UAE INVESTMENT CLIMATE STATEMENT 2006

UNCLAS SECTION 01 OF 12 ABU DHABI 000203

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SUBJECT: UAE INVESTMENT CLIMATE STATEMENT 2006

A.1 Openness to Foreign Investment
--------------

The U.S. and UAE began negotiating a Free Trade Agreement
in March 2005 and are meeting in February 2007 to discuss
next steps on the FTA and the U.S.-UAE trade and
investment relationship. The UAE is also involved in GCC
negotiations with the European Union and China for free
trade agreements. In October 2006, the UAE Minister of
Economy stated that the GCC negotiations with China
reached an advanced stage on the issue of trade
commodities but there are obstacles, especially in the
areas of satellite communications.

Investment laws and regulations are evolving in the UAE
and are expected to become more conducive to foreign
investment. At present, the regulatory and legal
framework favors local over foreign investors. There is
no national treatment for investors in the UAE, and
foreign ownership of land and stocks is restricted. The
Emirates of Dubai and Abu Dhabi have opened up some areas
for freehold and leasehold property investments,
respectively.

The UAE government is opening up its trade sectors in
line with its WTO obligations. The UAEG already has
taken steps to cut red tape for foreign investors, and
now exempts investors from obtaining a Ministry of Labor
card in addition to an Immigration Department visa.
Investors no longer need to appear in person to inquire
about the status of business applications in Abu Dhabi.
A new automated service, offered in Arabic and English,
allows investors to receive information about their
business licenses over the phone. The Embassy is aware
of a few investment/payment disputes between U.S.
companies and UAE entities.

The UAEG accession to the UN Convention on the
Recognition and Enforcement of Foreign Arbitral Awards
became effective in November, 2006. An arbitration award
issued in the UAE will now be enforceable in all 138
states that have acceded to the Convention, and any award
issued in another member state will be directly
enforceable in the UAE. The Convention supersedes all
incompatible legislation and rulings in the UAE, and
should be welcomed by many businesses that consider
arbitration the most advantageous form of dispute
resolution.

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. The import tariffs are collected and retained by
each Emirate.

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.
Press reports have indicated that the UAEG may reduce the
percentage of local ownership required in certain
sectors, but has yet to pass a formal law to that effect.
On April 2006, the UAE Cabinet amended the law regarding
ownership of insurance companies. The amended article
states that 75 percent of insurance companies must be
owned by a UAE national or 100 percent by UAE national
legal persons, i.e., a UAE corporation.


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. On June 18, 2006, the UAE announced
substantial changes to the Commercial Agencies Law.
These amendments include: 1) requiring mutual consent to
renew an agency agreement, 2) limiting an agency contract
to a fixed time period, 3) allowing either party to file
for damages, 4) eliminating the Ministry of Economy's
Commercial Agencies Commission(which handles agency
disputes),and 5) allowing the import of "liberalized
goods" without the agent's approval.

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.

The UAE restricts foreign ownership of land, with rules
varying from Emirate to Emirate. In May 2002, the Emirate
of Dubai announced that it would permit so-called ree
hold eal estate ownership for non-GCC nationals by
giving permission to three companies to develop and sell
freehold properties on government-designated pieces of
land. The Emirate of Dubai codified its freehold and
leasehold law on March 14, 2006. The law allows non-GCC
foreigners to freehold or leasehold rights only in
designated areas of Dubai and does not give property
owners permanent residence visas or an automatic right to
work in the Emirate. The Emirate of Ras Al Khaimah also
offers free-hold land to offshore companies in designated
areas. Individuals can establish a company in the Ras-
al-Khaima Free Zone for the purpose of purchasing a free-
hold for use by the company's owner. 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. The law
was published in the Abu Dhabi Gazette in September 2005.
Non-GCC nationals can own buildings in the Emirate of Abu
Dhabi in certain investment areas, but cannot own the
land. 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.

Perhaps the most important impediment to Dubai
"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.


Oil and Gas will continue to be a major sector for
foreign investment in 2007. In line with its OPEC quota,
the UAE has reduced its oil production output by twice
since November 1, 2006. The UAE continues, however, to
invest in increasing its oil production capacity and the
Emirate of Abu Dhabi recently announced a major plan to
develop its sour gas reserves. 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) signed
an Agreement with ExxonMobil for a 28% stake in the Upper
Zakum offshore oil field on a 20 year concession in March

2006. 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 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 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, largely owned
by the UAE government to compete with Etisalat. The UAE
gave a $1.1 billion license to Emirates Integrated
Telecommunication Company (EITC),which operates under
the trade name du. Du was expected to start operations
in the summer of 2006, but as of January 2007 has yet to
begin offering service. Du will offer the full range of
telephone services throughout the UAE (mobile, fixed
line, internet, etc.) The UAE government owns 40 percent
of du. Mubadala Development Company, which is owned by
the Emirate of Abu Dhabi, and TECOM Investment, which is
owned by the Dubai government through Dubai Holdings each
own 20 percent and private investors own the remaining 20
percent. Local press reports throughout 2006, quoted
Mohammad Al-Ghanem, Director General of the
Telecommunications Regulatory Authority, as saying the
duopoly will exist in the telecom sector until 2015 when
the market will be further liberalized.

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 percent 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
--------------

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
--------------

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 likely be generous.

A.4 Dispute Settlement
--------------
The Embassy is aware of a few substantial investment
disputes during the past few years involving U.S. or
other foreign investors, and government and/or local
businesses. There have also been several
contractor/payment 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 UAE federal courts on the basis of mutual
consent, a written arbitration agreement, independently,
by nomination of arbitrators, or through a referral to an
appointing authority without recourse to judicial
proceedings. Enforcing arbitration judgments rendered in
the UAE can be difficult as they require court
certification, and judicial proceedings may continue for
several years. Some companies are reportedly unwilling
to resort to arbitration out of concern that it would
affect their future business opportunities in the UAE.

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.

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. 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 for arbitration at
any stage during litigation. The UAE Code of Civil
Procedure outlines the minimum qualifications that
arbitrators must possess as well as 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. In November
2006, the UAE signed onto the UN Convention for
Arbitration, which requires UAE courts to enforce trade
dispute arbitration decisions made in foreign countries.

The Code of Civil Procedure 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 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 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 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.

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

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.
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 nd promises that
foreign owners of such property would be granted
residence permits as long as they remained in possession
of title ould 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 stays of 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
-------------- -

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
--------------
In September 2005, the Emirate of Abu Dhabi passed a law
allowing Emiratis to hold title on properties in the
Emirate and opened up some foreign easehold ights 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. Although the UAE is the leader in the
region at enforcing intellectual property rights' and the
Emirate of Dubai is very pro-active in enforcement, many
of the stakeholders believe that the UAEG could do more
to fight piracy in the other emirates and to deal with
the problems of transshipping of counterfeit goods.

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 2006 industry
estimates, the rate of software piracy in the UAE is the
lowest in the Middle East, estimated to be 34 percent.
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 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.


A.8 Transparency of the Regulatory System

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
--------------

The UAE federal commercial code, promulgated in 1993,
devotes an entire chapter to bankruptcy he 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 391 branches, 49 cash offices and
electronic/customer services units in the UAE and abroad,
25 foreign banks with 83 branches, once cash office and 6
electronic services/customer service units, one
restricted license bank, two investment banks, and 55
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. There are a number of U.S.
financial institutions with either representative offices
in the UAE or that have established a presence in the
Dubai International Financial Center (a financial free
zone). 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 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 now your
customer uidelines; 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.

In 2006, the UAE also enacted Law No. 2 of 2006--the
Cybercrimes law--which has articles dealing with money
laundering and terrorist finance. Article 19 of the law
makes it a crime for anyone to use the internet to
transfer money or property traceable to criminal
proceeds, or to conceal the true sources of such assets.
Violations are punishable by a term of imprisonment of up
to 7 years and a fine ranging from $8,174 to $54,495.
Article 21 of the law outlaws the use of the internet to
finance terrorist activities, promote terrorist ideology,
disseminate information on explosives or facilitate
contact with terrorist leaders. Any violation of Article
21 is punishable by a term of imprisonment of up to 5
years.

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 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. IN
2006, the AMLSCU participated in seminars, consultative
meetings, and training with Washington-based agencies,
including the Department of Treasury 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 enerally 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 percent in
companies on the stock market; however, company by-laws
in many cases prohibit or limit foreign ownership.

A.10 Political Violence

There have been no instances in recent memory involving
politically motivated damage to projects, or insurgencies
that have impacted the investment environment.

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

There is no evidence that corruption of public officials
is a systemic problem; however, the former head of Dubai
Customs and Port Authority-- along with five other
customs officials-- was tried, convicted, and sentenced
in April 2001 to 27 years in prison on charges of
corruption and embezzlement. He was pardoned four months
later by the Dubai government and released. 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 and ratified it
in February 2006

A.11.b Bilateral Investment Agreements
--------------

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 and will meet in
February 2007 to discuss next steps on the FTA and the
U.S.-UAE trade and investment relationship.

A.11.c OPIC and other Investment Insurance Programs
-------------- --------------

The UAE has been suspended from U.S. OPIC insurance
programs since 1995 because of the UAEG lack of
compliance with internationally recognized worker rights
standards articularly 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 ven
though the law does not technically sanction them. UAE
law does not allow workers to associate freely for the
advancement of common goals and interests, but the UAEG
usually does not punish workers' from striking. In 2006
there were several labor strikes mainly because of non-
payment of salaries/benefits and the Ministry of Labor
often sided with the strikers.

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
2006, Ministry of Labor officials investigated and
mediated such disputes ften to the benefit of the
striking workers.

A.11.d Labor
--------------
Population in the UAE is approximately 4.10 million,
according to 2000 census results which were released in
July, 2006. In December 2005, the UAE began a door-to-
door census. Results of the census included 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. In addition, in 2006, the UAEG also added
Emiratization requirements that all secretaries and
Public Relations Officers must also be Emirati.

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. Ministerial resolution No. 307 of 2003 does,
however, expressly authorize collective work dispute
resolution. In 2006, there were a number of organized
gatherings of workers complaining of unpaid wages to the
Ministry of Labor. Professional associations may also
raise work-related concerns, lobby the UAEG for redress,
or file a grievance with the Ministry of Labor. For the
resolution of work-related disputes, workers rely on
conciliation committees organized by the Ministry of
Labor or on special labor courts.

Labor laws do not cover, and therefore do not protect,
government employees, domestic servants, agricultural
workers or workers in the free zones. Domestic servants
face considerable difficulty in negotiating employment
contracts because the mandatory requirements contained in
the labor law do not apply to them. They also face
considerable difficulty in obtaining assistance to
resolve disputes with their employers. UAE employers
generally tie an employee 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 Cabinet of Ministers approved a memo
calling for the establishment of labor unions and
associations in the UAE. On February 5, 2007, the
Ministry of Labor published the proposed new labor law
for comment. The proposed law does not contain any
provisions for labor unions or for collective bargaining.

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 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 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 Ministry reviews
labor contracts and does not approve any contract that
stipulates a clearly unacceptable wage.

The Ministry of Health, Ministry of Labor,
municipalities, and civil defense authorities enforce
health and safety standards, and the Government requires
every large industrial company to employ a certified
occupational safety officer. The law requires that
employers provide employees with a safe work environment.
The UAE issued regulations in summer 2006 that laborers
could not be required to work between twelve thirty and
three p.m. during July and August and penalized
companies that did not comply.



A.11.e Foreign Trade Zones/Free Ports
--------------
Free Zones in the UAE are home to more than 5,000
companies with a total investment estimated at more than
$4 billion. Presently, 32 free trade zones operate in
the UAE, with more in the development 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 (JAFZA) 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 JAFZA, including numerous Fortune 500 firms.

The JAFZA 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 only operate in the JAFZA 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. However, a company with a
special license can 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
include Dubai 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. Internet usage in the free zones is
not censored as it is in the non-free trade zones.

A.11.f Foreign Direct Investment Statistics
--------------
The United Nations Conferences on Trade and Development
(UNCTAD) reports that inward FDI flow for the UAE was $12
billion in 2005. Total U.S. foreign direct investment in
the UAE was $2.6 billion in 2005.

The Abu Dhabi Chamber of Commerce and Industry notes that
the leading sectors for investment in the UAE in 2006
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 $500 billion
in government assets in overseas markets-- mostly in the
United States, Europe, and Asia.

SISON
SISON