New regulation on foreign investment in Venezuela
Dec 17, 2014
Within the context of the Legislative Powers granted to President Maduro, 41 law decrees have been issued in 2014. This has occurred on a consistent basis for more than a decade. Evidence thereof can be found by looking into the statistics over the years: with the Legislative Powers granted in 1999, 50 law decrees were issued; in 2000, 51 law decrees; in 2007, 63 law decrees and in 2010, 54 law decrees (See “Proyecto de Ley Habilitante. Instrumento para lucha de corrupción? O mayor represión a las libertades económicas?”Promoción del Diálogo Democrático a través del Análisis Legislativo Económico. CEDICE-CIPE Octubre 2013. Consulted on www.cedice.org.ve).
One of the most damaging law decrees to property and economic freedom rights is the decree with Rank, Value and Force of Law of Foreign Investment, which brings in-depth changes to the legislation that existed on matters such as Decree No. 2095, which contained the Regulations under the Common Regime for the Treatment of Foreign Capital and on Trademarks, Patents, Licenses and Royalties and the Law on Investment Promotion and Protection and its Regulation.
It also introduces significant changes regarding the provisions contained in the Constitution and the Code of Commerce. For example, unlike the principle of equality of the foreign and local investor established in article 301 of the Constitution (and in article 13 of Decree 2095 formerly in force), there are now principles such as sovereignty, solidarity, cooperation and economic and productive complementarity.
Now, we can affirm that from the point of view of rule of law on matters involving foreign investment there was a legal system that protected the rights of investors. However, in practice the situation was rather different because there were serious difficulties to repatriate dividends, to register direct foreign investment or to pay royalties resulting from trademark license agreements.
As a result, we may affirm that the Decree with Rank, Value and Force of Law of Foreign Investment now formally regulates what was already happening in practice. We can also affirm that this regulation provides further strength to the property and economic freedom rights of foreign investors.
For example, the concept of investment (article 6, numbers 1 and 3) is restricted and the law decree sets forth that “the rights contemplated for foreign investors (…) shall be enforced, as of the time when the Foreign Investment Registration is granted” (article 28). In other words, a foreign investor has rights only once the State issues the corresponding document. Other restrictions are of a similar nature.
Unfortunately, the result of this new regulation is that instead of creating incentives for foreign investment, it creates burdens for what little foreign investment is left in the country and discourages new investment, which is very important in an economy dependent on oil prices. As a result, imports and the production system in general is virtually paralyzed.
* Member of the Academic Committee of CEDICE.