WORLD TRADE
ORGANIZATIONG/SCM/N/74/COL
15 January 2002
(02-0189)
Committee on Subsidies and
Countervailing MeasuresOriginal:  Spanish
SUBSIDIES
Request Pursuant to Article 27.4 of the Agreement on
Subsidies and Countervailing Measures
COLOMBIA
The following communication, dated 31 December 2001, has been received from the
Permanent Mission of Colombia.
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I. REQUEST AS REFERRED TO IN PARAGRAPH 10.6 OF WT/MIN(01)/17
A. INTRODUCTION
1. In accordance with Article 27.4 of the Agreement on Subsidies and Countervailing Measures
(SCM) and pursuant to paragraph 10.6 of the Mini sterial Decision on Implementation-Related Issues
and Concerns (WT/MIN(01)/17), the Government of  Colombia requests the Committee on Subsidies
and Countervailing Measures to extend the transi tion period for the continued application of the
export subsidy programmes described below, and to grant the same treatment as regards eligibleprogrammes and the duration of extensions of the transition period granted to other developing
country Members that have requested such extens ion following the procedure set forth in document
G/SCM/39.  This request covers the following programmes:
(i) Special Import-Export System for Capital Goods and Spare Parts (SIEX);
(ii) Free-Zone Regime (ZF).
2. Colombia repeats that in view of the small share of its exports in world trade and the way in
which the subsidies are granted, i.e. through tax exemption programmes, the programmes for which it
is requesting an extension of the transition period and for which the new and full updating notificationaccompanies this document, do not constitute a trade-distorting element.  Colombia's limited financial
capacity does not enable it to include items in its national budget for the direct payment of exporters
from the national treasury.
3. The mechanisms applied by Colombia through tax exemptions are not trade-restrictive:  on
the contrary, they stimulate the growth of imports.
4. Moreover, the subsidy component contained in the Tax Reimbursement Certificate (CERT)
programme was eliminated on 13 January 2001 with the issue of Presidential Decree 033.  TheG/SCM/N/74/COL
Page 2
elimination of this subsidy was an important step in the phasing out of export subsidies and should be
recognized as such when considering the request for extension of the transition period for the other
programmes mentioned in this communication.
5. This request is divided in two parts.  The firs t part confirms Colombia's compliance with the
premises laid down in paragraph 10.6 of the Ministerial Decision on Implementation-Related Issuesand Concerns (WT/MIN(01)/17), making it eligible for the same treatment as granted to other
developing countries under the procedure laid down in document G/SCM/39.  The second part sets
out the economic, financial and development needs justifying the extension of the transition period in
Article 27.4 of the SCM Agreement.
B. 
JUSTIFICATION IN TERMS OF THE OBJECTIVES SET FORTH IN PARAGRAPH 10.6 OF THE
MINISTERIAL DECISION ON IMPLEMENTATION -RELATED ISSUES AND CONCERNS
1. Non-discriminatory treatment
6. Paragraph 10.6 of the Ministerial Decision on Implementation-Related Issues and Concerns
clearly states that countries like Colombia should receive identical treatment in relation to requests for
extension of the transition period under Article 27.4 of the SCM Agreement.
7. To avoid discrimination and hence different treatment, paragraph 10.6 of the Decision
provides that the SCM Committee should take account of a number of factors relating to the stage ofdevelopment, the order of magnitude of share in world trade and relative competitiveness in granting
extensions.  Colombia submits that it conforms to all of these factors, and considers that they should
be viewed and analysed in the light of the negative effects on its economy of discriminatory treatment
in relation to other developing countries, particularly those that are geographically close to Colombia
and to its export destination markets.
2. Similar level of economic development
8. With respect to level of development, Colomb ia and the countries of the Central American
and Caribbean area are in fact at a similar stage.  The figures for per capita income in 2000 show that
the majority of Central American countries are ranked in the same category as Colombia in the World
Bank classification, i.e. lower-middle-income.  In the case of the Caribbean islands, per capita incomeranges from lower-middle-income to upper-middle-income.  In other words, according to World Bank
criteria, Colombia and the Central American and Caribbean countries have similar levels of economic
capacity and development.
3. Similar order of magnitude of share in world trade
9. A comparison between the level of Colombian exports and those of the countries of Central
America and the Caribbean reveals that the order of magnitude of share in world trade is similar.
According to information provided by the WTO Secretariat for the year 2000, the total share ofColombia and of the countries of Central America and the Caribbean in world exports in no case
exceeded 0.25 per cent.  The sum of Central Amer ican exports amounted to 0.22 per cent of world
exports, while exports from the Caribbean islands accounted for 0.20 per cent, which is the same as
the share recorded for Colombia.
10. Similarly, while the ratio of world exports to world GDP was about 20.4 per cent in 2000, for
Colombia the total exports GDP/ratio was 14.8 per cent and for the Central American and the
Caribbean countries, it averaged 22.6 and 31.8 per cent respectively.  In this context, Colombian
export openness is below the world average, while that of Central America and the Caribbean isG/SCM/N/74/COL
Page 3
above.  Indeed, the indicator for the Caribbean not only exceeds the world average by 10 per cent, but
it is double the indicator for Colombia.
11. Although the degree of export openness of Central America and the Caribbean is higher than
that of Colombia, owing to the low level of its exports the order of magnitude of share in world trade
is similar in each case.
4. Relative competitiveness
12. The incentives granted to investment and exports enhance the competitive position of the
countries that grant them in relation to other countries at similar stages of development and having a
similar order of magnitude of share in world trade.  If there were no such export subsidies or if they
were expected to be phased out, domestic and foreign investors would move to other countries where
such subsidies were guaranteed.  Such a shift by investors would have a negative impact on
Colombia, since capital outflows and a fall in exports could accentuate the deterioration in the balanceof payments.  With the consequent rise in unemployment, social costs would also be significant.
13. For example, there are 340 enterprises located in the free zones, employing more than
14,000 persons.  Over the past five years, growth in  this activity has been significant owing to the
reforms introduced by the Government with a view  to increasing the country's export orientation,
thanks to which exports in the free zones currently exceed 400 million dollars and account for 10 percent of Colombia's total industrial exports.
14. In the case of the SIEX, considerable investments have been made ever since the mechanism
was introduced, with a view to developing modern production processes to promote Colombian
exports.  Over the past three years, the average annual capital goods imports that have benefited from
the mechanism have totalled some 505 million dollars, stimulating exports, which have reached anaverage annual value of 5,324 million dollars.  Because this incentive was applied so universally
throughout the economy, it has generated a considerable amount of employment in the small and
medium enterprises, big industry and large-scale natural resource export projects.
15. The export incentives accompanied by tariff benefits in the destination markets contribute to
improving the competitive position among suppliers to the same market.  In the case of Colombia andthe countries of Central America and the Caribbean, the presence of both instruments has been
fundamental in that it has paved the way for considerable growth in exports to the United States, the
most important trading partner for all of the countries concerned.
16. Colombia, Central America and the Caribbean have a similar exportable supply to the United
States.  In the case of Colombia and the Caribbean, this includes hydrocarbons, chemicals, textiles,
paper, leather industry products and foodstuffs.  In the case of Colombia and Central America, it
includes made-up articles, furniture, textiles, plastic and rubber products, coffee and bananas.  Theexportable supply produced on the basis of incentives such as the free zones is also very similar.
17. In spite of these similarities, the share of primary product exports to the United States is
greater for Colombia than for Central America and the Caribbean, so that Colombia's exportable
supply is more vulnerable to fluctuations in dome stic demand in the United States and to changes in
international commodity prices.  Although the share of manufactured goods in total exports to theUnited States has gained ground, there is no comparison with the considerable volumes exported by
the Central American and Caribbean competitors.  To illustrate the point, in 2000 the United States
imported from Central America, 6,684 million dollars worth of made-up goods, which corresponds to
the total value of Colombian exports to that market in 2000.  Caribbean exports of made-up goods
amounted to about 50 per cent of total Colombian exports.G/SCM/N/74/COL
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18. With a competitiveness similar to that of Central America and the Caribbean, Colombia could
have a greater share in total United States imports.  This has not been the case, partly because the use
of export incentives based on the scope of tariff benefits has been greater in Central America and the
Caribbean than in Colombia.  In this context, if  Colombia were not granted the extension for the
application of export incentives, its prospects for increased growth in exports of manufactured goodsto the United States and other markets would be seriously affected.
19. The presence or absence of export initiatives and subsidies would clearly make for a
difference between Colombia and the Central American and Caribbean countries, which are at a
similar stage of development and have a similar order of magnitude of share in world trade and
relative competitiveness.  This difference would have a determining effect on the investment
decisions of domestic and foreign investors, who would move to the countries in which the
maintenance of the initiatives was ensured.
C. 
ECONOMIC , FINANCIAL AND DEVELOPMENT NEEDS JUSTIFYING THE EXTENSION
1. Recent performance of the Colombian economy
20. Like most Latin American countries, Colombia suffered the consequences of the Asian crisis
of 1997-1998.  Having maintained an annual growth rate of more than 4.5 per cent during the first
five years of the past decade, the Colombian economy began a slowdown which led in 1999 to theworst recession of the 20
th century, with a 4.1 per cent fall in  GDP.  The most severely affected
sectors were the manufacturing industry, which fe ll by 10.2 per cent as compared to 1998, and the
coffee sector, with the international price plummetin g by more than 50 per cent owing to the drop in
world demand and overproduction from the new coffee-producing countries.
21. The domestic rate of unemployment, which had been growing moderately from around 10 per
cent five years ago, began to rise to levels never before experienced in the country's economic history,
reaching 19.4 per cent in the seven main metropolitan areas.
22. In 2000, economic policy was directed towards boosting productive activity, maintaining
competitiveness, achieving external balance and controlling inflation.  Thus, during the first half of
2000, the Colombian economy grew by 3.6 per cent, stimulated by non-traditional exports.  However,during the second half of 2000, the economic recovery began to show signs of weakness, and the year
ended with an economic growth rate of 2.8 per cent.
2. Economic outlook
23. In 2001, the decline in world demand and domestic demand, the high rate of unemployment
and lagging private investment caused the Natio nal Planning Department to lower its economic
growth target to somewhere between 2.0 and 2.4 pe r cent.  In other words, product per capita is
expected to stagnate or even to decline.  Even if the most optimistic GDP growth rate were achieved,per capita product would reach US$1,887 – the level recorded in 1993-1994.  Given this limited level
of economic activity, the different analyses conducted suggest that the rate of unemployment will
remain at current levels, i.e. above 18 per cent.
24. Sluggish world growth, aggravated by the terrori st attacks of 11 September, continues to exert
downward pressure on the prices of commodities and raw materials such as coffee, bananas and oil,while at the same time reducing the volume of non-traditional exports.  This will unquestionably lead
to an increase in the unemployment rate.G/SCM/N/74/COL
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25. Meanwhile, internal factors include terrorist attacks against infrastructure, in particular in the
oil transport area, which have resulted in a decline in exports of crude oil.  Moreover, the outlook for
domestic investment is not improving and credit is stagnating in spite of low interest rates.
3. The need for external financing and growth of exports
26. In the financial area, according to current assumptions, there should be an estimated deficit in
the current account of the balance of payments for this year of 2,113 million dollars, equivalent to
2.6 per cent of GDP.  In 2002, the deficit is expected to rise considerably, reaching:  2,736 million
dollars, or 3.2 per cent of GDP.  This is due part ly to the increase in the total net factor income
balance which, from a deficit of 3,140 million doll ars in 2001 would reach 3,423 million dollars, with
an annual growth rate of 9 per cent, and partly to the decline in the balance of goods and non-factor
services by approximately 390 million dollars.  This implies greater foreign debt commitments in an
uncertain environment, in spite of the pre-financing in place for 2002.
27. Indeed, based on current conditions, balance-of-payment projections show that the current
account deficit would rise from 2.6 per cent of GDP in 2001 to 3.6 per cent in 2006, falling back to
2.4 per cent in 2008.  This performance would imply an increase in the foreign debt up to
45,250 million dollars in 2008, equivalent to 45.8 per cent of GDP and approximately 7,200 million
dollars above the current level.
28. To meet the obligations that this foreign debt would entail requires a dynamic growth in total
exports, since the payment of factor services currently represents 30.4 per cent of the value of total
exports and 58.1 per cent of the value of non-traditional exports.  According to projections, total
exports of goods should rise to 20,000 million dollars in 2008, at an average annual growth rate of
6.6 per cent, and non-traditional exports should reach 12,611 million dollars with an annual growthrate of 9.5 per cent.  Clearly, total export growth requirements are fairly stringent:  the average annual
growth rate for the last decade (5.9 per cent) was lower.
29. This is why the Colombian economy needs to at tract foreign investment, maintain a growing
flow of export revenue and increase factor producti vity in order to recover its long-term growth rate.
Otherwise, growing foreign debt commitments will require a future adjustment programme which, inthe short-term, would increase the rate of unemp loyment and the level of poverty in the country.
30. In this context, extension of the use of export support instruments would contribute to the
objective of restoring the country's economic stability and the confidence of foreign investors.
4. The Economic Development Plan rests on the country's export strategy
31. The low economic growth rate in Colombia over the past years has highlighted the need to
turn the economic development model outwards on the grounds that the export momentum created by
world demand and increased integration of the Colombian economy in the rest of the world couldserve as a tool for generating higher sustained long -term growth rates.  Thus, the current government's
national development plan, "Change to Build Peace", has given the export sector a leading role in the
country's economic and social development.
32. Hence the introduction of the Strategic Export Plan – PEE 1999-2009, with the participation
of the Colombian private sector.  The plan consists of a five-point strategy:
- To increase and diversify the exportable supply of goods and services based on world
demand;G/SCM/N/74/COL
Page 6
- to stimulate and boost foreign investment as a means of directly or indirectly
promoting exports;
- to make export activities competitive;
- to regionalize the exportable supply;
- to develop the country's export culture.
33. To fulfil the Plan's objectives, the Government and the private sector introduced a policy of
productivity and competitiveness involving support for scientific and technological development,
training and education, promotion of small and medium exporting enterprises, stimulation of servicesexports, and development of export infrastructure.  At the same time, it is fundamental to these
measures and to the achievement of the Plan's object ives that the PEE should continue to apply export
promotion instruments, to strengthen the process of integration, to maintain the consistency and
transparency of its tariff policy, and to streamline procedures with a view to facilitating foreign trade
transactions.  This policy is accompanied by permanent follow-up mechanisms based on WorldEconomic Forum competitiveness indicators.
34. The country's export incentives, particularly those for which an extension is being requested
under Article 27.4 of the Agreement on Subsidies and Countervailing Measures, play an essential role
within this export strategy:
- As a centrepiece in the diversification of exports by serving as platforms for the
export of manufactured goods;
- by promoting the use of advanced technologies of foreign firms, stimulating
specialization, boosting foreign investment in profitable economic activities and
supplying the necessary foreign exchange for the acquisition of advanced technologythat is not available locally;
- by producing a significant "demonstration effect", showing other entrepreneurs that
exports can be profitable and dynamic – in other words by helping to promote export
culture;
- by promoting regional development, generating employment and boosting
productivity;
- by enhancing the competitiveness of Colombian exports through a reduction in
transport, input and capital goods costs, and in general, by overcoming certain
domestic market distortions.
35. Through its export strategy, the continuation of export subsidies and a stable macroeconomic
and political environment, Colombia needs to increase its exports considerably, thereby generating
employment, increasing per capita income and speeding up economic growth.
5. Negative externalities facing Colombian exports
(a) Costs of the change in economic model
36. The import substitution model of the end of the 1960s and beginning of the 1970s led to the
establishment of industries near large consumer centres.  Industry enjoyed a captive market with little
exposure to international competition and with the added element of geographical protection.  Export-G/SCM/N/74/COL
Page 7
oriented infrastructure was practically non-existent and land transport routes between the centre of the
country, where most of the production was located, and the sea ports, was precarious.
37. With the change in economic model at the beginning of the 1990s, Colombia was faced with
the problem of deficient infrastructure which placed it at a considerable disadvantage vis-à-vis  its
competitors.  The poor state of the roads, the insecurity and the lack of reliability made it difficult toship goods from the production centres to the sea ports.  A study conducted in 1995 revealed that the
Colombian road network was 25 years behind and its inefficiency had cost the country 6.4 per cent of
GDP over the past 20 years.
38. The problems have yet to be solved:  Colombia has approximately 128,000 kilometres of
roads, of which 10 per cent are paved, a proportion well below the Latin American average (20.1 per
cent), the developing country average (30 per cent),  not to mention the world average (55 per cent).
The poor state of Colombia's road network has a direct impact on the competitiveness of its exports,since in addition to pushing up the already heavy inte rnal freight costs, it causes delays in the delivery
of goods.  According to the National Competitiveness Survey conducted by the Ministry of Foreign
Trade in 1999, 60 per cent of the enterprises stated that road transport was the factor that had the
greatest impact on their costs and 56 per cent indica ted that road transport was the poorest of the
infrastructure services.  The Global Competitiveness Report 2001-2002 issued by the WorldEconomic Forum reveals the competitive disadvantage for Colombia of its poor road infrastructure,
ranking it 68
th among 75 countries.
(b) Security-related costs
39. In addition to the extra costs generated by infrastructure deficiencies, Colombian exports are
faced with security problems due to the intensity of the country's internal conflict.  The hydrocarbonand mining sectors, beneficiaries of the SIEX, have seen their costs increase as a result of crimes
against their economic property committed by insurgent groups.  This situation extends to the power
generation and transmission system.
40. The outlook in terms of costs for enterprises is discouraging:  insurance premiums rose in the
wake of the attacks of 11 September, and in many cases, insurance companies refuse to cover risksassociated with terrorism.
41. Generally speaking, the climate of insecurity in the country as a result of the internal armed
conflict pushes up transaction costs throughout the economy, causing human and physical capital
losses and raising the level of uncertainty and risk.  For the same reason, the production sector is
diverting resources towards non-productive activities such as security, discouraging long-term
investment and adversely affecting competitiveness,  growth and economic welfare.  According to a
study conducted by the National Planning Departme nt, the armed conflict in Colombia has caused a
loss in investment of 0.53 per cent of GDP in relation to the long-term average.  The annual loss in
growth has been estimated at 0.5 per cent of GDP which, in view of the longevity of the conflict in the
country, now represents an accumulated value of 8 per cent of annual GDP.
42. Export incentives and subsidies play an important role in partially compensating the excess
costs of the negative externalities associated with the poor infrastructure and security.  The magnitudeand complexity of these problems make any short-term solution impossible.  The efforts of the current
government under the Development Plan and the Peace Policy will bear fruit in the medium term –
meanwhile, in the short term, the export subsidies are necessary.G/SCM/N/74/COL
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D. CONCLUSIONS
43. The export subsidies for which Colombia is requesting an extension under Article 27.4 of the
Agreement on Subsidies and Countervailing Measures  and in conformity with paragraph 10.6 of the
Ministerial Decision on Implementation-Related Issues and Concerns (WT/MIN(01)/17) play a
leading role in the performance of Colombia's economy.
44. The effect of these subsidies on world trade is not significant in view of Colombia's minimal
share in total world exports of 0.2 per cent, an order of magnitude similar to the countries mentioned
in document G/SCM/39.  Moreover, the way in which these mechanisms operate does not distort
trade, and indeed enhances the openness of the Colombian economy to imports, since it involves the
duty-free entry into the country of a significant group of products.
45. As stated throughout this document, the maintenance of the export subsidies is in keeping
with Colombia's economic, financial, development and competitiveness needs.  The reasons can besummarized as follows:
- Export flows must be strengthened in order to relieve future pressure on the balance
of payments;
- it is essential to maintain a stable set of rules for domestic and foreign investors;- Colombia's Development Plan and its Strategic Export Plan need the export
incentives in order to achieve their targets and objectives;
- incentives for exporting companies must  be maintained in order to maintain
employment;
- export subsidies serve as a mechanism for the compensation of extra costs deriving
from negative externalities to which productive activities in Colombia are subjected;
- Colombia's competitive situation with regard to other countries at similar stages of
development, of similar competitiveness and having a similar order of magnitude of
share in world trade – the factors mentioned in paragraph 10.6 of the Ministerial
Decision on Implementation – could worsen if the application of the subsidies is not
extended;
- the shifting of investment from Colombia to other countries where continued
subsidies are guaranteed would have a negative impact at all levels of the national
economy.
46. Colombia hopes that the Committee on Subsidies and Countervailing Measures will view this
request favourably, and in conformity with paragraph 10.6 of the Ministerial Decision onImplementation-Related Issues and Concerns, will grant Colombia the same treatment in respect of
the eligible programmes and the duration of the extensions of the transition period as the developing
country Members who have requested an extension of the transition period following the procedures
set forth in document G/SCM/39.
II. OTHER REQUEST PURSUANT TO SCM ARTICLE 27.4
Pursuant to Article 27.4 of the Agreement on Subsidies and Countervailing Measures (SCM),
the Government of Colombia requests the Committee on Subsidies and Countervailing Measures to
extend the transition period for the continued application of the export support programme known asG/SCM/N/74/COL
Page 9
the Transport Compensation Mechanism ( Mecanismo de Compensación del Transporte  – MCT).
Colombia considers the continued application of this programme to be advisable in view of its
economic, financial and development needs.
Colombia hopes that the Committee on Subsidies and Countervailing Measures will give
positive consideration to this request.
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