INVESTMENT CLIMATE STATEMENT 2006 - IRELAND

UNCLAS SECTION 01 OF 14 DUBLIN 000060

SIPDIS

SIPDIS

STATE FOR EB/IFD/OIA

E.O. 12958: N/A
TAGS: EINV EFIN USTR ECON KTDB OPIC EI
SUBJECT: INVESTMENT CLIMATE STATEMENT 2006 - IRELAND

REF: 05 STATE 202943

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The following is keyed to reftel.

A1. OPENNESS TO FOREIGN INVESTMENT
--------------

IRISH GOVERNMENT'S ATTITUDE TOWARDS FOREIGN INVESTMENT


1. Over the past twenty years, the Irish Government has
actively promoted foreign direct investment (FDI),a strategy
that has underpinned unprecedented economic growth during
this "Celtic Tiger" period. FDI flows into Ireland increased
from an annual average of USD 140 million in the mid-1980s to
USD 2.7 billion per year in the second half of the 1990s,
yielding a total FDI stock of USD 213 billion by 2004.
Traditionally, the principal goal of investment promotion has
been employment creation, especially in technology-intensive
and high-skill industries. In recent years, the Irish
Government has also supported efforts by foreign-invested
companies to sustain their international competitiveness
through R&D enhancements and the marketing/sales of
higher-value goods and services.


2. The Irish Government's actions have had considerable
success in attracting U.S. foreign investment. According to
the U.S. Department of Commerce, U.S. investment flow into
Ireland in 2004 was USD 10.4 billion, roughly one-tenth the
U.S. total for the EU. Ireland received USD 3.4 billion in
U.S. manufacturing investment flow in 2004 and was the third
most attractive market in the world for this category of U.S.
investment behind the United Kingdom (USD 13.2 billion) and
Canada (USD 5.5 billion). The stock of U.S. investment in
Ireland in 2004 was valued at USD 73 billion, roughly five
times the amount of U.S. investment stock in China (USD 15.4
billion). There are roughly 620 U.S. firms in Ireland,
directly employing over 90,000 workers and supporting work
for approximately 250,000, an eighth of the total labor
force. U.S. firms operate primarily in the following
sectors: chemicals; bio-pharmaceuticals and healthcare;
computer hardware and software; electronics; and, financial
services. In 2005, Ireland also emerged as a magnet for U.S.
internet/digital media investment, with industry leaders
Yahoo, Google, and Amazon making Dublin the hub of their
respective European operations.


3. The American Chamber of Commerce reports that U.S.
companies are attracted to Ireland as an export platform to
the EU. In 2004, Irish-based U.S. firms exported roughly USD
55 billion worth of goods and services, mostly destined for
the EU market. Other reasons for Ireland's attractiveness as
an FDI destination include: a 12.5 percent rate of corporate
tax; the quality and flexibility of the English-speaking work
force; cooperative labor relations; political stability;
pro-business government policies; a transparent judicial
system; and, the pulling power of existing companies
operating successfully in Ireland (a "bandwagon" effect).
Factors that negatively affect Ireland's ability to attract
investment include: increasing costs of skilled and unskilled
labor (especially when compared to low-cost countries such as
China and India),inadequate infrastructure (particularly in
the transportation, internet/broadband, and energy sectors),
and absolute price levels that are ranked the highest in
Europe.


4. Four state organizations promote inward investment into
Ireland by foreign companies:

- The Industrial Development Authority of Ireland (IDA
Ireland) has overall responsibility for promoting and
facilitating foreign direct investment in all areas of the
country, except the Shannon Free Zone. IDA Ireland is also
responsible for attracting foreign companies to Dublin's
International Financial Services Center (IFSC). IDA Ireland
maintains offices in New York, Boston, Chicago, San Jose, and
Atlanta, as well as in Europe and Asia;

- Enterprise Ireland promotes joint ventures and strategic
alliances between indigenous and foreign companies;

- Shannon Free Airport Development Co. (SFADCO) handles
investment in the Shannon Free Zone and is generally
responsible for economic development in the Shannon region.
The Irish Government is in the process of folding SFADCO's
functions into IDA Ireland, which will require legislative
action;

- Udaras na Gaeltachta has responsibility for economic

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development in those areas of Ireland where Irish (Gaelic) is
the predominant language, and works with IDA Ireland to
promote overseas investment in these regions.


5. Major Laws/Rules/Taxation Policy

Ireland's judicial system is transparent and upholds the
sanctity of contracts as well as laws affecting foreign
investment. These laws include:

- The Industrial Development Act of 1993, which outlines the
functions of IDA Ireland;

- The Mergers, Takeovers and Monopolies Control Act of 1978,
which sets out rules governing mergers and takeovers by
foreign and domestic companies;

- The Competition (Amendment) Act of 1996, which amends and
extends the Competition Act of 1991 and the Mergers and
Takeovers (Control) Acts of 1978 and 1987, and sets out the
rules governing competitive behavior;

- The Companies Act of 1963, which contains the basic
requirements for incorporation in Ireland (amended in 1990);
and,

- The 2004 Finance Act, which introduced tax incentives to
encourage firms to set up headquarters in Ireland and to
conduct R&D.

In addition, there are numerous laws and regulations
pertaining to employment, social security, environmental
protection and taxation, with many of these determined at the
EU level.


6. One of Ireland's most attractive features as an FDI
destination is the low corporate tax rate. Since January 1,
2003, the corporate tax rate for both foreign and domestic
firms has been 12.5 percent. Existing foreign firms will
retain their entitlement to the "old" 10 percent rate until
2010 in the case of manufacturing and certain internationally
traded services. Ireland's corporate tax rate is among the
lowest in the EU, and the Irish Government continues to
oppose proposals to harmonize taxes at a single EU rate. In
2004, U.S. firms in Ireland paid euro 2.7 billion in tax to
the Irish Government.


7. All firms incorporated in Ireland are treated on an equal
basis. With only a few exceptions, there are no constraints
preventing foreign individuals or entities from ownership or
participation in private firms/corporations. The most
significant of these exceptions is that, as with other EU
countries, Irish airlines must be at least 50 percent-owned
by EU residents in order to have full access to the single
European aviation market. There are also requirements
related to the purchase of agricultural lands (see below).


8. While Ireland does not have a formal privatization
program, there is likely to be at least partial privatization
of some state-owned companies over the coming years. In
2005, for example, the Government announced its intention to
privatize Aer Lingus, the state-owned national airline.
There are no barriers to participation by foreign
institutions in the sale of Irish state-owned companies.
Residents of Ireland, however, may be given priority in share
allocations to retail investors, as was the case with the
state-owned telecommunications company, Eircom, privatized in

1998.


9. Citizens of countries other than Ireland and other EU
member states can acquire land for private residential
purposes and for industrial purposes. Under Section 45 of
the Land Act, 1965, all non-EU nationals must obtain the
written consent of the Land Commission before acquiring an
interest in agricultural land, though there are many stud
farms and racing facilities in Ireland that are owned by
foreign nationals. There are no restrictions on the
acquisition of urban land.


10. There is no formal screening process for foreign
investment in Ireland, though investors looking to receive
Government grants or assistance through one of the four state
agencies responsible for promoting foreign investment in
Ireland are often required to meet certain employment and
investment criteria (see section "D" below). These screening
mechanisms are transparent and do not impede investment,
limit competition, or protect domestic interests. Potential
investors are also required to examine the environmental

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impact of the proposed project and to meet with Irish
Environmental Protection Agency (EPA) officials.


A.2. Conversion and Transfer Policies
--------------


11. Ireland enjoys full current and capital account
liberalization. There are no restrictions or reported
significant delays in the conversion or repatriation of
investment capital, earnings, interest, or royalties, nor are
there any plans to change remittance policies. Likewise,
there are no limitations on the import of capital into
Ireland. Foreign exchange is easily obtainable at market
rates. In 2004, the Irish Financial Services Regulatory
Authority (IFSRA) reported that the Allied Irish Bank (AIB)
had knowingly overcharged on foreign exchange transactions
for several years. AIB repaid the overcharged amount and
conducted an internal disciplinary process. The euro is
Ireland's national currency.


A.3. Expropriation and Compensation
--------------


12. Private property is normally expropriated only for
public purposes in a non-discriminatory manner and in
accordance with established principles of international law.
State condemnations of private property are carried out in
accordance with recognized principles of due process. Where
there are disputes between owners of private property subject
to a government taking, the Irish courts provide a system of
judicial review and appeal.


13. In 2005, the only reported case of expropriatory action
involving the property/facilities of U.S. investors was that
of the Lusitania, the ship that was sunk off Ireland's
southern coast in 1915 by a German submarine and which is
owned by a U.S. citizen. The U.S. owner has attempted for
ten years to secure his right of access to the vessel and in
2001 brought action against the Government in the Irish
courts after his applications for a license to dive to the
vessel were denied. In 2005, a High Court ruling in the case
noted that "the State simply cannot directly or indirectly
expropriate this property from (the owner),or totally, or
even substantially deny him access to or the use of his
property or any part or parts of his property, even under
color of merely regulating that access or use for the purpose
of safeguarding a national asset, without paying appropriate
compensation." The Irish Government has appealed the ruling,
as the two sides continue to discuss a possible license for
an exploratory dive.

A.4. Dispute Settlement
--------------


14. Ireland has no specific domestic laws governing
investment disputes with foreign firms. There is, however, a
legal arbitration framework available to parties that opt to
arbitrate a dispute, including investment disputes, rather
than litigate the case. Currently, there are no disputes
involving investments by U.S. firms either in arbitration or
litigation. In recent years, however, U.S. business
representatives have occasionally called into question the
transparency of government tenders, some of which have been
won by U.S. companies. Some U.S. firms claim that lengthy
budgetary decisions delay procurements and that unsuccessful
bidders often have difficulty receiving information on the
rationale behind the tender outcome. Successful bidders
have experienced delays in finalizing contracts, commencing
work on major projects, obtaining accurate project data, and
receiving compensation for work completed, including through
conciliation and arbitration processes. Successful bidders
have also subsequently found that the original tenders do not
accurately describe conditions on the ground.


15. The Irish legal system is based on common law,
legislation and the constitution. The Companies Act 1963
(amended 1990) is the most important body of law dealing with
commercial and bankruptcy law and is applied consistently by
the courts. Irish bankruptcy laws give creditors a strong
degree of protection. The Department of Enterprise, Trade
and Employment is the state agency with primary
responsibility for drafting and enforcing company law. The
judiciary is independent, and litigants are entitled to trial
by jury in commercial disputes. Ireland is a member of the
International Center for the Settlement of Investment
Disputes, and the Irish Government has been willing to agree

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to binding international arbitration of investment disputes
between foreign investors and the state. Ireland is also a
party to the New York Convention of 1958 on the Recognition
and Enforcement of Foreign Arbitral Awards. There is no
specific domestic body for handling investment disputes.


A.5. Performance Requirements/Incentives
--------------


16. The Irish Government does not maintain any measures that
it has notified the WTO to be inconsistent with Trade-Related
Investment Measures (TRIMs) requirements. Moreover, there
have been no allegations that the Government maintains
measures that violate the WTO's TRIMs text.


17. Three Irish organizations, SFADCO, IDA Ireland, and
Udaras, have regulatory authority for administering grant aid
to investors for capital equipment, land, buildings,
training, R&D, etc. Business enterprises in Ireland,
including overseas companies, which seek grant aid from these
organizations must submit investment proposals. Typically,
these proposals include information on fixed assets
(capital),labor, and technology/R&D components and establish
targets using criteria such as sales, profitability, exports,
and employment. This information is treated in confidence by
the organizations, and each investment proposal is subject to
an economic appraisal prior to approval for support. In
2004, IDA Ireland paid out euro 66 million in grants to
foreign firms.


18. Performance requirements are generally based on
employment creation targets established between the state
investment agencies and foreign investors. Grant aid is paid
out only after externally audited performance targets have
been attained. Generally, parent companies must guarantee
repayment of the government grant if the company closes
before an agreed period of time elapses, normally ten years
after the grant has been paid. Grant agreements generally
have a term of five years after the date on which the last
grant is paid. There are no requirements that foreign
investors purchase from local sources or allow nationals to
own shares.


19. As a result of "Agenda 2000" EU budgetary reforms,
since 2000 Ireland has been treated as two regions for the
purpose of EU structural funding and maximum "regional aid."
Under the new rules, maximum grant aid assistance (40 percent
of capital investment) is only available to companies
locating in the 13 "Objective 1" border, midland and western
(BMW) counties of Ireland, where infrastructure is less
developed. Companies locating in the remaining 15 counties
in the more prosperous south and east are entitled to
restricted grant aid up to a maximum of 17.5 percent to 20
percent of their capital investment, depending on location.
For the period 2004-2006, the following ceilings apply:

Transition Regions Percent of Capital Investment

-- Southeast 20

-- Mid-West 20

-- Southwest 20

-- Mid-East 18

-- Dublin 17.5

Objective 1 Region

-- Border, Midlands, West 40

The current Regional Aid Guidelines (RAGs) will cease to
operate at the end of 2006, and the EU Commission is now
developing new RAGs for the period 2007-2013. It is expected
that these new rates will be lower than the current rates.


20. While investors are free, subject to planning
considerations, to choose the location of their investment,
IDA Ireland has since the late 1990s differentiated grant aid
levels in favor of regions outside Dublin. This linkage is
consistent with the National Spatial Strategy, which was
adopted in 2001 with the aim of spreading investment more
evenly around the country. One of the strategy's stated
goals was to direct 50 percent of all new jobs related to
greenfield investment to the border, midlands, and western
(BMW) counties of Ireland, where the economy is less

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developed. In 1999, roughly 25 percent of jobs related to
greenfield investment were located in the BMW region; by
2004, this figure had grown to 41 percent. In 2005, 46 of 71
new investment projects negotiated by the IDA were slated for
areas outside Dublin. To encourage client firms to locate
outside Dublin, IDA Ireland has developed "magnets of
attraction," including: a Cross Border Business Park linking
Letterkenny and Derry, a regional Data Center in Limerick,
and the National Microelectronics Research Center in Cork.



21. There are no restrictions, de jure or de facto, on
participation by foreign firms in government-financed and/or
subsidized R&D programs on a national basis. In fact, the
government encourages multinational companies to undertake
more R&D in Ireland. Science Foundation Ireland (SFI),the
state science agency, is responsible for administering a euro
365 million R&D fund under the 2000-2006 National Development
Plan. The fund targets leading researchers in Ireland and
overseas to promote within Ireland the development of
biotechnology and information/communications technology, as
well as complementary worker skills. Under the 2004 Finance
Act, moreover, a credit of 20 percent of the incremental
expenditure on revenue items, royalties, plant, and machinery
related to R&D can be offset against a company's corporation
tax liability in the year in which it is incurred. The 2006
Irish Government budget also allocates euro 300 million to a
new Strategic Innovation Fund, that will encompass R&D links
between industry and academia. In 2005, Microsoft, Lucent,
Xilinx, Bristol-Meyers Squibb, Pfizer, and Genzyme, among
other firms, launched investments in R&D projects and
facilities.


22. Visa, residence, and work permit procedures for foreign
investors are non-discriminatory and, for U.S. investors,
generally liberal. There are no restrictions on the numbers
and duration of employment of foreign managers brought in to
supervise foreign investment projects, though their work
permits must be renewed yearly. There are no discriminatory
export policies or import policies affecting foreign
investors.

A.6. Right to Private Ownership and Establishment
-------------- --------------


23. The most common form of business organization in Ireland
is the incorporated company, limited by shares, registered
under the Companies Act, 1963, or previous legislation.
Irish law does not prevent foreign corporations from carrying
on business in Ireland. Any company incorporated abroad that
establishes a branch must, however, file certain papers with
the Registrar of Companies. A foreign corporation with a
branch in Ireland will have the same standing in Irish law
for purposes of contracts, etc., as a company incorporated in
Ireland. Private businesses are not at a competitive
disadvantage to public enterprises with respect to access to
markets, credit, and other business operations.


24. Before 1999, Irish company law differed from
international norms by allowing, for tax purposes, the
registration of companies in Ireland that were not actually
resident in Ireland (so-called Irish Registered Non-Resident
companies (IRNRs)). In response to concern that a large
number of the estimated 40,000 IRNRs were engaged in fraud,
tax evasion, money laundering, and other illegal activities,
the 1999 Finance Act equated registration in Ireland with tax
residence and liability for all companies except in limited
circumstances. Exceptions include cases where the Irish
company, or a related parent company, is carrying on trade in
Ireland, and the company is ultimately controlled either by
residents of an EU member state or by residents of a country
with which Ireland has a tax treaty (including the United
States). Nonetheless, all Irish-based companies, including
U.S. firms, claiming non-residence in Ireland because of tax
treaty provisions must identify the beneficial owners of the
company.


25. Similarly, the "Companies (Amendment) (No. 2) Act 1999"
requires that every application for company registration in
Ireland show the manner in which the proposed company will
carry out activities in Ireland. Section 43 of the
legislation stipulates that a company must either have a
director resident in the State or provide a bond of euro
25,400 in the event that the company commits an offense under
the Companies Act or tax legislation. Section 44 states that
these requirements may be waived when the Company obtains a
certificate from the Companies Office stating that the
company has a real and continuous link with one or more

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economic activities in Ireland. Like the 1999 Finance Act,
the Companies Act is designed to prevent the use of IRNRs for
exclusively foreign activities without any connection to
Ireland.


A.7. Protection of Property Rights
--------------

(I) Real Property


26. Secured interests in property, both chattel and real
estate, are recognized and enforced. The Department of
Justice administers a reliable system of recording such
security interests through the Land Registry and Registry of
Deeds. An efficient, non-discriminatory legal system is
accessible to foreign investors to protect and facilitate
acquisition and disposition of all property rights.

(II) Intellectual Property Rights


27. Ireland is a member of the World Intellectual Property
Organization and a party to the International Convention for
the Protection of Intellectual Property. In July 2000, Irish
President McAleese signed legislation bringing Irish
intellectual property rights (IPR) law into compliance with
Ireland's obligations under the WTO Trade-Related
Intellectual Property Treaty (TRIPs). The legislation came
into force on January 1, 2001, and gives Ireland one of the
most comprehensive legal frameworks for IPR protection in
Europe.


28. This legislation addressed several TRIPs inconsistencies
in previous Irish IPR law that had concerned foreign
investors, including the absence of a rental right for sound
recordings, the lack of an "anti-bootlegging" provision, and
low criminal penalties that failed to deter piracy. The new
legislation includes provisions for stronger penalties on
both the civil and criminal sides.


29. As part of this comprehensive copyright legislation,
changes were also made to revise the non-TRIPs conforming
sections of Irish patent law. Specifically, the new IPR
legislation addresses two concerns of many foreign investors
in the previous legislation:

- the compulsory licensing provisions of the previous 1992
Patent Law were inconsistent with the "working" requirement
prohibition of TRIPs Articles 27.1 and the general compulsory
licensing provisions of Article 31; and,

- applications processed after December 20, 1991, did not
conform to the non-discrimination requirement of TRIPs
Article 27.1.


30. DVD and CD piracy, however, continues to be a problem.
In 2004, the Irish police seized 130,000 pirated DVDs, valued
at approximately euro 3 million, and 42,150 pirated CDs,
valued at roughly euro 756,000. In a June 2005 raid, police
in County Meath confiscated 8,000 pirated DVDs and machinery
that could produce 600 DVDs an hour. Industry
representatives note that pirated DVDs make up at least 60
percent of the DVD rental market and that light penalties
given to counterfeiters in DVD piracy court cases hamper
police enforcement efforts. Moreover, industry sources
estimate that up to 38 percent of PC software used in Ireland
is pirated. The Business Software Alliance in Ireland
estimates that reducing this rate by ten percentage points
would help the USD 2.6 billion domestic IT industry to grow
to USD 4 billion by 2009.


A.8. Transparency of the Regulatory System
--------------


31. The Irish Government generally employs a transparent and
effective policy framework that fosters competition between
private businesses in a non-discriminatory fashion. While
ongoing Irish judicial "Tribunals" are investigating possible
links between indigenous Irish companies' political donations
in the late 1980s and favorable government decisions, U.S.
businesses can, in general, expect to receive national
treatment in their dealings with the Government. There is no
report of any U.S. firm or investor having being required or
forced to make payments during that period.


32. In recent years, independent bodies have taken over
regulatory powers from Cabinet Departments in key economic

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sectors. The Commission for Communications Regulation and
the Commission for Energy Regulation are responsible for
regulating the communications and energy sectors,
respectively. Both are independent bodies with institutional
links to the Department of Communications, the Marine and
Natural Resources. The Commission for Aviation Regulation is
an independent body that regulates the aviation sector. It
is institutionally linked to the Department of Transport,
which has direct regulatory powers over other segments of the
transportation sector.


33. The Competition (Amendment) Act 1996 amends and extends
the Competition Act 1991, strengthens the enforcement power
of the Competition Authority, introduces criminal liability,
increases corporate liability, and outlines available
defenses. Most tax, labor, environment, health and safety,
and other laws are compatible with European Union
regulations, and they do not adversely affect investment.
Proposed laws and regulations are published in draft form for
public comment, including by foreign firms and their
representative associations. Bureaucratic procedures are
transparent and reasonably efficient, in line with a general
pro-business climate espoused by the Government.

A.9. Efficient Capital Markets and Portfolio Investment
-------------- --------------


34. Capital markets and portfolio investments operate
freely, and there is no discrimination between Irish and
foreign firms. In some instances, development authorities
and banks are able to facilitate loan packages to foreign
firms with favorable credit terms. Credit is allocated on
market terms, although the Irish Competition Authority found
in 2004 that the banking sector's lack of competition limited
the amount of credit available to small and medium-sized
firms. Irish legal, regulatory, and accounting systems are
transparent and consistent with international norms and
provide a secure environment for portfolio investment. The
Capital Gains Tax rate is 20 percent. The Irish banking
system is sound. The estimated total assets of all licensed
credit institutions as of December 2005 stood at euro 911.4
billion, with the Bank of Ireland and Allied Irish Banks
holding a combined 25 percent of total assets. According to
the Central Bank, non-performing loans comprised 0.76 percent
of total assets. U.S. banks operating in Ireland include
Citibank and Chase Manhattan.


35. As of January 2006, total market capitalization in the
Irish Stock Exchange (ISEQ) was euro 95.1 billion, roughly 59
percent of projected 2005 nominal GDP (euro 159.9 billion).
In terms of market weight, the stocks of four companies are
predominant: Allied Irish Bank, Bank of Ireland, CRH (a
construction industry supplier),and Elan (a pharmaceuticals
firm). The Irish stock market has recovered steadily since
plummeting in 2002 following the global economic slowdown and
well-publicized management problems at several major Irish
companies. In 2005, the ISEQ Overall Index saw 20 percent
growth and reached an all-time high by year's end, one of the
strongest performances in the developed world. Economists
attribute ISEQ's robust showing to Ireland's broad-based
economic growth, the likely under-valuing of Irish stocks
earlier in the decade, and improved prospects for the
European economy. In 2005, ISEQ opened up a secondary
market, the Irish Enterprise Exchange (IEX),which caters to
smaller firms with a minimum market cap of euro 5 million.


36. In May 2003, the Central Bank of Ireland was reorganized
into the Central Bank and Financial Services Authority of
Ireland (CBFSAI),in accord with the Central Bank and
Financial Services Authority of Ireland Act 2003. Under the
legislation, the Governor of the CBFSAI has responsibility
for the overall stability of the Irish financial system. The
legislation also established the Irish Financial Services
Regulatory Authority (IFSRA),which is an autonomous but
constituent part of CBFSAI that regulates financial services
institutions in Ireland and, from 2006, the Irish Stock
Exchange. IFSRA took over this responsibility from a mix of
government bodies, including: the Central Bank, the
Department of Trade, Enterprise, and Employment (DETE),the
Office of Director of Consumer Affairs, and Registrar of
Friendly Societies. The legislation also enhanced the
regulatory powers given to IFSRA, particularly in consumer
protection.


37. With the advent of Economic and Monetary Union (EMU),
the Central Bank is now a member of the European System of
Central Banks (ESCB) whose primary objective is to maintain
price stability in the euro area. Ireland no longer operates

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an independent monetary policy. Rather, ESCB formulates and
implements monetary policy for the euro area, and the Central
Bank implements that policy at the national level. The
Governor of the Central Bank is one of 18 members of the
Governing Council for the ECB and has an equal say in the
formulation of monetary and interest rate policy. The other
main tasks of the Central Bank include: issuing euro currency
in Ireland; acting as manager of the official external
reserves of gold and foreign currency; conducting research
and analysis on economic and financial matters; overseeing
the domestic payment and settlement systems; and, managing
investment assets on behalf of the State.


38. The Irish Takeover Panel Act 1997 governs company
takeovers. Under the Act, the "Takeover Panel" issues
guidelines, or "Takeover Rules," which aim to regulate
commercial behaviour in the context of mergers and takeovers.
According to minority squeeze-out provisions in the
legislation, a bidder who holds 80 percent of the shares of
the target company can compel the remaining minority
shareholders to sell their shares. There are no reports that
the legislation has been used to prevent foreign takeovers
specifically, and, in fact, there have been several
high-profile foreign takeovers of Irish companies in the
banking and telecommunications sectors in recent years. The
EU Directive on Takeovers provides a framework of common
principles for cross-border takeover bids, creates a level
playing field for shareholders, and establishes disclosure
obligations throughout the EU. The Directive is to be
implemented in Ireland in 2006, though many of its principles
have already been enacted in the Irish Takeover Panel Act

1997.



A. 10. Political Violence
--------------

(I) Impact of Northern Ireland Instability


39. In the past, political instability and violence in
Northern Ireland were thought to affect the Republic of
Ireland. In reality, however, there has been little
spillover of violence or instability, especially since the
late 1970s and particularly after the cease-fires of 1994.
The growth of business investment and confidence in Northern
Ireland since the cessation of widespread violence has
benefited the Republic of Ireland, with cross-border trade
reaching nearly euro 2.5 billion in 2004. No violence
related to the situation in Northern Ireland has been
specifically directed at U.S. citizens or firms located in
the South.


40. The 1998 ratification of the Good Friday Agreement by
large majorities in both Ireland and Northern Ireland has
further diminished the potential for violence. Since then,
however, groups opposed to the peace process have continued
to commit acts of criminality and terror in Northern Ireland
and on mainland Britain. There have been no serious
incidents in the Republic of Ireland. In mid-2005, the Irish
Republican Army announced that it would no longer pursue its
objectives through violent means. Independent observers
subsequently confirmed the decommissioning of IRA weapons.
Efforts in pursuit of a final peace agreement, including
restoration of cross-community participation in local
government, were set to continue into 2006.

(II) Other Acts of Political Violence


41. In 1997 and 1998, an Irish environmental group
vandalized two separate Irish crop trial sites, involving
agricultural biotechnology crops. The trials were conducted
by the U.S. firm, Monsanto. Irish police investigated both
incidents and criminal charges were filed in both cases.
There have been no further incidents involving subsequent GMO
plant trials in Ireland.


42. There have been no other recent incidents involving
politically motivated damage to foreign investment projects
and/or installations in the Republic of Ireland. In 2003,
several Irish citizens opposed to the Iraq War damaged U.S.
military assets at Shannon Airport. In 2004, one of these
citizens was convicted in an Irish court and given a
suspended sentence. The trial of the other citizens involved
in these acts is pending for 2006. In late 2005, a group of
opposition and independent Irish parliamentarians said
publicly that they would not oppose further attacks on U.S.
military aircraft transiting Ireland.


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A. 11. a. Corruption
--------------


43. Corruption is not a serious problem for foreign
investors in Ireland. The principal Irish legislation
relating to anti-bribery and corruption includes the Public
Bodies Corrupt Practices Act 1889, the Prevention of
Corruption Act 1906, the Prevention of Corruption Act 1916,
and the Prevention of Corruption (Amendment) Act 2001. This
body of law makes it illegal for Irish public servants to
accept bribes. The Ethics in Public Office Act 1995 provides
for the written annual disclosure of interests of people
holding public office or employment.


44. Ireland signed the UN Convention on Corruption in
December 2003, and ratification is pending a review of the
legal measures required for implementation. In January 2000,
the GOI introduced to Parliament the "Prevention of
Corruption (Amendment) Act, 2001," to ratify and implement
the OECD Convention on Bribery. The legislation, which
enabled Ireland to ratify a number of conventions dealing
with corruption drawn up by the European Union, the Council
of Europe, and the OECD, came fully into force as law in
November 2002. Ireland formally ratified the OECD Convention
in September 2003. Ireland is also a member of the OECD
Working Group on Bribery and the Group of States Against
Corruption (GRECO). Under the Prevention of Corruption Act,
the bribery of foreign officials is a criminal offense.
Bribery of foreign officials may also invalidate a contract
that a party is seeking to enforce in Ireland.


45. A number of ongoing judicial "Tribunals" are seeking to
establish whether political donations by certain Irish
companies in the late 1980s and early 1990s can be linked to
favorable government decisions, mostly at the local level, in
zoning and tax matters. There is also media and public
concern that business interests may have compromised Irish
politics in the late 1980s and early 1990s. Despite these
reports of payments to political parties and figures in the
1980s and early 1990s, there remains no indication that
foreign businesses or investors have had to make such
payments or been approached to make such payments to conduct
business during the period in question or in years since.


46. In late 2004, the Government launched an inquiry into
allegations that a Cabinet Minister approved for his former
Department a no-bid public relations contract worth euro
300,000 for a political associate. The inquiry exonerated
the Minister in 2005. In late 2005, a junior Cabinet
Minister resigned following press reports that a construction
firm had worked on his house for free and that he had offered
improper financial incentives to his office staff.


47. The Irish police investigate allegations of corruption.
If sufficient evidence of criminal activity is found, the
Director of Public Prosecutions prepares a file for
prosecution. A small number of public officials have been
convicted of corruption and/or bribery in the past, although
it is not a common occurrence.

b. Bilateral Investment Agreements
--------------


48. Ireland's only bilateral investment protection
agreement is with the Czech Republic. In addition, Ireland
has bilateral tax treaties with the following countries:
Australia, Austria, Belgium, Bulgaria, Canada, China,
Croatia, Cyprus, the Czech Republic, Denmark, Estonia,
Finland, France, Germany, Hungary, India, Italy, Israel,
Japan, Korea (Rep. of),Latvia, Lithuania, Luxembourg,
Malaysia, Mexico, Netherlands, New Zealand, Norway, Pakistan,
Poland, Portugal, Romania, Russia, Slovak Republic, Slovenia,
South Africa, Spain, Sweden, Switzerland, UK, the United
States, and Zambia. Treaties with Greece and Iceland were
signed in November and December 2003, respectively, and
became effective for the 2005 tax period. A treaty replacing
the existing treaty with Canada was signed in October 2003.
Parliamentary procedures to bring the treaty into force were
completed by Ireland in December 2004 and by Canada in April
2005, and the treaty will become effective for the 2006 tax
period. A new agreement with Chile was signed in June 2005.
The agreement will likely enter into force in 2006, subject
to completion of the necessary parliamentary procedures by
Ireland and Chile. A protocol amending Ireland's agreement
with Portugal was signed in November 2005 and will also
likely enter into force in 2006, pending parliamentary
procedures in both countries. New treaties with Argentina,
Egypt, Kuwait, Malta, Morocco, Singapore, Tunisia, Turkey and

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Ukraine are being negotiated. Existing treaties with Cyprus,
France and Italy are in the process of re-negotiation. These
agreements serve to promote trade and investment between
Ireland and the partner countries that would otherwise be
discouraged by the possibility of double taxation.

c. OPIC and Other Investment Insurance Programs
-------------- ---


49. Since 1986 the U.S. Overseas Private Investment
Corporation (OPIC) has been authorized to operate in Ireland
as part of the U.S. effort to support the process of peace
and reconciliation in Northern Ireland. There is some
potential in Ireland for OPIC's credit guarantee programs.
No other countries have an investment insurance program in
Ireland. Ireland is a member of the Multilateral Investment
Guarantee Agency (MIGA).


50. The estimated annual U.S. dollar value of local
currency likely to be used by the U.S. Embassy in Ireland
during 2006 is approximately USD 12.4 million. The Embassy
purchases local currency through centralized bulk purchasing
arrangements at a competitive market rate. Prospects for
eurozone economic growth and for the U.S. trade and budget
deficit positions will likely determine USD and euro currency
movements through 2006.

d. Labor
--------------


51. In 2005, employment levels in Ireland reached historical
highs, the result of continued strong economic growth. As of
the third quarter of 2005, the number of people employed was
1.9 million, an increase of roughly 96,000, or 5.0 percent,
compared to the third quarter of 2004. Since 1994,
employment growth has averaged roughly 4.0 percent, with
lower rates recorded in 2002 and 2003 following the post 9-11
global economic slowdown. Comparing the third quarters of
2004 and 2005, the largest increase in employment was in the
vibrant (housing) construction sector, which added 30,400
jobs. There was also a gain of 20,200 jobs in business and
financial services during the year. Employment in production
industries, including manufacturing, fell by 11,000, however,
continuing a trend from 2004.


52. In contrast to 15.6 percent unemployment in 1993,
Ireland registered 4.2 percent unemployment in the second
quarter of 2005. This was the lowest unemployment rate among
EU Member States and slightly less than half the eurozone
average. The number of unemployed people in the third
quarter of 205 was 96,700, representing an increase of 2,800
compared to the third quarter of 2004. Local economists
believe that the Irish economy is as close to full employment
as possible, with employers reporting difficulties in
recruiting workers. Whereas Ireland's primary policy goal
was once job creation, the focus of government strategy has
shifted to upgrading skills and increasing the number of
workers in technology-intensive, high-value sectors.


53. Irish labor force regulation is less restrictive
compared with most continental EU countries. The Irish
workforce is characterized by a high degree of flexibility,
mobility, and education. There is a relative gender balance
in the workforce, with 1.2 million males and 882,000 females
currently employed. This gender balance reflects a change in
social mores that has facilitated a surge in female
employment since the mid-1980s


54. With the tightening of the labor market, wages remain on
an upward growth curve. As of the third quarter of 2005,
average annual earnings per worker were euro 35,506, a 3.5
percent increase over the third quarter of 2004. Between
1998 and 2003, compensation per employee increased by 37.1
percent, compared with 8.7 percent in Germany over the same
period. The minimum wage was euro 5.20 when it was first
introduced in 2000 and rose to euro 7.65 in 2005. Employees
earning the minimum wage will not have to pay personal income
tax in 2006.


55. Unprecedented immigration levels, particularly from
Eastern Europe, have added a new dynamic to the Irish labor
market. Of the 96,000 new workers added to the labor force
between the third quarters of 2004 and 2005, roughly 40,000
were immigrants, working mostly in the construction and
lower-end services sectors. According to some sources, the
number of people taking up residence in Ireland since the
accession of new EU Member States in 2004 may be as high as
100,000. Irish labor unions have expressed concern over

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immigration trends and the possibility of displacement of
Irish workers. In late 2005, a labor dispute over plans by a
ferry company to replace Irish workers with Eastern European
migrants at lower wages prompted large-scale, peaceful
demonstrations nationwide in support of protective mechanisms
for both Irish and migrant laborers. Economists point out,
however, that yearly job creation in Ireland is currently
sufficient to accommodate both Irish workers and immigrants.
Economists also hold that that Ireland will require 50,000
immigrants a year over the short term to sustain high rates
of economic growth.


56. The Irish system of industrial relations is a voluntary
one. Pay levels and conditions of employment are generally
agreed through collective bargaining between employers and
employees. Since 1987, collective bargaining has taken place
under the framework of a series of national economic
programs, negotiated by representatives of employers, trade
unions, farmers, and the government. This consensual "Social
Partnership" approach has been accompanied by a marked
improvement in the industrial relations climate since the
mid-1980s. Working days lost as a result of industrial
disputes amounted to 37,482 in 2003 and 20,784 in 2004 (a
fraction of the total days lost through industrial action in
the 1980s and early 1990s).


57. The latest national economic program, "Sustaining
Progress", was agreed under the Social Partnership framework
in February 2003 and approved by Ireland's major unions in
August 2004. The 18-month agreement exchanges a 7 percent
wage increase for industrial relations stability. While the
package will cost the GOI - Ireland's largest employer - an
estimated euro 2.5 billion, private industries unable to pay
the full 7 percent due to competitive pressures will be
permitted to pay lesser increases or none at all. As part of
the package, the GOI committed to provide an increased supply
of "affordable housing" and to amend legislation and
statutory codes to strengthen the procedures by which unions
can represent their members' interests. In addition, the GOI
enhanced statutory redundancy terms to provide released
employees with two weeks' compensation for each year of
service. Negotiations on a successor program to "Sustaining
Progress" were set to begin in early 2006.


58. Trade union demands for mandatory trade union
recognition in the workplace are strongly resisted by
employers. While the Irish constitution guarantees the right
of citizens to form associations and unions, Irish law also
affirms the right of employers not to recognize unions and to
deal with employees on an individual basis. Currently,
roughly 33 percent of workers in the private sector are
unionized, compared to 95 percent in the public sector.
Among foreign-owned firms, roughly 80 percent of workers do
not belong to unions. Employers also strongly oppose trade
union demands for greater "partnership" between employees and
employers at the enterprise level, including worker
participation in managerial decisions through German-style
"work councils." Some progress has been made, however, with
regard to increased profit-sharing.

e. Foreign Trade Zones/Free Ports
--------------


59. The Shannon duty-free Processing Zone (SDFPZ) was
established by legislation in 1957. Under the legislation,
eligible companies operating in the Shannon Free Zone are
entitled to the following benefits: goods imported from
non-EU countries for storage, handling or processing are duty
free; no duty on goods exported from Shannon to non-EU
countries; no time limit on disposal of goods held duty-free;
minimum customs documentation and formalities; no Value Added
Tax (VAT) on imported goods, including capital equipment;
choice of having import duty on non-EU product calculated on
its landing value or selling-out price. Qualifying criteria
for eligible companies include employment creation and
export-orientation. Foreign-owned firms in the Shannon Free
Zone have the same investment opportunities as indigenous
Irish companies. As of 2005, there were 110 internationally
traded manufacturing and service companies established in the
Shannon Free Zone, employing roughly 7,500 workers and
generating about euro 2.5 billion in exports annually. U.S.
companies, which make up 57 percent of the firms operating
out of Shannon, include GE Capital, Bristol Myers Squibb,
DHL, UPS, Pfizer, Intel, Symantec, and Cabletron. The
Shannon Free Zone is technically an asset of SFADCO, although
the Government is currently reviewing a proposal to place the
zone under the authority of Shannon Airport as a means of
airport funding.

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60. Duty free exemptions are available also to companies
operating in Ireland's major deep-water port at Ringaskiddy
in County Cork, although these have been used infrequently in
recent years.

f. Foreign Direct Investment Statistics
--------------


61. According to Ireland's Central Statistical Office (CSO),
the stock of FDI in Ireland for end-year 2004 stood at euro
171.8 billion, or 117 percent of nominal 2004 GDP and a 2.7
percent drop from 2003. Ireland received FDI flows worth
euro 8.98 billion in 2004, or 6 percent of nominal 2004 GDP
and a 55 percent decline from 2003. (Note: Different FDI
calculation methods likely explain discrepancies with U.S.
Department of Commerce statistics, which show U.S. FDI flows
alone to Ireland as USD 10.4 billion in 2004, roughly the
same amount as total FDI flows according to Irish statistics.
Further discrepancies are noted in the tables below.)


62. In 2004, the 1,022 companies supported by IDA Ireland,
including 478 U.S. firms, spent euro 15.5 billion in the
Irish economy from their annual sales of euro 75 billion
(exports of euro 71 billion) and paid over euro 2.5 billion
in corporate tax. During 2005, IDA negotiated 71 new
business projects with new and existing clients, which
involved a total investment commitment of over euro 745
million over the coming years. IDA also supported 50 R&D
investment projects involving a total investment by business
in excess of euro 260 million, an 85 percent increase in
value over 2004.


63. According to the American Chamber of Commerce, U.S.
firms announced 34 investment projects in 2005, creating
3,400 new jobs. Of these projects, roughly a third were new
investments, such as by Yahoo and Amazon, and two-thirds were
expansion programs, such as by established companies Intel,
Dell, Bisys, PFPC, and International Fund Service. Roughly
90 percent of FDI projects that came to Ireland in 2005 were
of U.S. origin. New investments were evenly split between
the east coast, inclusive of Dublin, and the remainder of the
country, with the largest regional clusters in Cork, Galway,
and the Southeast. The U.S. Department of Commerce estimates
that U.S. companies' average return on investment (ROI) in
Ireland is 24 percent.


Table 7.1: Stock of U.S. Investment in Ireland
(Millions of dollars; historical cost basis)

2002 2003 2004

All Industries 46,617 55,463 73,153

Manufacturing 13,427 15,002 21,290

Food 157 193 241

Chemicals 6,207 6,089 10,019

Metal 22 33 51

Industrial machinery 23 24 26

Computers/Electronic 3,241 3,992 5,571

Transportation Equipment unavailable unavailable 285

Wholesale trade 2,680 2,998 4,598

Information 10,362 14,048 17,029

Finance/Insurance 7,520 8,681 11,101

Depositary Institutions 145 445 unavailable

Prof. Services 1,459 1,655 1,968

Source: U.S. Department of Commerce, Survey of Current
Business


Table 7.2: Investment Flows into Ireland by Country Origin,
2004
(in euro millions)

Total 8,987

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UK -2,373

Belgium/Luxembourg 5,581

France 846

Germany 921

Italy 271

Netherlands 5,710

Canada -271

United States 3,996

Japan 1,392

Source: Ireland Central Statistical Office (CSO) website

(Note: According to the U.S. Department of Commerce, U.S.
investment flow into Ireland in 2004 was USD 10.4 billion.
Also, investment by U.S. companies in Ireland is often
effected through intermediary subsidiaries located outside
the United States. According to the CSO, a sizeable
proportion of the Dutch investment cited above originated in
the United States.)


Table 7.3: Investment Stock in Ireland by Country Origin, 2004
(in euro millions)

Total 171,766

UK 24,706

Belgium/Luxembourg 27,071

France 3,224

Germany 2,484

Italy 4,854

Netherlands 56,069

Canada 5,987

United States 25,825

Source: Ireland Central Statistical Office (CSO) website

(Note: According to the U.S. Department of Commerce, the
stock of U.S. investment in Ireland in 2004 was USD 73.2
billion.)


Table 7.4: Total Employment by Sector in IDA-Supported
Companies


2002 2003 2004

Information/Communications
Technologies 43,499 41,362 41,887


Pharmaceuticals/Healthcare 19,016 19,326 19,985


Engineering 16,536 15,372 13,989

Miscellaneous Industry 10,047 9,282 8,243

International and Financial
Services 43,281 43,407 44,842


Total 132,379 128,749 128,946

Source: IDA Ireland Annual Report, 2004



Table 7.5: Origins of IDA-Supported Companies, End-2004



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Country Number of Firms Employment

United States 478 90,236

United Kingdom 116 6,824

Germany 140 11,158

Rest of Europe 209 16,163

Asia/Pacific 46 3,002

Rest of World 33 1,563

Total 1,022 128,946

Source: IDA Ireland Annual Report, 2004



Table 7.6: Major U.S. Investments in Ireland


Company Location

Apple Computers Cork

AIG Europe Dublin

Bausch & Lomb Waterford

Berlitz Dublin

Bisys Waterford

Boston Scientific Galway, Cork, Wexford

HP-Compaq Computers Galway, Dublin

Citibank Dublin

Dell Computers Limerick, Dublin

Eastman Kodak Limerick, Cork

Fidelity Dublin

Gartner Group Limerick

Hertz Dublin

Hewlett-Packard Leixlip, Kildare

IBM Ireland Dublin

Intel Ireland Dublin, Leixlip

Johnson & Johnson Dublin

Millipore Ireland BV Cork

Motorola Cork

Netscape Communications Dublin

Novartis Cork

PFPC Navan, Wexford

Prudential Insurance of America Letterkenny

3Com Dublin

United Airlines Dublin

US Robotics Dublin

Woodchester Investments Dublin

Wyeth Biopharma Dublin

Source: IDA Ireland Annual Report, 2004
KENNY