29 April 2002

Edgar Camacho Godoy
Dean of the School of Law
Universidad del Cauca
Dear Sir,

Enclosed you will find an article in which I offer some comments on the Free Trade Area of the Americas (FTAA).

Sincerely,

Dear Committee Members:

As a professor at the Universidad del Cauca, Colombia, with a master's degree in European Community Law from the Universidad Autónoma de Barcelona, Spain, and a specialist in corporate law at the Universidad Autónoma de Bucaramanga and the Universidad del Cauca, I submit to you my comments on two specific topics: Investment and Dispute Settlement, which are being discussed at the Free Trade Area of the Americas [sic]. I feel these issues are essential to allow our country to fulfill its objectives of strengthening and expanding our commercial ties and becoming more competitive in trade.

Likewise, I feel that the possibility that is being afforded to representatives of different civil society sectors of the member countries of this trade bloc to participate actively through comments on specific topics is highly important and will lead to real transparency, unity in negotiations, and the fulfillment of the objectives of this integration process.

Although foreign investment is not the decisive source of external financial resources, but rather complements other forms of external funding, I would like to stress its importance in different spheres due to its contribution to the rekindling of the development process in Latin America's economy¹.

• . . . externally, due to the development of exports, which contribute to a higher trade surplus with which to meet financial commitments. Moreover, on the one hand investments and particularly the so-called new forms of investment¹ can provide valuable resources in terms of technology, know-how, access to international markets; and, on the other, in the technological field, developing countries face a variety of obstacles in obtaining modern technology, especially in gaining access to information networks.²

Internally, foreign investment may, to a certain extent, compensate for limited industrial capacity and translate into higher output and income, employment levels and productivity, the learning of managerial and production techniques, and increased public revenues. Similarly, investment gives foreign companies access to numerous natural resources and new markets and the possibility of improving their external competitiveness in international markets by lowering production costs and of capitalizing on their technological advantages.
Specifically regarding the Andean Group, we must stress that after a long integration process and in order to unify economic policies the Group was able to establish common rules for treating foreign capital and technology transfers,³ through Decision 24, taken 31 December 1970, compliance with which is mandatory for member countries. This was a highly controversial decision,⁴ especially among developed countries with important investments in the region at that time and which felt their rights were being restricted due to the greater control this would bring about over investments.

The position of the Andean Group member countries on the treatment of foreign capital has evolved to one favoring greater openness, not only because of domestic factors within those countries, such as legal, economic, and political issues, but also because of the debt crisis that was triggered in Latin America starting in 1982 or the greater interdependence of and competitiveness in the global economy,⁵ which led to calls for an open-door policy for foreign capital and a review of the scope of and criteria behind Decision 24, of 1974.⁶

Hence in 1987 Andean policy vis-à-vis foreign investment changed decisively,⁷ with the adoption of Decision 220, on 18 May 1987,⁸ superseding Decision 24. A comparative study will allow us to point to a number of important changes in it,⁹ most notably, lengthening the time period for foreign companies to become semi-public companies, although this applied only to companies selling at the Andean Group level, and not those focused exclusive on the domestic market or exporting to countries outside the Andean group. Similarly, there were modifications in areas such as profit reinvestment, through the elimination of ceilings on profit repatriation; companies were given access to domestic credit; and each country was allowed to determine the economic sectors in which foreign investors could participate.¹⁰

The policy of opening to foreign investment among the Andean Group member countries was consolidated through the adoption of Decision 291 in April 1991, intended to stimulate and promote the flow of foreign capital and technologies toward the Andean economies. Thus, a comparison of the provisions introduced through Decision 220 of 1987 and Decision 291 of 1991 allows us to conclude that the latter led to greater flexibility in regulating foreign investment, as seen in the granting of national treatment to foreign investors, except where doing so would violate the countries’ domestic legislation, and in the greater flexibility for local funding, reinvestment, remittances, and capital remittances to the recognition of the right to utilize the Liberalization Program for products made by domestic companies, whether semi-public or foreign; to foreign investors being granted the right to repatriate, in freely convertible foreign exchange, 100% of the proven net profits stemming from foreign direct investment, as well as the right to reexport whatever funds they obtain within the receiving country when they sell shares; to foreign investors being granted the right to the automatic registration of their investments, thereby eliminating the need to obtain authorization prior to making foreign and subregional investments;¹¹ to the elimination of the obligation for foreign companies wishing to benefit from the advantages of Liberalization Program of the Cartagena Agreement to become semi-public companies; and to the consideration of intangible technological contributions, such as trademarks, patented technical expertise, and technical assistance, as capital contributions.

In the specific case of Colombia, in 1990 a gradual reform strategy was adopted in all economic sectors called Program for the Internationalization of the Economy and the Modernization of the Productive Base. The program aimed to encourage integration with the global economy and stimulate investment of foreign capital in the country.¹² The Colombian government began to implement a new international investment model; hence, through Law 9, of January 1991,¹³ the Framework Law on international changes was approved, which outlined the guiding principles of foreign investment. In addition, through it the National Board for Economic and Social Policy (CONPES) was given the task of determining the rules governing the treatment of foreign capital investments. This law was adopted 28 January 1991, through Ruling 45, which regulates foreign capital repatriation and issues standards regarding tax and financial matters.

However, through the reforms ushered in Andean Group Decision 291--compliance with which is mandatory for member countries--Ruling 45, of 1991, was superseded by Ruling 51, issued 7 October 1991.¹⁴ The purpose of this was to facilitate foreign investment in the country by bringing together, in a single normative text, regulations on foreign capital in the country, including the investment of foreign portfolio capital as well as Colombian investments outside the country.

The current regulatory framework governing foreign investment in Colombia and Colombian investments abroad is outlined in Decree 2080 of 2000 and Conpes document 3135, which sets forth policy guidelines for international negotiations on foreign investment agreements.

Given the importance of foreign investment as a source of external funding for developing countries and the progress made by the Andean Community (common market) in this area, the FTAA negotiations must not overlook these elements, which are a very important step in the history of the integration of the Andean countries-which began more than 30 years ago. More importantly, the negotiations must take into account that the Andean Community's common regulations have existed and have been evolving since 1974 and thus cannot be ignored when new regulations are drafted. Hence, in the distinct countries that make up the Andean Group, foreign investment rules have gradually become more flexible. In the economic sphere, nearly all these countries have recently adopted programs to simplify foreign trade policies and to modernize their productive base, so as to encourage, protect and guarantee foreign investment and to ensure that their economies are more dynamic and efficient, through the establishment of linkages to global trade. These gains must be defended in the integration process, since to begin the FTAA negotiations with strictly monitored and highly important topics, such as the definition of basic terms, spheres of application, national treatment, promotion and protection, expropriation and indemnification would strengthen the business environment, which must be opened (in line with the needs of each country), guaranteeing security and stability.

Hence, it is proposed that the Andean Group, in its negotiations with the FTAA on foreign investment:

Here I want to compare the dispute settlement mechanism proposed for the FTAA with the Andean legal process. In the Andean Group, although there is a specific, complete, and autonomous set of rules theoretically allowing the Andean Community's Tribunal of Justice to ensure strict compliance with the commitments stemming directly and indirectly from the Cartagena Agreement and with the secondary regulations issued by the Commission, only two types of actions may be taken and only one type procedure may be initiated: actions for annulment and default, on the one hand, and, on the other, requests for preliminary opinions.¹⁵ Both of these actions are limited in scope.

In the FTAA, the proposed mechanism for dispute settlement between countries is in line with the procedures used at the WTO. The bodies with a role in dispute settlement are: the Dispute Settlement Body, the Panels, and the Appellate Body. All WTO member countries are required to take part in this mechanism, which serves as a multilateral forum in which they may discuss and resolve disputes without resorting to unilateral actions. This, in turn, may provide greater legal certainty to international trade. Likewise, the “Understanding on Rules and Procedures Governing the Settlement of Disputes” covers all multilateral and plurilateral trade agreements.

On this specific point, we should take into account that neither of the two procedures regulates, for example, disputes between private parties stemming from integration processes nor those arising between private parties and member countries, nor between private parties and the bodies of the European Union. We also need to recall that one of the fundamental characteristics of EU community law is supranationality.