Cablegate: Colombia Atpdea-Related Activity 2005

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RR RUEHWEB

DE RUEHBO #5571/01 1721434
ZNR UUUUU ZZH (508)
R 211434Z JUN 06
FM AMEMBASSY BOGOTA
TO SECSTATE WASHDC 6196

UNCLAS BOGOTA 005571

SIPDIS

SIPDIS
PASS TO USITC - L. M. Schlit

E.O. 12958: N/A
TAGS: ETRD OTRA ASEC CO

SUBJECT: COLOMBIA ATPDEA-RELATED ACTIVITY 2005

1. 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 2005.

2. Over the past decade, ATPDEA has provided significant
economic benefits to Colombia. It is estimated that over
123,000 jobs were created by ATPA, and ATPDEA is expected to
add another 150,000 new jobs by December 2006. The
expansion of ATPDEA made possible the duty-free entry of
approximately 6,500 product categories including clothing
(textiles), shoes (without SGP), crude oil and petroleum by-
products, watches, leather products, and packed tuna.

3. In 2005, total Colombian exports to the U.S. market
grew to a record USD 8.4 billion. Exports have grown by more
than USD 3.3 billion since the ATPDEA went into effect in
2002. During this same period, U.S. exports to Colombia
increased by more than USD 2 billion to reach USD 5 billion,
as reported by the U.S. Department of Commerce.

4. In 2005, 40 percent of Colombian exports were shipped
to the U.S. Of these exports, approximately USD 4.7 billion
benefited from ATPDEA preferences. Colombian exports to the
U.S. increased 22 percent in 2005 over 2004. In fact,
Colombian exporters are estimated to save between USD 100
million and USD 120 million annually because of ATPDEA.

5. Petroleum and its derivatives are the most important
ATPDEA beneficiary, followed by the flower sector, apparel
and textiles (including leather products), gold products,
and fresh fruit. These sectors account for more than 90
percent of Colombian ATPDEA exports to the U.S. by value.
Petroleum and its derivatives currently account for 70
percent of Colombian ATPDEA exports.

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Effect of ATPDEA on Drug-Crop Eradication
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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 world.
Sectors that receive ATPDEA benefits provide an important
opportunity for legal employment for those who leave illegal
coca production. The flower sector in particular has
generated over 94,000 direct hires and approximately 80,000
indirect hires, mostly in the areas immediately surrounding
Colombia's two largest cities, Bogota and Medellin.

7. Access to the U.S. market for ATPDEA exports is also
important for supporting alternative crop prices at
economically viable levels. ATPDEA afforded preferences
booster 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 Colombian government is committed to seeing
narcotics traffickers jailed for their crimes, and Colombian
law enforcement agencies are cooperation with the U.S.
Department of Justice. Since the start of the Uribe
administration in 2002, Colombia has extradited more than
340 criminals to the United States.

8. The USG, through USAID, has provided approximately USD
586.6 million in aid between FY00 and FY05, and is expected
to provide 126.6 million in 2006. USG funding supports
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. According to the Colombian National Police (CNP), the
country saw a 21 percent reduction in terrorist events.
Kidnappings dropped by more than 51 percent, and homicides
by 13. Other major crimes were also substantially reduced.
According to International Narcotics Control Strategy
Report, the eradication program helped to bring a 15 percent
reduction in cultivation in 2003 and in 2004 resulted in a
reduction in mature crops of 6 percent. In 2005, coca
cultivation declined by 8 percent, from 114,100 to 105,400
hectares. At the same time, an additional 144,000 hectares
of coca were identified when the search area was expanded 81
percent more than the area searched in 2004. In 2005, the
U.S.-supported Anti-Narcotics Police Directorate sprayed a
record 138,775 hectares of coca and 1,624 hectares of opium
poppies. Manual eradication accounted for the destruction
of an additional 31,285 hectares of coca and 497 hectares of

opium poppy. As of June 7, 2006 the Colombian authorities
sprayed 75,091 hectares of coca and 231 hectares of poppy
and manually eradicated 9,026 hectares of coca and 62
hectares of poppy. Interdiction efforts have also increased
dramatically, with 223 metric tons of cocaine and coca base
along with 718 kilos of heroin seized in 2005. To date, 41
metric tons of cocaine and coca base along with 177 kilos of
heroine have been intercepted.

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Performance of Investment in 2004
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10. According to National Statistics Directorate, total
investment in the Colombian economy increased by 28.96
percent in 2005. This increase is due to the quickening pace
of the Colombian economy, increased physical security, an
improved legal framework, and higher prices of Colombia's
export commodities. The sector that registered the greatest
growth in new investments was machinery and equipment (35.98
percent), which is a change from last year where
construction grew the most. Other sectors that received
significant investment dollars were construction (26.99
percent), and transportation equipment (23.20 percent), both
of which are not ATPDEA beneficiaries. Hydrocarbons received
12.1 percent of FDI and mining received 19.4 percent. Both
sectors derive preferential treatment from ATPDEA.

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Information on Specific ATDEA-Related Investment Projects
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11. A 2005 poll of manufacturers by the Colombia's National
Industrial Association (ANDI), showed that nearly 66 percent
of companies polled were developing strategies to improve
their market position to take advantage of ATPDEA and the US-
Colombia FTA. Colombian textile manufacturers sell 70
percent of their exports to the U.S. Several textile
companies have made significant capital investments in
Colombia to take advantage of ATPDEA preferences. Enka de
Colombia invested USD 24.2 million during the last three
years and will invest another USD 10.2 million in heavy
machines and working capital in 2006. According to Enka's
president, Alvaro Hincapie, the company is seeking to
increase its market share in the US and expects to continue
growing. Last year Enka exported USD 51 million worth of
products world-wide, a 34 % increase over 2004 exports.
Another Colombian company, Coltejer expects to invest USD 5
million this year in export-expansion machinery. Coltejer
made USD 32 million worth of investments over the last three
years to increase their use of ATPDEA benefits.

12. The following 10 companies were selected from a list of
more than 4,000 exporters with sales in the U.S. during
2005. These companies constitute a sample of some of the
largest APTDEA beneficiaries in the most critical industry
sectors.

A. Company name: Coltejer
B. Investment: over last three years USD 32 million.
C. 2006 Projected investment: USD 5 million.
D. New or expansion investment? Expansion.
E. Product Exported to the U.S.: Textiles.
F. Estimated Exports to the U.S.: n/a
G Would investment occur without ATPDEA? Yes

A. Company name: Enka de Colombia
B. Investment: over last three years USD 24.2 million.
C. 2006 Projected investment: USD 10.2 million.
D. New or expansion investment? Expansion and working
capital.
E. Product Exported to the U.S.: Textiles.
F. Estimated Exports to the U.S.: n/a
G Would investment occur without ATPDEA? No

A. Company name: Protela
B. Investment: over last three years USD 11 million.
C. 2006 Projected investment: USD 3.5 million.
D. New or expansion investment? Expansion.
E. Product Exported to the U.S.: Textiles.
F. Estimated Exports to the U.S.: n/a
G. Would investment occur without ATPDEA? Yes

A. Company name: Ecopetrol
B. Investment: 2005 USD 96 million.
C. 2006 Projected investment: USD 300 million.
D. New or expansion investment? Expansion.
E. Product Exported to the U.S.: Oil and derivatives.
F. Estimated Exports to the U.S.: USD 1.7 billion
G. Would investment occur without ATPDEA? Yes

A. Company name: C.I. Flor Nativa S.A.

B. Investment: 2005 USD 0.0
C. 2006 Projected investment: USD 22.000.
D. New or expansion investment? Expansion.
E. Product Exported to the U.S.: Flowers.
F. Estimated Exports to the U.S.: USD 400.000
G. Would investment occur without ATPDEA? Does not know

A. Company name: Flores Santa Fe Ltda.
B. Investment: 2005 USD 225.993
C. 2006 Projected investment: USD 225.392.
D. New or expansion investment? Expansion.
E. Product Exported to the U.S.: Flowers.
F. Estimated Exports to the U.S.: USD 388.394
G. Would investment occur without ATPDEA? NO

A. Company name: DHL Express Latin America.
B. Investment: 2005 USD n/a
C. 2006 Projected investment: USD 100 million in Latin
America.
D. New or expansion investment? Expansion.
E. Product Exported to the U.S.: Courier Services.
F. Estimated Exports to the U.S.: USD 38 million
G. Would investment occur without ATPDEA? YES

A. Company name: Comestibles Rica Fruta Ltda .
B. Investment: 2005 USD 430.000
C. 2006 Projected investment: USD 0.0 million
D. New or expansion investment? Expansion in 2005.
E. Product Exported to the U.S.: Bocadillo guava.
F. Estimated Exports to the U.S.: USD 80.000
G. Would investment occur without ATPDEA? NO

A. Company name: CI Banacol SA.
B. Investment: 2005 USD 4.2 million
C. 2006 Projected investment: USD 4.5 million
D. New or expansion investment? Expansion
E. Product Exported to the U.S.: Bananas
F. Estimated Exports to the U.S.: USD 46.9 million
G. Would investment occur without ATPDEA? Not in the same
proportion and growth

A. Company name: Occidental de Colombia Inc.
B. 2005 Investment: USD 42 million.
C. 2006 Projected Investment: UDS 39 million
C. New or expansion investment? Expansion.
D. Located in Free-Trade Zone? No
E. Product Exported to the U.S.: Oil
F. Estimated Exports to the U.S.: USD 374 million
G. Would investment occur without ATPDEA? Yes

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Foreign Direct Investment Activity in 2005
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13. The Colombian Central Bank reported in at the beginning
of 2006 that foreign direct investment (FDI) reached USD
10.192 billion for the year. This represents an increase of
227% more than 2004; a year in which more than USD 3 billion
entered via FDI. The Ministry of Commerce also announced
that 2005's FDI equaled 8.3 percent of GDP. Driving this
increase in investor confidence is greater perceived
security and new business-friendly legislation. According to
the survey by the United Nations Conference on Trade and
Development (UNCTAD) in 2005, Colombia ranked fifth in their
list of most favored investment opportunities in Latin
America, a list that included Brazil, Mexico, Argentina, and
Chile. During the same period, the Doing Business 2005
Report by the World Bank, classified Colombia as 2nd amQ
145 economies evaluated for their business climate.

14. In 2005, the U.S. ranked second in FDI accounting for
14 percent of all investment dollars. In the cash-issuance
category, the United States invested 1.3 billion USD which
was a 60 percent increase over 2004. The U.S. was second to
the U.K. that provided 27 percent of investment dollars and
was closely followed by Mexico, Spain and Holland with 10
percent, 6 percent, and 3 percent respectively.

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Effect of FTA Negotiations on ATPDEA-Related Investment
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15. ATPDEA expires at the end of 2006. The American
Chamber of Commerce in Bogota reports member companies have
lost orders as a result of cost uncertainty related to the
expiration of ATPDEA benefits. A Free Trade Agreement (FTA)
between the U.S. and Colombia has been negotiated, but it is
unlikely the U.S. Congress will consider passage of the FTA
until after expiration of the ATPDEA. Barring a stopgap
measure, Colombia will likely see a decline in ATPDEA-
related trade until the FTA enters into force.

WOOD

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