INVESTMENT REGIMES IN THE EU-MERCOSUR NEGOTIATIONS, by Christian Russau, FDCL, Berlin, September 2005
Chapter 2. The Regulatory Status Quo of Foreign Direct Investments in the Four MERCOSUR Member States
The regulatory status of foreign direct investments in the four MERCOSUR member states is not uniform, although it is not only the harmonisation of this specific legal sector[6] that is being discussed as an explicit objective of MERCOSUR (laid down in Chapter 1, article 1 of the Asunción Treaty), but preferably that of as many other sectors as possible.[7]
Article 137 of the constitution of Paraguay establishes the regulatory hierarchy of constitution, treaties, international conventions and agreements, in descending order. In the 'investments' sector, bilateral investment agreements8 that have been ratified by Congress automatically supersede national laws, with the exception of the constitution. In its first three articles, Law Nr. 117/91 of 6 December 19919 guarantees the general national treatment of foreign investments - subject to legislation to the contrary - as well as the implementation modalities of ratified international treaties.[10]
Uruguay had framework modalities for foreign direct investments under the decrees Nr. 14,179 of 28 March 1974 and Nr. 808/974 of 10 October 1974, until their revocation through Law Nr. 16,906 of 7 January 199811, according to which national treatment warrants, amongst others, the explicit exclusion of any conditionals and production requirements, free capitalflow, certainty of the law, and recourse to legal action through an independent arbitration body. [12]
In Argentina, Law Nr. 21,382 (Law on Foreign Investments) of 2 September 1993[13] - complemented by the provisions of Decree 1853/93 - grants general national treatment to foreign direct investments. Since Argentina has signed and ratified more than fifty bilateral investment-protection agreements - as a disastrous consequence, Argentina is currently the world leader in both pending complaints, and the absolute value of compensation demands submitted to arbitration tribunals[14]-, the importance of these international treaties in the national legal hierarchy is considerable. In principle, according to section 22 of Article 78 of the Argentinian constitution, international treaties supersede national legislation, provided they have been ratified by Parliament. In the case of contradictory laws, higher laws come before lower laws, newer before older ones, and more specific before more general laws, though ultimately the constitution has to be respected.
The framework provisions for foreign direct investments in Brazil are already quite generous: Article 172 of the Brazilian Constitution stipulates that the control of foreign capital investments, promoting reinvestment, and regulating the transfer of capital and profits is the exclusive competence of the legislator, on the grounds of national interest.[15] Furthermore, in Brazil the Law on Foreign Investments of 1962[16] is still valid. According to its Article 2, foreign capital invested in Brazil shall receive the same legal treatment as domestic capital, and any form of discrimination or restriction not explicitly allowed under this law is explicitly forbidden.[17] The modifications of 1964[18] do not concern the principle of national treatment already established in 1962, but only the registration modalities for foreign capital in Brazil and the modalities for the transfer of capital and profits. Compared with many other countries, Brazil guarantees simplified capital and profit transfer. As long as the sums are registered with SISBACEN (Central Bank Information System), thus allowing for control by the Banco Central of Brazil, there are no conditions for capital and profit transfers at all. Capital transfers in the amount of the original investment are not subject to taxes and can be retransferred abroad without a special permit. Sums exceeding the original investment may also be transferred abroad at any time through SISBACEN, and are not subject to any transfer tax other than tax deducted at source (currently 15 percent), that is due anyway. The laws IN Nr. 243 of November 2002 and IN Nr. 321 of April 2003 allow for the control of cross-border financial flows between the foreign mother company and its domestic subsidiary to prevent cross-border profit movements (for instance via tax havens).[19] Declaration of all capital and profit transfers automatically occurs online via SISBACEN. Infringements of this simple regulation are only possible by skipping SISBACEN registration; in such cases resolution 'Resolução Nº 2883 de 30 de JULHO de 2001' will apply the penal law criteria for illegal cross-border transfers of foreign capital.[20]
The only legal restriction on the generally free capital and profit transfer to foreign countries comes into play in the case of serious balance-of-payment difficulties. Moreover, this condition of the possibility of the state's policy making may only be used in acute cases when safeguard measures for a post-crisis stabilisation of the balance of payment would come too late anyway. In spite of this, according to negotiation documents from 2004, the EU wanted to eliminate this last sheet anchor, marking every single corresponding restriction Brazil had brought forward in the negotiation documents with the same notorious comment: 'remove'.
Footnotes:
6] See also, among others: 'Gobierno busca generar modelo de tratado de inversiones común para el Mercosur', in: La República, 25 June 2005.
7] Capítulo I: Propósito, Princípios e Instrumentos, Artigo 1: 'O compromisso dos Estados Partes de harmonizar suas legislações, nas áreas pertinentes, para lograr o fortalecimento do processo de integração.', in: Tratado para a Constituição de um mercado comum entre a República Argentina, a República Federativa do Brasil, a
República do Paraguai e a República Oriental do Uruguai, 26 March 1991.
8] On bilateral trade agreements, see Chapter 4 of this paper.
9] 'Ley de inversiones', Nº 117/91 from 6 December1991; in addition, the laws 69/90 and 117/91, and the decrees19/89, 27/90 and 6361/90.
10] 'Art. 1. - El objeto de la presente Ley es estimular y garantizar en un marco de total igualdad la inversión nacional y extranjera para promover el desarrollo económico y social del Paraguay.
Art. 2o. - El inversionista extranjero y las empresas o sociedades en que éste participe, tendrá las mismas garantías, derechos y obligaciones que las Leyes y Reglamentos otorgan a los inversionistas nacionales, sin otra limitación que las establecidas por Ley.-
Art. 3o. - Las garantías, derechos y obligaciones para la inversión extranjera que el Gobierno del Paraguay haya acordado o acordare con otros Estados u Organismos Internacionales, por instrumentos bilaterales o multilaterales, serán aplicables a la inversión nacional equivalente.', in: Ley de inversiones, Nr. 117/91 from 6 December 1991.
11] 'Capitulo I: Principios y garantias
Artículo 1º.- (Interés nacional).- Declárase de interés nacional la promoción y protección de las inversiones realizadas por inversores nacionales y extranjeros en el territorio nacional.
Artículo 2º.- (Igualdad).- El régimen de admisión y tratamiento de las inversiones realizadas por inversores extranjeros será el mismo que el que se concede a los inversores nacionales.
Artículo 3º.- (Requisitos).- Las inversiones serán admitidas sin necesidad de autorización previa o registro.
Artículo 4º.- (Tratamiento).- El Estado otorgará un tratamiento justo a las inversiones, comprometiéndose a no perjudicar su instalación, gestión, mantenimiento, uso, goce o disposición a través de medidas injustificadas o discriminatorias.
Artículo 5º.- (Libre transferencia de capitales).- El Estado garantiza la libre transferencia al exterior de capitales y de utilidades, así como de otras sumas vinculadas con la inversión, la que se efectuará en moneda de libre convertibilidad.', in: Ley Nº 16.906, 7 January 1998
12] See extensively: Torrelli, Milton / Torrelli, Claudia: Inversión Directa Extranjera en Uruguay: transnacionales europeas y agenda de la sociedad civil de cara a un acuerdo de librecomercio MERCOSURUnión Europea, (Berlin, FDCL-Verlag, 2004), pp.7.
13] 'Articulo 1 - Los inversores extranjeros que inviertan capitales en el país en cualquiera de las formas establecidas en el Artículo 3 destinados a la promoción de actividades de índole económica, o a la ampliación o perfeccionamiento de las existentes, tendrán los mismos derechos y obligaciones que la Constitución y las leyes acuerdan a los inversores nacionales, sujetos a las disposiciones de la presente ley y de las que se contemplen en regímenes especiales o de promoción.', in: Ley de Inversiones Extranjeras from 2 September 1993.
14] See extensively in Chapter 4 of this paper.
15] 'Art. 172. A lei disciplinará, com base no interesse nacional, os investimentos de capital estrangeiro, incentivará os reinvestimentos e regulará a remessa de lucros.', Constitution of the Federal Republic of Brazil 1988.
16] Foreign Capital Law, Law Nr. 4.131, 3 September 1962.
17] 'Ao capital estrangeiro que se investir no País, será dispensado tratamento jurídico idêntico ao concedido ao capital nacional em igualdade de condições, sendo vedadas quaisquer discriminações não previstas na presente lei.', Art.2, Law Nr. 4.131, September 3, 1962.
18] Ammendment to Foreign Capital Law, Law Nr. 4.390, 29 August 1964: the modified articles are: 'artigos 4, 5, 7, 9, 10, 11, o parágrafo único do artigo 25, artigos 28 e 43'.
19] See: AHK Brasil / Ernst&Young: So geht's...Besteuerungen von Unternehmen in Brasilien, 1 Edition 2003, pp.18.
20] 'Define critérios para a aplicação de penalidades relacionadas ao fluxo de capitais estrangeiros' , Resolução Nº 2883, 30 July 2001.
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