia is exported to Mexico or the United States. Conclusion In my opinion the US-Colombia Free trade agreement present opportunities for both countries in different ways. In the case of the United States, producers of certain agricultural goods will increase their exports and profits in the short-run since they have the advantage over Colombian producers that don’t have access to technology, this will eventually will drive them out of production but would be reallocated in the long run on industries that will expand due to the FTA. On the other hand, Colombia has much more to win from this agreement since consumers will have access to cheaper goods across industries, also new infrastructure like roads, ports, and airports will be developed improving the standard of living in Colombia.

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