Tips on company law: influence of a foreign trade agreement (France - Colombia)

Hi, everyone:

With this post, I'm going to explain other insights on topics relevant for a foreign company that wants to incorporate in Colombia a branch office, this time, regarding the implications of a trade agreement in full vigor between Colombia and the country of the foreign company interested in coming here.

For didactic purposes, we are going to assume the same foreign (French) company interested in establishing in Colombia with the intention to participate in public bidding. In that order, the hypothetical client asks the following: 

It seems that there is a free trade agreement between Colombia and France since 2013, can you please comment on this and develop this issue further if it is the case?

As explained in the previous post, there is indeed a free trade agreement (FTA) between Colombia and the country members of the European Union, in full (provisional) effect from August 1, 2013.

The FTA above – mentioned, was signed in Brussels, Belgium, on June 26, 2012, between Colombia and Peru, on the one hand, and the European Union and its member states, on the other.

On the part of the EU, the European Parliament approved the aforementioned Agreement on December 11, 2012, and, subsequent to that, notified the ending of its internal proceedings for the FTA’s provisional application in full effect on February 27, 2013.

On the part of Colombia, the internal proceeding for FTA’s approval by our Congreso de la República (our Parliament or House of Representatives, the legislative body of the Republic of Colombia) began in November 2012, completing the legislative stage by June 5, 2013; and receiving the Presidential approval through Act 1669 of July 16, 2013.

Nevertheless, the final approval of the FTA between Colombia and EU is pending on the opinion of the Constitutional Court, who is legally in charge of verifying if the legislative proceedings were accomplished strictly with the rules defined by our Constitution. This stage usually goes for about six (6) or eight (8) months, and deals with the checking off all the formalistic procedures imposed by the Colombian Constitution and law regarding the approval of Act 1669.

Meanwhile, by Decree 1513 of July 18, 2013, the President of our Republic, Juan Manuel Santos, gave provisional application to this FTA and notified to his counterpart (the European Union) about Colombia’s compliance with their internal proceedings. This means that the aforementioned international agreement is in full force between Colombia and the EU, as from August 1, 2013, as expressly defined by D. 1513 / 2013.

Additionally, by Presidential Decree 1636 of July 31, 2013, Colombia implemented his market access’ compromises agreed by reason of the FTA approved between our countries.

For the practical purpose of the issues object of consideration, the only relevance that the FTA may have in regard to the bidding process with the public entity is the eventual choice to invoke the principle of reciprocity (Art. 20, L. 80 / 1993), in order to compete, as a foreign proposer, with equal opportunities with national companies (or with joint ventures between national and foreign companies: consortiums, uniones temporales, etc., as explained in the previous post of this series).

According to this, we are going to explain how to invoke this principle of reciprocity when the opportunity arises during the bidding process.

Articles 20 and 21 of Act 80 / 1993 are dispositions concerning about two key issues in public contracts:

a)      The principle of reciprocity (Art. 20): equal treatment between foreigners and national bidders in every process of public contracting, which means the same treatment and the same conditions, prerequisites, proceedings, and adjudication criteria between foreign and national proposals, and

b)      The principle of preference to the national proposal (Art. 21): the state authorities must guarantee the participation of national bidders, in competitive conditions of quality, opportunity, and price, regardless of the compliance of an objective selection’s procedure, as long as national proposers are present in the bidding process.

This means that, in an equal basis of opportunity, national proposals will be preferred. And as the development of the principle, between foreign bidders in an equal basis of opportunity, the one that contain the most incorporation of national human resources, the most national component and the best conditions for technological transference will be preferred.

In the case of the bidding for a typical public contract (for which, for the purposes of this example, the foreign company is intended to compete), here there are the criteria for objective valuation of all the proposals, of foreign and national origin (see the highlighted one):

Criteria	Maximum score
Specific experience of consultants in regard to the tasks commissioned	10
The logic of the methodology and working plan of the proposal, compared to the terms of reference	20
Competence for the work and qualifications of professional key staff	60
Participation of national personnel in the professional key staff proposed	10
Total	100

The principle of reciprocity (understood as the compromise acquired with another country, through an agreement or treaty – including an FTA, like the signed between Colombia and the European Union –, in the sense above explained, known also as trato nacional, “treaty as a national”) is accomplished, if the aforementioned criteria are applied to all bidders, regardless of their national or foreign origin.

If not, the foreign proponent can demand the application of the principle, via contractual controversies’ action (acción de controversias contractuales) to the contentious administrative jurisdiction (jurisdicción contencioso administrativa), a special branch of the Colombian judiciary, with competence (jurisdiction) on solving this kind of conflicts.

The principle of preference to the national proposal is applied in regard to the last criteria: Participation of national personnel in the professional key staff proposed. This topic is analyzed in detail in our second report (labor law).

Article 150 of Decree 1510 / 2013, establishes the procedure for an affidavit or proof of the principle of reciprocity (trato nacional), compelling to the public entity to grant “treaty as a national” to bidders of goods and services from:

·         Countries that have trade agreements with Colombia currently in force, in the terms strictly stipulated in these agreements.

·         The Andean community of Nations’ countries.

·         Countries that, despite the absence of trade agreements currently in force signed with Colombia, observe compliance with this principle, according to certificate issued by our Foreign Affairs Ministry (Cancillería).

If an FTA exists between Colombia and France, you don’t have the need to present affidavit or prove of the agreement, because this is considered as a well – known fact (hecho notorio) that doesn’t need proof (national laws don’t require proof of its own existence), as clearly states Article 150 of Decree 1510 / 2013.

In addition, we understand that the French Code of Public Markets, adopted in your country by Decree 2006 – 975 of August 1, 2006, states in its Article 1 the due “respect to the principles of free access to public contracting, equal treatment for candidates and transparency in proceedings”. This means that a French public buyer cannot reject any candidature on the basis of being of foreign origin. Therefore, all the proposals must be evaluated without consideration of the country of origin. So, France observes full compliance with this principle, as well as Colombia, indeed, does.

Finally, it must be noticed that, in accordance with Article 2.1. d), of the Berne Convention, Colombia included a reservation (which is, essentially, a caveat to a state’s acceptance of a treaty, a unilateral statement purporting to exclude or to modify the legal obligation and its effects on the reserving state) with regard to the participation of Colombian personnel in foreign companies, as follows:

“Any employer with a staff of more than ten employees must employ Colombians in a proportion of not less than 90 percent of the staff of ordinary employees and not less than 80 percent of the skilled employees or specialists, administrative staff or persons in posts of responsibility.”

Nevertheless, at the present day, Colombia doesn’t include this limitation as a part of its Labor law. As explained in a previous post (labor law), before 2010, Articles 74 and 75 C.S.T., had been establishing the requirement to obtain a certificate of proportionality before the Ministry of Labor (Ministerio del Trabajo) to determine the number of foreigners that an employer could hire. The above provision was intended to protect local employees (not less than ninety percent of the personnel of ordinary workers and not less than eighty percent of skilled personnel, or specialists, management personnel or persons in positions of trust, were required to be Colombians).

However, with the opening that Colombia has had promoting trade with other countries – particularly due to the FTA signed with the United States – Act 1429 of 2010 abolished these provisions, so there is currently no restriction on the number of foreigners, a company can bind. The reservation is simply a transcription of the abolished text of Article 74 of our Substantive Labor Code (C.S.T.).

In conclusion, you must not be afraid in any way about the reservation above mentioned. All previsions regarding hire Colombians (of French – Colombians, if you have the lucky chance to have people of double nationality in your payroll) as part of the professional key personnel should be understood as a strategic action of the foreign company in order to achieve a better score (as explained earlier) in the terms of reference.

In regard to joint ventures (consortiums and uniones temporales, legal figures briefly explained in page 2 of our first report, company law), they are considered as “of foreign origin”, when the fifty percent (50 %) or more of the participation of the joint venture is constituted by legal entities or natural (physical) persons of foreign origin.

Thanks a lot to everyone, and we'll see you soon in a new post.


Camilo García Sarmiento