The US qualifies Uruguay as a safe country to invest
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A report issued by the United States Department of State on the investment climate in Uruguay on Monday analyzed the legal, political and economic aspects of the country. On the one hand, it stands the legal security, the free movement of capital, the preferential regimes and the investment grade. On the other, it warns about aspects such as labor relations, the power of unions, the advantage of public companies and the increase of problems in education and security.
There are 120 US companies with investments in the South American country currently operating in various sectors such as forestry, tourism, hotels, administrative services and telecommunications.
The Government of Uruguay (GoU) recognizes the important role foreign investment plays in economic development and continues to maintain a favorable investment climate that does not discriminate against foreign investors. Uruguay has a stable legal system in which foreign and national investments are treated alike, most investments are allowed without prior authorization, and investors can freely transfer the capital and profits from their investments abroad. International investors can choose between arbitration and the judicial system to settle disputes. Local courts recognize and enforce foreign arbitral awards.
The World Bank’s 2019 “Doing Business” Index placed Uruguay fifth out of twelve countries in South America (and 95th out of 190 worldwide). Even with some tax incentives for investors, foreign direct investment (FDI) remains low compared to the period before 2015. Domestic and FDI dropped significantly between 2015 and 2018.
About 120 U.S. firms operate locally and distribute their investments among a wide array of sectors, including forestry, tourism and hotels, services, and telecommunications. U.S. firms have not identified corruption as an obstacle to investment. In 2018, Transparency International ranked Uruguay as the most transparent country in Latin America and the Caribbean. Uruguay is a stable democracy. Political risk is low, and there have been no recent cases of expropriation.
Uruguay has strengthened bilateral trade, investment, and political ties with China, its principal trading partner. In August 2018, Uruguay was the first country in the Southern Cone to join the Chinese One Belt One Road initiative. Since 2016, Uruguay and China have held numerous meetings concerning trade issues, but no comprehensive bilateral free trade agreement has been advanced despite both sides’ stated aims to do so.
Uruguay has bilateral investment treaties with over 30 countries, including the United States. The United States does not have a double-taxation treaty with Uruguay. Both countries have a Trade and Investment Framework Agreement in place and have signed agreements on open skies, trade facilitation, customs mutual assistance, promotion of small and medium enterprises, and social security totalization.
A 2018 survey by Uruguay’s export and investment promotion agency and the Ministry of Economy shows that about half of foreign investors are satisfied or very satisfied with Uruguay´s investment climate, principally its rule of law, macroeconomic stability, strategic location, and investment incentives. Almost all investors were satisfied or highly satisfied with Uruguay´s free trade zones and free ports. On the other hand, roughly one-fourth of investors were dissatisfied with at least one aspect of doing business locally, and expressed concerns about high labor costs and taxes, as well as unions and labor conflicts.
Labor unions are vocal and labor conflicts can escalate fast, with strikes affecting overall productivity. The World Economic Forum’s 2018 Global Competitiveness Index ranked Uruguay 53rd out of 140 countries surveyed, and 138th in labor relations. Many U.S. and regional investors have voiced concerns that Uruguayan labor unions can legally occupy workspaces and in that way shut down operations with few repercussions. Private sector representatives have also pointed out that labor unions’ close relationships with the current government mean that the tripartite salary councils often increase salaries without sufficient regard for companies’ ability to absorb the increased costs.
Uruguay is a founding member of MERCOSUR, the Southern Cone Common Market composed of Argentina, Brazil, Paraguay, and Venezuela. [Note: Venezuela was suspended from MERCOSUR in December 2016 for failing to adopt the bloc’s democratic principles.
EndNote. Uruguay has separate trade agreements with Bolivia, Chile, Colombia, Ecuador, and Peru, all of which are also MERCOSUR associate members.
Montevideo is the headquarters of the MERCOSUR Secretariat and MERCOSUR’s parliamentary institution PARLASUR. In 2004, Uruguay and Mexico deepened a 1999 agreement, which resulted in Uruguay’s first comprehensive trade agreement with a non-MERCOSUR country. In October 2016, Uruguay signed an agreement with Chile to extend and augment the existing free trade agreement to increase trade in goods and services. The agreement was ratified in mid-2018 after a major internal debate within the ruling Frente Amplio ruling coalition.
Uruguay’s strategic location (in the center of MERCOSUR´s wealthiest and most populated area), and its special import regimes (such as free zones and free ports) make it a well-situated distribution center for U.S. goods into the region. Several U.S. firms warehouse their products in Uruguay’s tax-free areas and service their regional clients effectively. With a small market of high-income consumers, Uruguay can also be a good test market for U.S. products.
In 2012, Uruguay regained the international credit ratings agencies’ investment grade status it had enjoyed from 1998 through 2002 when the country was struck by a major economic and financial crisis. While it’s budget deficit and public debt ratios are relatively high compared to its rating peer group, as of April 2019, Standard & Poor’s and Moody’s rate Uruguay two steps above the investment-grade threshold with a stable outlook.
Source: US State Department
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