continued: "The Impact of Regional Trade Pacts on Foreign TV Enterprises in Latin America" by Luiz Guilherme Duarte
page 1 | 2 | 3 | Notes and References

Ecuador On March 21, 1991, the Cartagena Agreement Commission issued Decision Nfl 291 containing a new common regime for treatment of foreign investments and on trademarks, patents, licenses, and royalties (Rumazo, 1991). As a general rule, a foreign person, whether an individual or company, does not require any previous authorization regarding its investment planned. Foreign investment is prohibited in the areas of: a) national defense and security; and b) radio, television (broadcasting), and press. Foreign investors may remit all profits abroad with no limits after withholding income tax and workers’ profit sharing.

Mexico In the evaluation of Mexican lawyer Jorge Cervantes Trejo, over a period of approximately 25 years the regulation of foreign investment in Mexico has evolved from a nationalistic approach supported by state interventionist policies to a more open, competitive and pragmatic system promoting economic liberalism, foreign trade and investment (Trejo, 1999). The purpose of the 1973 Law to Promote Investment and to Regulate Foreign Investment was to avoid sale of already established Mexican companies to foreign investors, as well as to generally restrict foreign participation in Mexican companies to a maximum of up to 49%, although in most areas of economic activities the real intent was to keep foreign investors totally out of the Mexican economy, thus reinforcing the Mexican government’s restrictive foreign investment policies of the time. But, as a consequence of the government’s changing attitude towards foreign investment, on December 27, 1993 a new Foreign Investment Law (FIL) became effective.

Now, unless otherwise provided for in the FIL, foreign investment may now (i) participate in any proportion in the capital of Mexican companies, (ii) acquire fixed assets, (iii) participate in new fields of economic activity or manufacture new lines of products, and (iv) open, operate, expand and relocate existing establishments. Although the FIL initially reserved satellite communications and railroads exclusively to the Mexican state, amendments to Mexico’s political constitution made after the FIL was enacted effectively repealed such reservations in favor of a gradual classification. The category of activities exclusively reserved to Mexican nationals and Mexican companies in which foreign investment cannot participate (3) include radio broadcasting and other radio and television services, excluding cable television services.

In the case of cable television, FIL establishes a maximum participation of 49%, except as otherwise provided for in international treaties. If there is a conflict between the provisions of the FIL vis-à-vis those in NAFTA, the latter prevails. And it is worth noting that NAFTA mandates that the Mexican government treat as Mexican nationals any such American and Canadian investors and their investments with respect to establishment, acquisition, expansion, management, conduct, operations, and sale or other dispositions. NAFTA also has extensive provisions which afford the U.S. and Canada, and thus their investors, a most favored nation treatment in everything from investment rules, trade in goods, market access, tariffs, rules of origin, customs procedures, energy, agriculture, government procurement, and dispute settlement procedures.

Television Law The basic telecommunications services are exempt from NAFTA (Agatiello, 1994). The 49% limit remains for local, long distance and international telephone services, cellular telephone services, and other common carrier services. The telecommunications chapter of NAFTA covers three areas of telecommunications law: public access, enhanced or value-added services and standard-related measures. The chapter, however, does not govern measures adopted by the parties to the agreement (Canada, the United States of America and Mexico) that relate to cable or broadcast distribution of radio or television programming.

The parties mutually ensure access to, and use of, any public telecommunications transport network or service on reasonable and non-discriminatory terms, and conditions and pricing based on economic costs. The enhanced or value-added services include telephone services that use computer processing applications that “act on format, content, code, protocol or similar aspects of a customer’s transmitted information, provide a customer with additional, different or restructured information, or involve customer interaction with stored information.” The NAFTA chapter specifies that application procedures for permits, licensing, registration or notification of such activities must be transparent (clear and without any discretionary powers of the authorities) and nondiscriminatory. Additionally, the application procedures may only require the information necessary to demonstrate financial solvency to begin providing services or information to determine conformity with applicable standards or technical regulations.

The standards-related measures are aimed at preventing discriminatory standards legislation and at developing a process to mutually accept test results from laboratories or testing facilities of the other parties. Finally, the parties ensure that any state-designated telecommunication monopoly will not act anti-competitively by, for example, allowing for cross-subsidization, predatory conduct, or discriminatory provision of access.

Paraguay A new constitution was approved in 1992, completing the restructuring of the state after 35 years of Stroessner’s authoritarian rule (Peroni, 1993). In the first three years of the decade, 1,000 new investment projects were granted incentives for a total amount of investments exceeding $1 billion. The significant fact is that 40% was of foreign origin while the rest was Paraguayan capital in the form of reinvestment or new funds, which signaled confidence in the country and the process. Investment promotion laws provide a great range of tax and development incentives, without discrimination. Paraguay has negotiated a new OPIC Agreement with the United States which is the most liberal anywhere. It has ratified the Multilateral Investment Guarantee Convention, sponsored by the World Bank, and entered into various bilateral investment guarantee treaties with other countries, including Mercosur.

Uruguay The current democratic regime started in 1985, following 11 years of military rule. The three governments since then have aggressively pursued the opening of the economy and a more strict fiscal policy that aims to reduce the deficit and the chronic inflation that has plagued the country for over the last 30 years (Guyer, 1993). Foreign investors are freely allowed into Uruguay. Except in a few sensitive areas, there are no requisites whatsoever (previous license, permit, registrations, etc.) to complete. Importation and repatriation of capital and dividends are free. There exists a Foreign Investment Law, rarely utilized, that protects repatriation of capital and remittance of dividends in the case of the existence of foreign exchange controls (that have been unknown for almost 20 years). Overall, Uruguay has freedom of import and export and no exchange control regulations. It has signed with Argentina, Brazil and Paraguay a treaty creating in 1995 the Southern Common Market (Mercosur). In the territory, there are several Free Zones, ones being exploited by the state and others in private hands. Uruguay has further reduced import duties: as of January 1, 1993, they were 20%, 15% and 10%; for Mercosur countries, 6.4%, 4.8% and 3.2%.

Venezuela The telecommunication sector is regulated primarily by the Telecommunications Act of 1940 (the “Law”) as amended in 1959. One-hundred-percent foreign-owned companies can be formed and remain as such except on reserved sectors, which basically are public services, mass media, telecommunications and internal marketing of imported goods. Decree 2.095, which describes the Common Regime for the Treatment of Foreign Capital and Trademarks, Patents, Licenses and Royalties approved by Decisions No. 291 and 292 of the Commission of the Andean Pact Agreement, expressly reserves television and radio broadcasting to local companies. There is no limit for international investment in the sector. There are only limitations for radio and television, except for Andean Pact nationals (Venezuela, Columbia, Ecuador, Peru and Bolivia), who have no limitations on cable TV (Paláez-Pier and López, 1996).

The services are provided through a concession granted by Conatel and the Law establishes a telecommunications tax at a range between 5% and 10% of the operational revenues. The television system by subscription is presently governed by the Regulation for the Exploitation of the Television System by Subscription contained on Decree 2.701 of January 11, 1989. In addition to the application of the above-mentioned Decree 2.701, the granting of the concessions within the television system by subscription is regulated by the analogous application of the rues contained in the Regulation on the Operation of Stations of Loud Radio Broadcasting. Considering foreign ownership limitations, the local companies are those which stock capital is owned in 80% by local investors, and the local investors of each one of the member countries of the Andean Pact Agreement can be either individuals or legal entities.

Television is reserved to local companies, capital stock of which can be up to 20% owned by foreign investors. The administration of the company can be performed only by nationals according to the above-mentioned decree. It should be emphasized that the companies which participate in the “television sector” reserved by law are those with the ability to emit the signal directly. For example, the signal sent from abroad or on a national level captured locally, with the capacity to reprogram and retransmit the signals commercially in the national territory via antennae, cable or any other means of technology, such as the companies of television by subscription. Therefore, the related television services can be performed by local, foreign or mixed companies. These services include technical and technological services, as well as administrative and commercial management.

Overall, price controls have been eliminated. Interest rates are being set by market forces. The differential exchange rate system has been eliminated and the bolivar (local currency) is floating freely. Import restrictions have been practically eliminated and a new customs system has been implemented (Bentata, 1989). With the new foreign trade policy Venezuela intends to favor the access of its products to global markets, rather than relying on schemes of economic integration, like the Andean Pact and the Latin American Association of Integration. In this sense, Venezuela is currently negotiating with the members of the General Agreement on Tariffs and Trade (GATT) its adherence to such agreement.

Television Law The Andean Pact Common Provisions for the Treatment of Foreign Capital have liberalized almost all sectors of economic activity (Decree No. 2,905 of February 13, 1992). Telecommunications are completely open to foreign investment, except for television and radio services, which remain expressly reserved to local investment (Agatiello, 1994). This limitation, however, only affects the provision of the service as there exists no barrier to the supply of foreign equipment and technology to local companies that provide television and radio services. For a company to be considered local, at least 81% of its capital must be locally owned. Moreover, it is required that all companies applying for permissions and/or concessions to provide a telecommunications service must be domiciled in Venezuela. Besides the Andean Pact, other agreements signed by Venezuela also opened the door for neighboring entrepreneurs:

Agreement No. CJ/TA-159, complementary to the Basic Convention on Technical Cooperation signed by the Governments of Venezuela and Brazil on February 20, 1973: The complementary telecommunications agreement was signed in Brasilia on June 3, 1997. Its aims are to exchange experiences and/or services in the following areas: telephone demand, rural and mobile telephone service, domestic satellite communications; data transmission, basic plans for telecommunications and postal services, planning and control, technical planning, operational planning and supervision of implantation; standard systems for materials, equipment and services, organization of operation and research centers; implantation and consolidation of training systems; industrial and technological development and creation of new services.

Basic Convention on Cooperation for Development of Telecommunications signed by the Governments of Venezuela and Chile on October 10, 1990: Its aim is to procure the startup or continuation of the operation of telecommunications services in the following areas: telephone, telegraph, telex and other telecommunications services taking advantage of technical advances in this field.

Association of State Telecommunications Companies of the Andean Subregional Agreement (ASETA): The member states of the Andean Pact recently agreed to implement the Simon Bolivar Project. The pact aspires to launch its own satellite orbit in about five years. Venezuela is particularly interested in the promotion of the project and Conatel is directly involved in all technical and legal aspects. It is expected that this satellite will directly serve all the telecommunications service companies in the area. TBS

Luiz G. Duarte is a senior supervisor for NMC/EMC Quality Control for Galaxy Latin America.

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Notes and References

Map: Regional Trade Agreements
Map: Pay-TV Liberalization
Chart: Pay-TV Developmental Phases
Chart: From Open Markets to Regional Pacts: A Common History