Not far enough – the state of the free trade agreement between Colombia and the United States

On January 16, 2025, it was announced that Colombia and the United States had issued a letter of reinterpretation of their free trade agreement (FTA). The so-called Trade Promotion Agreement dates back to 2006, although it came into force in 2012. President Gustavo Petro had spoken out harshly against it during the election campaign, making the need to renegotiate this treaty a central part of his government program. In May 2023, the president publicly announced the start of the FTA renegotiation.

The new Colombian government sought renegotiation because the current agreement places the nation’s products, especially agricultural ones, in a process of unfair competition. According to Petro himself, this constitutes an obstacle to the growth of the Colombian economy and hinders the advancement of agricultural industrialization. For the current president, the problem is the productive model on which the FTA is based, as it promotes an economy sustained by the export of primary resources.

The possibility of an FTA renegotiation came with great controversy. While concentrated sectors of the economy publicly rejected this possibility, calling it "unnecessary and inappropriate" – those were the words used by the Colombo-American Chamber of Commerce – civil society organizations that have been demanding changes in the treaty supported the initiative. The Colombian think tank Cedetrabajo, which analyzed the impacts of the FTA, has argued that the agreement did not fulfill its promises of diversification and increased exports. On the contrary, Colombian exports to the United States fell after the FTA, and the Colombian economy became more primary, as the export basket continues to be dominated by exports of oil and its derivatives, as well as low value-added agricultural products such as coffee, flowers, coal, and gold.

After 2023, the Colombian government practically stopped mentioning the FTA issue. National politics became immersed in negotiations for legislative reform packages (pensions, labor, and health, among others). In this context, the trade issue took a back seat. But in October 2024, there was a new turn. After Colombia lost a historic lawsuit with the Spanish company Telefónica and was forced to pay $380 million, the FTA with the United States became topical again. However, Petro's discourse had changed: instead of targeting the entire FTA, the president raised the need to rediscuss a series of clauses on investments and arbitration that he considered "harmful to state security." To this end, he mandated the Minister of Commerce, Industry, and Tourism, Luis Carlos Reyes, to advance a review of both the agreement with the United States and other agreements with European countries.

Finally, in January 2025, the result of the renegotiation was announced, but there was no discussion about tariffs or rules of origin or any other chapter affecting bilateral trade. In essence, it was a reinterpretation of a group of eight clauses in Chapter 10 of the FTA, which refers to investments. What a year ago had been announced as a renegotiation of the FTA to stop Colombia's submission to economic policies based on primary resource exportation, ultimately turned into the reinterpretation of parts of a single chapter (the investment chapter).

Among the reviewed clauses and annexes, it is noteworthy that Colombia did not directly achieve an exit from the investor-state dispute settlement (ISDS) mechanism, which allows investors to sue the country in international arbitration forums when  the country passes policies they interpret as a hindrance to their profits. There are precedents for such action: in the renegotiation of the North American Free Trade Agreement (NAFTA), the United States and Canada agreed to eliminate arbitration as a means of dispute resolution for investors. However, in Colombia's case, the mechanism will remain part of the menu of options for private investors.

Be that as it may, the extraordinary prerogatives that foreign investors have were partially restricted. Colombia is well acquainted with this ISDS mechanism. In fact, in 2018, the country experienced a boom in lawsuits from foreign investors in international arbitration forums, especially in the International Centre for Settlement of Investment Disputes (ICSID), where it received 90% of the lawsuits. In total, from the first lawsuit in 2016 until March 2023, Colombia received 21 lawsuits from investors before international arbitration tribunals. Half of these lawsuits came from American and Canadian investors.

States have the right to request a reinterpretation of the clauses of the treaties they have signed. In this case, Chapter 20 contains administrative provisions and states in its article 20.1.3(c) that it is allowed to "issue interpretations on the provisions of this agreement." But the same article also allows for considering any other amendment, establishing working groups, and seeking advice from non-governmental people or groups, or "taking any other action in the exercise of their functions." This means that there were tools within the FTA itself that would have allowed Colombia to move towards a deeper renegotiation, involving interested civil society groups, such as the agricultural sector, unions, or communities affected by foreign investments, such as the Wayuu people. This was an opportunity to start a broader debate on the general impacts of ISDS lawsuits against Colombia, beyond the Telefónica case.

What was announced on January 17 was not, therefore, an FTA renegotiation, but an interpretative note. In fact, it is a six-page document that only affects Chapter 10 of the treaty, in which eight clauses and two annex sections were modified. What is this note about? The objective was to restrict the scope of the interpretation that arbitration tribunals make of investors' rights. To this end: indirect expropriation was restricted, the possibility of tribunals acting on national court decisions was limited, and the clauses of National Treatment, Most-Favored-Nation Treatment, and Full Protection were modified, limiting their scope. Minister Luis Carlos Reyes argues that the terms that can lead to misinterpretations of the agreed commitments were identified, restricting investors' access to arbitration. However, it is important to note that restricting the interpretation does not prevent investors from resorting to the ISDS mechanism and that it is always at the discretion of the arbitration tribunal whether to accept the lawsuit or not, and what arguments are given to determine whether the state is guilty or not of affecting an investor. The new wording of these clauses does not prevent investors from resorting to arbitration, nor does it prevent investors from making multimillion-dollar claims and using it as a mechanism of regulatory chill or blackmail to twist state policies.

This negotiation comes across as insufficient. The announcement made at the beginning of Petro's government ended up being resolved in a short document, produced in a short time and without dialogues with civil society and academia. In this sense, it seems like a missed opportunity. It is also true that FTAs are not only a problem for Colombia: no Latin American country with an FTA with the United States has proposed renegotiating their treaties. And in the current context, with Donald Trump back in the White House, perhaps starting a renegotiation is even counterproductive, as the conditions achieved could be worse than the current ones. A few days after the announcement of the FTA chapter interpretation, there was an altercation between Petro and Trump over the repatriation of illegal migrants, and Trump's first response was to threaten a 25% tariff increase, which goes directly against the current FTA. This raises a whole series of questions about the real relevance of these treaties in a context of open protectionism.

But then, if the entire treaty cannot be renegotiated, is it not worth making any moves? In this sense, having achieved better clauses in the Investment chapter is valuable, although, as we explained, it is far from ending the danger of new arbitration lawsuits against Colombia. International experience shows with examples that it is possible to terminate treaties with investment protection, or to even leave ICSID and negotiate new treaties that force investors to use national justice. In fact, in the last ten years, Ecuador, Bolivia, Venezuela, South Africa, India, Indonesia, New Zealand, and Australia have rejected the ISDS mechanism. Most European countries also left the Energy Charter Treaty, for which they had received a flood of arbitration lawsuits.

What is evident is that this issue has been established among social organizations in Colombia, and pressure from below for more radical changes will increase. In 2023, an articulation was created between communities affected by large investments (such as the Wayuu people or the Committee for the Defense of Water and the Páramos of Santurbán) with human rights organizations and think tanks, and this effort resulted in the international mission "Stop the Power of Transnationals." The mission presented a series of demands and proposals to various ministries and government secretariats, especially highlighting the request for Colombia to withdraw from the ISDS mechanism. Civil society organizations, productive sectors affected by free trade, and unions can unite to push for changes in treaties when politically viable. Pluralistic governments will play a key role in this process.