Much has been written about the importance of free zones for the growth of foreign trade. On this occasion I will express my opinion on this in virtue of the recent contradictions produced about the conversion of the territory of the Province of Misiones into a special customs area or free zone, as well as the possibility of its existence in different regions where bilateral trade with neighboring countries is verified (according to the official text of the article incorporated into the 2021 Budget project).
Immediate background
In the middle of last August, the Province of Misiones requested the National Government to create a free zone throughout its territory with the aim of attracting investments to Misiones that would allow for an export growth of around US$1,100 billion annually., based on, among other arguments, inbalance a significant difference with production prices in the Republic of Paraguay, requesting in turn the reduction of VAT and income tax to the rate of 10% and Social Security contributions to 16,5% for those companies that are established there.
Through efforts made by national and provincial authorities (Governor Ahuad and the President of the Chamber of Deputies Sergio Massa among others) introduced to the 2021 Budget bill, article 124 by which the President was empowered Alberto Fernandez, to implement the regulations and benefits by decree and grant it the regime of special customs territory and free zone (https://elcanciller.com/zona-franca-en-misiones-03/11/2020)
El 14/12/2020 by Decree 990/2020 Law No. 27.591 was partially enacted (Budget Law for the year 2021) vetoing by means of article 1° article 124 by which it is empowered to the Executive Branch paragraph a) "to establish Special Customs Areas - in the terms of the Customs Code, Law 22.415 - in geographic areas of different regions where bilateral trade with neighboring countries is verified; and by the b) To authorize "the extension of the enabled Free Zones in regions where bilateral trade with neighboring countries is verified, in accordance with the terms of articles 37 and 39 of law 24.331, the limitations and conditions provided for in article 2 of said law not being applicable for these purposes.
In the grounds for his veto it is highlighted that: “…The creation of free zones and special customs areas in a large part of the Argentine territory is not advisable as it means an inestimable drop in tax revenue given the resulting decrease in commercial transactions, local production and the resulting unequal impact on regional economies…”
The next day (15/12/2020) the newspaper El Cronista Comercial published an interesting article entitled "There is a clear sky for free trade zones" Prepared by the author (Agustín Barletti) based on reports made to those responsible for different free zones in the country, who had given their vision expressing optimism for the activities carried out and highlighting the importance of it despite the adverse circumstances and the fact that a reform of Law 24 331 was necessary.[1]
Some clarifications on the content of the applicable regulations
I understand one It is a serious flaw to announce the implementation of measures that later become very difficult to comply with.; the frequent contradictions emanating from our leaders only serve to cut short the hopes for growth and well-being that we long for. For this reason, I consider it appropriate to make some clarifications regarding the content of the applicable regulations and their characteristics.
La Law 22415 in its SECTION VII Chapter Two legislates on Free Trade Zones (through articles (590/599), establishing in the Article 590 This is an area within which the merchandise is not subject to the usual control of the customs service and its introduction and extraction are not subject to the payment of taxes, except for the service fees that may be established, nor are they affected by prohibitions of an economic nature.
Goods may be stored, marketed, used and consumed, as well as transformed, processed, combined, mixed, repaired or otherwise improved or used for profit. Or they may be limited to storage or trade purposes.
El Article 591 provides that they must be established by law.
Law 24331 in its article 2° It empowers the National Executive Branch “…to create a free zone in the territory of each province, including those already existing, and may additionally create “no more than four (4) throughout the national territory, to be located in those geographic regions that, due to their critical economic situation and/or proximity to other countries, justify the need for this exceptional instrument…”.
“…The purpose of free zones is to boost trade and industrial export activity, facilitating the increase in efficiency and the decrease in costs associated with the activities carried out in them, which extend to investment and employment…” (Art. 4°) and “…should be established as development poles for the regions where they are established through the use of human and material resources available therein, within the conditions established in this law and in the decrees that regulate it…” (Art. 5°)
Although the law encourages the promotion of industrial export activity, art. 6, 2nd paragraph of Law 24331 does not allow the internal trade of merchandise manufactured within the zone, except for those capital goods "that do not have a productive history in the general customs territory or in the existing Special Customs Areas, even if they pay taxes”. (Mario Bibiloni) [2]
The author also discusses the particularities of the legislation of Argentine free trade zones and others such as Brazil and Paraguay.
In general terms, the tax exemptions existing in free zones refer to export and import duties and national and provincial taxes that tax basic services provided within the free zone (VAT, for example) (emphasis added).
Article 23 states that “With the exceptions established by this law and article 590 of the Customs Code, all the provisions of a tax, customs and financial nature, including those of a penal nature, that govern the general customs territory, will be applicable to free zones” supplemented by article 26, which states that “…the payment of national taxes that tax the basic services provided within the free zone shall be exempt…”, understanding each other for such "...those whose purpose is the provision or supply of telecommunications, gas, electricity, running water, sewage and drainage services...". And from article 31 that the provincial governments must undertake not to provide exemption from provincial taxes except for the remuneration rates for services actually provided, without prejudice to a possible adherence to the national exemption from taxes that tax basic services, referred to in article 26 and the exemptions that exist for export operations.
Free zones and exports
The free zones that export to Mercosur countries (Iguazú for example) have been faced for years with the limitation imposed by Decision CMC No. 8/1994 of the Common Market Council (CMC) of the MERCOSUR, which although it has been modified in a broader sense by its similar CMC No. 33/2015 (in force since July 21, 2019) apparently still encounters instrumental obstacles, which once corrected will surely boost its growth.
Both Iguazu Free Trade Zone as those receiving products exportable to the different countries of Mercosur, They have a real possibility of growth with the reform of CMC Decision No. 8/94, since it will allow exported products originating in and coming from Argentina to enjoy the benefits of tariff reduction or exemption in Mercosur countries.
It should also be noted that the Exports of Argentine origin enjoy tariff reductions in ALADI member countries (Latin American Integration Association) excluding Mercosur countries, which are also member countries of ALADI (Brazil, Paraguay and Uruguay), Bolivia (which is landlocked) and Cuba, all of them are located on the Pacific Ocean line, which gives relative advantages of access and transportation to the free trade zones of Mendoza and Zapala.
Additionally, these two free zones offer significant relative advantages for exports to eastern countries.
Conclusion
For reasons of space, I am excusing myself from commenting on the activities and advantages of the other existing free zones, but I would like to transcribe here a paragraph taken from an investigation carried out by a World Bank consultant on the functioning of free zones who stated: The likelihood of success of an EPZ increases when monetary and fiscal policy are adequate and stable; when legislation on private property and investment is clear; when companies can repatriate their earnings at market rates; and when there are no foreign exchange restrictions. [3]
I understand it is extremely important that both the protagonists of foreign trade, as well asThe professionals who accompany them will intensify their knowledge not only of foreign trade, but also of the salient aspects of the import and export of goods and services, realizing that these efforts will result in an increase in productivity, well-being, work and growth.se may be weakened by a lack of coherence, legal certainty, economic stability and stable rules of the game, continuing along this muddy path on which it is very difficult to stand.
Mario Bibiloni is a Certified Public Accountant (UBA). Specialist in customs and tax matters
Source: Tributum.news (https://tributum.news/las-zonas-francas-y-su-funcion-en-el-desarrollo-del-comercio-exterior-nocivas-marchas-y-contramarchas-de-las-autoridades-nacionales/ )
[1] https://www.cronista.com/transportycargo/Hay-cielo-despejado-para-las-zonas-francas-20201215-0052.html
[2] Argentine Free Trade Zone: Elimination of disadvantages compared to other Mercosur Free Trade Zones – Mario Bibiloni PRACTICAL GUIDE TO FOREIGN TRADE Nº 311 – JUNE 15, 2016
[3] World Bank Notes PREM DECEMBER 1998 NUMBER 11 ECONOMIC POLICY Export Processing Zones Note written by Dorsati Madani (Consultant, International Trade, Development Research Group). http://www1.worldbank.org/prem/premnotes/es/notes11es.pdf
