Business and Industry Advisory Committee to the OECD Tel. +33 (0)1 42 30 09 60

13/15 Chaussée de la Muette Fax +33 (0)1 42 88 78 38

75016 Paris email: biac@biac.org

France www.biac.org

Colombia-OECD Accession Discussions

BIAC Statement to the OECD, June 2014

This paper is based on comments received to date from BIAC members and BIAC’s observer

organisation in Colombia, the National Business Association of Colombia (ANDI). Additional issues

may be raised at later stages throughout Colombia’s accession process to the OECD. This paper does

not necessarily reflect a final BIAC position.

1. Introduction: The importance of outreach and enlargement

As stated in BIAC’s January 2014 consultation with Ambassadors, business seeks open and

competitive markets that facilitate trade, investment and competitive neutrality; bold and coherent

structural reforms in product and labour markets; predictable international and domestic tax policies

at levels conducive to investment; and regulatory approaches whose costs and impacts are

understood and considered in all decisions concerning the function of markets.1 Urgent actions are

needed in all of these areas to encourage companies to invest, innovate and create more

employment BIAC looks to the OECD for leadership in thought, knowledge and action to advise

governments – in advanced, emerging and developing economies alike – on appropriate policies that

will unleash growth and development. We encourage governments to put to good use OECD

instruments, standards and good practices for the benefit of a level playing field in global markets,

thereby contributing to the resilience of our economies.

In this context, BIAC welcomed the 30 May 2013 OECD Council adoption of a Resolution on

strengthening the OECD’s Global Reach, which opened membership talks with Colombia and Latvia.

On 19 September 2013, the 34 OECD Members approved a Roadmap to the accession of Colombia

to the Organisation, which sets the stage for in-depth reviews by several OECD committees of

Colombia’s preparedness for membership.

In order to contribute to Colombia-OECD accession discussions, BIAC hereby provides business

perspectives on a selected list of issues for consideration by the relevant OECD bodies, and we stand

ready to provide further inputs throughout the process.

1 BIAC (2014) “Reinforcing the case for private sector-led growth, investment and jobs”: Discussion paper for the

consultation with the OECD Liaison Committee.

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2. Economic Overview and Business Environment of Colombia

Economic projections for Colombia point to a largely positive outlook characterised by a high growth

rate of 4.2% in 20142, falling unemployment3, and the lowest level of inflation in more than 50

years4. Colombia’s considerable economic progress owes much to the strong reform agenda

implemented in recent years. The World Bank’s “Doing Business 2014” report highlights Colombia as

holding a leading position in the Latin American and Caribbean region, noting that the country has

undertaken 27 important regulatory reforms since 2005 which have contributed to its rise from 66th

place in 2006 to 43rd place in 2014.5

Despite Colombia’s impressive economic rise, a number of challenges remain which necessitate

further reforms in order to ensure the sustainability and shared benefits of its growth trajectory.

BIAC appreciates the OECD “Economic Assessment of Colombia” (2013) which urges Colombia’s

policymakers to boost productivity growth through structural policies such as enhancing access to

financial markets, promoting private investment and fostering high quality infrastructure. The report

also notes that, despite Colombia’s increasing employment rate, unemployment still remains high by

OECD and Latin American standards. Improving access to quality education for all and enhancing

training programmes should be encouraged in order to improve labour supply and bolster

productivity, while also serving to reduce income inequality. Recognising that the tax system raises

little revenue and redistributes little, tax reforms are needed that raise more revenue, such as

through encouraging individuals and firms to participate in the formal economy, thereby supporting

more inclusive growth and boosting the use of public funds to stimulate private investment in

infrastructure and other essential services.

BIAC’s Observer organisation, the National Business Association of Colombia (ANDI), reports several

additional challenges facing domestic business. The main issue reported is related to the

manufacturing sector, which shows low production and slow sales growth mainly due to the

international economic environment. According to manufacturing executives and entrepreneurs,

however, business obstacles include unfair competition, high costs of raw materials, energy and gas,

as well as infrastructure and logistic costs, while smuggling and labour market problems also present

significant challenges. An important priority for the manufacturing industry is the investment in

projects that will enhance their competitiveness, including the modernisation of technology,

innovation, plant expansion, equipment replacement, and expansion of the internal market.6

2 IMF (2013) “World Economic Outlook: Transitions and Tensions”. Available here

3 According to the National Administrative Department of Statistics (DANE), the unemployment rate was 8,4% in December

2013, down from 9,6% in December 2012 4 DANE data shows inflation stood at 1.94% in 2013.

5 World Bank (2013) “Doing Business 2014: Understanding Regulations for Small and Medium-Size Enterprises”,

Washington DC, World Bank Group. Available here 6 ANDI (2013) “Encuesta de Opinión Industrial Conjunta”. Available here

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3. Policy Reform Priorities for Colombia’s Accession to the OECD

Echoing many of the recommendations in the OECD’s “Economic Assessment of Colombia”, but also

highlighting additional priorities, BIAC and ANDI call for the development of Colombia’s

competitiveness through improved infrastructure; strengthened institutions; more effective capital

markets; an improved education system that meets labour market needs; greater commitment to

implementing trade agreements and greater efficiency in customs; a level playing field for

competition; increased investment in science, technology and innovation; reduced costs for

transportation and logistics; and significant efforts to reduce tax evasion and informality.

For the specific purpose of this paper, we wish to highlight the following issues as timely and

relevant to the Colombia-OECD accession discussions:

a) Market Access

Trade of goods and services have represented on average 35% of Colombia’s GDP in recent years,

making the country the world’s 39th largest exporter and 32nd largest importer (excluding intra-EU

trade).7 Colombia’s engagement in global trade and value chains should nevertheless be stepped up

in order to benefit from the growth and jobs unleashed by trade and investment.

According to the ANDI, the main limitations and challenges facing Colombia’s market access is the

country’s lack of progress in competitiveness, due mainly to high energy costs, high raw materials

costs8, VAT on capital goods, poor infrastructure and customs control issues.9

Barriers to trade in value-added extend beyond border measures. For instance, certain regulations –

such as those specific examples described in the following paragraphs – can undermine the ability of

internationally-operating businesses, both Colombian and foreign, to undertake long-term

investments and trade commitments that would favour the Colombian economy as well as its

trading partners.

Energy costs

Colombia has one of the highest energy costs in Latin America. Even though electricity and gas

surtaxes of 20% and of 8.9%, respectively, were eliminated, these costs remain high compared to the

US, Peru, Ecuador, Mexico, Argentina and Brazil. ANDI has been highly involved on this matter,

leading a study together with the public and private sectors that has identified specific opportunities

for improvement in order to reach a price that would satisfy the energy providers, and at the same

time enhance national and international competitiveness of the private sector. These identified

energy issues are now to be implemented. A similar study by ANDI is due to be carried out for the

gas sector.

7 World Trade Organisation (2014). Available here .

8 ANDI highlights the importance of permanently eliminating import tariffs of raw material and capital goods that are not produced in the country. 9 ANDI (2013) “Agenda para el salto en competitividad” Available here

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Fiscal issues

ANDI points to the benefits of the discount of VAT on capital goods (i.e. machinery and equipment,

computer equipment, communications and transportation, loading and unloading, as long as they

are acquired for industrial and agricultural production and service provision) as a key factor which

could generate more investments to modernize plants and generate competitiveness. In 2012 there

was a fiscal reform which allows a partial discount of VAT. However, this reform does not go so far as

ANDI’s original request of a full discount of VAT.

In addition, as suggested by the OECD Review of Telecommunication Policy and Regulation in

Colombia (2014), the Colombian authorities should eliminate the additional VAT on

telecommunication services in order to foster competition.10

Colombia currently offers a VAT exemption for computers, tablets and other computing devices

below a specified price. Today, smartphones often substitute for such devices, but are still subject to

the full 16% VAT rate. BIAC members express that, at a minimum, smartphones (e.g. mobile phones

that offer greater functionalities than telco functions) should be afforded the same VAT exemption

as other computing devices. Elimination of the VAT would enable more Colombians to purchase

smartphones, thus enhancing digital connectivity for the overall population. Furthermore, the

potential government revenue loss by elimination of the one-time VAT revenue from a smartphone

sale would be offset rather quickly by other revenues, such as VAT collections on services (the

mobile plans) that are required for all such devices today, as well as increased income tax revenues

from incremental profits earned by distributors who sell more products.

Infrastructure

Infrastructure is another key limitation to Colombia’s competitiveness. According to the World

Economic Forum (2012-2013), Colombia is ranked number 94 out of 144 countries, mainly due to

poor quality of highways (ranked 126th) and port infrastructure (ranked 125th). In consequence,

transportation costs are very high in the country, reducing its competitiveness. ANDI emphasises the

urgency of implementing the government’s middle and long term infrastructure investment

programme: the Fourth Generation (4G) of the Road Concessions Program. This ambitious

programme includes 40 projects to build some 8,000km with a total investment of $25bn during the

course of the next seven years11. ANDI also highlights the need for implementing more immediate

measures that would reduce the high transportation and logistics costs of the productive sector.

These short-term measures include:

Toll payments: An electronic system in order to reduce time and fuel consumption.

Scales: An electronic weighing system that would avoid the intervention of the scale

controller and a time consuming interaction with the driver.

10

OECD (2014) “Review of Telecommunication Policy and Regulation in Colombia”, OECD Publishing. 11

World Finance (October 2013) “ANI lead Colombian road expansion”. Available here

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Information about highway conditions and the timeline of new highways that would allow

optimal routing and scheduling; avoiding delays and other costs.

The upgrading of airports, international seaports, land border checkpoints, and their access

roads.

Customs control

Business emphasises the importance of having an efficient and competent customs control, also in

line with the Bali agreement on trade facilitation in order to achieve a level playing field in the

Colombian market and ensure the appropriate allocation of customs controls.

It is noteworthy that the Administration of National Taxes and Customs (DIAN) will issue on April

2014 the New Customs Statute of Colombia. The New Customs Statute of Colombia meets the need

to harmonize the Colombian customs regulations with major international agreements such as the

Kyoto Convention (revised), the free trade agreements with the United States and the European

Community, and the determinations of international bodies such as the World Customs Organization

(WCO) and the World Trade Organization (WTO).

Likewise, this New Statute seeks to strengthen the risk management criteria in the exercise of

customs control, to promote the fight against illegal activities such as smuggling, money laundering,

financing of terrorism, and violation of intellectual property, and to ensure the protection of

environment, human health, border security, and broadly improve the efficiency and robustness of

the supply chain.

ANDI supports this major legal reform because it involves a transformation of Colombian customs

procedures, making them more simple, safe and accessible to foreign investors. For example, the

Colombian pay-tv industry expects that such reform will help to curb the illegal importation of

equipment used to unencrypt protected signals, also known as Free-to-Air (FTA) devices.

Automobiles

Scrapping Programme for trucks over 10,5T: In March 2013 the government decided to change the

rules for registering trucks over 10,5T of gross vehicle weight into the market. Before then, buyers

had two options to enroll new units in the market:

Scrap a unit of the same gross weight (called 1x1).

Pay a bail bond provision or fee which cost about 30% of the vehicle retail price. Although it

was expensive, 90% of enrollments were made by this way.

With respect to scrapping, there are a number of concerns regarding the administrative burdens,

delays and governance involved in scrapping vehicles and registering new ones.

Meanwhile, a government decision to suspend the fee has negatively impacted trade and

development of business in Colombia. The measure affects the competitiveness and efficiency of

transport and logistics. The registration of vehicles over 10.5 tones, due to the restriction imposed

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since March 2013, has declined compared with 2012, by 30% for trucks and 78% for tractor trucks,

while total vehicle registration in Colombia, for the same period, decreased by 5%. It is important to

note that 50% of trucks are produced in Colombia and tractors are imported.

There is concern that these measures introduced by the government to control the registrations of

new trucks in the market violate the principles of commercial law and international agreements

signed by Colombia.

Biofuels policy: Colombia has announced blends of B20 diesel and E20 petrol by 2020 that will be

phased-in gradually in the coming years, though without homogeneous blends throughout the

country. The enforcement of mandatory blends for use by consumers is also intended, rather than

providing voluntary options to consumers. Most countries that promote the use of biofuels provide

voluntary consumer choice, which should act as a reference point for good practice in OECD-

Colombia accession discussions.

In Colombia, the Decree 4809 of 2011 encourages the increase of biofuel blends (biodiesel and

ethanol) by more than 10%. This Decree should take into account the national supply of biofuels,

environmental impacts, and the viability of the technology for the infrastructure, storage, transport

and distribution of the biofuel blends. Vehicles in Colombia are technologically suitable for mixtures

of up to 10%, but less so for blends above 10%.

Fuel quality and emission standards: Resolution 1111 (September 2013) will lead to Colombia setting

fuel quality of at least the European EURO IV standard, and will accept the equivalent US EPA10

standard, from 1 January 2015 onwards. ANDI reports that Colombia made significant investments in

technologies since 2010 in order to adapt to the improved fuel, and thus the term granted until 2015

could be considered sufficient.

Agriculture

Import tariffs: Import tariffs for agricultural products remain exceptionally high – reaching levels of

98%, compared to an average cross-industry import tariff of 8.8%. Such barriers to trade can

unnecessarily reduce the efficiency of the supply chain across different business sectors.12 Colombian

farmers complain that they pay an additional 50% over the international price for each kilo of

fertiliser.13

Following the farmers’ riots in Colombia in mid-2013, the Government stated that it would remove

high tariffs on 23 fertilisers and pesticides. However, this action still needs to be enforced and no

implementation timeframe was set. Without sufficient access to appropriately priced fertilisers and

pesticides, Colombia’s agricultural sector faces a probable decline in competitiveness due to the high

input costs of agricultural imports.

12

World Trade Organisation Available here 13

El Espectador. “Los dueños de los fertilizantes en Colombia” September 7, 2013 Available here

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Registration and control of chemical pesticides: Related to the point above, BIAC members express

concern that Colombia may not be bound by a common regulatory framework for the registration

and control of pesticides for agricultural use. In reaction perhaps to farmers’ complaints about the

price of pesticides, it is expected that the Colombian Government plans to remove the application of

Andean regional pesticide regulations (specifically Decisions 436 (1998) and 767 (2011) of the

Andean Commission). There is currently no certainty about rules for pesticide registration and

controls in Colombia, and this is not conducive to a business enabling environment for the industry

sector. Furthermore, if the Colombian Government implements a policy similar to that in Peru

whereby farmers can bypass evaluations and controls, there needs to be clarity on how human

health and the environment will be safeguarded.

While the cause for Colombia’s decisions on this issue appears to be with respect to farmers’

concerns regarding the prices of pesticides, it is important to consider that the Colombian Political

Constitution allows the Government to intervene in order to set prices for some products within

strategic sectors such as agriculture. Indeed, the Ministry of Agriculture has monitored industry

productions costs, profit margins and customers since 2006 on a monthly basis in order to avoid

price abuse, none of which has been found to date.

Alcoholic beverages and tobacco products

Smuggling: Recent estimates suggest that more than 60% of the spirits consumed in Colombia may

enter through illegal channels, which are not subject to tax.14 In the case of cigarettes, and according

to a recent poll by INVAMER, 19% of the total market enters Colombia illegally.15 These illegal

activities can be attributed to lax law enforcement and weaknesses in institutions (particularly in the

Special Custom Zone of La Guajira), which affect the proper functioning of the market and continue

to provide large profit margins for smugglers. Urgent efforts are required to tackle these illegal

activities.

Taxation of imported distilled spirits: Colombia maintains a discriminatory tax on imported distilled

spirits through the application of an arbitrary breakpoint. BIAC members report that this has the

effect of applying a lower tax rate per degree of alcohol to domestically-produced spirits than the

rate that applies to most imported spirits. For example, locally-produced spirits are dominated by

aguardiente bottled at 35% alcohol-by-volume (a.b.v.) or less, which faces a tax rate of Col$264 per

degree of alcohol. By law, most categories of distilled spirits that tend to be imported, as well as all

whiskeys in Colombia, must have a minimum alcohol content of 40% a.b.v. (see Decreto 1686 dated

August 9, 2012) and are, therefore, subject to a higher tax rate of Col$433 per degree of

alcohol. Thus, local producers of aguardiente have a significantly lower tax burden because (a) their

products contain less alcohol by volume, and (b) each unit of that alcohol is taxed at a lower rate.

Colombia has committed under its free trade agreements with Canada, the United States, and the

European Union to eliminate its discriminatory excise tax and bring it into compliance with its WTO

and free trade agreement obligations. As officials examine options to reform the current structure,

14

Euromonitor International “Size and Shape of Illegal Alcoholic Beverage Market in Latam” Available here 15

Invamer and Universidad EAFIT, “National Poll on contraband of cigarettes in Colombia” 22 April 2014.

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BIAC members urge Colombia to assess a single specific excise tax per degree of alcohol for all

distilled spirits products as a simple and effective way of eliminating the current discrimination.

Telecommunications services

Colombian telecommunication regulations should make good use of the guidelines and best

practices of the OECD countries. For that purpose, the recommendations of the OECD Review of

Telecommunication Policy and Regulation in Colombia (2014) should be promptly addressed by the

Colombian authorities in order to level the country’s telecommunication market conditions with the

standards followed by OECD countries.

These recommendations include structural policy reforms such as: forming an independent

regulator; fostering broadband infrastructure deployment; guaranteeing a level playing field for

competition in fixed, mobile and television markets; enforcing the law to foster competition and

avoid market distortions; promoting consumer interests; and reducing the sector’s tax burden.

Several of these recommendations echo the comments presented by BIAC to the OECD during the

drafting process of the OECD review.

b) Corporate Governance

Good corporate governance is important for ensuring the long-term sustainability of businesses and

the stability of capital markets. An appropriate level of transparency of financial and non-financial

information is essential to give a clear picture of a company’s performance, its ownership and

governance structure. Colombia has therefore implemented regulations that have made companies

aware of good governance practices. Many large Colombian companies and issuers of securities

have gone beyond the implementation of regulations in order to help both shareholders and

stakeholders to develop an in-depth knowledge of their corporate information, thereby helping

investors to make informed decisions.16

For example:

The Business Association Superintendence has helped to improve corporate governance of

SMEs and non-listed companies. Through an annual monitoring survey and educational

seminars, SMEs and non-listed companies have grown increasingly conscious of the

importance of corporate governance.

The Colombian Financial Superintendence has also helped listed companies to make

progress in implementing corporate governance regulations. In fact, the “Código Pais”

Report (November 2013) shows that many listed companies have adopted additional

measures that go even further than the specific regulations.17 Over 56% of financial

institutions were found to have adopted additional measures (such as inclusion of

16

ANDI has constructively contributed to BIAC activities on corporate governance. 17

Available online here

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references of performance of the executives in Management Reports, and creation of an

ethical line), while over 52% of companies in the rest of the economy have implemented

additional measures (such as introducing a conduct and ethics code).

Despite the strong efforts made by mostly large companies and issuers of securities, there remains

significant room for improvement of the corporate governance of SMEs and unlisted companies. It is

still difficult to access corporate information for SMEs in Colombia. Meanwhile, further efforts need

to be undertaken to raise awareness among unlisted companies about the importance of the Board

of Directors as a governing body of a company, as well as the rights of stakeholders.

BIAC encourages the OECD to further strengthen its co-operation with Colombia and involve the

country actively in discussions on the update of the OECD Principles for Corporate Governance,

which should be of value to both member and non-member countries. Future work and dialogue on

corporate governance and SMEs would be very helpful.

c) Labour market reform

Protection of union members

Disrespect for basic human and labour rights, including acts of violence against union members,

cause a severe human and economic cost to countries’ development. To cite one example, the US-

Colombia Free Trade Agreement (FTA), which entered into effect in 2012, faced years of delays due

to concerns over Colombia’s human and labour rights record. In this context, the US and Colombian

governments announced, on 7 April 2011, a Labour Action Plan (LAP) that included concrete steps to

protect internationally recognised labour rights, prevent violence against labour leaders, and

prosecute the perpetrators of such violence.

Colombia has accomplished significant advances on the reduction of crimes against the life and

integrity of its citizens, including union members. ANDI reports that progress has been made in this

area by strengthening procedures to punish human rights violations, following the model of

international tribunals. Moreover, the Inter-American Commission on Human Rights took the

decision to remove Colombia from the list under permanent observation, and Colombia passed its

Universal Periodic Review before the Human Rights Council (23 April 2013). There has also been the

development of Technical Cooperation Programmes concerning the strengthening of the

institutional capacity of the Ministry of Labour, and particularly inspection services, the

strengthening of existing social dialogue bodies, as well as improvements to the institutional

capacity of the government to protect trade union leaders, members, activists and organisers, and to

combat the impunity of those engaging in acts of violence against them.18

Informal economy

Further labour market reforms are required to address informal employment, where the practice of

sub-contracting has continued under new names despite the requirements in the LAP. Greater

18

ANDI (2014) “Colombian Progress in the Labor Field”.

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efforts are required to improve the effectiveness of the inspection system and worker

protection.

According to ANDI, even though there has been significant progress in the labour market with lower

unemployment in 2013, informal employment remains one of the main issues to be tackled. The

progress in the formalisation of employment is however indicated by a higher number of affiliations

to the health and pension social security system, which rose from 86% in 2007 to 90% in 2013.19 To

generate a greater impulse to the formalization of employment, the Colombian Congress issued the

“Formalization and Creation of Jobs Act” (commonly known as the “First Employment Act”, Law

1429, 2010) to encourage lawful businesses and labour. This law includes tax incentives and mainly

targets young people under 28, women over 40, disabled people, and family heads, covering close to

60% of the informal employees (in other words, employees without social security and other

benefits).20

Despite the progress being made by these measures, Colombia’s unemployment (7.8%) is one of the

highest in the region, compared to countries like Peru, Brazil, Mexico, Ecuador, and Chile, with

unemployment ranging from 4.6% to 5.8%. Notwithstanding the transition towards the formalisation

of employment, informal employment still remains a challenge.21

d) Anti-corruption

Transparency International’s “Corruption Perceptions Index 2013” ranks Colombia in 94th position

out of 177 countries, highlighting the prominence of corruption in the country. This has a business

cost: open and competitive markets depend on actions that eliminate corruption. It is reported by

Transparency International that official information and statistics in Colombia are rare. The

Prosecutor’s Office does not have an open system of public information or statistics on

investigations. Therefore it is difficult to determine the extent to which Colombia enforces the OECD

Anti-Bribery Convention.22

BIAC calls for improving further Colombia’s legal and judicial system, reducing unnecessary

bureaucracy, fostering and rewarding the compliance efforts of companies, and increasing the

implementation of the OECD Anti-Bribery Convention.23

19

ANDI (2013) “Colombia: Balance 2013 y perspectivas 2014”. Available here 20

Departamento Nacional de Planeacion (DNP). “Que Busca La Ley de Formalización y Generación de Empleo” Available here 21

ANDI (2013) “Colombia: Balance 2013 y perspectivas 2014”. Available here 22 Transparency International “Progress Report 2013: Assessing Enforcement of the OECD Convention on Combating Foreign Bribery” 2013 Available here 23 Concerning the OECD’s Anti-Bribery Convention, the latest report of Transparency International on the OECD

Anti-corruption Convention (October 2013) states that the responsible units of the Colombian authorities should,

through the prosecutor general, collect, publish and analyse statistics on official investigations relating to bribery

of foreign officials. The Government should raise awareness of the foreign bribery offence among public officials

and train the prosecutor’s office’s officials on this topic.

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However, it is important to point out that Colombia is already taking measures aimed at improving

this issue. As a consequence of Colombia’s adherence to the OECD Anti-bribery Convention, the

National Council for Economic and Social Policies (CONPES) approved Colombia’s comprehensive

anti-bribery public policy (PPIA in Spanish) in November 2013. The PPIA action plans includes steps

to improve access to public information and its quality, strengthen public tools for the prevention of

corruption, stimulate integrity, and develop tools to fight against impunity. Colombia also

established a Secretary of Transparency which reports directly to the Presidency, in order to advise

and assist in the formulation and design of public policies to tackle corruption and boost

transparency. The private sector has also worked along these lines by signing voluntary self-

regulation agreements between companies of particular sectors or value chains.

e) Pharmaceutical and health care issues

One of the most significant steps taken in Colombia’s economic development has been its effort to

broaden the scope of coverage of the healthcare system since its reform in 1993, reaching coverage

of 96% of the population today. In addition, Colombia has also addressed other issues in the

healthcare system: for example, the subsidised and contributory health plans were unified; the

Ministry of Health has institutionally redefined its functions focusing on those most relevant to

health; and the flow of resources to the different government entities is beginning to improve.

Despite these advances, obstacles remain that hamper the effectiveness of the Colombian health

care system.24 BIAC members point to the following key areas for reform as highlighted in the

following paragraphs. ANDI notes that these issues are currently subject to discussions between the

different actors of health-related activities in Colombia

Bioequivalence Assessment and Guidelines

Although Colombian law provides an abbreviated pathway for generic medicines, the definition of

bioequivalence still demands attention for biological medicines which are fundamentally different

from chemically based medicines including generics. Bioequivalence ensures that the biosimilar

products25 are interchangeable in terms of their quality, safety and efficacy with the original product.

Regulation on Biotherapeutics and Biosimilars

Colombia recently notified the World Trade Organization (WTO) of its fourth and final draft decree

establishing the evaluation and approval processes for biologic and biotechnological medicines. As

drafted, the proposed decree is not consistent with World Health Organization (WHO) guidelines for

approval of bio-therapeutics as it contains an (unprecedented) “abbreviated” approval pathway that

fails to provide meaningful controls or a scientifically justified framework for ensuring that a product

approved by this pathway is safe and effective. Unlike the full pathway and the comparability

24

World Bank (2013) “Colombia Case Study: The Subsidized Regime of Colombia’s National Health Insurance System” January 2013 25

Biosimilars are similar, but not identical, versions of the innovative biotherapeutic medicine of reference, given that biotherapeutic medicines have active ingredients coming from or derived from living organisms.

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pathway that are defined in the decree, the abbreviated pathway exempts the applicant from having

to file meaningful data gathered on the product itself and instead permits reliance on an undefined

category of information called “global evidence”, thus providing no level of certainty as to the

expected clinical performance of the applicant product.

Following the WTO notification several OECD members submitted comments to the WTO

highlighting the ways in which the “abbreviated pathway” fails to conform to Colombia’s regulations

as well as to WHO guidelines. Colombia should now move to revise this proposed regulation.

Support from the OECD committees to this effect would be valuable as a means of reinforcing the

importance of the WHO standards.

As Colombia seeks to join the OECD, it is important the OECD review the draft proposal and work

with the Colombian government to adopt a regulation that meets the standards endorsed by the

OECD member countries. At this time, the fourth draft substantially deviates from accepted

standards, puts patient health and safety at risk, and will undermine the international effort to

establish a base level of quality for biologic medicines worldwide.

Access to drugs and new technologies

A bill for reform of the health system, currently under discussion by the Colombian Congress, has

raised concerns about patients’ access to new technologies. Many stakeholders, such as doctors,

patients, and academia, as well as the research-based pharmaceutical industry, have unanimously

expressed their concerns regarding the vague and discretional criteria for inclusion of technologies

in the healthcare system, no defined term in which to complete evaluation and coverage of existing

technologies, and a requirement of clinical effectiveness studies for incorporation of new

technologies into the healthcare systems even though these studies – conducted in large

populations and with uncontrolled circumstances – are not available in the early phases of a new

health technology.

In terms of the role of the Colombian sanitary office (INVIMA), the modernisation and increase in its

response capacity is a priority for the Colombian private sector.

Patents and pharmaceutical innovation

On intellectual property protection, unlike most of its Latin American counterparts, INVIMA has

adequately enforced data protection for new pharmaceutical products for more than a decade.

Additionally, the Colombian patent office has been recognized globally as a top-tier patent office for

the technical strength of its patent examinations, and has been a PCT (Patent Cooperation Treaty)

filing office since 2001. Most recently the Colombian patent office has improved standardisation of

procedures with the issuance of a Patent Guideline, and most impressively, managed to reduce the

time for patent prosecution almost in half.

The Colombian Ministry of Health has however moved to reinstall a provision in the pending bill for

Reform of the Health System which would give the Ministry of Health approval authority over patent

applications for all inventions in the health sector.

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Enforcement of this provision as contained in Article 24 of the draft Law would require that the

Colombian Patent Office obtain a mandatory “technical concept” over the patentability of all

inventions “in the health sector”. Enforcement of an additional mandatory requirement for patent

grant as set forth in this initiative would entail a clear violation by Colombia of inter alia, local

(Andean) Patent Law, TRIPS, and IP obligations stemming from several multilateral agreements.

OECD accession discussions could include this patent control provision and its possible deleterious

effects on the Colombian patent prosecution system, which would create negative impacts on

fostering innovation in the health sector.

4. Conclusions: Directions for Colombia-OECD accession discussions

Colombia’s accession process to the OECD represents a critical opportunity to disseminate OECD

instruments, standards and good policy practices to one of Latin America’s leading economies,

thereby improving prospects for stronger, more sustainable and inclusive growth in the country. At

the same time, Colombia’s accession to the OECD would allow the country to share its policy

experiences with OECD member countries, thus improving the OECD’s knowledge base, advice to

policymakers and representativeness when engaging in other global fora, such as the G20. From the

business perspective, Colombia-OECD accession discussions should contribute towards a global level

playing field for international business, benefitting both Colombian and foreign companies.

While Colombia’s progress in economic reforms has been commendable in many cases, as

demonstrated in this paper, there nevertheless remain a number of impediments to

competitiveness and inclusive growth. The OECD is uniquely well-placed to encourage Colombia to

undertake further reforms that would result in benefits for both Colombia and OECD members.