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Decision 291
Regime for the Common Treatment of Foreign
Capital and Trademarks, Patents, Licensing
Agreements and Royalties
THE COMMISSION OF THE
CARTAGENA AGREEMENT,
HAVING SEEN: Articles 7,
26, and 27 of the Cartagena Agreement,
Decision 220 of the Commission, and Proposal
228 of the Board;
WHEREAS:
The Presidents of the
Member Countries of the Cartagena Agreement,
meeting in the city of La Paz, Bolivia on
November 29 and 30, 1990, expressed their
pleasure at the "growing alignment of the
economic policies of the Andean Countries in
an effort to attain more efficient and
competitive economies through liberalization
and the opening to trade and international
investment, along the lines of our countries
interest, and the institution of economic
rationality grounded in private initiative,
fiscal discipline and a rescaled and
effective State";
Furthermore, at that same
meeting the Andean Presidents agreed to
remove the obstacles to foreign investment
and to encourage free circulation of
Subregional capital;
The new foreign
investment policies prevailing in the
Subregion make it essential to review and
update Community rules and regulations
approved through Decision 220 of the
Commission, in order to stimulate and
promote the flow of foreign capital and
technology to the Andean economies;
DECIDES:
To replace Decision 220
with the following Decision:
CHAPTER I
DEFINITIONS
Article 1 .-
For purposes of the present Regime, the
following definitions shall apply:
Direct Foreign Investment:
contributions from abroad owned by
foreign individuals or legal entities, to
the capital of an enterprise, in freely
convertible currency or in physical or
tangible assets, such as industrial plants,
new and overhauled machinery, and equipment
new and overhauled equipment, spare parts,
parts and pieces, raw materials and
intermediate products.
Also considered as direct
foreign investments are investments made in
local currency from resources that are
entitled to be remitted abroad and such
reinvestments as may be made in accordance
with this Regime.
Member Countries, in
keeping with their national legislation, may
consider as capital contributions, such
intangible technological contributions like
trademarks, industrial models, technical
assistance and patented or non-patented
know-how, that take the form of physical
goods and technical documents and
instructions.
National Investor:
the State, individuals and legal entities
that are defined as nationals in the
legislation of the Member Countries.
Also considered national
investors are foreign individuals who have
resided in the recipient country for not
less than one year without interruption and
who waive before the competent national
agency the right to reexport capital and to
transfer profits abroad. The competent
national agency of the recipient country may
exempt such persons from the requirement of
not less than one year of uninterrupted
residence.
Each Member Country may
exempt from the waiver requirement
stipulated in the previous clause, foreign
individuals whose investments were generated
within the country.
The investments belonging
to Subregional investors shall also be
considered as investments made by national
investors under the terms established in
this Decision.
Subregional Investor:
a national investor from any Member
Country other than the recipient country.
Foreign Investor:
the owner of a direct foreign investment.
National Enterprise:
an enterprise established in the recipient
country, more than eighty percent of whose
equity capital belongs to national investors,
provided that, in the judgment of the
competent national agency, that share is
reflected in the technical, financial,
administrative and commercial management of
the company.
Mixed Enterprise:
an enterprise established in the recipient
country, between fifty-one and eighty
percent of whose capital belongs to national
investors, provided that, in the judgment of
the competent national agency, that share is
reflected in the technical, financial,
administrative and commercial management of
the company.
Also considered mixed
enterprises are those in which the State,
semi-public companies or State-owned
companies of the recipient country own no
less than thirty percent of the equity
capital, provided that, in the judgment of
the competent national agency, the State,
semi-public company or State-owned company
has the decision-making authority in the
enterprise.
Decision-making authority
is understood to mean the obligation for
State representatives to give their consent
to decisions that are fundamental for the
operation of the enterprise.
For purposes of this
Decision, a semi-public company or State-owned
company is that established in the recipient
country, and in which more than eighty
percent of the capital belongs to the State,
provided that the State has the decision-making
authority in the enterprise.
Foreign Enterprise:
an enterprise incorporated or
established in the recipient country, in
which national investors own less than fifty-one
percent of the equity capital or, if more
than that, in the judgment of the competent
national agency that percentage is not
reflected in the technical, financial,
administrative and commercial management of
the enterprise.
Neutral Capital:
the investments of public international
financial institutions to which all Member
Countries of the Cartagena Agreement belong
and which are listed in the Annex to this
Regime. Those investments shall not be
computed as either national or foreign in
the enterprises in which they have an equity
investment.
In order to determine
whether the enterprise in which these equity
investments are made is national, mixed or
foreign, the neutral capital investment
shall be excluded from the calculation and
only the shares of the national and foreign
investors in the remaining equity capital
shall be taken into account.
Reinvestment: the
investment of all or part of the retained
earnings and of other equity resources from
a direct foreign investment, if permitted by
national legislation, in the same enterprise
in which they were produced.
Recipient Country:
the country in which the direct foreign
investment is made.
Commission: the
Commission of the Cartagena Agreement.
Board: the Board
of the Cartagena Agreement.
Member Country:
one of the Member Countries of the Cartagena
Agreement.
CHAPTER II
RIGHTS AND OBLIGATIONS OF
FOREIGN INVESTORS
Article 2. -
Foreign investors shall have the same rights
and obligations as those to which national
investors are subject, except as provided
for in the national legislation of each
Member Country.
Article 3.- All
direct foreign investments or Subregional
investments that comply with the conditions
established in this Regime and in the
respective national legislation of the
Member Countries, shall be registered with
the competent national agency in freely
convertible currency.
Article 4.- The
owners of a direct foreign investment and
Subregional investors shall have the right
to transfer abroad, in freely convertible
currency, and in the terms provided for in
the legislation of each Member Country, the
proven net profits from their direct foreign
investment.
The competent national
agency may also register in freely
convertible currency the investment of the
distributed earnings surplus.
Article 5.- The
foreign investor and the Subregional
investor shall have the right to reexport
the proceeds, after payment of the
corresponding taxes, from the sale of their
shares, equity or rights in the recipient
country or when the capital is reduced or
the enterprise is liquidated.
The sale of shares,
equity or rights by a foreign or Subregional
investor to another foreign or Subregional
investor must be registered with the
competent national agency if so stipulated
by national law and shall not be considered
reexported capital.
Article 6.- The
registered capital shall consist of the
amount of the initial direct foreign
investment plus any subsequent increases and
reinvestments that are registered and
effectively made, as provided for in this
Regime, minus any net losses, if there are
any.
Article 7.-
Reinvestment, according to the definition
included in Article 1, in national, mixed or
foreign enterprises, shall be considered a
foreign investment and shall be made subject
to such rules and regulations as each Member
Country may establish. In any case, it must
still be registered with the competent
national agency.
Article 8.-
Products produced by national, mixed or
foreign enterprises that comply with the
special rules and regulations or specific
requirements of origin established by the
Commission and the Board as stipulated in
Chapter X of the Agreement, shall enjoy the
benefits of the Cartagena Agreement Tariff
Reduction Program.
Article 9.- The
equity capital of joint stock companies must
be represented by registered shares.
Article 10.- In
settling disagreements or disputes arising
from direct foreign investments or
investments by Subregional investors or
transfers of foreign technology, the Member
Countries shall abide by the provisions of
their domestic legislation.
CHAPTER III
COMPETENT NATIONAL
AGENCIES
Article 11 .-
The Member
Countries shall designate the competent
national agency or agencies that shall be
responsible for ensuring compliance by
foreign individuals or legal entities with
the obligations that are referred to in this
Regime.
CHAPTER IV
IMPORTATION OF TECHNOLOGY
Article 12 .-
Technology
licensing, technical assistance, technical
service, basic and detail engineering and
all other technological contracts shall, in
accordance with the respective national
legislation of the Member Countries, be
registered with the competent national
agency of the respective Member Country. The
latter must evaluate the effective
contribution of the imported technology by
estimating the probable profits or the price
of the goods *that incorporate technology,
or through other specific methods of
quantifying the effect of the imported
technology.
Article 13.- Contracts
for the importation of technology must
contain clauses about at least the following
matters:
a) Identification of
the parties and express indication of
their nationality and residence;
b) Identification of
the methods used to transfer the
imported technology;
c) Contract prices of
each of the elements involved in the
transfer of technology;
d) Determination of
the effective period of the contracts.
Article 14.-
In order to register transfer of technology,
trademark or patent contracts, Member
Countries may bear in mind that those
contracts not contain the following:
a) Clauses by virtue
of which the supply of technology or the
use of a trademark bears with it the
obligation of the recipient country or
enterprise to acquire, from a given
source, capital equipment, intermediate
products, raw materials or other
technologies, or to use on a permanent
basis personnel indicated by the
enterprise supplying the technology;
b) Clauses by virtue
of which the enterprise selling the
technology or enterprise granting use of
a trademark reserves the right to set
sale or resale prices for the products
that are manufactured using that
technology;
c) Clauses that
contain restrictions on the volume and
structure of production;
d) Clauses that
prohibit use of competing technologies;
e) Clauses that
establish a total or partial purchase
option in favor of the technology
supplier;
f) Clauses that
compel the technology buyer to transfer
to the supplier all such inventions or
improvements as may be obtained though
use of that technology;
g) Clauses that
require the payment of royalties to the
holders of patents or trademarks for
patents or trademarks that are not used
or have expired; and
h) Other Clauses
having an equivalent effect.
Except in special cases
that have been duly judged by the competent
national agency of the recipient country,
clauses prohibiting or limiting in any way
the export of the products manufactured
using the respective technology, shall not
be accepted.
In no case shall clauses
of this kind be allowed with respect to
Subregional trade or to the export of
similar products to third countries.
Article 15.-
In the degree to which intangible
technological contributions do not
constitute capital investments, they shall
grant the right to receive royalties, in
keeping with Member Countries legislation.
The accrued royalties may
be capitalized, pursuant to the terms of
this Regime, after payment of the taxes due.
When these contributions
are supplied to a foreign enterprise by its
parent corporation or by another branch of
the same parent corporation, the payment of
royalties may be authorized in cases judged
beforehand by the competent national agency
of the recipient country.
CHAPTER V
TREATMENT OF INVESTMENTS
BY THE ANDEAN DEVELOPMENT CORPORATION AND BY
INSTITUTIONS WITH THE OPTION
TO BE TREATED AS NEUTRAL
CAPITAL
Article 16.-
Without
detriment to the provisions of its Charter,
the direct investments of the Andean
Development Corporation shall be considered
national investments in each Member Country
of the Cartagena Agreement.
Article 17.-
Governmental international financial
institutions to which the Member Countries
of the Cartagena Agreement do not belong,
and foreign governmental development
cooperation institutions, whatever their
legal nature, may request that the
Commission consider their investments as
neutral capital and may ask to be included
on the list Annexed to this Regime. The
Commission shall decide upon the requests
submitted to it at the first meeting
following their presentation.
Article 18.-
Together with their request, the
institutions cited in the previous article
should present a copy of their charter or of
the by-laws that govern them, together with
as much information as possible about their
investment policy, operating rules and
investments made, broken down by countries
and by sectors.
First Transitory
Provision.- Foreign enterprises that
have a conversion agreement in effect, in
the terms of Decision 220, Chapter II, may
ask the respective competent national
agencies to set aside that agreement.
Second Transitory
Provision.- In the case of projects
that concern products exclusively reserved
for or allocated to Ecuador, the four
remaining countries bind themselves not to
register any direct foreign investment in
their territories.
Signed in the city of
Lima, Peru, on the twenty-first of March
nineteen ninety-one.
ANNEX
LIST OF INSTITUTIONS WITH
THE OPTION TO HAVE
THEIR INVESTMENTS TREATED
AS NEUTRAL CAPITAL
- Inter-American Development Bank (IDB)
- International Finance Corporation (IFC)
- German Corporation for Economic
Cooperation (DEG)
- Danish Industrialization Fund for
Developing Countries (IFU)
- Inter-American Investment
Corporation (IIC)
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