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DE RUEHPE #0172/01 0262145
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R 262144Z JAN 10
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 0592
INFO RUEHPE/AMEMBASSY LIMA

UNCLAS LIMA 000172 
 
SIPDIS 
PASS TO DEPARTMENT OF STATE - OFFICE OF INVESTMENT AFFAIRS (EB/IFD/OIA), 
USDOC WASHDC, AND CIMS NTDB WASHDC 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN ETRD ELAB KTDB PGOV USTR OPIC PE
SUBJECT: Peru - Investment Climate Statement 2010 
 
REF: 09 STATE 00124006 
 
¶1. In response to reftel, Embassy Lima submits the following 2010 
Investment Climate Statement. 
 
 
Openness to Foreign Investment 
 
 
 
¶2. The Peruvian government 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 entered into 
force on February 1, 2009, enables 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. 
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 to 
December 31, 2010.  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.  The program launched in 2008 and Peru has just completed its 
first year. 
 
 
 
¶3. 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. 
 
 
 
¶4. During his tenure, President Toledo implemented several 
pro-investment policies.  In April 2002, the government renamed 
COPRI, the privatization agency created in 1991, as ProInversion. 
ProInversion sought to be a "one-stop shop" for current and 
potential investors.  Proinversion has successfully completed both 
concessions and privatizations of state-owned enterprises and 
natural resource based industries. ProInversion's current focus is 
on concessions.  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 had been delayed by allegations of corruption 
involving a certain bidder and Peruvian officials.  Approximately 
20 additional exploration blocks are expected to be concessioned in 
¶2010. 
 
 
 
¶5. 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) which incorporates Legal Stability Agreements 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 agriculture, fisheries and 
aquaculture, forestry, mining; oil and gas, and electricity, which 
are among the industries capable of receiving major FDI amounts in 
Peru.  The Government of Peru has undertaken a decentralization 
process.  The Base Law for Decentralization (DL27783 issued in 
2002), the Organic Law on Regional Governments (DL27867), and the 
Organic Law of Municipalities (DL27972) facilitate and promote 
direct private investment with regional and local governments.  Law 
N???? 28059, Framework Law for the Promotion of Decentralized 
Investment and its regulations approved through Supreme Decree N???? 
 
015-2004-PCM, sets forth the regulatory framework so that the 
State, at its three government levels (national, regional and 
local), may promote decentralized investment.  The Government of 
Peru provides a link to these laws, the 1993 Constitution, and a 
listing of the Basic Rights of Foreign Investors on the 
Proinversion website. 
 
¶6. The 1993 Constitution guarantees national treatment for foreign 
investors and permits foreign investment in almost all economic 
sectors.  Article 6 under Supreme Decree N???? 162-92-EF authorizes 
foreign investors to carry out any economic activity of their 
choice to the extent this activity is not defined by the law as a 
crime and provided they comply with all constitutional precepts, 
laws and treaties.  However, a few exceptions exist.  For example, 
the law excludes from foreign investment activities in reserved 
natural protected areas and manufacturing of war weapons, pursuant 
to Article 6 of Legislative Decree N???? 757.  The law reserves 
participation in the media, air and land transportation, and 
private security and surveillance exclusively to Peruvian investors 
or require a majority share of Peruvian investors.  Prior approval 
is required in the banking (for regulatory reasons, and also 
applies to domestic investment) and defense-related sectors. 
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. 
 
¶7. 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).  As of November 2009, a number of these projects have 
been awarded, such as the port in San Martin and water treatment 
project in Majes-Siguas. 
 
 
 
¶8. 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. 
 
 
 
¶9. Peru has improved its rankings on corruption, economic freedom, 
and ease of doing business.  Peru remains in the MCC Threshold 
Program. 
 
 
 
Transparency International Corruption Perceptions Index: 
 
75 
 
Heritage Index of Economic Freedom: 
 
57 
 
World Bank Ease of Doing Business Rank: 
 
56 
 
MCC Government Effectiveness: 
 
40% 
 
MCC Rule of Law: 
 
23% 
 
MCC Control of Corruption: 
 
60% 
 
MCC Fiscal Policy: 
 
79% 
 
MCC Trade Policy: 
 
71% 
 
MCC Regulatory Quality: 
 
83% 
 
MCC Business Start Up 
 
31% 
 
MCC Land Rights Access 
 
65% 
 
MCC Natural Resource Management 
 
57% 
 
 
 
MCC indicators are a percentile ranking in the country's peer 
group. (0% is worst, 50% is median, and 100% is best) 
 
 
Conversion and Transfer Policies 
 
 
 
¶10. 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 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. 
 
 
 
¶11. 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 October 2009, the BCR increased the limit to its current rate of 
22 percent.  Under the PTPA, portfolio managers in the U.S. are 
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. 
 
 
 
¶12. 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 3.9 percent in 2007, 6.7 percent in 2008, and 
0.3 percent in 2009.  The government has also implemented policies 
to de-dollarize the economy.  Dollars accounted for about 52% of 
loans and approximately 56% of deposits as of January 2010 
 
 
Expropriation and Compensation 
 
 
 
¶13. 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 
 
¶14. 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. 
 
 
 
¶15. 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. 
 
 
 
¶16. 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. 
 
 
 
¶17. 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. 
 
 
 
¶18. 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. 
 
 
 
¶19. 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.  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. 
 
 
 
¶20. 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 
 
 
 
¶21. 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. 
 
 
 
¶22. 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. 
 
 
 
¶23. 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 
during the lifetime of the agreement.  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. U.S. companies will be free to purchase on the 
basis of price and quality, not origin of goods in these sectors. 
 
 
 
¶24. In December 2006, after increased social demands for a share of 
mining profits, the Garcia Administration and mining companies 
agreed to a "voluntary contribution" 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 metals or 
minerals drop from certain levels. 
 
 
 
¶25. 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. 
 
 
 
¶26. 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 
 
 
 
¶27. 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 
 
 
 
¶28. 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. 
 
 
 
¶29. 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$57.2 million in 2008, a slight decrease from 2007 levels.  The 
IIPA estimates that software piracy levels remained at 71% in 2008 
, with a loss of $46 million in 2008.  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. 
 
 
 
¶30. 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, http://www.indecopi.gob.pe  
), 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. 
 
 
 
¶31. 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). 
 
 
 
¶32. 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. 
 
 
 
¶33. 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. 
 
 
 
¶34. 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. 
 
 
 
¶35. 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.  Through PTPA implementation legislation passed by 
the Peruvian Congress in January 2009, the penalty for piracy 
increased to eight years of imprisonment. 
 
 
 
¶36. An IPR Toolkit for Peru can be found on the Embassy and 
Commercial Service Lima's website ( 
http://www.buyusa.gov/peru/en/196.html).  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. 
 
 
 
¶37. Under the U.S.-Peru Trade Promotion Agreement, 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 
 
 
 
¶38. 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. 
 
 
 
¶39. 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. 
 
 
 
¶40. 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.  However, given the 
significant market changes since 2005, OSIPTEL is currently 
reviewing industry data submitted in December 2009 to re-evaluate 
the current rates.  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. 
 
 
 
¶41. 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. 
 
 
 
¶42. 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. 
 
 
 
¶43. The World Bank 2010 report on Doing Business moves Peru to 56 
up from 65 in the global ease of doing business ranking.  Peru 
completed reforms in six of the ten areas measured including 
reformed business start-up, property registration, and contract 
enforcement, made it easier to pay taxes, and sped up international 
trade.  Peru has significantly lowered the average amount of days 
it takes to start a business from 72 in 2008 to 41 in 2010. 
Additionally, Peru has eliminated one step for starting a business. 
The World Bank report discusses the nine procedures for starting a 
business in Peru.  Businesses have complained about the 19 percent 
value added tax on goods, high social security tax rates, and 
certain labor laws, which 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 
 
 
 
¶44. 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 continue to be 
more competitive than those of the usual international centers. 
The private sector has access to a variety of credit instruments. 
In December 2009, , firms placed US$1.7 billion on the local bond 
market, a new record and a big recovery from the  sharp fall of 
2008, when placements totaled US$1.4 billion.  Mutual Funds managed 
US$4.9 billion in December 2009, a large recovery from the November 
2008 level of US$2.8 billion but still below the record level of 
US$5.2 billion of July 2008.  By November 2009, pension funds 
managed a total of US$23.73 billion, a strong recovery from the 
October 2008 level of US$14.4 billion.  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. 
 
 
 
¶45. 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 beginning in 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. 
Since March 2009, the index began a steady recovery hovering around 
the 15,000 level from September 2009 until early 2010, making it 
the world's fifth most profitable stock exchange at 99% in 2009. 
Since most pension funds (AFPs) are invested locally, the private 
pension funds companies and mutual funds also took a severe 
pounding but by September 2009 the AFPs had recovered the losses 
since June 2008, with its fund reaching a value of USD$23.8 billion 
in December 2009 
 
 
 
¶46. Total assets of the commercial banks were US$48.9 billion at 
the end of November 2009, 3.4% above the same period of 2008.  The 
banking system is considered generally sound.  The 2008-2009 global 
financial crises has not affected local operating banks, a 
reflection of sound banks policies aimed at strengthening their 
position after the lessons learned during the 1997-1998 Asian 
crisis; sound and able bank supervision, and strong GDP growth in 
the last few years until 2008.  Although GDP growth was 
substantially lower in 2009, it was still positive according to 
most forecasts.  Opening of the economy since the 1990s coupled 
with competition, have led to a significant consolidation in the 
sector, which still continues with two new foreign banks being 
authorized in 2008 to operate locally, and one (foreign-owned) 
financial company to operate as a bank.  Fifteen commercial banks 
comprise the system, of which 3 banks account for two-thirds of 
loans and over four-fifths of deposits.  Banks have revamped 
operations, increased capitalization, and reduced costs in recent 
years.  As of November 2009, foreigners had significant shares in 
twelve banks, of which they were majority owners of ten (including 
two of the country's large ones, and operator of one commercial 
bank.  Under the SBS's conservative criteria, 1.6% of total loans 
were assessed as non-performing as of November 2009, down from a 
high of 11% in early 2001 and very low since 2005.  The system has 
6 specialized institutions ("financieras"), 34 thriving 
micro-lenders and savings banks, two state-owned banks, and one 
state-owned development bank. 
 
¶47. 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. 
 
 
 
¶48. Foreign direct investment as of September 2009 was US$34.7 
billion, compared with US$31.6 billion a year earlier.  Foreign 
portfolio investment (dematerialized holdings of securities at the 
Lima Stock Exchange only) totaled US$60.6 billion at the end of 
November 2009, up from 39.4 billion in December 2008, and 57.0 
billion in December 2007. 
 
 
 
Competition from State-Owned Enterprises (SOEs) 
 
 
 
 
¶49. 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 
since 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.   The GOP has been soliciting bids for 25 
year concessions to manage six of Peru's southern airports, as well 
as, multi-year concessions for various energy, natural gas, 
hydro-energy and irrigation, telecommunications, ports, sanitation, 
land transport, trains, and tourism projects, some of these bids 
have been postponed. Several electricity, water, sewage, bank, and 
oil (Petroperu) companies remain state-owned and operated. 
 
 
 
¶50. In June 2004, the Congress passed a law to exclude 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, the government authorized Petroperu 
to resume 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.  In 
2008, a corruption scandal, related to the oil and gas concessions 
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 OSCE (formerly CONSUCODE), and approval of 
its investment projects by SNIP.  The Minister of Energy and Mines 
has stated that the state-owned company would not undertake 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 
for oil and gas exploration-production and petrochemicals. 
 
Corporate Social Responsibility 
 
 
 
 
¶51. Peruvian businesses participate in Corporate Social 
Responsibility programs on primarily a voluntary level.  For the 
energy and mining sector, certain regulations do exist to promote 
social responsibility.  Decreto Supremo N???? 042-2003-EM - IT, 
promotes social responsibility within the mining sector including 
encouraging dialogue with the local communities, local employment, 
development activities, and purchase of local goods and services. 
The norm requires the mining companies to provide an annual report 
on sustainable development activities.  The Peruvian Ministry of 
Energy and Mining offers on a voluntary basis a guidebook for 
community relations, as well as, providing on its website 
information on social measures pertaining to the mining and energy 
sectors. 
 
 
 
 
Political Violence 
 
 
 
¶52. 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 has 
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 that were instrumental in combating the Shining 
Path terrorists in the 1980s and 1990s.) 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.  During 2009, 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.  A two month long protest of indigenous communities in the 
Amazon against a series of legislative decrees culminated in a 
violent clash on June 5, which left 24 police and 10 civilians 
dead.  Protesters believed the decrees were legislated without 
proper prior consultation with indigenous communities.  Some 
protesters also complained of the content of the decrees, and said 
the decrees favored private investors and extractive industries 
over indigenous communities.  Concerns over the titling of 
indigenous lands and subsoil concessions continue to be potential 
sources of conflict, particularly in the Amazon. 
 
 
 
¶53. 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. 
 
 
 
¶54. 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 more than 3 police, 26 civilians, and 19 members of the 
military, and committed more than 100 terrorist acts in 
coca-growing areas during 2009.  The Shining Path killed 2 
civilians, 11 police officers, and 17 military members in 2008, and 
were responsible for around 70 terrorist incidents that year. 
President Garcia continues to reauthorize 60-day states of 
 
emergency in parts of Peru's four departments where the Shining 
Path operates, suspending some civil liberties and giving the armed 
forces additional authority to maintain public order. 
 
 
 
¶55. 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 http://www.ds-osac.org/. 
 
 
Corruption 
 
 
 
¶56. 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. 
 
 
 
¶57. 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. 
 
 
 
¶58. 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 OSCE 
(formerly 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. 
 
 
 
¶59. U.S. firms have reported 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 75 (out of 180 
countries) in its 2009 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 
 
 
 
¶60. Peru has signed bilateral investment agreements with 32 
 
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 and entered into force on February 1, 
2009, eliminates the need for a bilateral investment agreement. 
 
 
 
¶61. Peru's Current Bilateral Investment Agreements: 
 
 
 
Argentina (1994) 
 
Ecuador (1999) 
 
Paraguay (1994) 
 
Australia (1995) 
 
El Salvador (1997) 
 
Portugal (1994) 
 
Belgium-Luxembourg E.U. (2005) 
 
Finland (1995) 
 
Romania (1994) 
 
Bolivia (1993 
 
France (1993) 
 
Singapore (2003) 
 
Canada (2006) 
 
Germany (1995) 
 
Spain (1994) 
 
Chile (2000) 
 
Italy (1994) 
 
Sweden (1994) 
 
China (1994) 
 
Japan (2009) 
 
Switzerland (1991) 
 
Colombia (1994) 
 
Korea (1993) 
 
Thailand (1991) 
 
Cuba (2000) 
 
Malaysia (1995) 
 
United Kingdom (1993) 
 
Czech Rep (1994) 
 
Netherlands (1994) 
 
Venezuela (1996) 
 
Denmark (1994) 
 
Norway (1995) 
 
 
 
 
OPIC and Other Investment Insurance Programs 
 
 
 
¶62. The Overseas Private Investment Corporation (OPIC), an 
independent U.S. Government agency, offers medium- to-long-term 
financing and political risk insurance.  OPIC signed two 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. 
 
 
 
¶63. 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 remained at 
about 2.8 Nuevo Sol to the dollar throughout 2009.  Peru is a 
member of the Multilateral Investment Guarantee Agency. 
 
 
Labor 
 
 
 
¶64. Labor is abundant and trainable, although there are shortages 
of highly skilled workers in some fields and wages for professional 
staff are 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.  On July 1, 2008, mining 
workers began an unsuccessful indefinite national strike to force 
lawmakers to pass a law that would remove the cap mining workers 
receive on their share of company profits. 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. 
The law also requires strikers to notify the labor ministry in 
advance before carrying out a job action.  According to the labor 
ministry, seven legal strikes and 84 illegal strikes took place 
between January and November 2009.  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. 
 
 
 
¶65. 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% during the fourth 
quarter of 2008, compared with 8.4% a year earlier.  Surveys show 
that 48.9% of Lima's economically active population was 
underemployed in 2008 (51.7% in 2007 and 52.4% in 2006), mostly 
working as self-employed in the informal sector for below 
subsistence wages. 
 
 
 
¶66. In 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 competiting 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. 
 
 
 
¶67. With Peru's return to democracy in 2000, Peruvian organized 
 
labor regained some, but not 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 on 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. The PTPA requires Peru to respect the 
ILO-defined core labor rights of its workers, and at the close of 
2009 the GOP was set to establish a labor council to monitor 
progress to this end. 
 
 
 
¶68. 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. 
 
 
 
¶69. 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% 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. 
 
 
 
¶70. 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 
 
 
 
¶71. 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. 
 
 
 
¶72. 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 
 
 
 
¶73. The stock of foreign direct investment in Peru was US$34.7 
billion at the end of September 2009 according to Peru's Central 
 
Bank, versus US$30.2 billion in December 2008.  The U.S. Department 
of Commerce reported that U.S. direct investment in Peru on a 
historical-cost basis was over $8.4 billion in 2008, making the 
U.S. Peru's largest foreign investor.  Foreign direct investment 
registered with ProInversion for the purposes of legal stability 
contracts reached US$18.4 billion by September 2008.  Of these 
Spanish investors held the largest share (23 percent), with US$4.1 
billion invested.  The United Kingdom was the second largest 
investor, with US$3.6 billion, and the United States third, with 
US$2.7 billion.  By sector, the mining industry received 20.3 
percent of foreign direct investment, followed by the communication 
industry (20.06 percent), manufacturing (15.4 percent), and finance 
(15. 15.2 percent) 
 
 
 
¶74. As of the end of December 2009, investors and companies had 
signed 715 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.  Those contracts offer legal 
stability for ten years, or for the duration of the concession in 
the case of concession contracts. 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 
to a legal stability contract with a minimum investment of US$10 
million in the mining and oil industries and US$5 million in other 
sectors. 
NEALON