IRELAND -- INVESTMENT CLIMATE STATEMENT 2008

UNCLAS DUBLIN 000051

SIPDIS

SIPDIS

STATE FOR EB/IFD/OIA

E.O. 12958: N/A
TAGS: ECON EFIN PGOV OPIC KTDB USTR EI
SUBJECT: IRELAND -- INVESTMENT CLIMATE STATEMENT 2008

REF: 07 STATE 158802


1. Per reftel, the following is Embassy Dublin's 2008 Investment
Climate Statement submission.


2. The text of the submission follows.


BEGIN TEXT
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IRISH GOVERNMENT'S ATTITUDE TOWARDS FOREIGN INVESTMENT

The Irish Government actively promotes foreign direct investment
(FDI),a strategy that has fueled robust economic growth since the
"Celtic Tiger" period of the late 1990s. Ireland's pro-investment
climate saw total FDI stock grow from euro 53 billion in 1998 to
euro 174 billion in 2002, before moderating to euro 141 billion in

2005. Traditionally, the principal goal of investment promotion has
been employment creation, especially in technology-intensive and
high-skill industries. More recently, the Government has focused on
Ireland's international competitiveness by encouraging
foreign-invested companies to enhance research and development (R&D)
activities and to deliver higher-value goods and services.

The Irish Government's actions have had considerable success in
attracting U.S. investment. In 2007, the U.S. investment stock in
Ireland, a country of just over 4 million, was worth USD 83 billion.
In 2004, U.S. investment flows into Ireland reached USD 10.4
billion, but fell to negative USD 3 billion in 2005. This reversal
likely reflected the response of U.S. firms to a one-time
opportunity under the 2005 American Jobs Creation Act to repatriate
earnings to the United States at lower tax rates. In 2005,
nevertheless, Ireland attracted USD 2 billion in U.S. manufacturing
investment flow, as compared to USD 4 billion in Germany. There are
roughly 620 U.S. firms in Ireland, directly employing approximately
100,000 workers and supporting work for another 250,000, out of a
total labor force of 2 million. U.S. firms operate primarily in the
following sectors: chemicals; bio-pharmaceuticals and medical
devices; computer hardware and software; electronics; and, financial
services. Ireland has become 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.

U.S. companies are attracted to Ireland as an export platform to the
EU. In 2006, Irish-based U.S. firms exported roughly USD 57 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 corporate tax rate for domestic and foreign
firms; 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 "clustering" effect). Factors that negatively affect
Ireland's ability to attract investment include: increasing labor
costs, skilled labor shortages, inadequate infrastructure (such as
in the transportation and internet/broadband sectors),and absolute
price levels that are among the highest in Europe. The Irish
government has become more concerned about the possibility of rising
energy costs and the reliability of energy supply undermining
Ireland's attractiveness as an FDI destination.

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 FDI 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, 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. The agency also
assists foreign firms that wish to establish food and drink
manufacturing operations in Ireland;

- Shannon Free Airport Development Co. (SFADCO),or "Shannon
Development," handles FDI in the Shannon Free Zone (see para 61) and
owns properties in the Shannon region as potential investment
greenfield sites. Under the 2006 Industrial Development Amendments
Act, responsibility for investment by Irish firms in the Shannon
region transferred from Shannon Development to Enterprise Ireland.
The IDA remains responsible for FDI in the Shannon region outside
the Shannon Free Zone;

- Udaras na Gaeltachta has responsibility for economic 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.

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 keyed to EU Directives.

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 not only to harmonize taxes at a single EU rate,
but also to standardize the accounting methods used by EU Member
States to calculate corporate taxes.

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 para
9).

While Ireland does not have a formal privatization program, the
Government in September 2005 privatized the state-owned national
airline, Aer Lingus, through a stock market flotation that valued
the carrier at euro 1.2 billion. The Government retains about a
one-quarter stake in the airline. There are no barriers to
participation by foreign institutions in the sale of Irish
state-owned companies, as evident in the purchase of Aer Lingus
shares by U.S. investors. 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.

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.

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

Conversion and Transfer Policies

Ireland uses the Euro as its national currency and 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.

Expropriation and Compensation

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.

The only recent case of expropriatory action involved a dispute over
the disposition of the ownership rights to 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. In 2001, the U.S.
owner 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." In March 2007, the Irish Supreme Court ruled in
favor of the U.S. citizen owner.

Dispute Settlement

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. According to some U.S. firms, lengthy budgetary
decisions delay procurements, and the Government sometimes
identifies preferred bidders before making a tender decision. Some
U.S. firms also claim that unsuccessful bidders have had difficulty
receiving information on the rationale behind the tender outcome.
Conversely, 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.

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 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.

Performance Requirements and Incentives

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.

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. Foreign and
domestic business enterprises that 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 2006, IDA Ireland paid out just over euro 90 million in
grants to foreign firms, as compared to euro 87 million in 2005.


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.

New EU Regional Aid Guidelines (RAGs) that apply to Ireland were
announced in 2006 and became effective on January 1, 2007. The RAGs
govern the amount of grant aid that the Irish Government can provide
to companies, depending on their location. The differences in the
aid ceilings noted in the chart below reflect the less developed
status of business/infrastructure in regions outside the greater
Dublin area. For the period 2007-2008, the following ceilings
apply:

- Location
Maximum Grant % Allowed
(EE = eligible expenditure)

- Border, Midlands, West
30% on first euro 50 million of EE
15% on next euro 50 million of EE
10.2% of balance above euro 100 million of EE

- South East, Mid West, and South West
10% on first euro 50 million of EE
5% on next euro 50 million of EE
3.4% of balance above euro 100 million of EE

- East
NIL

While investors are free, subject to planning considerations, to
choose the location of their investment, IDA Ireland has encouraged
investment in regions outside Dublin since the 1990s. 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 (an approach that was replicated in the 2007-2013 National
Development Plan, to be launched in early 2007). One of the
National Spatial 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 developed. In 1999, roughly 25 percent of jobs related to
greenfield investment were located in the BMW region; by 2006, this
figure had grown to 36 percent. (The 2007-2013 National Development
Plan continues to favor balanced regional investment, but now
focuses more on innovative and knowledge-based activities than on
the number of jobs generated per region.) In 2006, nearly 60
percent of new greenfield projects, and 6 out of every 7 R&D
investments, were in 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. The IDA has
supported construction on business parks in Oranmore and Dundalk.


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 strongly encourages
foreign companies to conduct R&D as part of a national strategy to
build a more knowledge-intensive, innovation-based economy. Science
Foundation Ireland (SFI),the state science agency, has been
responsible for administering a euro 365 million R&D fund under the
2000-2006 National Development Plan. The 2007-2013 National
Development Plan envisions a significant ramp-up in such funding.
The fund has targeted 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. In 2007, IDA Ireland supported 45 R&D investment
projects, involving a total investment of euro 310 million.
GlaxoSmithKline initiated a research and development collaboration
on Alzheimer's disease with the Institute of Neuroscience and Intel
established the Technology Research for Independent Living (TRIL)
Centre focused on the use of technology to support independent
living for the elderly. Genzyme invested in new process development
facilities in Waterford and 2007 also saw new R&D investments for
Galway by Nortel and a new R&D centre proposed by Fidelity
Investments.

In addition to the new RAGs, a new EU framework for research,
development, and innovation (RD&I) for the 2007-2013 period has also
come into force. The framework is geared toward achieving the
objectives of the Lisbon Agenda, and grant support is available
throughout all regions of Ireland. The table below shows grant
rates for each category of eligible RD&I.

Type of Research Grant %

-"Fundamental" (activity designed 100
to broaden scientific and
technical knowledge not linked
to industrial or commercial objectives)

-"Industrial" (planned research 50
of critical investigation aimed
at the acquisition of new knowledge,
the objective being that such knowledge
may be useful in developing new products,
processes or services or in bringing
about a significant improvement in existing
products, processes or services)

-"Experimental" (shaping of the results 25
of industrial research into a plan of
design for new, altered or improved
products, processes or services, whether
they are intended to be sold or used,
including the creation of an initial
prototype which could not be used
commercially)

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.

Right to Private Ownership and Establishment

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.

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.

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 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.

Protection of Property Rights
(I) Real Property

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

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 Mary 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.

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 legislation provides for stronger penalties on
both the civil and criminal sides, but does not include minimum
mandatory sentencing for IPR violations.

As part of this comprehensive copyright legislation, changes were
also made to revise the non-TRIPs conforming sections of Irish
patent law. Specifically, the 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.

DVD and CD piracy, however, continues to be a problem. Industry
representatives claim that the counterfeit DVD market is 1.5 times
the size of the legitimate market and that DVD pirates earn roughly
euro 60 million annually, at a cost of euro 115 million to the
legitimate DVD industry. Industry groups also believe that light
penalties given to counterfeiters in DVD piracy court cases hamper
police enforcement efforts. In mid-2006, the Government responded
to piracy problems by forming an inter-agency task force, which has
begun a consultation process with industry on potential
countermeasures. In addition to DVD and CD counterfeiting, industry
sources estimate that up to 37 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.

Transparency of Regulatory System

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.

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

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.

Efficient Capital Markets and Portfolio Investment

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 at the end of November 2007 was
approximately euro 1.3 trillion, with the Bank of Ireland and Allied
Irish Banks holding a combined 25 percent of total assets. U.S.
banks operating in Ireland include Citigroup and Chase Manhattan.

As of November 2007, total market capitalization in the Irish Stock
Exchange (ISE) was euro 96.6 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). In September 2006, shares in the national
airline, Aer Lingus, began trading on the Irish stock exchange in
conjunction with the carrier's privatization. Until 2007, the Irish
stock market had seen a steady recovery since plummeting in 2002
following the global economic slowdown and management problems at
several major Irish companies. From 2002 to 2006, ISE delivered
returns of between 19 and 28 percent each year. However, driven in
part by concerns over possible spillover from the sub-prime crisis
in the United States, the market capitalization fell by almost nine
percent through the first 11 months of 2007. 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.


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, since 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.

The Central Bank is 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 an independent monetary
policy. Rather, ESCB formulates and implements monetary policy for
the euro-zone, 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.

The Irish Takeover Panel Act of 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. In 2006, for example, the Australian investment group,
Babcock & Brown, acquired the former national telephone company,
Eircom. 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 was implemented
through Irish legislation in May 2006, though many of its principles
had already been enacted in the Irish Takeover Panel Act 1997.
Political Violence

(I) Impact of Northern Ireland Instability

Ireland has not experienced significant spillover of violence or
instability from Northern Ireland, especially since the late 1970s
and after the cease-fires of 1994. The growth of business
investment and confidence in Northern Ireland following the
cessation of widespread violence has benefited the Republic of
Ireland, with cross-border trade reaching roughly euro 2.5 billion
in 2005. In 2006, the Irish and British Governments launched a
report on potential areas for cross-border economic cooperation,
such as R&D collaboration, energy and transportation infrastructure
linkages, and joint trade missions. The 2007-2013 National
Development Plan earmarks funding to develop these linkages. No
violence related to the situation in Northern Ireland has been
specifically directed at U.S. citizens or firms located in the
South.

The 1998 ratification of the Good Friday Agreement by large
majorities in both Ireland and Northern Ireland further diminished
the potential for violence. Although groups in Northern Ireland
opposed to the peace process have continued to commit infrequent
acts of criminality, there have been no serious incidents in the
Republic of Ireland. In May 2007, the Northern Ireland Assembly was
restored and local government resumed; a key landmark in the
successful peace process in Northern Ireland that commenced with the
Good Friday Agreement in 1998.

(II) Other Acts of Political Violence

There have been no 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. 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.
In 2006, five other Irish citizens involved in the damage of U.S.
military assets in 2003 were acquitted by a jury decision in an
Irish court. The jury accepted arguments by the defendants, the
so-called "Shannon Five," that they had acted to prevent loss of
life and property damage in Iraq.

Corruption

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.

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.

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.

In 2006, the Irish media disclosed information leaked from the Mahon
Tribunal that Prime Minister (Taoiseach) Bertie Ahern had, as
Finance Minister in the 1990s, accepted the equivalent of roughly
euro 50,000 in loans from associates. Following the disclosure, the
Prime Minister made public statements about the incident, noting
that his actions had not been illegal and that political favors had
been neither sought nor granted in connection with the loans. The
Mahon Tribunal continued to meet on occasion in 2007 without
reaching any determination. Its deliberations will continue in

2008. Also in 2006, the Moriarty Tribunal found that former Prime
Minister Charles Haughey had accepted the equivalent of roughly euro
12 million in payments between 1979 and 1996 in return for political
favors, such as tax reductions for associates and the procurement of
a passport.

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.

Bilateral Investment Agreements

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, Chile, China, Croatia, Cyprus, the Czech Republic, Denmark,
Estonia, Finland, France, Germany, Greece, Hungary, Iceland, 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. In 2007, new treaties with Georgia, Macedonia,
Moldova and Vietnam and a Protocol to the existing treaty with South
Africa were agreed. Parliamentary procedures to bring into force a
new treaty with Chile and a protocol amending the existing treaty
with Portugal were completed by Ireland in December 2005. Existing
treaties with Cyprus, France, Italy, and Korea 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. In
the absence of a bilateral tax treaty, provisions within the Irish
Taxes Act allow unilateral credit relief against Irish tax for tax
paid in the other country in respect of certain types of income,
e.g., dividends and interest.

OPIC and Other Investment Insurance Programs

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, such as in regard to aircraft purchases. No
other countries have an investment insurance program in Ireland.
Ireland is a member of the Multilateral Investment Guarantee Agency
(MIGA).

The estimated annual U.S. dollar value of local currency likely to
be used by the U.S. Embassy in Ireland during 2007 is approximately
USD 11 million. The Embassy purchases local currency through
centralized bulk purchasing arrangements at a competitive market
rate. Prospects for euro-zone economic growth and for the U.S.
trade and budget deficit positions will likely determine USD and
euro currency movements through 2007.

Labor

In 2007, employment levels in Ireland reached historical highs, the
result of continued strong economic growth. As of May 2007, the
number of persons employed was roughly 2.1 million, an increase of
about 75,000 from a year earlier. Since 1994, employment growth has
averaged over 4.0 percent, with lower rates recorded in 2002 and
2003 following the post 9/11 global economic slowdown. Employment
in production industries, including manufacturing, grew by about
3,000 in the period from May 2006 to May 2007, reversing a trend
over recent years in which the number of manufacturing jobs had
decreased.

In contrast to 15.6 percent unemployment in 1993, Ireland registered
4.6 percent unemployment in November 2007. This was among the
lowest unemployment rates among EU Member States and roughly half
the EU average. The number of unemployed people in May 2007 was
about 98,000. 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.

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 1.162 million males
and 850,700 females employed as of end 2007. This gender balance
reflects a change in social mores that has facilitated a surge in
female employment since the mid-1980s

With the tightening of the labor market, wages remain on an upward
growth curve. As of September 2006, average industrial earnings per
worker were euro 601 per week, a 3.5 percent increase over September

2005. Between 1998 and 2003, compensation per employee increased by
37.1 percent, compared to an increase of 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 8.65 in July 2007. Employees
earning the minimum wage will not have to pay personal income tax in

2008.

Unprecedented inward migration levels, particularly from Eastern
Europe, have added a new dynamic to the Irish labor market. Of the
83,000 new workers added to the labor force between the third
quarters of 2005 and 2006, roughly 40,500 were non-Irish nationals,
working mostly in the construction and lower-end services sectors.
According to Ireland's Central Statistical Office (CSO),the number
of non-nationals residing in Ireland has doubled since 2002 to
roughly 400,000, or roughly 9 percent of the total population.
Irish labor unions and Labor Party politicians have expressed
concern over the possibility of displacement of Irish workers by
non-nationals. Economists observe, however, that yearly job
creation in Ireland has been sufficient to accommodate both Irish
and non-Irish workers and that there is no evidence of downward
pressure on wages. However, the possibility of a slowdown in the
global economy will undoubtedly lead to slower job creation in
Ireland. Economists also hold that that Ireland will require 50,000
immigrants a year over the short term to sustain high rates of
economic growth.

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. Over the
years, employers have generally implemented the benchmarks for pay
and employee benefits established by the national economic programs,
even thought the benchmarks do not have legal force. This
consensual "Social Partnership" approach has been a major factor in
improving the industrial relations climate since the mid-1980s. In
2006, the number of working days lost as a result of industrial
disputes was 7,352, as compared to 130,000 in 1995.

In September 2006, Ireland's major unions and the employers'
representative body agreed to the latest national economic program,
"Toward 2016," under the Social Partnership framework. The
agreement followed a 9-month negotiation that centered on the
increasingly significant role of foreign workers in the Irish
economy. The national economic program sets out consensus positions
on wide-ranging social policies over a 10-year period and includes a
10-percent pay increase for workers over the first 3 years. The
package encompasses measures to protect employment standards, such
as the establishment of a new agency (the Office of the Director of
Employment Rights Compliance),a tripling of the Labor Inspectorate,
and tougher penalties for employers who exploit foreign workers.
The deal also calls on the Government to engage with unions and
employers in drawing up a comprehensive policy on pensions.

Employers typically resist trade union demands for mandatory trade
union recognition in the workplace. 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, although pay and benefits are usually more attractive
compared with domestic firms.

Foreign-Trade Zones/Free Ports

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 2007, there were over 110 foreign manufacturing
and service companies established in the Shannon Free Zone,
employing roughly 7,500 workers. Also in 2007, trade from the
Shannon Free Zone amounted to euro 2.5 billion. U.S. companies,
which make up 57 percent of the firms operating out of Shannon,
include GE Capital, Bristol Myers Squibb, UPS, FedEx, Pfizer, Intel,
and Symantec. The Shannon Free Zone is technically an asset of
Shannon Development.

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.

Foreign Direct Investment Statistics

According to Ireland's Central Statistical Office (CSO),the stock
of FDI in Ireland for end-year 2005 stood at euro 141 billion, or
roughly 88 percent of nominal 2005 GDP and a euro 13 billion drop
from 2004. Ireland had negative FDI flows of euro 25 billion in
2005, which the CSO attributed primarily to loans by Ireland-based
firms to affiliates abroad. A portion of these loans likely went to
overseas affiliates that sought to repatriate earnings to the United
States under a one-time lower tax rate afforded by the 2005 American
Jobs Creation Act. (Note: The most recent FDI available from the
CSO is 2005. In the past, CSO and U.S. Commerce Department figures
for U.S. FDI in Ireland have differed, due to different calculation
methods.)

In 2006, the roughly 1,000 companies supported by IDA Ireland spent
almost euro 16 billion in the Irish economy from their annual sales
of euro 95 billion (exports of euro 91 billion). During 2007, IDA
Ireland negotiated 114 new business projects with new and existing
clients, which involved a total investment commitment of euro 2.3
billion over the coming years. Also in 2007, IDA-assisted firms had
a net loss of 147 jobs, and over 60 percent of new jobs in
IDA-supported projects had wage and salary levels in excess of euro
40,000 annually.

IDA Ireland announced 78 new and expansion projects with U.S.
companies during 2007. Roughly two-thirds of FDI projects that came
to Ireland in 2006 were of U.S. origin. Forfas, a quasi-state
economic think tank under the purview of Ireland's Department of
Enterprise, Trade, and Employment, estimated that U.S. companies'
average yearly return on investment (ROI) in Ireland between 2000
and 2004 was 16 percent.

Major U.S. Investments in Ireland

Company Location

Apple Computers Cork

AIG Europe Dublin

Amazon Dublin

Bausch & Lomb Waterford

Berlitz Dublin

BISYS Waterford

Boston Scientific Galway, Cork, Wexford

Bristol Myers Squib Limerick, Dublin

HP-Compaq Computers Galway, Dublin

Citigroup Dublin

Dell Computers Limerick, Dublin

Eastman Kodak Limerick, Cork

eBay Dublin

Fidelity Dublin

Gartner Group Limerick


Google Dublin

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

Pfizer Cork

PFPC Navan, Wexford

Prudential Insurance Letterkenny

3Com Dublin

United Airlines Dublin

US Robotics Dublin

Woodchester Investments Dublin

Wyeth Biopharma Dublin

Yahoo Dublin

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FOLEY