Policies Towards Foreign Direct Investment

The Macri government actively seeks foreign direct investment. To improve the investment climate, the Macri administration has enacted reforms to simplify bureaucratic procedures in an effort to provide more transparency, reduce costs, diminish economic distortions by adopting good regulatory practices, and increase capital market efficiencies. Since 2016, Argentina has expanded economic and commercial cooperation with key partners including Chile, Brazil, Japan, South Korea, Spain, Canada, and the United States, and deepened its engagement in international fora such as the G-20, WTO, and OECD.

Over the past year, Argentina issued new regulations in the gas and energy, communications, technology, and aviation industries to improve competition and provide incentives aimed to attract investment in those sectors. Argentina seeks tenders for investment in wireless infrastructure, oil and gas, lithium mines, renewable energy, and other areas. However, many of the public-private partnership projects for public infrastructure planned for 2018 had to be delayed or canceled due to Argentina’s broader macroeconomic difficulties and ongoing corruption investigations into public works projects.

Foreign and domestic investors generally compete under the same conditions in Argentina. The amount of foreign investment is restricted in specific sectors such as aviation and media. Foreign ownership of rural productive lands, bodies of water, and areas along borders is also restricted.

Argentina has a national Investment and Trade Promotion Agency that provides information and consultation services to investors and traders on economic and financial conditions, investment opportunities, Argentine laws and regulations, and services to help Argentine companies establish a presence abroad. The agency also provides matchmaking services and organizes roadshows and trade delegations. The agency’s web portal provides detailed information on available services (http://www.produccion.gob.ar/agencia). Many of the 24 provinces also have their own provincial investment and trade promotion offices.

The Macri administration welcomes dialogue with investors. Argentine officials regularly host roundtable discussions with visiting business delegations and meet with local and foreign business chambers. During official visits over the past year to the United States, China, India, Vietnam, and Europe, among others, Argentine delegations often met with host country business leaders.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic commercial entities in Argentina are regulated by the Commercial Partnerships Law (Law 19,550), the Argentina Civil and Commercial Code, and rules issued by the regulatory agencies. Foreign private entities can establish and own business enterprises and engage in all forms of remunerative activity in nearly all sectors.

Full foreign equity ownership of Argentine businesses is not restricted, for the most part, with exception in the air transportation and media industries. The share of foreign capital in companies that provide commercial passenger transportation within the Argentine territory is limited to 49 percent per the Aeronautic Code Law 17,285. The company must be incorporated according to Argentine law and domiciled in Buenos Aires. In the media sector, Law 25,750 establishes a limit on foreign ownership in television, radio, newspapers, journals, magazines, and publishing companies to 30 percent.

Law 26,737 (Regime for Protection of National Domain over Ownership, Possession or Tenure of Rural Land) establishes that a foreigner cannot own land that allows for the extension of existing bodies of water or that are located near a Border Security Zone. In February 2012, the government issued Decree 274/2012 further restricting foreign ownership to a maximum of 30 percent of national land and 15 percent of productive land. Foreign individuals or foreign company ownership is limited to 1,000 hectares (2,470 acres) in the most productive farming areas. In June 2016, the Macri administration issued Decree 820 easing the requirements for foreign land ownership by changing the percentage that defines foreign ownership of a person or company, raising it from 25 percent to 51 percent of the social capital of a legal entity. Waivers are not available.

Argentina does not maintain an investment screening mechanism for inbound foreign investment. U.S. investors are not at a disadvantage to other foreign investors or singled out for discriminatory treatment.

Other Investment Policy Reviews

Argentina was last subject to an investment policy review by the OECD in 1997 and a trade policy review by the WTO in 2013. The United Nations Conference on Trade and Development (UNCTAD) has not done an investment policy review of Argentina.

Business Facilitation

Since entering into office in December 2015, the Macri administration has enacted reforms to normalize financial and commercial transactions and facilitate business creation and cross-border trade. These reforms include eliminating capital controls, reducing some export taxes and import restrictions, reducing business administrative processes, decreasing tax burdens, increasing businesses’ access to financing, and streamlining customs controls.

In October 2016, the Ministry of Production issued Decree 1079/2016, easing bureaucratic hurdles for foreign trade and creating a Single Window for Foreign Trade (“VUCE” for its Spanish acronym). The VUCE centralizes the administration of all required paperwork for the import, export, and transit of goods (e.g., certificates, permits, licenses, and other authorizations and documents). Argentina subjects imports to automatic or non-automatic licenses that are managed through the Comprehensive Import Monitoring System (SIMI, or Sistema Integral de Monitoreo de Importaciones), established in December 2015 by the National Tax Agency (AFIP by its Spanish acronym) through Resolutions 5/2015 and 3823/2015. The SIMI system requires importers to submit detailed information electronically about goods to be imported into Argentina. Once the information is submitted, the relevant Argentine government agencies can review the application through the VUCE and make any observations or request additional information. The number of products subjected to non-automatic licenses has been modified several times, resulting in a net decrease since the beginning of the SIMI system.

The Argentine Congress approved an Entrepreneurs’ Law in March 2017, which allows for the creation of a simplified joint-stock company (SAS, or Sociedad por Acciones Simplifacada) online within 24 hours of registration. Detailed information on how to register a SAS is available at: https://www.argentina.gob.ar/crear-una-sociedad-por-acciones-simplificada-sas . As of April 2019, the online business registration process is only available for companies located in Buenos Aires. The government is working on expanding the SAS to other provinces. Further information can be found at http://www.produccion.gob.ar/todo-sobre-la-ley-de-emprendedores/.

Foreign investors seeking to set up business operations in Argentina follow the same procedures as domestic entities without prior approval and under the same conditions as local investors. To open a local branch of a foreign company in Argentina, the parent company must be legally registered in Argentina. Argentine law requires at least two equity holders, with the minority equity holder maintaining at least a five percent interest. In addition to the procedures required of a domestic company, a foreign company establishing itself in Argentina must legalize the parent company’s documents, register the incoming foreign capital with the Argentine Central Bank, and obtain a trading license.

A company must register its name with the Office of Corporations (IGJ, or Inspeccion General de Justicia). The IGJ website describes the registration process and some portions can be completed online (http://www.jus.gob.ar/igj/tramites/guia-de-tramites/inscripcion-en-el-registro-publico-de-comercio.aspx ). Once the IGJ registers the company, the company must request that the College of Public Notaries submit the company’s accounting books to be certified with the IGJ. The company’s legal representative must obtain a tax identification number from AFIP, register for social security, and obtain blank receipts from another agency. Companies can register with AFIP online at www.afip.gob.ar or by submitting the sworn affidavit form No. 885 to AFIP.

Details on how to register a company can be found at the Ministry of Production and Labor’s website: https://www.argentina.gob.ar/produccion/crear-una-empresa . Instructions on how to obtain a tax identification code can be found at: https://www.argentina.gob.ar/obtener-el-cuit .

The enterprise must also provide workers’ compensation insurance for its employees through the Workers’ Compensation Agency (ART, or Aseguradora de Riesgos del Trabajo). The company must register and certify its accounting of wages and salaries with the Directorate of Labor, within the Ministry of Production and Labor.

In April 2016, the Small Business Administration of the United States and the Ministry of Production of Argentina signed a Memorandum of Understanding (MOU) to set up small and medium sized business development centers (SBDCs) in Argentina. The goal of the MOU is to provide small businesses with tools to improve their productivity and increase their growth. Under the MOU, in June 2017, Argentina set up the first SBDC pilot in the province of Neuquen.

The Ministry of Production and Labor offers a wide range of attendance-based courses and online training for businesses. The full training menu can be viewed at: https://www.argentina.gob.ar/produccion/capacitacion 

Outward Investment

Argentina does not have a governmental agency to promote Argentine investors to invest abroad nor does it have any restrictions for a domestic investor investing overseas.

Argentina has a Bilateral Investment Treaty (BIT) with the United States, which entered into force on October 20, 1994. The text of the Argentina-United States BIT is available at: http://2001-2009.state.gov/documents/organization/43475.pdf .

As of April 2019, Argentina has 50 BITs in force. Argentina has signed treaties that are not yet in force with six other countries: Greece (October 1999), New Zealand (August 1999), the Dominican Republic (March 2001), Qatar (November 2016), United Arab Emirates (April 2018), and Japan (December 2018).

During 2018 and the first quarter of 2019, Argentina continued discussions to strengthen bilateral commercial, economic, and investment cooperation with a number of countries, including China, Denmark, India, Mexico, Japan, the Netherlands, Spain, South Korea, Russia, Vietnam, and the United States. Argentina and the United States established a bilateral Commercial Dialogue and a Trade and Investment Framework Agreement (TIFA) in 2016. Bilateral talks are ongoing through both mechanisms. Argentina does not have a Free Trade Agreement with the United States.

Argentina is a founding member of the Southern Common Market (MERCOSUR), which includes Brazil, Paraguay, Uruguay, and Venezuela (currently suspended). Through MERCOSUR, Argentina has Free Trade Agreements with Egypt, Israel, Bolivia, Chile, and Peru. MERCOSUR has Trade Framework Agreements with Morocco and Mexico, and Preferential Trade Agreements (PTA) with the Southern African Customs Union (SACU), India, Colombia, Chile, Mexico, and Ecuador. MERCOSUR is currently pursuing a Free Trade Agreement with the European Union and the European Free Trade Association (EFTA) and has initiated free trade discussions with Canada, South Korea, and Japan. The bloc is also in talks to expand on its agreements with SACU and India.

Argentina has Economic Complementarity Agreements with Bolivia, Colombia, Ecuador, Mexico, Peru, and Chile that were established before MERCOSUR and thus, grandfathered into Mercosur. Argentina is engaged in ongoing negotiations to expand the PTA agreement with Mexico. Argentina also has an economic association agreement with Colombia signed in June 2017. In January 2019, the expanded Economic Complementation Agreement (ECA) between Chile and Argentina entered into effect. The new ECA was signed in November 2017, approved by the Argentine Congress in December 2018, and ratified by the Chilean Congress in January 2019. The new deal includes trade facilitation regulation and development programs directed to supporting SMEs, and adds chapters on e-commerce, trade in services, and government procurement.

Argentina does not have a bilateral taxation treaty with the United States. In December 2016, Argentina signed a Tax Information Exchange Agreement with the United States, which increases the transparency of commercial transactions between the two countries to aid with combating tax and customs fraud. The Agreement entered into force on November 13, 2017. The United States and Argentina have initiated discussions to sign a Foreign Account Tax Compliance Act (FATCA) inter-governmental agreement.

In 2014, Argentina committed to implementing the OECD single global standard on automatic exchange of financial information. According to media sources, Argentina had been set to make its first financial information exchange in September 2018, but it was postponed to 2019.

In June 2018, AFIP and the OECD signed an MOU to establish the first Latin American Financial and Fiscal Crime Investigation Academy.

Argentina has signed 18 double taxation treaties, including with Germany, Canada, Russia, and the United Kingdom. In November 2016, Argentina and Switzerland signed a bilateral double taxation treaty. In November 2016, Argentina signed an agreement with the United Arab Emirates, which has not yet entered into force. In July 2017, Argentina updated a prior agreement with Brazil, which also has not yet been implemented. Argentina also has customs agreements with numerous countries. A full listing is available at: http://www.afip.gov.ar/institucional/acuerdos.asp .

In general, national taxation rules do not discriminate against foreigners or foreign firms (e.g., asset taxes are applied to equity possessed by both domestic and foreign entities).

Transparency of the Regulatory System

The Macri administration has taken measures to improve government transparency. President Macri created the Ministry of Modernization, tasked with conducting quantitative and qualitative studies of government procedures and finding solutions to streamline bureaucratic processes and improve transparency. In September 2018, the Ministry of Modernization was downgraded into a Secretariat due to a budget-oriented streamlining of the Cabinet.

In September 2016, Argentina enacted a Right to Access Public Information Law (27,275) that mandates all three governmental branches (legislative, judicial, and executive), political parties, universities, and unions that receive public funding are to provide non-classified information at the request of any citizen. The law also created the Agency for the Right to Access Public Information to oversee compliance.

Continuing its efforts to improve transparency, in November 2017, the Treasury Ministry launched a new website to communicate how the government spends public funds in a user-friendly format. Subsections of this website are targeted toward policymakers, such as a new page to monitor budget performance (http://www.aaip.gob.ar/hacienda/sechacienda/metasfiscales ), as well as improving citizens’ understanding of the budget, e.g. the new citizen’s budget “Presupuesto Ciudadano” website (https://www.minhacienda.gob.ar/onp/presupuesto_ciudadano/). This program is part of the broader Macri administration initiative led by the Secretariat of Modernization to build a transparent, active, and innovative state that includes data and information from every area of the public administration. The initiative aligns with the Global Initiative for Fiscal Transparency (GIFT) and UN Resolution 67/218 on promoting transparency, participation, and accountability in fiscal policy.

During 2017, the government introduced new procurement standards including electronic procurement, formalization of procedures for costing-out projects, and transparent processes to renegotiate debts to suppliers. The government also introduced OECD recommendations on corporate governance for state-owned enterprises to promote transparency and accountability during the procurement process. (The link to the regulation is at http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=306769 .)

Argentine government efforts to improve transparency were recognized internationally. In its December 2017 Article IV consultation, the International Monetary Fund (IMF) Executive Board noted that “Argentina’s government made important progress in restoring integrity and transparency in public sector operations,” and agreed with the staff appraisal that commended the government for the progress made in the systemic transformation of the Argentine economy, including efforts to rebuild institutions and restore integrity, transparency, and efficiency in government.

On January 10, 2018, the government issued Decree 27 with the aim of curbing bureaucracy and simplifying administrative proceedings to promote the dynamic and effective functioning of public administration. Broadly, the decree seeks to eliminate regulatory barriers and reduce bureaucratic burdens, expedite and simplify processes in the public domain, and deploy existing technological tools to better focus on transparency.

In April 2018, Argentina passed the Business Criminal Responsibility Law (27,041) through Decree 277. The decree establishes an Anti-Corruption Office in charge of outlining and monitoring the transparency policies with which companies must comply to be eligible for public procurement.

Under the bilateral Commercial Dialogue, Argentina and the United States discuss good regulatory practices, conducting regulatory impact analyses, and improving the incorporation of public consultations in the regulatory process. Similarly, under the bilateral Digital Economy Working Group, Argentina and the United States share best practices on promoting competition, spectrum management policy, and broadband investment and wireless infrastructure development.

Legislation can be drafted and proposed by any citizen and is subject to Congressional and Executive approval before being passed into law. Argentine government authorities and a number of quasi-independent regulatory entities can issue regulations and norms within their mandates. There are no informal regulatory processes managed by non-governmental organizations or private sector associations. Rulemaking has traditionally been a top-down process in Argentina, unlike in the United States where industry organizations often lead in the development of standards and technical regulations.

Ministries, regulatory agencies, and Congress are not obligated to provide a list of anticipated regulatory changes or proposals, share draft regulations with the public, or establish a timeline for public comment. They are also not required to conduct impact assessments of the proposed legislation and regulations.

Since 2016, the Office of the President and various ministries has sought to increase public consultation in the rulemaking process; however, public consultation is non-binding and has been done in an ad-hoc fashion. In 2017, the Federal Government of Argentina issued a series of legal instruments that seek to promote the use of tools to improve the quality of the regulatory framework. Amongst them, Decree 891/2017 for Good Practices in Simplification establishes a series of tools to improve the rulemaking process. The decree introduces tools on ex-ante and ex-post evaluation of regulation, stakeholder engagement, and administrative simplification, amongst others. Nevertheless, no formal oversight mechanism has been established to supervise the use of these tools across the line of ministries and government agencies, which make implementation difficult and limit severely the potential to adopt a whole-of-government approach to regulatory policy, according to a 2019 OECD publication on Regulatory Policy in Argentina.

Some ministries and agencies have developed their own processes for public consultation, such as publishing the draft on their websites, directly distributing the draft to interested stakeholders for feedback, or holding public hearings. In 2016 the Ministry of Justice and Human Rights launched the digital platform Justicia2020 (https://www.justicia2020.gob.ar/ ), to foster public involvement in the Judiciary reform process projected by 2020. Once the draft of a bill is introduced into the Argentine Congress, the full text of the bill and its status can be viewed online at the Chamber of Deputies website (http://www.diputados.gov.ar/), and that of the Senate (http://www.senado.gov.ar/ ).

All final texts of laws, regulations, resolutions, dispositions, and administrative decisions must be published in the Official Gazette (https://www.boletinoficial.gob.ar ), as well as in the newspapers and the websites of the Ministries and agencies. These texts can also be accessed through the official website Infoleg (http://www.infoleg.gob.ar/ ), overseen by the Ministry of Justice. Interested stakeholders can pursue judicial review of regulatory decisions.

Argentina requires public companies to adhere to International Financial Reporting Standards (IFRS). Argentina is a member of UNCTAD’s international network of transparent investment procedures.

International Regulatory Considerations

Argentina is a founding member of MERCOSUR and has been a member of the Latin American Integration Association (ALADI for Asociacion Latinoamericana de Integracion) since 1980.

Argentina has been a member of the WTO since 1995 and it ratified the Trade Facilitation Agreement in January 2018. Argentina notifies technical regulations, but not proposed drafts, to the WTO Committee on Technical Barriers to Trade. Argentina has sought to deepen its engagement with the OECD and submitted itself to an OECD regulatory policy review in March 2018, which was released in Mach 2019. Argentina participates in all 23 OECD committees and seeks an accession invitation before the end of 2019.

Additionally, the Argentine Institute for Standards and Certifications (IRAM) is a member of international and regional standards bodies including the International Standardization Organization (ISO), the International Electrotechnical Commission (IEC), the Panamerican Commission on Technical Standards (COPAM), the MERCOSUR Association of Standardization (AMN), the International Certification Network (i-Qnet), the System of Conformity Assessment for Electrotechnical Equipment and Components (IECEE), and the Global Good Agricultural Practice network (GLOBALG.A.P.).

Legal System and Judicial Independence

According to the Argentine constitution, the judiciary is a separate and equal branch of government. In practice, there have been instances of political interference in the judicial process. Companies have complained that courts lack transparency and reliability, and that Argentine governments have used the judicial system to pressure the private sector. A 2017 working group review of Argentina’s application to join the OECD noted the politicization of the General Prosecutor’s Office created a lack of prosecutorial independence. The OECD working group said the executive branch, prior to the Macri government, had pressured judges through threatened or actual disciplinary proceedings. Media revelations of judicial impropriety and corruption feed public perception and undermine confidence in the judiciary.  

The Macri administration has publicly expressed its intent to improve transparency and rule of law in the judicial system, and the Justice Minister announced in March 2016 the “Justice 2020” initiative to reform the judiciary.

Argentina follows a Civil Law system. In 2014, the Argentine government passed a new Civil and Commercial Code that has been in effect since August 2015. The Civil and Commercial Code provides regulations for civil and commercial liability, including ownership of real and intangible property claims. The current judicial process is lengthy and suffers from significant backlogs. In the Argentine legal system, appeals may be brought from many rulings of the lower court, including evidentiary decisions, not just final orders, which significantly slows all aspects of the system. The Justice Ministry reported in December 2018 that the expanded use of oral processes had reduced the duration of 68 percent of all civil matters to less than two years.  

Many foreign investors prefer to rely on private or international arbitration when those options are available. Claims regarding labor practices are processed through a labor court, regulated by Law 18,345 and its subsequent amendments and implementing regulations by Decree 106/98. Contracts often include clauses designating specific judicial or arbitral recourse for dispute settlement.

Laws and Regulations on Foreign Direct Investment

According to the Foreign Direct Investment Law 21,382 and Decree 1853/93, foreign investors may invest in Argentina without prior governmental approval, under the same conditions as investors domiciled within the country. Foreign investors are free to enter into mergers, acquisitions, greenfield investments, or joint ventures. Foreign firms may also participate in publicly-financed research and development programs on a national treatment basis. Incoming foreign currency must be identified by the participating bank to the Central Bank of Argentina (www.bcra.gov.ar). There is no official regulation or other interference in the court that could affect foreign investors.

All foreign and domestic commercial entities in Argentina are regulated by the Commercial Partnerships Law (Law No. 19,550) and the rules issued by the commercial regulatory agencies. Decree 27/2018 amended Law 19,550 to simplify bureaucratic procedures. Full text of the decree can be found at (http://servicios.infoleg.gob.ar/infolegInternet/anexos/305000-309999/305736/norma.htm ). All other laws and norms concerning commercial entities are established in the Argentina Civil and Commercial Code, which can be found at: http://servicios.infoleg.gob.ar/infolegInternet/anexos/235000-239999/235975/norma.htm 

Further information about Argentina’s investment policies can be found at the following websites:

• Ministry of Production and Labor (http://www.produccion.gob.ar/ )
• Treasury Ministry (https://www.argentina.gob.ar/hacienda )
• The Central Bank of the Argentine Republic (http://www.bcra.gov.ar/ )
• The National Securities Exchange Commission (http://www.cnv.gob.ar/ )
• The National Investment and Trade Promotion Agency (http://www.inversionycomercio.org.ar/ )
• Investors can download Argentina’s investor guide through this link: (https://drive.google.com/file/d/0B-086VB27JBjN0x0NmM4Y09GODA/view )

Competition and Anti-Trust Laws

The National Commission for the Defense of Competition and the Secretariat of Commerce, both within the Ministry of Production and Labor, have enforcement authority of the Competition Law (Law 25,156). The law aims to promote a culture of competition in all sectors of the national economy. In May 2018, the Argentine Congress approved a new Defense of the Competition Law (Law 27,442). The new law incorporates anti-competitive conduct regulations and a leniency program to facilitate cartel investigation. The full text of the law can be viewed at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=310241 .

Expropriation and Compensation

Section 17 of the Argentine Constitution affirms the right of private property and states that any expropriation must be authorized by law and compensation must be provided. The United States-Argentina BIT states that investments shall not be expropriated or nationalized except for public purposes upon prompt payment of the fair market value in compensation.

Argentina has a history of expropriations under previous administrations, the most recent of which occurred in March 2015 when the Argentine Congress approved the nationalization of the train and railway system. A number of companies that were privatized during the 1990s under the Menem administration were renationalized under the Kirchner administrations. Additionally, in October 2008, Argentina nationalized its private pension funds, which amounted to approximately one-third of total GDP, and transferred the funds to the government social security agency.

In May 2012, the Fernandez de Kirchner administration nationalized the oil and gas company Repsol-YPF. Although most of the litigation was settled in 2016, a small percentage of stocks owned by an American hedge fund remain in litigation in U.S. courts.

Dispute Settlement

ICSID Convention and New York Convention

Argentina is signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards, which the country ratified in 1989. Argentina is also a party to the International Center for Settlement of Investment Disputes (ICSID) Convention since 1994.

There is neither specific domestic legislation providing for enforcement under the 1958 New York Convention nor legislation for the enforcement of awards under the ICSID Convention. Companies that seek recourse through Argentine courts may not simultaneously pursue recourse through international arbitration. In practice, the Macri administration has shown a willingness to negotiate settlements to valid arbitration awards.

In March 2012, the United States suspended Argentina’s designation as a Generalized System of Preferences (GSP) beneficiary developing country because it had not acted in good faith in enforcing arbitration awards in favor of United States citizens or a corporation, partnership, or association that is 50 percent or more beneficially owned by United States citizens. Effective January 1, 2018, the United States ended Argentina’s suspension from the GSP program.  Following Congressional reauthorization of the program, as of April 22, 2018, Argentina’s access was restored for GSP duty-free treatment for over 3,000 Argentine products.

Investor-State Dispute Settlement

The Argentine government officially accepts the principle of international arbitration. The United States-Argentina BIT includes a chapter on Investor-State Dispute Settlement for U.S. investors.

In the past ten years, Argentina has been brought before the ICSID in 54 cases involving U.S. or other foreign investors. Argentina currently has four pending arbitration cases filed against it by U.S. investors. For more information on the cases brought by U.S. claimants against Argentina, go to: https://icsid.worldbank.org/en/Pages/cases/AdvancedSearch.aspx# .

Local courts cannot enforce arbitral awards issued against the government based on the public policy clause. There is no history of extrajudicial action against foreign investors.

Argentina is a member of the United Nations Commission on International Trade Law (UNCITRAL) and the World Bank’s Multilateral Investment Guarantee Agency (MIGA).

Argentina is also a party to several bilateral and multilateral treaties and conventions for the enforcement and recognition of foreign judgments, which provide requirements for the enforcement of foreign judgments in Argentina, including:

Treaty of International Procedural Law, approved in the South-American Congress of Private International Law held in Montevideo in 1898, ratified by Argentina by law No. 3,192.

Treaty of International Procedural Law, approved in the South-American Congress of Private International Law held in Montevideo in 1939-1940, ratified by Dec. Ley 7771/56 (1956).

Panamá Convention of 1975, CIDIP I: Inter-American Convention on International Commercial Arbitration, adopted within the Private International Law Conferences – Organization of American States, ratified by law No. 24,322 (1995).

Montevideo Convention of 1979, CIDIP II: Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards, adopted within the Private International Law Conferences – Organization of American States, ratified by law No. 22,921 (1983).

International Commercial Arbitration and Foreign Courts

Alternative dispute resolution (ADR) mechanisms can be stipulated in contracts. Argentina also has ADR mechanisms available such as the Center for Mediation and Arbitrage (CEMARC) of the Argentine Chamber of Trade. More information can be found at: http://www.intracen.org/Centro-de-Mediacion-y-Arbitraje-Comercial-de-la-Camara-Argentina-de-Comercio—CEMARC–/#sthash.RagZdv0l.dpuf .

Argentina does not have a specific law governing arbitration, but it has adopted a mediation law (Law 24.573/1995), which makes mediation mandatory prior to litigation. Some arbitration provisions are scattered throughout the Civil Code, the National Code of Civil and Commercial Procedure, the Commercial Code, and three other laws. The following methods of concluding an arbitration agreement are non-binding under Argentine law: electronic communication, fax, oral agreement, and conduct on the part of one party. Generally, all commercial matters are subject to arbitration. There are no legal restrictions on the identity and professional qualifications of arbitrators. Parties must be represented in arbitration proceedings in Argentina by attorneys who are licensed to practice locally. The grounds for annulment of arbitration awards are limited to substantial procedural violations, an ultra petita award (award outside the scope of the arbitration agreement), an award rendered after the agreed-upon time limit, and a public order violation that is not yet settled by jurisprudence when related to the merits of the award. On average, it takes around 21 weeks to enforce an arbitration award rendered in Argentina, from filing an application to a writ of execution attaching assets (assuming there is no appeal). It takes roughly 18 weeks to enforce a foreign award. The requirements for the enforcement of foreign judgments are set out in section 517 of the National Procedural Code.

No information is available as to whether the domestic courts frequently rule in cases in favor of state-owned enterprises (SOE) when SOEs are party to a dispute.

Bankruptcy Regulations

Argentina’s bankruptcy law was codified in 1995 in Law 24,522. The full text can be found at: http://www.infoleg.gov.ar/infolegInternet/anexos/25000-29999/25379/texact.htm . Under the law, debtors are generally able to begin insolvency proceedings when they are no longer able to pay their debts as they mature. Debtors may file for both liquidation and reorganization. Creditors may file for insolvency of the debtor for liquidation only. The insolvency framework does not require approval by the creditors for the selection or appointment of the insolvency representative or for the sale of substantial assets of the debtor. The insolvency framework does not provide rights to the creditor to request information from the insolvency representative but the creditor has the right to object to decisions by the debtor to accept or reject creditors’ claims. Bankruptcy is not criminalized; however, convictions for fraudulent bankruptcy can carry two to six years of prison time.

Financial institutions regulated by the Central Bank of Argentina (BCRA) publish monthly outstanding credit balances of their debtors; the BCRA and the National Center of Debtors (Central de Deudores) compile and publish this information. The database is available for use of financial institutions that comply with legal requirements concerning protection of personal data. The credit monitoring system only includes negative information, and the information remains on file through the person’s life. At least one local NGO that makes microcredit loans is working to make the payment history of these loans publicly accessible for the purpose of demonstrating credit history, including positive information, for those without access to bank accounts and who are outside of the Central Bank’s system. Equifax, which operates under the local name “Veraz” (or “truthfully”), also provides credit information to financial institutions and other clients, such as telecommunications service providers and other retailers that operate monthly billing or credit/layaway programs.

The World Bank’s 2018 Doing Business Report ranked Argentina 101 among 189 countries for the effectiveness of its insolvency law. This is a jump of 15 places from its ranking of 116 in 2017. The report notes that it takes an average of 2.4 years and 16.5 percent of the estate to resolve bankruptcy in Argentina.

Investment Incentives

Government incentives do not make any distinction between foreign and domestic investors.

The Argentine government offers a number of investment promotion programs at the federal, provincial, and municipal levels to attract investment to specific economic sectors such as capital assets and infrastructure, innovation and technological development, and energy, with no discrimination between national or foreign-owned enterprises. They also offer incentives to encourage the productive development of specific geographical areas. The Investment and International Trade Promotion Agency provides cost-free assessment and information to investors to facilitate operations in the country. Argentina’s investment promotion programs and regimes can be found at: http://www.investandtrade.org.ar/?lang=en  http://www.inversionycomercio.org.ar/en/where_tax_benefits.php?wia=1&lang=en<http://www.inversionycomercio.org.ar/docs/pdf/Doing_Business_in_Argentina-2018.pdf, and http://www.produccion.gob.ar.

The National Fund for the Development of Micro, Small, and Medium Enterprises provides low cost credit to small and medium-sized enterprises for investment projects, labor, capital, and energy efficiency improvement with no distinction between national or foreign-owned enterprises. More information can be found at https://www.argentina.gob.ar/produccion/financiamiento 

The Ministry of Production and Labor supports numerous employment training programs that are frequently free to the participants and do not differentiate based on nationality.

Some of the investment promotion programs require investments within a specific region or locality, industry, or economic activity. Some programs offer refunds on Value-Added Tax (VAT) or other tax incentives for local production of capital goods.

Foreign Trade Zones/Free Ports/Trade Facilitation

Argentina has two types of tax-exempt trading areas: Free Trade Zones (FTZ), which are located throughout the country, and the more comprehensive Special Customs Area (SCA), which covers all of Tierra del Fuego Province and is scheduled to expire at the end of 2023.

Argentine law defines an FTZ as a territory outside the “general customs area” (GCA, i.e., the rest of Argentina) where neither the inflows nor outflows of exported final merchandise are subject to tariffs, non-tariff barriers, or other taxes on goods. Goods produced within a FTZ generally cannot be shipped to the GCA unless they are capital goods not produced in the rest of the country. The labor, sanitary, ecological, safety, criminal, and financial regulations within FTZs are the same as those that prevail in the GCA. Foreign firms receive national treatment in FTZs.

Merchandise shipped from the GCA to a FTZ may receive export incentive benefits, if applicable, only after the goods are exported from the FTZ to a third country destination. Merchandise shipped from the GCA to a FTZ and later exported to another country is not exempt from export taxes. Any value added in an FTZ or re-export from an FTZ is exempt from export taxes. For more information on FTZ in Argentina see: http://www.afip.gob.ar/zonasFrancas/ .

Products manufactured in an SCA may enter the GCA free from taxes or tariffs. In addition, the government may enact special regulations that exempt products shipped through an SCA (but not manufactured therein) from all forms of taxation except excise taxes. The SCA program provides benefits for established companies that meet specific production and employment objectives.

Performance and Data Localization Requirements

Employment and Investor Requirements

The Argentine national government does not have local employment mandates nor does it apply such schemes to senior management or boards of directors. However, certain provincial governments do require employers to hire a certain percentage of their workforce from provincial residents. There are no excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors and their employees. Under Argentine Law, conditions to invest are equal for national and foreign investors. As of March 2018, citizens of MERCOSUR countries can obtain legal residence within five months and at little cost, which grants permission to work. Argentina suspended its method for expediting this process in early 2018.

Goods, Technology, and Data Treatment

Argentina has local content requirements for specific sectors. Requirements are applicable to domestic and foreign investors equally. Argentine law establishes a national preference for local industry for most government procurement if the domestic supplier’s tender is no more than five to seven percent higher than the foreign tender. The amount by which the domestic bid may exceed a foreign bid depends on the size of the domestic company making the bid. On May 10, 2018, Argentina issued Law 27,437, giving additional priority to Argentine small and medium-sized enterprises and, separately, requiring that foreign companies that win a tender must subcontract domestic companies to cover 20 percent of the value of the work. The preference applies to procurement by all government agencies, public utilities, and concessionaires.  There is similar legislation at the sub-national (provincial) level.

On September 5, 2018, the government issued Decree 800/2018, which provides the regulatory framework for Law 27,437. On November 16, 2016, the government passed a public-private partnership (PPP) law (27,328) that regulates public-private contracts. The law lowered regulatory barriers to foreign investment in public infrastructure projects with the aim of attracting more foreign direct investment. Several projects under the PPP initiative have been canceled or put on hold due to an ongoing investigation on corruption in public works projects during the last administration. The PPP law contains a “Buy Argentina” clause that mandates at least 33 percent local content for every public project.

Argentina is not a signatory to the WTO Agreement on Government Procurement (GPA), but it became an observer to the GPA in February 1997.

On July 5, 2016, the Ministry of Production and Labor and the Ministry of Energy and Mining issued Joint Resolutions 123 and 313, which allow companies to obtain tax benefits on purchases of solar or wind energy equipment for use in investment projects that incorporate at least 60 percent local content in their electromechanical installations.  In cases where local supply is insufficient to reach the 60 percent threshold, the threshold can be reduced to 30 percent. The resolutions also provide tax exemptions for imports of capital and intermediate goods that are not locally produced for use in the investment projects.

On August 1, 2016, Argentina passed law 27,263, implemented by Resolution 599-E/2016, which provides tax credits to automotive manufacturers for the purchase of locally-produced automotive parts and accessories incorporated into specific types of vehicles. The tax credits range from 4 percent to 15 percent of the value of the purchased parts.  The list of vehicle types included in the regime can be found here: http://servicios.infoleg.gob.ar/infolegInternet/anexos/260000-264999/263955/norma.htm . On April 20, 2018, Argentina issued Resolution 28/2018, simplifying the procedure for obtaining the tax credits. The resolution also establishes that if the national content drops below the minimum required by the resolution because of relative price changes due to exchange rate fluctuations, automotive manufacturers will not be considered non-compliant with the regime. However, the resolution sets forth that tax benefits will be suspended for the quarter when the drop was registered.

The Media Law, enacted in 2009 and amended in 2015, requires companies to produce advertising and publicity materials locally or to include 60 percent local content. The Media Law also establishes a 70 percent local production content requirement for companies with radio licenses. Additionally, the Media Law requires that 50 percent of the news and 30 percent of the music that is broadcast on the radio be of Argentine origin. In the case of private television operators, at least 60 percent of broadcast content must be of Argentine origin. Of that 60 percent, 30 percent must be local news and 10 to 30 percent must be local independent content.

Argentina establishes percentages of local content in the production process for manufacturers of mobile and cellular radio communication equipment operating in Tierra del Fuego province.  Resolution 66, issued July 12, 2018, replaces Resolution 1219/2015 and maintains the local content requirement for products such as technical manuals, packaging, and labeling. Resolution 66 eliminated the local content requirement imposed by Resolution 1219 for batteries, screws, and chargers. The percentage of local content required ranges from 10 percent to 100 percent depending on the process or item. In cases where local supply is insufficient to meet local content requirements, companies may apply for an exemption that is subject to review every six months. A detailed description of local content percentage requirements can be found here .

There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption, nor does the government prevent companies from freely transmitting customer or other business-related data outside the country’s territory.

Argentina does not have forced localization of content in technology or requirements of data storage in country.

Investment Performance Requirements

There is no discrimination between domestic and foreign investors in investment incentives. There are no performance requirements. A complete guide of incentives for investors in Argentina can be found at: http://www.inversionycomercio.org.ar/invest_argentina.php .

Real Property

Secured interests in property, including mortgages, are recognized in Argentina. Such interests can be easily and effectively registered. They also can be readily bought and sold. Argentina manages a national registry of real estate ownership (Registro de la Propiedad Inmueble) at http://www.dnrpi.jus.gov.ar/ . No data is available on the percent of all land that does not have clear title. There are no specific regulations regarding land lease and acquisition of residential and commercial real estate by foreign investors. Law 26,737 (Regime for Protection of National Domain over Ownership, Possession or Tenure of Rural Land) establishes the restrictions of foreign ownership on rural and productive lands, including water bodies. Foreign ownership is also restricted on land located near borders.

Legal claims may be brought to evict persons unlawfully occupying real property, even if the property is unoccupied by the lawful owner. However, these legal proceedings can be quite lengthy, and until the legal proceedings are complete, evicting squatters is problematic. The title and actual conditions of real property interests under consideration should be carefully reviewed before acquisition.

Argentine Law 26.160 prevents the eviction and confiscation of land traditionally occupied by indigenous communities in Argentina, or encumbered with an indigenous land claim. Indigenous land claims can be found in the land registry. Enforcement is carried out by the National Institute of Indigenous Affairs, under the Ministry of Social Development.

Intellectual Property Rights

The government of Argentina adheres to some treaties and international agreements on intellectual property (IP) and belongs to the World Intellectual Property Organization and the World Trade Organization. The Argentine Congress ratified the Uruguay Round agreements, including the provisions on intellectual property, in Law 24425 on January 5, 1995.

The U.S. Trade Representative’s 2019 Special 301 Report identified Argentina on the Priority Watch List. Trading partners on the Priority Watch List present the most significant concerns regarding inadequate or ineffective IP protection or enforcement or actions that otherwise limit market access for persons relying on IP protection. For a complete version of the 2019 Report, see: https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/april/ustr-releases-2018-special-301-report .

Argentina continues to present longstanding and well-known challenges to IP-intensive industries, including from the United States. A key deficiency in Argentina’s legal framework for patents is the unduly broad limitations on patent eligible subject matter. Pursuant to a highly problematic 2012 Joint Resolution establishing guidelines for the examination of patents, Argentina rejects patent applications for categories of pharmaceutical inventions that are eligible for patentability in other jurisdictions, including in the United States. Additionally, to be patentable, Argentina requires that processes for the manufacture of active compounds disclosed in a specification be reproducible and applicable on an industrial scale. Stakeholders assert that Resolution 283/2015, introduced in September 2015, also limits the ability to patent biotechnological innovations based on living matter and natural substances. Such measures have interfered with the ability of companies investing in Argentina to protect their IP and may be inconsistent with international norms. Another ongoing challenge to the innovative agricultural, chemical, and pharmaceutical sectors is inadequate protection against the unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for products in those sectors. Argentina struggles with a substantial backlog of patent applications resulting in long delays for innovators seeking patent protection in the market, a problem compounded by a reduction in the number of patent examiners in 2018 primarily due to a government-wide hiring freeze.

Enforcement of IP rights in Argentina continues to be a challenge and stakeholders report widespread unfair competition from sellers of counterfeit and pirated goods and services. La Salada in Buenos Aires remains the largest counterfeit market in Latin America. Argentine police generally do not take ex officio actions, prosecutions can stall and languish in excessive formalities, and, when a criminal case does reach final judgment, infringers rarely receive deterrent sentences. Hard goods counterfeiting and optical disc piracy is widespread, and online piracy continues to grow as criminal enforcement against online piracy is nearly nonexistent. As a result, IP enforcement online in Argentina consists mainly of right holders trying to convince cooperative Argentine ISPs to agree to take down specific infringing works, as well as attempting to seek injunctions in civil cases. Right holders also cite widespread use of unlicensed software by Argentine private enterprises and the government.

Over the last year, Argentina made limited progress in IP protection and enforcement. Beset with economic challenges, Argentina’s government agencies were strapped by a reduction of funding and a government-wide hiring freeze, and many of Argentina’s IP-related initiatives that had gained momentum last year did not gain further traction due to a lack of resources. Despite these circumstances, the National Institute of Industrial Property (INPI) revamped its procedures and began accepting electronic filing of patent, trademark, and industrial designs applications as of October 1, 2018. Argentina also improved registration procedures for trademarks and industrial designs.  On trademarks, the law now provides for a fast track option that reduces the time to register a trademark to four months. The United States continues to monitor this change as INPI works on the implementing regulation. For industrial designs, INPI now accepts multiple applications in a single filing and applicants may substitute digital photographs for formal drawings. To further improve patent protection in Argentina, including for small and medium-sized enterprises, the United States urges Argentina to ratify the Patent Cooperation Treaty (PCT).

Argentina’s efforts to combat counterfeiting continue, but without systemic measures, illegal activity persists.  Argentine authorities arrested the alleged operators of the market La Salada as well as numerous associates in 2017, but vendors continue to sell counterfeit and pirated goods at the market and throughout Buenos Aires. The United States has encouraged Argentina to create a national IP enforcement strategy to build on these successes and move to a sustainable, long-lasting initiative. The United States also has encouraged legislative proposals to this effect, along the lines of prior bills introduced in Congress to provide for landlord liability and stronger enforcement on the sale of infringing goods at outdoor marketplaces such as La Salada, and to amend the trademark law to increase criminal penalties for counterfeiting carried out by criminal networks. In November 2017, Argentina entered into an agreement with the Chamber of Medium-Sized Enterprises and the Argentine Anti-Piracy Association to create a National Anti-Piracy Initiative focusing initially on trademark counterfeiting. The United States encourages Argentina to expand this initiative to online piracy. In March, revisions to the criminal code, including certain criminal sanctions for circumventing technological protection measures (TPMs), were submitted to Congress. While Argentina has moved forward with the creation of a federal specialized IP prosecutor’s office, the office is not yet in operation. In November 2018, following a constructive bilateral meeting earlier in the year, Argentina and the United States held a DVC under the bilateral Innovation and Creativity Forum for Economic Development, part of the U.S.-Argentina Trade and Investment Framework Agreement (TIFA), to continue discussions and collaboration on IP topics of mutual interest. The United States intends to monitor all the outstanding issues for progress, and urges Argentina to continue its efforts to create a more attractive environment for investment and innovation.

For statistics on illegal sales in Argentina, go to the following link: http://redcame.org.ar/seccion/relevamiento-venta-ilegal 

Capital Markets and Portfolio Investment

The Macri administration has enacted a series of macroeconomic reforms (unifying the exchange rate, settling with holdout creditors, annulling most of the trade restrictions, lifting capital controls, to mention a few) to improve the investment climate. In May 2018, the Congress approved a new capital markets law aimed at boosting economic growth through the development and deepening of the local capital market. The law removed over-reaching regulatory intervention provisions introduced by the previous government and eased restrictions on mutual funds and foreign portfolio investment in domestic markets. Argentina also signed several bilateral agreements and MOUs with other countries aimed to increase foreign direct investment. There are no restrictions on payments and transfers abroad (in accordance with IMF Article VIII).

The Argentine Securities and Exchange Commission (CNV or Comision Nacional de Valores) is the federal agency that regulates securities markets offerings. Securities and accounting standards are transparent and consistent with international norms. Foreign investors have access to a variety of options on the local market to obtain credit. Nevertheless, the domestic credit market is small – credit is 16 percent of GDP, according to the World Bank. The Buenos Aires Stock Exchange is the organization responsible for the operation of Argentina’s primary stock exchange, located in Buenos Aires city. The most important index of the Buenos Aires Stock Exchange is the MERVAL (Mercado de Valores).

U.S. banks, securities firms, and investment funds are well-represented in Argentina and are dynamic players in local capital markets. In 2003, the government began requiring foreign banks to disclose to the public the nature and extent to which their foreign parent banks guarantee their branches or subsidiaries in Argentina.

Money and Banking System

Argentina has a relatively sound banking sector based on diversified revenues, well-contained operating costs, and a high liquidity level. The main challenge for banks is to rebuild long-term assets and liabilities. Due to adverse international and domestic conditions with the economy entering into a recession with high inflation and interest rates, credit to the private sector in local currency (for both corporations and individuals) decreased 18 percent in real terms in 2018. In spite of falling credit, banks remain well equipped to weather weak economic conditions. The largest bank is the Banco de la Nacion Argentina. Non-performing private sector loans constitute less than four percent of banks’ portfolios. The ten largest private banks have total assets of approximately ARS 2,643 billion (USD 64 billion). Total financial system assets are approximately ARS 5,506 billion (USD 134 billion). The Central Bank of Argentina acts as the country’s financial agent and is the main regulatory body for the banking system.

Foreign banks and branches are allowed to establish operations in Argentina. They are subject to the same regulation as local banks. Argentina’s Central Bank has many correspondent banking relationships, none of which are known to have been lost in the past three years.

The Central Bank has enacted a resolution recognizing cryptocurrencies and requiring that they comply with local banking and tax laws. No implementing regulations have been adopted. Blockchain developers report that several companies in the financial services sector are exploring or considering using blockchain-based programs externally and are using some such programs internally. One Argentine NGO, through funding from the Inter-American Development Bank (IDB), is developing blockchain-based banking applications to assist low income populations.

Foreign Exchange and Remittances

Foreign Exchange

President Macri has issued a number of regulations that lifted all capital controls and reduced trade restrictions. In November 2017, the government repealed the obligation to convert hard currency earnings on exports of both goods and services to pesos in the local foreign exchange market.

Per Resolution 36,162 of October 2011, locally registered insurance companies are mandated to maintain all investments and cash equivalents in the country. The BCRA limits banks’ dollar-denominated asset holdings to 10 percent of their net worth.

In June 2018, the International Monetary Fund (IMF) and Argentina announced a Standby Arrangement agreement (SBA). Three months after agreeing to a USD 50 billion SBA, Argentina and the IMF announced in September 2018 a set of revisions, including an increase of the line of credit by USD 7.1 billion and front loading the disbursement of funds. The revised program sought to erase any doubts about the government’s ability to cover its financing needs for 2018 and 2019 and in turn, Argentina committed to meeting strict new budget and monetary policy targets. On the monetary side, the BCRA replaced inflation targeting with a policy to ensure zero growth of the monetary base through December 2019. The BCRA also allows the exchange rate to float freely between a floor and ceiling of 34 and 44 pesos per dollar (at the time of introducing the framework).

Originally, the BCRA hoped that the floor and ceiling bounds would avoid a real appreciation of the peso; the adjustment started with a 3 percent monthly increase for the last quarter of 2018, and would drop to a monthly 1.75 percent increase for the second quarter of 2019. However, in mid-April 2019, the BCRA announced that the floor and ceiling will remain constant until the end of 2019, at 39.8 and 51.5 pesos per dollar, respectively. Under this framework, the BCRA may only sell up to USD 150 million reserves per day when trading above the ceiling.

Remittance Policies

According to Resolutions 3,819/2015 and 1/2017, companies and investors have no official restrictions on money conversion, remittances, or repatriation of their earnings.

Sovereign Wealth Funds

The Argentine Government does not maintain a Sovereign Wealth Fund.

The Argentine government has state-owned enterprises (SOEs) or significant stakes in mixed-capital companies in the following sectors: civil commercial aviation, water and sanitation, oil and gas, electricity generation, transport, paper production, satellite, banking, railway, shipyard, and aircraft ground handling services.

By Argentine law, a company is considered a public enterprise if the state owns 100 percent of the company’s shares. The state has majority control over a company if the state owns 51 percent of the company’s shares. The state has minority participation in a company if the state owns less than 51 percent of the company’s shares. Laws regulating state-owned enterprises and enterprises with state participation can be found at http://www.saij.gob.ar/13653-nacional-regimen-empresas-estado-lns0001871-1955-03-23/123456789-0abc-defg-g17-81000scanyel .

Through the government’s social security agency (ANSES), the Argentine government owns stakes ranging from one to 31 percent in 46 publically-listed companies. U.S. investors also own shares in some of these companies. As part of the ANSES takeover of Argentina’s private pension system in 2008, the government agreed to commit itself to being a passive investor in the companies and limit the exercise of its voting rights to 5 percent, regardless of the equity stake the social security agency owned. A list of such enterprises can be found at: http://fgs.anses.gob.ar/participacion .

State-owned enterprises purchase and supply goods and services from the private sector and foreign firms. Private enterprises may compete with SOEs under the same terms and conditions with respect to market share, products/services, and incentives. Private enterprises also have access to financing terms and conditions similar to SOEs. SOEs are subject to the same tax burden and tax rebate policies as their private sector competitors. SOEs are not currently subject to firm budget constraints under the law, and have been subsidized by the central government in the past; however, the Macri administration is reducing subsidies in the energy, water, and transportation sectors. Argentina does not have regulations that differentiate treatment of SOEs and private enterprises. Argentina has observer status under the WTO Agreement on Government Procurement and, as such, SOEs are subject to the conditions of Argentina’s observance.

Argentina does not have a specified ownership policy, guideline or governance code for how the government exercises ownership of SOEs. The country generally adheres to the OECD Guidelines on Corporate Governance of SOEs. The practices for SOEs are mainly in compliance with the policies and practices for transparency and accountability in the OECD Guidelines.

Argentina does not have a centralized ownership entity that exercises ownership rights for each of the SOEs. The general rule in Argentina is that requirements that apply to all listed companies also apply to publicly-listed SOEs.

In 2018, the OECD released a report evaluating the corporate governance framework for the Argentine SOE sector relative to the OECD Guidelines on Corporate Governance of SOEs, which can be viewed here: http://www.oecd.org/countries/argentina/oecd-review-corporate-governance-soe-argentina.htm .

Privatization Program

The current administration has not developed a privatization program.

There is an increasing awareness of corporate social responsibility (CSR) and responsible business conduct (RBC) among both producers and consumers in Argentina. RBC and CSR practices are welcomed by beneficiary communities throughout Argentina. There are many institutes that promote RBC and CSR in Argentina, the most prominent being the Argentine Institute for Business Social Responsibility (http://www.iarse.org /), which has been working in the country for more than 17 years and includes among its members many of the most important companies in Argentina.

Argentina is a member of the United Nation’s Global Compact. Established in April 2004, the Global Compact Network Argentina is a business-led network with a multi-stakeholder governing body elected for two-year terms by active participants. The network is supported by the United Nations Development Program (UNDP) Argentina in close collaboration with other UN Agencies. The Global Compact Network Argentina is the most important RBC/CSR initiative in the country with a presence in more than 20 provinces. More information on the initiative can be found at: http://pactoglobal.org.ar .

Foreign and local enterprises tend to follow generally accepted CSR/RBC principles. Argentina subscribed to the Declaration on the OECD Guidelines for Multinational Enterprises in April 1997.

Many provinces, such as Mendoza and Neuquen, have or are in the process of enacting a provincial CSR/RBC law. There have been many previously unsuccessful attempts to pass a CSR/RBC law. Distrust over the State’s role in private companies had been the main concern for legislators opposed to these bills.

In February 2019, the Argentine government joined the Extractive Industries Transparency Initiative (EITI).

Argentina’s legal system incorporates several measures to address public sector corruption. The government institutions tasked with combatting corruption include the Anti-Corruption Office (ACO), the National Auditor General, and the General Comptroller’s Office. Public officials are subject to financial disclosure laws, and the Ministry of Justice’s ACO is responsible for analyzing and investigating federal executive branch officials based on their financial disclosure forms. The ACO is also responsible for investigating corruption within the federal executive branch or in matters involving federal funds, except for funds transferred to the provinces. While the ACO does not have authority to independently prosecute cases, it can refer cases to other agencies or serve as the plaintiff and request a judge to initiate a case.

Argentina enacted a new Corporate Criminal Liability Law in November 2017 following the advice of the OECD to comply with its Anti-Bribery Convention. The full text of Law 27,401 can be found at: http://servicios.infoleg.gob.ar/infolegInternet/anexos/295000-299999/296846/norma.htm . The new law entered into force in early 2018. It extends anti-bribery criminal sanctions to corporations, whereas previously they only applied to individuals; expands the definition of prohibited conduct, including illegal enrichment of public officials; and allows Argentina to hold Argentines responsible for foreign bribery. Sanctions include fines and blacklisting from public contracts. Argentina also enacted an express prohibition on the tax deductibility of bribes.

Corruption has been an issue in Argentina. In its March 2017 report, the OECD expressed concern about Argentina’s enforcement of foreign bribery laws, inefficiencies in the judicial system, politicization and perceived lack of independence at the Attorney General’s Office, and lack of training and awareness for judges and prosecutors. According to the World Bank’s worldwide governance indicators, corruption remains an area of concern in Argentina. In the latest Transparency International Corruption Perceptions Index (CPI) that ranks countries and territories by their perceived levels of corruption, Argentina ranked 85 out of 180 countries in 2018, an improvement of 10 places versus 2016. Allegations of corruption in provincial as well as federal courts remained frequent. Few Argentine companies have implemented anti-foreign bribery measures beyond limited codes of ethics.

Since assuming office, President Macri made combating corruption and improving government transparency a priority objective for his administration. In September 2016, Congress passed a law on public access to information. The law explicitly applies to all three branches of the federal government, the public justice offices, and entities such as businesses, political parties, universities, and trade associations that receive public funding. It requires these institutions to respond to citizen requests for public information within 15 days, with an additional 15-day extension available for “exceptional” circumstances. Sanctions apply for noncompliance. The law also mandates the creation of the Agency for Access to Public Information, an autonomous office within the executive branch. President Macri also proposed a series of criminal justice and administrative reforms. Chief among these are measures to speed the recovery of assets acquired through corruption, plea-bargaining-type incentives to encourage judicial cooperation, and greater financial disclosure for public servants. In early 2016, the Argentine government reaffirmed its commitment to the Open Government Partnership (OGP), became a founding member of the Global Anti-Corruption Coalition, and reengaged the OECD Working Group on Bribery.

Argentina is a party to the Organization of American States’ Inter-American Convention against Corruption. It ratified in 2001 the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Anti-Bribery Convention). Argentina also signed and ratified the UN Convention against Corruption (UNCAC) and participates in UNCAC’s Conference of State Parties. Argentina also participates in the Mechanism for Follow-up on the Implementation of the Inter-American Convention against Corruption (MESICIC).

Since Argentina became a party to the OECD Anti-Bribery Convention, allegations of Argentine individuals or companies bribing foreign officials have surfaced. A March 2017 report by the OECD Working Group on Bribery indicated there were 13 known foreign bribery allegations involving Argentine companies and individuals as of that date.  According to the report, Argentine authorities investigated and closed some of the allegations and declined to investigate others.  The authorities determined some allegations did not involve foreign bribery but rather other offenses.  Several such allegations remained under investigation. 

Resources to Report Corruption

Laura Alonso
Director
Government of Argentina Anti-Corruption Office
Oficina Anticorrupción, Tucumán 394, C1049AAH, Ciudad Autónoma de Buenos Aires.
Phone: +54 11 5167 6400
Email: anticorrupcion@jus.gov.ar and http://denuncias.anticorrupcion.gob.ar/ 

Poder Ciudadano (Local Transparency International Affiliate)
Phone: +54 11 4331 4925 ext 225
Fax: +54 11 4331 4925
Email: comunicaciones@poderciudadano.org
Website: http://www.poderciudadano.org 

Demonstrations are common in metropolitan Buenos Aires and in other major cities and rural areas. Political violence is not widely considered a hindrance to the investment climate in Argentina.

Protesters regularly block streets, highways, and major intersections, causing traffic jams and delaying travel. Public demonstrations, strikes, and street blocking barricades increased in 2018 in response to economic and political issues. While demonstrations are usually non-violent, individuals sometimes seek confrontation with the police and vandalize private property. Groups occasionally protest in front of the U.S. Embassy or U.S.-affiliated businesses. In February 2016, the Ministry of Security approved a National Anti-Street Pickets Protocol that provides guidelines to prevent the blockage of major streets and public facilities during demonstrations. However, this protocol did not often apply to venues within the City of Buenos Aires (CABA), which fall under the city’s jurisdiction.  The CABA government often did not enforce security protocols against illegal demonstrations.

In December 2017, while Congress had called an extraordinary session to address the retirement system reforms, several demonstrations against the bill turned violent, causing structural damage to public and private property, injuries to 162 people (including 88 policemen), and arrests of 60 people. The demonstrations ultimately dissipated, and the government passed the bill.

Argentine workers are among the most highly-educated and skilled in Latin America. Foreign investors often cite Argentina’s skilled workforce as a key factor in their decision to invest in Argentina. Argentina has relatively high social security, health, and other labor taxes, however, and high labor costs are among foreign investors’ most often cited operational challenges. The unemployment rate was 9.1 percent in the fourth quarter of 2018, according to official statistics. The government estimated unemployment for workers below 29 years old as roughly double the national rate. Analysts estimate one-third of Argentina’s salaried workforce was employed informally. Though difficult to measure, analysts believe including self-employed informal workers in the estimate would drive the overall rate of informality to 40 percent of the labor force.

Labor laws are comparatively protective of workers in Argentina, and investors cite labor-related litigation as an important factor increasing labor costs in Argentina. There are no special laws or exemptions from regular labor laws in the Foreign Trade Zones. Organized labor plays an important role in labor-management relations and in Argentine politics. Under Argentine law, the Secretariat of Labor recognizes one union per sector per geographic unit (e.g., nationwide, a single province, or a major city) with the right to negotiate a collective bargaining agreement for that sector and geographic area. Roughly 40 percent of Argentina’s formal workforce is unionized. The Secretariat of Labor ratifies collective bargaining agreements. Collective bargaining agreements cover workers in a given sector and geographic area whether they are union members or not, so roughly 70 percent of the workforce was covered by an agreement. While negotiations between unions and industry are generally independent, the Secretariat of Labor often serves as a mediator. Argentine law also offers recourse to mediation and arbitration of labor disputes.

Tensions between management and unions occur. Many managers of foreign companies say they have good relations with their unions. Others say the challenges posed by strong unions can hinder further investment by their international headquarters. Depending on how sectors are defined, some activities such as oil and gas production or aviation involve multiple unions, which can lead to inter-union power disputes that can impede the companies’ operations.

During 2017, the government helped employers and workers agree on adjustments to collective bargaining agreements covering private sector oil and gas sector workers in Neuquen Province for unconventional hydrocarbon exploration and production. The changes were aimed at reducing certain labor costs and incentivizing greater productivity. Employers and unions reached similar agreements in the construction and automotive sectors. The government intends to adapt such agreements to other sectors, while it seeks to advance broader labor reforms through new legislation.

The government presented to the Congress in November 2017 a labor reform bill, including four broad thrusts: (1) a labor amnesty that would aim to reduce informality by encouraging employers to declare their off-the-books workers to the authorities without penalties or fines; (2) a National Institute of Worker Education to develop policies and programs aimed at workers’ skills development, as well as a system of workplace-based educational programs specifically for secondary, technical, and university students; (3) a technical commission to limit costs for union healthcare programs by evaluating drugs and medical treatments to determine which ones the union plans must cover; and (4) modifications to the labor contract law to reduce employers’ costs, incentivize hiring, and improve competitiveness. Union resistance to the fourth area led the government to divide the bill into three separate proposals covering the first three reform areas, respectively, and to resubmit the new bills to the congress in May 2018. The three labor reform bills remained pending before congress as of March 2019.

Labor-related demonstrations in Argentina occurred periodically in 2018. Reasons for strikes include job losses, high taxes, loss of purchasing power, and wage negotiations. Labor demonstrations may involve tens of thousands of protestors. Recent demonstrations have essentially closed sections of the city for a few hours or days at a time. Demonstrations by airline employees caused significant flight delays or cancellations in recent months as well.

The Secretariat of Labor has hotlines and an online website to report labor abuses, including child labor, forced labor, and labor trafficking. The Superintendent of Labor Risk (Superintendencia de Riesgos del Trabajo) has oversight of health and safety standards. Unions also play a key role in monitoring labor conditions, reporting abuses and filing complaints with the authorities. Argentina has a Service of Mandatory Labor Conciliation (SECLO), which falls within the Secretariat of Labor, Employment and Social Security. Provincial governments and the city government of Buenos Aires are also responsible for labor law enforcement.

The minimum age for employment is 16. Children between the ages of 16 and 18 may work in a limited number of job categories and for limited hours if they have completed compulsory schooling, which normally ends at age 18. The law requires employers to provide adequate care for workers’ children during work hours to discourage child labor. The Department of Labor’s 2016 Worst Form of Child Labor for Argentina can be accessed here: https://www.dol.gov/agencies/ilab/resources/reports/child-labor/argentina 

The Department of State’s 2018 Human Rights Report for Argentina can be accessed here. 

Argentine Law prohibits discrimination on the grounds of sex, race, nationality, religion, political opinion, union affiliation, or age. The law also prohibits employers, either during recruitment or time of employment, from asking about a worker’s political, religious, labor, and cultural views or sexual orientation. These national anti-discrimination laws also apply to labor relations and other social relations.

Argentina has been a member of the International Labor Organization since 1919.

The Argentine government signed a comprehensive agreement with the Overseas Private Investment Corporation (OPIC) in 1989. The agreement allows OPIC to insure U.S. investments against risks resulting from expropriation, inconvertibility, war or other conflicts affecting public order. In November 2018, OPIC and the Government of Argentina signed six letters of interest to advance several projects in support of Argentina’s economic growth. The agreements will support sectors ranging from infrastructure to energy to logistics and total USD 813 million dollars in U.S. support that will catalyze additional private investment.

OPIC is open for business in all Latin American and Caribbean countries except Venezuela and Cuba. Argentina is also a member of the World Bank’s Multilateral Investment Guarantee Agency (MIGA).

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

* https://www.indec.gob.ar/uploads/informesdeprensa/pib_03_19.pdf ;  www.bcra.gov.ar 

Table 3: Sources and Destination of FDI

No information from the IMF’s Coordinated Portfolio Investment Survey (CPIS) for Outward Direct Investment is available for Argentina.

Table 4: Sources of Portfolio Investment

Data not available.

Economic Section
U.S. Embassy Buenos Aires
Avenida Colombia 4300
(C1425GMN)
Buenos Aires, Argentina
+54-11-5777-4747
ECONBA@state.gov

Policies towards Foreign Direct Investment

Chile has a successful track record of attracting foreign direct investment (FDI), despite the relatively small size of its domestic market.  For nearly four decades, promoting FDI has been an essential part of the Chilean government’s national development strategy. The country’s market-oriented economic policies create significant opportunities for foreign investors to participate. Laws and practices are not discriminatory against foreign investors, who receive treatment similar to Chilean nationals. While Chile’s business climate is generally straightforward and transparent, the permitting process of infrastructure, mining and energy projects has become increasingly contentious, especially regarding politically sensitive environmental impact assessments and indigenous consultations.

InvestChile is the government agency that implements various types of initiatives aimed to foster the entry and retention of FDI into Chile. It provides services in four categories:

1. attraction (information provision about Chile’s business climate and specific investment opportunities in both public and private projects);
2. pre-investment (sector-specific legal advisory services and information for decision-making);
3. landing (advice for installation of the company, foreign investor certificates, access to funds and regional support networks), and
4. after-care (management of inquiries, assistance for exporting and information for re-investment).

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors have access to all productive activities, except for the internal waterways freight transportation sector, in which there is a cap on foreign equity ownership of companies of 49 percent. In 2019, Chile loosened maritime cabotage rules and began allowing large foreign cruise ships to move between Chilean ports. Some international reciprocity restrictions exist for fishing.

Most enterprises in Chile may be 100 percent owned by foreigners.  Chile only restricts the right to private ownership or establishment in what it defines as certain “strategic” sectors, such as nuclear energy and mining.  The Constitution establishes the “absolute, exclusive, inalienable and permanent domain” of the Chilean state over all mineral, hydrocarbon, and fossil fuel deposits within Chilean territory.  However, Chilean law allows the government to grant concession rights to individuals and companies for exploration and exploitation activities, and to assign contracts to private investors, without discrimination against foreign investors.

FDI is subject to pro forma screening by InvestChile.  Businesses in general do not consider these screening mechanisms as barriers to investment because approval procedures are expeditious and investments are usually approved.

Other Investment Policy Reviews

The World Trade Organization (WTO) has not conducted a Trade Policy Review for Chile since June 2015 (available here: https://www.wto.org/english/tratop_e/tpr_e/tp415_e.htm  ). The Organization for Economic Cooperation and Development (OECD) has not conducted an Investment Policy Review for Chile since 1997, and the country is not part of the countries covered to date by the United Nations Conference on Trade and Development’s (UNCTAD) Investment Policy Reviews.

Business Facilitation

The Chilean government took significant steps towards business facilitation during the present decade, including introducing digital processes to start a company.  According to the World Bank, Chile has one of the smoothest and shortest processes among Latin American and Caribbean countries – 11 procedures over an average of 29 days – to establish a foreign-owned limited liability company (LLC). Drafting corporate statutes and obtaining an authorization number can be done online at the platform www.tuempresaenundia.cl  .  Electronic signature and electronic invoicing allow one to register a company, obtain a taxpayer ID number, and get legal receipts, invoices, credit and debit notes, and accountant registries.  A company typically needs to register with Chile’s Internal Revenue Service, obtain a business license from a municipality, and register either with the Institute of Occupational Safety (public) or with one of three private nonprofit entities that provide work-related accident insurance, which is mandatory for employers.  In addition to the steps required of a domestic company, a foreign company establishing a subsidiary in Chile must authenticate the parent company’s documents abroad and register the incoming capital with the Central Bank. This procedure, established under Chapter XIV of the Foreign Exchange Regulations, requires a notice of conversion of foreign currency into Chilean pesos when the investment exceeds USD 10,000.00.  The registration process at the Registry of Commerce of Santiago is available online.

Outward Investment

The Government of Chile does not have an active policy of promotion or incentives for outward investment, nor does it impose restrictions on it.

According to ICSID, Chile has signed 50 Bilateral Investment Treaties (BITs), 37 of which are in force to date. There are agreements in force with Argentina, Austria, Belgium and Luxembourg, Bolivia, Colombia, Costa Rica, Croatia, Cuba, Czech Republic, Denmark, Dominican Republic, El Salvador, Finland, France, Germany, Greece, Guatemala, Honduras, Iceland, Italy, Malaysia, Nicaragua, Norway, Panama, Paraguay, Philippines, Poland, Portugal, Romania, South Korea, Spain, Sweden, Switzerland, Ukraine, the United Kingdom and Venezuela.

Chile has 26 FTAs with 64 countries. On January 1, 2004, the United States and Chile brought into force the investment chapter in our bilateral FTA.  Chile has additional investment chapters in force under FTAs with Australia, Canada, China (Supplementary Investment Agreement to the FTA), Colombia, Japan, Mexico, Republic of Korea, Peru and the Pacific Alliance (composed of four countries: Chile, Colombia, Mexico and Peru).  Chile also signed a new generation bilateral investment agreement with Uruguay that entered into force in 2012. FTAs with investment chapters that are signed but have not entered into force include the Investment Agreement with Hong Kong SAR (Supplementary Investment Agreement to the FTA), the Comprehensive and Progressive Transpacific Partnership (CPTPP) –which currently awaits ratification from the Senate-, and the Chile-Argentina FTA.  Chile is currently negotiating investment chapters that are part of FTA negotiations between the Pacific Alliance and Associated States (Australia, Canada, New Zealand and Singapore), and between Chile and the European Union.

Chile and the United States signed the U.S.-Chile Treaty to Avoid Double Taxation in 2010.  In May 2012, it was submitted to the U.S. Senate and is still pending ratification. The Chilean Congress ratified the treaty in September 2015. Chile has 33 double taxation treaties in force with Argentina, Australia, Austria, Belgium, Brazil, Canada, China, Colombia, Croatia, Czech Republic, Denmark, Ecuador, France, Ireland, Italy, Japan, Malaysia, Mexico, New Zealand, Norway, Paraguay, Peru, Poland, Portugal, Russia, South Africa, South Korea, Spain, Sweden, Switzerland, Thailand, the United Kingdom and Uruguay.  Apart from the U.S.-Chile Treaty to Avoid Double Taxation, Chile has signed double taxation treaties with the Pacific Alliance countries (Colombia, Mexico and Peru) and with China, which have not yet entered into force.

Chile’s 2014 tax reform increased the effective marginal income tax rate on dividends or profits earned by Chilean residents in other countries up to 44.45 percent.  This change is only applied to residents from countries without a bilateral taxation treaty in force with Chile (such as the United States), while residents from the 32 countries with such a treaty maintain a maximum marginal tax rate of 35 percent.

Transparency of the Regulatory System

Chile’s legal, regulatory, and accounting systems are transparent and provide clear rules for competition and a level playing field for foreigners.  They are consistent with international norms; however, environmental regulations, approvals, mandatory indigenous consultation required by the International Labor Organization’s Indigenous and Tribal Peoples Convention (ILO 169), and other permitting processes have become lengthy and unpredictable, especially in politically sensitive cases.

Four institutions play key roles in the rule-making process in Chile: the Ministry General-Secretariat of the Presidency (SEGPRES), the Ministry of Finance, the Ministry of Economy, and the General Comptroller of the Republic.  However, Chile does not have a regulatory oversight body in its institutional setup. Most regulations come from the national government; however, some, in particular those related to land use, are decided at the local level. Both levels get involved in environmental permits.  Regulatory processes are managed by governmental entities. NGOs and private sector associations may participate in public hearings or comment periods. The OECD’s April 2016 “Regulatory Policy in Chile” report asserts that Chile took steps to improve its rule-making process, but still lags behind the OECD average in assessing the impact of regulations, consulting with outside parties on their design, and evaluating them over time.

In Chile, non-listed companies follow norms issued by the Accountants Professional Association, while publicly listed companies use the International Financial Reporting Standards (IFRS).  Since January 1, 2018, IFRS 9 entered into force for companies in all sectors except for banking, in which IFRS 15 will be applied. IFRS 16 entered into force in 2019.

The legislation process in Chile allows for public hearings during discussion of draft bills in both chambers of Congress.  Draft bills submitted by the Executive Branch to the Congress are readily available for public comment. Ministries and regulatory agencies are required by law to give notice of proposed regulations, but there is no formal requirement in Chile for consultation with the public, conducting regulatory impact assessments of proposed regulations, requesting comments, or reporting results of consultations.  For lower-level regulations or norms that do not need congressional approval, there are no formal provisions for public hearing or comment. As a result, Chilean regulators and rulemaking bodies normally consult with stakeholders, but in a less regular manner.

All decrees and laws are published in the Diario Oficial (National Gazette), but other types of regulations will not necessarily be found there.  There are no other centralized online locations for published regulations in Chile, similar to the Federal Register in the United States.

According to the OECD, compliance rates in Chile are generally high.  The approach to enforcement remains punitive rather than preventive, and regulators still prefer to inspect rather than collaborate with regulated entities on fostering compliance.  Each institution with regulation enforcement responsibilities has its own sanction procedures. Law 19.880 from 2003 establishes the principles for reversal and hierarchical recourse against decisions by the administration.  An administrative act can be challenged by lodging an action in the ordinary courts of justice, or by administrative means with a petition to the Comptroller General of the Republic. Affected parties may also make a formal appeal to the Constitutional Court against a specific regulation.

Chile still lacks a comprehensive, “whole of government” regulatory reform program.  However, the National Productivity Commission, created in 2014, includes among its main functions the identification of regulatory constraints to increase productivity and recommendations to overcome them.

Chile’s level of fiscal transparency is excellent.  Information on the budget and debt obligations, including explicit and contingent liabilities, is easily accessible online.

International Regulatory Considerations

Chile does not share regulatory sovereignty with any regional economic bloc.  However, several international norms or standards from multilateral organizations (UN, WIPO, ILO, among others) are referenced or incorporated into the country’s regulatory system.  As a member of the WTO, the government notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Chile bases its legal system on civil law.  Chile’s legal and regulatory framework provides for effective means for enforcing property and contractual rights.

Laws governing issues of interest to foreign investors are found in several statutes, including the Commercial Code of 1868, the Civil Code, the Labor Code and the General Banking Act.  Chile has specialized courts for dealing with tax and labor issues.

The judicial system in Chile is generally transparent and independent.  The likelihood of government intervention in court cases is low. If a state-owned firm is involved in the dispute, the Government of Chile may become directly involved through the State Defense Council.

Regulations can be challenged before the court system, the General Comptroller, or the Constitutional Court, depending on the nature of the claim.

Laws and Regulations on Foreign Direct Investment

See the section on Policies towards Foreign Direct Investment.

Competition and Anti-Trust Laws

Chile’s anti-trust law prohibits mergers or acquisitions that would prevent free competition in the industry at issue.  An investor may voluntarily seek a ruling by an Antitrust Court that a planned investment would not have competition implications.  The National Economic Prosecutor (FNE) is a very active institution conducting investigations in competition-related cases and filing complaints before the Free Competition Tribunal (TDLC), which rules on those cases.

In February 2019, the TDLC fined supermarket chains Walmart, Cencosud, and SMU USD 4.2 million, USD 5.1 million and USD 3.1 million, respectively.  The TDLC ruled in a collusion case introduced by the FNE in 2016 establishing that these retailers set up a minimum prices agreement in the market for fresh poultry meat.

In November 2018, the TDLC fined two laboratories (Biosano and Sanderson, subsidiary of Fresenius Kabi Chile) USD 25.6 million and USD 2.1 million, respectively. The TDLC ruled in a case brought by the FNE in 2012 regarding collusion by these labs in public procurement from the National Central Procurement System for Health Services (CENABAST).

In April 2019, the FNE asked the Supreme Court to overturn the TDLC’s decision in October 2018 to authorize alliances between the Chilean airline Latam and British Airways, Iberia, and American Airlines.  The FNE argued that such alliances would impermissibly reduce competition over the main air routes to Europe and North America.

In April 2018, Oracle agreed to an FNE-proposed plan to improve its information sharing practices. This was the result of an FNE investigation in 2015 into Oracle’s potential abuse of its market dominance in database management systems (DBMS software).

In 2018, the FNE approved the merger between Linde Aktiengesellschaft and Praxair Inc., and the acquisition by Turner International Latin America, Inc (Turner) of all shares in Football Channel (CDF).  On March 20, 2019, the FNE approved acquisition of all shares in Twenty- First Century Fox, Inc. by The Walt Disney Company (Disney.  On May 31, 2018, the FNE approved the acquisition of Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) by Scotiabank Chile.

Expropriation and Compensation

Chilean law grants the government authority to expropriate property, including property of foreign investors, only on public interest or national interest grounds, on a non-discriminatory basis and in accordance with due process.  The government has not nationalized a private firm since 1973. Expropriations of private land take place in a transparent manner, and typically only when the purpose is to build roads or other types of infrastructure. The law requires the payment of immediate compensation at fair market value, in addition to any applicable interest.

Dispute Settlement

ICSID Convention and New York Convention

Since 1991, Chile has been a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention). In 1975 Chile became a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

National arbitration law in Chile includes the Civil Procedure Code (Law Num. 1552, modified by Law Num. 20.217 of 2007), and the Law Num. 19.971 on International Commercial Arbitration.

Investor-State Dispute Settlement

Apart from the New York Convention, Chile is also a party to the Pan-American Convention on Private International Law (Bustamante Code) since 1934; the Inter-American Convention on International Commercial Arbitration (Panama Convention) since 1976; and the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States since 1992.

The U.S.-Chile FTA, in force since 2004, includes an investment chapter that provides the right for investors to submit claims under the ICSID Convention; the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules; or any other mutually agreed upon arbitral institution.  So far, no U.S. investors have filed claims under the agreement.

Over the past 10 years, there were only two investment dispute cases brought by foreign investors against the state of Chile before the World Bank’s International Center for Settlement of Investment Disputes (ICSID) tribunal. The first relates to a Spanish-Chilean citizen regarding the expropriation of Chilean newspaper El Clarin in 1975 by Chile’s military regime.  On September 13, 2016, ICSID issued a final ruling in favor of the Chilean state, rejecting the claimant’s request for financial compensation. However, the same person brought a new case in April 2017, related to the State’s actions following a 2008 judgment of the Santiago court in relation to the confiscation of the Goss printing press, as well as the alleged lack of remedy for the deprivation of their property rights in El Clarin.  The case is now pending resolution.

The second case was brought in 2017 by Colombian firm Alsacia, which holds concession contracts as operators of Transantiago, the public transportation system in Santiago de Chile. Claims are that the Government’s actions in relation to Transantiago allegedly created unfavorable operating conditions for the claimants’ subsidiaries and resulted in bankruptcy proceedings.  The case is pending resolution.

Local courts respect and enforce foreign arbitration awards, and there is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Mediation and binding arbitration exist in Chile as alternative dispute resolution mechanisms.  A suit may also be brought in court under expedited procedures involving the abrogation of constitutional rights.  The U.S.-Chile FTA investment chapter encourages consultations or negotiations before recourse to dispute settlement mechanisms.  If the parties fail to resolve the matter, the investor may submit a claim for arbitration. Provisions in Section C of the FTA ensure that the proceedings are transparent by requiring that all documents submitted to or issued by the tribunal be available to the public, and by stipulating that proceedings be public.  The tribunal must also accept amicus curiae submissions. The FTA investment chapter establishes clear and specific terms for making proceedings more efficient and avoiding frivolous claims. Chilean law is generally to be applied to all contracts. However, arbitral tribunals decide disputes in accordance with FTA obligations and applicable international law.

In Chile, the Judiciary Code and the Code of Civil Procedure govern domestic arbitration. Local courts respect and enforce foreign arbitral awards and judgments of foreign courts.  Chile has a dual arbitration system in terms of regulation, meaning that different bodies of law govern domestic and international arbitration. International commercial arbitration is governed by the International Commercial Arbitration Act that is modeled on the 1985 UNCITRAL Model Law on International Commercial Arbitration.  In addition to this statute, there is also Decree Law Number 2349 that regulates International Contracts for the Public Sector and sets forth a specific legal framework for the State and its entities to submit their disputes to international arbitration.

No Chilean state-owned enterprises (SOEs) have been involved in investment disputes in recent decades.

Bankruptcy Regulations

Chile’s Insolvency Law from 1982 was updated in October 2014.  The current law aims to clarify and simplify liquidation and reorganization procedures for businesses to prevent criminalizing bankruptcy.  It also established the new Superintendence of Insolvency and created specialized insolvency courts. The new insolvency law requires creditors’ approval to select the insolvency representative and to sell debtors’ substantial assets.  The creditor also has the right to object to decisions accepting or rejecting creditors’ claims. However, the creditor cannot request information from the insolvency representative. The creditor may file for insolvency of the debtor, but for liquidation purposes only.  The creditors are divided into classes for the purposes of voting on the reorganization plan; each class votes separately, and creditors in the same class are treated equally.

Investment Incentives

The Chilean government generally does not subsidize foreign investment, nor does it issue guarantees or joint financing for FDI projects.  There are, however, some incentives directed to isolated geographical zones and to the information technology sector. These benefits relate to co-financing of feasibility studies as well as to incentives for the purchase of land in industrial zones, the hiring of local labor, and the facilitation of project financing.  Other important incentives include accelerated depreciation accounting for tax purposes and legal guarantees for remitting profits and capital. Additionally, the Start-Up Chile program provide selected entrepreneurs with grants for USD 15,000 to USD 80,000, along with a Chilean work visa to develop a “startup” business in Chile over a period of 4 to 7 months.  Chile has other special incentive programs aimed at promoting investment and employment in remote regions, as well as other areas that suffer development lags.

Foreign Trade Zones/Free Ports/Trade Facilitation

Chile has two free trade zones: one in the northern port city of Iquique (Tarapaca Region) and the other in the far south port city of Punta Arenas (Magallanes Region).  Merchants and manufacturers in these zones are exempt from corporate income tax; value added tax (VAT) – on operations and services that take place inside the free trade zone – and customs duties. The same exemptions also apply to manufacturers in the Chacalluta and Las Americas Industrial Park in Arica (Arica and Parinacota Region).  Mining, fishing, and financial services are not eligible for free zone concessions. Foreign-owned firms have the same investment opportunities in these zones as Chilean firms. The process for setting up a subsidiary is the same inside as outside the zones, regardless of whether the company is domestic or foreign-owned. Zofri is the main FTZ located in Iquique.

Performance and Data Localization Requirements

Chile mandates that 85 percent of workforces must be local employees.  Exceptions are described in Section 11. The costs associated with migration regulations do not significantly inhibit the mobility of foreign investors and their employees.

Chile does not follow “forced localization.”  A draft bill that moved forward in Congress and is currently pending final approval could result in additional requirements (owner’s consent) for international data transfers in cases involving jurisdictions with data protection regimes below Chile’s standards.  The bill also proposes the creation of an independent Chilean Data Protection Agency that would be responsible for enforcing data protection standards. Private sector legal experts believe that this draft legislation would impose fewer restrictions on the international transfer of commercial data compared to current U.S. law.

Neither Chile’s Foreign Investment Promotion Agency nor the Central Bank applies performance requirements in their reviews of proposed investment projects.  The investment chapter in the U.S.–Chile FTA establishes rules prohibiting performance requirements that apply to all investments, whether by a third party or domestic investors.  The FTA investment chapter also regulates the use of mandatory performance requirements as a condition for receiving incentives and spells out certain exceptions. These include government procurement, qualifications for export and foreign aid programs, and non-discriminatory health, safety, and environmental requirements.

Real Property

Secured interests in real property are recognized and generally enforced in Chile.  Chile ranked 61 out of 190 economies in the “Registering Property” category of the World Bank’s 2019 Doing Business report.  There is a recognized and generally reliable system for recording mortgages and other forms of liens.

There are no restrictions on foreign ownership of buildings and land, and property rights do not expire.  The only exception, based on national security grounds, is for land located in border territories, which may not be owned by nationals or firms from border countries, without prior authorization of the President of Chile.  There are no restrictions to foreign and/or non-resident investors regarding land leases or acquisitions. In the Doing Business specific index for “quality of land administration” (which includes reliability of infrastructure, transparency of information, geographic coverage and land dispute resolution), Chile obtains a score of 14 out of 30.

Unoccupied properties can always be claimed by their legal owners and, as usurpation is criminalized, several kinds of eviction procedures are allowed by the law.

Intellectual Property Rights

According to the U.S. Chamber of Commerce’s International IP Index, Chile’s legal framework provides for fair and transparent use of compulsory licensing; extends necessary exclusive rights to copyright holders and voluntary notification system; and provides for civil and procedural remedies.  However, intellectual property (IP) protection challenges remain. Private stakeholders have deemed Chile’s framework for trade secret protection insufficient. Pharmaceutical and agrochemical products suffer from relatively weak patenting procedures, there is an absence of an effective patent enforcement and resolution mechanism, and gaps exist in regulations governing data protection.

According to the World Intellectual Property Organization (WIPO) Country Profile study, no new IP-related laws were enacted in 2018.  A draft bill submitted to Congress in October 2018 would reform Chile’s Industrial Property Law. The new IP bill aims to reduce timeframes, modernize procedures and increase legal certainty for patents and trademarks registration.  On April 9, 2019, the Lower Chamber passed the bill, and it moved to the Senate for a vote.

The Chilean Senate passed a Pharmaceutical Law (Farmacos II) bill in January 2018 “to further modernize local pharmaceutical regulations and provide greater and more informed pharmaceutical access to the Chilean population.”  In addition to problematic provisions related to labeling and prescriptions, the bill introduced for the first time the concept of “economic accessibility” as a criterion that could be used to justify importation of generic medicines despite the existence of a patented drug in the market.

On March 9, 2018, on the last working day of the Bachelet government, the outgoing Minister of Health issued a resolution that allows the government to issue compulsory licenses (CLs) for patent-protected hepatitis C drugs.  Resolution 399 stipulates a “public interest” that justifies granting one or more CLs for the exploitation of patents protecting the active ingredient Sofosbuvir, useful for the treatment of chronic hepatitis C. The Ministry of Health subsequently upheld Resolution 399 through Resolution 1165.

As of April 2019, the Farmacos II bill is still pending Chamber approval.  Although the Piñera administration revised the bill to address several problematic trademark-related provisions in May 2018, members of the Chamber’s opposition-controlled Health Committee reincorporated most of these provisions through the amendment process.  The committee then took the more troubling step of introducing into Farmacos II, for the first time, amendments that stipulate the criteria and process for issuance of a compulsory license.

The Intellectual Property Brigade (BRIDEPI) of the Chilean Investigative Police (PDI) reported that in 2018 Chile seized 1,041,708 items which amounted to USD 9.4 million (a 32.6 percent increase compared to 2017), and arrested 56 individuals on charges related to IPR infringement.  The National Customs Service seized more than 7 million counterfeit products in 2018, worth a total of nearly USD 103 million. These seizures included 113.5 million cigarette boxes and 3.3 million products that violated health regulations (medicines, cosmetics, toys and food).

Chile’s IPR enforcement, according to the WIPO report mentioned above, remains relatively lax, particularly in relation to piracy, copyright and patent protection, while prosecution of IP infringement is hindered by gaps in the legal framework and a lack of expertise in IP law among judges.  Rights holders indicate a need for greater resources devoted to customs operations and a better-defined procedure for dealing with small packages containing infringing goods. The legal basis for detaining and seizing suspected transshipments is also insufficiently clear.

Chile has been included on the Special 301 Priority Watch List (PWL) since January 8, 2007, and remains on the 2019 Priority Watch List.  In October 2018, Chile’s Congress successfully passed a law that criminalizes satellite piracy. However, other big challenges remain, related to longstanding IPR issues under the U.S.-Chile FTA: the implementation of measures against circumvention of technological protection; pending implementation of UPOV 91; the implementation of effective patent linkage in connection with applications to market pharmaceutical products; adequate protection for undisclosed data generated to obtain marketing approval for pharmaceutical products; and amendments to Chile’s Internet Service Provider liability regime to permit effective action against internet piracy.

Chile is not listed in the USTR’s Notorious Markets List.  For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/  

Capital Markets and Portfolio Investment

Chile’s authorities are committed to developing capital markets and keeping them open to foreign portfolio investors.  Foreign firms offer services in Chile in areas such as financial information, data processing, financial advisory services, portfolio management, voluntary saving plans and pension funds.  Under the U.S.-Chile FTA, Chile opened up its insurance sectorwith very limited exceptions. The Santiago Stock Exchange is Chile’s dominant stock exchange, and the third largest in Latin America.  However, when compared to other OECD countries, it does not rank high in terms of market liquidity.

Existing policies facilitate the free flow of financial resources into Chile’s product and factor markets and adjustment to external shocks in a commodity-dependent economy.  Chile accepts the obligations of Article VIII (sections 2, 3 and 4) and maintains a free-floating exchange rate system, free of restrictions on payments and transfers for current international transactions.  Credit is allocated on market terms and its various instruments are available to foreigners. The Central Bank does reserve the right to restrict foreign investors’ access to internal credit if a credit shortage exists.  To date, this authority has not been exercised.

Money and Banking System

Nearly a quarter of Chileans have a credit card from a bank and nearly one third have a non-bank credit card, but a lower proportion (16 percent) has a checking account.  However, financial inclusion is higher than banking penetration: a large number of lower-income Chilean residents have a CuentaRut, which is a commission-free card with an electronic account available for all, launched by the state-owned Banco Estado, also the largest provider of microcredit in Chile.

The Chilean banking system is healthy and competitive, and many Chilean banks already meet Basel III standards, which are part of a reform to the General Banking Law, enacted in January 2019 (Basel III standards will be introduced gradually over the next several years). Capital adequacy ratio of the system is slightly above 13 percent as of January 2019 and remains robust even when including discounts due to market and/or operational risks. Non-performing loans are below two percent when measured by the standard 90 days past due criterion.

The Chilean banking system’s total assets, as of February 2019, amounted to USD 371.9 billion, according to the Superintendence of Banks and Financial Institutions.  The largest four banks account for approximately 65 percent of banking assets (Banco Santander-Chile, Banco de Credito e Inversiones, Banco de Chile and Banco Estado).  Chile’s Central Bank conducts the country’s monetary policy, is constitutionally autonomous from the government, and is not subject to regulation by the Superintendence of Banks.

Foreign banks have an important presence in Chile.  Out of 18 banks currently in Chile, five are foreign-owned but legally established in Chile and four are branches of foreign banks.  Both categories are subject to the requirements set out under the Chilean banking law. There are also 21 representative offices of foreign banks in Chile.  There are no reports of correspondent banking relationships withdrawal in Chile.

In order to open a bank account in Chile, a foreigner must present his/her Chilean ID Card or passport, Chilean tax ID number, proof of address, proof of income/solvency, photo, and fingerprints.

Foreign Exchange and Remittances

Foreign Exchange

Law 20.848, which regulates FDI (described in section 1), prohibits arbitrary discrimination against foreign investors and guarantees access to the formal foreign exchange market, as well as the free remittance of capital and profits generated by investments.  There are no other restrictions or limitations placed on foreign investors for the conversion, transfer or remittance of funds associated with an investment.

Investors, importers, and others have unrestricted access to foreign exchange in the official inter-bank currency market.  The Central Bank reserves the right to deny access to the inter-bank currency market for royalty payments in excess of five percent of sales.  The same restriction applies to payments for the use of patents that exceed five percent of sales. In such cases, firms would have access to the informal market.  The Chilean tax service reserves the right to prevent royalties of over five percent of sales from being counted as expenses for domestic tax purposes.

Chile has a free-floating (flexible) exchange rate system.  Exchange rates of foreign currencies are fully determined by the market.  The Central Bank reserves the right to intervene (and seldom uses it in practice) under exceptional circumstances to correct significant deviations of the currency from its fundamentals.

Remittance Policies

Remittances of profits generated by investments are allowed at any time after tax obligations are fulfilled; remittances of capital can be made after one year since the date of entry into the country.  In practice, this permanency requirement does not constitute a restriction for productive investment, because projects normally need more than one year to mature. Under the investment chapter of the U.S.–Chile FTA, the parties must allow free and immediate transfer of covered investments into and out of its territory.  These include transfers of profits, royalties, sales proceeds, and other remittances related to the investment. However, for certain types of short-term capital flows this chapter allows Chile to impose transfer restrictions for up to 12 months as long as those restrictions do not substantially impede transfers. If restrictions are found to impede transfers substantially, damages accrue from the date of the initiation of the measure.  In practice, these restrictions have not been applied in the last two decades.

Sovereign Wealth Funds

Chile has two sovereign wealth funds (SWFs) where the government deposits savings from effective fiscal surpluses.  The Economic and Social Stabilization Fund (FEES) was established in 2007 and was valued at USD 14.2 billion as of February 2019.  The FEES seeks to fund public debt payments and temporary deficit spending, in order to keep a countercyclical fiscal policy. The Pensions Reserve Fund (FRP) was built up in 2006 and amounted to USD 10 billion as of February 2019.  The purpose of the FRP is to anticipate future needs of payments to those eligible to receive pensions, but whose contributions to the private pension system fall below a minimum threshold.

Chile is a member of the International Working Group of Sovereign Wealth Funds (IWG) and adheres to the Santiago Principles.

Chile’s government policy is to invest SWFs abroad into instruments denominated in foreign currencies.  As of February 2019, FEES’ portfolio consisted of 55.5 percent of sovereign bonds, 3.5 percent of inflation-indexed sovereign bonds, 33.8 percent of money market instruments and 7.2 percent of stocks.  At the same date, FRP’s portfolio consisted of 38.0 percent of sovereign bonds and related instruments, 10.8 percent of inflation-indexed sovereign bonds, 21.0 percent of corporate and high-yield bonds, 5.9 percent of mortgage backed securities from U.S. agencies and 24.3 percent of stocks.

Chile had 28 state-owned enterprises (SOEs) in operation as of 2017.  They are all commercial companies. Twenty-five SOEs are not listed on any stock exchange and are fully owned by the government. The remaining three are majority government owned.  Ten Chilean SOEs operate in the port management sector; seven in the services sector, three in the defense sector, three in the mining sector (including CODELCO, the world’s largest copper producer); two in transportation; one in the water sector; one TV station; one is an oil and gas company –ENAP-; and one state-owned bank (Banco Estado).  The state also holds a minority stake in four water companies as a result of a privatization process. Total assets of SOEs amounted to USD 73.7 billion in 2017. Total net income of SOEs in 2017 was USD 2.2 billion. SOEs employed 51,564 people in 2017.

Twenty SOEs in Chile fall under the supervision of the Public Enterprises System (SEP), a state holding in charge of overseeing SOE governance, as well as exercising minority rights in four water companies.  The rest – including CODELCO, ENAP and Banco Estado – have their own supervisory structures outside of SEP jurisdiction, but report to government ministries. All 28 SOEs are accountable to Congress, the President and the General Comptroller Office.  Allocation of seats on the boards of Chilean SOEs is determined by the SEP, as described above, or outlined by the laws that regulate them. In CODELCO’s corporate governance, there is a mix between seats appointed by recommendation from an independent high-level civil service committee, and seats allocated by political authorities in the government.

A list of SOEs made by the Budget Directorate, including their financial management information, is available at the following link:  http://www.dipres.gob.cl/599/w3-propertyvalue-20890.html .

In general, Chilean SOEs work under hard budget constraints and compete under the same regulatory and tax frameworks than private firms.  For instance, CODELCO and Banco Estado compete with many private copper mines and private banks, respectively. However, there are specific areas where SOEs enjoy special advantages.  For example, ENAP is the only company allowed to refine oil in Chile. As an OECD member, Chile adheres to the OECD Guidelines on Corporate Governance for SOEs.

Privatization Program

Chile does not have a privatization program in place at this time.

Awareness of the need to ensure corporate social responsibility has grown over the last two decades in Chile.  However, NGOs and academics who monitor this issue believe that risk mapping and management practices still do not sufficiently incorporate its importance.

The government of Chile encourages foreign and local enterprises to follow generally accepted Responsible Business Conduct (RBC) principles and uses the United Nations’ Rio+20 Conference statements as its principal reference.  Chile adhered in 1997 to the OECD Guidelines for Multinational Enterprises. It also recognizes the ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy; the UN Guiding Principles on Business and Human Rights; the UN Global Compact’s Ten Principles and the ISO 26000 Guidance on Social Responsibility.  The government established a National Contact Point (NCP) for OECD MNE guidelines located at the General Directorate for International Economic Relations, and recently created the Responsible Business Conduct Department, whose chief is also the NCP. On August 21, 2017 Chile released its National Action Plan on Business and Human Rights based on the UN Guiding Principles.  Separately, the Council on Social Responsibility for Sustainable Development, coordinated by Chile’s Ministry of Economy, is currently developing a National Policy on Social Responsibility.

Regarding procurement decisions, ChileCompra, the agency in charge of centralizing Chile’s public procurement, incorporates the existence of a Clean Production Certificate and an ISO 14001-2004 certificate on environmental management as part of its criteria to assign public purchases.

No high profile, controversial instances of corporate impact on human rights have occurred in Chile in recent years.

The Chilean government effectively and fairly enforces domestic labor, employment, consumer, and environmental protection laws.  There are no dispute settlement cases against Chile related to the Labor and Environment Chapters of the Free Trade Agreements signed by Chile.

Regarding the protection of shareholders, the Superintendence of Securities and Insurance (SVS) has the responsibility of regulating and supervising all listed companies in Chile.  Companies are generally required to have an audit committee, a directors committee, an anti-money laundering committee and an anti-terrorism finance committee. Laws do not require companies to have a nominating/corporate governance committee or a compensation committee.  Compensation programs are typically established by the board of directors and/or the directors committee.

Independent NGOs in Chile promote and freely monitor RBC.  Examples include NGO Accion RSE: http://www.accionrse.cl/, the Catholic University of Valparaiso’s Center for Social Responsibility and Sustainable Development VINCULAR: http://www.vincular.cl/ , ProHumana Foundation and the Andres Bello University’s Center Vitrina Ambiental.

Chile is an OECD member, but is not participating actively in the implementation of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas.

Chile is not part of the Extractive Industries Transparency Initiative (EITI).

Chile applies, in a non-discriminatory manner, various laws to combat corruption of public officials, including the 2009 Transparency Law that mandated disclosure of public information related to all areas of government and created an autonomous Transparency Council in charge of overseeing its application.  In 2018, a new provision of law expanded the number of public trust positions required to release financial disclosure, mandated disclosure in greater detail, and allowed for stronger penalties for noncompliance.

Anti-corruption laws do extend to family members of officials, in particular mandatory asset disclosure, and a draft bill incorporating restrictions on appointments and incompatibilities for family members of public officials has been submitted to Congress.  Political parties are subject to laws that limit campaign financing and require transparency in party governance and contributions to parties and campaigns.

Regarding government procurement, the website of ChileCompra (central public procurement agency) allows users to anonymously report irregularities in procurement.  There is a decree that defines sanctions for public officials who do not adequately justify direct contracts.

The Corporate Criminal Liability Law provides that corporate entities can have their compliance programs certified.  Chile’s Securities and Insurance Superintendence (SVS) authorizes a group of local firms to review companies’ compliance programs and certify them as sufficient. Certifying firms are listed on the SVS website.

Private companies have increasingly incorporated internal control measures, as well as ethics committees as part of their corporate governance, and compliance management sections.  Additionally, Chile Transparente (Chilean branch of Transparency International) developed a Corruption Prevention System to provide assistance to private firms to facilitate their compliance with the Corporate Criminal Liability Law.

Chile signed and ratified the Organization of American States (OAS) Convention against Corruption.  The country also ratified the UN Anticorruption Convention on September 13, 2006. Chile is also an active member of the Open Government Partnership (OGP) and, as an OECD member, adopted the OECD Anti-Bribery Convention.

NGO’s that investigate corruption operate in a free and adequately protected manner.

U.S. firms have not identified corruption as an obstacle to FDI.

Resources to Report Corruption

Raul Ferrada
Director General
Consejo para la Transparencia
Morande 360 piso 7
(+56)-(2)-2495-2000
rferrada@consejotransparencia.cl

Alberto Precht
Executive Director
Chile Transparente (Chile branch of Transparency International)
Perez Valenzuela 1687, piso 1, Providencia, Santiago de Chile
(+56)-(2)-2236 4507
chiletransparente@chiletransparente.cl

Renata Avila
Executive Director
Ciudadania Inteligente (Founder NGO of the Anticorruption Observatory)
Holanda 895, Providencia, Santiago, Chile
(+56)-(2)-2419-2770

Since Chile’s return to democracy in 1990, the incidence of political violence and civil disturbance has been generally low, and has had little impact on the Chilean economy.   During the last 20 years, there have been few incidents of politically motivated attacks on investment projects or installations with the exception of the southern Araucania region and its neighboring Arauco province in the southwest of Bio-Bio region. This area, home to nearly half million indigenous inhabitants, has seen a growing trend of politically motivated violence.  Land claims and conflicts with forestry companies are the main grievances underneath the radicalization of a relatively small number of indigenous Mapuche communities, which has led to the rise of organized groups that pursue their demands by violent means. Incidents include arson attacks on churches, farms, facilities at forestry plantations, and forestry contractors’ machinery and vehicles, as well as occupation of private lands, resulting in over a half-dozen deaths (including some by police forces), injuries, and damage to property. In 2018, the government announced special measures and policies towards the Araucania region. However, the indigenous issue has been further politicized due to anger among landowners, forestry transport contractors and farmers affected by violence, as well as the illegal killing of a young Mapuche activist by special police forces in 2018 and the controversy over accusations of fraud by the police during the investigation of indigenous organized groups.

Since 2011, there have been occasional incidents of vandalism of storefronts and public transport during student and labor groups’ protests, some of which included violent incidents.  Since 2007, Chile has experienced a number of small-scale attacks with explosive and incendiary devices, targeting mostly banks, police stations and public spaces throughout Santiago, including ATM’s, metro stations, universities and churches.  Anarchist groups often claim responsibility for these acts, as they also have been involved in incidents during student and labor protests. In January 2017, an eco-terrorist group claimed responsibility for a parcel bomb that detonated at the home of the chairman of the board of Chilean state-owned mining giant CODELCO.  The same group detonated a bomb of similar characteristics on January 4, 2019 at a bus stop in downtown Santiago, causing five injuries. The investigation of both crimes is still ongoing at the time of this report.

On occasions, illegal activity by striking workers resulted in damage to corporate property or a disruption of operations. Some firms have publically expressed concern that during a contentious strike, law enforcement has appeared to be reluctant to protect private property.

Civil disturbance is not present at levels that could put investments at risk or destabilize the government.  Chilean civil society is active and demonstrations occur frequently. Although the vast majority of demonstrations are peaceful, on occasion protestors have veered off pre-approved routes.  In a few instances, criminal elements have taken advantage of civil society protests to loot stores along the protest route and have clashed with the police. Demonstrations on March 29, the Day of the Young Combatant, and September 11, the anniversary of the 1973 coup against the government of President Salvador Allende, have in the past resulted in damage to property.

Unemployment in Chile averaged 6.9 percent of the labor force during 2018, while the labor participation rate was 59.7 percent of the working age population.  Immigrants account for nearly nine percent of the labor force. Chilean workers are adequately skilled and some sectors such as mining, agriculture, and fishing employ highly skilled workers.  In general, there is an adequate availability of technicians and professionals. Data on informality are not available for Chile in the ILO databases, but recent estimations made by the National Institute of Statistics suggest informal employment in Chile constitutes 30 percent of the workforce.

Article 19 of the Labor Code stipulates that employers must hire Chileans at least for 85 percent of their staff, except in the case of firms with less than 25 employees. However, Article 20 of the Labor Code includes several provisions under which foreign employees can exceed 25 percent, independent of the size of the company. 

In general, employees who have been working for at least one year are entitled to a statutory severance pay, upon dismissal without cause, equivalent to 30 days of the last monthly remuneration earned, for each year of service.  The upper limit is 330 days (11 years of service) for workers with a contract in force for one year or more. The same amount is payable to a worker whose contract is terminated for economic reasons. Upon termination, regardless of the reason, domestic workers are entitled to an unemployment insurance benefit funded by the employee and employer contributions to an individual unemployment fund equivalent to three percent of the monthly remuneration.  The employer’s contributions shall be paid for a maximum of 11 years by the same employer. Another fund made up of employer and government contributions is used for complementary unemployment payments when needed.

Labor and environmental laws are not waived in order to attract or retain investments.

According to the Labor Directorate, 1,139,955 workers (13.9 percent of Chilean workers) belonged to a trade union in the last quarter of 2016 (latest data available), when 11,653 unions were active.  In the same period, 347,142 workers (4.2 percent of Chilean workers) were covered by collective bargaining agreements. Collective bargaining coverage rates are higher in the financial, mining, and manufacturing sectors.  Unions can form nationwide labor associations and can affiliate with international labor federations. Contracts are normally negotiated at the company level. Workers in public institutions do not have collective bargaining rights, but national public workers’ associations undertake annual negotiations with the government.

The Labor Directorate under the Ministry of Labor is responsible for enforcing labor laws and regulations.  Both employers and workers may request labor mediation from the Labor Directorate, which is an alternate dispute resolution model aimed at facilitating communication and agreement between both parties.

According to a report from the Centre for Social Conflict and Cohesion Studies (COES), during 2017, 128 legal strikes took place in sectors where collective bargaining is permitted (a smaller number in comparison to 2017 when there were 198 strikes).  31,799 workers were involved in total in strikes during 2016 (latest data available from the Labor Directorate). As legal strikes in Chile have a restricted scope and duration, in general they do not present a risk for foreign investment.

Chile has and generally enforces laws and regulations in accordance with internationally recognized labor rights of: freedom of association and collective bargaining; the elimination of forced labor; child labor, including the minimum age for work; discrimination with respect to employment and occupation; and acceptable conditions of work related to minimum wage, occupational safety and health, and hours of work.  The maximum number of labor hours allowed per week in Chile is 45. In September 2018, Congress approved a minimum wage increase, by which beginning March, 2019 the national minimum wage is CLP 301,000 – USD 444 – a month for all occupations, including domestic servants, more than twice the official poverty line. There is a special minimum wage of CLP 224,704 (USD 331) a month for workers age 65 and older and age 18 and younger.  There are no gaps in compliance with international labor standards that may pose a reputational risk to investors.

Collective bargaining is not allowed in companies or organizations dependent upon the Defense Ministry or whose employees are prohibited from striking, such as in health care, law enforcement, and public utilities.  Labor courts can require workers to resume work upon a determination that a strike causes serious risk to health, national security, the supply of goods or services to the population, or to the national economy.

The United States-Chile Free Trade Agreement (FTA) entered into force on January 1, 2004.  The FTA requires the United States and Chile to maintain effective labor and environmental enforcement.

Since 2013, Overseas Private Investment Corporation (OPIC) partnered with U.S. solar energy developers to finance five large-scale power facilities throughout the Atacama Desert in northern Chile.  Other OPIC-financed projects in the country include the run-of-river hydropower project Alto Maipo, and the toll road Vespucio Norte Express.

An OPIC Bilateral Investment Agreement between Chile and the United States took effect in 1984.  Chile is a party to the convention of the World Bank’s Multilateral Investment Guarantee Agency (MIGA).

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

* Source for Host Country Data: Central Bank of Chile.

Table 3: Sources and Destination of FDI

According to the IMF’s Coordinated Direct Investment Survey (CDIS), total stock of FDI in Chile in 2017 amounted to USD 274.7 billion, compared to USD 248.6 billion in 2016.  The United States remains the main source of FDI to Chile with USD 31.7 billion, representing 12 percent of the total. The following top sources (Canada, Spain and the Netherlands) accounted for 25 percent of Chile’s inward FDI stock.  Cayman Islands, a tax haven, is Chile’s fifth source of FDI. Chile’s outward direct investment stock in 2017 remains concentrated in South America, where Brazil, Peru and Argentina together represented 31 percent of total Chilean outward FDI.  The United States accounted for 9 percent of the total.

Table 4: Sources of Portfolio Investment

According to the IMF’s Coordinated Portfolio Investment Survey (CPIS), total stock of portfolio investment in Chile as of June 2018 amounted to USD 180.6 billion, of which USD 139 billion were equity and investment funds shares, and the rest were debt securities. The United States are the main source of portfolio investment to Chile with USD 55.6 billion, representing 31 percent of the total.  The following top source is Luxembourg (a tax haven), which is also the main source of equity investment, with 40 percent of the total. Ireland, the United Kingdom and Germany are the following top sources of total portfolio investment to Chile, while Mexico and Japan are among the top five sources of debt securities investment.

Alexis Gutierrez
Economic Specialist
Avenida Andres Bello 2800, Las Condes, Santiago, Chile
(56-2) 2330 3485
gutierrezaj@state.gov

Policies Towards Foreign Direct Investment

The GOP seeks to attract investment — both foreign and domestic — in nearly all sectors of the economy.  The GOP prioritized USD 10.3 billion in public-private partnership projects in transportation infrastructure, electricity, mining, broadband expansion, gas distribution, health and sanitation for 2019-2021.  The Ministry of Energy and Mines aims to spur exploration and investment in the mining sector, increase oil and gas exploration, and modernize the Talara refinery.

The 1993 Constitution grants national treatment for foreign investors and permits foreign investment in almost all economic sectors.  Under the Constitution, foreign investors have the same rights as national investors to benefit from investment incentives, such as tax exemptions.  In addition to the 1993 Constitution, Peru has several laws governing foreign direct investment (FDI) including the Foreign Investment Promotion Law (Legislative Decree (DL) 662 of September 1991) and the Framework Law for Private Investment Growth (DL 757 of November 1991).  Other important laws include the Private Investment in State-Owned Enterprises Promotion Law (DL 674), the Private Investment in Public Services Infrastructure Promotion Law (DL 758), and specific laws related to agriculture, fisheries and aquaculture, forestry, mining, oil and gas, and electricity.  Article 6 of Supreme Decree No. 162-92-EF (the implementing regulations of DLs 662 and 757) authorizes private investors to enter all industries except investments in natural protected areas and manufacturing of weapons.

Peruvians and Americans benefit from the United States-Peru Trade Promotion Agreement (PTPA), which entered into force on February 1, 2009.  The PTPA established a secure, predictable legal framework for U.S. investors operating in Peru. The PTPA protects all forms of investment. U.S. investors enjoy the right to establish, acquire, and operate investments in Peru on an equal footing with local investors in almost all circumstances.

The GOP created ProInversion, in 2002, based on an existing, similar investment promotion agency.  ProInversion has completed both privatizations and concessions of state-owned enterprises and natural resource-based industries.  The agency regularly organizes international roadshow events, including in the United States, to attract investors and manages the GOP’s public-private investment project portfolio.  Major recent concession areas include ports, water treatment plants, power generation facilities, mining projects, electrical transmission lines, oil and gas distribution, and telecommunications.  Project opportunities are available on ProInversion’s Project Portfolio page at: http://www.proyectosapp.pe/modulos/JER/PlantillaProyectoEstadoSector.aspx?are=1&prf=2&jer=5892&sec=30  .

The GOP passed legislative decrees in July 2018 to attract and facilitate investment.  These include measures to reform the public-private partnership (PPP) process. The reforms establish the Economy and Finance Ministry (MEF) as the PPP policymaking authority in the country and allows government entities to contract out PMO services throughout all stages of the PPP process, including through the GOP promotion investment agency Proinversion. The regulations also established that Proinversion’s board of directors will be composed of GOP Ministers, reversing an earlier decree that allowed for two private sector representatives on the board. The GOP established an investment research portal within the invierte.pe public investment online database (https://www.mef.gob.pe/es/aplicativos-invierte-pe?id=5455).  While ProInversion does not maintain an ongoing dialogue with investors, it has authority to oversee PPP investments throughout their lifecycles. The GOP plans to publish a National Infrastructure Plan in July 2019, with infrastructure projects keyed to critical sectors outlined in a National Competitveness Plan that will be published by the end of 2019.

To spur project financing, the GOP loosened banking regulations to enable an entity to operate more than one tier-one financial institution in the country.  A new Tourism Entrepreneurship Fund created in 2017 will provide grants to finance or co-finance business ventures that incorporate conservation, sustainable use, and economic development in the tourism industry. The GOP later developed a four-year Tourism Entrepreneurship Program to channel the USD 3 million fund to tourism ventures (http://turismoemprende.pe/  ).  The program aims to fund 24 new tourism ventures worth USD 450,000 in 2018.

Although all Peruvian administrations since the 1990s have vowed to support private investment and abide by Peruvian laws, the GOP occasionally passes measures that some observers regard as a contravention of Peru’s open investment laws.  Furthermore, the GOP in December 2011 signed into law a 10-year moratorium on the entry into Peru of live genetically modified organisms (GMOs) to be used for cultivation. Peru also implemented two sets of rules for importing pesticides, one for commercial importers, which requires importers to file a full dossier with technical information, and another for end-user farmers, which only requires a written affidavit.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Constitution (Article 6 under Supreme Decree No. 162-92-EF) authorizes foreign investors to carry out any economic activity provided investors comply with all constitutional precepts, laws, and treaties.  Exceptions exist, including exclusion of foreign investment activities in natural protected reserves and manufacturing of military weapons, pursuant to Article 6 of Legislative Decree No. 757. While long-term concessions are granted, the law states Peruvians must maintain majority ownership in certain strategic sectors:  media; air, land and maritime transportation infrastructure; and private security surveillance services.

Prior approval is required in the banking and defense-related sectors.  Foreigners are legally prohibited from owning a majority interest in radio and television stations in Peru; nevertheless, foreigners have in practice owned controlling interests in such companies.  Under the Constitution, foreign interests cannot “acquire or possess under any title, mines, lands, forests, waters, or fuel or energy sources” within 50 kilometers of Peru’s international borders. However, foreigners can obtain concessions and rights within the restricted areas with the authorization of a supreme resolution approved by the Cabinet and the Joint Command of the Armed Forces.

The GOP does not screen, review, or approve foreign direct investment outside of those sectors that require a governmental waiver.

Other Investment Policy Reviews

The World Trade Organization (WTO) published a Trade Policy Review on Peru in 2013.  The WTO commented that foreign investors receive the same legal treatment as local investors in general, although foreign investment on maritime services, air transport, and broadcasting is restricted.  The report also noted that the Peruvian government promotes public-private partnerships to build infrastructure and spur economic growth, with tax exemptions and low-cost financing available for domestic and foreign investors alike.

Report available at: https://www.wto.org/english/tratop_e/tpr_e/tp389_e.htm  

Peru aspires to become a member of the Organization for Economic Cooperation and Development (OECD).  Peru launched an OECD Country Program on December 8, 2014, comprising policy reviews and capacity building projects, and allowing it to participate in substantive work of OECD’s specialized committees.  An 18-month OECD review identified economic, social, and political obstacles that could hamper Peru’s OECD membership aspirations. The government noted that the study would act as a “roadmap” for Peru’s goal to achieve membership by 2021.  The OECD published the Initial Assessment of its Multi-Dimensional Review of Peru in October 2015, finding that in spite of economic growth, Peru “still faces structural challenges to escape the middle-income trap and consolidate its emerging middle class.”  In every year since this study was published, Peru has enacted and implemented dozens of governance reforms to modernize its governance practices in line with OECD recommendations.

Report: www.oecd.org/countries/peru/multi-dimensional-review-of-peru-9789264243279-en.htm  

Peru has not had any third-party investment policy review (IPR) through the OECD, WTO, or UNCTAD in the past three years.

Business Facilitation

The GOP does not have a regulatory system to facilitate business operations but the Competition and Consumer Protection Agency (INDECOPI) regulates the enactment of new regulations by government entities that can place burdens on business operations.  INDECOPI’s authority allowing it to block any new business regulations can limit restrictions of businesses. In addition, the GOP passed in 2016 a “sunset law” that requires a review of existing regulations by government agencies.

Peru allows foreign business ownership, provided that a company has at least two shareholders and that its legal representative is a Peruvian resident.  The process takes an average of 43 days and involves 11 procedures. An entrepreneur must reserve the company name through the national registry, SUNARP (www.sunarp.gob.pe  ), and prepare a deed of incorporation through Portal de Servicios al Ciudadano y a las Empresas (http://www.serviciosalciudadano.gob.pe/  ).  The deed is then signed and filed with a Public Notary, with notary fees of up to 1 percent of a company’s capital, before submission to the Public Registry.  The company’s legal representative must obtain a Certificate of Registration and tax identification number from the National Tax Authority. Finally, the company must obtain a license from the municipality of the jurisdiction in which it is located.

All foreign investments must be registered with ProInversion.  The agency helps potential investors navigate investment regulations and provides sector-specific information on the investment process.

Outward Investment

The GOP promotes outward investment by Peruvian entities through the Ministry of Foreign Trade and Tourism (MINCETUR).  Trade Commission Offices of Peru (OCEX’s), under the supervision of Peru’s export promotion agency (PromPeru) are located in numerous countries, including the United States, and promote the export of Peruvian goods and services and inward foreign investment.  The GOP does not restrict domestic investors from investing abroad.

The United States-Peru Trade Promotion Agreement (PTPA) eliminated the need for a bilateral investment agreement between the United States and Peru.  Peru also has free trade agreements with Canada, Chile, China, Venezuela, Costa Rica, the European Union, the European Free Trade Association (Iceland, Liechtenstein, Norway, and Switzerland), Honduras, Japan, Mexico, Panama, Singapore, South Korea, and Thailand.  It has Framework Agreements with MERCOSUR countries (Argentina, Brazil, Paraguay, Uruguay, and Venezuela). It has a partial preferential agreement with Cuba. More agreements have been signed and await full implementation, including with Guatemala, the Pacific Alliance (Mexico, Colombia, and Chile), Brazil, Australia, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership CPTPP (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Singapore and Vietnam). Peru has also ratified the WTO Agreement on Trade Facilitation, which entered into force in February 2017.

Peru has bilateral investment agreements in force with Argentina, Australia, Belgium-Luxembourg, Bolivia, Canada, Chile, China, Colombia, Cuba, Czech Republic, Denmark, Ecuador, El Salvador, Finland, France, Germany, Italy, Japan, Korea, Malaysia, Netherlands, Norway, Paraguay, Portugal, Romania, Singapore, Spain, Sweden, Switzerland, Thailand, United Kingdom, and Venezuela.  In total, Peru is a party to 32 bilateral investment agreements.

Peru does not have a bilateral taxation treaty with the United States.  Peru has signed tax treaties with the Andean Community (Bolivia, Colombia, Ecuador), Chile, Brazil, Canada, Mexico, Switzerland, South Korea, Portugal, and is negotiating one with Spain.  After taking office in July 2016, former President Pedro Pablo Kuczynski initiated a series of reforms, among them alterations to the tax regime. Beginning on January 1, 2017, real estate income tax for foreigners decreased from 30 percent to 5 percent and taxes on dividends and other forms of distribution decreased from 6.8 percent to 5 percent.  Corporate income taxes increased from 28 percent to 29.5 percent.

Transparency of the Regulatory System

Laws and regulations most relevant to foreign investors are enacted and implemented at the national level.  Most ministries and agencies make draft regulations available for public comment. El Peruano, the state’s official gazette, publishes regulations at the national, regional, and municipal level.  Ministries generally maintain current regulations on their websites. Rule-making and regulatory authority also exists through executive agencies specific to different sectors. The Supervisory Agency for Forest Resources and Wildlife (OSINFOR), the Supervisory Agency for Energy and Mining (OSINERGMIN), and the Supervisory Agency for Telecommunications (OSIPTEL) can enact new regulations that affect investments in the economic sectors they manage.  These agencies also have the remit to enforce regulations with penalties varying by sector, with information on enforcement published. Enforcement actions can be appealed through administrative processes. Regulation is reviewed on the basis of scientific and data-driven assessments, but public comments are not always received or made public.

Accounting, legal, and regulatory standards are consistent with international norms.  Peru’s Accounting Standards Council endorses the use of IFRS standards by private entities.

International Regulatory Considerations

Peru is a member of regional economic blocs.  The Andean Community issues supranational regulations – based on consensus of its members – which supersede domestic provisions.  Under the Pacific Alliance, Peru looks to harmonize regulations and reduce barriers to trade with other members: Chile, Colombia, and Mexico.

Legal System and Judicial Independence

Peru has an independent judiciary.  The executive branch does not interfere with the judiciary as a matter of policy.  Peru is in the process of transitioning to an accusatory legal system. The new system is already in place in the regions outside Lima.  Regulations and enforcement actions are appealable through administrative process and the court system.

Laws and Regulations on Foreign Direct Investment

Peru’s legal system is available to investors.  All laws relevant to foreign investment along with pertinent explanations and forms can be found on the ProInversion website at: http://www.ProInversion.gob.pe/modulos/LAN/landing.aspx?are=1&pfl=1&lan=9&tit=institucional  

Competition and Anti-Trust Laws

The Institute for the Protection of Intellectual Property, Consumer Protection, and Competition (INDECOPI) is the GOP agency responsible for reviewing competition-related concerns of a domestic nature.  In 2016, INDECOPI levied sanctions against a U.S. company and its Chilean counterpart for fixing the price of toilet paper in Peru. The Peruvian Congress is evaluating a bill that would require prior approval by INDECOPI for mergers and acquisitions with the goal of eliminating anticompetitive practices.

Expropriation and Compensation

Congress passed a law streamlining expropriation procedures in August 2015.  The GOP announced in January 2017 that it would create a body within ProInversion to focus on acquiring land for infrastructure projects.  The Peruvian Constitution states that the GOP can only expropriate private property on the basis of public interest, such as public works projects or for national security.  In order to expropriate, Congress is required to pass a legislative decree. The Government of Peru has expressed its intention to comply with international standards concerning expropriations.  Peruvian law bases compensation for expropriation on fair market value. Concessionaires have complained that the government has been slow in implementing expropriations, causing delays to their investment commitments.

Illegal expropriation of foreign investment has been alleged in the extractive industry.  A U.S. company alleged indirect expropriation due to changes in regulatory standards. Landowners have also alleged indirect expropriation due to government inaction and corruption in ‘land-grab’ cases that have at times been linked to local government endorsed projects.

Dispute Settlement

ICSID Convention and New York Convention

Peru is a party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) and to the International Center for the Settlement of Investment Disputes (ICSID convention).  Disputes between foreign investors and the GOP regarding pre-existing contracts must still enter national courts, unless otherwise permitted, such as through provisions found in the PTPA. In addition, investors who enter into a juridical stability agreement may submit disputes with the government to national or international arbitration if stipulated in the agreement.  Several private organizations – including the American Chamber of Commerce, the Lima Chamber of Commerce, and Universidad Catolica – operate private arbitration centers. The quality of such centers varies and investors should choose arbitration venues carefully.

The PTPA includes a chapter on dispute settlement, which applies to implementation of the Agreement’s core obligations, including labor and environment provisions.  Dispute panel procedures set high standards of openness and transparency through the following measures: open public hearings, public release of legal submissions by parties, admission of  special labor or environment expertise for disputes in these areas, and opportunities for interested third parties to submit views. The Agreement emphasizes compliance through consultation and trade-enhancing remedies.  The Agreement also encourages arbitration and other alternative dispute resolution measures for disputes between private parties.

Investor-State Dispute Settlement

The PTPA provides investor-state claim mechanisms.  It does not require that an investor

exhaust local judicial or administrative remedies before a claim may be filed.  The investor may submit a claim under various arbitral mechanisms, including the Convention on the Settlement of Investment Disputes (ICSID Convention) and ICSID Rules of Procedure, the ICSID Additional Facility Rules, the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules, or, if the disputants agree, any other arbitration institution or rules.  Peru has paid previous arbitral awards; however, a U.S. court found in one case that Peru altered its tax code prior to payment, thus reducing interest payments.

In 2011, a claimant filed an arbitral challenge against Peru stemming from the alleged failure by the state to undertake agreed-upon environmental remediation at a mining facility.  The arbitration was dismissed in 2016 on grounds of jurisdiction.

In February 2016, a U.S. investor filed a Notice of Intent to pursue international arbitration against the GOP for violation of the U.S.-Peru Trade Promotion Agreement.  The investor, which refiled its claim in August 2016, holds agrarian land reform bonds it argues the GOP has undervalued.

There is no recent history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

The 1993 Constitution allows disputes among foreign investors and the government or state-controlled enterprises to be submitted to international arbitration.  The Supreme Court ruled in 2005 that all arbitration awards are final and are not subject to appeal.

Bankruptcy Regulations

Peru has a creditor rights hierarchy similar to that established under U.S. bankruptcy law, and monetary judgments are usually made in the currency stipulated in the contract.  However, administrative bankruptcy procedures under INDECOPI (the Antitrust, Unfair Competition, Intellectual Property Protection, Consumer Protection, Dumping, Standards and Elimination of Bureaucratic Barriers Agency) have proven to be slow and subject to judicial intervention.  Compounding this difficulty are occasional laws passed to protect specific debtors from action by creditors that would force them into bankruptcy or liquidation. In August 2016, the GOP extended the period for bankruptcy from one to two years. Peru does not criminalize bankruptcy.  World Bank’s 2018 Doing Business Report ranked Peru 88th of 190 countries for ease of “resolving insolvency.”

Investment Incentives

Peru offers both foreign and national investors legal and tax stability agreements to stimulate private investment.  These agreements guarantee that the statutes on income taxes, remittances, export promotion regimes (such as drawbacks, or refunds of duties), administrative procedures, and labor hiring regimes in effect at the time of the investment contract will remain unchanged for that investment for 10 years.  To qualify, an investment must exceed USD 10 million in the mining and hydrocarbons sectors or USD 5 million within two years in other sectors. An agreement to acquire more than 50 percent of a company’s shares in the privatization process may also qualify an investor for a legal or tax stability agreement, provided that the added investment will expand the installed capacity of the company or enhance its technological development.

Foreign Trade Zones/Free Ports/Trade Facilitation

Peruvian law currently covers two types of trade zones:  export, transformation, industry, trade and services zones (CETICOS), and a free trade zone (ZOFRATACNA) in Tacna.  The rules and tax benefits applying to these zones are the same for foreign and national investors. These zones have failed to attract sizable investment and their economic importance is negligible.

CETICOS exist at Ilo, Matarani, and Paita.  A CETICOS is authorized in Loreto department but is not operational.  There is concern that the GOP does not have the proper WTO waivers to validate the CETICOS export requirement.  The U.S. automotive industry has expressed a specific concern that U.S. brands are unable to compete with used Japanese vehicles that enter the Peruvian market duty-free through the CETICOS.  The Ministry of Transportation and Communications banned the importation of right-hand drive vehicles in 2013, citing environmental, and safety concerns. Imports of used cars more than five years old and used buses and trucks more than two years old are prohibited.

Performance and Data Localization Requirements

The PTPA has greatly reduced burdensome investor requirements in Peru.  Under the PTPA, Peru made concessions beyond its commitments to the World Trade Organization (WTO), eliminating investment barriers such as the requirement for U.S. firms to hire nationals rather than U.S. professionals, and measures requiring the purchase of local goods.  The GOP does not maintain any measures that are inconsistent with Trade-Related Investment Measure (TRIM) requirements, according to a WTO Committee on Trade-Related Investment Measure notification dated August 19, 2010.

Current law limits foreign employees to 20 percent of the total number of employees in a local company (whether owned by foreign or national interests).  The combined salaries of foreign employees are limited to no more than 30 percent of the total company payroll. However, DL 689 from November 1991 provides a variety of exceptions to these limits.  For example, a foreigner is not counted against a company’s total if he or she holds an immigrant visa, has a certain amount invested in the company (approximately USD 4,000), or is a national of a country that has a reciprocal labor or dual nationality agreement with Peru.  The United States and Peru tolerate dual nationality, but do not have a formal agreement. Furthermore, the law exempts foreign banks, and international transportation companies from these hiring limits, as well as all firms located in free trade zones. Companies may apply for exemptions from the limitations for managerial or technical personnel.  Sector-specific regulating bodies enforce performance requirements.

Although there are no discriminatory or onerous visa requirements, residence, or work permit requirements that inhibit foreign investors’ mobility, the application and approval process can be cumbersome and lengthy.

There are no performance requirements that apply exclusively to foreign investors.  Peruvian civil law applies to legal stability agreements, which means the GOP cannot unilaterally alter agreements.  Notwithstanding these protections, investors should be aware that government officials have delivered negative remarks to the press regarding companies exercising their contractual rights and obligations.

Peru does not follow a policy in which foreign investors must use domestic content in goods or technology.

Data Storage

A data controller who processes personal data must notify the National Authority for Personal Data Protection (ANPDP for its Spanish acronym), which keeps a public register of data processors and the type of data they collect.  Personal data is defined by the Law as any information on an individual which identifies or makes him/her identifiable through means that may be reasonably used. Sensitive personal data means any of the following: biometric data, data on racial and ethnic origin; political, religious, philosophical or moral opinions or convictions, personal habits, union membership, and information related to health or sexual preference.  Unless otherwise exempted by statute, data controllers are generally required to obtain the consent of data subjects for the processing of their personal data. Consent must be prior, informed, expressed, and unequivocal. In the case of sensitive personal data, consent must also be given in writing, which may be done digitally. Even without the consent of the subject, sensitive data may be processed when authorized by law, provided it is in the public interest.

Data controllers may process personal data without consent:

• When the personal data are compiled or transferred for public entities in control of the personal data and in the performance of its duties;
• When personal data is accessible to the public or is intended to be accessible to the public;
• To comply with other laws related to financial solvency and credit;
• In the case of a law for the promotion of competition in regulated markets under certain circumstances;
• When necessary to perform a contract to which the data subject is a party;
• For personal data related to health, under certain circumstances;
• When processing is carried out by non-profit organizations with political, religious or union purposes, under certain circumstances; or
• In an anonymization or disassociation procedure.

A data controller may transfer personal data to places outside of Peru only if the recipients have adequate protection measures.  The ANPDP supervises compliance with this requirement. That provision does not apply in the following cases:

• When the data subject has given his/her prior, informed, express and unequivocal consent;
• Agreements under international treaties to which Peru is a party;
• International judicial cooperation;
• International cooperation between intelligence agencies for the fight against terrorism, illegal drug trafficking, money laundering, corruption, human trafficking and other forms of organized crime;
• When necessary to implement a contract to which the data subject is a party;
• To comply with laws concerning the transfer of bank or stock exchanges; or
• When the transfer is for the prevention, diagnosis or medical or surgical treatment of the data subject; or when necessary to carry out epidemiological or similar studies (provided that adequate disassociation procedures are applied).

Data controllers must adopt technical, organizational, and legal measures to guarantee the security of personal data and avoid their alteration, loss, unauthorized processing or access.  Peru’s law does not require any notifications to any data subject or any other entity upon a breach. Peru does not mandate special regulations be enacted for the processing of personal data of minors.  The ANPDP is responsible for enforcement and can issue the following administrative sanctions/fines based upon whether the violation is mild, serious or very serious. The law provides a “principle for availability of recourse for the data subject” stating that any data subject must have the administrative and/or jurisdictional channel necessary to claim and enforce his/her rights when they are violated by the processing of his/her personal data.  There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption.

Peru adopted the Personal Data Protection Law (N° 29733) in July 2011 and went into effect on March 22, 2013.  The Law is available here in English: https://www.huntonprivacyblog.com/wp-content/uploads/sites/28/migrated/Peru percent20Data percent20Protection percent20Law percent20July percent2028_EN percent20_2_.pdf 

The implementing regulations are available in Spanish here: http://spij.minjus.gob.pe/normas/textos/220313T.pdf  (page 28)

Real Property

World Bank’s 2018 Doing Business Report ranked Peru 45th  of 190 for ease of “registering property.”  Property rights and interests are enforced in the country.  Mortgages and liens exist, and the recording system is reliable, and is performed by SUNARP, the National Superintendency of Public Records. Foreigners and/or non-resident investors cannot own land within 50 km of a border.

Intellectual Property Rights

Peru is listed on the Watch List under the U.S. Trade Representative’s (USTR) 2019 Special 301 Report.

Peru’s legal framework provides for easy registration of trademarks and inventors have been able to patent their inventions since 1994.  Peru’s 1996 Industrial Property Rights Law provides an effective term of protection for patents and prohibits devices that decode encrypted satellite signals, along with other improvements.  Peruvian law does not provide pipeline protection for patents or protection from parallel imports. Peru’s Copyright Law is generally consistent with the World Trade Organization’s (WTO) Agreement on Trade-Related Aspects of Intellectual Property (TRIPS).

The National Institute of the Defense of Free Competition and the Protection of Intellectual Property (INDECOPI) continues to be the most engaged GOP agency and is a reliable partner for the USG, the private sector, and civil society, having made good faith efforts to decrease the trademark and patent registration backlog and filling time.  The average filing time is two months for trademarks and is 43 months for patents.

Peruvian law provides the same protections for U.S. companies as Peruvian companies in all intellectual property rights (IPR) categories under the U.S.-Peru Trade Promotion Agreement (PTPA) and other international commitments such as the World Intellectual Property Organization (WIPO) and the TRIPS Agreement.  Peru joined the Global Patent Prosecution Highway Agreement (GPPH) with Japan effective in 2019. Peru is reinforcing its Patent Support System with the adoption of the WIPO – Technology and Innovation Support Center (TISC) Program.

INDECOPI, established in 1992, is the GOP agency charged with promoting and defending intellectual property rights.  However, IPR enforcement also involves other GOP agencies and offices: the Public Ministry (Fiscalia), the Peruvian National Police (PNP), the Tax and Customs Authority (SUNAT), the Ministry of Production (PRODUCE), the Judiciary, and the Ministry of Health’s (MINSA) Directorate General for Medicines (DIGEMID).

Peru took a number of positive steps relating to IPR protection and enforcement over the last three years.  Peru successfully seized and shuttered several Spanish-language websites known to host large volumes of pirated content, and has blocked infringing sites on the major ISPs. Peru has significantly improved inter-agency coordination and has specialized IP prosecutors in Lima Norte, Callao, Tumbes, Puno, and Ventanilla, although there are still many areas of the country where this expertise is unavailable.

The GOP continues to improve its enforcement of IPR.  The Commission for Fighting Customs Crimes and Piracy (CLCDAP) is made up of the Ministry of Production, Public Ministry, the Judiciary, the National Police, the Ministry of the Interior, SUNAT, the Ministry of Transport and Communications (MTC), the telecommunications agency (OSPITEL), The IP Agency (INDECOPI), and the private sector.  The CLCDAP was designed to provide solutions to IPR issues through operational actions, institutional strengthening, improvement of the legal framework, and public awareness activities. The CLCDAP has set up a number of working groups, including on software piracy, editorial piracy, online and pay TV piracy, and audiovisual piracy. Importantly, the participation of the private sector in these working groups has led to increased private sector coordination with numerous agencies.

Indecopi’s 2018 Section 301 comments filed show an increase in precautionary measure seizures ordered by the Copyright, Trademarks and Patent Directorates from 371 in 2017 to 467 in 2018. The number of infringedment cases increased from 694 in 2017 to 903 in 2019.  Indecopi held 739 raids during 2018, almost double the 416 raids in 2017.

However, there are specific concerns that must be addressed.  This includes Peru’s limited progress in developing ISP limited liability regulations and a system of pre-established damages, and issues such as enforcement against camcording.  Another area of concern relates to the standards of patent eligibility for inventions involving new methods of using a previously approved pharmaceutical product. In addition, stakeholders are concerned that penalties are not sufficient to be deterrent.

There is insufficient political commitment to intellectual property rights protection and widespread counterfeiting and piracy exist with insufficient judicial, prosecutorial, and law enforcement processes in Peru. 

The World Economic Forum’s 2018 Global Competitiveness Index ranked Peru as 63rd out of 140 economies.  Peru’s competitiveness is improving (it was ranked 69th in 2016 and 72nd last year), it is still behind fellow South American countries Colombia (60), Chile (33), and Mexico (46). http://www3.weforum.org/docs/GCR2018/05FullReport/TheGlobalCompetitivenessReport2018.pdf 

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at https://www.wipo.int/directory/en/details.jsp?country_code=PE  .

Capital Markets and Portfolio Investment

The GOP allows foreign portfolio investment.  Neither the GOP nor its Central Bank place restrictions on international transactions.

The country has its own stock market, the Lima Stock Exchange (Bolsa de Valores de Lima or BVL).  The BVL is a member of the Integrated Latin American Market (MILA), which includes the stock markets from Pacific Alliance countries (Peru, Chile, Colombia, and Mexico) and seeks to integrate their stock exchanges to develop their capital markets.  In December 2017, the GOP implemented a capital markets promotion law that enables mutual funds registered in Pacific Alliance countries to trade in the Lima Stock Exchange starting in July 2018. In July 2018 the Securities Market Superintendence (SMV) published implementing regulations to enable the trade of funds in Pacific Alliance countries.

The Securities Market Superintendence is the GOP entity charged with regulating the securities and commodities markets.  Following the IMF’s recommendations, the GOP passed a law reforming the SMV’s predecessor, CONASEV (the National Commission for the Supervision of Companies, Securities, and Exchanges).  SMV’s mandate includes controlling securities market participants, maintaining a transparent and orderly market, setting accounting standards, and publishing financial information about listed companies.  SMV requires stock issuers to report events that may affect the stock, the company, or any public offerings. This requirement promotes market transparency, and aims to prevent fraud. Trading on insider information is a crime, with some reported prosecutions in past years.  SMV must vet all firms listed on the Lima Stock Exchange or the Public Registry of Securities. SMV also maintains the Public Registry of Securities and Stock Brokers. SMV is studying ways to improve the regulatory system to encourage and facilitate portfolio investment.

Morgan Stanley Capital International (MSCI) maintained the Emerging Market status of the Lima Stock Exchange (BVL), which was under review for reclassification to Frontier status in 2017.

The private sector has access to a variety of credit instruments.  Mutual funds managed USD 7.8 billion in December 2016. Private pension funds managed a total of USD 45 billion in December 2018.

Money and Banking System

Economic opening since the 1990s, coupled with competition, has led to banking sector consolidation.  Sixteen commercial banks comprise the system, with assets accounting for 89.4 percent of Peru’s financial system.  In 2018, three banks accounted for 71 percent of local loans and 69 percent of deposits among commercial banks. Of USD 128 billion in total banking assets at the end of December 2018, assets of the three largest commercial banks amounted to USD 79.99 billion.

The banking system is considered generally sound, thanks to lessons learned during the 1997-1998 Asian financial crisis, and continues to revamp operations, increase capitalization, and reduce costs.  Non-performing bank loans rose to 2.95 percent of gross loans as of December 2018, down from a high of 11 percent in early 2001. Able bank supervision and strong GDP growth over the last decade also helped banks weather the 2008-2009 global financial crises with little trouble.

The Central Reserve Bank of Peru (BCRP) serves as the country’s central bank.  The BCRP is an independent institution, free to manage monetary policy to maintain financial stability.  The BCRP’s primary goal is to maintain price stability, via inflation targeting. Inflation at year-end in Peru reached 6.7 percent in 2008, 0.2 percent in 2009, 2.1 percent in 2010, 4.7 percent in 2011, 2.6 percent in 2012, 2.9 percent in 2013, 3.2 percent in 2014, 4.4 percent in 2015, 3.2 percent in 2016, 1.4 percent in 2017, and 2.2 percent in 2018.  Peru’s target inflation range is 1-3 percent.

Under the PTPA, U.S. financial service suppliers have full rights to establish subsidiaries or branches for banks and insurance companies.

Peruvian law and regulations do not authorize or encourage private firms to adopt articles of incorporation or association to limit or restrict foreign participation.  There are no private or public sector efforts to restrict foreign participation in industry standards-setting organizations. However, larger private firms often use “cross-shareholding” and “stable shareholder” arrangements to restrict investment by outsiders — not necessarily foreigners — in their firms.  As close families or associates generally control ownership of Peruvian corporations, hostile takeovers are practically non-existent. In the past few years, several companies from the region, China, North America, and Europe have begun actively buying local companies in power transmission, retail trade, fishmeal production, and other industries.  While foreign banks are allowed to freely establish banks in the country, they are subject to the supervision of Peru’s Superintendent of Banks and Securities (SBS).

The country has not explored or made announcements on its intention to implement or allow the implementation of blockchain technologies in banking transactions.

Peru’s financial system has 11 specialized institutions (“financieras”), 27 thriving micro-lenders and savings banks (although several large banks also lend to small enterprises), one leasing institution, two state-owned banks, and one state-owned development bank.  In 2018, the Economist Intelligence Unit again ranked Peru number two worldwide, after Colombia, on microfinance business environment because of its sophisticated legal and regulatory framework and competitive microfinance sector. The GOP established regulations to supervise savings and loan associations in January 2019.  These institutions had until the end of March to register with the SBS which will supervise savings and loan associations nationwide; 413 saving and loan cooperatives are registered with the SBS for supervision.

Foreign Exchange and Remittances

Foreign Exchange Policies

There are no reported difficulties in obtaining foreign exchange.  Under Article 64 of the 1993 Constitution, the GOP guarantees the freedom to hold and dispose of foreign currency.  The GOP has eliminated all restrictions on remittances of profits, dividends, royalties, and capital, although foreign investors are advised to register their investments with ProInversion to ensure these guarantees.  Exporters and importers are not required to channel foreign exchange transactions through the Central Reserve Bank of Peru (BCRP) and can conduct transactions freely on the open market. Anyone may open and maintain foreign currency accounts in Peruvian commercial banks.  U.S. firms have reported no problems or delays in transferring funds or remitting capital, earnings, loan repayments or lease payments since Peru’s economic reforms of the early 1990s. Under the PTPA, portfolio managers in the United States are able to provide portfolio management services to both mutual funds and pension funds in Peru, including funds that manage Peru’s privatized social security accounts.

The 1993 Constitution guarantees free convertibility of currency.  However, limited capital controls still exist as private pension fund managers (AFPs) are constrained by how much of their portfolio can be invested in foreign securities.  The maximum limit is set by law (currently 50 percent since July 2011), but the BCRP sets the operating limit AFPs can invest abroad. Over the years, the BCRP has gradually increased the operating limit.  Peru reached the 50 percent limit in September 2018.

A combination of GOP policies and market forces has led to gradual de-dollarization of the economy.  U.S. dollars account for a decreasing share of banking system transactions, according to the Bank Supervisory Authority (SBS).  In 2001, U.S. dollars accounted for 82 percent of loans and 73 percent of deposits. The amount of credit issued in USD increased 1.5 percent and deposits in 0.4 percent in 2018 compared to the previous year.  In December 2018, dollar-denominated loans reached 28 percent, and deposits 37 percent.  Funds associated with any form of investment can be freely converted into any world currency.

The foreign exchange market operates freely, for the most part.  To quell “extreme variations” of the exchange rate, the BCRP intervenes through purchases and sales in the open market without imposing controls on exchange rates or transactions.  Since 2014, the BCRP has pursued de-dollarization to reduce dollar denominated loans in the market and purchased U.S. dollars to mitigate the risk that spillover from expansionary U.S. monetary policy might result in over-valuation of the Peruvian Sol relative to the U.S. dollar.  As the U.S. economic recovery begins to tighten credit conditions and stronger terms of trade support a more stable currency, this policy may shift. Because of the free convertibility of currency, the U.S. Embassy purchases Peruvian currency for expenses on an as-needed basis at the market exchange rate.  The USD averaged PEN 3.29/USD in 2017.

Remittance Policies

There have not been any new developments related to investment remittance policies.

Peruvian law grants foreign investors the following rights: freedom to buy shares from national investors; free remittance of earnings and dividends; free capital repatriation; unrestricted access to local credits; freedom to hire technology and to pay back royalties; freedom to hire investment insurance abroad; possibility to sign juridical stability agreements for their investments in Peru with the Peruvian state.

Article 7 of the Legislative Decree N° 662 provides that foreign investors may send, in freely convertible currencies, remittances of the entirety of their capital derived from investments, including the sale of shares, stocks or rights, capital reduction or partial or total liquidation of companies, the entirety of their dividends or proven net profit derived from their investments, and any considerations for the use or enjoyment of assets that are physically located in Peru, as registered with the competent national entity, without a prior authorization from any national government department or decentralized public entities, or regional or municipal Governments, after having paid all the applicable taxes.

Sovereign Wealth Funds

Peru’s Ministry of Economy and Finance (MEF) manages the Fiscal Stabilization Fund.  The fund had a balance of USD 5.8 billion at the end of 2018 and consists of treasury surplus, concessional fees, and privatization proceeds, with a cap of 4 percent of GDP.  The MEF released investment guidelines for the Fiscal Stabilization Fund in December 2015. The guidelines permit investment in demand deposits, variable and fixed interest rate time deposits, and seven currencies including the USD.  The Fund is not a party to the IMF International Working Group or a signatory to the Santiago Principles. The fund serves as a buffer for the GOP’s fiscal accounts in the event of adverse economic conditions.

Several electricity, water and sewage, bank, and oil companies remain state-owned and state-operated.  The GOP wholly owns 35 SOE’s, 34 of which are under the parastatal conglomerate FONAFE. The list of SOE’s under FONAFE can be found here: https://www.fonafe.gob.pe/empresasdelacorporacion  .

The most notable area of SOE activity pertains to the petroleum sector, where the state-owned petroleum company PetroPeru is an oil refiner and operator of an oil pipeline.  Over the last two decades, PetroPeru has experienced significant attrition in managerial and technical expertise. This, coupled with limited financial resources, cast into doubt the company’s ability to implement its long-held plans to expand and upgrade its aging Talara refinery – which continues to produce dirty gasoline and diesel fuel, a situation the government permits by not enforcing regulatory standards.  Limited resources and expertise also downplay expectations following repeated announcements from its leadership regarding entrance to upstream, and participation in a proposed gas pipeline and petrochemical complex in southern Peru. In November 2015, Peru’s Congress overrode a Presidential veto, adopting a law that allowed Peru’s oil and gas promotion agency, PeruPetro, to sign a contract directly with PetroPeru to operate Lot 192, Peru’s largest oil concession, following a failed bidding process for the claim.  Critics note the prescriptive nature of the legislation conflicts with Peru’s competition and concession laws, and that PetroPeru lacks the financial and technical resources to serve as an operator.

Peru is not party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization.

The GOP’s role as an enterprise owner is specified through several publically available laws and regulations.  Ownership practices are generally consistent with OECD guidelines, although not all guideline subsections are specifically addressed.  Central entity FONAFE (http://www.fonafe.gob.pe/  ) exercises ownership of SOEs with the exception of those considered intangible under the Peruvian constitution (including public university services).  FONAFE appoints an independent board of directors for each SOE using a transparent selection process. There is no notable third party analysis on SOEs’ ties to the government.

Privatization Program

The GOP initiated an extensive, but not yet complete, privatization program in 1991, in which foreign investors were encouraged to participate.  Since 2000, the GOP has promoted multi-year concessions as a means of attracting investment in major projects. In 2000, the government granted a 30-year concession to a private group (Lima Airport Partners) to operate the Lima airport.  In 2006, the government granted a 30-year concession to Dubai Ports World to build and operate a new container terminal in the Port of Callao. The terminal’s first phase became operational in May 2010. In 2006, the Swiss-Spanish-Peruvian consortium Swissport received a 25-year concession to manage nine of Peru’s northern airports.  In 2011, the GOP awarded the Argentine-Peruvian consortium Aeropuertos Andinos a 25-year concession to manage six of Peru’s southern airports. Also in 2011, the government granted a 30-year concession to a Danish-Peruvian consortium led by the Danish-based A.P. Moller-Maersk Group to operate and modernize the multipurpose northern terminal at the Port of Callao.  On June 2, 2015, the GOP awarded Spanish construction company Sacyr a 25-year concession to maintain 875 kilometers of the Andean Longitudinal Highway. The concession for Line Three of Lima’s metro, expected to be awarded in late 2016, was delayed due to corruption allegations in the Line Two project. The GOP established a single transportation authority for the city of Lima and Callao in January 2019 that will take on overall planning and issue tenders for the remaining Lima metro lines 3 and 4.  The Urban Transportation Authority (ATU) will become operational in 2019.

The concessions process is challenging for U.S. and other international companies interested in bidding on projects.  ProInversion, the government agency responsible for drawing up and completing PPP concession projects, has come under considerable criticism over the years for its bidding process, deadlines, and unrealistic timetables.  Despite the criticism, ProInversion is actively working to improve management of the PPP process.  The agency hired an international consulting firm to develop standard PPP contracting guidelines and has implemented internal reforms to streamline its processes and ensure better project management.  ProInversion re-designed its website to provide project listings in both Spanish and English and is holding outreach events to increase competition.

The GOP increased its use of government-to-government (G2G) contracting for infrastructure projects, especially as it sought to expedite and facilitate procurement and priority projects following the Odebrecht scandal.  The Organizing Committee of the Lima 2019 Pan American Games under the Ministry of Transportation and Communications (MTC) contracted with the United Kingdom government in 2017 to  organize and deliver infrastructure for the Lima 2019 Pan American Games, and the MTC is pursuing a G2G contract for construction of the Chinchero Airport in Cusco.  The G2G mechanism poses limitations for U.S. government involvement and could potentially limit the ability of U.S. firms to compete.

Project opportunities are available on ProInversion’s Project Portfolio page at  ProInversion Projects: http://www.proyectosapp.pe/modulos/JER/PlantillaProyectoEstadoSector.aspx?are=1&prf=2&jer=5892&sec=30  .

The GOP does not have a holistic action plan or national standards for responsible business conduct (RBC).  Many multinational companies already adhere to high standards for RBC. Standards for conduct on environmental, social, and governance issues are implemented through sector-specific regulation.  Supreme Decree No. 042-2003-EM promotes social responsibility in the mining sector, encouraging local employment opportunities, support to communities’ projects, development activities, and purchase of local goods and services.  The decree requires mining companies to publish an annual report on sustainable development activities. The Ministry of Energy and Mines has a guidebook for community relations, as well as public information on social measures related to the mining and energy sectors.  In February 2011, INDECOPI adopted the Peruvian Technical Regulation of Social Responsibility ISO 26000 that serves as a voluntary guide to CSR activities.  

Peru continues to implement its National Strategy to Combat Forced Labor, which emphasizes the state’s role to protect and promote labor rights.  The plan simultaneously prioritizes building capacity and empowering vulnerable groups to transform their environment and enforce their rights. The plan addresses both medium and long-term multi-sector plans to eliminate or reduce conditions that enable forced labor.  Despite these efforts, the government did not effectively enforce labor laws in all cases. Child labor (particularly in informal sectors), forced labor, and employers engaging in antiunion practices remain significant problems.

In some regions, lack of capacity hinders the government’s ability to enforce regulations.

In February 2013, the superintendent of the Lima Stock Exchange published the Code on Good Corporate Governance for Peruvian Companies, developed in conjunction with thirteen public and private entities including the Ministry of Economy and Finance.  The document outlines shareholder protections.

Several independent NGOs monitor and promote RBC, notably Peru 2021.  These organizations are able to work freely.

ProInversion serves as the National Point of Contact (NCP) for the OECD Guidelines for Multinational Enterprises, to which Peru is an adherent.  The NCP held a workshop to promote MNE guidelines in Arequipa in October 2017, attended by representatives from several companies, the regional government, and the Arequipa Chamber of Commerce.  ProInversion has also hosted a number of activities in 2017 to promote the OECD guidelines such as an event with the Embassy of France and the French Chamber of Commerce in April 2017 and another one to attract investment that promotes responsible enterprise conduct with the Netherlands Embassy in September 2017.

On February 15, 2012, Peru was listed as a compliant country under the Extractive Industries Transparency Initiative (EITI), as the GOP and extractive industries openly publish all company payments and government revenues from oil, gas, and mining.  Peru is one of two EITI-compliant countries in Latin America.

It is illegal in Peru for a public official or employee to accept any type of outside remuneration for the performance of his or her official duties.  The law extends to family members of officials and to political parties. Regulations published in March 2017 aim to limit conflicts of interest.

Peru has ratified both the UN Convention against Corruption and the Organization of American States Inter-American Convention against Corruption.  Peru is not a member of the Organization of Economic Cooperation and Development (OECD), but it signed a Country Program agreement in December 2014 to provide an anchor for policy reforms aimed at meeting OECD standards and practices.  It has signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The Contraloria General is the responsible government agency for overseeing proper procedures in public administration.  In January 2017, the GOP passed legislative decrees extending the scope of civil penalties for domestic acts of bribery, including by NGOs, corporate partners, board members, and parent companies if its subsidiaries acted under authorization.  Penalties include an indefinite exclusion from government contracting and substantially increased fines.  The Controlaria General also began implementing audits of reconstruction projects that run in parallel to the project, rather than after project implementation, in an effort to improve transparency.

U.S. firms have reported problems resulting from corruption, usually in government procurement processes and in the judicial sector, with defense and police procurement generally considered among the most problematic in spite of PTPA’s stipulations and of Peru’s Government Procurement Law (Legislative Decree No. 1017, DL 1017, one of several laws passed with the specific intention to implement PTPA).  Transparency International lowered Peru’s ranking to 105th out of 180 countries in its 2018 Corruption Perceptions Index from 96th in 2017.

Of the 25 regional governors elected in 2018 regional elections, at least five were under preliminary investigation or had been convicted of corruption-related charges.  A study published in May of 2014 by the office of the anti-corruption solicitor reported that 92 percent of the over 1,800 district-level mayors in office between 2011 and 2014 had been investigated for criminal activity.  A study published in August 2017 counted 395 investigations of corruption or trials against current or former governors, with 30 percent of the cases in the regions of Pasco, Tumbes, and Ucayali. It also identified 1,052 investigations of corruption or trials against 530 current or former mayors, with Lima leading the list with 109 cases (10.4 percent of the total).  https://plataformaanticorrupcion.pe/wp-content/uploads/2017/07/INFORME-CORRUPCION-SOBRE-GOBERNADORES-Y-ALCALDES.pdf 

In December 2016, Brazilian company Odebrecht admitted in a settlement with the United States, Brazil, and Switzerland that it had paid USD 29 million in bribes in Peru between 2004 and 2015.  In 2017, the Peruvian Government issued an emergency decree restricting the sale of Odebrecht assets to ensure payment of corruption-related reparations. In May 2018, the Peruvian Government formally filed a request with the United States to extradite former President Alejandro Toledo (2001-2006) who resides in the United States, for allegedly laundering over USD 20 million in Odebrecht bribes in exchange for facilitating Odebrecht’s winning bid to build the Inter-Oceanic Highway.  High-ranking officials from the last four Peruvian administrations have also been investigated in connection with the Odebrecht scandal.

Resources to Report Corruption

Susana Silva Hasenbank
Secretary of Public Integrity of the Prime Minsiter Office and General Coordinator
High Commission to Fight Corruption (CAN)
Jr. Carabaya Cdra. 1 S/N – Lima
(51) (1) 219-7000, ext. 7118
Email: ssilva@pcm.gob.pe

General Comptroller’s Office
Jr. Camilo Carrillo 114, Jesus Maria, Lima
(51) (1) 330-3000
Email: contraloria@contraloria.gob.pe

Contact at “watchdog” organization (international, regional, local or nongovernmental organization operating in the country/economy that monitors corruption, such as Transparency International):

Samuel Rotta
Executive Director
ProEtica, the Peruvian chapter of Transparency International
Calle Manco Capac 816, Miraflores, Lima
(51) (1) 446-8581, 446-8941, 446-8943
Email: srotta@proetica.org.pe

Although political violence against investors is rare, protests, sometimes violent, have taken place in or near communities with extractive industry operations.  Environmental and service delivery concerns were often the reason cited. Protestors often objected to the fact that environmental impact assessments were reviewed by the Ministry of Energy and Mines, rather than the Ministry of Environment.  In January 2016, the Ministry of Environment’s National Service for Environmental Assessments (SENACE) assumed responsibility for evaluating and approving environmental impact assessments and monitoring related to mining and hydrocarbons, eliminating the previous conflict of interest with the Ministry of Energy and Mines responsible for oversight.  In many cases, protestors sought public services not provided by the government. Ideological opposition to foreign mining firms, not opposition to mining itself, often leads to protests incited by NGOs. Protests related to extractives activities stopped operations of Peru’s northern oil pipeline for nearly two months in 2018 and effectively closed Peru’s second largest copper mine, Las Bambas for a month in early 2019.  According to the Ombudsman, there were 132 active social conflicts in Peru as of March 2019, of which 71 affected mining projects.

Politically motivated movements at times have opposed large extractive projects.  In some cases, these movements have been successful in delaying large investments, as occurred in the USD 4.8 billion Conga mine project in Cajamarca in August 2012.  In 2015, protestors in Arequipa delayed Mexican-owned Southern Copper’s planned USD 1.4 billion Tia Maria copper mine. In other cases, protests have stopped such investments entirely.

The Secretariat of Dialogue and Social Management  within the Vice-Ministry of Territorial Governance in the Prime Minister’s office (created January 2017) are actively engaged in mitigating social conflict connected to the extractive industry in Peru.  The offices are responsible for addressing conflict in a broader community development context, rather than only responding to social conflicts after they have already erupted. To this end, using the Social Progress Fund (created in January 2017 and implementing regulations published March 2018), the government plans to provide education, infrastructure, and health care services in areas where extractive industry projects are planned or under development.  The goal is to increase government presence and reduce potential for conflict in areas that are historically underserved and often remote.

Peru issued the Prior Consultation Law in 2011, approving implementing regulations in 2012.  The law requires the GOP to consult with indigenous communities before enacting any legislation, administrative measures, or development projects that could affect communities’ rights of territorial demarcation.  There have been several successful prior consultation processes related to the extractive industry, but the law remains controversial. Critics believe it creates burdensome processes and results in delays. The National Society of Mining, Electricity and Petroleum (SNMPE) and the government have become involved in assisting local governments to access the extractive industry “canon” (tax revenue-sharing scheme with funding for public works projects) as a way to both stimulate local development and prevent conflicts.  Although these efforts have been effective in some mining regions, in others, conflicts have continued or expanded.

Violence remains a concern in coca-growing regions.  The Shining Path narco-terrorist organization continued to conduct a limited number of attacks in its base of operations in the Valley of the Apurimac, Ene, and Mantaro Rivers (VRAEM) emergency zone, which includes parts of Ayacucho, Cusco, Huancavelica, Huanuco, and Junin regions.  In November 2016, the Department of State designated Victor Quispe Palomino, Jorge Quispe Palomino, and Tarcela Loya Vilchez as Specially Designated Global Terrorists (SDGTs) under Executive Order (E.O.) 13224, which imposes sanctions on foreign persons and groups determined to have committed, or pose a significant risk of committing, acts of terrorism that threaten the security of U.S. nationals or the national security, foreign policy, or economy of the United States.

At present, there is little government presence in the remote coca-growing zones of the VRAEM, although President Vizcarra has pledged to “pacifiy” the VRAEM by Peru’s bicentennial in 2021.  The U.S. Embassy in Lima restricts visits by official personnel to these areas because of the threat of violence by narcotics traffickers and columns of the Shining Path. Information about insecure areas and recommended personal security practices can be found at http://www.osac.gov   or http://travel.state.gov.

Labor is abundant, although several large investment projects in recent years led to localized shortages of highly skilled workers in some fields.  While the legal framework to uphold international labor standards is well defined, the government does not effectively enforce the law in all cases.

Mining sector contacts praise the technical knowledge and professional dedication of Peruvian engineering graduates.  Since the 1960s, the number of jobs created by the Peruvian economy was consistently below the number of new entrants to the labor market.  The situation meant underemployment or seeking work in the informal economy. According to the National Bureau for Statistics (INEI), 73.2 percent of the labor force is informal.

The statutory monthly minimum wage is PEN 930/month (approximately USD 281).  INEI estimated the poverty line to be PEN 328/month (USD 99) per person, although it varied by region due to different living costs.  The Ministry of Labor (MOL) enforces the minimum wage only in the formal sector. Many workers in the unregulated informal sector, most of them self-employed, make less than the minimum wage.  Wages are sometimes higher than U.S. wages in the mining sector for management positions and consulting services. Workers in Peru are paid by the month, not by the year. Some workers, like formal miners, are highly paid and also (per statute) receive a share of company profits up to a maximum total annual amount of 18 times their base monthly salary.  Peru’s labor law provides for a 48-hour workweek and one day of rest, and requires companies to pay overtime for more than eight hours of work per day and additional compensation for work at night. Noncompliance with the law is a punishable infraction. There is no prohibition on excessive compulsory overtime. Micro-enterprise workers are entitled to social security and pensions.

Unemployment was 5 percent in 2017.  Urban unemployment is most prevalent among 14-24 year olds (13.7 percent unemployment in 2017).  Additionally, 96 percent of unemployed people reside in urban areas. The ILO’s Global Wage Report 2018/2019 stated that average real wages in Peru grew at over 0.8 percent in 2016 and decreased by 0.2 percent in 2017.

Foreign employees may not comprise more than 20 percent of the total number of employees of a local company (whether owned by foreign or Peruvian persons) or more than 30 percent of the total company payroll.  However, under the PTPA, Peru has agreed not to apply most of its nationality-based hiring requirements to U.S. professionals and specialty personnel. Peru also has bilateral agreements with Spain and Argentina, for example, so that Spaniards and Argentines working in Peru do not count as foreigners and vice versa.

Employers are not obligated to pay severance if the reason for dismissing an employee is covered by law.  If the dismissal is found to be arbitrary, severance pay is required. Unemployed workers are eligible for benefits through the Compensation for Time of Service program.

Peru does not have a specific unemployment insurance program.  The country does, however, have the “Compensation for Time of Service” (CTS) requirement that mandates an employer pay one month’s salary of an employee per year worked into the employee’s CTS Account.  When the employee stops working for the employer (willingly or not), she/he can access the CTS Account. The amount will vary according to how much the employee earned and how long she/he worked for the employer.  In addition, a fired employee receives one month’s salary per year worked, up to a maximum of twelve months.

Peru’s Decree Law 22342 relaxed labor laws for the non-traditional exports (NTE) sector, which includes textiles and certain agricultural products.  Law 27360, published in 2000, also gave such exceptions in the agricultural sector.  The laws allow businesses in the NTE and agricultural sectors to employ workers indefinitely on consecutive short-term contracts, in contrast to the 5-year limit on consecutive short-term contracts in place for other sectors.  Peru used the exceptions to boost these industries.  On March 18, 2016, the U.S. Department of Labor identified serious concerns that the provisions may violate the U.S.-Peru Trade Promotion Agreement by infringing on workers’ freedom of association. As of April 2018, two proposed bills seek to end the exceptions, which would stop the indefinite use of short-term contracts and provide a path for contract workers to become full time employees.

Labor unions are independent of the government and employers.  Approximately six percent of Peru’s private sector labor force was organized in 2017, with unionization highest in electricity, water, construction, and mining (from 39 percent to 22 percent) and generally low in the rest of the economy.  The labor procedure law (No.29497) requires the resolution of labor conflicts in less than six months, allows unions or their representatives to appear in court on behalf of workers, requires proceedings to be conducted orally and video-recorded, and relieves the employee from the burden of proving an employer-employee relationship.  The labor procedure law was in effect in 30 of Peru’s 31 judicial districts in 2017.

Either unions or management can request binding arbitration in contract negotiations.  Strikes can be called only after approval by a majority of all workers (union and non-union), voting by secret ballot, and only in defense of labor rights.  Unions in essential public services, as determined by the government, must provide a sufficient number of workers during a strike to maintain operations.

Foreign-owned extractive projects are frequently the source of social unrest (see section 11, Political and Security Environment).  In August 2017, Indigenous communities in Loreto region seized facilities from a Canada-based oil company, claiming lack of consultation with local communities over changes to operations.  In March 2017, union workers at the Freeport McMoran’s Cerro Verde mine initiated a strike over pay and working conditions.

While the government has made improvements in recent years, it often does not dedicate sufficient personnel and resources to labor law enforcement.  The Ministry of Labor created the National Labor Inspectorate Superintendence (SUNAFIL) in April 2014 and opened nine regional offices to represent the labor inspectorate nationally.  SUNAFIL opened four new regional offices in Callao, Lambayeque, Cusco, and Piura in 2017 and two in Ayacucho and Puno in 2018. There are now 16 SUNAFIL offices in Lima, Huanuco, La Libertad, Loreto, Cajamarca, Ica, Moquegua, Tumbes, Ancash, Arequipa, Callao, Lambayeque, Cusco, Piura, Ayacucho, and Puno.  As of November 2018, SUNAFIL had 636 labor inspectors, compared to 480 in 2017. The Ministry has announced plans to open up additional SUNAFIL offices in 2019 and 2020. SUNAFIL labor inspectors also help identify and investigate cases of forced and child labor. Additional information on forced labor in Peru can be found in the 2019 Trafficking in Persons Report:  https://www.state.gov/reports/2019-trafficking-in-persons-report-2/peru/

The Overseas Private Investment Corporation (OPIC), an independent U.S. Government agency, offers medium-to-long-term financing and political risk insurance.  There is an OPIC agreement between Peru and the United States. From 2010 thru 2014, OPIC supported solar power plants, consumer lending, operation and expansion of retail stores, microfinance, installation/operation of stereotactic radiosurgery equipment, consulting services, export services, import-export logistical services, and portfolio expansion of SME, micro-credit and consumer loans, in the form of commitments totaling more than USD 21 million.  Peru is a member of the Multilateral Investment Guarantee Agency.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Table 3: Sources and Destination of FDI

Data not available.

Table 4: Sources of Portfolio Investment

Data not available. IMF Coordinated Portfolio Investment Survey data for 2016 is not available for Peru.

Elizabeth Powers
Economic Officer
U.S. Embassy Peru
+51 1-618-2414
Email: powersem@state.gov