UAE INVESTMENT CLIMATE STATEMENT 2010

UNCLAS ABU DHABI 000072

SIPDIS
STATE FOR EB/IFD/OIA
STATE PASS TO USTR
CCG

E.O. 12958: N/A
TAGS: ECON EINV EFIN ETRD ELAB KTDB PGOV OPIC USTR AE
SUBJECT: UAE INVESTMENT CLIMATE STATEMENT 2010

REF: 09 STATE 124006

A.1 Openness to Foreign Investment

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Investment laws and regulations are evolving in the United Arab

Emirates (UAE) and are expected to become more conducive to foreign
investment. At present, the regulatory and legal framework favors
local over foreign investors. There is no national treatment for
investors in the UAE, and foreign ownership of land and stocks is
restricted. The UAE 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. However, the UAE Government
(UAEG) 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 the Ministry of Economy has drafted a new
law

to facilitate foreign investment.



There is no personal 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.
Companies located in multiple "free zones" across the UAE are
exempt from the tariff on imports and re-exports that do not leave
the zones. 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.
Import tariffs are collected and retained by each Emirate. Dubai
imposes a rental housing tax on expatriates equaling five percent
of the rental charges. The UAE has said that it is considering
passing a VAT averaging 7-12 percent on the federal level and has
asked for assistance from the IMF. Hotels and some
restaurants/coffee shops charge ten to fifteen percent service
charges.



Regulation of the establishment and conduct of business in the UAE
is shared at the federal and emirate levels. The UAE has drafted a
federal law for foreign direct investment (FDI) which is expected
to enter into force during 2010, according to UAEG officials. The
draft law, which is not publicly available, is expected to
facilitate FDI and improve transparency for investors. The proposed
law may allow 100 percent foreign ownership in some sectors and
projects, subject to Cabinet approval. Some of the sectors which
may be liberalized are those with high added value, including
education, health, professional services, computer-related services
and technology transfer.



Under the umbrella of the proposed foreign investment law, the UAEG
created in 2008 a new department for foreign investment at the
Ministry of Economy, which will facilitate foreign investments in
the UAE. The new department includes sections for local and
international investment promotion, legal affairs, economic studies
and customer service. It will coordinate with local entities and
economic zones to facilitate business procedures for foreign
investors.



Currently, 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.
Foreign investors may purchase 108 of the 135 issues on the UAE
stock markets, Abu Dhabi Securities Market (ADX) and Dubai
Financial Market (DFM). Under UAE law, foreign investors are
allowed to own up to 49 percent of a company. However, company
by-laws in many cases prohibit foreign ownership. The
international financial crisis and foreign speculation contributed
to significant declines

in the values of local shares in 2008 and 2009. As a result, some
UAE public shareholding companies have decided to reduce the
percentage of shares available for foreign ownership.




In August 2009, the UAE President issued a decree to amend Article
227 of the Federal Company Law Number 8 of 1984 and abolish the AED
150,000 (USD 40,838) minimum capital requirement for establishing a
limited liability company. The removal of the compulsory capital
requirement is designed to encourage small and medium sized
enterprise development.




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.



In 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. In
an effort to curb price manipulation and allow unrestricted imports
of basic food products, the UAE eliminated trading agency
requirements for basic food products in August 2006. The food
products covered by the decision include milk, frozen vegetables,
baby formula, chicken, cooking oil, noodles, rice, flour, fish
products, tea, coffee, cheese, pastries and diapers. For some food
products deemed non-essential, agency agreements in existence prior
to this period are still recognized.



The UAE Ministry of Economy has publicly discussed amending the
Companies Law to provide for greater foreign ownership of companies
in certain sectors. Some of the sectors which may be liberalized
are education, health, professional services and computer-related
services.



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 projects governed by special
laws or agreements are exempt from the industry law. In September
2009, the Minister of Economy announced that the UAE is considering
raising the foreign ownership ceiling from the current 49 percent
limit and drafting an industry law that allows 100 percent foreign
ownership in the industrial sector.

The Government Tenders Law stipulates that a supplier, contractor,
or tenderer for 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. Individual emirate policies allow non-GCC
nationals to freehold or leasehold rights in designated areas but
does not give property owners permanent residence visas or an
automatic right to work in the Emirate. 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 February 2009, the Higher Corporation for Specialized Economic
Zones (ZonesCorp),an industrial zone based in Abu Dhabi, signed
Memorandums of Understanding with the Ministry of Economy (MoE) and
the Abu Dhabi Chamber of Commerce and Industry (ADCCI) to develop
an ideal industrial environment in Abu Dhabi and facilities,
transactions and services for local, regional and international
investors. Through the electronic exchange of data and
information, the MoU gives ZonesCorp the authority to issue, amend
and renew Chamber of Commerce Certificates for industrial
businesses operating in the industrial cities, as well as collect
fees on the Chamber's behalf, streamlining the process and saving
time for investors. ZonesCorp has also established a one-stop-shop
for investors.

In November 2004, the UAE announced its intent to open up the
insurance sector to new foreign insurance companies. In 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. No new
insurance companies or new branches have been authorized since

2008. 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. New entries of foreign insurance companies were frozen
since 1999, but officials from the Insurance Section of the UAE
Ministry of Economy have stated that the Ministry of Economy
licensed three subsidiary foreign insurance companies in 2007.
Currently, there is only one American subsidiary insurance company
operating in the UAE.



In 2008, Abu Dhabi Chamber of Commerce and Industry created also a
one-stop-shop for investors , with the exception of Israeli
currency and the currencies of those countries subject to United
Nations sanctions.



A.2 Conversion and Transfer Policies

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



The UAE's exchange system is generally free of restrictions on
payments and transfers from international transactions. 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 USD 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 U.S. dollars is subject to a 1
percent fee. In 2009, UAE has withdrawn from the anticipated GCC
monetary union, which was expected in 2010.



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.



The UAEG's 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. The Embassy does not yet have any experience
with U.S. firms attempting to use arbitration under the UN
convention.



The UAE constitution established a federal court system while
acknowledging the right of the individual emirates to opt out,
which Abu Dhabi, Dubai and Ras Al Khaimah 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 judges to the federal courts, while judges in Abu
Dhabi, Dubai and Ras Al Khaimah are appointed by the respective
rulers of those emirates. The majority of judges are non-Emirati.
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, but is focused
primarily on family, inheritance and personal status matters.
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 Code of Civil Procedure contains comprehensive rules regarding
the various types of preventive and provisional remedies prior to
litigation and the issuance of judgments, including the attachment
of property, confiscation of the defendant's passport and
prohibitions on travel, as well as the detention of the defendant
in certain instances. However, the courts must certify all
arbitration decisions, and though they do not review substantive
claims, they can invalidate decisions based on procedural
considerations. Parties can also appeal certification decisions
thus prolonging enforcement indefinitely. In June 2009, the Abu
Dhabi Judicial Department (ADJD) had established commercial
directories, including directories for bonds and shares, banks,
construction and real estate disputes, insurance, and financial
papers.



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



The Dubai Chamber of Commerce and Industry has promulgated similar
commercial conciliation and arbitration rules that permit parties
to have conciliation or arbitration proceedings under the auspices
of the Chamber. In 2004, the Dubai International Arbitration
Center was made independent of the Chamber. The Arbitration Center
aims to bring international standards of arbitration to business in
Dubai. The UAE is a member of the International Center for the
Settlement of Investment Disputes. In May 2009, Sharjah issued an
Emiri Decree (No. 6 of 2009) concerning the formation of the
Sharjah International Commercial Arbitration Center, under the
umbrella of the Sharjah Chamber of Commerce.

A.5 Performance Requirements/Incentives

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



As listed elsewhere in this report, the regulatory and legal
framework in the UAE favors local over foreign investors.
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
(details in section A15). Outside the free zones, no incentives
are given, although the ability to purchase property as freehold in
certain favored projects in Dubai would appear to be incentives
aimed at attracting foreign investment.

A.6 Right to Private Ownership and Establishment

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Except as detailed elsewhere in this report, there are no
restrictions on the right of private entities to establish and own
business enterprises and engage in all forms of remunerative
activity.



A.7 Protection of Property Rights

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



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 leasehold rights to surface property in certain
designated areas. Most construction, commercial and residential,
is financed by a specialized agency of the government of Abu Dhabi,
and commercial banks finance the remainder. Their collateral
traditionally has been access to the rent stream of the building or
the personal guarantee of the developer. A domestic mortgage
industry is also developing.



The UAE Government (UAEG) 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. In 2008, the UAE Ministry of Economy (MoE)
established offices for copyright, trademark, and patent, each
under different section at the MoE.. 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
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 industry estimates, the
rate of software piracy in the UAE is the lowest in the Middle East
and North Africa, estimated to be 36 percent in 2009. The UAE is
recognized as the regional leader in fighting computer software
piracy. In 2009, the UAE launched several campaigns against piracy
and seized and destroyed thousands of pirated CDs, auto spare
parts, perfumes, air fresheners, electrical devices, sport
equipment, medicines, movies and music discs. In 2009, industry
estimated that piracy resulted in almost $170 million (AED 623
million) in losses to the UAE economy in 2008. According to UAE
officials, counterfeit and fake goods cost UAE economy around USD
408 million (1.5 billion Dirhams) annually.





The UAE's Trademark Law, also issued in July 2002, confirms that
the UAE will follow the International Classification System and
that one trademark can be registered in a number of classes. The
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. As part of the GCC Customs Union, the UAE and the
other five Member States are working toward unifying their IP
regimes. In this respect, the GCC is preparing a draft common
trademark law. All six Member States are expected to adopt this law

as national legislation in order to implement it.



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, which are publicly available, vary from
emirate to emirate.



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: the first comprehensive legislation
in the UAE on the subject. Monetary judgments in bankruptcy cases
are made in the local currency, and UAE courts enforce the
judgments of foreign courts if there is reciprocity based on
bilateral or international treaties. In the judgment of western
legal experts, the commercial code chapter on bankruptcy governs
the procedures and effects of bankruptcy in the UAE, but does not
provide a mechanism for the orderly evaluation and distribution of
assets of a bankrupt entity. The government is considering
revising bankruptcy legislation in the wake of the global financial
crisis.



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
has since granted licenses to some GCC banks. In 2008, the Central
Bank allowed several foreign banks operating in the UAE to set up
new branches. According to Central Bank statistics, there were no
new foreign bank branches licensed in 2009, but 6 new foreign
electronic banking services units were authorized. In 2009, local
banks opened 43 new branches, 6 new electronic banking services
units, and 9 new pay offices.



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
Emirates NBD (the merged Emirates Bank International and National
Bank of Dubai),National Bank of Abu Dhabi, Mashreq Bank, and Abu
Dhabi Commercial Bank. In November 2008, the UAE Ministry of
Finance announced that it started the official procedures to merge
Amlak Finance PJSC and Tamweel PJSC, two leading Sharia (Islamic
Law)-compliant real estate finance providers in the UAE, under the
UAE Real Estate Bank to create the largest real estate finance
institution in the country under the umbrella of the Federal
Government. The structure of the merger is still not finalized,

although it was expected to be announced by late 2009.



The Central Bank prohibits lending an amount greater than 7 percent
of a bank's capital base to any single customer. Foreign banks
with branches in the UAE are not permitted to calculate loans as a
percentage of their global capital, which may however be used to
calculate 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. In the past year,
UAE banks adopted more conservative lending policies and raised
interest rates on time deposits, closing the gap between loans and
deposits to an estimated USD 6.64 billion (24.4 billion Dirhams) in
November 2009.



The UAEG implemented a body of anti-money laundering legislation at
the end of 2001. 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. In
2006, the UAE also enacted Law No. 2 of 2006 -- the Cybercrimes Law
-- which has articles dealing with money laundering and terrorist
finance. The UAE Central Bank's Anti-Money Laundering and
Suspicious Cases Unit (AMLSCU) performs the functions of a
financial intelligence unit (FIU) and is a member of the Egmont
Group.



A.10 Competition from State Owned Enterprises

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



Many fully or partially state-owned companies have grown large and
efficient enough to compete effectively for business and financing
in local and regional markets.



A.11 Corporate Social Responsibility

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



Many companies in the UAE, including local and foreign companies,
participate in corporate social responsibility programs, including
employing social programs, humanitarian assistance, and
environmental issues.



A.12 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.13 Corruption

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





Transparency International's 2009 report ranks the UAE 35th
globally and second among Arab countries, after Qatar, in
transparency and combating corruption. There is no evidence that
corruption of public officials is a systemic problem; however, in
2008 and 2009, UAE authorities investigated several high-profile

corruption cases, including two cases involving two former
ministers. Several senior Emirati and foreign nationals were
dismissed and detained. Dubai Police referred 36 alleged bribery
cases for prosecution in 2009. 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. In
August 2005, the UAE signed the UN Anticorruption Convention and
ratified it in February 2006.



A.14 Bilateral Investment Agreements

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



The UAE has signed a variety of bilateral and multilateral trade
and investment agreements, including six free trade agreements, 45
related to bilateral trade and economic cooperation, 33 to promote
investment, and 49 prohibiting double taxation on income. The UAE
is involved in Gulf Cooperation Council (GCC) negotiations with
Australia, China, and other countries on free trade agreements. In
June 2009, the GCC concluded a Free Trade Agreement with Iceland,
Liechtenstein, Norway and Switzerland (the European Free Trade
Association).



In March 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.



The United States began negotiating a Free Trade Agreement with the
UAE in March 2005. In early 2007, the United States and the UAE
announced that despite considerable progress in a number of areas
under negotiation, they would not be able to complete FTA
negotiations under the existing time frame for trade promotion
authority. The United States and the UAE have since initiated a
"TIFA Plus" consultative process under the existing bilateral Trade
and Investment Framework Agreement (TIFA); this process will be
used to advance trade liberalization in as many areas as possible -
building where appropriate on progress made during the FTA
negotiations.



A.15 OPIC and other Investment Insurance Programs

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



The UAE has been suspended from U.S. OPIC insurance programs since
1995 because of the UAEG's lack of compliance with internationally
recognized worker rights standards, particularly laborers' rights
to association and collective bargaining. The ILO reported in
April 2003, however, that the UAE had started to address these
concerns.



A.16 Labor

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

The population of the UAE was approximately 4.765 million in 2008,
according to the Ministry of Economy. 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 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 added requirements that all secretaries and Public
Relations Officers must also be Emirati. The UAE National Human


Resource Development and Employment Authority (TANMIA),is the
federal body tasked to boost Emiratization. In May 2009, the
Cabinet approved the establishment of the UAE Emiratization Council
(UEC),which is responsible for formulating policies and standards
to promote Emiratization and for supporting the development of
skills and competitiveness among nationals.





Despite these efforts, the percentage of UAE nationals to total
employees in the private sector decreased from 1.79 percent in the
end of 2007 to 1.63 percent in the first half of 2008. According to
a 2009 Ministry of Labor study, non-Arab Asians constitute 88
percent of the total workforce in the private sector, while Arab
nationals including Emiratis add up to a mere 10 percent, and other
nationalities comprise just 2 percent.




The UAE Government has committed itself to strictly regulating and
enforcing labor laws, as witnessed by a series of regulatory and
legislative initiatives. In February 2007, the Ministry of Labor
published the proposed new labor law for public comment. The
proposed law, which still not finalized, does not contain any
provisions for labor unions or for collective bargaining, but the
UAE Ministry of Labor continues to press businesses and work with
countries from which the labor pool originates to improve and
streamline contracts, ensure timely salary payment and maintain
adequate living accommodations. A committee constituted from
several UAE governmental bodies and experts has reportedly been
established to discuss standards and a mechanism for labor
representation.



In 2009, the Ministry of Labor introduced a new electronic wage
protection system (WPS) designed to combat non-payment of wages.
This direct deposit system creates an electronic record of payment
for the employer and employee. Implementation is being phased in
according to company size.



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.



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 approximately 268,000 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
many are subject to poor working conditions. UAE employers tie
most foreign employee's residency permit 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.

Visas, residence permits, and work permits are required of all
foreigners in the UAE except nationals from Gulf Cooperation
Council (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 visit visas for business and tourism at the
airport upon arrival. These visas do not permit employment in the
UAE. In October 2009, UAE issued a requirement that most diplomatic
or official passport holders obtain visas prior to their travel to
the UAE.



A.17 Foreign Trade Zones/Free Ports

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



Free Zones in the UAE are home to more than 17,000 companies with a
total investment estimated at more than USD 21 billion. Presently,
38 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 20km south of Dubai
city adjacent to the Jebel Ali Port. Over 6000 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. 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.18 Foreign Direct Investment Statistics

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



The United Nations Conferences on Trade and Development (UNCTAD)
reports that inward FDI flow for the UAE rose to USD 13.7 billion
in 2008. The UNCTAD Inward FDI Performance Index 2004-2007 (141
economies) listed the UAE in 34th place worldwide and 5th place
among Arab countries in attracting foreign direct investment.



The stock of U.S. foreign direct investment (FDI) in United Arab
Emirates (on historical-cost basis) was USD 3.423 billion in 2008,
according to the U.S. Bureau of Economic Analysis. U.S. FDI in
United Arab Emirates is concentrated largely in the mining,
finance, and wholesale trade sectors.



The Abu Dhabi Chamber of Commerce and Industry notes that the
leading sectors for investment in the UAE are (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
(estimates range upward) in government assets in overseas markets
-- mostly in the United States, Europe, and Asia. Other Emirate
level investment authorities primarily from Abu Dhabi and Dubai are
also actively investing overseas.
OLSON