URUGUAY - INVESTMENT CLIMATE STATEMENT 2010

UNCLAS MONTEVIDEO 000026

SIPDIS
STATE FOR EB/IFD/OIA
TREASURY FOR DO/JWALLACE, USDOC FOR ITA/JKOZLOWICKI
USTR FOR JKALLMER, OPIC FOR RO'SULLIVAN

E.O. 12958: N/A
TAGS: EINV EFIN ELAB ETRD KTDB PGOV OPIC USTR UY
SUBJECT: URUGUAY - INVESTMENT CLIMATE STATEMENT 2010

REF: 09 STATE 124006

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Openness to Foreign Investment

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1. The Government of Uruguay recognizes the important role foreign
investment plays in economic development and works to maintain a
favorable investment climate. Aside from a few sectors in which
foreign investment is not permitted, there is neither de jure nor
de facto discrimination toward investment by source or origin, and
national and foreign investors are treated equally.




2. The Uruguayan Government's (GOU)'s Law 16906, adopted in 1998,
declares promotion and protection of investments made by national
and foreign investors to be in the nation's interest. The law
states that: (1) foreign and national investments are treated
alike, (2) investments are allowed without prior authorization or
registration, (3) the government will not prevent the establishment
of investment in the country, and (4) investors may freely transfer
abroad their capital and profits from the investment. Decree
455/007 adopted in November 2007, regulates Law 16906 and provides
significant incentives to investors.




3. The left-of-center Frente Amplio administration that governed
from March 2005 through March 2010 stressed the importance of local
and foreign investment for social and economic development. The
GOU's macroeconomic policies have reduced Uruguay's vulnerability
to external shocks and helped to keep the economy growing even
through the 2008-2009 global financial crisis. The Frente Amplio
candidate was elected again in 2009, and President-elect Jose
Mujica will take office in March 2010. Vice President-elect Danilo
Astori, who served as minister of economy in the prior
administration, will remain actively involved in economic
management.




4. Some foreign investors put planned investments on hold due to
Law 18.092 (passed in 2007),which requires corporations that
purchase land to use registered shares held by individuals -
instead of bearer shares. The GOU later exempted some large
foreign firms from this requirement. The government has also
passed labor legislation strengthening labor rights, some of which
was opposed by business chambers. Some analysts believe this
legislation has led to an increased number of labor conflicts,
sometimes resulting in the occupation of workplaces.




5. In general, the GOU does not require specific authorization for
firms to set up operations, import and export, make deposits and
banking transactions in any particular currency, or obtain credit.
Screening mechanisms do not apply to foreign or national
investments, and special government authorization is not needed for
access to capital markets or to foreign exchange. In tenders for
private participation in state-owned sectors, foreign investors are
treated as nationals and allowed to participate in any stage of the
process. Bidders on tenders should be prepared for a lengthy
adjudication process.




6. The World Bank's 2010 "Doing Business" Index, which ranks 183
countries according to the ease of doing business, placed Uruguay
114th globally and 9th within the Latin American region (17
countries). Uruguay gets high marks in the categories "getting a
credit" and "closing a business," but lags in "paying taxes",
"registering property," and "dealing with construction permits."
Since 2004, Uruguay has made progress on cutting the cost of
starting a business and dealing with construction permits as well
as the number of days to export. However, the cost per container
exported or imported has grown (by 19 percent and 12 percent,
respectively).


7. Uruguay is ranked as a "mostly free economy" by the Heritage
Foundation's Index of Economic Freedom.



Table 1
Index Ranking Year



- T.I. Corruption Index 6.7
25 in 180 2009

(10 is lack of perceived corruption)

- Heritage Economic Freedom 69
38 in 179 2009

(100 is entirely free)

- World Bank's Doing Business
114 in 183 2010

(1 is easiest for doing business)





8. Although U.S. firms have not encountered major obstacles to
investing in Uruguay, some have been frustrated by the length of
time it takes to complete bureaucratic procedures and tenders.




9. Uruguay and the United States signed a Bilateral Investment
Treaty (BIT) in November 2005, which entered into force on November
1, 2006 (available at
www.ustr.gov/Trade_Agreements/BIT/Section_Ind ex.html
and
http://uruguay.usembassy.gov ).
Uruguay and the United States also signed an Open Skies Agreement
in late 2004 (ratified in May 2006),a Trade and Investment
Framework Agreement (TIFA) in January 2007, and a Science and
Technology Cooperation Agreement in April 2008. Under the TIFA, in
2008, both countries signed agreements on business facilitation and
environment.

Conversion and Transfer Policies




10. Uruguay maintains a long tradition of not restricting the
purchase of foreign currency or the remittance of profits abroad,
even during the 2002 banking and financial crisis. Foreign exchange
can be freely obtained at market rates.




11. Article 7 of the U.S.-Uruguay BIT provides that both countries
"shall permit all transfers relating to investments to be made
freely and without delay into and out of its territory." The
agreement also establishes that both countries will permit
transfers "to be made in a freely usable currency at the market
rate of exchange prevailing at the time of the transfer."




12. There are no restrictions on technology transfer.



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Expropriation and Compensation

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13. In the event of expropriation, the Uruguayan Constitution
provides for the prompt payment of "fair" compensation.




14. Article 6 of the U.S.-Uruguay BIT rules out direct and

indirect expropriation or nationalization, except under certain
very specific circumstances. The article also contains detailed
provisions on how to compensate investors, should expropriation
take place.




15. Following a constitutional amendment to implement state
control of water services, the GOU took over the operations of
URAGUA, a Spanish water company that had operated locally from 2000
through 2005. The GOU and URAGUA subsequently reached a negotiated
settlement.



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Dispute Settlement

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16. The investor may choose between arbitration and the judicial
system to settle disputes. Uruguay became a member of the
International Center for the Settlement of Investment Disputes in
September 2000. Uruguay's legal system is based on a civil law
system derived from the Napoleonic Code, and the government does
not interfere in the court system. The Judiciary is independent,
albeit sometimes slow.




17. The U.S.-Uruguay BIT devotes over ten pages to establish
detailed and expeditious dispute settlement procedures.



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Performance Requirements and Incentives

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18. Article 8 of the U.S.-Uruguay Bilateral Investment Treaty bans
countries from imposing seven forms of performance requirements to
new investments, or tying the granting of existing or new
advantages to performance requirements.




19. Local and foreign investors are treated equally. There are no
preferential tax deferrals, grants, or special access to credit for
foreign investors. Foreign investors are not required to meet any
specific performance requirements. Furthermore, foreign investors
are not inhibited by discriminatory or excessively onerous visa,
residence, or work permit requirements. The government does not
require that nationals own shares or that the share of foreign
equity be reduced over time, and does not impose conditions on
investment permits.




20. The Government of Uruguay's investment promotion plan is
regulated by Law 16906 and Decree 455/007 passed in November 2007.
Law 16906 grants automatic tax incentives to several activities,
including personnel training; research, scientific and
technological development; reinvestment of profits; and investments
in industrial machinery and equipment. Other benefits provided
exclusively to industrial and agricultural firms by Law 16906 (such
as tax exemptions on imports of fixed assets and reimbursement of
VAT on local purchases of goods and services for construction) have
in practice been superseded by Decree 455/007, which has a wider
scope.




21. Decree 455/007 grants significant tax incentives to investors
in a wide array of sectors and activities. Certain activities -
such as the purchasing of land, real estate or private vehicles -
are not eligible for the benefits. . The size of the benefit to
be granted is determined according to the size of the investment
and a pre-defined list of criteria. Investment projects are

classified as small (defined in indexed units and equivalent to USD
0.35 million as of December 2009),medium (up to USD 7 million),
large (up to USD 700 million) and of great economic significance
(over USD 700 million). A matrix based on a pre-defined list of
criteria includes the project's: (1) generation of jobs; (2)
contribution to R+D and innovation; (3) impact on GDP, exports, and
local value added; (4) contribution to geographic decentralization;
and (5) use of clean technologies.




22. The principal incentive consists of the deduction from income
tax of a share of total investment. Investors are allowed to cut
their corporate income tax payments by between 51 percent to 100
percent of their investment (for up to a 25-year term) according to
their score on the matrix. Other incentives include: i) the
exoneration of tariffs and taxes on imports of capital goods that
do not compete against local industry, ii) the exoneration of the
patrimony tax on personal property and civil works, iii) refunding
VAT paid on purchases of materials and services for civil works,
and iv) special tax treatment to fees and salaries paid for
research and development. Decree 455/007 also streamlined
procedures for firms requesting tax exemptions and established a
"single-window" process to channel investment requests and guide
investors. For further information, please refer to
http://www.uruguayxxi.gub.uy .




23. Local and foreign investors reacted positively to Decree
455/007. The number of investment proposals surged in 2008 to 310,
valued at over $1 billion, well above the average of 58 proposals
submitted annually in 2002-2007. Despite the global crisis,
investors submitted 308 proposals in the first three quarters of
2009, but it is unclear how many of these proposals have
materialized.




24. There are also special regimes to promote the tourism
industry, plantations of forestry and citrus, exploitation of
hydrocarbon , production of biofuels, development and exports of
software, production of vehicles or auto parts, and shipbuilding.
,. Additional special regimes also apply to the development of the
printing industry (printing and sale of books, magazines, and
educational material),communications (newspapers, broadcasting,
television, theater and film exhibit and distribution),production
of electronics and electric equipment (e.g. computers,
telecommunication equipments, measurement tools, medical equipment
and electrical appliances),and call centers. Investors can
combine benefits, applying for certain tax benefits under Decree
455/007 and for other benefits under the sectoral special regimes.
. These regimes do not differentiate between foreign and national
investors.

A government decree establishes that government tenders will favor
local products or services, provided they are of equal quality and
not more than 10 percent more expensive than foreign goods or
services. U.S. and other foreign firms are able to participate in
government-financed or subsidized research and development programs
on a national treatment basis.



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Right to Private Ownership and Establishment

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25. Private ownership does not restrict a firm or business from
engaging in any form of remunerative activity, except in two areas
-- national security interest, and legal government monopolies (see
Competition from State Owned Enterprises). One hundred percent
foreign ownership is permitted, except where restricted for
national security purposes.



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Protection of Property Rights

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26. In 2005, the GOU rescinded a 1966 decree that enabled
employers to request police action to evict occupying workers.
Occupations surged in 2005 and 2006 (from an annual rate of 15-20
per year prior to 2005 to 36 in 2006) and declined in 2007 to 30.
In 2008, 150 plants were occupied for one day during a conflict
involving the metal industry, and seven plants were occupied in a
conflict involving the plastic industry in 2009. In 2006, the GOU
passed Decree 156/06 to restrain excesses and provide for
obligatory negotiations between employer and employees prior to
employees resorting to occupations of the workplace. In practice,
however, workers have sometimes resorted to occupations early in
several labor conflicts. Furthermore, under certain circumstances,
the decree considers occupations as a licit extension of workers'
right to strike, a provision which is opposed by entrepreneurs.
Courts have ruled to evict occupying workers in several instances.
In November 2008, the International Labor Organization released a
report, suggesting that Uruguay revise its legislation on this
issue.




27. Secured interests in property and contracts are recognized and
enforced. Mortgages exist, and there is a recognized and reliable
system of recording such securities. Uruguay's legal system
protects the acquisition and disposition of all property, including
land, buildings, and mortgages. Execution of guarantees has
traditionally been a slow process. A new Bankruptcy Act (Law 18387
passed in October 2008),seeks to expedite such executions,
encourages arrangements with creditors before a firm goes
definitively bankrupt, and provides the possibility of selling the
firm as a single productive unit.




28. Uruguay is a member of the World Intellectual Property
Organization (WIPO),and a party to the Bern and Universal
Copyright Conventions, as well as the Paris Convention for the
Protection of Industrial Property. In 1998 and 1999, Uruguay
passed trademark and patent legislation. In 2003, coordinating
closely with U.S. and international IPR organizations, Uruguay
passed new TRIPS-compliant copyright legislation. The 2003
copyright law represented a significant improvement over the 1937
law and led USTR to upgrade Uruguay from the "Priority Watch List"
to the "Watch List." Uruguay signed the WIPO Copyright Treaty
(WCT) and the WIPO Performances and Phonograms Treaty (WPPT) in

1997. Parliament ratified the WCT in October 2006 (Law 18036) and
the WPPT on February 20, 2008 (Law 18253). The United States Trade
Representative (USTR) removed Uruguay from the Special 301 Watch
List in 2006 due to progress in IPR, especially with respect to
copyright enforcement. The USTR statement commended the "positive
progress" and was "encouraged that Uruguay has set a positive
example by its efforts to combat piracy and counterfeiting."




29. Patents are protected by Law 17164 of September 2, 1999.
Invention patents have a twenty-year term of protection from the
date of filing. Patents for utility models and industrial designs
have a ten-year term of protection from the filing date and may be
extended for an additional five. The law defines compensation as
"adequate remuneration" to be paid to the patent-holder. Some U.S.
industry groups believe that the law's compulsory licensing
requirements are not TRIPS consistent. On average, filing a
medical patent takes two years longer than in the United States.




30. The GOU approved a trademark law on September 25, 1998,
upgrading trademark legislation to TRIPS standards. Under this
law, a registered trademark lasts ten years and can be renewed as
many times as desired. It provides prison penalties of six months
to three years for violators, and requires proof of a legal
commercial connection to register a foreign trademark. Enforcement
of trademark rights has improved in recent years.



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Transparency of Regulatory System

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31. Transparent and streamlined procedures regulate foreign
investment. However, long delays and repeated appeals can
significantly delay the process to award international and public
tenders.




32. Article 10 of the Uruguay-U.S. BIT mandates both countries to
promptly publish or make public any law, regulation, procedure or
adjudicatory decision related to investments. Article 11 sets
transparency procedures that govern the accord.



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Efficient Capital Markets and Portfolio Investment

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33. Foreign investors can access credit on the same market terms
as nationals. As long-term banking credit has traditionally been
more difficult to obtain, firms tend to roll over short-term loans.





34. The banking system is generally sound and has good capital,
solvency and liquidity ratios. Profitability, in a context of low
international interest rates and low demand for credit, has been a
problem. The largest bank is the government-owned Banco de la
Republica, which as of July 2009 accounted for 40 percent of total
credits and deposits.




35. Uruguay's capital market is underdeveloped and concentrated in
sovereign debt. While Uruguay is receiving "active" investments
oriented to establishing new firms or gaining control over existent
ones, it lacks major "passive" investments from investment funds
that are an essential source of start-up capital and liquidity for
new ventures and companies wishing to expand operations.




36. There is no effective regulatory system to encourage and
facilitate portfolio investment. There are two stock exchanges.
An electronic exchange concentrates on foreign currency
transactions and a traditional exchange focuses on sovereign bonds.
Only 12 firms are registered in the traditional stock exchange.
Trading in shares and commercial paper is virtually nil, severely
limiting market liquidity. There are few investment funds in
operation, mostly serving domestic clients to invest their funds in
Uruguayan sovereign debt. Risk rating firms first came to Uruguay
in 1998.




37. However, there has recently been a good deal of discussion --
encouraged and facilitated by the Embassy -- among the relevant
Uruguayan actors about how to reinvigorate Uruguay's capital
markets. A revised capital markets law is under discussion in the
parliament.




38. Private firms do not use "cross shareholding" or "stable
shareholder" arrangements to restrict foreign investment. Nor do
they restrict participation in or control of domestic enterprises.



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Competition from State Owned Enterprises

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39. Uruguay has a history of maintaining state monopolies in a
number of areas where direct foreign equity participation is
prohibited by law. While privatization is generally opposed by the
population, some government-run monopolies have been dismantled
over the past few decades, and private sector participation in the
economy has increased significantly. Several state-owned entities
have contracted with foreign-owned companies to provide specific
services for a given period of time under Build-Operate-Transfer
(BOT) regimes. While basic telephone services remain a monopoly,
government-owned ANCEL, Spain's Telefonica, and Mexico's America
Movil provide cellular services. International long distance
calling, data transmission, and value-added services are also open
to the private sector. The Telecommunication and Postal Services
regulatory agency (URSEC) aims to preserve a level playing field
for private and public firms, but regulatory enforcement of
government-owned entities varies.




40. Other sectors have varying levels of private sector
participation. Although private power generation is allowed, the
state-owned power company, UTE, holds a monopoly on wheeling
rights. The state-owned oil company, ANCAP, remains the only
importer and refiner of petroleum products. ANCAP has established
associations with foreign partners, especially in the area of
off-shore exploration. For the latter, ANCAP organized an
international road-show, including an event in the U.S. for
interested oil companies. In the ports, private companies provide
most services. The national airline, PLUNA, is 75% owned by a
consortium of investors (including U.S. capital). The insurance
and mortgage sectors are de-monopolized, but workers compensation
insurance remains a government monopoly. An October 2004
constitutional amendment, approved by 64% of voters, declared water
a national resource to be controlled exclusively by the State.




41. Most State-owned firms are defined as autonomous but in
practice coordinate certain issues, mainly tariffs, with their
respective ministries and the Executive Branch. State-owned firms
are required by law to publish an annual report and their balances
are audited by independent firms.



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Corporate Social Responsibility

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42. The concept of Corporate Social Responsibility is relatively
new in Uruguay, but many companies do abide by the principles of
CSR as a matter of course. Many multinational companies find it
advantageous to stake out a CSR strategy and have made significant
contributions in promoting safety awareness, better regulation, a
positive work environment and sustainable environmental practices.
Consumers do pay attention to the CSR image of companies,
especially as it relates to a firm's work with local charity or
community causes. U.S. companies have proven to be leaders in
promoting a greater awareness of and appreciation for CSR in
Uruguay.



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Political Violence

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43. Uruguay is a stable democracy (Uruguay ranked as the most
democratic country in Latin America, according to The Economist's
2008 Democracy Index) in which respect for the rule of law is the
norm and the vast majority of the population is committed to
non-violence.



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Corruption

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44. Uruguay has strong laws to prevent bribery and other corrupt
practices. In 2009, Uruguay ranked top in Transparency
International's Corruption Perception Index in Latin America's,
together with Chile (both countries ranked 25th among 180 countries
worldwide, the U.S. ranked 19th) . Uruguay has gradually
improved in Transparency International's Corruption Perception
Index over time, from the 35th place in 2001 to the 25th place in

2009.




45. Despite Uruguay's favorable rating and effective legislation,
other surveys indicate a perception of public sector corruption.
Almost three out of four top tier executives polled by KPMG in
2007/2008 opined that there is fraud in the public sector
-especially in the awarding of public contracts-, and one in three
stated their firm had been affected by corruption.




46. Several former Uruguayan officials, customs officials and one
judge were prosecuted for corruption in recent years. Overall,
U.S. firms have not identified corruption as an obstacle to
investment.




47. A law against corruption in the public sector was approved in
1998, and acceptance of a bribe is a felony under Uruguay's penal
code. Money laundering is penalized with sentences of up to ten
years (which also apply to Uruguayans living abroad). Laws 17835
and 18494 (passed in 2004 and 2009) establish a solid framework
against money laundering and terrorism finance. Enforcement is
improving at a steady pace. Bilateral Investment Agreements




48. In November 2005, Uruguay and the United States signed a
Bilateral Investment Treaty (BIT) to promote and protect reciprocal
investments, which was subsequently ratified by both legislatures
and entered into force on November 1, 2006. The full text of the
agreement is available at
www.ustr.gov/Trade_Agreements/BIT/Section_Ind ex.html
and
http://uruguay.usembassy.gov .




49. The 62-page agreement has 37 articles and 3 annexes, and was
the first "latest generation" BIT signed by USTR. Among other
benefits, the BIT grants national and most-favored-nation
treatments to investments and investors sourced in each country.

The agreement also includes detailed provisions on compensation for
expropriation, and a precise procedure for settling bilateral
disputes. The annexes include sector-specific measures that are
not covered by the agreement and specific sectors or activities
which governments may restrict further.




50. Uruguay also has BITs with Argentina, Brazil and Paraguay (its
Mercosur partners, signed in 1994),Armenia, Australia, Belgium,
Canada, Chile, China, Czech Republic, El Salvador, Finland, France,
Germany, Great Britain, Hungary, Israel, Italy, Luxembourg,
Malaysia, Mexico, Portugal, The Netherlands, Panama, Poland,
Romania, Spain, Sweden, Switzerland, and Venezuela. BITs with
India and Vietnam, signed in 2008 and 2009 respectively, await
Parliamentary approval.

Uruguay has Double Taxation Agreements with Chile, Germany,
Hungary, Israel, Norway, Panama, Paraguay, Poland and Switzerland.
In 2009, the GOU reacted to its inclusion by the OECD in a list of
jurisdictions that "have not committed to implement the
internationally agreed tax standard" and swiftly endorsed OECD
standards on transparency and exchange of information, stating it

would include tax-information sharing clauses in Double Taxation
Agreements with OECD members. In 2009 Uruguay signed double
taxation and fiscal transparency agreements with Spain and Mexico,
which as of December 2009 are awaiting Parliamentary approval.



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OPIC and Other Investment Insurance Programs

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51. The GOU signed an investment insurance agreement with the
Overseas Private Investment Corporation (OPIC) in December 1982.
The agreement allows OPIC to insure U.S. investments against risks
resulting from expropriation, inconvertibility, war, or other
conflicts affecting public order. OPIC programs are currently used
in Uruguay.

Currency Exchange




52. In 2002, after three years of recession and in the face of
devaluations in neighboring economies, Uruguay eliminated its
decade-long exchange rate band. Since then, the peso has floated
freely, albeit with some intervention from the Central Bank aimed
at reducing the volatility of the price of the dollar. There is no
black market for currency exchange. The dollar fell 20 percent from
December 2008 through December 2009. The U.S. Embassy uses the
official rate when purchasing local currency.

Labor




53. The Uruguayan labor force is well educated, and the government
has instituted technical training programs to help meet industry's
skilled labor requirements. At 97 percent, Uruguay's literacy rate
is the highest in Latin America and on par with that of the United
States.




54. Social security payments are high and increase employers'
basic wage costs by about 30 percent. In addition to the worker's
salary, employers must pay: (a) 7.5 percent of the wage to social
security, (b) 5 percent to health insurance, (c) 0.125 percent to a
labor restructuring fund, (d) a supplementary annual bonus
equivalent to 1/12 of the annual pay (basically a 13th month's
wages),and (e) a vacation pay equivalent to about 80 percent of
the net wage received by the employee times 20 (days of leave)
divided by 30 (days a month). An employer can dismiss workers, as
long as the dismissal is not discriminatory and if the employer
pays the worker one month for each year of work, with a cap of six
months.




55. Uruguay has ratified ILO conventions that protect worker
rights, and generally adheres to their provisions. The Uruguayan
constitution guarantees workers the right to organize and strike,
and union members are protected by law against dismissal for union
activities. Labor unions are nominally independent from the
government. Sympathy strikes are legal. In labor trials, the
Judiciary tends to rule in favor of the worker, as he/she is
considered to be the weaker party.




56. The Vazquez administration introduced major changes to Uruguay
labor regime with the passage of thirty-six laws, some of which
were adamantly opposed by business chambers. The main changes
include the reinstatement of collective bargaining; the creation of
tri-partite salary councils; and the passage of several laws aimed
at promoting and protecting the rights of unions and individual
workers.




57. Occupations of workplaces increased in 2005-2010 following the
elimination of a decree that enabled employers to request police to

evict workers, and passage of legislation that favored unions.
Under certain circumstances the GOU considers occupations as a
licit extension of workers' right to strike, which is opposed by
entrepreneurs (see Protection of Property Rights section).




58. In 2005, the GOU reinstated salary councils, a three party
board consisting of representatives from unions, employers, and the
government. The councils are responsible for setting the wage
increases for individual sectors; if the unions and employers fail
to reach an agreement to determine the wage increase to be applied
for sectors, then the government makes the final decision. The
councils were first instituted in 1943 and dissolved on several
occasions, the last time in 1992.




59. In 2006, the administration passed a law on the "Promotion and
Protection of Labor Unions" that renders any discriminatory action
affecting the employment of unionized workers illegal. Among other
measures, the law provides for the immediate reinstatement of the
employee if any infringement of the law is proven. Business
chambers strongly opposed the bill, arguing that it slanted labor
relations heavily in favor of unions.




60. In January 2007 Parliament passed Law 18099 on outsourcing,
which was opposed by the business community, as it made employers
responsible for possible labor infringements on employees by
third-party firms that were contracted by the employers. In
November 2007, the GOU submitted another bill clarifying some of
the private sector's concerns, which was passed in January 2008 as
Law 18251. Parliament passed a law in December 2008 providing
between 6 and 12 days of mandatory leave for students to prepare
for exams. Some businesspeople thought the law could affect
labor-intensive sectors that hire students, such as call centers.




61. Law 18395, passed in 2008, reduced retirement to age 60 for
both men and women who have worked for at least 30 years, modified
the system for advanced age retirement and provided more beneficial
terms to mothers with children. Law 18399, also from 2008,
modified the unemployment insurance regime, gradually , reducing
unemployment benefits during the six month eligibility period, and
extending coverage for employees over 50 years old to one year.
Workers who become disabled on the job receive a monthly payment
from the government equal to 70 percent of their salaries, plus
free medicine and medical care.




62. Another bill on Collective Bargaining for public sector
employees, submitted in February 2008, is also before Parliament.




63. The level of unionization has increased steadily since the
governing Frente Amplio Party took office on March 1, 2005. The
umbrella labor organization PIT/CNT claims to have over 320,000
active members, or 28 percent of the workforce. Unionization is
particularly high in the public sector.



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Foreign-Trade Zones/Free Ports

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64. Law 15921 of December 17, 1987, regulates the operation of
free trade zones (FTZs) within the country. Twelve free trade
zones are located throughout the country. While most are dedicated
almost exclusively to warehousing, three host a wide variety of
tenants performing various services (e.g., financial, software and
call centers). One in particular (Zonamerica) was developed as a
technology park to provide services and infrastructure for
competitive development of companies with international reach. Two
FTZs were created exclusively for the development of the paper and
pulp industry. These activities are considered to take place

outside the national territory. When goods from an FTZ are
introduced into Uruguay's customs territory, they are treated as
"imports" and thus subject to customs duties and import taxes.
Goods of Uruguayan origin entering into FTZs are treated as
Uruguayan exports for tax and other legal purposes.




65. Goods, services, products, and raw materials of foreign and
Uruguayan origin may be brought into the FTZs, held, processed, and
re-exported without payment of Uruguayan customs duties or import
taxes. Current government monopolies are not honored within FTZs.
Local and foreign-owned industries alike enjoy several advantages
in an FTZ, including the exemption from all domestic taxes.
Customs duty exemptions are applicable to the entry and exit of
goods. Additionally, the employer does not pay social security
taxes for non-Uruguayan employees who have waived coverage under
the Uruguayan social security system. However, Uruguayans must
comprise 75 percent of a company's labor force to qualify for FTZ
tenancy.




66. Uruguay is a founding member of MERCOSUR, the Southern Cone
Common Market composed of Argentina, Brazil, Paraguay and Uruguay
(as of December 2009 Venezuela's membership was pending). Since
MERCOSUR regulations treat products manufactured in all member
states FTZs as extra-territorial and hence charge them its common
external tariff, with few exceptions, little manufacturing is done
in local FTZs. Furthermore, products manufactured by Uruguayan or
foreign firms in Uruguayan FTZs are not eligible for MERCOSUR
certificates of origin and must pay the bloc's common external
tariff upon entering other member countries.




67. Uruguay has other special import regimes in place, including
industrial zones, private customs deposits, free ports and
temporary admission. The free port and private customs deposits
exempt goods that are kept within the premises from all
import-related duties and tariffs. While in the premises,
merchandises may be labeled, fractioned, re-packaged, or have any
other process done to it as long as it does not modify the nature
of the good. There are no limits for the length of stay of
merchandise in the port, nor for the volume of stored goods.




68. Under the temporary admission regime, manufacturers can import
duty-free raw materials, supplies, parts and intermediate products
used to manufacture products that are later exported. Products
that are consumed during the production process without being
incorporated in the finished exported product, containers and
packing material are also covered. The system requires a
government authorization and that final products be exported within
a period of 18 months.



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Foreign Direct Investment Statistics

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69. Foreign Direct Investment (FDI) in Uruguay has been
traditionally low (under 3 percent of GDP),even by Latin American
and regional standards, because of the country's small market, the
lack of major privatization initiatives, and the small number of
firms that base their MERCOSUR-wide operations locally. However,
FDI rose significantly in recent years - to 6 percent of GDP in

2008.




70. Annual inflows of FDI rose from $397 million in 2004 to $847
million in 2005, $1.4 billion in 2006, $1.1 billion in 2007 and
$1.8 billion in 2008. Surging inflows of FDI have led the stock of
FDI to record levels ($8.9 billion in 2008).




71. The sectors that received more FDI in 2003-2007 were

agriculture (forestry, ranching, farming, and slaughterhouses),
construction (real estate in Punta del Este, hotels, and office
buildings),industry (chemical and food and beverages),and
services (mostly financial intermediation).




72. While the economy continued growing in 2009, the global crisis
had an impact on investment. FDI fell 52 percent in the first half
of 2009 over the first half of 2008. Overall investment fell 20
percent in the January-September 2009 (over January-September 2008)
mainly due to a declining inventories. A counter-cyclical increase
in public sector investment (up 32 percent) offset the drop in
private investment (down 10 percent).




73. Finnish Botnia's construction of a $1.2 billion pulp mill in
2005-2007 was Uruguay's largest-ever foreign investment. Another
cellulose producer, Spain's Ence, planned to build a pulp mill
worth $1.0 billion. In mid 2009 Ence sold the project to a
Finnish-Swedish-Chilean firm, Stora Enso-Arauco, which has said it
still intends to develop the plant. A dispute between Argentina
and Uruguay over these pulp mills investments led to strained
relations between the two countries. In March 2010 the GOU is due
to auction the right to construct and operate a second major
container terminal in the Port of Montevideo, an investment
expected to be around $270 million.




74. The United States was the fourth largest foreign investor in
Uruguay in 2003-2007 with 3.2 percent of total FDI ($144 million).
Argentina, Spain and Brazil were the biggest investors , with 18.5
percent ($820 million),4.1 percent ($180 million) and 3.9 percent
($173 million) respectively.




75. According to the U.S. Department of Commerce, the 2008 stock
of U.S. direct investment in Uruguay amounted to $569 million.
Major U.S. investments include Weyerhaeuser (forestry),Conrad
Hotels (tourism and gambling),Sabre (call center),McDonald's
(restaurants) and Pepsi (beverages).




76. Host country contact information for investment-related
inquiries:



Uruguay XXI - Investment and Export Promotion Directorate

Mr. Roberto Villamil

Executive Director

Address: Rincon 518 suite 528

Montevideo, Uruguay



Tel: (5982) 915 3838 - Fax: (5982) 916 3059

Web page: http://www.uruguayxxi.gub.uy

Matthewman