2017 Investment Climate Statements: Uruguay

Policies towards Foreign Direct Investment

The GoU has traditionally recognized the important role that foreign and local investment plays in economic and social development and works to maintain a favorable investment climate. Uruguay has a stable legal system in which foreign and national investments are treated alike, most investments are allowed without prior authorization and investors may freely transfer abroad their capital and profits from their investment. Investors can choose between arbitration and the judicial system to settle disputes. The judiciary is independent and professional.

Foreign investors are not required to meet any specific performance requirements. Moreover, 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.

Uruguay treats foreign investors as nationals in public sector tenders. Investors are allowed to participate in any stage of the tender process.

Uruguay’s export and investment promotion agency, Uruguay XXI (http://www.uruguayxxi.gub.uy/ ) provides information on Uruguay’s business climate and investment incentives, both at a national and a sectoral level. The agency also has several programs to promote the internationalization of local firms and regularly participates in trade missions.

There is no formal business roundtable or ombudsman that establishes regular dialogue between government officials and investors. Some private business associations have suggested that formal, regular dialogue may ease concerns regarding perceived or actual government biases towards labor unions.

Limits on Foreign Control and Right to Private Ownership and Establishment

Aside from a few limited sectors involving national security and limited legal government monopolies in which foreign investment is not permitted, there is neither de jure nor de facto discrimination toward investment by source or origin, with national and foreign investors treated equally.

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.

Other Investment Policy Reviews

Uruguay is not a member of the Organization for Economic Co-operation and Development (OECD). It is a member of the UN Conference on Trade and Development (UNCTAD), but the organization has not done a policy review on the country. The most recent investment policy review on Uruguay was conducted by the World Trade Organization (WTO) in 2012 and is available at http://www.wto.org/english/tratop_e/tpr_e/tp363_e.htm .

Business Facilitation

Domestic and foreign businesses can fully register their operations about seven days and without a notary at http://empresas.gub.uy . Uruguay is ranked sixtieth in the World Bank’s “starting a business” indicator, above its position in the “doing business” general indicator ranking previously stated (90 out of 190).

Uruguay receives high marks in electronic government. It was ranked third in the entire Western Hemisphere according to the UN’s 2014 Electronic Government Development Index, (after the United States and Canada), and third globally according to the UN’s Electronic Participation Index.

The World Bank’s 2017 Doing Business Report ranks Uruguay fourth out of 12 countries in South America for its ease of doing business; Uruguay ranked 90 out of 190 countries worldwide.

Outward Investment

The government does not promote nor restrict domestic investment abroad.

In November 2005, Uruguay and the United States signed a Bilateral Investment Treaty (BIT) to promote and protect reciprocal investments. The BIT, which entered into force on November 1, 2006, grants national and most-favored-nation treatment 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 investment disputes. The annexes include sector-specific measures that are not covered by the agreement and specific sectors or activities which governments may restrict further. The full text of the agreement is available at www.ustr.gov/Trade_Agreements/BIT/Section_Index.html. 

Besides the United States, Uruguay has Bilateral Investment Agreements in force with 29 countries from different regions. The full list is available at http://investmentpolicyhub.unctad.org/IIA/ 

Uruguay and the United States do not have double taxation or tax information agreements in place.

The GoU endorsed OECD standards on transparency and exchange of information and upgraded several regulations as a result of the OECD including Uruguay in the 2009 grey list of jurisdictions that had not “committed to implement the internationally agreed tax standard.” In 2012, the OECD acknowledged the GoU’s progress and allowed Uruguay to move on to the second phase of the review process, consisting of a survey of the practical implementation of the standards. Most recently in 2016 the GoU passed a fiscal transparency law. Starting in 2017 Uruguay will begin implementing an automatic exchange of tax information with countries with which it has tax information exchange agreements (TIEAs). Also, the GoU signed a social security totalization agreement with the United States in January 2017 that is expected to be ratified by both parties by late 2017 or early 2018.

The OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes indicates that, as of March 2017, Uruguay had signed 37 TIEAs, 21 of which include double taxation provisions. The full list is available at http://www.eoi-tax.org/jurisdictions/UY#agreements .

Transparency of the Regulatory System

Transparent and streamlined procedures regulate local and foreign investment in Uruguay. Uruguay has state and national regulations. Supra-national regulations are not provided for in the Constitution. Most laws, except those having an impact on public finances, can either start in the executive branch or in the parliament. Decrees are issued by the President and one or more ministers. Resolutions are issued by the ministers. All regulatory actions –including bills, laws, decrees and resolutions– are publicly available at https://www.presidencia.gub.uy/normativa .

Accounting, legal, and regulatory procedures are transparent and consistent with international norms. Proposed laws and regulations are only occasionally published in draft form for public comment. Parliamentary commissions typically engage stakeholders while discussing a bill. There are no informal regulatory processes managed by non-governmental organizations or private sector associations. Article 10 of the U.S.-Uruguay BIT mandates that both countries publish promptly or make public any law, regulation, procedure or adjudicatory decision related to investments. Article 11 sets transparency procedures that govern the accord.

International Regulatory Considerations

Uruguay is a member of several regional economic blocs, including Mercosur and the Latin American Integration Association (ALADI), neither of which have supranational legislation. In order to become local law, either of these bloc’s decisions have to be ratified by the nation’s parliament.

Uruguay does not send notifications of draft technical regulations to the WTO Committee on Technical Barriers to Trade.

Legal System and Judicial Independence

Uruguay’s legal system is based on a civil law system derived from the Napoleonic Code with written commercial and civil laws consolidated into codes. There are specialized courts, run by judges who lead cases in areas such as organized crime and customs. These courts manage intellectual property claims.

The judiciary is transparent and remains independent of the executive branch. However, critics complain that the judiciary system can be slow. The executive branch rarely interferes directly in judiciary matters, but at times voices its dissatisfaction with court rulings. Investors can appeal regulations, enforcement actions, and legislation. Investors may choose between arbitration and the judicial system to settle disputes.

Laws and Regulations on Foreign Direct Investment

Law 16,906 (passed 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 002/12 (passed in January 2012 superseding Decree 455/007 from 2007) regulates Law 16,906 and provides significant incentives to investors, which have contributed to a strong increase in foreign and local investment.

Uruguay’s Investment and Promotion agency’s website helps potential investors navigate the laws, rules and incentives available to both foreign and local investors http://www.uruguayxxi.gub.uy/en/ .

Competition and Anti-Trust Laws

Uruguay has transparent legislation and a special commission at the Ministry of Economy to foster competition. The main legal pillars (Law No. 18,159 and decree 404, both passed in 2007) are available at the commission’s website: https://www.mef.gub.uy/578/5/areas/defensa-de-la-%20competencia—uruguay.html 

The GoU created the regulatory agencies URSEC (Unidad Reguladora de Servicios de Comunicaciones) for telecommunications and URSEA (Unidad Reguladora de Servicios de Energía y Agua) for water and energy in 2001 to regulate and control their respective markets. In 2010, the executive branch transferred URSEC’s policy-design capacity to the National Telecommunications Directorate (DINATEL), leaving it only with regulatory control attributes.

The GoU passed an Audiovisual Communications Law (No 19,307) in December 2014. Also known as the media law, it includes provisions on market caps for cable TV providers that could limit competition. In April 2016, Uruguay’s Supreme Court ruled that these market caps and some local content requirements were unconstitutional. While being debated, this bill remains pending and unenforced as of March 2017.

Expropriation and Compensation

Uruguay’s Constitution declares property rights an “inviolable right” subject to legal determinations that may be taken for general interest purposes and states that no individuals can be deprived of this right – except in case of public need and with fair compensation. Article 6 of the U.S-Uruguay BIT rules out direct and indirect expropriation or nationalization of private property except under specific circumstances. The article also contains detailed provisions on how to compensate investors, should expropriation take place. There have been no cases of expropriation of investment – neither from the United States nor from other countries – in the past five years.

Dispute Settlement

ICSID Convention and New York Convention

Uruguay became a member of the International Center for the Settlement of Investment Disputes (ICSID) in September 2000 and is a signatory of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Investor-State Dispute Settlement

Local courts recognize and enforce foreign arbitral awards issued against the government. The U.S.-Uruguay BIT devotes over ten pages to establishing detailed and expedited dispute settlement procedures. Over the past 10 years two investment disputes have arisen. There is currently only one active investment dispute between a U.S. person and the GoU. In 2016, a U.S. telecommunications enterprise filed a complaint before ICSID under the BIT. The case is currently under arbitration.

In 2010, the tobacco company Philip Morris International sued the Government of Uruguay, arguing that new health measures involving cigarette packaging amounted to unfair treatment of the firm. The case was filed under the Uruguay-Switzerland Bilateral Investment Treaty. This case closed in 2016 with the ICSID ruling in the GoU’s favor.

International Commercial Arbitration and Foreign Courts

Commercial contracts frequently contain mediation and arbitration clauses, which are recognized by local courts. Investors may choose between arbitration and the judicial system to settle disputes. Local courts recognize and enforce foreign courts’ arbitral awards.

Duration of Dispute Resolution

Uruguay’s judiciary is independent. The time to resolve a dispute, counted from the moment the plaintiff files the lawsuit in court until payment, is about two years. The courts’ decisions are enforced and inter­national arbitration awards are respected.

Bankruptcy Regulations

The Bankruptcy Law passed in 2008 (No. 18,387) expedites bankruptcy procedures, encourages arrangements with creditors before a firm may go bankrupt, and provides the possibility of selling the firm as a single unit. Bankruptcy has criminal and civil implications with intentional or deliberate bankruptcy deemed a crime. The rights of creditors are protected by law according to the nature of the credit, and workers have privileges over other creditors.

The World Bank’s 2017 Doing Business Report ranks Uruguay third out of 12 countries in South America for its ease of “resolving insolvency” (not to be confused with the previously referenced ranking of fourth out of 12 South American countries for “ease of doing business”).

Investment Incentives

The investment promotion regime is regulated by Law 16,906 (passed in 1998) and Decree

002/12 (passed in January 2012) that grants significant tax incentives to investors in a wide array of sectors and activities. Law 16,906 grants automatic tax incentives of up to 40 percent of corporate income tax to several activities, including personnel training; research, scientific and technological development; reinvestment of profits; and investments in industrial machinery and equipment. The GoU provides other benefits to industrial and agricultural firms by regulatory decree.

In addition to the automatic tax exemptions, Uruguay has several other incentives for activities that help achieve specific goals. The principal incentive consists of the deduction from corporate income tax of a share of total investment (up to 100 percent) over a pre-defined period. The amount of the deduction depends on the score the project gets in a matrix of pre-defined criteria that takes into account the project’s: (1) generation of jobs (quantity and quality); (2) contribution to research and development and innovation, or increase in the usage of clean technologies; (3) increase in exports; (4) contribution to geographic decentralization away from the capital Montevideo; and (5) sectoral indicators that vary according to the nature of the investment (e.g. capital market development, hiring of workers from vulnerable groups, or contribution to tourism services and infrastructure). Certain activities – such as the purchasing of land, real estate or private vehicles – are not eligible for the benefits.

Other incentives under this category include: 1) exemption from tariffs and taxes (including VAT) on imports of capital goods and materials for civil works that do not compete against local industry; 2) exemption from the patrimony tax on personal property and civil works; 3) refunding of VAT paid on local purchases of materials and services for civil works; and, 4) special tax treatment of fees and salaries paid for research and development.

A government decree establishes that government tenders will favor local products or services, provided they are of comparable quality and any cost increase is no more than 10 percent. U.S. and other foreign firms are also able to participate in local or national government-financed or subsidized research and development programs. There are also special regimes to promote specific sectors. A detailed document on incentives to investment is available, in English, at http://www.uruguayxxi.gub.uy/guide/schemes.html  and http://www.uruguayxxi.gub.uy/
guide/descargas/Investment%20promotional%20schemes.pdf 

Foreign Trade Zones/Free Ports/Trade Facilitation

The GoU has increasingly promoted Uruguay as a regional, world-class logistics and distribution hub. In 2010, the GoU created the National Logistics Institute (INALOG by its Spanish acronym), a public-private sector institution that seeks to coordinate efforts towards establishing Uruguay as the leading Mercosur distribution hub. Uruguay XXI has several reports on Uruguay’s role and advantages as a logistics hub.

The GoU established free trade zones (FTZs) in 1987 (Law 15,921). Key legislation and regulations of FTZs can be found at http://zonasfrancas.mef.gub.uy/  and http://www.uruguayxxi.gub.uy/
guide/descargas/Zonas%20Francas%20-%20Uruguay%20XXI.pdf 

There are 11 FTZs located throughout the country. Most FTZs host a wide variety of tenants performing various services (e.g., financial, software, call centers, warehousing and logistics). One FTZ was created exclusively for the development of pharmaceuticals, and two for the production of paper pulp. Mercosur regulations treat products manufactured in most member states’ FTZs (with the exception of Tierra del Fuego and Manaus located in Argentina and Brazil) as extra-territorial and charge them the common external tariff upon entering any member country. As a result, industrial production in local FTZs is usually destined to non-Mercosur countries.

Firms may bring foreign and/or Uruguayan origin goods, services, products, and raw materials into the FTZs, and they may be held, processed, and re-exported without payment of Uruguayan customs duties or import taxes. Firms operating in FTZs are also exempted from national taxes. Laws governing legal monopolies do not apply within the FTZs. The GoU exempts firms operating in an FTZ from all domestic taxes. Additionally, the employer does not pay social security taxes for non-Uruguayan employees who have waived coverage under the Uruguayan social security system. Goods of Uruguayan origin entering into FTZs are treated as Uruguayan exports for tax and other legal purposes.

Law 17,547 passed in August 2002 allows for the establishment of industrial parks. Several additional decrees signed since 2007 allow for the establishment of sector specific industrial parks. Industrial park advantages include tax exemptions and benefits, and can be established by the private sector, national, or local governments.

Uruguay has other special import regimes in place called “temporary admission,” “bonded warehouse,” and “free port.” The temporary admission regime allows manufacturers to import duty-free raw materials, supplies, parts and intermediate products they will use in manufacturing products for export. However, the regime requires government authorization, and all finished products must be exported within 18 months. Firms do not have to be located in a specific location to benefit from temporary admission.

A free port and bonded warehouse are special areas where goods that remain on the premises are exempted from all import-related duties and tariffs. Firms may re-label and re-package merchandise while on the premises. There are two differences between the free port and the bonded warehouse regimes. Goods can stay for an unlimited amount of time in a free port while a bonded warehouse restricts the stay to one year. Also, processes completed in free ports cannot modify the nature of the good and industrialization is allowed in bonded warehouses only.

Performance and Data Localization Requirements

Foreign investors are not required to meet any specific performance requirements, and are not impeded 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 the number of foreign workers or on investment permits. The only labor-related requirement is that tenants of free trade zones employ at least 75 percent Uruguayan workers.

Article 8 of the U.S.-Uruguay BIT bans both countries from imposing performance requirements on new investments, or tying the granting of existing or new advantages to performance requirements.

Uruguay does not require foreign investors to use local content in goods or technology in order to invest. However, local content may be required in some sectors in order to become eligible for special tax treatment or government procurements. For instance, in 2016 the state-owned electric utility offered a number of long-term purchase agreements for wind and solar generated electricity that included 20 percent local content requirements.

Uruguay does not require foreign IT providers to turn over source code or provide access for surveillance. Companies can freely transmit customer or business-related data across borders. Local legislation states that the computer systems of the central government administration should be housed in secure data centers located in Uruguay, except those that do not constitute a risk for the government. The GoU’s Agency for e-Government and Information Society (AGESIC by its Spanish acronym) is in charge of enforcing this regulation. In June 2016, the state-owned telecommunications company, ANTEL, inaugurated a USD 50 million tier III data centers (99.98 percent availability with a maximum 1.6 hours of interruption per year, and full back-up redundancy). The data center is one of five such facilities in Latin America.

Real Property

The GoU recognizes and enforces secured interests in property and contracts. Mortgages exist and Uruguay has 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.

Law 19,283, passed in 2014, prevents foreign governments from buying land, either directly or in association with private companies. Traditional use rights are not applicable as there is no applicable indigenous community in Uruguay. The vast majority of land has clear property titles.

For over a decade now, there has been a debate over the government’s and unions’ position to consider sit-ins or occupying of workplaces as an extension of workers’ right to strikes thus enabling workers to lawfully occupy workplaces. Business chambers have opposed extending the definition of the right to strike to occupy a workplace such that the job site’s work cannot take place normally (see Labor Section for further information).

Intellectual Property Rights

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.

The quality of IP protection and level of enforcement has improved over time, and in 2006 the Office of the U.S. Trade Representative (USTR) removed Uruguay from its Special 301 Watch List due to Uruguay’s progress in enforcing intellectual property rights, especially with respect to copyright enforcement. As of March 2017 Uruguay remains off the Watch List.

Uruguay was included in USTR’s 2014 Notorious Markets Report (for an increase in reports of counterfeiting and piracy from its free trade zones), and removed from the Report in 2015 (due to the passage of a decree that imposed stricter customs controls on free zones). The 2015 decree gave Customs officials the authority to operate inside free trade zones, control the flow of in-coming and out-going goods and fine both the owners of counterfeit goods and the storage providers that facilitate distribution of counterfeits. In 2016, Uruguay was not included in the Notorious Market Report.

Some industry groups criticize the slowness of the patent-granting process, as well as the lack of data protection. They also criticize an amendment to the Patent Law (passed in a 2013 omnibus law) that eliminated the ability of patent right holders to claim damages for infringement of their rights from the date of the patent application filing up to its granting date.

In March 2017 the Executive sent a bill to Parliament for Uruguay to adhere to WIPO’s Patent and Cooperation Treaty (PCT).

While enforcement of trademark rights has improved in recent years, local citizens have sometimes managed to register trademarks without owners’ prior consent.

Customs officers have border measures authority for trademark protection. After temporarily freezing a shipment of suspicious goods, Customs has to communicate with the local representatives of the trademarks’ right-holders to determine the legality of the goods and seek cooperation. Customs is responsible for paying for the storage and the local representatives are responsible for paying for the destruction of any counterfeit goods.

Uruguay tracks and reports on Custom’s seizures of goods, some of which are counterfeit. Information is available at http://www.aduanas.gub.uy/innovaportal/v/10500/4/innova.front/incautacion-de-mercaderias.html . However, there is no centralized dedicated reporting system for seizures of counterfeit goods.

Resources for Rights Holders

Post’s Economic Officer covering IP issues is:

Lawrence Pixa, Chief of Economic-Commercial Section
Lauro Muller 1776
(5982) 1770-2449
pixald@state.gov

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

The government maintains an open attitude towards foreign portfolio investment, but there is no effective regulatory system to encourage and facilitate it. Uruguay does not impose any restrictions on payments and transfers for current international transactions.

A capital markets law (No. 18,627) was passed in 2009 to try to jumpstart the local capital market. However, despite some very successful bond issuances by public firms, the local capital market remains underdeveloped and highly concentrated in sovereign debt. Such underdevel­opment makes it very difficult to finance through the local equity market, and restricts the flow of financial resources into the product and factor markets. As a result of such underdevelopment and the lack of sufficient liquidity in the markets to enter and exit sizeable positions, Uruguay regularly receives “active” investments oriented to establishing new firms or gaining control over existing ones, but lacks “passive investments” from major investment funds.

Credit is allocated on market terms, but long-term banking credit has traditionally been difficult to obtain. Foreign investors can access credit on the same market terms as nationals.

The GoU banned “bearer shares” in 2012, which had been widely used, as part of the process of complying with OECD requirements (see Bilateral Investment Agreements section). 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.

Money and Banking System

The GoU restructured the local banking system significantly after the severe 1999-2002 local economic and financial crisis. The local system successfully weathered the 2008 global financial crisis and as of March 2017 shows good capital, solvency, and liquidity ratios. Uruguay’s Central Bank was created in 1967. In order to promote wider banking and financial services, the GoU passed Law 19,210 to foster greater use of financial instruments (“financial inclusion”) in 2014.

Foreign banks or branches are allowed to establish operations in Uruguay, and are subject to the measures imposed by the Central Bank’s Superintendent of Financial Services. With over 40 percent of the market, government-owned Banco de la Republica del Uruguay (BROU) is the nation’s largest bank. The rest of the banking system is comprised of another government-owned mortgage bank and nine international commercial banks. Mostly related to Foreign Account Tax Compliance Act (FATCA) provisions, there have been some cases of U.S. citizens having difficulties establishing a first-time bank account.

Uruguay is considered a “Jurisdiction of Primary Concern” for money laundering in the U.S. Department of State’s International Narcotics Control Strategy Report (INCSRII).

Foreign Exchange and Remittances

Foreign Exchange

Uruguay maintains a long tradition of not restricting the purchase of foreign currency or the remittance of profits abroad. Free purchases of any foreign currency and free remittances were preserved even during the severe 2002 banking and financial crisis.

Uruguay does not engage in currency manipulation to gain competitive advantage. Since 2002, the peso has floated freely, albeit with intervention from the Central Bank aimed at reducing the volatility of the price of the dollar. Foreign exchange can be freely obtained at market rates and there is no black market for currency exchange. The U.S. Embassy uses official rates when purchasing local currency.

Remittance Policies

Uruguay maintains a long tradition of not restricting remittance of profits abroad. 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.”

Sovereign Wealth Funds

There are no Sovereign Wealth Funds in Uruguay.

There is no consolidated published list of state-owned enterprises (SOEs). The state still plays a dominant role in the economy and Uruguay maintains government monopolies in several areas, including importing and refining of oil, workers’ compensation insurance, landline telephony, internet services, and water sanitation.

Uruguay’s largest entirely government-owned enterprises include the petroleum company ANCAP, telecommunications company ANTEL, electric utility UTE, water utility OSE, and Uruguay’s largest bank BROU. While they are defined as autonomous, in practice they coordinate in several areas – mainly on tariffs – with respective ministries and the executive branch. Their boards are appointed by the executive branch, require parliamentary ratification and remain in office for the same term as the executive branch. SOEs are required by law to publish an annual report, and their balances are audited by independent firms.

However, some traditionally government-run monopolies are open to private-sector competition. Cellular and international long distance services, insurance, and media services are open to local and foreign competitors. Private-sector generation of power is allowed and increasing, especially in renewable energies, but the state-owned power company UTE holds a monopoly on the transfer of electrical power through transmission and distribution lines from one utility’s service area to another’s (or wheeling rights). State-owned companies tend to have the largest market share even in sectors open to competition. Potential cross-subsidies likely give SOEs an advantage over their private sector competitors.

Uruguay does not adhere to the OECD’s Guidelines on Corporate Governance of State-Owned Enterprises. The multi-million dollar losses of the government-owned oil company ANCAP, which were investigated by a parliamentary commission in 2015, triggered a debate about the need to reform the corporate governance of SOEs. As of March 2017, the World Bank is providing assistance to the GoU to strengthen the management of SOEs.

Privatization Program

Uruguay has not undertaken any major privatization program in recent years. While some previously government-run monopolies were opened to private-sector competition, the government continues to maintain a monopoly in the key sectors already referenced.

Parliament passed a public-private partnership (PPP) law by consensus in July 2011 and created regulations with decree 07/12. The law allows various kinds of contracts that enable private sector companies to design, build, finance, operate and maintain certain infrastructures, including brownfield projects. With some exceptions (such as medical services in hospitals or educational services in schools), PPPs can also be applied to social infrastructure. The return for the private sector company may come in the form of user payments, government payments or a combination of both.

The implementation of the PPP law was launched anticipating it would attract private sector participation in major infrastructure projects such as highway and railway construction and operation, waste disposal, and energy. With limited results and given current GoU budget constraints and an urgency to address infrastructure needs, the GoU passed new regulations (Decree 251/15) in 2015 to simplify the procedures and expedite the PPP process. As of March 2017, the procedural simplifications have resulted in PPP in road, sanitary, and educational infrastructure improvement projects – all of which are at different stages of development.

The concept of Responsible Business Conduct (RBC) is relatively new to producers, consumers and the government, which does not have a high-profile plan to encourage it. Many companies do abide by the principles of RBC as a matter of course. Many multinational companies develop RBC strategies and make significant contributions in promoting safety awareness, better regulation, a positive work environment and sustainable environmental practices. U.S. companies have proven to be leaders in promoting a greater awareness of and appreciation for RBC in Uruguay. In 2015 a U.S. company was awarded the Secretary of State’s Award for Corporate Excellence for its work on environmental sustainability.

Consumers tend to pay attention to the RBC image of companies, especially as it relates to a firm’s work with local charities or community causes. The Catholic University (Universidad Catolica) has a program in place to monitor RBC matters (www.ucu.edu.uy/es/rse ). In the late 1990s, the Catholic University also founded DERES, a non-profit business organization to promote corporate social responsibility that currently has over 120 member companies (http://deres.org.uy/english-brief/ ).

Uruguay was ranked as the least corrupt country in Latin America and the Caribbean in the 2016 edition of Transparency International’s Corruption Perception Index. Overall, U.S. firms have not identified corruption as an obstacle to investment.

Uruguay has laws to prevent bribery and other corrupt practices. The GoU approved a law against corruption in the public sector in 1998 and the acceptance of a bribe is deemed a felony under Uruguay’s penal code. Some high-level Uruguayan officials from the executive, parliamentary, and judiciary branches have been prosecuted for corruption in recent years.

Laws 17,835, 18,494 and 19,355 (passed in 2004, 2009 and 2015, respectively) establish a framework against money laundering and terrorism finance and include corruption as a preceding crime. The executive branch submitted bills to parliament in January 2017 to strengthen laws against money-laundering and counterterrorism and bring Uruguay into compliance with OECD and UN norms. Money laundering is penalized with sentences of up to ten years (and also applies to Uruguayans living abroad). Prosecutions have been gradually increasing since 2005. More detailed information on legislation and cases is available at https://www.presidencia.gub.uy/antilavado/inicio/ .

The Transparency and Public Ethics Committee (http://www.jutep.gub.uy/ ) is the government office responsible for combating public sector corruption. The government does not encourage nor discourage private companies in establishing internal codes of conduct. There are no major NGOs involved in investigating corruption.

UN Anticorruption Convention, OECD Convention on Combating Bribery

Uruguay signed and ratified the UN’s Anticorruption Convention. It is not a member of the OECD and therefore not party to the OECD’s Convention on Combating Bribery.

Resources to Report Corruption

Government agency responsible for combating corruption:

Ricardo Gil
President, Junta de Transparencia y Etica Publica
Address: Rincon 528, 8th floor, ZC 11000
(598) 2917 0407
secretaria@jutep.gub.uy

The website for the local branch of Transparency International is http://www.uruguaytransparente.org.uy /.

Uruguay is a stable, first-world democracy in which respect for the rule of law and national debates to resolve political differences are the norm and the majority of the population is committed to non-violence. In 2016, The Economist magazine ranked Uruguay as the only “full democracy” in Latin America, and one of only two in the world “outside of the rich western countries of Europe, North America and Australasia.” There have been no cases of political violence or damage to projects/installations over the past decade.

Tracking strong economic growth, from 2011 to 2014 Uruguay’s labor market operated at virtually full employment (the unemployment rate fluctuated between five and seven percent) with rising labor costs. As the economy cooled down, in 2015 and 2016 the unemployment rate fluctuated between seven and nine percent and wage increases slowed. Unemployment is structurally higher among the youth, especially young women. In recent years, there has been a significant increase in migrant workers, especially from Central America, Venezuela, and the Dominican Republic.

Except in the construction sector, social security payments are approximately 13 percent of workers’ basic salary. There is also a mandatory annual bonus and vacation pay, which result in employers paying the equivalent of 14 months of salary per employee each year.

Uruguay’s labor system is compliant in law and practice with international labor standards and does not pose a reputational risk to investors. The Uruguayan constitution guarantees workers the right to organize and strike, and union members are protected by law against dismissal for union activities. Uruguay has ratified numerous International Labor Organization (ILO) conventions that protect worker rights, and generally adheres to their provisions. Reports by the UN’s Economic Commission for Latin America and the Caribbean (ECLAC) indicate that the percentage of informal workers has dropped significantly over the past decade, to about 24 percent of the workforce in 2013.

Labor provisions apply practically across the board and are not waived to attract or retain investment. The only exception applies to free trade zones tenants, whose labor force must be at least 75 percent Uruguayan.

Labor laws do not differentiate between layoffs and firing. Employers must pay dismissed workers one month for each year of work with a cap of six months, except in cases of “for cause” firings. Private sector employers are prohibited from firing workers for discriminatory or anti-union reasons. It is not uncommon for dismissals to result in labor conflicts, even dismissals are required to adjust employment to fluctuating market conditions. There is unemployment insurance by which workers get paid a percentage of their salary for up to six months. In the past the government has extended the term of the unemployment insurance for certain groups of laid-off workers.

Collective bargaining is the rule. Salary Councils are responsible for assessing wage increases annually at a sectoral level. Any wage increases are then applied to all individual firms in the sector. Councils consist of a three-party board which includes representatives from unions, employers, and the government. If unions and employers fail to reach an agreement to determine the wage increase to be applied for sectors, the government makes the final decision.

Since 2005, the government has passed over 30 labor laws. Some of these laws currently promote and protect labor unions, reinstate collective bargaining, regulate outsourcing activities, regulate work times in rural activities, extend the term to claim worker’s rights, relate to the eviction of employees who occupy workplaces, and impose criminal sanctions on employers who fail to adopt safety standards in their firms. In labor trials, the Judiciary tends to rule in favor of the worker, as s/he is considered to be the weaker party.

Labor unions are nominally independent from the government but in practice have a close relationship with the ruling Frente Amplio party. Unionization quadrupled from about 110,000 in 2003 to over 400,000 in 2015 (almost one-fourth of employed workers), and is particularly high in the public sector and some private sectors, such as construction, the metal industry and banking.

Arguing that unions are aggressive and that labor conflicts escalate quickly, a range of private sector representatives call for the creation of a labor-dispute process that would define the necessary steps needed before workers may strike or occupy a workplace. Some foreign investors report high absentee rates by employees and resultant lower than average productivity rates. Productivity is not included in the negotiations that take place in the Salary Councils. The World Economic Forum’s 2016-2017 Global Competitiveness Index ranked Uruguay 73rd of 138 countries surveyed. On labor relations with business, Uruguay ranked 136th of 138 countries in that survey, echoing private sector concerns with Uruguayan labor unions.

Despite its very high literacy rate and tradition of quality public education, Uruguay is currently experiencing challenges in this area. Dropout rates at the high school level are high and Uruguayan students have performed poorly in the OECD’s Program for International Student Assessment (PISA) tests. These challenges may limit the number of qualified workers available over the mid-term. In 2008, the government launched a special institute, INEFOP, to bolster workforce development. There is a structural shortage of workers in the IT sector and other specialized, technical industries as well.

Overseas Private Investment Corporation (OPIC) programs are active in Uruguay, though few U.S. companies or projects request their services due to Uruguay’s stability and access to foreign currency. The GoU signed an investment insurance agreement with OPIC in December 1982.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

* http://www.bcu.gub.uy/Estadisticas-e-Indicadores/Paginas/Default.aspx 

Table 3: Sources and Destination of FDI

Uruguay’s Central Bank reports that in 2015 the United States held the fourth largest stock of investment, after Argentina, Brazil and Spain. U.S. investment is distributed among a wide array of sectors, including forestry, tourism and hotels, services (e.g. call centers or back office) and telecommunications.

Source: IMF Coordinated Direct Investment Survey

Table 4: Sources of Portfolio Investment

Source: IMF Coordinated Portfolio Investment Survey

Mr. Larry Pixa
Chief of Economic-Commercial Section
Lauro Muller 1776
Tel: (5982) 1770-2449
e-mail: pixald@state.gov