Upsetting the Offset - Transnational Institute

Cases
It is mainly because of the pollution that the people of the Argentinean town
of Gualeguaychú, which overlooks Fray Bentos from the other side of the river,
have been up in arms protesting against the project. The town is an important
tourist destination, famous for its annual carnival, which draws thousands of
visitors to the city every year. Tourists also come to Gualeguaychú to enjoy its
tranquil river shores, fishing and water sports. No one whose livelihood
depends largely on tourism or agriculture, wants to have a giant pulp mill
constructed in their back yard.
Development for the Overdeveloped
However, while the people of Gualeguaychú look on the construction of the
Botnia Mill with foreboding, many in people in Fray Bentos and Uruguay
welcome the investment into the Botnia pulp mill, which constitutes the
country’s largest foreign direct investment in its history, and will establish the
country as one of the world’s major pulp exporters. The project is expected to
generate revenues equivalent to two percent of the country’s GDP, and to
create 2,500 jobs, of which 300 will be in the mill and the rest in ancillary
forestry and transport. The project fits in with the World Bank Group’s longterm
strategy for the development of Uruguay, which recommends investments
in forestry and in the diversification of the country’s export base to increase its
competitiveness globally. 14
Whether Uruguayans will actually benefit from these revenues is another
matter. The plant is being built in a Zona Franca – one of the many Free Trade
Zones installed in developing countries over the past decades. These designated
areas provide easy investment opportunities for multinational companies
without burdening them with national taxes and other unwanted costs. The land
for the pulp mill was rented to Botnia for $20,000 for 30 years – enough to rent
a flat in London for a year. Botnia does not have to pay any customs duty on
machinery and equipment imports, most of which is manufactured in Finland,
nor does it have to pay income tax under the free trade area contract. The
profits will mainly be given in the form of dividends to foreign shareholders and
thus exported out of the country; that is, back to Finland. So, it’s actually a
development of the Finnish economy. Furthermore, the government has:
provided forestry companies with generous subsidies, soft credits, and tax
exemptions. Over 12 years, the Uruguayan government’s support for this sector
exceeded $500 million in tax exemptions and direct disbursements, an amount
representing almost 4 percent of the country’s annual GDP. To facilitate the
transportation and export of the wood, the governments of the day made further
investments in new ports, bridges, roads, and railway lines. 15
While this could all be seen as long-term investment in the economic growth of
the country, the ‘problem is that future investors will certainly demand equal
treatment from the state, and the companies will continue to avoid paying taxes.
A factory of this size, representing Finnish interests is a powerful economic
agent in a country like Uruguay; granting tax exemptions to encourage foreign
investment means that this power is transferred to foreign companies’. 16
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