GABRIEL DUQUE MILDENBERG Viceminister for Foreign Trade June 7th, 2010

1. GABRIEL DUQUE MILDENBERGViceminister for Foreign TradeJune 7th, 2010 COLOMBIAN TRADE POLICY AND LOGISTICS

2. Content Colombia: A Top Global and Regional Reformer Trade Policy Tariffs versus Logistics Costs Logistics in Colombia

3. Colombia, a permanent pro-business reformer 83 to 66 among 175 economies * * * 6° top reformer 66 to 53 among 181 economies * * * * * 8° top reformer 53 to 37 among 183 economies * * * * * * * * 7° top reformer • For a third year in a row, Colombia was a top reformer promoting improvements for the investment climate • Top reformer in the Latin American region for the past 5 years, Vienna,April 22d, 2009

4. Most “business friendly” country in Latin America 2009-2010 Rankings of latinamericaneconomiesontheease of doingbusiness (Doing Business 2010) Source: Doing Business Database

5. We have made big progress,but there is still much more to be done Colombia´s rankings on the 10 topics covered in Doing Business 2010 Source: Doing Business Database

6. What have we done in order to have a better investment climate • Presidential mandate • Technical assistance from WB & IFC • Presidential directive • Designation of project manager • Strong convincement of the public institutions and the private sector on the usefulness of facilitating the entrepreneurial activity while strengthening effective regulation. • Prioritization of key reforms • Leadership from the Ministry to coordinate and synchronize efforts and tasks at national and local levels to attain improvements on identified Doing Business issues and to comply with set deadlines and goals. • Some of the parties involved: National Planning Department, Ministry of Social Welfare, Ministry of Justice, Finance Ministry, Ministry of Environment, Housing, and Territorial Development, Ministry of Transport, Congress, Judicial Administration, National Tax Administration, Financial Superintendence, Superintendence of Companies, Superintendence of Industry and Commerce, Chambers of Commerce Association (Confecámaras), Chamber of Commerce of Bogotá, the Mayor of Bogotá and his cabinet

7. II. Trade Policy

8. II. Trade Policy Parallel to ideological debates, free trade agreements continues growing…

9. II. Trade Policy … in the same way trade … and foreign direct investment FDI/GDP

10. II. Trade Policy However, trade and investmente are only one part of the ecuation … Source: IMF

11. Confidence II. Trade Policy Security under a democratic framework Social Cohesion Investors Confidence Strategies • Reforms implemented to improve the business climate: • Country strategy for competitiveness: • Focus on global opportunities and local strengths • Free Trade Zones & Legal Stability Contracts • Formalization of the economy and entrepreneurship • Doing Business

12. II. Trade Policy • As an small economy, Colombia needs an insertion estrategy to global economy : • Maximize benefits from an estable and long run preferential access to foreign markets. • Attract more investment. • Diversify colombian exports, by markets and products. • Exploit comparative advantages and incorporate new tachnologies.

13. 3 Simplify and improve trade regulaction 4 Institutional coordination II. Trade Policy Farsight “In 2010 Colombia will reach US$40,000 millions of exports with less concentration by markets, in labor intensive sectors and 45% of no primary goods. 2 1 Promote value added exports Negotiate and take advantage of FTA and BIT

14. II. Trade Policy Colombia has tripled exports in the last years Exports US$ Millions Source: DANE & SIGOB

15. II. Trade Policy Colombia has quadrupled FDI in the last years Foreign Direct Investment US$ Millions Source: Banco de la República

16. II. Trade Policy Herfindahl- Hirschman Index (HHI) for colombian exports by markets, shows some diversification, but there is a high concentration yet. HHI is equivalent to export equal amounts to: 4 countries 6 countries Source: DANE-DIAN, MCIT-OEE

17. II. Trade Policy In Latin America, Colombia is in a middle point in markets concentration, although shows the biggest diversification in the last years Latin America exports HHI, by markets, and change Índice de concentración de las exportaciones y cambio en países de América Latina IHH 2006 IHH Change 2000 - 2006 * HHI Colombia & Perú 2007 Source: ALADI, MCIT-OEE

18. II. Trade Policy Exports by products shows an important concentration too. HHI is equivalent to export equal amounts of: 9 products 11 products * HS 4 digits Source: DANE, DIAN, MCIT-OEE

19. II. Trade Policy

20. II. Trade Policy • Free Trade Agreements Agenda: • Objectives: • (i) Renovate and extend the countries sample • (ii) Update the trade flows in the last five years. • To prepare the new agenda we used 20 countries and 20 variables in five categories: • Strength current export markets • Potential markets for colombian exports • Attract foreign direct investment • Political feasibility • Willingness to free trade

21. III. Tariffs versus Logistics Costs

22. III. Tariffs vs Logistics Costs Source: Mesquita, Volpe & Blyde (IADB 2008)

23. III. Tariffs vs Logistics Costs Bogota (25% of GDP), has an additional geographic Ad Valorem tariff of 42%* *Ratio Cartagena – Bogotá freight to implicit import tariff

24. III. Tariffs vs Logistics Costs Regression line Note: Implicit Freight is the ratio of CIF to FOB imports. Implicit price is the ratio of the value to volume imports Source: U.S. Census Bureau

25. III. Tariffs vs Logistics Costs Source: Mesquita, Volpe & Blyde (IADB 2008)

26. Pilars LPI: Efficiency of the clearance process by customs and other borders agencies. Quality of transport and information technology infrastructure for logistics. Lease and affordability of arranging international shipments. Competence of the local logistics industry Ability to track and trace international shipments. Domestic logistics cost. Timeliness of shipments in reaching destination Factors determining LPI: Quality of infrastructure Competence of private and public logistics service providers Customs and other border agencies Corruption and transparency Reliability of the trading system and supply chains III. Tariffs vs Logistics Costs Logistics Performance Index (LPI) Source: WEF(2008)

27. Pilars ETI: Domestic and foreign market access. Efficiency of custom administration.  Efficiency of export-import procedures.  Transparency of border administration.  Availability and quality of transport infrastructure.  Availability and quality of transport services.  Availability and use of ICTs.  Regulatory environment.  Physical security  Factors determining ETI: Infrastructure  Market access Border administration  Business environment  III. Tariffs vs Logistics Costs Enabling Trade Index (ETI) Source: WEF(2008)

28. III. Tariffs vs Logistics Costs There is a high correlation between trade facilitation and logistics Source: WEF(2008)

29. III. Tariffs vs Logistics Costs Countries with low tariffs tends to have higher logisticsperformance … and higher trade facilitation Source: WEF(2008)

30. IV. Logistics in Colombia Current situation Challenges

31. IV. Logistics in Colombia A. Current situation Trade Logistics in the Global Economy 10 The logistics performance Index

32. IV. Logistics in Colombia A. Current situation 2007 Colombia had no Logistics National Policy All customs administration was with physical documents and authorizations required dealing with multiple institutions. Partial electronic processing There was no coordination among institutions for physical inspections 2010 Colombia has a Logistics National Policy that is been implemented Customs administration documents and procedures are digital and using a ‘single window’ (VUCE/MUISCA) Simultaneous inspection procedures for exports through ports, work on improvement of risk assessments and plan for the provision of scanners

33. IV. Logistics in Colombia A. Current situation (ETI index) (% countries below) Competitive advantage Competitive disadvantage Source: WEF(2010)

34. IV. Logistics in Colombia A. Current situation (ETI index) (%countries below) (%countries below) (%countries below) (%countries below)c Competitive advantage Competitive disadvantage Source: WEF(2010)

35. IV. Logistics in Colombia A. Current situation (ETI index) (%countries below) (%countries below) (%countries below) (%countries below) Competitive advantage Competitive disadvantage Source: WEF(2010)

36. IV. Logistics in Colombia A. Current situation Logistics National Policy CONPES 3547 (27/OCT/2008) Related to the National Competitiveness System Diagnostic - Costs DNP 2007

37. IV. Logistics in Colombia A. Current situation Logistics National Policy CONPES 3547 (27/OCT/2008) Recommendations Institutional strengthening -comité técnico de apoyo para la facilitación de la logísitca del comercio y del transporte – Comifal Information on Logistics Infrastructure - Identification, organization and promotion Trade Facilitation – simultaneous inspections, technology, regulation Information Technology

38. IV. Logistics in Colombia B. Challenges • Three challenges: • Efficiency of custom administration • Efficiency of import export procedures • Transport and communication infrastructure

39. IV. Logistics in Colombia B. Challenges: Custom administration VUCE: Colombian Single Window (19 control agencies) SAE MUISCA SISPAP SIVICOS General information to export and import SICEX Integrating System • Today VUCE has 511.000 annual transactions, 1.400 daily average • There are registered 30,000 users. IFC technical cooperation Now optimization of 19 control agencies participation PORT Source: MCIT

40. IV. Logistics in Colombia B. Challenges: Custom administration I. Risk assessment - better intelligence systems for selectivity (WB) Custom inspections II. Simultaneous physical inspection systems and coordination among control agencies III. Technology – use of scanners Source: “Sociedad Portuaria de Cartagena”

41. IV. Logistics in Colombia B. Challenges: import export procedures Efficiency of import export procedures Saving time Countries 175 183 Source: Doing Business, World Bank

42. IV. Logistics in Colombia Logistic Zones

43. IV. Logistics in Colombia B. Challenges: Transport & communications infrastructure Logistics Corridors Plan Source: DNP

44. IV. Logistics in Colombia B. Challenges: Transport & communications infrastructure Logistics Platform Plan Source: DNP

45. IV. Logistics in Colombia B. Challenges: Transport & communications infrastructure Colombian ICT Plan Source: MITIC

46. Closing remarks • Colombia has managed dramatic economic and social changes in the last few years, is committed to its effective insertion into the World economy and to the creation of a better business environment • Trade Policy and advances in Logistics are complementary and necessary for competitiveness • Logistics dimensions are varied and require substantial interagency work • In the case of Colombia, Logistics and Trade Facilitation are very much on the agenda of the country facing many challenges • Advances requiere the commitment of both the private and the public sector

47. GABRIEL DUQUE MILDENBERGViceminister for Foreign TradeJune 7th, 2010 COLOMBIAN TRADE POLICY AND LOGISTICS