Colombia: September 1996
Colombia's market-opening measures, its implementation of the Uruguay Round commitments and its six-year effort at sound macro-economic management have created new investment opportunities and accelerated Colombia's integration in the world economy.
Colombia's liberalization process stimulates investment and leads to greater integration in the world economy
Colombia's market-opening measures, its implementation of the Uruguay Round commitments and its six-year effort at sound macro-economic management have created new investment opportunities and accelerated Colombia's integration in the world economy. According to a WTO Secretariat report on Colombia's trade policies and practices, Colombia's implementation of a major trade liberalization programme has resulted in significantly lower tariffs, fewer non-tariff measures and a number of market access commitments in professional and financial services. Offers have also been made in telecommunications and maritime transport services.
The new WTO report and one prepared by the government of Colombia will serve as the basis for two days of discussion on 25 and 26 September. Colombia's trade policies were last reviewed in 1990. Since then, Colombia's economy has grown at an average annual rate of over 5 per cent. Inflation, curbed from over 32 per cent in 1990 to just under 20 per cent in 1995, is expected to drop to 10 per cent by 1998.
Although traditional exports such as coffee, oil and coal, continue to influence the level of foreign exchange earnings, the Secretariat report states that in recent years export growth has largely been based on non-traditional exports. Although the United States is still Colombia's major trading partner, imports from preferential suppliers from the region, mainly Andean Group partners (Bolivia, Ecuador, Peru and Venezuela) have greatly expanded. Integration with the Andean Group has advancedmore than with any other group or country in the region. The Group has adopted a common external tariff and has suppressed barriers to virtually all intra-regional trade. Colombia is also pursuing the intensification of regional trading links though its membership of the G3 with Mexico and Venezuela, and of the Association of Caribbean States. It is examining the possibility of establishing a formal trade agreement with MERCOSUR and is also actively engaged in the negotiations to establish a Free Trade Area for the Americas.
The report notes that preferential access of Colombian exports to the region's markets as well as to the United States and the European Union has improved. Apart from ordinary Generalized System of Preferences (GSP) treatment, Colombian exports to the United States and the EU have benefitted since the early 1990s from extended preferential schemes. At present, Colombia is concerned about the possible withdrawal of trade preferences by the United States because of the illicit drug trade.
Border protection is now mainly in the form of tariffs, contained in the five-tier Common External Tariff (CET) of the Andean Group which has rates of 0, 5, 10, 15 and 20 per cent. Within the CET, tariff escalation still provides substantially higher effective protection for processing industries than is evident from nominal rates. The report notes that with the exception of "tariffied" agricultural items, WTO binding commitments cover the entire customs tariff. Ceiling levels, generally at 35 per cent, contrast with the average applied rate of 11.5 per cent.
Since the previous review, applied tariff protection for the manufacturing sector has been reduced to 11.6 per cent, less than half of the 1989 level, and import quotas have been eliminated. At present food processing, textiles, clothing and footwear have the highest average levels of tariff protection. Agriculture is supported by import licensing and variable levies; production-related measures adopted since 1993 are designed to help small scale producers and stimulate private sector participation in processing and marketing. The report states that recent and substantial protection is provided for the automotive sector by local-content and export performance requirements for the automotive sector. However, these should be eliminated by the year 2000 under the transitional arrangements of the WTO TRIMS Agreement.
Colombia has invoked the extended implementation periods available in the WTO for developing countries in such areas as customs valuation, export subsidies and Trade-related aspects of Intellectual Property Rights (TRIPS).
Following recent liberalization, financial services, transport, telecommunications, tourism and retail trade have grown strongly. Certain barriers or specific requirements on foreign investors or professionals remain in force, for example in audiovisual productions and broadcasting. Progress in reducing State participation in certain activities, especially in port facilities and transportation, has been achieved through privatization or the granting of concessions, as in telecommunications. In July 1995 Colombia's commitments under the General Agreement on Trade in Services (GATS), covering most modes of supply for a number of professional services, construction and engineering, were complemented with undertakings in the financial sector. Exemptions to m.f.n. treatment relate to previous obligations vis-à-vis Latin American and other partners. Initial offers have been submitted in the negotiations on maritime transport and basic telecommunications services.
The report concludes that Colombia's autonomous process of market-opening has been strengthened by the increased security of access resulting from its extended commitments in the Uruguay Round. The opening of the economy has created new investment opportunities, which should also be encouraged by improved macroeconomic stability, solid growth and ongoing fiscal reforms. The expansion of regional trade growth should continue as new agreements are forged. The report notes that full implementation of Uruguay Round commitments should further strengthen the liberalization process and Colombia's integration in the world economy.
Notes to Editors:
The WTO Secretariat's report, together with a report prepared by Colombia, will be discussed by the WTO Trade Policy Review Body (TPRB) on 25 and 26 September 1996. The WTO's TPRB conducts a collective evaluation of the full range of trade policies and practices of each WTO member at regular periodic intervals and monitors significant trends and developments which may have an impact on the global trading system.
Two reports, together with a report of the TPRB's discussion and of the Chairman's summing up, will be published in due course as the complete Trade Policy Review of Colombia and will be available from the WTO Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
The reports cover development of all aspects of Colombia's trade policies, including domestic laws and regulations, the institutional framework, trade policies by measure and by sector. Since the WTO came into force, the "new areas" of services trade and trade-related aspects of intellectual property rights are also covered. Attached are the summary observations from the Secretariat and government reports. Full reports will be available for journalists from the WTO Secretariat on request.
Since December 1989, the following reports have been completed: Argentina (1992), Australia (1989 & 1994), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992), Cameroon (1995), Canada (1990, 1992 & 1994), Chile (1991), Colombia (1990), Costa Rica (1995), Côte d'Ivoire (1995), Czech Republic (1996), Dominican Republic (1996), Egypt (1992), the European Communities (1991, 1993 & 1995), Finland (1992), Ghana (1992), Hong Kong (1990 & 1994), Hungary (1991), Iceland (1994), India (1993), Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992 and 1995), Kenya (1993), Korea, Rep. of (1992), Macau (1994), Malaysia (1993), Mauritius (1995), Mexico (1993), Morocco (1989 & 1996), New Zealand (1990), Nigeria (1991), Norway (1991 & 1996), Pakistan (1995), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), South Africa (1993), Sri Lanka (1995), Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Tunisia (1994), Turkey (1994), the United States (1989, 1992 & 1994), Uganda (1995), Uruguay (1992), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).
The Secretariats report: summary
TRADE POLICY REVIEW BODY: COLOMBIA
Report by the Secretariat Summary Observations
The Economic Environment
Since the first Trade Policy Review of Colombia in 1990, sound macroeconomic management has contributed to the continuous growth of the economy at average rates of over 5 per cent, although this may slow to 4 per cent in 1996. Progress has also been made, assisted by a Social Pact, in reducing inflation from over 32 per cent in 1990 to 19.5 per cent in 1995, and the National Development Plan envisages a reduction to 10 per cent by 1998.
These results have been achieved despite the potentially destabilizing effects on money supply of strong capital inflows. These inflows were stimulated by, inter alia, the liberalization of the foreign exchange and investment régimes, increased investment opportunities related to new oil discoveries and privatization, and high interest rates. The inflows also resulted in a real appreciation of the currency which has raised concerns about the competitiveness of Colombian exports, but falling inflation and the application of the crawling band exchange rate system seems to have reversed the appreciation in 1996. In July 1996, certain foreign direct investment requirements were relaxed.
Since 1993, Colombia's current account and merchandise trade balance has recorded a deficit. Faster import growth, mainly from regional trading partners, stimulated by trade liberalization and the real appreciation of the currency, has contributed an increasing share of trade in GDP. Although traditional exports such as coffee, oil and coal, continue to influence the level of foreign exchange earnings, in recent years export growth has largely been based on non-traditional exports, which rose from 39 per cent in 1991 to reach some 53 per cent of the total in 1995. Given the capital account situation, the current account deficit is seen as manageable.
Trade Policy Features and Trends
International economic integration
The implementation of the major trade liberalization programme (Apertura), initiated at the time of the first Trade Policy Review, has accelerated Colombia's integration in the world economy. The structure of tariffs has been rationalized and the rates lowered significantly to a simple average of 11.5 per cent. The coverage of non-tariff measures has been further reduced and now focuses on a few sectors subject to specific domestic or sub-regional policy objectives; balance-of-payments measures were eliminated in 1992. Apart from a few anti-dumping cases, no safeguard actions have been taken against imports from WTO partners.
Although the United States is still Colombia's major trading partner, imports from preferential suppliers from the region, mainly Andean Group partners, have greatly expanded. Integration with the Andean Group has advanced more than with any other group or country in the region; the Group has adopted a common external tariff and barriers to virtually all intra-regional trade have been suppressed. Colombia is also pursuing the intensification of regional trading links though its membership of the G3 with Mexico and Venezuela, and of the Association of Caribbean States, and is examining the possibility of establishing a formal trade agreement with MERCOSUR. It is also actively engaged in the negotiations to establish a Free Trade Area for the Americas.
Preferential access of Colombian exports to the region's markets as well as to the United States and the European Union has improved. Apart from ordinary GSP treatment, since the early 1990s Colombian exports to the United States and the EU benefit from extended preferential schemes. The possible withdrawal of ATPA preferences by the United States, related to the drugs issue, is of concern to Colombia.
Trade policy developments
Since the previous Trade Policy Review, Colombia has adopted a new Constitution, implemented its unilateral market opening programme (Apertura) and expanded trade commitments both at regional and multilateral level. In modernizing the political system, greater regional decentralization was introduced. Overall trade policy responsibilities were entrusted to a new Ministry of Foreign Trade, and the Central Bank (the Bank of the Republic) became fully independent. New or amended legislation was adopted in areas such as customs valuation, preshipment inspection, anti-dumping, safeguards and intellectual property rights to meet obligations undertaken in regional or multilateral fora, but implementing regulations remain to be introduced in a number of areas. Colombia has invoked the extended implementation periods available for developing countries in such areas as customs valuation, export subsidies, and TRIPS.
Border protection now relies mainly on tariffs, contained in the five-tier Common External Tariff (CET) of the Andean Group, with rates of 0, 5, 10, 15 and 20 per cent. Within the CET, tariff escalation still provides substantially higher effective protection for processing industries than is evident from nominal rates. WTO binding commitments cover the entire customs tariff, generally at a ceiling level of 35 per cent (against the average applied rate of 11.5 per cent), except for "tariffied" agricultural items. Provisions for tariff exemptions, for example on imported inputs, have been rationalized, eliminating many general exemptions, but the value of exempt imports has significantly increased.
Remaining sector- or product-specific measures affecting imports include variable import levies, domestic absorption contracts, differential levels of value-added tax on domestic products and imports, reference prices, restrictive import licensing (maintained mainly in connection with health, environmental, or security reasons), certain import prohibitions and local or sub-regional content requirements. State involvement in production and trading operations is being reduced. Since late 1993, compulsory standards have applied in a non-discriminatory manner; work on mutual recognition or harmonization of standards has been initiated with certain countries in the region. New government procurement legislation, concluded in 1993, gives equal treatment to local suppliers and companies from countries granting reciprocal treatment and eliminated a 25 per cent surcharge on offers by the latter.
Export taxes are levied on coffee, crude oil, gas, coal and ferro-nickel. Although no export prohibitions are in force, export restraints based on international or bilateral arrangements continue to affect coffee and textiles.
Assistance to non-traditional exports is still provided through the tax reimbursement certificate mechanism (CERT); the SIEX mechanism for duty-free access of machinery for export production; and a transport subsidy covering freight and transhipment fees for destinations to which Colombia does not maintain a direct cargo route. The use of the CERT and SIEX mechanisms has been reduced and, in accordance with WTO provisions, Colombia is to eliminate export subsidies for manufactures by the year 2003 and progressively cut budgetary outlays for exports of agricultural products. Certain Colombian exports (cut flowers, PVC films, disposable syringes and aluminium hollow sections) have been, or remain subject to, anti-dumping or countervailing measures in some foreign markets.
Since 1991, finance, insurance and promotion facilities for exports have been extended. The free-trade-zone régime has been revised; the administration of the zones has been privatized and their coverage expanded to include tourism-related activities.
Support to domestic production, including small and medium-size firms, is now limited to ensuring finance for modernization, training, technology transfer, development and environmental projects. Research and development is supported through fiscal incentives. Trade-related regional assistance is extended through the establishment of free zones, special customs régimes, preferential loans and guaranteed intervention prices for agriculture. Other agricultural assistance includes various low-cost loan schemes and debt relief for small producers. Since 1995, the negotiation of sectoral "competitiveness agreements" has been encouraged; these involve the creation of vertically-linked industries and are, inter alia, aimed at strengthening co-operation within sectors. Consumer price controls were eliminated in 1991, except for essential medicines and certain public services; however, minimum guaranteed prices exist for a limited range of agricultural products and intervention prices are set on an ad hoc, temporary basis for regional assistance.
The legal framework for the protection of intellectual property rights has been substantially reinforced through accession to international treaties and recent Andean Group Decisions. Since 1992, legislative and institutional changes have been introduced in the area of competition policy; a number of investigations on mergers have been carried out. Colombia has also increased its emphasis on environmentally sustainable development.
Sectoral Policy Developments
The agricultural sector enjoys protection under the Constitution and its revitalization, partly for social reasons, forms part of the Government's development plans. Liberalization under the Apertura programme has led to the reduction of average nominal tariff protection for the sector, as defined in terms of the Uruguay Round, to an average of 10.7 per cent, less then one third of its 1989 level, as well as the relaxing of import restrictions; this, combined with low world commodity prices in the early 1990s, the high level of domestic lending rates and adverse climatic conditions, has led to the decline in domestic production of certain import-competing crops.
As a response to this critical situation, under a new framework law of 1993, a range of measures has been adopted or strengthened, mainly to support small producers. Production-related measures currently include subsidized loans and land sales, debt recovery or support, price support and stabilization mechanisms, marketing arrangements and modernization subsidies. Policy guidelines are focused on ways to stimulate the participation of the private sector in processing and marketing operations, as well as the negotiation of intra-sectoral competitiveness agreements.
A system of variable import levies was introduced in 1991 and, subsequently, applied at sub-regional level under the Andean Price Band System; however, the authorities provided information to the Secretariat to show that the levies did not breach Uruguay Round binding commitments in 1995. Prior import licensing, conditioned by self-sufficiency principles and domestic absorption requirements, has not yet been "tariffied". A procedure for the allocation of quotas for items subject to tariff quotas under the Uruguay Round Agreement on Agriculture has yet to be implemented.
Agricultural exports absorb a large part of the CERT outlays. In compliance with commitments in the context of the Association of Coffee Producing Countries, exports of coffee have been voluntarily restrained on two occasions. Prior authorization is required for exports of rice and sugar. Since 1994, banana exports to the EU have been subject to tariff quotas; the basis for allocation of this quota was modified in 1996.
Since the previous review, applied tariff protection for the manufacturing sector has been reduced to 11.6 per cent, less than half of the 1989 level, and import quotas have been eliminated. At present food processing, textiles, clothing and footwear have the highest average levels of tariff protection. Subsidy components of the CERT and SIEX schemes which have been notified to the WTO, assist exports. The recent rise in interest rates and appreciation of the exchange rate as well as smuggling of clothing, household appliances and cigarettes have impeded the modernization and growth of these manufacturing sectors.
Recent policies for the automotive sector, allowing for some deregulation and flexibility, have contributed to improving trade and assembly performance. Nevertheless, substantial protection measures remain in force; these include a peak tariff of 35 per cent for completely-built-up (CBU) motor vehicles, differential VAT rates, import prohibitions on used parts and vehicles, and export performance requirements. The combination of the high rate on CBU vehicles and concessional entry at 3 per cent on parts and components for assemblers meeting local-content requirements implies substantial effective protection for domestic value added. However, both local-content and export-performance requirements should be eliminated by the year 2000 under the transitional arrangements of the WTO TRIMS Agreement. Since 1995, exports to the United States of underwear and wool suits for women and girls have been subject to "special access" restraint agreements, due to expire by the end of 1997.
Mining and Energy
Direct State involvement remains in the production of mining and energy products; however, privatization is under way and joint-venture or association agreements with private investors are favoured. Domestic prices for fuels and propane are based on world prices, and other fuels are to be progressively priced on this basis. In the meantime, the price of motor fuels remains substantially lower than international prices, and despite increases, energy prices are among the lowest in Latin America. Colombia is not an OPEC member.
Following recent liberalization, financial services, transport, telecommunications, tourism and retail trade have grown strongly. Certain barriers or specific requirements on foreign investors or professionals remain in force, for example in audiovisual productions and broadcasting. Progress in reducing State participation in certain activities has been achieved through privatization (e.g., ports and transportation) or the granting of concessions, as in telecommunications.
In July 1995 Colombia's commitments under the General Agreement on Trade in Services, covering most modes of supply for a number of professional services, construction and engineering, were complemented with undertakings in the financial sector; exemptions to m.f.n. treatment relate to previous obligations vis-à-vis Latin American and other partners. Initial offers have been submitted in the negotiations on maritime transport and basic telecommunications services.
Trade Policies and Foreign Trading Partners
The autonomous process of market-opening which has continued since the last review, has been strengthened by the increased security of access resulting from Colombia's extended commitments in the Uruguay Round. The opening of the economy has created new investment opportunities, which should also be encouraged by improved macroeconomic stability, solid growth and ongoing fiscal reforms. The expansion of regional trade growth should continue as new agreements are forged, although Colombia is also looking for trade opportunities beyond the region. Full implementation of Uruguay Round commitments should further strengthen the liberalization process and Colombia's integration in the world economy.Back to top
TRADE POLICY REVIEW BODY: COLOMBIA
Report by the Government
Since its trade policy was last reviewed in 1990, Colombia has undergone radical changes both at the political and economic levels.
The major transformation took place in 1991 with the adoption of a new Political Constitution, which, with some revisions, had been in force since 1886. In developing these new institutions, Congress adopted Law 7 of 1991, which provided for the institutional reorganization of the external sector, through the creation of the Ministry of Foreign Trade and the establishment of the Superior Council of Foreign Trade, the supreme inter-ministerial body of the sector which is presided by the President of Colombia.
Far-reaching reforms were adopted in the financial sector. These reforms were undertaken with the aim of establishing a more competitive environment and reducing State participation in the assignment of credit and investment by financial institutions. The privatization process of financial institutions was initiated, and restrictions on foreign capital were eliminated.
In the labour sector, restrictions on labour mobility, which contributed to increased frictional unemployment, were abolished. Likewise, the scope of rights and obligations of employers and workers was clearly defined, particularly with regard to labour liabilities.
The Constitution of 1991 gave the Central Bank independence in conducting the country's monetary, exchange and credit policies, and assigned it the primary task of maintaining currency purchasing power.
An exchange reform was undertaken which eliminated the Central Bank monopoly on the purchase and sale of foreign currency and the strict exchange control prevalent since 1967. A flexible and free exchange system was thus created, with autonomy in the management of international payments. As for the exchange rate mechanism, an administered regime gave way to one of a managed exchange rate band with an intervention capacity.
There have also been far-reaching reforms in the public sector, both as regards its functioning and its orientation. These include fiscal decentralization, privatization and concession programs in infrastructure works and public services, and social security reform. The basis for decentralization is a gradual augmentation in the transfer of resources and responsibilities to the departments and municipalities - entities into which the national territory is divided - so as to meet the population's basic needs more efficiently and promptly.
The purpose of privatizing public sector assets is to free Government resources tied up in activities that could be carried out more efficiently by the private sector and to transfer them to sectors where Government intervention is essential, for example, education, health, justice and security.
In the area of social security, the State's monopoly on the supply of health services and pensions has been abolished, leaving the way open for the worker to freely choose any institution supplying these services.
Since 1991, new rules to modernize the legal framework for foreign investment in Colombia have been adopted. The principles underlying these changes are equal treatment for domestic and foreign investors resulting in the elimination of prior authorization for investment in Colombia; universality under which foreign investment is allowed in practically all sectors of the economy; and stability of the exchange regime at the time the investment is made, which continues in effect for that particular investment even if changes are made to the system in the future. Specific authorization requirements must be met for investments in the financial sector and mining and oil ventures.
Foreign Trade Policy
As regards the trade environment, between 1990 and 1991 the foreign trade regime was reformed in order to open up the Colombian economy to foreign competition and prepare it to achieve higher levels of competitiveness and international interaction.
This process implied such radical changes as the unilateral reduction of tariffs, from an average figure of 44 per cent to around 11 per cent today, simplification of the tariff structure by reducing the 14 levels to only five, the abolition of almost all quantitative restrictions, moving away from the situation in 1990 when over 60 per cent of tariff headings required import licenses, to the current situation where only 2 per cent need licenses for national security or environmental reasons. In addition, import and export formalities have been simplified.
Another relevant element of Colombia's foreign trade policy in the present decade is the strengthening of the integration agreement with countries in the Andean region, creating the Andean Community, which includes a common external tariff and the harmonization of legislation which goes beyond that of the commercial arena.
Just as important is the establishment of commercial agreements with other countries in Latin America, with Chile on the one hand and Mexico and Venezuela on the other (Group of Three, G-3), and the eventual formation of free trade areas.
The creation of more favourable conditions for the development of trade and investment with Central America, the commercial opening towards the Caricom countries, the will to achieve a free trade agreement with the Mercosur countries and the widening of commercial relations in the American continent through the negotiation of a Free Trade Area of the Americas (FTAA), are also elements worth noting.
Relationship with the Multilateral Trading System
In the multilateral trade front, Colombia played a dynamic role in the Uruguay Round negotiations, becoming a founding member of the World Trade Organization. It likewise took on tariff commitments with regard to the totality of its goods tariff, and specific market access commitments in a wide range of the services sector.
With regard to its participation in the Dispute Settlement System, it is worth noting that since its accession to the GATT, Colombia has never been the object of any claim.
Its participation in Dispute Settlement Proceedings has been limited to its role as a claimant in 1992 and 1993, in controversies concerning the European Communities banana import regime. At present, Colombia is participating as a third party in the third panel relating to bananas. In 1993 it was one of the claimants in a procedure against the United States for measures which affected the import of tobacco. Finally, in 1992, Colombia participated as a third interested party in the panel brought against the United States with regard to restrictions on tuna imports.
Barely two years after the establishment of the World Trade Organization, we have perceived the benefits which may derive from a rule based system and more precise disciplines, as well as from a strengthened dispute settlement mechanism which can guarantee the effective functioning of the multilateral trading system.
Colombia shares and supports the multilateral disciplines established in the Marrakesh Agreement and consequently has amended its domestic legislation where necessary, making use of the periods granted to developing countries for this purpose, therefore limiting its discretionary authority in formulating sectoral policies appropriate to its economy's level of development. Nevertheless, it is confident that the benefits of the system will be shared, and that this can be achieved if the supply of exports from developing countries such as Colombia is treated in the same way as products and services from developed countries. Back to top