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FOREWORDS BY: H.E. Mr. R. Viswanathan Ambassador of India to Argentina, Uruguay & Paraguay H.E. Mr. César Ferrer Ambassador of Uruguay to India ADVISORS

Dr. Vinod Surana Partner & CEO Surana & Surana International Attorneys (SSIA), India ([email protected]);and Mr. Andres Cerisola Managing Partner Ferrere Attorneys at Law , Uruguay ([email protected]) EDITORIAL TEAM

1. Rafael Mantero 2. Pablo Iorio 3. Eugenia Larrañaga

Associates, CPA/Ferrere Associates, CPA/Ferrere

1. Swarnapradha Shreenivas 2. Mina Anand 3. Hastha Mehta

Associates, SSIA

Associates, SSIA

URUGUAY - INDIA Report on trade and investment

links

Key economic indicators and bilateral relations

URUGUAY - INDIA 2010

© 2010 Surana & Surana International Attorneys & Ferrere Páge 2

TABLE OF CONTENTS

I. INDIA........................................................................................................................ 5

I.I. Basics ...................................................................................................................... 5

I.II. Demographic Indicators......................................................................................... 5

I.III. Economic Indicators (2008) ................................................................................. 5

I.IV. Recent macroeconomic performance and outlook ............................................... 6

I.V. Foreign Trade ........................................................................................................ 7

I.VI. Doing Business in India ..................................................................................... 10

II. URUGUAY............................................................................................................ 15

II.I. Basics ................................................................................................................... 15

II.II. Demographic Indicators ..................................................................................... 15

II.III. Economic Indicators (2008) .............................................................................. 15

II.IV. Recent macroeconomic performance and outlook............................................ 16

II.V. Foreign Trade ..................................................................................................... 18

II.VI. Doing business in Uruguay ............................................................................... 21

III. COMMERCIAL TIES BETWEEN INDIA AND URUGUAY........................... 25

III.I. Bilateral Trade .................................................................................................... 25

III.II. Indian investments in Uruguay ......................................................................... 26

III.III. Showcasing Uruguay: Sectoral and Regional Opportunities ........................... 27

IV. CONCLUDING REMARKS ............................................................................... 33



I. INDIA I.I. Basics

Official Name: Republic of India Area: 3,287,300 km2 Official Language: Hindi Capital: New Delhi Population: 1,139.96 million GDP (USD): 1,217.49 billion Population density : 347/km2

Source: World Bank I.II. Demographic Indicators

Indicator 1971 2008 Annual growth rate of population 2.22% 1.5% Life expectancy at birth (years) 45.6 69.8 Female Population1 48.2% 49.7% Rural Population1 80.1% 71.0% Birth rate (p/1,000 pop.) 36.9 21.7 Mortality rate (p/1,000 pop.) 14.9 6.2 Workforce1 32.9% 39.1% Population density (inhabitants per km2)1 288 325

1Correspond to year 2001 Source: Statistical Pocket Book 2008 - Central Statistical Organisation

Ministry of Statistics and Programme Implementation Government of India, New Delhi

The population of India nearly doubled in 30 years, comparing the 1971 and 2001 census figures. It is the country with the second largest population in the world, after China. In turn, the most important demographic indicators improved substantially during that period. I.III. Economic Indicators (2008)

Indicator Value GDP per capita (USD) 1,070 Value-Added Agricultural (% / GDP) 18% Industrial Added Value (% / GDP) 29% Value Added Services (% / GDP) 53% Gross Capital Formation (% / GDP) 39% Exchange (% / GDP) 39%

Source: World Bank



75% of India’s population lives in rural areas, and agriculture generates 18% of the country’s GDP. Historically, the main crop has been rice, followed by wheat. The country produces 97 million tons of rice annually and 78 million tons of wheat. These figures place India as the world’s second largest producer of rice and wheat, after China. The industrial sector represents 29% of the GDP, where the industries with the largest share are manufacturers of machinery and equipment, and motors for vehicles, trailers and semi-trailers. According to the 2004-2005 Industrial Census, India has 136,353 factories employing 6,600,000 workers. Important in the “Services” sector are Commerce, hotels and restaurants, with a 16.6% share in total product, followed by the financial sector, representing 13.7%. Finally, India’s software industry has developed very significantly in recent years, so much so that Bangalore has come to be called the country’s “Silicon Valley”. I.IV. Recent macroeconomic performance and outlook Since 1991 India has opened up its trade extensively, in a process that has been associated with a major increase in foreign investment. In this process, controls on the private sector were reduced and certain government corporations were privatised. In recent years, India has undergone a process of vigorous economic growth. In the last four years, the average GDP growth rate has been 8.9%. The international financial crisis has led to considerably lower, but still high, growth for 2009 (5.4% as projected by the IMF). In 2007 India’s GDP measured in current dollars reached a trillion dollars for the first time. With that it joined the group of the world’s 14 countries whose GDP tops that amount. 0

10

20

30

40

50

Source: IMF

GDP per capita (national currency, constant prices)

Projected

0

20.000

40.000

60.000

Source: IMF

GDP in national currency (constant prices in billions)

Projected

0

10

20

30

40

50

Source: IMF


Projected



The International Monetary Fund expects that in the coming years India will continue growing vigorously and that by 2014 it will reach real GDP growth of 8.1%. Regarding inflation, India has managed to maintain price stability over the course of several years, which represents another important achievement from the macroeconomic standpoint. From 1999 to date, annual inflation has been single-digit. The International Monetary Fund forecasts that inflation will continue to be in the single digits for the coming years, with a downward trend.

0%

5%

10%

15%

Source: IMF

Consumer Price Index (annual % change)

Projected I.V. Foreign Trade India’s current account shows a deficit in the area of 2.2% in relation to GDP, as is usual in developing countries with economic growth (and investment) rates above those of developed countries. The following chart shows evolution of the current account balance as a percentage of GDP, as well as IMF projections.

0

500 1.000

1.500

2.000

2.500

Source: IMF

GDP in current USD (billions)

Projected

0%

5%

10%

15%

Source: IMF

GDP (Annual percent change in constant prices)

Projected



-3%

-2%

-1%

0%

1%

2%

Source: IMF

Current Account Balance as % of GDP

Projected India’s main import is crude petroleum oil (representing 27.4% of total imports of goods in 2008), followed by gold. Chart 1 shows the ten main items imported by India in 2008. They represent 57% of total imports for that year.

Table 1. India’s main import items in 2008

Source: TRADEMAP

In turn, table 2 shows India’s ten main export items for 2008. They represent 40.4% of the country’s total exports for that year. The main item (refined petroleum oil) represents 17.4% of the total, followed by diamonds (8.2%) and iron ores (3.1%).

Product label Imported value in 2008 (thousand USD)

Crude petroleum oils 86.582.528Gold unwrought or in semi-manuf forms 19.875.544Petroleum oils, not crude 12.133.517Diamonds, not mounted or set 12.119.687

Commodities not elsewhere specified 11.505.041

Aircraft (helicopter,aeroplanes) & spacecraft (satellites) 11.366.120Coal; briquettes, ovoids & similar solid fuels manufactured from coal 9.048.768 Mixtures of nitrogen, phosphorous or potassium fertilizers 7.002.822 Petroleum gases 5.662.410 Copper ores and concentrates 4.306.863 Total Imports in 2008 315.712.096



Table 2. India’s main exports in 2008

Source: TRADEMAP

Two of India’s trading partners stand out for their importance in the country’s trade: the US as export destination, and China as origin of imports. The following figure s show the world map and each country’s importance as destination/origin of exports/imports for India. The darkest-coloured (bordeaux) values are the most important. In the case of exports, the main destination markets are the United States (11.8% of India’s total exports) followed by the United Arab Emirates (10.5%).

Figure 1. Importance of destination markets for India exports in 2008

Product label Exported value in 2008 (thousand USD)

Petroleum oils, not crude 31.558.804Diamonds, not mounted or set 14.886.787Iron ores & concentrates; including roasted iron pyrites 5.638.092Articles of jewellery & parts thereof 4.608.059Medicament mixtures (not 3002, 3005, 3006), put in dosage 4.128.398Commodities not elsewhere specified 2.862.216Rice 2.843.305Organic compounds 2.390.950Soya -bean oil-cake and other solid residues 2.325.238Cars (incl. station wagon) 2.219.825All products 181.860.896



Source: TRADEMAP As for imports, in 2008 the main origin was China (10%) followed by the United States (7.8%) and Saudi Arabia (7.3%).

Figure 2. Importance of origin markets for India imports in 2008

Source: TRADEMAP

I.VI. Doing Business in India

Foreign Investment Considerations India has one of the most transparent and liberal Foreign Direct Investment (FDI) regimes amongst the emerging and developing economies. Thanks to successive reforms, foreign investments are allowed in most sectors. All foreign investments are freely repatriable, subject to sectoral policies. Profits and dividends can be remitted abroad through an Authorised Dealer, without any restrictions. There are two routes available for bringing Foreign Direct Investment into India:

o The Automatic Route

The Automatic route requires no prior approval. Post-facto filing with the Reserve Bank of India (RBI) of data relating to the investment made is for record and informational purposes only. This route is available to investment in all permitted sectors or activities, which either fall within the sectoral caps, or to which no sectoral caps are applicable.



o The Prior Approval Route

This route covers a few sectors that require prior approval from the Foreign Investment Promotion Board (FIPB) (Ministry of Economic Affairs, Government of India). Prior approval from the Foreign Investment Promotion Board is required in the fo llowing cases: • Where the proposed shareholding is above the prescribed sector caps, or • Where the activity belongs to small list of sectors where FDI is either not allowed or where it is mandatory that proposals be routed through the FIPB (sectors that require industrial licensing) The FIPB provides a single-window system of approval and acts as a screening agency for foreign investment in sensitive/negative list sectors. FIPB approvals (or rejections) are normally received in 30 days. The investors could also use the FIPB application route where there may be absence of stated policy or lack of policy clarity.

In both cases, the investors are required to notify the concerned Regional office of the Reserve Bank of India (the country’s Central Bank) of receipt of inward remittances within 30 days of such receipt and to file the required documents with that office within 30 days of issue of shares to the foreign investors.

v FDI Prohibition

Foreign direct investment is not allowed in Retail Trading, Lottery business, Atomic Energy, Gambling and betting, Housing and real estate business (only Non Resident Indians (NRIs) are allowed to invest), Agricultural and Plantation activities.

v FDI Policy Reviews

The Government of India undertakes a periodic review of its FDI policy framework and notifies changes in sectoral and other policies from time to time through Press notes issued by the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion (DIPP). The most recent liberalisation effort has been in the field of foreign technology collaborations. With a view to encourage free and uninhibited cross-border transfer of technology, the Government of India has dispensed with the hitherto applicable limits on royalty payments vide Press Note 8 of 2009 issued in November 2009. Prior to this notification, royalty payments under tech-transfer agreements qualified for approval under the automatic route only if the same were within specified threshold limits. Any payments beyond the said limits were subject to prior approval by the Project Approval Board, an agency of the Government. However, with the removal of these limits, now, any amount of royalty for transfer of technology or for use of the trademark/brand name of the foreign collab orator can be paid abroad without



being required to obtain prior approval. The said payment, being a current account transaction, would however be subject to the relevant rules of the Reserve Bank of India governing such transactions, and a post-facto reporting obligation, as may be notified by the Government. Entry options A foreign company entering the Indian market has the following options:

(a) Indian Company: A foreign investor may incorporate a company under the

(Indian) Companies Act, 1956 to carry out its India operations. Such a company can either be incorporated as a wholly owned subsidiary of the foreign company or as a Joint Venture company, in collaboration with a local partner. The foreign equity contribution in such Indian company will be subject to the sectoral caps on FDI. The company may either be a public limited company or a private limited company.



The Companies Act, 1956 governs the formation of a company, which differentiates between Public and Private companies. The features of these two categories of companies are listed below:

The company is registered by the Registrar of Companies (RoC) whose offices are situated in various states of India. Formalities involved in incorporation of a company are: selection of name and drafting of Memorandum of Association (object and purpose of such incorporation) & Articles of Association (Intern al regulations of projected company). Memorandum and Articles of Association are affixed with requisite stamp duty applicable in the State and a declaration by an Advocate, a Company Secretary or a Chartered Accountant shall be filed stating that all requirements in respect of registration of company have been complied with. On payment of requisite fees, the RoC, after scrutinizing the documents and papers, will issue a ‘Certificate of Incorporation’. The date of certificate of incorporation is the date on which the company will come into existence as a separate legal entity. Since September 2006, the Ministry of Company Affairs has introduced the system of electronic corporate filings under which all incorporation formalities and periodic reporting requirements can be performed online. This has brought about greater convenience and substantial savings in time.

(b) Limited Liability Partnerships: With the promulgation of the Limited Liability Partnership Act, 2008, this new business structure can now be adopted in India by both local and foreign businesses. An LLP is a distinct legal entity with an incorporated status separate from its members, in which the liability of its partners/members is limited to the extent of their interest in

Private Limited Company (Pvt. Ltd.) Public Limited Company (Ltd.)

Number of members between 2 and 50 Minimum of 7 shareholders (no restriction on maximum number of share holders)

Minimum Paid up Equity: INR 100,000 Minimum paid up Equity: INR 500,000 Restricts the right to transfer its shares No restriction on the transfer of shares

Prohibits any invitation to the public to subscribe to its shares/debentures

Right to invite public to subscribe to its shares and to borrowing by issue of debentures

Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives

Option to list at Stock Exchanges

Important Note: A Private Company incorporated in India being a 100% subsidiary of a foreign Public Limited Company shall be treated as Private Company and enjoy the benefits and privileges available to Private Companies.



the partnership. An LLP can be incorporated by any two or more individuals or bodies corporate subscribing their names to an incorporation document. The maximum size of an LLP is unrestricted by law, unlike traditional partnerships in India, which are bound by a 20-partner limit. The relevant regulatory authority for an LLP is the Registrar of Companies, having jurisdiction over the place where the registered office of the LLP is situated.

(c) Liaison/Representative Office: A foreign company can set up a liaison office

as a place of business to act as a channel of communication between the principal place of business or head office and entities in India but does not undertake any commercial / trading / industrial activity directly or indirectly. The liaison office is established with the approval of Reserve Bank of India. A company desirous of opening a liaison office in India should make an application in Form FNC-1 along with other required documents to the Reserve bank of India. The initial permission to set up liaison office is given for 3 years, which may be extended from time to time.

(d) Project Office: Foreign companies working on the execution of specific

projects in India may set up a temporary project office in India The Reserve Bank of India has granted general permission to foreign entities for setting up project offices in India subject to compliance of conditions stipulated.

(e) Branch Office: Foreign companies other than a banking company engaged in manufacturing or trading may open branches in India with the approval of the Reserve Bank of India. It is permitted to undertake ‘specified’ commercial activities, for example rendering professional, consultancy or IT services, acting as a buying or selling agent etc. It is allowed to import & export goods, and is subject to taxation if deemed a ‘permanent establishment’. The profits earned through a branch office may be repatriated outside India by the parent company through an authorised dealer, subject to applicable Indian taxes.



II. URUGUAY II.I. Basics

Official Name: República Oriental del Uruguay Area: 176,065 km2 Official Language: Spanish Capital: Montevideo Population: 3.2 million GDP (USD): 32.187 billion Population Density: 18.4/km2

II.II. Demographic Indicators

Indicator 1997 2007 Annual growth rate of population 0.5% 0.3% Life expectancy at birth (years) 74.3 75.8 Female Population1 52% 52% Birth rate (c/1.000 pop.) 17.3 14.3 Mortality rate (c/1.000 pop.) 9.4 10.3

Source: National Statistics Institute (Instituto Nacional de Estadística - INE) 1Corresponds to years 1996 and 2004

Uruguay’s population is practically stagnant in terms of demographic growth. For 2009, the projected growth rate is close to 0.33%. This low level is due to a drop in birth rates and a negative migration balance. Additionally, low birth and death rates mean that Uruguay’s population is relatively “aged” in comparison to other countries in the region. II.III. Economic Indicators (2008)

Indicator Value GDP per capita (USD) 9,653 Value-Added Agricultural (% / GDP) 11% Industrial Added Value (% / GDP) 27% Value Added Services (% / GDP) 63% Gross Capital Formation (% / GDP) 23% Exchange (% / GDP) 60%

Source: World Bank Located alongside Latin America’s foremost power (Brazil), the Uruguayan economy is small and commercially integrated with the region and the world. Since 1991 the country has been a member of MERCOSUR (Common Market of the South), along with Brazil, Argentina and Paraguay. This customs union implies free



circulation of goods, services and factors of production among its members, setting of a common external tariff, and adoption of a shared trade policy. Uruguay is a politically and economically stable country. Democracy is consolidated (the country’s three main political parties h ave taken turns in governing over the last 20 years). Additionally, it has the highest literacy rate in Latin America, and along with Chile is one of the countries with the lowest index of perception of corruption on the Latin American continent, according to Transparency International. In turn, according to the United Nations Development Program (UNDP) Uruguay has the third highest level of human development in Latin American (after Argentina and Chile). Farm production represents 10% of GDP. This sector provides the bulk of raw materials for the manufacturing industry, which is one of the most important export sectors. Manufacturing represents 16% of GDP, and some of the important sub-sectors are food, hides, textiles and forestry products. II.IV. Recent macroeconomic perfo rmance and outlook In recent years (as of 2003) the Uruguayan economy has been in a stage of strong economic growth. On an average, since 2003 the country has grown at a 5.8% rate, which is a high historical level for Uruguay. While modest growth (2%) is expected for 2009, the Uruguayan economy has managed to weather the crisis without major costs in terms of activity, and even without technically facing a recession (insofar as it had only one quarter with a drop in activity level). This is explained by various reasons. In the first place, the international crisis began during a high phase of the economic cycle and Uruguay was in more solid macroeconomic and financial shape than on other occasions when it received negative foreign shocks. In the second place, global recession lasted less than expected, and impacted Uruguay only via the trade channel. In the third place and associated with the previous point, the Uruguayan financial system has remained solid and stable, as a result of better Central Bank regulation and improved risk policies applied by the institutions themselves. Finally, it is clear that the flexible exchange rate regimen has operated successfully as a mechanism for processing shocks in international prices, while devaluation of the currency permitted better adaptation of the export sector, along with sending a “correct” signal to consumers who, temporarily impoverished in terms of their purchasing power in dollars, made decisions with “healthy caution”. In this context, it is expected that the Uruguayan economy will grow at levels close to 3.5% in 2010. The IMF, in turn, forecasts growth of 0.6% for 2009. As of 2010, it expects growth rates in excess of 3.5%.



As to price stability, in the years 1999 through 2001 the country achieve da single-digit annual inflation rate. During 2002 and 2003, due to the strong devaluation in the first year, inflation jumped and hit 19.4% in 2003. Yet as of 2004 it went back to the single digits. The Central Bank of Uruguay has set the current inflation target between 3% and 7%. In November 2009, twelve-month inflation was 6.4%, i.e., within the target range. Taking into account the recent evolution of commodity prices and the exchange rate, the authors expect the year to close with retail inflation of 5.5%. For the following year the level would be 6.9%, which would be very close to the maximum tolerance set by the Central Bank. .

0

20

40

60

80

100

120

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Source: IMF

Consumer Price Index (annual % change)

Projected The main economic risks that Uruguay could face from the international economy could be associated, among others, with: a world economy showing very slow recovery and high unemployment, leading to a slowing of growth for emerging economies (which could impact commodity prices), a complicated financial situation in Argentina during the second half of 2010, and an increase (greater than expected) in international interest rates as of 2011 (with its implication on

0

10 20 30 40 50 60 70

2000 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4

Source: IMF

GDP in current USD (billions)

Projected

0

200

400

600

800

1 9 8 0 1 9 8 2 1984 1 9 8 6 1 9 8 8 1 9 9 0 1 9 9 2 1 9 9 4 1 9 9 6 1 9 9 8 2 0 0 0 2 0 0 2 2 0 0 4 2 0 0 6 2 0 0 8 2 0 1 0 2 0 1 2 2 0 1 4

Source: IMF

GDP in national currency (constantprices in billions)

Projected

0

50.000

100.000

150.000

200.000

1 9 8 0 1982 1 9 8 4 1 9 8 6 1 9 8 8 1 9 9 0 1 9 9 2 1 9 9 4 1 9 9 6 1 9 9 8 2 0 0 0 2 0 0 2 2 0 0 4 2 0 0 6 2008 2 0 1 0 2 0 1 2 2 0 1 4

Source: IMF


Projected



financing costs for Uruguay). Domestically, while no immediate threats are seen for macroeconomic stability, in the medium-term the chief risks and challenges could be associated with the impossibility or lack of willingness to recompose fiscal accounts (which will continue to be exposed to climate factors such as the drought, hindering generation of hydroelectric energy), the delay in decisions to improve infrastructure, and a worsening of the country’s energy situation. II.V. Foreign Trade Like India, Uruguay’s current account balance has been negative, reflecting that investment is greater than domestic savings. Hence, the country is being financed by external savings, an indication of foreign confidence in Uruguay.

-8,0%

-6,0%

-4,0%

-2,0%

0,0%

2,0%

4,0%

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Source: IMF

Current Account Balance as % of GDP

Projected Also like India, Uruguay’s main import product is crude petroleum (16.8% in 2008), followed by refined petroleum oils (10%). Table 3 shows the ten main import items for Uruguay. They represent 42.4% of total imports of goods to the country in 2008.

Table 3. Uruguay’s chief imports in 2008

Source: TRADEMAP

In relation to exports, table 4 shows the ten chief items exported by Uruguay. The most important is frozen meat (14.7%), followed by rice (7.4%) and soy (5.5%).

Product label Imported value in 2008 (thousand USD)

Crude petroleum oils 1.501.714

Petroleum oils, not crude 896.747Electric app for line telephony,incl curr line system 241.204Insecticides, fungicides, herbicides packaged for retail sale 172.607Cars (incl. station wagon) 172.345Electrical energy 168.540Mixtures of nitrogen, phosphorous or potassium fertilizers 166.940

Aircraft (helicopter,aeroplanes) & spacecraft (satellites) 165.920Parts & access of motor vehicles 155.677Trucks, motor vehicles for the transport of goods 149.367All products 8.932.904



Table 4. Uruguay’s chief export products in 2008

Product label Exported value in 2008 (thousand USD)

Meat of bovine animals, frozen 877.369Rice 444.268Soya beans, whether or not broken 327.366Meat of bovine animals, fresh or chilled 319.041Petroleum oils, not crude 183.352Milk and cream, concentrated or sweetened 180.179Wood in the rough 177.811Leather of other animals, o/t leather of hd no 41.08/41.09 171.625Malt, whether or not roasted 171.478Fuel wood; wood in chips or particles; sawdust&wood waste&scrap 165.854All products 5.948.948

Source: TRADEMAP As regards destinations of Uruguayan exports, the chief market is Brazil (16.6% in 2008), followed by the Free Trade Zones (9.6%) and Argentina (8.5%). The main products exported to Brazil are, in order of importance, Barley malt, Bottle preforms, and Rice. In the case of exports, Argentina is the main country of origin of imports with 25% of the total in 2008. Following it in importance are Brazil (18%) and China (10%). The following figures show the world map and each country’s importance as destination/origin of exports/imports for Uruguay. The darkest-coloured (bordeaux) values, as in the previous case, are the most important.



Figure 3. Importance of destination markets for Uruguayan exports in 2008

Source: TRADEMAP

Figure 4. Importance of origin markets for Uruguay imports in 2008

Source: TRADEMAP



Finally, it is important to note that in terms of competitiveness in relation to its trading partners, the Multilateral Real Exchange Rate indicator is below equilibrium by -14% (-11% if corrected by Argentine province inflation rather than the rate published by INDEC (the Argentine National Statistics and Census Institu te), so that based on these levels and the path of the indicator in recent months, Uruguay is somewhat “expensive” compared to its trading partners. Looking at the situation by regions, we find that the extra-regional Real Exchange Rate (RER) is -24%, while the RER with Brazil is +23%. This implies that the slight upward swing in “expensiveness” reflected by the global indicator is in fact the product of two fairly opposing realities: on the one hand, a very favourable competitiveness situation with Uruguay’s main trading partner, Brazil (since Uruguay is 23% cheaper than at equilibrium), and on the other hand a fairly significant situation of expensiveness vis-à-vis Uruguay’s trading partners outside the region (-24% below equilibrium). While current price competitiveness levels of Uruguay in relation to its trading partners are somewhat below the historical equilibrium levels, the situation today is not worrisome. Nevertheless, Uruguay’s competitiveness has deteriorated steadily over the past months (as a result of the Uruguayan peso’s appreciating more rapidly than other currencies), so that even though the current situation is not cause for concern, the Government must keep an eye on that trend, so that competitiveness does not continue to deteriorate. II.VI. Doing business in Uruguay Foreign Investment Considerations

Uruguay has been witnessing a continuous growth in foreign investments over the past decade. According to the Uruguayan Investment and Export Promotion Agency , FDI inflows grew by 1000% in the six years ending 2008. Even the recent economic slowdown does not appear to have dampened investor sentiments. This could be largely attributed to the favourable attitude of the Government of Uruguay towards foreign investment, and its conscious efforts to provide a secure environment to investors in Uruguay.

The Foreign Investment Law N° 16.906 (of January 1998) assures equal treatment to foreign investors as that of national/local investors. The law allows foreign investments without any prior authorisation or registration and also permits free repatriation of capital and profits. Foreign investment upto 100% equity is permitted in most sectors except a few which are restricted for defence and national security purposes. There are no restrictions on technology transfers or on the hiring of foreign technical/other personnel.

In 2008, the investment laws were revamped to establish a transparent and effective regime for foreign investors by streamlining procedures and establishing investor support centres for investment advice and queries. Uruguay is also a member of Multilateral Investment Guarantee Agency (MIGA) and other such international organisations that promote safety of foreign investments in member countries.



Acquisition of real estate in Uruguay is relatively simple and hassle-free. Uruguayan laws do not impose any restrictions on ownership of land/real estate by foreign investors. Secured interests in both movable and immovable property are recognised, and a reliable recordal and enforcement mechanism exists for protecting property rights.

Entry Options Type of Business Entity Features

Sociedad Anónima (Limited Liability

Corporation)

• Corporations may be either: a) publicly traded corporations (which are

funded by public money and have their shares quoted on stock exchanges) ; or

b) closed corporations (which are not allowed to raise money from the public and are subject to much less control by the Government).

• Must have a minimum of two founding shareholders, which can be either individuals or legal entities. There are no minimum capital requirements.

• At least 25% of the authorized share capital must be paid -in and the rest subscribed until reaching 50% at the time of formation.

• Shareholders’ liability is limited to their stake/contribution to capital.

• One-person corporations are possible after formation i.e. shares can be transferred in such a way so as to reduce the number of shareholders to one.

• Audit not mandatory for closed corporations • Mandatory dividend distribution of 20% of

net earnings each year unless otherwise consented to by shareholders holding 3/4th of the paid -in capital.

• Inactive ‘Off the Shelf corporations’ are available for being taken over as companies, thereby saving time in going through the formalities of setting up a new company.

Sociedad de Responsabilidad Limitada

(S.R.L) [Limited Liability

partnership]

• Popular among small and medium businesses although there are neither minimum nor maximum capital requirements.

• No operating restrictions except that they cannot undertake banking and financial activities.

• Transfer of ownership interest is legally



restricted. • Liability of members is limited to partnership

interest (except for security labor and certain tax debts).

• Minimum two partners, who may be individuals or legal entities; no restrictions as to nationality or domicile.

• Internal co ntroller or control board mandatory for SRL`s with more than 20 partners.

Branch of a foreign entity

• May be set up by foreign companies for carrying on business activities.

• Bye-laws of foreign company to be recorded in the Trade Registry.

• No restrictions on repatriation of profits by branch.

• Branch offices governed by provisions similar to Uruguayan companies, with the exception that the foreign entity will be liable for all obligations assumed by the branch.

Sociedad Anónima Financiera de Inversion (S.A .F.I)- Since July 1st

2007, no new SAFI`s can be formed.

• Off shore company subject to favorable tax treatment. From December 30, 2010 SAFIS will be subject to the same tax treatment as regular Sociedades Anónimas.

• Main purpose is to invest abroad (in bonds, shares, real estate or other investments) or carry on commercial activities outside Uruguay, on its own behalf or for third parties.

• Activities within Uruguay are restricted; cannot acquire real estate within Uruguay.

• Enjoys shareholder anonymity; no public reporting of shareholding pattern required.

Consortia and Joint Ventures

Consortia

• A consortium is founded on a contract between two or more individuals and entities, who come together temporarily for s a specific project/assignment.

• Each member of the consortium is responsible for his own obligations, but not for that of others, unless otherwise provided for in the contract.

• Not recognized a separate legal entity and hence, no incidence of taxes, which are borne by individual members Joint Ventures.

• Unlike consortia, economic interest groups or JVs have separate legal status and capacity.



Can be established without capital and hence, members’ contribution is not transferable to third parties.

Financial Intermediation Companies and Offshore

Banking co rporations

• Financial intermediation companies are those that intermediate between supply and demand for money and other financial instruments.

• Off shore banking units are those, which undertake financial intermediation operations exclusively with non-residents.

• Both entities are exempt from tax obligations on income, except social security contributions.

• Operations subject to banking secrecy norms, and oversight by the Central Bank.



0,0

10,0

20,0

30,0

40,0

50,0

Source: INFONECTA

Exports + Imports between Uruguay and India in millons of current USD (last 12 months)

-35,0-30,0-25,0-20,0-15,0-10,0

-5,00,05,0

Dec-

03Ap

r-04

Aug-

04De

c-04

Apr-

05Au

g-05

Dec-

05Ap

r-06

Aug-

06De

c-06

Apr-

07Au

g-07

Dec-

07Ap

r-08

Aug-

08De

c-08

Apr-

09Au

g-09

Source: INFONECTA

Uruguay - India Trade Balance (millions of current USD)

III. COMMERCIAL TIES BETWEEN INDIA AND URUGUAY III.I. Bilateral Trade Bilateral trade between the two countries has increased considerably in recent years, in particular India’s sales to Uruguay. In the year 2003 Uruguay exports to India amounted to approximately 10 million dollars, and its imports were 7 million. In the last twelve months (Dec -08 to Nov -09) Uruguay’s imports from India amounted to 36.5 million dollars, while exports to India reached 9,7 million (practically the same as 2003). The following charts show the evolution of trade between the two countries (exports + imports) in current dollars as well as Uruguay’s trade balance with India (exports from Uruguay to India – imports from India to Uruguay).

The following figure shows the main products traded between the two countries in 2008.

Figure 5. Main products traded between India and Uruguay Productos

Main products Uruguay exports to India Main products India exports to Uruguay

Source: TRADEMAP



India’s export basket to Uruguay is dominated by chemicals and pharmaceuticals. This is hardly surprising as in recent times, these two sectors have been making an increasing contribution to the total export earnings of the country. According to the Ministry of Commerce and Industry, exports of drugs, pharmaceuticals and fine chemicals from India have grown at a compounded annual growth rate of 17.8 per cent during the five-year period 2003-04 to 2007-08. And in 2008-09, exports have registered a 29% growth over the preceding year’s performance. Indian pharmaceutical companies are also looking at Latin America as a preferred destination for housing their formulation plants. Hence, there are a lot of opportunities in the bulk drugs export segment, considering the demand that could potentially come from formulation plants located in Uruguay. There is also scope for increasing trade in the most exported product thus far- i.e. plastics. The Indian Plastic Industry is comprised of highly fragmented players of different sizes spread all over the country. As such, it is believed that the enterprises have not been able to exploit international trade opportunities to the fullest, mainly due to their inability to handle large export orders. In recognition of this handicap, the Government has adopted a more industry -friendly policy and has encouraged the formation of plastic clusters that would help upgrade technology and build production capacities to cater to large export volumes. The Government is also encouraging the industry to t ake advantage of its ‘Focus Market’ Schemes, which means that Latin America and U ruguay could soon become focused export destinations for Indian plastic manufacturers. III.II. Indian investments in Uruguay In recent years, major Indian companies have turned to Uruguay when making investments. Some important Indian companies h ave either set up offices in Uruguay or have acquired local companies. The most renowned include: TATA Consultancy Services (TCS) TCS offers IT services, business solutions and organizational outsourcing. It is part of the TATA group, one of India’s largest industrial co nglomerates. In 42 countries TCS employs 143,000 of the best IT consultants in the world. In 20021 TCS decided that Uruguay would be the global development platform for its clients in Spain and the Spanish -speaking countries of Latin America. The U ruguay global development centre specializes in offering nearshore IT services, as well as solutions that include Microsoft, SAP, Business Intelligence and Quality Consulting. In addition to Spanish, it offers multilingual services in Portuguese, English, French, Italian and German, among others. 1 According to data from the Embassy of India in Argentina



Arcelor Mittal Arcelor Mittal is the world’s top steel company. It is present in more than 60 countries and is the leader in the main global markets, including: automobiles, construction, electrical appliances, and cans. The group is also a leader in Research and Development and Technology. In December 20071 it acquired a Uruguayan producer of stainless steel tubing (CINTER S.A.) whose sales were USD 47 million and employed some 200 people. Geodesic Geodesic Ltd. is an innovative software products company focusing on information, communication and entertainment for cell phones and portable computers. Some of its products include solutions for instant messaging, Internet radio, etc. The company has offices in Mumbai, Bangalore, USA, UK, Sweden, Germany, Hong Kong, and Mauritius. In May 20091 the firm acquired the Uruguayan software company “Interactiveni”. This Uruguayan company employs 40 persons and specializes in solutions for instant messaging as well as mobile phone applications. III.III. Showcasing Uruguay: Sectoral and Regional Opportunities

While Indian investments are finding their way into Uruguay, opportunities are still largely unexplored and under-utilised. Therefore, it might not be out of place to list out a few of the business opportunities staring Indian investors in the eye.

Information and Communications Technology (ICT) According to the Latin Business Chronicle, Uruguay is right at the top of the 2009 Latin Technology Index making it the # 1 country for technology in Latin America. The country has the highest technology penetration in the whole of Latin America, be it fixed telephones, mobile phones, computers or the internet. It is reported that in the period June 2008 to June 2009, broadband connections in Uruguay registered a 31% growth. This has been attributed to significant investments made by the Government in technology infrastructure, as well as the innovative schemes adopted to promote digital literacy right from primary education levels.

It is noteworthy to mention the One Laptop Per Child (OLPC) Programme, a Government of Uruguay initiative, which aims to provide a laptop to each public school teacher and student. Named “Plan Ceibal” meaning ‘Education Connect’, this programme was implemented in September 2009 covering close to 400,000 students in 100% of the Uruguayan public schools.



In addition to bringing technology to classrooms, homes and offices, there is also a simultaneous effort to modernise government offices and provide electronic platforms for facilitating citizens’ interactions with the government. With ICT becoming a clear focus area for strategic economic development of the nation, investment opportunities are ripe for foreign investors who can benefit from tax exemptions offered as well as the solid infrastructural base that the country has established.

In addition to investments in communications technology, outsourcing services present another lucrative business opportunity. TCS’ success is there for Indian IT companies to see, and possibly emulate.

The chief advantages noted by TCS when deciding on Uruguay were:

Security: Uruguay is one of the safest countries in Latin America. The corruption levels in the country are the lowest in South America. The country does not harbour any racial, ethnic social or religious intolerances. Natural disasters like earthquakes, volcanos etc. are rare to the point of being non-existent.

Climate and Time zone: Temperate climatic conditions throughout the year add to the comforts and certainties provided by the country. Favourable time zones i.e. complementary to that of India and between the North American and European time zones make Uruguay a very convenient option for locating contact centres and developing round-the-clock service capabilities.

Trained human resources: Uruguay has the highest literacy rate in Latin America. The Government invests heavily in education, with free education being offered to citizens through college. A large section of the workforce is bilingual (in some cases, even multilingual with Portuguese capabilities) with fluency in both English and the native Spanish. In addition to talented people, the country also offers relatively lower labour costs, making investment in Uruguayan human resourc es a true value proposition.

Other reasons to invest in the outsourcing business include tax exemptions for up to 10 years and sound data protection laws comparable to EU standards affording ample protection to apprehensive clients. Infrastructure

Uruguay’s infrastructure is another area where the country is welcoming investments from all quarters, with a view to supplement Government spending. Most of the recent infrastructure additions have involved a foreign investment quotient. An instance in point is the new airport terminal at the Carrasco International Airport, which is slated to be one of the most modern passenger and cargo terminals in the world. There are also several projects in the pipeline including the new river port terminal, which is under construction in Colonia, the Montevideo ring road, free zones /industrial parks for services in the city of Montevideo etc. However, even after all this investment, there is still scope for improvement in the country’s infrastructural facilities.



According to the Global Competitiveness Index 2009-10 (World Economic Forum) Uruguay occupies the 65th position in Infrastructure. The following chart illustrates the country’s position in the global ranking.

Global Competitiveness Index 2009-10

Ranking/ 133Switzerland 1United States 2Singapore 3

Chile 30India 49Brazil 56Uruguay 65Argentina 85Ecuador 105Bolivia 120Paraguay 124

The Infrastructure Quality Gap Index (2006-07) measures the infrastructure gap with respect to a benchmark (Germany). The range is from 0 to 7. A zero value indicates that the level of infrastructure is equal to Germany’s. The higher the index value, the greater the country’s infrastructure gap with respect to Germany. According to this index Uruguay has a 4.1 gap. Following are the components of this index.

Figure 1. Infrastructure Quality Gap Index (2006-2007)

The biggest gap, according to this index, is in the roadway network, followed by air transport. While road and bridge projects are currently 100% state financed, the Government is open to public-private partnerships in this sector. There also exists an opportunity to collaborate with Uruguay in its railway projects, where apart from financing projects, India could offer technical consulting and assistance in the construction of rail networks as well as supply of wagons/cars, anti-collision devices, other equipment and supplies. Tourism With its breathtaking natural landscapes, hundreds of kilometres of beaches in its coast, and constant infrastructural improvements, it is not surprising that Uruguay has a booming tourism and hospitality industry. So much so, it is reported that



Uruguay attracts! ‘Eco’ - friendly – in every way ! Nestled between Brazil and Argentina, Uruguay is fast becoming a special getaway and gateway - to investors across the globe. Known for its Swiss style approach to business and politics, while retaining the Latin heartbeat, Uruguay has idyllic conditions and climate - for venture and adventure. Spot-on Undiminished by the two giants straddling its borders, Uruguay more than holds its own, in the tourist-market destination. Discerning investors around the world are hastening to unearth the beauties of beach and other natural spots – and are cashing in on the opportunities for beautiful investments. Discover: Montevideo – the Capital. And a capital real estate market. Colonia – a superbly restored colonial city. Lying across the Rio de la Plata from Buenos Aires. Punta del Este – the world-renowned vacation destination. Pristine beaches. Prime Property.

You can literally have a whale of a time: Ecologically – E conomically Revel in Uruguay’s God-given heritage. Natural landscapes, temperate subtropical climate (no climate change !) freshwater galore - in the form of rivers, streams, brooks; birds of all feathers that flock to this land; exotic plants; marine life that boasts of sea-lions, seals, turtles and yes, whales. There is a wealth of marvels waiting to be discovered. Taking pride in their environment Uruguay occupies third place in the World Ranking of Environmental Sustainability. A National System of Protected Areas aims at preserving the country’s rich biodiversity, which includes hot springs, wetlands, ravines, forests, lagoons, and Chamangá with its ancient rock paintings. Far from the Madding Crowd - Truly Rural The country is proud of its ‘estancias’ or farms, where one can enjoy rural tourism and the earthly charms of prairie life. Fishing. Farming. Horseback Riding. Where modern technology blends with age-old traditions.

even the economic crisis has not slowed down either tourist traffic 2 or their spending. Currently, tourism contributes to more than 6% of the country’s GDP. With investments in the hospitality industry (hotels and 2nd homes) growing3, the sector’s contribution to GDP can only rise. Tourism in Uruguay is seen as almost a risk -free investment (more so with its eco-friendly and rural touch) and could be very rewarding for foreign investors.

Tourism Combining business with pleasure

2 Number of tourists visiting Uruguay per year is around 2 million. Source: Uruguay’s Ministry for Tourism and Sports 3 According to Uruguay XXI, Uruguay’s Investment and Export Promotion Agency, the country has attracted investment to the tune of 1.5 billion USD in tourism-related real estate over the last 5 years.



Agribusiness Uruguay’s natural conditions favour the rearing of cattle and sheep as well as production of fruits and vegetables. Apart from availability of huge tracts of arable land, close to 6% of the territory is covered by forest plantations4. Agricultural and plantation exports contribute to nearly 65% of the country’s total exports5 making Uruguay an agro-export oriented economy. The main products exported include soybean, cereals, milk derivatives, wool, meat and wood products. A lot of foreign capital has been invested in these sectors 6 and has yielded enormous benefits for the investors. This is particularly so as the country offers arbitrage opportunities with its more expensive neighbours i.e. Brazil and Argentina. With commodities prices rising, investing in the Uruguayan agricultural and forestry sector is definitely a profitable venture.

Renewable Energy Uruguay faced an energy crisis in the first half of this century, which led the Government to look for permanent solutions to address the country’s energy concerns. This quest coupled with its “care for the environment” approach has shifted the focus on to renewable sources of energy, which would not only assure future energy supply, but also help reduce dependence on imports from its neighbours. Today, hydropower, w ind and biomass are the m ain sources of renewable energy in Uruguay. Presently, the state power company, UTE is inviting tenders for the construction and management of a 150 MW wind farm. Additional projects are expected to be undertaken in the next 5 years, all of which are expected to be open to private and foreign investment. Health and Life sciences A number of pharmaceutical and life sciences companies have been investing in Uruguay in recent times. One of the major reasons for this is the Government’s investment in education and science & technology, which has reached unprecedented heights in the last couple of years. With the universities churning out high -quality professionals, and the National R&D agency offering grants to researchers and doctoral students, it is but natural for the sector to attract huge foreign investment. The investment climate has recently been made all the more conducive with the construction of a pharmaceutical park that is expected to attract clusters of pharmaceutical and life sciences companies exporting value-added goods. Free Trade Zones

Free Zone promotion and development is declared by Uruguayan law to be an area of national interest. Uruguayan free zones, apart from being duty-free enclaves,

4 According to Uruguay XXI , Uruguay’s Investment and Export Promotion Agency 5 Based on data for the first half of 2010, as reported by Uruguay XXI 6 About 30% of the investment in agribusiness comes from foreign investors.



also grant broad tax (current and future taxes) exemptions, if 75% of the personnel employed are of Uruguayan nationality. Tax exemptions are also available for the income earned by non-resident entities from in-transit merchandise (i.e. merchandise is not meant for the national customs territory) stored in the free zones. Free Ports

Uruguay has the unique distinction of having established the first and only free port in South America, the Montevideo Free Port. Strategically located in the south of the country, the free port offers a 50,000 sq.m warehousing facility into which merchandise for onward distribution to other major South American destinations can be brought, without being subject to any import levies. Uruguay has therefore emerged as a logistics hub, attending to close to 65% of the in-tran sit merchandise in the region.7 The Free port regime also allows businesses to add value to the merchandise (without changing its essential nature), make packaging modifications i.e. repack into smaller/larger packages etc. There are no time limits for the storage of merchandise in the free port and businesses also benefit from a legal guarantee for repatriation of capital and profits. Technology Parks/Tax-free zones

Foreign investors are actively encouraged to set up units in Uruguay’s technology/industrial parks, apart from investing in the development of the industrial parks themselves. Zonamerica, a 15-year old industrial park, is equipped with excellent infrastructure to help businesses start operations almost immediately. Two new service-oriented tax free zones (Aguada Park and World Trade Centre Free zone) are being set up in Montevideo and are scheduled to open in 2010.

7 According to the Uruguay XXI, Uruguay’s Investment and Export Promotion Agency.



IV. CONCLUDING REMARKS While Latin America has been on India’s agenda for quite some time now, most of the focus has been on the region’s heavyweights i.e. Brazil, Argentina, Mexico etc. But if the recent global economic crisis has taught us one lesson, it is to look at diversifying economic p artners and identifying newer opportunities at every possible level. And Uruguay, one of Latin America’s smaller countries, located between its more illustrious neighbours -Argentina and Brazil, presents a wonderful, little-explored opportunity for Indian businessmen. For the uninitiated, if one were to describe the two nations in relative terms, Uruguay has almost as much land area as Gujarat with about half the population of Ahmedabad or 1/5 th the population of Mumbai. A stable economy, excellent climatic conditions, progressive educational systems & high literacy rates, record-low poverty & u nemployment figures and a liberal social outlook make this country one of the most sought-after investment destinations. The country’s strategic location on the south-eastern coastline, its membership in the MERCOSUR and its well-connected networks and infrastructure have led to Uruguay’s emergence as a major logistics hub and a focal point for trade within the region. Not only does the country provide a platform for entry into the Mercosur and the entire Southern Cone, it also serves as a test market for products and services. Opportunities are boundless, and success stories in the region are encouraging. However, the biggest hurdle for development of bilateral relations between India & Uruguay has been the absence of awareness and information, which for a start, is sought to be overcome with this report. Also, in view of the existing Indian presence in the region, an attempt has been made in this report to encourage more and more Indian entrepreneurs into exploring Uruguayan opportunities. Once that happens, collaboration could extend to numerous other areas including an eventual inflow of investments into India, one of the most favoured investment environments in the world.

Any requests for further information are welcome and may be sent to [email protected].

The contributions of Mr. Dave Ramaswamy, Partner, Allied Ventures are acknowledged .



Ferrere is the largest law firm in Uruguay, recognized as market leader by all leading publications. Our group also includes CPA Ferrere, leader in accounting and consulting services; Ferrere Internacional, which works with non resident clients and coordinates the activities of our offices in Paraguay (Asunción), Bolivia (Santa Cruz and La Paz) and Ecuador (Quito); EF Asset Management SA, a trust manager regulated by the Central Bank of Uruguay; and a representative office in Sao Paulo, Brazil. Ferrere has grown exclusively by working hard and anticipating change. We are not the oldest, nor were we the first; instead, we are amongst the youngest in the market. But we have always been the most dedicated, creative and business-oriented of local professional organiza tions, something that clients have rewarded by allowing us to grow consistently above the market. Except for conflict of interest reasons, we are present in most high-end financial transactions, complex acquisitions, tax disputes and bidding processes. For example, more than 80% of the securitizations done since 2001 in Uruguay were arranged by us, and about 25% of all farm and forestry land sold in Uruguay during 2007 was bought by our clients.

Ranked among top ten Indian law firms and the “first choice” for legal assistance in South India since 1997, Surana & Surana International Attorneys (SSIA) has a sterling record of over three decades in providing prompt, practical, cost-effective and customized solutions. SSIA is also the world's first ISO 14001 and SA 8000 and Asia's first ISO 9002 certified law firm. Led by partners and associates with entrepreneurial background, multi-disciplinary qualifications and international experience, this professionally- managed firm provides services in all areas of Commercial, Corporate, Dispute Resolution laws, foreign investments, Infrastructure, Intellectual Property, Real Estate, Tax and Technology. Exclusive memberships in top international professional affiliations gives the law firm an immediate access to expertise of more than 410 law, accounting, consulting and off shore service practices that engage SSIA for their India related work and also enable SSIA’s clients to immediately get the best professional advice worldwide. SSIA is committed to strengthening Indo-Latin American cultural & economic relations and already has professional tie-ups with reputed mid-sized law, accounting & consulting firms in the region to source quality and competent professional services at reasonable cost. Dr. Vinod Surana, Partner & CEO, led the CII’s Indian Trade Mission to the Third India-Latin America and Caribbean Conclave in June-July 2009. SSIA also collaborated with CII in the release of the report on “India and Argentina – Strategic Partners in Industry and Business” at the Conclave.

SURANA & SURANA INTERNATIONAL ATTORNEYS

International Law Centre # 61-63, Dr. Radhakrishnan Salai, Mylapore, Chennai- 600 004, India

T. +91 44 28120000;F. +91 44 28120001 Email: [email protected]

FERRERE Attorneys at Law CPA/Ferrere

World Trade Center Tower B - Montevideo - Uruguay

+5982 623 0000 www. Ferrere.com

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