The International Trade Law Review: Colombia
Overview of trade remedies
Colombia has been part of the World Trade Organization (WTO) since 1995, adopting its multilateral agreements on domestic law, including those on trade remedies. This implies that WTO legal provisions are considered as international treaties, and thus are considered hierarchically superior to domestic law. In this sense, Colombia has been applying the general principles set out in the agreements signed by the members of the WTO, such as the most-favoured-nation clause, which implies that it is not possible to discriminate between trade partners, and consequently, if one country grants special treatment to another country, it will be necessary to grant it to all WTO members.
The agreements signed by the WTO members have several exceptions to the most-favoured-nation clause in specific circumstances, such as the trade remedy or trade defence measures against imports. These are:
- actions taken against dumping (selling at an unfair, low price);
- subsidies and special 'countervailing' duties to offset the subsidies; and
- emergency measures to limit imports temporarily, designed to safeguard domestic industries.
On applying any of the above measures, the government must perform a full investigation, as they are viewed as exceptional mechanisms. Since 1994 the government has investigated over 200 trade remedies investigations, of which 115 were concluded with safeguard measures. The majority of the investigations were initiated against China (71), with the remainder initiated against the main national sectors that requested an investigation before the Ministry of Trade, Industry and Tourism, including steel, aluminium and agribusiness.2
The government has been proactive on anti-dumping duties over the past 10 years. A modification to the anti-dumping procedure set out by the Ministry of Trade, Industry and Tourism was made on 30 December 2020, which requires the Ministry to permanently monitor trade flows to Colombia to assess the viability and relevance of initiating anti-dumping investigations ex officio.
As at July 2021, the Ministry is conducting eight dumping investigations, which involve, among other things: unframed mirrors, steel cables, galvanised strand and concrete strand, frozen potatoes and acrylic sheets.
With regard to countervailing matters, in 2019 the Ministry of Trade, Industry and Tourism initiated its first investigation into alleged subsidies on imports of ethanol originating in the United States, at the request of the National Biofuels Producers Association. In April 2020, the Directorate of Foreign Trade of the Ministry made the decision to impose countervailing duties to exporting companies from the United States until May 2022.
Currently, there are no investigations being carried out on safeguard matters. The majority of previous investigations were initiated against Colombia's export countries, excluding countries that have a free trade agreement with Colombia, such as China, Australia and Turkey.
As a signatory to the WTO, Colombia abides by the principle of free trade. For the purposes of the establishing customs and other foreign trade measures, Colombia uses the Customs Nomenclature of the Harmonised System set out in Decree 2153 of 2016. Importers must pay a general tariff of zero per cent, 5 per cent, 10 per cent or 15 per cent, and VAT at 19 per cent.
Generally, the import of goods to Colombia does not require a special permit or authorisation, but there are exceptions regarding sensitive goods, such as used machinery and equipment. To import these goods, a special licence must be obtained from the Imports Committee of the Ministry of Trade, Industry and Tourism. Additionally, there are certain goods whose import, although not restricted, is subject to approval by a national entity (such as in the food and healthcare industries) to ensure compliance with internal consumer protection standards, such as food, vegetables and medicine.
To maintain and incentivise foreign direct investment and exports, the government modified the free trade zone regime through Decree 278 of 2021. This regulation seeks to promote the implementation of a 4.0 free trade zone model, through which the competitiveness of this investment promotion instrument in the country will be optimised, based on the promotion of ambitious business projects aimed at the sophistication of production. For example, the new Decree reduces the time for a new free trade zone to be approved from 18 to six months, and the number of requirements to be fulfilled for the Ministry of Trade, Industry and Tourism from 57 to 24. A special 20 per cent income tax rate will apply to companies that are established in a free trade zone, rather than the general income tariff rate of 31 per cent.
In recent years, the National Directorate of Taxes and Customs has increasingly supported companies that want to become authorised economic operators (AEOs) for importing and exporting. AEO status demonstrates that a company is committed to the security of the entire international supply chain, that it meets the minimum security conditions established by the government and that, therefore, it guarantees safe and reliable foreign trade operations. Benefits of being an AEO include faster customs clearance and a consolidated payment on import duties.
Gold, minerals and coffee are the only goods subject to export tax. Generally, the government incentivises the export of goods by having a VAT exemption once the goods are exported, which means that companies can pay all VAT in Colombia to export merchandise abroad.
Following the guidelines set out by the WTO on trade remedies, Colombia has enacted several regulations to make it possible for companies to request a measure (such as dumping, subsidies or safeguard) before the local competent authority (the Ministry of Trade, Industry and Tourism). Importers, producers and exporters are also able to defend themselves in these investigations.
To start a dumping, countervailing or safeguard investigation, the interested party must request it on behalf of the affected industry. The industry must be responsible for at least 50 per cent of the total production of a similar or like product. The petitioner must indicate whether the injury is a material injury, a threat of material injury or material retardation of the industry. The request must be prepared in accordance with the requirements established in the guide provided by the Subdirectorate of Commercial Practices, with the requisite forms completed, and evidence and information attached.
The information required relates to economic, technical and financial data (e.g., a description of the product being investigated, the origin of the goods and exporters, and precise data on the value of the goods being subsidised, dumped or countervailed). This information must be presented along with a legal argument that sets out the unfair market practices, injury and threat of material injury. The petitioner, along with all interested parties, including the Ministry of Trade, Industry and Tourism (the investigating authority), may present documents and information that are confidential.
Once the request is formally filed before the competent authority, the procedure is as follows.
- The investigating authority will have a period of 15 business days, counted from the day following the filing date of the request, to evaluate the accuracy and relevance of the evidence provided, to determine whether there is sufficient evidence to merit an investigation. If necessary, the authority will request missing information from the petitioner.
- If an investigation is opened, the Directorate of Foreign Trade will issue a reasoned resolution that will be published in the Official Gazette. If an investigation is not opened, the Directorate will dispose of it by means of a reasoned resolution within the same terms.
- Within five days of the resolution being published to open the investigation, the investigating authority must notify importers, exporters and foreign producers, and the diplomatic or consular representatives of the country of origin and export, of this fact and indicate where they can access the questionnaires that have been designed for the investigation, and request information about the case. Within 30 days of the resolution being published, the aforementioned interested parties must return the completed questionnaires, accompanied by supporting documents and evidence, and a list of the evidence that they intend to present in the course of the investigation.
- After two months from the day following the date the resolution is published to initiate the investigation, the Directorate of Foreign Trade must rule by means of a reasoned resolution on the preliminary results of the investigation and, if applicable, order the establishment of provisional duties. The resolution in question will be published in the Official Gazette.
- Within five days of the publication of the resolution that adopts the preliminary determination, the parties involved in the investigation, and those that have proved they have a legitimate interest in it, may request a hearing to be held between participants representing different interests, to present opposing and rebuttal arguments, in relation to the elements evaluated during the investigation until the preliminary stage.
- Within 10 days of the expiration of the term of evidence at the request of a party, the parties under investigation will have the opportunity to present, in writing, their closing arguments regarding the investigation and to dispute the evidence provided and presented during the process.
- The investigation concludes with a formal opinion given by the Trade Practices Committee, which is adopted by the Foreign Trade Directorate through a resolution published in the Official Gazette. Within five days of its publication, it will be communicated to the member country or countries whose products are the subject of the determination or commitment in question, as well as to other parties that have expressed interest in the investigation and have provided their address or email. During the process of applying a trade defence measure, the following activities may be carried out by an interested party or the competent authority:
- Examination of evidence: the investigating authority ex officio or at the request of an interested party will examine the evidence that it considers useful, necessary and effective for the verification of the investigated facts. The testimonial and documentary evidence will be admissible, as well as demonstrative or circumstantial evidence provided in accordance with the provisions of the WTO Anti-Dumping Agreement. The term for taking evidence at the request of a party will expire one month after the date of publication of the resolution containing the preliminary determination. Notwithstanding the foregoing, the investigating authority may decree ex officio tests from the beginning of the investigation until the formulation of the final recommendation by the Commercial Practices Committee. The investigating authority may order that evidence be taken and request the tests and information in the country or countries of origin of the product under investigation. The foregoing is without prejudice to what is related to the provisions on verification visits in the territory of the country of origin of the product under investigation.
- Verification visits: to verify the information received or to obtain additional elements necessary for the corresponding review or examination, the investigating authority may carry out, at any time during the development of the investigation and before the start of the period for allegations, the verification visits that it considers relevant. The determination and intention to carry out a verification visit, as well as the agreed dates and places, must be communicated to the companies involved at least eight days in advance of the visit, so that the investigating authority can be informed of any opposition. If no response is received within this period, the investigating authority may presume that there is no such opposition. Prior to the visit, the companies involved must be informed of the general nature of the information to be verified, as well as any information that the investigating authority considers must be supplied.
- Verification visits in the territory of the country of origin: the investigating authority may carry out verification visits in the territory of the country of origin of the product under investigation, subject to prior notification to the government of that country, and provided that there has been no opposition to the visit. The result of the verification visits will be made known to all interested parties by the investigating authority, except for confidential information.
Following WTO rules, anti-dumping and countervailing duties procedures cannot exceed five years, counted from the date the resolution is published in the Official Gazette. The duration may be shorter, as long as it is sufficient to eliminate the inflicted injury on the affected domestic industry. Generally, anti-dumping and countervailing duties in Colombia last for two years and can be extended for another two years.
Safeguard measures may only be imposed for the period that is necessary to prevent or remedy the inflicted injury or the serious threat of it, and facilitate a readjustment of the affected domestic industry. This period shall not exceed four years, including the time during which a provisional measure was in effect.
Colombia has been structuring an open economic integration policy, under which it has approached a number of foreign markets. As at July 2021, the government has signed 18 trade agreements addressing more than 70 countries, 16 of which are in force. In the context of Latin America, this integration has taken place within the framework of the Andean Community, the Pacific Alliance and the Latin American Integration Association.
Colombia is negotiating its entrance to the Trade in Services Agreement (TiSA), a trade initiative focused exclusively on service industries. Currently, 23 economies are participating in TiSA, representing nearly 70 per cent of the world's US$55 trillion services market.3 Colombia has not yet signed treaties with all members of TiSA, which includes Australia, New Zealand, Hong Kong and Taiwan.
Below is an overview of some of the most relevant agreements that Colombia has signed, which importers and exporters have benefited from in past years.
- The United States–Colombia Trade Promotion Agreement (CTPA), a free trade agreement (FTA) between Colombia and the United States, is one of the most used treaties by Colombian exporting companies. More than 95 per cent of Colombian exports enter the US market without a tariff under the CTPA. The United States is Colombia's main commercial partner. Additionally, the CTPA also includes chapters on investment, financial services, dispute resolution and e-trade, among others, which helps to promote growth and facilitation of trade, intellectual property and services.
- In June 2012, Peru, Mexico, Colombia and Chile signed the Framework Agreement of the Pacific Alliance. The main purpose of the Pacific Alliance is to make gradual progress towards the free circulation of goods, services, capital and people and, thus, contribute to the development of the signatory countries. Taking into account the advanced status of the bilateral relationships in terms of tariff tax exemption, the greatest achievement of the Pacific Alliance is that it introduces a fundamental element for competing in a world of globalised production: accumulation of origin of goods between the four countries.
- The Colombia–European Union FTA allows for the free flow of almost 100 per cent of Colombian industrial goods to the European Union without tariffs payments. The benefits of the trade agreement include having open markets for goods, services, government procurement and investment, and a more stable and predictable environment for businesses with a bilateral dispute settlement mechanism and a mediation system for non-tariff barriers.
- One of the strategic economic integration schemes in Colombia is the Andean Community. Under this scheme, Colombia can freely circulate goods exempt from liens and must not establish restrictions on trade. This regional integration scheme was constituted in 1993 with Bolivia and Ecuador, and with Peru in 2006.
- The Colombia–Mexico FTA adopts five important decisions related to market access, adaptation of origin rules, the Committee for Regional Integration of Inputs, additional powers for the Administrative Commission of the FTA and the renaming of the FTA. With this FTA, more than 95 per cent of the goods are exempted from tariff payments, as long as the origin of the goods is demonstrated before the customs authority.
In May 2019, Colombia signed an FTA with the United Kingdom to preserve the commercial benefits that were enjoyed with the European Union. The objective is to preserve the conditions of integration and preferential access. One of the sectors that most benefits from the commercial relationship currently managed by both economies is agriculture. In 2019, national exporters sold US$309 million of goods to the European Union, representing 66 per cent of total sales to the United Kingdom and 14.3 per cent of agricultural exports to the entire European Union. The main exports were bananas, coffee, flowers, fruits and edible parts of plants.4 The FTA must be approved by the Constitutional Court to enter in force. As at July 2021, this approval has not been given.
Finally, as of June 2021 the government is negotiating an FTA with Turkey and Japan, and has entered into negotiations with the Pacific Alliance to include Canada, Australia, New Zealand and Singapore as 'associate states' to achieve a greater economic and commercial integration with their respective markets.
Recent changes to the regime
As mentioned in Section I, on 30 December 2020, modifications were made to trade defence instruments to bring the national legislation in line with the latest developments in international trade in the context of applicable procedures, use of information and communication technologies and, especially, use of electronic procedures through web applications or mechanisms, such as those provided for in the WTO Anti-Dumping Agreement.
One of the principal modifications made to Decree 1794 of 2020 is that any company may request the application of a dumping measure through the virtual platform of the Ministry of Trade, Industry and Tourism, without having to physically present the documents to the authority.
The new regulation requires that companies requesting the imposition of a dumping duty must provide at least 5 per cent of the total sales made to Colombia in invoices to the Ministry of Trade, Industry and Tourism to prove the normal value of the dumping duty. Prior to this modification, there was no minimum sales amount that had to be provided to the authority. The modification means that importers and exporters being investigated now have a viable defence as they are able to prove the existence of a normal value through documents that verify the sales made internally in the investigated country (e.g., invoices).
Additionally, the new regulation shortens the length of the investigation by approximately three months (previously, an investigation could take more than one year). The new timeline will help all parties involved to have a clearer overview of the investigation and reach a conclusion in a shorter time.
Finally, as mentioned in Section I, a substantial change introduced by the new regulation is the obligation of the Ministry of Trade, Industry and Tourism to permanently monitor trade flows to Colombia to assess the viability and relevance of initiating anti-dumping investigations ex officio. As set out in the regulation: 'In special circumstances, the investigating authority may carry out an investigation ex officio when there is sufficient evidence to determine the existence of significant injury, threat or delay caused by dumped imports.'5
Significant legal and practical developments
In addition to the trade defence instruments discussed in Section IV, domestic industries have been requesting the Directorate of Taxes and Customs to verify the origin and customs value of the goods imported to Colombia.
The following operations must be channelled through the foreign exchange market: imports and exports of goods; foreign debt; foreign direct investment; and Colombian capital investments abroad. The process comprises presenting a specific form, depending on the operation to be carried out, to a financial or commercial bank in Colombia or using a bank account abroad registered with the Colombian central bank. In this sense, it has become a practical issue that importers must now face in investigations when implementing a defence measure, such as customs value and the value of the payments made abroad, not only before the Ministry of Trade, Industry and Tourism but additionally before the Directorate of Taxes and Customs.
It is not possible to appeal against a decision imposing unfavourable trade measures by the Ministry of Trade, Industry and Tourism. Additionally, there are no specialised courts in the country for customs disputes. Nevertheless, any interested party that feels that the administrative action has generated economic damage can request nullity and re-establishment of their rights before the Colombian judicial courts.
The interested party must present a claim within four months of the Ministry's decision being notified. The judicial decision will depend on what has been examined and proven in the process; therefore, it is not possible to present new arguments or evidence that were not analysed in the initial investigation. As it is possible to appeal on the first determination set out by a judge in Colombia, it may take up to eight years for a final decision to be reached in a judicial matter.
Additionally, the Ministry of Trade, Industry and Tourism may revoke the decision at any time, if it is proven that it is manifestly against the Constitution or the law. The success rate of an entity revoking its own decision is low.
In November 2019, the European Union requested consultations with Colombia before the WTO on its anti-dumping duties on frozen fries from Belgium, Germany and the Netherlands. Exports of frozen fries from the three Member States to Colombia amounted to €23 million in 2016. The unwarranted duties, imposed in November 2018 for a two-year period, target almost all (85 per cent or €19.3 million) EU exports of frozen fries to Colombia and carry an additional duty rate of around 3 per cent to 8 per cent. The EU considers that these measures are incompatible with WTO law, both on substance and on procedure. The measures present some concerns, in particular with regard to dumping, injury, causality and procedural rights.6
Trade remedies proceedings in Colombia are active, and the current situation with regard to covid-19 and the resulting economic emergency may trigger new investigations, not only on dumping matters but also on countervailing and safeguard measures. Owing to new regulations, the national government may initiate ex officio any investigation if it has sufficient evidence to determine the existence of significant injury, threat or delay caused by dumped or subsidised imports. Therefore, it will be necessary to closely review new investigations and to have all interested parties (importers, exporters and producers) aware of any imposition that may affect their day-to-day operations.
Additionally, a new tax reform in Colombia may be implemented during the second half of 2021 to avoid further tax losses. This means that companies will need to be organised and plan for new instruments they can benefit from, some of which relate to customs and international trade matters, such as free trade zone regimes and FTAs. These mechanisms allow companies to have an efficient tax and customs structure to operate in Colombia.
1 Juan David López is a senior associate at Baker McKenzie SAS.
2 Data provided by the Ministry of Trade, Industry and Tourism: https://www.mincit.gov.co/mincomercioexterior/defensa-comercial.
5 Article 126.96.36.199.6.1, Decree 1794 of 2020.
6 DS591: Colombia — Anti-Dumping Duties on Frozen Fries from Belgium, Germany and the Netherlands, https://trade.ec.europa.eu/wtodispute/show.cfm?id=792&code=1.