USTR - 1996 National Trade Estimate-Columbia
Office of the United States Trade Representative

 

1996 National Trade Estimate-Columbia

In 1995 the U.S. trade surplus with Colombia was $873 million, or $25 million less than it was in 1994. U.S. merchandise exports to Colombia in 1995 were $4.63 billion, up 14 percent from 1994. Colombia was the United States' twenty-fifth largest export market in 1995. U.S. imports from Colombia totaled $3.76 billion in 1995, up 18.4 percent from 1994.

The stock of U.S. foreign direct investment was $3.4 billion in 1994, 12 percent greater than in 1993. The United States is the largest foreign investor in Colombia. U.S. direct investment in Colombia is concentrated largely in manufacturing, petroleum, and finance.

IMPORT POLICIES

Under an economic liberalization plan known as "apertura" (opening), Colombia has substantially reduced tariffs, eliminated almost all import licensing requirements, simplified import and export procedures, established a free market exchange regime (with some conditions), created transparent and more liberal foreign investment rules, and opened up nearly all sectors of the economy for foreign investment. However, the agricultural sector has been a general exception to this opening.

Tariffs

Colombia's average tariff rate is about 12 percent ad valorem. As a result of the Uruguay Round, however, Colombia bound most of its rates at 35 to 40 percent. Most products also are subject to a 16 percent value- added tax, up from 14 percent as the result of a tax reform measure passed by Congress in December 1995. This tax applies to domestically-produced goods as well as imports. While not an import tariff, it has a great impact on the entire economy.

Colombia and its Andean Pact partners established a common external tariff (CET), which took effect on February 1, 1995. The CET has a four-tier structure, with levels of 5, 10, 15, and 20 percent for most products. In accordance with the Andean Pact CET, Colombia harmonized its four-tier tariff schedule with Venezuela and Ecuador, with some exceptions taken by each country. (Bolivia retains its two-tier tariff structure of 5 and 10 percent, and Peru, its structure of 15 and 20 percent).

Colombia also adopted a harmonized automotive policy with Venezuela and Ecuador -- which entered into effect on January 1, 1995 -- establishing common external tariff rates of 35 percent for passenger vehicles, 15 percent for mass transit and cargo vehicles, and three percent for kits. The policy includes regional content requirements.

In recent years Colombia has negotiated trade arrangements with other Latin American and Caribbean countries. Colombia already has a partial free trade agreement with Chile and a comprehensive free trade agreement with Mexico and Venezuela, known as the G-3 Agreement, took effect January 1, 1995. All of

Colombia's bilateral and regional trade agreements are based on Latin American Integration Association (ALADI) regulations and procedures. Agreements such as those negotiated with Cuba, Panama, Central America, and CARICOM have either been ineffective or have not been fully implemented.

Non-Tariff Measures

Colombia now requires import licenses on less than two percent of products, including weapons and other products related to defense and "precursor" chemicals that may be used in refining cocaine. The majority of "used" goods, such as machinery, used cars, tires, and clothing, are prohibited from import and those that are allowed are subject to prior licensing. In addition, prior to importation into Colombia, all importers must apply to the Colombian Trade Institute (INCOMEX) for a registration form called the "Registro de Importacion."

While much import liberalization has occurred in recent years, the agriculture sector remains protected. Decree 2439 of November 2, 1994 requires the Ministry of Agriculture to approve import licenses for many agricultural items such as wheat, poultry meat, malting barley, corn, rice, sorghum, wheat flour, oilseeds and their products, soybeans, soybean meal, and soybean oil. Private importers are more likely to have their import licenses approved if they also buy domestically-produced wheat, sorghum, palm oil or malting barley. This import licensing regime is clearly discretionary and thus is not consistent with Colombia's obligations under Article 4:2 of the WTO Agreement on Agriculture -- although the Government of Colombia (GOC) claims to have a five-year phase-out period for the licensing regime from its July 1994 notification to GATT 1947. If the import licensing requirement for the products indicated above were eliminated, it is estimated that U.S. annual exports would increase by $10 million.

Thirteen basic agricultural commodities -- powdered milk, wheat, malting barley, yellow and white corn, crude palm and soybean oils, white rice, soybeans, white and raw sugars, chicken pieces and pork meat -- and an additional 120 commodities that are considered substitutes or related products are subject to a variable import tariff "price band" system. Imported wheat is also subject to minimum import prices as determined by the GOC. There are at this time no reliable figures showing how much U.S. exports would increase if the price band system were eliminated.

Since July 1993, the Colombian Foreign Trade Institute (INCOMEX) has required a "previous" import license for chicken parts. Under this system, the GOC has approved import licenses only when the GOC has determined such imports will not adversely affect Colombian chicken producers. Throughout 1994 and to date, import licenses to import U.S. chicken parts have been regularly denied. If the import licensing requirement for chicken parts is eliminated, it is estimated that U.S. annual exports would increase by approximately $10 million.

Valuation of imported merchandise, previously the responsibility of the Customs Service, can now ostensibly be done by importers who self-value, assess, and pay duties and other taxes at commercial banks. Customs clearance processes in many instances can be performed fairly rapidly. However, according to U.S. industry, Colombia's pre-shipment inspection of imported equipment is required to be done by an independent testing agency, a procedure which results in unnecessary delays. Through a series of resolutions dating to November 1994, the GOC has created a pre-shipment inspection (PSI) mechanism using private PSI

companies. Upon acceding to the WTO Agreement on Preshipment Inspection, the GOC took measures to allow PSI companies to perform certain direct functions under the control of the National Tax and Customs Directorate (DIAN). Implementation of the PSI program, originally scheduled for April 1995, has been postponed several times. As of February 1, 1996, PSI companies began to mandatorily pre-clear all goods defined as "sensitive" by the GOC.

GOVERNMENT PROCUREMENT

An October 1993 government procurement and contracting law, Law 80, provides equal treatment to foreign companies on a reciprocal basis and eliminates the 20 percent surcharge previously added to foreign bids. In implementing Law 80, the GOC has instituted a burdensome requirement that companies without local headquarters must certify reciprocity in government procurement in their home country. In June 1995 the U.S. Embassy began issuing certificates of reciprocity, which has proven to be successful in meeting this requirement. Law 80 does not apply to contracts for the exploration and exploitation of renewable or non-renewable natural resources, their commercialization, and those activities performed by state companies involved in these sectors; nor does it apply to contracts for telecommunications, radio, television, and long distance telephone services. These contracts are governed by other laws. Colombia is not a signatory to the WTO Agreement on Government Procurement.

U.S. providers of telecommunications services have encountered difficulties in bidding on contracts. The bidding process suffers from a lack of transparency and other irregularities. One U.S. company lost bids on contracts worth over $100 million amid allegations of illicit payments made by competitors. Other U.S. companies have found themselves unable to enter the bidding process owing to their unwillingness to offer financial incentives. In another case, a U.S. company has been judged the best contestant technically, legally, and financially by two different evaluating boards, but the final decision has repeatedly been delayed without explanation.

EXPORT SUBSIDIES

As a result of "apertura" and commitments made by the GOC to the U.S. Government in the context of acceding to the GATT Subsidies Code, Colombia agreed to phase out any export subsidies inconsistent with the previous Subsidies Code. This process will continue under the new WTO Agreement on Subsidies and Countervailing Measures. Colombia's Tax Rebate Certificate Program (CERT) contains a subsidy component; the GOC has committed to eliminating the subsidy and creating an equitable drawback system, but has not yet done so. The GOC also has notified the WTO of its "Special Machinery Import-Export System" and "Free Zones" as constituting export subsidies.

The GOC still provides export subsidies to flower exports to third countries. The negative impact of these subsidies on U.S. flower exports to the same markets is estimated at below $10 million.

LACK OF INTELLECTUAL PROPERTY PROTECTION

Despite significant improvement in recent years in the area of intellectual property rights (IPR), Colombia does not yet provide adequate and effective protection. As a result of its laws and practices -- especially its inadequate enforcement -- Colombia has been on the "watch list" under the Special 301 provision of the 1988 Trade Act every year since 1991. The United States continues to discuss intellectual property rights issues with Colombia and remains interested in negotiating an agreement on intellectual property rights protection. Colombia, which is a WTO member, has ratified its Uruguay Round implementing legislation, but has not fully implemented the provisions of the WTO Agreement on Trade-Related Aspects of Intellectual Property (TRIPs).

Patents and Trademarks

In late 1993 the Andean Pact passed two Decisions on the protection of patents and trademarks and of plant varieties. These Decisions took effect in Colombia on January 1, 1994. The Decisions are comprehensive and offer a significant improvement over previous standards of protection for intellectual property in the Andean Pact countries. For example, they provide a 20-year term of protection for patents, reversal of the burden of proof in cases of alleged patent infringement, and allow each member of the Andean Pact to improve its own respective patent law. The portions of the decision covering protection of trade secrets and new plant varieties are generally consistent with world-class standards for protecting intellectual property rights.

However, these Decisions remain deficient with respect to patents and trademarks. The deficiencies include compulsory licensing provisions, working requirements, restrictions on biotechnology inventions, denial of pharmaceutical patent protection for patented products listed on the World Health Organization's Model List of Essential Drugs, lack of transitional ("pipeline") protection, and lack of protection from parallel imports. The Decisions also fail to address provisions for enforcing intellectual property rights protection.

Legislation passed December 28, 1994 to ratify the Paris Convention for the Protection of Industrial Property has encountered legal problems before Colombia's Constitutional Court. Nonetheless, the GOC expects to be able to become a full member by July 1, 1996.

The Colombian Government has made progress enforcing patent and trademark regulations. The agency in charge of patents and trademarks -- the Superintendency of Commerce and Industry -- has been undergoing a modernization process since 1992, resulting in more effective management. The trademark backlog from previous years has been cleared up, and new trademark and patent applications are now processed immediately. However, some 27,000 contentious cases are still pending.

Copyrights

Colombia has a modern copyright law, Law 44, promulgated in early 1993. The law extends protection for computer software to 50 years and defines computer software as copyrightable subject matter, but does not classify it as a literary work. Colombia belongs to both the Berne and the Universal Copyright Conventions.

In addition, in late 1993, the Andean Pact passed a Decision on copyright protection that establishes a generally effective and Berne-consistent system. This Decision took effect in Colombia as of January 1, 1994. However, it fails to address procedures for enforcing intellectual property rights.

The GOC has increased efforts to reduce video and audio piracy. Colombia's 1993 copyright law significantly increased penalties for copyright infringement, specifically empowering the Attorney General's office to combat piracy. As a result, record levels of seizures of pirated material took place in 1994. However, U.S. industry estimates that video cassette piracy continues to represent 60 percent of the video market and that more than 50 illegal duplication laboratories are operating in Colombia. Unauthorized parallel importation of U.S. videos continues to be a significant problem. Satellite signal and cable television losses due to piracy were estimated at $30 million in 1994 and $33 million in 1995, continuing to be a problem.

According to U.S. industry, Colombia maintains a policy of promoting unbranded pharmaceuticals at the expense of multinational companies. Law 100 establishes that the Colombian population will be covered by either Social Security or Health Promoting Entities (EPS) and that pharmaceutical products will be supplied based on a list of only 307 generic substances. If enforced, Law 100 would bring about the disappearance of the brand name pharmaceutical market in Colombia.

SERVICES BARRIERS

Colombia maintains barriers in a number of service areas, including audiovisual, franchising, data processing, and professional services. Content quotas on television broadcasts are applied at varying levels throughout the day. Colombia allows only 20 percent equity participation in advertising services. In addition, a minimum of 50 percent of any TV commercial for public broadcast network programming must be produced locally.

Colombia denies market access to foreign marine insurers and for the provision of legal advice by foreign lawyers and law firms. Foreign law firms are not permitted a commercial presence in Colombia unless the firm is headed by a Colombian attorney. Colombia requires a commercial presence to sell all insurance except international travel or reinsurance. Colombia permits 100 percent foreign ownership of insurance subsidiaries, but the establishment of branch offices of foreign insurance companies is not allowed.

Colombia also restricts the movement of personnel in several professional areas, such as architecture, engineering, law, and construction. Firms with more than ten employees can employ no more than 20 percent of specialists and 10 percent of unskilled laborers who are foreign nationals. In 1991 Colombia promulgated Resolution 51, which permits 100 percent foreign ownership in financial services, although the use of foreign personnel in the financial services sector remains limited to administrators, legal representatives, and technicians. For a full discussion of treatment of U.S. banking and securities firms, see the Department of Treasury's 1994 National Treatment Study.

Cargo reserve requirements have been eliminated. However, the Ministry of Foreign Trade reserves the right to impose restrictions on foreign vessels whose nations impose reserve requirements on Colombian vessels.

INVESTMENT BARRIERS

Investment screening has been largely eliminated and the mechanisms that still exist are generally routine and non- discriminatory. Legislation grants national treatment to foreign direct investors and permits 100 percent foreign ownership in virtually all sectors of the Colombian economy. However, in 1994, in an effort to curb money laundering, the Government prohibited foreign direct investors from obtaining ownership in real estate not connected with other investment activities.

All foreign investment in petroleum exploration and development in Colombia must be carried out by an association contract between the foreign investor and ECOPETROL, the state oil company. Generally favorable to foreign investors, the terms of the association contract have undergone changes in 1994 and 1995, which represent an improvement over the terms in effect since 1989 but are still not as attractive as the original terms introduced in 1976. The 1995 changes opened previously-reserved areas to foreign development and allowed for extensions of the length of association contracts during the last five years of the contract. These changes are not expected to make petroleum investment significantly more economically viable.

Although the Government opened small operating fields of less than 40 million barrels to foreign investment in 1995, it has not taken steps to make them more profitable to investors. The GOC has been imposing a "war" tax of approximately one dollar per barrel on foreign oil companies, which acts as an economic disincentive; according to a tax reform law adopted in December 1995, the war tax is being phased out on a two-tier schedule where for certain fields, the tax requirement expires December 31, 1997, and for others, it is gradually reduced until its elimination on December 31, 2000. The "war" tax is not imposed on new fields discovered after January 1, 1995.

STANDARDS, TESTING AND CERTIFICATION

The Colombian Foreign Trade Institute (INCOMEX) mandates compliance with specific technical standards for a variety of products. The particular specifications are established by the Colombian Institute of Standards (ICONTEC). Under Decree 300 of 1995, a certificate of conformity with Colombian standards is required prior to the importation of any good regulated by a standard. Inconsistencies in the application and enforcement of standards sometimes lead to problems for U.S. exporters. Two ICONTEC decrees require testing of cookware products to verify conformity with standards, but no testing facilities exist in Colombia, leading to different requirements for domestic as opposed to imported products. A lack of transparency also causes problems.

U.S. exporters have been attempting since November 1992 to introduce Bourbon and Tennessee Whiskey into Colombia. The superior alcohol levels of these U.S. products exceeds the maximum level permitted by Colombian National Institute of Health regulations for alcoholic beverages. Although the Colombian Institute of Standards has agreed to adopt a definition for bourbon based on the U.S. standard, the new standard has yet to be published, and U.S. companies are still unable to export their products to Colombia. The dollar amount of potential imports lost is not known.

Specific marks or labels are required only for pharmaceutical and food products. Labels on food or pharmaceutical products must indicate the name of the product, ingredients, name and address of the manufacturer, expiration date, and the total content. Pharmaceutical products must also bear a label, in Spanish, stating "sale under prescription," the generic name of the product, the net weight or quantity of active ingredients, the product's license number, the lot control number, and the product's expiration date.

OTHER BARRIERS

Regulatory Policy

Local content requirements exist in the automotive assembly sector as outlined in Decree 2642 of December 1993. This decree requires the following local content: passenger vehicle carrying up to 16 persons and cargo vehicles up to 10,000 pounds, 30 percent; all other vehicles, 15 percent.

Bananas

On January 9, 1995, USTR initiated a section 301 investigation of Colombia's implementation of the banana framework agreement (BFA) with the EU. On January 10, 1996, USTR determined that Colombia's policies, acts and practices were unreasonable or discriminatory and a burden or restriction on U.S. commerce. Taking into account the positive steps Colombia had taken in revising its internal banana regime and its willingness to cooperate with the United States in reforming the EU regime, USTR decided that the appropriate "action" was to implement a process aimed at addressing the outstanding issues, while stressing that additional "action" may still be taken.

Taxes

According to U.S. industry, Colombia applies a tax of 24 percent on income from sales of computer software. When combined with a remittance tax of nearly 10 percent on royalties, Colombia asses an aggregate tax of greater than 30 percent on foreign licensors.

Television Local Content Quotas

As part of the demonopolization of Colombia's government-owned television network, Colombia passed the Television Broadcast Law, Law No. 182/95, effective January 1995, which increases protection for all copyrighted programming by regulating satellite dishes, and permits private television broadcasters to compete with the government-owned broadcaster. It permits foreign direct investment in the Colombian motion picture industry, but limits foreign investment to 15 percent of the total capital of local TV production companies. The law increases restrictions on foreign content, including a complicated, burdensome system of subquotas for different hours of the day. The Colombian law requires broadcasters to transmit 70 percent locally-produced programming during prime time and a range of 0 to 40 percent during other times on national and future zonal television, and 50 percent locally-produced programming on regional channels and local stations. Retransmission of national TV productions are calculated to fill only part of the national content requirement, using the following formula: first retransmission -- one half of the broadcast time; second retransmission -- one third of the broadcast time; and third retransmission -- one fourth of the broadcast time.

The law includes burdensome restrictions on foreign investment mandating reciprocity requirements and requirements that foreign investors be actively engaged in television operations in their country of origin. Foreign investment also must involve an implicit transfer of technology. Colombia's quasi-independent National Television Commission has the authority to reduce these restrictions, but has not taken action in this area. The Foreign Trade Ministry has expressed an interest in having the WTO address the issue.

Unnecessary Restrictive Application of Phytosanitary Standards

In 1995 a few oriental fruit flies (bactrocara dorsalis) were trapped in non-production areas in California and Florida. Colombian authorities have reacted by requiring as of January 25, 1996 that all fresh fruit and vegetables originating from California and Florida to be fumigated at the port of entry with methyl bromide. USDA/APHIS does not consider the detections of the oriental fruit fly in non-production areas in California or Florida to be a threat to Colombian agriculture. If the fumigation requirement for fresh fruit and vegetables is maintained, it is estimated that most U.S. exports, valued at $1.3 million, will be lost as a result of the added cost and damage caused to the fruit by methyl bromide treatment.

According to U.S. industry, Colombian requirements for sanitary registrations to bring new products on the market is excessively long, taking six to eight months.

 
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