Trade context

2.5.1.1 Bilateral trade relations and parties

Box 9 Aspects of the EU-Colombia/Peru FTA

Trade relations between the European Union and the Andean Community, a customs union comprising of Bolivia, Colombia, Ecuador and Peru,³⁸⁴ rose from €9.1 billion in 2000 to €15.8 billion in 2007, representing an average annual growth rate of 8.25%. After the USA, the EU was the largest trade partner for the Andean countries, accounting for 14.2% of total trade in 2007.

Conversely, trade with Andean countries accounted for 0.6% of EU total trade, i.e. some € 10 billion in 2007. Trade between the EU and Colombia accounted for 50% of the total trade with the Andean countries, while trade with Peru accounted for 27%, with Ecuador for 19% and with Bolivia for 5%.³⁸⁵ By 2014, the total trade of the EU with the Andean countries was worth some

384 The trade bloc was called the Andean Pact until 1996 and came into existence when the Cartagena Agreement was signed in 1969. Its headquarters are in Lima, Peru. Originally, Chile was also a party, but it withdrew in 1976. In the meantime, Venezuela had joined in 1973, but withdrew later on. In Spanish the organisation is called Comunidad Andina, CAN. The website of Andean is

http://www.comunidadandina.org.

385 Development Solutions, Centre for Economic Policy Research (CEPR) and Institute for Development Policy and Management, School of Environment and Development, University of Manchester, EU-Andean Trade Sustainability Impact Assessment, Final report, 2009, p. 9. It can be noted that this Trade Sustainable Impact Assessment (Trade SIA), prepared by independent consultants, should have guided EU negotiators. As the report was finalised by October 2009, a reaction from the side of the Commission in the form of a so-called position paper was issued

 The Colombia/Peru FTA encompasses the far-reaching liberalisation of current account transfers, rather than limiting the liberalisation to financial transfers related to trade, loans and investments as the EU- Korea agreement does. Given the challenges in the two countries, a more prudent approach to liberalisation and/or more safeguards or measures aimed at cooperating between the parties to the FTA on fighting money laundering and tax evasion seem necessary.

 The provision allowing for non-disclosure of information relating to the affairs and accounts of individual customers may not contribute to the fight against tax evasion.

 The FTA contains weak worded provisions in which parties ‘take note’ of international information exchange and transparency mechanisms, and make their ‘best endeavours to ensure’ that international AML standards are implemented.

€28.8 billion, representing a share of 0.9% of total EU trade. At the same time, the EU is now the third largest trading partner for the Andean countries, after the USA and China. The Andean countries export predominantly primary products to the EU.³⁸⁶ The EU exports consist mostly of manufactured goods.³⁸⁷

In 2004, it was agreed to strive for a region-to-region association agreement between the EU and the Andean Community. Negotiations started in April 2007, but were suspended in June 2008 after disagreement about approaches to a number of key trade issues. Bolivia decided to withdraw in September 2008, after which negotiations resumed with the remaining three Andean countries. Later on, Ecuador also withdrew and negotiations were concluded with Peru and Colombia in 2010. The agreement with the latter two countries was signed in June 2012 under the name Trade Agreement,³⁸⁸ encompassing a free trade area in conformity with Article XXIV of GATT 1994 and Article V of GATS.³⁸⁹ It has been provisionally applied with Peru since 1 March 2013 and with Colombia since 1 August 2013. In July 2014, negotiations were concluded for the accession of Ecuador to the agreement. After ratification by all parties this extension of the agreement will take effect. Bolivia might still join the trade agreement at a later moment in time.

In December 2012, an NGO published a report that claimed the EU-Colombia/Peru Trade Agreement is lagging behind other EU trade agreements in which stronger commitment to cooperation and implementation of actions against money laundering, crime and tax evasion or avoidance are incorporated.³⁹⁰ This was described as a cause of grave concern, considering the fact that the UN Office on Drugs and Crime (UNODC) estimates that the flow of Andean cultivated drugs generates $9.9 billion in gross transit profits. The Greens in European Parliament were against the agreement as well, inter alia, they strongly opposed the

only in November 2010. This Trade SIA position paper was thus presented after the negotiations of the Multiparty Trade Agreement with Colombia and Peru had already been concluded. As it thus could not fulfill its actual purpose any more, instead it focused on explaining how the Trade SIA recommendations were taken into account in the Agreement.

386 Agricultural products (40.5%), fuels and mining products (52.3%).

387 Notably machinery and transport equipment (48%), and chemical products (19.1%). Source:

European Commission, Trade in goods with Andean community, 20 October 2015.

388 'Trade Agreement between the European Union and its Member States, of the one part, a nd Colombia and Peru, of the other part', [2012] OJ L 354/3. The text of the Trade Agreement is also available at: http://trade.ec.europa.eu/doclib/press/index.cfm?id=691.

389 Article 3 Trade Agreement.

390 M. Vander Stichele, Free Trade Agreement EU– Colombia & Peru: Deregulation, Illicit Financial Flows And Money Laundering, Commissioned by GUE/NGL Group (German Delegation), Stichting Onderzoek Multinationale Ondernemingen (SOMO), Amsterdam, 2012. The report was commissioned after a publication by the organisation Global Financial Integrity on the increased illicit flows between the USA and Mexico after NAFTA had entered into force (Mexico:

Illicit Financial Flows, Macro-economic Imbalances and the Underground Economy, 2011). The latter report claims that illicit money flow in Mexico has soared up to $50 billion a year.

deregulation of the finance sector as foreseen under the agreement as increasing risky products without provisions on stronger oversight or capital controls is felt to encourage money laundering.³⁹¹ Before signing up to the EU Trade Agreement, Peru had also concluded trade agreements with the USA and with China. Colombia likewise concluded an agreement with the USA, known as the U.S.–Colombia Trade Promotion Agreement (TPA).³⁹² Recently, it was stressed that the lack of coordination between Chinese and Latin American regulators and authorities meant that financial infrastructure can be exploited by money launderers.³⁹³ In Colombia, it was estimated by UAIF that in 2012 some $10 billion was laundered.³⁹⁴

The European Parliament managed to get additional instruments drafted before it agreed with the Trade Agreement. The roadmap drafted by Colombia was described by the European Commission as a ‘useful instrument in furthering the protection of human rights, labour rights, and the environment’. Asked what it intended to do against human rights violations, it added that while the responsibility for implementing the roadmap lies with Colombia, ‘the Commission and the HR/VP stand ready to support their implementation, alongside the European Parliament, through the mechanisms established in the context of our bilateral relations, including through the Trade Agreement’.³⁹⁵

2.5.1.2 Institutional framework of the EU-Colombia/Peru Trade Agreement The Trade Agreement encompasses the establishment of a general body and an extensive number of specialised bodies that are to ensure that the agreement fulfils its objectives.³⁹⁶ First, a Trade Committee was established, comprising representatives of the EU and representatives

391 The Greens in the European Parliament, EU Free Trade Agreement. Proposed Roadmap Fails To Resolve Human Rights Issues With Colombia And Peru Trade Deal, Press Release of 11 December 2012.

392 See https://ustr.gov/trade-agreements/free-trade-agreements/colombia-fta/final-text.

Also see P. de Micco, The US And EU Free Trade Agreements With Peru And Colombia: A Comparison, In-depth analysis for the European Parliament's Committee on International Trade, Brussels, 2014.

393 A. Daugherty, 'Colombians Charged in Massive China-based Money Laundering Scheme', InSight Crime, 11 September 2015.

394 As explained by M. Vander Stichele, Schriftelijke verklaring voor expertmeeting ‘Hoe de vrijhandelsovereenkomst tussen de EU en Colombia en Peru bijdraagt aan financiële deregulering, illegale geldstromen en het witwassen van geld’ (Written statement for expert meeting ‘How the free trade agreement between the EU and Colombia and Peru contributes to financial deregulation, illegal financial flows and money laundering’), 30 May 2013, p. 2.

Unidad de Información y Análisis Financiero (UIAF) is Colombia’s financial and economic intelligence unit; see www.uiaf.gov.co for further information.

395 'Answer to MEP questions on the Free Trade Agreement with Colombia and Peru given by High Representative/Vice-President Ashton on behalf of the Commission', 11 February 2014, OJ C 231, 17/07/2014.

396 Articles 12-16 TA.

of each signatory Andean Country, and this Committee meets at least once a year at the level of Ministers or the representatives that the Ministers designate. In addition, the Trade Committee may meet at any time at the level of senior officials designated to take the necessary decisions.

Inter alia, the Trade Committee is to: supervise and facilitate the operation of the Agreement and the correct application of its provisions, and consider other ways to attain its general objectives;

evaluate the results obtained from the application of the Trade Agreement; supervise the work of all specialised bodies established under this agreement and recommend any necessary action;

evaluate and adopt decisions as envisaged in the agreement regarding any subject matter which is referred to it by the specialised bodies; and supervise the further development of the Trade Agreement.³⁹⁷ Its decisions are to be adopted by consensus and are binding upon the Parties.³⁹⁸ Several specialised bodies are mentioned in the Trade Agreement, notably the Sub-committees on Market Access, on Technical Obstacles to Trade and on Customs, Trade Facilitation and Rules of Origin. These bodies consist of representatives of the EU Party, and representatives of each signatory Andean Country. Their scope of competence and duties are defined in the relevant titles of the Trade Agreement. Further sub-committees, working groups or any other specialised bodies may be established by the Trade Committee in order to assist it in the performance of its tasks.³⁹⁹

Colombia and Peru are not members of FATF, nor do they have observer status. Like Mexico, they are full members of GAFILAT (formerly GAFISUD), a regional FATF style organisation.⁴⁰⁰ GAFILAT supports its members in the implementation of the 40 FATF Recommendations as national legislation and the creation of a regional prevention system against money laundering and terrorist financing. The two main GAFILAT tools are training measures and mutual evaluations. The last (3^rd round) GAFILAT mutual evaluations of Colombia and Peru are from 2008.⁴⁰¹ After the evaluation reports were approved, it was determined that the follow up process for the two countries would be to check the progress made in order to overcome the deficiencies identified in the report. The countries had to submit an action plan with concrete dates and measures for compliance with the main international standards on the matter.

397 Articles 12 and 13 TA.

398 Article 14 TA.

399 Article 15 TA.

400 Financial Action Task Force of Latin America (GAFILAT) is a regionally based inter- governmental organisation that gathers 16 countries in order to combat money laundering and terrorist financing by means of a commitment for continuous improvement of the national policies against both scourges, and the enhancement of different cooperation mechanisms among its member countries.

401 The last mutual evaluation of Mexico also stems from 2008.

Follow up-reports for the two countries were issued in 2009.⁴⁰² For Peru, a 3^rd follow-up report was also issued.⁴⁰³ Further information on the procedures for legal cooperation on money laundering in Peru was published in July 2015.⁴⁰⁴ In December 2009, GAFILAT and the EU signed an agreement on a project known as ‘Support to the fight against money laundering in the Latin America and the Caribbean countries’, details of which are set out in Annex 3 to this report.

2.5.2 Assessment of the Regulatory Framework for the provision of Financial