Anti-competitive Practices of
Colombian Departments’ Alcohol Monopolies
KEY MESSAGES
Colombia is a priority market for the EU spirits industry in Latin America that offers a
significant commercial potential. It is the largest market in the Andean Community,
representing more than a third of EU spirit drink exports to the region.
The operating environment is challenging and there are a large number of barriers to trade
including the market-distorting and anti-competitive practices of the spirits monopolies.
Recently a new monopoly was created in Cundinamarca.
spiritsEUROPE welcomes the entry into force of the FTA with Colombia and urges the
European Commission to ensure that Colombia eliminates these practices as foreseen in
the EU-Colombia FTA.
On 30 May 2013, the OECD opened membership talks with Colombia. spiritsEUROPE
welcomes this development and sees it as an opportunity to reinforce the messages that
were addressed during the FTA negotiations between the EU and Colombia.
Introduction
Colombia is a priority market for the EU spirits industry in Latin America and the largest market in the
Andean Community. European spirits exports to Colombia were valued at €35m in 2013, a three-fold
increase since 2003. spiritsEUROPE is a strong supporter of the EU-Colombia/Peru Free Trade
Agreement (FTA) which provisionally entered into force with Colombia in August 2013.
In addition to the discriminatory excise tax regime against imported spirits, the unfair, nontransparent and anti-competitive practices of the Departments’ monopolies in most states (including
all the most business critical markets) which control the introduction of spirit drinks into the local
market, prevent European spirit drinks from fully benefiting from the FTA.
For further information, please contact:
Paul Skehan, Director General:
+ 32 (475) 388415, or alternatively
CP.CE-140-2014
/ September
2014
Carole
Brigaudeau, Director
Communications:
+ 32 (486) 117199
These practices contravene Colombia’s obligations under the EU-Colombia FTA and the World
Trade Organization (WTO), and run counter to the recommendations of the OECD as part of
Colombia’s accession negotiations. spiritsEUROPE requests the support of the European
Commission in seeking firm commitments from the Colombian government to bring the practices
of the departmental monopolies into line with its existing bilateral and multilateral obligations,
including as part of its OECD accession negotiations.
In line with recent OECD recommendations, spiritsEUROPE supports:

The adoption of a uniform distribution agreement, free of anti-competitive elements, to be
used in all Departments as a satisfactory solution.

An alternative could be to identify mechanisms to ensure that anti-competitive
requirements cannot be inserted in the distribution contracts, even if each Department
retains the right to decide on their design. For example, the contracting practices of
monopolies could be more closely monitored by the national competition authority (SIC)
and the requirement to sign distribution contracts by foreign firms only could be abolished.
This could also be achieved through the introduction of a “framework law” that would set
disciplines and rules on the way these monopolies should operate. Such draft law was
considered and worked on in the past by the Colombian administration.
The issue at stake for the EU spirits sector
Article 336 of the Colombian Constitution confers the right to Colombian Departments to establish
monopolies for the production and/or of introduction of spirits into the Department. The body that
exerts the production activity of the monopoly is called licorera. In addition, a Department can chose
to use its monopolistic power to control introduction of spirits on its territory. When a Department
exerts these two monopolistic activities, the link between both is not clear and it is often the source
of many anti-competitive, discriminatory and unfair practices as described below.
WTO and EU FTA rules do not prohibit the establishment or existence of these monopolies. However,
under the EU-Colombia FTA, the Colombian government committed to eliminate discriminatory and
anti-competitive conditions for the spirits sector; if a Department allows competition from products
from outside the Department, it is bound by the treaties to extend non-discriminatory treatment to
imported products.
For spirits produced outside the Department (either from another Department or from abroad), the
monopoly requires that importers negotiate “introduction agreements”. The Departments demand
that certain terms be included in introduction agreements, sometimes engage in delaying tactics
during the contract negotiations, may refuse ultimately to sign final contracts, and frequently
unilaterally cancel the contracts.
For further information, please contact:
Paul Skehan, Director General:
+ 32 (475) 388415, or alternatively
CP.CE-140-2014
/ September
2014
Carole
Brigaudeau, Director
Communications:
+ 32 (486) 117199
The following is a non-exhaustive, illustrative list of some of the most egregious practices imposed by
the Departments on spirits importers:

Minimum introduction quotas: Colombian Departments mandate that companies sell a
minimum volume of a specific brand in the Department during the year. The requirement is
arbitrary and in many cases not based on previous sales or reasonable sales forecasts. If a
company does not meet the minimum sales requirement, the company will be held
responsible for the entire tax burden of the minimum volume requirement, and may be fined
or have its contract revoked.

Minimum prices: Certain Departments mandate a minimum price at which imported spirits
may be sold in the Department, which is always greater than the price of locally
manufactured products to prevent price competition. For example:
o Introduction agreements for the Department of Antioquia require that “retail prices
for products distributed as of this contract shall not be inferior to those prices set for
aguardiente, rum, brandy, vodka and gin produced by Fábrica de Licores de
Antioquia”.
o Article 20 of Ordenanza n°301 of 2009 of the Department of Valle requires that no
spirits shall be sold at prices lower than those set for products of Industria Licorera
del Valle.

Restrictions on competitive products: The Departments may (and do) refuse entry of a brand
altogether if, in the view of the Department, the brand is “considered a competitor to local
products.” This is normally the case of imported rums and aniseed products, such as pastis,
sambuca and orujos. Licoreras frequently conduct marketing surveys to determine whether a
product competes with locally produced brands before authorizing its importation.
o For example, the Antioquia Department rejected in 2009 an imported rum brand on
the grounds that it would “directly affect the sales of its own products in the rum
category”. This is not an isolated practice as vodkas and gins are being similarly
affected in a number of Departments.

Obligation to provide confidential information: Some Departments require importers to
provide 15-days’ advance notice of any discount or promotional pricing, and some
Departments require advance notification of advertising campaigns. Other confidential
production or marketing information is also requested.

Participation taxes: In addition to the discriminatory excise tax, the Departments apply
additional taxes to imported products, referred to as “participación.” There is no cap on the
amount of participación that each Department can apply, and there is wide variation from 2%
to 11% of the consumption tax paid. The variation among the rates leads to internal
contraband as products are moved between the various Departments.

Specific fees related to introduction contracts: Licoreras do not have to sign contracts with
monopolies and therefore are exempt from the fees that are associated with the contracts:
For further information, please contact:
Paul Skehan, Director General:
+ 32 (475) 388415, or alternatively
CP.CE-140-2014
/ September
2014
Carole
Brigaudeau, Director
Communications:
+ 32 (486) 117199
a. Publication fees: Under Colombian regulation, contracts executed by a public
entity must be published in the official gazette. In Antioquia, the publication fee is
US$57 per page published. On average, a contract consists of five pages. Each time
a product is added or the agreement is amended, publication is required.
b. Licoreras’ products tax exemption: In some Departments, products of the licorera
for promotion purposes are exempt from taxes (excise and local surcharge). For
example:
 Valle del Cauca: Article 40 of Ordenanza n°301 of 2009 from Departmental
Assembly if the product is from Valle del Cauca.
 Atlántico: Article 67-70 of Ordenanza n°823 of 2003 establishes tax exemptions
for domestic products for promotion purposes.
 Quindío: Article 17, paragraph 2, of Ordenanza n°24 of 2005 establishes a tax
exemption in favour of state-owned licoreras.
c. Special contributions are sometimes required: For example, in Antioquia, Article
40 of Ordenanza n°15 of 2010 requires distributors and producers to pay a special
contribution to reduce contraband. The special contribution is calculated as 0.5% of
the participation tax of the minimum introduction contract.
A practice that is being reinforced rather than eliminated
In July 2014, the department of Cundinamarca approved a Departmental revenue code which de
facto creates a monopoly on the introduction of imported spirits. Cundinamarca is the most
important market for imported spirits (in 2012, 43% of the spirits imported to Colombia were sold in
Cundinamarca) and was the only Department with significant market share that lacked a monopoly
on imported spirits. This alarming development only confirms that this practice, instead of being
progressively eliminated, is actually being reinforced:

Introduction Agreement: distribution of spirits produced outside the Department is subject
to an introduction agreement (for imported and privately produced domestic products) or
exchange agreement (for products produced by other state-owned licoreras). However,
products of the Empresa de Licores de Cundinamarca (ELC) will be distributed freely within
the Department.

Tax discrimination: the Ordinance establishes an additional participation tax of 8% of the
national excise rates applied only to imports. Products of the ELC and from other Colombian
Departments will not be subject to the additional tax.

Minimum Quotas: The introduction agreements will set minimum volume quotas, which are
not applicable to ELC products.

Product definitions: the Ordinance sets new definitions of spirit drinks that are not aligned
with national technical definitions. These new definitions will lead to trade blockages as
For further information, please contact:
Paul Skehan, Director General:
+ 32 (475) 388415, or alternatively
CP.CE-140-2014
/ September
2014
Carole
Brigaudeau, Director
Communications:
+ 32 (486) 117199
similar or substitute products to the aguardientes produced by the ELC will be banned in the
Department.
A practice that nurtures the informal market
Colombia has a large informal market for alcohol in the country, making contraband products direct
substitutes for legally imported goods. As highlighted above, in addition to the discriminatory excise
tax, the “participation taxes” imposed by Departments on imported products (2% to 11% of the
consumption tax paid) sustain internal contraband as products are moved between Departments.
The latest draft (23-Jul-2014) of the OECD Market Openness Report of Colombia observes that “given
the remaining large informal market for rebottled imported alcohols in the country, further reform
that would bring the tax rates on domestic and foreign spirits closer to one another could help
further diminish contraband in the country, while boosting the government revenue”.
Leveraging Colombia’s accession to the OECD
The OECD identifies1 six principles as key to successful market-oriented, trade and investment
friendly regulations, most notably:

Transparency and openness of decision making: Foreign firms, individuals and investors
seeking access to a market must have adequate information on new and revised regulations
so that they can base their decisions on accurate assessment of potential costs, risks and
market opportunities.

Non-discrimination: Non-discrimination means equality of competitive opportunities
between like products and services irrespective of country of origin.

Avoidance of unnecessary trade restrictiveness: Governments should use regulations that
are not more trade restrictive than necessary to fulfill legitimate objectives.

Application of competition principles from a market openness perspective: Market access
can be reduced by regulatory action, ignoring anti-competitive conduct, or by failure to
correct anti-competitive practices, particularly by incumbent firms.
The latest draft (23-Jul-2014) of the OECD Market Openness Report of Colombia highlights that while
the existence of the monopolies “does not in itself violate non-discrimination principles”, if such
monopolies “engage in market-distorting behaviour and block market access to foreign suppliers,
there is a scope for reform”. The report outlines that “department-level alcohol monopolies seem to
engage in anti-competitive practices and de facto block market access for foreign providers”. The
report specifically outlines that “some de facto discriminatory market practices may need to be
addressed” and concludes that “the Government should also review the effects of regulations in
areas such as regional alcohol monopolies […] to ensure the principle of national treatment is not
compromised in practice”.
1
OECD report on “Integrating Market Openness into the Regulatory Process: Emerging Patterns in OECD”
(2003)
For further information, please contact:
Paul Skehan, Director General:
+ 32 (475) 388415, or alternatively
CP.CE-140-2014
/ September
2014
Carole
Brigaudeau, Director
Communications:
+ 32 (486) 117199
spiritsEUROPE thus urges the European Commission to leverage Colombia’s accession to the OECD to
secure firm commitments from the Colombian government to bring the practices of the
Departmental monopolies into line with its existing bilateral and multilateral obligations.
Conclusion
The creation of a new monopoly for imported spirits in Cundinamarca not only further prevents
the EU spirits industry from benefiting from the untapped potential of the FTA, it violates the
terms of the EU-Colombia FTA (we will provide a detailed analysis). This recent development just
adds to the long series of anti-competitive behaviours by the Departamentos and collusion by the
governors to manipulate the market which are proscribed by both FTA and WTO obligations.
For further information, please contact:
Paul Skehan, Director General:
+ 32 (475) 388415, or alternatively
CP.CE-140-2014
/ September
2014
Carole
Brigaudeau, Director
Communications:
+ 32 (486) 117199