The Results of Free Trade Are Worse Than Expected

(Translated by Emily Schmitz, a CSN Volunteer Translator)

Source: TLC al Desnudo

Report 3: Although the Government tries to hide it, the results of free trade are worse than expected
February 20, 2014

2013 Alternative Information System Report, SIA
The following document presents an analysis of the principal commercial indicators in Colombia in 2013. The results of commercial exchange are based on export and import data, published by DANE between February 14 and 18 of this year. The document is divided into two parts: the first part analyzes exports and imports, and the consolidated commercial balance of 2013; the second part comments on the official declarations of the National Government.

  1. Analysis of consolidated foreign trade performance in Colombia:

Foreign trade in Colombia during 2013 shows worrisome results. The consolidation of the negative tendencies observed in the monthly DANE reports shows that Colombia experienced a 45.5% commercial net loss, dropping from US$4 billion to US$2.199 billion. These are alarming results, seeing that, between 2011 and 2012, commercial surplus fell by 24.74%. This meant that, during two consecutive years, Colombia´s commercial advantage fell by 58.95%, corresponding to a fall, in monetary terms, of US$3.158 billion.

Industry Crisis

The crisis in the industrial sector fundamentally explains the previously mentioned reduction of the fiscal surplus. In 2013 this sector increased 7% in comparison to the rest of the world, which signified an increased the balance of the saldo en rojo balance in the red by US$2.032 billion. As seen in Table 1, clothing and garment production was one of the sectors that performed the worst, with a fiscal balance dropping from US$18.500 billion to US$-77.480, nose-diving 518.8%. Sectors that performed equally as bad were the petroleum refining sector (-392.9%) and the sugar refinery and engineering (-38.5%).

While trade balance in the mining-energy sector increased 0.54%, the rest of the sectors fell 6.72%, reinforcing productive specialization in the extraction sector and reflecting the abandonment of the industrial and farming sectors across the country.

The US-Colombia Free Trade Agreement, from bad to worse

Analyzing commercial exchange between countries, it can be seen that the country that has most contributed to the fall of the trade surplus was the United States which, in 2012 represented US$8.250 billion and in 2013 had fallen to US$2.777 billion, corresponding a decline of 66%. The free trade agreement signed into place almost three years ago reduced surplus by almost one third. If the balance is averaged over the last three years, it calculates a 68% drop, equaling a loss of more than US$5,800 billion.

Canada and Europe: the other Free Trade agreements

Additionally Colombia has a valid trade agreement with the European Union, falling from US$2.018 billion in 2012 to US$1.624 billion in 2013 — a 20% decrease in surplus – and the free trade agreement with Canada resulted in a 10% decline. The impacts of these agreements, far from benefiting foreign trade, have instead been deeply debilitating for the country.

Pacific Alliance agreement will be the Colombia´s worst free trade agreement

Trade results with Pacific Alliance countries stand out: while trade surplus with Chile diminished 43%, and Peru recorded a negative 37% fall, surplus with Mexico increased by 18%. This shows that not only was the added deficit not compensated for, but also that commercial advantage with Peru and Chile was lost. It is expected that signing the trade agreement will not significantly change these results, due to the fact that said countries already have existing tariff preferences. The effects of this agreement could be increasingly harmful for some agricultural crops, including white corn, pig meat, and sugar, as already reported by the SAC. The agreement is also expected to weaken the industrial sector, specifically including the automotive sector, a tendency already predicted by automotive representatives themselves.

More is bought than sold

An analysis of exports and imports in the core countries of this study show that most of them have experienced a greater increase in exports than imports. External sales with the United States, for example, have diminished by 15.5%, while purchases have increased 14.7%.   Of the fourteen products that have seen a reduction in exportations, twelve are part of the industrial sector, and two are associated with the mining-energy sector.

Looking at the exportations of each specific product sheds light on the manner in which trade surplus has declined. While the external sale of primary products increased 0.9%, the sale of industrialized goods declined 2.7%, which contributed to 0.7% of the overall 2.2% fall of total exportations. Two sectors which stand out include natural resources manufacturing, recording a decline of -7.2%, and basic technology, recording -9.8%. Of the sectors worst hit, the textile sector recorded -13.4%, and garment and clothing fabrication recorded -13.2%, while the automobile parts fell 15%, signifying a commercial crisis in both sectors. In general, exports diminished principally due to low sales in the industrial sector (-6.4%) and miniscule growth in agriculture (0.5%) and mining (0.4%). In turn, non-traditional goods fell 4.9%, and traditional goods fell 1%. This data shows that, while exportations have been weakened due to the mining-energy sector, their decline is tied to the other remaining sectors, reflecting clear symptoms of a productive and commercial crisis.

In 2012 importations increased 0.5% in 2013 due to a 9.4% purchasing increased on extractive industry goods and combustibles, and a 9% increase on industrialized goods. Non-durable consumption goods, such as nutritional or clothing, among others, increased 2.2%, and external demand for capital goods decreased 0.1%. This data reflects the current exportation and economic situation seen throughout the country: as the industrial sector undergoes a period of contraction, it generates less incentive to repair machinery and equipment, resulting in the replacement of national goods for foreign goods.

The sectors where this commercial effect, denominated Commercial Devastation, is most deeply felt is in the clothing sector and the machine and electronics fabrication, which respectively recorded 2.6 and 3.6% increase on importations.

Detailed analysis of trade performance in Colombia such as this questions the National Government’s positive response and prognostic. Not only was trade surplus cut almost in half in 2013, but strategic sectors of the industry also severely weakened. But official expectations quickly faded as trade performance worsened after consecutive agreements were signed into place.

The fundamental explanation lies in the declining pace of the industrial sector, recording a drop of 1.9% — nine times more than expected – despite a devaluation rate of 5%. Guillermo Rodríguez, spokesman of Proindustria, argues that it is not the dollar that is responsible for industry setback, ‘but the lack of protection from the State, now no longer capable of competing with foreign industry.´ This has been felt in the mining-energy sector, for example, which has suffered from international demand and commodity prices. Despite these results, it is not possible to infer that trade is exclusively tied to the demands of emerging countries alone. In the words of Eduardo Sarmiento, ‘national prices succeed international prices in the majority of industrial and agricultural activities. This has been confirmed by the farmers’ strike and the closing of various automobile assemblage plants.’

Structural problems of the national economy are fundamentally caused by the growth of free trade. It needs to be better understood that trade involves worldwide competition between countries, and the biggest countries will protect their productive apparatus, meaning that comparative advantage is not always fully achieved. The trade vulnerability of Colombia is worsened by a revalued exchange rate and an account deficit that increased to 3.4% GDP in 2012 and in 2013 was estimated to be 2.8%. It was also predicted by the ANIF, the National Financial Institution Association, to reach 4%, the highest rate in history.

It is expected that, in the following years, the negative tendency of the trade surplus will continue and even grow worse. The elimination of the expansion of the United States currency will have notorious effects on inflation, a pronounced decrease on working class salary, and increase the interest rate.

  1. The Government has not recognized poor trade results, and has mistaken its diagnosis:

The National Government has not made official statements that clearly and effectively respond to trade performance; the only response has been a bulletin published by the Industry and Trade Ministry and a Twitter statement made by President Juan Manuel Santos.

Both of these statements have shown ambiguity regarding Colombia`s external trade performance in 2013. Not only have false conclusions been made, the government has offered misguided diagnosis to the problem.

A web bulletin published on the Industry and Trade Ministry webpage indicates that, ‘the weakest exports, at the end of 2013, can be fundamentally explained by the weakened exportation of coal and gold, affected by international prices. Coal, for example, has also been affected by internal factors such as protests and temporary shut-downs, which have reduced exports’. The fundamental cause of this poor performance is the weakening international price of gold and coal along with declining sales; additionally, the bulletin does not say one word about the industrial or agriculture sectors.

As has been demonstrated, these results can be explained by structural causes and also by the current surrounding environment. If the analysis provided by the ministry were to be true, how can a 69% increase on exports of combustibles and mineral oils to China and a 123% increase to India be explained, given these are considered emerging countries which exhibit the greatest international demand. The strange thing is that external demand of mining-energetic goods in both of these countries has increased in almost all key areas.

For his part, President of the Republic, Juan Manuel Santos, wrote on his Twitter account: ‘how great it is that the industry began to grow again in December and that trade widely surpassed growth from the same month one year ago’. The Yearly Manufacturing Poll shows that industry growth in 2013 was negative (-1.9%) and growth in December did not offset the three year industry debacle. In turn, as presented in the present report, the consolidated results of 2013 are not favorable. In December, 2013 the country’s surplus was cut in half, and Santos insisted in decorating the results.

An official announcement of the results will have to be awaited that includes more elaborate and serious analysis. Trade tendencies in Colombia are worrying, and require changes in exterior politics; if it remains like it is, in a few years, President Santos will have to explain how the country arrived at a commercial trade deficit.

The Alternative Information System, SIA has conducted a detailed analysis based off the partial results of the first few months of 2014.

Table 1.






Trade Balance


Percentage change

Description 2013p 2012p


 Total 2 199 820 4 032 758 -45.45%
Agricultural Sector 320,744 203,092 57.93%
Fishing 11,898 10,598 12.27%
Mining Sector 34,226,152 34,041,645 0.54%
Industrial Sector -32,456,526 -30,314,306 -7.07%
Sugar refining and engineering 182,933 297,501


Textile manufacturing -927,585 -955,622 2.93%
Garment and Clothing manufacturing -77,468 18,498 -518.79%
Wood product transformation and manufacturing -200,970 -183,856 -9.31%
Petroleum refinery products manufacturing and Petroleum coke -1,331,794 -270,169


Electronic Apparatus and Machine Manufacturing -1,392,077 -1,331,910 -4.52%

Source: Dane, compiled by authors.

(This translation may be reprinted as long as its content remains unaltered and the source, author and translator are cited.)

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