wikileaks ico  Home papers ico  Cables mirror and Afghan War Diary privacy policy Privacy
Identifier
Created
Classification
Origin
05BOGOTA2561
2005-03-17 19:22:00
UNCLASSIFIED
Embassy Bogota
Cable title:  

REGIONAL COLOMBIAN LIQUOR MONOPOLIES TARGET EACH

Tags:   ECON  ETRD  KIPR  CO 
pdf how-to read a cable
This record is a partial extract of the original cable. The full text of the original cable is not available.
						UNCLAS SECTION 01 OF 02 BOGOTA 002561 

SIPDIS

STATE FOR USTR - TIFFANY SMITH, COMMERCE FOR ITA/MAC/WH AND
COMPLIANCE CENTER

E.O. 12958: N/A
TAGS: ECON ETRD KIPR CO
SUBJECT: REGIONAL COLOMBIAN LIQUOR MONOPOLIES TARGET EACH
OTHER



1. Summary. Emboffs made a recent visit to one of Colombia's
regional "licoreras" to learn how these publicly held
monopolies manufacture and distribute Colombia's favorite
hard liquors, aguardiente (cane liquor) and rum. Emboffs
also held a follow on meeting with the Executive Director of
the National Association of Colombian Licoreras. These
meetings confirmed many of the suspicions of American liquor
exporters about the publicly held monopolies, and shed new
light on the complex political and economic forces shaping
the regulatory regime of liquor importation into Colombia.
End Summary.



--------------------------


Visit to the Licorera


--------------------------





2. In late February, emboffs visited the "Empresa de Licores
de Cundinamarca," the regional liquor monopoly for the
department immediately surrounding and including Bogota. The
visit to the physical production plant of Cundinamarca's
Nectar Aquardiente and Ron de Santa Fe provided a fine
display of the inefficient practices of a publicly held
monopoly. For instance, the Executive Director of the
National Association, Luz Maria Zapata, accompanied emboffs
and the factory director on the tour. She mentioned on an
aside that this was the first time she had seen the recently
upgraded machinery in the plant. She asked the plant
director if their efficiency had improved, to which he
responded yes. Zapata then asked how many people had been
fired as a result, and he responded none. He said that in
fact, they were now cleaning the medium sized factory four to
five times a day with all of the additional labor available.



3. It became clear in meetings after the factory tour that
the chiefs of the licorera were not well informed on issues
much beyond the actual production and distribution of their
own line of products. This surprised emboffs, as concerns
expressed by the Distilled Spirits Council of the United
States (DISCUS) implied that the licoreras themselves have a
regulatory role involved in the importation of liquors.



--------------------------


The Departments Pitted Against Each Other


--------------------------





4. At the follow-on meeting, Zapata was very open, and
clarified a number of issues. She noted that the national
laws concerning liquor importation delegate certain
authorities to the Departmental Assemblies, not to the
licorera monopolies. The rules allow the legislature of one
department to exclude the liquor of another Colombian
department. The decision making on excluding and targeting
any liquor from outside the department is political--left

entirely in the hands of the departmental government. The
licoreras only produce and market their own product. The
regions take great pride in their local liquors, but even
more importantly, they aggressively protect the market
against other Colombian departments. The tax revenues are
used for social and educational purposes. In short, the
discriminatory practices are more than just economic
protectionism of inefficient monopolies.



5. The protectionism of the departmental governments also
varies widely based on the attitudes and needs of the
population. The government of Antioquia (which has
Colombia's second largest city, Medellin) goes to great
lengths to shut out any outside competition. Cundinamarca
(which includes Bogota), on the other hand, is less
aggressive about closing the market to competition, though
national laws favor its rum over rival Ron Viejo de Caldas
(see para 9).



--------------------------


How the Law Works


--------------------------





6. The two national laws relevant to liquor controls are Law
223 of 1995 and Law 788 of 2002. Law 788 supercedes Law 223,
and contains three noteworthy aspects. First, it contains
the devolution of power discussed above--giving the majority
of power directly to the departmental governments. For
example, it gives the departmental governments the authority
to test alcoholic content, bringing only disputes to the
national government. The previous law maintained this
authority for the national government, giving department
governments only the authority to request testing when
desired. Another example is the addition in Law 788 of the
authority for departmental governments to place
discriminatory controls like minimum amounts sold and
contract taxes (participaciones) on all out of department
liquors, whether they be of Colombian or foreign origin. The
discriminatory concerns that the Distilled Spirits Council of
the United States (DISCUS) has raised, such as the use of
strip stamps by the regional governments, and requirements on
minimum amounts sold, are thus better understood as aimed at
inter-regional discrimination, not an attempt to specifically
exclude international goods from the market.



7. Second, Law 788 gives special status to the islands of
San Andres and Providencia, Colombia, islands situated off
the coast of Nicaragua. They are popular resort destinations
for Colombians, and constitute their own department. Law 788
explicitly exempts this department from consumption taxes on
foreign liquors that are imported directly to the islands,
without being nationalized on the mainland. Colombian
liquors from other departments are subject to a greatly
reduced tax, but are not entirely exempt like foreign
liquors.



8. Finally, Law 788 imposes a discriminatory consumption tax
regime based on alcohol content that appears to specifically
target imports. The Law 233 tax regime mandated the
following regime based on alcohol content:

--a 20 percent tax between 2.5 and 15 percent,
--a 25 percent tax between 15 and 20 percent,
--a 35 percent tax between 20 and 35 percent,
--a 40 percent tax in excess of 35 percent.

The new regime under Law 788 mandates this scheme, taxing
each percentage point of alcohol content the following rate
in pesos:

--a 110 peso tax between 2.5 and 15 percent,
--a 180 peso tax between 15 and 35 percent,
--a 270 peso tax in excess of 35 percent.



9. Aquardiente has a 29 percent alcohol content and
Colombian rum has either a 35 percent or 40 percent alcohol
content depending on the brand. (Note: Cundinamarca's Ron de
Santa Fe conveniently has a 35 percent alcohol content, while
rival Ron Viejo de Caldas has a 40 percent alcohol content.
End Note.) Many of the most popular American spirits are
above the 35 percent margin, and thus subject to a much
higher tax rate than aquardiente and some of the popular rum
brands.



--------------------------


Conclusions


--------------------------





10. The motivating force behind the monopolistic practices
in Colombia include regional pride and competition as opposed
to a concerted effort to guard the national market from
imports. Nevertheless, the article in Law 788 that places a
much higher tax on liquors with content over 35 percent does
appear to be a direct attempt to exclude foreign goods from
the market. Departments like Cundinamarca and San Andres
Island offer a much better climate for liquor importation
then departments like Antioquia. In the case of San Andres,
the market is purposefully left open by national law, while
in Cundinamarca, the popular rum brand is protected by the
national law, but the local legislature has been less prone
to use tactics like applying minimum amounts sold to protect
the local market. The four major licoreras may all be
inefficiently run monopolies, but they are very popular for
the tax revenues they generate for social spending in the
most populous departments. Executive Director Zapata argued
Americans should pay more attention to the beer market. She
claims that it is not the hard liquor sector that has the
worst discriminatory practices, but rather the beer sector.
Unlike hard liquors, she states, it is nearly impossible to
find imported beer in all of Colombia. While emboffs have
found foreign beer available in stores and restaurants,
American beer is scarce in Colombia.
WOOD