Colombia must change its VAT policies on vehicles because of flagrant violation of Article III.2 of the 1994 GATT agreement, the European Commission says.

This, writes Juan Carlos Vargas, is one of the conclusions of a report prepared by the European Commission, whose investigation into the Colombian car market showed that the country discriminates against fully imported cars with engine sizes up to 1,400 cc in favour of locally produced or assembled models.

"The Colombian VAT discrimination provides local car assemblers... with an additional advantage," says the document seen exclusively by

The discrimination has been effective since 1995 when the Colombian government changed the VAT rate to 20 percent on locally assembled cars with engine sizes up to 1,400 cc and 35 percent on imported versions.

Although the EC noted that Colombia has already shown willingness to negotiate the gradual elimination of the discrimination, "if an agreement is not reached in a reasonable period of time, recourse to WTO dispute settlement procedures will remain the only alternative", its report says.

Article III.2 of the GATT 1994 agreement says that imported products must attract the same internal taxes as locally produced items.


The director of the car importers' association Federación Nacional de Comerciantes (FENALCO), Augusto Zuluaga, speaking exclusively to just-auto, said: "In 1995 the Colombian congress signed the new VAT regime under pressure from Grupo Santodomingo, owner of 51 percent of the assets of the [Renault] assembler Sofasa."

That was at the time a new locally-assembled Clio, a model powered by a 1.4 litre engine, was launched. Until then, VAT had been applied at different levels,including a specific rate for vehicles with engine sizes up to 1,300 cc.

But lobbying by congressmen pressured by Grupo Santodomingo changed the VAT to the new discriminatory rate.

One of the first models affected was the locally assembled Mazda 323 NX (with 1.5 litre engine), which was discontinued immediately. But the specification of imported cars also had to be changed to reduce costs (and therefore the amount of VAT charged) with items such as air conditioner, power windows and sunroof being deleted.

Asked why importers had not protested earlier, Zuluaga said: "At that time, the market was growing and it was not in our interests to demand a rule change. But now, when the market has halved compared to 1997, we have to fight for the GATT rules to be obeyed.

"Despite the fact we have talked with the Colombian government since 1998 about this flagrant violation of the international rules of commerce, only three years later, when the European Commission investigates, is there real urgency to change the regime," Zuluaga said.

In 1997 the Colombian market was shared equally between locally assembled and fully imported cars but now the figure is 60-40 in assemblers' favour.

"The importers' market share lost due to the VAT ‘mistake' could form the basis of a lawsuit against the government", Zuluaga added.

The European Commission report says that Renault imports components, like airbags and ABS brakes, at a zero duty rate.

Zuluaga said: "This is unfair because, as we understand, those items are not standard on the Megane and Clio II cars. They should pay duty of 35 percent like the other brands".

The Commission report says: "It is quite improbable that Renault's interests will be affected critically by the elimination of the contested discrimination".

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