BILL ANALYSIS �
AJR 15
Page 1
Date of Hearing: August 23, 2011
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel P�rez, Chair
AJR 15 (Alejo) - As Introduced: August 15, 2011
SUBJECT : Colombia Free Trade Agreement and the California Cut
Flower Industry
SUMMARY : Memorializes to the U.S. Congress and the President
of the U.S. that California encourages the federal government to
consider the jobs and economic role the California floriculture
industry provides California when advancing free trade
agreements, specifically with Colombia. Specifically, this bill
makes the following findings and declarations:
1)Over 75% of domestically grown flowers are grown in
California, accounting for almost 20% of all flowers sold in
the United States, directly supporting more than 10,000 jobs
in the state, and having a $10.3 billion economic impact on
the economy;
2)The number of our state's flower farms is shrinking rapidly
due to federal trade policies beyond their control,
specifically with countries like Colombia that have benefitted
from the Andean Trade Preference Act and Colombian and U.S.
government subsidies for the past two decades;
3)ATPA countries, primarily Colombia, supplied 82% of the total
value of United States imports of fresh cut flowers in 2009,
being supported by roughly $210 million in subsidies and other
supports from the Colombian government from 2005 to 2009, as
well as millions of dollars provided through the U.S. Agency
for International Development. Colombian exports to the U.S.
increased 89% between 2002 and 2010, resulting in a rapid
decline in the number of domestic flower growers;
4)One of the 2010 Appropriations Conference Reports included
language urging the United States Secretary of Agriculture to
"use all available resources to support domestic flower
growers in their efforts to develop an efficient and
environmentally friendly transportation, storage, and
distribution system to better compete with foreign producers";
and
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5)Working with the California Cut Flower Commission, the state
agricultural commission that advocates on behalf of California
flower farmers, California floriculture has worked to remain
competitive by offering higher end products produced in an
increasingly environmentally sustainable manner and that
floriculture is an important California industry that must be
considered as the U.S. works to advance the pending U.S. -
Colombia Trade Promotion Agreement (CTPA).
FISCAL EFFECT : None
COMMENTS :
1)Author's purpose : According to the author, "AJR 15 would
encourage our federal government to consider the adverse
effects Free Trade Agreements have on California's
floriculture industry. Policies that promote Free Trade
Agreements have trumped California's floriculture industry's
position in the international market as well as domestically.
As a result, California continues to lose jobs in this
industry and the opportunity to generate millions of dollars
to our economy. AJR 15 recognizes that California growers are
working aggressively to overcome trade challenges through
innovation, diversification, and sheer determination. AJR 15
highlights that floriculture is an important California
industry that must be considered as the United States works to
advance the pending CTPA."
2)U.S. trade policy and state consultation process : The U.S.
Constitution grants the federal government the power to
negotiate treaties and trade agreements. Ratification,
however, is vested in the U.S. Congress upon a two-thirds vote
of approval. Congress is prohibited from making amendments to
the trade agreement, however, it is not uncommon for related
bills to accompany the passage of a trade agreement that
include mitigation provisions for economically impacted
communities, workers and businesses.
In recognition of this inability to modify specific elements
of trade agreements once negotiated and their far reaching
impact on state and local economies, Congress directs the U.S.
Trade representative (USTR) to seek advice from states
throughout the negotiation process. Among the 29
trade-related advisory committees, the USTR provides
administrative support to the Intergovernmental Policy
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Advisory Committee (IGPAC). The IGPAC is comprised of state
and local officials, including members of state legislatures,
state trade directors, and related national associations.
California state government does not have a position on IGPAC,
however, there is one California member, Carlos J. Valderrama,
who represents the Los Angeles Area Chamber of Commerce.
The U.S. has trade agreements in force with 17 countries
including Australia, Bahrain, Canada, Chile, Costa Rica,
Dominican Republic, El Salvador, Guatemala, Honduras, Israel,
Jordan, Mexico, Morocco, Nicaragua, Oman, Peru, and Singapore.
Congressional approval has not been provided for trade
agreements with Colombia, Korea, and Panama.
Besides trade agreements, the U.S. has a number of trade
preference programs that allow special access to U.S. markets
for countries that are considered developing markets and/or
where the U.S. wants to develop a stronger relationship.
Colombia currently has access to U.S. markets through the
nation's general preference provisions and the Andean Trade
Preference Act and the Andean Trade Promotion and Drug
Eradication Act. The purpose of these two acts is to assist
Bolivia, Colombia, Ecuador, and Peru "promote broad-based
economic development, diversification of exports,
consolidation of democracy, and to help defeat the scourge of
drug trafficking by providing sustainable economic
alternatives to drug-crop production in beneficiary
countries."
In addition to trade support, the U.S. funds Plan Colombia, a
multi-year initiative to reduce drug trafficking and promote
development. According to the Congressional Research Bureau,
more than $7 billion has been provided to Colombia (2000 to
2009) pursuant to this initiative.
3)California's role in foreign trade agreements : Over the years
Members have expressed concern regarding the California
Legislature's involvement in what they deem to be federal
issues. Some have commented that these types of discussions,
international trade agreements as an example, distract Members
from their core responsibilities of approving and overseeing
the implementation of legislation and the state budget.
Other Members, however, believe that the U.S. trade model
clearly envisions a state role and provides the opportunity
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through IGPAC for states, including Legislatures, to engage
the USTR. Further, given the ever expanding scope of trade
agreements, it is important that states remain vigilant to
ensure that agreements which disadvantage their communities
are not ratified. As more California companies seek new
foreign markets for their products and services, ensuring that
trade agreements commit nations to basic human rights,
workers' rights, investor rights and environmental standards
also helps to maintain a more level playing field.
4)California Legislature opposes trade agreement with Colombia :
In 2010, the California Legislature passed AJR 27 (Res.
Chapter 145) that urged the U.S. Congress to oppose a free
trade agreement with Colombia. The primary basis for this
position, as documented through bill analyses, was Colombia's
record on human rights, particularly at it related to trade
unionists.
Since the adoption of AJR 27, there has been no action on the
CTPA by the U.S. Congress, although it has been reported that
Congress will take up all three unratified trade agreements
(Colombia, Panama and Korea) in September 2011.
AJR 15 proposes that the Legislature transmit additional
information to the U.S. Government and the President relative
to the CTPA. In this case, the new information relates to the
potential negative impact of implementing the CTPA to the cut
flower industry, its workers and the communities in which they
are located. The resolution is, however, unclear as to the
purpose of the information sharing. Is it the author's intent
to:
Provide a second set of objections to the ratification
of the trade agreement for the purpose of deepening the
opposition to the passage of the CTPA;
Provide a set of concerns to the ratification of the
trade agreement for the purpose of gaining its passage by
reopening the negotiations on the CTPA and/or to lobby for
new mitigation measures that will benefit the cut flower
industry; or
Provide this new information on behalf of the California
Legislature for some other purpose?
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The committee may wish to make an amendment to the resolution
to clarify its purpose.
1)U.S. Domestic Cut Flower Industry : The U.S. cut flower market
originated in California in the late 1870s when a Ventura
housewife, Theodosia Shepherd, began selling flowers she
raised in her garden. According to the California Cut Flower
Commission (CCFC) website, other women soon began to follow
Ms. Shepherd's example by bringing their own backyard grown
flowers to local markets, thereby establishing the retail
florist profession in the U.S. At the turn of the twentieth
century, most towns in the U.S. had just one florist. Today,
retail florists number some 40,000 nationwide, in addition to
thousands of supermarket cut flower departments and kiosks on
city streets and in shopping malls.
Nationwide, consumers purchase an estimated $17 billion in
floral items every year providing $5.5 million per day in
economic impact to the U.S. economy, supporting 19,000 jobs
and $2.4 million per day in salaries and wages. Roses remain
the best-selling among fresh cut flowers in the U.S., with 1.3
billion stems of roses being bought each year. Many U.S.
grown flowers, particularly roses, mums, and carnations, face
strong competition from imports, largely from Colombia and
Ecuador, according to the CCFC.
California is the top flower producing state in the country,
accounting for 75% of all domestically grown cut flowers in
the U.S. The state's top flower producing regions lie along
the coastal plains where there are more than 250 cut flower
growers. About 5,000 acres of land area is used to grow
commercial cut flowers in California, including 38 million
square feet of greenhouse area, 200 acres of shade cloth, and
4,000 acres of outdoor fields.
In 2007, sales of California cut flowers and foliage totaled
$330 million. Currently, California supplies approximately
20-25% percent of all cut flowers sold in the U.S. with the
balance being imported from South American countries,
including Colombia. The California cut flower industry
generates $64.7 million in taxes.
2)Background on Colombia : Colombia has a population of over
44.7 million with a literacy rate of 90.4%. The country is
located in the north-west corner of South America. It borders
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the Caribbean Sea between Panama and Venezuela and borders the
Pacific Ocean between Ecuador and Panama. Colombia is the
only South American country with coastlines on both the North
Pacific Ocean and Caribbean Sea. As a size comparison,
Colombia is slightly less than twice the size of the state of
Texas. In 2010, Colombia's GDP based on purchasing power
parity was estimated at $435 billion.
According to the CIA Fact Book which provides national
profiles on countries, "a four-decade conflict between
government forces and anti-government insurgent groups,
principally the Revolutionary Armed Forces of Colombia (FARC)
heavily funded by the drug trade, escalated during the 1990s.
The insurgents lack the military or popular support necessary
to overthrow the government, and violence has been decreasing
since about 2002, but insurgents continue attacks against
civilians and large swaths of the countryside are under
guerrilla influence or contested by security forces." In
2003, the Colombian government started a process of collective
demobilization of paramilitary groups, which led to the
adoption of what is commonly referred to as the Justice and
Peace Act, under which more than 31,000 members of
paramilitary groups were reportedly demobilized. However,
according to the CIA Fact Book, following demobilization a
number of criminal groups emerged with some of their
membership being those formerly in the paramilitary. The CIA
Fact Book confirms that the Colombian government has stepped
up efforts to reassert government control throughout the
country and now has a presence in every one of its
administrative departments.
The CIA Fact Book also reports that Colombia's economy has
experienced positive growth over the past five years despite
the ongoing armed conflict. Foreign direct investment (FDI)
hit a record $10 billion in 2008 due to, according to the CIA
Fact Book, a series of pro-business and open market reforms
advanced by then President Uribe and the opportunities
provided by the Andean Trade Promotion and Drug Eradication
Act. While FDI dropped in 2009 to $7.2 billion due to the
global recession, FDI rebounded in 2010 primarily through
increases in foreign investments in Colombia's oil reserves
and production.
Ongoing economic problems facing the Colombian government, as
cited by the CIA Fact Book, include inequality,
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underemployment, and narcotrafficking. Colombia remains a key
producer of illegal drugs, according to the CIA Fact Book,
being the world leader in coca cultivation with a significant
portion of narcotics proceeds being either laundered or
invested in Colombia through black market peso exchanges.
While coca cultivation was up 6% in 2007, opium cultivation
fell 25% in Colombia.
According to a July 2011 assessment of Colombia's economy by
the International Monetary Fund (IMF), Colombia's economic
recovery is well-entrenched. The IMF reports that inflation
pressures have been contained, the financial system is solid,
international reserves are strong, the sovereign debt rating
was raised to investment grade by all three rating agencies.
While these are positive economic indicators, the IMF also
reports that there remain high rates of structural
unemployment and poverty (46.8%).
3)Colombian cut flower industry : The Colombian cut flower
industry is considered by some as one of the major development
success stories in an emerging economy of the last 50 years.
Initially promoted and funded through the U.S. Agency for
International Aid (USAID) as a substitute for coca, the cut
flower industry grew from a small beginning in 1966 to what is
now a major contributor to the Colombian economy.
Cut flowers are the nation's leading nontraditional export and
rank among the top earners of foreign exchange along with
coffee, petroleum, and bananas. The industry is also
sometimes touted as a major employer of the low-skill and
largely female labor pool drawn from the low-income areas
surrounding Bogota, however, more recently, concerns have been
raised within the international aid and civil justice
community over poor working conditions and low wages. In
2008, Colombian exported 85% of its flowers to the U.S., but
in 2009, Colombian cut flowers began expanding their market
shares in the European Union and Asia markets, reducing cut
flower exports to the U.S. to 75% of total Colombian exports.
While perhaps a Colombian success story, concerns have been
raised by California flower producers that Colombian flower
growers have been receiving special treatment and unfair
economic advantages over domestic growers in the U.S. Among
other things, the CCFC sites the ongoing financial assistance
of the USAID and the open market advantages provided through
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the Andean Trade Promotion and Drug Eradication Act where
Colombian flowers receive duty-free treatment when entering
the U.S. As a result, Colombian exports to the U.S. increased
89% between 2002, when the Andean Trade Promotion and Drug
Eradication Act was implemented, and 2010. During this same
term U.S. acreage under cut flower cultivation declined by
22%.
4)Documented recent history of human rights abuses : As
currently drafted, AJR 15 does not comment on the human rights
abuses and ongoing intimidation that is occurring in Colombia.
In discussing the merits of the CTPA, however, it would be
negligent for the analysis to not document the basis for the
California Legislature's official opposition to the
ratification of the CTPA.
In The United Nations' Office of the High Commissioner for
Human Rights (OHCHR) has had an official presence in Colombia
since 1997. The Colombia OHCHR office plays a number of
roles, including serving as an observer and reporter on human
rights and international humanitarian law violations. In
addition to the country level-efforts of the OHCHR, the Human
Rights Council of the General Assembly of the United Nations
(HRC) has sent representatives to Colombia to assess
conditions.
In March 2010, the Special Rapporteur on the situation of
human rights defenders, i.e. people who advocate for human
rights, released a summary report on her most recent onsite
review. During the trip, she met with senior government
officials, human rights defenders and people in the
communities. In her findings, she acknowledges that Colombia
has made significant progress in improving the overall
security of the country between 2002, when President Uribe
took office, and 2008, including having a measurable decrease
in the number of homicides.
She also states, however, that she is deeply concerned about
the widespread phenomenon of threats being made against human
rights defenders (including unionists) and their families,
often through pamphlets, obituaries, emails, phone calls and
text messages. She states that she received numerous accounts
of threats in all places she visited in the country. This
phenomenon has reportedly worsened since the beginning of 2009
and this fact was corroborated to her by the Head of the
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Colombian National Police.
The report especially addresses the plight of trade unionists
and the increased threats and especially the continued
practice of "enforced disappearance and execution." Also
included in the report are concerns raised about the treatment
of indigenous leaders; Afro-Colombian leaders; activists for
displaced persons; women human rights defenders; journalists;
youth activists; church workers; lesbian, gay, bisexual and
transgender people; and magistrates.
Her recommendation to the international community is that it
should continue monitoring the situation of human rights
defenders, in particular the most targeted and vulnerable
ones, and to express support for the work of the human rights
defenders, among other venues, before international and
regional human rights compliance mechanisms. The HRC made
similar recommendations in 2010.
5)Concern for Colombian workers : International labor leaders
and those in the U.S. and California have repeatedly raised
concerns that the Colombian government does not have
sufficient laws, nor does it systematically enforce the laws
it does have, to protect the rights and lives of trade
unionists.
Fifty-one trade unionists were reported killed in Colombia in
2010, up from 48 in 2009. Labor leaders have repeatedly
stated that the Colombian government has been extremely slow
to arrest and bring to trial the people who were responsible
for the more than 2,700 murders of Colombian trade unionists
since 1986. Many of those that have been tried have been
tried in abstentia, resulting in no real justice for those who
have suffered at their hands.
Labor organizations say they can support trade if the terms of
the agreement are fair and create good opportunities for
workers in both countries. However, they believe that the
U.S. should not commit to deep and more permanent economic
integration, by way of a comprehensive trade agreement, with a
country with such a poor record on trade union and human
rights. These matters must be addressed as a precondition to
evaluating the trade agreement on its own merits. Union
leaders in the U.S. are strongly opposed to an affirmative
vote on the Colombia FTA.
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6)The question of ratification : The Colombian government,
generally corroborated by reports by the CIA and the World
Trade Organization, states that Colombia has made meaningful
economic strides in the last two decades. The policy question
is, however, whether progress is sufficient or whether there
are certain basic standards of civil society and human rights
that must be achieved in order for the U.S. to fully embrace a
nation as a free trade partner.
Supporters of CTPA, including the Government of Colombia,
believe that demonstrated progress is sufficient. Groups
opposed to the CTPA, however, believe that while progress
should be commended, civil society in Colombia has not yet
achieved the conditions under which the U.S. should move
forward on a trade agreement. The AFL-CIO, in its formal
comments to the USTR on CTPA in September 2009, state that
many of the roots of the political, economic and social crisis
in Colombia remain, and that a country needs to first meet
some set of minimum standards prior to the U.S. entering into
any agreement.
AJR 15 adds a second policy issue to the ratification
question. What responsibility does the federal government
have to support its domestic industries, workers and
communities in negotiating trade agreements - especially when
the foreign competition may have been developed though U.S.
subsidies?
The current language in AJR 15 is unclear as to whether the
California Legislature is calling on the U.S. Congress to
mitigate the potential damage caused by implementation of the
CPTA or to vote no on its ratification. The committee may
wish to clarify this matter as well as the intent of the
resolution in order to avoid any misunderstanding by the U.S.
Congress that California is reconsidering its earlier position
on the CFTA.
7)California's trade-based economy : International trade is a
very important component of California's $1.9 trillion
economy. If California were a country, it would be the 11th
largest exporter in the world. Exports from California
accounted for over 11% of total U.S. exports in goods,
shipping to over 226 foreign destinations in 2010.
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California's land, sea, and air ports of entry serve as key
international commercial gateways for products entering the
country. California exported $143 billion in goods in 2010
(up from $120 billion in 2009), ranking second only to Texas
with $163 billion in export goods. Computers and electronic
products were California's top exports in 2010, accounting for
30.1% of all state exports, or $43 billion.
--------------------------------------------------------
| 2010 Exports From California to the World |
--------------------------------------------------------
|-----------------------+-----------------+---------------|
| Product | Value ($) |Percent |
|-----------------------+-----------------+---------------|
|334 Computers & | 43,075,351,414| 30.1 % |
|Electronic Prod. | | |
|-----------------------+-----------------+---------------|
|333 Machinery (except | 14,486,638,626| 10.1 % |
|electrical) | | |
|-----------------------+-----------------+---------------|
|336 Transportation | 12,957,683,521| 9 % |
|Equipment | | |
|-----------------------+-----------------+---------------|
|325 Chemical | 11,590,683,001 | 8.1 % |
|Manufactures | | |
|-----------------------+-----------------+---------------|
|339 Misc. Manufactures | 11,502,854,621 | 8 % |
|-----------------------+-----------------+---------------|
|111 Agricultural | 9,353,709,931 | 6.5 % |
|Products | | |
|-----------------------+-----------------+---------------|
|All Others | 40,301,943,159 | 28.1 % |
|-----------------------+-----------------+---------------|
|Total | 143,268,864,273 | 100 |
| | |% |
---------------------------------------------------------
Small- and medium-sized firms generated more than two-fifths
(43%) of California's total exports of merchandise. This
represents the seventh highest percentage among states and is
well above the 29% national average export share for these
firms.
Mexico is California's top trading partner, receiving $21
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billion (15%) in goods in 2010. The state's second and third
largest trading partners are Canada and China with $16.1
billion (11%) and $12.4 billion (8.6%), respectively. Other
top-ranking export destinations include Japan, South Korea,
Taiwan, the United Kingdom, Hong Kong, Germany, and Singapore.
Relative to last year, the value of California products
exported to other counties increased significantly in 2010
($143 billion v. $120 billion). In California's highest
export category, computer and electronic products, exports in
2010 almost reached their 2006 high ($43 billion v. $44.3
billion).
8)Colombia and California trade relations : Exports from
Colombia were up nearly 30% in 2010 reaching $40.24 billion.
Key Colombia exports include petroleum, coffee, coal, nickel,
emeralds, apparel, bananas, and cut flowers. The U.S. is
Colombia's top export market followed by China. Exports to
China, Japan and Korea were noticeably up in 2010.
Relative to products being imported to Colombia, top imports
include industrial equipment, transportation equipment,
consumer goods, chemicals, paper, fuels and electricity.
Colombia was the U.S' 26th largest goods export market in
2008, for a total of $11.8 billion. Top states exporting to
Colombia in ranked order are Texas, Florida, Louisiana,
Illinois, Alabama and California (2006).
In 2010, California exported $408 million in goods to
Colombia. The major California goods exported to Colombia
were: computer & electronic products (34%); chemicals (12%);
machinery, except electrical (12%); petroleum and coal
products (10%). The remaining 32% percent was composed of all
other types of exports.<1> Below is a chart providing more
detailed information on California exports to Colombia in
2010.
------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
------------------------------------------------------------
| 2010 California Imports from Colombia |
------------------------------------------------------------
---------------------------
<1>
http://trade.gov/fta/colombia/california.pdf
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|-----------------------------------------+-----------------|
|All Commodities | 1,255,908,632|
|-----------------------------------------+-----------------|
|211 Oil & Gas | 977,422,352|
|-----------------------------------------+-----------------|
|111 Agricultural Products | 105,165,654|
|-----------------------------------------+-----------------|
|324 Petroleum & Coal Products | 51,747,344|
|-----------------------------------------+-----------------|
|315 Apparel & Accessories | 49,235,351|
|-----------------------------------------+-----------------|
|311 Food & Kindred Products | 25,130,175|
-----------------------------------------------------------
------------------------------------------------------------
| Source: |
|http://trade.gov/fta/colombia/california.pdf |
| |
------------------------------------------------------------
Supporters of the CTPA state that the agreement offers
tremendous opportunities for California exporters. Most
significantly, they cite a number of tariffs that will be
immediately eliminated (80%); the remaining tariffs will be
phased out over 10 years. Based on information from the U.S.
Department of Commerce, the following are examples of current
tariffs and their proposed reductions under CTPA:
a) Computers and Electronic Products : Current tariffs are
between 8 and 15%. The CTPA covers 100% of U.S. exports
under the Information Technology Agreement, which will
receive 100% duty free treatment immediately upon the
effective date of the CTPA.
b) Chemical Manufacturers : Current tariffs are between 8
and 20%. Upon the effective date of the CTPA, 82% of U.S.
chemical exports will receive duty free treatment, with the
remaining tariffs being phased out over 10 years. Examples
of chemical and related products include pharmaceuticals,
cosmetics, fertilizers, and agrochemicals. Strong economic
opportunities cited in the literature include chloride,
styrene, and polyethylene.
c) Machinery Manufacturers : Current tariffs are as high as
20%. Upon the effective date of the CTPA, 70% of U.S.
infrastructure and machinery products will receive duty
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free treatment, including pumps and compressors, filtration
equipment, and earth sorting equipment. Ninety-two percent
of agricultural equipment and 88% of construction
equipment, including bulldozers, mechanical shovels, boring
and sinking machinery, and dumpers, will immediately
receive duty free treatment, with the remaining tariffs
phased out over 10 years.
d) Agricultural Products : Upon the effective date of the
CTPA, 53% of tariffs on agricultural products will receive
duty free treatment. As an example, this includes 100%
elimination of the price band system that results in
tariffs as high as 159% on U.S. dairy products. All
Colombian duties on U.S. dairy products will be eliminated
in 15 years.
According to the CIA Fact Book, the Colombian business sector
continues to be concerned about the failure of the U.S.
Congress to approve the signed CTPA. Canada also has a
negotiated, but only recently ratified, a trade agreement with
Colombia.
REGISTERED SUPPORT / OPPOSITION :
Support
None received
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090