United Kingdom: Investment Climate Statement 2010

UNCLAS SECTION 01 OF 12 LONDON 000092

SIPDIS

DEPT FOR EB/IFD/OIA
DEPT ALSO FOR USTR

E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV OPIC KTDB USTR UK
SUBJECT: United Kingdom: Investment Climate Statement 2010

REF: 09 State 124006

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1. In response to reftel, the following is the 2010 Investment
Climate Statement for the United Kingdom. The information is
updated as of January 1, 2010.

UNITED KINGDOM: 2010 INVESTMENT CLIMATE STATEMENT
-------------- --------------

A.1. Openness to Foreign Investment

The UK was the world's fourth largest recipient of foreign direct
investment in 2008, receiving U.S. $96.9 billion, according to the
United Nations Conference on Trade and Development (UNCTAD),latest
available figures. The UK attracted 19 percent of all FDI inflows
into the European Union (EU). The stock of U.S. foreign direct
investment in the UK totaled $421 billion at year end 2008.

With a few exceptions, the UK does not discriminate between
nationals and foreign individuals in the formation and operation of
private companies. U.S. companies establishing British subsidiaries
generally encounter no special nationality requirements on directors
or shareholders, although at least one director of any company
registered in the UK must be ordinarily resident in the UK. Once
established in the UK, foreign-owned companies are treated no
differently from UK firms. Within the EU, the British Government is
a strong defender of the rights of any British registered company,
irrespective of its nationality of ownership.

Market entry for U.S. firms is greatly facilitated by a common
language, legal heritage, and similar business institutions and
practices. Long-term political, economic, and regulatory stability,
coupled with relatively low rates of taxation and inflation make the
UK particularly attractive to foreign investors. The Labour
government continues its commitment to economic reforms, including
privatization, deregulation, and support for competition.

Local and foreign-owned companies are taxed alike. Inward investors
may have access to certain EU and UK regional grants and incentives
that are designed to attract industry to areas of high unemployment,
but no tax concessions are granted. The UK taxes corporations 28
percent on profits over 1.5 million GBP. Small companies are taxed
at a rate of 21 percent for profits up to GBP 300,000 and marginal
tax relief is granted on profits from 300,001-1,500,000 GBP. Tax
deductions are allowed for expenditure and depreciation of assets
used for trade purposes. These include machinery, plant, industrial
buildings, and assets used for research and development. A special
rate of 20 percent is given to unit trusts and open-ended investment
companies.

The UK has a simple system of personal income tax. The basic income
tax rate is 20 percent on income less than GBP 37,400. The higher
rate of income tax, payable on income over GBP 37,400 is 40 percent.
From the start of the 2010-2011 tax year, income tax on all income
over GBP 150,000 will increase from 40 to 50 percent. A temporary
bank payroll tax of 50 percent was applied to discretionary bonuses
above GBP 25,000 awarded by banks between December 9 2009 and April
5 2010. UK citizens also make mandatory payments of about 11
percent of income into the National Insurance system, which funds
social security and retirement benefits. Effective April 2008, the
UK requires non-domiciled residents of the UK to either pay tax on
their worldwide income or a flat rate of GBP 30,000 after seven
years of residence.

The Scottish Parliament has the power to increase or decrease the
basic income tax rate in Scotland, currently 20 percent, by a
maximum of 3 percentage points. Although the Scottish government has
this power, it has never been used, and the mechanism for collection
and disbursement is unclear.

The UK imposes few impediments to foreign ownership. The UK
subscribes to the OECD Committee on Investment and Multinational
Enterprises' (CIME) National Treatment Instrument and the OECD Code
on Capital Movements and Invisible Transactions (CMIT).

U.S. companies have found that establishing a base in the UK is an
effective means of accessing the European Single Market, and the
abolition of most intra-European trade barriers enables UK-based
firms to operate with relative freedom throughout the EU. Many U.S.
companies have operations in the UK, including all of the top 100.
The UK hosts more than half of the European, Middle Eastern and
African corporate headquarters of American-owned firms.


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British Overseas Territories

The British Overseas Territories (BOTs) comprise Anguilla, British
Antarctic Territory, Bermuda, British Indian Ocean Territory,
British Virgin Islands, Cayman Islands, Falkland Islands, Gibraltar,
Montserrat, Pitcairn Islands, St. Helena and its dependencies
Ascension and Tristan da Cunha, Turks and Caicos Islands, South
Georgia and South Sandwich Islands, and Sovereign Base Areas on
Cyprus. The BOTs retain a substantial measure of responsibility for
their own affairs. Local self-government is usually provided by an
Executive Council and elected legislature. Governors or
Commissioners are appointed by the Crown on the advice of the
British Foreign Secretary, and retain responsibility for external
affairs, defense, and internal security. However, the UK imposed
direct rule on the Turks and Caicos Islands in August 2009 after an
inquiry found evidence of corruption and incompetence. Its Premier
was removed and its constitution was suspended. The UK now rules
directly through its Governor.

The UK's Department for International Development (DFID) is
committed to meeting the "reasonable assistance needs" of the BOTs.
Many of the territories are now broadly self-sufficient. However,
DFID maintains development assistance programs in St. Helena,
Montserrat and Pitcairn, including budgetary aid to meet the
islands' essential needs and development assistance to help
encourage economic growth and social development. Other BOTs
receive small levels of assistance through "cross-territory"
programs for issues such as environmental protection, disaster
prevention, HIV/AIDS and child protection. The UK also lends to the
BOTs as needed, up to a pre-set limit, but assumes no liability for
them if they encounter financial difficulty.

Many of the BOTs, particularly those in the Caribbean, have been hit
hard by the financial crisis. In the Cayman Islands, the British
Virgin Islands, the Turks and Caicos and Anguilla, decreases in
financial services activity and tourism have resulted in falling
output and government revenue. Fisheries and tourism activity in
the Falkland Islands have fallen while the government revenues of
Gibraltar, with its more diversified economy, have been resilient.
To mitigate the impact of the crisis, the territories are
reprioritizing government expenditure and looking at ways to
increase revenue. Additionally, BOTs may request higher borrowing
limits from the UK.

Seven of the BOTs have financial centers: Anguilla, Bermuda, British
Virgin Islands, Cayman Islands, Gibraltar, Montserrat and the Turks
and Caicos Islands. In April 2009, during the London G20 Summit,
all of these territories were placed on the OECD's "grey list" of
jurisdictions that have committed to the internationally agreed tax
standard, developed by the OECD, but have not yet substantially
implemented it by signing the 12 tax information exchange
agreements. As of January 11, 2010, all but Anguilla and Montserrat
were listed on the OECD's list of jurisdictions that have
substantially implemented the internationally agreed tax standard.


-- Anguilla: Anguilla is a neutral tax jurisdiction. There are no
income, capital gains, estate, profit or other forms of direct
taxation on either individuals or corporations, for residents or
non-residents of the jurisdiction. The territory has no exchange
rate controls. Non-Anguillian nationals may purchase property, but
the transfer of land to an alien includes a 12.5 percent tax.

-- Bermuda: See independent Investment Climate Statement.

-- British Virgin Islands: The government of the British Virgin
Islands welcomes foreign direct investment and offers a series of
incentive packages aimed at reducing the cost of doing business on
the islands. These range from relief on customs duties on imported
capital goods to relief from corporation tax payments over specific
periods. Crown land grants are not available to non-British Virgin
Islanders, but private land can be leased or purchased following the
approval of an Alien Land Holding License. Company tax is 15
percent on chargeable income. Personal income taxes are payable at
the rate of three percent on the first $2,500 of income, six percent
on the next $5,000, ten percent on the next $7,500, 15 percent on
the next $10,000 and 20 percent on income exceeding $25,000.

-- Cayman Islands: There are no direct taxes in the Cayman Islands.
The government charges stamp duty of six percent on the value of
real estate at sale and there is a one percent fee payable on
mortgages of less than CI$300,000, and one and a half percent on
mortgages of CI$300,000 or higher. There are no controls on the

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foreign ownership of property and land. Investors can receive
import duty waivers on equipment, building materials, machinery,
manufacturing materials, and other tools.

-- Falkland Islands: Companies located in the Falkland Islands are
charged corporation tax at 21 percent on the first GBP one million
and 26 percent for all amounts in excess of GBP one million. The
individual income tax rate is 21 percent for earnings below GBP
13,000 and 26 percent above this level.

-- Gibraltar: The government of Gibraltar encourages foreign
investment. Gibraltar is a low-tax jurisdiction (no capital or
sales taxes) with a stable currency and few restrictions on moving
capital or repatriating dividends. It is a member of the EU and
offers EU funding for projects that improve the island's economic
development.

-- Montserrat: The government of Montserrat welcomes new private
foreign investment. Foreign investors are permitted to acquire real
estate, subject to the acquisition of an Alien Land Holding license.
Foreign investment in Montserrat is subject to the same taxation
rules as local investment, and is eligible for tax holidays and
other incentives. Montserrat has preferential trade agreements with
the United States, Canada and Europe. The government allows 100
percent foreign ownership of businesses but the administration of
public utilities remains wholly in the public sector.

-- St. Helena: The island of St. Helena is open to foreign
investment and welcomes expressions of interest from companies
wanting to invest. Its government operates an Approved Investor
scheme, which offers concessions to businesses that meet a set of
criteria outlined in the government's Economic Development Ordinance
and Tourism Policy - particularly tourism projects that will be
trading at the time of the opening of the St. Helena airport. All
applications under the scheme are processed by the St. Helena
Development Agency.

-- Pitcairn Islands: The Pitcairn Islands have approximately 50
residents, with a workforce of approximately 15. The territory does
not have an airstrip or safe harbor. Residents exist on fishing,
subsistence farming, handcrafts and postage stamps.

-- The Turks and Caicos Islands: The islands operate an "open arms"
investment policy. Through the policy, the government commits to: a
streamlined business licensing system; a responsive immigration
policy to give investment security; access to government owned land
under long term leases; and a variety of duty concessions to
qualified investors. The islands have a "no tax" status.


Measure Year Index/Rating
for the UK
-------------- -------------- --------------
TI Corruption Index 2008 Sixteenth/7.7
Heritage Economic Freedom 2009 Tenth/79
World Bank Doing Business 2009 Fifth

A.2. Conversion and Transfer Policies

The British pound sterling is a free-floating currency with no
restrictions on its transfer or conversion. There are no exchange
controls restricting the transfer of funds associated with an
investment into or out of the UK. All exchange controls were
repealed in 1987.

The UK is not a member of the Euro area. Prime Minister Gordon
Brown has said he is in favor of joining, but only after a national
referendum and the British public votes to adopt the Euro. The date
of this referendum is contingent on a government assessment based on
five economic tests, which are sustainable convergence, sufficient
flexibility, effect on investment, impact on financial services, and
effect on employment. Once these tests are passed, the government
must then seek Parliamentary approval for a national referendum.
Given the current lukewarm support for the Euro among the British
people and the economic downturn, a referendum is not likely to
occur in the near future.

The Finance Act 2004 repealed the old rules governing thin
capitalization, which allowed companies to assess their borrowing
capacity on a consolidated basis. Under the new rules, companies
who have borrowed from a UK or overseas parent need to show that the
loan could have been made on a stand-alone basis or face possible
transfer pricing penalties. These rules were not established to

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limit currency transfers, but rather to limit attempts by
multinational enterprises to present what is in substance an equity
investment as a debt investment to obtain more favorable tax
treatment.

A.3. Expropriation and Compensation

Expropriation of corporate assets or nationalization of an industry
requires a special Act of Parliament, as seen in the February 2008
nationalization of Northern Rock. In the event of nationalization,
the British government follows customary international law,
providing prompt, adequate, and effective compensation.

A.4. Dispute Settlement

International disputes are resolved through litigation in the UK
Courts or by arbitration, mediation, or some other alternative
dispute resolution (ADR) method. Over 10,000 disputes a year take
place in London, many with an international dimension, reflecting
its strong position as an international center for legal services.
Most of the disputes center on the maritime, commodities, financial
services, and construction sectors. The London Court of
International Arbitration and the International Chamber of
Commerce's International Court of Arbitration are the leading
administrators of international arbitrations. The Stock Exchange
Panel on Takeovers and Mergers mediates takeover bid disputes, and
there is a further right of appeal to the Stock Exchange Appeals
Committee.

As a member of the International Center for Settlement of Investment
Disputes, the UK accepts binding international arbitration between
foreign investors and the state. As a signatory to the 1958 New
York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, the UK permits local enforcement on arbitration
judgments decided in other signatory countries.

A.5. Performance Requirements/Incentives

UK business contracts are legally enforceable in the UK, but not
U.S. or other foreign ones. Performance bonds or guarantees are
generally not needed in British commerce, nor is any technology
transfer, joint venture, or local management participation or
control requirement imposed on suppliers. Government and industry
encourage prompt payment, but a tradition does not exist of
providing an additional discount to encourage early settlement of
accounts.

The UK offers a wide range of incentives for companies of any
nationality locating in depressed regions of the country, as long as
the investment generates employment. Grants for Business Investment
(GBI) are available from the central government for qualifying
projects in parts of the UK needing investment to revitalize their
economies. Grants are the main type of assistance, and the level of
grant is based on capital expenditure costs and expectations of job
creation.

In addition to GBI, assistance can be obtained through the EU
Structural Funds available from 2007 to 2013. The UK will receive
approximately 9.4 billion in structural funds including:
approximately 2.6 billion in convergence funding for the UK's
poorest regions; approximately 6.2 billion in competitiveness and
employment funding for other regions; and approximately 0.6 billion
in cooperation funding for cross-border and trans-national
activities. Assistance is offered to companies that meet the
government's objectives for convergence, cooperation,
competitiveness and employment. Convergence funding is available to
companies that locate in areas with GDP per capita below 75 percent
of the EU average. In the UK, these regions are Cornwall, the Isles
of Scilly, West Wales and the Welsh Valleys.

Local authorities in England and Wales also have power under the
Local Government and Housing Act of 1989 to promote the economic
development of their areas through a variety of assistance schemes,
including the provision of grants, loan capital, property, or other
financial benefit. Separate legislation, granting similar powers to
local authorities, applies to Scotland and Northern Ireland. Where
available, both domestic and overseas investors may also be eligible
for loans from the European Investment Bank.

A.6. Right to Private Ownership and Establishment

The Companies Act of 1985, administered by the Department for
Business, Innovation and Skills (BIS),governs ownership and

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operation of private companies. On November 8, 2006 the UK passed
the Companies Act of 2006 to replace the 1985 Act. The law
simplifies and modernizes existing rules rather than make any
dramatic shift in the company law regime.

BIS uses a transparent code of practice that is fully in accord with
EU merger control regulations, in evaluating bids and mergers for
possible referral to the Competition Commission. The Competition
Act of 1998 strengthened competition law and enhanced the
enforcement powers of the Office of Fair Trading (OFT).
Prohibitions under the act relate to competition-restricting
agreements and abusive behavior by entities in dominant market
positions. The Enterprise Act of 2002 established the OFT as an
independent statutory body with a Board, and gives it a greater role
in ensuring that markets work well. Also, in accordance with EU
law, if deemed in the public interest, transactions in the media or
that raise national security concerns may be reviewed by the
Secretary of State of BIS.

Only a few exceptions to national treatment exist. For example,
foreign (non-EU or non-EFTA, European Free Trade Association)
ownership of UK airlines is limited by law to 49 percent.
Registration of shipping vessels is limited to UK citizens or
nationals of EU/EFTA member states resident in the UK. For some of
these companies, restrictions of foreign ownership of ordinary
shares apply. Citizenship requirements for certain senior executive
and non-executive posts also apply for these enterprises. Foreign
investment in financial services that are not covered by EU
Directives on banking, investment, services, and insurance may be
subject to a bilateral agreement.

The privatization of state-owned utilities is now essentially
complete. With regard to future investment opportunities, the few
remaining government-owned enterprises or remaining government
shares in other utilities are also likely to be sold off to the
private sector, when market conditions improve. The privatization
of London's extensive underground rail network was completed in 2005
but suffered a setback in 2007 when the privatized company went
bankrupt and returned to public ownership. The government continues
nevertheless to push Public Private Partnerships (PPP).

Under the Private Finance Initiative (PFI),British and
foreign-owned companies may bid for long-term franchises to build,
run, and improve existing public-sector services in areas such as
education, health care, road traffic management, passenger rail,
defense, production of coins and currency, port operations, air and
water monitoring and cleanup, land use planning, and building
control. The government's goal is to provide cost-effective and
higher-quality services in partnership with private sector
investment capital providers.

A.7. Protection of Property Rights

The UK legal system provides a high level of intellectual property
rights (IPR) protection. Enforcement mechanisms are comparable to
those available in the United States. The UK is a member of the
World Intellectual Property Organization (WIPO). The UK is also a
member of the major intellectual property protection agreements: the
Bern Convention for the Protection of Literary and Artistic Works;
the Paris Convention for the Protection of Industrial Property; the
Universal Copyright Convention; the Geneva Phonograms Convention;
and the Patent Cooperation Treaty. The UK has signed and, through
various EU Directives, implemented both the WIPO Copyright Treaty
(WCT) and WIPO Performance and Phonograms Treaty (WPPT),known as
the internet treaties.

In August 2004, the UK published its first "intellectual property
crime strategy." The national strategy, led by the UK Intellectual
Property Office (UK IPO) represents important advancements in
intelligence sharing and coordination among UK government agencies
to combat IP crime, along with a commitment to improve training for
customs enforcement agents. On December 6, 2006, HM Treasury
published the independent Gowers Review of Intellectual Property.
The Gowers Review supports the national strategy and, in particular,
UK IPO's development of a central IP crime database, TellPat that
brings together information on IP crime and the criminals involved
from industry and enforcement agencies. One of the Gowers Review
recommendations is for the UK Home Office to recognize IP crime as a
component of organized crime in order to better educate the public
about the wider dangers of IP crime and to elevate it as a priority
for police action. The Gowers Review made 53 additional
recommendations in the 150-page report that the government plans to
consider. In October 2008, the UK government began consultations on

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a few of the Gowers Review suggestions. In January 2009, the
Parliamentary All-Party IP Group released a follow-on report that
looked at the government's accomplishments two years after the
release of the Gowers' report. The results showed that only half of
the recommendations had been implemented, and of those that had,
many only partially so.

Patents: Many of the key features of the UK Patents Act 2004
entered into effect on January 1, 2005. The Act is designed to
bring UK patent law into line with the updated European Patent
Convention (2000). The Act lifts restrictions on filing patent
applications from abroad, with exceptions made for military
technology and applications whose contents could affect UK national
security. The Act expands options for non-binding, written opinions
on patent infringement to be issued by the UK Patent Office. The
legislation also lays out significant changes to the process of
approaching alleged infringers (sometimes known as "threats"). The
changes are designed to aid genuine attempts to settle infringement
disputes while providing protection -- particularly to small and
medium enterprises -- against frivolous threats. A UK patent
application requires that an invention must be new, involve an
innovative step, and be capable of industrial application. A patent
cannot be granted in the UK for any invention used for offensive,
immoral, or anti-social purpose, for any variety of animal or plant,
or for a biological process used in its production. In September
2007, the UK IPO and the U.S. Patent and Trademark Office (USPTO)
began a 12-month pilot of the Patent Prosecution Highway (PPH)
scheme, which allowed patent applicants who have received a report
by either the UK IPO or the USPTO to request accelerated examination
of a corresponding patent application filed in the other country.

Copyright: The Copyright, Designs and Patents Act of 1988 grants
the originator the exclusive right to assign those rights or to
exploit them through copying, dissemination, publication, or sale.
Computer programs and semiconductor internal circuit designs are
included as works that are protected by this act. Under the terms
of an EU Directive, which took effect in January 1988, databases are
also protected in each EU-member country by the national legislation
that implements the Directive.

Trademarks: The UK submits to the WIPO system of international
registration of marks, as governed by the Madrid Agreement and the
Madrid Protocol. The UK Trade Marks Act of 1994 is the current law
providing for the registration and protection of trade marks in the
UK, and has been harmonized with EU Directive No 89/104/EEC.
Trademarks are considered personal property in the UK, and are
normally registered for a period of 10 years with an option to
renew. However, trademarks may be removed from the register if a
period of five years has elapsed, during which time there has been
no bona fide use of the trademark in relation to the goods by the
proprietor.

Trade Secrets/Confidential Test Data: Commercially sensitive
information is not itself specifically subject to legal protection,
but the misappropriation of such information from business premises
may be subject to criminal law. Action under employment law may
also be taken against an employee who, by disclosing information,
breaches a contract with his or her employer. In addition,
confidential test data, submitted in conjunction with a registered
application for pharmaceuticals or veterinary products, enjoys 10
years of exclusive protection from the date of authorization,
provided the product is marketed in the UK.

A.8. Transparency of the Regulatory System

U.S. exporters and investors generally will find little difference
between the U.S. and UK in the conduct of business. Common law
prevails in the UK as the basis for commercial transactions, and the
International Commercial Terms (INCOTERMS) of the International
Chambers of Commerce are accepted definitions of trading terms. In
terms of accounting standards and audit provisions, as of January 1,
2005 firms in the UK must use the International Financial Reporting
Standards (IFRS) set by the International Accounting Standards Board
(IASB) and approved by the European Commission. The UK's Accounting
Standards Board provides guidance to firms on accounting standards
and works with the IASB on international standards.

An example of differences between UK law (as well as EU law) and
foreign law applies to commercial agents, who are self-employed
intermediaries. Often sales are undertaken in the UK by means of
appointed distributors, licensees, or "agents" using standard form
agreements, or sometimes with no agreement at all. Under UK law, no
distribution or licensing arrangements are terminable "at will," and

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reasonable notice (ranging from 1 to 12 months) is usually required.
In addition, the agent is entitled to at least one year's
commission in damages when agency agreements are terminated. Many
standard form software license agreements have invalid clauses
prohibiting copying because they breach the EU Copyright Directive.
Non-EU court judgments, apart from those for judgment debts, are
often not enforceable in the UK unless a contract between the
parties specifically states that U.S. or other country judgments are
enforceable. UK law, like other European laws, imposes severe
restrictions on exclusions and limitations of implied warranties and
liability. There is an exception within UK law that removes most of
these restrictions where both parties are overseas, which makes UK
law and courts a very favorable compromise choice for corporations
contracting elsewhere in Europe.

Statutory authority over prices and competition in various
industries is given to independent regulators. These include the
Office of Communications (OFCOM),the Office of Water Regulation
(OFWAT),the Office of Gas and Electricity Markets (OFGEM),the
Office of Fair Trading (OFT),the Rail Regulator, and the Financial
Services Authority (FSA). These regulators work to protect the
interests of consumers while ensuring that the markets they regulate
are functioning efficiently. Most laws and regulations are
published in draft for public comment prior to implementation.

The government's declared intent is to introduce more business
competition and to reduce the administrative burden on companies by
reducing unnecessary red tape. In December 2008, the government
published an update to the Better Regulation Simplification Plan,
aimed at reducing the administrative burden on business by 25
percent by 2010. The plan includes cross-cutting simplification
initiatives across government departments and leads efforts to
promote the success of the EU better regulation agenda. An example
of one simplification project is the formation of an International
Trade Single Window, which is aimed at helping importers and
exporters by enabling speedier transactions, reduced paperwork and
easier access to import rules.

A.9. Efficient Capital Markets and Portfolio Investment

The City of London houses one of the world's largest and most
comprehensive financial centers. London offers all forms of
financial services: commercial banking; investment banking;
insurance; venture capital; private equity; stock and currency
brokers; fund managers; commodity dealers; accounting and legal
services; as well as electronic clearing and settlement systems and
bank payments systems. London has been highly regarded by investors
because of its solid regulatory, legal, and tax environment, a
supportive market infrastructure, and a dynamic and highly-skilled
workforce. The financial services industry contributes
approximately 8 percent to UK GDP, down from 10 percent in 2007, and
employs more than 300,000 people. While banks are concerned that
excessive regulation in the wake of the financial crisis will drive
business from London, the UK is expected to maintain its position as
a top financial hub.

UK banks have been particularly hard-hit by the global financial
crisis. Large-scale lay-offs have been common over the past year
and business conditions in financial services in 2010 are expected
to remain difficult. Mergers, nationalizations, and bank failures,
have left a consolidated playing field. In February 2008, the
Government nationalized the UK mortgage lender, Northern Rock, to
stop a retail run on the bank. It later nationalized troubled bank
Bradford & Bingley. The government has developed plans for the
re-privatization of Northern Rock, reviewed by the EU's Competition
Commission, but this will be a multi-year process. The Government
also announced a series of "bank rescue measures" including taking
large equity stakes in two key banks, the Royal Bank of Scotland and
Lloyds Banking Group. Government stakes are managed at arm's-length
by the newly created body, UK Financial Investments.

The UK economy, which has been in recession since the third quarter
of 2008, is expected to see slight economic growth in 2010, with
continued recovery in 2011 and 2012. Property values have fallen 25
percent, and are slowly rising, though UK economists believe
residential property prices are still overvalued. Unemployment has
peaked at levels not seen in decades, the pound sterling has fallen
significantly in value against the dollar, and credit remains
limited and costly as compared with the boom years.

Working within budget constraints, the Government introduced a
temporary fiscal stimulus package to get the economy growing again.
The Bank of England also pursued an aggressive, expansionary

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monetary policy by lowering the key interest rate to a record low of
0.5 percent while embarking on a GBP 200 billion quantitative easing
program. In all circumstances, foreign investors, employers, and
market participants have been treated equally and benefit from
government initiatives equally. There are no signs of increased
protectionism against foreign investment, and none are expected.

Government policies are intended to facilitate the free flow of
capital and to support the flow of resources in the product and
services markets. Foreign investors are able to obtain credit in
the local market at normal market terms, and a wide range of credit
instruments are available. The principles involved in legal,
regulatory, and accounting systems are transparent, and they are
consistent with international standards. In all cases, regulations
have been published and are applied on a non-discriminatory basis by
a single regulatory body, the Financial Services Authority.

The London Stock Exchange is one of the most active equity markets
in the world. London's markets have the advantage of bridging the
gap between the day's trading in the Asian markets and the opening
of the U.S. market. This bridge effect is also evident as many
Russian and Central European companies have used London stock
exchanges to tap global capital markets. The Alternative Investment
Market (AIM),established in 1995 as a sub-market of the London
Stock Exchange, is specifically designed for smaller, growing
companies. The AIM has a more flexible regulatory system than the
Main Market and has no minimum market capitalization requirements.
Since its launch, the AIM has raised approximately GBP 34 billion
($51 billion) for more than 2,900 companies.

The UK banking sector is the largest in Europe, with 361 banks
authorized to do business in the UK, retail deposits of GBP 2.4
trillion ($4.2 trillion - average 2008 exchange rate) and an
estimated 50 percent of all the EU's investment banking activity.
The total assets of the UK banking sector were about 7.5 trillion
GBP ($12.4 trillion) in September 2008, with domestic banks
accounting for about half of the total.

A.10. Competition from State-Owned Enterprises (SOEs)

There are approximately 30 state-owned, or partly-owned, enterprises
in the UK, with a combined turnover of about GBP 21 billion. The
UK's state-owned enterprises are spread across a wide range of
sectors. They range from large, well known companies such as the
Royal Mail and Northern Rock, to small trading funds like the UK
Hydrographic Office which supplies marine navigational information
and services.

The UK's Shareholder Executive, within the Department for Business,
Innovation and Skills (BIS),works with government departments and
management teams to help these companies perform effectively. It
advises government ministers and officials on a wide range of
shareholder issues including objectives, governance, strategy,
performance, monitoring, board appointments and remuneration. It
sets overall objectives for the businesses and agrees on a strategic
plan with the board for delivering those objectives; the board is
then accountable for delivery. Where appropriate, it appoints the
Chair and actively participates in other board appointments. It
sets compensation principles, works with the business to agree
dividend policy, and monitors performance. Under the terms of the
Government-Owned Business Framework, the UK government must provide
all external financing for state-owned business. Businesses are
charged at the market rate to ensure they do not receive any
commercial advantage from the ability to borrow at, or below, the
market rate.

During 2008 and 2009, the UK government nationalized two banks,
Northern Rock and Bradford & Bingley, and took significant stakes in
the Royal Bank of Scotland (RBS) and Lloyds Banking Group. The
government's stake in these banks is managed, at arm's-length, by UK
Financial Investments (UKFI),a company wholly owned by HM Treasury.
With the exception of Bradford & Bingley (which will be wound
down),UKFI will execute an investment strategy for disposing of the
investments through sale, redemption or buy-back. The UK government
does not intend to be a permanent investor in UK financial
institutions. The rescue packages were authorized by the European
Commission under EC Treaty state aid rules, which ensures state aid
packages do not result in significant market distortions. At the
end of 2009, the European Commission approved state aid measures for
RBS and Lloyds but insisted on substantial divestments to limit
market distortions.

A.11. Corporate Social Responsibility

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Businesses in the UK are accountable for some activities that fall
under corporate social responsibility - such as human resources,
environmental issues, sustainable development, health and safety
practices - through a wide variety of existing guidelines at
national, EU and global levels. There is a strong awareness of
corporate social responsibility principles among UK businesses,
promoted by UK business associations such as the Confederation of
British Industry and the UK government.

The UK government has signed up to the OECD's guidelines for
Multinational Enterprises. The government is committed to the
promotion and implementation of these guidelines and encourages UK
multinational enterprises to adopt high corporate standards
involving all aspects of the guidelines. The UK has established a
National Contact Point (NCP) to promote the guidelines and to
consider allegations that a multinational enterprise's behavior is
inconsistent with them. The NCP is staffed by officials from the
Department for Business, Innovation and Skills. A Steering Board
was established in 2007 to monitor the work of the UK NCP and
provide strategic guidance. It is composed of representatives of
relevant government departments and four external members nominated
by the Trades Union Congress, the Confederation of British Industry,
the All Party Parliamentary Group on the Great Lakes Region of
Africa, and the NGO community.

A.12. Political Violence

The United Kingdom is politically stable, with a modern
infrastructure, but shares with the rest of the world an increased
threat of terrorist incidents. On June 29 and 30, 2007, terrorists
unsuccessfully attempted to bomb a nightclub area in London and the
Glasgow airport. In August 2006, the UK government heightened
security at all UK airports following a major counterterrorism
operation in which individuals were arrested for plotting attacks
against U.S.-bound airlines. On July 7, 2005, a major terrorist
attack occurred in London, as Islamic extremists detonated
explosives on three Underground trains and a bus in Central London,
resulting in over 50 deaths and hundreds of injuries. Following the
attacks, the public transportation system was temporarily disrupted,
but quickly returned to normal. A similar, but unsuccessful attack
against London's public transport system took place on July 21,

2005. UK authorities have identified and arrested people involved
in these attacks. These attacks do not seem to have significantly
impacted investment in the UK.

In Northern Ireland, the re-establishment of a devolved
power-sharing government and the decommissioning of most
paramilitary organizations have improved the political situation.
In November 2009, however, the Independent Monitoring Commission
(IMC) reported that the dissident republican threat in Northern
Ireland was at its highest level in six years. The IMC said that
the two main dissident republican groups, the real IRA and the
Continuity IRA, were increasing the threat posed to security forces.
Attacks by these groups have focused primarily on police and
military targets, and involved the use of firearms and explosives.
It is anticipated that these types of attacks will continue in the
future.

A continuing problem involves UK animal rights activists who employ
violent tactics and harassment techniques to disrupt legitimate
scientific research; however, the situation is improving with
increased government enforcement. The activists forced the shelving
of plans for one new research center and severely delayed
construction of another. They target existing research centers that
use laboratory animals, as well as any company that does business
with them. The government has passed legislation to give police
stronger authority to crack down on protesters, and courts have
begun to use their powers to clarify the line between lawful protest
and harassment. In mid-December, four animal rights activists were
convicted of blackmailing companies that supplied an animal testing
laboratory. Sentencing is scheduled for late January 2009. These
actions by activists have the potential to impair the UK's position
as one of Europe's leading research and development R&D centers.

Environmental pressure groups in the UK have been involved with
numerous protests against a variety of business activities including
airport expansion, bypass roads, offshore structures, wind farms,
civilian nuclear power plants, and petrochemical facilities. These
protests tend not to be violent but are disruptive and work toward
obtaining maximum media exposure.

A.13. Corruption

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The Prevention of Corruption Act makes bribery of domestic or
foreign public officials a criminal offense. The maximum penalty
under this act is imprisonment for up to seven years, and/or a fine
not exceeding GBP 5,000 ($8,000). Corrupt payments are not
deductible for UK tax purposes. Although isolated instances of
bribery and corruption have occurred in the UK, U.S. investors have
not identified corruption of public officials as a factor in doing
business in the UK.

The UK formally ratified the OECD Convention on Combating Bribery in
December 1998. Part 12 of the Anti-terrorism, Crime and Security
(ATCS) Act of 2001, which came into force on February 14, 2002,
includes legislation on bribery and corruption to deter UK companies
and nationals from committing acts of bribery overseas. The act
gives UK courts jurisdiction over crimes of corruption committed
wholly overseas by UK nationals and by bodies incorporated under UK
law. In addition to the OECD Convention, the UK is also actively
involved in the Council of Europe's Group of States Against
Corruption (GRECO),which helps its members develop effective
anti-corruption systems. The UK also signed the UN Convention
Against Corruption in December 2003 and ratified it on February 8,

2006. The UK has launched a number of initiatives to reduce
corruption overseas.

In December 2006, the UK's Serious Fraud Office (SFO) abandoned the
bribery investigation into BAE Systems Plc and its 20-year, GBP 40
billion ($64bn) defense contract with Saudi Arabia opened the
government up to questions regarding its credibility with respect to
foreign corrupt practices. Two UK non-governmental organizations
challenged the decision in UK courts. In April 2008, the High Court
ruled the decision to abandon the investigation unlawful, but in
July 2008, the House of Lords, the UK's highest body of judicial
review, overturned this ruling on appeal, ending the judicial
challenge on BAE's deals with Saudi Arabia. However, investigations
into BAE contracts with six other countries - Chile, the Czech
Republic, Romania, South Africa and Tanzania - also opened in 2005,
continued. On October 14, 2009, the SFO announced it had failed to
come to a negotiated settlement with BAE over these allegations.
The SFO is currently conducting further investigations.

The OECD Working Group on Bribery (WGB) has criticized the UK's
implementation of the Anti-Bribery convention. In March 2007, the
WGB decided to, "conduct a further examination of the UK's efforts
to fight bribery," and "reaffirmed its serious concerns about the
United Kingdom's discontinuance of the BAE Al Yamamah investigation
and outlined continued shortcomings in UK Anti-Bribery legislation."
Following this out-of-cycle review of UK practices, in October
2008, the WBG said it was, "disappointed and seriously concerned
with the unsatisfactory implementation of the [OECD Anti-Bribery]
Convention by the UK."

In 2007, the UK Law Commission began a consultation process to draft
a Bribery Bill that met OECD standards. A report was published in
October 2008 and consultations with experts from the OECD were held
in early 2009. A draft bill was published in March 2009 and was
announced as one of the government's priorities in the Queen's
speech, November 18, at the State Opening of Parliament. The bill
has received support from the Conservative opposition party and is
currently being examined in the House of Lords. Secretary of State
for Justice, Jack Straw, has repeatedly and publicly stated his
personal commitment to see the Bribery Bill passed into law before
the end of his term in office.

A.14. Bilateral Investment Agreements

The U.S. and UK have no formal bilateral investment treaty
relationship, although a Bilateral Tax Treaty reviewed in 2008
specifically protects U.S. and UK investors from double taxation.
The UK has its own bilateral tax treaties with more than 100 (mostly
developing) countries and a network of about a dozen double taxation
agreements.

The UK has concluded 106 Bilateral Investment Treaties (known in the
UK as Investment Promotion and Protection Agreements) with other
countries, of which 94 are in force. These countries are: Albania,
Antigua and Barbuda, Argentina, Armenia, Azerbaijan, Bahrain,
Bangladesh, Barbados, Belarus, Belize, Benin, Bolivia, Bosnia &
Herzegovina, Bulgaria, Burundi, Cameroon, Chile, China, Congo, Cote
D'Ivoire, Croatia, Cuba, Dominica, Ecuador, Egypt, El Salvador,
Estonia, Georgia, Ghana, Grenada, Guyana, Haiti, Honduras, Hungary,
India, Indonesia, Jamaica, Jordan, Kazakhstan, Kenya, Korea,
Kyrgyzstan, Laos, Latvia, Lebanon, Lesotho, Lithuania, Malaysia,

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Malta, Mauritius, Mexico, Moldova, Mongolia, Morocco, Mozambique,
Nepal, Nicaragua, Nigeria, Oman, Pakistan, Panama, Papua New Guinea,
Paraguay, Peru, Philippines, Poland, Romania, Saint Lucia, Senegal,
Serbia, Sierra Leone, Singapore, Slovenia, South Africa, Sri Lanka,
Swaziland, Tanzania, Thailand, Tonga, Trinidad & Tobago, Tunisia,
Turkey, Turkmenistan, Uganda, Ukraine, UAE, Uruguay, Uzbekistan,
Venezuela, Vietnam, and Yemen.

A.15. OPIC and Other Investment Insurance Agreements

OPIC does not operate in the UK. Export-Import Bank (Ex-Im Bank)
financing is available to support major investment projects in the
UK. A Memorandum of Understanding (MOU) signed by Ex-Im Bank and
its UK equivalent, the Export Credits Guarantee Department (ECGD),
enables bilateral U.S.-UK consortia, intending to invest in third
countries, to seek investment funding support from the country of
the larger partner. This removes the need for each of the two
parties to seek financing from their respective credit guarantee
organizations.

A.16. Labor

The UK's labor force of over 30 million people is the second largest
in the European Union (EU). As of October 2009, UK employment was
28.93 million, and the unemployment rate was 7.9 percent, lower than
the EU average of 9.5 percent. But the effects of the economic
downturn are starting to be felt on employment levels. Some
analysts predict that unemployment could peak at 10 percent in 2010.
The employment level (the proportion of working age people in work)
is also high in the UK at 72.5 per cent. By sector, the largest
proportion of the workforce was placed in the education, health, and
public administration sector with 8.237 million people or 27 percent
of the total, followed by the distribution, hotels and restaurants
Sector with 6.830 million people or 22 percent; the finance and
business services sector came third with 6.375 million people or 21
percent, followed by manufacturing with 2.84 million or 9 percent of
the UK workforce.

The most serious issue facing British employers is a skills gap
derived from a high-skill, high-tech economy outpacing the
educational system's ability to deliver work-ready graduates. The
government has placed a strong emphasis on improving the British
educational system in terms of greater emphasis on science, research
and development, and entrepreneurship skills. The UK's skills base
remains mediocre by international standards, but is improving: the
proportion of the population aged 20 to retirement without any
formal educational qualifications has fallen by nearly a third over
the last decade, from 18 percent in 1997 to 12 percent in 2008.

About 25 percent of full time UK employees belong to a union, a low
proportion by UK historical standards, but still quite high to an
employer used to a much lower American percentage. Public-sector
workers have a much higher share of union members -- nearly 60
percent -- while the private sector is about 15 percent.
Manufacturing, transport, and distribution trades are highly
unionized. Unionization of the workforce in the UK is prohibited
only in the armed forces, public-sector security services, and
police forces. Union membership has been relatively stable in the
past few years, although the trend has been slightly downward over
the past decade.

Once-common militant unionism is less frequent, but occasional bouts
of industrial action, or threatened industrial action, can still be
expected. Most British unions have adapted to the reality of a
globalized economy in which jobs are contingent on the
competitiveness of their employers. Privatization of traditional
government entities has accelerated such thinking. The Trades Union
Congress (TUC),the British AFL-CIO equivalent, encourages
union-management cooperation as do most of the unions likely to be
encountered by a U.S. investor.

As of December 2009, the minimum wage is GBP 5.80 ($9.28) for adults
(those 22 and over) and GBP 4.83 ($7.73) for young people (18-21)
and GBP 3.57 ($5.71) for workers aged 16 and 17.

Much of the employment legislation currently affecting the UK labor
market is based on EU regulations and directives. EU regulations
affect working patterns, wage structures, and employee protection
rights. For example, the European Working Time Directive creates an
entitlement to minimum daily and weekly rest periods, an average
work-week limit of 48 hours, and restrictions on night work. It
also entitles workers who meet the qualifying criteria, including
part-time and seasonal workers, to a minimum of 28 working days

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annual paid holiday. The universal application of labor regulations
across respective EU borders undermines British competitiveness to
the extent that the UK has made its historically more flexible labor
market a major selling point to investors. As it has implemented EU
directives, however, the UK government has been proactive in
maintaining its flexibility and competitiveness. For example, it
negotiated a special provision under the Working Time Directive that
allows employees to opt out of the work week limitations and has
favored changes to the rules on temporary workers.

The 2006 Employment Equality (Age) Regulations make it unlawful to
discriminate against workers, employees, job seekers and trainees
because of age. The regulations cover recruitment, terms and
conditions, promotions, transfers, dismissals and training. They do
not cover the provision of goods and services.

The regulations also removed the upper age limits on unfair
dismissal and redundancy. It sets a national default retirement age
of 65, making compulsory retirement below that age unlawful unless
objectively justified. Employees have the right to request to work
beyond retirement age and the employer has a duty to consider such
requests.

A.17. Foreign Trade Zones/Free Ports

The cargo ports and freight transshipment points at Liverpool,
Prestwick, Sheerness, Southampton, and Tilbury that are used for
cargo storage and consolidation are designated as Free Trade Zones.
No activities that add value to the commodities are permitted within
the Free Trade Zones, which are reserved for bonded storage, cargo
consolidation, and reconfiguration of non-EU goods. The Free Trade
Zones offer little benefit to U.S. exporters or investors, or any
other non-EU exporters or investors.

A.18. Foreign Direct Investment Statistics

The UK was the fourth largest recipient of foreign direct investment
(FDI) globally in 2008 according to the United Nations Conference on
Trade and Development (UNCTAD). According to data published by
UNCTAD, the stock of outward UK FDI totaled $1,511 billion in 2008
(or 56.7 percent of GDP),down from $1,841 billion in 2007. The
stock of inward UK FDI at yearend 2008 was $982 billion (or 36.9
percent of GDP),down from $1,264 billion in 2007. Direct
investment outflows in 2008 totaled $111 billion, down from $275
billion in 2007, while inflows decreased to $96.9 billion in 2008
from $183 billion in 2007.

The United States remained the most favored location for UK direct
investment abroad in 2008, continuing the strong investment
partnership between the two countries. In 2008, UK direct
investment into the United States accounted for 23 percent of
UK-owned assets abroad. Other EU member states attracted much of
the remaining outward UK FDI.

SUSMAN