ATPDEA-RELATED INVESTMENT ACTIVITY DURING 2004

UNCLAS SECTION 01 OF 04 BOGOTA 005762 SIPDIS STATE PASS TO USTR USDOC FOR USITC/LMSCHLITT E.O. 12958: N/A TAGS: ETRD OTRA ASEC CO SUBJECT: ATPDEA-RELATED INVESTMENT ACTIVITY DURING 2004 REF: SECSTATE 70739 ¶1. (U) Below is Post's response to the U.S. International Trade Commission's request for information regarding Andean Trade Preferences and Drug Eradication Act (ATPDEA)-related investment in Colombia during 2004. ¶2. Over the past decade, ATPA/APTDEA has provided significant economic benefits to Colombia. It is estimated that over 123,000 jobs were created by ATPA in its first 10 years, and that by the end of 2006, 140,000 new jobs will be created by the expanded benefits extended under ATPDEA. Since 1993, Colombian exports to the U.S. market have been increasing in value as a percentage of total Colombian exports worldwide. ATPDEA has made possible the duty-free entry of approximately 6,500 product categories from Colombia. ¶3. In 2004, total Colombian exports to the U.S. market grew to a record USD 7.36 billion. In fact, these exports have grown by over USD 2 billion since the ATPDEA program went into effect in 2002. During this same period, U.S. exports to Colombia increased by over USD 800 million to reach its current USD 4.2 billion. ¶4. In 2004, 39.5 percent of Colombian exports went to the U.S. Of these exports, approximately USD 3.3 billion fell under ATPDEA. It is interesting to note that while total Colombian exports to the U.S. increased by 12 percent between 2003 and 2004, ATPDEA program exports increased by 39 percent. ¶5. Petroleum and its derivatives are currently the most important ATPDEA beneficiary, followed by the flower sector, apparel and textiles (including leather products), construction material (mainly glass and ceramic products), gold products, and fresh fruit. These sectors account for more than 90 percent of Colombian ATPDEA exports to the United States by value. Petroleum and petroleum derivatives currently account for 69 percent of Colombian ATPDEA exports, due to the boost in international oil prices in the last year. -------------- Impact of ATPDEA on Drug-Crop Eradication -------------- ¶6. ATPDEA benefits provide an important complement to existing anti-narcotics programs. Colombia is currently the third largest recipient of U.S. assistance in the word (some USD 3.5 billion since FY 2000). Sectors that receive ATPDEA benefits provide an important opportunity for legal �A;employment for those who move from illegal coca production. The flower sector in particular has generated over 100,000 new jobs, mostly in the areas immediately surrounding Colombia's two largest cities, Bogota and Medellin. The textile sector has also absorbed many individuals heading to the cities since the ATPDEA program came into effect in ¶2002. ¶7. Access to the U.S. market for ATPDEA exports is also important for supporting alternative crop prices at economically viable levels. ATPDEA preferences also bolster efforts by the Colombian private sector to press their Government on counter-narcotics reforms. The USG has enjoyed strong support from the private sector for important U.S. counter-narcotics goals, such as the passage of legislation on asset forfeitures and money laundering, increased penalties for narcotics offenses, increased eradication efforts and the passage of a strong extradition law. The Uribe Administration has shown its commitment as well. Over 200 extraditions have taken place during President Uribe's term. The Colombian government is committed to seeing narcotics traffickers jailed for their crimes, and Colombian law enforcement agencies are in complete cooperation with the U.S. Department of Justice. ¶8. The USG, through USAID, has provided approximately USD 584 million from 2000 through 2005, to support alternative development programs, democracy building, and internally displaced persons assistance. The programs target the development of income generation options in areas affected by illicit crops and the strengthening of institutional linkages between the state and its citizens. ¶9. The combined results of the USG and GOC efforts have been overwhelmingly positive. According to the Colombian National Police, in 2004, the country saw a 42 percent reduction in terrorist events. Kidnappings dropped by more than 35 percent, and homicides by 15 percent. Other major crimes were also substantially reduced. The U.S. counter- narcotics effort in Colombia has achieved significant results. According to the U.S. International Narcotics Control Strategy Report, the eradication program, the backbone of counter-narcotics efforts in Colombia, helped to bring a 21 percent reduction in cultivation in 2002 and a 15 percent reduction in 2003. In 2004, the U.S.-supported Anti- Narcotics Police Directorate sprayed a record 136,555 hectares of coca and 3,060 hectares of opium poppies. Manual eradication accounted for the destruction of an additional 10,991 hectares of coca and 1,497 hectares of opium poppy. As of May 31, 2005 the Colombian authorities sprayed 85,142 hectares of coca and 979 hectares of poppy and manually eradicated 5,701 hectares of coca and 260 hectares of poppy. Interdiction efforts have also increased dramatically, with 315 tons of illegal drugs seized in 2004. -------------- -------------- Effect of FTA Negotiations on ATPDEA-Related Investment -------------- -------------- ¶10. Many Colombians in the commercial and industrial sectors hope the US-Andean FTA (Free Trade Agreement) will be negotiated and go into effect before ATPDEA expires. The agriculture sector is seeking to block an agreement that includes agricultural products at reduced protection levels. Many companies have increased their strategic investments in anticipation of the FTA. Proexport, an office within the Ministry of Trade that promotes Colombian exports, has focused considerable effort on promoting investment in ATPDEA products. It hosts a standing Business Leader Committee at the ministerial level to coordinate GOC policy. There are also some 235 business associations that now exist in Colombia, some of which have played a critical role in working with the GOC during the FTA negotiations. -------------- Performance of Investment in 2004 -------------- ¶11. According to National Statistics Directorate, total investment in the Colombian economy increased by 13.6 percent in 2004. This increase is due, in large part, to President Uribe's democratic security policy which has returned confidence to local and foreign investors. The sectors that registered the largest growth rates in new investment were construction (30 percent) and transportation equipment (18.7 percent),both of which are not ATPDEA beneficiaries. The major growth sector for foreign direct investment was the mining and hydrocarbons sector, which enjoys ATPDEA benefits. The industrial sector showed a 16.3 percent increase in investment during 2004. This sector includes important ATPDEA beneficiaries such as the textile, apparel, and construction materials industries. -------------- -------------- Information on Specific ATPDEA-Related Investment Projects - -------------- -------------- ¶12. A 2004 poll of manufacturers by ANDI, the Colombian industrial association, showed that nearly 70 percent of those polled were developing strategies to improve their market position to take advantage of ATPDEA and the US- Andean FTA currently under negotiation. Ascoltex, the Colombian textiles association, reported that textile and apparel producers invested approximately USD 100 million in new capital goods to expand capacity. It is expected that between 2004 and ATPDEA's expiration in 2006, the textile, apparel and leather industries will receive over USD 500 million in new investment, with the vast majority coming from the United States. The following 13 companies were selected from a list of more than 4,000 companies that exported to the U.S. during 2004. These companies constitute a sample of some of the largest ATPDEA beneficiaries in some of the largest ATPDEA beneficiary sectors such as petroleum, flowers, fresh fruit, sugar products and construction materials. However, some specific companies in these sectors provided more general information. ¶A. Company Name: Ecopetrol ¶B. 2004 Investment: USD 88 million. ¶C. New or expansion investment? Expansion ¶D. Located in Free-Trade Zone? No ¶E. Product Exported to the U.S.: Oil and derivatives ¶F. Estimated Exports to the U.S.: USD 1.3 billion ¶G. Would investment occur without ATPDEA? Yes ¶H. U.S. Inputs: Yes ¶A. Company Name: Occidental de Colombia Inc. ¶B. 2004 Investment: USD 263 million between 2004 and 2010 ¶C. New or expansion investment? Expansion ¶D. Located in Free-Trade Zone? No ¶E. Product Exported to the U.S.: Oil and derivatives ¶F. Estimated Exports to the U.S.: USD 249 million ¶G. Would investment occur without ATPDEA? Yes ¶H. U.S. Inputs: Yes ¶A. Company Name: Petrobras Colombia ¶B. 2004 Investment: USD 45 million ¶C. New or expansion investment? New ¶D. Located in Free-Trade Zone? No ¶E. Product Exported to the U.S.: Oil and derivatives ¶F. Estimated Exports to the U.S.: USD 97.7 million ¶G. Would investment occur without ATPDEA? Yes ¶H. U.S. Inputs: Yes ¶A. Company Name: Union de Bananeros de Uraba S.A. ¶B. 2004 Investment: USD 1.3 million ¶C. New or expansion investment? Expansion ¶D. Located in Free-Trade Zone? No ¶E. Product Exported to the U.S.: Bananas ¶F. Estimated Exports to the U.S.: USD 50.3 million ¶G. Would investment occur without ATPDEA? No ¶H. U.S. Inputs: Yes ¶A. Company Name: Industrias e Inversiones El Cid Ltda. ¶B. 2004 Investment: USD 1.8 million ¶C. New or expansion investment? New ¶D. Located in Free-Trade Zone? No ¶E. Product Exported to the U.S.: Apparel ¶F. Estimated Exports to the U.S.: USD 48.6 million ¶G. Would investment occur without ATPDEA? No ¶H. U.S. Inputs: Yes ¶A. Company Name: C.I. Jeans S.A. ¶B. 2004 Investment: USD 1.5 million ¶C. New or expansion investment? Expansion ¶D. Located in Free-Trade Zone? No ¶E. Product Exported to the U.S.: Apparel ¶F. Estimated Exports to the U.S.: USD 39.4 million ¶G. Would investment occur without ATPDEA? No ¶H. U.S. Inputs: Yes ¶A. Company Name: Cia Colombiana de Ceramica S.A. ¶B. 2004 Investment: USD 500,000 ¶C. New or expansion investment? Expansion ¶D. Located in Free-Trade Zone? Yes ¶E. Product Exported to the U.S.: Ceramic and other construction materials ¶F. Estimated Exports to the U.S.: USD 35.4 million ¶G. Would investment occur without ATPDEA? No ¶H. U.S. Inputs: Yes ¶A. Company Name: Confecciones Colombia S.A. ¶B. 2004 Investment: USD 350,000 ¶C. New or expansion investment? Expansion ¶D. Located in Free-Trade Zone? No ¶E. Product Exported to the U.S.: Apparel ¶F. Estimated Exports to the U.S.: USD 30.4 million ¶G. Would investment occur without ATPDEA? Yes ¶H. U.S. Inputs: Yes ¶A. Company Name: The Elite Flower Ltda. ¶B. 2004 Investment: N/A ¶C. New or expansion investment? N/A ¶D. Located in Free-Trade Zone? No ¶E. Product Exported to the U.S.: Flowers ¶F. Estimated Exports to the U.S.: USD 23.9 Million ¶G. Would investment occur without ATPDEA? No ¶H. U.S. Inputs: Yes ¶A. Company Name: CI Sunshine Bouquet Ltd. ¶B. 2004 Investment: N/A ¶C. New or expansion investment? N/A ¶D. Located in Free-Trade Zone? No ¶E. Product Exported to the U.S.: Flowers ¶F. Estimated Exports to the U.S.: USD 22.1 Million ¶G. Would investment occur without ATPDEA? Probably not ¶H. U.S. Inputs: Yes ¶A. Company Name: CI de Azucares y Mieles S.A. ¶B. 2004 Investment: USD 30,000 ¶C. New or expansion investment? Expansion ¶D. Located in Free-Trade Zone? No ¶E. Product Exported to the U.S.: Sugar products ¶F. Estimated Exports to the U.S.: USD 20.1 million ¶G. Would investment occur without ATPDEA? Yes ¶H. U.S. Inputs: No ¶A. Company Name: Rex Gold Ltda. ¶B. 2004 Investment: USD 55,000 ¶C. New or expansion investment? New ¶D. Located in Free-Trade Zone? No ¶E. Product Exported to the U.S.: Jewelry ¶F. Estimated Exports to the U.S.: USD 18 million ¶G. Would investment occur without ATPDEA? Yes ¶H. U.S. Inputs: Yes ¶A. Company Name: Productora de Capsulas de Gelatina S.A. ¶B. 2004 Investment: USD 150,000 ¶C. New or expansion investment? Expansion ¶D. Located in Free-Trade Zone? No ¶E. Product Exported to the U.S.: Gelatin Capsules ¶F. Estimated Exports to the U.S.: USD 6.1 million ¶G. Would investment occur without ATPDEA? No ¶H. U.S. Inputs: Yes -------------- Foreign Direct Investment Activity in 2004 -------------- ¶13. According to a recent report produced by the United Nations Economic Commission for Latin America and the Caribbean, in 2004 foreign direct investment (FDI) in Colombia grew by USD 2.4 billion or 41 percent. This was up from USD 1.7 billion in 2003. Colombia ranked first in net FDI flows among Andean countries and third in South America, after Brazil and Chile. This increase in FDI represents a significant turnaround from the declining trend of previous years wherein security problems led to the perception of Colombia as a high-risk investment environment. According to Colombia's Investment Promotion Agency Coinvertir, foreign portfolio investment reached USD 743 million in 2004 versus a USD 1.03 billion outflow in ¶2003. Analysts have attributed the 2004 investment results to President Uribe's democratic security policies which have improved investors' perceptions of Colombia. ¶14. (U) FDI in Colombia is primarily in the manufacturing, mining and wholesale sectors. According to Coinvertir, the sectors that received the largest amounts of FDI in 2004 were mining and quarrying (USD 1.2 billion) and petroleum (USD 571 million). These two sectors accounted for 75 percent of FDI, followed by transportation and telecommunications (USD 256 million),manufacturing (USD 201 million) and banking (USD 180 million). ¶15. New FDI flows from the U.S. increased significantly in 2004, reaching USD 874 million by year-end (versus capital inflows of USD 273 million in 2003). The United States is the largest foreign investor in Colombia, representing 16 percent of total foreign investments. In 2004 total U.S. foreign direct investment in Colombia totaled approximately USD 7.3 billion. Drucker