Colombian law does not require foreign firms to secure local representation for private sector sales. However, Colombians prefer to deal with companies that have a local representative to ensure access to after-sales services. The one exception to this law is for sales to the government, which does require foreign bidders to have legal representation in Colombia.
To secure an agent, representative, or distributor the foreign company must execute a contract that meets the provisions of the Colombian Commercial Code. This contract must be registered with the chamber of commerce where the agent/representative is located. Agency or representation agreements do not require government approval.
An agent or representative differs from an appointed distributor. The former is legally associated with the principal and may enter into legal agreements on the principal's behalf, while the latter may act totally independently from the principal. Distributors may purchase items from a foreign supplier, wholesaler, or jobber, and then sell them locally at their own discretion and risk.
The U.S. Commercial Service recommends that U.S. companies consult a local attorney to execute an agency or distribution contract and to thoroughly vet the prospective partner by conducting a background check. Formality, personal relationships and trust are key ingredients for a long lasting contract. Colombians want to know their supplier or business partner personally before deciding whether he or she is trustworthy. U.S. companies seeking agents, distributors, or representatives in Colombia should consider contacting the U.S. Commercial Service office to request assistance in entering the Colombian market.
There are three common forms of organizing your business in Colombia: a corporation, a limited liability partnership, and a branch or subsidiary of a foreign corporation. The Bogotá Chamber of Commerce’s new program has simplified considerably the process of establishing a business in Colombia. The Chamber developed this program with the support of the Inter American Development Bank (IDB) and several Colombian public and private entities. U.S. firms should obtain legal and tax related advice from a Colombian law firm or accounting firm. The U.S. Commercial Service office has a list of attorneys and accountants on its website: http://export.gov/colombia/.
A branch office of a foreign corporation must operate under the rules applicable to Colombian corporations. Its liability is limited to assigned capital and it must be registered with a Notary Public in its place of domicile. The following documents also must be registered with the Notary Public: copies of the incorporation documents, bylaws, the resolution or act agreeing to the establishment of the branch, and documents providing evidence of the business and legal representation. Be sure to check with your legal representative of the Colombian Embassy in Washington, DC about whether specific documents originating in the United States require an “apostille” from the Colombian Consulate or Embassy to validate their use in Colombia.
All companies (including branches of foreign companies domiciled in Colombia) must register themselves and their accounting books, meeting minutes, and other required documents by law in the Commercial Register of the chamber of commerce in the cities where they are located.
Companies should follow these additional steps, at a minimum, when establishing a business in Colombia:
The number of franchises in Colombia has more than doubled over the past 10 years. By the end of 2011, the country had as many as 427 franchises, roughly half of which are foreign brands, a large increase from the estimated 100 back in 2002. This boom was driven by a better understanding and acceptance of the concept of franchising by many local firms, as they continued to recognize that this is a safe and less complex way of expanding their business. Another important driving force of this exponential growth was the pilot project of the Inter-American Development Bank (IDB) and 10 Colombian Chambers of Commerce (2006-2009), which provided funds and training to support small and medium sized enterprises in the implementation of this business expansion.
During 2011, the franchise sector grew 4%. This increase was reflected by 425 brands which registered in 2010 to 427 in 2011. 2010 presented an interesting upsurge with respect to 2009. The sector grew by 10.33% in relation to 2008 when the sector experienced a decrease of -1.6 %. Franchising in Colombia was growing at a rate of 18% per year until 2008 (433 Franchises), however due to the world economy crisis of 2009 the sector experienced a slowdown. In 2010 the franchise industry showed signs of recovering and experienced a growth rate of 10%. In Colombia there are a wide variety of concepts that suit different investor profiles, according to the capital required to purchase a franchise. In 2010 the franchises with minimum investment of less than USD $25,000 had a 32% participation whereas franchises that require a capital investment lesser than USD $50,000 had a participation of 57%. These figures indicate that there is a wide choice for entrepreneurs who do not have a high investment capital.
At the end of 2011, domestic companies led 51.3% of franchisees in the country, while the remaining 48.7% corresponded to foreign companies that have presence in Colombia through franchises. United States with 20.4%, leads the foreign participation in the Colombian market followed by the European and Latin American countries that participated with a market share of 13.62% and 5.4% respectively.
The Inter-American Development Bank (IDB) gave the biggest boost for the franchise activity, in 2005. Along with some chambers of commerce of the major urban cities the IDB provided the funds necessary to streamline the franchising sector and create franchise concepts typically Colombian with international projection. As a result 130 companies adopted the Colombian franchise model, some of them still have presence on both local and international markets. Today, franchises from United States, Brazil, Spain, Mexico, UK and France among others countries have presence in Colombia, some of them have increased their investments and others just entered the market for the first time. There is not information that can help to quantify the franchises sector's contribution to GDP growth. However, the current landscape of the franchises in Colombia is promising and their contribution to the GDP growth is increasingly relevant.
Currently about 209 foreign franchises (427 in total) have presence in Colombia. 60% of franchises have less than 10 retail stores, 31% have between 10 and 24 retail stores, and 9% of them have at least 25 retail sales points. There are about 10,900 franchised sales points nationwide, a fairly low amount that represents the expansion potential for new players willing to enter the market and overtake market share in the and major and medium size cities.
There is a high concentration of franchise retailers in major cities, which suggests that there is also a whole market to penetrate outside the major urban centers. In many regions of Colombia, the concept of franchising is still unknown, and this happens even in cities with population and purchasing power that are suitable for the franchise model. It is important to note that the new shopping center developments in intermediate cities provide a natural space for the presence of well-known brands in these cities. Franchises entering into the market will have to take into consideration where the competition is most evident, such as fast food restaurants, clothing and household items. What is key to note is that in Colombia, these items are also sold by “San Andrecitos” (informal stores) or street vendors. “The San Andresitos” are a special type of malls that became popular in the mid 80's in Colombia, where contraband items are sold legally or illegally, with the consent of the state. Nevertheless, government authorities are continuously fighting against tax evasion, contraband, piracy and all illegal trading practices.
Nevertheless, there are still undeveloped market segments. Like other Latin American markets, Colombia is a price sensitive market, as the vast majority of people are persuaded by price in their consumption decisions, as many of them prefer price over quality. Only a small group of consumers are indifferent to price. This gap between these two groups is directly related to the purchasing power, education and social strata. The group with stronger purchasing power is more likely to adopt foreign concepts; in fact this segment is more familiar with the foreign American and European franchises. Contrary, the lower socioeconomic class is not generally familiar with foreign franchises and therefore brand names have little impact on their purchase decisions. As for their participation by commercial activity, services represent 45%, retail 40% and restaurants 15%. Services embraces concepts such as spas, sports clubs, consulting, travel, education, languages, real estate, dental clinics, hair salons, laundry, money transfer, warehousing and transportation, and courier among others.
Franchise agreements in Colombia are very atypical, as there is not specific legal frame for franchise contracts. The legal effect of this is that the law governing is the one agreed between the contracting parties, provided that the agreement clearly respects the general regulations of the Colombian law as well as the local Civil Code and Commercial Code. However, there is an efficient system of protection for intellectual and industrial property and trademarks.
The absence of specific regulation has led various entities to set up a legal framework to regulate the parties’ behavior so the prospective franchisees get the best possible protection. In contrast with the absence of a specific regulation frame there is a guild of franchises within FENALCO (National Federation of Traders). The committee adopted a Code of Ethics for franchises, which is similar in scope to those in place in other Latin American countries, and which complies with the European Code of Ethics for franchises. Several public and private entities got involved in the development of a technical guide for franchises, which has to comply with ICONTEC standards (Colombian Institute of Technical Standards). Likewise the rules of conduct (5813) seek to regulate pre-contractual and contractual phases between the parties to facilitate the sale of franchises. This set of regulations also aims to promote a statement from the Superintendence of Industry and Trade on how to regulate competition within franchise competitors.
It is very difficult to predict that at some point there will be any specific governmental regulation for franchises, but is something that could be addressed within the newly signed Free Trade Agreement. Based on the history of other countries where the franchise is already a mature industry, once this activity has driven the economy, the governments get involved developing and putting in place some kind of regulations. The scope of that government regulation is to be determined, but in Colombia there is consensus among industry leaders, as they claim that an overly regulated activity would discourage investors and would end up being something harmful for the industry. Subsequently investors are more likely to avoid excessive government interference as they prefer to stick to the self-regulatory efforts such as the Code of Ethics/Conduct and the technical standards consented by FENALCO and ICONTEC before assessing the appropriateness of governmental regulations. It is anticipated that the recent approval of the law of formalization and employment generation (law 1429 of Dec 29, 2010) will offer significant tax incentives and lower company registration costs, that will positively impact the expansion of franchises, since the new entrepreneurs (small and medium size enterprises) will be willing to invest in new franchisees business models that will allow a quicker return on investment. Along with this law, in January of 2012 the government announced the elimination of about 1,000 unnecessary steps, which will positively impact the way of making business.
Direct marketing is popular in Colombia. Its growth has been fueled by such factors as technological advances in printing and distribution, the spread of cable TV, the increased use of credit cards and flexible payment plans, and changing lifestyles. Other factors include: more women entering the job market and people seeking ways to save time in making household purchases. Many stores and large distributors are producing their own catalogs for phone, mail orders, e-mail, or the web with products that can be paid for with cash, check, debit or credit cards.
E-commerce is a viable marketing alternative. The U.S. Commercial Service suggests that U.S. companies consult a local attorney before entering into e-commerce sales or contractual agreements. Internet users, Internet, and catalog sales in Colombia are growing rapidly as is TV marketing. Courier services are available for legal credit card purchases in the United States to be shipped to addresses in Florida and then on to Colombia. Direct shipping to Colombia is also an option.
International direct marketing is becoming more popular in Colombia. U.S. firms can take advantage of improved legislation for postal, express, and courier shipments. The Colombia Customs Code contains postal and courier shipping rules. Certain postal shipments (correspondence, postcards, and printed materials) are exempt from licensing requirements and payment of duties. At present, courier or express shipments with a value of less than USD 1,000 and a weight of under 20 kilograms are freely imported and classified under HS 98.03.00.00.00, but are subject to a 10 percent Cost Insurance and Freight (CIF) tariff and 16 percent VAT on the CIF-duty-paid value of shipments. Rules apply to both air and surface shipments. The Colombian Congress passed the new postal law in December 2009. Firms are advised to re-check existing regulations to determine the impact of the proposed changes on their business plans.
Globalization has created a pressing need for a range of new technologies in Colombia. Although joint ventures and licensing agreements have been important business practices in Colombia, recently they have become even more important as businesses strive to become more competitive.
To remain competitive with their neighbors, Colombian industry urgently needs to modernize many of its processes, (this implies product diversification for alternative markets through changes in production facilities) and to upgrade obsolete equipment. To reach these goals, local industry is acquiring new capital equipment and state-of-the-art technology.
Leasing is also used to finance modernization projects in Colombia. One of the essential characteristics of leasing, as a financial service within the framework of the Colombian economy, is that it is an adequate tool for investment financing under industrial re-conversion policies. Leasing may be used for government contracts and in some cases, eliminates the need for a tender as the asset will not be retained by the state at the end of its useful life.
Government entities, institutions, industrial, and commercial enterprises must follow the provisions of Law 80 of October 31, 1993, which regulates purchases made and contracts entered into by the government and state industrial and commercial enterprises.
Under Law 80, Colombian government contracting agencies must select contractors through a public competitive bidding process. There are a few exceptions to this rule, which are clearly established in Article 24 of Law 80. The following are some exceptions for a direct contracting procedure:
1. Contracts for minor amounts: minor amounts are expressed in multiples of the established Colombian legal minimum monthly salary (currently about USD 261 without the additional benefits and/or compensation pay). A minor amount may range from 25 minimum monthly salaries to 1,000 minimum monthly salaries, depending on the annual budget of the contracting entity. For instance:
(a) If the annual budget of the contracting entity is less than or equal to 6,000 minimum monthly salaries, it is allowed to acquire goods and services under direct contract that do not exceed 25 minimum monthly salaries in value;
(b) If the annual budget of the contracting agency is equal to or exceeds 1,200,000 minimum monthly salaries, under direct contracts it may purchase goods and services that do not exceed 1,000 monthly salaries in value;
2. Loan agreements: inter-agency administrative contracts, professional, scientific and technological services, and evident emergencies and;
3. Non-award: Whenever bidding is not awarded for reasons such as: lack of proposals submitted, when the bids do not meet the terms of reference or specifications, when there is only one bidder, when products originating in or destined to agriculture or livestock breeding are offered through legally organized commodities exchanges, and in contracts executed by state (government) entities for the rendering of health services.
In July 2007 the Colombian government issued Law 1150 which is an amendment to Law 80. The following are the most important changes to Law 80 according to legal experts Prieto and Carrizosa:
1. Sets out four principles for contracting with the government via: (i) public tender, (ii) short list (iii) competitive examinations and (iv) direct contracting
2. Provides that the specifications should include the methodology for risk sharing within the contract
3. Develops the principle of objective selection, stating the criteria of how the contractor will be chosen. It eliminates experience, financial and organizational capacity as requirements for selection. These conditions will be taken into consideration for scoring purposes.
4. Expands the possibilities of checking the conditions of the bidders through a National Bidders Registry (Registro Unico Empresarial or RUE).
5. Requires the application of sound fiscal and functional principles when contracting with the State in addition to the rules already established by the State.
6. Sets parameters for extension or adding up to 60% to concession contracts for public works regardless of the amount of investment.
Foreign individuals or companies not domiciled in Colombia or foreign private legal entities without a branch in Colombia that are interested in government contracts must appoint an agent or legal representative, domiciled in Colombia, who is duly authorized to bid on and execute the contracts as well as to represent the foreign enterprise in and out of court. They also must provide a copy of their registration with the corresponding registry in their country of origin and submit documents proving their constitution or incumbency whichever is the case. This law applies to direct sales or international tenders.
Under Law 80, Colombian bidders enjoy preferential treatment. Given equal contracting conditions, domestic goods and services are preferred. The Colombian government has strongly recommended that all-official entities, and decentralized government industrial and commercial organizations “buy Colombian.” Under similar conditions, for all Colombian government acquisitions, preference must be given to Colombian products and services whenever competitive prices and quality are found versus “foreign” products and services. The same procedures must be followed in connection with concession and association contracts signed with Colombian government entities. When foreign firms bid under equal conditions, the contract is awarded to the firm that includes a greater number of domestic workers in its workforce, more domestic content in its products, and better technology transfer conditions.
As a general rule, all individuals and legal entities wishing to enter into contracts with state entities must register with the chamber of commerce in their jurisdiction in order to be qualified, classified, and rated in accordance with the provisions of Law 80. Foreign bidders and/or suppliers of equipment and services are also required to register with a Colombian chamber of commerce under the Bidders Register (Registro Unico de Proponentes) and, in most instances, must be pre-classified and pre-qualified by the chamber and, in some cases, by the Colombian government contracting agency.
The requirement for both the Bidders Register and the Merchants Register with a local chamber of commerce will be replaced shortly by a Sole Entrepreneurial Register (Registro Unico Empresarial or RUE), which comprises a more complete profile on all business people, businesses, enterprises, contractors, and bidders for qualifying for executing contracts with government entities.
The State Contracting Information System (Sistema de Información de Contratación Estatal or SICE) is a database introduced on May 1st, 2002. Its purpose is to register and provide certificates for foreign and domestic suppliers of all types of commodities and services, their products, and prices in order to be able to enter into contracts with state agencies and industrial and commercial enterprises. One can also register via Internet in accordance with the Sole Catalog of Goods and Services (Catalogo Unico de Bienes y Servicios or CUBS), which is a listing of goods and services classified, standardized, and codified with the products that may be acquired by government entities. Registration is subject to a minimal fee, which depends on the net profit of the company. SICE is expected to become a database with 3,000 municipal, state and national entities, and more than 100,000 suppliers. For additional information on SICE and on registering, interested parties can access the following web sites: http://www.sice-cgr.gov.co/, http://www.contraloriagen.gov.co/html/home/home.asp and www.telecom.com.co.
Although Law 80 has made the government contracting system more dynamic, Colombia is still not a signatory to the World Trade Organization (WTO) Agreement on Government Procurement (GPA) though they act as an observer to the GPA. There have been frequent, legitimate complaints of a lack of transparency and rule changes during the award of major government contracts. The RUE and SICE systems explained above are expected to become useful tools for better transparency in the process of contracting with government entities.
Colombia is still struggling to refine the requirements of Law 80, which calls for open bidding in public tenders. Attempts are being made to amend the law to clarify procedures. Despite the law, transparency, fairness, and truly competitive bidding conditions in many tenders remain uncertain. The Colombian government is also resorting to auctions even for purchase of high tech or complex equipment or medicines. These factors continue to be significant market access barriers. U.S. companies interested in public sector contracts should obtain legal counsel in Colombia and contact the U.S. Commercial Service for assistance and possible advocacy.
Certificate of Reciprocity: The Colombian Government procurement statute seeks to establish simple procedures based on the principles of transparency and objective selection; it provides equal treatment of foreign companies on a reciprocal basis. The procurement statute impedes complete access by U.S. firms since it requires a certificate of reciprocity. The principle of reciprocity embodied in Laws 80 and 816 ensure national treatment under the same conditions for Colombian bidders in other countries. The U.S. Government is unable to provide such a certificate, as each of the 50 U.S. states acts as a separate commercial jurisdiction. The Department of State, however, provides a certificate that U.S. companies may offer in lieu of a statement certifying reciprocity. Certificates can be obtained from the Economic section of the U.S. Embassy in Bogotá. Companies requiring this document should be prepared to provide the following information: company name, tender name, tender number, name of the Colombian entity letting the tender, and the general purpose of the tender.
Colombian military contracts above a certain amount (more than one million dollars for equipment and more than five million dollars for ammunition) require the foreign company to offer an “offset” proposal. Contact us for further information about this requirement.
Colombia offers a full range of sales channels to consumers, with various distribution methods depending on the type of product offered. These methods range from traditional wholesalers selling to traditional shops which then sell to the public, to more sophisticated methods, such as large department stores and hypermarkets located in malls, which are increasingly popular outlets.
While most imported items, especially capital equipment and raw materials, are still purchased through agents and distributors, some large domestic manufacturing companies import these items directly. Furthermore, some major distributors, wholesalers and end-users are opening purchasing offices and warehouses in the United States and contacting suppliers and manufacturers via the Internet, thus avoiding intermediaries in Colombia.
Consumer products from around the globe are available in Colombia at acceptable price levels. Under-invoicing of goods (usually of Chinese origin) and contraband articles sold at deep discounts remain a problem for legitimate retailers. The Colombian government has attained encouraging results in its effort to reduce contraband. Free trade zones and bonded warehouses are commonly used for imported merchandise and processing of export-oriented goods. Modifications to the Free Trade Zone legislation took effect in November 2007 and offer interesting benefits. The eventual implementation of the MUISCA (the name was chosen by the Colombian Customs Agency in honor of pre-Colombian tribes) electronic customs system will address contraband and invoicing issues.
As Colombia’s largest trading partner, the United States traditionally has been a “natural” market for products and services. The factors favoring U.S. exports are: the geographic proximity of the two countries, many Colombians who study abroad study in the United States, the large number of U.S. firms operating in Colombia, and the technological leadership that the United States maintains in many key industrial sectors. The possibility of a free trade agreement will further increase trade between the two countries.
U.S. suppliers should be aware, however, that their ability to compete in Colombia could be hampered by unfair business practices such as contraband, counterfeiting, intellectual property rights violations, under-invoicing, money laundering, and dumping. If a company has specific concerns, it should check with the U.S. Commercial Service office in Bogotá.
Quality, profitability, functionality, financing, and price all play an important role in the buying decision. After-sales service is significant, not only in the original buying decision, but also in maintaining the sales relationship. U.S. suppliers must either have their own representative with adequate operations or obtain a Colombian representative who can offer sufficient after-sales service.
To obtain better prices, guarantees, parts, and after-sales servicing, Colombians prefer to deal directly with manufacturers rather than through outside representatives, or trading companies.
U.S. firms competing for major infrastructure contracts should begin early in the contracting cycle. U.S. manufacturers and construction, service, and engineering companies should initiate contact as soon as possible with government entities and private firms, which have indicated plans, or even just an interest, in developing projects. Once a project has gone to tender, it is usually too late to be competitive if the supplier company has not already involved themselves up front in the process. As mentioned in the section “Selling to the Government”, a local agent or legal representative is required for all government contracts. Therefore, U.S. companies interested in government procurement or contracts should conduct due diligence and appoint an agent or representative as quickly as possible.
Colombia is the fastest growing internet market in Latin America, growing more than 30 percent in 2010. There are promising E-commerce opportunities in Colombia since the Colombian Congress provided the legal framework to regulate business done via the internet. In 2010, the United States and Colombia signed an E-commerce agreement that emphasizes open and fair e-trade. E-commerce has reached a stage in Colombia where it is critically important to agree on international standards in the areas of electronic signatures and authentication to avoid the emergence of discordant standards as to what constitutes a "digital signature" or what constitutes valid certificates in different jurisdictions. Decree 1747 of 2000 regulates Law 527 of 1999 and establishes rules on certification entities, certification and/or certificates, and digital signatures. The Superintendent of Industry and Commerce has full responsibility on authorizing certification entities, carrying out their inspection and control, and on imposing necessary penalties. It also oversees compliance with the law. Guaranteed secured procedures is a critical factor for consumers considering on line transactions.
The combination of institutional and societal factors prevents more rapid growth of E-commerce in Colombia. However, U.S. E-commerce companies should note the overall potential offered by the Colombian market. Colombia’s B2B (about 90 percent of the E-commerce market) will likely offer U.S. companies the greatest opportunities for export sales. Most Colombian E-commerce will take place through North American vendors, and great opportunities exist for large and small U.S. companies and the home office community that can efficiently utilize E-commerce technology to their benefit. Colombian companies view E-commerce as a means of improving their competitiveness.
Introducing new consumer products to the Colombian market usually requires an extensive advertising campaign. Companies’ marketing strategies frequently include media ads, and printed technical and sales articles in a combination of media -- radio, television, cable TV, newspapers, periodicals, trade magazines, and Internet barriers-- announcing sales and special offers.
Some companies and supermarkets also are effectively using a variety of marketing techniques to promote consumer products, including raffles, discount coupons, and accrual of points to exchange for a variety of products and/or services. Credit card holders are also entitled to market promotions and discounts, as well as subscribers to some newspapers, magazines or cellular services. Promotional seasonal “sales” have also become popular in Colombia throughout the year, usually on special holidays such as Amor & Amistad Day (similar to Valentine’s Day but held during the entire month of September), Father’s Day, Mother’s Day, Halloween, Christmas etc. Extended hours shopping during long weekends are being introduced in many malls in major urban centers.
Colombia has about 30 important daily newspapers (three of the principal daily papers are in Bogotá), a large number of trade and business papers and magazines, nationwide and regional television networks, AM and FM radio stations, and private local cable TV companies. Also available is a great variety of business, industrial, and trade publications from most Colombian industrial and trade associations and private publishers. Most publications have web sites. U.S. exporters should seriously consider advertising in local daily papers in major cities.
Main Newspapers and Periodicals:
Colombian consumers buy many imported products, but the cost of importing can be high. Consumers may pay between 80 to 120 percent above the Free On Board (FOB) price of imports, including the 16 percent VAT. The landed price of most consumer goods with local production is calculated by estimating 15 percent of the FOB price for freight and insurance, warehousing, and other documentation costs, 20 percent CIF import duty, plus a 16 percent VAT (assessed on the CIF-duty-paid value of most imports), thus putting their price at an additional 60 percent over the FOB price.
Additional import costs for capital goods and raw materials are much less (between 33 and 53 percent) with import duties for these items of between 0 and 5 percent for capital goods, and 10 to 15 percent for raw materials.
Department stores and supermarkets extend concession contracts to individuals and companies by permitting promotional space in their facilities to promote and sell consumer goods. These promotions include both familiar and unknown labels, and the goods are offered at discount prices in some cases. If the products are unknown in the market, the department stores or supermarkets may place them in the stores on a demonstration basis for a given period of time and will only place new orders if the products are well accepted by the public and sell relatively quickly. The largest supermarkets also carry their own labels at discount prices.
Suppliers to large store chains, supermarkets, and hypermarkets must provide certain guarantees on the continuity of products offered to avoid foreign surplus stock or remnants entering the Colombian market (i.e., foodstuffs, textiles, apparel, appliances, etc.). Imports of old or used clothing, closeouts, irregulars, off-season, or expired merchandise are prohibited.
When buying a food product, Colombians look for three things: brand recognition, which is usually related to high quality and social status; reliable and sufficient nutritional information such as the number of portions, nutritional value, and expiration date; attractive, colorful packaging and labeling. The latter tends to be more important for children’s products. All this information should be in Spanish. Agricultural products have special labeling requirements.
After-sales service and customer support are decisive purchasing factors in Colombia. Government and private firms often request that their potential suppliers provide testimonials regarding client satisfaction with equipment and after-sales service.
“Warranty imports” are an important factor that supports after sales service in Colombia. Warranty imports that include replacement parts and components by a foreign manufacturer or supplier are exempted from Colombian import duties. Decree 2685 of December 28, 1999 is the new Colombian Customs Code that took effect on July 1, 2000. Per Section IV, Article 141 of this Code, all merchandise or goods that have been repaired abroad or new ones that will replace items previously exported because they were found to be damaged, imperfect, having malfunctions or with an unsuitable end-use, and are under warranty by a foreign manufacturer or supplier, may be imported into Colombia without the payment of import duties. This does not imply that used or remanufactured goods are permitted imports, however. The proposed U.S.-Colombia TPA has a specific chapter which would allow these imports.
All original import and re-export documentation should be kept and presented with replacement imports to clearly identify goods, together with a valid warranty document, transport documentation, etc. A warranty import process must be completed and import declaration documents presented within a maximum of one year from the date the items subject to repair or replacement were exported.
In some instances, Colombian Customs may authorize the import of replacement goods without the requirement of having previously exported the damaged goods or parts for replacement and/or repair. However, Customs will require a surety or warranty bond equivalent to 100 percent of custom duties paid, valid for one year from the date replacement goods are being imported. This would ensure that damaged goods would then be exported within the following month from the date replacement goods was re-imported.
Article 141 does not mention replacement parts - it refers to goods or products. However, the Customer Services Division of Colombian Customs has confirmed that this article covers all procedures for warranty imports including replacement parts and components. When processing damaged export parts and replacement import parts, the parts must be precisely identified, i.e. description of the items, their serial numbers, reference, etc.
Several general principles are important for effective management of intellectual property rights (IPR) in Colombia. First, it is important to have an overall strategy to protect IPR. Second, IPR is protected differently in Colombia than in the United States. Third, rights must be registered and enforced in Colombia, under local laws. Companies may wish to seek advice from local attorneys or IPR consultants. The U.S. Commercial Service can often provide a list of local lawyers upon request.
It is vital that companies understand that intellectual property is primarily a private right and that the U.S. government generally cannot enforce rights for private individuals in Colombia. It is the responsibility of the rights' holders to register, protect, and enforce their rights where relevant, retaining their own counsel and advisors. While the U.S. government is willing to assist, there is little it can do if the rights holders have not taken these fundamental steps necessary to securing and enforcing their IPR in a timely fashion. Moreover, in many countries, rights holders who delay enforcing their rights on a mistaken belief that the U.S. government can provide a political resolution to a legal problem may find that their rights have been eroded or abrogated due to doctrines such as statutes of limitations, or unreasonable delay in prosecuting a law suit. In no instance should U.S. government advice be seen as a substitute for the obligation of a rights holder to promptly pursue its case.
It is always advisable to conduct due diligence on partners. U.S. companies should consider the business objections and compliance history of the partner to protect and honor IPR requirements. Additionally companies should give their Colombian partners clear incentives to honor the contract. A good partner is an important ally in protecting IPR. Keep an eye on your cost structure and reduce the margins (and the incentive) of would-be bad actors. Projects and sales in Colombia require constant attention. Work with legal counsel familiar with Colombia laws to create a solid contract that includes non-competition clauses, and confidentiality/non-disclosure provisions.
It is also recommended that small and medium-size companies understand the importance of working together with trade associations and organizations to support efforts to protect IPR and stop counterfeiting. There are a number of these organizations, based in Colombia and the U.S. These include:
In Colombia, regulations for the protection of IPR are in place. However, U.S. companies have concerns related to their enforcement. Particularly, companies in the pharmaceutical, music recording, computer, electronics, and software industries have encountered widespread piracy and counterfeiting of their products over many years.
Software protection is especially a difficult area for enforcement. Estimates indicate that the piracy level may be above 50 percent, and trade losses due to software piracy are calculated at around USD 136 million. However, the government has been stepping up efforts in recent years, in order to tackle the problem, and thus defend legal manufacturers. Such efforts have helped to reduce somewhat the piracy level in Colombia and maintain the ranking of the country among those with the lowest piracy rates in the region. U.S. companies operating in Colombia have acknowledged such efforts. However, Colombia has remained on the Special 301 Watch List during 2010.
Colombia, a WTO member, has ratified legislation to implement its obligations under the Uruguay Round Agreement on Trade-Related Aspects of Intellectual Property Rights. Colombia is also a member of the World Intellectual Property Organization (WIPO), the Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Literary and Artistic Works, the Treaty on the International Registration of Audiovisual Works, and the 1978 Union for the Protection of New Plant Varieties, and a signatory to the Patent Cooperation Treaty.
Colombia has also addressed bilateral IPR issues in the CTPA which is currently under consideration by the U.S. Congress. However, even though Colombia may be able to regulate the issue, the problem of enforcement persists.
The regulatory system itself may not be the ideal structure in order to act in a coordinated manner to tackle the problem. On the one hand, the registration and administration of IPR are carried out by four different government entities. The Superintendent for Industry and Commerce (SIC) acts as the Colombian patent and trademark office. This agency also acts as the IPR policy developer. The Colombian Agricultural Institute (Instituto Colombiano de Agricultura - ICA) is in charge of the issuance of plant variety protection-related and agro-chemical patents. The Ministry of Social Protection is in charge of the issuance of pharmaceutical patents, while the Ministry of Justice is in charge of the issuance of literary copyrights. Each of these entities suffers from significant financial and technical resource constraints.
Enforcement is carried out by another series of agencies including: the Tax and Customs Directorate (DIAN), the Prosecutor General’s Office, the National Police, and the Judiciary. Officials within these agencies often do not have a good understanding of IPR issues and of the severity of the offences committed. Periodically, the Economic Section recommends candidates for U.S. PTO training in Washington, DC. The U.S. Commercial Service offers IPR training workshops for Colombian judges, prosecutors and customs officials. Companies are encouraged to participate to teach the audience how to determine infringements on their patents or trademarks.
Optical disc piracy of music and film entertainment product is extensive. The publishing industry also suffers from widespread piracy, mostly in the form of illegal photocopying of academic textbooks in and around university and school campuses. Although Colombia has one of the lowest software piracy rates in Latin America, piracy of both business and entertainment software continues to cause commercial harm to legitimate industry.
Colombia has taken steps to increase penalties for the circumvention of technological protection measures. Unfortunately, law enforcement raids have not created a deterrent effect. Pirated products are distributed through hundreds of stalls in flea markets. Industry representatives have complained about judges’ perceived lack of knowledge of intellectual property protection.
In 2009, the National Copyright Directorate spent considerable resources in modernizing its technological platform to allow for the online registration of works subject to copyright and related rights. These efforts allowed for 43 percent of all registries from January through September of 2009 to be carried out online. In addition to registration, various other procedures can be carried out through the National Copyright Directorate’s website at http://www.derechodeautor.gov.co/htm/Tramites/tramites.htm.
The patent regime in Colombia currently provides for a 20-year protection period for patents; a 10-year term for industrial designs; and 20- or 15-year protection for new plant varieties, depending on the species. However, U.S. companies have expressed concern that the GOC does not provide patent protection for new uses of previously known or patented products. In 2002, the GOC issued Decree 2085, which improved the protection of confidential data for pharmaceutical and agro-chemical products. Colombia is a member of the Inter-American Convention for Trademark and Commercial Protection. Various procedures associated with industrial property, patent and trademark registration have been made available online and can be accessed through SIC’s website at http://www.sic.gov.co/index.php?modulo=Tramites/Propiedad/Tramites_propiedad&tam=900
U.S. companies should take care in selecting their Colombian partners. U.S. small and medium sized businesses can save time and money by contracting with the U.S. Commercial Service to perform an International Partner Search (IPS) to find pre-qualified global partners who are already interested in their products and services. The U.S. Commercial Service can generate a customized International Company Profile (ICP) to evaluate your potential business partner. Researched and prepared by our trade specialists, ICPs enable U.S. small and medium-sized businesses to more effectively assess overseas companies. To contract for an IPS or an ICP, visit http://export.gov/usoffices/index.asp to find the closest U.S. Commercial Service office.
Prohibition against doing business with Specially Designated Narcotics Traffickers (SDNTs): On October 21, 1995, then President Clinton signed Executive Order 12978 entitled "Blocking Assets and Prohibiting Transactions with Significant Narcotics Traffickers,” which blocks all property subject to U.S. jurisdiction in which there is any interest of members of the various Colombian drug cartels. In addition, the order blocks the property and interest in property of persons who have been determined to play a significant role in international narcotics trafficking centered in Colombia or determined to materially assist in or provide financial or technological support for, or goods or services in support of, the narcotics trafficking activities of persons designated in the Order. It is illegal for U.S. citizens to buy, sell, trade, give away, or otherwise engage in transactions involving persons and companies designated pursuant to the Order, who are referred to Specially Designated Narcotics Traffickers or SDNTs.
A list of the names of such persons and companies is available from the Office of Foreign Assets Control (OFAC), Department of the Treasury, Washington, D.C. 27220, Tel: (202) 622-2520, or via Internet: http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx. The U.S. Commercial Service recommends that companies check the OFAC list every three months at a minimum and conduct an ICP on their business partner once a year to ensure compliance with the guidelines.
U.S. companies and individuals doing business in Colombia should be aware of the above Executive Order aimed at curtailing the money laundering operations of the Colombian drug cartels. SDNTs include entities or individuals directly involved in the drug trade, companies or front companies they own, and companies or individuals, which supply or do business with any of the preceding. U.S. companies found doing business with SDNTs will be notified by OFAC to cease and desist. Failure to do so can result in financial penalties and criminal prosecution. Most established Colombian companies are not involved in the drug trade. Nonetheless, in addition to doing financial background checks on potential business partners, U.S. companies should also contact OFAC to obtain the most current listing of SDNTs.
Recently the Colombian government regulated the financial, commercial, credit and services personal information managed by information companies through the “Habeas Data” law (Ley 1266 de 2008). One of the most important changes is that, before the law, bad “behavior” on the personal financial and commercial obligation history was maintained for at least four years in the information management companies’ data bases. This law ensures every person’s right to clear bad credit history information after a year in order to have access to credits and services on the financial and commercial sectors. Otherwise, in many cases, it was necessary for a person to wait for four years to have access to those services and credits. Therefore, U.S. companies need to be prudent when checking the financial backgrounds of small companies owned by individuals as adverse credit information is maintained on a person for only one year as opposed to four years.
U.S. companies bidding on major government, or even private sector, projects/procurement and those entering into joint ventures or other long-term contractual arrangements should seek local legal advice. Also, companies that are concerned about the protection of intellectual property such as trademarks, copyrights, and patents should also seek legal counsel before entering the Colombian market.
There are a number of good Colombian law firms that specialize in various aspects of commercial law. Additionally, a number of major U.S. firms who operate internationally have affiliate arrangements in Colombia. Several legal and business services providers in Colombia are found on the U.S. Commercial Service’s website: www.export.gov/colombia.