US embassy cable - 05BOGOTA5762

UNCLAS SECTION 01 OF 04 BOGOTA 005762 
 
SIPDIS 
 
STATE PASS TO USTR 
USDOC FOR USITC/LMSCHLITT 
 
E.O. 12958: N/A 
TAGS: ETRD, OTRA, ASEC, CO 
SUBJECT:  ATPDEA-RELATED INVESTMENT ACTIVITY DURING 2004 
 
REF: SECSTATE 70739 
 
1.  (U) Below is Post's response to the U.S. International 
Trade Commission's request for information regarding Andean 
Trade Preferences and Drug Eradication Act (ATPDEA)-related 
investment in Colombia during 2004. 
 
2.  Over the past decade, ATPA/APTDEA has provided 
significant economic benefits to Colombia.  It is estimated 
that over 123,000 jobs were created by ATPA in its first 10 
years, and that by the end of 2006, 140,000 new jobs will be 
created by the expanded benefits extended under ATPDEA. 
Since 1993, Colombian exports to the U.S. market have been 
increasing in value as a percentage of total Colombian 
exports worldwide.  ATPDEA has made possible the duty-free 
entry of approximately 6,500 product categories from 
Colombia. 
 
3.  In 2004, total Colombian exports to the U.S. market grew 
to a record USD 7.36 billion.  In fact, these exports have 
grown by over USD 2 billion since the ATPDEA program went 
into effect in 2002.  During this same period, U.S. exports 
to Colombia increased by over USD 800 million to reach its 
current USD 4.2 billion. 
 
4.  In 2004, 39.5 percent of Colombian exports went to the 
U.S.  Of these exports, approximately USD 3.3 billion fell 
under ATPDEA.  It is interesting to note that while total 
Colombian exports to the U.S. increased by 12 percent 
between 2003 and 2004, ATPDEA program exports increased by 
39 percent. 
 
5.  Petroleum and its derivatives are currently the most 
important ATPDEA beneficiary, followed by the flower sector, 
apparel and textiles (including leather products), 
construction material (mainly glass and ceramic products), 
gold products, and fresh fruit.  These sectors account for 
more than 90 percent of Colombian ATPDEA exports to the 
United States by value.  Petroleum and petroleum derivatives 
currently account for 69 percent of Colombian ATPDEA 
exports, due to the boost in international oil prices in the 
last year. 
 
----------------------------------------- 
Impact of ATPDEA on Drug-Crop Eradication 
----------------------------------------- 
 
6.  ATPDEA benefits provide an important complement to 
existing anti-narcotics programs.  Colombia is currently the 
third largest recipient of U.S. assistance in the word (some 
USD 3.5 billion since FY 2000).  Sectors that receive ATPDEA 
benefits provide an important opportunity for legal 
employment for those who move from illegal coca production. 
The flower sector in particular has generated over 100,000 
new jobs, mostly in the areas immediately surrounding 
Colombia's two largest cities, Bogota and Medellin.  The 
textile sector has also absorbed many individuals heading to 
the cities since the ATPDEA program came into effect in 
2002. 
 
7.  Access to the U.S. market for ATPDEA exports is also 
important for supporting alternative crop prices at 
economically viable levels.  ATPDEA preferences also bolster 
efforts by the Colombian private sector to press their 
Government on counter-narcotics reforms.  The USG has 
enjoyed strong support from the private sector for important 
U.S. counter-narcotics goals, such as the passage of 
legislation on asset forfeitures and money laundering, 
increased penalties for narcotics offenses, increased 
eradication efforts and the passage of a strong extradition 
law.  The Uribe Administration has shown its commitment as 
well.  Over 200 extraditions have taken place during 
President Uribe's term.  The Colombian government is 
committed to seeing narcotics traffickers jailed for their 
crimes, and Colombian law enforcement agencies are in 
complete cooperation with the U.S. Department of Justice. 
 
8.  The USG, through USAID, has provided approximately USD 
584 million from 2000 through 2005, to support alternative 
development programs, democracy building, and internally 
displaced persons assistance.  The programs target the 
development of income generation options in areas affected 
by illicit crops and the strengthening of institutional 
linkages between the state and its citizens. 
 
9.  The combined results of the USG and GOC efforts have 
been overwhelmingly positive.  According to the Colombian 
National Police, in 2004, the country saw a 42 percent 
reduction in terrorist events.  Kidnappings dropped by more 
than 35 percent, and homicides by 15 percent.  Other major 
crimes were also substantially reduced.  The U.S. counter- 
narcotics effort in Colombia has achieved significant 
results.  According to the U.S. International Narcotics 
Control Strategy Report, the eradication program, the 
backbone of counter-narcotics efforts in Colombia, helped to 
bring a 21 percent reduction in cultivation in 2002 and a 15 
percent reduction in 2003.  In 2004, the U.S.-supported Anti- 
Narcotics Police Directorate sprayed a record 136,555 
hectares of coca and 3,060 hectares of opium poppies. 
Manual eradication accounted for the destruction of an 
additional 10,991 hectares of coca and 1,497 hectares of 
opium poppy. As of May 31, 2005 the Colombian authorities 
sprayed 85,142 hectares of coca and 979 hectares of poppy 
and manually eradicated 5,701 hectares of coca and 260 
hectares of poppy. Interdiction efforts have also increased 
dramatically, with 315 tons of illegal drugs seized in 2004. 
 
--------------------------------------------- ---------- 
Effect of FTA Negotiations on ATPDEA-Related Investment 
--------------------------------------------- ---------- 
 
10.  Many Colombians in the commercial and industrial 
sectors hope the US-Andean FTA (Free Trade Agreement) will 
be negotiated and go into effect before ATPDEA expires.  The 
agriculture sector is seeking to block an agreement that 
includes agricultural products at reduced protection levels. 
Many companies have increased their strategic investments in 
anticipation of the FTA.  Proexport, an office within the 
Ministry of Trade that promotes Colombian exports, has 
focused considerable effort on promoting investment in 
ATPDEA products.  It hosts a standing Business Leader 
Committee at the ministerial level to coordinate GOC policy. 
There are also some 235 business associations that now exist 
in Colombia, some of which have played a critical role in 
working with the GOC during the FTA negotiations. 
 
--------------------------------- 
Performance of Investment in 2004 
--------------------------------- 
 
11.  According to National Statistics Directorate, total 
investment in the Colombian economy increased by 13.6 
percent in 2004.  This increase is due, in large part, to 
President Uribe's democratic security policy which has 
returned confidence to local and foreign investors.  The 
sectors that registered the largest growth rates in new 
investment were construction (30 percent) and transportation 
equipment (18.7 percent), both of which are not ATPDEA 
beneficiaries.  The major growth sector for foreign direct 
investment was the mining and hydrocarbons sector, which 
enjoys ATPDEA benefits.  The industrial sector showed a 16.3 
percent increase in investment during 2004.  This sector 
includes important ATPDEA beneficiaries such as the textile, 
apparel, and construction materials industries. 
 
--------------------------------------------- ------------- 
Information on Specific ATPDEA-Related Investment Projects - 
--------------------------------------------- ------------ 
12.  A 2004 poll of manufacturers by ANDI, the Colombian 
industrial association, showed that nearly 70 percent of 
those polled were developing strategies to improve their 
market position to take advantage of ATPDEA and the US- 
Andean FTA currently under negotiation.  Ascoltex, the 
Colombian textiles association, reported that textile and 
apparel producers invested approximately USD 100 million in 
new capital goods to expand capacity.  It is expected that 
between 2004 and ATPDEA's expiration in 2006, the textile, 
apparel and leather industries will receive over USD 500 
million in new investment, with the vast majority coming 
from the United States.  The following 13 companies were 
selected from a list of more than 4,000 companies that 
exported to the U.S. during 2004.  These companies 
constitute a sample of some of the largest ATPDEA 
beneficiaries in some of the largest ATPDEA beneficiary 
sectors such as petroleum, flowers, fresh fruit, sugar 
products and construction materials.  However, some specific 
companies in these sectors provided more general 
information. 
 
A.   Company Name: Ecopetrol 
B.   2004 Investment: USD 88 million. 
C.   New or expansion investment? Expansion 
D.   Located in Free-Trade Zone? No 
E.   Product Exported to the U.S.: Oil and derivatives 
F.   Estimated Exports to the U.S.: USD 1.3 billion 
G.   Would investment occur without ATPDEA? Yes 
H.   U.S. Inputs: Yes 
 
A.   Company Name: Occidental de Colombia Inc. 
B.   2004 Investment: USD 263 million between 2004 and 2010 
C.   New or expansion investment? Expansion 
D.   Located in Free-Trade Zone? No 
E.   Product Exported to the U.S.: Oil and derivatives 
F.   Estimated Exports to the U.S.: USD 249 million 
G.   Would investment occur without ATPDEA? Yes 
H.   U.S. Inputs: Yes 
 
A.   Company Name: Petrobras Colombia 
B.   2004 Investment: USD 45 million 
C.   New or expansion investment? New 
D.   Located in Free-Trade Zone? No 
E.   Product Exported to the U.S.: Oil and derivatives 
F.   Estimated Exports to the U.S.: USD 97.7 million 
G.   Would investment occur without ATPDEA? Yes 
H.   U.S. Inputs: Yes 
 
A.   Company Name: Union de Bananeros de Uraba S.A. 
B.   2004 Investment: USD 1.3 million 
C.   New or expansion investment? Expansion 
D.   Located in Free-Trade Zone? No 
E.   Product Exported to the U.S.: Bananas 
F.   Estimated Exports to the U.S.: USD 50.3 million 
G.   Would investment occur without ATPDEA? No 
H.   U.S. Inputs: Yes 
 
A.   Company Name: Industrias e Inversiones El Cid Ltda. 
B.   2004 Investment: USD 1.8 million 
C.   New or expansion investment? New 
D.   Located in Free-Trade Zone? No 
E.   Product Exported to the U.S.: Apparel 
F.   Estimated Exports to the U.S.: USD 48.6 million 
G.   Would investment occur without ATPDEA? No 
H.   U.S. Inputs: Yes 
 
A.   Company Name: C.I. Jeans S.A. 
B.   2004 Investment: USD 1.5 million 
C.   New or expansion investment? Expansion 
D.   Located in Free-Trade Zone? No 
E.   Product Exported to the U.S.: Apparel 
F.   Estimated Exports to the U.S.: USD 39.4 million 
G.   Would investment occur without ATPDEA? No 
H.   U.S. Inputs: Yes 
 
A.   Company Name: Cia Colombiana de Ceramica S.A. 
B.   2004 Investment: USD 500,000 
C.   New or expansion investment? Expansion 
D.   Located in Free-Trade Zone? Yes 
E.   Product Exported to the U.S.: Ceramic and other 
     construction materials 
F.   Estimated Exports to the U.S.: USD 35.4 million 
G.   Would investment occur without ATPDEA? No 
H.   U.S. Inputs: Yes 
 
A.   Company Name: Confecciones Colombia S.A. 
B.   2004 Investment: USD 350,000 
C.   New or expansion investment? Expansion 
D.   Located in Free-Trade Zone? No 
E.   Product Exported to the U.S.: Apparel 
F.   Estimated Exports to the U.S.: USD 30.4 million 
G.   Would investment occur without ATPDEA? Yes 
H.   U.S. Inputs: Yes 
 
A.   Company Name: The Elite Flower Ltda. 
B.   2004 Investment: N/A 
C.   New or expansion investment? N/A 
D.   Located in Free-Trade Zone? No 
E.   Product Exported to the U.S.: Flowers 
F.   Estimated Exports to the U.S.: USD 23.9 Million 
G.   Would investment occur without ATPDEA? No 
H.   U.S. Inputs: Yes 
 
A.   Company Name: CI Sunshine Bouquet Ltd. 
B.   2004 Investment: N/A 
C.   New or expansion investment? N/A 
D.   Located in Free-Trade Zone? No 
E.   Product Exported to the U.S.: Flowers 
F.   Estimated Exports to the U.S.: USD 22.1 Million 
G.   Would investment occur without ATPDEA? Probably not 
H.   U.S. Inputs: Yes 
 
A.   Company Name: CI de Azucares y Mieles S.A. 
B.   2004 Investment: USD 30,000 
C.   New or expansion investment? Expansion 
D.   Located in Free-Trade Zone? No 
E.   Product Exported to the U.S.: Sugar products 
F.   Estimated Exports to the U.S.: USD 20.1 million 
G.   Would investment occur without ATPDEA? Yes 
H.   U.S. Inputs: No 
 
A.   Company Name: Rex Gold Ltda. 
B.   2004 Investment: USD 55,000 
C.   New or expansion investment? New 
D.   Located in Free-Trade Zone? No 
E.   Product Exported to the U.S.: Jewelry 
F.   Estimated Exports to the U.S.: USD 18 million 
G.   Would investment occur without ATPDEA? Yes 
H.   U.S. Inputs: Yes 
 
A.   Company Name: Productora de Capsulas de Gelatina S.A. 
B.   2004 Investment: USD 150,000 
C.   New or expansion investment? Expansion 
D.   Located in Free-Trade Zone? No 
E.   Product Exported to the U.S.: Gelatin Capsules 
F.   Estimated Exports to the U.S.: USD 6.1 million 
G.   Would investment occur without ATPDEA? No 
H.   U.S. Inputs: Yes 
 
------------------------------------------ 
Foreign Direct Investment Activity in 2004 
------------------------------------------ 
 
13.  According to a recent report produced by the United 
Nations Economic Commission for Latin America and the 
Caribbean, in 2004 foreign direct investment (FDI) in 
Colombia grew by USD 2.4 billion or 41 percent.  This was up 
from USD 1.7 billion in 2003.  Colombia ranked first in net 
FDI flows among Andean countries and third in South 
America, after Brazil and Chile.  This increase in FDI 
represents a significant turnaround from the declining trend 
of previous years wherein security problems led to the 
perception of Colombia as a high-risk investment 
environment.  According to Colombia's Investment Promotion 
Agency Coinvertir, foreign portfolio investment reached USD 
743 million in 2004 versus a USD 1.03 billion outflow in 
2003.  Analysts have attributed the 2004 investment results 
to President Uribe's democratic security policies which have 
improved investors' perceptions of Colombia. 
 
14.  (U) FDI in Colombia is primarily in the manufacturing, 
mining and wholesale sectors.  According to Coinvertir, the 
sectors that received the largest amounts of FDI in 2004 
were mining and quarrying (USD 1.2 billion) and petroleum 
(USD 571 million).  These two sectors accounted for 75 
percent of FDI, followed by transportation and 
telecommunications (USD 256 million), manufacturing (USD 201 
million) and banking (USD 180 million). 
 
15.  New FDI flows from the U.S. increased significantly in 
2004, reaching USD 874 million by year-end (versus capital 
inflows of USD 273 million in 2003).  The United States is 
the largest foreign investor in Colombia, representing 16 
percent of total foreign investments.  In 2004 total U.S. 
foreign direct investment in Colombia totaled approximately 
USD 7.3 billion. 
 
Drucker