International Trade/Offshore Manufacturing/Sourcing/Export/Import/Consulting On the Road to Argentina Information for this article was contributed in part by Fundaci n Invertir Argentina, a private organization formed by CEOs of leading Argentine enterprises and top government officials, and established to promote investments in Argentina of local, as well as foreign firms. Argentina ranks high to many businesspeople looking for new international opportunities. It is the wealthiest nation in all of Latin America on a per capita basis. The economic stability built on the policies of the administration of President Carlos Menem, the liberalization of trade laws, the reduction of tariffs, the drastically reduced inflation rate, which has recently fallen to its lowest point in 30 years, and the country's growing economy are all features attractive to the international trader. Located on the southeastern extreme of the South American continent, Argentina has traditionally been closely linked with Europe, often to a greater extent than with the rest of the New World. Although Argentina has played a noteworthy role in the continent's history, its development has been unique within the larger Hispanic tradition. During the past decade, the Argentines have turned away from a period of looking inward and are accepting a greater international role in the developing new world order. As an exporter, Argentina is looking for ways to diversify production and increase exports, especially non-traditional, higher-value-added exports, as it revitalizes its economy. As an importer, it demands a wide range of goods to meet business expansion and upgrades in diverse sectors, as well as the wants and needs of its consumers, particularly those of its battered but recovering middle class, still the largest in Latin America. Practically all areas of the economy could benefit from foreign investment. Privatization. It would be difficult to overestimate the enormity of the privatization process in Argentina over the past 7-8 years. The policy represents an absolute about-face from decades of state-owned public enterprise operation. Argentina's foray into privatization has been fast and complete, and has played a critical role in the government's economic stabilization plans. Most public enterprises have been sold, and public procurement projects continue to be available as the country modernizes, rebuilds its social and transportation infrastructure, water, and sewerage systems, and cooperates with formerly state-owned corporations in the fields of electricity, oil and gas, and telecommunications. Foreign Trade Zones. Argentina has an established foreign trade zone in La Plata (Buenos Aires) and a special regime for certain products in its southern-most province, Tierra del Fuego. It allows the duty-free import of foreign goods destined for specified high-priority industries and it also gives other tax breaks to users of the zones. Plans were approved during 1996 and 1997 for the creation of foreign trade zones in most of the country's 23 provinces, as well as in four other areas of the country. Although of limited import at present, such zones could play a significant role in international operations in the future. During much of its modern history, Argentina has exported low-value-added commodity products and then imported high-value-added manufactured goods. After running large trade surpluses for most of the 1980s Ð largely because of official limits Ð policy makers shifted to an open-market approach, allowing the economy to run up substantial trade deficits in the early 1990s as the country imported capital goods and other inputs to strengthen production. As of January 1994, tariffs were lowered to between 0 and 20%, with an average of 9.1%. Discretionary import licensing was also dropped. Most export tariffs have also been eliminated. The Mercosur customs union of Argentina, Brazil, Paraguay and Uruguay is altering the trade picture in Argentina substantially. The country's trade with neighboring Brazil has increased from 11% of total Argentine foreign trade from 1975 through 1989, to 26.4% in 1997. Argentine exports to Mercosur have grown at high rates in 1994, 1995, 1996 and 1997, particularly for those of non-traditional higher value-added products. Imports. Argentina has allowed imports to grow rapidly in recent years after an extended period during which it erected barriers to outside products. Much of this increased influx has represented capital goods and intermediate inputs, which are accorded low- to no-tariff treatment, but open markets entail the import of consumer and non-essential goods, which have also grown. Argentina has a long history of foreign investment. Its present approach Ð one that is expected to continue indefinitely, given the growing climate of internationalism Ð is designed to attract foreign investment through the openness of its economy and the removal of disincentives to outside capital. Indeed, Argentina's official and unofficial policy is geared toward encouraging both insiders and outsiders to bring investment funds into the country to support growth and development. This extends to the privatization of Argentina's huge and crucial state-run industries and the opening of its financial markets, which for many years were closed to many Argentines and foreigners alike. After years of outright bans and de facto regulatory and procedural roadblocks that protected national and nationalized industries from outside participation and competition, foreigners are now eligible to invest in any economic sector in Argentina. They can generally do so without obtaining prior approval, without fear of discriminatory treatment, and without worry over the sanctity and availability of their earnings or assets. Registration of investment is not compulsory, although Argentina asks investors to register for statistical purposes (some intracompany transfers of technology do require registration for tax purposes). Repatriation of all funds is now immediate and unconditional, whereas previously investors could not repatriate invested capital for a period of three years (10 years if made through a debt-equity conversion). Funds are available in any currency purchased at free market exchange rates. Because they are granted national treatment, foreigners are generally eligible for any incentives; however, the scarcity of funds is causing the government to phase out most incentives. Nevertheless, some incentives designed to direct new investment into undeveloped industrial and geographical areas - particularly mining, petroleum exploration, utility concessions, and tourism development - still exist. Since the late 1980s, the bulk of foreign investment in Argentina has been in the large privatized, formerly state-run, industries. Although these include such industrial production as steel, the main privatized industries participated in by outsiders have been the former monopolies operating the extractive sectors, utilities and services: oil and gas, mining, telecommunications, water and sewers, energy, transportation, financial services, ports and port services. Remaining direct foreign investment has been made largely in manufacturing, with the automotive industry as the primary target sector. There are currently no restrictions on foreign ownership, but in some industries there are regulations to the entry of companies of any national origin (including Argentines). In some cases, typically depending on the state of the market, the only entry form accepted is the acquisition of an existing firm. These restrictions have nothing to do with nationality but with limited licenses, safety, natural resource control, etc. Argentina is one of the countries in the world with the least state interference over private enterprise. There is total freedom for establishing prices and wages. In fact, many regulations have been eliminated, especially in the areas of wholesale and retailing, foreign trade, professional services, transportation, seaports, banking and insurance. It is possible to obtain some tax incentives under promotional schemes sponsored by various provincial governments. These usually take the form of a waiver of local taxes due or reduction in tax rates, and are negotiated on a case-by-case basis with the specific provincial governments, based on the nature of the proposed investment. The sectors promoted vary in different provinces. Tax Incentives. Significant tax incentives exist in the mining sector under the Mining Investment Law. For eligible operations, the government guarantees taxes and tax rate stability for 30 years, as well as full tax deductibility for all prospecting and exploration costs for each project. Tax deductions may be taken for environmental conservation allowances. Profits on mines and mineral rights capital contributions are to be exempted from taxation entirely. In addition, accelerated depreciation can be used to account for investment in new mining operations and extensions of existing mining capacity. In addition, the overall tax regime for any industrial activity is generally attractive for multinational enterprises operating in Argentina. A 33% flat tax rate on income from Argentine, as well as foreign companies exists for all entities. Non-tax Incentives. Various available non-tax benefits take the form of accelerated procedures for government licensing and approvals. New concessions are being offered to foreign and local entities to develop cellular telephone networks and infrastructure projects. Investment Procedures. Foreign investors have the same rights and obligations that the Argentine Constitution and laws give to national investors involved in economic or productive activities within the country. Foreign investors may make investments using any foreign currency, capital goods, capital or profits from existing operations denominated in local currency, or intangible assets under certain conditions. They may also invest by means of capitalization of accounts payable to foreign creditors. In short, just about any assets can be used for investing in Argentina. Foreign capital contributed in either portfolio or direct investments may be unconditionally repatriated at any time. Foreign investors also have the right to remit earnings from their investments immediately. As is the case with any foreign commitment, the investor should exercise caution before proceeding with the investment. This means acquiring extensive knowledge of all applicable rules, regulations, and policies, as well as familiarity with the historic and current local market situation. In view of the recent, rapid change in the economy's structure and in Argentine commercial codes and rules, it is especially important for foreigners to familiarize themselves with the current environment and local market players. Contacts Investment Development Agency; phone: 54 1 349-3329; fax: 54 1 349-3329 Fundaci n Invertir Argentina; phone: 54 1 342-7370; fax: 54 1 342-7723 National Institute of Industrial Technology; phone: 54 1 342-73705 Secretariat of Industry; phone: 54 1 349-3000 ; fax: 54 1 349-5422 Secretariat of Energy and Ports; phone: 54 1 349-8003; fax: 54 1 343-6404 Bureau of Export Promotion; phone: 54 1 349-3858; advice: 54 1 349-3861 Secretariat of Industry, Commerce and Mining; phone: 54 1 349-3000; fax: 54 1 349-3477 Argentine Chamber of Commerce; phone: 54 1 331-8051; fax: 54 1 331-8055 Argentina Chamber of Commerce, Industry, and Production; phone: 54 1 342-8252 ; fax: 54 1 331-9116; e-mail Chamber of Importers; phone: 54 1 342-1101; fax: 54 1 345-3003 U.S. Chamber in Argentina; phone: 54 1 371-4500; fax: 54 1 371-8400 Foreign Trade and Investment Bank; phone: 54 1 313-9546 Business Tips Business Attire. The general standard of dress among Argentines is high, and they are more likely to prefer the subtle, rich understated style of London to the trendier style of Milan. If you are uncertain, it is best to err on the side of the conservative, the formal and the elegant. Both men and women dress in business suits; changing into more formal evening wear for dinner or evening entertainment is customary. Argentines are quite conscious about dress and are said to evaluate someone's attire starting with the quality of the shoes. The Business Day. Argentines are generally night owls; the workday can extend until nighttime, and some executives have been known to schedule meetings as late as 8 p.m. While Argentines may schedule appointments as early as 8:30 a.m., some executives prefer to arrive around 9:30 a.m. Some businesspeople, especially in smaller firms and in the provinces, still adhere to the custom of going home for a midday meal and siesta, though this is becoming less common as employees' commute distances grow longer and less-relaxed international business norms gain more of a foothold. Greetings. Argentines are generally quite warm and even effusive in their greetings, which, among friends, usually involve a lot of hugging and kissing. Even at a first meeting, unless one is introduced under highly formal business circumstances, greetings are especially friendly. Women kiss women, and women kiss men; only men don't kiss men, but after a friendship develops, even this restriction can be done away with. A Bribe Is a Bribe. Although the practice of paying propinas Ð tips Ð to "expedite" matters has long been a part of business life in Argentina, observers note that with the deregulation, demonopolization and privatization of many state-run and large-scale firms, the conditions that provided the opportunity for these practices are being removed. These free market changes have already done a great deal to eliminate many of these problems. While the use of propinas is far from removed, public opinion is increasingly opposed to such practices. As a result, in recent years, the Executive Branch as well as Congress have instituted drives toward reducing their use. It should be noted that under Argentine law there is significant distinction between bribing (coimas), which is illegal, and tips or incentive payments (propinas), which are paid primarily for speeding up what would or should be done anyway, and whose only effect is to expedite the underlying transaction. If you are uncertain on how to proceed in a given situation, you may consider seeking local advice. Domestic professionals will be more familiar with local business practices and may be able to save your company unnecessary problems. Advertise on this site Put your company on this site!