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DE RUEHPE #0077/01 0211852
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FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC PRIORITY 9896
INFO RUEHQT/AMEMBASSY QUITO 2251
RUEHBO/AMEMBASSY BOGOTA 6244
RUEHBR/AMEMBASSY BRASILIA 8016
RUEHBU/AMEMBASSY BUENOS AIRES 3580
RUEHCV/AMEMBASSY CARACAS 1301
RUEHLP/AMEMBASSY LA PAZ JAN SANTIAGO 2105
RUEHAC/AMEMBASSY ASUNCION 2091
RUEHMN/AMEMBASSY MONTEVIDEO 9644
RUEHMD/AMEMBASSY MADRID 3155
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHGV/USMISSION GENEVA 0582
RUCPDOC/USDOC WASHDC
RUCPCIM/CIMS NTDB WASHDC

UNCLAS LIMA 000077 
 
SIPDIS 
 
DEPT FOR EB/IFD/OIA, WHA/AND, WHA/EPSC 
PASS EXIM, OPIC, TDA 
COMMERCE FOR 4331/MAC/WH/MCAMERON 
USTR FOR BHARMAN AND MCARRILLO 
GENEVA FOR USTR 
 
E.O. 12958:  N/A 
TAGS: EINV EFIN ETRD KTDB ELAB PGOV OPIC USTR PE
SUBJECT: PERU 2009 INVESTMENT CLIMATE STATEMENT 
 
REF: 08 STATE 123907 
 
The following is Embassy Lima's submission of the 2009 Investment 
Climate Statement for Peru. 
 
Openness to Foreign Investment 
------------------------------ 
¶1. The Government of Peru (GOP) seeks to attract investment -- both 
foreign and domestic -- in nearly all sectors of the economy.  The 
U.S.-Peru Trade Promotion Agreement (PTPA), signed by President Bush 
and President Garcia on December 14, 2007, and set to enter into 
force on February 1, 2009, should enable Peru to attract additional 
investment by clarifying rules for investors, increasing 
transparency, reducing barriers to trade, establishing faster 
customs procedures, and improving the dispute settlement process. 
Peru does not have a bilateral investment treaty (BIT) or tax treaty 
with the United States, but these provisions are contained in the 
PTPA.  The U.S. Congress extended unilateral trade preferences under 
the Andean Trade Preferences Act (modified by the Andean Trade 
Preferences and Drug Eradication Act, or ATPDEA) to Peru through 
October 2009.  The PTPA will run concurrently with the ATPDEA, once 
it enters into force.  Peru will not benefit from the Generalized 
System of Preferences (GSP).  The U.S. Government recognized Peru's 
progress in economic policy and other issues by selecting Peru for 
the Millennium Challenge Account's Threshold Program for fiscal year 
¶2007. 
 
¶2. During the early 1990s, the Peruvian government promoted economic 
stabilization and liberalization policies by lowering trade 
barriers, lifting restrictions on capital flows and opening the 
economy to foreign investors.  Peru experienced marked growth in 
foreign investment from 1993-1998.  Economic reform and 
privatization slowed in the late 1990s however, leading to a 
discernible drop in direct and indirect foreign investment flows. 
Investment remained stagnant following the collapse of President 
Alberto Fujimori's government in November 2000, and through the 
period of an interim government and the election of President 
Alejandro Toledo in 2001. 
 
¶3. During his tenure, President Toledo implemented several 
pro-investment policies.  In April 2002, the government established 
ProInversion, building on the foundation of the Commission for the 
Promotion of Private Investment (COPRI), the privatization agency 
created in 1991.  ProInversion seeks to be a "one-stop shop" for 
current and potential investors, and has successfully completed both 
concessions and privatizations of state-owned enterprises and 
natural resource based industries.  In 2004, Las Bambas, a copper 
deposit, was concessioned to Xstrata AG, a Swiss company, for US$121 
million.  In 2005, Bayovar, a state-owned phosphate rock deposit, 
was given in concession to a Brazilian company for a 3 percent 
royalty, and ProInversion granted British-owned Rio Tinto a 
concession for the La Granja copper deposit for US$22 million. 
Additionally, in 2006, the oil and gas leasing agency Perupetro 
granted 16 exploration concessions to foreign oil companies, 
including 9 to 5 U.S. companies, along the northern coast and in the 
jungle.  An additional 24 contract leases were signed to foreign oil 
firms in 2007 (10 to U.S. companies) and 20 leases were approved 
(pending signing) in 2008 (4 to U.S. companies).  Implementation of 
the 2008 block awards has been delayed by allegations of corruption 
involving a certain bidder and Peruvian officials. 
 
¶4. In addition to the 1993 Constitution (enacted January 1, 1994, 
major laws concerning foreign direct investment in Peru include the 
Foreign Investment Promotion Law (Legislative Decree (DL) 662 of 
September 1991) and the Framework Law for Private Investment Growth 
(DL 757 of November 1991).  The two 1991 laws were implemented by 
Supreme Decree 162-92-EF (October 1992).  Other important laws are 
the Private Investment in State-Owned Enterprises Promotion Law (DL 
674), the Private Investment in Public Services Infrastructure 
Promotion Law (DL 758), and specific laws related to mining, 
 oil and gas, and electricity, which are among the industries 
capable of receiving major Foreign Direct Investment (FDI) amounts 
in Peru. 
 
¶5. The 1993 Constitution guarantees national treatment for foreign 
investors and permits foreign investment in almost all economic 
sectors.  Prior approval is only required in the banking (for 
regulatory reasons, and also applies to domestic investment) and 
defense-related sectors.  Foreign investors are advised to register 
with ProInversion to obtain the guarantee that they will be able to 
repatriate capital, profits and royalties.  Foreigners are legally 
forbidden from owning a majority interest in radio and television 
stations in Peru; nevertheless, foreigners have in practice owned 
controlling interests in such companies.  Under the Constitution, 
foreign interests cannot "acquire or possess under any title, mines, 
lands, forests, waters, or fuel or energy sources" within 50 
kilometers of Peru's international borders.  However, foreigners can 
obtain concessions and rights within the restricted areas with the 
authorization of a supreme resolution approved by the Cabinet and 
the Joint Command of the Armed Forces.  All investors -- domestic 
and foreign -- need prior approval before investing in weapons 
manufacturing industries. 
 
¶6. In 1991, the Peruvian government began an extensive privatization 
program, encouraging foreign investors to participate.  From 1991 
through September 2005, privatization revenues totaled US$9.4 
billion, of which foreign investors were responsible for the vast 
majority.  Over three-quarters of these transactions took place from 
1994 to 1997.  The government has made only limited progress on 
privatizations since then, and prospects for future direct 
privatizations are not encouraging.  The government has consequently 
shifted to a strategy of promoting multi-year concessions as a means 
of attracting investment into major projects.  In 2000, the 
government granted a concession to a private group (Lima Airport 
Partners) to operate the Lima airport and in June 2006, the 
government granted a consortium of P and O Dover (U.K.) and Uniport 
(Spain) a 30 year concession to operate the Container Terminal-South 
Pier of the important seaport of Callao.  Also in 2006, Dubai Ports 
signed a concession agreement to build and operate a new container 
terminal within the Port of Callao. The facility is expected to 
become operational in 2010.  In August 2006, Swissport received a 25 
year concession to manage nine of Peru's northern airports.  Peru's 
other airports, as well as various electricity, water, sewage, and 
oil (Petroperu) companies remain state-owned and operated. 
 
¶7. In June 2004, the Congress passed a law to exclude the 
state-owned oil company Petroperu from privatization and authorized 
Petroperu to conduct exploration and production activities.  This 
modified the government's policy since the early 1990s, when it sold 
all of Petroperu's exploration and production units and a major oil 
refinery.  Under the 2004 law, the government had the option of 
granting concessions on remaining Petroperu assets, including one 
pipeline and several refineries.  In July 2006, Congress defeated an 
executive veto of a bill to "strengthen and modernize" Petroperu. 
Under the 2006 law, Petroperu resumed exploration, production and 
related activities, including petrochemicals; was freed from 
contracting approval by CONSUCODE, the state procurement supervision 
agency; was exempted from the approval of its investment projects by 
the Government Projects Office (SNIP); and had a worker on its board 
of directors. 
 
¶8. In 2008, a corruption scandal, which resulted in the resignation 
of the Minister of Energy and Mines and the PetroPeru President, 
forced the Government of Peru to revise the 2006 law and implement a 
number of changes in the management of PetroPeru.  PetroPeru will 
return under the control of the National Fund for Financing 
Government Companies (FONAFE), a government oversight entity.  This 
will require their compliance with set regulations and norms, such 
as tight budget controls, contracting approval by CONSUCODE, and 
approval of its investment projects by SNIP.  The new Minister of 
Energy and Mines has stated that the state-owned company should not 
be allowed to enter oil exploration endeavors.  The Government of 
Peru still wants to put Petroperu on the stock market, but it is not 
clear when this will happen.  Petroperu has a strategic alliance 
with Brazil's Petrobras. 
 
¶9. More recently, the Government of Peru has actively pursued a 
decentralization process in which the regions will play an 
increasingly important role in public spending.  Although the 
decentralization process has not been as smooth as the Government 
would have liked due to complaints of unfair distributions to some 
regions and slow investment progress, the process continues. 
 
¶10. In December 2008, the Government of Peru issued two important 
decrees aimed to prevent an economic slowdown in Peru caused by the 
global economic crisis by creating investment projects. The first 
one outlines the regulations for public and private investment 
ventures.  The second one presents a priority list of projects for 
the public-private partnerships.  Among these are major ports 
(Paita, San Martin, Pisco, Salaverry, Pucallpa, Iquitos, Yurimaguas) 
as well as some regional airport projects,a South American 
Integrated Regional Infrastructure Project (IIRSA) Center, water 
treatment and agricultural projects (Majes-Siguas and Chavimochic). 
 
 
¶11. Under the 1993 Constitution, foreign investors have the same 
rights as national investors to benefit from any investment 
incentives, such as tax exemptions.  The PTPA establishes a secure, 
predictable legal framework for U.S. investors operating in Peru. 
All forms of investment are protected under the PTPA. U.S. investors 
will enjoy in almost all circumstances the right to establish, 
acquire and operate investments in Peru on an equal footing with 
local investors. 
 
Conversion and Transfer Policies 
-------------------------------- 
¶12. Under Article 64 of the 1993 Constitution, the Peruvian 
government guarantees the freedom to hold and dispose of foreign 
currency; hence, there are no foreign exchange controls in Peru. 
All restrictions on remittances of profits, dividends, royalties, 
and capital have been eliminated, although foreign investors are 
advised to register their investments with ProInversion (as noted 
above) to ensure these guarantees.  Exporters and importers are not 
required to channel foreign exchange transactions through the 
Central Reserve Bank of Peru, and can conduct transactions freely on 
the open market.  Anyone may open and maintain foreign currency 
accounts in Peruvian commercial banks.  U.S. firms have reported no 
problems or delays in transferring funds or remitting capital, 
earnings, loan repayments or lease payments since Peru's economic 
reforms of the early 1990s. 
 
¶13. The 1993 Constitution guarantees free convertibility of 
currency.  There is, however, a legal limit on the amount that 
private pension fund managers can invest in foreign securities. 
Between May 2004 and April 2008, the Central Reserve Bank of Peru 
(BCR) gradually increased this limit from 9 percent to 20 percent. 
In May 2008, as part of the PTPA implementation the BCR increased 
the limit to the current rate of 30 percent.  Under the PTPA, 
portfolio managers in the U.S. will be able to provide portfolio 
management services to both mutual funds and pension funds in Peru, 
including to funds that manage Peru's privatized social security 
accounts. 
 
¶14. The BCR is an independent institution, free to manage monetary 
policy to maintain financial stability.  The BCR's primary goal is 
to maintain price stability, via inflation targeting.  Inflation at 
year-end in Peru was 1.1 percent in 2006, 3.9 percent in 2007, and 
6.7 percent in 2008.  The government has also implemented policies 
to de-dollarize the economy, but deposits in the local currency 
(nuevo sol) increased until April 2008 only, with foreign currency 
deposits growing briskly in the second half of 2008.  Dollars 
accounted for about 56 percent of loans and approximately 57 percent 
of deposits as of December 2008, a decrease in loans and almost no 
change in deposits from the 2007 figures. 
 
Expropriation and Compensation 
------------------------------ 
¶15. According to the Constitution, the Peruvian government can only 
expropriate private property on public interest grounds (such as for 
public works projects) or for national security.  Any expropriation 
requires the Congress to pass a specific act.  The Government of 
Peru has expressed its intention to comply with international 
standards concerning expropriations. 
 
Dispute Settlement 
------------------ 
¶16. Dispute settlement continues to be problematic in Peru, although 
the GOP took steps in 2005 to improve the dispute settlement 
process.  From December 2004 through 2006, the GOP established 24 
commercial courts in Lima to rule on investment disputes, including 
two courts of appeal.  The commercial courts have substantially 
improved the process for commercial disputes.  Prior to the 
existence of the commercial courts, it took an average of two years 
to resolve a commercial case through the civil court system.  These 
new courts, which have specialized judges, have reduced the amount 
of time to resolve a case to two months.  Additionally, the 
enforcement of court decisions has been reduced from 36 months to 
3-6 months.  While about 40 percent of decisions are appealed, most 
of these are resolved at the appeals level; very few are appealed to 
the Supreme Court. 
 
¶17. The criminal and civil courts of first instance and appeal are 
located in the provinces and in Lima.  The Supreme Court is located 
in Lima.  In principle, Peruvian law recognizes secured interests in 
property, both chattel and real.  However, the judicial system is 
often extremely slow to hear cases and to issue decisions.  In 
addition, court rulings and the degree of enforcement have been 
difficult to predict.  The capabilities of individual judges vary 
substantially, and allegations of corruption and outside 
interference in the judicial system are common.  The Peruvian 
appeals process also tends to delay final decisions.  As a result, 
foreign investors, among others, have found that contracts are often 
difficult to enforce in Peru.  The exposure in 2000 of a network of 
corrupt judges controlled by Fujimori advisor Vladimiro Montesinos 
led to promises by subsequent governments to address corruption and 
reform the judiciary, but progress has been slow. 
 
¶18. The 1997 Law of Conciliation (DL 26872), which went into effect 
on January 1, 2000, requires disputants in many types of civil and 
commercial matters to consider conciliation before a judge can 
accept a dispute to be litigated.  Private parties often stipulate 
arbitration to resolve business disputes, as a way to avoid 
involvement in judicial processes. 
 
¶19. Peru's commercial and bankruptcy laws have proven difficult to 
enforce through the courts.  An administrative bankruptcy procedure 
under INDECOPI (the National Institute for the Defense of Free 
Competition and the Protection of Intellectual Property),  has 
proven to be slow and subject to judicial intervention.  Peru has a 
creditor hierarchy similar to that established under U.S. bankruptcy 
law, and monetary judgments are usually made in the currency 
stipulated in the contract. 
 
¶20. The 1993 Constitution includes international arbitration of 
disputes between foreign investors and the government or 
state-controlled firms.  Although Peru theoretically accepts binding 
arbitration, on a few occasions over the past three years, 
parastatal companies and Government Ministries disregarded 
unfavorable judgments.  Previously, the Government of Peru turned 
these arbitration cases over to the judiciary, where they were 
bureaucratically delayed until the companies conceded the cases. 
However, effective July 2005, the Supreme Court ruled that all 
arbitration findings and awards are final and not subject to 
appeal. 
 
¶21. Peru is a party to the Convention on the Recognition and 
Enforcement of Foreign Arbitral Awards (the New York Convention of 
1958), and to the International Center for the Settlement of 
Investment Disputes (the Washington Convention of 1965).  Disputes 
between foreign investors and the Government of Peru regarding 
pre-existing contracts must still be submitted to national courts. 
However, investors who conclude a juridical stability agreement for 
additional investments may submit disputes with the government to 
national or international arbitration if stipulated in the 
agreement.  In 2005, the government resolved a high-level dispute by 
upholding the decision of an arbitration panel and making payment. 
However, in a more recent case, an arbitration panel awarded a U.S. 
firm a favorable decision against a Peruvian Government entity. 
Yet, the U.S. firm has experienced difficulty in compelling that 
entity to promptly implement the arbitration ruling. 
 
¶22. Several private organizations -- including the Universidad 
Catolica, the Lima Chamber of Commerce and the American Chamber of 
Commerce -- operate private arbitration centers.  The quality of 
these centers varies, however, and investors should choose a venue 
for arbitration carefully. 
 
¶23. The PTPA includes a chapter on dispute settlement.  The core 
obligations of the Agreement, including labor and environment 
provisions, are subject to the dispute settlement provisions of the 
agreement.  Dispute panel procedures set high standards of openness 
and transparency through; open public hearings; public release of 
legal submissions by parties; special labor or environment expertise 
for disputes in these areas; and, opportunities for interested third 
parties to submit views.  The Agreement emphasizes promoting 
compliance through consultation and trade-enhancing remedies. 
 
Performance Requirements and Incentives 
--------------------------------------- 
¶24. Peru offers both foreign and national investors legal and tax 
stability agreements to stimulate private investment.  These 
agreements guarantee that the statutes on income taxes, remittances, 
export promotion regimes (such as drawback), administrative 
procedures, and labor hiring regimes in effect at the time of the 
investment contract will remain unchanged for that investment for 10 
years.  To qualify, an investment must exceed US$10 million in the 
mining and hydrocarbons sectors or US$5 million in other sectors 
within two years.  An agreement to acquire more than 50 percent of a 
company's shares in the privatization process may also qualify an 
investor for a juridical stability agreement, provided that the 
infusion will expand the installed capacity of the company or 
enhance its technological development. 
 
¶25. There are no performance requirements that apply exclusively to 
foreign investors.  Peruvian civil law applies to legal stability 
agreements, which means they cannot be altered unilaterally by the 
government.  Investors are also offered protection from liability 
for acquiring state-owned enterprises. 
 
¶26. Laws specific to the petroleum and mining sectors also provide 
similar assurances as above to investors.  Notably, in 2000, the 
government modified the General Mining Law, substantially reducing 
benefits to investors in that sector.  Among the changes were:  a 
reduction in the term concessionaires are granted to achieve the 
minimum annual production; an increase in fees for holding 
non-productive concessions; an increase in fines for not achieving 
minimum production within the allotted time; a reduction in the 
maximum allowable annual accelerated depreciation; and revocation of 
the income tax exemption for reinvested profits.  In 2004, Congress 
approved a bill charging a 1 to 3 percent royalty on mining 
companies' sales.  The changes do not affect those investors who 
have signed legal stability agreements with the government.  Under 
the U.S.-Peru Trade Promotion Agreement, Peru agreed to eliminate a 
measure affecting any sector in which a government concession is 
needed, such as transportation, energy and mining, that requires 
U.S. enterprises to buy locally. In the future, U.S. companies will 
be free to purchase on the basis of price and quality, not origin of 
goods in these sectors. 
 
¶27. In December 2006, after increased social demands for a share of 
mining profits, the Garcia Administration and mining companies 
agreed to a "voluntary contibution" system whereby mining companies 
will invest in community infrastructure projects.  This agreement 
averted adoption of a more restrictive mining law, and allows mining 
companies to control where they invest their contributions, and 
ceases to apply if the prices of mined products drop. 
 
¶28. Parties may freely negotiate contractual conditions related to 
licensing arrangements and other aspects of technology transfer 
without prior authorization.  Registry of a technology transfer 
agreement is required for a payment of royalties to be counted 
against taxes.  Such registration is automatic upon submission to 
ProInversion. 
 
¶29. Current laws limit foreign employees to no more than 20 percent 
of the total number of employees in a local company (whether owned 
by foreign or national interests), and restricts their combined 
salaries to no more than 30 percent of the total company payroll. 
However, DL 689 (November 1991) provides a variety of exceptions to 
these limits.  For example, a foreigner is not counted against a 
company's total if he or she holds an immigrant visa, has a certain 
amount invested in the company (currently about US$4,000) or is a 
national of a country that has a reciprocal labor or dual 
nationality agreement with Peru.  The law exempts foreign banks and 
service companies, and international transportation companies from 
these hiring limits, as are all firms located in free trade zones. 
Furthermore, companies may apply for exemption from the limitations 
for managerial or technical personnel.  With the entry into force of 
the U.S.-Peru Trade Promotion Agreement, Peru has agreed to exceed 
its commitments made in the World Trade Organization (WTO), and to 
dismantle significant services and investment barriers, such as 
measures that require U.S. firms to hire nationals rather than U.S. 
professionals and measures requiring the purchase of local goods. 
 
Right to Private Ownership and Establishment 
-------------------------------------------- 
¶30. Peruvian law generally grants foreign and domestic entities the 
right to establish and own business enterprises and to engage in 
most forms of remunerative activity.  Subject to the restrictions 
listed earlier in this document, both foreign and domestic entities 
may invest in any legal economic activity -- including foreign 
direct investment, portfolio investment, and investment in real 
property.  Private entities may generally freely establish, acquire, 
and dispose of interests in business enterprises.  In the case of 
some privatized companies deemed important by the government, the 
privatization agency ProInversion has included a so-called "golden 
share" clause in the sales contract, which allows the government to 
veto a potential future purchaser of the privatized assets. 
 
Protection of Property Rights 
----------------------------- 
¶31. While the legal framework for protection of intellectual 
property rights (IPR) in Peru has improved over the past decade, 
enforcement mechanisms remain weak.  Peru remains on USTR's Section 
301 "Watch List" due to concerns about continued high rates of 
copyright piracy, and inadequate enforcement of IPR laws, 
particularly with respect to the relatively weak penalties that have 
been imposed on IPR violators. 
 
¶32. The International Intellectual Property Alliance (IIPA) 
estimates that the piracy level in Peru for recorded music has 
remained at 98 percent since 2003, with trade losses estimated at 
US$58.5 million in 2007.  The IIPA estimates that software piracy 
levels grew to 73 percent in 2007 from 68 percent in 2003, with a 
loss of $40 million in 2007.  The most recent data available for 
motion picture piracy comes from a 2005 study conducted by the 
Motion Picture Association of America (MPAA).  MPAA reported that 
motion picture piracy accounted for 63 percent of the market for a 
loss of US$12 million in 2005. 
 
¶33. The Peruvian government agency charged with promoting and 
defending intellectual property rights is the Institute for the 
Defense of Competition and Protection of Intellectual Property 
(INDECOPI), established in 1992.  Legislative Decree 822 of 1996 and 
Andean Community Decisions 344 and 486 protect patents, trademarks, 
and industrial designs.  Copyrights are protected by Legislative 
Decree No. 822 of 1996 and by Andean Community Decision 351. 
 
¶34. Peru belongs to the World Trade Organization (WTO) and the World 
Intellectual Property Organization (WIPO).  It is also a signatory 
to the Paris Convention on Industrial Property, Geneva Convention 
for the Protection of Sound Recordings, Bern Convention for the 
Protection of Literary and Artistic Works, Brussels Convention on 
the Distribution of Satellite Signals, Phonograms Convention, 
Satellites Convention, Universal Copyright Convention, the World 
Copyright Treaty, and the World Performances and Phonographs Treaty 
and the Film Register Treaty.  In December 1994, the Peruvian 
Congress ratified the World Trade Organization's Agreement on 
Trade-Related Aspects of Intellectual Property (TRIPs). 
 
¶35. Under the PTPA, each party shall ratify or accede to the 
following agreements: the Convention Relating to the Distribution of 
Programme-Carrying Signals Transmitted by Satellite; the Budapest 
Treaty on the International Recognition of the Deposit of 
Microorganisms for the Purposes of Patent Procedure; the WIPO 
Copyright Treaty; the WIPO Performances and Phonograms Treaty; the 
Patent Cooperation Treaty; the Trademark Law Treaty; and, the 
international Convention for the Protection of New Varieties of 
Plants.  Under the PTPA, each party shall make all reasonable 
efforts to ratify or accede to the following agreements: the Patent 
Law Treaty; the Hague Agreement Concerning the International 
Registration of Industrial Designs; and, the Protocol Relating to 
the Madrid Agreement Concerning the International Registration of 
Marks. 
 
¶36. Peru's legal framework provides for easy registration of 
trademarks and inventors have been able to patent their inventions 
since 1994.  Peru's 1996 Industrial Property Rights Law provides an 
effective term of protection for patents and prohibits devices that 
decode encrypted satellite signals, along with other improvements. 
Peruvian law does not provide pipeline protection for patents or 
protection from parallel imports.  Peru's Copyright Law is generally 
consistent with the TRIPs Agreement. 
 
¶37. However, despite this legal framework, piracy of textbooks, 
books on technical subjects, audiocassettes, motion picture videos, 
and software prevails.  While the government, in coordination with 
the private sector, has conducted numerous raids over the last few 
years on large-scale distributors and users of pirated goods, and 
has increased other types of enforcement, piracy continues to be a 
significant problem for legitimate owners of copyrights in Peru. 
The government needs to allocate more resources towards enforcement 
and effective deterrence measures. 
 
¶38. Despite recent amendments to the legal code creating stricter 
penalties, the judicial branch has failed to impose sentences that 
adequately deter future IPR violations.  The Peruvian government in 
July 2004 increased the minimum penalty for piracy to four year's 
imprisonment.  In 2007, on average, violators received a three year 
suspended sentence.  Other amendments included the assignment of 
four prosecutors dedicated full-time to intellectual property cases; 
the creation of five IPR courts in Lima; and, an amendment to the 
criminal procedure code that allows for more stringent penalties for 
recidivist offenders.  Through PTPA implementation legislation 
passed by the Peruvian Congress in January 2009, the penalty for 
piracy increased to eight years of imprisonment. 
 
¶39. An IPR Toolkit for Peru can be found on the Embassy and 
Commercial Service Lima's website.  Besides being a guide to 
registering and protecting IP, it contains a list of lawyers and 
other organizations that can provide support on an on-going basis. 
 
¶40. Under the U.S.-Peru Trade Promotion Agreement (PTPA), in all 
categories of intellectual property rights (IPR), U.S. companies 
will be treated at least as well as Peruvian companies, and the 
agreement makes a number of important improvements to IPR 
protections.  The Agreement provides for improved standards for the 
protection and enforcement of a broad range of intellectual property 
rights, which are consistent, both with U.S. standards of protection 
and enforcement and with emerging international standards.  Such 
improvements include state-of-the-art protections for digital 
products such as U.S. software, music, text, and video; stronger 
protection for U.S. patents, trademarks and test data, including an 
electronic system for the registration and maintenance of 
trademarks; and further deterrence of piracy and counterfeiting of 
criminalizing end-user piracy. 
 
Transparency of Regulatory System 
--------------------------------- 
¶41. The transparency and independence of regulatory processes have 
become central issues for foreign investors in Peru.  Many of the 
central government entities with which foreign firms must deal, 
including the entities that maintain the company registry and 
supervise securities and exchanges (CONASEV), handle privatization 
and investment issues (ProInversion), and handle competition policy 
and intellectual property matters (INDECOPI), have relatively 
transparent and predictable procedures.  The Superintendence of 
Banking and Insurance (SBS) regulates banks, insurance companies, 
and private pension funds.  The SBS determines the qualifications of 
potential market entrants and regulates firms once they have begun 
operations.  Under the U.S. - Peru Trade Promotion Agreement, U.S. 
financial service suppliers have full rights to establish 
subsidiaries or branches for banks and insurance companies. 
 
¶42. When the Government of Peru (GOP) privatized state-owned 
monopolies in the areas of telecommunications, electrical generation 
and distribution, and the hydrocarbons sector in the late 1990s, it 
also established regulatory institutions to oversee the new private 
sectors.  Delays and lack of predictability in the rulings of these 
institutions, including OSIPTEL (telecom) and OSINERGMIN (energy), 
have at times in the past been notable impediments to doing business 
in Peru. 
 
¶43. In December 2005, OSIPTEL published a new law that lowers Peru's 
high mobile termination rates to levels comparable to international 
rates over a 3-year period.  Several U.S. companies have encountered 
problems with the energy sector regulator (OSINERGMIN) over its 
hesitancy to provide unbiased regulation for the power industry. 
Some regulatory agencies have in the past been subject to 
politically motivated government intervention in their technical 
operations. 
 
¶44. U.S. firms have complained that SUNAT's (Peruvian Tax and 
Customs Agency) aggressive behavior and interpretation of law are 
often contrary to the spirit of the law and intent of government 
policies, complicating normal business operations.  The remuneration 
of SUNAT employees is determined, in part, by the theoretical tax 
liability they uncover in audits. 
 
¶45. Businesses point out that SUNAT's retroactive reinterpretation 
of regulations and laws, its levying of disproportionate fines, and 
initiation of full company audits when companies request a refund or 
legal revaluation of assets for depreciation purposes, create 
additional investment and trade barriers.  In one case, a U.S. firm 
requested an improper drawback of US$1,345, only to face SUNAT fines 
of US$645,000.  Although the case was resolved, new legislation was 
needed to correct the problem.  In instances involving airplane 
fuels and other products sold to carriers just before they leave the 
country, certain minerals, and other products, SUNAT for many years 
treated these goods as if they were sold abroad, which under 
Peruvian tax laws are exempt from domestic sales taxes.  SUNAT 
reinterpreted the regulations and no longer considered the goods as 
exports and therefore wanted to retroactively subject the goods to 
VAT plus penalties.  Two laws were necessary to correct this 
practice for airline and seagoing vessels' fuels and services. 
SUNAT often does not follow standard international practice in the 
way it taxes new activities.  To correct these problems, the 
independent tax tribunals act to check any abuses by SUNAT, but as a 
matter of course SUNAT normally appeals tax tribunals' rulings, 
thereby extending indefinitely the resolution of disputed 
assessments.  In 2004, the GOP established a tax ombudsman who must 
approve SUNAT's request to appeal adverse tax tribunal decisions. 
In the past two years, the tax ombudsman has acted in several cases 
to end unwarranted litigation of disputed assessments.  In 2005, a 
U.S. company won long-standing tax cases against SUNAT as a result 
of these improvements.  In another instance, a minor error on a 
shipping document resulted in the seizure of a U.S. firm's shipment 
by SUNAT, with the goods destined for disposal at auction. 
 
¶46. A 2006 World Bank study found that Peru has significantly 
lowered the average amount of days it takes to start a business from 
98 (2005 study) to 72, but it remained at that same number in their 
2008 report.  Various procedures -- such as obtaining building 
licenses or certificates of occupancy -- require many steps. 
Municipal authorities issue most licenses and requirements vary 
widely by locality.  As a result, information on necessary 
procedures is often difficult to obtain.  Business people often 
complain of excessive red tape; one major foreign investor found 
that starting project construction and a business required several 
hundred permits, many of which the responsible government entities 
were unaware they had to issue.  Other investors argue that local 
governments and municipalities, which are seeking new revenue 
sources, sometimes withhold licenses or create regulations, thus 
hindering the ability to do business or making it costlier.  Even 
though import tariffs are substantially lower than previously (the 
simple average tariff is 5.0 percent ad valorem as of March 2008; 
the trade-weighted average using 2007 import figures is 2.5 
percent), import duties, together with the 19 percent value added 
tax on goods, high social security tax rates, and certain labor 
laws, increase investment costs significantly and hinder the 
efficient mobilization and allocation of investment capital. 
Businesses can apply for VAT reimbursement. 
 
Efficient Capital Markets and Portfolio Investment 
--------------------------------------------- ----- 
¶47. Credit is allocated on market terms and the banking industry in 
Peru is generally considered to be competitive in offering services 
to business customers.  Private pension funds have competed in 
recent years with financial companies for bonds issued locally by 
companies and the Government of Peru, as supply of securities is 
insufficient given the small size of the market.  Foreign investors 
can obtain credit and float bonds on the local market and several of 
them have done so in the last few years as terms were more 
competitive than those of the usual international centers.  The 
private sector has access to a variety of credit instruments.  From 
January through early December 2007, firms placed US$1.67 billion on 
the local bond market (compared with US$1.55 billion in CY 2006) a 
sharp reduction from previous years.  By November 2008, pension 
funds managed a total of US$15.3 billion, a 32 percent decline from 
the May 2008 record level US$22.6 billion. 
 
¶48. All firms listed on the Lima Stock Exchange (Bolsa de Valores de 
Lima) or the Public Registry of Securities must be vetted by 
CONASEV, the National Commission for the Supervision of Companies, 
Securities and Exchanges, which maintains the Public Registry of 
Securities and Stock Brokers.  CONASEV is the Peruvian government 
entity charged with the study, promotion, and regulation of the 
securities and commodities markets; the control of market 
participants; the maintenance of a transparent and orderly market; 
the setting of accounting standards; and the publication of 
financial information about covered companies.  As part of CONASEV's 
goal to promote market transparency, to prevent monopolies, and to 
prevent fraud, issuers of stock are required to inform CONASEV and 
the relevant stock exchange or body in charge of supervising the 
centralized trading mechanism, of events that affect or might affect 
the stock, the company, or any public offerings.  Although trading 
on insider information is technically a crime, no one has been 
charged and punished under the law. 
 
¶49. In 2008, the global financial crisis severely hit the local 
capital markets.  The Lima Stock Exchange (BVL), suffered the worst 
hit showing an almost continuous decline since July 2007, dominated, 
as it is, by mining shares.  The BVL General Index reached an 
all-time high of 23,418 in July 2007, and tumbled consistently until 
October 2008, when it reached 7,055 points, less than one third of 
its July 2007 level.  Since then, the index has hovered around the 
7,000 level.  Since most pension funds are invested locally, the 
private pension funds companies and mutual funds also took a severe 
pounding.  On its part, with the international financial situation 
reaching a crisis point, interest rates climbed from September 2007 
until September 2008, and companies operating locally decided that 
their commercial risk did not warrant continuing placements of 
corporate bonds.  Bonds placements returned in December, but overall 
their level is below 2007. 
 
¶50. Total assets of the commercial banks were US$47.3 billion at the 
end of November 2008, 32 percent above the same period of 2007.  The 
banking system is considered generally sound, as it weathered rather 
well the economic impact of a severe El Nino weather phenomenon and 
global financial turmoil in 1997-98.  The 2008 global financial 
crisis has not affected local operating banks, yet, possibly a 
reflection of very strong GDP growth in the last two years, fueled 
by vigorous domestic consumption and private-mostly 
foreign-investment.  Sound supervision, combined with competition, 
led to a significant consolidation in the sector, which still 
continues with two new foreign banks being authorized to operate 
locally, and one (foreign-owned) financial company to operate as a 
bank.  Consequently, 16 commercial banks comprise the system, of 
which 3 banks account for just over two-thirds of loans and almost 
four-fifths of deposits.  Banks have revamped operations, increased 
capitalization, and reduced costs in recent years.  As of November 
2008, foreigners had significant shares in thirteen banks, of which 
they were majority owners of eleven (including two of the country's 
large ones, and operator of one commercial bank.  Under the SBS's 
conservative criteria, 1.26 percent of total loans were assessed as 
non-performing as of November 2008, down from a high of 11 percent 
in early 2001 and very low since 2005.  The system has 3 specialized 
institutions ("financieras"), 36 thriving micro-lenders and savings 
banks, two state-owned banks, and one state-owned development bank. 
 
¶51. Larger private firms often use "cross-shareholding" and "stable 
shareholder" arrangements to restrict investment by outsiders -- not 
necessarily foreigners -- in their firms.  As close families or 
associates generally control ownership of Peruvian corporations, 
hostile takeovers are practically non-existent.  Peruvian law and 
regulations do not authorize or encourage private firms to adopt 
articles of incorporation or association to limit or restrict 
foreign participation; nor are there any private or public sector 
efforts to restrict foreign participation in industry 
standards-setting organizations. 
 
¶52. In 2006, SBS approved a license for the first U.S. company to 
provide retail credit services, thus increasing competition for 
incumbent banks and Chilean finance companies. 
 
¶53. Foreign direct investment registered with ProInversion as of 
June 2008 was US$16.87 billion, compared with US$15.37 billion a 
year earlier.  Foreign portfolio investment (dematerialized holdings 
of securities only) totaled US$22.7 billion at the end of December 
2007, up from 9.6 billion in October 2006, and 7.7 billion in 
December 2005. 
 
Political Violence 
------------------ 
¶54. Although political violence against investors is not a common 
practice, the mining and petroleum communities witnessed a series of 
protests, some violent, since 2005.    In September 2007, residents 
of three northern Piura towns voted overwhelmingly in a referendum 
to reject mining projects in their region, which ha stalled 
development of a large copper mining project.  Other communities 
around Peru have expressed interest in holding similar referenda. 
Protests against the mining industry occurred for various reasons. 
Although environmental concerns were often the cited pretext, in 
many cases protestors were seeking social infrastructure investments 
not provided by the government.  Often times, well-organized groups, 
such as the Ronderos (local self-defense groups established during 
the Shining Path terrorist attacks) or NGOs, exaggerated a local 
community's concerns, bringing in protestors from outside the local 
community to foment protests against the companies.  In several 
incidents since 2005, the local mayor and other local authorities 
led strikes against large foreign mining companies in an effort to 
secure additional funds or development promises from the companies. 
 
 
¶55. During 2008, there were road blockages and acts of vandalism by 
groups protesting mining operations, coca growers protesting the 
Government's eradication policies, and farmers seeking increased 
government tariff protections and financial support.  In June and 
October 2008, violent protests erupted in two regions to demand the 
redistribution of mining royalties between regional governments. 
The protests led to two deaths and the destruction of property.  In 
September 2008, indigenous groups in several parts of the Amazon 
launched protests near petroleum and natural gas installations to 
protest changes to a land-ownership law. 
 
¶56. Cabinet ministers and often the Prime Minister have become 
personally involved in negotiating a resolution to protests since 
the beginning of the Garcia Administration.  The government 
established a commission in late 2006 to prevent and resolve social 
conflicts in the extractive industries.  In addition, various NGOs 
have become involved in conflict resolution activities.  At the same 
time, the National Society of Mining and Petroleum (SNMPE), as well 
as the government, have become involved in assisting local 
communities to access the extractive industry canons as a way to 
both stimulate local development and head off social conflicts. 
Although these efforts have been effective in some mining regions, 
in others, social conflicts have continued or expanded. 
 
¶57. Political violence remains a concern in the coca-growing 
regions.  The Shining Path (Sendero Luminoso) terrorist organization 
has become increasingly aggressive and involved in narcotrafficking 
in these areas.  Sendero remnants are presumed to have killed 11 
police, 2 civilians, and 18 members of the military, and committed 
around 72 terrorist acts in coca-growing areas during 2008.  The 
Shining Path killed 20 civilians, 11 police officers, and one 
military member in 2007, and were responsible for 80 terrorist 
incidents that year.  President Garcia continues to reauthorize 
60-day states of emergency in parts of Peru's five departments where 
the Shining Path operates, suspending some civil liberties and 
giving the armed forces authority to maintain public order. 
 
¶58. There is little government presence in the remote coca-growing 
zones of the Monzon and the Apurimac-Ene River valleys.  The U.S. 
Embassy in Lima restricts visits by official personnel to these 
areas because of the threat of violence by narcotics traffickers and 
remaining columns of the Shining Path.  Information about insecure 
areas and recommended personal security practices can be found at 
the ds-osac.org website. 
 
Corruption 
---------- 
¶59. It is illegal in Peru for a public official or employee to 
accept any type of outside remuneration for the performance of his 
or her official duties.  Peru has ratified both the UN Convention 
Against Corruption and the Organization of American States' 
Inter-American Convention Against Corruption.  Peru is not a member 
of the Organization of Economic Cooperation and Development, and has 
not signed the OECD Convention on Combating Bribery. 
 
¶60. Peru is one of four nations worldwide participating as a pilot 
country in the G8 anti-corruption and transparency initiative.  The 
U.S., other G8 partners and NGOs helped the Peruvian government 
develop an action plan that includes activities in six areas:  a) 
citizen information/internet connectivity; b) improving central 
government fiscal transparency; c) development of GOP procurement 
systems; d) improving regional/local government transparency and 
management; e) improvement of transparency of extractive industry 
revenues; and f) development of asset forfeiture systems and 
legislation. 
 
¶61. The G8 initiative has already shown some positive results.  A 
hemisphere-wide state procurement organization - the Inter-American 
Organization of Government Procurement Institutions - was created 
under the leadership of Peru's State Procurement Council 
(CONSUCODE).  As of January 2007, eight countries are in the process 
of adopting the network agreement, prior to its signature (Bolivia, 
Colombia, Ecuador, Honduras, Mexico, Paraguay, Peru and Paraguay). 
Also, efforts are underway to provide Internet connections to 
approximately 90 municipal governments located in areas most 
affected by terrorism and poverty.  The rural connectivity project 
will allow these governments access to national systems, part of the 
GOP's E-government initiatives, aimed at creating greater 
transparency and citizen access to public information. 
 
¶62. U.S. firms have reported only a small number of problems 
directly resulting from corruption, usually in government 
procurement processes and in the judicial sector, but the revelation 
in late 2000 of a broad and deep corruption ring organized by former 
presidential advisor Vladimiro Montesinos heightened awareness of 
the problem.  Transparency International ranked Peru number 72 (out 
of 180 countries) in its 2008 Corruption Perception Index.  While 
anti-corruption efforts have been a stated priority of both the 
Toledo and Garcia Governments, in practice most resources are 
directed at investigating Fujimori-era corruption.  In 2001, 
President Toledo appointed an anti-corruption "czar" to lead 
government efforts, but this official resigned in 2002.  The Judge 
Carolina Lizarraga was appointed in October 2007 as the head of the 
newly created National Office for Anti-Corruption, but she resigned 
in July 2008.  Private sector groups have increased efforts to 
combat corruption through an NGO called "ProEtica," which represents 
Transparency International in Peru.  In October 2008, a kickback 
scandal involving a member of the ruling party and a foreign oil 
company led to the replacement of President Garcia's Prime Minister 
and the changing of five other cabinet members, although 
investigators have not established that the Prime Minister was 
involved in the scandal. 
 
Bilateral Investment Agreements 
------------------------------- 
¶63. Peru has signed bilateral investment agreements with 31 
countries (listed below), but not with the United States.  The 
U.S.-Peru Trade Promotion Agreement (PTPA), signed by President Bush 
on December 14, 2007, eliminates the need for a bilateral investment 
agreement. 
 
Peru's Current Bilateral Investment Agreements: 
Argentina (1994) 
Australia (1995) 
Bolivia (1993) 
Canada (2006) 
Chile (2000) 
China (1994) 
Colombia (1994) 
Cuba (2000) 
Czech Republic (1994) 
Denmark (1994) 
Ecuador (1999) 
El Salvador (1997) 
Finland (1995) 
France (1993) 
Germany (1995) 
Italy (1994) 
Korea (1993) 
Malaysia (1995) 
The Netherlands (1994) 
Norway (1995) 
Paraguay (1994) 
Portugal (1994) 
Romania (1994) 
Singapore (2003) 
Spain (1994) 
Sweden (1994) 
Switzerland (1991) 
Thailand (1991) 
United Kingdom (1993) 
Venezuela (1996) 
 
OPIC and Other Investment Insurance Programs 
-------------------------------------------- 
¶64. The Overseas Private Investment Corporation (OPIC), an 
independent U.S. Government agency, offers medium- to-long-term 
financing and political risk insurance.  OPIC signed agreements with 
Peru in December 1992, and in July 1994.  OPIC approves requests for 
political risk insurance (including for inconvertibility of 
currency).  In 2008, OPIC announced that its Board of Directors 
approved $350 million in financing for three new private equity 
investment funds that will provide capital to a host of sectors in 
the economies of Latin America.  OPIC designated Peru as a 
beneficiary for all three funds.  The following sectors will be 
targeted: telecommunications, finance, agribusiness, tourism, real 
estate, natural resources, energy, water and waste management, 
transportation, infrastructure, and services. 
 
¶65. Because of the free convertibility of currency, the U.S. Embassy 
purchases Peruvian currency for expenses on an as-needed basis, at 
the market exchange rate.  The U.S. dollar depreciated against the 
Nuevo Sol in 2008 to under 3 Nuevo Soles.  Peru is a member of the 
Multilateral Investment Guarantee Agency. 
 
Labor 
----- 
¶66. Labor is abundant and trainable, although there are shortages of 
highly skilled workers in some fields and wages for professional 
staff is high (sometimes higher than U.S. wages in the mining sector 
for positions in the managerial and consulting fields).  On October 
1, 2007, the government increased the statutory monthly minimum wage 
by 10 percent to 550 Nuevos Soles (about US$180).  Some workers, 
like miners, are highly paid and also (per statute) receive a share 
of company profits. 
¶67. On June 30, 2008, mining workers began an unsuccessful national 
strike to force lawmakers to pass a law that would remove the cap 
mining workers receive on their share of company profits.  The 
strike ended on July 7, 2008; however, the possibility of additional 
strikes remains high. 
 
¶68. The law provides for a 48-hour workweek and one day of rest and 
requires companies to pay overtime for more than eight hours of work 
per day and additional compensation for work at night.  Unions in 
essential public services, as determined by the government, must 
provide a sufficient number of workers during a strike to maintain 
operations.  The law bans government unions in essential public 
services from striking.  However, in September 2008 the public 
health sector workers went on strike to demand owed back pay, better 
pay and resources to treat patients. The strike ended 38 days later 
with formal talks between the union and the government. 
 
¶69. The law also requires strikers to notify the labor ministry in 
advance before carrying out a job action.  According to the labor 
ministry, three legal strike and 50 illegal strikes took place 
between January and September 2008.  According to labor leaders, 
permission to strike was difficult to obtain, in part because the 
labor ministry feared harming the economy.  The Ministry of Labor 
justified its decisions by citing unions' failure to fulfill the 
legal requirements necessary to strike. 
 
¶70. The presence of organized labor in the Peruvian economy has 
declined; in 2007, 7.06 percent of the labor force was organized. 
Unemployment in Lima officially stood at 8.6 percent during the 
fourth quarter of 2008, compared with 8.4 percent a year earlier. 
Surveys show that 48.9 percent of Lima's economically active 
population was underemployed in 2008 (51.7 percent in 2007 and 52.4 
percent in 2006), mostly working as self-employed in the informal 
sector for below subsistence wages. 
 
¶71. In 1991-1992, a new labor law and other related statutes 
replaced extremely inflexible old statutes and regulations.  The new 
laws allow for multiple forms of unions across company or 
occupational lines, thus permitting multiple unions in the same 
company.    According to labor leaders the law has weakened unions, 
as companies create competitive unions that are seen as more 
favorable to management.  Workers in probation status or on 
short-term contracts are not eligible for union membership. 
Bargaining agreements are considered contractual agreements, valid 
only for the life of the contract.  Productivity provisions must be 
included in any collective bargaining agreement.  The number of 
 
officials and the amount of time union officials may devote to union 
work with pay is limited to 30 days per year.  Unless there is a 
pre-existing labor contract covering an occupation or industry as a 
whole, unions must negotiate with each company individually.  A 
labor law passed in July 1995 liberalized hiring.  Business leaders 
lauded the above changes, saying they led to greater efficiency. 
Labor leaders disagreed, arguing that the new labor laws eroded 
labor protections and encouraged outsourcing in a way that undercuts 
union activity. 
 
¶72. With Peru's return to democracy in 2000, Peruvian organized 
labor regained some, but by no means all, of the protections enjoyed 
in the pre-Fujimori era.  A decision by the Constitutional Tribunal 
in 2004, for example, legitimized collective industry-wide 
bargaining in the civil construction industry.  Labor leaders saw 
this as a potential precedent to be applied to other activities, but 
that has not yet happened.  Furthermore, new laws added to labor 
inflexibility because the restrictions for termination and 
downsizing have made businesses reluctant to hire new employees and 
have created incentives to outsource.  A new law passed in 2008 
created more restrictions on outsourcing and subcontracting, made 
the contracting company more responsible for the actions of their 
subcontracted company, and created a national registry of 
contracting companies. 
 
¶73. Either unions or management can request binding arbitration in 
contract negotiations.  Strikes can be called only after approval by 
a majority of all workers (union and non-union) voting by secret 
ballot and only in defense of labor rights.  Unions in essential 
public services, as determined by the government, must provide a 
sufficient number of workers during a strike to maintain 
operations. 
 
¶74. The 1993 Constitution provides for a maximum workday of eight 
hours, with 48 hours as the maximum week.  The labor code also sets 
24 hours rest per week and 30 days paid annual vacation for all 
workers.  In 2008, a new law reduced severance pay and bonuses by 50 
percent and paid annual vacation to 15 days for small business 
workers. Workers readily sacrifice these and other benefits in 
exchange for regular employment.   In 2008, a new law gave 
micro-business workers social security and pensions.  Strike 
activity declined markedly over the ensuing nine years and since new 
labor laws were passed, worker efficiency rose substantially. 
However, strikes and militant industrial action continue to 
increase.  The overall number of strikes fell in 2008.  Through 
September 2008, there were 53 strikes with a loss of 1, 397,188 
man-hours, compared with 55 strikes and a loss of 1,366,272 
man-hours in the same period of 2007. 
 
¶75. Congress continues to debate a comprehensive labor law reform, 
which may result in a return to inflexibility of the conditions of 
dismissal for employees. 
 
Foreign-Trade Zones/Free Ports 
------------------------------ 
¶76. Peruvian law currently covers two types of free trade zones: 
export, transformation, industry, trade and services zones 
(CETICOS), and a free trade zone (ZOFRATACNA) in Tacna.  The rules 
and tax benefits applying to these zones are the same for foreign 
and national investors. 
 
¶77. Companies established at the CETICOS and ZOFRATACNA, which 
export no less than 92 percent of their output (more than 80 percent 
of production for the Loreto CETICOS and more than 50 percent for 
ZOFRATACNA), are exempted until 2012 from all taxes, dues and 
contributions to the central government and municipalities, 
particularly income, sales (IGV), Municipal Promotion (IPM) and 
excise (ISC) taxes.  CETICOS exist at Ilo, Matarani and Paita, with 
one authorized but not operating at Loreto.  There is a concern that 
the Peruvian Government does not have the proper WTO waivers to 
validate the CETICOS export requirement.  The U.S. automotive 
industry has expressed a specific concern that U.S. brands are 
unable to compete with used Japanese vehicles that enter the 
Peruvian market duty-free through the CETICOS.  The Ministry of 
Transportation and Communications plans to ban the importation of 
used vehicles by 2010, citing environmental and security concerns. 
 
Foreign Direct Investment Statistics 
------------------------------------ 
¶78. The stock of registered foreign direct investment in Peru was 
US$16.9 billion in June 2008 according to ProInversion, versus 
US$15.5 billion in June 2007.  ProInversion data place Spanish 
investors as holding the largest share (26 percent), with US$4.3 
billion invested.  The United States is the second largest investor, 
with US$2.7 billion, and South Africa third, with US$1.8 billion. 
The statistics are not comprehensive and skewed because ProInversion 
records investments on the basis of country registry, rather than 
control.  Thus, an investor registered in the Bahamas, for example, 
is recorded as British even if the parent is a U.S. company.  As a 
result, U.S.-controlled investment commands a much higher share than 
officially recorded.  By sector, communications received 22.27 
percent of foreign direct investment, followed by the mining 
industry (20.81 percent), manufacturing (16.23 percent), and finance 
(15.41percent.) 
 
¶79. As of the end of 2008, investors and companies had signed 669 
legal stability contracts with the Government of Peru through 
ProInversion.  Legal stability contracts commit the government not 
to apply any future changes in the income tax, labor and other laws 
governing a specific investment in exchange for commitments to 
invest a given amount.  In addition to these contracts, the 
Government of Peru has signed numerous tax, foreign exchange and 
administrative stability contracts through several ministries, 
mainly the Ministry of Energy and Mines.  Investors may subscribe 
legal stability contract with a minimum investment of US$10 million 
in the mining and oil industries and US$5 million in other sectors. 
MCKINLEY