(Inside US Trade - Date: February 24, 2006)

U.S. Trade Representative Rob Portman this week predicted that the U.S. and Colombia would be able to bridge their differences in negotiations for a free-trade agreement "soon," and other sources predicted that the U.S. and Colombia may only go one or two days beyond their target date of Feb. 23 for concluding negotiations.

In a Feb. 22 press conference, Portman said it is in the U.S. interest to expand an FTA with Peru to include Colombia and other Andean countries. He said he was hopeful that an FTA with Peru, Colombia and Ecuador could move through Congress together.

Portman said negotiations advanced during a visit to Washington by Colombian President Alvaro Uribe last week but that the two sides are still trying to resolve their differences on sanitary and phytosanitary and market access issues.

On SPS, Colombia is looking for assurances that its fruits and vegetables can speedily move through the U.S. approval process. This includes having the Environmental Protection Agency set limits for acceptable pesticide residues for fruits and vegetables (Inside U.S. Trade, Feb. 10, p. 1). At press time, the two sides were still negotiating on the SPS issues.

Other sources said this week that the two sides were still at odds over agriculture market access issues, as Colombia is resisting U.S. demands on market access for U.S. rice, chicken hindquarters and corn exports. It was unclear at press time whether the two sides had discussed Colombia's demand for sugar access this week.

During his visit, Uribe floated the idea that there may be a way for both sides to conclude the FTA and still accommodate each other's sensitivities, according to informed sources. He suggested that the U.S. would be able to provide only limited access to its sugar market for Colombian exports and in exchange would scale back its demands for market access in Colombia for rice and chicken hindquarters, they said.

An exclusion of sugar from the deal or minimal concessions would meet with resistance from a number of U.S. business, agriculture and agri-business groups, according to a Feb. 16 letter they sent to Portman. The letter referred to reports that an FTA with Colombia might not cover sugar and other products in a "commercially meaningful" manner.

"We strongly oppose such a result and believe that any final trade agreement with Colombia must be comprehensive, with no sector or sub-sector exclusions, and that the liberalization in each sector or sub-sector must be commercially meaningful and address existing market access barriers and not just provide token liberalization," the letter said. The letter was in the works before Uribe made his comments about a possible trade off on sensitive products, according to business sources.

The letter has 36 signatories, including the Emergency Committee for American Trade, Altria Group, the Business Roundtable, Campbell Soup Company, Mars Incorporated, the Corn Refiners Association, and the National Corn Growers Association.

On rice, Colombia is demanding that it retain the right to invoke a safeguard if imports reach a certain volume and if prices drop to a certain level even after the tariff-rate quota (TRQ) has been phased out. By comparison, the FTA the U.S. negotiated with Peru allows a volume-based safeguard set at different levels for different commodities and which can be invoked for a limited time. That time begins when the reductions of over-TRQ tariffs start and ends when the tariff phase out is complete (Inside U.S. Trade, Jan. 6, p. 1).

One informed source speculated that the U.S. does not want to allow Colombia to restrict its market access for rice partially because it does not want to set a precedent for the FTA it wants to negotiate with Korea. If Colombia is allowed to maintain restrictions, similar Korean demands would be strengthened.

On chicken hindquarters, Colombia this week tabled a proposal that would foresee a TRQ with a 20-year phase out and a review in year nine on whether it is feasible to open its market completely, according to informed sources. Alternative to a complete market opening, the Colombian proposal would foresee a gradual increase in the size of the TRQ, according to informed sources.

This Colombian language is stronger than a provision included in the Peru FTA which foresees consultations and a review of the implementation and operation of the FTA in year nine on trade in chicken.

But the U.S. negotiators rejected the Colombian proposal and were not willing to even agree to language mirroring the Peru FTA, one informed source said. The source speculated that this U.S. response was partially strategic since the negotiations had not reached the point of dealing with the most sensitive issues.

On corn, the two sides are fighting over the way the Colombian government will decide which Colombian companies are eligible for certificates needed to import under a proposed TRQ. Colombia wants to give these import certificates to those companies that buy the most domestic Colombian corn, but not create an exact equivalence between imports and domestic purchases.

In addition, the two sides are fighting over future beef access, even though Colombia cannot export beef now because the U.S. does not recognize it as free of foot-and-mouth disease, sources said. Colombia wants a separate TRQ for its beef while the U.S. says it can only expand country-specific access for Colombia after it has filled the TRQ for beef negotiated in the World Trade Organization, according to an informed source.

The current negotiations resumed on Feb. 14 and the two sides have concluded the chapter on investment, as well as textiles, which some sources said falls short of initial Colombian demands. For example, the textile chapter does not give Colombia the right to buy elastomeric yarn from third countries as it had demanded. Instead, it has to be made in the U.S. or the Andean region, they said.

The textile deal does not include the flexibilities Colombia had sought through tariff preference levels or through so-called cumulation, which is the use of fabric from other countries with which Colombia or the U.S. have an FTA. The text as it now stands foresees no immediate cumulation, but holds open the possibility that this could be revised through future consultations.

But the deal does provide flexibility to Colombia by stipulating one more apparel item than the Peru FTA as qualifying for FTA benefits even though it is only assembled in Colombia from third-country fabric