New Law on Buy Argentine Regime

The new "Buy Argentine” law (the "Law") replaces and repeals Law No. 25,551 and Decree No. 5340/63 and leaves in effect Law No. 18,875, related to the contracting of services in every matter that does not conflict with the Law.

The Law will probably be published within the next few days, and then the 90-day period will run until the Law comes into effect. Within the same period of time, the Argentine Executive Power must regulate it.

In order to increase the participation of local production in public procurement, improvements are contemplated on already existing benefits in addition to the creation of new ones. These include:

• Scope of ​​application:

The Law expands and clarifies the scope of application of the preference regime established therein (the "Preference Regime"), including, on one hand, the (i) acquisition, (ii) lease and (iii) leasing of goods of Argentine origin; and on the other hand, (i) the Argentine Public Sector (complying with its definition in article 8 of Law No. 24,156), (ii) individuals or legal entities to whom the Argentine State has granted licenses, concessions, permits or authorizations for the provision of public works and services, (iii) their direct subcontractors in this instance with the contract in question, (iv) the Federal Legislative Branch, (v) the Judicial Branch, (vi) the Public Ministry, and (vii) Compañía Administradora del Mercado Mayorista Eléctrico S.A. (CAMMESA), with the exception of the benefits of the regime established in Law No. 26,190.

YPF S.A. and Repsol YPF Gas S.A., in turn, must implement their own Development of National Suppliers program, as the companies are expressly excluded from the scope of application of the Law.

• Mandatory or voluntary nature of the Preference Regime:

The preference provided by the Law will be mandatory when the estimated amount of the selection procedure is equal to or greater than the amount established by the regulation in force through article 25, section 1, subsection d, of Decree No. 1023/01, currently amounting to ARS 1,300,000 Argentine pesos (USD 62,000 aprox.)

On the other hand, the Preference Regime will be optional if the procedure is for an amount lower than the aforementioned, and must be included in the bidding terms and conditions applicable to the selection procedure. If its application is not expressly established, the preference to the good of national origin will be limited to the case of ties in price.

• Maintenance of the description of "good of national origin" provided for in Law No. 25,551:

A good is considered national when it has been produced or extracted in the Argentine Republic, provided that the cost of nationalized imported raw materials, inputs or supplies does not exceed 40% of its gross value of production.

• Increase of the preference margin percentage for goods of national origin:

In the case of identical or similar goods, the preference margin is set at 15% for micro, small and medium-sized enterprises – (MSMEs)  and cooperatives registered at the National Institute of Associativism and Social Economy (INAES, after its Spanish acronym), which under Law No. 25,551 was of 7%; and at 8% for the rest of the companies, which under the Law No. 25,551 was of 5%.

• Recognition of preferences among goods that are not of national origin:

When comparing two prices of offers which are not of national origin, a preference margin of 1% will be granted for every five percentage points of local integration over the goods’ gross production value, with a maximum preference margin of 8%, according to the calculation criteria established by the Executive Branch.

• Specific criteria for the application of the Preference Regime when contracting for public works:

The Law qualifies "national public works" as those in which at least 50% of the materials used meet the requirement of goods of national origin and the company that executes the work also qualifies as a local company of domestic capital according to the terms of Law No. 18,875, article 11.

• Recognition of special conditions for the acquisition of goods of high scientific-technological content:

In the case of acquisition of goods with high scientific-technological content, the Law provides for the possibility of altering certain conditions required by the Preference Regime. In particular, those related to the classification of goods of national origin, the preference margins to be applied and the need to conclude operational cooperation agreements (which will be described below).

• Specific sanctions:

In  the event of breaches of the obligations provided by the Law by individuals or legal entities to whom the Argentine State has granted licenses, concessions, permits or authorizations for the provision of public works and services, as well as for their direct subcontractors, the Law establishes the implementation of warnings, fines (that can reach up to 50% of the amount of the contract), and being barred from the awarding of future contracts, concessions, permits or licenses, for a period of up to 10 years.

• Creation of the “Productive Cooperation Agreements”:

These agreements are a commitment on behalf of the contracting party to acquire local goods and services related to the contract that is subject of the bid. The contractor must promote the participation of MSMEs as per law No. 27,264. In the cases in which the Federal Administration or State-owned Companies acquires, rents or acquires through leasing goods not produced in the country for a value equal or greater than ARS 240,000,000 Argentine pesos (USD 12000 aprox.), the awarded offeror must sign these agreements for a percentage not lower than 20% of the total value of the offer. The purchase of shares of local companies will not be considered operational cooperation for the purposes of the Regime. The Enforcement Authority will be the competent authority to approve these cooperation agreements prior to the awarding of the contract.

• Creation of the Argentine Supplier Development Program:

The Federal Supplier Development Program is created within the scope of the Argentine Ministry of Production, and aims to identify opportunities for local suppliers by surveying the existing supply capacity of the local market including aspects related to technical feasibility and assistance with technical and financial tools.

• Incentive for the provinces and the Autonomous City of Buenos Aires to adhere to the Law:

Goods produced in the Autonomous City of Buenos Aires and in the provinces that fully adhere to the Law will have an additional 1% preference over the margins provided, during the first three years from the entry into force of the Law.

• Enforcement authority:

The Executive Power will designate an enforcement authority for the Law which, among other powers, may issue verification certificates for goods that are not of national origin —by certifying compliance with the national market regulations, as well as the payment of the corresponding taxes— approve the particular bidding terms and conditions for each bidding procedure, and collaborate with the contracting agency for the implementation of Productive Cooperation Agreements.