Nearshoring Next: Colombia Has Potential to Become Robust Exporter

It's difficult to predict the future with certainty, but Colombia has the potential to become a more robust exporter. Abundant natural resources, a growing manufacturing sector and measures by the government to improve the country's competitiveness, make it easier for companies to export goods. However, the success of these efforts will depend on multiple factors, Craig Dempsey, Chief Executive Officer of the Bogotá-based Biz Latin Hub tells texfash.com in the concluding piece of this WireFrame series on Colombia.

Long Story, Cut Short
  • Colombia's multi-layered approach to trade policy & efforts to diversify trade relationships have helped it to effectively manage trade agreements & reduce its dependence on any one country.
  • The nearshoring campaign has helped Colombia to increase the country's visibility as a destination for international investment.
  • Colombia faces trade barriers in many markets, particularly in developed countries, which limits its ability to export products to those markets.
Cartagena port. Currently, Colombia has 17 agreements, which are related to different countries and groups of countries.
Trading Point Cartagena port. Currently, Colombia has 17 agreements, which are related to different countries and groups of countries. Flickr 2.0 / Joe Ross

texfash.com: It has been roughly 15 years since the United States–Colombia Trade Promotion Agreement (USCTPA). For US yarn, fabric, apparel, and footwear manufacturers, this meant increased market opportunities. But how has it worked out for the Colombian industry? What comparative figures would you be looking at?
Craig Dempsey: The US-Colombia Free Trade Agreement (FTA) was signed in 2006 and implemented in 2012. Its main objective was to increase trade and investment between the US and Colombia by removing tariffs and other trade barriers.

The effect of the FTA has been largely positive for both countries. In the years following its implementation, US exports to Colombia have increased, especially in agriculture, chemicals, and manufacturing. This has led to increased economic growth and job creation in Colombia and improved Colombian businesses' competitiveness in the global market. The textiles industry in Colombia is significant and has given occupation to many Colombians—actually 13%. 

The increased competitiveness and economic growth have helped the sector grow substantially in the past years and have been very economically beneficial for Colombia and the industry. When looking at the effect of the USCTPA, it is essential to look at each of the sectors and compare the effects (positive and negative). Each industry is very different, with its market mechanisms and factors influencing the economy and the Colombian people. 

Overall, the US-Colombia FTA has helped improve the economic relationship between the two countries and has positively impacted trade and investment flows.

Apart from the US, Colombia also has some 15-16 other trade agreements. How is Colombia making them all work together? Is it too dependent on the US?
Craig Dempsey: Colombia has actively negotiated and implemented trade agreements with various countries and regions. In addition to the USCTPA, Colombia has signed trade agreements with countries in the Americas, Europe, and Asia. Some of these agreements are comprehensive and cover a wide range of issues, while others are focused on specific sectors or areas of trade.

To manage these different agreements and ensure they complement each other, Colombia has adopted a multi-layered approach to trade policy. This includes negotiating trade agreements at both the bilateral and regional levels and active participation in international organisations such as the World Trade Organization (WTO) and the Pacific Alliance.
In terms of dependence on the US, Colombia has made efforts to diversify its trade relationships and reduce its reliance on any one country. While the US remains an important trading partner for Colombia, the country has also increased its trade with countries in other regions, including Europe, Asia and Latin America.

Overall, Colombia's multi-layered approach to trade policy and efforts to diversify its trade relationships have helped it to effectively manage its trade agreements and reduce its dependence on any one country.

US exports to Colombia have increased, especially in agriculture, chemicals, and manufacturing. This has led to increased economic growth and job creation in Colombia and improved Colombian businesses' competitiveness in the global market. The textiles industry in Colombia is significant and has given occupation to many Colombians—actually 13%. 

Craig Dempsey
Craig Dempsey / Co- Founder & Chief Executive Officer / Biz Latin Hub

At the start of the COVID-19 pandemic, Colombia was said to be pitching nearshoring opportunities to international companies willing to consider relocations of Asian operations to Latin America. How did that campaign work out in favour of Colombia mainly?
Craig Dempsey: At the start of the COVID-19 pandemic, Colombia launched a campaign to promote nearshoring opportunities for international companies looking to relocate their operations from Asia to Latin America. The campaign aimed to attract investment and create jobs in the country by highlighting its favourable business climate, skilled workforce, and strategic location as a gateway to the region.
The campaign had some success in attracting international companies to Colombia, particularly in industries such as manufacturing, logistics and technology. Some companies chose to move their operations to Colombia to take advantage of its lower labour costs, and to reduce their dependence on a single geographic location by this type of company formation. 

Additionally, the COVID-19 pandemic reassessed supply chain strategies for many companies, and nearshoring became an increasingly attractive option for those seeking to reduce their risk and improve their resilience. Colombia's campaign positioned the country as a competitive alternative to traditional Asian locations and helped to attract new investment.

However, while the impact of the nearshoring campaign on Colombia's economy has been limited due to the ongoing effects of the COVID-19 pandemic, it has helped to increase the country's visibility as a destination for international investment. It has created new opportunities for businesses looking to relocate their operations.

Last year, Colombia announced a zero per cent import tariff on 165 goods under Decree 307 of 2022. The list included 60 textile items. The move is part of the government's efforts to ease price rise and tame inflation. How do you perceive the situation now? All sourcing destinations have been under a squeeze since the pandemic and, subsequently, the economic crisis.
Craig Dempsey: Reducing import tariffs to zero has had several benefits for the Colombian economy. By reducing or eliminating taxes, Colombia can increase trade with other countries, increasing exports and imports and helping boost the overall economy.

Moreover, it can improve competitiveness by reducing the cost of imported goods; Colombian businesses can become more competitive in the local market, helping to increase economic growth and job creation. 

However, it's important to note that there are potential drawbacks to reducing import tariffs, such as increased competition for domestic industries and potentially lower revenue for the government.
Additionally, the overall impact on the Colombian economy will depend on the specific circumstances and other factors such as monetary policy, fiscal policy, and supply-side factors. The Colombian economy has shown signs of growth and stability in recent years, with an increase in foreign investment, improving macroeconomic indicators, and a growing tourism industry. However, it's also faced challenges such as inflation, which is still very present, a large informal economy, and persistent poverty, which can impact its stability.

However, we have observed a rise in textile imports in Colombia, which can be linked to the enforcement of decree 307 of 2022. The decree has increased competition and opened Colombia's textile industry towards other countries.

US-Colombia Trade Promotion Agreement: Textile Elements

Key elements of the US-Colombia Trade Promotion Agreement: 

  • Tariffs: Colombian textile and apparel tariffs currently average 18.3 percent. Qualifying US textile and apparel exports to Colombia would receive duty-free treatment immediately upon implementation of the Agreement.
  • Textile Specific Safeguard: A special textile safeguard mechanism will provide for a temporary return to MFN tariffs if a surge in imports under the Agreement is shown to be causing or threatening to cause serious damage to domestic industry.
  • Rules of Origin: The Agreement contains a “yarn-forward” rule of origin, meaning that qualifying textile and apparel products must be produced using US or Colombian yarns and fabrics. This rule of origin ensures that the benefits of the Agreement accrue to US and Colombian producers.
  • Elastomeric Yarn Requirement: Consistent with other free trade agreements, elastomeric yarns must be sourced from the region for textiles and apparel products to qualify for duty-free entry.
  • Streamlined Processes to Address Commercial Availability: A special commercial availability (“short supply”) determination process will help yarns or fabrics that are deemed not commercially available in the region to be used in the production of apparel.
  • Customs Enforcement: Specific textile customs cooperation language will help prevent transshipment and circumvention of the rules of origin of the Agreement.

Source: Office of the US Trade Representative 

According to the WITS of the World Bank, the largest export market for Colombian textiles and clothing was obviously the US. The percentage of exports to other countries is relatively small, and is confined mostly to countries in the region including Ecuador, Mexico, Peru, Costa Rica, etc. Does Colombia plan to expand both exports/imports to other continents also?
Craig Dempsey: Yes, Colombia has been working on increasing its trade relationships with other countries and continents in terms of exports and imports. The government has been promoting investment and trade with other countries, including the United States, China, and Europe, to diversify its economy and reduce dependence on any single market. Additionally, Colombia has been working on expanding its presence in international trade agreements, such as the Pacific Alliance, on increasing access to new markets and opportunities.

Colombia primarily imports and exports with Latin America because of its geographic proximity and cultural and historical ties with the region. The countries of Latin America share many economic and political interests and have a long history of trade and investment relationships. Additionally, many of the countries in the region are members of regional trade organisations, such as the Pacific Alliance and Mercosur, which promote increased trade and investment between member countries. This makes it easier for Colombian businesses to trade with other countries and take advantage of the benefits of regional economic integration.

Several factors make it difficult for Colombia to export to different continents:

  1. Infrastructure: Colombia's infrastructure, particularly its transportation network, needs to be better developed, which makes it challenging to transport goods to other countries.
  2. Logistics: The country's complex import/export regulations and bureaucratic procedures can make exporting goods difficult.
  3. Market access: Colombia faces trade barriers in many markets, particularly in developed countries, which limits its ability to export products to those markets.

It's difficult to predict the future with certainty, but Colombia has the potential to become a more robust exporter. The country has abundant natural resources and a growing manufacturing sector, which can be leveraged to increase exports. Additionally, the Colombian government has been implementing various measures to improve the country's competitiveness and make it easier for companies to export goods.

However, the success of these efforts will depend on multiple factors, including the state of the global economy, trade agreements, and political stability. To become a more potent exporter, Colombia must continue improving its infrastructure, logistics, and trade regulations while addressing corruption and security issues.

Subir Ghosh

SUBIR GHOSH is a Kolkata-based independent journalist-writer-researcher who writes about environment, corruption, crony capitalism, conflict, wildlife, and cinema. He is the author of two books, and has co-authored two more with others. He writes, edits, reports and designs. He is also a professionally trained and qualified photographer.

 
 
 
  • Dated posted: 3 May 2023
  • Last modified: 3 May 2023
 
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