Doing Business in Argentina: 2014 Country Commercial Guide for U.S. Companies INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2014. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES. • Chapter 1: Doing Business in Argentina • Chapter 2: Political and Economic Environment • Chapter 3: Selling U.S. Products and Services • Chapter 4: Leading Sectors for U.S. Export and Investment • Chapter 5: Trade Regulations, Customs and Standards • Chapter 6: Investment Climate • Chapter 7: Trade and Project Financing • Chapter 8: Business Travel • Chapter 9: Contacts, Market Research and Trade Events • Chapter 10: Guide to Our Services Return to table of contents Chapter 1: Doing Business in Argentina • Market Overview • Market Challenges • Market Opportunities • Market Entry Strategy • Fact Sheet Market Overview Return to top Welcome to Argentina! The U.S. and Argentina share a long history of bilateral commercial relations both in trade and investment. The United States is Argentina’s third-largest trading partner and U.S. companies are among Argentina’s top investors, with some U.S. companies maintaining local sales and manufacturing subsidiaries in the country for over a century. As the fourth most populous country in Latin America with a population of 42 million, Argentina is one of the largest economies in South America and, as such, remains an important export market for U.S. companies in a number of industries. The United States and Argentina share a mutually-beneficial trade relationship with total trade in goods reaching $14.8 billion in 2013. Two-way trade in private services between the two countries totaled an estimated $9.0 billion in 2013 (latest data available), with the U.S. exporting $7.1 billion to Argentina and importing $1.9 billion. The U.S. supplies raw materials, intermediate goods, and capital goods to feed Argentina’s industrial sector while Argentina exports food and agricultural products as well as intermediate goods to U.S. industry. The U.S. enjoys a trade surplus with Argentina. Approximately 90 percent of its exports to Argentina are destined for local industry and agriculture such as computers, industrial and agricultural chemicals, agricultural and transportation equipment, machine tools, parts for oil field rigs, and refined fuel oil. Argentine exports to the U.S., meanwhile, include goods such as wine— Argentina is one of the largest exporters of wine to the U.S.—fruit juices, crude oil, and intermediate goods such as seamless pipe, tubes, and other iron and steel products. U.S. investment makes a large contribution to Argentina’s economy. Over 500 U.S.- based companies currently operate in Argentina, employing over 155,000 Argentines. The stock of U.S. investment in Argentina reached $14.4 billion in 2012 (latest data available) and is concentrated in the energy, manufacturing, information technology, and financial sectors. U.S. firms operating in Argentina continue to make a positive impact on the Argentine economy and society and are widely respected for their corporate governance, the quality of the work environment they provide to their Argentine employees, their transparency, and their work in corporate social responsibility. In 2013, U.S. companies comprised 1/3 of the 100 most respected companies in Argentina published annually by MERCO, a local research company. Market Challenges Return to top The primary market challenges arise from slowing economic growth and import and foreign exchange restrictions the Government of Argentina (GOA) imposed in late 2011 and early 2012. Growth slowed markedly in 2012 to 1.9 percent (from 8.9 percent in 2011) and continued at 3.0 percent in 2013, according to official GDP statistics (the IMF and some private analysts dispute the official statistics). Strong commodity prices and automobile exports to Brazil had contributed to Argentina’s rapid growth over the past several years. Non-automatic import licenses (NAILs) were ended in late 2012 for all but a few products, but a regime erected by the GOA in February 2012, whereby all importers are required to request approval from the Argentine Tax and Customs Authority (AFIP) prior to making each purchase for import from abroad, is still in effect and constitutes import licensing in all but name. This system is the subject of a WTO complaint by the U.S., EU, and Japan against Argentina. Moreover, the GOA’s policy of tying import application approvals to changes in the trade balance and foreign exchange levels has added to the uncertainty. Sustained inflation generally estimated at over 30 percent has raised unit labor costs and resulted in a more challenging business environment. Limits on profit, royalty, and licensing remittances have also discouraged new investment in Argentina. Lack of transparency and a public comment period for new regulations adds to business uncertainty. As a result of the aforementioned government policies, many local and international firms based in Argentina have delayed plans for expansion or the adoption of new product lines until the economic climate and regulatory regime become more clear, consistent, and predictable. Despite current problems and uncertainty, Argentina remains an attractive market for American exporters given its relatively large and educated population, abundant natural resources such as in agriculture, mining, and unconventional hydrocarbons, and important infrastructure needs. As Argentina resolves its issues going forward, having already taken important steps to this end, opportunities will increase. This is an excellent time to begin exploring the market and establishing relationships that will enable profitable operations in the future. Market Opportunities Return to top This Country Commercial Guide presents information for companies to determine the market potential of the Argentine market. This year’s top commercial sectors described in Chapter Four are: Agricultural Machinery Parts; Electronic Security Equipment; Food Processing Equipment; Information and Communication Technology; Medical Equipment, Instruments & Supplies; Mining Machinery and Equipment; Technologies for Development of Unconventional Gas Resources; and Travel & Tourism to the United States. Within the agribusiness sector, animal genetics, natural origin food ingredients, and planting seeds are key areas that demonstrate high potential. We encourage you to work with the U.S. Embassy to explore opportunities in all sectors. Services offered to U.S. firms in Argentina include help with market-entry or expansion strategies and advocacy for tender bid and policy obstacles. The U.S. Embassy also stands ready to help U.S. companies understand and address market challenges. In addition to the services of the U.S. Embassy, the U.S. Export-Import Bank is open for short-and medium-term financing for U.S. exports to private sector clients in Argentina, but not for entities tied to the GOA. The Overseas Private Investment Corporation (OPIC) offers assistance to U.S. private investors in the form of political risk insurance, as well as loans and loan guarantees for their direct investment in Argentina. Market Entry Strategy Return to top • Marketing U.S. products and services in Argentina requires a high level of research, preparation, and involvement. • Companies intending to export to Argentina need to ensure that their customers fulfill all import requirements before they ship any product and must be careful to follow all regulations precisely. They should contact the U.S. Commercial Service in Argentina for advice regarding the import process. • U.S. companies exporting to Argentina typically market their products and services through Argentine agents, representatives and distributors. • Close personal relationships are important for success as Argentines prefer to do business with people they have met face-to-face and know well. • U.S. companies must consider Argentina’s unique economic, demographic, and cultural characteristics that distinguish it from other Latin American countries. • It is increasingly difficult to establish a "typical customer" due to new consumption habits and to the dynamics of income distribution and demography. • An important component of the marketing mix is promotion. Companies are encouraged to attend or exhibit at local and regional trade shows as well as visit trade shows in the United States attended by Argentine buyers. • Protect your intellectual property and engage qualified local professionals and lawyers in contract negotiations. The U.S. Embassy Commercial Service in Argentina provides a wide range of services to help U.S. companies enter and expand operations in the country. For details on the services offered, see: http://export.gov/argentina/servicesforu.s.companies/index.asp. Fact Sheet Return to top For access to a U.S. – Argentina Trade Fact Sheet, please click on: http://export.gov/argentina/doingbusinessinargentina/eg_ar_067863.asp Return to table of contents Return to table of contents Chapter 2: Political and Economic Environment For background information on the political and economic environment of the country, please click on the link below to the U.S. Department’s U.S.-Argentina Bilateral Relationship Fact Sheet: http://www.state.gov/r/pa/ei/bgn/26516.htm Return to table of contents Return to table of contents Chapter 3: Selling U.S. Products and Services • Using an Agent or Distributor • Establishing an Office • Franchising • Direct Marketing • Joint Ventures/Licensing • Selling to the Government • Distribution and Sales Channels • Selling Factors/Techniques • Electronic Commerce • Trade Promotion and Advertising • Pricing • Sales Service/Customer Support • Protecting Your Intellectual Property • Due Diligence • Local Professional Services • Web Resources Using an Agent or Distributor Return to top International companies typically market their products through an Argentine agent/representative or a distributor. Working with a distributor has several advantages, although recent restrictions have limited the ability of distributors to import products. Distributors can provide strategic support for positioning brands in the market through promotion and advertising. Furthermore, they understand the local culture and can assist with after-sales service. This value-added service is increasingly important for customers, and contributes to a positive image of U.S. firms doing business abroad. There are, however, situations in which the best solution is a representative rather than a stocking distributor. Please contact the Commercial Service in Buenos Aires to discuss this. The Civil and Commercial Codes govern principal-agent relations and differ from U.S. laws. We strongly recommend that an Argentine lawyer be consulted prior to entering into any type of agreement with an Agent/Distributor and engaged prior to substantive negotiation of the agreement terms. No special legislation has been enacted to regulate the cancellation of agency/distribution agreements, although a company could incur additional costs associated with the cancellation of an agency agreement due to Argentine labor laws. Given the complexity of the legal and commercial environment, contracts are generally negotiated in writing through the exchange of reversal letters or via a basic instrument. The parties may not elect foreign laws to govern the agreement. Argentine courts will not enforce a contract executed abroad to avoid Argentina law. The U.S. Commercial Service can provide a list of local lawyers upon request. For inquiries regarding legal services, please email Diana Brandon at the U.S. Commercial Service in Buenos Aires at [email protected]. U.S. companies should take time in selecting their Argentine agent/distributor. Business relationships and a good reputation are essential to an agent/distributor’s ability to reach potential customers of your product or service. Likewise, it is important to develop a close relationship with a representative, agent, distributor, or other business partner. The mutual trust that this builds will help prevent business disputes and enable the parties to resolve issues amicably when they do arise. The U.S. Commercial Service of the U.S. Department of Commerce assists exporters in finding and evaluating partners in Argentina. Contact the nearest U.S. Department of Commerce Export Assistance Center, where trade specialists can provide you with guidance on entering the Argentine or other international markets. Please call 1-800-USA-TRADE (1-800-872-8723) to locate the one nearest you or visit the U.S. Government Export Portal at http://export.gov/usoffices/index.asp. You may also contact the Commercial Service in Buenos Aires directly for additional information on partner search services, applicable fees and delivery times at http://export.gov/argentina/servicesforu.s.companies/businessmatchmaking/index.asp. Establishing an Office Return to top Foreign companies may carry out any single transaction. To continue a routine activity, a foreign company must establish a branch (sucursal) in Argentina. An individual must be appointed as the company's legal representative, but assignment of capital to the branch is not necessary. Legal Structures Commonly Used by Investors Regardless of whether they are associated with local investors, foreign investors may do business in Argentina as individuals or through corporations, branches of foreign corporations, limited liability companies, limited partnerships, general partnerships, and joint ventures. Foreign corporations often operate in Argentina through a separately incorporated subsidiary rather than through a branch, primarily to reduce their potential liability. If a branch is used, all of the foreign corporation's assets, not only its Argentine assets, may be subject to potential liability. In contrast, if an Argentine or foreign subsidiary is used, the foreign corporation's liability generally will be limited to the assets owned by that subsidiary. Registration Procedures: The law governing corporations is applicable throughout the entire country of Argentina. Corporations are set up with the approval of at least two legal or natural persons, whether Argentine or foreign. A corporation may not be a partner in a partnership. A corporation can usually be established in three to four weeks if capital is supplied only in cash. If supplied in kind, the corporation can be established in about two months. A minimum of two founders is required with no maximum limit. Company founders must report a domicile in Argentina. A minimum of two shareholders is required. No maximum is prescribed. Should a foreign company wish to act as shareholder of a local company, the company must be “qualified.” The cost of qualification proceedings is similar to the incorporation cost. U.S. firms considering establishing operations in Argentina should fully investigate the tax and legal aspects of establishing a business with legal counsel before making any final decisions. (Please refer to Chapter 9 for Contacts, Market Research and Trade Events.) Franchising Return to top The local franchising industry has evolved into a challenging and highly competitive environment for international franchisors seeking local partners. Current market size is approximately $6.5 billion, with an annual growth rate of approximately 10 percent. Franchising sales account for approximately 2 percent of Argentina’s GDP. Currently, 90 percent of local franchises are of Argentine origin and approximately 10 percent are of international ownership. Development of franchising in Argentina has been uneven and shows a high level of concentration, as 10-15 chains handle 36 percent of the franchises and 50 percent of the total turnover. There are approximately 400 franchise brands in the market. Tourism and aesthetic centers are two new segments in which franchising is growing. The most popular areas for international franchisors are fast food, foreign language training, dry cleaning, hotels, and car rental services. Local franchises have been particularly successful in apparel, food, ice cream, "empanada" pastries, fitness/health clubs, and education; however, apparel franchising has lately suffered due to import restrictions. Coffee shops and stores are currently going through a growth stage, with local brands such as Havanna and Bonafide having more than 120 stores each. Starbucks entered the Argentine market in 2008, opening more than thirty stores since entrance. Other significant U.S. market players include Kodak Express, McDonald's, Burger King, Wendy’s, Cartridge World, Kentucky Fried Chicken, and Re-Max. Franchise contracts are generally protected under the Argentine Commercial Code and are not governed by specific legislation. The scope of the service, commercial trade market/name, expertise, and shared production elements are covered by contractual obligations on both franchisor and franchisee. Elements of the contract include the license, methods/systems or proprietary information transferred to a franchisee, inputs supply, sales methods, quality standards, and ultimate control by franchisor of the contract elements. Franchises have been successfully used in Argentina, but the obligations of the franchisor must be clearly established in the contract to avoid potential liabilities related to the operator, in case of default, bankruptcy, etc. There are initiatives to advance a Franchising Bill to fully formalize the industry, but legal counsel should be sought prior to entering the Argentine marketplace and appointing a franchisee. Direct Marketing Return to top E-commerce is increasingly a part of daily life, particularly given a higher penetration of home broadband connections. Traditionally, companies that sell cosmetics, kitchenware, fragrances, and books have been most likely to utilize direct marketing tools. However, the increasing use of the Internet is enabling other firms/sectors to penetrate the market. Companies selling household consumer goods, electronic devices, merchandising, books and CDs, computer hardware, tourism services, and even cars publish their product catalogs on-line. Some imported products are marketed directly through cable and satellite TV programs. Mail-order marketing is still not very widespread in Argentina. Mail distribution prices remain high, while duties and other taxes to be paid on international mail order merchandise depend on the nature of the product or mode of shipment. A new regulation limits importing products via courier, restricting imports delivered to homes to $50 per person per year and requiring a 50 percent duty be paid on any shipment over $25. Courier shipments require the consignee to register as an importer and retrieve the product at the main international airport. In addition, there are restrictions on imports of printed material. Joint Ventures/Licensing Return to top Argentine legislation permits the establishment of temporary associations, equivalent to joint ventures, known as UTEs (Unión Transitoria de Empresas). This is an association of two or more individuals or companies that contribute assets to develop or perform a particular transaction in Argentina or outside the country using Argentina as its base of operations. UTEs are not considered companies or legal entities in their own right. Participants may be resident businesspeople, locally constituted entities, or non-resident companies that have established a separate branch or other type of Argentine presence. A contract must be signed and registered with the Public Commercial Registry at the Office of the Inspector General of Justice (Inspección General de Justicia) in the Federal Capital, or its provincial equivalent. The contract must contain the objective, duration, name and other specific information regarding the partners' responsibilities, financial contribution, and many other specific clauses. It must also provide for the appointment of a legal representative in charge of management. Selling to the Government Return to top Decrees 436/2000,1023/2001 and 1818/2006 together with Resolution 515/2000 and Decree 893/2012 establish the rules applicable to federal government purchases. They can be downloaded (in Spanish) from the following web site: https://www.argentinacompra.gov.ar/ These regulations apply to all federal public agencies (including autonomous or decentralized institutions), but exclude federal banks. They also establish the amounts determining the selection process. Government purchases of less than AR$75,000 undergo direct purchase. Purchases between AR$75,000 and AR$800,000 undergo private bidding, but purchases over that amount must have an open public tender. Advertising and publishing procedure terms apply regarding important contracts in main publications and Internet sites such as ONC as well as in the Official Bulletin and publications of suppliers associations. Requirements for first-time sales to the government depend on the type of provider. Information should be submitted in writing and in the form of a diskette. The National Contracting Office (Oficina Nacional de Contrataciones - ONC) is the agency supervising procurement for the National Public Administration. This Office is part of the Secretariat of Public Management, Chief of Cabinet. Contact Information: Oficina Nacional de Contrataciones (National Contracting Office) Email: [email protected] https://www.argentinacompra.gov.ar/ Most provincial governments have their own web sites with procurement information. A prominent NGO looking out for the interests of companies participating in national, provincial, and municipal procurements is the Unión Argentina de Proveedores del Estado (UAPE). UAPE has a database of government procurements. More information can be found at http://www.uape.org.ar/. Procurement from Local Companies (“Buy Local” Regime) Law 25551, issued on November 2001 and implemented by Decree 1600/2002, established the “Buy Argentine” Regime. The "Compre Trabajo Argentino" regime affects national treatment in that it obligates all government agencies, public and privatized utilities, and concessionaires to purchase domestic materials, goods and products, provided that the price is "reasonable" (precio razonable) and the performance is identical or similar (idénticas o similares prestaciones) to that of the imported/foreign goods offered, as defined by regulatory Decree 1600/2002 of August 28, 2002. In March 2011, the Argentine Senate approved an amendment to Law 25551, extending the entities subject to the “Buy Argentine” regime. The draft law is still pending in the Argentine Congress. Preferences: Goods: Preference is given to domestic goods. The origin of the goods shall be determined by the nature/composition of the goods themselves and not based on the nationality or ownership of the manufacturing company. Goods containing imported parts shall be considered domestically produced when the value of the imported parts is no more than 40 percent of the sales value of the finished good, or when the imported product undergoes substantial in-country transformation such that the MERCOSUR tariff classification code of the transformed item differs from that of the imported part. Services: Preference will be given to bids submitted by a domestic company or consultant. Public Works: Preference will be given to domestic materials and to domestic services (i.e., project design, management, and construction services) as defined above.