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UNCLAS BOGOTA 000717 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON OPIC KTDB USTR CO
SUBJECT: COLOMBIA 2006 INVESTMENT CLIMATE REPORT 
 
Openness to Foreign Investment: 
 
¶1. The Uribe administration stepped up the economic liberalization 
begun in the early 1990's and is committed to an open investment 
regime.  Liberalization has progressed furthest in 
telecommunications, accounting/auditing, energy, and tourism and to 
a lesser extent, 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. 
 
¶2. At this writing, negotiations for the US-Andean Trade Promotion 
Agreement (USATPA) continue.  The agreement will enhance 
protections for U.S. investors and create new opportunities for 
trade and investment. 
 
¶3. The primary regulations governing foreign investment in Colombia 
are Law 9 of 1991, Resolutions 51, 52, and 53 of the Council on 
Economic and Social Policy (CONPES) and Resolution 21 of the Board 
of Directors of the Central Bank.  These regulations allow for free 
foreign investment across the Colombian economy, except in sectors 
related to national security and disposal of hazardous waste 
products. Foreign investments, in general, receive the same legal 
and administrative treatment as domestic investment. Foreign 
investments in telecommunications, financial services, and oil and 
mining sectors require sector-specific procedures, such as 
investment registration and concession agreements with the 
Colombian government, but are not restricted in the amount of 
foreign capital permitted. 
 
¶4. Decree 1844/2003 established that the type of investment, its 
ultimate destination, and the type of currency regulates the 
registration requirements.  In December 2004, the Colombian 
government attempted to stem speculative capital flows through a 
decree, although it is difficult for the GOC to enforce and the 
Finance Minister has publicly committed to remove it in the near 
future.  The letter of the law says that there are consequences for 
expatriating portfolio investments and earnings before 12 months 
have passed, but does not define the penalties nor who will enforce 
them. 
 
¶5. In July, 2005, the Colombian government adopted an investment 
stability law, Law 963.  This law guarantees investors that the 
laws applicable to the investment at the time the investment is 
made 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 is USD 1.2 million and those seeking 
to benefit from this law are required to pay a fee based on the 
progress of the investment.  This 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 from benefiting from Law 963 and the 
investment stability guarantee does not include taxes, labor and 
social security laws, financial services laws and the tariff 
system. 
 
Accounting and auditing: 
 
¶6. Providers of accounting and auditing services must register in 
Colombia. No restrictions apply to services offered by consulting 
firms or individuals. Subsidiaries of U.S. based multinational 
firms currently control 80 percent of the accounting market. The 
signing of the USATPA will not substantially change market access 
in this sector as U.S. companies currently dominate the market. 
 
Advertising: 
 
¶7. 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. 
 
Audiovisual services: 
 
¶8. 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. These quotas are being addressed in the USATPA 
negotiations. 
 
¶9. Television, radio broadcasting, movie production, and movie 
reproduction fall under national-treatment limits. Key regulations 
are Decree 2080/2000, Law 680/2001, Law 182/1995, Law 14/1991, and 
Law 29.  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 the reciprocity requirement. 
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. 
 
Data processing and information: 
 
¶10. A legal commercial presence is required to provide this service 
in Colombia. 
 
Banking 
 
¶11. Foreign companies are permitted to own 100 percent of financial 
institutions in Colombia. Foreign investors 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 that will be 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 USATPA under negotiation 
aims to remove many of these restrictions. 
 
¶12. Foreign banks seeking to operate in Colombia 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. 
 
¶13.  Since 1999, banks operating in Colombia have been subject to a 
minimum capital requirement because of Law 510/1999.  This law 
grants the government the right to intervene in institutions that 
fail to meet these minimum performance requirements. Institutions 
are required to register with the Financial Institutions Guarantee 
Fund (FOGAFIN, FDIC-equivalent) and this law extended the terms and 
time to liquidate a failing bank from 6 to 18 months. 
 
¶14. Other regulations of interest to this sector appear in Decree 
2951/2004. This decree establishes that 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 Colombian 
territory. The FTA currently under negotiation seeks to eliminate 
these restrictions. 
 
¶15. As of October 2005, past-due loans accounted for 4.5 percent of 
the total portfolio, compared with 5.7 percent in 2004, and banks' 
return on equity rose to 22.6 percent as of October 2005. 
Provisioning for past-due loans has increased and is above the 
regional average because of a restructuring of the entire financial 
sector. 
 
¶16. Since the 1998-99 crisis, the number of financial institutions 
in the country decreased from 109 to 51 in July 2005, mainly due to 
mergers and acquisitions and efforts provide universal banking 
services. In 2005, there were six mergers plus the creation of Gran 
Banco Bancaf.  As a direct result of these mergers and 
acquisitions, the new institutions are expected to broaden their 
distribution structures and offer clients more flexible schedules 
and more branch offices. The financial sector as a whole is 
investing in new methodologies for risk assessment and portfolio 
management. Banks in general are being conservative, thus 
provisioning additional resources for past-due loans. Nevertheless, 
as of October 2005, the Colombian financial system had registered 
profits of approximately US $2.9 billion, 26 percent higher than 
the profits registered between January and October 2004. 
 
¶17. Banking authorities continue to make progress in advancing the 
implementation of the risk-based approach for capital adequacy in 
line with the Basel II capital guidelines. Per IMF recommendations 
to improve coordination and information sharing efforts, the 
Banking and Securities Commissions initiated a merger process in 
November 2005. The merger will improve the exchange of information 
and allow for more effective monitoring, policymaking, and conflict 
resolution. 
 
Hydrocarbons: 
 
¶18. The Colombian government is currently seeking to increase 
exploration and investment.  In 2003 the Colombian government 
separated regulatory responsibilities from Ecopetrol, the state 
owned oil company, to a 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. 
 
¶19. A new sliding-scale royalty rate on oil projects establishes a 
5 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 with foreign oil companies during 2005. 
As of late November 2005, a total of 48 exploration, production and 
technical evaluation contracts had been signed between the ANH and 
foreign investors, and an additional 13 contracts were in process. 
 
¶20. Between 2004 and the third quarter of 2005, Ecopetrol and its 
partners covered more than 7,000 Kms of seismic and drilled 37 
exploratory wells. Exploration targets for 2006 are to explore an 
additional 3,400 kms of seismic, drill 40 exploratory wells, and 
discover 250 million barrels of new oil reserves. Ecopetrol's 
assigned budget for exploration is approximately US $92.5 million 
in 2004 and US $93 million in 2005. Current oil reserves are 
approximately 1.47 billion barrels and are expected to last until 
¶2010. In the first three quarters of 2005, Colombia exported US $4 
billion worth of petroleum products, of which 71 percent or $2.8 
billion went to the U.S. For 2004, Colombia exported US $4.2 
billion worth of petroleum products, of which 80 percent went to 
the U.S. 
 
¶21. Colombia's first venture capital fund for oil exploration and 
production was created in July 2005. The fund commenced operations 
with a capital investment of US $58 million. Key investors are 
Ecopetrol, financial institutions, oil exploration and production 
companies, and private investors.  The objective of the fund is to 
reach $100 million in risk capital by the beginning of 2006 from 
both foreign and domestic investors. Fund financing will be 
primarily concentrated in minor fields with reserves below 50 
million barrels. According to Ecopetrol, the probability of success 
in exploration of oil fields in Colombia is close to 20%. To make 
the fund more attractive, its partners have decided to include 
production projects, enabling faster returns on investment and 
diversified risk. The fund does allow financing up to 70% in 
exploration projects and 30% in production projects. 
 
Insurance: 
 
¶22. 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 USATPA seeks to permit 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 U.S. and Colombia have 
agreed to give Colombian companies four years to restructure and 
adapt to the new business conditions before U.S. companies are 
allowed to enter the market. 
 
Legal: 
 
¶23. 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.  Legal services are 
under discussion in the United States - Andean Trade Promotion 
Agreement (USATPA) negotiations, but it is likely that a Colombian 
legal license and a local office will still be required to provide 
legal services locally. 
 
Telecommunications: 
 
¶24. Colombia currently permits 100 percent foreign ownership of 
telecommunication providers. In WTO negotiations, Colombia made 
fairly liberal commitments on basic telecommunications services and 
adopted the WTO reference paper. However, Colombia specifically 
prohibited "callback" services and excluded fixed and mobile 
satellite systems. The license or concession for the supply of 
telecommunications services is only granted to enterprises legally 
established in Colombia. 
 
¶25. Significant barriers to entry include high license fees ($150 
million for a long distance license fee), cross subsidies, 
commercial presence in Colombia and economic needs tests. The 
Telecommunications Regulatory Commission (CRT) 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. CRT also maintains a system of crossed 
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. (Prices of international long- 
distance calls in Colombia are 35 percent higher than the average 
in developing countries, while prices of local calls are 25 percent 
lower than the average in developing countries). 
 
¶26. Interconnection and trunk access policies and guidelines are 
not transparently formulated and applied by the regulatory 
authority, which further limits competition for the provision of 
local, long-distance and mobile services. Colombia has an open 
mobile telecommunications market for Personal Communications 
Services (PCS) competition. The government issued a PCS license to 
new competitor Colombia Movil (Ola), effectively ending Colombia's 
mobile telecommunications duopoly and opening the door for 
competition (Telefonica and Comcel currently share approximately 80 
percent of the cellular market). Colombia Movil, owned by state-run 
Empresa de Telecomunicaciones de Bogota (ETB) and Empresas Publicas 
de Medellin (EPM), received a 10-year concession to develop the 
market and competes against current cellular providers. The USATPA 
negotiations currently underway seek to further liberalize this 
market. 
 
Transportation: 
 
¶27. 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. 
 
¶28. 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. 
 
Investment Screening: 
 
¶29. The Colombian government largely eliminated investment 
screening, and the mechanisms that still exist are considered 
routine and non-discriminatory. Regulations grant national 
treatment to foreign and domestic direct investors alike.  Some 
sectors still require a concession agreement from the appropriate 
Colombian government entity. The Colombian Economic and Social 
Policy Council (CONPES) reserves the right to identify sectors of 
economic activity where the government may or may not admit foreign 
capital participation. 
 
¶30. 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. 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. 
 
Other factors which may impact investment: 
 
¶31. 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 along the lines of U.S.'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.) 
 
¶32. Since the passing of this law in December 2004, the Colombian 
government intervened in 914 enterprises. These companies 
registered assets totaling approximately US 4.8 billion and 
liabilities totaling approximately US 3.4 billion and employed 
approximately 65,000 workers.  Of all the companies intervened, 665 
reached restructuring agreements, which called for restructuring of 
corporate governance practices and outlined a payment program to 
meet their obligations and avoid insolvency. The remaining 
companies were found bankrupt and are currently being liquidated. 
 
Andean Community CET: 
 
¶33. In December 2005 the Andean Community decided to postpone the 
consolidation of its free trade area until January 31 of 2006. This 
delay was due in part to the ongoing US-ATPA negotiations with 
Colombia, Ecuador and Peru.   The Andean Community adopted a Common 
External Tariff through Commission Decision 370 of November 26, 
¶1994. All the countries except Peru signed the Decision. The common 
external tariff (CET) has a four-tier structure, with 5, 10, 15 and 
20 percent tariff levels, and a series of tariff deferral 
agreements that allow member countries to move away from the basic 
structure. From January 31, 2006, all member countries agreed to 
adopt a new CET simplified on a three-tier structure with 5, 10, 
and 20 percent tariff levels, according to Decision 535 of 2002. 
Colombia's average official tariff for 2005 was 12 percent ad- 
valorem. Most non-agricultural products and services (both locally 
produced and imported) are also subject to a 16 percent value added 
tax. 
 
¶34. Colombia, Venezuela and Ecuador have a special automotive 
regime featuring duty free import of all automotive parts, 
accessories, and motor vehicles.  Such products from other 
countries face a common external tariff of 35 percent for passenger 
vehicles, 15 percent for mass transit and cargo vehicles, and three 
percent for Completely Knocked Down (CKD) parts. The Andean auto 
regime of November 1999 provided for the common external tariff 
rates described above, and for regional content requirements 
included in the policy, which are to increase from the current 
average of 23 percent to a maximum of 34 percent by the year 2009. 
 
¶35. On July 2, 1996, the Andean Community members adopted a common 
regime for access to genetic and biological resources, with the 
goal of promoting the conservation, development, and sustainable 
use of biological and genetic diversity.  This remains a sensitive 
topic in the USATPA negotiation. 
 
Other Regional Trade Agreements: 
 
¶36. As noted above, Colombia is already engaged in the USATPA 
negotiation with Peru and Ecuador.  This negotiation aims to 
increase market access and investor protection for U.S. companies. 
The Andean Trade Preferences and Drug Eradication Act (ATPDEA) 
retroactively renewed and built upon the expired Andean Trade 
Preferences Act (ATPA).  ATPDEA is set to expire at the end of 
¶2006. 
 
¶37. ATPDEA 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, textiles and apparel now enjoy 
duty-free access to the U.S. market upon compliance with government 
requirements. The President can expand the list of included 
products with approval 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. 
 
¶38.  Colombia exported US $4.0 billion under ATPDEA in 2004, versus 
US $2.9 billion in 2003. Between January and October 2005, Colombia 
exported US $3.8 billion, an increase of 13 percent over the same 
period last year. Total Colombian exports to the U.S. were US $7.5 
billion between January and October 2005. 50 percent of Colombian 
exports to the U.S. entered through ATPDEA between January and 
October of 2005. US exports have also grown by almost a billion 
dollars since ATPDEA entered into effect in late 2002. 
 
¶39. Colombia also has a free trade agreement between Colombia, 
Mexico, and Venezuela, referred to as the G-3. Colombia has a Trade 
Complementarity Agreement with Chile, under which 95 percent of 
bilateral trade has duty-free status. The Andean Community 
concluded and signed a free trade agreement with the member nations 
of Mercosur on 16 December 2003. Colombia is a member country of 
the World Trade Organization (WTO). 
 
¶40. The Latin American Integration Association (ALADI) was 
partially completed by the signing of Paraguay, Uruguay and the 
Central American Common Market (CACM) countries (Costa Rica, 
Guatemala, El Salvador, and Honduras) as well as Panama, Cuba and 
CARICOM. Agreements negotiated with CARICOM have had limited effect 
and have not been fully implemented. Colombia has also negotiated 
five bilateral investment treaties of which only one has entered 
into effect (see below "Bilateral Investment Agreements" for more 
details). Colombia also has signed other bilateral agreements to 
stimulate trade and ensure most favored nation treatment with 
Hungary, the Czech Republic, Romania, Russia, Malaysia, Indonesia, 
India, China, South Korea, Algeria, Kenya, Egypt, Morocco, Israel, 
and the Ivory Coast.  Colombia has been an active participant in 
the Free Trade Area of the Americas (FTAA) negotiations. 
 
Conversion and Transfer Policies: 
 
¶41. As of December 24, portfolio capital must remain in Colombia 
for at least one year.  No other restrictions apply to transferring 
funds associated with foreign investment. Foreign investment into 
Colombia must be registered with the Central Bank within three 
months of the transaction date.  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). There are no restrictions to the expatriation 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 uninterruptedly have been consistently at least double 
that level for decades. 
 
Expropriation and Compensation: 
 
¶42. Colombian law guarantees indemnification in expropriation 
cases. 
 
Dispute Settlement: 
 
¶43. Law 315/ 1996 authorizes the inclusion of an international 
binding arbitration clause in contracts between foreign investors 
and the GOC and Decree 1818/1998 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. 
 
¶44. Foreign investors find 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 have continued to endure 
lengthy dispute settlement processes. Consequently, there have been 
cases in which foreign investors have won arbitrations, only to 
have the losing party seek their annulment by the Council of State, 
a judicial body. The Council has ruled that until it decides on 
such requests, arbitration awards are not final, and do not need to 
be paid. 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/Incentives: 
 
¶45. Apart from export incentives relating to the operation of 
special or free zones, Colombian law and/or regulations do not 
currently impose specific TRIMs-regulated performance requirements. 
 
Incentives: 
 
¶46. Based on Colombian notifications to the WTO, the WTO Committee 
on Subsidies identified the following Colombian programs as export 
subsidies: (1) Plan Vallejo and (2) the CERT program. Plan Vallejo 
allows duty-free entry of capital goods and materials to be used in 
the production of export goods. In order to qualify, the producer 
must show that at least 70 percent of the product produced by the 
newly acquired capital good is exported. In the case of raw or 
partially finished materials, the producer must export in value, 
1.5 times that of the imported materials. 
 
¶47.  The tax reimbursement certificate (CERT) program has been 
frozen since 2002.  The program, intended to promote non- 
traditional export products, provided negotiable certificates to 
exporters based on the level of exports.  Since 2002, however, the 
program has not been operational, but remains on the tax books. 
 
¶48. Faced with a revaluation of the peso that affected flower and 
banana exports, the Uribe Administration enacted a program to help 
these exporters purchase mechanisms to help them counter potential 
exchange risk.  The program offers  banana and flower exporters 200 
pesos for every dollar of goods exported to the United States 
(current exchange rate: USD 1 = CP 2250) to purchase either options 
or dollars in the futures market to hedge against future exchange 
rate fluctuations. The eligibility period for this subsidy expired 
on February 28, 2005.  However, in September 2005 the Minister of 
Agriculture announced that the government was seeking resources for 
continuing with this type of export subsidy in 2006. 
 
Export credit: 
 
¶49. 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: 
 
¶50. Colombia has two import licenses. All importers are required to 
complete a standard import registration form known locally as the 
"Registro de Importacin".  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. 
 
¶51. 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.  Agriculture is one of the most sensitive areas in the 
USATPA negotiations. 
 
¶52. The majority of "used" goods, such as personal computers, cars, 
tires, and clothing, are effectively prohibited from import, and 
those that are allowed (e.g., used medical equipment), are subject 
to prior licensing. The US seeks entry of used and remanufactured 
goods under the USATPA. 
 
Promotion: 
 
¶53. 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 much like 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 provide information about 
36 different countries. These offices attend and organize events, 
fairs, and provide commercial guides to enter foreign markets. 
 
Taxes: 
 
¶54. The main types of tax incentives offered include preferential 
import tariffs, tax exemptions and credit or risk capital from the 
government. One example of a tax incentive offered by the Colombian 
Government is the deductibility of income from new investments in 
agricultural businesses dedicated to the cultivation of fruits, 
anchovies, rubber, and cacao.  Another deduction available is 
income from new investments in environmental enhancements and 
controls once these investments are accredited by the environmental 
authority.  Some fiscal incentives are available for investments 
created to generate new employment or production in areas impacted 
by recent natural disasters. 
 
¶55. 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. 
 
Performance Requirements: 
 
¶56. In December 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 will maintain 
their special customs and foreign exchange regimes. In September 
2005, the GOC presented a bill to Congress, that if approved, would 
impose a 25 percent income tax on free zones (lower than the normal 
35 percent tax) after December 31, 2006, and would maintain the 
exemption on the 7 percent remittance tax for free zones in the 
country. 
 
Non-Tariff Barriers: 
 
¶57. 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. The USATPA 
negotiations are focusing on eliminating many of these barriers to 
service trade. 
 
Standards, Testing, Labeling And Certification: 
 
¶58. The Colombian Ministry of Foreign Trade requires specific 
technical standards for a variety of products. The specifications 
are established by the Colombian Institute of Technical Standards 
(ICONTEC), a private non-profit organization, which provides 
quality certification and technical support services. ICONTEC also 
serves as an Underwriters Laboratories (UL) inspection center. 
ICONTEC is a member of the International Standards Organization 
(ISO) and the International Electrotechnical Commission (IEC). 
Resolutions 1190 through 1194 issued by the Ministry of Economic 
Development eliminated mandatory compliance to technical standards 
on approximately 90 percent of the products previously subject to 
such requirements. Certificates of conformity are no longer a 
prerequisite for importing most products that are subject to 
technical standards. 
 
¶59. According to U.S. industry, Colombian requirements for product 
registrations to bring new products into the market are excessive 
and often take as long as six to eight months to fulfill. Colombia 
maintains trade-restricting requirements for listing of ingredients 
by percentage on pet food. In some cases, unjustified SPS measures 
have been implemented to restrict U.S. exports. For example, 
Colombia has maintained restraints on U.S. exports of cattle and 
beef that are not based on risk assessments or otherwise comply 
with WTO SPS obligations. Since December of 2003, U.S. beef has 
been banned in Colombia on the basis of BSE (Bovine Spongiform 
Encephalopathy). However, this ban continues to be enforced without 
adequate scientific justification. 
 
¶60. U.S. companies retailing nutritional supplements in Colombia 
continue to experience problems due to the lack of legislation that 
establishes clear parameters for sanitary registration. Colombia 
does not have a specific classification for nutritional 
supplements, causing nutritional supplements to be registered as 
nourishing products or medicines. In those categories, the products 
must meet certain requirements that nutritional supplements don't 
have. 
 
Government Procurement: 
 
¶61. Colombia is not a signatory of the WTO Agreement on Government 
Procurement. The USATPA under negotiation seeks to increase 
transparency and guarantee national treatment for U.S. firms 
participating in government tenders. 
 
¶62.  The Government Procurement and Contracting Law, Law 80/93, 
sets guidelines for the selection of suppliers requiring the use of 
public tenders. To sell to the GOC, foreign firms must register 
with the chamber of commerce and appoint a local representative. 
Registration must be renewed annually and includes certification of 
experience, finances, technical expertise, and organization. Such 
statements serve to qualify and classify suppliers based on "bona 
fide" criteria. The registration requirements make the process 
particularly costly for foreign firms, who need to demonstrate a 
commercial presence in Colombia to participate in government 
procurement. 
 
¶63. One of the main problems in the application of Law 80 is that 
there are exceptions, which generate uncertainty among investors. 
Law 80 does not apply to contracts for the exploration and 
exploitation of renewable or non-renewable natural resources, the 
commercialization of said resources, or activities performed by 
state companies involved in these sectors. Contracts for the 
exploration and exploitation of renewable and non-renewable natural 
resources, and all those contracts related to telecommunications, 
radio, and courier services are governed by special legislation. 
In these cases, in addition to public tenders and "direct purchase" 
mechanisms, the state usually selects suppliers through licensing 
procedures. 
 
¶64. Law 816/2003 was enacted to promote national industries in 
government procurement. Law 816 mandates that all public entities 
adopt criteria that support national industries and grants 
preferential treatment to bids that incorporate Colombian goods or 
services. Under Law 816, national companies are given a 10 to 20 
percent "bonus" in their evaluation score, and foreign companies 
using Colombian goods or services are given a 5 percent to 15 
percent bonus. Bids without any Colombian component are scored 
between 5 percent and 20 percent lower than national ones. 
Additionally, Law 816 requires foreign suppliers without local 
headquarters in Colombia to obtain certification from a Colombian 
mission overseas that government procurement laws in the home 
country meet reciprocity requirements. To date, this new system, 
which lacks an established certification process, has proven to be 
a barrier against the participation of U.S. suppliers in government 
procurement contracts. 
 
Investment Barriers: 
 
¶65. Investment screening is limited and the processes are generally 
routine and non-discriminatory.  Telecommunications, financial 
services, and oil and mining sectors require specific registration 
procedures for foreign investors but there are no restrictions to 
the amount of foreign capital that may be invested in these 
sectors. 
 
¶66. Some large U.S. companies have expressed concern over certain 
rulings on anti-trust and competition issues by the Commission of 
Industry and Commerce (SIC).  There are few opportunities to appeal 
these decisions, and the legal procedures are time consuming and 
costly. 
 
¶67. As a result of a 2004 decree restricting short-term capital 
flows, all foreign investment must be registered with the Central 
Bank's foreign exchange office within three months to ensure the 
right to repatriate profits and remittances. All investors, foreign 
and national, must obtain a license from the Superintendent of 
Companies and register their interest in a business with the local 
chamber of commerce. 
 
Tariff Barriers: 
 
¶68. Many customs duties and most non-tariff barriers have been 
eliminated.  The ATPA will dismantle the remaining barriers 
immediately 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 should be eliminated or mitigated in 
the USATPA. Processed food imports from Chile and country members 
of the Andean Community (Peru, Ecuador, Bolivia, Venezuela) enter 
duty-free. 
 
¶69. Colombia assesses a discriminatory value-added tax (VAT) of 35 
percent on whiskey aged for less than 12 years, which is more 
characteristic of U.S. whiskey, compared to a rate of 20 percent 
for whiskey aged for 12 or more years, most of which comes from 
Europe. 
 
Right To Private Ownership And Establishment: 
 
¶70. Colombia's Constitution explicitly protects individual rights 
against state actions and upholds the right to private property. 
Protection of Property Rights: 
 
¶71. Colombia has been on the Special 301 "Watch List" every year 
since 1991. Key concerns include lax customs enforcement and the 
inability to conclude legal cases against traffickers or 
counterfeiters. Colombia, a WTO member, has ratified legislation to 
meet its obligations under the Uruguay Round Agreement on Trade- 
Related Aspects of Intellectual Property Rights. Colombia is a 
member of the World Intellectual Property Organization (WIPO), the 
Paris Convention for the Protection of Industrial Property, the 
Berne Convention for the Protection of Literary and Artistic Works, 
the Treaty on the International Registration of Audiovisual Works, 
and the 1978 Union for the Protection of New Plant Varieties, and a 
signatory to the Patent Cooperation Treaty.  Further IPR 
protections will be an integral part of the ATPA.  The USG is 
working with Colombia to improve enforcement and prosecution of IPR- 
related matters. 
 
¶72. In Colombia, the granting, registration, and administration of 
intellectual property rights (industrial property and copyright) 
are carried out by four different government entities. Colombia 
currently lacks a unified IPR registration system.  The Commission 
of Industry and Commerce (SIC) acts as the Colombian patent and 
trademark office. The Colombian Agricultural Institute (ICA) is in 
charge of the issuance of plant variety protection-related and agro- 
chemical patents. The Ministry of Social Protection is in charge of 
the issuance of phamaceutical 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 USATPA will strengthen and modernize Colombia's IP regime. Key 
areas are increased enforcement, stronger patent and data 
protection, and more modern trademark and copyright regimes. 
 
Patents and Trademarks: 
 
¶73. Colombia is a member of the Inter-American Convention for 
Trademark and Commercial Protection. Enforcement of trademark 
legislation in Colombia is showing some progress, but contraband 
and counterfeiting are widespread. The Commission of Industry and 
Commerce acts as the local patent and trademark office in Colombia. 
This agency was given the control of the government's IPR policy. 
However, the agency suffers from inadequate financing and 
personnel, having only 16 patent examiners for the whole country. 
The staff has a high turnover rate, resulting in a large backlog of 
trademark and patent applications.  This has led to a large number 
of appeals. The patent office at the Commission believes that the 
number of new patent and trademark applications (currently 1,600 
patent and 15,000 trademark requests per year) will double in the 
next two or three years, without considering the increase in 
applications that the signing of the USATPA with the U.S. would 
likely produce. 
 
Copyrights: 
 
¶74. Andean Community Decision 351 on the protection of copyrights 
has been in effect in Colombia since January 1, 1994. Law 44/1993 
extends protection for computer software to 50 years but does not 
classify it as a literary work. Law 44 and Colombia's civil code 
include some provisions for IPR enforcement and have been used to 
combat infringement and protect rights. Colombia is a member of the 
Berne and Universal Copyright Conventions, the Buenos Aires and 
Washington Conventions, the Rome Convention for the Protection of 
Performers, Producers of Phonograms and Broadcasting Organizations, 
the Geneva Convention for Phonograms, the WIPO Copyright Treaty, 
and the WIPO Performances and Phonograms Treaty. It is not a member 
of the Brussels Convention relating to the Distribution of Program- 
Carrying Signals Transmitted by Satellite. 
 
¶75. Colombia's Criminal Code of 2001 includes copyright 
infringement as a crime, and significantly increased jail terms for 
violators from three to five years. The code also contains 
provisions regarding the violation of technological protection 
measures and rights management information, both key obligations of 
the WIPO treaty. Colombia has also created a Special Investigative 
Unit within the Prosecutor General's Office dedicated to 
intellectual property rights issues. This unit began functioning in 
November 1999 and has 60 cases under investigation on different 
issues including usurped trademarks, counterfeit pharmaceuticals, 
pirated books, CD's, and movies, violations to industrial secrecy, 
and cases against pirate television programming broadcasters. 
 
¶76. The International Intellectual Property Alliance (IIPA) 
estimates that, in 2004, piracy levels in Colombia for recorded 
music reached 71 percent with damages to U.S. industry estimated at 
US $51.6 million.  Motion picture piracy captured 75 percent of the 
market and losses were valued to be around US $40 million. 
According to the Business Software Alliance (BSA), piracy of 
business software in 2004 resulted in losses for legitimate 
industry in Colombia of close to US $81 million. Estimated damage 
to U.S. industry due to book piracy was US $6 million in 2004, 
according to IIPA. Efforts to combat piracy through raids and other 
enforcement measures are hindered by a judicial system that fails 
to actively prosecute cases or issue deterrent criminal sentences. 
Border enforcement, another facet to piracy, is also weak. 
 
¶77. Concerns about television piracy have decreased due to a 
relative successful licensing and inspections carried out by the 
Colombian National Television Commission (CNTV). However, MPAA 
reports that there is increasing concern about the continued growth 
of optical disc piracy in Colombia. The video piracy rate in the 
VHS format caused some audiovisual producers to simply abandon the 
VHS market. MPAA member companies returned to the market as 
increased purchases of DVD hardware players drove demand for DVDs. 
However, optical disc piracy has grown considerably and threatens 
the new legitimate DVD market. 
 
Transparency of the Regulatory System: 
 
¶78. Colombian legal and regulatory systems are generally 
transparent and consistent with international norms.   Colombia's 
civil codes define commercial entities' legal rights and outline 
enforcement procedures regarding commercial activities. 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 
ever since. The Colombian judicial system continues to be clogged 
and cumbersome. 
 
¶79. In 2004, Colombia began moving to an oral accusatory system. 
The legal reforms seek to reduce impunity by making criminal 
investigations and trials more efficient. The new system separates 
the investigative functions assigned to the Office of the Attorney 
General from trial functions. 
 
¶80. The U.S. Department of Justice has provided US $80 million 
dollars under the Justice Sector Reform Program (JSRP) to assist 
Colombia in the design and implementation of the criminal judicial 
system reforms.  More than 2,400 human rights prosecutors and 
technical experts have been trained and state of the art criminal 
forensic equipment has been provided to support their 
investigations. In addition, more than 3,500 prosecutors, police 
investigators and judges have been trained on the criminal judicial 
system reform, with more than 14,000 to be trained by 2006 with 
U.S. Government assistance. 
 
Efficient Capital Markets and Portfolio Investment: 
 
 
¶81. Following the crisis of 1999, bailouts for failing banks were 
partially financed through a controversial tax on financial 
transactions. The tax was originally set at 2 percent but has since 
been increased to   4 percent for the period beginning in 2004 and 
ending in 2007.  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. 
 
Related Party Transactions: 
 
¶82. Decree 663 stipulates that the financial institution's board of 
directors must unanimously approve loans to a financial 
institution's principal officers, their relatives or shareholders 
with a five percent or greater stake. Loans to related parties 
(except those made to employees as part of health, housing, 
education, or similar programs) must not be offered at terms more 
attractive than those offered to non-related parties. Financial 
institutions are prohibited from making loans to broker-dealer, 
fiduciary, and pension fund management subsidiaries. 
 
Stocks and Bonds: 
 
¶83. The Colombian securities market is small but has enjoyed high 
growth in recent years. 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. 
Institutional investors, particularly the 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. The Colombian Securities 
Commission and Exchange oversees the exchange, regulates market 
intermediaries, broker's fees, and the financial disclosure of 
listed companies. 
 
¶84. In 2005, the government sought to design and implement a new 
set of policies and reforms to channel savings towards productive 
investment.  Law 964/2005 regulates public markets and authorizes 
the Colombian Securities and Exchange Commission (SEC) to regulate 
the development of capital markets. The fifth chapter of the law, 
Investors' Protection, addresses some of the most pressing 
corporate governance issues faced by Colombian business owners. 
Key components of the chapter include regulations regarding the 
composition of boards of directors, the interests of minority 
shareholders, disclosure of shareholders' agreements, audit 
committees, and participation levels of independent board members. 
 
¶85. The second set of reforms includes a restructuring of the 
commissioning bodies that govern the entire financial sector. 
Reforms should update the operational regulations to meet 
international standards and strengthen enforcement.  Adoption of 
these standards along with the consolidation of the commissions 
should be complete by mid-2006. 
 
Political Violence: 
 
¶86. The U.S. Secretary of State has designated three Colombian 
groups, the Revolutionary Armed Forces of Colombia (FARC), the 
National Liberation Army (ELN), and the United Self-Defense Forces 
of Colombia (AUC), as Foreign Terrorist Organizations. These groups 
have carried out bombings and other attacks in and around major 
urban areas, including against civilian targets. In addition, the 
United States designated the FARC and the AUC as significant 
foreign narcotics traffickers under the Kingpin Act. Terrorist 
groups have also targeted critical infrastructure (water, oil, gas, 
and electricity), public recreational areas, and modes of 
transportation. 
 
¶87. President Uribe has introduced measures to restore law and 
order, intensifying the offensive against guerrilla groups in order 
to weaken them militarily and force them into political 
negotiations. This has put the guerrilla groups on the defensive, 
forcing them to retreat to their jungle strongholds during 2003-04. 
Fortunately, the number of civilian casualties in rural areas 
associated with the conflict has decreased. Security in the main 
urban areas has also as security forces root out of most urban 
militia groups.  Despite these efforts, evaluations of the FARC, 
which is financed by narcotics trafficking, have not demonstrated 
significantly weakened military strength. Military deaths totaled 
the following for each respective year: 684 in 2002, 605 in 2003, 
and 589 in 2004.  Military personnel killed between January and 
November of 2005 total 617.  According to the CUT, one of 
Colombia's leading labor unions, approximately 300 union members 
and leaders were threatened with death, displaced, or killed 
between January and October 31, 2005.  Although 2005 is the year 
with the lowest number of kidnappings in the last decade, and 
around half that of last year (730 as of November 2005), there are 
still 5,491 kidnapped persons in the country according to 
Fondolibertad and Pais Libre foundations. 1999 was the most violent 
year with 3,328 kidnappings.  Since then the number of kidnappings 
has steadily declined to 1,440 cases in 2004.  Piracy, another 
crime associated with armed insurgent groups, also decreased from 
1,582 cases in 2003 to 928 in 2004. The number of piracy cases as 
of November 2005 was 642, according to the Ministry of Defense. 
According to the same source, the total number of terrorist acts 
has significantly decreased since 2002: dropping from 1,645 in 
2002, to 1,257 in 2003, 724 in 2004 and 552 as of November 2005. 
 
¶88. The demobilization of paramilitary groups has begun through the 
government's passage of the Peace and Justice Bill in June 2005. 
Over 16,000 combatants, mostly AUC, have demobilized so far. While 
narcotics and guerrilla-related violence account for part of the 
country's violence, common criminals are responsible for an 
estimated 75 percent of the reported murders. 
 
Corruption: 
 
¶89. The government's Comptroller General estimates that corrupt 
activity drains $6 million per year from Colombia's economy. 
 
¶90. "Transparencia por Colombia", the local chapter of Transparency 
International (TI), has implemented a number of anti-corruption 
programs including: an ethics program, an entrepreneurial program 
and ethics program 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 
methodologies for the effective implementation of ethics strategies 
via leadership, entrepreneurial ethics training and the creation of 
reporting and consulting systems. A program entitled Integrity 
Islands, consisting of curtailing and preventing corruption risks 
in specific organizational processes. 
 
¶91. USAID has also sponsored several anti corruption programs in 
Colombia. The current USAID-funded anti-corruption project is a 
three-year, $8 million contract aimed at increasing transparency, 
efficiency, and public management within Colombia's government 
institutions at the national, departmental, and municipal levels as 
well as more fully engaging citizens as partners in overseeing the 
performance of their government. 
 
Bilateral Investment Agreements: 
 
¶92. Colombia has negotiated and signed five bilateral investment 
treaties: Cuba (1994), Great Britain (1994), Peru (1994), Spain 
(1995), and Chile (2000). Of these, only that with Peru has entered 
into effect. The agreement with Chile has not been ratified by the 
Chilean Congress. The other three have not entered into effect 
because the Colombian Constitutional Court declared certain 
provisions relating to expropriation unenforceable. Colombia is 
currently negotiating other bilateral investment treaties with 
Italy, France, Canada, China, Switzerland, Germany, Netherlands and 
Japan. A key aspect of the FTA under negotiation is the inclusion 
of all the obligations of a BIT in the Investment chapter. 
 
OPIC and Other Investment Insurance Programs: 
 
¶93. In Colombia, OPIC maintains a portfolio of US $1.7 billion. 
More than 3,137 jobs and close to US $1 billion in government 
revenues are expected to result from current OPIC-supported 
projects. Examples of the type and scale of investment projects 
handled by OPIC in Colombia include construction of power plants, 
natural gas pipelines, and gold mining operations. OPIC joined 
Chase Manhattan Bank and other lending institutions to support K & 
M Engineering and Consulting Corporation in the Mamonal project 
(now owned by KMR Power Corporation), a natural gas-fired 
generation facility being built in Cartagena. This project received 
$35 million in OPIC financing and more than US $56 million in 
political risk insurance. Other examples of projects currently 
supported are two Citibank projects on financial and 
telecommunication services worth more than US $67.4 million in 
insurance, a Chase Manhattan Bank telecommunications project with 
US $200 million in insurance, one Energy Initiatives Inc. gas-fired 
power generation project worth US $150 million, and another gas- 
fired power generation project by Los Amigos Leasing Company, Ltd. 
worth US $200 million. In September 2002, OPIC's board approved a 
US $200 million loan guaranty for Citibank to establish a lending 
facility for Latin America, with initial focus on Colombia, 
Bolivia, Ecuador, Paraguay, Peru and Uruguay. In June 2003, OPIC 
provided a US $2.2 million loan to Etek International Corporation 
for the establishment of security network management and monitoring 
infrastructure in Colombia and other Latin American countries 
(Argentina, Brazil, and Chile). 
 
Foreign Trade Zones/Free Ports: 
 
¶94. 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. 
Using these zones provides importers with duty-free entrance of 
capital goods and materials to be used in production of export 
goods. The Colombian government regards duty-free zones as poles of 
industrial, commercial, tourist and technological development, 
focused largely on overseas markets. There are currently 12 duty- 
free zones in Colombia, where more than 350 companies operate, 
generating exports of approximately US $1.5 billion annually. The 
state does not participate in the operation of duty-free zones, but 
there are special tariffs established for duty-free zone that 
finance operations. Most companies operating in duty-free zones 
manage operations with large-scale production and a high degree of 
labor specialization. 
 
¶95. 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. Colombia has made commitments to abide by the provisions 
of the GATT Subsidies Code by phasing out any inconsistent export 
subsidies, including the import-export system for machinery and the 
free trade zones. In compliance with WTO standards, as of January 
2007, several of the free trade zone tax benefits will be 
eliminated.  A 25 percent income tax on businesses operating in 
free zones (lower than the usual 35 percent tax) will be imposed 
after December 31, 2006.  Businesses operating in the free trade 
zones would maintain their exemption from the 7 percent remittance 
tax, tariffs and the value-added tax. Foreign currency exchange 
will remain unrestricted, and additional benefits for commitments 
to comply with environmental and technologic standards are being 
studied. 
 
Foreign Direct Investment Statistics: 
 
¶96. Total FDI is expected to reach US $4 billion in 2005. In 2004, 
the United States, followed by Spain, Panama and Venezuela ranked 
as Colombia's largest investor.  The United States has been the 
main foreign investor in Colombia since 1999. In 2004, U.S. 
investment in Colombia reached US $874.2 million, representing 43 
percent of total FDI that year, while the stock of U.S. investment 
in Colombia between 1994 and 2004 amounted to approximately US $4.3 
billion according to Proexport/Coinvertir.  U.S. FDI in Colombia is 
primarily in the manufacturing, mining and wholesale sectors. 
 
END