US embassy cable - 04BOGOTA4476

UNCLAS SECTION 01 OF 02 BOGOTA 004476 
 
SIPDIS 
 
STATE PLEASE PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, CO, FTA 
SUBJECT: COLOMBIA HOPES TO INCREASE EXPORTS VIA 
CAN-MERCOSUR DEAL 
 
1. (U) SUMMARY:  A liberalization trade agreement between 
trading blocks Mercosur and the Community of Andean Nations 
(CAN) will go into effect July 1.  The deal gives Colombia 
increased market access to 216 million consumers in Mercosur 
countries. Key agricultural goods will receive 15 years of 
protection, while intellectual property, government 
procurement and investment were not addressed. The GOC 
succeeded in protecting sensitive sectors in the agreement, 
capitalizing on the strong desire of Brazil for a South 
American trading block. Though smaller in impact and less 
ambitious than a U.S. FTA, the negotiations have helped gird 
GOC negotiators for trade talks with the U.S. END SUMMARY 
 
2.  (U) Trading blocks Mercosur (which operates as a customs 
union) and the Community of Andean Nations (CAN) agreed to 
open trade July 1 in a deal that will increase Colombia's 
access to 216 million consumers in Mercosur countries. The 
agreement with Mercosur was approved April 3 following 
negotiations that began in 1996.  Tariffs on some goods will 
be dropped immediately, while key agricultural products, 
automobiles and other sensitive goods will continue under 
tariff protection for periods of between 6 and 15 years.  The 
agreement does not address intellectual property, government 
procurement or investment. 
 
3. (U) According to GOC Trade Minister Jorge Humberto Botero, 
the deal is "highly asymmetric in favor of the Andean 
countries, especially Colombia."  Colombia will have 
tariff-free entry to Brazil and Argentina in 8 to 10 years, 
but Mercosur will have to wait 12 to 15 years for similar 
access to Colombia.  Colombian goods must include 50 percent 
regional content in the first seven years and 55 percent 
thereafter, while Mercosur goods require 60 percent regional 
content. 
 
4. (U) Colombian agricultural goods won continued protection 
for the next 15 years, with immediate non-tariff access 
granted for tuna, bananas, flowers and shrimp.  The 
negotiators set aside benefits for sugar and derivative 
products like chocolates, powdered drinks and alcohol until 
the signatories determined that market conditions for 
liberalization improved (i.e. not for the foreseeable future.) 
 
5.  (U) Automotive products, footwear, furniture and electric 
appliances are also granted protection over 15 years. All 
parties agreed to apply phytosanitary standards which meet 
WTO transparency and equivalence principles, and to give 
national treatment to each other's laboratories. The GOC sees 
the pact as an opportunity for growth in value-added export 
products like textiles, finished goods, leather products, 
soft drinks, tobacco and printed publications. 
 
6. (U) Some 1,150 categories of goods will be duty free, with 
each country making separate offers in the negotiation. 
Brazil, which has been eager to form a stronger Latin 
American trading block with which to face U.S. trade 
negotiators, offered the most generous terms. Brazil agreed 
to drop tariffs on a quarter of Colombian exports 
immediately, including pharmaceuticals, cut flowers, coal and 
tires.  Brazil offered to take up to double Colombia's 
current world exports of surgical equipment.  Nearly 100 
percent of Colombian exports will be tariff free by 2012, 
while Brazilians will enjoy similar access four years later. 
 
7. (U) Argentina will drop tariffs immediately on Colombian 
flowers, printing products, shrimp, asparagus and cocoa 
products, totaling nearly 12 percent of imports. 
Approximately 77 percent of Colombian exports to Argentina 
will be tariff free in 12 years. Argentina also agreed to 
open import licenses to Colombian pharmaceutical producers. 
 
8. (U) Currently, Mercosur economies enjoy a significant 
trade surplus with Colombia.  Colombian exports to Mercosur 
in 2003 amounted to US$116 million while Colombia's imports 
totaled US$1.1 billion. Trade ministry officials have said 
they hope exports will increase as much as tenfold over the 
long term. 
 
9. (U) Colombian business leaders spoke in favor of the pact, 
but pressed for the establishment of a national industrial 
policy to advance the development of transportation 
infrastructure and the promotion of direct foreign 
investment.  The agricultural sector was very happy with the 
very limited access Colombia gave for sensitive products. 
 
10. (U) The GOC sees the pact as a precursor to FTA 
negotiations with the U.S., which are scheduled to begin May 
18.  Botero said the successful Mercosur negotiations have 
given his negotiating team a lift of confidence as FTA 
negotiations approach.  At the same time, the omission of key 
sector agreements and the extreme length characterizing the 
liberalization periods for most sectors limit the relevance 
of the agreement for the upcoming FTA talks. 
WOOD