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'.
FDCL
Forschungs- und Dokumentationszentrum Chile-Lateinamerika e.V.
Centro de Investigación y Documentación Chile-América Latina
Centro de Pesquisa e Documentação Chile-América Latina
Research and Documentation Center Chile-Latin America
Gneisenaustraße 2a
10961 Berlin, Alemania, Alemanha
Fon: 49-(0)30-693 40 29
Fax: 49-(0)30-692 65 90
email: fdcl-berlin(at)t-online.de