VZCZCXYZ0000
RR RUEHWEB

DE RUEHMN #0026/01 0151714
ZNR UUUUU ZZH
R 151713Z JAN 10
FM AMEMBASSY MONTEVIDEO
TO RUEHC/SECSTATE WASHDC 0148
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHMN/AMEMBASSY MONTEVIDEO

UNCLAS MONTEVIDEO 000026 
 
SIPDIS 
STATE FOR EB/IFD/OIA 
TREASURY FOR DO/JWALLACE, USDOC FOR ITA/JKOZLOWICKI 
USTR FOR JKALLMER, OPIC FOR RO'SULLIVAN 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ELAB ETRD KTDB PGOV OPIC USTR UY
SUBJECT: URUGUAY - INVESTMENT CLIMATE STATEMENT 2010 
 
REF: 09 STATE 124006 
 
------------------------------ 
 
Openness to Foreign Investment 
 
------------------------------ 
 
 
 
¶1.  The Government of Uruguay recognizes the important role foreign 
investment plays in economic development and works to maintain a 
favorable investment climate.  Aside from a few sectors in which 
foreign investment is not permitted, there is neither de jure nor 
de facto discrimination toward investment by source or origin, and 
national and foreign investors are treated equally. 
 
 
 
¶2.  The Uruguayan Government's (GOU)'s Law 16906, adopted in 1998, 
declares promotion and protection of investments made by national 
and foreign investors to be in the nation's interest.  The law 
states that: (1) foreign and national investments are treated 
alike, (2) investments are allowed without prior authorization or 
registration, (3) the government will not prevent the establishment 
of investment in the country, and (4) investors may freely transfer 
abroad their capital and profits from the investment.  Decree 
455/007 adopted in November 2007, regulates Law 16906 and provides 
significant incentives to investors. 
 
 
 
¶3.  The left-of-center Frente Amplio administration that governed 
from March 2005 through March 2010 stressed the importance of local 
and foreign investment for social and economic development.  The 
GOU's macroeconomic policies have reduced Uruguay's vulnerability 
to external shocks and helped to keep the economy growing even 
through the 2008-2009 global financial crisis.  The Frente Amplio 
candidate was elected again in 2009, and President-elect Jose 
Mujica will take office in March 2010.  Vice President-elect Danilo 
Astori, who served as minister of economy in the prior 
administration, will remain actively involved in economic 
management. 
 
 
 
¶4.  Some foreign investors put planned investments on hold due to 
Law 18.092 (passed in 2007), which requires corporations that 
purchase land to use registered shares held by individuals - 
instead of bearer shares.  The GOU later exempted some large 
foreign firms from this requirement.  The government has also 
passed labor legislation strengthening labor rights, some of which 
was opposed by business chambers.  Some analysts believe this 
legislation has led to an increased number of labor conflicts, 
sometimes resulting in the occupation of workplaces. 
 
 
 
¶5.  In general, the GOU does not require specific authorization for 
firms to set up operations, import and export, make deposits and 
banking transactions in any particular currency, or obtain credit. 
Screening mechanisms do not apply to foreign or national 
investments, and special government authorization is not needed for 
access to capital markets or to foreign exchange.  In tenders for 
private participation in state-owned sectors, foreign investors are 
treated as nationals and allowed to participate in any stage of the 
process.  Bidders on tenders should be prepared for a lengthy 
adjudication process. 
 
 
 
¶6.  The World Bank's 2010 "Doing Business" Index, which ranks 183 
countries according to the ease of doing business, placed Uruguay 
114th globally and 9th within the Latin American region (17 
countries).  Uruguay gets high marks in the categories "getting a 
credit" and "closing a business," but lags in "paying taxes", 
"registering property," and "dealing with construction permits." 
Since 2004, Uruguay has made progress on cutting the cost of 
starting a business and dealing with construction permits as well 
as the number of days to export.  However, the cost per container 
exported or imported has grown (by 19 percent and 12 percent, 
respectively). 
 
¶7.  Uruguay is ranked as a "mostly free economy" by the Heritage 
Foundation's Index of Economic Freedom. 
 
 
 
Table 1 
Index             Ranking            Year 
 
 
 
- T.I. Corruption Index                                 6.7 
25 in 180           2009 
 
   (10 is lack of perceived corruption) 
 
- Heritage Economic Freedom                     69 
38 in 179           2009 
 
   (100 is entirely free) 
 
- World Bank's Doing Business 
114 in 183         2010 
 
   (1 is easiest for doing business) 
 
 
 
 
¶8.  Although U.S. firms have not encountered major obstacles to 
investing in Uruguay, some have been frustrated by the length of 
time it takes to complete bureaucratic procedures and tenders. 
 
 
 
¶9.  Uruguay and the United States signed a Bilateral Investment 
Treaty (BIT) in November 2005, which entered into force on November 
1, 2006 (available at 
www.ustr.gov/Trade_Agreements/BIT/Section_Ind ex.html 
  and 
http://uruguay.usembassy.gov  ). 
Uruguay and the United States also signed an Open Skies Agreement 
in late 2004 (ratified in May 2006), a Trade and Investment 
Framework Agreement (TIFA) in January 2007, and a Science and 
Technology Cooperation Agreement in April 2008.  Under the TIFA, in 
2008, both countries signed agreements on business facilitation and 
environment. 
 
Conversion and Transfer Policies 
 
 
 
¶10.  Uruguay maintains a long tradition of not restricting the 
purchase of foreign currency or the remittance of profits abroad, 
even during the 2002 banking and financial crisis. Foreign exchange 
can be freely obtained at market rates. 
 
 
 
¶11.  Article 7 of the U.S.-Uruguay BIT provides that both countries 
"shall permit all transfers relating to investments to be made 
freely and without delay into and out of its territory." The 
agreement also establishes that both countries will permit 
transfers "to be made in a freely usable currency at the market 
rate of exchange prevailing at the time of the transfer." 
 
 
 
¶12.  There are no restrictions on technology transfer. 
 
 
 
------------------------------ 
 
Expropriation and Compensation 
 
------------------------------ 
 
 
 
¶13.  In the event of expropriation, the Uruguayan Constitution 
provides for the prompt payment of "fair" compensation. 
 
 
 
¶14.  Article 6 of the U.S.-Uruguay BIT rules out direct and 
 
indirect expropriation or nationalization, except under certain 
very specific circumstances.  The article also contains detailed 
provisions on how to compensate investors, should expropriation 
take place. 
 
 
 
¶15.  Following a constitutional amendment to implement state 
control of water services, the GOU took over the operations of 
URAGUA, a Spanish water company that had operated locally from 2000 
through 2005.  The GOU and URAGUA subsequently reached a negotiated 
settlement. 
 
 
 
------------------ 
 
Dispute Settlement 
 
------------------ 
 
 
 
¶16.  The investor may choose between arbitration and the judicial 
system to settle disputes.  Uruguay became a member of the 
International Center for the Settlement of Investment Disputes in 
September 2000.  Uruguay's legal system is based on a civil law 
system derived from the Napoleonic Code, and the government does 
not interfere in the court system.   The Judiciary is independent, 
albeit sometimes slow. 
 
 
 
¶17.  The U.S.-Uruguay BIT devotes over ten pages to establish 
detailed and expeditious dispute settlement procedures. 
 
 
 
--------------------------------------- 
 
Performance Requirements and Incentives 
 
--------------------------------------- 
 
 
 
¶18.  Article 8 of the U.S.-Uruguay Bilateral Investment Treaty bans 
countries from imposing seven forms of performance requirements to 
new investments, or tying the granting of existing or new 
advantages to performance requirements. 
 
 
 
¶19.  Local and foreign investors are treated equally. There are no 
preferential tax deferrals, grants, or special access to credit for 
foreign investors.  Foreign investors are not required to meet any 
specific performance requirements.  Furthermore, foreign investors 
are not inhibited by discriminatory or excessively onerous visa, 
residence, or work permit requirements.  The government does not 
require that nationals own shares or that the share of foreign 
equity be reduced over time, and does not impose conditions on 
investment permits. 
 
 
 
¶20.  The Government of Uruguay's investment promotion plan is 
regulated by Law 16906 and Decree 455/007 passed in  November 2007. 
Law 16906 grants automatic tax incentives to several activities, 
including personnel training; research, scientific and 
technological development; reinvestment of profits; and investments 
in industrial machinery and equipment.  Other benefits provided 
exclusively to industrial and agricultural firms by Law 16906 (such 
as tax exemptions on imports of fixed assets and reimbursement of 
VAT on local purchases of goods and services for construction) have 
in practice been superseded by Decree 455/007, which has a wider 
scope. 
 
 
 
¶21.  Decree 455/007  grants significant tax incentives to investors 
in a wide array of sectors and activities.  Certain activities - 
such as the purchasing of land, real estate or private vehicles - 
are not eligible for the benefits.  .  The size of the benefit to 
be granted is determined according to the size of the investment 
and a pre-defined list of criteria. Investment projects are 
 
classified as small (defined in indexed units and equivalent to USD 
0.35 million as of December 2009), medium (up to USD 7 million), 
large (up to USD 700 million) and of great economic significance 
(over USD 700 million).  A matrix based on a pre-defined list of 
criteria  includes the project's: (1) generation of jobs; (2) 
contribution to R+D and innovation; (3) impact on GDP, exports, and 
local value added; (4) contribution to geographic decentralization; 
and (5) use of clean technologies. 
 
 
 
¶22.  The principal incentive consists of the deduction from income 
tax of a share of total investment.  Investors are allowed to cut 
their corporate income tax payments by between 51 percent to 100 
percent of their investment (for up to a 25-year term) according to 
their score on the matrix.  Other incentives include:  i) the 
exoneration of tariffs and taxes on imports of capital goods that 
do not compete against local industry, ii) the exoneration of the 
patrimony tax on personal property and civil works, iii) refunding 
VAT paid on purchases of materials and services for civil works, 
and iv) special tax treatment to fees and salaries paid for 
research and development.  Decree 455/007 also streamlined 
procedures for firms requesting tax exemptions and established a 
"single-window" process to channel investment requests and guide 
investors.  For further information, please refer to 
http://www.uruguayxxi.gub.uy  . 
 
 
 
¶23.  Local and foreign investors reacted positively to Decree 
455/007.  The number of investment proposals surged in 2008 to 310, 
valued at over $1 billion, well above the average of 58 proposals 
submitted annually in 2002-2007.  Despite the global crisis, 
investors submitted 308 proposals in the first three quarters of 
2009, but it is unclear how many of these proposals have 
materialized. 
 
 
 
¶24.  There are also special regimes to promote the tourism 
industry, plantations of forestry and citrus, exploitation of 
hydrocarbon , production of biofuels, development and exports of 
software, production of vehicles or auto parts, and shipbuilding. 
,.  Additional special regimes also apply to the development of the 
printing industry (printing and sale of books, magazines, and 
educational material), communications (newspapers, broadcasting, 
television, theater and film exhibit and distribution), production 
of electronics and electric equipment (e.g. computers, 
telecommunication equipments, measurement tools, medical equipment 
and electrical appliances), and call centers.  Investors can 
combine benefits,  applying for certain tax benefits under Decree 
455/007 and for other benefits under the sectoral special regimes. 
.  These regimes do not differentiate between foreign and national 
investors. 
 
A government decree establishes that government tenders will favor 
local products or services, provided they are of equal quality and 
not more than 10 percent more expensive than foreign goods or 
services.  U.S. and other foreign firms are able to participate in 
government-financed or subsidized research and development programs 
on a national treatment basis. 
 
 
 
-------------------------------------------- 
 
Right to Private Ownership and Establishment 
 
-------------------------------------------- 
 
 
 
¶25.  Private ownership does not restrict a firm or business from 
engaging in any form of remunerative activity, except in two areas 
-- national security interest, and legal government monopolies (see 
Competition from State Owned Enterprises).  One hundred percent 
foreign ownership is permitted, except where restricted for 
national security purposes. 
 
 
 
----------------------------- 
 
Protection of Property Rights 
 
----------------------------- 
 
 
 
¶26.  In 2005, the GOU rescinded a 1966 decree that enabled 
employers to request police action to evict occupying workers. 
Occupations surged in 2005 and 2006 (from an annual rate of 15-20 
per year prior to 2005 to 36 in 2006) and declined in 2007 to 30. 
In 2008, 150 plants were occupied for one day during a conflict 
involving the metal industry, and seven plants were occupied in a 
conflict involving the plastic industry in 2009.  In 2006, the GOU 
passed Decree 156/06 to restrain excesses and provide for 
obligatory negotiations between employer and employees prior to 
employees resorting to occupations of the workplace.  In practice, 
however, workers have sometimes resorted to occupations early in 
several labor conflicts.  Furthermore, under certain circumstances, 
the decree considers occupations as a licit extension of workers' 
right to strike, a provision which is opposed by entrepreneurs. 
Courts have ruled to evict occupying workers in several instances. 
In November 2008, the International Labor Organization released a 
report, suggesting that Uruguay revise its legislation on this 
issue. 
 
 
 
¶27.  Secured interests in property and contracts are recognized and 
enforced.  Mortgages exist, and there is a recognized and reliable 
system of recording such securities.  Uruguay's legal system 
protects the acquisition and disposition of all property, including 
land, buildings, and mortgages.   Execution of guarantees has 
traditionally been a slow process.  A new Bankruptcy Act (Law 18387 
passed in October 2008), seeks to expedite such executions, 
encourages arrangements with creditors before a firm goes 
definitively bankrupt, and provides the possibility of selling the 
firm as a single productive unit. 
 
 
 
¶28.  Uruguay is a member of the World Intellectual Property 
Organization (WIPO), and a party to the Bern and Universal 
Copyright Conventions, as well as the Paris Convention for the 
Protection of Industrial Property.  In 1998 and 1999, Uruguay 
passed trademark and patent legislation.  In 2003, coordinating 
closely with U.S. and international IPR organizations, Uruguay 
passed new TRIPS-compliant copyright legislation.    The 2003 
copyright law represented a significant improvement over the 1937 
law and led USTR to upgrade Uruguay from the "Priority Watch List" 
to the "Watch List."  Uruguay signed the WIPO Copyright Treaty 
(WCT) and the WIPO Performances and Phonograms Treaty (WPPT) in 
¶1997.  Parliament ratified the WCT in October 2006 (Law 18036) and 
the WPPT on February 20, 2008 (Law 18253).  The United States Trade 
Representative (USTR) removed Uruguay from the Special 301 Watch 
List in 2006 due to progress in IPR, especially with respect to 
copyright enforcement.  The USTR statement commended the "positive 
progress" and was "encouraged that Uruguay has set a positive 
example by its efforts to combat piracy and counterfeiting." 
 
 
 
¶29.  Patents are protected by Law 17164 of September 2, 1999. 
Invention patents have a twenty-year term of protection from the 
date of filing.  Patents for utility models and industrial designs 
have a ten-year term of protection from the filing date and may be 
extended for an additional five.  The law defines compensation as 
"adequate remuneration" to be paid to the patent-holder. Some U.S. 
industry groups believe that the law's compulsory licensing 
requirements are not TRIPS consistent.  On average, filing a 
medical patent takes two years longer than in the United States. 
 
 
 
¶30.  The GOU approved a trademark law on September 25, 1998, 
upgrading trademark legislation to TRIPS standards.  Under this 
law, a registered trademark lasts ten years and can be renewed as 
many times as desired.  It provides prison penalties of six months 
to three years for violators, and requires proof of a legal 
commercial connection to register a foreign trademark. Enforcement 
of trademark rights has improved in recent years. 
 
 
 
--------------------------------- 
 
Transparency of Regulatory System 
 
--------------------------------- 
 
 
 
¶31.  Transparent and streamlined procedures regulate foreign 
investment.  However, long delays and repeated appeals can 
significantly delay the process to award international and public 
tenders. 
 
 
 
¶32.  Article 10 of the Uruguay-U.S. BIT mandates both countries to 
promptly publish or make public any law, regulation, procedure or 
adjudicatory decision related to investments.  Article 11 sets 
transparency procedures that govern the accord. 
 
 
 
--------------------------------------------- ----- 
 
Efficient Capital Markets and Portfolio Investment 
 
--------------------------------------------- ----- 
 
 
 
¶33.  Foreign investors can access credit on the same market terms 
as nationals.  As long-term banking credit has traditionally been 
more difficult to obtain, firms tend to roll over short-term loans. 
 
 
 
 
¶34.  The banking system is generally sound and has good capital, 
solvency and liquidity ratios.  Profitability, in a context of low 
international interest rates and low demand for credit, has been a 
problem.  The largest bank is the government-owned Banco de la 
Republica, which as of July 2009 accounted for 40 percent of total 
credits and deposits. 
 
 
 
¶35.  Uruguay's capital market is underdeveloped and concentrated in 
sovereign debt.  While Uruguay is receiving "active" investments 
oriented to establishing new firms or gaining control over existent 
ones, it lacks major "passive" investments from investment funds 
that are an essential source of start-up capital and liquidity for 
new ventures and companies wishing to expand operations. 
 
 
 
¶36.  There is no effective regulatory system to encourage and 
facilitate portfolio investment.  There are two stock exchanges. 
An electronic exchange concentrates on foreign currency 
transactions and a traditional exchange focuses on sovereign bonds. 
Only 12 firms are registered in the traditional stock exchange. 
Trading in shares and commercial paper is virtually nil, severely 
limiting market liquidity. There are few investment funds in 
operation, mostly serving domestic clients to invest their funds in 
Uruguayan sovereign debt.  Risk rating firms first came to Uruguay 
in 1998. 
 
 
 
¶37.  However, there has recently been a good deal of discussion -- 
encouraged and facilitated by the Embassy -- among the relevant 
Uruguayan actors about how to reinvigorate Uruguay's capital 
markets.  A revised capital markets law is under discussion in the 
parliament. 
 
 
 
¶38.  Private firms do not use "cross shareholding" or "stable 
shareholder" arrangements to restrict foreign investment. Nor do 
they restrict participation in or control of domestic enterprises. 
 
 
 
---------------------------------------- 
 
Competition from State Owned Enterprises 
 
---------------------------------------- 
 
¶39.  Uruguay has a history of maintaining state monopolies in a 
number of areas where direct foreign equity participation is 
prohibited by law.  While privatization is generally opposed by the 
population, some government-run monopolies have been dismantled 
over the past few decades, and private sector participation in the 
economy has increased significantly.  Several state-owned entities 
have contracted with foreign-owned companies to provide specific 
services for a given period of time under Build-Operate-Transfer 
(BOT) regimes.  While basic telephone services remain a monopoly, 
government-owned ANCEL, Spain's Telefonica, and Mexico's America 
Movil provide cellular services.  International long distance 
calling, data transmission, and value-added services are also open 
to the private sector.  The Telecommunication and Postal Services 
regulatory agency (URSEC) aims to preserve a level playing field 
for private and public firms, but regulatory enforcement of 
government-owned entities varies. 
 
 
 
¶40.  Other sectors have varying levels of private sector 
participation.  Although private power generation is allowed, the 
state-owned power company, UTE, holds a monopoly on wheeling 
rights.  The state-owned oil company, ANCAP, remains the only 
importer and refiner of petroleum products.  ANCAP has established 
associations with foreign partners, especially in the area of 
off-shore exploration.  For the latter, ANCAP organized an 
international road-show, including an event in the U.S. for 
interested oil companies.  In the ports, private companies provide 
most services.  The national airline, PLUNA, is 75% owned by a 
consortium of investors (including U.S. capital).  The insurance 
and mortgage sectors are de-monopolized, but workers compensation 
insurance remains a government monopoly.  An October 2004 
constitutional amendment, approved by 64% of voters, declared water 
a national resource to be controlled exclusively by the State. 
 
 
 
¶41.  Most State-owned firms are defined as autonomous but in 
practice coordinate certain issues, mainly tariffs, with their 
respective ministries and the Executive Branch. State-owned firms 
are required by law to publish an annual report and their balances 
are audited by independent firms. 
 
 
 
------------------------------- 
 
Corporate Social Responsibility 
 
------------------------------- 
 
 
 
¶42.  The concept of Corporate Social Responsibility is relatively 
new in Uruguay, but many companies do abide by the principles of 
CSR as a matter of course.  Many multinational companies find it 
advantageous to stake out a CSR strategy and have made significant 
contributions in promoting safety awareness, better regulation, a 
positive work environment and sustainable environmental practices. 
Consumers do pay attention to the CSR image of companies, 
especially as it relates to a firm's work with local charity or 
community causes.  U.S. companies have proven to be leaders in 
promoting a greater awareness of and appreciation for CSR in 
Uruguay. 
 
 
 
------------------ 
 
Political Violence 
 
------------------ 
 
 
 
¶43.  Uruguay is a stable democracy (Uruguay ranked as the most 
democratic country in Latin America, according to The Economist's 
2008 Democracy Index) in which respect for the rule of law is the 
norm and the vast majority of the population is committed to 
non-violence. 
 
 
 
---------- 
 
Corruption 
 
---------- 
 
 
 
¶44.  Uruguay has strong laws to prevent bribery and other corrupt 
practices.  In 2009, Uruguay ranked top in Transparency 
International's Corruption Perception Index in Latin America's, 
together with Chile (both countries ranked 25th among 180 countries 
worldwide, the U.S. ranked 19th) .    Uruguay has gradually 
improved in Transparency International's Corruption Perception 
Index over time, from the 35th place in 2001 to the 25th place in 
¶2009. 
 
 
 
¶45.  Despite Uruguay's favorable rating and effective legislation, 
other surveys indicate a perception of public sector corruption. 
Almost three out of four top tier executives polled by KPMG in 
2007/2008 opined that there is fraud in the public sector 
-especially in the awarding of public contracts-, and one in three 
stated their firm had been affected by corruption. 
 
 
 
¶46.  Several former Uruguayan officials, customs officials and one 
judge were prosecuted for corruption in recent years.  Overall, 
U.S. firms have not identified corruption as an obstacle to 
investment. 
 
 
 
¶47.  A law against corruption in the public sector was approved in 
1998, and acceptance of a bribe is a felony under Uruguay's penal 
code.  Money laundering is penalized with sentences of up to ten 
years (which also apply to Uruguayans living abroad).  Laws 17835 
and 18494 (passed in 2004 and 2009) establish a solid framework 
against money laundering and terrorism finance.   Enforcement is 
improving at a steady pace. Bilateral Investment Agreements 
 
 
 
¶48.  In November 2005, Uruguay and the United States signed a 
Bilateral Investment Treaty (BIT) to promote and protect reciprocal 
investments, which was subsequently ratified by both legislatures 
and entered into force on November 1, 2006.  The full text of the 
agreement is available at 
www.ustr.gov/Trade_Agreements/BIT/Section_Ind ex.html 
  and 
http://uruguay.usembassy.gov  . 
 
 
 
¶49.  The 62-page agreement has 37 articles and 3 annexes, and was 
the first "latest generation" BIT signed by USTR.  Among other 
benefits, the BIT grants national and most-favored-nation 
treatments to investments and investors sourced in each country. 
 
The agreement also includes detailed provisions on compensation for 
expropriation, and a precise procedure for settling bilateral 
disputes.  The annexes include sector-specific measures that are 
not covered by the agreement and specific sectors or activities 
which governments may restrict further. 
 
 
 
¶50.  Uruguay also has BITs with Argentina, Brazil and Paraguay (its 
Mercosur partners, signed in 1994), Armenia, Australia, Belgium, 
Canada, Chile, China, Czech Republic, El Salvador, Finland, France, 
Germany, Great Britain, Hungary, Israel, Italy, Luxembourg, 
Malaysia, Mexico, Portugal, The Netherlands, Panama, Poland, 
Romania, Spain, Sweden, Switzerland, and Venezuela.  BITs with 
India and Vietnam, signed in 2008 and 2009 respectively, await 
Parliamentary approval. 
 
Uruguay has Double Taxation Agreements with Chile, Germany, 
Hungary, Israel, Norway, Panama, Paraguay, Poland and Switzerland. 
In 2009, the GOU reacted to its inclusion by the OECD in a list of 
jurisdictions that "have not committed to implement the 
internationally agreed tax standard" and swiftly endorsed OECD 
standards on transparency and exchange of information, stating it 
 
would include tax-information sharing clauses in Double Taxation 
Agreements with OECD members.  In 2009 Uruguay signed double 
taxation and fiscal transparency agreements with Spain and Mexico, 
which as of December 2009 are awaiting Parliamentary approval. 
 
 
 
-------------------------------------------- 
 
OPIC and Other Investment Insurance Programs 
 
-------------------------------------------- 
 
 
 
¶51.  The GOU signed an investment insurance agreement with the 
Overseas Private Investment Corporation (OPIC) in December 1982. 
The agreement allows OPIC to insure U.S. investments against risks 
resulting from expropriation, inconvertibility, war, or other 
conflicts affecting public order.  OPIC programs are currently used 
in Uruguay. 
 
Currency Exchange 
 
 
 
¶52.  In 2002, after three years of recession and in the face of 
devaluations in neighboring economies, Uruguay eliminated its 
decade-long exchange rate band.  Since then, the peso has floated 
freely, albeit with some intervention from the Central Bank aimed 
at reducing the volatility of the price of the dollar.  There is no 
black market for currency exchange. The dollar fell 20 percent from 
December 2008 through December 2009. The U.S. Embassy uses the 
official rate when purchasing local currency. 
 
Labor 
 
 
 
¶53.  The Uruguayan labor force is well educated, and the government 
has instituted technical training programs to help meet industry's 
skilled labor requirements.  At 97 percent, Uruguay's literacy rate 
is the highest in Latin America and on par with that of the United 
States. 
 
 
 
¶54.  Social security payments are high and increase employers' 
basic wage costs by about 30 percent. In addition to the worker's 
salary, employers must pay: (a) 7.5 percent of the wage to social 
security, (b) 5 percent to health insurance, (c) 0.125 percent to a 
labor restructuring fund, (d) a supplementary annual bonus 
equivalent to 1/12 of the annual pay (basically a 13th month's 
wages), and (e) a vacation pay equivalent to about 80 percent of 
the net wage received by the employee times 20 (days of leave) 
divided by 30 (days a month).  An employer can dismiss workers, as 
long as the dismissal is not discriminatory and if the employer 
pays the worker one month for each year of work, with a cap of six 
months. 
 
 
 
¶55.  Uruguay has ratified ILO conventions that protect worker 
rights, and generally adheres to their provisions.  The Uruguayan 
constitution guarantees workers the right to organize and strike, 
and union members are protected by law against dismissal for union 
activities.  Labor unions are nominally independent from the 
government.  Sympathy strikes are legal.  In labor trials, the 
Judiciary tends to rule in favor of the worker, as he/she is 
considered to be the weaker party. 
 
 
 
¶56.  The Vazquez administration introduced major changes to Uruguay 
labor regime with the passage of thirty-six laws, some of which 
were adamantly opposed by business chambers.  The main changes 
include the reinstatement of collective bargaining; the creation of 
tri-partite salary councils; and the passage of several laws aimed 
at promoting and protecting the rights of unions and individual 
workers. 
 
 
 
¶57.  Occupations of workplaces increased in 2005-2010 following the 
elimination of a decree that enabled employers to request police to 
 
evict workers, and passage of legislation that favored unions. 
Under certain circumstances the GOU considers occupations as a 
licit extension of workers' right to strike, which is opposed by 
entrepreneurs (see Protection of Property Rights section). 
 
 
 
¶58.  In 2005, the GOU reinstated salary councils, a three party 
board consisting of representatives from unions, employers, and the 
government.  The councils are responsible for setting the wage 
increases for individual sectors; if the unions and employers fail 
to reach an agreement to determine the wage increase to be applied 
for sectors, then the government makes the final decision.  The 
councils were first instituted in 1943 and dissolved on several 
occasions, the last time in 1992. 
 
 
 
¶59.  In 2006, the administration passed a law on the "Promotion and 
Protection of Labor Unions" that renders any discriminatory action 
affecting the employment of unionized workers illegal.  Among other 
measures, the law provides for the immediate reinstatement of the 
employee if any infringement of the law is proven.  Business 
chambers strongly opposed the bill, arguing that it slanted labor 
relations heavily in favor of unions. 
 
 
 
¶60.  In January 2007 Parliament passed Law 18099 on outsourcing, 
which was opposed by the business community, as it made employers 
responsible for possible labor infringements on employees by 
third-party firms that were contracted by the employers.  In 
November 2007, the GOU submitted another bill clarifying some of 
the private sector's concerns, which was passed in January 2008 as 
Law 18251.  Parliament passed a law in December 2008 providing 
between 6 and 12 days of mandatory leave for students to prepare 
for exams.  Some businesspeople thought the law could affect 
labor-intensive sectors that hire students, such as call centers. 
 
 
 
¶61.  Law 18395, passed in 2008, reduced retirement to age 60 for 
both men and women who have worked for at least 30 years, modified 
the system for advanced age retirement and provided more beneficial 
terms to mothers with children.  Law 18399, also from 2008, 
modified the unemployment insurance regime, gradually , reducing 
unemployment benefits during the  six month eligibility period, and 
extending coverage for employees over 50 years old to one year. 
Workers who become disabled on the job receive a monthly payment 
from the government equal to 70 percent of their salaries, plus 
free medicine and medical care. 
 
 
 
¶62.  Another bill on Collective Bargaining for public sector 
employees, submitted in February 2008, is also before Parliament. 
 
 
 
¶63.  The level of unionization has increased steadily since the 
governing Frente Amplio Party took office on March 1, 2005.  The 
umbrella labor organization PIT/CNT claims to have over 320,000 
active members, or 28 percent of the workforce.  Unionization is 
particularly high in the public sector. 
 
 
 
------------------------------ 
 
Foreign-Trade Zones/Free Ports 
 
------------------------------ 
 
 
 
¶64.  Law 15921 of December 17, 1987, regulates the operation of 
free trade zones (FTZs) within the country.  Twelve free trade 
zones are located throughout the country.  While most are dedicated 
almost exclusively to warehousing, three host a wide variety of 
tenants performing various services (e.g., financial, software and 
call centers).  One in particular (Zonamerica) was developed as a 
technology park to provide services and infrastructure for 
competitive development of companies with international reach.  Two 
FTZs were created exclusively for the development of the paper and 
pulp industry.  These activities are considered to take place 
 
outside the national territory.  When goods from an FTZ are 
introduced into Uruguay's customs territory, they are treated as 
"imports" and thus subject to customs duties and import taxes. 
Goods of Uruguayan origin entering into FTZs are treated as 
Uruguayan exports for tax and other legal purposes. 
 
 
 
¶65.  Goods, services, products, and raw materials of foreign and 
Uruguayan origin may be brought into the FTZs, held, processed, and 
re-exported without payment of Uruguayan customs duties or import 
taxes.  Current government monopolies are not honored within FTZs. 
Local and foreign-owned industries alike enjoy several advantages 
in an FTZ, including the exemption from all domestic taxes. 
Customs duty exemptions are applicable to the entry and exit of 
goods.  Additionally, the employer does not pay social security 
taxes for non-Uruguayan employees who have waived coverage under 
the Uruguayan social security system.  However, Uruguayans must 
comprise 75 percent of a company's labor force to qualify for FTZ 
tenancy. 
 
 
 
¶66.  Uruguay is a founding member of MERCOSUR, the Southern Cone 
Common Market composed of Argentina, Brazil, Paraguay and Uruguay 
(as of December 2009 Venezuela's membership was pending).  Since 
MERCOSUR regulations treat products manufactured in all member 
states FTZs as extra-territorial and hence charge them its common 
external tariff, with few exceptions, little manufacturing is done 
in local FTZs.  Furthermore, products manufactured by Uruguayan or 
foreign firms in Uruguayan FTZs are not eligible for MERCOSUR 
certificates of origin and must pay the bloc's common external 
tariff upon entering other member countries. 
 
 
 
¶67.  Uruguay has other special import regimes in place, including 
industrial zones, private customs deposits, free ports and 
temporary admission. The free port and private customs deposits 
exempt goods that are kept within the premises from all 
import-related duties and tariffs.  While in the premises, 
merchandises may be labeled, fractioned, re-packaged, or have any 
other process done to it as long as it does not modify the nature 
of the good.  There are no limits for the length of stay of 
merchandise in the port, nor for the volume of stored goods. 
 
 
 
¶68.  Under the temporary admission regime, manufacturers can import 
duty-free raw materials, supplies, parts and intermediate products 
used to manufacture products that are later exported.  Products 
that are consumed during the production process without being 
incorporated in the finished exported product, containers and 
packing material are also covered.  The system requires a 
government authorization and that final products be exported within 
a period of 18 months. 
 
 
 
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Foreign Direct Investment Statistics 
 
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¶69.  Foreign Direct Investment (FDI) in Uruguay has been 
traditionally low (under 3 percent of GDP), even by Latin American 
and regional standards, because of the country's small market, the 
lack of major privatization initiatives, and the small number of 
firms that base their MERCOSUR-wide operations locally.  However, 
FDI rose significantly in recent years - to  6 percent of GDP in 
¶2008. 
 
 
 
¶70.  Annual inflows of FDI rose from $397 million in 2004 to $847 
million in 2005, $1.4 billion in 2006, $1.1 billion in 2007 and 
$1.8 billion in 2008.  Surging inflows of FDI have led the stock of 
FDI to record levels ($8.9 billion in 2008). 
 
 
 
¶71.  The sectors that received more FDI in 2003-2007 were 
 
agriculture (forestry, ranching, farming, and slaughterhouses), 
construction (real estate in Punta del Este, hotels, and office 
buildings), industry (chemical and food and beverages), and 
services (mostly financial intermediation). 
 
 
 
¶72.  While the economy continued growing in 2009, the global crisis 
had an impact on investment.  FDI fell 52 percent in the first half 
of 2009 over the first half of 2008.  Overall investment fell 20 
percent in the January-September 2009 (over January-September 2008) 
mainly due to a declining inventories.  A counter-cyclical increase 
in public sector investment (up 32 percent) offset the drop in 
private investment (down 10 percent). 
 
 
 
¶73.  Finnish Botnia's construction of a $1.2 billion pulp mill in 
2005-2007 was Uruguay's largest-ever foreign investment.  Another 
cellulose producer, Spain's Ence, planned to build a pulp mill 
worth $1.0 billion.  In mid 2009 Ence sold the project to a 
Finnish-Swedish-Chilean firm, Stora Enso-Arauco, which has said it 
still intends to develop the plant.  A dispute between Argentina 
and Uruguay over these pulp mills investments led to strained 
relations between the two countries.  In March 2010 the GOU is due 
to auction the right to construct and operate a second major 
container terminal in the Port of Montevideo, an investment 
expected to be around $270 million. 
 
 
 
¶74.  The United States was the fourth largest foreign investor in 
Uruguay in 2003-2007 with 3.2 percent of total FDI ($144 million). 
Argentina, Spain and Brazil were the biggest investors , with 18.5 
percent ($820 million), 4.1 percent ($180 million) and 3.9 percent 
($173 million) respectively. 
 
 
 
¶75.  According to the U.S. Department of Commerce, the 2008  stock 
of U.S. direct investment in Uruguay amounted to $569 million. 
Major U.S. investments include Weyerhaeuser (forestry), Conrad 
Hotels (tourism and gambling), Sabre (call center), McDonald's 
(restaurants) and Pepsi (beverages). 
 
 
 
¶76.  Host country contact information for investment-related 
inquiries: 
 
 
 
Uruguay XXI - Investment and Export Promotion Directorate 
 
Mr. Roberto Villamil 
 
Executive Director 
 
Address: Rincon 518 suite 528 
 
Montevideo, Uruguay 
 
 
 
Tel: (5982) 915 3838 - Fax: (5982) 916 3059 
 
Web page: http://www.uruguayxxi.gub.uy 
 
Matthewman