Venezuela's Special Economic Zones Law: What It Is & What It Is Not

The Organic Law on Special Economic Zones (SEZ) was recently published in Official Gazette No. 6.710 by decree of the National Assembly of Venezuela. As stated in its purpose, the aim of the law is to regulate the creation, organization, operation, administration and development of the SEZs, as well as the economic, fiscal and other incentives that may be applicable.

The new law is part of the economic strategy of the Venezuelan government to support financial, productive and commercial linkages, through the promotion of various forms of investment by internal and external sectors.

Presenting the law, President Nicolás Maduro stated that the main emphasis of these new SEZs, unlike the so-called “free trade zones” of the past, is the promotion of productive activity, specifically in the primary and secondary sectors, which correspond to the development and transport of goods.

This law has other attributes that are worth discussing.

1. Economic sovereignty
The Special Economic Zones Law, in its various ambits, states that the founding principle of its application is economic sovereignty. The emphasis on this matter throughout the text details the power of public and private investors, mixed and communal enterprises, both national and foreign, to invest in the country on key areas, in an authorized manner and in consultation with the Venezuelan state, in accordance with a plan for the needs of the national economy.

This element imposes a caveat. These are not free trade zones or free investment zones on a discretionary basis.

In its Article 4, paragraphs 4, 6 and 8, the law exhaustively establishes the “strategies of coordination and complementarity between the Special Economic Zones for production,” “organizing and defining the prioritized areas and economic activities,” and developing “a system of coordination, development plans, participation projects and interconnection of these spaces with the industrial and productive structures of the nation.”

A cross-cutting element throughout the law is based on breaking import dependencies, in a way that is key to the context. The unilateral coercive measures that weigh on the country, which have created vulnerabilities in various areas, have also created conditions so that key areas affected by the blockade have to be developed through the new investment modalities as detalied in the law.

Import substitution, export diversification and technology transfer are highlighted in Article 6, and these are fully consistent with other national laws.

2. It is not true that the law will only benefit the private sector
Article 2 of the law refers to the participants, national and foreign, that are subject to the scope of application of the Law. In addition to private companies, state-owned, mixed, and community-held companies, as well as other state entities, are listed as actors subject to the benefits and attributes of the law.

In addition, Article 5 expressly states that “the development of Special Economic Zones, including the economic activities carried out in them, is of a strategic nature, of general interest and of public utility.” This is not a minor point.

3. Territorial development
The law proposes to sustain existing sectoral and territorial development plans. Therefore, it is not true that this law is aimed at transnationalizing the country or displacing the population in any way.

According to Article 4.5, the sub-regions in the SEZs called the “Districts Driving Development,” will support the promotion of activities in these geo-human spaces, comprising cities and territories, in accordance with their physical-spatial potential, their geo-history and their realities.

The law gives special emphasis on territorial development on a broad scale, including in areas outside the SEZs themselves, to stimulate the linking of productive processes and potentially profitable activities. Although the incentive regimes within the SEZs are particular, there is no “archipelago” vision of development. According to the law, economic activities consist of a broad spectrum of stimulus to the mobilization of goods and services on a much wider territorial scale.

4. Legal security and incentives
It is true that the law provides conditions of legal security and fiscal incentives for all national and foreign actors wishing to develop activities in the SEZs. This includes legal guarantees for the development of their activities and tax breaks.

However, the law states that the fiscal incentive regimes will be “at the discretion” of the National Executive, that is, the presidency, in accordance with the customs regime in force and the provisions of the Ministry of Foreign Trade, as stated in Article 28.1.

Although there have been attempts to negatively overemphasise these components of the law, these conditions are not really new in Venezuelan law and practice. The SEZ Law reserves the right to relaunch legal and fiscal incentives that already existed in the “free zones,” which, until the SEZ Law was enacted, remained in force.

5. SEZs are not tax havens
Some critics from the left as well as from the right have tried to push the idea that the SEZs would create a system of transnational banking activity through offshore accounts and “banking secrecy,” which are the main ingredients of banking activity in tax havens.

They have also argued that the “free convertibility” of currencies envisaged in the SEZs consists of practices that undermine the national monetary system.

Articles 35 and 36 of the law clarify the terms for financial activity in the SEZs in a very concise manner, and neither “offshore” modalities nor “banking secrecy” are included among those activities. Therefore, these statements about the law are clearly misleading and unfounded.

Article 36 states textually that the processes of free monetary convertibility must be carried out in the SEZs “without prejudice to the guarantee of the monetary unity of the Republic,” which means that these activities will not be carried out outside the regulations of the Central Bank of Venezuela (BCV).

6. Tourism
The law does not want to turn Venezuela into a seaside resort, as some have recently argued.

There is an emphasis on tourism in the case of the new projects to be developed on Tortuga Island. These are economic activities in which the country has real potential. Moreover, they consist of activities in which Venezuela can earn foreign currencies in various ways. In economies where tourism is a strong sector, tour operators are the main foreign currency earners.

Margarita, Morón-Puerto Cabello and Paraguaná, which are well-known tourism and commercial zones, are listed as some of the first SEZs to be decreed. This created the confusion that the SEZ Law is a tourism law.

In reality, tourism is a minor factor in the law. Tourism is treated like any other activity. The text mostly emphasizes the manufacturing and development of consumer goods. It is a law designed for the development of factories.

7. Regulations everywhere
It is not true that the SEZ Law promotes a “disappearance of the state,” “privatisation at all costs,” and the “disappearance of state regulation” of economic activities.

From Article 16 onwards, the law presents an arsenal of details about the “institutional framework for the control and administration” of the SEZs. The Superintendence of the SEZs, the Single Authority for the SEZs and the International Centre for Productive Investment are parts of this new regulatory body.

If we look at this new institutional framework from a neoliberal point of view, the law actually envisages the creation of a new bureaucracy and new regulatory bodies for the control of the SEZs. As the law also states that commercial activities are subject to other prerogatives of the customs regimes and ministries in commercial matters, what we actually have is that the state will be everywhere.

This is far from any “disappearance of the state.”

(Misión Verdad)

Translation: Orinoco Tribune

OT/SC/JRE