COLOMBIA: 2010 NTE SUBMISSION

UNCLAS BOGOTA 003894

SIPDIS
USTR/GBLUE AND BHARMAN
WHA/AND BMONTANEZ
WHA/EPSC
EEB/TPP/BTA GSARRANO

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD CO
SUBJECT: COLOMBIA: 2010 NTE SUBMISSION

REF: STATE 105824


1. Per reftel, following is Embassy Bogota's submission for the
2010 National Trade Estimate Report, which has been e-mailed to
USTR, WHA/AND, WHA/EPSC and EEB/TPP/BTA.

TRADE PROMOTION AGREEMENT

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2. The United States-Colombia Trade Promotion Agreement (CTPA) was
signed on November 22, 2006. Colombia's Congress approved the CTPA
and a protocol of amendment in 2007. Colombia's Constitutional
Court completed its review in July, 2008 and concluded that the
Agreement conforms to Colombia's Constitution. In April 2008, the
United States submitted to the U.S. Congress legislation that would
approve the CTPA. The U.S. Congress did not act on the legislation
primarily due to concerns regarding violence against trade
unionists in Colombia. The Obama Administration has indicated that
it will promptly, but responsibly, address the issues surrounding
the CTPA.




3. The CTPA is a comprehensive free trade agreement. When the CTPA
enters into force, Colombia will immediately eliminate most of its
tariffs on U.S. exports, with all remaining tariffs phased out over
defined time periods. The CTPA also includes important disciplines
relating to: customs administration and trade facilitation,
technical barriers to trade, government procurement, investment,
telecommunications, electronic commerce, intellectual property
rights, and labor and environmental protection. Under the CTPA,
U.S. firms will have better access to Colombia's services sector
than other World Trade Organization (WTO) Members have under the
General Agreement on Trade in Services (GATS). All service sectors
are covered under the CTPA except where Colombia has made specific
exceptions.



IMPORT POLICIES

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Tariffs:




4. Since the 1990s, Colombia has reduced customs duties and
eliminated many nontariff barriers. Most duties have been
consolidated into three tariff levels: 0 percent to 5 percent on
capital goods, industrial goods, and raw materials not produced in
Colombia; 10 percent on manufactured goods, with some exceptions;
and 15 percent to 20 percent on consumer and "sensitive" goods.
Exceptions include: automobiles, which are subject to a 35 percent
tariff; beef and rice, subject to an 80 percent duty, milk and
cream, subject to a 98 percent tariff (until 2010); and whey, which
is currently levied a 94 percent import duty. Other agricultural
products fall under a variable "price band" import duty system
established by Decision 371 of the Andean Community of Nations
(CAN).




5. The price band system includes 13 product groups and covers 154
tariff lines, which, depending on world commodity prices, can
result in duties exceeding 100 percent for important U.S. exports
to Colombia, including corn, wheat, rice, soybeans, pork, poultry
parts, cheeses, and powdered milk. The price band system has been
suspended for milk powder and rice, and was reactivated for white
corn (Decree 671 of 2009) after a temporary suspension. The price
band system also negatively affects U.S. access to Colombian
markets for products such as dry pet food, which contains corn. By
contrast, processed food imports from Chile and countries bound by
commitments under the CAN (Peru, Ecuador, and Bolivia) enter duty
free.




6. When the CTPA enters into force, Colombia will immediately
eliminate its price band system on trade with the United States.


This, coupled with a preference clause included in the CTPA, will
help U.S. exports compete more effectively in Colombia's market.
Over half of the value of current U.S. agricultural exports to
Colombia will enter duty free upon entry into force of the CTPA,
including high-quality beef, a variety of poultry products,
soybeans and soybean meal, cotton, wheat, whey, and most
horticultural and processed food products. U.S. agricultural
exporters also will benefit from duty free access through
tariff-rate quotas (TRQs) on corn, rice, poultry parts, and dairy
products.




7. Over 80 percent of U.S. exports of consumer and industrial
products to Colombia will become duty free immediately upon
implementation of the CTPA, with remaining tariffs phased out over
10 years. Colombia agreed to join the WTO Information Technology
Agreement, removing tariffs and addressing nontariff barriers to
information technology products.



Nontariff Measures:




8. Nontariff barriers include discretionary import licensing, which
has been used to restrict imports of milk powder (Resolution 2551
of 2002) and poultry parts (Resolution 001 of 1991). The CTPA
contains provisions that should address this issue. The Colombian
government maintains tariff-rate quotas for rice, soybeans, yellow
corn, white corn, and cotton (Decree 430 of 2004) and requires that
importers purchase local production in order to import under the
tariff-rate quota. Under the CTPA, the government of Colombia
committed to ensuring that access to a TRQ in-quota quantity will
not be conditioned on the purchase of domestic production.




9. Based on CAN Decision 331, Colombia does not permit the
importation of used clothing. Importers of used and remanufactured
goods may apply for licenses to bring products into Colombia under
limited circumstances (Resolution 001 of 1995). Industry reports
that in practice authorities do not grant such licenses, resulting
in the effective prohibition of these imports. Decree 4725 of 2005
prohibits the importation of used or refurbished medical equipment
that is older than five years, thereby limiting market access for
high-quality remanufactured products, such as imaging equipment.
Under the CTPA, Colombia affirmed that it would not adopt or
maintain prohibitions or restrictions on trade in remanufactured
goods and that certain existing prohibitions on trade in used goods
would not apply to remanufactured goods. This will provide
significant new export and investment opportunities for firms
involved in remanufactured products such as machinery, computers,
cellular phones, and other devices.




10. Colombia assesses a consumption tax on alcoholic beverages
through a system of specific rates per degree (percentage point) of
alcohol strength (Law 788 of 2002, Chap. V). Arbitrary breakpoints
have the effect of applying a lower tax rate to domestically
produced spirits and therefore create a barrier for imported
distilled spirits. Under the CTPA, Colombia committed to eliminate
the breakpoints for imports of distilled spirits within four years
of entry into force of the agreement. Additionally, Colombia
committed to eliminate practices that have restricted the ability
of U.S. distilled spirits companies to conduct business in
Colombia.



STANDARDS, TESTING, LABELING, AND CERTIFICATION

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11. Colombia maintains standards-related measures in the
following areas, which constitute significant barriers to U.S.
exports:



Measures Concerning Motorcycles and Helmets:


12. Colombia requires that a large percentage -- 20 percent --
of imported motorcycles be tested. Colombia does not have the
facilities to test large motorcycles.




13. Current motorcycle helmet standards act as barriers for the
import of American helmets. Lower quality helmets often have
testing requirements "waived," as no labs exist for required helmet
testing. Despite the fact that U.S. helmets often comply with
higher standards than those of Colombia, there is no mechanism in
place that allows them to be certified.



Sanitary and Phytosanitary (SPS) Measures:




14. Colombia maintains SPS measures in the following areas,
which constitute significant barriers to U.S. exports:



Poultry:




15. In 2006, the United States and Colombia formalized their
recognition of the equivalence of the U.S. meat and poultry
inspection systems, and reached agreement on the specific contents
of U.S. sanitary certificates accompanying U.S. poultry and poultry
products exported to Colombia. However, the Ministry of
Agriculture through its sanitary and phytosanitary regulatory
agency, the Colombian Agricultural Institute (ICA),has imposed
separate import requirements that do not follow the recommendations
of the World Organization for Animal Health (OIE) and have
adversely affected U.S. exports of cooked poultry meat, poultry
meal, and egg products.




16. The GOC issued law 1255 of November 28, 2008, as a legal
framework for preserving Colombia's poultry industry sanitary
conditions. This legislation deals mainly with the local
conditions for poultry production and distribution, but Article 17
bans imports of poultry products from countries with non-reportable
outbreaks of Avian Influenza (AI) and Newcastle disease. It also
stipulates a risk assessment to be undertaken by ICA before a
resolution is issued to allow resumption of poultry product
imports. It is unclear how ICA will conduct the risk assessment
and what the approximate date will be for the import ban to be
lifted.




17. Colombia also prohibits poultry imports originating from the
states of Arkansas, Minnesota, Idaho and Oregon. Requests for
additional technical information on the outbreaks have been used as
an excuse for a delay in lifting the ban.



Salmonella:




18. The National Institute of Medicine and Food Supervision
(INVIMA) has stated that a policy to replace the current
zero-tolerance approach for Salmonella is being developed. While
the new policy may be an acceptable stop-gap solution, the goal
remains a no-salmonella-testing policy for imports of raw poultry
meat. In early 2009, INVIMA agreed upon a mechanism with local
importers of mechanically deboned meat, which has avoided import
disruptions for the product up to this point.



Live Cattle:


19. Since 2003, the USG has been discussing with the Colombian
animal health authorities how to re-establish imports of live
bovines. Colombia has argued its obligation to follow CAN rules to
lift the restrictions on imports of live cattle, which has resulted
in delays on a country-led decision. The CAN Secretariat General
must change current rules to allow the issuance of a resolution
establishing the sanitary conditions for those imports. Canada has
already reached an agreement with Colombia on live cattle imports.




Live Hogs:




20. The U.S. and Colombia continue efforts to establish sanitary
conditions for imports of live hogs. Some technical aspects remain
to be resolved before Colombia opens its market to U.S. live hogs
for breeding.



Pet Food:




21. No pet food may contain any bovine ingredients other than
materials legally imported from a country recognized as free of
Bovine Spongiform Encephalopathy (BSE). U.S. officials continue to
engage Colombian authorities in pursuit of science-based import
requirements with respect to such trade.



GOVERNMENT PROCUREMENT

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22. Under the CTPA, Colombia agreed to provide U.S. goods,
services, and suppliers with national treatment. U.S. firms will
have access to procurement by Colombia's ministries and
departments, legislature, courts, and first-tier sub-central
entities, as well as a number of Colombia's government enterprises,
including its oil company. Currently, U.S. companies are required
to have a local partner in order to qualify for government
procurements. Once the CTPA enters into force, Colombia will not
be able to apply to CTPA-covered procurements Law 816 of 2003,
which mandates preferential treatment to bids that provide
Colombian goods or services. Colombia is not a signatory to the
WTO Agreement on Government Procurement.



EXPORT SUBSIDIES

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23. In a 2008 effort to ease the impact of an appreciating peso,
the Colombian government issued tax rebate certificates (known as
"CERTs"),to exporters in certain sectors. The value of the CERT
is worth 4 percent of total exports of designated goods. There
were no new CERT emissions in 2009, as of November.



INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION

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24. Colombian agencies that administer IPR - the Superintendent
of Industry and Commerce (SIC),the Colombian Agricultural
Institute (ICA),the Ministry of Social Protection, and the
Ministry of Justice - are historically understaffed and
underfunded. Extensive backlogs exist in the granting of patents,
copyrights, and trademarks. The patent regime in Colombia provides
for a 20 year protection period for patents and 10 year term for
industrial designs; protection is also provided for new plant
varieties. U.S. pharmaceutical and biotechnology companies are

concerned with the limited scope of patentable subject matter,
specifically with respect to improvements.




25. The CTPA provides for improved standards for the protection
and enforcement of a broad range of IPR, which are consistent with
both U.S. and international standards of protection and
enforcement. Such improvements include state-of-the-art
protections for digital products, such as U.S. software, music,
text, and videos; stronger protection for U.S. patents, trademarks,
and test data, including an electronic system for the registration
and maintenance of trademarks; and further deterrence of piracy and
counterfeiting, including by criminalizing end-user piracy.



Enforcement:





26. Enforcement of IPR has been slow and weak. Certain
infractions are considered criminal offenses and perpetrators can
be sentenced to prison and/or fined, but judges rarely impose those
penalties. The Colombian government has made a concerted effort in
recent years to enforce its intellectual property laws.
Coordination between the Colombian government and the private
sector is good, resulting in greater enforcement activities, such
as raids and arrests. Despite these improvements, intellectual
property industry representatives report that the level of
intellectual property enforcement is still a major concern,
particularly with regard to the rulings by judges.



SERVICES BARRIERS

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27. Implementation of the CTPA will require Colombia to accord
substantial market access across its entire services regime,
subject to a limited number of exceptions. Some restrictions, such
as economic needs tests and residency requirements, still remain in
sectors such as accounting, tourism, legal services, insurance,
distribution services, advertising, and data processing.



Legal Services:




28. Foreign law firms can operate in Colombia only by forming a
joint venture with a Colombian law firm and operating under the
licenses of the Colombian lawyers in the firm (Decree 196 of 1971).




Financial Services:




29. Colombia permits 100 percent foreign ownership of insurance
firm subsidiaries. It does not, however, allow foreign insurance
companies to establish local branch offices, except for 'general
interest' reasons (Decree 663of 1993). Insurance companies must
maintain a commercial presence to sell policies other than those
for international travel or reinsurance. Colombia prohibits the
sale of maritime insurance by foreign companies.




30. Colombian legislation permits 100 percent foreign ownership
in financial institutions. Foreign banks must establish a
subsidiary to operate in Colombia (Decree 663of 1993).




31. When the CTPA enters into force, Colombia will phase in
further liberalization in financial services, such as allowing
branching by banks and insurance companies and allowing the
cross-border supply of international maritime shipping and

commercial aviation insurance within four years of entry into force
of the Agreement. Under the Agreement, mutual funds and pension
funds will be allowed to seek advice from portfolio managers in the
United States.



Transportation:




32. Trans-border transportation services are restricted in
Colombia. Land cargo transportation must be provided by Colombian
citizens or legal residents with commercial presence in the country
and licensed by the Ministry of Transportation (Law 336 of 1996).
Colombian law permits international companies to provide cabotage
services (i.e., transport between two points within Colombian
territory) "only when there is no national capacity to provide the
service." Under the terms of the CTPA, Colombia committed to allow
100 percent foreign ownership of land cargo transportation
enterprises in Colombia.



Telecommunications:




33. Colombia currently permits 100 percent foreign ownership of
telecommunications providers, and U.S. companies can obtain the
right to interconnect with Colombian dominant suppliers' fixed
networks at nondiscriminatory and cost-based rates. When the CTPA
enters into force, U.S. firms will be able to lease lines from
Colombian telecommunications networks on nondiscriminatory terms
and re-sell most telecommunications services of Colombian suppliers
to build a customer base.




34. One trade association has complained that the creation of a
"convergent license" category (Decree 2870 of 2007 and Resolution
2478 of 2007) has resulted in the imposition of licensing
conditions that are burdensome for some carriers (particularly
smaller carriers) because they require accounting separation, the
posting of a performance bond, and - in the case of long distance
service suppliers - a modification of the company's legal entity.




35. The recently passed Postal Services Law allows the Colombian
government to cross-subsidize the state-owned postal company, which
could give it an unfair competitive advantage over U.S. express
courier service companies.



INVESTMENT BARRIERS

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36. Foreign investment in Colombia is granted national
treatment, and 100 percent foreign ownership is permitted in most
sectors. Exceptions exist for national security (Decree 356 of
1994),broadcasting, (Law 680 of 2001) and the disposal of
hazardous waste (Decree 2080 of 2000).




37. Colombia agreed to strong protections for U.S. investors in
the CTPA. When it enters into force, the Agreement will establish
a stable legal framework for U.S. investors operating in Colombia.
All forms of investment will be protected under the CTPA. U.S.
investors will enjoy in almost all circumstances the right to
establish, acquire, and operate investments in Colombia on an equal
footing with local investors. The CTPA's investor protections will
also be backed by a transparent, binding investor-state arbitration
mechanism.




38. In certain cases, the Government of Colombia does not allow
arbitration clauses in contracts, to which it is a party.
Enforcement of arbitration judgments against the Colombian


government, as well as municipal and departmental governments, is
very difficult.
BROWNFIELD