Market Screener | 1 October 2020
First-generation free trade agreement between Colombia and Israel
by José Francisco Mafla, Partner, Brigard Urrutia, Bogotá
The long-awaited free trade agreement (FTA) between Colombia and Israel is finally in force. Even though the negotiation process began in March 2012, the FTA was signed in September 2014 after five rounds of negotiations, which ended on June 2013. However, it took eight years before the agreement finally came into effect for both parties on 11 August 2020.
The foreign trade volume between the parties has traditionally been very limited, especially because their trade relationship has been based mainly on coal exportation. In 2019, mining products represented 92 per cent of Colombia’s total exports to Israel, while (in the same year) Israel exported to Colombia mainly machinery and equipment, agrochemical fertilisers and chemical products and plastic resins, among others. For instance, Colombia’s positive trade balance with Israel of US$281m for the year 2019 should be noted, considering that Colombian exports to Israel (US$366m) were four times greater than Israeli imports into Colombia (US$85m).
This FTA is acknowledged as a first-generation agreement since it incorporates various provisions that are not limited to international trade in goods. In particular, the treaty seeks to create better conditions for the exchange of goods, services and investment and refers to topics such as market access, rules of origin, customs procedures, technical barriers to trade, sanitary and phytosanitary measures, trade remedies, services, investment, public procurement, technical assistance and trade capacity building, among others.
One of the main benefits of the FTA is that 99 per cent of the industrial goods exported from Colombia to Israel are now exempt from the payment of tariff duties. This is expected to increase Colombia’s exports of petrochemicals, cosmetics, cleaning utensils, textiles, clothing, jewellery and auto parts. Additionally, this could be an excellent opportunity for the Colombian industry to supply products that are attractive to the Israeli market such as petroleum oils, medicines, tires, ceramic plates, iron or steel laminates, furniture and toys.
Likewise, 97 per cent of Colombia’s agricultural and agro-industrial exports to Israel are also exempt from the payment of tariff duties. As a result, this will benefit merchants who currently export to Israel products such as candy, chocolates, bakery products, fruit; jams, caramelised sugar, beverages (dairy, energy etc), beer, ethyl alcohol and rum. Also, it is expected that these benefits will encourage the exportation of products such as fresh flowers, beef, confectionery, dairy products and processed foods. For this purpose, Colombia has initiated efforts to achieve sanitary access, considering that certain products that the country has the capacity to export, such as pineapple and mangoes, require prior sanitary approval by the Israeli authorities.
It is important to note that this is the first FTA in which Israel includes commitments in trade in services and investment. Provisions on financial services, telecommunications and the temporary entry of those providing services were included. Furthermore, the agreement prohibits quantitative restrictions in terms of assets, operations, employed personnel and arrangements to improve the recognition of professional titles and licenses, among others.
In addition, one of the FTA’s goals is the increase of Colombia’s non-mining energy exports, to add value and diversify the exportable supply.
Ultimately, the FTA establishes a schedule for the gradual reduction of customs duties which foresees that all remaining goods will be exempt from such payment within an established time period of up to ten years, as from the date of implementation of the FTA. In this sense, this agreement represents an opportunity for the parties to explore new markets and foster the creation of new value chains. It is expected to boost cooperation between both countries and to increase and diversify foreign direct investment.