Experts Agree: Current Incentives Lack Appeal for Investors Compared to Competitive Models like Uruguay’s
The law establishing the free zone regime in Argentina dates back to 1994, and despite undergoing four updates, experts argue that it still requires significant modernization. Over the last three decades, free trade zones (FTZs) have evolved worldwide as a tool for regional economic development. Even international organizations that once criticized these zones, such as the OECD, now endorse them, provided they adhere to “best practices.”
What Are Free Trade Zones in Argentina?
According to the Federal Administration of Public Revenues (AFIP), free trade zones are “areas where goods are not subjected to standard customs control, and their import and export are exempt from taxes—except for retributive fees that may apply—and not subject to economic prohibitions.”
The legislation exempts goods entering or leaving these zones from taxes that apply to their import or export for consumption, except for fees related to services provided. Additionally, industries established in these zones are exempt from national taxes on essential services such as telecommunications, electricity, gas, and water.
The primary goal of FTZs under Argentina’s free zone regime is to promote trade and export-oriented industrial activities by reducing costs, simplifying administrative procedures, and providing fiscal incentives.
Currently, there are 14 active FTZs in Argentina: La Plata, Bahía Blanca (including Puerto Galván), Puerto Iguazú (Misiones, as a retail zone), Estación Juárez Celman (Córdoba), Justo Daract (San Luis), Concepción del Uruguay (Entre Ríos), Comodoro Rivadavia (Chubut), General Güemes (Salta), General Pico (La Pampa), Villa Constitución (Santa Fe), Río Gallegos (Santa Cruz, with a special regime), Zapala (Neuquén), and two in Jujuy (Perico and La Quiaca, the latter as a retail zone).
Challenges in Argentina’s FTZ Framework
Lisandro Ganuza, a public policies, and free trade zones consultant highlights that Argentina’s free zone regime needs to be updated and more attractive to investors. He explains that the law predates the OECD’s acknowledgment of FTZs as a tool to boost exports and describes it as poorly designed, stating, “It was created not to work; it lacks significant benefits.”
Globally, the role of FTZs shifted significantly in 2015, with 2020 marking a definitive turning point. Formerly viewed with suspicion, FTZs gained credibility when international customs organizations began endorsing them under strict best-practice guidelines. Currently, there are over 5,400 FTZs worldwide.
According to Ganuza, FTZs are vital links in global production and logistics chains but must maintain high standards. He cites China’s model as a benchmark, replicated across much of the Asia-Pacific region, which hosts around 75% of the world’s FTZs. Similarly, the United Arab Emirates transformed from a fishing village into a global trade hub by leveraging its FTZs.
In the United States, approximately 230 FTZs function as port extensions, offering benefits within a 100-kilometer radius. Major industries such as liquefied natural gas (LNG), pharmaceuticals, and automotive manufacturing have taken advantage of these zones.
Latin America’s FTZ Success Stories
Countries like Costa Rica, Panama, the Dominican Republic, and Colombia have effectively utilized FTZs to attract investments. Colombia, for instance, expanded from 11 FTZs in 2005 to 111 today, offering a 20% corporate tax rate in these zones compared to the 35% national average. Ganuza notes that Colombia’s approach exemplifies strategic internationalization, leveraging FTZs to integrate into the global economy.
A Need for Competitive Reforms in Argentina
Marcelo Leite, president of the Argentine Chamber of Free Trade Zone Concessionaires and CEO of the La Plata FTZ, argues that public policy needs to focus more on the sector despite its potential to stimulate production, imports, and exports. He stresses that the free zone regime in Argentina requires modern, competitive regulations to compete with neighboring countries like Uruguay, Brazil, and Colombia.
Leite emphasizes that fiscal benefits are crucial for attracting investors, including domestic capital, which might otherwise relocate to neighboring countries with more favorable regimes.
The Limitations of the Current Law
Eduardo Serena, head of Grupo Serena, explains that Argentina’s current law makes profitable activities within FTZs almost impossible. Industrial FTZs, for example, are restricted from producing goods for the domestic market, often relegating them to service-oriented functions such as importing goods.
Serena distinguishes FTZs from bonded warehouses, noting that FTZs allow longer storage durations and segmented shipments, reducing businesses’ costs. The inflexibility of the free zone regime in Argentina has become a barrier for companies seeking competitive advantages.
The Strategic Role of FTZs in Regional Development
Lorenzo Sigaut Gravinia, director of Macroeconomic Analysis at Equilibra, highlights FTZs as strategic tools for regional development. He cautions, however, that their success depends on their integration into a broader national economic strategy. He points to outdated policies in Argentina that need revisiting and modernizing.
Proposed Synergies and Global Competitiveness
The current administration has introduced the Large Investment Incentive Regime (RIGI), which targets agroforestry, infrastructure, mining, energy, and technology sectors with tax and customs benefits for investments over $200 million. Experts suggest combining this regime with FTZ benefits to maximize its appeal, though such a synergy is currently not permitted under the free zone regime in Argentina.
Ganuza highlights Uruguay as a prime example. Every dollar invested in FTZs generates $7.20 for the broader economy. Additionally, Uruguay allows one in four employees in FTZs to be foreign nationals exempt from social contributions.
Recommendations for Argentina’s FTZ Policy
Experts agree that Argentina should adopt a more competitive tax regime, possibly aligning with the OECD’s global minimum tax of 15% for companies earning over $750 million annually. Ganuza advocates treating FTZs as public policy tools rather than special regimes designed to address structural challenges in Argentina’s economy.
Finally, reforms should address challenges such as Mercosur’s Decision 33, which disqualifies FTZ-produced goods from receiving bloc-origin certification, thus resulting in tariff advantages being lost. These updates are necessary to ensure that the free zone regime in Argentina aligns with global standards.
Conclusion
FTZs have demonstrated their potential to drive economic development, attract foreign direct investment, and integrate regions into global markets. For Argentina, a modernized, globally competitive FTZ framework under the free zone regime in Argentina could be instrumental in overcoming economic challenges, decentralizing activity, and fostering sustainable growth.