This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 14 ROME 000263 
 
SIPDIS 
 
TREASURY PLEASE PASS TO OIA/EB/IFD/OIA 
SECSTATE PLEASE PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB PGOV IT OPIC USTR
SUBJECT:  INVESTMENT CLIMATE STATEMENT 2006 
 
REF: STATE 202943 
 
¶1.  Summary.  Italy continues to court foreign 
investors by actively seeking to implement the 2003 
legal reforms designed to lift the Italian economy out 
of its malaise.  In 2003 Italy successfully reformed 
its civil code and made important modifications to its 
Unified Rules on Financial Intermediation, including 
specific provisions for listed companies.  In addition, 
at the end of 2005 Italy approved the financial market 
oversight reform and a new, more favorable bankruptcy 
law.  However, stumbling blocks that discourage 
investment appear stubborn, such as the inefficient 
delivery of public services and bureaucratic red tape. 
The upcoming 2006 April elections and the installation 
of a new government are unlikely to spur significant 
change in the investment climate.  Yet Italy remains 
competitive with other developed countries in offering 
guarantees and opportunities for investment. 
 
¶2.  Italy has a diverse and industrial economy, the 
sixth largest market economy in the world, with the 
highest proportion of manufacturing jobs among the G-7. 
Small- and medium-sized firms dominate the Italian 
economy.  Germany, France, and the U.S. remain the most 
important export markets.  Industrial activity is 
concentrated in the north, one of the most 
industrialized and prosperous areas in Europe.  By 
contrast the center and particularly the south are less 
developed, with unemployment in some areas three times 
that or the north, and per capital incomes much lower. 
The Italian government does provide incentives for 
investing in the South, in accordance with European 
Union (EU) regulations, in an effort to counter the 
regional economic divide. 
 
 
OPENESS TO FOREIGN INVESTMENT 
----------------------------- 
¶3.  Foreign direct investment in Italy is generally 
welcomed and encouraged without discrimination.  The 
Italian Government has launched initiatives to identify 
and reduce deterrents to investing in Italy.  The 
government has also pinpointed several sectors of 
opportunity for investors, including aerospace, 
automotive, biotech, chemicals, food and beverages, 
information and communication technologies, regional 
transportation and logistics hubs, pharmaceuticals, and 
tourism. 
 
¶4.  As an EU Member State, Italy is bound by EU treaties 
and legislation, some of which have an impact on 
business investment.  Prospective investors should also 
consult the investment climate statement for the EU at 
www.state.gov/e/eb.  As specified under the right of 
establishment set forth in the EU Treaty (1957 Treaty of 
Rome), Italy provides national treatment to foreign 
investors established in Italy or in another EU member 
state, except in a few instances.  Exceptions include 
limited access to government subsidies for the film 
industry, added capital requirements for banks domiciled 
in non-EU member countries, and restrictions on non-EU- 
based airlines operating domestic routes.  Italy also 
has restrictions in the shipping sector. 
 
¶5.  The government does have the authority to restrict 
foreign investment in some areas or in some cases.  The 
government can block mergers involving foreign firms for 
"reasons essential to the national economy" or, if the 
home government of the foreign firm applies 
discriminatory measures against Italian firms.  Industry 
sectors, such as defense and aircraft manufacturing, are 
either closely regulated or prohibited outright to 
foreign investors.  EU and Italian anti-trust laws give 
EU and Italian authorities the right to review mergers 
and acquisitions over a certain financial threshold. 
 
¶6.  The 2005 World Competitive Survey by the Swiss- 
based Institute for Management Development (IMD) ranked 
Italy fifty-third among the world's sixty most 
competitive economies.  The 2005 World Economic Forum 
(WEF), "Global Competitiveness Report" ranked Italy 
forty-seventh among the 117 countries surveyed; Italy's 
economy was judged only better than Poland's among the 
twenty-five EU Member States. 
 
¶7.  Foreign investors are not prevented from investing 
in firms to be privatized, except in the defense sector. 
Privatization strategies have included private 
placement, worker shareholdings, management buy-outs, 
and public stock offerings.  Often the government 
establishes a core group of shareholders who agree to 
keep their shares for a minimum period or retain a 
"golden share" (modest government stake, but with 
controlling authority).  The European Commissioner for 
Internal Markets asked Italy to modify its golden share 
regulation by December, 2005, or face an infringement 
proceeding and potentially a case before the European 
Court of Justice.  Italy is the only EU member country 
to keep wide-ranging golden share regimes for privatized 
companies, however, it plans to eliminate the golden 
share and introduce a measure to avoid hostile takeovers 
when the Italian Government's stake in the company falls 
below thirty percent.  This measure is designed 
specifically for key energy and defense companies such 
as ENI, Enel, Terna and Finmeccanica.  A recent study of 
the EU Commission highlights that in the EU there are 
twenty companies in which Member States hold golden 
share, five of which are Italian (Eni, Enel, 
Finmeccanica, Terna and Telecom). 
 
 
CONVERSION AND TRANSFER POLICIES 
-------------------------------- 
¶8.  In conformance with EU directives, Italy has no 
foreign exchange controls.  There are no restrictions on 
currency transfers, only reporting requirements.  Banks 
are required to report any transaction over _12,500 
($15,000) due to money-laundering and terrorism 
financing concerns.  Profits, transfers, payments, and 
currency transfers may be freely repatriated.  Residents 
and non-residents may hold foreign exchange accounts. 
 
 
EXPROPRIATION AND COMPENSATION 
------------------------------ 
¶9.  The Italian constitution permits expropriation of 
private property for "public purposes."  Compensation 
is guaranteed and must adequately compensate the 
legitimate proprietor for losses.  Lenders are not 
covered by the same constitutional guarantee as 
proprietors. The Constitution also authorizes the 
nationalization of enterprises that provide essential 
public services or are deemed indispensable to the 
national economy.  There exists a few longstanding 
disputes in Italy involving U.S. citizens who assert 
that municipal governments unjustly expropriated their 
real property or inadequately compensated them. 
However, this does not reflect any Italian Government 
discrimination against U.S. investments, companies, or 
representatives in any specific sector of activity. 
 
 
DISPUTE SETTLEMENT 
------------------ 
 
¶10.  Italy's judicial system may serve as a deterrent 
to foreign investor as civil trials average seven years 
in length.  U.S. investors in Italy can choose among 
different means of dispute resolution and the method 
chosen should be specifically set forth in the 
contract. 
 
¶11.  Italy is a member of the World Bank's International 
Center for the Settlement of Investment Disputes 
(ICSID).  Italy has signed and ratified the Convention 
on the Settlement of Investment Disputes Between States 
and Nationals of Other States, and is a signatory of the 
New York Convention of 1958 on the Recognition and 
Enforcement of Foreign Arbitral Awards. 
 
¶12.  Though extremely slow, the Italian legal system is 
consistent with generally recognized principles of 
international law, with provisions for enforcing 
property and contractual rights.  Italy has a written 
and consistently applied commercial law and bankruptcy 
law.  While the Italian judiciary is considered 
independent of the government, Italian judges may engage 
in political artisanship.  Italian courts accept and 
enforce foreign judgments only upon request. 
 
¶13.  At the end of 2005 the Italian Government passed a 
new bankruptcy law that reforms the 1942 law.  The new 
law, analogous to U.S. Chapter 11 re-structuring, 
provides more flexibility between parties to reach a 
solution before declaring bankruptcy.  The judicial 
role in bankruptcy procedures has been drastically 
limited to simplify and speed up the process.  The new 
regulation will go into effect in June 2006. 
 
 
PERFORMANCE REQUIREMENTS/INCENTIVES 
----------------------------------- 
 
¶14.  The Italian Government is in compliance with WTO 
Trade-Related Investment Measures (TRIMS) obligations. 
Foreign investors face specific performance requirements 
only in the telecommunications sector, however that has 
not deterred investment in this sector.  For example in 
2005 Weather Investments, owned by an Egyptian 
financier, bought Wind, Italy's second largest telecom 
company, and Vodafone, Italy's second largest mobile 
operator, is foreign-controlled.  New entrants in fixed- 
line services must file with the government company a 
statement that they are operationally capable. 
 
¶15.  The Italian government offers incentives to 
encourage private sector investment in economically 
depressed areas, particularly in southern Italy.  . 
Foreign investors may participate in government research 
and development programs.  Recently the Italian 
government began efforts to strengthen research and 
development by linking up basic and applied research. 
The Ministry of Education and Research has identified, 
funded, and signed Framework Program Agreements with 
seven "Technology Districts" and approved an additional 
twelve Districts.  Technology Districts, created to 
facilitate co-operation between public and private 
researchers and venture capitalists, serve to support 
research and development of key technology, strengthen 
industrial research activities, and promote innovative 
behavior in small- and medium-sized enterprises. 
 
¶16.  The Italian tax system does not discriminate 
between foreign and domestic investors.  In 2003, the 
Italian Parliament passed a law to broadly reform the 
tax system, a law known as Law No. 80 of April 7, 2003, 
the "Reform" or "Law of Reform").  The law simplifies 
the tax legislation and creates a more favorable tax 
environment for domestic and foreign investments. 
 
¶17.   The new tax law entered into force on January 1, 
¶2004.  For corporations, the main characteristics of 
the reformed tax system are: 
-- A ceiling of 33% on the corporate income tax rate. 
-- Exemption from capital gains taxes of profits 
resulting from selling interests in Italian and foreign 
corporations. 
-- Abolishment of the dividend tax credit, and the 
introduction of a 95% exemption on dividend 
distributions (provided dividends are distributed to 
corporations). 
-- Introduction of a group taxation regime for 
Italian/foreign corporations belonging to the same 
group to consolidate their tax base at the level of the 
Italian parent. 
-- Introducing the so-called 'thin capitalization rule' 
whereby a debt/equity ratio aims to avoid thin 
capitalization of Italian corporations.  Thin 
capitalization is defined as when the overall debt 
exceeds four times the value of the company assets. 
 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
-------------------------------------------- 
 
¶18.  There is no limitation in either the Italian 
constitution or civil law on the right to private 
ownership and establishment.  The Italian Government 
announced in September 2005 plans to dispose of real 
estate assets with an estimated value of three billion 
euros, a move designed to help reduce the national 
budget deficit.   As part of this initiative in 
December 2005 the government set up Patrimonio 1, a 
real estate fund which includes real estate for sale, 
with an estimated value of 800 million euros. 
 
PROTECTION OF PROPERTY RIGHTS 
----------------------------- 
 
¶19.  Italy is a member of the Paris Union International 
Convention for the Protection of Industrial Property 
(patents and trademarks) to which the United States and 
about 85 other countries adhere.  U.S. citizens 
generally receive national treatment in acquiring and 
maintaining patent and trademark protection in Italy. 
After filing a patent application in the United States, 
a U.S. citizen is entitled to a twelve-month period 
within which to file a corresponding application in 
Italy and receive rights of priority- the benefit in 
Italy of the first U.S. filing date.  Patents are 
granted for twenty years from the effective filing date 
of application and are transferable.  U.S. authors can 
obtain copyright protection in Italy for their work 
first copyrighted in the United States merely by placing 
on the work, their name, date of first publication, and 
the symbol (c). 
 
¶20.  In August 2000, the Italian Parliament enacted a 
long-awaited "anti-piracy" law, providing for higher 
criminal penalties, including prison sentences of up to 
four years, for Intellectual Property Rights (IPR) 
violations.  Italy has since been moved from the U.S. 
Trade Representatives Special 301 IPR "Priority Watch 
List" to the "Watch List."  Copyrighted works sold in 
Italy generally must bear a sticker issued by SIAE, a 
royalty collection agency operating under authority from 
the Ministry of Culture.  While the music and film 
industries are largely satisfied with the stickering 
system, software industry associations have complained 
the system remains overly burdensome and fails to 
provide adequate protection from piracy.  In January 
2003, the Italian government approved exemptions for 
business software from the SIAE sticker requirement. 
 
¶21.  In 2005, Italy's parliament passed legislation 
that some copyright industry associations believe 
weaken Italy's IPR legal framework.  Italy's Internet 
piracy statute was revised to reduce criminal sanctions 
for on-line piracy conducted without a profit motive. 
While illegal file sharing technically remains a crime, 
only those who engage in piracy for monetary gain now 
face jail time while all others face administrative 
fines only.  Parliament also passed a broad-sweeping 
legal reform bill (known as the "ex-Cirielli" law), 
which places new limits on the statute of limitations 
in many criminal cases.  While the law's supporters say 
the reform is necessary to speed the slow pace of 
trials, IP industries fear the new restrictions will 
discourage Italian prosecutors from pursuing IPR cases. 
 
¶22.  Enforcement of IPR remains a serious problem in 
Italy and falls below the standards of other developed 
Western European countries.  Relatively few IPR cases 
are brought to trial.  Even when prosecutors win a 
conviction, judges are generally reluctant to sentence 
offenders to prison.  The Customs Police is actively 
seizing pirated and counterfeit goods along the border, 
and Italy's national financial police force, the Guardia 
di Finanza, has grown steadily more effective in IPR 
enforcement.  However many local governments do little 
to stop the sale of pirated and counterfeit goods by 
street vendors.  In April 2005, Italy enacted a new law 
empowering police to fine consumers of pirated and 
counterfeit items up to _10,000.  Several 
municipalities, such as Florence, have undertaken 
aggressive publicity campaigns to alert Italians and 
foreign tourists of the new law.  Pirated optical discs, 
in addition to counterfeit items, continue to be openly 
sold in most Italian cities. 
 
 
TRANSPARENCY OF THE REGULATORY SYSTEM 
------------------------------------- 
 
¶23.  Italy is recovering from the collapse of Parmalat, 
and allegations that the Governor of Italy's Central 
Bank actively supported Italian banks to the detriment 
of foreign banks in takeovers, explicitly illegal under 
EU regulations.  In an effort to improve accountability 
and competition, Italy's President approved a law 
December 28, 2005 to overhaul the Bank of Italy and 
improve corporate governance and oversight.  Italy is 
subject to single market directives mandated by the 
European Union, which are intended to harmonize many 
regulatory regime among EU countries.  Harmonization 
of standards relating to labeling, content, production, 
safety, etc., can reduce development costs and 
contribute to economies of scale for companies that wish 
to operate in Italy. 
 
¶24.  The 12th edition of the "Index of Economic Freedom" 
published by the Wall Street Journal and Heritage 
Foundation gave Italy a 3 on a 1 - 5 scale for its 
regulatory environment.  It cited red tape and 
regulations that vary from region to region and are 
inefficiently implemented as contributing to a non- 
transparent system. 
 
 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
--------------------------------------------- ----- 
 
¶25.  Financial resources flow relatively freely in 
Italian financial markets, and credit is allocated on 
market terms.  Foreign participation in Italian markets 
is not restricted; foreign investors are able to get 
credit on local market and have access to variety of 
credit instruments.  The Italian stock exchange has 
fewer than 300 companies, and according to the 
Organization for Economic Cooperation and Development's 
2005 Economic Survey of Italy, new listings have 
decreased since 2000, especially in the Nuovo Mercato 
segment specializing in innovative companies.  In 
response, Borsa Italiana established two new segments 
of the market devoted to smaller companies:  STAR and 
Mercato Expandi launched in 2001 and 2003, 
respectively.  Nuovo Mercato has been reshaped and 
given a new name (Techstar).  Despite this effort, the 
number of listed companies continues to decrease.  The 
2004 budget law introduced a reduction in the business 
tax rate from 33% to 20% for newly listed companies 
during its first three years.  Moreover, taxation of 
capital gains from mutual funds specialized in small 
listed companies has been reduced from 12.5% to five 
percent. 
 
¶26.  Financial services companies incorporated in 
another EU member state may offer investment services 
in Italy without establishing a local presence.  U.S. 
and other firms based in non-EU member states may 
operate under authorization from Italian Companies and 
Stock Exchange Commission (CONSOB), the oversight 
authority for securities markets, corporate governance, 
and company audits. 
 
¶27.  There is a growing competitive equality between the 
public and private sectors.  Previously, Italian 
government bonds absorbed a large share of available 
domestic investment, but this share declined as interest 
rates on those bonds dropped as Italy prepared for EU 
economic and monetary union.  Even with lower yields, 
the Italian government bonds are considered a safe haven 
for domestic investors burned by defaults on 
Argentinean, as well as Parmalat and Cirio, bonds. 
 
¶28.  Authorization by the Bank of Italy is required to 
acquire more than five percent of a financial 
institution's capital (or to gain effective control of 
a financial institution, regardless of the amount of 
capital acquired).  Non-bank companies (either Italian 
or foreign) may not acquire more than 15 percent of a 
bank's capital.  Complex cross-shareholding has been 
used to fight off takeover attempts in the financial 
sector. Foreign banks are part of "stable shareholder" 
arrangements of Italian largest bank.   Recently the 
Dutch Bank ABN-Amro obtained complete control of an 
Italian medium sized bank, Banca Antonveneta. 
 
¶29.  The Italian banking sector remains sound despite 
the recent allegations of favoritism by the Bank of 
Italy.  The ratio of outstanding bank credit to GDP 
rose to 86 percent in 2004 and only 4.7 percent of 
total lending is estimated non-performing.  The banking 
sector in the last decade has undergone significant 
consolidation, with about 60 percent of total Italian 
banking assets involved.  From 1994 to 2004, 331 
mergers and acquisitions took place, with the number of 
banks decreasing from almost 1,000 to less than 780 at 
end-2004.  Country's largest banks are Intesa-Bci, San 
Paolo-IMI, Capitalia, Unicredito Italiano, and Banca 
Nazionale del Lavoro and Monte dei Paschi di Siena. 
The total assets of Italy's six largest banks is equal 
to 54.6 percent of total assets.  Retail banking fees 
in Italy are the highest among EU Member States.  For 
example, the price to provide a basic payment service 
related to a bank account is eight times higher in 
Italy than in the most efficient EU Member State. 
 
 
POLITICAL VIOLENCE 
------------------ 
 
¶30.  Political violence is a low threat to foreign 
investments in Italy. 
 
CORRUPTION 
---------- 
 
¶31.  Italy is a signatory to the 1997 OECD Convention 
on Combating Bribery, ratified in September 2000. 
Italy has signed, but not ratified, the United Nations 
Convention Against Corruption, which was adopted in 
2003 and came into force on December 14, 2005. 
 
¶32.  Recent charges of favoritism leveled against Bank 
of Italy's Governor Fazio eventually led to his 
resignation and helped encourage parliament to push 
through a law designed to make the Bank both more 
accountable and transparent.  Although the scandal 
initially negatively impacted Italy's image, it may 
result in a more transparent and investor-friendly 
framework for the banking industry. 
 
¶33.  According to Transparency International's (TI) 2005 
Global Corruption Barometer Survey, Italians perceive 
sectors related to investment as corrupt.  When Italians 
were asked, to what extent do you perceive the following 
sectors in this country/territory to be affected by 
corruption? (1: not at all corrupt, . 5: extremely 
corrupt), they assigned 3.5 to the categories of 
Business/Private Sector, Tax Revenue, and Registry and 
Permit Services, well above the average for Western 
Europe of 2.5.  More than 50% of Italians felt that 
business had been adversely affected by corrupt 
practices. 
 
¶34.  TI's Corruption Perceptions Index 2005 ranked 
Italy the fortieth least corrupt country in the world. 
While a slight improvement over its 2004 ranking, it is 
still perceived as being more corrupt than most EU 
member states (ranked eighteenth out of twenty-five). 
In January 2003, Italy enacted a law creating a High 
Commissioner to prevent and combat bribery within 
public administration. 
 
¶35.  Corruption is punishable under Italian law.  As in 
all judicial processes, much discretion regarding 
punishment is left to the presiding judge.  Most 
corruption in the recent past has involved government 
procurement or bribes to tax authorities.  Bribes are 
not considered deductible business expenses under 
Italian tax law. 
 
 
BILATERAL INVESTMENT AGREEMENTS 
------------------------------- 
 
¶36.  As of June 2005, Italy has bilateral investment 
agreements with the following countries: 
 
Albania 
Algeria 
Angola (signed, not enforced) 
Argentina 
Armenia 
Azerbaijan 
Bangladesh 
Barbados 
Belarus 
Bolivia 
Bosnia and Herzegovina (signed, not enforced) 
Brazil (signed, not enforced) 
Bulgaria 
Cape Verde (signed, not enforced) 
Chad 
Chile 
China 
Colombia (signed, not enforced) 
Congo 
Cte d' Ivoire (signed, not enforced) 
Croatia 
Cuba 
Czech Republic 
Ecuador (signed, not enforced) 
Egypt 
Eritrea 
Estonia 
Ethiopia 
Gabon (signed, not enforced) 
Georgia 
Ghana (signed, not enforced) 
Guatemala (signed, not enforced) 
Guinea 
Hong Kong, China 
Hungary 
India 
Indonesia 
Iran, Islamic Republic of  (signed, not enforced) 
Jamaica 
Jordan 
Kazakhstan 
Kenya 
Korea, DPR of (signed, not enforced) 
Korea, Republic of 
Kuwait 
Latvia 
Lebanon 
Lithuania 
Macedonia, TFYR 
Malawi (signed, not enforced) 
Malaysia 
Malta 
Mauritania (signed, not enforced) 
Mexico 
Moldova, Republic of (signed, not enforced) 
Mongolia 
Morocco 
Mozambique (signed, not enforced) 
Nicaragua (signed, not enforced) 
Oman 
Pakistan 
Paraguay (signed, not enforced) 
Peru 
Philippines 
Poland 
Romania 
Russian Federation 
Saudi Arabia 
Slovakia 
Slovenia 
South Africa 
Sri Lanka 
Syrian Arab Republic (signed, not enforced) 
Tunisia 
Turkey 
Uganda 
Ukraine 
United Arab Emirates 
Tanzania, United Republic of 
Uruguay 
Uzbekistan 
Venezuela 
Vietnam 
Zambia (signed, not enforced) 
Zimbabwe (signed, not enforced) 
 
Additional information on bilateral agreements can be 
found at http://www.unctad.org 
 
 
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
-------------------------------------------- 
 
¶37.  The U.S. Overseas Private Investment Corporation 
(OPIC) does not operate in Italy.  However, in March 
2003, OPIC signed a Memorandum of Understanding with 
SIMEST (Societa Italiana per le Imprese all'Estero), 
its Italian counterpart, to expand cooperation in a 
number of areas, particularly on projects in third 
countries.  Italy, through its Export Credit Agency, 
SACE, has signed a memorandum of understanding with the 
World Bank's Multilateral Investment Guarantee Agency 
(MIGA). 
 
LABOR 
----- 
 
¶38.  Unemployment in Italy is moderate at 7.1 percent 
(third quarter 2005), but below the average of 8.7 
percent among euro zone countries (November 2005). 
Italy's unemployment rate is currently at the lowest 
level since 1992.  Traditional regional disparities 
remain unchanged with the southern third of the country 
having a 13.2 percent unemployment rate compared to 3.9 
percent in the northern third and 5.8 percent in central 
Italy.  Despite these differences, internal migration 
within Italy remains modest.  Labor shortages in the 
North are being filled by unskilled and semi-skilled 
immigrants.  The Bossi-Fini law, enacted in 2001, 
provides for the legalization of 650,000 undocumented 
foreign workers and grants a residence permit to 
immigrants who are legally employed. 
 
¶39.  Italy's labor force is fairly well-educated, with 
just under 36 percent of people aged 19 to 25 enrolled 
in university/tertiary level of education for the 2001- 
2 academic year.  According to the 2001 census, 7.9% of 
adults hold university degrees.  However the drop-out 
rate is high; the OECD cites just over 40 percent of 
students who matriculate actually complete their 
degree.  According to the OECD 2005 Economic Review of 
Italy, the private internal rate of return, which 
measures incentives to invest in human capital, is much 
lower for tertiary education (6.5 per cent) than the 
OECD average (11.8 per cent), indicating there may be 
little incentive for Italians to pursue higher 
education.  This is because persons with tertiary 
educations do not earn substantially more than persons 
with upper secondary educations, and because the 
unemployment risk is comparable for people at both 
levels of education.  Therefore, firms interested in 
investing in Italy may have difficulties finding highly 
specialized Italian employees. 
 
¶40.  Like many western EU Member States, Italy has been 
known for legal obstacles to hiring and firing workers. 
Companies may bring in a non-EU employee only after the 
government-run employment office has certified that no 
qualified, unemployed Italian is available to fill the 
position.  Work visas are subject to annual quotas, 
although intra-company transfers are exempt from quota 
limitations. 
 
¶41.  Recently the Italian labor market has become 
somewhat more flexible.  A series of legal reforms has 
encouraged the hiring of part-time employees by reducing 
employer social security contributions for these 
workers.  New laws have also created opportunities for 
outsourcing, job-sharing and use of private employment 
services.  New types of contracts now exist that allow 
for reduced labor costs.  U.S. companies in Italy 
increasingly are satisfied with labor flexibility. 
However, high costs and legal obstacles associated with 
laying off workers remain a disincentive for adding 
employees. 
 
¶42.  Italy is an International Labor Organization member 
country.  Terms and conditions of employment are also 
periodically fixed by collective labor agreements in 
different professions.  Most Italian unions are grouped 
into four major national confederations:  The General 
Italian Confederation of Labor - CGIL; the Italian 
Confederation of Workers' Unions - CISL; the Italian 
Union of Labor  - UIL; and the General Union of Labor - 
UGL. The first three organizations are affiliated with 
the International Confederation of Free Trade Unions 
(ICFTU), while the UGL has been associated with the 
World Confederation of Labor (WCL).  The confederations 
negotiate national level collective bargaining 
agreements with employer associations, which in effect 
are binding on all employers in a sector or industry. 
As the result of a tripartite agreement among employer 
groups, the government, and unions, the confederations 
accepted wage moderation in exchange for participation 
in formulating national economic policy. 
 
 
FOREIGN TRADE ZONES/FREE PORTS 
------------------------------ 
 
¶43.  There are two free trade zones in Italy, located 
in Trieste and Venice, both in the northeast.  Goods of 
foreign origin may be brought in without payment of 
taxes or duties, as long as the material is to be used 
in the production or assembly of a product that will be 
exported.  The free-trade zone law also allows a 
company, of any nationality, to employ workers of the 
same nationality under that country's labor laws and 
social security systems. 
 
Benefits of a free-trade zone include: 
 
- customs duties deferred for 180 days from the time 
that the goods leave the free trade zone to enter 
another EU country; 
 
- the goods may undergo transformation free of any 
customs restraints; 
 
- absolute exemption from any duties on products coming 
from a third country. 
 
U.S. Companies in Italy 
----------------------- 
 
¶44.  The largest U.S. companies in Italy, based on 
number of employees, are: 
 
IBM 
General Electric 
Pfizer 
Whirlpool 
EDS Electronic Data Systems 
Accenture 
Lear 
United Technologies 
 
FOREIGN DIRECT INVESTMENT STATISTICS 
------------------------------------ 
 
¶45.  While Italy provides a reasonably attractive 
environment for investment, there is a growing 
recognition in both the Italian public and private 
sector that Italy lags behind many of its fellow 
European Union (EU) member states in attracting and 
maintaining foreign investment.  According to UN 
figures, net foreign investment into Italy in 2003 
totaled USD 16.4 billion (equal to 1.1 percent of GDP), 
well below that of Luxembourg (USD 87.6 billion) France 
(USD 47 billion), Belgium (USD 29.5), Spain (USD 25.6 
billion), Ireland (USD 25.5) but slightly above that of 
Germany (USD 12.9 billion). 
 
 
Table 1: Italian Foreign Direct Investment Inflows by 
Economic Sector (Net) 2001-2004 (USD Millions) (1) (*) 
 
                2001       2002       2003       2004 
 
Agriculture    171.6      -95.6      108.5      234.8 
 
Energy         922.3      435.2     1993.8     4463.3 
 
Industry      4758.1     4942.9     5933.1     2016.2 
 of which: 
Machine       1125.8     1942.1     2023.9     3690.7 
Chemical       358.9      623.4     1066.8    -3535.4 
Food           991.2      504.2     2483.5      362.7 
Textiles       240.1      394.5      353.4      513.0 
Mineral/Metal  334.4      311.2      468.5      687.0 
Other         1707.7     1167.5     -463.0      298.2 
 
Building and 
Public Works   146.6      168.4      363.0      125.7 
 
Services      8185.9     8812.9     6634.2     9576.4 
 of which: 
Banking/ 
Insurance     1761.8     4011.0     2972.2     5749.1 
Trade          845.5      525.0      410.4       36.0 
Transportation/ 
Communication 1119.3      544.0     -412.6      516.8 
Other Services 
(Not For Sale)4459.3     3732.9     3664.2     3274.5 
 
T O T A L    14184.6    14263.8    15031.9    16416.2 
 
 
Table 2: Italian Direct Investment Outflows by Economic 
Sector (Net) 2001-2004 (Millions Of Dollars) (1) (*) 
 
                2001       2002       2003       2004 
 
Agriculture      8.8        8.5       38.0       21.1 
 
Energy        8313.1     2376.4     3450.7     5336.7 
 
Industry      4834.9     3321.4     1332.9     7573.9 
 of which: 
Machine       1393.2     1428.5    -1393.3     4234.8 
Chemical       651.7      321.6      721.2     1730.4 
Food           557.4       99.3      295.2      151.6 
Textiles       151.7      469.2      336.6      287.0 
Mineral/Metal  774.3      158.0      274.0      246.0 
Other         1306.7      844.8     1099.2      924.1 
 
Building And 
Public Works   105.5      -35.0      223.6       85.7 
 
Services      7891.3     9848.8     1935.7     5037.3 
 of which: 
Banking/ 
Insurance      708.6     4140.6     5492.6     2636.0 
Trade          428.3      852.3      485.3     1060.9 
Transportation/ 
Communication 2661.9      338.7    -8217.6     -923.0 
Other Services 
(Not For Sale)4092.5     4517.2     4175.4     2263.4 
 
T O T A L    21153.6    15520.1     6980.9    18054.7 
 
 
Table 3a: Stock Of Foreign Direct Investment In Italy by 
Major Investors; Year End 2001-2004 (USD Millions) (1) 
 
                 2001      2002      2003      2004 
 
United States 13781.5   15373.7   19458.1   22448.3 
 
EU            67574.5   80358.0  113750.9  140705.8 
of which: 
EU15          67574.5   80358.0  113750.9  140300.8 
 of which: 
 France       14273.7   17071.0   21294.1   24618.1 
 Netherlands  14033.8   17444.7   26882.4   39024.4 
 United Kingdom 12791.7   14692.1   22266.6   26624.2 
 Germany       8868.0    9959.3   13797.2   14317.9 
 Luxembourg   10703.7   13171.2   18354.2   22345.1 
 Sweden        2208.8    2431.2    2967.5    3343.1 
 Spain          853.9     936.3    1279.1    1941.8 
 Other EU (3)  3840.8    4652.3    6909.9    8086.2 
Other EU25 (4)    N/A       N/A       N/A     405.0 
 
Switzerland     13899.7   15375.8   18481.9   21881.1 
Liechtenstein    1334.7    1438.4    1824.8    2106.7 
Japan            1984.8    2315.2    2991.2    3596.6 
Argentina         119.1     129.4     185.3     257.7 
Brazil             54.7      58.5      78.8     128.7 
Other            5740.8    6182.7    7330.4    9736.8 
 
T O T A L     104,489.8 121,231.7 164,816.0 200,456.7 
 
 
Table 3b: Stock Of Foreign Direct Investment In Italy 
By Major Investors; Year End 2001-2004 (Percentage Of 
Total) 
 
                    2001      2002      2003      2004 
 
United States       13.2      12.7      11.8      11.2 
EU                  64.7      66.3      69.0      70.2 
of which: 
EU15                64.7      66.3      69.0      70.0 
 France             13.7      14.1      12.9      12.3 
 Netherlands        13.4      14.4      16.3      19.5 
 United Kingdom     12.2      12.1      13.5      13.3 
 Germany             8.5       8.2       8.4       7.1 
 Luxembourg         10.2      10.9      11.1      11.1 
 Sweden              2.1       2.0       1.8       1.7 
 Spain               0.8       0.8       0.8       1.0 
 Other EU15 (3)      3.8       3.8       4.2       4.0 
Other EU25 (4)       N/A       N/A       N/A       0.2 
 
Switzerland         13.3      12.7      11.2      10.9 
Liechtenstein        1.3       1.2       1.1       1.1 
Japan                1.9       1.9       1.8       1.8 
Argentina            0.1       0.1       0.1       0.1 
Brazil               0.1       0.1       0.0       0.1 
Other                5.4       5.0       4.4       4.8 
 
T O T A L          100.0     100.0     100.0     100.0 
 
 
Table 4a: Stock Of Italian Direct Investment Abroad by 
Major Recipient; Year End 2001-2004 (Millions Of 
Dollars)(2) 
 
              2001       2002       2003       2004 
 
United States 18799.9    17390.4    18420.5    18858.5 
 
EU           106956.2   118190.0   147956.2   182591.9 
Of which: 
EU15         106956.2   118190.0   147956.2   180360.5 
 Netherlands 29154.3    32087.7    48455.6    63292.5 
 Luxembourg  20457.4    24228.6    21755.9    26373.4 
 France      15487.5    16131.5    20921.2    24353.9 
 United Kingdom17437.9  18715.0    20270.3    24167.5 
 Germany        9505.8   9272.4    13065.1    15764.8 
 Spain          6204.9   7125.3     9871.1    10886.2 
 Sweden          602.5    600.2      748.4      866.3 
 Other EU15 (3) 8708.4  10029.3    12868.6    14655.9 
Other EU25 (4)     N/A      N/A        N/A     2231.4 
 
Switzerland     8975.6   9321.5    11176.5   10563.1 
Brazil          4056.9   2486.4     3473.1    3956.0 
Argentina       2133.0   1633.6     2127.7    2179.1 
Japan            965.0    954.1     1137.7    1240.4 
Liechtenstein    141.1    144.1      169.0     194.4 
Other          17761.7  19552.1    23107.6   24921.1 
 
T O T A L     159789.5 169672.0   208635.8  244504.5 
 
 
Table 4b: Stock Of Italian Direct Investment Abroad by 
Major Recipient; Year End 2001-2004 (Percentage Of 
Total) 
 
                   2001      2002      2003      2004 
 
United States      11.8      10.2       8.8       7.7 
 
EU                 66.9      69.7      70.9      74.7 
of which: 
EU15               66.9      69.7      70.9      73.8 
 Luxembourg        12.8      14.3      10.4      10.8 
 Netherlands       18.2      18.9      23.2      25.9 
 France             9.7       9.5      10.0      10.0 
 Germany            5.9       5.5       6.3       6.4 
 United Kingdom    10.9      11.0       9.7       9.9 
 Spain              3.9       4.2       4.7       4.5 
 Sweden             0.4       0.4       0.4       0.4 
 Other EU15 (3)     5.1       5.9       6.2       6.0 
Other EU25 (4)      N/A       N/A       N/A       0.9 
 
Switzerland         5.6       5.5       5.4       4.3 
Brazil              2.5       1.5       1.7       1.6 
Argentina           1.3       1.0       1.0       0.9 
Japan               0.6       0.6       0.5       0.5 
Liechtenstein       0.1       0.1       0.1       0.1 
Other              11.2      11.5      11.1      10.2 
 
T O T A L         100.0     100.0     100.0     100.0 
 
Table 5a: U.S. Investment In Italy by Economic Sector 
Outstanding End-Year 2001-2004 (Millions Of Dollars) (2) 
 
              2001        2002        2003        2004 
 
Agriculture   21.2        29.2        36.3        40.2 
 
Energy       404.0       434.2       545.7       627.6 
 
Industry    8712.8      9236.0     11812.3     13607.1 
 of which: 
Machine     2067.7      2098.1      2635.8      2979.7 
Transportation 
Equipment    586.6       621.1       782.2       902.5 
Chemical    2303.2      2487.5      3162.7      3689.1 
Food        1223.5      1306.9      1667.1      1920.3 
Textiles     165.8       179.5       230.3       273.6 
Minerals/Metals 240.8    272.4       395.5       451.9 
Other       2125.0      2297.5      2938.7      3390.0 
 
Services    4643.5      5647.2      7063.8      8173.4 
 of which: 
Trade        643.2       690.0       853.6       987.0 
Banking/ 
Insurance   2248.5      2910.2      3505.6      4008.2 
Transportation/ 
Communication 419.9      456.2       582.0       666.5 
Other Services 1340.8   1590.8      2122.7      2511.7 
 
T O T A L     13781.5   15373.7    19458.1     22448.3 
 
 
Table 5b: U.S. Investment In Italy by Economic Sector 
Outstanding End-Year 2001-2004  (Percentage Of Total) 
 
                2000      2001      2002      2003 
 
Agriculture      0.2       0.2       0.2       0.2 
 
Energy           2.9       2.8       2.8       2.8 
 
Industry         63.2     60.3      60.7      60.6 
 of which: 
Machine          15.0     13.7      13.6      13.3 
Transportation 
Equipment         4.3      4.0       4.0       4.0 
Chemical         16.7     16.2      16.3      16.4 
Food              8.9      8.5       8.6       8.6 
Textiles          1.2      1.2       1.2       1.2 
Minerals/ 
Metals            1.8      1.8       2.0       2.0 
Other            15.5     14.9      15.0      15.1 
 
Services         33.7     36.7      36.3      36.4 
 of which: 
Trade             4.6      4.5       4.4       4.4 
Banking/ 
Insurance        16.3     18.9      18.0      17.9 
Transportation/ 
Communication     3.1      3.0       3.0       3.0 
Other Services    9.7     10.3      10.9      11.1 
 
T O T A L       100.0    100.0     100.0     100.0 
 
 
Table 6a: Italian Investment in the U.S. by Economic 
Sector Outstanding End-Year 2001-2004 (Millions Of 
Dollars) (2) 
 
                2000      2001      2002      2003 
 
Agriculture     54.7      48.0      51.3      52.3 
 
Energy        1971.6    1727.6    1816.0    1831.8 
 
Industry      7349.0    6749.5    7061.3    7254.8 
 of which: 
Machine       2759.3    2484.3    2732.2    2777.2 
Transportation 
Equipment      843.3     775.6     863.6     950.8 
Chemical       507.2     494.8     261.6     205.2 
Food           263.8     249.5     264.1     273.6 
Textiles       723.3     670.1     724.7     741.6 
Minerals/ 
Metals        1548.1    1440.5    1541.9    1589.1 
Other          703.9     634.7     673.3     717.3 
 
Services      9424.7    8865.3    9491.9    9719.6 
 of which: 
Trade         1175.9     690.0    1142.7    1177.4 
Banking/ 
Insurance     4433.6    4179.5    4434.3    4615.7 
Transportation/ 
Communication  284.9     456.2     274.1     232.0 
Other         3530.3    3539.7    3640.8    3694.5 
 
T O T A L    18799.9   17390.4   18420.5   18858.5 
 
 
Table 6b: Italian Investment in the U.S. by Economic 
Sector Outstanding End-Year 2000-2003 (Percentage Of 
Total) 
                2001       2002       2003       2004 
 
Agriculture      0.3        0.3        0.3        0.3 
 
Energy           9.0       10.5        9.9        9.9 
 
Industry        39.5       39.1       38.8       38.3 
 of which: 
Machine         14.0       14.7       14.3       14.8 
Transportation 
Equipment        4.5        4.5        4.5        4.7 
Chemical         2.8        2.7        2.9        1.4 
Food             0.9        1.4        1.4        1.4 
Textiles         4.1        3.9        3.8        3.9 
Minerals/ 
Metals           8.7        8.2        8.3        8.4 
Other            3.3        3.7        3.6        3.7 
 
Services        51.2       50.1       51.0       51.5 
 of which: 
Trade            6.4        6.3        4.0        6.2 
Banking/ 
Insurance       24.1       23.6       24.0       24.1 
 
Transportation/ 
Communication    0.6        1.5        2.6        1.5 
Other           20.1       18.7       20.4       19.7 
 
T O T A L      100.0      100.0      100.0      100.0 
 
 
Table 7: Direct Investment by Origin And Destination 
Outstanding End-Year 2004 (Millions Of Dollars) (4) 
 
               Foreign         Italian         Net 
              Investment      Investment      Italian 
              n Italy          Abroad         Position 
 
EU             140705.8        182591.9        41886.1 
 of which: 
 EU15          140300.8        180360.5        40059.7 
  Of which: 
  United Kingdom 26624.2        24167.5        -2456.7 
  Netherlands    39024.4        63292.5        24268.1 
  Germany        14317.9        15764.8         1446.9 
  France         24618.1        24353.9         -264.2 
  Spain           1941.8        10886.2         8944.4 
  Luxembourg     22345.1        26373.4         4028.3 
  Belgium         3336.4         5310.4         1974.0 
  Sweden          3343.1          866.3        -2476.8 
  Other EU15 (6)  4749.8         9345.5         4595.7 
Other EU25 (4)     405.0         2231.4         1826.4 
 
Non-EU           59750.9        61912.6         2161.7 
 of which: 
USA              22448.3        18858.5        -3589.8 
Switzerland      21881.1        10563.1       -11318.0 
Liechtenstein     2106.7          194.4        -1912.3 
Japan             3596.6         1240.4        -2356.2 
Canada             866.3         1170.7          304.4 
Argentina          257.5         2179.1         1921.6 
Brazil             128.7         3956.0         3827.3 
Other             8465.7        23750.4        15284.7 
 
T O T A L       200456.7       244504.5        44047.8 
 
(1) Annual net investment flow data compiled by the 
Economic Section of the Embassy based on Bank of Italy 
data and converted at the following end year exchange 
rates: 
 
              2001     2002     2003     2004 
 
Euro/Dollar  1.117    1.057    0.894    0.805 
 
(2) Compiled by the Economic Section of the Embassy 
based on Bank of Italy data and converted at the 
following end year exchange rates: 
 
              2001     2002     2003     2004 
 
Euro/Dollar  1.134    0.958    0.799    0.746 
 
(*) Net = New Investment Less Disinvestment.  The 
volatility and huge changes from year to year in some 
sections can be explained in part by the fact that 
listed data are "Net": New Investment Minus 
Disinvestment. 
 
(3) Belgium, Austria, Denmark, Finland, Portugal, 
Greece, Ireland 
 
(4) Cyprus, Czech Republic, Estonia, Hungary, Latwia, 
Lithuania, Malta, Poland, Slovakia, Slovenia (members 
since May 1, 2004). 
 
(5) Original data in euro and converted at the end-2004 
exchange rate, one dollar equals 0.746 
 
(6) Austria, Denmark, Finland, Portugal, Greece, 
Ireland 
 
Sources:  Italian Exchange Office And Bank Of Italy 
Annual Report 2005. 
 
SPOGLI