2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012
Report

Openness to Foreign Investment

The Government of Colombia actively encourages foreign direct investment. In the early 1990s, the country began economic liberalization reforms, which provided for national treatment of foreign investors, lifted controls on remittance of profits and capital, and allowed foreign investment in most sectors. 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. Since 2010, the Santos administration has continued efforts to open up the economy. Liberalization has progressed furthest in telecommunications, accounting/auditing, energy, mining, and tourism, and to a lesser extent in legal services, insurance, distribution services, advertising, and data processing.

Foreign investors face exceptions and restrictions in the following sectors: television concessions and nationwide private television operators, radio broadcasting, movie production, maritime agencies, national airlines, and shipping. Portfolio investment in 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. Foreign investors can participate without discrimination in government-subsidized research programs. In fact, most Colombian government research has been conducted with foreign institutions.

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, CONPES Resolutions 51, 52, and 53, and Resolution 21 of the Board of Directors of the Central Bank.

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. All foreign direct investment that involves the establishment of a commercial presence in Colombia requires registration with the Superintendent of Corporations ('Super Sociedades') and the local chamber of commerce. Colombian law regulates the number of foreign personnel in several professional areas, such as architecture, engineering, law, and construction. For firms with more than 10 employees, no more than 10 percent of the general workforce and 20 percent of specialists can be foreign nationals.

Investment screening has been eliminated, and the registration requirements that still exist are generally formalities. Under Decree 1844 of 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 officially-registered foreign exchange.

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 time-consuming bureaucratic requirements and corruption. 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) as well as other free trade agreements.

According to the United Nations Conference on Trade and Development (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 offers investors the opportunity to enter into so-called “legal stability contracts” with the State. These contracts guarantee that the laws applicable to the investment at the time the investment is entered into will remain in effect for a period between three and 20 years depending on the type and amount of the investment. The minimum dollar value of the investment must reach US $1.2 million, and those seeking such a contract must pay a fee based on the investment. The law applies to 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. Although still in force, there has been some discussion of revising these contracts to increase tax revenue.

In November 2006, the United States and Colombian Governments signed the United States-Colombia Trade Promotion Agreement (U.S.–CTPA). In June 2007, the United States and Colombia signed a protocol of amendment regarding labor, environment, and intellectual property. The Colombian Congress ratified the agreement and the protocol in 2007. The Colombian Constitutional Court certified the U.S.-CTPA as conforming to the Colombian Constitution in July 2008. The U.S. Congress ratified the U.S.–CTPA in October 2011 and the accord is currently in its implementation phase with an anticipated entry into force in 2012. The U.S. trade accord will improve legal security and the investment environment and eliminate tariffs and other barriers in goods and services trade between the United States and Colombia. The agreement will grant 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 will be backed by a transparent and binding international arbitration mechanism. Investor-state arbitration will be available for breaches of investment agreements.

Currently, the Andean Trade Preference and Drug Eradication Act (ATPDEA) provides duty-free treatment for approximately 6,500 product categories from Colombia entering the United States. Goods must meet a value-added requirement of 35 percent, of which up to 15 percent may be accounted for by U.S. content in terms of cost or value. In October 2011, the U.S. Congress renewed ATPDEA benefits for Colombia through July 31, 2013.

Total Colombian exports to the United States were US $16.0 billion in 2010, up 38 percent compared to the previous year. Under the ATPDEA preference program in 2008, Colombia exported goods worth US $7.3 billion, representing a 109 percent increase from 2007 and 56 percent of total Colombian exports to the United States. U.S. exports to Colombia totaled US $11.3 billion in 2008.

Third Party Indicators:

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

Measure

Year

Index/Ranking

TI Corruption Index

2011

80 (out of 183)

Heritage Economic Freedom

2011

45 (out of 183)

World Bank Doing Business

2011

42 (out of 183)

The following sectors have restrictions on foreign direct investment:

Accounting, Auditing and Data Processing

In order to practice in Colombia, providers of accounting services must register with the ‘Central Accountants Board’ (‘Junta Central de Contadores’); have uninterrupted domicile in Colombia for at least three years prior to registry; and provide proof of accounting experience in Colombia of at least one year (Law 43 of 1990, Article 3).

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

For National Open Television and Nationwide Private Television Operators, only Colombian nationals or legal entities, organized as ‘Public Corporations’ (‘Sociedades Anónimas- S.A.’) may be granted concessions to provide television services. Foreign capital in any open television concession venture is limited to a maximum of 40 percent (Law 014 of 1991, article 37; Law 680 of 2001, articles 1 and 4; Law 335 of 1996, articles 13 and 24; Law 182 of 1995, articles 37, 47 and 48). The decision to offer new concessions for the provision of open national television is based on an economic-needs test.

Open television programming is subject to the following restrictions: 70 percent of programming between 7:00 p.m. and 10:30 p.m. (Prime Time) must be nationally-produced; the rate is 50 percent of programming broadcast between 10:30 p.m. and midnight as well as between 10:00 a.m. and 7:00 p.m. There are no local-content requirements for advertising on Colombian open television, but the National Television Commission charges foreign-made ads double the national rate for airtime.

Foreign investors must be actively engaged in television operations in their country of origin in order to participate in programming activities in Colombia (Law 182 of 95 and Law 375 of 1996). Television, radio broadcasting, movie production, and movie reproduction fall under national-treatment limits.

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).

Regional television services may only be provided by State-owned entities while regional and local television operators are compelled to have their broadcasting consist of at least 50 percent nationally-produced content. Community television services may only be provided by organized communities, legally constituted in Colombia as foundations, cooperatives, associations or corporations, subject to civil law (Law 182 of 1995, article 37).

Only Colombian nationals or legally constituted legal entities may provide subscription-based television services, and must offer Colombia’s national, regional and municipal open-television channels at no extra cost to subscribers (Law 680 of 2001, articles 4 and 11; Law 182 of 1995, article 42; Law 335 of 1996, article 8). Satellite television service providers are only obliged to include within their basic programming the broadcast of government-designated public interest channels. If non-satellite subscription service providers broadcast advertisements different from those of the original broadcast, they are subject to comply with the minimum percentage of nationally-produced content established for open television concessions.

In August 2008, the National Television Commission (CNTV) chose the European (DVB-T system) standard for Land Digital Television (TDT); the TDT will be free and open, and may cover about 90 percent of the population. Separately, in 2009 Colombia opened a public tender for a third private TV channel. The tender was suspended indefinitely in July 2010. In June 2011, the CNTV was eliminated. Three new entities will share the CNTV former responsibilities, namely, the Communications Regulatory Commission, the National Spectrum Agency, and the National Television Authority. Law 1507 of January 10, 2012 describes the roles of these entities in the television sector.

Concessions to provide radio broadcasting services can only be granted to Colombian nationals or private entities legally constituted in Colombia (Law 80 of 1993, article 35; Decree 1447 of 1995, articles 7, 9, and 18). Foreign operators are limited by law to 25 percent ownership of radio broadcast programs.

Newspapers published in Colombia covering domestic politics must be directed and managed by Colombian nationals (Law 29 of 1994, article 13).

Banking

Foreign companies may own 100 percent of financial institutions in Colombia, but are required to obtain approval from the ‘Financial Superintendent’ (under article 88 of the Financial System’s Basic Statutes) before making a direct investment of 10 percent or more in any one entity. Portfolio investments used to acquire more than 5 percent of an entity also require authorization.

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 of 1997) permits banking institutions to develop such activities in the same office/building, but the management of such services must be separate.

The use of foreign personnel in financial institutions is limited to administrators, legal representatives, and technicians. Foreign banks may establish a subsidiary or representation office in Colombia, but not a branch. All foreign and national banks, as well as foreign subsidiaries, must be constituted as ‘Mercantile Public Corporations’ (‘Sociedades Económicas Mercantiles’) or ‘Cooperative Associations.’

Banks operating in Colombia are subject to a minimum capital requirement. The government has the right to intervene in institutions that fail to meet minimum performance requirements (Law 510 of 1999, Law 795 of 2003 and article 80 of the Financial System’s Basic Statutes). Institutions are also required to register with the Financial Institutions Guarantee Fund, FOGAFIN (similar to the U.S. Federal Deposit Insurance Corporation).

All portfolio investments of foreign capital in Colombia must be done through the Foreign Capital Investment Fund; all foreign investments, either new or additions, must be registered with the Central Bank (Banco de la Republica), along with the ‘Currency Exchange Declaration” (Decree 2080 of 2000, articles 26 and 27).

Customs Services

A person or his legally-responsible representative must be domiciled in Colombia to engage in the following customs services: customs brokerage, postal and courier services, merchandise warehousing, merchandise transportation under customs control, international cargo agent, ‘Permanent Customs User’ or ‘High Frequency Exporter’ (Decree 2685 of 1999, articles 74 and 76).

Electricity

Only companies legally constituted in Colombia prior to July 12, 1994, may engage in the simultaneous generation, distribution, and/or transmission of electricity (Law 143 of 1994, article 74).

Fishing

A foreign vessel may engage in fishing and related activities in Colombian territorial waters only through association with a Colombian company holding a valid fishing permit (Decree 2526 of 1991). If a ship’s flag corresponds to a country with which Colombia has a complementary bilateral agreement, this agreement shall determine whether the association requirement applies. The costs of fishing permits are greater for foreign flag vessels.

Hydrocarbons and Mining

To provide services directly associated to exploration and exploitation of minerals and hydrocarbons in Colombia, any legal entity constituted under the laws of another country must establish a branch, affiliate or subsidiary in Colombia unless the service will be provided for less than one year (Law 685 of 2001, articles 19 and 20).

In 2003, the Colombian government separated regulatory responsibilities from Ecopetrol, the state-owned oil company, and assigned them to the National Hydrocarbons Agency (‘Agencia Nacional de Hidrocarburos’ – 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 to extend previous association contracts.

A sliding-scale royalty rate on oil projects establishes a 5 percent royalty rate on the smallest oil fields and an upper limit of 30 percent on larger fields. The lower royalty rate encourages 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 a record 162 exploration and production contracts signed from 2006 until 2010. As a result, oil production in Colombia has almost doubled since 2007, reaching 965,000 barrels a day in November 2011. The government’s goal is to produce at least 1.5 million barrels a day by 2015.

Insurance

Colombia permits 100 percent foreign ownership of insurance firm subsidiaries. Firms must have a local commercial presence to sell policies other than those for international travel or reinsurance. Colombia sets annual minimum capital requirements to establish an insurance company.

In July 2009, Colombia passed Law 1328 to modify market access of foreign insurance companies in specific sectors. The law also allows Colombian residents to purchase abroad various types of insurance policies, except for four specific cases outlined within the law pertaining mostly to social security and mandatory insurance policies. Under Law 1328 foreign companies can now offer insurance for maritime international transportation, international commercial aviation and space launching and transportation. The new law further allows local insurance agents and foreign insurance brokers to carry out insurance brokerage activities in Colombia and with each other, but with exceptions in the aforementioned cases.

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.

Private Security and Surveillance Companies

Only those companies constituted under Colombian law as ‘Limited Responsibility Societies’ or ‘Private Security and Surveillance Cooperatives’ may provide security and surveillance services in Colombia. Their shareholders may only be Colombian nationals. Those companies constituted with foreign capital prior to February 11, 1994 cannot increase the share of foreign capital. Those constituted after that date can only have Colombian nationals as shareholders (Decree 356 of 1994, articles 8, 12, 23 and 25).

Public Services

A ‘Domestic Public Services’ company (‘Empresa de Servicios Publicos- ESP’) must be domiciled in Colombia and legally constituted under Colombian law as a corporation (Law 142 of 1994, articles 1, 17, 18, 19 and 23). The category ‘public services’ encompasses sewage and water works, waste disposal, electricity, gas and fuel distribution, public telephony and complementary activities (public long distance and mobile telephone services in rural areas).

Special Air Services

Only Colombian nationals or legal entities domiciled in Colombia may offer special air services within Colombian territory and own any aircraft registered to provide special air services (Commercial Code, articles 1795 and 1864). Special Air Services include any non-transportation air services, such as aerial fire-fighting, sightseeing, and surveying.

Telecommunications

Only companies legally constituted in Colombia may be granted concessions to provide telecommunications services in Colombia (Law 671 of 2001, Decree 1616 of 2003, articles 13 and 16; Decree 2542 of 1997, article 2; Decree 2926 of 2005, article 2). 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 (US $150 million for a long distance license), commercial presence requirements, and economic needs tests.

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 subsidies where, for example, long-distance telephone service subsidizes local telephone service. Low (subsidized) prices of local telephony and high restrictive costs in the provision of long-distance service limit the entry of new competitors.

The U.S.-CTPA will liberalize the sector by prohibiting anti-competitive cross-subsidies, requiring transparent licensing procedures, ensuring interconnection at reasonable rates, and protecting the confidentiality of commercially sensitive information obtained as a result of interconnection arrangements. Under the U.S.-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.

Transportation

Foreign companies can only provide multimodal freight services within or from Colombian territory if they have a domiciled agent or representative legally responsible for its activities in Colombia. International cabotage companies can provide cabotage services (i.e. between two points within Colombia) “only when there is no national capacity to provide the service” according to Colombian law. Cargo reserve requirements in transport have been eliminated. However, the Ministry of Commerce reserves the right to impose restrictions on foreign vessels of those nations that impose reserve requirements on Colombian vessels. Trans-border transportation services are also restricted in Colombia.

Law 1369 of 2009 regulates the full spectrum of postal services, defining key elements such as the universal postal service, the official postal operator, licensed postal and money order service operators, postal objects and services, and sector regulators as well as the rights and responsibilities of postal operators and users. To become a postal or money order operator, it is required to establish a commercial entity in Colombia with the statement of purpose of providing postal services, and to sign up under the Postal Operators Registry managed by the Ministry of Information Technologies and Communications. There are concerns that some provisions contemplated by the law may have a negative impact, such as a modification of certain weight caps, minimum capital requirement modifications, and increases in registry fees.

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 entities to 30 percent, and Article 1426 restricts foreign ownership in national airline or shipping companies to 40 percent.

The owners of a concession providing port services must be legally constituted in Colombia as a ‘Public Corporation’ (Law 1 of 1991, articles 5.20 and 6). Only Colombian ships may provide port services within Colombian maritime jurisdiction; however, vessels with foreign flags may provide those services if there are no Colombian-flag vessels capable of doing so (Decree 1423 of 1989, article 38).

Travel and Tourism Agencies

Foreign investors must be domiciled in Colombia to provide travel and tourism agency services within Colombia (Law 32 of 1990, article 5). This does not apply to the services provided by tour guides.

Waste Disposal Services

No foreign investment is allowed in activities associated with the processing or disposal of non-Colombian, toxic, dangerous, or radioactive waste material (Decree 2080 of 2000, article 6).

Other factors which may impact investment

Colombia’s 1991 Constitution (articles 334 and 335) grants the Colombian government the authority to intervene directly in financial or economic affairs. This authority initially developed through Law 550 of 1999 and extended through Law 922 of 2006, provided solutions similar to U.S. “Chapter 11” filings for companies facing liquidation or bankruptcy. These laws were replaced by Law 1116 of 2006, which establishes the current ‘Company Insolvency Regime’ and revises the company liquidation Law 222 of 1995.

Under Law 1116 of 2006, the creditors of a company can request ‘Judicial Liquidation’, which can be requested by a company’s creditors, and replaces the forced auctioning of the company’s assets. Now, inventories are valued, creditors rights are taken into account, and either a direct sale takes place within two months or all assets are assigned to creditors based on their share of the company’s liabilities.

Privatization regime

In recent years, Colombia has privatized State-owned enterprises under article 60 of the Constitution and Law No. 226 of 1995. This Law stipulates that the sale of State holdings in an enterprise should be offered to two groups: first, to cooperatives and workers associations of the enterprise; and second, to the general public. During the first phase, special terms and credits have to be granted. In the second phase, foreign investors may participate along with the general public.

Colombia’s main privatizations have been in the electricity, mining, hydrocarbons, and financial sectors. The government has attached a high priority to stimulating private sector investment in roads, ports, electricity, and gas infrastructure concessions. Public-private partnerships are increasingly the government’s favored option for infrastructure development. Per Law 80, such partnerships must include a Colombian company.

Municipal enterprises operate many public utilities and infrastructure services. These municipal enterprises have engaged private sector investment through concessions. There are several successful concessions involving roads (e.g., the urban transportation integrated system in Pereira -- Dosquebradas -- La Virginia metropolitan area), water, sanitation, ports (Port of Cartagena), and electricity services (Empresas de Medellín). These kinds of partnerships have helped promote reforms and create an attractive environment for private national and foreign investment.

Conversion and Transfer Policies

No restrictions apply to transferring funds associated with foreign direct investment. However, foreign investment into Colombia must be registered with the Central Bank to secure the right to repatriate capital and profits. Except for special instances, direct and portfolio investments are considered registered when the exchange declaration for operations channeled through the official exchange market is presented. 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). Recent tax reform eliminated the 7 percent tax on 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 well above that level for decades.

Expropriation and Compensation

Article 58 of the Colombian Constitution governs indemnifications and expropriations. This article guarantees the rights of holders of legally-acquired property. However, 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 in free trade agreements, such as the U.S.-CTPA.

Dispute Settlement

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 permits 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 to 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 of 2005, mentioned above), even for foreign investors.

Foreign investors have found the arbitration process in Colombia complex and dilatory, especially with regard to the 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).

There is proposed legislation to reform the Colombian arbitration regime raising the importance and validity of international arbitration decisions in light of the free trade agreements Colombia has recently signed.

Performance Requirements and Incentives

There are no performance requirements explicitly applicable to the entry and establishment of foreign investment in Colombia. However, there are export incentives relating to the operation of special or free trade 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, per Law 1004 passed in 2005, which also grants a 15 percent income tax on free zones (lower than the normal 33 percent tax) after December 31, 2006.

Since 1983, Colombia has had in place a trade promotion mechanism known as CERTs (‘Tax Rebate Certificate’), which was initially conceived to help promote exports but was later transformed into an instrument to counter the negative effects of exchange rate fluctuations on exporters’ cash flows. CERTs are freely negotiable instruments issued by Colombia’s Central Bank (Banco de la República), whose purpose is to reimburse sums equivalent to the full or partial tax payments made by an exporter; CERTs can be used for the payment of income taxes, customs duties, VAT, or other form of taxes or contributions. In 2011, CERTs were used to compensate exporters during the suspension of the ATPDEA preferential tariffs.

The framework for government support of agricultural products, including flower, coffee, and bananas, takes the form of incentive/subsidy programs that reward producers either for hedging against exchange rate exposure, implementing sanitary programs, maintaining their workforce, or for obtaining credits to support their activities. The Exchange Rate Hedge Incentive (‘Incentivo de Cobertura Cambiaria’- ICC) was created in 2004 to counter the negative effects of peso appreciation on exporters’ cash flows by paying beneficiaries an amount equal to approximately 10 percent of FOB exports hedged against exchange rate fluctuation. The Sanitary Measures Incentive (‘Incentivo Sanitario Flores y Follaje’- ISFF) was started in 2007 as a direct subsidy to improve phytosanitary conditions and protect employment by paying producers approximately US $3,514 for every hectare of cultivated flowers as long as they provided proof of retention of at least 80 percent of their workforce. In 2010, the ISFF became a one-time reimbursable subsidy of almost 3 cents per dollar of exports. The Income Protection Program for Producers of Exportable Agricultural Goods (‘Programa Protección Ingresos Productores de Bienes Agrícolas Exportables’) was developed in 2008 to subsidize the purchase of hedging instruments for up to 90 percent of their cost. In 2010-11, the program was modified to provide hedging instrument subsidies of up to 80 percent of their costs. Finally, the ‘Special Credit Line for Exporters’ subsidizes part of agricultural exporters’ interest payment on bank loans and guarantees the liabilities undertaken through the program.

In January 2007, the Ministry of Agriculture (MOA) started the ‘Agriculture Guaranteed Income Fund’ (‘Agro Ingreso Seguro- AIS’) with the aim of protecting local (small) producers as well as to improve the overall competitiveness of the agricultural sector through low interest loans, access to lines of credit, financial assistance for irrigation and drainage projects, and technical assistance. In 2009, the AIS was mired in a serious corruption scandal. The AIS was replaced in 2011 with a new program called Rural Development with Equality (Desarrollo Rural con Equidad) (DRE). The Ministry of Agriculture also has other programs that focus on improving the conditions for agricultural workers by promoting employment and income in the sector, facilitate access to new markets, raise the competitiveness of micro enterprises, strengthen the business know how of the rural population, and lowering poverty.

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. In 2010, BANCOLDEX played an important role in providing credit to Colombian companies affected by dramatically reduced exports to Venezuela, as well as in supporting exporters affected by the delayed renewal of ATPDEA preferences by the U.S. Congress.

Import Licenses

All imports must be registered, and a small percentage requires prior import licenses. The “Registro de Importación” required for all imports is for record keeping/statistical purposes and is available at the Ministry of Commerce, Industry and Tourism and online. Import licenses apply to closely monitored, sensitive products such as precursor chemicals and weaponry.

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

Imports of most “used” goods, such as personal computers, cars, tires, and clothing, are effectively prohibited, and those allowed (e.g., used medical equipment) are subject to import license approval. The U.S.–CTPA’s provision to open the market for remanufactured goods will establish precise rules for transactions of this nature and enable a better return on investment for investment projects related to mining, infrastructure and hydrocarbons.

Promotion

PROEXPORT is the Government’s foreign investment, tourism 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 made efforts to diversify Colombian exports, which have been traditionally concentrated in coffee, petroleum, coal, and flowers. PROEXPORT provides planning and training strategies for medium and small companies to overcome obstacles of exporting goods and services. There are 18 PROEXPORT offices across the world, with 7 additional offices planned – mostly in Asia. PROEXPORT has eight regional offices throughout Colombia. These offices attend and organize events, fairs, and provide commercial guides for Colombians entering foreign markets and foreigners doing business in Colombia.

Taxes

Companies and individuals in Colombia are subject to national and regional taxes. At the national level the most important are the corporate profit tax (33 percent); the value added tax (16 percent on most products); the tax on financial transactions (0.4 percent); a progressive personal income tax; and the temporary “wealth” tax, which ranges between 0.6 percent and 1.2 percent of asset values and is applicable to corporations and individuals with assets greater than US $1.5 million. (Note: Due to massive flooding throughout Colombia, the Santos Administration lowered the threshold of the wealth tax to those with liquid assets of US $525,000, and increased the wealth tax for those already paying it (liquid assets above US $1.5 million). This additional tax is expected to continue through 2014. End Note.) At the regional level there is the Industry and Commerce tax, which taxes industrial, commercial and services activities at a rate that ranges between 0.2 percent and 1 percent, and the property tax (Impuesto Predial), which ranges from 0.1 percent to 1.6 percent.

The government offers different types of tax incentives such as preferential import tariffs, tax exemptions, and credit or risk capital. Other incentives include the deductibility of income from new investments in the cultivation of fruits, anchovies, rubber, and cacao and in environmental enhancements and controls. The latter need an environmental authority accreditation. Some fiscal incentives are available for investments that generate new employment or production in areas impacted by natural disasters. Companies apply for fiscal incentives directly with participating agencies.

One of Colombia’s most important tax incentives is the 40 percent deduction of the value of any productive fixed-asset investment, which a company can claim when filing its income tax. This deduction is in addition to regular depreciation and is codified within article 158-3 of Colombia’s Tax Code (created by Law 863 of 2003, Article 68). It applies to any investment in tangible goods that are incorporated as part of a company’s fixed assets, that can be depreciated, and that becomes a direct part of the company’s income-producing activity. Current proposed legislation is likely to reduce the deduction rate to 30 percent, and eliminate this benefit for Free-Trade Zone users, who, as of December 2009, could take advantage of the deduction in addition to the preferential profit tax rate of 15 percent versus the ordinary 33 percent rate.

Tax and fiscal incentives are often based on regional considerations. Border areas have special protections because of currency fluctuations in neighboring countries, which can harm local economies. National and local government also offer special incentives such as tax holidays to attract specific industries. For example, Decree 2755 of 2003 exempts investors from corporate profit taxes on all revenues derived from: electricity generation through resources such as wind, biomass or agricultural residue; hotel services rendered by new, expanded or renovated hotels; and ecotourism, forestry, river transportation services, software development, medical products with new patents, and oil-related seismic activities, among others. These tax incentives have been in force since 2003 and range between 10 and 30 years.

Service Barriers

Legal services are 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 under the licenses of the Colombian lawyers in the firm. Economic needs tests, which calculate the impact of a firm's entry into the market, 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 10 employees, no more than 10 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 to receive operational authority from the Ministry of Education.

Tariff Barriers

Most 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 exceptions,

Level 3: 15 to 20 percent on consumer and “sensitive” goods.

Exceptions include automobiles (35 percent duty) and many agricultural products, which are subject to a variable “price-band” import duty system. When international prices rise and surpass the price-band ceiling, tariffs are reduced; when prices drop below the price-band floor, tariffs are raised. Colombia's free trade agreement partners are subject to lower or no duties, which makes imports of U.S. products into Colombia less competitive. The U.S.-CTPA will dismantle most remaining barriers upon entry into force, or after a transition period.

Right to Private Ownership and Establishment

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

Protection of Property Rights

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 copyrights) in Colombia are carried out by three different government entities. The Superintendent of Industry and Commerce (SIC) acts as the Colombian patent and trademark office. The agency has had to deal with inadequate financing, a high personnel turnover rate, and a large backlog of trademark and patent applications. Obtaining a patent can take from 3 to 5 years. The SIC has made efforts and some progress in providing electronic registration services for patents, industrial designs and trademarks. The Colombian Agricultural Institute (ICA) is in charge of issuing plant variety protection and agro-chemical patents. The National Copyright Directorate is responsible for issuing literary copyrights. Each of these entities suffers from 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 U.S.-CTPA provides improved standards for the protection and enforcement of a broad range of intellectual property rights. Such improvements include state-of-the-art protections for digital products such as 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 deterrence of piracy and counterfeiting by criminalizing end-use piracy.

Copyrights

Optical disc piracy of music and 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 lowest software piracy rates in Latin America, piracy of both business and entertainment software continues to cause commercial harm to legitimate industry.

Colombia has taken steps to increase penalties for the circumvention of technological protection measures. Unfortunately, law enforcement raids have not created a deterrent effect. Pirated products are distributed through hundreds of stalls in flea markets. Industry representatives have complained about judges’ perceived lack of knowledge of intellectual property protection.

In 2009, the National Copyright Directorate spent considerable resources in modernizing its technological platform to allow for the online registration of works subject to copyright and related rights. These efforts allowed for 43 percent of all registries from January through September of 2009 to be carried out online. In addition to registration, various other procedures can be carried out through the National Copyright Directorate’s website at http://www.derechodeautor.gov.co/htm/Tramites/tramites.htm.

Patents and Trademarks

The patent regime in Colombia currently provides for a 20-year protection period for patents; a 10-year term for industrial designs; and 20- or 15-year protection for new plant varieties, depending on the species. 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 a member of the Inter-American Convention for Trademark and Commercial Protection. Various procedures associated with industrial property, patent and trademark registration have been made available online and can be accessed through SIC’s website at http://www.sic.gov.co/index.php?modulo=Tramites/Propiedad/Tramites_propiedad&tam=900.

Enforcement

Since 1995, Colombia’s National Anti-Piracy Campaign has raised public awareness, conducted training, and promoted consumer education. Law enforcement agencies cooperate with industry, and enforcement actions have concentrated in Bogotá, Barranquilla, Cartagena, Cúcuta and Medellín. There are often lengthy delays in processing cases following arrests.

In 2000, Colombia enacted enforcement legislation (Law No. 603) that requires Colombian corporations to include in their annual reports certification of their compliance with copyright laws. The Superintendent of Companies (Super Sociedades) 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 DIAN (Colombia’s Customs and Income Tax Office) to inspect software licenses during routine tax inspections.

Legislation

Amendments to Colombia’s 1982 copyright law have increased criminal penalties for piracy and expanded police authority to seize infringing products. Colombia has deposited its instruments of ratification for both the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT).

Colombia’s criminal code includes copyright infringements as a crime with jail terms. 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. The code also contains provisions on the violation of technological protection measures and rights management, both key obligations of the WIPO Treaties, but these violations are only punishable by fines.

Transparency of Regulatory System

Colombian legal and regulatory systems are generally transparent and consistent with international norms. The commercial code and other laws 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 contains provisions relating to contracts, mortgages, liens, notary functions, and registries.

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. Colombia has completed its transition 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 entities as well as insufficient resources complicate timely resolution of cases.

Efficient Capital Markets and Portfolio Investment

In Colombia, foreign investors are allowed to participate in capital markets by negotiating and acquiring shares, bonds, and other securities listed by the Foreign Investment Statute. These activities must be conducted via a foreign investment capital fund and be administered by a local trust company or stockbroker that has been authorized to do so by the Financial Superintendent (Super Financiera). Foreign investment capital funds are not allowed to acquire more than 10 percent of the total amount of a Colombian company's outstanding shares.

Colombia’s financial system is well developed by regional standards. Two private financial groups own almost one-half of all bank assets: the Sarmiento Group (Grupo Aval) controls about 30 percent, and the Sindicato Antioqueño Group (Bancolombia) 20 percent. Total foreign-owned bank assets account for approximately 21 percent of sector assets. In 2005, Colombia consolidated supervision of all aspects of the banking, financial, securities and insurance sectors under the Financial Superintendent.

According to the Financial Superintendent, as of November 2011, the estimated total assets of the country’s main banks amounted to approximately US $150 billion; as of November, 2011, 68 percent of all disbursed credits were destined for commercial credits; 28 percent for consumption; 3 percent for microcredit; and 7 percent for housing. Past-due loans accounted for 3 percent of the total portfolio in November 2011. As of November 2011, banks’ return on equity was 16 percent year-to-date with profits growing 14 percent in Colombian Pesos and amounting to approximately US $3 billion.

Since the 1998-1999 financial crisis, the number of financial institutions in Colombia has declined by almost half. As a result, 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 risk assessment and portfolio management methodologies.

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 0.2 percent but has since been increased to 0.4 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.

The principal source of long-term corporate and project finance in Colombia are financial corporations and, to a lesser extent, commercial banks. 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 concentrate their holdings in government paper and AAA-rated commercial paper. In February 2008, the Financial Superintendence issued a regulation (Circular 005), which increased the amount of a pension fund portfolio that can be invested in stocks to 40 percent. In 2001, stock exchanges in Bogotá, Cali and Medellín were merged to create the Bolsa de Valores Colombia (BVC), located in Bogotá. The BVC is regulated by the Financial Superintendent, which oversees market intermediaries, brokers’ fees, and financial disclosures of listed companies.

The Capital markets legislation enacted in 2005 has helped to deepen the capital markets through improved corporate governance, protection of the rights of minority shareholders, and more transparent information standards. Market capitalization has risen from US $14 billion in 2003 to US $210 billion as of December 2011. New financial regulations passed in Law 1328 of 2009 are likely to increase activity in the capital markets as pension funds will now be able to use a multi-fund scheme, which will allow individuals to choose their pension funds in accordance with their risk profile.

Competition from State-Owned Enterprises (SOEs)

Private enterprises generally are allowed to compete with public enterprises under the same terms and conditions. SOEs exist in the following sectors: defense article production; regional utility companies; the Postal Service, electricity generation and distribution; hospitals; airports; banking; television; education; regional lotteries; alcohol and spirit distillers; and oil and gas.

Corporate governance of SOEs is generally transparent and subject to oversight and audit by the comptroller general. SOEs are required to make an annual declaration of their activities to relevant government authorities. Senior government officials sometimes sit on boards of SOEs. SOEs often enter into partnerships with private corporations for specific activities.

Colombia is scheduled to start operating a Sovereign Wealth Fund in January 2012.

Corporate Social Responsibility (CSR)

Colombia has a long tradition of corporate social responsibility across many industries. Beneficiaries of CSR programs include students, children, populations vulnerable to Colombia's armed conflict, victims of violence, and the environment.

Larger companies, in particular, structure their CSR programs in line with generally accepted international CSR principles. On several occasions, companies in Colombia have been recognized on an international level, including by the State Department, for their CSR commitments. The Colombian-American Chamber of Commerce, USAID and the U.S. Commercial Service sponsor a booth and recruit U.S, companies for a pavilion at the annual CSR Trade Fair organized by the Colombian government.

Political Violence

Violence, including political violence, has diminished in recent years. Government of Colombia figures show that the number of homicides nationally continues a downward trend, reaching a 20-year low of 12,159 from January through October 2011, compared with 12,844 for the same period in 2010. The number of kidnappings as of October was 249, a slight increase from 230 reported during the same period in 2010 but a dramatic decrease since figures have been reported starting in 1999 when there were 3,204 kidnappings.

Illegal armed groups, including the Revolutionary Armed Forces of Colombia (FARC), National Liberation Army (ELN), and organized crime groups that included some former paramilitary members, committed widespread abuses, including political violence. Violence by these groups has also declined as their membership dwindles. As of October 1,314 FARC and ELN members demobilized in 2011. Most FARC and ELN-perpetrated violence was directed at Colombian security forces. In 2006, the United Self-Defense Forces of Colombia (AUC) completed its demobilization of 32,000 former paramilitaries, and government reintegration programs are providing health, education, and psychological assistance to the demobilized. The United States has designated the FARC and ELN as well as the now defunct AUC as Foreign Terrorist Organizations. Violence perpetrated by organized criminal groups that included some former paramilitary members remained a serious problem.

The long-running internal conflict has caused significant population displacement. Since 1985, the government has registered 3.7 million people (out of a population of 45 million) have been internally displaced. Displacements averaged nearly 275,000 people per year for the period 2003-2008. Since 2008, new displacements have declined significantly and consistently, with approximately 89,000 reported in 2011. NGO estimates put the figure closer to the historic average. In 2011, Colombia allocated approximately US $800 million in emergency humanitarian and long-term social assistance for IDPs. The Land and Victims’ Law, which the president signed on June 10, provides for the restitution of land stolen by illegal armed groups from IDPs and other victims. The government estimated that the law would require more than US $20 billion and a decade to implement. In the first phase, the government aims to deliver 2.97 million acres to 160,000 families by 2014.

Corruption

Corruption, including bribery, raises the costs and risks of doing business. Corruption has a corrosive impact on both market opportunities overseas for U.S. companies and the broader business climate. It also deters international investment, stifles economic growth and development, distorts prices, and undermines the rule of law.

It is important for U.S. companies, irrespective of their size, to assess the business climate in the relevant market in which they will be operating or investing, and to have an effective compliance program or measures to prevent and detect corruption, including foreign bribery. U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the relevant anticorruption laws of both the foreign country and the United States to properly comply with them, and where appropriate, they should seek the advice of legal counsel.

The U.S. Government seeks to level the global playing field for U.S. businesses by encouraging other countries to take steps to criminalize their own companies’ acts of corruption, including bribery of foreign public officials, by requiring them to uphold their obligations under relevant international conventions. A U.S. firm that believes a competitor is seeking to use bribery of a foreign public official to secure a contract should bring this to the attention of appropriate U.S. agencies as noted below.

According to the World Economic Forum’s Global Competitiveness Index (2011-2012), corruption is the biggest problem for doing business in Colombia. The Colombian Attorney General estimates that corrupt activity drains US $2.1 billion per year from the country’s economy. In 2011, Transparency International (TI) ranked Colombia 80 out of 183 countries on its Corruption Perceptions Index.

Since taking office, President Santos has demonstrated his commitment to prosecute corrupt officials and tackling fraud and bribery in the use and contracting of public funds. On July 17, President Santos signed the Anti-Corruption Statue, a comprehensive policy that gives the GOC new tools to crackdown on corruption and stiffer penalties for those found guilty. The Statute seeks to create more transparency and accountability in the contracting of public works projects and prohibits campaign contributors from receiving government contracts during their candidate’s term in office. President Santos signed on December 9 a decree to create a Transparency Secretariat within the Office of the President and he reiterated the GOC’s commitment to ratifying the OECD Anti-Bribery Convention. Santos has also uncovered multiple high-profile scandals involving the public sector since taking office, and numerous officials have been dismissed, taken to court, or put in jail.

USAID supports several anti-corruption initiatives in Colombia and has incorporated anti-corruption strategies in its rule of law, human rights, and governance programs. Through the Public Policy Program, USAID is providing technical assistance in the drafting of the GOC’s anti-corruption policy. At the municipal level, USAID promotes increased transparency and accountability in the management of royalty revenues through an institutional capacity building program in eight municipalities. USAID has also provided assistance to the Offices of the Inspector General, Prosecutor General, and Attorney General to prosecute corruption in regions emerging from conflict and to implement accountability principles in the justice sector.

U.S. Foreign Corrupt Practices Act

In 1977, the United States enacted the Foreign Corrupt Practices Act (FCPA), which makes it unlawful for a U.S. person, and certain foreign issuers of securities, to make a corrupt payment to foreign public officials for the purpose of obtaining or retaining business for or with, or directing business to, any person. The FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. For more detailed information on the FCPA, see the FCPA Lay-Person’s Guide at: http://www.justice.gov/criminal/fraud/fcpa/docs/lay-persons-guide.pdf.

Other Instruments

It is U.S. Government policy to promote good governance, including host country implementation and enforcement of anti-corruption laws and policies pursuant to their obligations under international agreements. Since enactment of the FCPA, the United States has been instrumental to the expansion of the international framework to fight corruption. Several significant components of this framework are the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Anti-bribery Convention), the United Nations Convention against Corruption (UN Convention), the Inter-American Convention against Corruption (OAS Convention), the Council of Europe Criminal and Civil Law Conventions, and a growing list of U.S. free trade agreements.

OECD Anti-bribery Convention

The OECD Anti-bribery Convention entered into force in February 1999. As of December 2011, there are 38 parties to the Convention including the United States (see http://www.oecd.org/dataoecd/59/13/40272933.pdf). In November 2011, Colombia joined the OECD Anti-bribery committee and was formerly invited to ratify the OECD Anti-bribery Convention. Major exporters China, India, and Russia are not parties although the U.S. Government strongly endorses their eventual accession to the Convention. The Convention obligates the Parties to criminalize bribery of foreign public officials in the conduct of international business. The United States meets its international obligations under the OECD Anti-bribery Convention through the U.S. FCPA.

UN Convention

The UN Anticorruption Convention entered into force on December 14, 2005, and there are 140 signatories and 158 parties to it as of December 2011 (see http://www.unodc.org/unodc/en/treaties/CAC/signatories.html). The UN Convention is the first global comprehensive international anticorruption agreement. The UN Convention requires countries to establish criminal and other offenses to cover a wide range of acts of corruption. The UN Convention goes beyond previous anticorruption instruments, covering a broad range of issues ranging from basic forms of corruption such as bribery and solicitation, embezzlement, trading in influence to the concealment and laundering of the proceeds of corruption. The Convention contains transnational business bribery provisions that are functionally similar to those in the OECD Anti-bribery Convention and contains provisions on private sector auditing and books and records requirements. Other provisions address matters such as prevention, international cooperation, and asset recovery. Colombia is a party to the UN Convention.

OAS Convention

In 1996, the Member States of the Organization of American States (OAS) adopted the first international anticorruption legal instrument, the Inter-American Convention against Corruption (OAS Convention), which entered into force in March 1997. The OAS Convention, among other things, establishes a set of preventive measures against corruption; provides for the criminalization of certain acts of corruption, including transnational bribery and illicit enrichment; and contains a series of provisions to strengthen the cooperation between its States Parties in areas such as mutual legal assistance and technical cooperation. As of December 2011, the OAS Convention has 34 parties, including Colombia (see http://www.oas.org/juridico/english/Sigs/b-58.html).

Council of Europe Criminal Law and Civil Law Conventions

Many European countries are parties to either the Council of Europe (CoE) Criminal Law Convention on Corruption, the Civil Law Convention, or both. The Criminal Law Convention requires criminalization of a wide range of national and transnational conduct, including bribery, money-laundering, and account offenses. It also incorporates provisions on liability of legal persons and witness protection. The Civil Law Convention includes provisions on compensation for damage relating to corrupt acts, whistleblower protection, and validity of contracts, inter alia. The Group of States against Corruption (GRECO) was established in 1999 by the CoE to monitor compliance with these and related anti-corruption standards. Currently, GRECO comprises 46 member States (45 European countries and the United States). As of December 2009, the Criminal Law Convention has 42 parties and the Civil Law Convention has 34 (see www.coe.int/greco). Colombia is not a party to the Council of Europe Conventions.

Free Trade Agreements

While it is U.S. Government policy to include anticorruption provisions in free trade agreements (FTAs) that it negotiates with its trading partners, the anticorruption provisions have evolved over time. The most recent FTAs negotiated now require trading partners to criminalize “active bribery” of public officials (offering bribes to any public official must be made a criminal offense, both domestically and trans-nationally) as well as domestic “passive bribery” (solicitation of a bribe by a domestic official). All U.S. FTAs may be found at the U.S. Trade Representative Website: (http://www.ustr.gov/trade-agreements/free-trade-agreements). Colombia and the U.S. have negotiated and ratified a free trade agreement, the U.S.–CTPA, which has yet to come into force.

Local Laws

U.S. firms should familiarize themselves with local anticorruption laws, and, where appropriate, seek legal counsel. While the U.S. Department of Commerce cannot provide legal advice on local laws, the Department’s U.S. and Foreign Commercial Service can provide assistance with navigating the host country’s legal system and obtaining a list of local legal counsel.

Assistance for U.S. Businesses

The U.S. Department of Commerce offers several services to aid U.S. businesses seeking to address business-related corruption issues. For example, the U.S. and Foreign Commercial Service can provide services that may assist U.S. companies in conducting their due diligence as part of the company’s overarching compliance program when choosing business partners or agents overseas. The U.S. Foreign and Commercial Service can be reached directly through its offices in every major U.S. and foreign city, or through its Website at http://export.gov.

The Departments of Commerce and State provide worldwide support for qualified U.S. companies bidding on foreign government contracts through the Commerce Department’s Advocacy Center and State’s Office of Commercial and Business Affairs. Problems, including alleged corruption by foreign governments or competitors, encountered by U.S. companies when seeking foreign business opportunities can be brought to the attention of appropriate U.S. government officials, including local embassy personnel and through the Department of Commerce Trade Compliance Center “Report A Trade Barrier” Website at tcc.export.gov/Report_a_Barrier/index.asp.

Guidance on the U.S. Foreign Corrupt Practices Act (FCPA)

The Department of Justice’s (DOJ) FCPA Opinion Procedure enables U.S. firms and individuals to request a statement of the Justice Department’s present enforcement intentions under the anti-bribery provisions of the FCPA regarding any proposed business conduct. The details of the opinion procedure are available on DOJ’s Fraud Section Website at www.justice.gov/criminal/fraud/fcpa. Although the Department of Commerce has no enforcement role with respect to the FCPA, it supplies general guidance to U.S. exporters who have questions about the FCPA and about international developments concerning the FCPA. For further information, see the Office of the Chief Counsel for International Counsel, U.S. Department of Commerce, Website, at http://www.ogc.doc.gov/trans_anti_bribery.html. More general information on the FCPA is available at the Websites listed below.

Exporters and investors should be aware that generally all countries prohibit the bribery of their public officials, and prohibit their officials from soliciting bribes under domestic laws. Most countries are required to criminalize such bribery and other acts of corruption by virtue of being parties to various international conventions discussed above.

Anti-Corruption Resources

Some useful resources for individuals and companies concerned about combating corruption in global markets include the following:

Information about the U.S. Foreign Corrupt Practices Act (FCPA), including a “Lay-Person’s Guide to the FCPA” is available at the U.S. Department of Justice’s Website at: http://www.justice.gov/criminal/fraud/fcpa.

Information about the OECD Anti-bribery Convention including links to national implementing legislation and country monitoring reports is available at: http://www.oecd.org/document/21/0,3746,en_2649_37447_2017813_1_1_1_37447,00.html. See also the Anti-bribery Recommendation and Good Practice Guidance Annex for companies: http://www.oecd.org/dataoecd/11/40/44176910.pdf

General information about anticorruption initiatives, such as the OECD Convention and the FCPA, including translations of the statute into several languages, is available at the Department of Commerce Office of the Chief Counsel for International Commerce Website: http://www.ogc.doc.gov/trans_anti_bribery.html.

Transparency International (TI) publishes an annual Corruption Perceptions Index (CPI). The CPI measures the perceived level of public-sector corruption in 183 countries and territories around the world. The CPI is available at: http://www.transparency.org/policy_research/surveys_indices/cpi. TI also publishes an annual Global Corruption Report which provides a systematic evaluation of the state of corruption around the world. It includes an in-depth analysis of a focal theme, a series of country reports that document major corruption related events and developments from all continents and an overview of the latest research findings on anti-corruption diagnostics and tools. See http://www.transparency.org/publications/gcr.

The World Bank Institute publishes Worldwide Governance Indicators (WGI). These indicators assess six dimensions of governance in 212 countries, including Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption. See http://info.worldbank.org/governance/wgi/sc_country.asp. The World Bank Business Environment and Enterprise Performance Surveys may also be of interest and are available http://go.worldbank.org/DBIYM2W0R0 at: http://go.worldbank.org/RQQXYJ6210.

The World Economic Forum publishes the Global Enabling Trade Report, which presents the rankings of the Enabling Trade Index, and includes an assessment of the transparency of border administration (focused on bribe payments and corruption) and a separate segment on corruption and the regulatory environment. See http://www.weforum.org for additional information about this and other WEF reports.

Additional country information related to corruption can be found in the U.S. State Department’s annual Human Rights Report available at http://www.state.gov/g/drl/rls/hrrpt/.

Global Integrity, a nonprofit organization, publishes its annual Global Integrity Report, which provides indicators for 92 countries with respect to governance and anti-corruption. The report highlights the strengths and weaknesses of national level anti-corruption systems. The report is available at: http://report.globalintegrity.org/.

Bilateral Investment Agreements

Colombia has stand-alone bilateral investment treaties (BITs) in force with Peru, Mexico, Spain and Switzerland. Colombia has signed BITs with China, South Korea, Japan India, Luxemburg, and Belgium, and the United Kingdom. Colombia also has investment chapters in many of its free trade agreements, including with the Andean Community, Mexico, Guatemala, Honduras, El Salvador, Chile, Canada, Norway, Iceland, Liechtenstein, and the United States. The Colombian government finalized negotiations of a free trade agreement with the European Union in 2010 and has launched FTA negotiations with South Korea, Turkey, and Japan. Colombia has three double taxation treaties in force: Spain, Chile, CAN (Peru, Ecuador, and Bolivia). It has signed double-taxation treaties with Switzerland, Portugal, Canada, Mexico, and South Korea and it is negotiating a double-taxation treaty with the United States, Germany, Czech Republic, Holland, Belgium, India, Japan, and France.

Overseas Private Investment Corporation (OPIC) and Other Investment Insurance Programs

OPIC is the U.S. Government’s development finance institution. It mobilizes private capital to help solve critical development challenges and in doing so, advances U.S. foreign policy. Because OPIC works with the U.S. private sector, it helps U.S. businesses gain footholds in emerging markets catalyzing revenues, jobs and growth opportunities both at home and abroad. OPIC achieves its mission by providing investors with financing, guarantees, political risk insurance, and support for private equity investment funds. Established as an agency of the U.S. Government in 1971, OPIC operates on a self-sustaining basis at no net cost to American taxpayers. OPIC services are available for new and expanding business enterprises in more than 150 countries worldwide.

OPIC made its first investment in Colombia in 1985 and has since made investments totaling over USD $2 billion in a variety of sectors. As of September 30, 2011, OPIC had $420m of exposure in Colombia for both finance (4 projects) and political risk insurance (3 projects), and is open for supporting new investments in Colombia. OPIC’s current portfolio includes more investments in Latin America than any other region. Additional information can be found at (www.opic.gov).

Labor

Colombia has abundant unskilled and semi-skilled labor throughout the country. It also has abundant skilled and managerial-level employees, many of whom are bilingual.

Labor permits are not required in Colombia, except for under-aged workers. To work, minors between 15 and 17 years old must be authorized by a labor inspector or another local authority upon request by their parents. In exceptional cases, minors under 15 may participate in remunerated artistic, cultural, recreational and sports activities of less than 14 hours per week with authorization. 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 with other labor unions. About 60 percent of Colombia’s labor force belongs to the informal sector. About 4 percent of the country’s labor force is unionized. The largest and most influential unions are composed mostly of public employees, particularly of the state-owned oil company and the state-run education sector. The Constitution protects the right to constitute labor unions, and union members have a special legal protection that prevents them from being fired for forming unions. Some union officials are allowed to dedicate some or all of their working hours to union business. Strikes, when held in accordance with the law, are recognized as legal instruments to obtain better working conditions. Strikes in sectors considered essential public services 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.

According to Colombian Labor Law, trial periods may not exceed two months for indefinite term contracts and no more than 20 percent of the total term of fixed term contracts lasting less than one year. 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 six 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 restrictions.

Part-time formal sector employees with an indefinite term contract or a defined term contract receive prorated social benefits (e.g., pension, health, unemployment). Companies/individuals that provide services-provision contracts do not have to pay social benefits to part-time employees, except for domestic employees, which have a special regime given the vulnerability of their condition.

Foreign-Trade Zones/Free Ports

To attract foreign investment and promote the importation of capital goods, the Colombian government uses a number of drawback and duty deferral programs. One example of such programs is the “free trade zones (FTZ)” mechanism, which the Government has sought to turn into a magnet for investment and domestic job creation. In 2005, Colombia’s Congress passed comprehensive FTZ modernization legislation through Law 1004, which opened investment to international companies, allowed one-company/standalone FTZs, and permitted the designation of pre-existing plants as FTZs. This law was then regulated by decrees 383 and 4051 in 2007, which set out conditions and requirements to gain approval for a declaration of an FTZ.

Since 2005, the number of FTZs increased from five to 91, as of September 2011. The FTZs account for US $6 billion in investments and provide employment for 43,355 people. FTZs are scattered throughout the Colombian territory, and can be found in the departments of Cundinamarca (18), Bolivar (7), Cauca (5), Antioquia (5), Magdalena (5), Atlántico (4), Valle del Cauca (3) and five other departments. The Ministry of Commerce administers requests for establishing FTZs, but the government does not participate in their operation.

Companies within Free Trade Zones enjoy a series of benefits, such as a preferential 15 percent corporate profit tax and exemption from customs duties and value-added taxes on imported materials. In return for these and other incentives, every FTZ project must meet specific investment and job creation commitments within three years for new projects and five years for pre-existing investments. Requirements range from a minimum of US $17 million in new investments and 500 jobs for agro-industrial projects, to US $34 million in new investment and 150 jobs created for manufacturing projects. Job creation requirements may be lowered by 15 positions for every additional US $3 million invested with a minimum requirement of 50 jobs created. Commitments since 2007 add up to an estimated 140,000 new jobs and approximately US $5 billion in new investments.

The Colombian government is monitoring Export Processing Zones to verify whether or not they are fulfilling their employment and investment commitments. Companies found to be not in compliance will lose their preferential treatment. Focus on these commitments increased after a 2011 Central Bank report on the tax impact of Free Trade Zones, which includes a review of employment generation and investment.

Foreign Direct Investment Statistics

The total stock of foreign investment since 1994 reached US $86.5 billion at the close of 2010. Average annual net Foreign Direct Investment (FDI) flows from 1994 to 2010 amounted to US $5.1 billion while total FDI in 2010 dropped to US $6.9 billion, due to global financial turmoil. However, a strong recovery was already evident by the third quarter of 2011, when total FDI surpassed 2008’s historical record and reached $10.8 billion. By sector, the biggest recipients of FDI in 2010 were sectors associated with petroleum (40%), mining (20%), trade (15%), and transportation (10%). Expectations are that total FDI for 2011 will exceed $13 billion.

At the end of 2010, the United States remained the single largest source of non-petroleum sector foreign investment in terms of total stock of FDI (12 percent) (Petroleum sector FDI data is not disaggregated by country of origin.) The European Union has also been a major source of FDI for Colombia with strong flows from Spain, the United Kingdom, France and Switzerland in particular. Non-petroleum sector FDI from other countries in Latin America since 1994 continues to gain in importance with Panama, Brazil and Mexico ranking second, tenth, and twelfth, respectively, as of 2010.

TABLE 1

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

Foreign Investment Flows by Country* (Figures in US Million)

2006

2007

2008

2009

2010

2011

1T+2T+3T

TOTAL FDI

$ 6,656

$ 9,049

$ 10,596

$ 7,137

$ 6,914

$ 10,821

OIL SECTOR INVESTMENT

$ 1,995

$ 3,333

$ 3,405

$ 2,428

$ 2,861

$ 4,321

PROFIT REINVESTMENT

$ 1,487

$ 1,971

$ 2,301

$ 2,111

$ 2,889

$ 2,510

NON-OIL INVESTMENT

$ 3,174

$ 3,745

$ 4,891

$ 2,598

$ 1,164

$ 3,989

1

NETHERLANDS

$ 25.5

$ (817.8)

$ (130.1)

$ (109.1)

$ (158.3)

$ 778.2

2

PANAMA

$ 239.7

$ 477.2

$ 759.6

$ 337.1

$ 420.2

$ 664.8

3

SPAIN

$ 492.0

$ 289.0

$ 563.8

$ (326.9)

$ 103.1

$ 605.1

4

UNITED STATES

$ 1,524.1

$ 1,064.2

$ 1,215.4

$ 1,198.2

$ 262.3

$ 326.6

5

CHILE

$ 2.2

$ 45.7

$ 44.8

$ 53.7

$ (6.1)

$ 295.7

6

ENGLAND

$ 17.5

$ 34.9

$ 199.7

$ 385.6

$ 194.0

$ 274.7

7

BERMUDA

$ 7.6

$ 12.4

$ 31.4

$ 287.1

$ 134.8

$ 207.2

8

CANADA

$ 18.5

$ 8.0

$ 51.9

$ 78.3

$ 162.8

$ 169.9

9

ANGUILLA

$ -

$ 1,194.9

$ 1,110.8

$ 790.3

$ 329.5

$ 89.8

10

BRAZIL

$ 19.5

$ 529.0

$ 125.1

$ 47.4

$ 53.6

$ 83.3

11

FRANCE

$ 3.8

$ 139.3

$ 70.3

$ 113.0

$ 47.6

$ 67.9

12

SWITZERLAND

$ 16.6

$ 43.1

$ 56.7

$ 65.4

$ 47.5

$ 57.6

13

ARGENTINA

$ 3.0

$ 3.9

$ 4.3

$ 19.9

$ 5.7

$ 55.1

14

MEXICO

$ 31.4

$ 340.4

$ 411.8

$ (647.2)

$ (623.5)

$ 48.8

15

BARBADOS

$ -

$ 0.0

$ 4.2

$ 5.4

$ 19.3

$ 38.9

REST OF THE WORLD

$ 772.9

$ 380.8

$ 371.1

$ 299.9

$ 171.4

$ 225.9

*petroleum sector not included in country totals

Source: Banco de la Republica (Central Bank) 2012

TABLE 2

Foreign investment Flows by Sector (Figures in US Million)

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

2006

2007

2008

2009

2010

2011

1T+2T+3T

TOTAL

$6,656

$9,049

$10,596

$7,137

$6,915

$10,821

Oil Sector

$1,995

$3,333

$3,405

$2,428

$2,862

$4,321

Sub Total

Other Sectors

$4,661

$5,716

$7,192

$4,709

$4,052

$6,500

Mining (including coal)

$1,783

$1,100

$1,798

$3,025

$2,066

$2,162

Trade, Restaurants, Hotels

$523

$803

$1,049

$594

$270

$1,569

Transportation, Storage, Communications

$1,061

$414

$853

$348

$(525)

$1,122

Financial Institutions

$464

$1,319

$1,095

$720

$1,251

$501

Manufacturing

$803

$1,867

$1,748

$621

$456

$478

Electricity, Gas, Water

$(141)

$(79)

$156

$(977)

$106

$376

Construction

$156

$210

$380

$262

$298

$363

Agriculture, forestry, fisheries

$8

$40

$41

$28

$20

$95

Communal Services

$4

$40

$72

$88

$110

$(164)

Source: Banco de la Republica (Central Bank) 2012

Web Resources

Andean Development Corp. (CAF): www.caf.com & www.comunidadandina.org

ANDI (National Industries Association): www.andi.com.co

ANIF (Financial Entities Association): www.anif.org

Banco de la Republica (Central Bank): www.banrep.gov.co

Banking Association: www.asobancaria.com

Financial Superintendent: www.superfinanciera.gov.co

Bogotá Chamber of Commerce: www.ccb.org.co

PROEXPORT (Foreign Investment Promoter): www.proexport.gov.co

Colombian Customs and Income Tax Offices: www.dian.gov.co

Colombian Government: www.gobiernoenlinea.gov.co

CREG (Energy and Gas Regulatory Commission): www.creg.gov.co

FENALCO (Merchants Association): www.fenalco.com.co

National Planning Department: www.dnp.gov.co

Presidency of the Republic web.presidencia.gov.co

State Comptroller: http://www.contraloriagen.gov.co/html/home/home.asp

State Contracting Information System/SICE: http://www.sice-cgr.gov.co/

Superintendent of Corporations: www.supersociedades.gov.co

Superintendent of Industry and Commerce: www.sic.gov.co

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