Free zones are geographical areas within a country operating under a special tax regime. They have been established to seek and encourage foreign direct investment, promote international trade, and stimulate economic development. The free zone regime in Ecuador can contribute to national economic growth and reduce economic disparities between regions.

In Ecuador, an attempt had already been made to reintroduce the free zone regime, without success, by a bill sent to the National Assembly, which ended up rejecting it, and by Decree-Law, declared unconstitutional by the Constitutional Court because it was not considered of an economic nature. (Roa Chejín, 2023).

A free zone regime in Ecuador had been in place since 1991

There had already been a Free Zone regime in Ecuador since 1991, approved by the National Congress, which was established to promote trade and stimulate foreign investment, considering the country’s sociopolitical characteristics and geographical location. One of the objectives of the Law was the development of economically depressed areas. The free zones had to be delimited by an Executive Decree. By this, a concession was granted to an administrative company to operate under the free zone regime in Ecuador.

One of the particularities of the Free Zone Law in Ecuador was the exception regarding the stability of labor contracts. The nature of the contracts in free zones was temporary. On the other hand, workers’ salaries had to be 10% higher than the minimum wage. These salaries must be paid in American dollars (remember that the Law predates 2000).

Another exception to the  Free Zone Law was the exchange regime since users of the free zone regime in Ecuador enjoyed exchange freedom and were not subject to the laws, regulations, and regulations of the Central Bank of Ecuador.

ZEDES replaced the free zone regime in Ecuador in 2010

The COPCI (Organic Code of Production, Trade, and Investment) abolished the free zone regime in 2010 and replaced it with the special development zones or ZEDES, whose vision was different. The ZEDES were customs destinations that operated in delimited areas of the national territory and whose types varied in terms of their purposes:

1. To carry out technology and innovation transfer and disaggregation activities.
2. To execute industrial diversification operations
3. To develop logistics services.
4. To engage in tourist services

The recently approved “Organic Law of Economic Efficiency and Employment Generation” reforms the COPCI and reintroduces the free zones in Ecuador, defining them as delimited geographical areas within the national territory subject to special regimes in various areas, such as foreign trade, customs, taxation, finance, agribusiness, technology, and capital treatment; where industrial, commercial and service activities are carried out (34 COPCI).

Job creation is the goal

The purpose of free zones in Ecuador is the generation of employment, the attraction of national and foreign investments, the promotion of development poles to improve competitiveness at the national level, the facilitation of foreign trade, the promotion of global value chains, technology transfer, and innovation, the internationalization of goods and services, the promotion of development in economically depressed areas, the facilitation of the association of recognized communities, the attraction of essential infrastructure, the promotion of business internationalization strategies, the taking advantage of opportunities such as nearshoring, the leveling of international competitiveness, the attraction of projects for the internationalization of Ecuador, and the creation of beneficial infrastructure for users of free zones in Ecuador and their respective regions (art. 35 COPCI).

Unleash Your Growth Potential:
Attract Foreign Direct Investment (FDI)

Learn how our proven strategies bring international capital to your organization. Schedule a free consultation today to discuss your unique needs and discover how we can unlock your growth potential. 

The activities to which free zones can be dedicated are, first of all, the “Industrial goods” encompass areas devoted to the processing, transformation, assembly, repair, and conditioning of goods, including manufacturing, agriculture, agroindustry, processing of fishery products, aquaculture, and forestry, as well as other activities designated by the Strategic Committee for the Promotion and Attraction of Investments (CEPAI). Secondly, the “Service Industries” include areas for tourism, repair, cleaning, quality testing, auditing, consulting, professional services, telecommunications, information technology, health, scientific and technological research, and technical support, among others. These activities are also subject to CEPAI designation. Finally, the “Commercial and Logistics” category includes trade activities of goods for import, export, or re-export and logistics services such as transportation, storage, collection, packaging, distribution, recycling, exhibition, and other related functions, as established and defined by CEPAI.

The free zone system in Ecuador has three main actors: users, operators, users, and support services.

• Operator users are those legal entities, under private or public Law, with a mixed economy, national or foreign, designated by ministerial agreement whose main activity is the acquisition, leasing of land, development of its infrastructure, sale or rental of physical facilities, services promotion, direction and administration of the free zone.
• The users are the legal entities of private, public, national, or foreign mixed economy qualified by the user operator to carry out specific activities, according to what is described in the previous paragraph.
• Support services are those natural or legal persons under private Law established within the Free Zone that provide services to users and user operators.

Free zone operators must abide by Ecuador’s labor code

The Law for the free zone regime in Ecuador does not provide for a special labor regime since user operators, users, and support service companies must apply the provisions of the Labor Code. The regulations issued must uphold the provisions of said Code (art. 50.9 COPCI), which differs from the previous free zone regime.

The Law provides certain fiscal exonerations and exemptions concerning free zones, mainly:

• 0% Income Tax rate for operators and users for the first five years of declaring a free zone from the first year concerning acts and contracts carried out in the free zone, and a fixed rate of 15% thereafter.
• Operators and users are exempted from VAT, ISD, and foreign trade taxes.
• VAT exemption is for purchases of raw materials, supplies, goods, and construction materials from operators located in the national territory.
• Exemption from income tax on income or dividends generated by the shares or participations of operators or users.

One of the concerns of opponents of the free zone regime in Ecuador is its environmental impact. In this sense, the art. According to the Ministry of the Environment guidelines, 50 COPCI prohibits activities that cause environmental deterioration, such as mining, hydrocarbon extraction, etc. Likewise, those responsible for violations due to environmental damage must carry out the remediation process following the Environmental Code. In addition, ecological damage or non-compliance with the Environmental Management Plan constitutes a serious penalty (50.25.f COPCI).

This reintroduction of the free zone regime in Ecuador can be very positive in terms of international trade, job creation, and attraction of investments. This is contrasted with the income that the state does not receive by the exemptions and exonerations described above. It remains to be seen if the free zone regime in Ecuador will meet such purposes and if the government can promote free zones to contribute significantly to the country’s economic development, especially in certain areas and regions that need to catch up to the rest of the country.

In conclusion, the reintroduction of the free zone regime in Ecuador represents a significant strategic move aimed at boosting international trade, generating employment, and attracting national and foreign investments. By offering fiscal incentives and a specialized regulatory environment, the free zones are designed to stimulate economic development, particularly in regions that have historically lagged behind the rest of the country. However, the effectiveness of this regime will ultimately depend on its implementation and the government’s ability to balance the potential economic benefits with environmental protection and the equitable distribution of resources. The success of the free zone regime in Ecuador will be measured by its ability to enhance the country’s competitiveness on the global stage, foster innovation, and create sustainable economic growth across diverse sectors.

Original Spanish Language Source Article

Don't Miss Out: Limited Spots Available for Free FDI Strategy Sessions

Foreign Direct Investment can fuel your organization's success. But competition is fierce. Secure your spot today for a free, no-obligation consultation with our FDI experts. Learn how to attract global investment and take your business to the next level.

Omar Paganini, Minister of Foreign Affairs of Uruguay, reported that revitalizing dialogue with China will be one of the country’s main priorities once it assumes the pro tempore presidency of the South American Common Market (Mercosur) in July. Paganini emphasized that the objective is to modernize Mercosur so that it is a platform that allows countries like Uruguay and Paraguay to trade with the entire world from a common position. At the forefront of the trading bloc’s effort is prioritizing the relationship between Mercosur and China.

Since initiating high-level dialogue in 1997, Mercosur has forged a robust commercial relationship with China. Despite some fluctuations, trade between the two has maintained an upward trajectory. Even in the face of the COVID-19 pandemic, trade values in 2020 surpassed those of 2015 and 2016, demonstrating the resilience and potential of this partnership.

Modernization of the relationship between Mercosur and China

Uruguay is actively pursuing revitalizing the Mercosur-China relationship, aiming to reap the rewards of bilateral cooperation. Minister Paganini has underscored the goal of modernizing Mercosur to serve as a platform for countries to engage in global trade from a unified position. This strategic shift necessitates the diversification of exports and the enhancement of trade and investment conditions, which are expected to bring significant economic benefits.

Uruguay’s stance on the Mercosur-China relationship starkly contrasts that of Argentina, which has taken a more critical view. The Argentine president, Javier Milei, has expressed his reservations about China, leading to tensions within the bloc. However, Paganini believes that Milei agrees with Mercosur embracing globalization and integrating into a world that increasingly values and requires such integration in production chains.

A complex relationship

The trade relationship between Mercosur and China is multifaceted and influenced by various economic, geographical, political, technological, cultural, social, legal, regulatory, logistical, and historical factors. Economically, China’s large GDP and continuous growth make it an attractive partner for Mercosur, which provides essential raw materials and agricultural products. Exchange rate dynamics between the Chinese Yuan and Mercosur currencies, along with the economic stability of China and varying stability within Mercosur, notably Brazil and Argentina, play significant roles in shaping trade volumes.

Geographically, despite the distance, advancements in shipping technology and infrastructure investments, often supported by China’s Belt and Road Initiative, have mitigated transportation costs and facilitated trade. Politically, positive relations and bilateral agreements, even without a comprehensive free trade agreement, have reduced trade barriers, while China’s policy of non-interference aligns well with Mercosur’s strategic

Unleash Your Growth Potential:
Attract Foreign Direct Investment (FDI)

Learn how our proven strategies bring international capital to your organization. Schedule a free consultation today to discuss your unique needs and discover how we can unlock your growth potential. 

The relationship between Mercosur and China is complementary

Technologically, China’s advancements in manufacturing and logistics complement Mercosur’s resource-based economies, enabling a symbiotic trade relationship. Infrastructure improvements, particularly in ports and transportation networks funded by Chinese investments, enhance trade efficiency. Culturally and socially, while there are differences in language and business practices, growing diplomatic and economic exchanges have eased negotiations. Chinese consumer demand for Mercosur’s agricultural products and Mercosur’s need for affordable Chinese manufactured goods further strengthen this trade relationship.

Legally and regulatorily, efforts towards harmonizing standards and complying with international norms help reduce trade barriers in the relationship between Mercosur and China. At the same time, intellectual property rights become crucial in high-tech sectors.

Logistically, investments in reducing transportation costs and improving supply chain reliability ensure consistent trade flows. Historically, the trade relationship between Mercosur and China has deepened over the past few decades, establishing trust and familiarity, while institutions like the World Trade Organization provide frameworks for smoother trade negotiations and dispute resolution. This multifaceted approach has fostered a robust and growing partnership between Mercosur and China.

The relationship will affect both parties’ growth trajectories

In conclusion, the relationship between Mercosur and China is pivotal for both regions’ economic strategies and growth trajectories. As Uruguay prepares to take the pro tempore presidency of Mercosur, the prioritization of this relationship marks a strategic shift towards modernization and global integration. Uruguay’s proactive stance aims to leverage the robustness of Mercosur-China trade, seeking to diversify exports and enhance the conditions for trade and investment. This effort, led by Minister Paganini, underscores the potential benefits of a revitalized and more dynamic Mercosur capable of engaging with global markets from a unified position.

Despite differing perspectives within Mercosur, such as Argentina’s cautious approach under President Milei, there remains a broad consensus on the importance of globalization and international cooperation. This consensus is crucial for navigating the complexities inherent in the relationship between Mercosur and China, which are influenced by many factors ranging from economic conditions and political agreements to technological advancements and logistical capabilities.

The complementary nature of Mercosur’s resource-based economies and China’s manufacturing prowess form a solid foundation for this partnership. Chinese investments in infrastructure, primarily through initiatives like the Belt and Road, have significantly reduced transportation costs and enhanced trade efficiency, further solidifying the trade ties. Cultural and social exchanges, although challenging, have been mitigated through growing diplomatic and economic interactions, easing negotiations and fostering mutual understanding.

Legal and regulatory efforts to harmonize standards and protect intellectual property rights are crucial in maintaining trade flow, especially in high-tech sectors. Additionally, historical trust and institutional frameworks like those provided by the World Trade Organization facilitate smoother trade negotiations and dispute resolutions. This multifaceted and evolving relationship between Mercosur and China, characterized by resilience and mutual benefit, promises to drive substantial economic growth and development for both regions in future years.

Don't Miss Out: Limited Spots Available for Free FDI Strategy Sessions

Foreign Direct Investment can fuel your organization's success. But competition is fierce. Secure your spot today for a free, no-obligation consultation with our FDI experts. Learn how to attract global investment and take your business to the next level.

With a strategic geographical location, the Central American nation has the potential to develop different sectors that improve the Panamanian economy. This blog post describes what they could mean for the country’s growth.

The Panamanian economy needs diversification

In the last 15 years, 62% of Panama’s export basket has been concentrated in two sectors, a testament to the strength and potential of our transportation and travel sectors. These sectors, which accounted for 40% and 23% respectively in 2022, are the backbone of our economy, with the Panama Canal, the ports, and everything derived from it, and Copa Airlines’ ‘Hub of the Americas’ leading the way.

In 2022, Panama had 14% of copper exports; for 2024-2025, the estimates are different due to the closure of the copper mine managed by Minera Panamá, whose contract was declared unconstitutional in 2023. “We automatically had a kind of Brexit without any transition, turning off the switch and without acquiring the merits of having a mine in Panama,” highlighted Tomás Bermúdez, representative of the  Inter-American Development Bank (IDB) during his speech at the Annual Conference of APEDE Executives in Panama.

“The Panamanian economy already has a series of advantages where we can move quickly. A sector that is promising but requires a lot of work is the connectivity sector. Panama has a privileged location and a critical logistics infrastructure,” added Bermúdez.

Panama has a strong infrastructure

The IDB executive highlighted that Panama’s infrastructure is a beacon of hope for our economic future. We have the Tocumen International Airport, which in 2023 transported more than 17.8 million passengers, the Panama Canal, seaports in the Atlantic and the Pacific, the Trans-Isthmus Railway that crosses the Isthmus, and the Pan-American Highway, which unites the entire country. This infrastructure, as he put it, is ‘the envy of the neighborhood,’ and it’s a clear sign of the opportunities that lie ahead for our logistics sector.

Having all this infrastructure gives the Isthmus and the Panamanian economy the possibility of taking advantage of the logistics sector as one of the pillars of the national economy.

Achieving this objective requires strategic investments from being a country that only transports ships and containers to taking advantage of all the infrastructure it already has. This financing would be focused on improving part of what already exists and taking advantage of creating new options that add value, such as the possibility of developing a dry canal.

The governance of the logistics sector must be included, which must be improved in all aspects, and a plan should be proposed so that it lasts for more than 15 years on the infrastructure and competitive base that it already has, as analyzed.

Unleash Your Growth Potential:
Attract Foreign Direct Investment (FDI)

Learn how our proven strategies bring international capital to your organization. Schedule a free consultation today to discuss your unique needs and discover how we can unlock your growth potential. 

Better water resource management is required

Another relevant aspect regarding the logistics development of the Panamanian economy is the care of water resources. For Bermudez, it has become a systemic risk for the country and requires better management. Today, different institutions manage water use, whether for the Canal or human consumption, “there must be efficient planning for the management of the 52 water basins that applies in the much longer term,” he added.

Improving and diversifying the energy matrix are other vital pillars for logistics development in the Panamanian economy. Energy consumption by source for 2021 was divided as follows: oil 50%, renewable energy 20%, coal 14%, natural gas 12%, and firewood 4%. Panama is one of Central America’s main countries, consuming a high percentage of fossil fuels.

A relevant fact is that this country can become an energy ‘ hub. ‘ Currently, ships transporting different energy alternatives pass through the Panama Canal but must take advantage of them. This is in addition to gas plants installed recently, which should be a storage opportunity. This is related to energy issues, as green hydrogen must also be used.

Tourism has significant potential

Another engine of growth is tourism; in 2022, this sector had participation of 15.8% in the Panamanian economy’s GDP and 17% in employment at the national level. Panama received two million international tourists for the same year, a figure higher than that registered in the pre-pandemic period, which was 1.7 million.

On the other hand, it is necessary to diversify the tourism offer, said the IDB executive. 58.5% of hotel rooms and 49.4% of accommodation investments are concentrated in the capital. However, 80% of the tourist attractions are inside the country. Due to this last figure, there is a need to push the strength of this sector towards the other provinces and train collaborators to sell the offer and obtain essential investments.

Another sector with immense potential for the Panamanian economy is agriculture, which represented 2.6% of the national GDP between 2010 and 2022; however, in the provinces, it is essential. For Darién, for example, it represents one-third of its GDP; in Bocas del Toro, it is one-fourth, and in Los Santos, it is one-fifth. Agriculture contributes 16% of GDP to employment at the national level of the Panamanian economy.

The investment must be made in the unique assets needed to capitalize on access to the international market, such as health, irrigation, and innovation for agriculture. This pending task becomes essential for the country to develop this growth engine.

In conclusion, the Panamanian economy stands at a crossroads where strategic investments and focused development can significantly enhance its growth trajectory. With its strategic geographical location and robust logistical infrastructure, Panama has the potential to transform its connectivity and logistics sectors into central economic pillars. However, this requires careful governance, sustainable water resource management, and energy matrix diversification. Additionally, bolstering tourism beyond the capital and investing in agriculture can further diversify the Panamanian economy, creating more inclusive and sustainable growth. The Panamanian economy can achieve a more resilient and prosperous future by capitalizing on these opportunities.

Don't Miss Out: Limited Spots Available for Free FDI Strategy Sessions

Foreign Direct Investment can fuel your organization's success. But competition is fierce. Secure your spot today for a free, no-obligation consultation with our FDI experts. Learn how to attract global investment and take your business to the next level.

Italian company Mapei’s recent strategic investment in Colombia is not just a financial move but a significant step in the bilateral economic relationship between Italy and the South American nation. This substantial investment of US$11 million made during Q1 2024, aimed at expanding the firm’s manufacturing capabilities for chemical products used in construction and industry, is projected to drive Mapei’s growth by 35% in 2024 and contribute significantly to Colombia’s economic development. This follows a remarkable 400% growth rate in recent years, demonstrating the company’s successful integration and expansion and its ongoing commitment to Colombia’s economic prosperity.

Mapei’s participation in the Colombian economy extends beyond mere financial investments. Since entering the Colombian market in 2017 with an initial investment of €30 million, Mapei has steadfastly built a sustainable and resilient operation. Acquiring the local company Bronco laid the groundwork for a robust and growing presence in the country. With three manufacturing plants, three logistics centers, and six regional offices, Mapei’s infrastructure is well-equipped to support its investments in Colombia and ambitious growth plans and uphold its commitment to sustainable and resilient operations.

Mapei invests in its human capital

Mapei’s activities in Colombia are not just about financial resources but also about human capital development. The company has not just dedicated over 12,000 hours to employee training since 2023 but invested in cultivating a knowledgeable and skilled workforce. This workforce can drive innovation, maintain high production standards, and contribute to the company’s growth and sustainability goals. This emphasis on training and development is not just a strategy but a reflection of Mapei’s commitment to its people and their role in its success.

Mapei’s introduction of the Zero Line, a family of sustainable products, is not just a product launch. It’s a testament to the company’s commitment to environmental responsibility and its investments in Colombia. By offsetting the CO₂ equivalent to its ceramic adhesives and nozzles sales through certified forestry projects, Mapei is not just talking about climate change but actively contributing to global efforts to combat it. The company has already offset more than 100,000 tons of CO₂ worldwide, equivalent to planting 1.25 million trees.

The investment landscape in Colombia has seen significant contributions from other Italian companies. In recent years, various Italian firms have strategically invested in different sectors of the Colombian economy. For instance, Enel, through its subsidiary Enel-Codensa, has been actively involved in the energy sector, investing heavily in renewable energy projects. Additionally, Italcol, a company specializing in animal nutrition, has expanded its investment in Colombia, contributing to the agricultural sector’s growth.

Beyond Italy, other European countries have also been significant investors in Colombia over the past five years. According to ProColombia, the country’s investment promotion agency, the Netherlands has been one of the largest European investors in Colombia, particularly in the oil and gas sector. Royal Dutch Shell and other Dutch companies have invested billions of dollars, highlighting the strategic importance of Colombia’s energy resources.

Unleash Your Growth Potential:
Attract Foreign Direct Investment (FDI)

Learn how our proven strategies bring international capital to your organization. Schedule a free consultation today to discuss your unique needs and discover how we can unlock your growth potential. 

Beyond Italy other European companies have made considerable investments in Colombia

Spain is another key player, with significant telecommunications, banking, and infrastructure investments. Spanish multinational companies like Telefónica and Banco Bilbao Vizcaya Argentaria (BBVA) have established substantial investments in Colombia, contributing to the modernization and expansion of critical services. The United Kingdom has also been active, with British Petroleum (BP) investing in oil exploration and production and Diageo expanding its presence in the beverage industry.

Germany’s investment in Colombia is notable in the automotive and manufacturing sectors, with companies like Daimler AG and Siemens AG investing in production facilities and technology solutions. France has contributed through investments in retail and agriculture, with Carrefour and Groupe Danone expanding their operations in Colombia.

European companies investing in Colombia benefit significantly from the country’s strategic geographic and economic advantages. One of the primary benefits is access to major South American markets. Colombia’s central location on the continent provides a gateway to the Pacific and Atlantic Oceans, facilitating trade routes and logistics for reaching neighboring countries like Brazil, Peru, and Chile. This strategic positioning allows European firms to distribute their products across the South American continent efficiently.

Additionally, Colombia’s extensive network of free trade agreements (FTAs) enhances market access beyond South America. Colombia has FTAs with major global economies, including the United States, the European Union, Canada, and several countries in the Asia-Pacific region. These agreements reduce tariffs and trade barriers, making it more cost-effective for European companies to export their goods and services from Colombia to these markets. As a result, European companies can leverage investments in Colombia as a hub for broader international trade, increasing their global market reach and competitiveness.

Colombia’s expanding domestic market represents a growing opportunity

Participation in Colombia’s growing domestic market also generates added revenue for European companies. With over 50 million people, Colombia has a steadily growing middle class and increasing consumer demand. This demographic shift creates a fertile ground for European firms to expand their sales within the country. Sectors such as retail, automotive, consumer goods, and technology are particularly poised for growth, providing ample opportunities for revenue generation.

Furthermore, European companies benefit from Colombia’s economic stability and generally pro-business environment. The government actively encourages foreign investment through various incentives, including tax breaks, investment protection agreements, and streamlined regulatory processes. This supportive business climate reduces operational risks and enhances profitability for European companies with investments in Colombia.

Overall, European investments in Colombia have played and will continue to play, a crucial role in the country’s economic development, bringing in capital, technology, and expertise that have supported growth across various sectors. These investments have created jobs, stimulated economic activity, and fostered innovation and sustainable practices, aligning with Colombia’s long-term development goals.

Don't Miss Out: Limited Spots Available for Free FDI Strategy Sessions

Foreign Direct Investment can fuel your organization's success. But competition is fierce. Secure your spot today for a free, no-obligation consultation with our FDI experts. Learn how to attract global investment and take your business to the next level.