Exclusive Interview: The US Commercial Service Is A Vital Link In The Value Chain Connecting The US & Colombian Economies
Three years after the Free Trade Agreement was ratified and put into effect between the US and Colombia, both sides are already seeing tangible benefits. Vital in managing the trade relations between the two countries, the US Commercial Service works out of the United States Embassy in Bogotá, one of the United States’ largest, most important embassies in the world. Colombia is a principal US trading partner and the United States’ closest ally in South America.
Finance Colombia’s executive editor Loren Moss was recently able to sit down with Michael McGee, the Regional Commercial Counselor for the US Commercial Service, based out of the Embassy, to discuss the free trade agreement, and the services that the US Commercial Service provides to US companies seeking to do business in Colombia.
Finance Colombia: This embassy is gigantic; it’s one of the largest US embassies in the world, isn’t it?
McGee: Yes, it ranks up in the mega-embassies around the world, depending on what you talk about: number of agencies in them, or number of personnel, there are different ways to look at it, it doesn’t really matter. It’s just one of those top three to five or so embassies around the world, pretty much in any way that you slice it. And the US government tends to focus on having big regional operations so that they can support smaller countries around them. For instance, my office—I manage the operations in Panama, Peru, where we have offices; but I also manage what we call partner posts in Bolivia and Ecuador, so we have offices there as well, which are manned by the State Department. But our expertise and our services and administrative support for them is provided through our office here in Bogotá. I was in La Paz, Bolivia last week.
Finance Colombia: Oh, interesting, I didn’t know that, but that makes a lot of sense then, to do—kind of have—like a super embassy and then to do things remotely, especially when you go to smaller countries like Bolivia which have a smaller population and less economic activity, then you’d be able to support them.
McGee: That’s right.
Finance Colombia: That makes sense, so the commercial section is here to help promote investment, to help promote trade; so for a US company that has a product or service to export and they’re looking at maybe setting up operations or not even setting up operations but just opening up a new market, I think a lot of times they might not know where to start or when would it be appropriate for a company to contact the commercial section, and what kind of services are out there for US companies that want to look at Colombia. They hear a lot of things, they hear that Colombia is improving in a lot of ways, the economy is growing, it is now the third largest economy in Latin America, and so people have their eyes on Colombia. I run into this all the time, but they don’t know where to start. And they know their business, they know their product, but they don’t have a lot of experience in Colombia, they just hear that it’s a good place to do business. How can the commercial section offer them guidance in that respect?
McGee: They should immediately try to get in touch with us. We would always try to link in our domestic offices, we have a domestic network that is sort of a counterpart operation for our overseas side, we’re in about 80 countries and about 100 sites in the United States; and I say sites because sometimes a major city like New York or Los Angeles may have several offices just to make it convenient for them. We have all of these different networks, and they all work with the companies to help make sure they can get information without having to go overseas and they are about trying to assist, whether the particular market that they may be interested in, Colombia in this sense, would be actually a smart move for them. So we provide a lot of market information, you can go to our website, export.gov and the it would be forward slash Colombia in this case, and you can find general information about our markets, contacts…we just got through uploading our new country commercial guide which will tell you pretty much the contact information, how to do business in the country, what are the best prospects for you as exporters, how to invest, it will tell you the pitfalls as well as the opportunities, it’ll give you recommendations on that, and then of course it’ll link you back to the services that we provide.
We just had a trade mission that left from Automation Alley, which is around the Detroit area, we have one about each month, because this is a popular place, so that will bring in from five to ten or so companies, sometimes led by government officials or industry officials, and we’ll help them to set up appointments and be able to identify people that might be interested in doing a joint venture or representing them, or helping them to participate in government tenders. Sometimes they’re just exploring, they may be coming just to learn about the market. They’re not necessarily ready, they may be concentrating on a different market and they want to come in and learn about this since there’s an opportunity to come with the mission. We also work with a lot of individual companies, and we have some packaged, branded services that are fairly well known, but we try and we really endeavor to make sure that we customize as much as companies want. Every company has a little bit of a different way that they want to approach in their company’s philosophy for how they get into a market, and so we try to make sure that we will adapt what we’re doing for the company to make sure that it meets their needs and their strategies for how they get into it.
1,700 companies that were not exporting before the free trade agreement that are now exporting to the United States.
We’ve changed quite a bit over the last few years, particularly because we had free trade agreements in a lot of different places, and as you’re reading in the states, now there are several very important trade agreements that are being negotiated and a lot of those bring in along with them, not only just the elimination of tariffs and barriers, quotas, things like that, but they also create situations where we need to be working to help to make sure that these non-tariff barriers or regulations or different things that might be implemented by a country, new kinds of standards, labeling requirements, certification requirements and all these things that come into play when a country opens up its markets to the United States, those can be impediments for companies to try to work through.
I’ve always considered them as part of growing pains for a country. For instance, Colombia, before we had a free trade agreement with them, they didn’t have a lot of their institutions for customs, or their equivalent to the FDA or just a lot of different organizations and government that we’re involved in trade and doing business to bring the products into a country, they were very underdeveloped, and so therefore they might just recognize, for instance, an Underwriters’ Laboratory (UL) seal. Now as a free trade country, a partner in this, they had to create their own, and they had to harmonize over a certain period of time, so that brings into play—they may not be done in a very smooth and easy way, so we work with them, either through programs like with USAID or one of our other organizations like TDA, the Trade Development Agency, to help to try to smooth these out and work through some of these issues.
United States companies had to pay a very substantial tariff to get their products into Colombia before we had the free trade agreement, and that went away or has been slowly going away. About 80% of our tariffs were eliminated with the onset implementation of the free trade agreement, and so obviously that’s a big discount for our companies compared to an Asian company, or it could be an European company or somewhere else, perhaps in Latin America, somewhere else in the world, so automatically there was an advantage for our companies.
And so, compliance with agreements is something that, particularly with President Obama’s administration, he wants us to make sure that our agreements are working to our benefit and trying to make sure that we are—that our partners are following the agreement as it was negotiated and not as it was implemented, so those can be challenging and making us have to reach into work very closely with their agencies to make sure that an agreement doesn’t become an impediment for US companies.
Finance Colombia: Right, it’s interesting that you mention that because I’ve seen effects of how it’s benefitted Colombia. I like to watch the Congress Channel sometimes down here, and I was watching it and they were interviewing a farmer, and he was talking about how they have to produce a much higher quality of produce, because he said “Look, now we have access to the international market which is a good thing for us but we had to improve the quality of the products that we were producing because now, whether we sell it domestically or internationally, our produce meets international standards.”
I go into the grocery store, Surtifruver here in Bogotá and I see US pears and there’s a coordinated marketing effort. Just like people want French wines, people here want US pears and that seems to show successes on both sides that are obvious.
McGee: Yes, you know, one of the things that’s hard to measure, and you can see and it’s easy to talk about if you just look at the numbers because United States companies had to pay a very substantial tariff to get their products into Colombia before we had the free trade agreement, and that went away or has been slowly going away. About 80% of our tariffs were eliminated with the onset implementation of the free trade agreement, and so obviously that’s a big discount for our companies compared to an Asian company, or it could be an European company or somewhere else, perhaps in Latin America, somewhere else in the world, so automatically there was an advantage for our companies.
Now the US is an open market and we had special programs for Colombia for instance, and they benefitted very much from those programs but they were—they already had an open market, no quotas, almost zero if not zero tariffs for most of the products they sell to the United States, so therefore what’s the margin? They’re not going to see a boost in theirs, but you know what, when you talk to the companies here, they’ll tell you that having the security of a free trade agreement, because it’s a treaty, and it’s an agreement that’s not going to have to be renewed unilaterally by the United States on an annual basis, and I can tell you about some of the countries now, we have—out of my five countries, three of them are free trade agreement countries, but countries that don’t have a free trade agreement and that are looking for getting their products into the United States through utilizing GSP, General System of Preferences, which gives them an advantage on tariffs of getting their products in, they can’t be competitive if they don’t have those.
So they’ve got this now, all that goes away, they don’t have to worry about an annual basis in which congress, which could be debating and say “you know, we’re not going to renew this benefit program,” so they’re able to say “Ok, you know what, I’m going to—now I know that this is going to go on, I can make a five year plan, I can invest in modernizing my production capacity, or expanding my production capacity for whatever product that I’m exporting or producing here locally, so there’s a huge benefit for them, but that’s not an easy benefit to measure, that peace of mind and the security that they’re able to continue to do business without having to worry whenever that deadline comes and all of the sudden, “well, am I going to be able to be competitive in the US market, or even have access to the US market anymore after this?” With the free trade agreement they don’t have to worry about that.
As we we’re growing up we knew Colombia for coffee. Well, Colombia now wants to be known for high quality cacao…chocolate.
Finance Colombia: That’s a great example, because when companies look at making capital investments, you look at the tremendous investment that US companies have made in Mexico. I was in Monterey in all the factories, and high tech factories too, making plasma TVs and making cars, and things like that, and you look at the companies that are coming into Colombia and making those long term investments because they know that they have that stability of that treaty versus just kind of a “we’re going to give this to you as a favor, but know we have a bilateral agreement,” and also I think that the other benefits that are in comprehensive free trade agreements.
I know, for example, NAFTA has NAFTA Visa provisions, I would imagine that the agreement with Colombia does too, and different things that make it easier to do business between the two countries that go even beyond simply the reduction of tariffs or tariff stability, and I think that as Colombia tries to diversify its economy from being so dependent upon petroleum, and even coffee is still a significant part, but as they try to move up the value chain with professional services and with manufacturing and that kind of thing, it can only help because even where Colombia wasn’t benefiting before it’s because they were not yet exporting a lot of high value products, as they’re trying to develop a strategy, as the government has said that it wants to do. Now that kind of connects as an accelerant or a catalyst to help them do that, which of course benefits us in the United States as well.
Have there been any particular success stories or cases that you can refer to as far as companies that have been able to really take advantage of the free trade agreement and establishing their presence here in Colombia?
McGee: I think that probably the best examples are, I want to say 1,700 companies that were not exporting before the free trade agreement that are now exporting to the United States. That’s a pretty significant number. I think probably the biggest area has been in the agricultural sector. And we have seen—we were doing some research recently and we went up to visit several companies who had been involved in the free trade agreement and they had all talked about having—they had access, but they now have the security and they have expanded their production capacity already because of the free trade agreement, because they knew that they were going to be able to move into different areas. One of them was a chocolate factory that we both visited not too long ago, and this company, they’re producing the high end, they’re not producing, you know, just some old chocolate bars, they’re producing for the gourmet market in the United States as well as in Europe, and they’re competing and so they’re investing in the research and development capacity of the country, even over their own competitors, to raise the quality of the crop of the cacao. That’s having a huge impact on the country. As we we’re growing up we knew Colombia for coffee. Well, Colombia now wants to be known for high quality cacao—chocolate, and so they’re moving pretty much into that area. We learned as we were talking to them, and beginning to look into this, that there are parts of the country where the combatants and hopefully soon to be ex-combatants live, or are located, that are ideal for the production of cacao, so this is a good substitute crop for coca.
Finance Colombia: Over in Arauca or down there by the Ecuador?
McGee: Exactly, as global warming is having its impact, coffee is set to move further up the mountain side. Now, that area where those crops left is perfect—a perfect place for cacao. So it’s a response even to the global warming trend, it’s had a massive impact on the environment, on employment, on crop substitution, it’s much more than just simply making a nice quality product that the country can export, it’s having a multidimensional impact, now part of that is the free trade agreement,
But that’s not all, that’s just having a different mentality about looking at how you are, or how you want to do business, it’s not about just selling inside the country. The country on the other hand, has real serious challenges on infrastructure, how to get from one place to the next, and that’s making it difficult for Colombia to take full advantage. It’s an impediment to their competitiveness, and they have a major project, infrastructure project…
Finance Colombia: 4G
McGee: Exactly, that they recognize it’s really important for the future of the country because it’s very difficult to get a lot of the production capacity and a lot of the products, either from the port to the interior cities in Cali, Medellín, and Bogotá. Hopefully when the peace agreement is finalized it would make the availability of a lot of farmland and a lot of capacity for production increase dramatically.
That’s what so many people don’t understand, that free trade agreements give a lot of benefits to US companies to work on an open, leveled, fair playing field to do business, and that is really good for everybody because that brings along our commercial values: we believe in transparency, we believe in entrepreneurship, we believe in fair play, we believe in respect for intellectual property, those are American commercial values and wherever we go we try to make sure that those get emulated and get implemented to the best way possible.
Finance Colombia: Exactly, in my role as providing analysis, I always say that one of the biggest impediments in Colombia has been the ground infrastructure. Colombia is blessed with these beautiful mountains but these beautiful mountains are also very hard to get around in.
McGee: They are.
Finance Colombia: I would imagine that you probably see a lot of instances where companies can get valuable guidance from the commercial section if you’re going to do business down here. Obviously you can’t be their law firm, but you say “these will be some of the things that you will need to look at and consider as you do your due diligence,”
McGee: Oh, yes.
Finance Colombia: And you guys offer that kind of service?
McGee: Very much so, that’s very much of our bread and butter, of trying to talk to US companies as they may begin to make their contacts, negotiations with different people, with different businesses and trying to set up their operations here, or select a methodology for how they’re going to enter the market, very much knowing these details, and we have, as you know, local staff who are very much experts and are well connected and understand very much how the host country, or in this case, the Colombian government, how their industries work, and I like to say that it sort of the personalities of the industries because some industries are much more fast moving, so much more complicated, and some are very much more difficult, or maybe easier to try to set up your business and how you’re going to do that. But understanding what kind of commission rates, are prevailing, what to make sure that you put into your contract or your representation agreement; you know it’s very important to know what kind of structure and relationship you have and what kind of clauses you put in there for performance or for non-performance,
How you, and even if you don’t have to deal with, but you must understand how the tax structure functions because it’s not uncommon for us to get a call from somebody that says “hey, my representative, my distributor, or my partner, they won’t pay me, they said that because there’s some tax issue or some—or they can’t get money from the bank,” or something, and it’s like “well wait a minute, but there is no impediment,” or that kind of thing. So we’re here, and especially our local staff, are here to be able to answers those kinds of questions. But something that I think is really important, to kind of go back to part of what you’re focusing on, the free trade agreement, our free trade agreements are a lot more than just saying “let’s reduce tariffs,” or “let’s reduce certain types of quotas or certain restrictions on this,” our agreements are almost universally, increasingly more sophisticated. We’ll say “You must respect intellectual property,” which is probably one of the United States’ most valuable assets, and so for us to say: you have to implement laws that make stealing somebody’s intellectual property a criminal offense and you must enforce it and you must set up the bodies to do that, and that’s what we do: It’s monitoring whether or not those things are going on. You must streamline the process for setting up business, for instance. These are all good things for the locals, as well as they are for our companies, because when it’s more efficient to do business here more business is done and more the business more jobs that are created,
Finance Colombia: And their economy grows.
McGee: Exactly, all these things, and so the free trade agreements are pretty much the catalyst for all of those kinds of development, for regulatory and legal frameworks and governmental bodies that maybe didn’t work or were working to favor special interest groups instead of being fair and open. So when we work in negotiating those free trade agreements and when they’re signed and ratified and then go into effect, then we have a tool to say “here, you have to do this,” or you know “here’s the consequence for this,” we now have instead of us saying “Ok, we understand, we feel sorry that this or that, we’re going to give you all of this and we don’t get anything In return.”
That’s what so many people don’t understand, that free trade agreements give a lot of benefits to US companies to work on an open, leveled, fair playing field to do business, and that is really good for everybody because that brings along our commercial values: we believe in transparency, we believe in entrepreneurship, we believe in fair play, we believe in respect for intellectual property, those are American commercial values and wherever we go we try to make sure that those get emulated and get implemented to the best way possible. It doesn’t mean that the US is always going to beat the German company, or the Japanese, or a Chinese company, or another American company, or a local company, but it does mean that you’ve got an environment in which you can be predictable, you can understand what’s going to happen, you can understand the consequences, you have legal bodies, arbitration… Arbitration is very often a part of our free trade agreements and how we’re going to get fair treatment instead of being manipulated or being in a situation where it’s not a real clear and transparent environment to try to do business.