August 22, 2011

International Trade Update: Canada-Colombia Free Trade Agreement Implementation

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Canada's latest free trade agreement provides unprecedented market access and investment protection in a South American growth economy rich in energy and natural resources. On 15 August 2011, the Canada-Colombia Free Trade Agreement (CCOFTA) entered into force, as Canada's ambitious free trade agenda in the Americas took another step forward. The announcement of the entry into force of the CCOFTA took place during Prime Minister Harper's Latin American tour while the government was affirming its focus on expanding Canadian trade ties beyond a United States burdened by the global economic crisis.

The CCOFTA was originally signed in 2008 to liberalize trade between the two countries, which in 2010 amounted to $1.4 billion in merchandise alone. Colombia is the fourth largest economy in Latin America, with a population of over 45 million people. In recent years, its top exports to Canada have been oil, coal, coffee, bananas and cut flowers; while Canada has supplied Colombian markets with wheat, barley, vegetables, paper products and heavy machinery and equipment. The oil and mining industries are drivers of the Colombian economy – petroleum, natural gas, coal, emeralds and gold are major natural resource products. Colombia's oil exploration and production has been on an upswing since 2007 and this growth is expected to continue into the future.

Impact of the CCOFTA

With the entry into force of the CCOFTA, Canadians will have significant and preferential access to this market. Exporters and importers of goods can take advantage of the elimination of tariffs on the majority of goods currently sent between Canada and Colombia. The vast majority of non-agricultural tariffs will be eliminated immediately, with phase in periods on most other goods. The CCOFTA will also result in the reduction of non-tariff trade barriers, such as technical specifications for products and sanitary and phytosanitary measures. The cross-border supply of services will be governed by predictable rules and guaranteed fair and equitable treatment. Temporary entry to Colombia for various service providers and other business persons will be made easier under special immigration procedures. Procurement for goods, services and construction by the Colombian government and many of its agencies has been opened up to Canadian suppliers on a non-discriminatory and transparent basis above certain threshold amounts.

Investment Protection under the CCOFTA

For Canadians having or contemplating direct investments in Colombia, the CCOFTA provides a comprehensive investment protection regime that will be familiar to those acquainted with Chapter 11 of the North American Free Trade Agreement or Canada's Foreign Investment Promotion and Protection Agreements. The investment chapter of the CCOFTA provides that Canadian investments in Colombia will be granted fair and equitable treatment with full protection and security and will be accorded no less favourable treatment than Colombia grants to its own investors or investors of any other country. It also provides that an investment will not be expropriated except in a non-discriminatory manner in accordance with due process of law with prompt and adequate compensation. The expropriation provisions cover both traditional "direct" takings and so-called "indirect" or "creeping" expropriation, which results from a measure or a series of measures by a government that have an effect equivalent to direct expropriation without a formal transfer of title or outright seizure of the investment. An investor-State dispute resolution process is provided for in the event that the investment is not provided the protections set out in the CCOFTA. Through this process, a Canadian investor can challenge a Colombian measure through binding international arbitration instead of relying on the Colombian local courts.

Opportunities in Colombia

A key opportunity for Canadian businesses, particularly in the oil, gas and mining sectors, is to insert themselves into supply chains for the Colombian market, or to add Colombian products into their own. With the attractive export/import environment, Canadians supplying materials, machinery and equipment to Colombia, and vice versa, have a marked advantage over US suppliers and importers, as the US-Colombia free trade deal continues to be held up politically. Canadian expertise in these areas can be leveraged more efficiently with the liberalized supply of services regime and the enhanced ability for consultants, engineers and other professionals to enter Colombia on temporary visas. The investment protection rules mean that Canadians can rely on a predictable and rules-based investment regime that will protect them when making direct investments in Colombia. All told, the CCOFTA will make business easier for Canadian firms currently in Colombia and opens up potentially profitable new avenues for those looking to expand or diversify their markets.

For further information on the CCOFTA, the impact on your business or for any other international trade issues, contact Mark A. Russell at 709.570.5575.

This Cox & Palmer publication is intended to provide information of a general nature only and not legal advice. 

Cox & Palmer publications are intended to provide information of a general nature only and not legal advice. The information presented is current to the date of publication and may be subject to change following the publication date.