Colombia: USA — Colombia Free Trade Agreement: Impact On Machinery, Pharmaceuticals, Vehicles And Financial Services

The approval and signing into U.S law of the USA-Colombia Free Trade Agreement (the "FTA") that took place in 2011, presents a historical opportunity to strengthen the commercial ties between Colombian and American entrepreneurs. Notwithstanding the fact that the FTA covers a great number of different economic sectors, here we present some of the most significant issues in four specific sectors: machinery and industrial products, vehicles, pharmaceuticals and financial services.

1. Machinery and Industrial Products:

  • Machinery: Colombian machinery tariffs currently average 9.4%, ranging from zero to 20%. More than 66% of U.S. machinery exports to Colombia will receive duty-free treatment within five years of implementation of the FTA. Tariffs on an additional 4% of machinery exports to Colombia will be eliminated over five years and tariffs on the remaining 30% of machinery exports will be eliminated in equal cuts over ten years
  • Energy Equipment: Colombia will eliminate its tariffs on 52% of U.S. energy equipment exports immediately upon implementation of the FTA. Tariffs on an additional 6% of exports will be eliminated over five years, and tariffs on the remaining 42% of exports will be eliminated over ten years.
  • Tools: Colombia will eliminate its tariffs on 36% of U.S. tool exports immediately upon implementation of the FTA. Tariffs on an additional 30% of exports will be eliminated over five years, and tariffs on the remaining 34% of exports will be eliminated over ten years.

2. Pharmaceutical Industry:

The Intellectual Property chapter contains important provisions regarding trademarks, copyrights, patents and other intellectual property rights, and it aims to extend the protections that are currently contained in the WTO's Trade Related of Intellectual Property Rights Agreement (TRIPS). Some of the important elements of the FTA affecting the pharmaceutical industry include:

  • Test Data Protection: The FTA provides temporary and exclusive protection of test data for the information's owner, even in those cases where third parties have known such information in good faith. In case of pharmaceutical test data, said protection is granted for 5 years counted from the date of marketing approval.
  • Compensation for unreasonable delays: With respect to any pharmaceutical product that is protected by a patent, the FTA provides that each party may make a restoration of the patent term to compensate the patent owner for unreasonable curtailment of the effective patent term, if said delay results from the marketing approval process of the product by the party.
  • Second Medical Use Patent: The FTA does not provide any modification or changes to the current Colombian regulation regarding secondary medical use patents. As a result, according to the current legislation, secondary medical uses are not patentable in Colombia.

3. Vehicles

  • Customs Duties: The FTA provides tariff reduction for the importation of vehicles to Colombia, which will be carried out gradually up to 10 years, depending of the type of vehicle. During that time, the applicable tariff will be reduced from 35% to 0%.
  • Importation of used vehicles: The FTA provides an exception to the National Treatment principle regarding to the control over the importation of used vehicles. Accordingly, the FTA allows the Government of Colombia to ban the importation of certain used vehicles from the USA, so it can comply with the Automotive Agreement signed between Colombia, Ecuador and Venezuela, within the Andean Community framework.

4. Financial Services:

The Financial Services chapter is self-contained which means that all issues related to financial services are addressed in such chapter. When some aspects in other chapters of the FTA apply to financial services, a concrete reference to it is made in the Financial Services chapter.

  • Establishment of Financial Institutions: Colombia agreed to allow the establishment of branches of U.S. banks and insurance companies in its territory. This commitment does not apply to other types of financial institutions and will become effective four years after the treaty comes into effect. Colombia also reserved the right to determine the circumstances and features according to which branches may be established in the country. However, this regulation cannot impair or otherwise unduly restrain market access.
  • Insurance: Under the FTA Colombian residents should be able to purchase insurance policies from U.S. insurance companies as well as the possibility for those companies to offer such policies four years after the FTA comes into effect. The commitment to allow consumption abroad is made on the basis of a "negative list", meaning that by general rule, consumption of all insurance policies internationally will be allowed except those that are explicitly excluded.
  • Collective Investments Schemes: The two countries agreed that after the FTA comes into effect, they will allow collective investment scheme administrators established in their territories to hire other financial institutions for diverse services. In accordance with these specific commitments, the U.S. and Colombia will permit financial institutions organized outside their territories (but located in either one of the two countries) to provide investment advice and portfolio management services to collective investment schemes located in their territories. Colombia also committed to issue regulations in order to allow the previously mentioned subcontracting in favor of U.S. companies.

Our Customs and International Trade team will gladly provide more information about all the effects entailed by the approval of the FTA, and it is in capacity to provide all the assistance and advice necessary in order to take full advantage of it.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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