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UNCLAS SECTION 01 OF 08 ROME 000149 
 
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E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB OPIC KTDB USTR PGOV IT
SUBJECT: INVESTMENT CLIMATE STATEMENT 2007 - ITALY, PART II 
 
REF: ROME 147 
 
      06 STATE 178303 
 
¶1.  This is part two of a two-part cable on Italy's investment 
climate.  (See ref A for part one.) 
 
 
BILATERAL INVESTMENT AGREEMENTS 
------------------------------- 
 
¶2.  As of December 2006, Italy has bilateral investment agreements 
with the following countries: 
 
Albania 
Algeria 
Angola (signed, not enforced) 
Argentina 
Armenia 
Azerbaijan 
Bangladesh 
Barbados 
Belarus 
Belize (signed, not enforced) 
Bolivia 
Bosnia and Herzegovina 
Brazil (signed, not enforced) 
Bulgaria 
Cape Verde (signed, not enforced) 
Chad 
Chile 
China 
Colombia (signed, not enforced) 
Congo 
Cote d'Ivoire (signed, not enforced) 
Croatia 
Cuba 
Czech Republic 
Democratic Republic of Congo (signed, not enforced) 
Dominican Republic (signed, not enforced) 
Ecuador (signed, not enforced) 
Egypt 
Eritrea 
Estonia 
Ethiopia 
Gabon 
Georgia 
Ghana (signed, not enforced) 
Guatemala (signed, not enforced) 
Guinea 
Hong Kong, China 
Hungary 
India 
Indonesia 
Iran, Islamic Republic of 
Jamaica 
Jordan 
Kazakhstan 
Kenya 
Korea, DPR of (signed, not enforced) 
Korea, Republic of 
Kuwait 
Latvia 
Lebanon 
Libya 
Lithuania 
Macedonia, Republic of 
Malawi (signed, not enforced) 
Malaysia 
Malta 
Mauritania (signed, not enforced) 
Mexico 
Moldova, Republic of 
Mongolia 
Morocco 
Mozambique 
Nicaragua 
Nigeria 
Oman 
Pakistan 
Paraguay (signed, not enforced) 
Peru 
Philippines 
Poland 
Qatar 
 
ROME 00000149  002 OF 008 
 
 
Romania 
Russian Federation 
Saudi Arabia 
Slovakia 
Slovenia 
South Africa 
Sri Lanka 
Sudan (signed, not enforced) 
Syrian Arab Republic 
Tunisia 
Turkey 
Uganda 
Ukraine 
United Arab Emirates 
Tanzania, United Republic of 
Uruguay 
Uzbekistan 
Venezuela 
Vietnam 
Yemen (signed, not enforced) 
Zambia (signed, not enforced) 
Zimbabwe (signed, not enforced) 
 
 
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
-------------------------------------------- 
 
¶3.  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, 
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 
----- 
 
¶4.  Unemployment in Italy is moderate at 6.1 percent (third quarter 
2006), and below the average of 7.7 percent among euro zone 
countries (November 2006).  Italy's unemployment rate is currently 
at the lowest level since 1992.  Traditional regional disparities 
remain unchanged, with the southern third of the country posting a 
10.7 percent unemployment rate -- compared to 3.6 percent in 
northern and 5.5 percent in central Italy.  Despite these 
differences, internal migration within Italy remains modest.  Labor 
shortages in the North are often filled by unskilled and 
semi-skilled immigrants. 
 
¶5.  Italy's labor force is fairly well-educated.  According to a 
2001 national survey, 7.9 percent of adults hold university degrees. 
 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 higher education than the OECD 
average, indicating there may be limited incentive for Italians to 
pursue higher education.  This is due to the fact that persons with 
higher 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. 
 
¶6.  As in many Western EU member states, there are 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. 
 
¶7.  In recent years, 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.  However, high costs and legal obstacles 
associated with laying off workers still remain a disincentive for 
adding employees. 
 
¶8.  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 
 
ROME 00000149  003 OF 008 
 
 
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 are binding on all employers in a 
sector or industry. 
 
 
FOREIGN TRADE ZONES/FREE PORTS 
------------------------------ 
 
¶9.  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 the free-trade zones 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 
----------------------- 
 
¶10.  The largest U.S. companies in Italy, based on number of 
employees, are:  IBM, General Electric, Pfizer, Whirlpool, 
Electronic Data Systems (EDS), Accenture, Lear, and United 
Technologies. 
 
 
FOREIGN DIRECT INVESTMENT STATISTICS 
------------------------------------ 
 
¶11.  While Italy provides a reasonably attractive environment for 
investment, it lags behind many of its fellow EU member states in 
attracting and maintaining foreign investment.  According to Bank of 
Italy figures, net foreign investment into Italy in 2005 totaled USD 
18.7 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 billion), Spain (USD 25.6 billion), Ireland (USD 25.5 billion); 
but slightly above that of Germany (USD 12.9 billion). 
 
Table 1: Italian Foreign Direct Investment Inflows by Economic 
Sector (Net) 2002-2005 (USD Millions) (1) (*) 
 
                2002       2003       2004       2005 
 
Agriculture    -95.6      108.5      234.8 511.8 
 
Energy         435.2     1993.8     4463.3    10057.1 
 
Industry      4942.9     5933.1     2016.2     6996.3 
 of which: 
Machine       1942.1     2023.9     3690.7     1314.3 
Chemical       623.4     1066.8    -3535.4      441.0 
Food           504.2     2483.5      362.7     2388.8 
Textiles       394.5      353.4      513.0      544.1 
Mineral/Metal  311.2      468.5      687.0     1315.5 
Other         1167.5     -463.0      298.2      992.6 
 
Building and 
Public Works   168.4      363.0      125.7      205.0 
 
 
 
 
Services      8812.9     6634.2     9576.4      925.5 
 of which: 
Banking/ 
Insurance     4011.0     2972.2     5749.1     1207.5 
Trade          525.0      410.4       36.0      653.4 
Transportation/ 
Communication  544.0     -412.6      516.8   -11468.3 
 
ROME 00000149  004 OF 008 
 
 
Other Services 
(Not For Sale) 4459.3     3732.9     3664.2     3274.5 
 
T O T A L    14263.8    15031.9    16416.2    18695.7 
 
 
Table 2: Italian Direct Investment Outflows by Economic Sector (Net) 
2002-2005 (USD Millions) (1) (*) 
 
                2002       2003       2004       2005 
 
Agriculture      8.5       38.0       21.1       70.8 
 
Energy        2376.4     3450.7     5336.7     2675.8 
 
Industry      3321.4     1332.9     7573.9     7629.8 
 of which: 
Machine       1428.5    -1393.3     4234.8     3684.5 
Chemical       321.6      721.2     1730.4     1730.4 
Food            99.3      295.2      151.6      206.2 
Textiles       469.2      336.6      287.0      411.2 
Mineral/Metal  158.0      274.0      246.0      600.0 
Other          844.8     1099.2      924.1      997.5 
 
Building And 
Public Works   -35.0      223.6       85.7      159.0 
 
Services      9848.8     1935.7     5037.3     7444.7 
 of which: 
Banking/ 
Insurance     4140.6     5492.6     2636.0     5164.6 
Trade          852.3      485.3     1060.9      923.0 
Transportation/ 
Communication  338.7    -8217.6     -923.0     110.6 
Other Services 
(Not For Sale) 4517.2     4175.4     2263.4     1264.6 
 
T O T A L    15520.1     6980.9    18054.7    17980.1 
 
 
Table 3a: Stock of Foreign Direct Investment in Italy by Major 
Investors; Year End 2003-2005 (USD Millions) (1) 
 
                   2002      2003      2004      2005 
 
United States   15373.7   19458.1   22448.3   21451.0 
 
EU (3)          80358.0  114010.0  140651.5  145179.5 
 of which: 
 France         17071.0   21294.1   24608.6   25637.5 
 Netherlands    17444.7   26882.4   39009.4   40079.1 
 United Kingdom 14692.1   22266.6   26613.9   25434.5 
 Germany         9959.3   13797.2   14312.3   15309.3 
 Luxembourg     13171.2   18354.2   22336.5   24042.5 
 Sweden          2431.2    2967.5    3341.8    3034.2 
 Belgium         2307.9    2963.7    3335.1    1982.3 
 Spain            936.3    1279.1    1941.0    4820.5 
 Other EU (4)    2344.3    4205.3    5286.9    4839.4 
 
Switzerland     15375.8   18481.9   21872.7   20115.7 
Liechtenstein    1438.4    1824.8    2105.9    1975.2 
Japan            2315.2    2991.2    3595.2    3419.1 
Argentina         129.4     165.2     257.4     246.8 
Brazil             58.5      78.8     128.7     184.2 
Other            6182.7    7806.0    9328.5    8747.3 
 
T O T A L     121,231.7 164,816.0 200,379.4 201,318.8 
 
 
Table 3b: Stock Of Foreign Direct Investment In Italy by Major 
Investors; Year End 2002-2005 (Percentage of Total) 
 
                    2002      2003      2004      2005 
 
United States       12.7      11.8      11.2      10.7 
 
EU (3)              66.3      69.2      70.2      72.1 
 France             14.1      12.9      12.3      12.7 
 Netherlands        14.4      16.3      19.5      19.9 
 United Kingdom     12.1      13.5      13.3      12.6 
 Germany             8.2       8.4       7.1       7.6 
 Luxembourg         10.9      11.1      11.1      11.9 
 Sweden              2.0       1.8       1.7       1.5 
 Belgium             1.9       1.8       1.7       1.0 
 
ROME 00000149  005 OF 008 
 
 
 Spain               0.8       0.8       1.0       2.4 
 Other EU (4)        1.9       2.6       2.6       2.4 
 
Switzerland         12.7      11.2      10.9      10.0 
Liechtenstein        1.2       1.1       1.1       1.0 
Japan                1.9       1.8       1.8       1.7 
Argentina            0.1       0.1       0.1       0.1 
Brazil               0.1       0.0       0.1       0.1 
Other                5.0       4.8       4.6       4.3 
 
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 2002-2005 (USD Millions) (2) 
 
                   2002      2003      2004      2005 
 
United States   17390.4   18420.5   18851.2   19617.5 
 
EU (3)         118190.0  150010.0  182521.4  178145.2 
 Netherlands    32087.7   48455.6   63268.1   65081.5 
 Luxembourg     24228.6   21755.9   26363.3   25154.7 
 France         16131.5   20921.2   24344.5   23866.6 
 United Kingdom 18715.0   20270.3   24158.2   22617.5 
 Germany         9272.4   13065.1   15758.7   15004.7 
 Spain           7125.3    9871.1   10882.0    9866.6 
 Belgium         3369.5    4569.5    5308.3    4944.5 
 Sweden           600.2     748.4     866.3     892.6 
 Other EU (4)    6659.7   10352.9   11572.4   10716.6 
 
Switzerland      9321.5   10954.9   10559.0   10007.1 
Brazil           2486.4    3473.1    3954.4    4935.1 
Argentina        1633.6    2127.7    2178.3    2211.3 
Japan             954.1    1137.7    1249.9    1164.1 
Liechtenstein     144.1     169.0     194.4     175.9 
Other           19552.1   22342.9   24901.6   26460.5 
 
T O T A L     169672.0   208635.8  244410.2  243982.3 
 
 
Table 4b: Stock of Italian Direct Investment Abroad by Major 
Recipient; Year End 2002-2005 (Percentage of Total) 
 
                   2002      2003      2004      2005 
 
United States      10.2       8.8       7.7       8.0 
 
EU                 69.7      71.9      74.7      73.0 
of which: 
 Luxembourg        14.3      10.4      10.8      10.3 
 Netherlands       18.9      23.2      25.9      26.7 
 France             9.5      10.0      10.0       9.8 
 Germany            5.5       6.3       6.4       6.1 
 United Kingdom    11.0       9.7       9.9       9.3 
 Spain              4.2       4.7       4.5       4.0 
 Belgium            2.0       2.2       2.2       2.0 
 Sweden             0.4       0.4       0.4       0.4 
 Other EU (3)       3.9       5.0       4.7       4.4 
 
Switzerland         5.5       5.4       4.3       4.1 
Brazil              1.5       1.7       1.6       2.0 
Argentina           1.0       1.0       0.9       0.9 
Japan               0.6       0.5       0.5       0.5 
 
Liechtenstein       0.1       0.1       0.1       0.1 
Other              11.4      10.6      10.2      11.4 
 
T O T A L         100.0     100.0     100.0     100.0 
 
 
Table 5a: U.S. Investment in Italy by Economic Sector End-Year 
2002-2005 (USD Millions) (2) 
 
                   2002      2003      2004      2005 
 
 
Agriculture        29.2      36.3      40.2      41.3 
Energy            434.2     545.7     627.6     576.2 
 
Industry         9236.0   11812.3   13607.1   12958.7 
 of which: 
Machine          2098.1    2635.8    2979.7    2792.2 
Transportation 
 
ROME 00000149  006 OF 008 
 
 
Equipment         621.1     782.2     902.5     830.0 
Chemical         2487.5    3162.7    3689.1    3447.5 
Food             1306.9    1667.1    1920.3    2003.5 
Textiles          179.5     230.3     273.6     260.9 
Minerals/Metals   272.4     395.5     451.9     433.3 
Other            2297.5    2938.7    3390.0    3191.3 
 
Services         5647.2    7063.8    8173.4    7874.8 
 of which: 
Trade             690.0     853.6     987.0     933.9 
Banking/ 
Insurance        2910.2    3505.6    4008.2    3771.0 
Transportation/ 
Communication     456.2     582.0     666.5     636.4 
Other Services   1590.8    2122.7    2511.7    2533.5 
 
T O T A L       15373.7   19458.1   22448.3   21451.0 
 
 
Table 5b: U.S. Investment in Italy by Economic Sector End-Year 
2002-2005  (Percentage of Total) 
 
                   2002      2003      2004      2005 
 
Agriculture         0.2       0.2       0.2       0.2 
 
Energy              2.8       2.8       2.8       2.7 
 
Industry           60.3      60.7      60.6      60.4 
 of which: 
Machine            13.7      13.6      13.3      13.0 
Transportation 
Equipment           4.0       4.0       4.0       3.9 
Chemical           16.2      16.3      16.4      16.1 
Food                8.5       8.6       8.6       9.3 
Textiles            1.2       1.2       1.2       1.2 
Minerals/ 
Metals              1.8       2.0       2.0       2.0 
Other              14.9      15.0      15.1      14.9 
 
Services           36.7      36.3      36.4      36.7 
 of which: 
Trade               4.5       4.4       4.4       4.3 
Banking/ 
Insurance          18.9      18.0      17.9      17.6 
Transportation/ 
Communication       3.0       3.0       3.0       3.0 
Other Services     10.3      10.9      11.1      11.8 
 
T O T A L         100.0     100.0     100.0     100.0 
 
 
Table 6a: Italian Investment in the U.S. by Economic Sector -- 
End-Year 2002-2005 (USD Millions) (2) 
 
                   2002      2003      2004      2005 
 
Agriculture        48.0      51.3      52.3      62.6 
 
Energy           1727.6    1816.0    1831.8    1877.2 
 
Industry         6749.5    7061.3    7254.8    7589.1 
 of which: 
Machine          2484.3    2732.2    2777.2    2850.1 
Transportation 
Equipment         775.6     863.6     950.8     966.9 
Chemical          494.8     261.6     205.2     212.5 
Food              249.5     264.1     273.6     289.3 
Textiles          670.1     724.7     741.6     813.5 
Minerals/ 
Metals           1440.5    1541.9    1589.1    1637.5 
Other             634.7     673.3     717.3     819.4 
 
Services         8865.3    9491.9    9719.6   10088.5 
 of which: 
Trade             690.0    1142.7    1177.4    1201.9 
Banking/ 
Insurance        4179.5    4434.3    4615.7    4796.9 
Transportation/ 
Communication     456.2     274.1     232.0     242.0 
Other            3539.7    3640.8    3694.5    3847.7 
 
T O T A L       17390.4   18420.5   18858.5   19617.5 
 
 
ROME 00000149  007 OF 008 
 
 
 
Table 6b: Italian Investment in the U.S. by Economic Sector -- 
End-Year 2002-2005 (Percentage of Total) 
 
                   2002      2003      2004      2005 
 
Agriculture         0.3       0.3       0.3       0.3 
 
Energy             10.5       9.9       9.9       9.6 
 
Industry           39.1       38.8     38.3      38.7 
 of which: 
Machine            14.7       14.3     14.8      14.5 
Transportation 
Equipment           4.5        4.5      4.7       4.9 
Chemical            2.7        2.9      1.4       1.1 
Food                1.4        1.4      1.4       1.5 
Textiles            3.9        3.8      3.9       4.2 
Minerals/ 
Metals              8.2        8.3      8.4       8.3 
Other               3.7        3.6      3.7       4.2 
 
Services           50.1       51.0     51.5      51.4 
 of which: 
Trade               6.3        4.0      6.2       6.1 
Banking/ 
Insurance          23.6       24.0     24.1      24.5 
Transportation/ 
Communication       1.5        2.6      1.5       1.2 
Other              18.7       20.4     19.7      19.6 
 
T O T A L         100.0      100.0    100.0     100.0 
 
 
Table 7: Direct Investment by Origin and Destination End-Year 2005 
(USD Millions) 
 
               Foreign         Italian         Net 
   Investment      Investment      Italian 
               in Italy        Abroad          Position 
 
EU              145179.5       178145.3        32965.8 
 of which: 
  United Kingdom 25434.5        22617.5        -2817.0 
  Netherlands    40079.1        65081.5        25002.4 
  Germany        15309.3        15004.7         -304.6 
  France         25637.6        23866.6        -1771.0 
  Spain           4820.5         9866.6         5046.1 
  Luxembourg     24042.5        25154.7         1112.2 
  Belgium         1982.3         4944.5         2962.2 
  Sweden          3034.2          892.6        -2141.6 
  Other (4)       4839.5        10716.6         5877.1 
 
Non-EU           56139.3        65837.1         9697.8 
 of which: 
 USA             21451.0        19617.5        -1833.5 
 Switzerland     20115.7        10007.1       -10108.6 
 Liechtenstein    1975.2          175.9        -1799.3 
 Japan            3419.1         1164.1        -2255.0 
 Canada            815.8         1265.6          449.8 
 Argentina         246.8         2211.3         1964.5 
 Brazil            184.2         4935.1         4750.9 
 Other            7931.5        29460.6        18528.9 
 
T O T A L       201318.8       243982.3        42663.5 
 
 
(1) Annual net investment flow data compiled by Embassy Economic 
Section, based on Bank of Italy data and converted at the following 
end-year exchange rates: 
 
                   2002      2003      2004      2005 
 
Euro/Dollar       1.057     0.894    0.805     0.805 
 
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. 
 
(2) Compiled by the Economic Section of the Embassy based on Bank of 
Italy data and converted at the following end year exchange rates: 
 
                   2002      2003      2004      2005 
 
ROME 00000149  008 OF 008 
 
 
 
Euro/Dollar       0.958     0.799     0.746     0.847 
 
(3) EU 15 data for 2002, EU 25 data for 2003-2005. 
 
(4) Austria, Denmark, Finland, Portugal, Greece, Ireland (other EU 
25 countries), plus Cyprus, Czech Republic, Estonia, Hungary, 
Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia. 
 
(5) Original data in euro and converted at the end-2005 exchange 
rate of one dollar = 0.847 euro. 
 
Sources:  Italian Exchange Office And Bank Of Italy Annual Report 
¶2005. 
 
¶12.  END PART TWO OF CABLE. 
 
SPOGLI