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III. FOREIGN INVESTMENT AND TRADE
(1) Introduction
1. Since 1991, inthecontext oftheopening oftheeconomy (Apertura programme, Chapters I,
II,IVandV),Colombia hasliberalized itsforeign investment régime. Anewlegislative framework
eliminated certain investment barriers andfacilitated capital inflows. Foreign investment hasbeen
promoted through fiscal andforeign exchange reforms aswellasbyprivatization efforts. Asaresult,
theforeign direct investment (FDI) stockhasalmost doubled anddiversified. TheUnited States remains
themajor foreign investor inColombia.
(2) Framework forForeign Direct Investment
2. Inthe1990s Colombia 'spolicy objective hasbeentoliberalize foreign investment andstimulate
aninflow offoreign capital andtechnology. Under the1994 National Development Plan(Chapter I),
foreign investment isconsidered tobeanimportant instrument forthemodernization ofindustry. The
needtomaintain anopen régime andtosignnewforeign investment protection agreements isalso
stressed intheplan.
3. Thebasiclegalframework forthetreatment offoreign investment wasmodified in1991. New
domestic1andAndean Group2legislation wasintroduced. Foreign companies were putonanequal
footing withlocalinvestors, including onmatters relating toaccess todomestic credit facilities. In
general, foreigners cannowacquire 100percentofaColombian firm, except forthose involved in
national defence orsecurity, ortheprocessing ordisposal oftoxic, hazardous orradioactive waste
produced abroad andcertain realestate activities (e.g., purchase, sale,lease).3Special conditions affect
foreign investment inhydrocarbons andmining, thefinancial sector andportfolio investment.4
4. InJuly1996, newregulations wereadopted tointroduce moreflexibility totheFDIframework.
These mainly include: anewdefinition oftheFDI,based ininternational standards, allowing forthe
improvement oftheregistration procedure andreducing foreign exchange risks; theelimination of
thepriorauthorization requirement (permiso )which waspreviously required forinvestments inpublic
service, oil,mining, energy andportfolio; thesuppression ofsome restrictions inrealestate investment
authorizing thepurchase andsaleofbonds byforeign funds; theeasing oftheadditional capital concept
(capital suplementario )andadecision toencourage portfolio investment byredefining certain concepts
1Law9ofJanuary 1991; CONPES Resolution 51,22October 1991.
2Andean Group Decision 291(Common Régime fortheTreatment ofForeign Capital andofTrademarks,
Patents,LicencesandRoyalties,29March1991)replacedDecision220of1987.PreviousAndeanGroupDecisions
onforeign investment inthesubregion have been restrictive forinvestors from third countries. Decision 24of
1971 introduced conditions forthetransfer offoreign ownership tolocals andlimitations ontheremittance of
earnings; these conditions hadtobeobserved inorder tobenefit from thepreferential trade arrangements. The
Decision forbade theaccess offoreign investors inanumber ofsectors (public utilities, transport, banking,
insurance) aswellasthose adequately covered bylocal firms. Thesubsequent Decision 220of1987 maintained
similar features butallowed individual Governments todecide which would betheclosed sectors andtheperiod
required forthetransfer ofownership (Europa Publications Limited, 1995, p.683).
3Other sector-specific access restraints arediscussed below andinChapter V.
4These arecontained inCONPES Resolution 51.Colombia WT/TPR/S/18
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suchastheinstitutional andomnibus funds.5Reportedly, existing investment-related administrative
proceduresaregenerallyroutineandnon-discriminatory.Investmentscreeningandthepriorauthorization
requirement arenolonger inforce.
5. Constitutional guarantees arenowprovided toprivate sector investors.6Stability against
legislative changes intheareaofremittance ofcapital andearnings isalsoassured; limitations on
theamounts thatmayberepatriated wereeliminated in1992. Therégime nowallows therepatriation
ofprofits anddoesnotstipulate thatmajority share-holding must betransferred tolocal investors.7
Toguarantee foreign exchange rights, allforeign investment mustberegistered withtheCentral Bank.
6. Fiscal obligations ontheremittances offoreign investors were modified inthetaxreform
of1992.8Between 1992and1996thetaxonremittances ofearnings (impuesto deremesas )fromforeign
investments hasbeengradually reduced: (i)from 12to7percentforexisting non-oil investments
and(ii)from 15to12percentforexisting investment intheoilsector.9Therateofthetaxon
remittances ofearnings from foreign investment intheoilsector istobefurther cutto
10percentin1997 and7percentin1998. Ifearnings arereinvested inColombia fornotlessthan
5years, thetaxonremittances iswaived.
7. Asaresult oftheDecember 1995taxreform, ten-year fiscal stability contracts (contratos de
estabilidad tributaria )canbesigned between theGovernment andtheinvestor (domestic orforeign).10
These guarantee stability offiscal treatment byadding 2percentage points tothegeneral ratesofthe
income andcomplementary taxes (impuesto derenta ycomplementarios )inforceatthetimeofsigning;
byopting topaythishigher ceiling rate,theinvestor isassured thatfuture increases willnotaffect
him. However, iftaxratesarelowered, theinvestor benefits fromthereduced rateplus2percentage
points. Atpresent, bothforeign andnational private companies aresubject toarevenue taxof
35percent.
8. Allforeign investment inpetroleum exploration anddevelopment mustbecarried outbymeans
ofanassociation contract between theinvestor andECOPETROL (Empresa Colombiana dePetróleos ),
theState oilcompany. Apart from other taxliabilities, production issubject toa"war tax"of
US$1 perbarrel (Chapter V).11Under thetaxreform oflate1995, thistaxistobeeliminated bythe
endof1997 and2000, respectively, forproduction anddiscoveries from 30June1992 to
31December 1994; discoveries made afterJanuary 1995arenotsubject tothetax.InJanuary 1995
5Centro deInformación deColombia (CIC) (1996). Informe Económico ,bulletin No.22,July.
6Court ordered expropriation cantakeplace forreasons defined inthelegislation andonlyafter indemnity
issettled. Article 58ofthe1991 Constitution (Chapter II).
7Previously Colombia allowed therepatriation ofearnings corresponding toonly25percentofthevalue
ofthedirect foreign investment (GATT, 1990, August, p.116).
8Law6aof1992.
9IMF (1995), p.116; COINVERTIR (1996).
10Article 169ofLaw223, 20December 1995.
11The"war tax"onoilcompanies, introduced asatemporary (until 1997) emergency measure in1992, was
originally levied tofinance thedefence ofpipeline, production andexploration facilities from guerilla attacks.WT/TPR/S/18 Trade Policy Review
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itwasannounced thattheStatewould contribute by50percenttoexploration costsinzones previously
reservedfordirectexplorationbyECOPETROL.12Inotherareas,ECOPETROLre-imburses50percent
ofthese costs afterthefieldisdeclared commercially viable.
9. Intheagro-industrial andautomotive sectors, Colombia maintains measures concerning local
orregional content thatwerenotified totheWTO Committee onTrade-Related Investment Measures
(seealsoChapters IVandV)andaretobeeliminated bytheyear2000.13
10. Specific conditions affect theaccess offoreign investors inanumber ofservices areas, including
tourism (establishment inthefreezones), marine insurance (noaccess), consultancy oninternational
law(requirement tobealsolicensed inColombian law), franchising, dataprocessing andaudiovisual
services (50percentofeachtelevision commercial tobeproduced locally). Under theLabour Code
(Código Sustantivo delTrabajo ),themovement ofpersons isalsorestricted inthetransport sector
andanumber ofprofessional services (e.g., architecture, engineering, construction); forexample,
infirms withmore than10employees, upto20percentoftheskilled and10percentofunskilled
workers maybeforeign nationals.
11. InNovember 1992, theInvest inColombia Corporation (Corporación Invertir enColombia ,
COINVERTIR), amixed-ownership institution, wascreated topromote, facilitate anddiversify FDI
inflows.Tofosterspecializationandanequitabledistributionofinvestmentinthesub-region,theAndean
Development Corporation (Corporación Andina deFomento ,CAF), which wasestablished in1968,
conducts research toidentify investment opportunities andprepares proposals forinvestment projects.
Italsoprovides technical andfinancial assistance byattracting internal andexternal credit.
12. Therégime governing theestablishment ofAndean Multinational Enterprises (Empresas
Multinacionales Andinas ,EMAs) waslastmodified inMarch 1991.14EMAs must beowned byat
leasttwoinvestors from Andean Group countries (including thehostcountry) eachwithaminimum
capital share of15percent; provided thiscondition isfulfilled, investors fromoutside thesubregion
canalsoparticipate. These enterprises mayparticipate insectors reserved fornational enterprises and
enjoy national treatment asfarastaxation andexport regulations areconcerned.
13. Since 1986, Colombia hasbeenamember oftheInter-American Investment Corporation of
theInter-AmericanDevelopmentBankand,since1995,oftheMultilateralInvestmentGuaranteeAgency
(MIGA) oftheWorld Bank.15
14. Toimprove theframework ofguarantees covering foreign investors, Colombia signed the
International Convention ontheSettlement ofInvestment Disputes between States andNationals of
other States in1993. Bilateral investment protection agreements (tratados bilaterales defomento y
protección delainversión )were concluded withCuba (1994), Peru(1994), Spain (1995), andthe
UnitedKingdom(1993).NegotiationstoestablishagreementswithArgentina,Canada,Chile,Germany,
12EIU(1995c), p.16.
13Article 5,para. (2)oftheAgreement onTRIMs.
14Andean Group Decision 292ofMarch 1991 replaced Decision 169inforce from 1982. More information
ontheEMAs canbefound intheTPR report ofVenezuela (WTO, 1996).
15MIGA, created in1985 toprovide non-commercial riskinsurance toprivate foreign investors indeveloping
member countries, alsoprovides promotional andadvisory services onhowtoimprove theability toattract FDI.Colombia WT/TPR/S/18
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theNetherlands andSwitzerland aretobelaunched.16In1985, aninvestment guarantee agreement
wassigned withtheUnited States Overseas Private Investment Corporation (OPIC) which provides
qualified U.S.investors withinsurance against political risks (inconvertibility, expropriation, war,
revolution, insurrection) aswellasfinancial aidandadvice.
(3) Trends andPatterns inForeign Direct Investment
15. Inthe1990s theimprovements introduced bythenewlegal framework, theconclusion of
investment protection treaties, privatization plans17,andthenewopportunities inportfolio investment,
reduced uncertainty andarecredited withhaving contributed totheconsequent increase inforeign direct
andportfolio investment inflows (Chart III.1). In1993, Colombia wastheninthlargest hostdeveloping
economy toFDIflows. InSeptember 1995, Moody 'supgraded Colombia 'srating toinvestment grade
inlinewithStandard andPoor'sindex, increasing thescope formarket diversification andenhancing
access toinstitutional investors.
16. Asaresult oftheimproved legalframework andinvestment opportunities, thestock ofFDI
hasgrown andbecome more diversified. According toCOINVERTIR 'sestimates, bySeptember 1995
inward FDIflows, excluding inoilandportfolio investment, hadgrown bymore thanUS$1 billion,
ortwice theamount recorded forthesame period in1994, anelection year.18Ofthisincrease,
78percenttookoftheformofcapital inflows, mostly inforeign exchange.19Between 1990and1994,
theforeigninvestmentstock,excludingoilandportfolio,almostdoubledtoUS$5.8billion(ChartIII.1).
17. Since 1991, foreign direct investment hasbeenmainly directed tothemanufacturing sector.
In1994manufacturing, mining, andfinancial services accounted formore than88percentofthestock
ofFDI. In1995, 302parent corporations and2,220 foreign affiliates oftransnational corporations
were located inColombia; since 1987 thenumber offoreign affiliates hasmore thandoubled.20
However, since 1991 there hasalsobeenamarked acceleration ofinvestment infinancial services,
including insurance, aswellastransport andtelecommunication services. Mining (non-oil), which
hadreceived mostforeign investment inthe1980s, recorded theslowest growth inFDIinthisperiod.
18. While investments fromother sources haveincreased inrecent years, theUnited States remains
thesource ofabout two-thirds ofthestock ofallforeign investment inColombia (Chart III.1).
16Departamento Nacional dePlaneación (1995a), p.10.
17Privatization opened public works toforeign investors forinfrastructure projects andsectors previously
reserved fortheState (e.g., electricity, oilrefining, telecommunications, airport services).
18Thefigureincludesinflows(intheformofforeignexchange,technologytransfer,machinery,debtconversion
tocapital) andre-investment ofprofits minus capital reimbursement (ElTiempo ,8February 1996).
19Asstated inChapter I,private capital inflows intheform ofFDIconstituted oneelement forfinancing
thecurrent-account deficit in1993 and1995 aswellasforbringing asurplus totheoverall balance in1994
(EIU, 1995c), p.18; EIU(1995d), pp.19-20; EIU(1995b), July, p.6).
20UN(1995); UN(1994), Vol. IV.WT/TPR/S/18 Trade Policy Review
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19. Foreign portfolio investment isofminor importance, although ithasrisen strongly inrecent
years; more than90percentoriginated intheUnited States.21Between 1993 and1995 thestock
increased byafactor of17(toUS$851 million) andinflows ofthistypeofforeign investment forthe
period 1992-1994 increased byafactor of50.Thelimited extent offoreign portfolio investment reduces
Colombia 'sexposure tocapital flight.
20. TheGovernment expects anincrease intheshare ofallFDIinflows, including oilindustry
andportfolio investment, from1percentofGDP in1991toabout 3percentin1995. Itisestimated
thatbetween 1996 and1998 totalFDIinflows willreach some US$5 billion.22
21. Colombia'soutflowsofforeigndirectinvestmenthavebeenirregularinrecentyears(ChartIII.2);
theannual average amount from 1989 to1994 wasabout US$31 million or20percentlessthanthe
previous five-year period.23According totheCentral Bank, thetotaloutward stock grewby52percent
toUS$421 million between 1992and1994. In1990, thelargest transnational Colombian corporations
abroad were intheareaoffinance, where fourbanks heldtotalassets ofUS$2.7 billion.
21Data supplied byCOINVERTIR.
22EIU(1995c), Country Report 3rdquarter 1995, July,p.19; Departamento Nacional dePlaneación (1995),
Balance Macroeconómico 1995 yPerspectivas para 1996, CONPES document 2829, December, p.10.
23Investment abroad byColombians isfreely allowed foramounts uptoUS$500,000. Asstated inChapter I,
toavoid the"dollarization" oftheeconomy Colombians areprohibited from holding foreign currency accounts
within thecountry. AsofJanuary 1992 theycanholdforeign stocks andother portfolio investments abroad.