June 11, 2012

Benefit from the United States – Colombia Trade Promotion Agreement (CTPA)

By Jana Aristizabal, Senior Manager, Tax & Business

Benefit from the United States – Colombia Trade Promotion Agreement (CTPA) Tax & Business

The United States – Colombia Trade Promotion Agreement (CTPA) became effective on May 15, 2012 after more than 5 years of being signed by Deputy U.S. Trade Representative John Veroneau and almost six months after The U.S. Congress passed it on October 12, 2011. The Agreement had been delayed by the US congress due to concerns of violence against trade union leaders in Colombia.

The implementation of the CTPA levels the playing field for American exports, particularly in Florida where according to the US Department of Commerce, over 90% of Colombian products entered the US market duty-free in 2010, while U.S. merchandise entering Colombia faced tariffs averaging 9%. The CTPA removes several trade barriers to US consumer and industrial goods into Colombia, with over 80% of American goods entering duty free into Colombia immediately with the remaining tariffs to be phased out within 10 years.

Reduction of these trade barriers for US exporters will create a more stable and transparent business environment and will make it easier and more affordable for US companies to export their products and services to Colombia.

Colombia is the third largest economy in Central and South America and the strongest US ally in the region. The Colombian people purchase more U.S. consumer goods than Spain, and Russia, however the U.S only supplied 29% of Colombia’s imports. Colombia’s agricultural imports from the US have fallen from 44% in 2007 to 21% in 2010, and upcoming trade agreements with Europe threatened to cut that share even more.

Key points regarding the CTPA from The Office of The United States Trade Representative.

  • The International Trade Commission (ITC) has estimated that the tariff reductions in the CTPA will expand the export of U.S. goods alone by more than $1.1 billion, supporting thousands of American jobs.
  • The ITC projects that the CTPA will increase U.S. GDP by $2.5 billion.
  • The CTPA will provide significant new access to Colombia’s $166 billion services market, creating new opportunities for service providers in the United States.
  • Key U.S. exports will gain immediate duty-free access to Colombia, including almost all products in agriculture and construction equipment, aircraft and parts, auto parts, fertilizers and agro-chemicals, information technology equipment, medical and scientific equipment.
  • More than half of current U.S. farm exports to Colombia becomes duty-free immediately, including wheat, barley, soybeans, high quality beef, bacon, almost all fruit and vegetable products, wheat, peanuts, whey, cotton, and the vast majority of processed products.
  • The CTPA also provides duty-free tariff quotas (TRQ) on standard beef, chicken leg quarters, dairy products, corn, animal feeds, rice, and soybean oil.

Other benefits of the CTPA include expanded access to service markets. The government of Colombia expands substantial market access across the entire services sector. Colombia has agreed to eliminate regulations that prevented U.S companies from hiring U.S. professionals, and has also agreed to provide improved access to U.S. suppliers of portfolio management services. Service industries from consultants, investors to attorneys are expected to gain from the passing of this agreement.

The CTPA will open doors and provide a multitude of opportunities. Free movement of goods and services between these two democratic countries will solidify the American/Colombian business partnership and make two allies stronger together.

Should you have any questions related to this agreement or any other international topic, please contact your Marcum International Tax Advisor.

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