Colombia

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Under Secretary for Economic, Energy and Agricultural Affairs > Bureau of Economic, Energy, and Business Affairs > Finance and Development > Organization > Investment Affairs > Investment Climate Statements 2008

Colombia

2008 Investment Climate Statement - Colombia

Openness to Foreign Investment Return to top

The Government of Colombia actively encourages foreign direct investment. In the early 1990s the country began an economic liberalization reform, which provided for national treatment of foreign investors, lifted controls on remittance of profits and capital, and allowed foreign investment in every sector except for defense, national security, and the processing and disposal of toxic, radioactive, or hazardous waste products. Foreign investment in television concessions and nationwide private television operators, radio broadcasting, movie production, maritime agencies, national airlines and shipping companies is limited to minority stakes. Portfolio investment, financial, hydrocarbon and mining sectors are subject to special regimes, such as investment registration and concession agreements with the Colombian government, but are not restricted in the amount of foreign capital permitted.

The Ministry of Trade, Industry and Tourism formulates foreign investment policy in coordination with the Ministry of Finance and Public Credit, taking into account the guidelines of the Council on Economic and Social Policy (CONPES). The primary regulations governing foreign investment in Colombia are Law 9 of 1991, Decree 2080 of 2000, Resolutions 51, 52, and 53 of the Economic and Social Policy Council (CONPES) and Resolution 21 of the Board of Directors of the Central Bank. Generally, foreign investors may participate in privatization of state-owned enterprises without restrictions. Colombia imposes the same investment restrictions on foreign investors that it does on national investors. A commercial presence in the country (defined as a registered place of business, a branch, or an agent) is a standard requirement for conducting business in Colombia. Foreign investors can participate without discrimination in government-subsidized research programs. In fact, most Colombian government research has been done in connection with foreign institutions.

Investment screening has been eliminated, and the registration requirements that still exist are generally just formalities. Under Decree 1844/2003, the type of investment, its ultimate destination, and the type of currency determines the registration requirements. Foreign investments must be registered with the Central Bank’s foreign exchange office within three months of the transaction date to ensure repatriation of profits and remittances and to access official foreign exchange. All foreign investors, like domestic investors, must obtain a license from the Commission of Companies and register with the local Chamber of Commerce.

Since 2002, the Uribe administration has stepped up efforts to open the economy. Liberalization has progressed furthest in telecommunications, accounting/auditing, energy, and tourism and to a lesser extent in legal services, insurance, distribution services, advertising, and data processing. Colombian law restricts the movement of personnel in several professional areas, such as architecture, engineering, law, and construction. For firms with more than ten employees, no more than 10 percent of the general workforce and 20 percent of specialists can be foreign nationals. Nevertheless, attempts are underway to liberalize areas where restrictions remain in force.

Investors can take out tax stability contracts with the government. The rate of the income tax and the tax on occasional earnings payable by investors opting for this regime is two percentage points higher than the tax rate applying at the time of conducting the contract. In return, the state guarantees that such provisions, regardless of any amendments, will be applied to investors for a specified period.

Colombia has a comprehensive legal framework for business. Colombia’s judicial system defines the legal rights of commercial entities, reviews regulatory enforcement procedures and adjudicates contract disputes in the business community. The judicial framework includes the Council of State, the Constitutional Court, the Supreme Court of Justice and the various departmental and district courts, which are also overseen for administrative matters by the Superior Judicial Council. The 1991 constitution provided the judiciary with greater administrative and financial independence from the executive branch. However, the judicial system remains hampered by procedural requirements, time-consuming practices and corruption.

According to the UNCTAD, a high level of legal instability arising from the frequent issuing of regulations and administrative rulings has impeded investment in Colombia. To address the issue, Colombia’s congress passed Laws 962 and 963 in 2005. Law 962 simplified existing administrative procedures and provided for the review of new procedures. Law 963 guarantees investors that the laws applicable to the investment at the time the investment is entered into will remain in effect for a period between 3 and 20 years depending on the type and amount of the investment. The minimum dollar value of the investment must reach USD 1.2 million and those seeking to benefit from this law are required to pay a fee based on the investment. The law benefits investments in manufacturing, agriculture, tourism, mining, petroleum, telecommunications, construction, electricity production and transmission, port and railroad development, and other activities approved by a special committee. Portfolio investment is specifically excluded and the investment stability guarantee does not include taxes, labor and social security laws, financial services laws nor the tariff system. Colombia’s foreign direct investment legal framework also incorporates binding norms (Decisions 291 and 292) resulting from its membership in the Andean Community of Nations (CAN), the 1995 Treaty on Free Trade with Mexico and Venezuela (G-3 Treaty), and the 2006 Trade Complementarity Agreement with Chile.

In November 2006, the United States and Colombian Governments signed a bilateral trade agreement, the U.S.-Colombia Trade Promotion Agreement (CTPA). In June 2007, the U.S. and Colombia signed a modifications protocol regarding labor, environmental, intellectual property and other issues. The Colombian Congress ratified the agreement and the protocol in 2007. Both were pending ratification by the U.S. Congress as of January 2008. The CTPA should improve legal security and the investment environment as well as eliminate tariffs and other barriers in goods and services trade between the United States and Colombia. The agreement grants investors the right to establish, acquire and operate investments in Colombia on an equal footing with local investors and investors of other countries. It also provides U.S. investors in Colombia protections that foreign investors have under the U.S. legal system, including due process and the right to receive fair market value for property in the event of an expropriation. Protections for U.S. investments would be backed by a transparent, binding international arbitration mechanism. Investor-state arbitration would be available for breaches of investment agreements.

Currently, the Andean Trade Promotion Act (ATPA) as amended by the Andean Trade Promotion and Drug Eradication Act (APTDEA), provides duty-free entry of approximately 6,500 product categories from Colombia into the U.S. Previously excluded products such as vacuum-packed tuna fish and certain textile and apparel products now enjoy duty-free access to the U.S. market, conditioned on compliance with government requirements. The President can expand the list of included products with approval from an advisory committee and concurrence from the U.S. International Trade Commission. Goods must meet a value-added requirement of 35 percent, up to 15 percent of which may be accounted for by U.S. content in terms of cost or value. In June 2007, the U.S. Congress renewed ATPDEA benefits through February 29, 2008. The CTPA would expand market access for both countries.

Colombia exported goods worth USD 4.7 billion under ATPDEA in 2006, versus USD 4.6 billion in 2005, an increase of 3 percent. Total Colombian exports to the U.S. were USD 9.2 billion in 2006, up 4.7 percent compared to previous year. Colombian exports under the ATPDEA program during this period were 52.1 percent of total Colombian exports. U.S. exports to Colombia, which totaled USD 6.7 billion in 2006, have grown by almost two billion dollars since ATPDEA entered into effect in 2002.

The following sectors have been identified as having restrictions to foreign investment:

Accounting, Auditing and Data Processing: Providers of accounting and auditing services must register in Colombia. No restrictions apply to services offered by consulting firms or individuals. A legal commercial presence is required to provide data processing and information services in Colombia.

Advertising, Radio and Television Services: There are no local-content advertising requirements for advertising on Colombian television, but the National Television Commission charges foreign-made ads double the national rate for airtime. Colombian television broadcast laws (Law 182/95 and Law 375/96) require foreign investors to be actively engaged in television operations in their country of origin. National broadcasters are required to dedicate at least 70 percent of prime time to locally produced programming. Outside of prime time, at least 50 percent of programming must be locally produced except between the hours of midnight and 10:00 am when no locally produced programming is required.

Television, radio broadcasting, movie production, and movie reproduction fall under national-treatment limits. Foreign investment in television network and programming companies is limited to 40 percent. Foreign operators are limited by law to 25 percent ownership of radio broadcast programs. A maximum of 10 percent foreign participation in local TV productions is allowed and the participation of foreign artists in local TV productions is dependent upon reciprocity requirements. National TV programs can be directed by foreign directors, in which case the screen writers and starring actors must be Colombian nationals (if the director is Colombian then some writers and/or starring actors may be foreign nationals). Bidding concessions for programming in public television channels are only open to Colombian nationals, and Colombian nationals are required to direct and manage newspapers covering domestic politics.

Banking: Foreign companies may own 100 percent of financial institutions in Colombia, but are required to obtain approval from the Banking Commission before making a direct investment of ten percent or more in any one entity. Portfolio investments used to acquire more than five percent of an entity also require authorization. The use of foreign personnel in financial institutions is limited to administrators, legal representatives, and technicians. The CTPA would eliminate this restriction.

Foreign banks must establish a local commercial presence and comply with the same capital and other requirements as local financial institutions. Colombian legislation limits the operation of banks and other financial institutions by separating fiduciary, investment banking, commercial loans, leasing, and insurance services from banking services. Current legislation (Law 389/1997) permits banking institutions to develop such activities in the same office/building, but the management of such services must be separate.

Since 1999, banks operating in Colombia have been subject to a minimum capital requirement, promulgated through Law 510/1999. This law grants the government the right to intervene in institutions that fail to meet minimum performance requirements. Institutions are required to register with the Financial Institutions Guarantee Fund, FOGAFIN (a FDIC-equivalent), and Law 510/1999 extended the terms and time to liquidate a failing bank from 6 to 18 months.

Decree 2951/2004 establishes that foreign institutions must create a commercial presence if their promotions target Colombian residents. A banking relationship with a Colombian resident and a financial entity abroad is permitted if the relationship was initiated by the Colombian resident without any publicity or promotion in Colombia. The CTPA would eliminate these restrictions by permitting respective nationals wherever located to purchase financial services from cross-border suppliers of the other nation.

Hydrocarbons: The Colombian government is currently seeking to increase exploration and investment in the hydrocarbons sector. In 2003 the Colombian government separated regulatory responsibilities from Ecopetrol, the state owned oil company, and assigned them to a new government entity called the National Hydrocarbons Agency (ANH). The ANH administers Colombia’s competitive process, allowing Ecopetrol to compete side-by-side with foreign firms for hydrocarbon contracts. Foreign companies may assume up to 100 percent of investment and risk activities in all exploration and production contracts. Oil companies may obtain the right to exploit fields for 30-years or until depleted, as well as extend previous association contracts.

A new sliding-scale royalty rate on oil projects establishes a five percent royalty rate on the smallest oil fields and an upper limit of 25 percent on larger fields. The lower royalty rate has encouraged investments by small- and medium-sized operators, since more than 80 percent of Colombia’s fields contain less than 50 million barrels. The reforms have helped to renew interest in Colombia’s oil exploration sector, with the government signing a record number of contracts since 2005. In 2006, a total of 44 exploration, production and technical evaluation contracts were signed between the ANH and foreign investors. From January to October, 2007, 36 contracts were signed.

Insurance: Colombia permits 100 percent foreign ownership of insurance firm subsidiaries. Firms must have a commercial presence locally to sell policies other than those for international travel or reinsurance. In addition, Colombia denies market access to foreign marine insurers. The CTPA permits trans-border trading of insurance (except for some types of insurance, such as the mandatory vehicle insurance or pension insurance) and the possibility for foreign insurance and financial institutions to establish branch offices in Colombia. The CTPA includes a four-year transition period before U.S. insurance companies are allowed to enter the market.

Legal: Provision of legal services is limited to those firms licensed under Colombian law. Foreign law firms can enter the market by forming joint ventures with local law firms.

Telecommunications: Colombia currently permits 100 percent foreign ownership of telecommunication providers. However, in WTO negotiations, Colombia specifically prohibited “callback” services. Barriers to entry in telecommunications services include high license fees (USD 150 million for a long distance license), commercial presence requirements, and economic needs tests. Enterprises must be legally established in Colombia in order to receive a license or concession. The Ministry of Communications may require an economic needs test for the approval of licenses in voice, facsimile, e-mail, and other value-added services. The parameters that determine “an economic needs test” are not clearly established in Colombian legislation. Colombia also maintains a system of cross subsidies where, for example, long-distance telephony subsidizes local telephony. Low (subsidized) prices of local telephony and high restrictive costs in the provision of long-distance telephony limit the entry of new competitors. The CTPA will liberalize the sector by prohibiting anti-competitive cross-subsidization; requiring transparent licensing procedures; ensuring interconnection at reasonable rates; and protecting the confidentiality of commercially sensitive information obtained as a result of interconnection arrangements.

In 2006, Luxembourg-based Millicom bought 51 percent of Colombia Movil, the balance is still owned by two municipality-owned telephone companies, ETB (Empresa de Telecomunicaciones de Bogota) and EPM (Empresas Publicas de Medellín). In 2007, following an extended dispute, U.S. trunking company Avantel was allowed to interconnect directly with mobile companies Comcel and Movistar with rights to interconnect with Colombian fixed networks at nondiscriminatory and cost-based rates. Under the CTPA, U.S. firms will be able to lease lines from Colombian networks on non-discriminatory terms and re-sell telecommunications services of Colombian suppliers to build a customer base.

The National Television Commission (CNTV) has announced it will choose a standard for Land Digital Television (TDT) by March 2008. To reach a decision the CNTV is performing studies, tests, and visits from the U.S. (ATSC system), Japan (ISDB-T system), and Europe (DVB-T system) to determine the best standard for Colombia; the TDT will be free and open, and may cover about 90 percent of the population. Separately, Colombia expects to open a public tender in early 2008 for the launch of a third private TV channel in 2009.

Transportation: Article 1458 of the Commercial Code of 1971 prohibits any foreign ownership interest in commercial ships licensed in Colombia. Article 1490 of the Commercial Code restricts the percentage of FDI in maritime agencies to 30 percent, and Article 1426 restricts foreign ownership in national airline or shipping companies to 40 percent.

Trans-border transportation services are also restricted in Colombia. Land cargo transportation must be provided by natural or legal persons with commercial presence in the country and licensed by the Ministry of Transportation. Colombia’s law permits international cabotage companies to provide cabotage services “only when there is no national capacity to provide the service.” Cargo reserve requirements in transport have been eliminated. However, the Ministry of Foreign Trade reserves the right to impose restrictions on foreign vessels of those nations that impose reserve requirements on Colombian vessels.

Other factors which may impact investment: Law 145/1999 provides the Colombian government with the power of “economic intervention” in the operation of all companies (public, private, local, or foreign) permanently located in Colombia. This law promotes solutions similar to U.S. “Chapter 11” bailouts for companies with financial problems which face possible liquidation or bankruptcy. Restructuring agreements impose strict regulations on companies (e.g., financial operations unrelated to the company’s activity may not be performed without previous authorization from all the parties involved in the transactions.)

Under the law, the Colombian government has intervened in 914 enterprises with registered assets totaling approximately USD 4.8 billion. Of the companies involved, 665 reached restructuring agreements, which called for restructuring governance practices and outlined payment programs to meet their obligations and avoid insolvency. The remaining companies were found bankrupt and are currently being liquidated.

Privatization regime:

In recent years, Colombia has proceeded with the privatization of State-owned enterprises under Article 60 of the Constitution and Law No. 226 of 1995. This Law stipulates that the sale of the State holdings in an enterprise should be completed in two phases, the first for the "solidarity" sector (comprised of cooperatives and workers associations) and the second for the general public. During the first phase, special conditions with regard to term and credit have to be granted to the "solidarity" sector. In the second phase, the general public may participate, including foreign investors.

Colombia’s main privatizations have concentrated in the electricity, mining and hydrocarbons and financial sectors. In addition, the government hopes to generate USD 6.5 billion over the next years by encouraging private sector investment in roads, ports, electricity, and gas infrastructure concessions. Public-private partnerships are increasingly the government’s favored option for infrastructure development.

In Colombia, municipal enterprises run many public utilities and infrastructure services. These municipal enterprises have sought to engage private sector investment through concessions. There are successful cases in roads (the urban transportation integrated system for the Pereira - Dosquebradas - La Virginia metropolitan area), water, sanitation, ports (port of Cartagena) and electricity services (Empresas de Medellin). These kinds of partnerships have helped promote reforms and create an attractive environment for private national and foreign investment.

In September 2007, state hydrocarbons company Ecopetrol auctioned 10.1 percent of its shares to 480,000 Colombian citizens. The valuation, structuring, issuance and stock allocation process was conducted by JP Morgan and Credit Suisse. Additionally, Citigroup and Merrill Lynch conducted a contract to valuate the company. The GOC has announced plans for a second round to auction in 2008 for an additional 9.9 percent of the company’s shares. This round would be open to foreign investors.

Conversion and Transfer Policies Return to top

No restrictions apply to transferring funds associated with foreign direct investment. However, foreign investment into Colombia must be registered with the Central Bank within three months of the transaction date to secure the right to repatriate capital and annual profits. If investments are registered, repatriation is permitted without any limits. The government permits full remittance of all net profits regardless of the type or amount of investment (previously limited to 100 percent of the registered capital). The latest tax reform eliminated the 7 percent tax to profit remittances. There are no restrictions on the repatriation of revenues generated from 1) the sale or closure of a business, 2) a reduction of investment, or 3) transfer of a portfolio. Colombian law authorizes the government to restrict remittances in the event that international reserves fall below three months’ worth of imports. Reserves have been consistently at least double that level for decades.

In 2005, the Colombian government attempted to stem speculative capital flows by mandating that foreign portfolio investment should remain in-country for at least one year. In 2007 the central bank replaced the mandate with a six-month deposit requirement for companies acquiring external loans. The aim is to level internal interest rates with international rates to avoid accelerated appreciation of the Colombian peso.

A Colombian business seeking an external loan must make a deposit at the Central Bank for an amount equivalent to 40 percent of the value of the loan. This deposit does not bear interest and the restitution term is 6 months. On December 14^th, 2007, the Ministry of Finance issued Decree 4814 amending the cash reserve requirements imposed on Foreign Investment Portfolio Funds (FIFs). The amendment allows FIFs to fund the 40 percent cash reserve in U.S. dollars rather than Colombian Pesos, as was previously required. Likewise, equities acquired through IPOs and investments in equities issued in the primary market through the Colombian Stock Exchange are exempt from the 40 percent cash reserve. Finally, the penalty rates imposed when the cash reserve deposit is withdrawn before the completion term (6 months) were reduced.

	Discount before	Discount after
Holding Period	Decree 4814	Decree 4814
6 Months	9.40%	5.72%
5 Months	7.90%	4.79%
4 Months	6.37%	3.85%
3 Months	4.82%	2.90%
2 Months	3.24%	1.94%
1 Month	1.63%	0.98%

Expropriation and Compensation Return to top

Colombian law guarantees indemnification in expropriation cases. The Colombian Constitution guarantees the rights of property that has been legally acquired, although it does allow for assets to be taken by eminent domain. Colombian law provides a right of appeal both on the basis of the decision itself and on the level of compensation. However, the constitution does not specify how to proceed in compensation cases, which remains a concern for foreign investors. The Colombian government has sought to resolve such concerns through the negotiation of bilateral investment treaties and strong investment chapters of free trade agreements such as the CTPA.

Dispute Settlement Return to top

Law 315 of 1996 authorizes the inclusion of an international binding arbitration clause in contracts between foreign investors and the GOC and Decree 1818 of 1998 allows for alternative dispute resolution. The law allows contracting parties to agree to submit disputes to international arbitration, provided that the parties are domiciled in different countries; the place of arbitration agreed by the parties is a country other than the one where they are domiciled; the subject matter of the arbitration involves the interests of more than one country, and the dispute has a direct impact on international trade. The law allows the parties to set their own arbitration terms including location, procedures, and the nationality of rules and arbiters. International arbitration is not allowed for the settlement of investor-state disputes arising from the Legal Stability Contracts (Law 963/05) mentioned above, even for foreign investors.

Foreign investors have found the arbitration process in Colombia complex and dilatory, especially with regard to enforcement of awards. Despite Colombia’s commitment to international arbitral conventions and its domestic legal framework for arbitration and resolution of disputes, foreign companies continue to endure lengthy dispute settlement processes. Colombia is a member of the New York Convention on Investment Disputes, the International Center for the Settlement of Investment Disputes (ICSID), and the Multilateral Investment Guarantee Agency (MIGA).

Performance Requirements and Incentives Return to top

There are no performance requirements explicitly applicable to FDI entry and establishment. However, there are export incentives relating to the operation of special or free zones.

Incentives: In 2002, Colombia accepted the WTO Committee on Subsidies and Countervailing Measures’ decision to phase out all export subsidies in free trade zones by December 31, 2006. However, free trade zones and special import-export zones maintain their special customs and foreign exchange regimes. In 2005, the GOC issued Law 1004 which imposed a 15 percent income tax on free zones (lower than the normal 35 percent tax) after December 31, 2006, and maintained the exemption on the 7 percent remittance tax for free zones in the country (see chapter on free trade zones below).

Colombia’s tax reimbursement certificate (CERT) program was frozen in 2002, but remained on the tax books. The program, intended to promote non-traditional export products, provided negotiable certificates to exporters based on their level of exports. On June 21, 2007 the Ministry of Trade reinstalled the CERT for sectors affected by the COP revaluation, allocating approximately USD 25 million. To avoid conflicts with WTO rules, it was granted as a labor CERT for companies in labor intensive sectors, such as apparel, textiles, shoes, leather, food products, furniture, graphic arts, auto-parts, jewelry, and plastic manufactures. The CERT allows qualifying companies to recover part of their taxes paid between January and June 2007, equivalent to 4 percent. Exports to Andean Community, Panama, Aruba, Bonaire, and Curacao are excluded.

In 2007 the Ministry of Agriculture allocated USD 72.5 million for the Sanitary Incentive program for banana and flower producers, a direct subsidy to improve phytosanitary controls for these export-oriented products. In January 2007 the Ministry of Agriculture started the Agriculture Income Guaranty Fund (AIS) to protect the income of local vulnerable producers from international competitors, as well to improve the competitiveness of the agricultural sector. The program will allocate approximately USD 242 million annually for ten years. The AIS is focused on rice, white corn, yellow corn, soy, wheat, sorghum, barley, and beans producers. Funds can be invested in technology, research, infrastructure, land purchase, machinery, and sanitary systems. Colombia maintains a USD 37 million Rural Capitalization Incentive through the Financing Fund for Agricultural Sector (FINAGRO), which assist producers in making new investments for modernizing their operations for international markets.

Export credit: The foreign trade bank (BANCOLDEX) provides funds for working capital and equipment purchases dedicated to the production of exported goods. BANCOLDEX also provides discount loan rates to foreign importers of Colombian goods.

Import Licenses: Colombia has two import licenses. All importers are required to complete a standard import registration form known locally as the “Registro de Importación”. These forms are for record keeping/statistical purposes and are available at the Ministry of Foreign Trade. The other license applies to closely monitored, sensitive products such as precursor chemicals and weaponry.

Colombia imposes discretionary import licensing to ban imports of milk powder and poultry parts. The Colombian Government also has local purchase requirements for rice, yellow corn, white corn, and cotton. The CTPA would reduce or eliminate these requirements for U.S. exports.

Most “used” goods, such as personal computers, cars, tires, and clothing, are effectively prohibited from import, and those allowed (e.g., used medical equipment) are subject to prior licensing.

Promotion: PROEXPORT is the Government’s foreign investment and export promotion agency. It provides information on market access and business opportunities and organizes international trade shows and missions. During the last few years, PROEXPORT has been making efforts to diversify Colombian exports, which have been traditionally concentrated in coffee, petroleum, coal and flowers. PROEXPORT is similar to the United State Foreign Commercial Service in that it provides planning and training strategies for medium and small companies to overcome obstacles of exporting goods and services. There are fourteen PROEXPORT offices abroad and four commercial representatives domestically. These offices attend and organize events, fairs, and provide commercial guides to enter foreign markets.

Taxes: The main types of tax incentives offered include preferential import tariffs, tax exemptions and credit or risk capital from the government. Examples tax incentive offered by the Colombian Government include the deductibility of income from new investments in the cultivation of fruits, anchovies, rubber, and cacao and in environmental enhancements and controls once these investments are accredited by the environmental authority. Some fiscal incentives are available for investments that generate new employment or production in areas impacted by natural disasters.

Tax and fiscal incentives are often based on regional considerations. For example, border areas have certain protections because currency movements in neighboring countries can severely harm local economies. Likewise, export-oriented companies and other industrial firms are provided fiscal and tax incentives where the general reduction in tariffs have hurt their businesses. Local governments also offer special incentives, such as tax holidays, to attract industry from other areas. Most applications for fiscal incentives are made directly to the agency involved. Tax incentives do not require special application; companies need only to qualify under the rules indicated in the process of filing a tax return.

Colombia also has numerous incentives that are not export-related. Decree 2755 of 2003 provides tax holidays for approved projects or for desired outcomes in many industries including software development; electric energy sales generated from wind resources, biomass, or agricultural waste; forestry use of new plantations, investment in sawmills related to such plantations, and planting of wood-use trees; hydrocarbon seismic services; infrastructure and sale of properties dedicated to the public interest; pharmaceutical exploitation of new medicinal products; public utilities, water, electricity, local telecommunications, natural gas; tourism services in new hotels built between 2003 and 2018; and shallow draft river transportation.

Non-Tariff Barriers: As mentioned above, the provision of legal services is limited to law firms licensed under Colombian law. 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. Colombia permits 100 percent foreign ownership of insurance firm subsidiaries. Insurance companies must maintain a commercial presence in order to sell policies other than those for international travel or reinsurance. Economic needs tests are required when foreign providers of professional services operate temporarily in Colombia. Moreover, residency requirements restrict trans-border trade of certain professional services, such as accounting, bookkeeping, auditing, architecture, engineering, urban planning, and medical and dental services. For firms with more than ten employees, no more than ten percent of the general workforce and 20 percent of specialists may be foreign nationals. Companies seeking to sell information provision services must establish a commercial presence in Colombia. Foreign educational institutions must have resident status in Colombia in order to receive operational authority from the Ministry of Education.

Tariff Barriers: Many customs duties and most non-tariff barriers have been eliminated. The CTPA will dismantle the remaining barriers upon entry into force or after a brief transition period. Current duties have been consolidated into three tariff levels:

-- Level 1 – 0 to 5 percent for capital goods, industrial goods and raw materials not produced in Colombia,

-- Level 2 – 10 percent on manufactured goods with some exemptions,

-- Level 3 – 15 to 20 percent on consumer and “sensitive” goods, where international prices surpass the price-band ceiling, tariffs are reduced; when prices drop below the price-band floor, tariffs are raised. The price-band has affected local competitiveness and has dampened consumption via higher local prices. Andean Community variable duties have become an important barrier to imports of U.S. products into Colombia, but would be eliminated or mitigated in the CTPA. Processed food imports from Chile and country members of the Andean Community (Peru, Ecuador, Bolivia, Venezuela) enter duty-free.

Colombia assesses a discriminatory value-added tax (VAT) of 35 percent on whiskey aged less than 12 years, which is more characteristic of U.S. whiskey, compared to 20 percent for whiskey aged 12 or more years, most of which comes from Europe.

Right to Private Ownership and Establishment Return to top

Colombia’s Constitution explicitly protects individual rights against state actions and upholds the right to private property.

Protection of Property Rights Return to top

Piracy continues to threaten legitimate intellectual property markets in Colombia, which has been on the Special 301 “Watch List” every year since 1991. The registration and administration of intellectual property rights (industrial property and copyright) in Colombia are carried out by four different government entities. The Superintendence of Industry and Commerce (SIC) acts as the Colombian patent and trademark office. The agency suffers from inadequate financing and personnel, a high turnover rate, and a large backlog of trademark and patent applications, which has led to a large number of appeals. The patent office at the Superintendence believes that the number of new patent and trademark applications will (currently 1,600 patent and 15,000 trademark requests per year) will double in the next two or three years, without considering the obvious increase in applications that the signing of a free trade agreement with the United States will produce. This will necessarily increase the already large backlog of applications. Although the SIC is making efforts to provide electronic registration services for patents, industrial designs and trademarks, it still has important deficiencies especially in personnel. The Colombian Agricultural Institute (ICA) is in charge of the issuance of plant variety protection and agro-chemical patents. The Ministry of Social Protection is in charge of the issuance of pharmaceutical patents, while the Ministry of Justice is in charge of the issuance of literary copyrights. Each of these entities suffers from significant financial and technical resource constraints. Moreover, the lack of uniformity and consistency in IPR registration and oversight procedures limits the transparency and predictability of the IPR enforcement regime.

The free trade agreement concluded between the United States and Colombia provides for improved standards for the protection and enforcement of a broad range of intellectual property rights, which are consistent with both U.S. standards of protection and enforcement and with emerging international standards. 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 by criminalizing end-use piracy.

Copyrights

The recorded music market has declined four out of the last five years despite an expanding economy that has spurred greater consumer spending. Optical disc piracy of film entertainment product is extensive. The publishing industry also suffers from widespread piracy, mostly in the form of illegal photocopying of academic textbooks in and around university and school campuses. Although Colombia has one of the lower software piracy rates in Latin America, piracy of both business and entertainment software continues to cause commercial harm to legitimate industry.

The Colombian Congress has taken steps to increase criminal penalties and criminalize the circumvention of technological protection measures. Unfortunately, the scope and frequency of law enforcement raids has not created a deterrent effect. Most pirated products are distributed through hundreds of stalls in flea markets known as “San Andrecitos.”

Patents and Trademarks

The patent regime in Colombia currently provides for a 20-year protection period for patents and 10-year term for industrial designs; protection is also provided for new plant varieties. However, U.S. companies have expressed concern that the GOC does not provide patent protection for new uses of previously known or patented products. In 2002, the GOC issued Decree 2085, which improved the protection of confidential data for pharmaceutical and agro-chemical products. Colombia is member of the Inter-American Convention for Trademark and Commercial Protection.

Enforcement

Since 1995, Colombia’s National Anti-Piracy Campaign has raised public awareness, conducted trainings, and promoted consumer education. Law enforcement agencies cooperate with industry, but enforcement actions have concentrated in Bogotá, Medellín and Cucuta. When arrests are made and cases prosecuted there are often lengthy delays in processing cases.

In 2000, Colombia enacted fiscal enforcement legislation (Law No. 603) that requires Colombian corporations to include in their annual reports their compliance with copyright laws. The Superintendency of Companies has the authority to audit the company and penalize it in case of non-compliance. Any corporation that falsely certifies copyright compliance could face criminal prosecution. In addition, the legislation treats software piracy as a form of tax evasion and empowers the national tax agency (DIAN) to inspect software licenses during routine tax inspections.

Legislation

Amendments to Colombia’s 1982 copyright law have modernized the law, increased the level of criminal penalties for piracy, and expanded police authority to seizing infringing product. Colombia has deposited its instruments of ratification for both the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT). Given the higher standards of copyright obligations and enforcement measures contemplated in the TPA, however, Colombia will have to make additional reforms to its copyright law and enforcement law in order to fully comply with certain issues.

Colombia’s criminal code includes copyright infringements as a crime with jail terms. The code also contains provisions on the violation of technological protection measures and rights managements, both key obligations of the WIPO Treaties, but these violations are only punished by fines. In 2006, amendments to the Criminal Code increased the maximum prison term from five to eight years with a corresponding rise in the minimum term from two to four years.

Market Access

Colombia has a broadcast television quota which requires that 70% of prime-time programming during the week be of local content, a screen quota, and an 8.5% levy on the net box office receipts of foreign films.

Transparency of Regulatory System Return to top

Colombian legal and regulatory systems are generally transparent and consistent with international norms. The commercial code and freestanding laws incorporated by reference into the code, cover such broad areas as banking and credit, bankruptcy/reorganization, business establishment/conduct, commercial contracts, credit, corporate organization, fiduciary obligations, insurance, industrial property and real property law. The civil code, in addition to covering civil status, inheritance and other matters, also contains provisions relating to contracts, mortgages, liens, notary functions and registries. In Colombia the tendency has been to address new areas of legal and regulatory reach (like e-commerce) through separate statutory enactments that extend integrated regulation to these new areas, rather than amending the various existing codes.

Enforcement mechanisms exist, but historically the judicial system has not taken an active role in adjudicating commercial cases. The 1991 Constitution provided the judiciary with greater administrative and financial independence from the executive branch, and Colombian courts have tended to behave more independently and unpredictably. The Colombian judicial system continues to be clogged and cumbersome. In 2004, Colombia began moving to an oral accusatory system to make criminal investigations and trials more efficient. The new system separates the investigative functions assigned to the Office of the Attorney General from trial functions.

Lack of coordination among government the entities (DIAN, prosecutors, national police) and insufficient resources also complicate timely resolution of cases.

Efficient Capital Markets and Portfolio Investment Return to top

In Colombia, foreign investors are allowed to participate in the capital markets by negotiating and acquiring shares, obligatory bonds convertible into shares, other bonds, and other securities listed by the Foreign Investment Statute. These activities must be conducted via a foreign investment capital fund, which must be administered by a local trust company or a stockbroker company that has been authorized to do so by the Superintendency of Securities. These funds must be used for the exclusive purpose of initiating securities transactions in the Colombian securities markets. Foreign investment capital funds are not allowed to acquire 10% or more of the total amount of a Colombian company's outstanding shares. For omnibus funds (i.e. funds constituted as collective accounts with an undivided participation over the institutional investor's net worth), the limitation applies to each subaccount.

Colombia’s financial system is well developed by regional standards. As of 2007, two private financial groups own almost one-half of all bank assets: the Sarmiento Group (Grupo Aval) control about one-quarter, and the Sindicato Antioqueño Group (Bancolombia) one-fifth. Foreign-owned banks also account for one-fifth of sector assets. In 2005, Colombia consolidated supervision of the banking and securities sectors under the Financial Superintendence (Superfinanciera). The Financial Superintendence oversees the four types of Colombian credit institutions: commercial banks which provide short- and medium-term lending for business and individuals; mortgage banks which finance housing construction projects and purchases; financial corporations (corporaciones financieras) which lend for long-term industrial projects; and commercial financing companies (compañías de financiamiento commercial) that finance the purchase of equipment and durable consumption goods through commercial loans or leasing. Non-credit financial institutions include private pension and severance funds, trust funds, stockbrokerage houses and insurance companies.

As of November 2007, the estimated total assets of the country’s main banks amounted to approximately USD 194 billion; past-due loans accounted for 3.3 percent of the total portfolio, compared with 3.5 percent in November 2006; and banks’ return on equity was 19.5 percent. The Colombian financial system registered profits of approximately USD 4.3 billion between January and November 2007, 7.3 percent higher than the profits registered during the same period in 2006.

Since the 1998-99 financial crisis, the number of financial institutions in Colombia has fallen by almost half due to mergers and acquisitions. As a result of these mergers and acquisitions, the new institutions have begun broadening their distribution structures and offering clients more flexible schedules and branch offices. The financial sector as a whole is investing in new methodologies for risk assessment and portfolio management.

Following the crisis of 1998-99, bailouts for failing banks were partially financed through a controversial tax on financial transactions. The tax was originally set at 0.002 percent but has since been increased to 0.004 percent. The tax on financial transactions is applied to all withdrawals from checking and savings accounts, including accounts with the Central Bank. Savings accounts for the purchase of low-income housing, transactions on the inter-bank market, and the sale or purchase of foreign currency are exempt from the tax. Electronic securities transactions, including stock market transactions are also exempt from the tax.

Colombia’s capital market is underdeveloped, but growing. The principal source of long-term corporate and project finance are financial corporations and, sometimes, commercial banks. However, loans with a maturity in excess of five years are scarce. Unofficial private lenders play a major role in meeting the working capital needs of small and medium-sized companies. Only the largest of Colombia’s companies participate in the local stock or bond markets, with the majority meeting their financing needs through the banking system, by reinvesting their profits, and through suppliers’ credit. Corporate bond issues have risen, but remain small and limited to blue-chip companies. Institutional investors, particularly private pension funds that mobilize the largest share of national savings (accounting for 9% of GDP), concentrate their holdings in government paper and AAA-rated commercial paper. The government also envisions revising the regulation of private pension funds to allow them to participate more actively in the capital markets. In 2001, stock exchanges in Bogotá, Cali and Medellín were merged to create the Bolsa de Valores Colombia (BVC, Colombia Stock Exchange) located in Bogota. The BVC is regulated by the Financial Superintendence, which oversees market intermediaries, brokers’ fees, and financial disclosures of listed companies.

Capital markets legislation was enacted in 2005 has helped to deepen the capital marke through improved corporate governance, protection of the rights of minority shareholders and more transparent information standards. Market capitalization has risen from USD 14.1 billion in 2003 (equivalent to 16% of GDP), to USD 58.5 billion (43%) in 2007.

Political Violence Return to top

Violence, including political violence, has diminished in recent years. Government of Colombia figures show the number of homicides in Colombia through November 2007 (15,748) was the lowest in over 20 years. The number of kidnappings in the same period (472) was 31% lower than the number for 2006, and substantially less than the 2,885 kidnappings reported in 2002.

Most violence characterized as political is attributed to one of three terrorist groups, all of whom the U.S. has designated as Foreign Terrorist Organizations. Violence by these groups has also declined. The Revolutionary Armed Forces of Colombia (FARC) killed 590 people in 2006, down from 761 in 2005. The National Liberation Army (ELN) was responsible for the murder of 41 people, down from 42 the previous year. In 2006, the AUC completed its demobilization of 32,000 former paramilitaries, and GOC reintegration programs are providing health, education and psychological assistance to demobilized.

The long-running internal conflict has caused significant population displacement. Between 2 and 3 million people (out of a population of 42 million) have been displaced since 1985, although both the Government and civil society groups show that, due to improved security and paramilitary demobilization, internal displacements during the period 2003-2006 are down to about 200,000 a year. In 2007, GOC assistance to IDPs increased to about USD 500 million, a 10% increase from the previous year.

Corruption Return to top

The government’s Comptroller General estimates that corrupt activity drains USD 6 billion per year from Colombia’s economy.

The local chapter of Transparency International (TI) has implemented a number of anti-corruption measures, including ethics and entrepreneurial programs in an effort to reverse these trends. The ethics program seeks to develop a managerial development tool for small and medium enterprises to promote ethical practices and transparency. The entrepreneurial program seeks to build a culture of ethics via leadership, entrepreneurial ethics training and the creation of reporting and consulting systems. TI also created a program titled Integrity Islands, which consists of the mitigation of corruption risks in specific organizational processes.

From 2001 to 2006, USAID provided USD 15 million for anti-corruption programs. Since then, USAID has incorporated anti-corruption strategies in its rule of law, human rights, and governance programs. Activities supported include: promotion of local governments’ transparency and accountability in conflictive regions; reforms to enhance transparency of the national budget process; assistance to the Offices of the Inspector General, Prosecutor General and Attorney General to prosecute corruption in regions emerging from conflict; implementation of accountability principles in the justice sector; and assistance to increase citizen oversight of local and national government processes related to human rights, justice, and political competition.

Bilateral Investment Agreements Return to top

Colombia has negotiated and signed five bilateral investment treaties: Cuba (1994), Great Britain (1994), Peru (1994), Spain (1995), and Chile (2000). Of these, only the Peru and Spain BITs have entered into force. The agreement with Chile has not been ratified by the Chilean Congress. The Cuba and Great Britain agreements did not enter into effect because the Colombian Constitutional Court declared certain provisions relating to expropriation unenforceable.

OPIC and Other Investment Insurance Programs Return to top

The Overseas Private Investment Corporation (OPIC) is an agency of the U.S. government that helps U.S. businesses invest overseas, fosters economic development in new and emerging markets, complements the private sector in managing risks associated with foreign direct investment, and supports U.S. foreign policy.

OPIC made its first investment in Colombia in 1985 and has since made investments totaling USD 2 billion in a variety of sectors. OPIC signed a Memorandum of Understanding (MOU) with ProExport Colombia in September of 2007 in order to establish an “Outreach Program” targeting small business investors in Colombia. Since the signing, OPIC has established a working relationship with ProExport, training staff and members on OPIC programs. In addition to infrastructure-oriented projects, OPIC is seeks to support investment in Colombia, particularly low and middle income housing development, access to credit for small and medium size businesses (SMEs), and renewable energy.

In addition to offering finance and insurance, OPIC has 4 investment funds that are eligible to invest in Colombia. These are (1) Darby ProBanco, a projected USD 90 million fund targeting equity investments in companies in the financial services sector, (2) Paladin Realty Latin America Investors, a USD 200 million fund targeting affordable and middle-income housing development, (3)The Alsis Fund, a projected USD 300 million fund that will originate and invest in residential mortgages, and (4) Conduit Capital Partners, a USD 120 million fund investing in independent power projects with a specific focus on renewable energy. Additional information can be found at www.opic.gov

Labor Return to top

Colombia has abundant unskilled and semi-skilled labor availability for work throughout the country. It has equally abundant skilled and managerial level employees, in many cases bilingual.

Labor permits are not required in Colombia, except for under-aged. In order to work, minors between 14 and 17 years old must be authorized by a labor inspector from the Ministry of Social Protection, upon request by their parents. Minors are only authorized to work in non-dangerous occupations.

Pursuant to Colombian Labor Law, any group of 25 or more workers, regardless of whether they are employees of the same company or not, may constitute a labor union. Employees of companies with fewer than 25 employees may affiliate themselves to other labor unions. There is no strong labor union culture in Colombia. Over half of Colombia’s labor force belongs to the informal sector. About ten percent of the country’s formal labor force is unionized. The largest and most influential unions are composed mostly of public employees, particularly in the state-owned oil industry and the state-run education sector. The Constitution protects the right to organize labor unions, and union members cannot legally be fired for forming unions. Some union officials are allowed to dedicate some or all of their working hours to union business. Strikes are recognized as legal instruments to obtain better working conditions. Strikes in sectors considered Essential Public Services, such as the Central Bank and some Social Security-related activities, are illegal.

Foreign companies operating in Colombia must follow the same hiring rules as national companies, regardless of the origin of the employer and the place of execution of the contract.

Colombian Companies may hire foreign employees after certifying compliance with the legal national-foreign employee ratio (pursuant to Colombian Labor Law, in companies with more than 10 employees, Colombian nationals must occupy at least 80 percent of all managerial level positions and 90 percent of non-managerial positions), which will allow the employee to obtain a Temporary Work Visa. Foreign employees have the same rights as Colombian employees.

Pursuant to Colombian Labor Law, trial periods may not exceed two months for indefinite term contracts and no more than 1/5 of the total term of fixed term contracts. During the trial period, an employee may be dismissed by the employer without the payment of the legal indemnification.

Labor contracts may be terminated without previous notice. The effects of termination vary depending on cause for termination and type of contract. A contract might be terminated with just cause by the employer in the case of an employee’s violation of legal and contractual obligations or internal regulations. In any other event, the contract can be terminated without just cause, but the employer must pay legally specified indemnification.

Working hours are limited to 48 hours per week, distributed in a maximum of 6 days per week. With the proper authorization, granted by the Ministry of Social Protection, an employee may work up to 12 hours of overtime per week. Employees in management positions are not subject to such restriction.

Foreign-Trade Zones/Free Ports Return to top

The Colombian government provides incentives for importers of capital goods using a number of drawback and duty deferral programs. Examples of these programs are the “free trade zones” and “special import-export systems” located throughout the country. Free Zones are geographic areas where industries are exempt from import tariffs and value-added tax on imports as well as have access to special credit lines offered by Colombia’s foreign trade bank (Bancoldex). Foreign capital investments in duty-free zones are entitled to unrestricted repatriation of capital and profits. Investors are exempt from paying sales tax from the sale of goods and services on the official exchange market, and from income and remittance taxes related to foreign sales. Goods traded within duty-free zones are considered outside of Colombian territory for import-export tariff purposes. The aim is to promote competitiveness, employment, good business practices, technology, sector or regional development, foreign investment, and new capital investment. More than 350 companies operate here. These zones generate exports of approximately USD 1.5 billion annually. The state does not participate in the operation of duty-free zones.

In compliance with WTO standards, Colombia eliminated several free trade zone tax benefits as of January 2007. The Government issued Law 1004 in December 2005, providing for a 15 percent income tax on industrial users operating in free trade zones (lower than the usual 35 percent tax) but maintaining the 35 percent tax for commercial users. Under Law 1004, businesses operating in the free trade zones maintained their exemption from the 7 percent remittance tax, tariffs and the value-added tax.

In 2007, the GOC issued a new decree (4051/07) that established new requirements: minimum equity of USD 5 million to set up a free zone; a minimum area of 20 hectares, adequate infrastructure; at least five industrial users of goods and/or services; and new investments in the amount of USD 10 million.

Foreign Direct Investment Statistics Return to top

The total stock of foreign investment reached USD 27.6 billion in June 2007. Average annual net foreign direct investment (FDI) flows from 1994 to 2006 amounted to USD 4.7 billion. Total FDI in 2007 was expected to reach USD 8 billion. The manufacturing, energy and mining sectors have been the main recipients of FDI, followed by the financial, transportation, and communications sectors. The recent increase in investment in the mining sector partly reflects the sale of a number of mines belonging to the state-owned company Carbocol. The share of FDI in the manufacturing sector recorded a sharp increase in 2005 as a result of the purchase by the British-South African consortium, SAB Miller, of the Colombian beer company Bavaria, which account for USD 4.7 billion. Growing foreign investment can be linked to Colombia’s economic recovery, improved security and policy reforms of the FDI regulatory framework.

The United States is the single largest source of foreign investment, accounting for approximately 33 percent of the total stock of FDI throughout the period 2002-IIQ 2007. The European Union has also been a major source of FDI, representing around 32 percent of the total stock in the same period.

TABLE 1

Foreign Investment Flow in Colombia by Country
(Millions of U.S. dollars)

COUNTRY	2004	2005	2006	IIQ 2007
NORTH AMERICA	897.8	2,464.1	1,574.7	920.0
Canada	7.3	2.5	18.5	11.2
United States	874.2	1,398.8	1,524.8	878.9
Mexico	16.4	1,062.8	31.4	29.9
SOUTH AMERICA	88.2	85.3	99.0	542.7
Andean Group	74.0	31.5	64.9	20.4
Mercosur	13.5	47.4	31.9	517.3
Rest of South America	0.7	6.3	2.2	5.0
CENTRAL AMERICA	12.0	211.5	244.1	256.6
Common Central American Market	1.5	3.0	4.9	92.1
Rest of Central America (Panama and Cuba)	10.5	208.5	239.1	164.4
ANTILLES	740.7	591.2	523.0	422.4
EUROPE	208.2	4,764.6	717.2	-709.9
European Free Trade Association	31.8	41.3	18.1	6.4
Common European Market	175.7	4,723.2	697.4	-716.6
Rest of Europe	0.6	0.0	1.6	0.2
ASIA	10.7	3.5	10.2	0.3
OTHER COUNTRIES	8.9	8.1	6.3	8.3
TOTAL WITHOUT PETROLEUM AND PROFITS REINVESTMENT	1,966.6	8,128.3	3,174.4	1,440.4
PROFITS REINVESTMENT	554.2	987.5	1,486.7	820.3
PETROLEUM	494.9	1,124.6	1,801.9	1,848.2
TOTAL	3,015.7	10,240.4	6,462.9	4,108.9
Source: Central Bank

TABLE 2

Foreign Investment flow in Colombia by Activity
(Thousands of U.S. dollars)

YEAR	2004	2005	2006	2007
ACTIVITY	TOTAL	TOTAL	TOTAL	II Q
Petroleum sector	494.9	1,124.6	1,801.9	1,848.2
Agriculture, Hunting, Forestry, Fishing	3.3	6.3	8.0	3.8
Mines (including coal)	1,246.4	2,157.2	1,782.5	-65.6
Manufactures	256.4	5,517.8	803.0	1,037.9
Energy, Gas and Water	88.5	-251.2	-140.8	-22.7
Construction	73.5	146.0	156.3	89.8
Commerce, Restaurants, Hotels	202.0	303.0	523.2	685.5
Transport, Warehousing, Communications	481.3	1,010.5	1,060.6	296.8
Financial Entities	243.8	243.9	464.2	214.7
Community Services	-6.3	-17.8	4.0	20.4
TOTAL	3,015.7	10,240.4	6,462.9	4,108.9