2009 UK INVESTMENT CLIMATE STATEMENT

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09LONDON109 15 January 2009 No clasificado Embassy London

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UNCLAS LONDON 000109

FOR EB/IFD/OIA

E.O. 12958: N/A
TAGS: ECON, EINV, OPIC, USTR, KTDB, UK
SUBJECT: 2009 UK INVESTMENT CLIMATE STATEMENT

REF: 08 STATE 123907

1. In response to reftel, the following is the 2009 Investment
Climate Statement for the United Kingdom. The information is
updated as of January 1, 2009.

2. Much of the data supplied in this report is from 2007, since
end-of-year 2008 figures are not yet available. Given the economic
downturn of the past twelve months, we expect that levels of foreign
direct investment, the shape and structure of the banking system,
including the level of deposits and number of banks, and other
macro-economic 2008 data will be significantly different from 2007
figures.

UNITED KINGDOM: 2009 INVESTMENT CLIMATE STATEMENT


----
A.1. Openness to Foreign Investment

The UK was the world’s second largest recipient of foreign direct
investment in 2007, receiving U.S. $223.9 billion, according to the
United Nations Conference on Trade and Development (UNCTAD). The UK
continued to lead Europe in attracting foreign investment with 26
percent of all FDI inflows into the European Union (EU). The U.S.
and the UK are the largest foreign investors in each other’s
countries. The stock of U.S. foreign direct investment in the UK
totaled $398 billion at year end 2007.

With a few exceptions, the UK does not discriminate between
nationals and foreign individuals in the formation and operation of
private companies. U.S. companies establishing British subsidiaries
generally encounter no special nationality requirements on directors
or shareholders, although at least one director of any company
registered in the UK must be ordinarily resident in the UK. Once
established in the UK, foreign-owned companies are treated no
differently from UK firms. Within the EU, the British Government is
a strong defender of the rights of any British registered company,
irrespective of its nationality of ownership.

Market entry for U.S. firms is greatly facilitated by a common
language, legal heritage, and similar business institutions and
practices. Long-term political, economic, and regulatory stability,
coupled with relatively low rates of taxation and inflation make the
UK particularly attractive to foreign investors. The Labour
government continues its commitment to economic reforms, including
privatization, deregulation, and support for competition.

Local and foreign-owned companies are taxed alike. Inward investors
may have access to certain EU and UK regional grants and incentives
that are designed to attract industry to areas of high unemployment,
but no tax concessions are granted. The UK taxes corporations 28
percent on profits over 1.5 million GBP. Small companies are taxed
at a rate of 21 percent for profits up to 300,000 GBP and marginal
tax relief is granted on profits from 300,001-1,500,000 GBP. Tax
deductions are allowed for expenditure and depreciation of assets
used for trade purposes. These include machinery, plant, industrial
buildings, and assets used for research and development. A special
rate of 20 percent is given to unit trusts and open-ended investment
companies.

The UK has a simple system of personal income tax, with one of the
lowest top marginal rates of any EU Member State (40 percent). The
basic income tax rate is 20 percent on income less than 34,800 GBP.
UK citizens also make mandatory payments of about 11 percent of
income into the National Insurance system, which funds social
security and retirement benefits and is another form of taxation.
Effective April 2008, the UK now requires payment of a 30,000 GBP or
a tax on worldwide income of non-domiciled residents of the UK after
seven years of residence.

The Scottish Parliament has the power to increase or decrease the
basic income tax rate in Scotland, currently 22 percent, by a
maximum of 3 percentage points. Although the Scottish government has
this power, it has never been used, and the mechanism for collection
and disbursement is unclear.

The UK imposes few impediments to foreign ownership. The UK
subscribes to the OECD Committee on Investment and Multinational
Enterprises’ (CIME) National Treatment Instrument and the OECD Code
on Capital Movements and Invisible Transactions (CMIT).

U.S. companies have found that establishing a base in the UK is an
effective means of accessing the European Single Market, and the
abolition of most intra-European trade barriers enables UK-based
firms to operate with relative freedom throughout the EU. Several
U.S. companies have operations in the UK, including all of the top
100. The UK hosts more than half of the European, Middle Eastern
and African corporate headquarters of American-owned firms.

A.2. Conversion and Transfer Policies

The British pound sterling is a free-floating currency with no
restrictions on its transfer or conversion. There are no exchange
controls restricting the transfer of funds associated with an
investment into or out of the UK. All exchange controls were
repealed in 1987.

The UK is not a member of the Euro area. Prime Minister Gordon
Brown says he is in favor of joining, but only after a national
referendum and the British public votes to adopt the Euro. The date
of this referendum is contingent on a government assessment based on
five economic tests, which are sustainable convergence, sufficient
flexibility, effect on investment, impact on financial services, and
effect on employment. Once these tests are passed, the government
must then seek Parliamentary approval for a national referendum.
Given the current lukewarm support for the Euro among the British
people and the economic downturn, a referendum is not likely to
occur in the near future.

The Finance Act 2004 repealed the old rules governing thin
capitalization, which allows companies to assess their borrowing
capacity on a consolidated basis. Under the new rules, companies
who have borrowed from a UK or overseas parent need to show that the
loan could have been made on a stand-alone basis or face possible
transfer pricing penalties. These rules were not established to
limit currency transfers, but rather to limit attempts by
multinational enterprises to present what is in substance an equity
investment as a debt investment to obtain more favorable tax
treatment.

A.3. Expropriation and Compensation

Expropriation of corporate assets or nationalization of an industry
requires a special Act of Parliament, as seen in the February
2008xxxx (month?) nationalization of Northern Rock. In the event of
nationalization, the British government follows customary
international law, providing prompt, adequate, and effective
compensation.

A.4. Dispute Settlement

International disputes are resolved through litigation in the UK
Courts or by arbitration, mediation, or some other alternative
dispute resolution (ADR) method. Over 10,000 disputes a year take
place in London, many with an international dimension, reflecting
its strong position as an international center for legal services.
Most of the disputes center on the maritime, commodities, financial
services, and construction sectors. The London Court of
International Arbitration and the International Chamber of
Commerce’s International Court of Arbitration are the leading
administrators of international arbitrations. The Stock Exchange
Panel on Takeovers and Mergers mediates takeover bid disputes, and
there is a further right of appeal to the Stock Exchange Appeals
Committee.

As a member of the International Center for Settlement of Investment
Disputes, the UK accepts binding international arbitration between
foreign investors and the state. As a signatory to the 1958 New
York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, the UK permits local enforcement on arbitration
judgments decided in other signatory countries.

A.5. Performance Requirements/Incentives

UK business contracts are legally enforceable in the UK, but not
U.S. or other foreign ones. Performance bonds or guarantees are
generally not needed in British commerce, nor is any technology
transfer, joint venture, or local management participation or
control requirement imposed on suppliers. Government and industry
encourage prompt payment, but a tradition does not exist of
providing an additional discount to encourage early settlement of
accounts.

The UK offers a wide range of incentives for companies of any
nationality locating in depressed regions of the country, as long as
the investment generates employment. Regional Selective Assistance
(RSA) is available from the central government for qualifying
projects in parts of the UK needing investment to revitalize their
economies. Grants are the main type of assistance, and the level of
grant is based on capital expenditure costs and expectations of job
creation.

In addition to RSA, assistance can be obtained through the EU
Structural Funds available from 2007 to 2013. The new EU budget,
reflecting the recent enlargement, resulted in a 50 percent
reduction in UK allocations for 2007-2013 in comparison with the
funding received for 2000-2006. Assistance is offered to companies
that meet the government’s objectives for convergence, cooperation,
competitiveness and employment. The highest level of assistance
convergence funding is available for companies that locate in areas
with GDP per capita below 75 percent of the EU average. In the UK,
these regions are Cornwall, the Isles of Scilly, South Yorkshire,
Merseyside, West Wales and the Welsh Valleys.

Local authorities in England and Wales also have power under the
Local Government and Housing Act of 1989 to promote the economic
development of their areas through a variety of assistance schemes,
including the provision of grants, loan capital, property, or other
financial benefit. Separate legislation, granting similar powers to
local authorities, applies to Scotland and Northern Ireland. Where
available, both domestic and overseas investors may also be eligible
for loans from the European Investment Bank.

A.6. Right to Private Ownership and Establishment

The Companies Act of 1985, administered by the Department for
Business, Enterprise and Regulatory Reform (BERR), governs ownership
and operation of private companies. On November 8, 2006 the UK
passed the Companies Act of 2006 to replace the 1985 Act. The law
simplifies and modernizes existing rules rather than make any
dramatic shift in the company law regime.

BERR uses a transparent code of practice that is fully in accord
with EU merger control regulations, in evaluating bids and mergers
for possible referral to the Competition Commission. The
Competition Act of 1998 strengthened competition law and enhanced
the enforcement powers of the Office of Fair Trading (OFT).
Prohibitions under the act relate to competition-restricting
agreements and abusive behavior by entities in dominant market
positions. The Enterprise Act of 2002 established the OFT as an
independent statutory body with a Board, and gives it a greater role
in ensuring that markets work well. Also, in accordance with EU
law, if deemed in the public interest, transactions in the media or
that raise national security concerns may be reviewed by the
Secretary of State of BERR.

Only a few exceptions to national treatment exist. For example,
foreign (non-EU or non-EFTA, European Free Trade Association)
ownership of UK airlines is limited by law to 49 percent.
Registration of shipping vessels is limited to UK citizens or
nationals of EU/EFTA member states resident in the UK. For some of
these companies, restrictions of foreign ownership of ordinary
shares apply. Citizenship requirements for certain senior executive
and non-executive posts also apply for these enterprises. Foreign
investment in financial services that are not covered by EU
Directives on banking, investment, services, and insurance may be
subject to a bilateral agreement.

The privatization of state-owned utilities is now essentially
complete. With regard to future investment opportunities, the few
remaining government-owned enterprises or remaining government
shares in other utilities are also likely to be sold off to the
private sector, when market conditions improve. The privatization
of London’s extensive underground rail network was completed in 2005
but suffered a setback in 2007 when the privatized company went
bankrupt and returned to public ownership. The government continues
nevertheless to push Public Private Partnerships (PPP).

Under the Private Finance Initiative (PFI), British and
foreign-owned companies may bid for long-term franchises to build,
run, and improve existing public-sector services in areas such as
education, health care, road traffic management, passenger rail,
defense, production of coins and currency, port operations, air and
water monitoring and cleanup, land use planning, and building
control. The government’s goal is to provide cost-effective and
higher-quality services in partnership with private sector
investment capital providers.

A.7. Protection of Property Rights

The UK legal system provides a high level of intellectual property
rights (IPR) protection. Enforcement mechanisms are comparable to
those available in the United States. The UK is a member of the
World Intellectual Property Organization (WIPO). The UK is also a
member of the major intellectual property protection agreements: the
Bern Convention for the Protection of Literary and Artistic Works;
the Paris Convention for the Protection of Industrial Property; the
Universal Copyright Convention; the Geneva Phonograms Convention;
and the Patent Cooperation Treaty. The UK has signed and, through
various EU Directives, implemented both the WIPO Copyright Treaty
(WCT) and WIPO Performance and Phonograms Treaty (WPPT), known as
the internet treaties.

In August 2004, the UK published its first "intellectual property
crime strategy." The national strategy, led by the UK Intellectual
Property Office (UK IPO) represents important advancements in
intelligence sharing and coordination among UK government agencies
to combat IP crime, along with a commitment to improve training for
customs enforcement agents. On December 6, 2006, HM Treasury
published the independent Gowers Review of Intellectual Property.
The Gowers Review supports the national strategy and, in particular,
UK IPO’s development of a central IP crime database, TellPat that
brings together information on IP crime and the criminals involved
from industry and enforcement agencies. One of the Gowers Review
recommendations is for the UK Home Office to recognize IP crime as a
component of organized crime in order to better educate the public
about the wider dangers of IP crime and to elevate it as a priority
for police action. The Gowers Review made 53 additional
recommendations in the 150-page report that the government plans to
consider. In October 2008, the UK government began consultations on
a few of the Gowers Review suggestions.

Patents: Many of the key features of the UK Patents Act 2004
entered into effect on January 1, 2005. The Act is designed to
bring UK patent law into line with the updated European Patent
Convention (2000). The Act lifts restrictions on filing patent
applications from abroad, with exceptions made for military
technology and applications whose contents could affect UK national
security. The Act expands options for non-binding, written opinions
on patent infringement to be issued by the UK Patent Office. The
legislation also lays out significant changes to the process of
approaching alleged infringers (sometimes known as "threats"). The
changes are designed to aid genuine attempts to settle infringement
disputes while providing protection — particularly to small and
medium enterprises — against frivolous threats. A UK patent
application requires that an invention must be new, involve an
innovative step, and be capable of industrial application. A patent
cannot be granted in the UK for any invention used for offensive,
immoral, or anti-social purpose, for any variety of animal or plant,
or for a biological process used in its production. In September
2007, the UK IPO and the U.S. Patent and Trademark Office (USPTO)
began a 12-month pilot of the Patent Prosecution Highway (PPH)
scheme, which allowed patent applicants who have received a report
by either the UK IPO or the USPTO to request accelerated examination
of a corresponding patent application filed in the other country.

Copyright: The Copyright, Designs and Patents Act of 1988 grants
the originator the exclusive right to assign those rights or to
exploit them through copying, dissemination, publication, or sale.
Computer programs and semiconductor internal circuit designs are
included as works that are protected by this act. Under the terms
of an EU Directive, which took effect in January 1988, databases are
also protected in each EU-member country by the national legislation
that implements the Directive.

Trademarks: The UK submits to the WIPO system of international
registration of marks, as governed by the Madrid Agreement and the
Madrid Protocol. The UK Trade Marks Act of 1994 is the current law
providing for the registration and protection of trade marks in the
UK, and has been harmonized with EU Directive No 89/104/EEC.
Trademarks are considered personal property in the UK, and are
normally registered for a period of 10 years with an option to
renew. However, trademarks may be removed from the register if a
period of five years has elapsed, during which time there has been
no bona fide use of the trademark in relation to the goods by the
proprietor.

Trade Secrets/Confidential Test Data: Commercially sensitive
information is not itself specifically subject to legal protection,
but the misappropriation of such information from business premises
may be subject to criminal law. Action under employment law may
also be taken against an employee who, by disclosing information,
breaches a contract with his or her employer. In addition,
confidential test data, submitted in conjunction with a registered
application for pharmaceuticals or veterinary products, enjoys 10
years of exclusive protection from the date of authorization,
provided the product is marketed in the UK.

A.8. Transparency of the Regulatory System-
U.S. exporters and investors generally will find little difference
between the U.S. and UK in the conduct of business. Common law
prevails in the UK as the basis for commercial transactions, and the
International Commercial Terms (INCOTERMS) of the International
Chambers of Commerce are accepted definitions of trading terms. In
terms of accounting standards and audit provisions, as of January 1,
2005 firms in the UK must use the International Financial Reporting
Standards (IFRS) set by the International Accounting Standards Board
(IASB) and approved by the European Commission. The UK’s Accounting
Standards Board provides guidance to firms on accounting standards
and works with the IASB on international standards.

An example of differences between UK law (as well as EU law) and
foreign law applies to commercial agents, who are self-employed
intermediaries. Often sales are undertaken in the UK by means of
appointed distributors, licensees, or "agents" using standard form
agreements, or sometimes with no agreement at all. Under UK law, no
distribution or licensing arrangements are terminable "at will," and
reasonable notice (ranging from 1 to 12 months) is usually required.
In addition the agent is entitled to at least one year’s commission
in damages when agency agreements are terminated. Many standard
form software license agreements have invalid clauses prohibiting
copying because they breach the EU Copyright Directive. Non-EU
court judgments, apart from those for judgment debts, are often not
enforceable in the UK unless a contract between the parties
specifically states that U.S. or other country judgments are
enforceable. UK law, like other European laws, imposes severe
restrictions on exclusions and limitations of implied warranties and
liability. There is an exception within UK law that removes most of
these restrictions where both parties are overseas, which makes UK
law and courts a very favorable compromise choice for corporations
contracting elsewhere in Europe.

The government’s declared intent is to introduce more business
competition and to reduce the administrative burden on companies by
reducing unnecessary red tape. Statutory authority over prices and
competition in various industries is given to independent
regulators. These include the Office of Communications (OFCOM), the
Office of Water Regulation (OFWAT), the Office of Gas and
Electricity Markets (OFGEM), the Office of Fair Trading (OFT), the
Rail Regulator, and the Financial Services Authority (FSA). These
regulators work to protect the interests of consumers while ensuring
that the markets they regulate are functioning efficiently. Most
laws and regulations are published in draft for public comment prior
to implementation.

Reduction of bureaucratic red tape and the improvement of regulation
are priorities for the current government. Under Gordon Brown,
the Better Regulation Executive joined the former Department for
Trade and Industry to form the Department for Business, Enterprise
and Regulatory Reform, with regulatory reform at the heart of its
agenda for business success. In December 2008, the government
published an update to the Better Regulation Simplification Plan,
aimed at reducing the administrative burden on business by 25
percent by 2010. The plan includes cross-cutting simplification
initiatives across government departments and leads efforts to
promote the success of the EU better regulation agenda. An example
of one simplification project is the formation of an International
Trade Single Window, which is aimed at helping importers and
exporters by enabling speedier transactions, reduced paperwork and
easier access to import rules.

A.9. Efficient Capital Markets and Portfolio Investment

The City of London houses one of the world’s largest and most
comprehensive financial centers. London offers all forms of
financial services: commercial banking; commercial banking;
investment banking; insurance; venture capital; private equity,
merchant banking, stock and currency brokers; fund managers;
commodity dealers; accounting and legal services; as well as
electronic clearing and settlement systems and bank payments
systems. London has been highly regarded by investors because of
its solid regulatory, legal, and tax environment, a supportive
market infrastructure, and a dynamic and highly-skilled workforce.

As of the December 2008 update of this profile, the international
financial markets remain in crisis, and UK banks have not been
immune. In February 2008, the Government had to step in and
nationalize the UK mortgage lender, Northern Rock, to stop a run on
the bank. Since then, it has announced a series of "bank rescue
measures" including taking equity stakes in key banks to
recapitalize banks and increase liquidity in the banking system.
Notwithstanding, the UK economy is in recession, property values
have fallen 25%, unemployment is at levels not seen in decades, the
pound sterling has fallen 25% in value against the dollar, and
Interbank lending for other than extremely short maturities remains
largely unavailable. The financial services industry contributes
approximately 8 percent to the UK GDP and employs more than 300,000,
but redundancies are increasing rapidly, and business conditions in
financial services in 2009 are expected to remain harsh. The
Government has announced aggressive fiscal stimuli to get the
economy growing again, and the Bank of England is pursuing an
expansionary monetary policy by lowering the key Bank Rate and
adding liquidity to the banking system. In all circumstances,
foreign investors, employers, and market participants have been
treated equally and benefit from government initiatives equally.
There are no signs of increased protectionism, and none are
expected.

Government policies are intended to facilitate the free flow of
capital and to support the flow of resources in the product and
services markets. Foreign investors are able to obtain credit in
the local market at normal market terms, and a wide range of credit
instruments are available. The principles involved in legal,
regulatory, and accounting systems are transparent, and they are
consistent with international standards. In all cases, regulations
have been published and are applied on a non-discriminatory basis by
a single regulatory body, the Financial Services Authority.

The London Stock Exchange is one of the most active equity markets
in the world. London’s markets have the advantage of bridging the
gap between the day’s trading in the Asian markets and the opening
of the U.S. market. This bridge effect is also evident as many
Russian and Central European companies have used London stock
exchanges to tap global capital markets. The Alternative Investment
Market (AIM), established in 1995 as a sub-market of the London
Stock Exchange, is specifically designed for smaller, growing
companies. The AIM has a more flexible regulatory system than the
Main Market and has no minimum market capitalization requirements.
Since its launch, the AIM has raised approximately GBP 34 billion
($51 billion) for more than 2,900 companies.

The UK banking sector is the largest in Europe, with 361 banks
authorized to do business in the UK, retail deposits of GBP 2.4
trillion ($4.2 trillion - average 2008 exchange rate) and an
estimated 50 percent of all the EU’s investment banking activity.
The total assets of the UK banking sector were about 7.5 trillion
GBP ($12.4 trillion) in September 2008, with domestic banks
accounting for about half of the total.

A.10. Political Violence

The United Kingdom is politically stable, with a modern
infrastructure, but shares with the rest of the world an increased
threat of terrorist incidents (recent bombings in London were not
foreigners but UK residents/citizens). On June 29 and 30, 2007,
terrorists unsuccessfully attempted to bomb a nightclub area in
London and the Glasgow airport. In August 2006, the UK government
heightened security at all UK airports following a major
counterterrorism operation in which individuals were arrested for
plotting attacks against U.S.-bound airlines. On July 7, 2005, a
major terrorist attack occurred in London, as Islamic extremists
detonated explosives on three Underground trains and a bus in
Central London, resulting in over 50 deaths and hundreds of
injuries. Following the attacks, the public transportation system
was temporarily disrupted, but quickly returned to normal. A
similar, but unsuccessful attack against London’s public transport
system took place on July 21, 2005. UK authorities have identified
and arrested people involved in these attacks. These attacks do not
seem to have significantly impacted investment in the UK.

In Northern Ireland, the re-establishment of a devolved
power-sharing government and the decommissioning of most
paramilitary organizations have led to the virtual elimination of
domestic terrorist incidents.

A continuing problem involves UK animal rights activists who employ
violent tactics and harassment techniques to disrupt legitimate
scientific research; however, the situation is improving with
increased government enforcement. The activists forced the shelving
of plans for one new research center and severely delayed
construction of another. They target existing research centers that
use laboratory animals, as well as any company that does business
with them. The government has passed legislation to give police
stronger authority to crack down on protesters, and courts have
begun to use their powers to clarify the line between lawful protest
and harassment. In mid-December, four animal rights activists were
convicted of blackmailing companies that supplied an animal testing
laboratory. Sentencing is scheduled for late January 2009. These
actions by activists have the potential to impair the UK’s position
as one of Europe’s leading research and development R&D centers.

Environmental pressure groups in the UK have been involved with
numerous protests against a variety of business activities including
airport expansion, bypass roads, offshore structures, wind farms,
civilian nuclear power plants, and petrochemical facilities. These
protests tend not to be violent but are disruptive and work toward
obtaining maximum media exposure.

A.11.a. Corruption

The Prevention of Corruption Act makes bribery of domestic or
foreign public officials a criminal offense. The maximum penalty
under this act is imprisonment for up to seven years, and/or a fine
not exceeding 5,000 GBP ($7,500). Corrupt payments are not
deductible for UK tax purposes. Although isolated instances of
bribery and corruption have occurred in the UK, U.S. investors have
not identified corruption of public officials as a factor in doing
business in the UK.

The UK formally ratified the OECD Convention on Combating Bribery in
December 1998. Part 12 of the Anti-terrorism, Crime and Security
(ATCS) Act of 2001, which came into force on February 14, 2002,
includes legislation on bribery and corruption to deter UK companies
and nationals from committing acts of bribery overseas. The act
gives UK courts jurisdiction over crimes of corruption committed
wholly overseas by UK nationals and by bodies incorporated under UK
law. In addition to the OECD Convention, the UK also is actively
involved in the Council of Europe’s Group of States Against
Corruption (GRECO), which helps its members develop effective
anti-corruption systems. The UK also signed the UN Convention
Against Corruption in December 2003 and ratified it on February 8,
2006. The UK has also launched a number of initiatives to reduce
corruption overseas.

The December 2006 decision to abandon the bribery investigation into
BAE Systems Plc and its 20-year, GBP 40bn ($60bn) defense contract
with Saudi Arabia opened the government up to questions regarding
its credibility with respect to foreign corrupt practices. Two UK
non-governmental organizations challenged the decision in UK counts.
In April 2008, the High Court ruled the decision to abandon the
investigation unlawful, but in July 2008, the House of Lords, the
UK’s highest body of judicial review, overturned this ruling on
appeal, ending the judicial challenge.

The OECD Working Group on Bribery (WGB) has criticized the UK’s
implementation of the Anti-Bribery convention. In March 2007,the
WGB decided to, "conduct a further examination of the UK’s efforts
to fight bribery," and "reaffirmed its serious concerns about the
United Kingdom’s discontinuance of the BAE Al Yamamah investigation
and outlined continued shortcomings in UK Anti-Bribery legislation."
Following this out-of-cycle review of UK practices, in October
2008, the WBG said it was, "disappointed and seriously concerned
with the unsatisfactory implementation of the [OECD Anti-Bribery]
Convention by the UK."

A.12. Bilateral Investment Agreements

The U.S. and UK have no formal bilateral investment treaty
relationship, although a Bilateral Tax Treaty reviewed in 2008
specifically protects U.S. and UK investors from double taxation.
The UK has its own bilateral tax treaties with more than 100 (mostly
developing) countries and a network of about a dozen double taxation
agreements.

The UK has concluded 106 Bilateral Investment Treaties (known in the
UK as Investment Promotion and Protection Agreements) with other
countries, of which 94 are in force. These countries are: Albania,
Antigua and Barbuda, Argentina, Armenia, Azerbaijan, Bahrain,
Bangladesh, Barbados, Belarus, Belize, Benin, Bolivia, Bosnia &
Herzegovina, Bulgaria, Burundi, Cameroon, Chile, China, Congo, Cote
D’Ivoire, Croatia, Cuba, Dominica, Ecuador, Egypt, El Salvador,
Estonia, Georgia, Ghana, Grenada, Guyana, Haiti, Honduras, Hungary,
India, Indonesia, Jamaica, Jordan, Kazakhstan, Kenya, Korea,
Kyrgyzstan, Laos, Latvia, Lebanon, Lesotho, Lithuania, Malaysia,
Malta, Mauritius, Mexico, Moldova, Mongolia, Morocco, Mozambique,
Nepal, Nicaragua, Nigeria, Oman, Pakistan, Panama, Papua New Guinea,
Paraguay, Peru, Philippines, Poland, Romania, Saint Lucia, Senegal,
Serbia, Sierra Leone, Singapore, Slovenia, South Africa, Sri Lanka,
Swaziland, Tanzania, Thailand, Tonga, Trinidad & Tobago, Tunisia,
Turkey, Turkmenistan, Uganda, Ukraine, UAE, Uruguay, Uzbekistan,
Venezuela, Vietnam, and Yemen.

A.13. OPIC and Other Investment Insurance Agreements

OPIC does not operate in the UK. Export-Import Bank (Ex-Im Bank)
financing is available to support major investment projects in the
UK. A Memorandum of Understanding (MOU) signed by Ex-Im Bank and
its UK equivalent, the Export Credits Guarantee Department (ECGD),
enables bilateral U.S.-UK consortia, intending to invest in third
countries, to seek investment funding support from the country of
the larger partner. This removes the need for each of the two
parties to seek financing from their respective credit guarantee
organizations.

A.14. Labor

The UK’s labor force of over 30 million people is the second largest
in the European Union (EU). In the quarterly statistical report for
August through October 2008, UK employment had reached 29.38
million, and the unemployment rate was 6 percent, lower than the EU
average of 7 per cent. The effects of the economic downturn are
starting to be felt on employment levels. Some analysts predict
that unemployment could reach 10 percent in 2008. The employment
level (the proportion of working age people in work) is also high in
the UK at 74.4 per cent, compared with the European Union average of
65.3 per cent. By sector, the largest proportion of the workforce
was placed in the Public Administration, Education and Health Sector
with 7,239,546 or 27 percent of the total, followed by the
Distribution, Hotel and Restaurant Sector with 6,477,187 or 23.8
percent; Banking, Finance and Insurance Sector came third with
5,760,210 or 21.2 percent, followed by Manufacturing with 2,875,201
or 10.6 percent of the UK workforce.

The most serious issue facing British employers is a skills gap
derived from a high-skill, high-tech economy outpacing the
educational system’s ability to deliver work-ready graduates. The
government has placed a strong emphasis on improving the British
educational system in terms of greater emphasis on science, research
and development, and entrepreneurship skills. The UK’s skills base
remains mediocre by international standards, but is improving: the
proportion of the population aged 20 to retirement without any
formal educational qualifications has fallen by nearly a third over
the last decade, from 18% in 1997 to 13% in 2007.

About 28 percent of full time UK employees belong to a union, a low
proportion by UK historical standards, but still quite high to an
employer used to a much lower American percentage. Public-sector
workers have a much higher share of union members — nearly 60
percent — while the private sector is about 17 percent.
Manufacturing, transport, and distribution trades are highly
unionized. Unionization of the workforce in the UK is prohibited
only in the armed forces, public-sector security services, and
police forces. Union membership has been relatively stable in the
past few years, although the trend has been slightly downward over
the past decade.

Once-common militant unionism is less frequent. Most British unions
have adapted to the reality of a globalized economy in which jobs
are contingent on the competitiveness of their employers.
Privatization of traditional government entities has accelerated
such thinking. The Trades Union Congress (TUC), the British AFL-CIO
equivalent, encourages union-management cooperation as do most of
the unions likely to be encountered by a U.S. investor.

As of October 2008, the minimum wage is GBP 5.73 ($8.25) for adults
(those 22 and over) and GBP 4.77 ($6.86) for young people (18-21)
and GBP 3.53 ($5.08) for workers aged 16 and 17. (Note: Exchange
rate as of December 31, 2008.)

Much of the employment legislation currently affecting the UK labor
market is based on EU regulations and directives. EU regulations
affect working patterns, wage structures, and employee protection
rights. For example, the European Working Time Directive creates an
entitlement to minimum daily and weekly rest periods, an average
work-week limit of 48 hours, and restrictions on night work. It
also entitles workers who meet the qualifying criteria, including
part-time and seasonal workers, to a minimum of 28 working days
annual paid holiday. The universal application of labor regulations
across respective EU borders undermines British competitiveness to
the extent that the UK has made its historically more flexible labor
market a major selling point to investors. As it has implemented EU
directives, however, the UK government has been proactive in
maintaining its flexibility and competitiveness. For example, it
negotiated a special provision under the Working Time Directive that
allows employees to opt out of the work week limitations and has
favored changes to the rules on temporary workers.

The 2006 Employment Equality (Age) Regulations make it unlawful to
discriminate against workers, employees, job seekers and trainees
because of age. The regulations cover recruitment, terms and
conditions, promotions, transfers, dismissals and training. They do
not cover the provision of goods and services.

The regulations also removed the upper age limits on unfair
dismissal and redundancy. It sets a national default retirement age
of 65, making compulsory retirement below that age unlawful unless
objectively justified. Employees have the right to request to work
beyond retirement age and the employer has a duty to consider such
requests.

A.15. Foreign Trade Zones/Free Ports

The cargo ports and freight transshipment points at Liverpool,
Prestwick, Sheerness, Southampton, and Tilbury that are used for
cargo storage and consolidation are designated as Free Trade Zones.
No activities that add value to the commodities are permitted within
the Free Trade Zones, which are reserved for bonded storage, cargo
consolidation, and reconfiguration of non-EU goods. The Free Trade
Zones offer little benefit to U.S. exporters or investors, or any
other non-EU exporters or investors.

A.16. Foreign Direct Investment Statistics-
The UK is the second largest recipient of foreign direct investment
(FDI) globally in 2007 according to the United Nations Conference on
Trade and Development (UNCTAD). According to data published by
UNCTAD, the stock of outward UK FDI totaled $1,705 billion in 2007
(or 62 percent of GDP), up from $1,440 billion in 2006. The stock
of inward UK FDI at yearend 2007 was $1,348 billion (or 49 percent
of GDP), up from $1,133 billion in 2006. Direct investment outflows

in 2007 totaled $266 billion, up from $87 billion in 2006, while
inflows increased to $224 billion in 2007 from $148 billion in
2006.

The United States remained by far the most popular destination for
new UK outward direct investment in 2007, continuing the strong
investment partnership between the two countries. In 2007, UK
direct investment into the United States accounted for 23 percent of
UK-owned assets abroad. Other EU member states attracted much of
the remaining outward UK FDI.