FROM THE ECONOMIST INTELLIGENCE UNIT
29 Jan 2007

Electronic commerce in Colombia is still regarded as embryonic compared with other Latin American countries, mainly because of the lack of capital for start-ups, lack of an efficient distribution network, low computer and Internet penetration and consumer concerns over the safety of electronic transactions. Nevertheless, high-income segments of the population use e-commerce facilities for banking transactions and to pay utilities bills. Utilities and banks have been leaders in developing home-grown technologies for electronic payments as an alternative to the crowded and inefficient payments system.

The government has actively promoted the use of electronic resources to reduce red tape, though its contribution to this initiative is still marginal. In terms of legislation, Colombia was the first country in the region to accept electronic signatures and to recognise electronic documents as valid for commercial transactions or notifications with and from state agencies.

Certain large retail chains like Carulla-Vivero and Exito have established e-commerce platforms to complement their regular business, but growth is still hampered by the need to validate credit-card purchases over the telephone with local banks. Nevertheless, several companies have launched e-commerce platforms for multiple goods. Among the investors are Bogotá's telecoms firm, ETB, and El Tiempo and Intermarket.

The majority of domestic banks (particularly the larger ones such as Bancolombia, Banco de Bogotá, Conavi, Citibank and Davivienda) have secure facilities for online access to accounts, transfers, payment of utility bills, credit cards and other bills. These banks were pioneers in Latin America; systems known as the Red Phone from Davivienda and Bancolombia's Audiobic created a culture of virtual payments that is the basis for their Internet systems. Monthly online banking transactions increased to Ps21bn in 2005 from Ps17.6bn in 2004 and Ps11.51bn in 2003, according to the Banking Association. Some 13% of deposits and payments are now made electronically, a significant increase from the first half of 2001 when only 3% of deposits and payments were conducted via the Internet.

Since 2005 floor trading in the Colombian Stock Exchange (Bolsa de Valores de Colombia—BVC) was replaced by Internet-based electronic trading networks that stockbrokers and other market participants now use. Many entities extended the electronic platforms to serve their clients. There has been particular emphasis in enhancing the security and data privacy of the transactions in order to attract more customers.

Growth of e-commerce

Development of e-commerce in Colombia was rapid from mid-1999 until mid-2000, when a shake-out of the pioneers began. The government estimates that the information-technology sector will account for 2.4% of GDP in the long run, almost double the Latin American average. However, this still lags behind e-commerce in Brazil, Argentina, Mexico and Chile. According to Telecompaper.com, e-commerce transactions in Colombia reached US$205m in 2005, which is only 0.4% of the total e-commerce in Latin America.

On the business-to-business front, the government has been trying to promote the use of information and communication technologies. It launched a citizens' portal to facilitate the filing of official paperwork associated with taxes, customs processes, etc. The portal for government contracts (www.contratos.gov.co) has become very popular. Each government entity is required to post its contract needs online for public review. During 2004, over US$2bn worth of contracts was posted on the site, and almost half that amount was contracted through the portal.

The completion by 2007 of three new fibre-optic cables (Maya 1, Arcos and Global Crossing) will increase international connectivity and allow the roll-out of new high-speed transmission services. Intense competition amongst providers is expected to continue reducing tariffs and, thereby, increasing access to new customers. According to a report of the Telecommunications Regulatory Commission (Comisión de Regulación de las Telecomunicaciones—CRT), Internet penetration reached 13.2% in mid-2006, some 3-percentage points more than a year earlier and substantially more than the 4.6% at end-2002. Annual Internet traffic rose by 125% in 2002–05, but it had decreased by 1.7% (to 591m minutes) in the first half of 2006 from the year earlier period. Connection tariffs for broadband services declined somewhat in 2006, to around US$30 per month from around U$50 in 2005.

Foreign investment

Colombia's foreign-investment statute, Decree 2080 of 2000, does not expressly refer to electronic commerce. There are no limits on foreign provision of telecommunications services, Internet services or content (indeed, most existing Internet service providers are foreign owned).

The number of mobile-phone subscribers increased to 29m at September 2006 from 18m a year earlier, according to the most recent figures from the Telecommunications Regulatory Commission (Comisión de Regulación de las Telecomunicaciones—CRT). The three following brands dominate the wireless telecoms market: Comcel, which is owned by Telefonos de Mexico (with 64.3% of subscribers); Movistar, which is owned by Telefónica de España with 26.3% of subscribers); and Ola, operated by Colombia Móvil, which was locally owned until August 2006 (with 9.4% of subscribers). Millicom International, a holding company established in Luxembourg with wireless operations in other emerging markets in Asia, Africa and Central America, acquired a controlling stake in Colombia Móvil from the Bogotá telecoms company and Medellín Public Enterprises. Wireless competitors have introduced mobile-phone models with WAP (wireless application protocol) specifications, letting users access the Internet. The three wireless operators now use the popular GMS (global system for mobile communication) technology. Colombia signed the World Trade Organisation's Information Technology Agreement in 2005.

Subsidiaries of foreign Internet service providers are operating in Colombia; these include America Móvil (Mexico), Americatel (US) and Telefonica (Spain).

Colombian national laws on intellectual property predate the development of e-commerce by many years. No laws specifically addressing electronic commerce have yet been considered. For the time being, existing legislation is being reinterpreted when intellectual-property issues arise concerning e-commerce.

The free-trade agreement signed by Colombia and the United States, which had yet to be ratified at end-2006, states that there will be no customs duties if products are bought online.

Consumer protection

Consumer laws largely ignore the developments of the Internet age, though a recent law on consumer protection forbids Internet transmission of pornography to minors. Colombia's 1959 anti-monopoly law (Law 155) prohibits conduct that limits free competition, and the law may be applied to the Internet. The law also includes anti-dumping measures and prohibits price-fixing agreements and all forms of discrimination in sales or prices. However, it has not been amended or revised specifically to relate to the Internet.

Contract law and dispute resolution

The principal legislation approved in this area is Law 527 of August 1999. The law provides for the creation of an electronic or digital signature in the form of a coded number that is attached to an electronic message in such a way that it is invalidated if the message is altered. This number is to be agreed to by its owner and a certification agency or entity approved by the Superintendency of Industry and Commerce. Under the terms of the law, an electronic signature created in this way has the same legal effect as an ordinary written signature.

Law 527 permits contracts to be agreed through electronic messages and allows documents to be archived in electronic form. At present, there are no common standards, including those for end-to-end security or certification criteria. The law has four parts: general provisions and judicial guidelines concerning data communication; e-commerce; digital signatures and certifications; and validity of the law itself. The law was partially regulated by Decree 1747 of September 2000.

The United States and Colombia signed an e-commerce agreement in 2000 in an effort to form an international consensus on electronic signatures and authentication. The accord generally emphasises open and fair electronic trade and does not address specific issues—such as what constitutes a signature or valid certificate in a different jurisdiction.

Basis of taxation

The tax authorities in Colombia have not yet addressed the issue of electronic residence. Generally, taxes are not charged on online purchases though customs officials may levy charges if goods enter Colombia from abroad.

Classification of e-commerce transactions

Colombia has not yet updated its tax legislation to deal with e-commerce issues. Electronic commerce transactions are treated in practice as sales of goods and services subject to the normal value-added tax. For the first time, the tax reform of 2000 requires Colombian Internet sites that engage in e-commerce to provide records of their transactions to the tax authority, the National Tax and Customs Office (Direccion de Impuestos y Aduanas Nacionales).

Compliance and enforcement issues

There is little experience at present in this area. The government issued complementary regulations to enact Law 527 in September 2000. But Decree 1747 of 2000 only partially regulates contracts entered into over the Internet.

SOURCE: COUNTRY COMMERCE