OECD recommends investment policy review for Uruguay

August 12, 2021

Treaties signed in the mid-1990s are modified to reduce the possibility or risk of investors’ claims against States.

Ana Novik, Head of the Investment Division of the Organization for Economic Co-operation and Development (OECD), explained that “The OECD recommended Uruguay to review its investment incentive policies, considering greater “coherence” and “clarity” in regulatory matters, taking greater efficiency in the provision of the services by public companies, as well as the need to reduce the “significant dependence” on purely fiscal incentives the country has to attract investment.

The authority also highlighted the recommendations aimed at retroactively modifying the investment treaties of the 1990s, as well as identifying three sectors -telecommunications, fishing, and transportation- where Uruguay shows greater restrictions on foreign investment compared to other countries.

In an interview with Ana Novik, conducted by El País, she was asked:

  • The Investment Policy Review of Uruguay displayed by OECD states that “the government should balance the views of business, civil society and other stakeholders (…) as well as the targets of market-friendly liberalization reforms and the promotion of responsible business conduct”. What are these changes?
    • The country must perform a balance to attract investments and, at the same time to ensure these investments have a positive impact on development. Companies will always want greater liberalization, simplification of procedures, and facilitation of investment. This is important, but we have moved on from the neoliberal era of the 1990s when “the market solves everything”. Now we have to do something else, link those investments with development strategies and other impacting policies, such as anti-corruption policies. The same applies to responsible business conduct criteria. The signal to the investor should be, “Uruguay is an open country, which grants facilities to investors, but environmental issues must be respected, as well as labor standards, concern about the risks of supply chains, etc.”. The investment view recommended by the OECD benefits entrepreneurs who want to establish themselves in Uruguay, but it also considers how these investments should influence civil society and other stakeholders. And there is a role for the government, but also for business.
  • Is Uruguay a country in a position to impose rules and conditions due to its scale and relative weight, or must resign itself to the conditions “in use” at the global level?
    • It is difficult to impose, but it does happen that countries like Uruguay have performed moderately well in terms of stability and institutional reforms and have gained international recognition and respect. It does not impose norms, but neither resigns oneself to everything that comes at a global level. There is a middle-of-the-road world where Uruguay has earned a place. And for countries like Uruguay, the fact of participating in international forums is very important, such as forming part of the WTO, the OECD. Once you participate in those forums, you are no longer such a small country because interests are common and are defended jointly through alliances with other countries.
  • How will foreign investment tax benefit schemes work in the context of a strong trend towards changes in global taxation? How to protect the current scheme?
    • There is still a lot of uncertainty. Minimum taxation has been agreed and its implementation will be seen in the coming months. The strong incentive of this measure is to prevent companies from not paying taxes anywhere. Therefore, there will be no incentive to move to a destination that guarantees not to pay taxes because they should pay them at origin, at the minimum rate of 15%. The attraction of investments based exclusively on taxes will be affected. We will have to wait to see how it will be implemented and how it will be applied concerning each country and its incentives.

For details of the entire interview, you can follow it in El País.

Source: El País 10/08/21