2005 Investment Climate Statement, United Arab Emirates

UNCLAS SECTION 01 OF 10 ABU DHABI 000224

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SUBJECT: 2005 Investment Climate Statement, United Arab Emirates

REF: 2004 STATE 250356

1.PER REFTEL, THE BODY OF THIS CABLE IS THE SUBMISSION OF THE
2005 INVESTMENT CLIMATE STATEMENT FOR THE UNITED ARAB EMIRATES.


2. Begin text:

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INVESTMENT CLIMATE STATEMENT
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A.1 OPENNESS TO FOREIGN INVESTMENT
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Investment laws and regulations are evolving in the UAE and are
expected to become more conducive to foreign investment. At
present, the regulatory and legal framework favors local over
foreign investors. There is no national treatment for investors
in the UAE, and foreign ownership of land and stocks is
restricted.

The UAE government is opening up its trade sectors in line with
its WTO obligations. The UAEG already has taken steps to cut red
tape for foreign investors, and now exempts investors from
obtaining a Ministry of Labor card in addition to an Immigration
Department visa. Investors no longer need to appear in person to
inquire about the status of business applications in Abu Dhabi.
A new automated service, offered in Arabic and English, allows
investors to receive information about their business licenses
over the phone. The U.S. and UAE expect to begin negotiating a
Free Trade Agreement in 2005, which is expected to further open
up the UAE to U.S. foreign direct investment.

There have been no significant investment disputes during the
past few years involving U.S. or other foreign investors. Claim
resolution has not generally been a problem, although foreign
companies tend not to press claims.

There is no income tax in the UAE. Foreign banks pay 20 percent
tax on their profits. Foreign oil companies with equity in
concessions pay taxes and royalties on their proceeds. There are
no consumption taxes, and the GCC states formally implemented a
single import tariff of 5 percent on most goods January 1, 2003.
The exceptions to the 5 percent tariff in the UAE are a fifty
percent tariff for alcohol, a one-hundred percent tariff for
tobacco, and duty exemptions for 53 food and agricultural items.

Regulation of the establishment and conduct of business in the
UAE is shared at the federal and emirate levels. There are four
major laws affecting foreign investment in the UAE; the Federal
Companies Law, the Commercial Agencies Law, the Federal Industry
Law, and the Government Tenders Law. These laws, especially the
Federal Companies Law, are seen as the largest obstacles to
foreign direct investment in the UAE.

The Federal Companies Law applies to all commercial companies
established in the UAE and to branch offices of foreign companies
operating in the UAE. Companies established in the UAE are
required to have a minimum of 51 percent UAE national ownership.
However, profits may be apportioned differently. Branch offices
of foreign companies are required to have a national agent unless
the foreign company has established its office pursuant to an
agreement with the federal or an emirate government. All general
partnership interest must be owned by UAE nationals. Foreign
shareholders may hold up to a 49 percent interest in limited
liability companies.

The Commercial Agencies Law requires that foreign principals
distribute their products in the UAE only through exclusive
commercial agents that are either UAE nationals or companies
wholly owned by UAE nationals. The foreign principal can appoint
one agent for the entire UAE or for a particular emirate or group
of emirates. The law provides that an agent may be terminated
only by mutual agreement of the foreign principal and the local
agent, notwithstanding the expiration of the term of the agency
agreement.

The Federal Industry Law stipulates that industrial projects must
have 51 percent UAE national ownership. The law also requires
that projects either be managed by a UAE national or have a board
of directors with a majority of UAE nationals. Exemptions from
the law are provided for projects related to extraction and
refining of oil, natural gas, and other raw materials.
Additionally, projects with a small capital investment or special
projects governed by special laws or agreements are exempt from
the industry law.
The Government Tenders Law stipulates that a supplier,
contractor, or tenderer with respect to federal projects must
either be a UAE national or a company in which UAE nationals own
at least 51 percent of the share capital or foreign entities
represented by a UAE distributor or agent. Foreign companies
wishing to bid for a federal project must, therefore, enter into
a joint venture or agency arrangement with a UAE national or
company. Federal tenders must accompany a bid bond in the form
of an unconditional bank bond guarantee for 5 percent of the
value of the bid. If goods and services are not available
locally then UAE federal government entities often tender
internationally.

Up until recently, only Emiratis and other GCC nationals were
permitted to own land in the UAE, while foreigners, who comprise
80-85% of the population, had been restricted to renting. In May
2002, the Emirate of Dubai announced that it would permit so-
called "free hold" real estate ownership for non-GCC nationals by
giving permission to three companies to develop and sell freehold
properties on government-designated pieces of land. However,
because specific laws regarding freehold ownership remain to be
codified and procedures for title documentation and conveyance
remain to be established, potential buyers are unsure whether
they will have an absolute freehold title that means the same as
it does in Europe of the U.S.

Perhaps the most important impediment to freeholds is that owners
cannot register titles with the Dubai Land Department, a step
that allows owners access to the full range of legal protections
and transactions that property ownership requires. If a national
and foreigner try to register a change of land title, the Land
Department normally turns them away. Inheritance laws present
another area of concern to freehold buyers, and current
legislation appears ambiguous. Freeholds are so new that there
are no court precedents yet. Some people are reportedly avoiding
this legal ambiguity by purchasing homes through an offshore
shell company. Nevertheless, the Dubai Government has promised
to resolve these problems and ambiguities in a new land law. So
far, Dubai is the only emirate engaged in large-scale property
sales to foreigners, though Ajman and Ras Al Khaimah reportedly
have announced similar schemes.

Oil will continue to be a major sector for foreign investment in

2005. UAE oil production capacity currently is around 2.5
million barrels per day (MB/D). It should rise to 2.8 and 3.0
MB/D by 2005 and 2010, respectively. Abu Dhabi Company for
Onshore Operations (ADCO) plans to lift production to 1.45 MB/D,
Abu Dhabi Marine Operating Company (ADMA-OPCO) to 600,000 B/D and
Zakum Development Company (ZADCO) to 600,000 B/D during the next
three to five years. As part of the effort to continue to
improve output and seek foreign technological and managerial
expertise, the state-run Abu Dhabi National Oil Company (ADNOC)
tendered the privatization of a 28 percent stake in the offshore
Zakum oilfield in April 2002. Exxon-Mobil, BP and Royal Dutch
Shell are participating in this content, with an outcome expected
in 2005. In 2002, the United States enjoyed a 45 percent market
share in oil and gas field equipment spare parts, and services.
No regulatory/demand issues affect the market.

We are optimistic that opportunities for foreign investment in
the public utilities sector will increase as well. In March 1998
the Abu Dhabi Water and Electricity Authority (ADWEA) awarded a
contract for the UAE's first independent water and power project
(IWPP),with an estimated value of $750 million, to an American
firm. The firm was selected as part of an Anglo-American
consortium to manage the emirate's third IWPP in 2001. The Abu
Dhabi government has announced that power generation (includes
power and desalinated water production) and transmission will be
privatized, while power distribution will remain under the
control of Abu Dhabi authorities. The estimated commercial value
of planned power and water sector development projects in Abu
Dhabi is $5 billion.

The UAE has opened the telecommunications market to foreign
investment by enacting legislation to end the monopoly of
Etisalat (the official UAE telecommunications company) and open
the market to the private sector and foreign investment on
January 1, 2005.

Defense contractors with an eye for investment in the UAE must
negotiate directly with the UAE Offsets Group (UOG),and invest
an amount that will generate a profit equal to 60% of their
contract in the UAE. UOG investment projects generally must show
the required profit after seven years. The contractor may not
own more than 49 percent of the project, and UAE nationals must
hold the remaining 51 percent. There are currently more than 30
offset ventures; offset projects cover the full spectrum of
economic activity, including, inter alia, advertising, fish
farming, air conditioning, language centers, shipbuilding,
aircraft maintenance, leasing, medical services, and even polo
grounds. One of the largest offset ventures is the Oasis
International leasing company - a British Aerospace offsets
venture.
A.2 CONVERSION AND TRANSFER POLICIES
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There are no restrictions or delays on the import or export of
either the UAE Dirham or foreign currencies by foreigners or UAE
nationals, with the exception of Israeli currency and the
currencies of those countries subject to United Nations
sanctions. The UAEG passed comprehensive anti-money laundering
legislation following the attacks of September 11, 2001, that
imposes strict documentary requirements on large wire transfers.
Travelers entering the UAE must declare currency amounts of more
than 40,000 Dirhams (approximately $10,800) as part of these
measures.

Since February 2002, the Dirham has been officially fixed to the
U.S. Dollar. The exchange rate is 3.67 UAE Dirhams per one U.S.
Dollar.

A.3 EXPROPRIATION AND COMPENSATION
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Foreign investors have not been involved in any expropriations in
the UAE in recent years. There are no set rules governing
compensation if expropriations were to occur, and individual
emirates probably would treat this differently. In practice,
authorities in the UAE would not expropriate unless there was a
compelling developmental or public interest need to do so, and in
such cases compensation would be generous.

A.4 DISPUTE SETTLEMENT
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There have been no significant investment disputes during the
past few years involving U.S. or other foreign investors, but
there have been several contractor disputes, with the government
as well as local businesses. Disputes generally are resolved by
arbitration, by the parties themselves, or by recourse to the
legal system. Dispute resolution can be difficult and uncertain,
however. Arbitration may commence by petition to the federal
courts on the basis of mutual consent, a written arbitration
agreement, independently or by nomination of arbitrators, or
through a referral to an appointing authority without recourse to
judicial proceedings. Enforcing arbitration judgments can be
difficult as they require court certification, and judicial
proceedings may continue for several years.

The UAE constitution established a federal court system while
acknowledging the right of the individual emirates to maintain a
court system of their own. Accordingly, each emirate applies
federal law in its own court system that consists of courts of
first instance, courts of appeal and a Supreme Court. The court
of first instance consists of civil, criminal, and sharia
(Islamic law) courts. Sharia law is only applicable to Muslims
and relates to family matters mentioned in the Koran. Courts
will interpret statutory law and legal precedent in deciding
cases. Commercial disputes involving foreign parties tend to
come before the civil courts in the federal system; a panel of
three judges ordinarily hears commercial disputes. All cases
involving banks and financial institutions are required to be
heard by civil courts. In Abu Dhabi, all non-arbitration
commercial disputes are first brought to the Abu Dhabi
Conciliation Department. If the parties are unable to reach a
settlement, they can begin legal proceedings in the court of
first instance.

The UAE federal Supreme Court has held that a foreign arbitration
clause in a registered commercial agency agreement is
unenforceable because the Commercial Agency Law of 1981 states
that UAE courts have jurisdiction over commercial agency
disputes. According to an analysis by Western-trained attorneys
of the UAE code of civil procedures, however, UAE courts will
recognize a decision by both parties to refer a dispute to
arbitration. No party in a dispute can file a court claim if
such party already has agreed to refer the claim to arbitration.
The parties can move to arbitration at any stage during
litigation. The civil procedure code details rule governing the
qualification of arbitrators and many other aspects of the
arbitration process. The venue of arbitration is required to be
within the UAE, and if not, the resultant award is treated like a
foreign judgment.

The code contains comprehensive rules in connection with the
various types of preventive and provisional remedies prior to
litigation and the issuance of judgments, including the
attachment of property, confiscation of the defendant's passport
and prohibitions on travel, as well as the detention of the
defendant in certain instances. However, the courts must certify
all arbitration decisions, and though they do not review
substantive claims, they can invalidate decisions based on
procedural considerations. Parties can also appeal certification
decisions thus prolonging enforcement indefinitely.

In 1993 the Abu Dhabi Chamber of Commerce and Industry formed the
Abu Dhabi Commercial Conciliation and Arbitration Center in an
effort to accelerate commercial dispute resolution. The Center
has jurisdiction to conciliate or arbitrate commercial disputes.
Currently, the Center has 135 open cases and accepts roughly 30-
40 new cases each year. The Center's executive regulations
govern the conciliation and arbitration procedure. Though
referral by the parties to the Dispute Center ostensibly requires
them to accept the finality of the Center's decision, the courts
must still certify the decision and enforcement can be delayed.
The Center conducts proceedings in Arabic or any other agreed
upon language.

The Dubai Chamber of Commerce and Industry has promulgated
similar commercial conciliation and arbitration rules that permit
parties to have conciliation or arbitration proceedings under the
auspices of the Chamber. In 2004, the Dubai International
Arbitration Center was made independent of the Chamber. The
Arbitration Center aims to bring international standards of
arbitration to business in Dubai.

The UAE is a member of the International Center for the
Settlement of Investment Disputes. Although the UAE Cabinet
approved entry into the New York Convention of 1958 on the
Recognition and Enforcement of Foreign Arbitral Awards in 2003,
the UAEG has not implemented the legislation, and is unlikely to
do so in the near future.

A.5 PERFORMANCE REQUIREMENTS/INCENTIVES
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As listed elsewhere in this report, the regulatory and legal
framework in the UAE favors local over foreign investors. The US
raised this as a concern in the TIFA council meetings. There is
no national treatment for investors in the UAE. The UAE
maintains non-tariff barriers to investment in the form of
restrictive agency, sponsorship, and distributorship
requirements. In order to do business in the UAE outside one of
the free zones, a foreign business in most cases must have a UAE
national sponsor, agent or distributor. Once chosen, sponsors,
agents, or distributors have exclusive rights. They cannot be
replaced without their agreement. Government tendering is not
conducted according to generally accepted international
standards, and re-tendering is the norm. To bid on federal
projects, a supplier or contractor must be either a UAE national
or a company in which UAE nationals own at least 51 percent of
the capital or have a local agent or distributor. Federal
tenders must be accompanied by a bid bond in the form of an
unconditional bank guarantee for 5 percent of the value of the
bid. In UAE federal government entities can tender
internationally since foreign companies sometimes are the only
suppliers of specialized goods or services that are not widely
available.

Incentives are given to foreign investors in the free zones.
Outside the free zones, no incentives are given, although the
ability to purchase property as freehold in certain favored
projects in Dubai - and promises that foreign owners of such
property would be granted residence permits as long as they
remained in possession of title - would appear to be incentives
aimed at attracting foreign investment.

Visas, residence permits, and work permits are required of all
foreigners in the UAE except nationals from GCC countries.
Americans are eligible to receive 10-year, multiple entry visas,
which authorize stay up to six months per entry, with the
possibility of a six-month extension. U.S. citizens may obtain
visas for business and tourism at the airport upon arrival.
These visas do not permit employment in the UAE.

A.6 RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
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Except as detailed elsewhere in this report, there are no
restrictions on the right of private entities to establish and
own business enterprises and engage in all forms of remunerative
activity.

A.7 PROTECTION OF PROPERTY RIGHTS
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The concept of a mortgage has just been introduced - but only for
select Dubai-based five-star property developments. Mortgages
are generally unavailable beyond these limited exceptions. Title
to all land in Abu Dhabi, the largest emirate, resides in the
ruler. Most construction, commercial and residential, is
financed by a specialized agency of the government of Abu Dhabi,
and commercial banks finance the remainder. Their collateral
traditionally has been access to the rent stream of the building
or the personal guarantee of the developer.

Foreign and national banks have increased their activity in the
mortgage market, expanding their services to foreigners as well
as nationals due to the recent boom in freehold property.
Foreign banks have entered the market on a smaller scale; the
local Mashreq Bank and Dubai Islamic Bank are most heavily
involved in new mortgage business, with banks such as Standard
Chartered and HSBC providing mortgages on a case-by-case basis to
established customers.

The UAE Government continues to lead the region in protecting
intellectual property rights (IPR). Anecdotal and statistical
evidence confirms that the UAEG is enforcing copyright,
trademark, and patent laws passed in 2002 to protect U.S.
intellectual property, and continues to demonstrate its
commitment to the 2002 agreement providing TRIPS-plus levels of
protection to U.S. pharmaceuticals.

The copyright law, enacted in July 2002, grants protections to
authors of creative works and expands the categories of protected
works to include computer programs, software, databases, and
other digital works. Efforts to combat computer software piracy
in the UAE have been successful. According to 2003 industry
estimates, the rate of software piracy in the UAE is the lowest
in the Middle East. The UAE is recognized as the regional leader
in fighting computer software piracy.

The UAE's Trademark Law, also issued in July 2002, confirms that
the UAE will follow the International Classification System and
that one trademark can be registered in a number of classes. The
new law provides that the owner of the registration shall enjoy
exclusive rights to the use of the trademark as registered and
can prevent others from using an identical or similar mark on
similar, identical or related products and services if it causes
confusion among consumers.

In 2004, the UAEG sought to amend and expand the scope of
landmark copyright, trademark, and patent laws issued in 2002.
Most notably, in 2004, the UAE Ministry of Information issued
regulations under the 2002 Copyright Law allowing for specialized
collecting societies. These societies are a practical way for
sound recording companies to collect royalties on the broadcast
and performance of copyrighted material. The UAEG also is
considering legislation for data protection, privacy, and other
IP-related issues. In response to TIFA Council discussions, the
UAE identified points of contact for rights holders to address
complaints. The UAE also resolved a number of IPR complaints
with U.S. pharmaceutical manufacturers in 2004.


A.8 TRANSPARENCY OF THE REGULATORY SYSTEM
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The fundamental instrument by which all of the emirates regulate
business activity is the requirement that any place of business
must acquire and maintain a proper license. The procedures for
obtaining a license vary from emirate to emirate, but are
straightforward and publicly available.

A license is not required unless a place of business is set up in
the UAE. In other words, foreign businesses exporting to the UAE
but without a regular or continuing business presence in the UAE
do not need a license. Licenses available include trade
licenses, industrial licenses, service licenses, professional
licenses, and construction licenses.

Several federal regulations govern business activities in the UAE
outside free trade zones. Activities within the free zones are
governed by special bylaws.

A.9 EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
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The UAE federal commercial code, promulgated in 1993, devotes an
entire chapter to bankruptcy - the first comprehensive
legislation in the UAE on the subject. Monetary judgments in
bankruptcy cases are made in the local currency, and UAE courts
enforce the judgments of foreign courts if there is reciprocity
based on bilateral or international treaties. In the judgment of
western legal experts, the commercial code chapter on bankruptcy
governs the procedures and effects of bankruptcy in the UAE, but
does not provide a mechanism for the orderly evaluation and
distribution of assets of a bankrupt entity.
Credit is allocated on market terms. There are 21 UAE-owned
banks with 344 branches in the UAE and abroad, 26 foreign banks
with 109 branches, one restricted license bank, two investment
banks, and 49 representative offices. Following a banking crisis
caused by accumulating bad debts after the oil boom in the mid-
1980s, the Central Bank stopped giving licenses to new foreign
banks. However, in September 2003, the UAE Central Bank
announced that it would allow the operation of more banks from
other countries on a reciprocal basis. The Central Bank is also
considering allowing foreign banks operating in the UAE to set up
new branches provided that they undertake to employ UAE
nationals.

Citibank is the only U.S. bank in the UAE that offers full
banking services. Bank of America has a representative office in
Dubai, while Bank of New York has one in Abu Dhabi. The largest
banks in terms of assets include the National Bank of Abu Dhabi,
National Bank of Dubai, Emirates Bank International, Mashreqbank,
and Abu Dhabi Commercial Bank.

The Central Bank prohibits lending to an amount greater than 7
percent of a bank's capital base to any single customer. Foreign
banks with branches in the UAE are not permitted to calculate
loans as a percentage of their global capital, which may however
be used to calculate in the capital adequacy ratio. In a
revision to the rule, the Central Bank in 1993 said it would
exclude from the requirement non-funded exposures, such as
letters of credit and guarantees. The Central Bank also
announced implementation of internationally recognized and
accepted accounting principles.

The UAEG implemented a body of anti-money laundering legislation
at the end of 2001, which included stringent reporting
requirements for wire transfers exceeding $545 and currency
importation reporting requirements of amounts exceeding
approximately $10,800. The law imposes stiff criminal penalties
(jail time and fines) for money laundering and also provides safe
harbor provisions for those who report such crimes. Banks and
other financial institutions are required to follow strict "know
your customer" guidelines; all financial transactions more than
$54,000, regardless of their nature, must be reported to the UAE
Central Bank. Banks and other financial institutions supervised
by the Central Bank (exchange houses, investment companies, and
brokerages) are required to maintain records on all transactions
for at least five years.

In 2004, the UAE strengthened its legal authority to combat
terrorism and terrorist financing by passing Federal Law Number 1
of 2004 on Combating Terror Crimes on July 29, 2004. (Law No.
1/2004). Law No. 1/2004 specifically criminalizes the funding of
terrorist activities or terrorist organizations. Law No. 1/2004
provides for asset seizure and confiscation.

The UAE Central Bank established the Anti-Money Laundering and
Suspicious Cases Unit (AMLSCU) in 1998 to perform the functions
of a financial intelligence unit (FIU). The AMLSCU jointed the
prestigious Egmont Group of FIUs - the first Arab country to do
so - at the Group's June 2002 conference in Monaco. This
membership was the basis of a number of Memoranda of
Understanding the AMLSCU signed with other countries' FIUs in
2002 to facilitate information sharing and case processing. The
AMLSCU participated in seminars, consultative meetings, and
training with Washington-based agencies in 2002, including the
Department of Treasury's FinCEN. Banks, customs officials, and
other relevant personnel are required to file suspicious
transaction reports with the unit.

Local banks finance most non-oil investment in the UAE. Even so,
banks lack sufficient lending opportunities in the UAE, and
consequently place most of their funds in overseas markets. Most
of the manufacturing sector operates with higher levels of debt
than prescribed by the 60:40 debt-to-equity ratio - generally the
norm for this sector. Some three-fourths of gross fixed capital
formation in manufacturing is directly or indirectly financed by
the banking system.
Abu Dhabi and Dubai each have a stock exchange. 22 out of 53
stocks on the UAE stock market are open to foreign investment.
Ministry of Economy and Planning rules allow foreign investment
up to 49% in companies on the stock market, however, company by-
laws in many cases prohibit or limit foreign ownership.
A.10 POLITICAL VIOLENCE
--------------
There have been no instances in recent memory involving
politically motivated damage to projects, or insurgencies that
have impacted the investment environment.

A.11 CORRUPTION
--------------

There is no evidence that corruption of public officials is a
systemic problem; however, the former head of Dubai Customs and
Port Authority - along with five other customs officials - was
tried, convicted, and sentenced in April 2001 to 27 years in
prison on charges of corruption and embezzlement. He was
pardoned four months later by the Dubai government and released.

American firms are bound by the Foreign Corrupt Practices Act - a
copy of which may be obtained from the Commercial Section of the
U.S. Embassy. The UAE is not a signatory to the UN
Anticorruption Convention.

A.11.b BILATERAL INVESTMENT AGREEMENTS
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On March 15, 2004, the United States signed a Trade and
Investment Framework Agreement (TIFA) with the United Arab
Emirates to provide a formal framework for dialogue on economic
reform and trade liberalization. TIFAs promote the establishment
of legal protection for investors, improvements in intellectual
property right protection, more transparent and efficient customs
procedures, and greater transparency in government and commercial
regulations. Through this process, the United States Government
(USG) can identify potential partners for further trade
cooperation, such as free trade agreements (FTA).

A key element of the TIFA agreement is the establishment of a
U.S.-UAE TIFA Council which provides an opportunity for the U.S.
and the UAE to learn more about each other's trade and economic
policies. It also provides a forum for discussions of ways to
increase bilateral trade and bolster the UAE's current economic
reform efforts. The U.S.-UAE TIFA Council met in April and
October 2004 in Washington, during which both sides asked
detailed questions about each other's IPR levels of protection,
standards, market access, customs valuation, government
procurement, services and investment, labor, and environment.

The United States announced the intent to begin FTA negotiations
with the UAE on November 15, 2004, beginning a 90-day
Congressional notification period.

A.11.c OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS
-------------- --------------
The UAE has been suspended from U.S. OPIC insurance programs
since 1995 because of the UAEG's lack of compliance with
internationally recognized worker rights standards - particularly
laborers' rights to association and collective bargaining. The
ILO reported in April 2003, however, that the UAE had started to
address these concerns. The UAE is in the process of drafting a
labor law in consultation with the ILO that permits the creation
of formal labor associations/unions.

Workers currently address grievances and negotiate disputes of
matters of interest with employers through formal and informal
mechanisms, including strikes - even though the law does not
technically sanction them. The UAEG does allow workers to
associate freely for the advancement of common goals and
interests.

The UAEG prohibits strikes by those employed in the public sector
on the grounds of national security considerations. There is
continuous coverage in the local press, however, of private
sector employees striking in protest of non-payment of wages.
Throughout 2004, Ministry of Labor officials investigated and
mediated such disputes - often to the benefit of the striking
workers - and negotiated quick settlements.

A.11.d LABOR
--------------
Population in the UAE is approximately 4 million, according to
2003 data estimates. More than 80 percent of residents are
foreigners, and approximately 98 percent of private sector
workers in the UAE are non-UAE nationals. Emiratization of the
UAE workforce remains a national objective, although mandated
hiring of nationals has been limited to only a few sectors, such
as banking.
The Right to Organize and Bargain Collectively

The law does not specifically grant - but does not prohibit -
workers the right to engage in collective bargaining. It does,
however, expressly authorize collective work dispute resolution.
There were a number of organized gatherings of workers that
complained of unpaid wages before the Ministry of Labor and
Social Affairs in 2003. Professional associations may raise work-
related concerns, to lobby the UAEG for redress, or to file a
grievance with the Government. For the resolution of work-
related disputes, workers rely on conciliation committees
organized by the Ministry of Labor and Social Affairs or on
special labor courts.

Labor laws do not cover, and therefore do not protect, government
employees, domestic servants, and agricultural workers. The
latter two groups face considerable difficulty in negotiating
employment contracts because the mandatory requirements contained
in the labor law do not apply. They also face considerable
difficulty in obtaining assistance to resolve disputes with their
employers. UAE employers generally tie an employee's residency
or visa to his employment and sponsorship. If the employee
terminates his employment and is unable to secure new employment
and a new sponsor, the employee loses residency and could be
required to leave the country.

The UAE Government has committed itself to strictly regulating
and enforcing labor laws, as witnessed by a recent series of
legislation and proposals. In June 2004, the UAE's Cabinet of
Ministers approved a memo calling for the establishment of labor
unions and associations in the UAE. The UAEG instructed a
ministerial committee to draft a federal law creating unions; the
committee will then have six months to submit the draft law for
approval. This new Labor Law will allow for the creation of
labor unions to ensure laborers' rights to organize and bargain
collectively. Unlike the current Labor Law, which only covers
private sector employees, the new federal law covering unions
will include employees from both the public and private sectors.
The exact role unions will play and membership conditions remain
unclear. Under the new law, trade unions would be limited to UAE
citizens, while expatriate workers would be represented through
special committees.

Businesses in free trade zones must comply with federal labor
laws; however, the Ministry of Labor does not regulate them.
Instead, each free trade zone maintains its own labor department
to address workers' concerns.

Prohibition of Forced or Bonded Labor

Forced or bonded labor is illegal in the UAE. However, some
employment agents bring foreign workers to the country under
conditions approaching indenture. Some women reportedly are
brought to the country for service sector employment and later
forced into prostitution. The Government prohibits forced and
bonded child labor and generally enforces this prohibition
effectively.

Starting October 1, 2004, the UAE Ministry of Labor began
requiring employers to submit job offers stating the salary and
job title of their prospective employees at the same time
employers submit visa applications. The former practice was for
employers to provide employment details on the visa applications
only. This mandate is intended to make employers more
accountable when applying for work visas on behalf of their
employees and aims to protect the rights of workers, who are
sometimes misled by their employers.


Status of Child Labor Practices and Minimum Age for Employment

The labor law prohibits employment of persons under the age of 15
and has special provisions for employing those 15 to 18 years of
age. The Federal Ministry of Labor and Social Affairs is
responsible for enforcing the regulations. Other regulations
permit employers to employ only adult foreign workers. The UAEG
does not issue work permits for foreign workers under the age of
18 years.
In September 2002, the UAEG passed a decree banning the use of
foreign child camel jockeys and included criminal penalties for
violators up to and including imprisonment. The ban prohibits
the use of camel jockeys less than 15 years of age and under 45
kilos. Enforcement has not been consistent.
Acceptable Conditions of Work

There are a considerable number of skilled foreign nationals in
the country who are employed under favorable working conditions.
However, the country is also a destination for a large number of
unskilled workers, including more than 200,000 domestic servants,
most of them women from South and East Asia, and an even larger
number of unskilled male workers, mostly from South Asia. These
unskilled laborers actively compete for jobs in the UAE, and some
are subject to poor working conditions.

The standard workday is eight hours per day; the standard
workweek is six days per week; however, these standards are not
enforced strictly. Certain types of workers, notably domestic
servants, are required to work longer than the mandated standard.
The law also provides for a minimum of 24 days per year of annual
leave plus 10 national and religious holidays. There is no
legislated or administrative minimum wage; rather, supply and
demand determine compensation. Compensation packages generally
provide housing or housing allowances. In addition, other
benefits, such as homeward passage or health cards for minimal to
no-cost health care, are often provided to employees by their
employers. The Labor and Social Affairs Ministry reviews labor
contracts and does not approve any contract that stipulates a
clearly unacceptable wage.

The Ministries of Health and of Labor and Social Affairs,
municipalities, and civil defense enforce health and safety
standards, and the Government requires every large industrial
concern to employ a certified occupational safety officer.
Contrary to popular belief, there is no law in the country that
prohibits labor outdoors when the temperate exceeds 50 degrees
Celsius. The law does require, however, that employers provide
employees with a safe work environment.

A.11.e FOREIGN TRADE ZONES/FREE PORTS
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The UAE Free Zones today are home to approximately 5,000
companies with a total investment estimated at more than $4
billion. Presently, 16 free trade zones operate in the UAE, and
more are in the developmental stage. Overall, these free zones
form a vital component of the local economy, and serve as major
re-export centers to the Gulf region.

Since UAE tariffs are low and not levied against many imports,
the chief attraction of the free zones is the waiver of the
requirement for majority local ownership. In the free zones,
foreigners may own up to 100 percent of the equity in an
enterprise. All free zones provide 100 percent import and export
tax exemption, 100 percent exemption from commercial levies, 100
percent repatriation of capital and profits, multi-year leases,
easy access to sea and airports, buildings for lease, energy
connections (often at subsidized prices),and assistance in labor
recruitment. In addition, the free zone authorities provide
significant support services, such as sponsorship, worker
housing, dining facilities, recruitment, and security.

By far the largest and most successful of the free zones is the
Jebel Ali Free Zone (JAFZ) in Dubai, located 20 km south of Dubai
city adjacent to the Jebel Ali Port. Over 2,200 companies
representing 80 countries have set up shop in the JAFZ, including
numerous Fortune 500 firms.

The JAFZ managing authority authorizes three types of licenses -
a general license, a specific license, and a national industrial
license. The licenses are valid while a company holds a current
lease from the free zone authority and are renewable annually as
long as the lease is in force. The special license is issued to
companies incorporated, or otherwise legally established, within
the free zone or outside the UAE. In such cases, no other
license is required, and the ownership of the company may be 100
percent foreign. The license is issued for any activity
permitted by the free zone authority, including manufacturing. A
company with a special license can operate only in the JAFZ or
outside the UAE, but business can be undertaken and sales made in
the UAE through or to a company holding a valid Dubai Economic
Department license. A company with a special license, however,
can itself purchase goods or services from within the UAE.
A variety of innovative free zones in Dubai have been established
since 2000, most notably the TECOM (Technology, Electronic
Commerce and Media) free zone. TECOM houses both Internet City
and Media City, two subdivisions which cater, respectively, to
the IT and media sectors. TECOM offers a high bandwidth, and
state-of-the-art IT infrastructure. Current tenants of TECOM
include prominent names such as Oracle, Reuters, CNN, Hewlett
Packard and Microsoft. Other Dubai free zones planned include
Health Care City, specializing in medical products and services,
and the Mohammed Bin Rashid Technology Park, which aims to
promote scientific research and development, and to transfer
technology throughout the region.

A.11.f FOREIGN DIRECT INVESTMENT STATISTICS
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The United Nations Conferences on Trade and Development (UNCTAD)
reports that inward FDI flow for the UAE was $480 million in
2003, down from $834 million in 2002. Official UAE government
statistics on FDI flows are not available, but observers believe
that foreign investment is an increasingly important source of
finance.

The Abu Dhabi Chamber of Commerce and Industry notes that the
leading sectors for investment in the UAE in 2002 were (in order
of magnitude of investment): oil and gas-field machinery and
services, power and water, computer/peripherals, medical
equipment and supplies, airport development and ground equipment,
telecommunications, and franchising.

There are no restrictions or incentives with regard to the export
of capital and outward direct investment, and UAE investment
abroad is significant. It is conservatively estimated that the
Abu Dhabi Investment Authority (ADIA) manages an approximate USD
$250 billion in government assets in overseas markets - mostly in
the United States, Europe, and Asia.

End text.


SISON