October 18th, 2011
07:57 AM GMT
Hong Kong (CNN) – Colombia’s free trade agreement with the U.S. creates opportunities for Chinese businesses getting squeezed out of the North American market by the ongoing trade disputes between the world’s two largest economies.
For China, this is the opportunity to get goods relabeled as Colombian and enter the U.S. with zero tariffs. And as businessmen think about the new possibilities, many are rushing to rewrite business plans.
“The Chinese have their eyes on Colombia because it is the bridge they need to reach the U.S.,” José Antonio Mutis, Colombian Consul General in Hong Kong, told CNN.
There are still few details on how a final product can be considered South American. For now, officials only have a rough idea.
“With around 35 to 40% of the value of a product added in Colombia, it may be considered Colombian and enter the U.S. tax free,” an official at the trade office of the Colombian Embassy in China told CNN.
“We’re working in, for example, pipes for the gas and oil industry,” the trade office official said. “The U.S. imposed safeguards [on China] in the World Trade Organization to protect its national industry.”
China and the U.S. have been involved in a trade dispute over steel products for more than a decade. Chinese products have to pay import duties that make them uncompetitive, measures which China denounces as heavy handed.
According to the Colombian trade office, an unnamed Chinese company is already looking for land to set up a new pipe facility in Colombia.
There are many steps when ironing out the details of an FTA, after congressional approval by all parties. Mexico has been a pioneer in Latin America, and has had a free trade agreement with Canada and the U.S. since 1994 called NAFTA.
Andrés Peña, former Mexican consul in Hong Kong, said one of the most important aspects of an FTA is around the “rules of origin,” which stipulate the criteria under a product can carry the “Made in...” mark. This is to avoid simple triangulations that would flout the trade rules of an importing economy.
“This doesn’t mean that all of a sudden there will be a flood of products from one country, this is not the success of an FTA,” Peña said. “[It’s a] magnet to attract foreign investment, like many that came to Mexico to re-export, in accordance with rules of origin.”
For the Colombians, the investment magnet has one region in mind. “The president’s priority is the Asia Pacific region,” Mutis said.
On the back of the free trade agreement, one businessman quickly changed business plans. Around half a year ago Luis Guahuna, a Colombian apparel entrepreneur, started negotiations with Erke, a Chinese footwear and sports apparel brand.
He recently obtained the license to sell Erke sportswear in Colombia.
“We discussed with Erke’s management partnering to build a plant, to manufacture their products in Colombia and distribute them in Latin America and, later, in the U.S. with zero tariffs,” said Guahuna, head of Hong Kong-based Prolinks, a company manufactures high-end clothing in a joint venture in east China’s Ningbo city.
Guahuna also senses that one market may not be enough as long as the North American economy remains weak. He’s also looking at opportunities for his future venture beyond the giant economy to the north.
“Exporting from China [to Brazil] is becoming a headache due to all the restrictions, tariffs, laws and complications,” Guahuna said.
In footwear, one of the most contentious exports from China and a large proportion of Erke’s business, having goods produced in a different country is an added value for its global operations, Guahuna said.
“Erke needs to create partnerships in Latin America,” he said. Brazil is a huge market as well, Guahuna explained. The South American giant imposes no safeguards on neighboring Colombia’s products.
So Guahuna, and his Chinese partners, are looking to double returns from a single bet.
And he has the U.S.-Columbia free trade deal to thank for that.
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