Update on April 24, 2020 The COVID-19 pandemic makes for an unprecedented disruption in global trade. To make predictions at this moment is rather risky. It is believed that this crisis could impact the world economy beyond that of the 2008- 2009 financial crisis. The estimates of the International Financial Institute foretell a contraction in GDP of -1.5% for 2020. Latin America would contract by -2.7%, the European Union by -4.7%, the U.S. by -2.8% and China would decelerate and grow at a modest 2.8%, in comparison with past significantly higher growth rates. Global trade will undoubtedly be affected in these conditions. The IDB estimates a reduction of -10% in global trade and of -20% in regional trade. Tourism and hospitality services will be particularly affected by the containment measures, namely, the drastic reduction in commercial flights, the mandatory closures of hotels and the restrictions in people’s mobility rights.
At a global scale, we have seen countries react with measures in spheres such as: market access, incentives for domestic production and strategies to attract foreign direct investment.
The past few weeks, we’ve been committed to guaranteeing the supply of essential goods to fend off the emergency and ensuring the adequate rendering of healthcare services for all citizens, this is most primordial.
Regarding what’s to come, and considering that the agenda has changed, we have created a group devoted to evaluating and reinventing, to anticipating what will ensue in matters of international trade, including the isolation measures. Our Deputy Ministry is advancing all tasks to overcome the crisis and avail ourselves from international trade as an anticyclical policy tool.
The Ministry of Commerce, Industry and Tourism has been at the forefront of the response to COVID-19 in Colombia. Myriad strategies have been implemented since March 17, when President Duque declared a national emergency. The measures taken in matters of trade can be categorized in three branches:
1. Measures related to cargo and the movement of people.
-Colombia responded swiftly to the crisis by closing land and maritime borders with Panama, Ecuador, Peru, Brazil and Venezuela, but our Ministry made sure to exclude cargo transportation from the closure.
- Shortly thereafter, a similar measure was taken by suspending the international disembarking of planes in Colombian airports, but technical and managerial personnel of air cargo companies were still allowed to continue their operations.
- The uninterrupted operation of cargo transportation services is essential to distribute essential products, as well as medical goods, and to keep the economy on the go.
- To facilitate this, highway tolls and airport infrastructure fees were suspended to reduce operational costs of cargo companies, private ports were authorized to supply and import essential goods, and flight hours were prolonged so Colombia could have air transportation of cargo around the clock.
- Colombia instated a national quarantine which has been extended until April 27th. It involves stay-at-home orders for all residents, except for those involved in the rendering of essential services, cargo transportation was included among them. Of course, so was healthcare, services in the food supply chain, banking, utilities, among many others. The essential services approach has been widely applied to balance healthcare and economic activity.
2. Trade facilitation measures and incentives
- For starters, all mandatory business registrations and licensing renewals were extended, even those related to taxation, preferred customs programs or sanitary authorization. For instance, income tax payments for entertainment businesses, hotels, airlines, restaurants, bars, and businesses in the tourism sector were deferred, sometimes even as late as August 2020. Preferred customs programs for large exporters like Colombia’s “Permanent Customs” and “Highly Exporting” users were automatically renewed, Free Trade Zones authorization’s too, and even sanitary authorizations for the sale and distribution of COVID-19 related products.
- Colombia’s “Single Window” system for international trade was updated to provide automatic approval to the import of certain essential goods if they had the endorsement of the sanitary and phytosanitary supervision agencies of Colombia.
- Colombia quickly instated a permanent roundtable for Trade Facilitation in order to monitor trade flows during the crisis and ensure interagency coordination.
- In three weeks, 7 working tables have been held with participation of more than 250 representatives of public entities, unions, ports, airport concessionaires; cargo companies, users of the foreign trade supply chain, among others.
- Through these working tables we have identified 83 concrete actions for improvement, we have worked on them with no delay. For this reason, we already addressed 74% of them and are currently working on 17% of the remaining actions. Notably, the acceptance of digital documents in carrying out foreign trade procedures and the strengthening of risk management systems of public entities to reduce the physical inspections of goods.
- It became clear that relaxing some of the requirements for sanitary registration of medical devices, medicine and personal hygiene products was paramount. INVIMA, Colombia’s sanitary agency, is prioritizing sanitary authorizations for those products and the costs to apply for one have been reduced for SME’s (by 75% to small enterprises and by 50% to mid-size enterprises).
- Customs officers were required to prioritize the processing of perishable goods, raw inputs, medicines, medical equipment and reagents for testing; all very important goods to mitigate and control the damaging effects of COVID-19.
- The Ministry also made available two preferential lines of credit though iNNpulsa-and Bancoldex, two entities that operate as intermediary banks. The credit lines are specifically tailored for entrepreneurs and aim to alleviate the economic impacts caused by COVID-19 with a 6-month interest free term.
- To ensure sustained protection of consumer’s rights, the Ministry developed a web applet for consumers to report breaches to their rights without physical involvement.
- The Ministry also made available two preferential lines of credit though iNNpulsa-and Bancoldex, two entities that operate as intermediary banks. The credit lines are specifically tailored for entrepreneurs and aim to alleviate the economic impacts caused by COVID-19 with a 6-month interest free term (Colombia ventures and innovates).
- An additional line of credit, named “Colombia Responses”, is available to increase liquidity for companies in the tourism sector, funded with approximately 63.5 million USD. For all other sectors excluding agribusiness, there is a separate fund of 89 million USD (Colombia Responses for all).
- A specific line of credit for the scaling up of the tourism sector was made available and tailored to micro, small and medium-sized companies in the sector to facilitate the financing of working capital, the abatement of liabilities and modernization.
- Companies will also be able to benefit from a commission-free collateral insurance for preexisting loans to restructure indebtedness in all sectors, through the Colombian Warrants Fund (Fondo Nacional de Garantías).
- With the “Compra lo nuestro” initiative, an online platform was set up to connect supply and demand. It operates as a marketplace were companies can procure and sell goods without physical interaction.
- The Ministry is also promoting the reconversion of productive capacity of textile companies towards the manufacturing of medical attire through the “Employers for Employment Initiative”.
3. Measures to avoid shortages
- One of the first measures to be adopted was the elimination of tariffs and VAT for medical supplies, devices, capital goods and others basic products necessary to fend off the crisis for up to 6 months.
- These measures cover a wide array of supplies, medications and medical devices; chemical reagents to increase testing capacity in the country; hygiene and cleaning articles essential to protect and mitigate spread; and chemical inputs required for sanitation and water purification.
- At the same time, a decree was issued that brought the tariff of 92 subheadings covering inputs and capital goods for the aviation sector to 0%.
- Colombia also imposed restrictions on the export of basic health products irrespective of their origin. In addition, these products have to be sold prioritizing healthcare providers and government entities.
- Among the products restricted you find the usual suspects: alcohol, facemasks, some medicines, toilet paper, paper towel, wipes, soaps, disinfectant products, protective gloves, surgery and medical attire, diagnostic medical devices such as x-rays and electrocardiographs, compressed oxygen, respirators, medical furniture, etc.
- There are some exceptions to the export restrictions. Generally, a transaction that predates the entry into force of the restrictions can be completed. Alternatively, if the Ministry of Commerce, Industry and Tourism finds that there is enough domestic supply of the restricted good it can authorize the export by way of a simple request made by the interested party.
- We have reacted in a timely manner to guarantee the supply of essential goods to address the emergency and provide adequate healthcare for all citizens. However, it is necessary to face this juncture with more disruptive measures, in order to suit us to face the external shock, both in demand and supply, that we are witnessing. Along these lines, we are working on two types of measures: conjunctural measures and reactivation measures.
- Within the conjunctural measures we are devising alternatives to facilitate logistics and foreign trade operations; and the tools to guarantee financing to promote export activity.
- Regarding reactivation measures, we are designing mechanisms that will allow for efficient access to production factors (raw materials and capital goods) that promote the reactivation of the productive apparatus; to encourage electronic commerce and the export of services; that promote the attraction of foreign investment geared towards efficiency; and that will allow us to identify new business opportunities derived from changes in the business agenda and the needs of our business partners.
- Regarding consumers, to prevent further surges in prices due to panic- buying and the stockpiling of food, the Ministry instated a mechanism to monitor prices and take action upon findings of abuse or hoarding against the consumers, to the point an interagency commission was authorized to set maximum prices for essential goods if needed.
4. Staggered reopening plan of Colombia’s economy
- The situation is rather fluid in Colombia. We’re working around the clock to ensure a safe and staggered reopening of the productive life, with a more medium-term approach to the reactivation of social life.
- April 27th is the last day of the nationally declared quarantine. President Duque is preparing the country to move towards preventive and collaborative measures, tailored to reopen the productive engines of the Colombian economy by relying upon biosafety protocols, which are being carefully revised as we speak.
- Colombia is acting very prudently when it comes to lifting restrictions on social gatherings. This, of course, comes at a great cost to the tourism sector, but before there is a vaccine, the presence of COVID is a risk that outweighs many other considerations.
- Children, the elderly and individuals with preexisting conditions should initially remain at home during the first stage of the reopening. We envision that the shelter-in-place would remain in force for these vulnerable groups until, at least, May 30th.
- Throughout this road to normalcy, we’ll incentivize and promote teleworking to the extent possible in the public and private sector.
- Regarding international flights, restrictions will certainly be extended beyond April 27th for non-cargo flights. For domestic flights, there is a strong penchant to extend the suspension beyond April 27th. But such extension is still under examination and is conditional on the careful implementation of biosafety protocols.
- The national government will be acting in tandem with local authorities to implement biosafety protocols in many aspects, from public transportation to the use of facemasks, etc.
- Coordination within the region will be essential to ensure that the supply chains are not disrupted and that the reopening does not cause surges in confirmed cases.