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.

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Impact of ATPDEA on Drug-Crop Eradication
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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
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.

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Effect of FTA Negotiations on ATPDEA-Related Investment
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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.

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Performance of Investment in 2004
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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.

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Information on Specific ATPDEA-Related Investment Projects -
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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

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Foreign Direct Investment Activity in 2004
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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