The ratification of the bilateral agreement with Brazil for the trade of goods without tariffs from free zones of both countries constitutes “excellent news for the sector” and opens the door to new investments, an increase in exports and the possibility of adding more quality employment in the Uruguayan free zones. For the recently assumed president of the Chamber of Free Trade Zones of Uruguay, Enrique Buero, the installation of new customs exclaves and other companies in existing ones adds an additional attraction. European and American manufacturers interested in setting up in free zones in Uruguay “have expressed their interest in arriving in Brazil,” he explained. The agreement makes it a condition that the goods originate from Mercosur, therefore “they must add value in the country,” Buero warned. Below is a summary of the interview.

—How do the Chamber of Free Zones evaluate the agreement with Brazil?

—It is a very positive for the sector. A negotiation that was carried out in silence for a long time.

The scope given to the agreement was a pleasant surprise, because it not only covers the case of PepsiCo in Cologne, which until now had annual renewals, but also covers all free zones and for an indefinite period.

It is an important step in the process of deactivating the restrictive Mercosur decision 8/94, which greatly conditioned industrial and logistical development in the free zones. In 2015 we had the decision 33/15 that established that, at least what passed through the Free Trade Zone without being transformed, did not lose its Mercosur origin when it already had it beforehand. Now we have a much broader standard, which, although it is only applied bilaterally between Uruguay and Brazil, allows us access to the most relevant market in the region.

—Is the objective that it can become a general standard for the entire block?

—Without a doubt. We hope that, even through bilateral agreements such as the recent one with Brazil, progress can be made with the other partners, at least by identifying priority sectors of activity.

—As of this decision, companies installed in free zones will have the same treatment as any company in the country…

—For trade with Brazil, in both directions. As long as it meets the conditions of Mercosur origin, it can access Brazil just like any other company installed in non-free territory.

—And beyond the case that has been used as a paradigmatic case of PepsiCo in the Colonia Free Trade Zone, what specific opportunities exist to take advantage of this new framework?

—Without a doubt, the first interested actor was PepsiCo, which exports to Brazil and had been doing so through annual authorizations that were renewed with considerable effort.

In general terms, the first thing that this update of the agreement with Brazil enables us is that, when we receive an interested party in having some activity, whether logistical or industrial, in a free zone, thinking about the bloc's markets, we can tell them that with Brazil there is a bilateral agreement that allows entry with Mercosur origin, to the extent that their products meet the necessary conditions to obtain origin. It is a very important change when it comes to attracting investments.

—Was this query coming from people interested in settling in the country?

-That's how it is. It happens many times with European or North American manufacturers. They propose that a free zone in Uruguay greatly improves arrival times to neighboring markets. For them it is important to have permanent stock close to those large markets. But if in addition to that we can offer that, by generating added value and work for Uruguayans in industrialization processes, they can access Mercosur origin and enter Brazil with that preference, the attractiveness is greater. And it benefits us all.

—Some companies installed in free zones currently sell to Brazil…

—Yes, the few that do so must pay the Common External Tariff to enter. For example, companies in the pharmaceutical sector. There is the particularity that the tariff is not excessively high and these are products with an added value that allows certain costs to be assumed. But there are other cases, like the cosmetics industry, for example, where if they pay tariffs the equation does not close.

This decision reached bilaterally opens a very good window of opportunities for those who are already installed producing at ZZFF in Uruguay and makes it possible for new actors to join in to complete part of their industrialization process to acquire origin and then sell in Brazil. It is investment and it is employment.

—For intermediate industrial sectors, the fact that products made under the ZZFF regime arrive in Brazil at a lower price may cause harm...

-Could be. It will be necessary to see case by case if it generates a threat to any sector. These lower priced inputs can undoubtedly benefit other production sectors in the country. We must see how the benefit operates to the extent that it begins to be applied.

—Have the permit holders of free zones in Uruguay already incorporated this new reality when looking for new users?

—There are already several of us who are working in this line, even with Brazilian companies. Firms that are very focused on their country, have 100% of their production in Brazil and have not internationalized. We have the opportunity to offer you a very close alternative production platform, with the legal security and benefits that Uruguay offers.

But as I said before, this regime is also closely observed by businessmen in Europe and North America.

—The measure covers the marketing of goods. The services have a different regime…

—Exactly, they are not covered by this standard. But, in the case of Brazil, we have another problem. These are the withholdings that Brazil makes on companies that pay for this type of services received from abroad. They are very high, and that has greatly conditioned the provision of services from our free zones to the Brazilian market. Brazil is very protectionist in that sense.

—Have services been the fastest growing sector in the free zone regime?

—They have a strong momentum in recent years. Currently they represent 50% of exports from free zones. 27% are commerce and industry is around 20%. It is clear that the services have grown very strongly with different destinations, and somehow they managed to overcome that limitation that Mercosur left us with decision 8/94.

There is a clear trend that services are gaining ground. For this type of business we have an advantage in time use, a good degree of English in the available workforce, among others, which have led to a strong boost in employment.

In general terms, according to the 2019 Census, about 15 thousand people worked in free zones and an estimated 14 thousand more indirect jobs were created.

Of course, we also have the challenge of talent availability.

In the free zones there are first-line industrial developments, highly technological logistics jobs, there is all the development of information technologies and also in the pharmaceutical sector we demand highly trained professionals. And in free zones, salaries are paid that are on average double those offered outside the regime. We have to work on training our own resources and, at the same time, integrate migratory flows, with qualified labor that can join our companies.

—But the free zone regime has limitations when it comes to hiring foreign personnel...

—75% of the personnel in the free zones employed by the free zones must be national. Exceptions can be requested to be below that percentage, when, for example, a new venture is started and those who have expertise in the business are mostly foreigners. These regulations were later adjusted to allow a 50% limit on foreign personnel for the service sector.

—The last Accountability Report enabled teleworking in free zones. What impact does this measure have?

—Very important. We considered it even before the pandemic. With the arrival of Covid-19 it became much more relevant. Now it is enabled, under certain conditions that are agreed between the employing company and the employee. The regulatory decree establishes certain guidelines so that teleworking can be fulfilled. 60% in-person work, 40% teleworking as a limit, under certain conditions, and one thousand in-person hours worked per month must be completed in order to later offer the regime. We have a third step left, which would be the resolutions of the National Directorate of Free Zones, establishing the control mechanisms.

—We talk about attracting talent and the need to train labor as something key; but so is competitiveness.

—It is an issue that worries us enormously and we are working on it from the Free Trade Zone chamber with different government agencies. We need to improve a lot in transportation and logistics if we really want there to be sustained growth.

—Where are the biggest problems?

—We must review the entire cost structure from airport port fees, direct and associated costs of the DUAS (Single Customs Document), freight, insurance, seals and the costs of entering the free zones. Also operating costs, such as electricity and running water. Everything must be reviewed to have a much more forceful proposal, to capture the industrialization of goods in Uruguay and integration into global value chains.

Special attention must be paid to the development of cross-border e-commerce; We have the Brazilian and Argentine markets next to us, there is a very good opportunity to have e-commerce centers in our country. Free zones are called to play a very important role given their characteristics in terms of the free entry and exit of merchandise, the possibility of being stored for an indefinite period, of adding value with packaging, labeling, a universe of activities to be exploited. But for that we need better transportation and logistics conditions. The same with regulatory procedures, for example customs. It is a great opportunity that we should not miss.

—Does activity in free zones maintain a behavior aligned with the rest of the economy?

—Taking the 2019 census, the behavior in free zones has historically been higher. For the 2020-2022 period, we will have to look at each census and its specifics, but I think it is expected that the impact of the pandemic and the subsequent rebound will be more moderate, and this is because free zones, in times of complicated situations, are more resilient.

One factor that has driven ZZFF in recent years is the incorporation of new players. More companies are settling in the parks and, in turn, new free zones are opening. Since the last census of the sector, in 2019, WTC II, WTC Punta del Este, the future Audiovisual Free Zone in Maldonado and the third cellulose pulp plant were incorporated in a few months. Therefore, the estimate that we represented 5% of total GDP in 2019 must be short today, and even more so when UPM2 is active.