Colombia, Panama and South Korea are celebrating the long-delayed U.S. congressional approval of their free trade agreements with Washington, which Colombian President Juan Manuel Santos called “the most important treaty in our history.” But — at least for the two Latin American countries — the hard part is just starting now.
In the new crisis-ridden global economy, free trade agreements are no longer what they used to be. In the past, when the U.S. economy was growing fast, gaining preferential access to the U.S. market was a make-or-break deal for countries like Colombia or Panama.
Today, with much greater global competition to export to a stagnant U.S. market, signing free trade deals is important, but inventing new products — or improving existing ones with new technologies — is much more important.
“These free trade deals are nothing else than a ticket to get duty-free access to a huge market, but that doesn’t guarantee that there will be a demand for their products in that market,” says Osvaldo Rosales, head of the international trade division of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC).
“Colombia and Panama will have to gain that space with greater competitiveness, greater quality, and anticipating U.S. consumers’ demands,” Rosales told me from ECLAC’s Santiago, Chile, headquarters. “Their challenge is just beginning.”
While both the United States and its new free trade partners are expected to increase their exports thanks to the new agreements, South Korea will be much better positioned than Colombia and Panama, because of its great technological advances over the past four decades.
Thanks to its obsession with education, science and engineering, South Korea already sells US$49 billion a year to the United States, mostly in expensive products such as cars, trucks and computer equipment.
By comparison, Colombia exports US$15 billion a year to the U.S. market, most of it in oil, minerals and other raw materials, and Panama US$211 million, mostly in seafood and services.
What’s worse, Colombia’s manufacturing exports to the United States have dropped from 51 percent of its total exports to the U.S. market five years ago to 26 percent last year, according to Colombian government figures. Last year, 74 percent of Colombia’s exports to the United States were oil, minerals, gas and agricultural products.
Both Colombia and Panama, as well as other Latin American nations, could learn a lot from South Korea.
Only fifty years ago, South Korea was far poorer than any Latin American country. In 1970, South Korea’s per capita income was almost half that of Colombia, and almost a third that of Panama’s.
Today, South Korea’s per capita income is more than three times higher than that of Colombia, and more than twice higher than Panama’s, according to U.N. data.
What did South Korea do?
It created a high quality education system, where children go to school 220 days a year (compared to 180 days or less in most Latin American countries), and high school students spend about 15 hours a day studying in school and after-hours tutoring institutions.
As a result, today’s South Korean youths are among the world’s best performers in the international PISA test of 15 year old students, while Latin American students are at the bottom of the list.
Most importantly, South Korea registered 8,800 patents of new inventions in the U.S. Patents and Trademark Office in 2009, compared with 100 from Brazil — the Latin American country that registered the most patents — seven from Colombia, and two from Panama. Yes, you read right: 8,800 versus 100, 7 and 2, respectively.
To be fair, both Colombia and — to a lesser degree — Panama have made progress in education over the past decade. Colombia ranks higher than Brazil, Argentina and Peru in the latest PISA test in students’ reading comprehension, and Colombia’s Los Andes University ranked 6th in the recently released QS Ranking of Latin America’s best universities, higher than any university from Argentina, Venezuela or Peru.
My opinion: Colombia and Panama — much like Mexico, Chile and others before them — have a golden opportunity to increase their exports and attract long-term investments to sell their products to the world’s richest market. But to take full advantage of it, they will have to improve the quality of their education, much like South Korea started doing four decades ago.
