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Cablegate: Trade Minister States Colombia's New Market Based

This record is a partial extract of the original cable. The full text of the original cable is not available.





E.O. 12958: N/A

Sensitive but unclassified -- please protect accordingly.

1. (SBU) Summary. On February 16, 2004, the Colombian
government implemented a new import system that provides
tariff reductions for importers that purchase domestic
production of corn (both white and yellow), grain sorghum,
rice, soybeans and cotton. The new system replaces the
restrictive import licensing and domestic purchase
requirements that were maintained for a wide range of
agricultural products (including poultry, wheat, corn,
barley, rice and oilseeds) under a WTO waiver that expired at
the end of 2003. Trade Minister Botero acknowledged at a
February 23 meeting that the new system was not fully trade
liberalizing, but emphasized that this was as far as the GOC
could go at this time. He added that the new system would be
subject to discussion during the FTA negotiations.
End Summary.

2. (SBU) Trade Minister Botero met with Ambassador Wood
on February 23 to discuss Colombia's new import system for
six agricultural products (white and yellow corn, grain
sorghum, rice, soybeans and cotton) formerly protected by
restrictive import licensing requirements. The voluntary
system, implemented February 16, 2004, provides tariff
reductions for importers that purchase local production and
replaces a more restrictive system that required importers to
demonstrate purchases of local production for a wide range of
products (including poultry, wheat, corn, barley, rice and
oilseeds) before they were authorized imports. Colombia was
obligated to dismantle the previous system when the waiver it
had in the WTO expired on December 31, 2003. Out-going Trade
Vice Minister Claudia Uribe (soon to be Colombia's Ambassador
to the WTO), Agriculture Vice Minister Andres Arias, Lead FTA
Negotiator Amb. Hernando Jose Gomez and Ag negotiator Ricardo
Torres also participated in the meeting. AGATT and Econcouns
accompanied the Ambassador.

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The New System

3. (SBU) On February 16, the Ministry of Commerce Industry
and Tourism published decree 430 establishing the Public
Mechanism for Administration of Agricultural Quotas. As
explained by Vice Ministers Uribe and Arias, the new,
voluntary system will establish tariff-rate quotas (TRQ's)
based on historical import levels for white and yellow corn,
grain sorghum, soybeans, rice and cotton. The TRQ levels
will then be auctioned off at the existing Agricultural
Commodities Board. The bids must state the ratio of imports
to domestic purchases that will be made by each importer.
Those offering to purchase the most domestic production will
win the right to purchase the imports bid at a reduced tariff
rate, determined by a mathematical algorithm based on the
ratio of domestic purchases to imports offered. Imports
beyond the TRQ are allowed, but face the general tariff rate
(the Andean price band duty for corn, sorghum, and soybeans),
and the MFN tariff rate for cotton (10 percent) and rice (80
percent - the tariff was raised from 20 percent in December
2003). The Vice Ministers also presented copies of the new
decree as well as a GOC analysis of the new program (faxed to
the desk).

GOC Rationale for New System

4. (SBU) Minister Botero defended the new system as
WTO-consistent because it eliminated previous absorption
requirements and lowered the number of products benefited
from 75 to 6. He added that the new system was a transition
to a more market-oriented approach, while acknowledging that
the new system stopped short of free trade. He then stated
flatly that it was the best the GOC could do at this juncture
given the political realities it faced. Botero and Vice
Minister Uribe both pointed out that the new system decreased
the protection for some sectors, such as rice, where the
previous combination of a small quota and restrictive import
licensing requirements closed the sector to imports. They
also added that the products protected were the most
politically sensitive in agriculture. The new mechanism was
a way to bring these protected sectors partially into the
free market and thus prepare them for eventual free trade
under an FTA.

The system is open for negotiation under the FTA
--------------------------------------------- ---

5. (SBU) The Ambassador stated that we would review the new
GOC policy, but noted that upon initial inspection it seemed
that the GOC had created a new protective mechanism to
replace a more restrictive one that had expired. While
noting that reducing the universe of items covered by the new
system from 75 to 6 was indeed a positive step, the six
remained protected and we had some questions about the WTO
consistency of the new program. The Ambassador added that
taking such a measure, as well as increasing certain
agricultural tariffs in late 2003, did not send a positive
message about Colombia's willingness to open its markets on
the eve of our FTA negotiations.

6. (SBU) Minister Botero explained that he had requested
this meeting to establish Colombia's good faith as a
negotiating partner. His intent was to explain the new
system and highlight that it was a transitional measure aimed
at introducing the market into previously protected areas.
Botero repeated on several occasions that the new system was
open to negotiation during FTA talks. He added that the FTA
talks would provide him the political cover to dismantle the
protection that these sectors currently enjoyed. In a
negotiation, he would be able to open up these sectors by
balancing those concessions with benefits gained. Botero
reiterated his personal commitment to liberalizing trade and
underscored that the negotiating table would give him the
political legitimacy to open up the Colombian economy.

7. (SBU) Comment. The political pressures Botero mentioned
are real. Both he and Vice Minister Uribe emphasized
repeatedly that this was not a carefully planned move to
raise protection on the eve of negotiations, but an effort to
open up the heavily protected agricultural sector as much as
the political atmosphere would bear. The new system is, in
fact, an improvement over the previous restrictive mechanism
that expired. Botero,s commitment to discuss this issue at
the negotiating table is real, as is the assertion that
negotiations provide him political cover to do so. End

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