Encouraging national and international investments and creating jobs through the creation of free zones is one of the objectives of the reform of the Organic Law on attracting and promoting investments for productive development, which President Guillermo Lasso sent on Tuesday, May 23 to the Constitutional Court (CC) to give its opinion.

But what are free zones?

“They are a space where production activities can be carried out under special conditions in customs, tax and foreign trade affairs. It is an area that wants to focus on exports,” explains the editor Weekly analysisAlberto Acosta Burneo.

Tax lawyer Napoleón Santamaría has a similar criterion, explaining that free zones fundamentally serve to attract foreign investment and motivate national capital to reinvest. “These are the territories where it is protected, as if there is a state inside another country… What we have to do is tell the investor that these free zones will be immaterial, we will not touch the regime’s tax, they are not We will change the rules of the game, we are faithful and come to the country, bring your capital”, he assures.

The second regulation of the law on free zones, which includes an exemption of up to 15 years from IR, was sent to the Constitutional Court

According to the current law, free zones can exist only at the initiative of the state, but with the reform they can be initiatives of the public sector, private sector, and even mixed initiatives.

According to Acosta, there are special economic development zones (ZEDE) in Ecuador, but few of them are operational, including the ports of Posorja and Guayaquil.

He points out that currently this concept is “restrictive”, because companies must be located in a place that the Government has decided should be a territory with special conditions.

Santamaría points out that free zones for investors would achieve a reduction in national taxes, that is, they would be applied reduced or completely exempt; exemption from tariff or customs taxes that promote the import of machinery, inputs and raw materials for the production process; and as the third point, he states that it is a set of parafiscal measures, which would favor the import of products, but would only enter the free zone.

“If Ecuador gives up these three things in exchange for investment, it can work,” Santamaría says.

Which sectors would benefit?

Acosta points out that apart from creating a large number of jobs, free zones would make the country competitive for exporting products, including agricultural, agro-industrial, technology, as well as technology services, entertainment, etc., as well as logistics services. , storage, etc.

Santamaría points out that in order to attract capital, national and international, it is necessary to significantly promote productive, industrial, value-added manufacturing activities, etc.

Free zones, the subject of the second part of the Law on Investments, which the Government sent to the National Assembly

During the announcement of the sending of the decree law, the Minister of Production and Foreign Trade, Julio José Prado, mentioned the sectors that can access these areas. Technology sector, agro-exports, agro-industry, high value-added services such as health, culture, technology, sports, recreation, innovation and research.

There will also be free zones related to logistics: including transport, storage, packaging, labeling, classification, packaging, repackaging and distribution.

Zones can be of two types: multi-business, such as the well-known technology parks, and single-business, and can operate within the city in a building, for example for export software.

Acosta indicates that it must be taken into account that it applies to new companies and this is determined by the decree law. “There are a significant number of sectors that can benefit, as long as they are new investments. It goes without saying that I already do this and now I want to take advantage of these benefits. What is wanted is to encourage the creation of new companies, new investments, and in this way, with these incentives, it is attracted to investments in a larger amount”.

For example, in technology, a company that develops mobile applications for export can set up in the zone and thus have this preferential treatment, which allows it to compete with other countries that do the same.

The Law on Investments arrives in the National Assembly ‘disaggregated’: the first part refers to digital and audiovisual transformation

While Santamaría points out that bananas can be industrialized, i.e. make vitamins and other derivatives, for which the industry is exactly needed. “He needs someone to come in with $20 million and set up a factory and when that happens, it achieves what the free zones are looking for, to create jobs, because workers are needed to move the machines, the labor.”

Then the processed product that can be exported would achieve the goal: attract capital, become an industry in the long term, create new jobs.

Apart from bananas, Santamaría comments that the country produces flowers, oil and other products, but that industrialization is lacking. “Productive value-added industry, extractive agriculture, that’s the focus of free zones.”

And he ponders and calls to fulfill the goal of the Law on the Reform Organic Regulation to attract and promote investment for productive development: not only are free zones necessary, but also that “politics stop harming the economy… Until we lower the level of political confrontations and we do not impose economic development, we will not progress”.