PESTEL Analysis

Exporting

TOBACCO

From India

To Paraguay

Dinesh G. Mhatre.

E-MBA / Sem III / Roll No. 6

ASSIGNMENT - INTERNATIONAL BUSINESS

CONTENTS

1. Product selected for export: Tobacco ................................................................................................... 3

2. Target country for sales development: PARAGUAY .............................................................................. 4

2.1. Basic customer profile of Paraguay: ................................................................................................. 6

2.2. Paraguay Imports Statistics ............................................................................................................... 7

2.3. Marketing and distribution channel to reach customers ................................................................. 8

2.4. Customs Regulations applicable while shipping To Paraguay ........................................................ 10

2.5. Culture & Trade ............................................................................................................................... 12

3. SWOT Analysis ..................................................................................................................................... 13

3.1. Strength: ......................................................................................................................................... 13

3.2. Weakness ........................................................................................................................................ 13

3.3. Opportunity ..................................................................................................................................... 14

3.4. Threats ............................................................................................................................................ 14

4. PESTEL Framework .............................................................................................................................. 15

4.1. Political factors ................................................................................................................................ 16

4.2. Economic factors ............................................................................................................................. 18

4.3. Social Factors .................................................................................................................................. 22

4.4. Technological factors ...................................................................................................................... 25

4.5. Environmental factors ..................................................................................................................... 27

4.6. Legal factors .................................................................................................................................... 28

5. Registration ......................................................................................................................................... 31

6. Export License ..................................................................................................................................... 32

7. Organizations supporting exporters ................................................................................................... 33

8. Decision based on PESTEL: .................................................................................................................. 36

9. Bottom Line: _ ..................................................... 37

10. ROAD MAP for Export Firm Setup in INDIA..................................................................................... 38

11. Registration Requirements Details - PARAGUAY ........................................................................... 39

1. Product selected for export: Tobacco

Tobacco products are being chewed, snuffed, and (mostly) smoked all around the world. People have been

consuming tobacco products for centuries. Tobacco is also grown in many places. Originally from the Americas,

since 1492 it has spread far and wide. Today, tobacco is grown in over 100 countries.

Four countries (China, Brazil, India, USA) produce two-thirds (67 percent) of the world’s tobacco (2007). China

produced 40 percent of the world’s tobacco leaf in 2007

Key Factors in Product Selection: tobacco • India is second major producers of tobacco across the world. • The price of the exported product should not fluctuate very often - threatening profitability to the export business. • Tobacco is key import commodity of Paraguay. • Registration/Special provision for your products in importing country. This is especially applicable for processed food and beverages, drugs and chemicals. • Seasonal vagaries of selected products as some products sell in summer, while others in winter. Festive season is also important factor, for example certain products are more sellable only during Christmas. • Keep in mind special packaging and labeling requirements of perishable products like processed food and dairy products. • Special measures are required for transportation of certain products, which may be bulky or fragile or hazardous

or perishable.

2. Target country for sales development: PARAGUAY

Paraguay chiefly imports road vehicles, consumer goods, tobacco, petroleum products, and electrical machinery,

and its imports in 2006 were mainly obtained from China, followed by Brazil, Argentina, Japan, and the United

States.

Paraguay is a land-locked nation of 157,047 square miles (406,752 square kilometers) in South America,

surrounded by Brazil, Argentina, and Bolivia. No reliable figures on international trade exist because a large part of

that trade consists of the re-exportation and transshipment of licit and illicit goods. The major recorded exports

include soybeans and cotton, meat products, and timber. Half of Paraguay's international trade is with nations in

the Southern Cone Common Market (Brazil, Argentina, and Uruguay). Brazil is the most important trade partner,

followed by the Netherlands, which imports soybeans for crushing. Unrecorded re-exports include a wide variety

of goods that range from cigarettes to automobiles, contraband compact discs, and drugs. Paraguay's major

imports include machinery, vehicles, spare parts, fuels and lubricants, and alcoholic beverages and tobacco, much

of which is re-exported. Brazil and Argentina provide most of Paraguay's imports, followed by the United States

and Japan.

Information on Paraguay:

The Republic of Paraguay is situated on the South American continent. The information on Paraguay lists relevant

facts like its industry and naturally occurring resources.

The foremost of the information on Paraguay is the country's languages. Two languages- Spanish and Guarani is in

colloquial use. Spanish is the language that is imported from Europe in colonial times. Guarani is the indigenous

language that is a result of decades of colonialism. Spanish is spoken in the urban areas. Guarani is spoken in the

rural hinterlands. The Paraguayan culture is a mix of the Spanish settler and indigenous South American cultures.

The Republic of Paraguay can be visited all around the year. The country does not fall on the standard tourist trail.

This lends a certain frisson of adventure to the activity oriented traveler visiting the country. The principal

resources of Paraguay is centered around the natural beauty prevalent in the South American region. The activity

of fishing forms the bulwark of the rural Paraguayan economy. The rivers of the country are used for physical

transportation from one place to another. The economy of Paraguay is dependent on farm products and its further

downstream processing industries. Agricultural products like sugarcane, soybean, wheat, potatoes, and tobacco

provide much needed foreign currency through exports.

Paraguay Business & Economy

Paraguay- Business and Economy follows free market principles. The country is a member of the South American

trade bloc- MERCOSUR. The economic fortunes of the land-locked country is dependent upon its two neighbors-

Brazil and Argentina.

Paraguay- Business and Economy is overtly dependent upon the South American countries of Argentina and Brazil.

More than 40% of its exports end in these two countries. The Paraguayan economy is dependent on agriculture

and its downstream industrial products. The South American country is the biggest exporter of soybeans in the

world. Paraguay also exports copious amounts of beef.

The economy of Paraguay is highly influenced by its geographical position. The land-locked country has negotiated

with Brazil and Argentina to access marine ports in those two countries. The ports are duty free. The business

climate in Paraguay is positive. The South American country is noted for protecting the business interests of

foreign investors. The early 1990's saw Paraguay implementing free market reforms. The Paraguayan economy

was liberalized. Large scale privatization of Paraguayan government companies occurred during this period. The

economic crisis of its neighbors affected Paraguay during that period. Paraguay has shown consistent economic

growth at the rate of 2.7% per year after liberalization. The weakness of the banking sector form the weak link in

the economic chain.

Trade Policy of Paraguay According to the latest Trade (MFN) Tariff Restrictiveness Index (TTRI), on which it is ranked 61st out of 125

countries and scores 5.7 percent, Paraguay’s tariff regime presents a level of openness above the average of the

Latin America and Caribbean (LAC) region and lower‐middle‐income countries, both with respect to manufactures

and to agriculture. However, when incorporating non-tariff barriers, Paraguay’s trade regime in agriculture (56.0

percent) appears significantly more restrictive than its comparators’ (around 35 percent, both). The 2007 MFN

applied import‐weighted tariff average is 7.7 percent, which is below both comparators’ means. The 35 percent

non-tariff measures frequency ratio (for 2001) is above the lower‐middle‐income country averages, but in line with

the regional comparators’. Also, the maximum tariff rate is a low 30 percent, much below the LAC mean of 262.9

percent. On the other hand, Paraguay’s share (23.1 percent) of tariff lines exceeding 15 percent is in line with the

LAC average. Still, MFN duty‐free imports accounted for 60.2 percent of all imports in 2007, indicating a very

significant liberalization of imports from the 2000–04 average of 2.7 percent. With respect to services, Paraguay

has made only few GATS liberalization commitments (in financial services and tourism) and retains much policy

space to restrict its services trade. Its 2006 International Telecommunication Union (ITU) competition index in

telecom was 1.3 (on the scale of 0 [monopoly] to 2 [full competition]), the same as the regional average.

2.1. Basic customer profile of Paraguay:

Following is consumption of Tobacco in central South America and Paraguay is circled. Population is relatively

young and tobacco consumption by men is more.

Country Male [%] Error [+/-%] Female [%] Error [+/-%]

Paraguay 33 3.85 14.8 2.15

With reference to data from http://en.wikipedia.org/wiki/Prevalence_of_tobacco_consumption

Hence, Approximately 50% population consumes tobacco which is good sign of business.

2.2. Paraguay Imports Statistics

Paraguay import is seen to be increasing over the last decade and in year 2009 it almost increased by 50%.

Year Imports Rank Percent Change Date of Information

2003 $2,400,000,000 103 2002 est.

2004 $2,770,000,000 100 15.42% 2003 est.

2005 $3,330,000,000 105 20.22% 2004 est.

2006 $3,832,000,000 107 15.08% 2005 est.

2007 $4,500,000,000 104 17.43% 2006 est.

2008 $6,094,000,000 100 35.42% 2007 est.

2009 $9,172,000,000 95 50.51% 2008 est.

2.3. Marketing and distribution channel to reach customers

Market Access As judged by the latest Market Access TTRI (including preferences), on which it is ranked 39th out of 125 and

scores 2.3 percent, Paraguay’s agricultural and manufactured exports would seem to enjoy more favorable access

to international markets than the average of its comparators. However when factoring in non-tariff measures,

Paraguay’s Market Access Overall Trade Restrictiveness Index (MAOTRI) score of 14.0 percent, points to a more

restrictive access to world markets than its lower middle‐income comparators. Its MFN duty‐free exports

constituted 35 percent of all its exports in 2006, equivalent to an average LAC and a lower‐middle‐income country.

Paraguay is a member of MERCOSUR (which includes neighboring Brazil, Argentina, and Uruguay) and to a lesser

degree of the Latin American Integration Association (LAIA). It is also a Generalized System of Preferences (GSP)

beneficiary with a number of industrialized countries. After a depreciation of 4.7 percent in 2000–04, the currency

appreciated 10 percent in 2006–07 on an average, per year, trade‐weighted real basis.

Distribution / Sales Channels Paraguay does not have preferred or special marketing channels. Imported merchandise can be marketed through subsidiaries of foreign companies, or local importers, distributors, and/or dealers. Agents / Distributors: Finding a Partner Foreign firms interested in establishing operations in Paraguay should hire experienced local attorneys and representatives to assist them in operating in a sometimes confusing and non-transparent business environment. The selection of an appropriate agent/distributor is a determining factor in success or failure. Many local companies offer specialized marketing skills to foreign companies interested in the Paraguayan market. One significant drawback to selling in Paraguay is Law 194/93, which establishes the legal relationship between foreign companies and their Paraguayan representatives. The law requires the foreign company to prove just cause in a Paraguayan court to end a contractual relation with a Paraguayan agent or distributor. If the relationship is ended without proving just cause, the foreign company must pay its representative an indemnity. The rights under this law cannot be waived as part of the contractual relationship between both parties. Franchising Franchising operators are slowly penetrating the market. Several foreign companies have granted franchising rights to local firms in the areas of fast foods, laundry, clothing, and pest control. This could be a growth sector in the future once the economy recovers. Joint Ventures / Licensing Law 117/91, which guarantees national treatment to foreign firms, also regulates joint ventures. Under the law, the government recognizes joint ventures established through formal legal contracts between the interested parties. Licensing agreements are widely used for the local production of international brands. Many foreign firms have licensing arrangements with local companies in the areas of apparel, toiletries and cosmetics, pharmaceuticals, processed foods, and video recordings. Trademark infringement, especially of internationally recognized brands, is a serious problem in Paraguay. Sales Service / Customer Support The importance of support and follow-up cannot be overstated. Even after products have gained acceptance in the market, suppliers should maintain close contact with their local representatives to keep apprised of problems and to assess the market jointly. Periodic visits by officials from the exporting company are essential to help reinforce ties with customers.

Competitive prices and quality are important. Generally, the market is willing to pay a premium for higher quality products, given the easy availability of substandard or counterfeit items. However, most deals are made or lost on the terms of financing. The greater Asuncion area is Paraguay's principal advertising center, with over one-third of the total population. Principal media for advertising are television and the press. Other widely used media include radio, billboards, signs, and direct mail. Radio is the most important media in rural areas. The following newspapers are widely used by local advertisers: Diario Abc Color, Diario Ultima Hora, Diario La Nacion, and El Diario Noticias. Selling to the Government Government procurement requires a public bid if the purchase exceeds US$75,000 (this sum represents 10,000 daily minimum wages, and so will vary with changes in the minimum wage and the exchange rates). Foreign manufacturers/suppliers participating in government tenders must do so through their local legal agents or representatives. Local law grants Paraguayan companies a 15% price advantage over foreign competitors. Registered subsidiaries of foreign companies also qualify for this preference. American firms participating in government tenders are strongly urged to contact the Embassy's Economic and Commercial Section and submit an advocacy questionnaire once the decision to participate has been made. Embassy advocacy in government tenders has helped ensure a more transparent process. The U.S. Embassy has compiled lists of potential local partners and agents, by sector, who represent or have represented U.S. companies. Also available is a list of English-speaking attorneys and law firms. American companies should contact local law firms to assist in their dealings with potential partners or agents.

2.4. Customs Regulations applicable while shipping To Paraguay

CUSTOMS REGULATIONS AND DOCUMENTATION

Returning Paraguay Citizen: All Paraguayan living abroad for more than 2 years may import duty and port tax free their used personal effects, HHGS and tools of trade, but they can not import vehicles duty free. Required documentation to be presented in person (3 weeks prior to shipment arrival) to the Repatriation Office in Asuncion to obtain the required Repatriation Certificate:

Paraguayan ID

ID from Origin country

Inventory (in Spanish)

Bill of Lading visaed by the Paraguayan Consulate at origin in two (2) sets

Letter/Certificate from the Paraguayan Consulate at origin Temporary Residents: Port taxes and duties for household goods, personal effects and vehicles are applicable. Temporary Residence Permit (valid for one year, 2 months to process) is required to enable import! Permanent Residents: They may import their household goods and personal effects duty and port tax free, within the first six months of obtaining the residence permit. Required documentation to be presented in person (3 weeks prior to shipment arrival) to the Immigration Office in Asuncion to obtain the required Customs Certificate:

Inventory visaed by the Paraguayan Consulate at origin

Bill of Lading visaed by the Paraguayan Consulate at origin

Original residence permit In both cases, additional documents and steps are required after the immigrants arrive, to obtain residence in Paraguay. Please contact the Paraguayan Consulate for additional information. Foreign Diplomats: They may import their household goods and personal effects duty free, but must pay port taxes. PROHIBITED ITEMS

Molds and machinery designated for the manufacture of currency

Daggers, Stilettos, hatchets

Canes or fans

Firearms, swords

Immoral or obscene books or films, folders, printed matters, paintings, illustrations or objects

Military equipment, arms or any war machinery

Gambling items

Plants

Food items (restricted: requires health inspection that will prolong process) MOTOR VEHICLES Required documentation:

Bill of lading

Pre-shipment inspection Certificate (Car Condition Report)

SGS or Veritas Verification Certificate Duty free entry for diplomats only PETS Health and vaccination certificates required. USEFUL INFORMATION All required documents must be in hands of the Agent at least two weeks before the arrival of the shipment. If these documents do not arrive as indicated, additional expenses could be incurred.

NOTE - Customs regulations of Paraguay are subject to change at any time. The proceeding information is a brief summary of customs regulations applicable to household goods shipments to Paraguay (this destination) and is being provided for general guidance to assist our Agents and Customers. Since such regulations are subject to change without notice, Always double check with your local embassy or consulate before you make your move to Paraguay.

2.5. Culture & Trade

Paraguay Culture Paraguay culture is highly influenced by different groups of Europe, Spain as well as indigenous origins. The mixed culture can be witnessed in various forms of arts & crafts, music, festivals, literature, languages of Paraguay. The theater and cinema also display the richness of Paraguay culture. The different forms of art of Paraguay have won the international recognition. The openness of the culture of Paraguay can also be witnessed in the fashion of Paraguay. The women of Paraguay are quite advanced to take part in fashion shows. They have been the proud contestants in the Miss Universe, Miss World contests. In the languages of Paraguay, one can find the influence of different regions. The languages spoken and written in Paraguay are Spanish as well as Guarani. Paraguay cultural heritage can also be witnessed in the tolerance towards different religions. The different religions abiding peacefully in Paraguay include Roman Catholics, Mennonite and other Protestant groups. The richness of the Paraguayan culture can be found also in the embracing of new technologies. Though, the latest techniques have been adopted, the roots have never been neglected by the Paraguay people. The mixture of the old and new has contributed profusely to the rich production of the arts & crafts of Paraguay. Trade Outcomes Paraguay’s estimated real growth in total trade in 2007 is very low, resulting in its rank of 139th (out of 160) on

trade outcome. Paraguay’s exports and imports of goods and services, as reported in international databases,

shrunk in absolute terms in the late 1990s, while the real growth of total trade in the early 2000s was 1.5 percent,

rising to 14 percent in 2005–06 and declining to 3.5 percent in 2007—a rate still less than half that of an average

LAC (7.5 percent) or a lower‐middle‐income (8.3 percent) country. Paraguay’s trade share in GDP, based on

“registered” flows, increased slightly from an average of 93.4 percent in 2000–04, to 119.8 percent in 2005–06 and

to 121.4 in 2007, much higher than the regional average (88.2 percent) and the lower‐middle‐income country

group means (98.8 percent). The services share in total exports has decreased from an average of 21.1 percent in

the early 2000s to 15.7 percent in 2005–06 to 14.1 percent in 2007. In addition to “registered” flows, the Central

Bank reports small but not insignificant volumes of “unregistered” and “other” imports and exports, including a

significant amount of goods that are resold mainly via Ciudad del Este in the Brazilian market (for example,

information technology, beverages, perfumes, and electronics). Most such re-exports are entirely legal (in the

context of MERCOSUR) and provide the basis for a significant portion of formal tax collections. Despite being as

large as registered exports (in 2006, in fact, re-exports were larger than registered exports), they are not counted

in the official statistics that are reported to international databases due to weakness in the data collection

systems.1 Paraguay’s major registered exports in 2005 were soy beans (23 percent), meat of bovine animals (21

percent), maize, oilcake, and soybean oil; main export markets in 2005 included the neighboring economies of

Uruguay (absorbing 25 percent of total exports in 2005–06), Brazil, Argentina, and Chile. Paraguay chiefly imports

road vehicles, consumer goods, tobacco, petroleum products, and electrical machinery, and its imports in 2006

were mainly obtained from China, followed by Brazil, Argentina, Japan, and the United States. Remittances in

Paraguay constitute an important share of exports of goods and services; they were 8.7 percent in 2005.

3. SWOT Analysis 3.1. Strength:

Tobacco is one of the chief imports of Paraguay and its imports in 2006 were mainly obtained from China,

followed by Brazil, Argentina, Japan, and the United States.

India is word’s second largest un-manufactured Tobacco producer after China and has share of approximately

10.5% in world’s un-manufactured tobacco production.

World Tobacco leaf - production trends (1970-2000) and shares (1999)

In supply of tobacco leafs there is no brand competition involved and hence the competition is perfect

competition at international level.

Tobacco leafs are ready to export raw material and don’t need.

3.2. Weakness

Immense Competition with tobacco suppliers from China in terms of volumes and thereby prices as China is

major supplier of tobacco to Paraguay.

Competition with tobacco suppliers from neighboring countries viz. Brazil, Argentina in terms of the lead time

for supply.

Tobacco production in some developing countries, receives direct price support or indirect input subsidies.

However, even if such subsidies were to be removed, tobacco profitability would not be challenged in

comparison with alternative cash crops. Thus, even in countries where such subsidies are used, production

might be expected to continue to increase, even if these subsidies are partly removed.

3.3. Opportunity

Acquire market share of China Tobacco suppliers by offering competitive prices.

As per the table below India is offering competitive price to China in world tobacco market. This competitive

price can help to capture market share of Brazil tobacco suppliers to Paraguay as their prices are almost

double the price offered by India / China.

Tobacco leaf - world price and export unit value

Year World Price

Export Unit Value

Brazil China India Malawi Turkey United States Zimbabwe EU

1990 3.370 3.006 1.666 1.547 3.165 4.414 6.396 2.942 2.055

1991 3.583 3.575 1.760 1.872 3.729 4.125 6.291 3.661 2.371

1992 3.633 3.307 1.865 1.914 3.016 4.045 6.301 2.897 2.902

1993 3.020 2.862 1.568 1.302 2.225 4.328 6.240 1.980 2.378

1994 3.193 2.519 1.243 1.373 2.001 3.811 6.582 3.434 2.407

1995 3.229 2.999 1.438 1.511 2.998 2.961 6.674 2.694 2.450

1996 3.436 3.642 1.756 1.735 2.800 3.324 6.248 3.584 2.604

1997 3.540 3.421 2.201 0.670 3.160 3.474 6.914 3.480 2.901

1998 3.353 3.127 1.714 1.700 3.148 3.356 6.819 2.360 2.886

3.4. Threats

Competition from China in terms of volumes and hence prices.

Hike in tobacco prices may lead to increase in export unit price and so lessen the demand.

4. PESTEL Framework

(Political / Economical / Social / Technological / Environmental / Legal)

The PESTEL framework is designed to provide managers with an analytical tool to identify different macro-environmental factors that may affect business strategies, and to assess how different environmental factors may influence business performance now and in the future. The PESTEL Framework includes six types of important environmental influences: political, economic, social, technological, environmental and legal. These factors should not be seen as independent factors. Factors such as technological advances may probably affect the social and economic conditions in different markets.

Since the end of General Alfredo Stroessner's 35-year rule in 1989, Paraguayans have struggled to introduce democracy. Former Bishop Fernando Lugo, supported by the left-wing Patriotic Alliance for Change coalition, was elected president in April 2008, ending more than 50 years of domination by the conservative Colorado Party. Lugo vowed to support the indigenous population, redistribute land to the poor, and secure more revenue from the Itaipu Dam, a joint hydroelectric project with Brazil. Nearly half of all jobs are in agriculture (the major export earner), unemployment is high, and more than one-third of Paraguayans live below the poverty line. Improved security cooperation with neighboring countries and the United States has led to reduced smuggling and closer scrutiny of suspected Middle Eastern terrorist–supported groups operating in the tri-border area with Brazil and Argentina.

Country’s Score over time

4.1. Political factors

Stability of government Paraguay’s performance on government effectiveness, regulatory quality, rule of law, and control of corruption is worst than that of an average LAC or lower middle income country.

GOVERNMENT SIZE (Rank 90.4) Total government expenditures, including consumption and transfer payments, are low. In the most recent year, government spending equaled 17.9 percent of GDP. State-owned enterprises are poorly managed, and privatization has been slow and uneven.

Business Freedom (Rank 61.7) The overall freedom to conduct a business is limited by Paraguay's regulatory environment. Starting a business takes an average of 35 days, compared to the world average of 38 days. Obtaining a business license takes more than the world average of 225 days. Closing a business can be a lengthy and difficult process.

Trade Freedom (Rank 83.6) Paraguay's weighted average tariff rate was 3.2 percent in 2006. Cumbersome customs procedures, import bans and restrictions, import taxes, import fees, weak enforcement of intellectual property rights, and burdensome labeling requirements add to the cost of trade. Ten points were deducted from Paraguay's trade freedom score to account for non-tariff barriers.

Paraguay taxes Paraguay taxes on the corporate are presently 10%. The personal income tax in Paraguay is also 10%. It has taken a very long time for the government in attracting foreign investment by privatization. The reason behind it was the opposition from the political parties. Paraguay taxes also include a 10% value added tax on most of the goods and services in Paraguay. The Paraguay tax rate on stock exchange companies is 15%. There is also a special kind of tax at Paraguay that has to be paid by the companies that are under the 'maquila' regime. The rate is fixed at 1% of value-added. Some are exempted from paying any tax in Paraguay. These include activities related to culture like education and publishing of books for the same purpose. The tax for the companies in free zones is 0.5% of the gross income in lieu of all other taxes. Dividends to resident shareholders are free of taxation in Paraguay. But nonresident shareholders are subject to a taxation rate of 5%. Thirty percent is the tax charged on capital gains of all assets. There is also an annual property tax on the properties like land and buildings in proportion to the fiscal valuation of real estate.

Tax policies In 2003 the basic corporate tax rate was 30%, but there are a number of exceptions. Reinvested income and investment in reforestation are taxed at 10%, and stock exchange companies are taxed at a reduced rate of 15% until 2008. Cultural activities like education and book publishing for educational purposes are exempt from income tax. Priority activities encouraged by the government can qualify for a tax rate of 1.5% for periods of five to ten years. Companies under the "maquila" regime pay a special tax of equal to 1% of value-added. The tax of companies in free zones (FZs) is 0.5% of gross income in lieu of all other taxes. Paraguay's general fiscal incentives package for foreign investors includes a 95% reduction in corporate tax for five years, renewable to 10. Dividends to resident shareholders are not taxed, but profits and dividends paid to nonresident shareholders are subject to an additional 5% tax. Branches of foreign companies established in Paraguay, apart from the maquila, FZ, and investment incentives regimes are subject to a 35% corporate income tax. There is a license tax payable by all persons and entities engaged in permanent forms of business.

Remittances to non-residences are subject to a 5% withholding tax. Capital gains on all assets are taxed at 30%. Paraguay only directly taxes "high-level" executives on their income, but this may be handled through the corporation tax if the company only deducts the amount of executive salaries held to be tax-exempt under the law. If the company deducts all executives' salaries, individual executives are subject to income tax. Social security taxes total 26% of payroll, with 16.5% from the employer and 9.5% from the employee. All land and buildings are also subject to an annual property tax proportional to the fiscal valuation of real estate. The main indirect tax is Paraguay's value-added tax (VAT) with a standard rate of 10%. Since the early 1990s, Paraguay's political and economic reforms have been strengthened by the increased security of access resulting from its accession to the GATT and the expansion of its commitments in the Uruguay Round. The process should be consolidated by improved macroeconomic stability, better infrastructure and ongoing public sector and financial reforms, which need to be deepened to pave for higher growth. MERCOSUR has helped to reinforce systemic reforms and is expected to create new investment opportunities; however, it will lead to some applied tariff increases and greater preference for regional partners. The expansion of regional trade should continue as new agreements are forged, although Paraguay is also looking for trade opportunities beyond the region. Full implementation of Uruguay Round commitments and assured access to foreign markets should further strengthen Paraguay's integration in the world economy.

The Civil Code and Law 1,034/83 regulate business and industrial activities in the country. Under the existing framework, the Ministry of Industry and Commerce is charged with overall industrial policy coordination; the Ministry of Finance handles tax and fiscal policy; and the Central Bank is the principal coordinator of monetary policy. All businesses need to be registered in three places: the municipality for a business permit, the Ministry of Industry and Commerce unit at the central civil registry, and the Finance Ministry for tax purposes. The multiple registration procedure involved multiple steps which took over three months to complete. However, in late 2006 the government instituted a coordinated system among all the offices involved, which reduced the process to one step to be completed in a little over one month, and lowered the cost to the registrants from USD 840 to approximately USD 250. The Ministry of Health and the Municipality of Asuncion both regulate food safety issues, which can include processed food imports and imports for fast food franchises. Regulatory agencies for sectors such as telecommunications, energy, and potable water are relatively new or in the process of being established. CONATEL, the telephone regulatory agency, is only nominally independent as the president of Paraguay chooses its president, who is also subject to influence by the Minister of Public Works and Communications. A regulatory framework for potable water has been established, but the energy sector shows little indication of establishing a regulatory framework in the near future. Draft laws are often introduced into Congress by special interest groups with few opportunities for public comment. Public participation often requires direct lobbying and press campaigns. The new government has increased its outreach to the public and coordination with the private sector when devising regulations to implement new laws.

4.2. Economic factors

Economic Freedom Score

Population below poverty line: 32% (2005 est.) Household income or consumption by percentage share:

Lowest 10%: 0.5% Highest 10%: 43.8% (1998)

Distribution of family income - Gini index: 56.8 (1999) Inflation rate (consumer prices): 7.5% (2005 est.) Investment (gross fixed): 20.1% of GDP (2005 est.) GDP (PPP):

$24.3 billion 4.3% growth 3.0% 5-year compound annual growth $4034 per capita

FDI Inflow: $130.3 million

Economic Freedom Vs. World

Disposable income of buyers

Credit accessibility paucity of credit options hinders the overall economy. Paraguay has a long history as a money-laundering center. The government has taken steps to curb the problem, but enforcement of anti-laundering legislation remains inconsistent

Unemployment rates Labor force: 2.68 million (2005 est.) Labor force - by occupation: agriculture 45% Unemployment rate: 16% (2005 est.)

Paraguay’s constitution guarantees the right of workers to unionize and bargain collectively. About 15 percent of workers are members of one of Paraguay’s 1,600 unions. Strikes are legal and not uncommon.

Fiscal Freedom (Rank 96.6) Paraguay has very low tax rates. Both the top income tax rate and the top corporate tax rate are 10 percent. Other taxes include a value-added tax (VAT) and a property tax. In the most recent year, overall tax revenue as a percentage of GDP was 12.0 percent.

Monitory Freedom (Rank 76.7) Inflation is relatively high, averaging 8.3 percent between 2005 and 2007. Most prices are set in the market, but the government controls the price of fuel and influences prices through state-owned enterprises and utilities, including electricity, telecommunications, transportation, and water. Five points were deducted from Paraguay's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom (Rank 60.0) Paraguay guarantees equal treatment of foreign investors, and most sectors are open for private investment. The government maintains monopolies in rail, oil and gas, cement, electricity, water, and basic and long-distance land-line telephone services. Deterrents to investment include an arbitrary and non-transparent judicial process, corruption, and inadequate infrastructure. Residents and non-residents may hold foreign exchange accounts. Most payments and transfers are permitted, except for certain financial-sector transfers. Capital transactions are subject to minimal restrictions, and there are no restrictions on the repatriation of capital and profits. Foreign investors may not purchase land within 50 kilometers of the borders.

Financial Freedom (Rank 60.0) Several domestic financial crises have led the government to restructure the banking sector and improve oversight. Credit to the private sector has grown since the 2002 credit crunch, and non-performing loans have gradually declined to less than 3 percent of total loans. The banking sector consists of 13 banks, 14 savings and loan companies, and 24 foreign-exchange companies. The presence of foreign banks is substantial. The two largest banks are foreign-owned, and foreign banks control 29 percent of assets and 40 percent of deposits. Capital markets are not fully developed, and a deeply ingrained tradition of family ownership limits the potential growth of capital markets.

Interest rates Paraguay’s banking and financial services industry is still recovering from the liquidity crisis of 1995, when news of widespread corruption resulted in the closure of several significant banks. Reform efforts spurred by the International Monetary Fund (IMF) and World Bank helped restore some credibility to Paraguay’s banking industry. Still, a paucity of credit options hinders the overall economy. Paraguay has a long history as a money-laundering center. The government has taken steps to curb the problem, but enforcement of anti-laundering legislation remains inconsistent. Foreign companies either partially or wholly own most banks and financial institutions in Paraguay. Paraguayan banks hold less than 10 percent of deposits. Of the 16 banks operating in Paraguay in 2003, 50 percent were wholly foreign-owned and 25 percent were partially owned by foreign companies. Paraguay’s Central Bank exists to stabilize the financial sector, making sure that another run on banks, such as the one that occurred in 1995, does not recur. The Superintendencia de Bancos regulates the banking system, monitoring the percentage of non-performing loans in the banking system. Bank deposits rose significantly in 2004, along with the percentage of local currency in total deposits. Local currency deposits increased by 26 percent in 2004, a sign that Paraguayans are gaining confidence in the stability of Paraguayan currency. In another promising development, interest rates dropped dramatically in 2004, from 50 percent in 2003 to 27 percent in 2004.

Inflation Paraguay’s currency is the guarani (PYG). In mid-October 2005, US$1 equaled about YG6155. Price inflation fell dramatically between 2003 and 2004, from 14.2 percent to a 30-year low of 4.3 percent. President’s Duarte’s economic reforms and austerity programs have produced results more rapidly than many expected. As of 2005, experts forecast that the inflation rate in Paraguay likely would rise in coming years but remain below 10 percent.

Paraguay is a developing country with a 2005 Human Development Index score of 0.755. It ranks as the second poorest country in South America with a 2007 GDP per capita of US$4,000. Approximately 2.1 million, or 35%, of its total population is poor and approximately 1 million or 18% of the population live off less than US$ 2 a day. However, Asuncion in Paraguay is ranked as the world's least expensive city to live in for the fifth year running. Paraguay has a market economy marked by a large informal sector that features both re-export of imported consumer goods to neighboring countries, and thousands of small business enterprises. Paraguay's largest economic activity is based on agriculture, agribusiness and cattle ranching. Paraguay is ranked as the world's third largest exporter of chalk boards, and its beef exports are substantial for a country of its size. A 23.Aug.2008 Financial Times article about Paraguay states “Take record commodities prices, add a subtropical climate that gives farmers five harvests every 24 months and vast tracts of virgin arable land and it is no surprise that tiny Paraguay has emerged as one of the big beneficiaries of the global food crisis”. Such perception may put Paraguay into the focus of international agro producers. Reuters India reports that "Some of India's top vegetable oil firms plan to lease or buy land in Paraguay." Paraguay's economic potential has been historically constrained by its landlocked geography, but it does enjoy access to the Atlantic Ocean via the Paraná River. Because it is landlocked, Paraguay's economy is very dependent on Brazil and Argentina, its major trade partners. Roughly 38% of the GDP derives from trade and exports to Brazil and Argentina. Through various treaties, Paraguay has been granted free ports in Argentina, Uruguay and Brazil through which it sends its exports. The most important of these free ports is on the Brazilian Atlantic coast at Paranaguá. The Friendship Bridge that spans the Paraná River between Ciudad del Este and the Brazilian city of Foz do Iguaçu permits about forty thousand travelers to commute daily between both cities, and allows Paraguay land access to Paranaguá. A vibrant economy has developed in Ciudad del Este and Foz do Iguaçu mostly based on international commerce and shopping trips by Brazilian buyers colloquially calledsacoleiros. Bilateral European Union (EU)-Paraguay trade in goods amounts to €437 million in 2005; the EU importing around €269 million and exporting roughly €168 million. In 2005, trade with EU represented 8.9% of Paraguay’s total trade. The EU market represents 13.7% of Paraguay exports and 6.1% of its imports. While the country’s external debt is 40% of GDP, Paraguay’s economy is still driven by agricultural production (27% of GDP and 84% of exports). It is a structure which is vulnerable to climatic factors and price volatility. Those vulnerabilities, combined with inequality, explain why poverty currently affects 40% of the population. Paraguay’s economy grew by 6.4% in 2007 and 5.8% in 2008, fastest growing sector being agriculture with 10.5% growth. Although ranked 112th out of 175 countries in the 2006 World Bank Doing Business ranking, Paraguay has ranked particularly well in the "Protecting Investors" sub-category within that index. The indexes vary between 0 and 10, with higher values indicating greater disclosure, greater liability of directors, greater powers of shareholders to challenge the transaction, and better investor protection, respectively. The "Disclosure Index" for Paraguay is 6, whereas the Latin American region ranked only 4.3 (OECD countries ranked 6.3 on average). The country ranked 5 in "Director Liability Index", the same as OECD countries and better than the 5.1 attributed to its neighbors. In the "Shareholder Suits Index" category, Paraguay obtained 6 points, in

contrast with 5.8 for its neighbors and 6.6 for OECD countries. The comprehensive "Investor Protection Index" attributed 5.7 to Paraguay, 5.1 to its neighbors and 6.0 to OECD countries on average.

4.3. Social Factors

Population demographics: (e.g. aging population)

Population: 6,669,086 (July 2007 est.) Age structure 0-14 years: 37.2% (male 1,262,408/female 1,220,809) 15-64 years: 57.7% (male 1,933,559/female 1,915,033) 65 years and over: 5.1% (male 155,660/female 181,617) (2007 est.) Median age Total: 21.6 years male: 21.3 years female: 21.8 years (2007 est.) Population growth rate: 2.416% (2007 est.)

Population Paraguay is home to 5.7 million inhabitants with a population density of 14.6 per square kilometer. The population, mostly concentrated in the eastern half of the country, is 54% urban. By the year 2010, it is estimated that the population will grow to 7,103,087, which would be a 26% increase over that of 2001, given a rate of birth of 2.6%. Forty-two percent of the population is of working age. The population pyramid is rather striking, with 65% under the age of 30. Agriculture is the primary economic activity, employing 30% of the economically active population, followed by the services sector at 22% and the commercial sector at 21%. Manufacturing employs 12% of the economically active population.

Distribution of Wealth Paraguay has an extreme gap between the small upper class and the large lower class, and there has historically been virtually no social mobility. Paraguay has the most unequal distribution of land in the region. Less than 10 percent of the population owned and controlled over 75 percent of the nation's land in the late 1990s, leaving much of the large rural population landless and living in extreme poverty. In the mid-1990s, nearly half of the farmers in Paraguay did not own land, according to Ramón López and Alberto Valdés, writing

for the World Bank. The upper 10 percent of the population accounts for 46.6 percent of income and consumption, and

The upper 20 percent make up 62.4 percent of all income. The poorest 60 percent of the population earns less than 20 percent of the nation's income. The extreme gap between the small upper class and the large lower class was widened by the clientelism of the Colorado Party during the last 50 years. During the 1960s, by selling most unused land to Colorado Party affiliates, the small elite class came to include a small, newly established agro-industrial elite class. These elites underpaid workers to maximize their own profits. Cotton and soybean producers (the elite landowners) continued to underpay peasant workers well into the 1980s, and the government kept labor unions weak and ineffective. Although the 1990s were a time of newly-developed strength for labor unions, the gap between the rich and the poor did not change significantly. There are not enough schools or educational resources throughout the nation, but shortages are worst in poor, rural areas. Rural areas also have less effective health care available to them. Virtually all urban areas have access to safe water and good medical care, but only 15 percent of the rural population has access to safe drinking water and only 42 percent of the rural population has access to medical care. Despite these problems, it is important to note that Paraguay's government does subsidize education and health care. The government finances schools and makes teacher training courses available.

Distribution of Income or Consumption by Percentage

Share: Paraguay

Lowest 10% 0.7

Lowest 20% 2.3

Second 20% 5.9

Third 20% 10.7

Fourth 20% 18.7

Highest 20% 62.4

Highest 10% 46.6

Survey year: 1995

Note: This information refers to income shares by percentiles of the population and is ranked by per capita income.

SOURCE: 2000 World Development Indicators [CD-ROM].

Changes in lifestyles and trends The Republic of Paraguay enjoys one of the cheapest living costs in the world. A majority of the working population living in Paraguay is dependent on agricultural activities and their ancillary subset of activities. The advantage of living in Paraguay is the low cost of essential commodities. The country has a free market economy. A large portion of the working populace depends on the informal sector for their livelihood. The economy of Paraguay is dominated by a number of small businesses plying their trade in the country. This range from street vendors to small scale manufacturing industries for the farm sector. Imported goods are value added and re-exported to other parts of the world. This results in a higher quality employment environment suitable for the superior qualified employee.

Educational levels For the year 2000, projected adult illiteracy rates stood at 6.7%, (males, 5.6%; females, 7.8%). Elementary education is compulsory and free between the ages of 7 and 14 (ages 9 and 14 in rural areas). Primary education lasts for six years followed by secondary education in two phases of three years each. In 1997 there were 905,813 students in primary schools. In that same year, there were 327,775 students and approximately 18,000 teachers at the secondary level. The pupil-teacher ratio at the primary level was estimated at 20 to 1 in 1999. In the same year, 92% of primary-school-age children were enrolled in school, while 45% of those eligible attended secondary school.

Labor Freedom (Rank 27.0) Paraguay's restrictive labor regulations hinder employment and productivity growth. The non-salary cost of employing a worker is moderate, but the difficulty of laying off a worker is a disincentive to additional hiring. Regulations on the number of work hours remain rigi

Freedom from Corruption (Rank 24.0) Corruption is perceived as widespread, but there have been noteworthy improvements. Paraguay ranks 138th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Paraguay has a legacy of institutional corruption after decades of dictatorship. The multibillion-dollar contraband trade that occurs on the borders with Argentina and Brazil also facilitates money laundering. Weak institutions impede anti-corruption efforts.

Property Rights (Rank 30.0) Because of widespread judicial corruption, protection of property is extremely weak. Commercial and civil codes cover bankruptcy and give priority for claims first to employees, then to the state, and finally to private creditors. Acquiring title documents for land can take two years or more. Long recognized as a regional distribution.

Paraguay is a poor and unequal society. Various poverty estimates suggest that 30-50% of the population is poor. In rural areas, 41.20% of the people lack a monthly income to cover basic necessities, whereas in urban centers this figure is 27.6%. The top 10% of the population holds 43.8% of the national income, while the lowest 10% has 0.5%. The economic recession has worsened income inequality, notably in the rural areas, where the Gini coefficient has risen from 0.56 in 1995 to 0.66 in 1999. Similarly, land concentration in the Paraguayan countryside is one of the highest in the globe: 10% of the population controls 66% of the land, while 30% of the rural people are landless. This inequality has caused a great deal of tensions between the landless and elites.

4.4. Technological factors

Science & Technology Paraguay science and technology is increasing fast under the direct encouragement from the government of this small South American country. Despite the modest size of the country, the Paraguayan government has shown great initiative in the recent years to enhance the scientific and technological profile of the country. The inventions and the discoveries arrived at through a number of research projects have been implemented in various development projects in the country. Science and technology in Paraguay has become a prestigious sector of the country's development and endeavor. Paraguay science and technology has infiltrated every sphere of the nation's life. However, agriculture remains on the top of the list of priorities of the government sanctioned projects. A number of new technological innovations are being implemented to enhance the agricultural growth in the country. Other developments pertain to the development of Engineering goods, as well as social improvement. The country is also an avid supporter of the anti-Nuclear stance taken in the Vienna convention. Nuclear safety is a major concern for the country. Science and Technology in Paraguay is now considerably developed to handle a Nuclear situation in terms of rebuilding and rehabilitations. Computer technology is also being developed in Paraguay. A number of prestigious institutes have emerged in Asunción in the last few decades to join ranks with the older and the more traditional scientific research institutes. Together, they continue to contribute meaningfully towards the development of science and technology of Paraguay. The institutes that lead the way are:

1. Paraguayan Scientific Society 2. South American Union of engineers' Associations 3. Nuestra Senora de la Asunción 4. National University of Asunción

A growing number of students are becoming interested to pursue scientific studies in order to bolster and develop Paraguay science and technology with their talents and knowledge.

Research in Paraguay Research in Paraguay largely comprise scientific research in various fields of industrial, nuclear and biological research. However, telecommunication and law are also significant research fields in Paraguay. Scientific research in Paraguay is largely supported by the country's government, and is conducted by the prestigious scientific research institutes of the country. Asunción is the center of most research activities in Paraguay. The institutes that support and administer research in Asunción, Paraguay are as follows:

Neustra Senora de la Asunción, the Catholic University

National University of Asunción

Higher School of Philosophy, Sciences and Education

South American union of Engineers' Associations

Paraguayan Scientific Society

Research in Paraguay is largely based on the sector of agriculture and engineering industry. The goal remains to increase the industrial and agricultural profile of this country. However, the varied wildlife of the country, also provide bio-researches with a great opportunity to conduct on field research activities. The country's government is committed towards supporting and encouraging all forms of research activities in the country. Paraguay is a serious participant of the Vienna convention, and is presently equipped with a commendable

research base to help in the rebuilding and reconstruction in case a nuclear situation arises anywhere. Actually, nuclear research in Paraguay is being avidly pursued, particularly under the leadership of the university Nacionala de Asunción or the National University of Asunción. The nuclear research laboratory in Paraguay is the Comision Nacional de energia Atomica in Asunción.

4.5. Environmental factors

Environmental protection laws About Environment Protection

Those activities that are likely to cause environmental changes will be regulated by law. The law may also restrict or prohibit those activities that are considered hazardous.

The manufacturing, assembly, import, commerce, possession or use of nuclear, chemical, or biological weapons, as well as the introduction of toxic waste into the country are hereby prohibited. The law may be extended to other hazardous elements. It will also regulate the trafficking of genetic resources and related technologies to protect national interests.

The law will define and establish sanctions for ecological crimes. Any damage to the environment will entail an obligation to restore and to pay for damages.

Paraguay has some natural hazards, some of which are the local flooding in the southeastern portion of the country from early September to June. This can result in the poorly drained plains becoming boggy from early October to June. Its major environmental issues includedeforestation; water pollution; inadequate means for waste disposal pose health risks for many urban residents; and loss of wetlands.

Environment - international agreements: party to: Biodiversity, Climate Change, Climate Change-Kyoto Protocol, Desertification, Endangered Species, Hazardous Wastes, Law of the Sea, Ozone Layer Protection, Wetlands signed, but not ratified: none of the selected agreements

Waste disposal laws Land-locked Paraguay, in central South America, has environmental issues concerning deforestation. There is also water pollution, in addition to a loss of the country’s wetlands. The health of urban residents is at risk due to the inadequate methods of waste disposal.

Energy consumption regulation Obtaining an environmental license is a compulsory requirement to develop a project in Paraguay, whether in energy, telecommunications, manufacturing, transport, construction or any business or service with significant environmental impact. Firm members who are registered environmental specialists provide consultancy services for environmental impact assessments and audits. Lawyers advise clients on energy projects, mining, navigation and road transport, forestry, agriculture and livestock providing a comprehensive service to foreign investors locating or developing infrastructure projects in Paraguay.

4.6. Legal factors

Employment regulations Paraguay has ratified both the main ILO Conventions on trade union rights. Despite this, the result of restrictions on trade unions and of intimidation has been to keep union membership at a relatively low level, depriving most workers of the benefits of union membership. In a context where virtually all of the country’s exports are from the agricultural sector, which lies largely beyond the scope of trade union organizing efforts in Paraguay at the present time, the violations of fundamental workers’ rights have not had a direct impact on Paraguay’s exports. But these violations weaken trade unions and reduce their capacity to represent and protect workers in both export and import sectors. The violation of ILO Conventions has led to the strong condemnation of Paraguay by the relevant ILO supervisory mechanisms. Paraguay has ratified both the main ILO Conventions on discrimination. However, there is extensive evidence of persistent discrimination. Paraguay has not ratified the main ILO Convention on child labour and there is evidence that child labour is a problem, particularly in the agricultural export sector. Sustained government efforts to eliminate child labour and ensure universal school attendance certainly need to be implemented. Paraguay has ratified the main ILO Conventions on forced labour. Forced labour is not a generalized occurrence but Paraguay has been criticized by the ILO for its failure to respect the Conventions on forced labour. Violations of core labour standards in Paraguay are serious. These problems concern all the areas of fundamental workers’ rights identified at Singapore and are in direct contradiction to the commitments accepted by Paraguay at the Singapore WTO Ministerial Meeting and its obligations as a member of the ILO. The WTO should therefore call upon the Paraguayan government to respect the Singapore commitments and amend its labour law as needed to bring it into line with its international obligations concerning freedom of association, as well as to report upon its promotional work in areas such as discrimination and child labour. The WTO should also request the ILO to intensify its work with the government of Paraguay and provide a report to the WTO Council on the occasion of the next trade policy review.

Health and safety regulations

Health Risks: Malaria risk is moderate in some areas of Caaguazu, Alto Parana & Canendiyu. There is little or no risk in other areas. Rabies.

Compulsory Vaccinations:

Yellow fever certificate is required from travelers arriving from endemic areas & leaving Paraguay to go to endemic areas. Exempt infants under 1 year.

Recommended Immunizations:

Diphtheria, hepatitis A, hepatitis B, malaria, TB, tetanus, typhoid, yellow fever, rabies recommended in some circumstances, travelers making 3 or more visits per year, stays of more than 3 months in a rural area, high-risk occupational groups & backpackers staying more than 1 month

Trade Regulations and Standards

Trade Barriers

Paraguay is a member of MERCOSUR (Common Market of the South), a common market and Customs union

comprised of Argentina, Brazil, Paraguay, and Uruguay. Since 1995, Paraguay has increased many of its

external tariffs on products from non-MERCOSUR countries to conform to the MERCOSUR Common External

Tariff (CET) of up to 23%. The tariffs on the 399 items on Paraguay's list of exceptions will be increased

annually until they reach parity with the CET in 2006.

Standards

Standards are set by the National Standards and Technology Institute (INTN). INTN is currently working with

the standards institutes of the other MERCOSUR countries to establish MERCOSUR-wide standards. Only a

handful of Paraguayan firms have ISO 900 and ISO 1400 certification.

Labeling Requirements

Paraguayan regulations require that the country of origin be labeled on domestic and imported products.

Expiration dates are required on medical products and some consumer goods. As of January of 1998, imported

beer is required to display detailed manufacture and content information in Spanish, labeled at the point of

packaging. Negotiations for MERCOSUR-wide labeling requirements are underway.

Temporary Entry Provisions

Paraguay has a temporary entry system, which allows duty-free admission of capital goods (e.g., machinery,

tools, equipment, and vehicles) to carry out public and private construction work. The government also allows

temporary entry of equipment for scientific research, exhibitions, training or testing, competitive sports, and

traveler or tourist items. The following documents are required for temporary entry: a letter stating the

reason for temporary entry; a detailed list of the equipment, including the purchase price of each item; and a

local insurance policy covering the cost of the duties waived. For travelers and tourists, these documents can

be processed prior to arrival by a local Customs broker.

Merchandise introduced into the country under the temporary entry system may be nationalized in Paraguay

by paying the requisite duties. The temporary admission system, to be phased out under MERCOSUR in 2006,

allows entry of certain goods for subsequent re-export for a period of up to 12 months, which can be renewed

once. Temporary entry for 10 days for merchandise in transit is also permitted.

Import Controls

Paraguay has an open market and does not require import licenses; except for guns and ammunition (the

United States prohibits the export of guns and ammunition from the United States to Paraguay).

Both import and export operations must be processed through authorized banks and supervised by

the Central Bank of Paraguay. Documents required for general imports include a letter of credit issued by a

local bank, as well as the following documents provided by the merchandise vendor: certificate of origin,

commercial invoice, packing list, and bill of lading. The last four documents must be certified by a Paraguayan

Consulate in the country of origin.

There are few import prohibitions, one of the most contentious being new regulations outlawing importation

of used clothing.

Export Controls

Paraguay has no export controls.

Free Trade Zones / Warehouses

Paraguay is a landlocked country with no seaports. However, it has been granted free trade ports and

warehouses in neighboring countries' sea ports for the reception, storage, handling, trans-shipment, etc. of

merchandise transported to and from Paraguay. The Paraguayan Port Authority manages its existing free

trade ports and warehouses, but Paraguay has expressed interest in private-sector concessions to develop and

manage new free trade ports. Paraguayan free-trade ports are located in Argentina (Buenos Aires and

Rosario), Brazil (Paranagua and Santos), Chile (Antofagasta and Iquique), and Uruguay (Montevideo and Nueva

Palmira). To date, only the Brazilian free trade ports, Nueva Palmira, Uruguay, and Iquique, Chile are operating

normally. In early 1995, the government approved a law permitting free trade zones in Paraguay, and the

government is developing two such zones: one at the border with Brazil and the other at the border with

Argentina.

Membership in Free Trade Agreements

Paraguay is one of the four members of the Southern Cone Common Market, MERCOSUR. This organization is

a Customs union currently with a common external tariff of up to 23%. MERCOSUR signed a free trade

agreement with Chile in July of 1996 and with Bolivia in December of 1996. Similar arrangements are under

negotiation with Mexico, Peru, and the European Union. Paraguay and its partners within MERCOSUR are

currently in discussions with the United States on developing a Free Trade Areas of the Americas (FTAA)

agreement. Paraguay is negotiating the FTAA through the 3+1 mechanism, whereby all four MERCOSUR

countries generally adopt a single position on issues.

5. Registration

Registration with Reserve Bank of India (RBI) Prior to 1997, it was necessary for every first time exporter to obtain IEC number from Reserve Bank of India (RBI) before engaging in any kind of export operations. But now this job is being done by DGFT. Registration with Director General of Foreign Trade (DGFT) For every first time exporter, it is necessary to get registered with the DGFT (Director General of Foreign Trade), Ministry of Commerce, Government of India. DGFT provide exporter a unique IEC Number. IEC Number is a ten digits code required for the purpose of export as well as import. No exporter is allowed to export his good abroad without IEC number. However, if the goods are exported to Nepal, or to Myanmar through Indo-Myanmar boarder or to China through Gunji, Namgaya, Shipkila or Nathula ports then it is not necessary to obtain IEC number provided the CIF value of a single consignment does not exceed Indian amount of Rs. 25, 000 /-. Application for IEC number can be submitted to the nearest regional authority of DGFT. Application form which is known as "Aayaat Niryaat Form - ANF2A" can also be submitted online at the DGFT web-site: http://dgft.gov.in. While submitting an application form for IEC number, an applicant is required to submit his PAN account number. Only one IEC is issued against a single PAN number. Apart from PAN number, an applicant is also required to submit his Current Bank Account number and Bankers Certificate. A amount of Rs 1000/- is required to submit with the application fee. This amount can be submitted in the form of a Demand Draft or payment through EFT (Electronic Fund Transfer by Nominated Bank by DGFT. Registration with Export Promotion Council Registered under the Indian Company Act, Export Promotion Councils or EPC is a non-profit organization for the promotion of various goods exported from India in international market. EPC works in close association with the Ministry of Commerce and Industry, Government of India and act as a platform for interaction between the exporting community and the government. So, it becomes important for an exporter to obtain a registration cum membership certificate (RCMC) from the EPC. An application for registration should be accompanied by a self certified Copy of the IEC number. Membership fee should be paid in the form of cheque or draft after ascertaining the amount from the concerned EPC. The RCMC certificate is valid from 1st April of the licensing year in which it was issued and shall be valid for five years ending 31st March of the licensing year, unless otherwise specified. Registration with Commodity Boards Commodity Board is registered agency designated by the Ministry of Commerce, Government of India for purposes of export-promotion and has offices in India and abroad. At present, there are five statutory Commodity Boards under the Department of Commerce. These Boards are responsible for production, development and export of tea, coffee, rubber, spices and tobacco. Registration with Income Tax Authorities Goods exported out of the country are eligible for exemption from both Value Added Tax and Central Sales Tax. So, to get the benefit of tax exemption it is important for an exporter to get registered with the Tax Authorities.

6. Export License

Introduction

An export license is a document issued by the appropriate licensing agency after which an exporter is allowed to

transport his product in a foreign market. The license is only issued after a careful review of the facts surrounding

the given export transaction. Export license depends on the nature of goods to be transported as well as the

destination port. So, being an exporter it is necessary to determine whether the product or good to be exported

requires an export license or not. While making the determination one must consider the following necessary

points:

What are you exporting?

Where are you exporting?

Who will receive your item?

What will your items will be used?

Canalisation

Canalisation is an important feature of Export License under which certain goods can be imported only by

designated agencies. For an example, an item like gold, in bulk, can be imported only by specified banks like SBI

and some foreign banks or designated agencies.

Application for an Export License

To determine whether a license is needed to export a particular commercial product or service, an exporter must

first classify the item by identifying what is called ITC (HS) Classifications. Export license are only issued for the

goods mentioned in the Schedule 2 of ITC (HS) Classifications of Export and Import items. A proper application can

be submitted to the Director General of Foreign Trade (DGFT). The Export Licensing Committee under the

Chairmanship of Export Commissioner considers such applications on merits for issue of export licenses.

Exports Free unless regulated

The Director General of Foreign Trade (DGFT) from time to time specifies through a public notice according to

which any goods, not included in the ITC (HS) Classifications of Export and Import items may be exported without a

license. Such terms and conditions may include Minimum Export Price (MEP), registration with specified

authorities, quantitative ceilings and compliance with other laws, rules, regulations.

7. Organizations supporting exporters

Introduction In India there are a number of organization and agencies that provides various types of support to the exporters from time to time. These export organizations provides market research in the area of foreign trade, dissemination of information arising from its activities relating to research and market studies. So, exporter should contact them for the necessary assistance.

Export Promotion Councils (EPC) Export Promotion Councils are registered as non -profit organizations under the Indian companies Act. At present there are eleven Export Promotion Councils under the administrative control of the Department of Commerce and nine export promotion councils related to textile sector under the administrative control of Ministry of Textiles. The Export Promotion Councils perform both advisory and executive functions. These Councils are also the registering authorities under the Export Import Policy, 2002-2007.

Commodity Boards Commodity Board is registered agency designated by the Ministry of Commerce, Government of India for purposes of export-promotion and has offices in India and abroad. There are five statutory Commodity Boards, which are responsible for production, development and export of tea, coffee, rubber, spices and tobacco.

Federation of Indian Export Organisations (FIEO) FIEO was set up jointly by the Ministry of Commerce, Government of India and private trade and industry in the year 1965. FIEO is thus a partner of the Government of India in promoting India’s exports. Address: Niryaat Bhawan, Rao Tula Ram Marg, Opp. Army Hospital. Research & Referral, New Delhi 110057

Indian Institute of Foreign Trade (IIFT) The Indian Institute of Foreign Trade (IIFT) was set up in 1963 by the Government of India as an autonomous organisation to help Indian exporters in foreign trade management and increase exports by developing human resources, generating, analyzing and disseminating data and conducting research. Address: B-21 Kutub Institutional Area, Mehrauli Road, New Delhi-110016

Indian Institution of Packaging (IIP) The Indian Institute of Packaging or IIP in short was established in 1966 under the Societies Registration Act (1860). Headquartered in Mumbai, IIP also has testing and development laboratories at Calcutta, New Delhi and Chennai. The Institute is closely linked with international organizations and is recognized by the UNIDO (United Nations Industrial Development Organization) and the ITC (International Trading Centre) for consultancy and training. The IIP is a member of the Asian Packaging Federation (APF), the Institute of Packaging Professionals (IOPP) USA, the Institute of Packaging (IOP) UK, Technical Association of PULP AND Paper Industry (TAPPI), USA and the World Packaging Organization (WPO). Address: B-2, MIDC Area, P.B. 9432, Andheri (E), Mumbai 400096.

Export Inspection Council (EIC) The Export Inspection Council or EIC in short, was set up by the Government of India under Section 3 of the Export (Quality Control and Inspection) Act, 1963 in order to ensure sound development of export trade of India through Quality Control and Inspection. Address: 3rd Floor, ND YMCA, Cultural Centre Bldg., 1, Jai Singh Road, New Delhi-110001.

Indian Council of Arbitration (ICA) The Indian Council for Arbitration (ICA) was established on April 15, 1965. ICA provides arbitration facilities for all types of Indian and international commercial disputes through its international panel of arbitrators with eminent

and experienced persons from different lines of trade and professions. Address: Federation House, Tansen Marg, New Delhi-110001 India Trade Promotion Organisation (ITPO) ITPO is a government organization for promoting the country’s external trade. Its promotional tools include organizing of fairs and exhibitions in India and abroad, Buyer-Seller Meets, Contact Promotion Programmes, Product Promotion Programmes, and Promotion through Overseas Department Stores, Market Surveys and Information Dissemination. Address: Pragati Bhawan Pragati Maidan, New Delhi-10001 Chamber of Commerce & Industry (CII) CII play an active role in issuing certificate of origin and taking up specific cases of exporters to the Govt. Federation of Indian Chamber of Commerce & Industry (FICCI) Federation of Indian Chambers of Commerce and Industry or FICCI is an association of business organizations in India. FICCI acts as the proactive business solution provider through research, interactions at the highest political level and global networking. Address: Federation House, Tansen Marg, New Delhi-110001 Bureau of Indian Standards (BIS) The Bureau of Indian Standards (BIS), the National Standards Body of India, is a statutory body set up under the Bureau of Indian Standards Act, 1986. BIS is engaged in standard formulation, certification marking and laboratory testing. Address: 9, Manak Bhavan, Bahadur Shah Zafar Marg, New Delhi-110002 Textile Committee Textile Committee carries pre-shipment inspection of textiles and market research for textile yarns, textile machines etc. Address: Textile Centre, second Floor, 34 PD, Mello Road, Wadi Bandar, Bombay-400009

Marine Products Export Development Authority (MPEDA) The Marine Products Export Development Authority (MPEDA) was constituted in 1972 under the Marine Products Export Development Authority Act 1972 and plays an active role in the development of marine products meant for export with special reference to processing, packaging, storage and marketing etc. Address: P.B No.4272 MPEDA House, pannampilly Avenue, Parampily Nagar, Cochin-682036

India Investment Centre (IIC) Indian Investment Center (IIC) was set up in 1960 as an independent organization, which is under the Ministry of Finance, Government of India. The main objective behind the setting up of IIC was to encourage foreign private investment in the country. IIC also assist Indian Businessmen for setting up of Industrial or other Joint ventures abroad. Address: Jeevan Vihar, 4th Floor, Parliament Street, New Delhi-110001

Directorate General of Foreign Trade (DGFT) DGFT or Directorate General of Foreign Trade is a government organisation in India responsible for the formulation of guidelines and principles for importers and exporters of country. Address: Udyog Bhawan, H-Wing, Gate No.2, Maulana Azad Road, New Delhi -110011

Director General of Commercial Intelligence Statistics (DGCIS) DGCIS is the Primary agency for the collection, compilation and the publication of the foreign inland and ancillary

trade statistics and dissemination of various types of commercial informations. Address: I, Council House Street Calcutta-700001,

8. Decision based on PESTEL:

Tobacco is one of the key imports of the Paraguay. Half of the Paraguay’s trade is with Brazil, Argentina, and

Uruguay. Brazil is third largest producer of tobacco after China & India. Paraguay’s major import of tobacco is from

China & Brazil. Hence there is bright chance of India gaining the market share of both and export tobacco leafs to

Paraguay. Tobacco consumption is largely reported in United States and Paraguay’s around 505 of the population

consumes tobacco.

Paraguay is the largest illegal cigarette supplier in the region. There are commercial and tax benefits for locating factories in the country, such as loose controls and low wages, but the primary reason for the growth of the illegal supply of cigarettes in Paraguay can be traced to changes in Brazilian policies to fight contraband in the latter part of the 90`s. Those policies, designed to control “export-reentry” devices by companies such as Souza Cruz (BAT) backfired. Some former managers and engineers relocated to Paraguay becoming owners of illegal trade factories. Traditional Paraguayan cigarette manufacturers 8 also took advantage of the opportunity to expand their activities not only towards the clandestine market of Brazil but also to other countries in the region and, increasingly, the world. Being large no of cigarette factories located in Paraguay there is good a demand for tobacco leafs from the factories of Paraguay. But since some of the factories are illegal supplier of cigarettes it is risky to build relationship with such manufactures directly and may pose a serious problem & can be prosecuted in case export rules are violated. Paraguay follows free market principles. Ports of Brazil & Argentina are accessible to Paraguay and are duty free.

One significant drawback to selling in Paraguay is Law 194/93, which establishes the legal relationship between foreign companies and their Paraguayan representatives. The law requires the foreign company to prove just cause in a Paraguayan court to end a contractual relation with a Paraguayan agent or distributor. If the relationship is ended without proving just cause, the foreign company must pay its representative an indemnity. The rights under this law cannot be waived as part of the contractual relationship between both parties.

This drawback can be bypassed by dealing with Paraguay TRADER / Importer as TRADER rather than a company selling its product to Paraguay. Since Tobacco leafs are raw material there is no maintenance / service / warranty is involved. As per Custom Regulation while shipping to Paraguay, all required documents must be in hands of the Agent at least two weeks before the arrival of the shipment. If these documents do not arrive as indicated, additional expenses could be incurred. India cam offer competitive rate for tobacco to China and can overcome Brazil easily as rates of Brazil are double the rates of China for Tobacco Leafs. As per dashboard in PESTEL of Paraguay the issues are associated with labor freedom & freedom from corruption & property rights. Tobacco leaf being raw material no labor or property related issues are associated with it as the we will be concerned with the shipment to duty free ports of Paraguay and delivery to Paraguay. Because government effectiveness, regulatory quality, rule of law, and control of corruption is worst the process of export of tobacco sounds to be a hazel free / not difficult process but time consuming process for setting up business as overall freedom to conduct a business is limited by Paraguay’s regulatory environment. Starting a business takes 35 days but obtaining business license makes more than 225 days. Hence performing role of trader with Paraguay is easiest way to deal with export business in case we are no interested in getting into the contractual agreement with agent in Paraguay.

9. Bottom Line: _

Tobacco is one of the key imported products of Paraguay. Hence buyer for Tobacco is surely available in Paraguay. There are number of Cigarette manufacturing companies in Paraguay which can serve as key buyers for the Tobacco Leafs as well as local Tobacco importers of Paraguay. Approach to Paraguay can be in two methods to get rid of contractual agreement between the Paraguay Agent and the business which may lead to paying of indemnity in case uncertain shutdown of the business. 1. Deal as trader and export the tobacco to the local importer to Paraguay without entering and establishing

business in Paraguay. 2. Setup own agency as importer in Paraguay and then establish contract with that agency which can help in

shutting down business without any hazels and exit immediately without getting trapped in prosecution. There are different advantages & disadvantages of above two approaches as below. In first approach though we are exporting goods to Paraguay without actually stepping into Paraguay business by exporting tobacco goods to local importers and hence the chances of marginal profit is less as there will be number of people involved between we and final customer, which can be one or more & hence cut down on margin. In this approach we get rid of many issues as we never enter into Paraguay country & its business but just exporting the tobacco to local importers of Paraguay. In second approach we can increase the profit on deal as we are importing ourselves and dealing with final customer. The difficulty will be in gaining end customers and competition with local importers as corruption play major role in Paraguay economy which not under better control. Hence if some suitable strategy followed then the customers can be gained. We should go for bulk selling of tobacco leafs to final customer as that will be better approach as it will save us from putting much attention in selling of tobacco in Paraguay. Infrastructure for the business can be acquired on lease or rent so that no direct investment is involved which can save on the time and money to buy the infrastructure.

10. ROAD MAP for Export Firm Setup in INDIA

Apply for PAN Account number through http://www.incometaxindia.gov.in/

Apply & get Current Bank Account number and Bankers Certificate.

Get Application form which is known as "Aayaat Niryaat Form - ANF2A" can also be submitted online at the DGFT web-site: http://dgft.gov.in.

Application for IEC number can be submitted to the nearest regional authority of DGFT. Application form which is known as "Aayaat Niryaat Form - ANF2A" can also be submitted online at the DGFT web-site: http://dgft.gov.in.

Submit Current Bank Account Number & Bankers Certificate & PAN Number to DGFT along with application form & Rs 1000/- as application fees in the form of Demand Draft or payment through EFT (Electronic Fund Transfer) by Nominated Bank by DGFT.

Register with DGFT (Director General of FOREIGN Trade) and receive 10 digits unique IEC Number.

Obtain registration cum membership certificate (RCMC) from EPC. An application for registration should be accompanied by a self certified copy of the IEC number. Membership fee should be paid in the form of cheque or draft after ascertaining the amount from the concerned EPC.

Register with Commodity Board (Under Dept. of Commerce) for TOBACCO. Forms and registration details can

be obtained from http://www.indiantobacco.com/

Register with TAX Authorities to get benefit of exemption from both Value Added tax (VAT) & Central Sales Tax (CST).

To start with exporting goods obtain PAN based Business Identification Number (BAN) from DGFT. This is necessary while dealing with Customs during export process.

11. Registration Requirements Details - PARAGUAY

Procedure 1 : Check the uniqueness of the proposed company name

Time to complete: 1 day

Cost to complete: no charge

Name of Agency:

Comment:

Procedure 2 : Draft the company deeds, signed by an attorney

Time to complete: 5 days

Cost to complete: 1 - 3% of the paid-in capital stock of the company with minimum USD 600

Name of Agency:

Comment:

Because company formation documents must comply with corporate laws and regulations, companies customarily

resort to legal professionals. Registration and filing of applications (e.g., bylaws to the Treasury Attorney Office, to

the court, to the registries) must be signed by an attorney either as the founders’ agent or counsel. The

organization of companies by attorneys acting through powers of attorney is also a common practice. The fee for

this formality is about 1% to 3% of the company’s paid-in capital stock, with a minimum of USD 600. Article 72 (1)

of Law No. 1376/88 establishes the official legal fee for this task.

Procedure 3 : Notarize the company deeds

Time to complete: 3 days

Cost to complete: 0.75% or 2% of the paid-in capital stock of the Company, depending on the capital

Name of Agency:

Comment:

The public notary’s fee for notarizing company deeds is established in the Notary’s Fees Law. A licensed attorney

usually drafts the bylaws but a licensed public notary notarizes the deed (the public deed is to be included in the

notary’s protocol and registered at the public registries). Attorneys are not legally authorized to notarize or certify

documents.

Procedure 4 : Buy the company commercial books

Time to complete: 1 day

Cost to complete: 22 USD

Name of Agency:

Comment:

The cost to buy company commercial books is about USD 22 for hardcover books in any bookstore. The books

must be submitted to the civil and commercial court to have all the pages sealed by the judge. On the first page, a

seal indicates how many sealed pages the book contains and that it was registered in the Public Registry of

Commerce, specifying the court order number, the date, and the name of the judge who rendered the order.

The company must keep special commercial books at their registered office. The number of books and the

accounting system to be used are left to the merchant’s discretion. At a minimum, however, a daily record of

business transactions (daily record book) must be kept, and an accounting of current inventory must also be

maintained in a separate book (inventory record book). Other books may be required for certain types of

commercial activities according to law. Accounting books and documentation must be kept by a merchant for 5

years following the date that the last entry was made. All corresponding business receipts or vouchers must also

be kept and maintained by the merchant during that 5-year time frame, to allow for auditing of the company’s

books or records. A special request to use computer forms instead of books may be filed with the court and the tax

authority. Corporate books are required to keep the records of the minutes of the board of directors and

shareholders’ meetings, as well as the labor books pursuant to the Labor Code and regulations. Books must be

authorized and sealed by each corresponding agency (corporate, tax, labor, social security).

Procedure 5 : Submit registration documents at the single access window (SUAE)

Time to complete: 25 days

Cost to complete:

USD 5.47 (Registro Publico) + USD 5.47 (Registro de Personas Juridicas Asociaciones) + municipal license fee + USD

6.56 (authorization of books) + USD 0.21 (Inscripcion Patronal, Ministerio de Justicia y Trabajo)

Name of Agency:

Comment:

In December 2006 the Ministry of Industry and Commerce established a one-stop shop to register a company.

Through the new system, Sistema Unificado de Apertura de Empresas (SUAE), founders are required to comply

with only the following procedures to register a company with the Ministry:

- Submit all documentation at a single window for revision and approval. Once approved, the documents are

scanned, and the information is uploaded to a single application form (formulario único). SUAE assigns an

identification number that allows the founder to monitor the registration process through the Web site.

- The bylaws and other company formation documents are submitted to the Treasury Attorney Office (Abogacía

del Tesoro) who reviews them and issues a registration and publication order

- Apply for tax registration with a delegate of the Ministry of Finance (Ministerio de Hacienda).

- Obtain the taxpayer’s registry number (Registro Único de Contribuyentes, RUC).

- Send the documents to the Municipality of Asunción for fee verification and assessment. The municipality issues

the relevant license and permits (Patente de Comercio, Resolución y Certificado de Licencia de Habilitación de

Establecimiento) upon inspecting the site and approving the documentation.

- Register with Social Security Institute (Instituto de Previsión Social) for registration (inscripción obrero/patronal).

- Register with the Ministry of Justice and Labor (Ministerio de Justicia y Trabajo) to start hiring employees

(inscripción patronal).

- Register with the General Migration Office (Dirección General de Migraciones) to obtain temporary and

permanent residency (residencia temporal y definitiva).

Procedure 6 : Publication of an extract of the bylaws in the Official Gazette and a newspaper

Time to complete: 4 days, after registration with the Public Registry of Juridical Persons and Associations is

completed

Cost to complete: USD 16 Official Gazette + USD 133 newspaper

Name of Agency:

Comment:

The treasury attorney orders the publication of an extract of the bylaws in the Official Gazette and another

newspaper of wide circulation in the market in which the company is located. The extract is published for 3

consecutive business days.

Procedure 7: Municipality conducts an on site inspection

Time to complete: 2 days, simultaneous with procedure 5

Cost to complete: no charge

Name of Agency:

Comment:

Before conferring the license, municipal inspectors perform an onsite inspection of the company’s main office to

verify compliance with municipal ordinances.