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Diana T Fritz  02/20/2007 04:57:47 PM  From  DB/Inbox:  Diana T Fritz

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UNCLAS        ABU DHABI 00203

SIPDIS
CXABU:
    ACTION: ECON
    INFO:   AMB DCM POL DOJ FCS DAO P/M

DISSEMINATION: ECON
CHARGE: PROG

APPROVED: AMB: MJSISON
DRAFTED: ECON: BDEMONTLUZIN
CLEARED: DCM: ECON: FCS: CG: DOJ: TREAS:

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RR RUEHC RUEHDE RUEHZM RUCPDOC RUEATRS RUCPCIM
DE RUEHAD #0203/01 0391057
ZNR UUUUU ZZH
R 081057Z FEB 07
FM AMEMBASSY ABU DHABI
TO RUEHC/SECSTATE WASHDC 8220
INFO RUEHDE/AMCONSUL DUBAI 6826
RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPCIM/CIMS NTDB WASHDC

UNCLAS SECTION 01 OF 12 ABU DHABI 000203 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA 
STATE PLEASE PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN ETRD ELAB KTDB PGOV USTR
 
SUBJECT:  UAE INVESTMENT CLIMATE STATEMENT 2006 
 
A.1 Openness to Foreign Investment 
 -------------------------------- 
 
The U.S. and UAE began negotiating a Free Trade Agreement 
in March 2005 and are meeting in February 2007 to discuss 
next steps on the FTA and the U.S.-UAE trade and 
investment relationship.  The UAE is also involved in GCC 
negotiations with the European Union and China for free 
trade agreements. In October 2006, the UAE Minister of 
Economy stated that the GCC negotiations with China 
reached an advanced stage on the issue of trade 
commodities but there are obstacles, especially in the 
areas of satellite communications. 
 
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 
Emirates of Dubai and Abu Dhabi have opened up some areas 
for freehold and leasehold property investments, 
respectively. 
 
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 Embassy is aware 
of a few investment/payment disputes between U.S. 
companies and UAE entities. 
 
The UAEG  accession to the UN Convention on the 
Recognition and Enforcement of Foreign Arbitral Awards 
became effective in November, 2006.  An arbitration award 
issued in the UAE will now be enforceable in all 138 
states that have acceded to the Convention, and any award 
issued in another member state will be directly 
enforceable in the UAE.  The Convention supersedes all 
incompatible legislation and rulings in the UAE, and 
should be welcomed by many businesses that consider 
arbitration the most advantageous form of dispute 
resolution. 
 
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. Dubai imposes a rental tax on expatriates equaling 
five percent of the rental charges.  The UAE has said 
that it is considering passing a VAT averaging 7-12% on 
the federal level and has asked for assistance from the 
IMF.  The import tariffs are collected and retained by 
each Emirate. 
 
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. 
Press reports have indicated that the UAEG may reduce the 
percentage of local ownership required in certain 
sectors, but has yet to pass a formal law to that effect. 
On April 2006, the UAE Cabinet amended the law regarding 
ownership of insurance companies. The amended article 
states that 75 percent of insurance companies must be 
owned by a UAE national or 100 percent by UAE national 
legal persons, i.e., a UAE corporation. 
 
 
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.  On June 18, 2006, the UAE announced 
substantial changes to the Commercial Agencies Law. 
These amendments include: 1) requiring mutual consent to 
renew an agency agreement, 2) limiting an agency contract 
to a fixed time period, 3) allowing either party to file 
for damages, 4) eliminating the Ministry of Economy's 
Commercial Agencies Commission(which handles agency 
disputes), and 5) allowing the import of "liberalized 
goods" without the agent's approval. 
 
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. 
 
The UAE restricts foreign ownership of land, with rules 
varying from Emirate to Emirate. In May 2002, the Emirate 
of Dubai announced that it would permit so-called  ree 
hold eal estate ownership for non-GCC nationals by 
giving permission to three companies to develop and sell 
freehold properties on government-designated pieces of 
land.  The Emirate of Dubai codified its freehold and 
leasehold law on March 14, 2006.  The law allows non-GCC 
foreigners to freehold or leasehold rights only in 
designated areas of Dubai and does not give property 
owners permanent residence visas or an automatic right to 
work in the Emirate.  The Emirate of Ras Al Khaimah also 
offers free-hold land to offshore companies in designated 
areas.  Individuals can establish a company in the Ras- 
al-Khaima Free Zone for the purpose of purchasing a free- 
hold for use by the company's owner.  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 or the 
U.S.  In 2005, the Emirate of Abu Dhabi announced that it 
would also allow "lease hold" real estate ownership for 
non-UAE nationals in certain designated areas.   The law 
was published in the Abu Dhabi Gazette in September 2005. 
Non-GCC nationals can own buildings in the Emirate of Abu 
Dhabi in certain investment areas, but cannot own the 
land.  The law states that non-UAE nationals shall have 
the right to own surface property, but not the land 
itself in investment areas.  Foreigners shall have the 
right to arrange all their surface properties and to 
derive benefits from them based on a 50-year surface 
ownership agreement that can be renewed for the same 
period subject to the agreement of the two parties.  The 
law grants mortgage rights to anyone with the right to 
benefit from the property for a period of more than ten 
years, even without the permission of the owner. 
However, the owner of the property shall not mortgage it 
unless he gets approval from the person who has the right 
of benefit of the property. 
 
Perhaps the most important impediment to Dubai 
"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. 
 
 
Oil and Gas will continue to be a major sector for 
foreign investment in 2007.  In line with its OPEC quota, 
the UAE has reduced its oil production output by twice 
since November 1, 2006. The UAE continues, however, to 
invest in increasing its oil production capacity and the 
Emirate of Abu Dhabi recently announced a major plan to 
develop its sour gas reserves.  In addition, the UAE 
plans to add new oil refining capacity in Abu Dhabi and 
to build a new refinery in Fujairah.  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) signed 
an Agreement with ExxonMobil for a 28% stake in the Upper 
Zakum offshore oil field on a 20 year concession in March 
¶2006.  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  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  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. 
 
In 2004, the UAE enacted legislation to end the monopoly 
of Etisalat (the official UAE telecommunications 
company).  In May 2005, the UAE approved the 
establishment of one new telecom company, largely owned 
by the UAE government to compete with Etisalat.  The UAE 
gave a $1.1 billion license to Emirates Integrated 
Telecommunication Company (EITC), which operates under 
the trade name du.  Du was expected to start operations 
in the summer of 2006, but as of January 2007 has yet to 
begin offering service.  Du will offer the full range of 
telephone services throughout the UAE (mobile, fixed 
line, internet, etc.) The UAE government owns 40 percent 
of du.  Mubadala Development Company, which is owned by 
the Emirate of Abu Dhabi, and TECOM Investment, which is 
owned by the Dubai government through Dubai Holdings each 
own 20 percent and private investors own the remaining 20 
percent.  Local press reports throughout 2006, quoted 
Mohammad Al-Ghanem, Director General of the 
Telecommunications Regulatory Authority, as saying the 
duopoly will exist in the telecom sector until 2015 when 
the market will be further liberalized. 
 
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 percent 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. 
 
In November 2004, the UAE announced its intent to open up 
the insurance sector to new foreign insurance companies. 
Any new companies entering the market are required to 
meet high level international rating criteria and must 
complete a viability study to prove that it will be 
offering new products to the market.  About half of the 
insurance companies in the UAE are foreign, but new 
entries were frozen since 1999.  Currently, there is only 
one American subsidiary insurance company operating in 
the UAE. 
 
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. Every bank transaction in US dollars 
is subject to a 1% fee. 
 
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 likely be generous. 
 
A.4 Dispute Settlement 
 --------------------- 
The Embassy is aware of a few substantial investment 
disputes during the past few years involving U.S. or 
other foreign investors, and government and/or local 
businesses.  There have also been several 
contractor/payment 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 UAE federal courts on the basis of mutual 
consent, a written arbitration agreement, independently, 
by nomination of arbitrators, or through a referral to an 
appointing authority without recourse to judicial 
proceedings.  Enforcing arbitration judgments rendered in 
the UAE can be difficult as they require court 
certification, and judicial proceedings may continue for 
several years.  Some companies are reportedly unwilling 
to resort to arbitration out of concern that it would 
affect their future business opportunities in the UAE. 
 
Companies interested in developing large projects in 
Dubai are routinely required to have investors lined up 
to finance the project prior to its being awarded to 
them, and may be required to furnish detailed information 
about those investors to assure the Dubai emirate 
government that funding is indeed locked in. 
 
The UAE constitution established a federal court system 
while acknowledging the right of the individual emirates 
to opt out, which Dubai and Ras al-Khaimah both have. 
However, some issues must be heard in the Federal court 
system such as security matters, conflicts between the 
emirates, constitutionality of a federal law, trial of 
ministers and senior officials and jurisdictional issues. 
There is no independent judiciary in the UAE.  The 
Ministry of Justice appoints the judges, the majority of 
which are non-Emirati. 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 
applicable to both Muslims and non-Muslims and is 
applicable in all kinds of cases.  Courts will interpret 
statutory law and Sharia law 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.  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 for arbitration at 
any stage during litigation.  The UAE Code of Civil 
Procedure outlines the minimum qualifications that 
arbitrators must possess as well as 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. In November 
2006, the UAE signed onto the UN Convention for 
Arbitration, which requires UAE courts to enforce trade 
dispute arbitration decisions made in foreign countries. 
 
The Code of Civil Procedure 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  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.  The 
Center  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  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. 
 
A.5 Performance Requirements/Incentives 
 ------------------------------------ 
 
As listed elsewhere in this report, the regulatory and 
legal framework in the UAE favors local over foreign 
investors.  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. 
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.  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  nd promises that 
foreign owners of such property would be granted 
residence permits as long as they remained in possession 
of title  ould 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 stays of 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 
 -------------------------------- 
In September 2005, the Emirate of Abu Dhabi passed a law 
allowing Emiratis to hold title on properties in the 
Emirate and opened up some foreign  easehold ights to 
surface property in certain designated areas.   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.  Although the UAE is the leader in the 
region at enforcing intellectual property rights' and the 
Emirate of Dubai is very pro-active in enforcement, many 
of the stakeholders believe that the UAEG could do more 
to fight piracy in the other emirates and to deal with 
the problems of transshipping of counterfeit goods. 
 
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 2006 industry 
estimates, the rate of software piracy in the UAE is the 
lowest in the Middle East, estimated to be 34 percent. 
The UAE is recognized as the regional leader in fighting 
computer software piracy. In 2005, the UAE launched 
several campaigns against piracy and seized thousands of 
pirated movies and music discs. The UAE  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. 
 
 
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  he 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 391 branches, 49 cash offices and 
electronic/customer services units in the UAE and abroad, 
25 foreign banks with 83 branches, once cash office and 6 
electronic services/customer service units, one 
restricted license bank, two investment banks, and 55 
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.  These new branches will allow foreign banks 
to provide a wider range of banking services.  In October 
2005, the Central Bank said that national banks 
conditionally agreed to have new foreign bank branches 
open in the country. 
 
Citibank is the only U.S. bank in the UAE that offers 
full banking services.  There are a number of U.S. 
financial institutions with either representative offices 
in the UAE or that have established a presence in the 
Dubai International Financial Center (a financial free 
zone).  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  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  now your 
customer uidelines; 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. 
 
In 2006, the UAE also enacted Law No. 2 of 2006--the 
Cybercrimes law--which has articles dealing with money 
laundering and terrorist finance.  Article 19 of the law 
makes it a crime for anyone to use the internet to 
transfer money or property traceable to criminal 
proceeds, or to conceal the true sources of such assets. 
Violations are punishable by a term of imprisonment of up 
to 7 years and a fine ranging from $8,174 to $54,495. 
Article 21 of the law outlaws the use of the internet to 
finance terrorist activities, promote terrorist ideology, 
disseminate information on explosives or facilitate 
contact with terrorist leaders.  Any violation of Article 
21 is punishable by a term of imprisonment of up to 5 
years. 
 
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  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.  IN 
2006, the AMLSCU participated in seminars, consultative 
meetings, and training with Washington-based agencies, 
including the Department of Treasury  Financial Crimes 
Enforcement Network (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  enerally 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.  24 out 
of 50 stocks on the Abu Dhabi stock exchange and 18 out 
of 33 stocks on the Dubai stock exchange are open to 
foreign investment. Ministry of Economy and Planning 
rules allow foreign investment up to 49 percent 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.  In December 
2005, Federal Law No. 34 for 2005 was issued which 
amended a range of articles in the Penal Code.  The law 
stipulates that a public servant convicted of 
embezzlement shall be subject to imprisonment for a 
minimum of five years if the crime is connected to 
counterfeiting.  Article 237 imposes a minimum term of 
one year for accepting a bribe, while anyone convicted of 
attempting to bribe a public servant may be imprisoned 
for up to five years. 
 
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.  In August 2005, the UAE 
signed the UN Anticorruption Convention and ratified it 
in February 2006 
 
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). 
 
The United States began negotiating a Free Trade 
Agreement with the UAE in March 2005 and will meet in 
February 2007 to discuss next steps on the FTA and the 
U.S.-UAE trade and investment relationship. 
 
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  lack of 
compliance with internationally recognized worker rights 
standards  articularly 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  ven 
though the law does not technically sanction them.  UAE 
law does not allow workers to associate freely for the 
advancement of common goals and interests, but the UAEG 
usually does not punish workers' from striking. In 2006 
there were several labor strikes mainly because of non- 
payment of salaries/benefits and the Ministry of Labor 
often sided with the strikers. 
 
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 
2006, Ministry of Labor officials investigated and 
mediated such disputes  ften to the benefit of the 
striking workers. 
 
A.11.d Labor 
 ------------ 
Population in the UAE is approximately 4.10 million, 
according to 2000 census results which were released in 
July, 2006.  In December 2005, the UAE began a door-to- 
door census.  Results of the census included both the 
foreign and local population in the UAE.  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, 
which has a 4% quota, insurance, which has a 5% quota and 
trade, which has a 2% quota for companies employing 50 
workers or more as well as quotas in the federal 
government.  In addition, in 2006, the UAEG also added 
Emiratization requirements that all secretaries and 
Public Relations Officers must also be Emirati. 
 
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.  Ministerial resolution No. 307 of 2003 does, 
however, expressly authorize collective work dispute 
resolution.  In 2006, there were a number of organized 
gatherings of workers complaining of unpaid wages to the 
Ministry of Labor.  Professional associations may also 
raise work-related concerns, lobby the UAEG for redress, 
or file a grievance with the Ministry of Labor.  For the 
resolution of work-related disputes, workers rely on 
conciliation committees organized by the Ministry of 
Labor or on special labor courts. 
 
Labor laws do not cover, and therefore do not protect, 
government employees, domestic servants, agricultural 
workers or workers in the free zones.  Domestic servants 
face considerable difficulty in negotiating employment 
contracts because the mandatory requirements contained in 
the labor law do not apply to them.  They also face 
considerable difficulty in obtaining assistance to 
resolve disputes with their employers.  UAE employers 
generally tie an employee  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  Cabinet of Ministers approved a memo 
calling for the establishment of labor unions and 
associations in the UAE.  On February 5, 2007, the 
Ministry of Labor published the proposed new labor law 
for comment.  The proposed law does not contain any 
provisions for labor unions or for collective bargaining. 
 
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 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 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 July 2005, the UAEG passed a decree banning the use of 
child camel jockeys and included criminal penalties for 
violators up to and including imprisonment.  The ban 
prohibits the use of camel jockeys less than 18 years of 
age. 
 
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 Ministry reviews 
labor contracts and does not approve any contract that 
stipulates a clearly unacceptable wage. 
 
The Ministry of Health, Ministry of Labor, 
municipalities, and civil defense authorities enforce 
health and safety standards, and the Government requires 
every large industrial company to employ a certified 
occupational safety officer.  The law requires that 
employers provide employees with a safe work environment. 
The UAE issued regulations in summer 2006 that laborers 
could not be required to work between twelve thirty and 
three p.m.   during July and August and penalized 
companies that did not comply. 
 
 
 
A.11.e Foreign Trade Zones/Free Ports 
 ------------------------------------ 
Free Zones in the UAE are home to more than 5,000 
companies with a total investment estimated at more than 
$4 billion.  Presently, 32 free trade zones operate in 
the UAE, with more in the development 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 (JAFZA) in Dubai, located 20 
km south of Dubai city adjacent to the Jebel Ali Port. 
Over 5000 companies representing 80 countries have set up 
shop in the JAFZA, including numerous Fortune 500 firms. 
 
The JAFZA 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 only operate in the JAFZA 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.  However, a company with a 
special license can 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 
include Dubai Health Care City, specializing in medical 
products and services, the Mohammed Bin Rashid Technology 
Park, which aims to promote scientific research and 
development, and to transfer technology throughout the 
region and the Dubai Aid City, which hosts local, 
regional and international relief aid donors, suppliers 
and organizations.  Internet usage in the free zones is 
not censored as it is in the non-free trade zones. 
 
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 $12 
billion in 2005.  Total U.S. foreign direct investment in 
the UAE was $2.6 billion in 2005. 
 
The Abu Dhabi Chamber of Commerce and Industry notes that 
the leading sectors for investment in the UAE in 2006 
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 $500 billion 
in government assets in overseas markets-- mostly in the 
United States, Europe, and Asia. 
 
SISON 
SISON