Francisco A. Laguna
In October, I gave a lunch presentation at Keller and Heckman’s TSCA and International Chemical Regulatory Law Seminar in Washington, DC. The discussion centered on 5 Latin American countries: Argentina; Brazil; Colombia; Mexico; and Venezuela. We’re converting my speech into a five-part blog series. This last article in the series focuses on Venezuela.
TransLegal has offices throughout Latin America and is available to assist clients with any level of representation required. Click to review the projects TransLegal has completed in the region. Currently, we are working on several projects in Mexico that involve biotechnology, foods and the use of GMOs for industrial purposes.
Venezuela is a sad study in economic and legal decline. A country with notable natural and human resources has been reduced to a state that lacks economic and development policies. A recent poll in Caracas showed that one of the most important issues for Venezuelans was the lack of basic staples on store shelves.
For years, there have been strong clashes between the government and the business sector: each blaming the other for the state of the Venezuelan economy. The government, however, has the advantage of control.
Venezuela is essentially run by President Nicolas Maduro, who under existing law, has the power to pass and implement laws without congressional approval. This has resulted in a state in which the rule of law is virtually absent and in which the government uses the law in retaliatory and punitive ways. This, obviously, creates a state of uncertainty and fear. It’s not a good place to do business.
Some of the laws that affect the business sector include the Fair Price Law, which caps the profit a company can make on goods produced or sold to 30% of the cost of the goods. The National Superintendence for Defense of Socioeconomic Rights has authority to determine reasonable profit margins. The problem is the way in which it calculates the cost of the product. In our experience, officials consider the cost of the ingredients or components and the related labor costs. However, they do not take other operating or management costs into consideration, such as factory utilities, logistics, and invoicing. The rationale given is that the company should absorb those costs as part of its social responsibility.
The determination of the Superintendence is basically final because the courts are unlikely to overturn its decision. We’re back to our standby: corruption.
Another crippling law is the foreign exchange law, which requires all Venezuelans to purchase hard currency on the official market. To qualify for the funds, individuals and companies must justify their need for acquiring the currency. In addition, companies also have to provide certifications that they have not been accused or convicted of violations of the Fair Price Law, the Labor Law (which severely restricts an employer’s ability to fire its employees) or the Social Security Law. Violations of any of these laws carry prison sentences.
For now, Venezuela continues to stumble along. The next presidential elections are in 2018.