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Diana T Fritz  12/05/2006 11:46:36 AM  From  DB/Inbox:  Search Results

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UNCLAS        ABU DHABI 00224

SIPDIS
CXABU:
    ACTION: AMB
    INFO:   DCM FCS POL ECON

DISSEMINATION: AMB
CHARGE: PROG

APPROVED: AMB:MSISON
DRAFTED: ECON:EWILLIAMS
CLEARED: A/DCM:OJOHN CG:JDAVIS FCS:MOBRIEN POL:JMAYBURY

VZCZCADI666
PP RUEHC RUEHZM RUCPDOC RUCPCIM RUCPDOC RUEATRS
RUEHDE
DE RUEHAD #0224/01 0121048
ZNR UUUUU ZZH
P 121048Z JAN 05
FM AMEMBASSY ABU DHABI
TO RUEHC/SECSTATE WASHDC PRIORITY 7699
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RUCPDOC/USDOC WASHDC
RUCPCIM/CIMS NTDB WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/TREASURY DEPT WASHDC
RUEHDE/AMCONSUL DUBAI 4709

UNCLAS SECTION 01 OF 10 ABU DHABI 000224 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA 
STATE PLEASE PASS TO USTR 
STATE PLEASE PASS TO CIMS NTDB WASHDC 
 
E.O. 12958: N/A 
TAGS: ECON OPIC KTDB USTR TC
SUBJECT: 2005 Investment Climate Statement, United Arab Emirates 
 
REF: 2004 STATE 250356 
 
1.PER REFTEL, THE BODY OF THIS CABLE IS THE SUBMISSION OF THE 
2005 INVESTMENT CLIMATE STATEMENT FOR THE UNITED ARAB EMIRATES. 
 
¶2.  Begin text: 
 
----------------------------- 
INVESTMENT CLIMATE STATEMENT 
----------------------------- 
 
A.1  OPENNESS TO FOREIGN INVESTMENT 
----------------------------------- 
 
Investment laws and regulations are evolving in the UAE and are 
expected to become more conducive to foreign investment.  At 
present, the regulatory and legal framework favors local over 
foreign investors.  There is no national treatment for investors 
in the UAE, and foreign ownership of land and stocks is 
restricted. 
 
The UAE government is opening up its trade sectors in line with 
its WTO obligations.  The UAEG already has taken steps to cut red 
tape for foreign investors, and now exempts investors from 
obtaining a Ministry of Labor card in addition to an Immigration 
Department visa.  Investors no longer need to appear in person to 
inquire about the status of business applications in Abu Dhabi. 
A new automated service, offered in Arabic and English, allows 
investors to receive information about their business licenses 
over the phone.  The U.S. and UAE expect to begin negotiating a 
Free Trade Agreement in 2005, which is expected to further open 
up the UAE to U.S. foreign direct investment. 
 
There have been no significant investment disputes during the 
past few years involving U.S. or other foreign investors.  Claim 
resolution has not generally been a problem, although foreign 
companies tend not to press claims. 
 
There is no income tax in the UAE.  Foreign banks pay 20 percent 
tax on their profits.  Foreign oil companies with equity in 
concessions pay taxes and royalties on their proceeds.  There are 
no consumption taxes, and the GCC states formally implemented a 
single import tariff of 5 percent on most goods January 1, 2003. 
The exceptions to the 5 percent tariff in the UAE are a fifty 
percent tariff for alcohol, a one-hundred percent tariff for 
tobacco, and duty exemptions for 53 food and agricultural items. 
 
Regulation of the establishment and conduct of business in the 
UAE is shared at the federal and emirate levels.  There are four 
major laws affecting foreign investment in the UAE; the Federal 
Companies Law, the Commercial Agencies Law, the Federal Industry 
Law, and the Government Tenders Law.  These laws, especially the 
Federal Companies Law, are seen as the largest obstacles to 
foreign direct investment in the UAE. 
 
The Federal Companies Law applies to all commercial companies 
established in the UAE and to branch offices of foreign companies 
operating in the UAE.  Companies established in the UAE are 
required to have a minimum of 51 percent UAE national ownership. 
However, profits may be apportioned differently.  Branch offices 
of foreign companies are required to have a national agent unless 
the foreign company has established its office pursuant to an 
agreement with the federal or an emirate government.  All general 
partnership interest must be owned by UAE nationals.  Foreign 
shareholders may hold up to a 49 percent interest in limited 
liability companies. 
 
The Commercial Agencies Law requires that foreign principals 
distribute their products in the UAE only through exclusive 
commercial agents that are either UAE nationals or companies 
wholly owned by UAE nationals.  The foreign principal can appoint 
one agent for the entire UAE or for a particular emirate or group 
of emirates.  The law provides that an agent may be terminated 
only by mutual agreement of the foreign principal and the local 
agent, notwithstanding the expiration of the term of the agency 
agreement. 
 
The Federal Industry Law stipulates that industrial projects must 
have 51 percent UAE national ownership.  The law also requires 
that projects either be managed by a UAE national or have a board 
of directors with a majority of UAE nationals.  Exemptions from 
the law are provided for projects related to extraction and 
refining of oil, natural gas, and other raw materials. 
Additionally, projects with a small capital investment or special 
projects governed by special laws or agreements are exempt from 
the industry law. 
The Government Tenders Law stipulates that a supplier, 
contractor, or tenderer with respect to federal projects must 
either be a UAE national or a company in which UAE nationals own 
at least 51 percent of the share capital or foreign entities 
represented by a UAE distributor or agent.  Foreign companies 
wishing to bid for a federal project must, therefore, enter into 
a joint venture or agency arrangement with a UAE national or 
company.  Federal tenders must accompany a bid bond in the form 
of an unconditional bank bond guarantee for 5 percent of the 
value of the bid.  If goods and services are not available 
locally then UAE federal government entities often tender 
internationally. 
 
Up until recently, only Emiratis and other GCC nationals were 
permitted to own land in the UAE, while foreigners, who comprise 
80-85% of the population, had been restricted to renting.  In May 
2002, the Emirate of Dubai announced that it would permit so- 
called "free hold" real estate ownership for non-GCC nationals by 
giving permission to three companies to develop and sell freehold 
properties on government-designated pieces of land.  However, 
because specific laws regarding freehold ownership remain to be 
codified and procedures for title documentation and conveyance 
remain to be established, potential buyers are unsure whether 
they will have an absolute freehold title that means the same as 
it does in Europe of the U.S. 
 
Perhaps the most important impediment to freeholds is that owners 
cannot register titles with the Dubai Land Department, a step 
that allows owners access to the full range of legal protections 
and transactions that property ownership requires.  If a national 
and foreigner try to register a change of land title, the Land 
Department normally turns them away.  Inheritance laws present 
another area of concern to freehold buyers, and current 
legislation appears ambiguous.  Freeholds are so new that there 
are no court precedents yet.  Some people are reportedly avoiding 
this legal ambiguity by purchasing homes through an offshore 
shell company.  Nevertheless, the Dubai Government has promised 
to resolve these problems and ambiguities in a new land law.  So 
far, Dubai is the only emirate engaged in large-scale property 
sales to foreigners, though Ajman and Ras Al Khaimah reportedly 
have announced similar schemes. 
 
Oil will continue to be a major sector for foreign investment in 
¶2005.  UAE oil production capacity currently is around 2.5 
million barrels per day (MB/D).  It should rise to 2.8 and 3.0 
MB/D by 2005 and 2010, respectively.  Abu Dhabi Company for 
Onshore Operations (ADCO) plans to lift production to 1.45 MB/D, 
Abu Dhabi Marine Operating Company (ADMA-OPCO) to 600,000 B/D and 
Zakum Development Company (ZADCO) to 600,000 B/D during the next 
three to five years.  As part of the effort to continue to 
improve output and seek foreign technological and managerial 
expertise, the state-run Abu Dhabi National Oil Company (ADNOC) 
tendered the privatization of a 28 percent stake in the offshore 
Zakum oilfield in April 2002.  Exxon-Mobil, BP and Royal Dutch 
Shell are participating in this content, with an outcome expected 
in 2005.  In 2002, the United States enjoyed a 45 percent market 
share in oil and gas field equipment spare parts, and services. 
No regulatory/demand issues affect the market. 
 
We are optimistic that opportunities for foreign investment in 
the public utilities sector will increase as well.  In March 1998 
the Abu Dhabi Water and Electricity Authority (ADWEA) awarded a 
contract for the UAE's first independent water and power project 
(IWPP), with an estimated value of $750 million, to an American 
firm.  The firm was selected as part of an Anglo-American 
consortium to manage the emirate's third IWPP in 2001.  The Abu 
Dhabi government has announced that power generation (includes 
power and desalinated water production) and transmission will be 
privatized, while power distribution will remain under the 
control of Abu Dhabi authorities.  The estimated commercial value 
of planned power and water sector development projects in Abu 
Dhabi is $5 billion. 
 
The UAE has opened the telecommunications market to foreign 
investment by enacting legislation to end the monopoly of 
Etisalat (the official UAE telecommunications company) and open 
the market to the private sector and foreign investment on 
January 1, 2005. 
 
Defense contractors with an eye for investment in the UAE must 
negotiate directly with the UAE Offsets Group (UOG), and invest 
an amount that will generate a profit equal to 60% of their 
contract in the UAE.  UOG investment projects generally must show 
the required profit after seven years.  The contractor may not 
own more than 49 percent of the project, and UAE nationals must 
hold the remaining 51 percent.  There are currently more than 30 
offset ventures; offset projects cover the full spectrum of 
economic activity, including, inter alia, advertising, fish 
farming, air conditioning, language centers, shipbuilding, 
aircraft maintenance, leasing, medical services, and even polo 
grounds.  One of the largest offset ventures is the Oasis 
International leasing company - a British Aerospace offsets 
venture. 
A.2  CONVERSION AND TRANSFER POLICIES 
------------------------------------- 
There are no restrictions or delays on the import or export of 
either the UAE Dirham or foreign currencies by foreigners or UAE 
nationals, with the exception of Israeli currency and the 
currencies of those countries subject to United Nations 
sanctions.  The UAEG passed comprehensive anti-money laundering 
legislation following the attacks of September 11, 2001, that 
imposes strict documentary requirements on large wire transfers. 
Travelers entering the UAE must declare currency amounts of more 
than 40,000 Dirhams (approximately $10,800) as part of these 
measures. 
 
Since February 2002, the Dirham has been officially fixed to the 
U.S. Dollar.  The exchange rate is 3.67 UAE Dirhams per one U.S. 
Dollar. 
 
A.3  EXPROPRIATION AND COMPENSATION 
----------------------------------- 
Foreign investors have not been involved in any expropriations in 
the UAE in recent years.  There are no set rules governing 
compensation if expropriations were to occur, and individual 
emirates probably would treat this differently.  In practice, 
authorities in the UAE would not expropriate unless there was a 
compelling developmental or public interest need to do so, and in 
such cases compensation would be generous. 
 
A.4  DISPUTE SETTLEMENT 
----------------------- 
There have been no significant investment disputes during the 
past few years involving U.S. or other foreign investors, but 
there have been several contractor disputes, with the government 
as well as local businesses.  Disputes generally are resolved by 
arbitration, by the parties themselves, or by recourse to the 
legal system.  Dispute resolution can be difficult and uncertain, 
however.  Arbitration may commence by petition to the federal 
courts on the basis of mutual consent, a written arbitration 
agreement, independently or by nomination of arbitrators, or 
through a referral to an appointing authority without recourse to 
judicial proceedings.  Enforcing arbitration judgments can be 
difficult as they require court certification, and judicial 
proceedings may continue for several years. 
 
The UAE constitution established a federal court system while 
acknowledging the right of the individual emirates to maintain a 
court system of their own.  Accordingly, each emirate applies 
federal law in its own court system that consists of courts of 
first instance, courts of appeal and a Supreme Court.  The court 
of first instance consists of civil, criminal, and sharia 
(Islamic law) courts.  Sharia law is only applicable to Muslims 
and relates to family matters mentioned in the Koran.  Courts 
will interpret statutory law and legal precedent in deciding 
cases.  Commercial disputes involving foreign parties tend to 
come before the civil courts in the federal system; a panel of 
three judges ordinarily hears commercial disputes.  All cases 
involving banks and financial institutions are required to be 
heard by civil courts.  In Abu Dhabi, all non-arbitration 
commercial disputes are first brought to the Abu Dhabi 
Conciliation Department.  If the parties are unable to reach a 
settlement, they can begin legal proceedings in the court of 
first instance. 
 
The UAE federal Supreme Court has held that a foreign arbitration 
clause in a registered commercial agency agreement is 
unenforceable because the Commercial Agency Law of 1981 states 
that UAE courts have jurisdiction over commercial agency 
disputes.  According to an analysis by Western-trained attorneys 
of the UAE code of civil procedures, however, UAE courts will 
recognize a decision by both parties to refer a dispute to 
arbitration.  No party in a dispute can file a court claim if 
such party already has agreed to refer the claim to arbitration. 
The parties can move to arbitration at any stage during 
litigation.  The civil procedure code details rule governing the 
qualification of arbitrators and many other aspects of the 
arbitration process.  The venue of arbitration is required to be 
within the UAE, and if not, the resultant award is treated like a 
foreign judgment. 
 
The code contains comprehensive rules in connection with the 
various types of preventive and provisional remedies prior to 
litigation and the issuance of judgments, including the 
attachment of property, confiscation of the defendant's passport 
and prohibitions on travel, as well as the detention of the 
defendant in certain instances.  However, the courts must certify 
all arbitration decisions, and though they do not review 
substantive claims, they can invalidate decisions based on 
procedural considerations.  Parties can also appeal certification 
decisions thus prolonging enforcement indefinitely. 
 
In 1993 the Abu Dhabi Chamber of Commerce and Industry formed the 
Abu Dhabi Commercial Conciliation and Arbitration Center in an 
effort to accelerate commercial dispute resolution.  The Center 
has jurisdiction to conciliate or arbitrate commercial disputes. 
Currently, the Center has 135 open cases and accepts roughly 30- 
40 new cases each year.  The Center's executive regulations 
govern the conciliation and arbitration procedure.  Though 
referral by the parties to the Dispute Center ostensibly requires 
them to accept the finality of the Center's decision, the courts 
must still certify the decision and enforcement can be delayed. 
The Center conducts proceedings in Arabic or any other agreed 
upon language. 
 
The Dubai Chamber of Commerce and Industry has promulgated 
similar commercial conciliation and arbitration rules that permit 
parties to have conciliation or arbitration proceedings under the 
auspices of the Chamber.  In 2004, the Dubai International 
Arbitration Center was made independent of the Chamber.  The 
Arbitration Center aims to bring international standards of 
arbitration to business in Dubai. 
 
The UAE is a member of the International Center for the 
Settlement of Investment Disputes.  Although the UAE Cabinet 
approved entry into the New York Convention of 1958 on the 
Recognition and Enforcement of Foreign Arbitral Awards in 2003, 
the UAEG has not implemented the legislation, and is unlikely to 
do so in the near future. 
 
A.5  PERFORMANCE REQUIREMENTS/INCENTIVES 
---------------------------------------- 
As listed elsewhere in this report, the regulatory and legal 
framework in the UAE favors local over foreign investors.  The US 
raised this as a concern in the TIFA council meetings.  There is 
no national treatment for investors in the UAE.  The UAE 
maintains non-tariff barriers to investment in the form of 
restrictive agency, sponsorship, and distributorship 
requirements.  In order to do business in the UAE outside one of 
the free zones, a foreign business in most cases must have a UAE 
national sponsor, agent or distributor.  Once chosen, sponsors, 
agents, or distributors have exclusive rights.  They cannot be 
replaced without their agreement.  Government tendering is not 
conducted according to generally accepted international 
standards, and re-tendering is the norm.  To bid on federal 
projects, a supplier or contractor must be either a UAE national 
or a company in which UAE nationals own at least 51 percent of 
the capital or have a local agent or distributor.  Federal 
tenders must be accompanied by a bid bond in the form of an 
unconditional bank guarantee for 5 percent of the value of the 
bid.  In UAE federal government entities can tender 
internationally since foreign companies sometimes are the only 
suppliers of specialized goods or services that are not widely 
available. 
 
Incentives are given to foreign investors in the free zones. 
Outside the free zones, no incentives are given, although the 
ability to purchase property as freehold in certain favored 
projects in Dubai - and promises that foreign owners of such 
property would be granted residence permits as long as they 
remained in possession of title - would appear to be incentives 
aimed at attracting foreign investment. 
 
Visas, residence permits, and work permits are required of all 
foreigners in the UAE except nationals from GCC countries. 
Americans are eligible to receive 10-year, multiple entry visas, 
which authorize stay up to six months per entry, with the 
possibility of a six-month extension.  U.S. citizens may obtain 
visas for business and tourism at the airport upon arrival. 
These visas do not permit employment in the UAE. 
 
A.6  RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
--------------------------------------------- ---- 
Except as detailed elsewhere in this report, there are no 
restrictions on the right of private entities to establish and 
own business enterprises and engage in all forms of remunerative 
activity. 
 
A.7  PROTECTION OF PROPERTY RIGHTS 
---------------------------------- 
The concept of a mortgage has just been introduced - but only for 
select Dubai-based five-star property developments.  Mortgages 
are generally unavailable beyond these limited exceptions.  Title 
to all land in Abu Dhabi, the largest emirate, resides in the 
ruler.  Most construction, commercial and residential, is 
financed by a specialized agency of the government of Abu Dhabi, 
and commercial banks finance the remainder.  Their collateral 
traditionally has been access to the rent stream of the building 
or the personal guarantee of the developer. 
 
Foreign and national banks have increased their activity in the 
mortgage market, expanding their services to foreigners as well 
as nationals due to the recent boom in freehold property. 
Foreign banks have entered the market on a smaller scale; the 
local Mashreq Bank and Dubai Islamic Bank are most heavily 
involved in new mortgage business, with banks such as Standard 
Chartered and HSBC providing mortgages on a case-by-case basis to 
established customers. 
 
The UAE Government continues to lead the region in protecting 
intellectual property rights (IPR).  Anecdotal and statistical 
evidence confirms that the UAEG is enforcing copyright, 
trademark, and patent laws passed in 2002 to protect U.S. 
intellectual property, and continues to demonstrate its 
commitment to the 2002 agreement providing TRIPS-plus levels of 
protection to U.S. pharmaceuticals. 
 
The copyright law, enacted in July 2002, grants protections to 
authors of creative works and expands the categories of protected 
works to include computer programs, software, databases, and 
other digital works.  Efforts to combat computer software piracy 
in the UAE have been successful.  According to 2003 industry 
estimates, the rate of software piracy in the UAE is the lowest 
in the Middle East.  The UAE is recognized as the regional leader 
in fighting computer software piracy. 
 
The UAE's Trademark Law, also issued in July 2002, confirms that 
the UAE will follow the International Classification System and 
that one trademark can be registered in a number of classes.  The 
new law provides that the owner of the registration shall enjoy 
exclusive rights to the use of the trademark as registered and 
can prevent others from using an identical or similar mark on 
similar, identical or related products and services if it causes 
confusion among consumers. 
 
In 2004, the UAEG sought to amend and expand the scope of 
landmark copyright, trademark, and patent laws issued in 2002. 
Most notably, in 2004, the UAE Ministry of Information issued 
regulations under the 2002 Copyright Law allowing for specialized 
collecting societies.  These societies are a practical way for 
sound recording companies to collect royalties on the broadcast 
and performance of copyrighted material.  The UAEG also is 
considering legislation for data protection, privacy, and other 
IP-related issues.  In response to TIFA Council discussions, the 
UAE identified points of contact for rights holders to address 
complaints.  The UAE also resolved a number of IPR complaints 
with U.S. pharmaceutical manufacturers in 2004. 
 
 
A.8  TRANSPARENCY OF THE REGULATORY SYSTEM 
------------------------------------------ 
The fundamental instrument by which all of the emirates regulate 
business activity is the requirement that any place of business 
must acquire and maintain a proper license.  The procedures for 
obtaining a license vary from emirate to emirate, but are 
straightforward and publicly available. 
 
A license is not required unless a place of business is set up in 
the UAE.  In other words, foreign businesses exporting to the UAE 
but without a regular or continuing business presence in the UAE 
do not need a license.  Licenses available include trade 
licenses, industrial licenses, service licenses, professional 
licenses, and construction licenses. 
 
Several federal regulations govern business activities in the UAE 
outside free trade zones.  Activities within the free zones are 
governed by special bylaws. 
 
A.9  EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
--------------------------------------------- ---------- 
The UAE federal commercial code, promulgated in 1993, devotes an 
entire chapter to bankruptcy - the first comprehensive 
legislation in the UAE on the subject.  Monetary judgments in 
bankruptcy cases are made in the local currency, and UAE courts 
enforce the judgments of foreign courts if there is reciprocity 
based on bilateral or international treaties.  In the judgment of 
western legal experts, the commercial code chapter on bankruptcy 
governs the procedures and effects of bankruptcy in the UAE, but 
does not provide a mechanism for the orderly evaluation and 
distribution of assets of a bankrupt entity. 
Credit is allocated on market terms.  There are 21 UAE-owned 
banks with 344 branches in the UAE and abroad, 26 foreign banks 
with 109 branches, one restricted license bank, two investment 
banks, and 49 representative offices.  Following a banking crisis 
caused by accumulating bad debts after the oil boom in the mid- 
1980s, the Central Bank stopped giving licenses to new foreign 
banks.  However, in September 2003, the UAE Central Bank 
announced that it would allow the operation of more banks from 
other countries on a reciprocal basis.  The Central Bank is also 
considering allowing foreign banks operating in the UAE to set up 
new branches provided that they undertake to employ UAE 
nationals. 
 
Citibank is the only U.S. bank in the UAE that offers full 
banking services.  Bank of America has a representative office in 
Dubai, while Bank of New York has one in Abu Dhabi.  The largest 
banks in terms of assets include the National Bank of Abu Dhabi, 
National Bank of Dubai, Emirates Bank International, Mashreqbank, 
and Abu Dhabi Commercial Bank. 
 
The Central Bank prohibits lending to an amount greater than 7 
percent of a bank's capital base to any single customer.  Foreign 
banks with branches in the UAE are not permitted to calculate 
loans as a percentage of their global capital, which may however 
be used to calculate in the capital adequacy ratio.  In a 
revision to the rule, the Central Bank in 1993 said it would 
exclude from the requirement non-funded exposures, such as 
letters of credit and guarantees.  The Central Bank also 
announced implementation of internationally recognized and 
accepted accounting principles. 
 
The UAEG implemented a body of anti-money laundering legislation 
at the end of 2001, which included stringent reporting 
requirements for wire transfers exceeding $545 and currency 
importation reporting requirements of amounts exceeding 
approximately $10,800.  The law imposes stiff criminal penalties 
(jail time and fines) for money laundering and also provides safe 
harbor provisions for those who report such crimes.  Banks and 
other financial institutions are required to follow strict "know 
your customer" guidelines; all financial transactions more than 
$54,000, regardless of their nature, must be reported to the UAE 
Central Bank.  Banks and other financial institutions supervised 
by the Central Bank (exchange houses, investment companies, and 
brokerages) are required to maintain records on all transactions 
for at least five years. 
 
In  2004,  the  UAE  strengthened its legal authority  to  combat 
terrorism and terrorist financing by passing Federal Law Number 1 
of  2004  on Combating Terror Crimes on July 29, 2004.  (Law  No. 
1/2004).  Law No. 1/2004 specifically criminalizes the funding of 
terrorist activities or terrorist organizations.  Law No.  1/2004 
provides for asset seizure and confiscation. 
 
The UAE Central Bank established the Anti-Money Laundering and 
Suspicious Cases Unit (AMLSCU) in 1998 to perform the functions 
of a financial intelligence unit (FIU).  The AMLSCU jointed the 
prestigious Egmont Group of FIUs - the first Arab country to do 
so - at the Group's June 2002 conference in Monaco.  This 
membership was the basis of a number of Memoranda of 
Understanding the AMLSCU signed with other countries' FIUs in 
2002 to facilitate information sharing and case processing.  The 
AMLSCU participated in seminars, consultative meetings, and 
training with Washington-based agencies in 2002, including the 
Department of Treasury's FinCEN.  Banks, customs officials, and 
other relevant personnel are required to file suspicious 
transaction reports with the unit. 
 
Local banks finance most non-oil investment in the UAE.  Even so, 
banks lack sufficient lending opportunities in the UAE, and 
consequently place most of their funds in overseas markets.  Most 
of the manufacturing sector operates with higher levels of debt 
than prescribed by the 60:40 debt-to-equity ratio - generally the 
norm for this sector.  Some three-fourths of gross fixed capital 
formation in manufacturing is directly or indirectly financed by 
the banking system. 
Abu Dhabi and Dubai each have a stock exchange.  22 out of 53 
stocks on the UAE stock market are open to foreign investment. 
Ministry of Economy and Planning rules allow foreign investment 
up to 49% in companies on the stock market, however, company by- 
laws in many cases prohibit or limit foreign ownership. 
A.10  POLITICAL VIOLENCE 
------------------------ 
There have been no instances in recent memory involving 
politically motivated damage to projects, or insurgencies that 
have impacted the investment environment. 
 
A.11  CORRUPTION 
---------------- 
 
There is no evidence that corruption of public officials is a 
systemic problem; however, the former head of Dubai Customs and 
Port Authority - along with five other customs officials - was 
tried, convicted, and sentenced in April 2001 to 27 years in 
prison on charges of corruption and embezzlement.  He was 
pardoned four months later by the Dubai government and released. 
 
American firms are bound by the Foreign Corrupt Practices Act - a 
copy of which may be obtained from the Commercial Section of the 
U.S. Embassy.  The UAE is not a signatory to the UN 
Anticorruption Convention. 
 
A.11.b  BILATERAL INVESTMENT AGREEMENTS 
--------------------------------------- 
On March 15, 2004, the United States signed a Trade and 
Investment Framework Agreement (TIFA) with the United Arab 
Emirates to provide a formal framework for dialogue on economic 
reform and trade liberalization.  TIFAs promote the establishment 
of legal protection for investors, improvements in intellectual 
property right protection, more transparent and efficient customs 
procedures, and greater transparency in government and commercial 
regulations.  Through this process, the United States Government 
(USG) can identify potential partners for further trade 
cooperation, such as free trade agreements (FTA). 
 
A key element of the TIFA agreement is the establishment of a 
U.S.-UAE TIFA Council which provides an opportunity for the U.S. 
and the UAE to learn more about each other's trade and economic 
policies.  It also provides a forum for discussions of ways to 
increase bilateral trade and bolster the UAE's current economic 
reform efforts.  The U.S.-UAE TIFA Council met in April and 
October 2004 in Washington, during which both sides asked 
detailed questions about each other's IPR levels of protection, 
standards, market access, customs valuation, government 
procurement, services and investment, labor, and environment. 
 
The United States announced the intent to begin FTA negotiations 
with the UAE on November 15, 2004, beginning a 90-day 
Congressional notification period. 
 
A.11.c  OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
--------------------------------------------- ------- 
The UAE has been suspended from U.S. OPIC insurance programs 
since 1995 because of the UAEG's lack of compliance with 
internationally recognized worker rights standards - particularly 
laborers' rights to association and collective bargaining.  The 
ILO reported in April 2003, however, that the UAE had started to 
address these concerns.  The UAE is in the process of drafting a 
labor law in consultation with the ILO that permits the creation 
of formal labor associations/unions. 
 
Workers currently address grievances and negotiate disputes of 
matters of interest with employers through formal and informal 
mechanisms, including strikes - even though the law does not 
technically sanction them.  The UAEG does allow workers to 
associate freely for the advancement of common goals and 
interests. 
 
The UAEG prohibits strikes by those employed in the public sector 
on the grounds of national security considerations.  There is 
continuous coverage in the local press, however, of private 
sector employees striking in protest of non-payment of wages. 
Throughout 2004, Ministry of Labor officials investigated and 
mediated such disputes - often to the benefit of the striking 
workers - and negotiated quick settlements. 
 
A.11.d  LABOR 
------------- 
Population in the UAE is approximately 4 million, according to 
2003 data estimates.  More than 80 percent of residents are 
foreigners, and approximately 98 percent of private sector 
workers in the UAE are non-UAE nationals.  Emiratization of the 
UAE workforce remains a national objective, although mandated 
hiring of nationals has been limited to only a few sectors, such 
as banking. 
The Right to Organize and Bargain Collectively 
 
The law does not specifically grant - but does not prohibit - 
workers the right to engage in collective bargaining.  It does, 
however, expressly authorize collective work dispute resolution. 
There were a number of organized gatherings of workers that 
complained of unpaid wages before the Ministry of Labor and 
Social Affairs in 2003.  Professional associations may raise work- 
related concerns, to lobby the UAEG for redress, or to file a 
grievance with the Government.  For the resolution of work- 
related disputes, workers rely on conciliation committees 
organized by the Ministry of Labor and Social Affairs or on 
special labor courts. 
 
Labor laws do not cover, and therefore do not protect, government 
employees, domestic servants, and agricultural workers.  The 
latter two groups face considerable difficulty in negotiating 
employment contracts because the mandatory requirements contained 
in the labor law do not apply.  They also face considerable 
difficulty in obtaining assistance to resolve disputes with their 
employers.  UAE employers generally tie an employee's residency 
or visa to his employment and sponsorship.  If the employee 
terminates his employment and is unable to secure new employment 
and a new sponsor, the employee loses residency and could be 
required to leave the country. 
 
The UAE Government has committed itself to strictly regulating 
and enforcing labor laws, as witnessed by a recent series of 
legislation and proposals.  In June 2004, the UAE's Cabinet of 
Ministers approved a memo calling for the establishment of labor 
unions and associations in the UAE.  The UAEG instructed a 
ministerial committee to draft a federal law creating unions; the 
committee will then have six months to submit the draft law for 
approval.  This new Labor Law will allow for the creation of 
labor unions to ensure laborers' rights to organize and bargain 
collectively.  Unlike the current Labor Law, which only covers 
private sector employees, the new federal law covering unions 
will include employees from both the public and private sectors. 
The exact role unions will play and membership conditions remain 
unclear.  Under the new law, trade unions would be limited to UAE 
citizens, while expatriate workers would be represented through 
special committees. 
 
Businesses in free trade zones must comply with federal labor 
laws; however, the Ministry of Labor does not regulate them. 
Instead, each free trade zone maintains its own labor department 
to address workers' concerns. 
 
Prohibition of Forced or Bonded Labor 
 
Forced or bonded labor is illegal in the UAE.  However, some 
employment agents bring foreign workers to the country under 
conditions approaching indenture.  Some women reportedly are 
brought to the country for service sector employment and later 
forced into prostitution.  The Government prohibits forced and 
bonded child labor and generally enforces this prohibition 
effectively. 
 
Starting October 1, 2004, the UAE Ministry of Labor began 
requiring employers to submit job offers stating the salary and 
job title of their prospective employees at the same time 
employers submit visa applications.  The former practice was for 
employers to provide employment details on the visa applications 
only.  This mandate is intended to make employers more 
accountable when applying for work visas on behalf of their 
employees and aims to protect the rights of workers, who are 
sometimes misled by their employers. 
 
 
Status of Child Labor Practices and Minimum Age for Employment 
 
The labor law prohibits employment of persons under the age of 15 
and has special provisions for employing those 15 to 18 years of 
age.  The Federal Ministry of Labor and Social Affairs is 
responsible for enforcing the regulations.  Other regulations 
permit employers to employ only adult foreign workers.  The UAEG 
does not issue work permits for foreign workers under the age of 
18 years. 
In September 2002, the UAEG passed a decree banning the use of 
foreign child camel jockeys and included criminal penalties for 
violators up to and including imprisonment.  The ban prohibits 
the use of camel jockeys less than 15 years of age and under 45 
kilos.  Enforcement has not been consistent. 
Acceptable Conditions of Work 
 
There are a considerable number of skilled foreign nationals in 
the country who are employed under favorable working conditions. 
However, the country is also a destination for a large number of 
unskilled workers, including more than 200,000 domestic servants, 
most of them women from South and East Asia, and an even larger 
number of unskilled male workers, mostly from South Asia.  These 
unskilled laborers actively compete for jobs in the UAE, and some 
are subject to poor working conditions. 
 
The standard workday is eight hours per day; the standard 
workweek is six days per week; however, these standards are not 
enforced strictly.  Certain types of workers, notably domestic 
servants, are required to work longer than the mandated standard. 
The law also provides for a minimum of 24 days per year of annual 
leave plus 10 national and religious holidays.  There is no 
legislated or administrative minimum wage; rather, supply and 
demand determine compensation.  Compensation packages generally 
provide housing or housing allowances.  In addition, other 
benefits, such as homeward passage or health cards for minimal to 
no-cost health care, are often provided to employees by their 
employers.  The Labor and Social Affairs Ministry reviews labor 
contracts and does not approve any contract that stipulates a 
clearly unacceptable wage. 
 
The Ministries of Health and of Labor and Social Affairs, 
municipalities, and civil defense enforce health and safety 
standards, and the Government requires every large industrial 
concern to employ a certified occupational safety officer. 
Contrary to popular belief, there is no law in the country that 
prohibits labor outdoors when the temperate exceeds 50 degrees 
Celsius.  The law does require, however, that employers provide 
employees with a safe work environment. 
 
A.11.e  FOREIGN TRADE ZONES/FREE PORTS 
--------------------------------------------- ---- 
The UAE Free Zones today are home to approximately 5,000 
companies with a total investment estimated at more than $4 
billion.  Presently, 16 free trade zones operate in the UAE, and 
more are in the developmental stage.  Overall, these free zones 
form a vital component of the local economy, and serve as major 
re-export centers to the Gulf region. 
 
Since UAE tariffs are low and not levied against many imports, 
the chief attraction of the free zones is the waiver of the 
requirement for majority local ownership.  In the free zones, 
foreigners may own up to 100 percent of the equity in an 
enterprise.  All free zones provide 100 percent import and export 
tax exemption, 100 percent exemption from commercial levies, 100 
percent repatriation of capital and profits, multi-year leases, 
easy access to sea and airports, buildings for lease, energy 
connections (often at subsidized prices), and assistance in labor 
recruitment.  In addition, the free zone authorities provide 
significant support services, such as sponsorship, worker 
housing, dining facilities, recruitment, and security. 
 
By far the largest and most successful of the free zones is the 
Jebel Ali Free Zone (JAFZ) in Dubai, located 20 km south of Dubai 
city adjacent to the Jebel Ali Port.  Over 2,200 companies 
representing 80 countries have set up shop in the JAFZ, including 
numerous Fortune 500 firms. 
 
The JAFZ managing authority authorizes three types of licenses - 
a general license, a specific license, and a national industrial 
license.  The licenses are valid while a company holds a current 
lease from the free zone authority and are renewable annually as 
long as the lease is in force.  The special license is issued to 
companies incorporated, or otherwise legally established, within 
the free zone or outside the UAE.  In such cases, no other 
license is required, and the ownership of the company may be 100 
percent foreign.  The license is issued for any activity 
permitted by the free zone authority, including manufacturing.  A 
company with a special license can operate only in the JAFZ or 
outside the UAE, but business can be undertaken and sales made in 
the UAE through or to a company holding a valid Dubai Economic 
Department license.  A company with a special license, however, 
can itself purchase goods or services from within the UAE. 
A variety of innovative free zones in Dubai have been established 
since 2000, most notably the TECOM (Technology, Electronic 
Commerce and Media) free zone.  TECOM houses both Internet City 
and Media City, two subdivisions which cater, respectively, to 
the IT and media sectors.  TECOM offers a high bandwidth, and 
state-of-the-art IT infrastructure.  Current tenants of TECOM 
include prominent names such as Oracle, Reuters, CNN, Hewlett 
Packard and Microsoft.  Other Dubai free zones planned include 
Health Care City, specializing in medical products and services, 
and the Mohammed Bin Rashid Technology Park, which aims to 
promote scientific research and development, and to transfer 
technology throughout the region. 
 
A.11.f  FOREIGN DIRECT INVESTMENT STATISTICS 
--------------------------------------------- -------- 
The United Nations Conferences on Trade and Development (UNCTAD) 
reports that inward FDI flow for the UAE was $480 million in 
2003, down from $834 million in 2002.  Official UAE government 
statistics on FDI flows are not available, but observers believe 
that foreign investment is an increasingly important source of 
finance. 
 
The Abu Dhabi Chamber of Commerce and Industry notes that the 
leading sectors for investment in the UAE in 2002 were (in order 
of magnitude of investment): oil and gas-field machinery and 
services, power and water, computer/peripherals, medical 
equipment and supplies, airport development and ground equipment, 
telecommunications, and franchising. 
 
There are no restrictions or incentives with regard to the export 
of capital and outward direct investment, and UAE investment 
abroad is significant.  It is conservatively estimated that the 
Abu Dhabi Investment Authority (ADIA) manages an approximate USD 
$250 billion in government assets in overseas markets - mostly in 
the United States, Europe, and Asia. 
 
End text. 
 
 
SISON