UAE: INVESTMENT CLIMATE STATEMENT 2006

UNCLAS SECTION 01 OF 11 ABU DHABI 000135

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SUBJECT: UAE: INVESTMENT CLIMATE STATEMENT 2006

A.1 Openness to Foreign Investment
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The U.S. and UAE began negotiating a Free Trade Agreement in
March 2005 and completed the third round of negotiations in
November 2005. The UAE is also negotiating an FTA with
Australia and is considering ones with Singapore and Japan.
Furthermore, the UAE is involved in GCC negotiations with
the European Union for a free trade agreement.

As a result, 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, although these sectors are
beginning to open up.

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. 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. Dubai
imposes a rental tax on expatriates equaling five percent of
the rental charges. The UAE has said that it is considering
passing a VAT averaging 7-12% on the federal level and has
asked for assistance from the IMF.

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 or the U.S. In
2005, the Emirate of Abu Dhabi announced that it would also
allow "lease hold" real estate ownership for non-UAE
nationals in certain designated areas, although this law has
still not been published in the Abu Dhabi Gazette. As of
the end of 2005, Abu Dhabi had not yet designated any areas
for investment.

Perhaps the most important impediment to Dubai's "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. In 2005, the UAE President issued Law No. 19
dealing with real estate ownership in Abu Dhabi, which
includes limited foreign ownership of property. The law
states that non-UAE nationals shall have the right to own
surface property, but not the land itself in investment
areas. Foreigners shall have the right to arrange all their
surface properties and to derive benefits from them based on
a 50-year surface ownership agreement that can be renewed
for the same period subject to the agreement of the two
parties. The law grants mortgage rights to anyone with the
right to benefit from the property for a period of more than
ten years, even without the permission of the owner.
However, the owner of the property shall not mortgage it
unless he gets approval from the person who has the right of
benefit of the property.

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 2.7 and 3.0 MB/D by 2006 and 2010, respectively. In
addition, the UAE plans to add new oil refining capacity in
Abu Dhabi and to build a new refinery in Fujairah. 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. The Supreme Petroleum Council in
2005 selected Exxon-Mobil for final negotiations for the
share of the field. 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.

In 2004, the UAE enacted legislation to end the monopoly of
Etisalat (the official UAE telecommunications company). In
May 2005, the UAE approved the establishment of one new
telecom company to compete with Etisalat. The UAE gave a
$1.1 billion license to Emirates Integrated
Telecommunication Company (EITC). EITC is expected to start
operations in the summer of 2006 and will offer the full
range of telephone services throughout the UAE (mobile,
fixed line, internet, etc.) The UAE government owns 50 % of
the new company, while Mubadala Development Company and
Emirates Communication and Technology LLC each own 25% of
the new company. The owners of the company are expected to
reduce their total shares by allowing 20% of the company's
capital to be offered to the public through an IPO.

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.

In November 2004, the UAE announced its intent to open up
the insurance sector to new foreign insurance companies.
Any new companies entering the market are required to meet
high level international rating criteria and must complete a
viability study to prove that it will be offering new
products to the market. About half of the insurance
companies in the UAE are foreign, but new entries were
frozen since 1999. Currently, there is only one American
subsidiary insurance company operating in the UAE.

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. Every bank transaction in US dollars is
subject to a 1% fee.

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.

Companies interested in developing large projects in Dubai
are routinely required to have investors lined up to finance
the project prior to its being awarded to them, and may be
required to furnish detailed information about those
investors to assure the Dubai emirate government that
funding is indeed locked in. Companies wishing to be
awarded a project that they can subsequently go out and
"sell" to investors, have been frustrated to find that this
is not the standard procedure in Dubai.

The UAE constitution established a federal court system
while acknowledging the right of the individual emirates to
opt out, which Dubai and Ras al-Khaimah both have. However,
some issues must be heard in the Federal court system such
as security matters, conflicts between the emirates,
constitutionality of a federal law, trial of ministers and
senior officials and jurisdictional issues. There is no
independent judiciary in the UAE. The Ministry of Justice
appoints the judges, the majority of which are non-Emirati.
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 applicable to both Muslims and
non-Muslims and is applicable in all kinds of cases. Courts
will interpret statutory law and Sharia law 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. 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.
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 mutual agreement
between the two parties. 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. 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. In 2005, the Emirate of Abu Dhabi passed a law
(which had not come into effect as of the end of 2005)
allowing Emiratis to hold title on properties in the Emirate
and opened up some foreign "leasehold" rights to surface
property in certain designated areas. . 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. In 2005, the UAE launched several campaigns
against piracy and seized thousands of pirated movies and
music discs.


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 375 branches in the UAE and abroad, 25 foreign
banks with 87 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. These
new branches will allow foreign banks to provide a wider
range of banking services. In October 2005, the Central
Bank said that national banks conditionally agreed to have
new foreign bank branches open in the country.

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 2005, including the Department
of Treasury's Financial Crimes Enforcement Network(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. 24 out of
50 stocks on the Abu Dhabi stock exchange and 18 out of 33
stocks on the Dubai stock exchange 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
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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. In December 2005, Federal
Law No. 34 for 2005 was issued which amended a range of
articles in the Penal Code. The law stipulates that a
public servant convicted of embezzlement shall be subject to
imprisonment for a minimum of five years if the crime is
connected to counterfeiting. Article 237 imposes a minimum
term of one year for accepting a bribe, while anyone
convicted of attempting to bribe a public servant may be
imprisoned for up to five years.

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. In August 2005, the UAE signed
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).

The United States began negotiating a Free Trade Agreement
with the UAE in March 2005. It held the second round in May
and the third round in November 2005.

A.11.c OPIC and other Investment Insurance Programs
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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 2005, 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
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Population in the UAE is approximately 4.5 million,
according to 2005 data estimates. In December 2005, the UAE
began a door-to-door census. Results of the census will
include both the foreign and local population in the UAE.
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, which has a 4% quota, insurance, which has
a 5% quota and trade, which has a 2% quota for companies
employing 50 workers or more as well as quotas in the
federal government. 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 UAE is currently revising its labor law to allow
for the creation of labor unions and to ensure laborers'
rights to organize and bargain collectively unlike the
current 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 will likely 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 July 2005, the UAEG passed a decree banning the use of
child camel jockeys and included criminal penalties for
violators up to and including imprisonment. The ban
prohibits the use of camel jockeys less than 18 years of
age.

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. The UAE issued regulations in summer 2005,
that laborers could not be required to work between noon and
four pm over during the summer and penalized companies that
did not comply.

A.11.e Foreign Trade Zones/Free Ports
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The UAE Free Zones today are home to more than 5,000
companies with a total investment estimated at more than $4
billion. Presently, 17 free trade zones operate in the UAE,
and 11more 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 5000
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, the Mohammed
Bin Rashid Technology Park, which aims to promote scientific
research and development, and to transfer technology
throughout the region and the Dubai Aid City, which hosts
local, regional and international relief aid donors,
suppliers and organizations.

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 $840
million in 2004. Total U.S. foreign direct investment in the
UAE was $2.3 billion in 2004. Official UAE government
statistics on FDI flows are not available, but observers
believe that foreign investment is an increasingly important
source of finance. In November 2005, the UAE announced the
creation of a program to collect FDI information from each
emirate in order to present a conclusive FDI picture for the
UAE as a whole.

The Abu Dhabi Chamber of Commerce and Industry notes that
the leading sectors for investment in the UAE in 2004 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.

SISON