Argentine Congress Discusses Proposals to Limit Rural Land Ownership by Foreigners

Over the last few weeks, the Committees on General Legislation, Agriculture and Stockbreeding, and Constitutional Affairs of the Lower House have been discussing the Bill to limit rural land ownership by foreigners that the Executive Branch submitted to Congress in April, 2011 (the “Bill”).

The Bill is one of the 18 initiatives to limit rural land ownership which are currently under analysis of the Federal Congress.

It is expected that within the next few weeks, the relevant Congressional Committees will issue a final report on the Bill. After such report has been issued, the Lower House shall debate and vote on the Bill. If the Bill is approved, it will be analyzed by the Senate; then, if the Senate also approves it, the Bill shall be sent to the Executive Branch for promulgation.

1. Main contents of the Bill

   A brief summary of the most relevant provisions of the Bill is provided below. Since the wording of certain provisions of the Bill is not completely clear, some of its provisions may lead to different constructions as to their precise scope and meaning.

   1. The Bill shall be enforced throughout the territory of the Argentine Republic as a ‘public policy’ regulation.
   2. Any piece of land located outside urban areas is defined as “rural land”.
   3. Any acquisition, transfer or assignment of rights over rural land is deemed to constitute foreign ownership, if it is performed in favor of any: (i) foreign individuals, regardless of whether they are Argentine residents or not; (ii) legal entities where more than 51% of the stock is directly owned by foreign individuals or entities; (iii) legal entities which are indirectly linked to or controlled by foreign entities or individuals through ownership of (a) 25% or more of their stock or (b) a number of votes sufficient to prevail in the local entity’s decision-making process; (iv) any foreign legal entity or individual operating as de facto shareholder; (v) companies that issue bonds (a) convertible in stock representing 25% or more of the company’s stock and (b) whose holder are foreign individuals or entities; (vi) trusts where the beneficiaries are foreign individuals or entities, as defined pursuant to (ii), (iii), (iv) or (v) above; and (vii) joint ventures in which foreign entities or individuals hold a participating interest higher than those set forth by the Bill (51% under (ii) or 25% under (iii), (iv), (v) or (vi) above).
   4. Foreign ownership of rural land shall not exceed 20% of rural lands in Argentina.
   5. Foreign entities or individuals of the same nationality shall not own more than 6% of rural lands in Argentina.
   6. A foreigner shall not own more than 1,000 hectares of rural land.
   7. Foreign owners of rural land shall report their ownership to the Argentine Government within a 180-day period since the entering into force of the Bill. The Bill creates a Registry for Rural Lands.
   8. Acquisition of rural land shall not be deemed as an “investment” under bilateral investment treaties (“BITs”) signed by the Argentine Republic, since rural land is deemed as “a non-renewable natural resource”.
   9. The Bill provides expressly that it “does not affect any vested rights”. Its provisions shall enter into force the day after its publication in the Official Gazette.
   
   
2. Objections and questions in connection with the Bill

   Both Congressmen and legal scholars have questioned the constitutionality of the Bill, as well as the reasonableness and effectiveness of some of the restrictions provided therein. Some provisions of the Bill also raise questions over their precise meaning.

   1. The main issues raised as regards the constitutionality of the Bill
      1. The Bill may be inconsistent with the constitutional provisions which grant to foreigners (without distinguishing between residents and non-residents) equal rights with respect to Argentine nationals. Pursuant to Sections 20 and 25 of the Constitution, restrictions on foreign ownership of rural land that may have been imposed in other countries may not be automatically imposed in Argentina.
      2. Pursuant to Section 124 of Constitution, second paragraph, the Federal Congress may not have jurisdiction to regulate rural lands under the assumption that they are “natural resources”. From this perspective, it has been suggested that the Bill be enforced only within the territory of each of the provinces that expressly adheres to the law passed by the Federal Congress (“ley de adhesion”). Furthermore, it has been proposed to let each province assess the size of the “economic unit” (Argentine Civil Code, Section 2326) within its territory.
      3. The Bill may breach international agreements currently in force entered into by the Argentine Republic by means of BITs in which Argentina has not made any reservation as regards rural lands.
   2. The main issues raised with respect to the reasonableness and effectiveness of the Bill
      1. The limit of 1,000 hectare per foreigner would be arbitrary because it does not take into account the different characteristics of Argentina’s lands, which depend on the regions where they are located.
      2. The Bill should provide some flexibility in order to promote “productive projects” that may have social and economics benefits, as it is provided by the legislation of neighboring countries (e.g. Uruguay).
      3. It may not be possible to conduct a survey of all rural lands in Argentine within a 180-day period, which would affect the enforcement and effectiveness of some provisions of the Bill.
   3. Ambiguous and unclear issues in connection with the Bill
      1. May a foreign owner sell rural lands to another foreigner?
      2. May a foreign shareholder in a company which owns land and is foreign-controlled sell his or her shares to another foreigner?
      3. May a foreign company which owns land sell its shares to another foreigner?
      4. Do the restrictions provided by the Bill affect inheritance rights of foreigners?
      5. Do the restrictions provided by the Bill refer exclusively to rural land ownership or may they be extended to cover other land-related rights (such as usufructs, easements, leases, etc)?
   
   
3. Final comments

Considering that the Bill has the political support of the Executive Branch and that there is a general consensus among different political forces on the need to regulate this matter, it is likely that the Bill will be approved.

However, due to the existence of different bills and in light of the objections that the Bill has raised, the text of the draft submitted by the Executive Branch may be amended by the Federal Congress before it is finally approved. Therefore, it will be important to follow the legislative process closely.