International Trade

The EU and its relationship with Argentina and Mercosur

Within the framework of the lengthy negotiations for the conclusion of an agreement between Mercosur and the EU, two relevant events have occurred.
On the one hand, on June 13th, 2023, the 1st Business Forum of the European Union (EU) was held in Buenos Aires with the presence of the President of the European Commission, Ursula vonder Leyen.

The Forum was organized by the EU Delegation in Argentina in collaboration with the European Parliament that integrates, among others, the Italian Chamber of Commerce in Argentina in which Grimaldi Alliance actively participates, and had a special focus on promoting the digital, energy, and ecological transition, and especially the presentation of projects linked to the Global Gateway initiative, which the EU launched at the end of 2021. President Von der Leyen highlighted “the possibility of Europe becoming more actively involved in adding value to the production of lithium through the production of batteries, in the exploitation of copper and green hydrogen, and in the implementation of gas liquefaction plants”.

Likewise, von der Leyen, explained that in the bilateral meeting they discussed “how to make the economic association prosper, and the first topic discussed was the flourishing commercial relationship. The European Union has 40% of foreign investment in Argentina, and we think we can go even further.” Thus, von der Leyen highlighted the signing of the Strategic Association Memorandum of Understanding on Sustainable Value Chains in Raw Materials and described it as “an important step that will be of mutual benefit, for example on lithium, to see how we can develop new value chains that go beyond mere extraction, because we think it is crucial that the value added in the transformation chain be that in the region, since this is how jobs and business opportunities are created in Argentina”.

Regarding the MERCOSUR-EU agreement, the diplomat assured that both blocs share “the same values (…) and we are economic partners that we can trust each other.” Thus, he explained that the EU strategy for Latin America includes “increasing investment through a global Gateway strategy, an infrastructure investment plan through which the bloc will invest 10,000 million euros in Latin America and the Caribbean, which will be completed with additional contributions from member states and private sector investors.”
On the other hand, the Summit of the Heads of State and Government of the European Union (EU) and the Community of Latin American and Caribbean States (Celac) was held in Brussels on July 17 and 18, 2023. Among other relevant issues, within the framework of the digital and energy transition, it became evident that Latin America and the Caribbean appear as a relevant region in two senses. On the one hand, as a supplier of resources, such as lithium and green hydrogen, which facilitate European leadership in the configuration of a productive structure based on renewable energies. On the other, as a “receiver” region of the energy paradigm promoted by the Global North.
As part of the renewed European interest in Latin America, the President of the European Commission, Ursula Von der Leyen, announced an investment of 45,000 million euros, within the framework of the Global Gateway, an investment platform of the European Union aimed at projects such as the promotion of renewable energies and digital services. Indeed, more than 70% of the Global Gateway projects for Latin America and the Caribbean focus on issues such as the development of minerals such as lithium and copper, the promotion of clean hydrogen and the implementation of green bonds.

Data Protection

New Bill

On June 30th, 2023, the Executive Branch sent message 87/2023 to the National Congress with the Personal Data Protection Bill (“Bill”), the purpose of which is to modify the current regime enacted in 2000 through the Personal Data Protection Law No. 25,326 (“LPDP”), subsequently regulated by Decree No. 1558/2001 and various resolutions, provisions, and others. standards issued by the Agency for Access to Public Information (“AAIP”). Although no substantial modifications have been made to the text of the LPDP since its promulgation in 2000, Argentina has adhered to the following international instruments:

• Convention No. 108 for the Protection of People with Regard to the Automated Processing of Personal Data of the Council of Europe.
• Convention 108+ (that is, the protocol that modernizes Convention 108), also of the Council of Europe, which was ratified by Argentina in April of this year.

According to the postulates of the AAIP, updating the LPDP, a norm that has been in force for more than 20 years, it is necessary to strengthen state capacities for regulation and management of public policies in order to face the new challenges imposed by technological transformation and development in a context of globalized digital economy, and in turn contribute to the harmonization of regional and international standards on the protection of personal data, from a Human Rights approach and from a situated and sovereign perspective.

Changes incorporated in the reform:
The Bill follows the provisions of the European Union General Data Protection Regulation (“GDPR”). The main changes introduced in the Project, in comparison with the LPDP currently in force, are the following:

• Data owner
  Unlike the LPDP, the Bill only contemplates the personal data of natural persons, excluding the information of legal persons.
• Territorial scope
  Following the GDPR and other similar regulations such as the Brazilian General Data Protection Law, the Bill will apply to organizations outside of Argentina if they offer goods or services or monitor the behavior of people in Argentina, among other things.
• Legal base
  The Bill establishes that the processing of personal data will be lawful when one of the six reasons occurs, among which is legitimate interest. Under the LPDP, the only legal basis is consent (with a limited number of exceptions to the consent rule).
• Sensitive data
  Additional legal bases for the processing of sensitive personal data are introduced. The Bill includes the criteria of reinforced responsibility in the treatment of this type of information.
• Security incidents
  The Bill imposes the obligation to report data breaches to the AAIP without undue delay and within 72 hours of becoming aware that the breach is likely to pose a risk to the rights of the data subjects. Data subjects must also be informed of the violation if it is likely to result in a high risk to their rights.
• Cross-border data transfer
  The Bill clarifies the provisions on international data transfer that will be allowed when:
  o the third country guarantees an adequate level of protection of personal data, as determined by the AAIP;
  o the exporter provides adequate guarantees on the data processing conditions (such as in the case of model contractual clauses, binding corporate rules or certification mechanisms); either o a transfer falls under one of the exceptions for specific situations (including consent).
• Rights of the interested party
  New rights are added to the current list provided for in the LPDP (including the right to information, access, rectification, updating, deletion, confidential treatment as well as revoking consent), among which are the right to:
  o data portability;
  o not be subject to automated decision making

The deadline to respond to an interested party’s request is 10 business days.

• Cross-border data transfer
  The Bill clarifies the provisions on international data transfer that will be allowed when:
  o the third country guarantees an adequate level of protection of personal data, as determined by the AAIP;
  o the exporter provides adequate guarantees on the data processing conditions (such as in the case of model contractual clauses, binding corporate rules or certification mechanisms);
  o a transfer falls under one of the exceptions for specific situations (including
  consent).
• Rights of the interested party
  New rights are added to the current list provided for in the LPDP (includes the right to information, access, rectification, updating, deletion, confidential treatment as well as revoking consent), among which are the right to:
  o data portability;
  o not be subject to automated decision making (or profiling); and
  o Obtain the limitation of the treatment.
  The deadline to respond to an interested party’s request is 10 business days.
• Data Protection Impact Assessment
  When the person in charge is considering carrying out a type of data processing that, depending on the nature, scope, context, and purposes, is likely to result in a greater risk to the rights of the interested parties, an impact assessment must be carried out prior to its implementation. Like the GDPR, the Bill lists the cases in which said evaluation is mandatory and establishes the minimum content that it must contain. Prior consultation with the AAIP is mandatory if the result of the evaluation reveals a high risk to the rights of the interested parties.
• Data Protection Officer
  The appointment of a data protection officer is mandatory in certain situations and voluntary in the remaining cases. The Bill describes the position, qualifications, requirements, and tasks for this position. A group of companies may designate a single data protection officer. The role can be covered by an employee of the person in charge or within the framework of a contract for the provision of services.
• Representative
  In accordance with the GDPR, a representative must be appointed by foreign managers and managers who are covered by the provisions of Argentine law considering the rules of territorial scope.
• National Register
  Those responsible and managers who must designate a data protection delegate, as well as those who must designate a representative, must be registered with the AAIP. It will no longer be necessary to register the databases.
• Fines
  The Project modifies the way of calculating fines for violations of the data protection regime, taking for this purpose the mobile unit, which is established at an initial value of Argentine Pesos 10,000 and which will be updated annually using the variation of the Consumer Price Index (CPI) published by the National Institute of Statistics and Censuses (INDEC) or the official indicator that replaces it in the future. The fines are thus established from 5 mobile units to 1,000,000 mobile units or, from two percent (2%) to four percent (4%) of the total annual global billing of the previous financial year.
• Legitimate interest
  The Project includes criteria to substantiate the existence of a legitimate interest, which must be considered through a detailed, prior and documented analysis, including the context, circumstances in which the treatment will be carried out and the level of risk involved. In the use of this legal basis, respect for the principle of data minimization must be reinforced and delimited on the basis of express criteria of proportionality and reasonableness.
• Data processing for statistical purposes
  The processing of sensitive data for statistical or scientific purposes is permitted, provided that the owner of the data cannot be identified.
  However, regarding the principle of personal data security, the reference to the procedure under which personal data, sensitive or not, may be processed for statistical and scientific purposes, was eliminated. The previous version included the obligation to carry out said studies and statistical and scientific research exclusively within the organization, in a controlled and safe environment, in accordance with the security practices provided by law and that included whenever possible the anonymization or pseudonymization of the data.

Natural Resources

Lithium legal framework in Argentina and its potential

Of the countries with the most lithium resources in Latin America, Chile and Argentina stand out as those that have made the most progress in its exploration and exploitation. With the largest certified mineral reserves in the world and which was positioned as the first producer until a few years ago, Chile, with 39,000 metric tons, came to occupy second place in the ranking, in 2022, after Australia (61,000 MT). In third place was China, with 19,000 MT, according to data from Statista. Argentina, with 6,200 metric tons, reached fourth place as the world’s largest producer of the mineral.

Argentina treats lithium like any other mineral -it is not considered strategic-, which means that it can be exploited in the same way as others. For at least 20 years, the resource has been explored in the country, the third with the largest certified reserves after Chile and Australia. The business is governed by the Mining Code and applied by the Provinces. This and the regulations of each Province apply when it comes to the environmental impact of the activities to be carried out as part of the projects. Citizen participation procedures must also be followed to make them known to the population, as provided for in the Escazú Agreement and local law.

It is possible to ask the Province for a permit on the area where they believe they can find lithium, with the facility of requesting term exploration permits (up to a maximum of three years, depending on the surface) and concessions, which are perpetual as long as a series of requirements are met for them to remain in force. When the mine enters the exploitation stage, the provinces, owners of the mining resource, are paid royalties of 3% of the mine mouth value, which is the value of the mineral upon leaving the mine, deducting costs such as transportation, processing, refining, and export taxes. Most of the lithium prospects and projects are located in the north of the country, in the provinces of Salta, Jujuy, and Catamarca, and private companies are especially involved in the business.

Although greater lithium resources have been discovered in these provinces and this is where most of the investment is concentrated, exploration is currently being carried out in San Juan and La Rioja. The latter has confiscated private property and is trying, through its state company, to partner with private parties to explore it.

As of today, there are three projects in production and throughout 2024 three or four more will enter that stage. Most of the companies are foreign (from the United States, Canada, Australia, and China, among other countries), and two or three locals that work in the early stages of exploration.

The provincial states of Catamarca and Jujuy have mining companies, with some properties and partner with private companies to develop them, and those in Salta give option contracts to private companies to explore the properties.

Argentina oil and gas resources business opportunities. Vaca Muerta

The country has proven to be a large reserve of oil (worldwide 4th largest unconventional resources 27 bill bbls, “Vaca Muerta”) and gas (worldwide 2nd largest unconventional resources with 802 tcf), divided in 3 basins: 1) Neuquén (70%), 2) San Jorge Gulf and, 3) Austral. Almost unexplored offshore reserves. Prices and demand will change favoring investments in the country as the result of the energy transition (replacement of coal power generated by natural gas) and geopolitical changes (replacing from Russian oil and gas offer). Main international oil and gas players and services providers have operations in Argentina. Potential output will exceed local demand, which, in turn, has supply priority (Law 17,319, section 6). Efficiency gained in the exploitation of unconventional oil and gas resources reaching equivalent international production costs (Permian basin). Onshore and offshore exploration and production:

• Onshore unconventional (8.65Bn acres): 4% in development phase, 23% unconventional concession granted and, 73% not granted.

• Offshore conventional: Austral basin represents 20% of the gas production (23MMm3/d):

o large unexplored areas (500M km2), limited infrastructure, competitive legal framework (5% royalties, well drilled is not required in the first 4-year exploration period,

o 13-year exploration period before deciding on commercialization,

o in which case the concessionaire is entitled to the free availability of 60% of the hydrocarbons produced from wells drilled in the Exploitation Concession in locations where the average water depth exceeds 90 m, and 20% of the hydrocarbons produced in locations where the average depth of the water does not exceed 90 m, as well as the free availability of 100% of the foreign exchange originated in the export of said hydrocarbons. in which case the concessionaire is entitled to the free availability of 60% of the hydrocarbons produced from wells drilled in the Exploitation Concession in locations where the average water depth exceeds 90 m, and 20% of the hydrocarbons produced in locations where the average depth of the water does not exceed 90 m, as well as the free availability of 100% of the foreign exchange originated in the export of said hydrocarbons.

o The export of freely available hydrocarbons in accordance with this article will not be subject to export duties.

Argentina has an extended network of natural gas transportation and distribution, with strong knowledge in its construction and operation (28,900 km of pipelines). LNG plants and export facilities. Advantages: 1) positive seasonal dynamic with Asian markets (Japan, China, and Korea), 2) gas breakeven below 3U$S/MMBTU, 3) gas production incentive plan: stability and competitive prices. Bearing in mind the said business opportunities, the Italian Chamber of Commerce in Argentina, within the framework of the Pan American Energy (PAE) Value Chain Internationalization Program, and with the support of the Italian Embassy in Argentina, the Adeneu SME Center, will bring to Argentina a group of Italian businessmen from the Oil & Gas sector to set foot in Vaca Muerta this September. The objective of the Commercial Mission is to generate “business integration between companies”.

The program seeks for Italian SMEs to find a strategic partner in the national territory that provides solidity and competitiveness to the energy value chain in Neuquén. In this program, joint ventures, and technology transfer between companies from both countries are the key to improving the competitiveness of the sector. Italy, an economy highly recognized for the economic value provided by its SMEs, seeks to deepen these ties and transmit all its technical knowledge to the oil and gas sector.

As part of the mission’s agenda, the companies will hold meetings with provincial authorities, will generate a technical visit to Lindero Atravesado, will have B2B meetings framed in business rounds, and will have the opportunity to understand and visualize first-hand the development of the Neuquén basin. The delegation of Italian companies is made up of SSE SIRIO, NUOVA SIMAT, ASCOT, CMC, TESI & BELELLI. They represent maintenance items for gas machines & compressors, turbines for gas compression stations, bolting and shrinkage adjustments, among other items.

Tax

Transfer Price relevant Supreme Court decision

C.S.J.N. “Vicentin SAIC” sentence of May 3rd, 2023. The Supreme Court of Justice of the Nation confirmed the unconstitutionality of the so-called “sixth method” of application in terms of transfer pricing for the fiscal period 2003, for suffering from a serious defect of origin and being contrary to the principle of reserve of law when trying to modify the tax base of the income tax without a formal law emanating from the National Congress.