Tag: colombia

A Look at the OAS Report on Drug Policy in the Americas

Last Friday, the Organization of American States released a groundbreaking report on the future of drug policy in the Americas. The OAS received the mandate to produce this document at the Summit of the Americas last year in Cartagena, Colombia, where some presidents aired their frustration with the war on drugs and even suggested legalization as an alternative to fight the cartels.  

The document is based on solid premises:

  1. Drug violence is one of the greatest challenges facing the Americas
  2. The current approach is a failure isn’t working
  3. New policy alternatives need to be discussed and implemented
  4. Drug use will remain significant by 2025

These premises might seem pretty obvious, but when it comes to drug policy, stating the obvious hasn’t been the norm for those who believe in the status quo: for example, in 1988 the UN held an event titled “A drug-free world: we can do it” (consumption of marijuana and cocaine has increased by 50 percent since then). Or the latest National Drug Control Strategy, which claims that the greatest accomplishment of the Mérida Initiative with Mexico has been “the mutual fostering of security, protection and prosperity” (never mind the 60,000 people killed in drug violence in six years in Mexico).

The OAS report avoids recounting this fairy tale. It also avoids making recommendations, given the lack of consensus among its authors about where drug policy should be headed in the next 12 years. Instead, the document lays out four different interpretations of the “drug problem” and presents the scenarios of what the response should be. The report also presents the challenges facing each scenario (name in bold):

Together: Under this scenario, the problem is not drug laws but weak institutions. It foresees greater security and intelligence cooperation among nations, more expenditure in the security and judiciary apparatuses and tougher laws dealing with corruption, gun trafficking and money laundering.

Latin American countries indeed suffer from weak institutions. The shortcoming of this scenario is that prohibition actually exacerbates the problem since it inflates the profit margins of the cartels to stratospheric levels, thus increasing their corrupting and violent power. In 2010 all seven Central American countries combined spent nearly $4 billion in their security and judiciary apparatuses (a 60 percent increase in five years). And yet that fell terribly short of the estimated revenues of the Mexican and Colombian cartels which, according to a report from the Justice Department, could reach up to $39 billion a year.

The report foresees another challenge with this approach: a disparity among countries in their institution-building efforts, which would lead to the balloon effect of criminal activities. This is perhaps the main feature of the drug business in the Americas: its high capacity to adapt to changing circumstances. For example, in the early 1990s, as pressure grew on coca growers in Peru they moved to Colombia. Now, after a decade of eradication programs in that nation, they are moving back to Peru. Overall the Andean region continues to produce the same amount of cocaine as it did 20 years ago.

Over the years the common denominator of the war on drugs in Latin America has been the attempt to export the problem to your neighbor. Greater cooperation, harmonization of efforts, and same-pace institution building seems unrealistic.

Peace Talks with the FARC: A Good Idea?

Colombian president Juan Manuel Santos said yesterday that his government will start “exploratory” peace talks with the FARC guerrillas, the oldest insurgency in the Americas. The announcement, which was widely expected in recent weeks, is highly controversial in Colombia. Is the Santos administration moving toward ending an armed conflict that has lasted over half a century and cost the lives of ten of thousands of Colombians? Or is the government agreeing to negotiate with terrorists, giving them a chance to regroup and continue their criminal activities such as drug trafficking?

There are many reasons not to trust the FARC. In 1998, then-president Andrés Pastrana opened high profile peace talks with the Marxist rebels. As a concession, Pastrana ceded the FARC control of a territory the size of Switzerland. The rebels used that neutral zone as a stronghold to consolidate their cocaine business—which gives them revenues of approximately $500 million a year—strengthen their recruitment, and launch deadly attacks against Colombia’s largest cities. By 2002, the peace talks had gone nowhere and the question among many officials in Washington and elsewhere was whether the Colombian government would survive.

Enter Álvaro Uribe, who was inaugurated as president in 2002 under rocket fire in Bogotá. Supported with military aid from Washington under Plan Colombia, Uribe launched a massive offensive against the FARC and struck several important blows to its leadership. During these years, most Colombians came to the realization that they were dealing with full blown terrorists and not simply with an ideologically driven peasant insurgency. The FARC rebels kidnapped hundreds of civilians, politicians and security forces for ransom, keeping some of them under inhumane conditions in the jungle for over a decade. Many died in captivity. They also attacked civilian targets in cities with bombs, killing scores of people. On February 4, 2008, millions of Colombians took to the streets under the chant “No Más FARC.”

Uribe’s military strategy proved successful in greatly diminishing violence in Colombia and severely weakening the FARC, whose troops halved in the last decade to approximately 8,000.

In 2010, Juan Manuel Santos, Uribe’s former defense minister who conducted some of the most successful attacks against the FARC guerrillas, was overwhelmingly elected president of Colombia. However, unlike Uribe’s hard-line approach, Santos from the beginning showed willingness to engage the FARC in peace talks, even though his government continued to pound on the guerrillas, killing its head Alfonso Cano last November.

Notwithstanding losing most of its old guard, the FARC rebels have been able to step up their attacks in the last year, inflicting painful losses on the armed forces and targeting the country’s energy infrastructure. The wave of attacks has led many Colombians to wonder whether the hard-fought security gains under Uribe are slipping away. This also raises questions about president Santos’ leadership. It is worth noting that over a year ago, Uribe—who remains very popular among a majority of Colombians—broke with Santos, accusing him of, among other things, being weak toward what he and many Colombians still regard as a terrorist group.

Thus the conundrum: Some Colombians see what WOLA’s Adam Isacson has described as a “hurting stalemate.” The Santos administration would be wise to give peace one more chance, the argument goes. It does so under very different conditions from a decade ago. The armed forces still have the upper hand on the ground. The economy grows at a very healthy pace (although it’s increasingly becoming dependent on oil and mining). And the cities and their surroundings are far safer now. The government’s strategy under this theory is pushing the FARC to the limit and then forcing the guerrillas to negotiate a peace settlement.

However, other Colombians think that Juan Manuel Santos is proving to be another puny president just like Andrés Pastrana. They feel that the current president’s well-known appetite for popularity and jet-setting around the world is driving his push for peace talks, and that the latest wave of attacks from the FARC are the result of the guerrillas’ realization that they are dealing with a weak president. They point out that the army hasn’t dealt an important blow to the rebels in more than six months, perhaps at Santos’ behest. Moreover, they note that nowadays the FARC is mostly a drug trafficking organization with a decentralized command structure. As long as cocaine production remains a highly profitable industry, most of the armed units that compose the FARC will remain in the business, regardless of the peace process. Something similar happened to the demobilized right-wing paramilitary groups, some of which have reemerged as regular criminal bands known as “bacrim.” I would add that violent drug trafficking groups are a plague that will haunt Colombia until drugs are legalized.

Both sides have solid arguments. But I tend to agree more with the skeptical wing. Ending one of the longest and bloodiest conflicts on the continent is a goal worth pursuing. However, there is no reason to believe that this is what the FARC want. Let’s hope I’m wrong.

The Balloon Effect in Cocaine Production in the Andes

The Wall Street Journal has a lengthy story today [requires subscription] about the booming cocaine business in Peru, where production has skyrocketed in recent years. The report serves a reminder of the balloon effect in U.S.-led efforts to eradicate cocaine production in the Andean region. Gil Kerlikowske, the Obama administration’s drug czar, has repeatedly pointed out that production in Colombia dropped by 61 percent between 2001 and 2009. But as the graph below illustrates, cocaine manufacturing has just moved back to Peru, which according to some estimates, might already be the world’s largest producer of cocaine:

* Average range of total production in the Andean region.
Source: United Nations Office on Drugs and Crime.
 

As we can see, Peru was the world’s largest source of potential cocaine production back in the early 1990s, but production of coca moved to Colombia once the regime of Alberto Fujimori cracked down on drug trafficking. By 2000, Colombia was by far the largest producer. However, due to eradication efforts by then president Álvaro Uribe under the U.S.-sponsored Plan Colombia, production came down in that country. But it didn’t go away, it just moved back to Peru. Overall, the World Drug Report by the UN Office on Drugs and Crime estimates that cocaine production levels in the Andes are pretty much the same as a decade ago.

Mr. Kerlikowske should present the whole picture next time he boasts about declining cocaine production in Colombia.

New Study on Mexico’s Drug Cartels and the Global War on Drugs

Yesterday, Juan Carlos Hidalgo pointed out that Colombian president Juan Manuel Santos became the latest world leader to recognize the need to rethink the prohibitionist policies that allow powerful drug traffickers to flourish. Santos called for a new approach to “take away the violent profit that comes with drug trafficking” and that governments around the world, including the United States, the United Kingdom, and the European Union, need to debate legalizing select drugs, such as cocaine.

From Colombia to Mexico, the drug war rages on. Despite two decades of U.S.-aided efforts to eradicate drug-related violence in Colombia, the problem persists. Indeed, the trickle-down effects from Mexico southward now threaten to engulf Guatemala. Costa Rica, Honduras, and El Salvador are all experiencing alarming homicide rates at least partially related to drug trafficking. To address these spikes in violence and stem the flow of drugs, the United States has spent billions of dollars in Mexico and throughout Latin America. Sadly, there is little evidence that this policy has been successful, and the evidence mounts that it has been an outright failure.

A new policy is needed to stem the violence and consequences of the Mexican drug cartels pervasive power. In a new study released today, Ted Galen Carpenter, senior fellow, argues that the only lasting, effective strategy for dealing with Mexico’s drug violence is to defund the Mexican drug cartels. “The United States could substantially defund these cartels,” says Carpenter, “through the full legalization (including manufacture and sale) of currently illegal drugs.”

The new study, “Undermining Mexico’s Dangerous Drug Cartels,” is available here.

Finally, a Vote on the Three Trade Agreements

Almost a thousand days into his term, President Obama has at last submitted the trade agreements with South Korea, Colombia, and Panama for an up or down vote in Congress.

All three agreements appear to have majority support in both the House and the Senate. Organized labor is putting up its usual anti-free-trade fight against all three, with AFL-CIO boss Richard Trumka coming out swinging in a Politico op-ed this week. He makes the standard union argument that Colombia is an unworthy free-trade partner because of ongoing violence against union members in that country.

In a Free Trade Bulletin earlier this year, my Cato colleague Juan Carlos Hidalgo and I examined the commercial benefits of the agreement with Colombia as well as the hollowness of the union charge. In the past decade, Colombia has made tremendous progress against violence in general, and especially violence aimed at union members. In fact, as we write in the FTB:

The statistics on the number of killings against union members vary depending on the source, with the figure from the government’s Ministry of Social Protection being lower than that of the National Union School (ENS for its acronym in Spanish), a Colombian nongovernmental organization affiliated with the labor movement. However, both sources show a steep decline in the number of killings since 2001. Moreover, when compared with the total number of homicides in the country, killings of union members clearly have dropped at a faster rate than those of the general population (see Figure 1).

Critics of the FTA fail to recognize that violent crime affects all levels of Colombian society, not only trade unions. What is more, the statistics show that union members enjoy more security than the population at large.

Looking at the homicide rate as defined by the number of murders per 100,000 inhabitants, the rate for the total population in 2010 was 33.9 per 100,000, whereas the rate for union killings was 5.3 per 100,000 unionists that same year (using the statistics of the ENS). That means that the homicide rate for the overall population is 6 times higher than that for union members.

Having just returned from a speaking trip last week to Medellín, Colombia, I can vouch that, after a difficult period of battling Marxist guerrillas and drug cartels, Colombia has once again become a normal country with a growing economy. Medellín is a bustling, business-oriented city with the usual challenges of traffic congestion. The students I spoke with at EAFIT University seemed eager for closer ties with the United States, and they do not understand why it has taken almost five years since the signing of the agreement for Congress to schedule a vote on it.

As I explained in an interview with the city’s leading newspaper (conducted in English, but translated here in Spanish), the politicians in Washington have run out of excuses for not establishing free trade between our two countries.

[Our Cato colleague Doug Bandow made the case for a trade agreement with South Korea in a study we released last year.]

Dirty Deal Done Not So Dirt Cheap

Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee,  Rep. Dave Camp (R-MI)*, chairman of the House Ways and Means Committee, and the White House have just announced that they have made a deal to extend Trade Adjustment Assistance (TAA, the program that extends extra unemployment and health care benefits to workers who lose their jobs because of globalization) until 2013, as part of a broader deal that would see passage of the three outstanding preferential trade agreements with Korea, Colombia, and Panama. The extension of TAA would be included in the legislation to implement the US-Korea Free Trade Agreement, “improved” (i.e., made less liberalizing) by the administration in December.

Interestingly and alarmingly, because implementing the FTAs (which will lower tariff revenue) and paying for the billion-dollar-plus TAA extension “requires” offsets, the draft language specifies in Sec. 601 that revenue should be raised by increasing customs user fees.  This solution was first aired publicly last week, and my friend, trade lawyer (and former Cato-ite) Scott Lincicome pointed out then that raising customs user fees is probably against WTO rules (not to mention counterproductive to the goal of liberalizing trade):

“[C]ustoms fees” are simply hidden taxes on import consumers.  A quick review of the US Customs website on “customs users fees” makes this clear.  They’re paid (mainly) by commercial transporters bringing goods (imports) into the United States, thus raising the costs of importation.  And those higher costs, of course, are eventually passed on to American consumers through higher import prices.

Thus, pursuant to the bi-partisan deal outlined above, the FTAs’ great import liberalization benefits will be immediately and tangibly undermined by new taxes on those very same imports (and others)!

…[I]t would [also] probably violate GATT Article VIII, which governs WTO Members’ imposition of “Fees and Formalities connected with Importation and Exportation” (in other words, customs fees).  The key provision of Article VIII reads:

1.(a) All fees and charges of whatever character (other than import and export duties and other than taxes within the purview of Article III) imposed by contracting parties on or in connection with importation or exportation shall be limited in amount to the approximate cost of services rendered and shall not represent an indirect protection to domestic products or a taxation of imports or exports for fiscal purposes.

WTO panels have interpreted this provision narrowly, and an old GATT panel has actually looked into the US system of customs users fees.  In these cases, the panels have ruled that Article VIII’s requirement that a customs fee be “limited in amount to the approximate cost of services rendered” is actually a “dual requirement,” because the charge in question must first involve a “service” rendered, and then the level of the charge must not exceed the approximate cost of that “service.”  They’ve also found that the term “services rendered” means “services rendered to the individual importer in question,” and that the fees cannot be imposed to raise revenue (i.e., for “fiscal purposes”).[emphasis in original]

Raising customs user fees for fiscal purposes may even go against U.S. law (subparagraph 9B of 19 U.S.C. chapter 1 ss58c).

It’s unclear how far this draft will advance at the “mock mark-up,” scheduled for Thursday afternoon in the Senate Finance Committee, as the ranking member of that committee, Sen. Orrin Hatch (R-UT), is one of the leading critics of trade adjustment assistance.  Senator Hatch has already sent out a press release opposing the inclusion of the TAA renewal in the Korea FTA implementing bill:

This highly-partisan decision to include TAA in the South Korean FTA implementing bill risks support for this critical job-creating trade pact in the name of a welfare program of questionable benefit at a time when our nation is broke. This is a clear breach of Trade Promotion Authority and threatens the ability of American exporters and job creators who stand to benefit from the largest bilateral trade agreement in more than a decade.  TAA should move through the Congress on its own merit and should stand up to rigorous Senate debate. President Obama should send up our pending trade agreements with Colombia, Panama, and Korea and allow for a clean vote.

Senate Minority Leader Mitch McConnell (R-KY) is also apparently critical of the decision to include the TAA renewal in the Korea legislation, preferring instead to consider it only in exchange for something new, i.e.,  a deal on fast track (or trade promotion) authority for further trade deals. As the American Enterprise Institute’s Phil Levy points out, “It is problematic to “buy” the [existing] FTAs with an expanded version of TAA, since those were already “purchased” as part of a May 10, 2007 deal.” [link added] The Republican House leadership is also keen to separate TAA from the FTA implementing bills, in contrast to the opinion and efforts of their colleague Representative Camp.  So the fight is far from over.

If you are interested in hearing more about the trade deals, and how TAA renewal fits in with their passage, Senator Hatch will be speaking at an event at the American Enterprise Institute on Thursday (just hours before the mock mark-up is scheduled to begin). Howard Rosen of the Peterson Institute for International Economics and yours truly will be debating the merits of TAA after Senator Hatch has spoken. More information on the event, including access to the streaming video, here.

*UPDATE: Contrary to what I suggested in my orginal post, Chairman Camp did not in fact join an announcement with the White House and Chairman Baucus about the trade deal Tuesday. He did issue a statement Tuesday evening indicating that although he finds it “regrettable that the White House has insisted on Trade Adjustment Assistance in return for passage of these job-creating agreements,” he has “been willing to work with the White House to find a bipartisan path forward on TAA in order to secure passage of the trade agreements.” So it appears he has agreed to the deal broadly, even if he was not formally part of the announcement, and is still reviewing the details. Chairman Camp’s full statement is available here.

Trade Agreements Promote U.S. Manufacturing Exports

Do trade agreements promote trade? The answer appears to be yes. In a new Cato Free Trade Bulletin released today, I examine the record of trade agreements the United States has signed with 14 other nations during the past decade.

The impact of those agreements on U.S. trade is a timely subject because Congress may soon consider pending free-trade agreements (FTAs) with South Korea, Colombia, and Panama. Opponents of such deals often argue that they open the U.S. economy to unfair competition from low-wage countries, displacing U.S. manufacturing. Advocates argue the agreements do open the U.S. market further to imports, but they open markets abroad even wider for U.S. exports.

Based on actual post-agreement trade flows, I found that both total imports and exports with the 14 countries grew faster than overall U.S. trade since each agreement went into effect. For politicians obsessed with manufacturing exports, the study should be especially encouraging. Here is a key finding:

Politically sensitive manufacturing trade with the 14 FTA partners has expanded more rapidly than overall U.S. manufacturing trade, especially on the export side. U.S. manufacturing exports to the recent FTA partners were 10.5 percent higher in 2010 compared to our overall export growth since each agreement was signed. That represents an additional $8 billion in manufacturing exports.

I’ll be discussing the three pending trade agreements alongside William Lane of Caterpillar Inc. at a Cato Hill Briefing on Wednesday of this week. Along with the new study on the past FTAs, I’ll be talking about our recent studies on the Columbia and Korea agreements.