Uruguay WT/TPR/S/50
Page 17
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
(1) TRADE POLICY
(i) Trade policy objectives
1. Uruguay's general trade policy objectives include increasing access for Uruguayan products in
foreign markets and deepening the integration of the country into the world economy.  This has been
pursued through multilateral, regional, and bilateral trade negotiations as well as through autonomousreforms.  However, since the last Review the main  priority has been the deepening of integration
within MERCOSUR, and today Uruguay's trade policy is determined to a great extent by the common
policies adopted at the regional level.  Autonomy in trade policy has been retained mainly in areas
where common policies have not yet been agreed.  Thus, Uruguay has been able to maintain some
special (concessionary) regimes which provide for fi scal incentives and duty exemptions (Chapters III
and IV).  In addition, specific sectoral policies benefit the forestry, fisheries, automotive, tourism and
clothing and textiles sectors.  On a horizontal basis, additional fiscal incentives and duty exemptions
are provided.  MERCOSUR's CET has an escalation structure which provides for higher effective
protection than is indicated by the nominal tariff, and this effect is accentuated by the special regimes.
2. At the multilateral level Uruguay's priority is to implement its commitments resulting from
the Uruguay Round negotiations.  It plans to take an active role in future negotiations aimed at further
liberalization of trade and the reduction of discriminatory treatment against its exports, in particular,
agricultural products.  At the second WTO Ministerial Conference in 1998, Uruguay considered
essential the initiation of new negotiations in sectors where the outcome of the Uruguay Round
negotiations has been unsatisfactory, namely agriculture.  Uruguay also looked favourably at the
possibility of launching a new round of multilateral trade negotiations, but considered that this should
be governed by the single-undertaking principle in the same way as the Uruguay Round.
1
(ii) Institutional and legal framework
3. Uruguay is a democratic republic with the normal separation of powers:  executive, legislative
and judicial.2  Under the present Constitution, approved in 1996, the Executive is headed by the
President, who is elected for a five-year period and cannot be  re-elected;  he is assisted by a cabinet
of 12 ministers.3  The Legislature is composed of the Senate (31 members) and the Chamber of
Deputies (99 members), which together form the General Assembly.  Its members are elected for
five-year terms by popular vote, under a system of proportional representation.4  The Judiciary is
presided over by the Supreme Court of Justice, consisting of five members selected by the General
Assembly;  the judges of other courts are appointe d by the Supreme Court with the prior approval of
the Senate.5
4. The legislative process is stipulated in the Constitution of 1967, as modified in 1995.  The
Executive presents bills to the Legislature, where they are discussed and approved;  the new laws then
enter into force on promulgation by the Executive.  The Constitution is the ultimate source of law.
5. International treaties presented to the Parliament by the Executive undergo the same
procedures as a domestic bill. In Uruguay, when an international treaty or agreement is adopted by
                                                     
1 WTO document WT/MIN(98)/ST/30, 18 May 1998.
2 Uruguay XXI (1997).
3 Constitución de la República Oriental del Uruguay  (1997).
4 http://www.hg.org/guide-uruguay.html, October 1997.
5 Uruguay XXI (1997); and http://www.hg.org/guide-uruguay.html,October 1997.WT/TPR/S/50 Trade Policies Review
Page 18
Parliament it becomes part of ordinary Urugua yan law.  The process of adoption of MERCOSUR
legislation is carried out according to procedures established in the Uruguayan legislation:  if the
MERCOSUR rules to be adopted are of a legislative na ture, the process of adoption is the same as that
used for an international treaty.
(iii) Trade policy formulation
6. Since 1992 there have been no changes in the structure of trade policy formulation and the
Constitutional change in 1996 did not affect trade.  The Executive is responsible for formulation and
implementation of trade-related policies mainly through the Ministry of Economy and Finance.  The
Ministry of Economy and Finance through its Genera l Directorate of Foreign Trade is responsible for
the co-ordination of the national position in respect of overseas activities, and participation in
bilateral, regional and multilateral trade negotiations.  The Ministry of External Relations representsUruguay in international fora and ensures follow-up on the country's international commitments.
Both Ministries, through Uruguay XXI (see later), are responsible for export and investment
promotion.
7. An inter-ministerial committee was created to advise the Executive on the application of
provisional and definitive anti-dumping duties.
6  This Advisory Committee is headed by a
representative of the Ministry of Economy and Finance, and also comprises one representative each
from the Ministries of:  Livestock, Agriculture and Fisheries;  Industry, Energy and Mines;  and
Foreign Affairs; as well as the Office of Planning and Budget.
8. There are no independent bodies that formally advise the Government on the formulation of
trade policy.  However, the private sector is consulted in an informal manner.
(iv) Trade laws and regulations
9. A number of important changes in Uruguayan trade laws and regulations derive from the
adoption of the WTO Agreements, which were incorporated into domestic law via Law 16.671 of
13 December 1994.  MERCOSUR had already been launched at the time of the previous Trade Policy
Review in 1992, and developments in that context are discussed later.
10. In accordance with the Uruguayan legal system, the set of agreements which make up the
Final Act of the Uruguay Round form an integral part of national legislation with the status of law.Thus, any previous legal dispositions which are in conflict or in contradiction with the WTO
Agreements are considered repealed under the principle of tacit derogation.  Any amendments to trade
agreements need to be negotiated with treaty partne rs and then introduced into domestic law.  To the
extent that they have passed into domestic law, the WTO Agreements can be invoked in Uruguayan
courts.
11. Notwithstanding the changes that have already been introduced, the authorities noted that
some national legislation required amendment to achieve full consistency with the WTO Agreements.
In particular, several bills aimed at modifying Uruguayan intellectual property laws are currently
before the Parliament, but as a developing country, Uruguay has until the year 2000 to bring such
legislation into conformity with the TRIPS Agreement (Chapter III).
7
                                                     
6 Decree No. 142, 23 April 1996.
7 Developing countries may delay application of the provisions of the TRIPS Agreement until
year 2000 (with the exception of Articles 3-5) (Article 65.2) and under certain conditions delay application to
product patents, up to year 2005 (Article 65.4).Uruguay WT/TPR/S/50
Page 19
(v) Trade relations
(a) World Trade Organization
12. The WTO Agreements were ratified by Law 16.671 of 13 December 1994.  Upon accession
to the WTO Uruguay decided to avail itself of all the rights, powers and possibilities relating to
reservations, safeguards and other provisions established in the multilateral agreements so as to
defend its national interests as necessary, taking into account its status as a developing country.8
13. Under the Single Undertaking, the WTO Multilateral Agreements became binding on
Uruguay.  Uruguay was a signatory to the pluril ateral International Dairy and the Bovine Meat
Agreements, discontinued at the end of 1997, but it is not a signatory to the remaining plurilateral
agreements.
14. Table II.1 shows Uruguay's compliance with the notification requirements under the WTO
Agreements as at July 1998.
Table II.1
Uruguay's notifications under WTO Agreementsa
AgreementArticle/instrument
imposing obligations WTO document datebRequirement
Agreement on Agriculture Art. 10 and 18.2 G/AG/N/URY/14 – 04.06.98 Export subsidies (ES:1 to ES:3)
Art. 5.7 and 18.2 G/AG/N/URY/12 –13.03.98 Special safeguard provisions
(MA:5)
Art. 16.2 G/AG/N/URY/6 – 09.09.96 Decisions on Measures
Concerning the Possible
Negative effects of the Reform
Programme on NetFood-Importing Developing
Countries
Art. 18.2 G/AG/N/URY/13 – 04.06.98 Domestic support
(DS:1 & Tables DS:1 to DS:9)
Anti-dumping Art. 16.5 G/ADP/N/35/Add.1 – 25.02.98 Semi-annual reports
Art. 18.5 G/ADP/N/1/URY/1 – 13.03.95 Incorporation of Agreement in
national legislation
Art. 18.5 G/ADP/N/1/URY/2 – 24.09.96 Notification of laws and
regulations
Customs Valuation Art. 20.1 WT/Let/1 – 02.03.95 Acceptance of Marrakesh
Agreement establishing WTO.
Uruguay is utilizing themaximum time limits provided
for the application of Art. VII of
GATT 1994
Agreement on Import Licensing
ProceduresArt. 8.2(b) G/LIC/N/1/URY/1 – 09.09.96 Notification of publications,
laws and regulations
Art. 7.3 G/LIC/N/3/URY/1 – 09.09.96 Replies to questionnaire on
procedures
General Agreement on Tariffs andTrade (GATT) 1994Art. XXVIII.5 G/MA/22 – 16.12.96 Reservation of right to modify
schedule and concessions
Quantitative restrictions Decision of the Council
for Trade in GoodsG/MA/NTM/QR/1/Add.2 –
09.09.96Initial and biennial reports
Agreement on Preshipment Inspection Art. 5 G/PSI/N/1/Add.4 – 09.09.96 First notification of laws and
regulations
Agreement on Rules of Origin Art. 5.1 and
Annex 11(4)G/RO/N/12 – 09.09.96 Preferential and non-preferential
rules of origin
Agreement on Subsidies and
Countervailing MeasuresArt. 25.1 – GATT 1994
Art. XVI:1G/SCM/N/25/URY – 25.02.98 Annual report on subsidies
Table II.1 (cont'd)
                                                     
8 WTO document  WT/Let/1, 1 March 1995.WT/TPR/S/50 Trade Policies Review
Page 20
AgreementArticle/instrument
imposing obligations WTO document datebRequirement
Art. 25.11 G/SCM/N/35/Add.1 – 25.02.98 Semi-annual report on
countervailing actions
Art. 32.6 G/SCM/N/1/URY/1 – 13.03.95 Changes in laws and regulations
Agreement on Safeguards Art. 12.6 G/SG/N/1/URY/1 – 21.03.95 Notifications of laws and
regulations
Sanitary and Phytosanitary Measures(Agreement on the Application of)Art. 7, Annex B G/SPS/N/URY/1 – 21.05.96
G/SPS/N/URY/2 – 04.07.96Transparency of regulations
State Trading (Understanding of
Art. XVII of the GATT (1994)Art. XVII:(4)(a) G/STR/N/1/URY – 30.06.95
G/STR/N/1/URY/Add.1 –26.07.95Existence of a state-trading
enterpriseState-trading activities
G/STR/N/3/URY – 09.01.98 Laws and regulations reforming
state-trading enterprises
Agreement on Technical Barriers to
TradeAnnex 3 (c)
Art. 10.10G/TBT/CS/N/82 – 01.10.97
G/TBT/ENQ/10 – 22.01.98Acceptance of Code of Good
Practice on Voluntary Standards
National Enquiry Point
Agreement on Textiles and Clothing Art. 6.1 G/TMB/N/11 – 22.02.95 Special safeguard mechanism
Art. 2.6 and 2.7(b) G/  TMB/N/47 – 14.08.97 Integration list
Art. 2.11 and 2.8(a) G/TMB/N/231 – 10.01.97 Programme of integration
Agreement on Trade-related  Aspects
of Intellectual Property RightsArt. 63.2 IP/N/1/URY/1 – 04.05.95 Notification of laws and
regulations
Agreement on Trade-RelatedInvestment MeasuresArt. 5.1 G/TRIMS/N/1/URY/1 –
31.03.95Notification of TRIMs
inconsistent with the Agreement
Art. 6.2 G/TRIMS/N/2/Rev.4 - 06.02.98 Publications on trade-related
investment measures
General Agreement on Trade inServices (GATS)Art. III:4 and
Art. IV:2S/ENQ/44 – 19.03.97 National Enquiry Point and
Contact Point
Art. III:3 S/C/N/54 – 02.04.97 New laws or changes in new
laws
International Dairy Agreement Art. III.1 and III.3 IDA/STAT/10 – 08.07.95 Market data
Regional Integration Arrangements Enabling clause WT/COMTD/11 Integration
a Reflects notifications recorded in the Central Registry of Notifications as at 17.7.98;  thus some notifications may not be in cluded
due to processing lag.
b Latest document if notification is periodic.
(b) Uruguay's involvement in GATT/WTO Dispute Settlement
15. Under the GATT/WTO dispute settlement mechanism, Uruguay has requested consultations
in only one case, regarding rice commitments undertaken by the European Community in the Uruguay
Round.9
(c) Regional agreements
16. As a member of the Latin American Integration Association (LAIA)10, created in 1980 by the
Treaty of Montevideo, Uruguay is involved in several agreements:  economic complementarity
agreements with Argentina ( Convenio Argentino-Uruguayo de Cooperación Económica , CAUCE),
Brazil ( Protocolo de Expansión Comercial , PEC), and Mexico (in force until 31 December 1998); and
a partial-scope agreement with Cuba (in force until 31 December 1998).  The CAUCE and the PECagreements are parallel to MERCOSUR and will remain in force until 2001.  Preferences negotiated
under partial-scope agreements with Colombia, Peru and Venezuela and with Ecuador, under an
economic complementarity agreement, were in force until September 1998.
                                                     
9 WTO document WT/DS23/1, 19 January 1996.
10 The member-countries of LAIA are:  Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico,
Paraguay, Peru, Uruguay and Venezuela.Uruguay WT/TPR/S/50
Page 21
17. Uruguay is a founding member of the So uthern Common Market (MERCOSUR) composed
of Brazil, Argentina, Uruguay and Paraguay.  MERCOSUR was established in 1991 with the
objective of creating a common market with free movement of goods, services and persons by the end
of 1994.  Subsequently the member countries decided to implement the customs union for goods only
from 1995, while the services framework agreement was concluded only in late 1997.11  Under the
Ouro Preto Protocol (see below), MERCOSUR (initially only an agreement within the LAIAframework) acquired an independent legal status which, inter alia , enables the group to undertake
international commitments.  Membership is now open to other LAIA countries.
12
18. MERCOSUR's institutional structure, established under the 1994 Protocol of Ouro Preto and
in force since December 1995, comprises, in hierarchical order:
- the Council of the Common Market (CMC), which meets at least every six months;
- the Common Market Group (GMC), an executive body;
- the MERCOSUR Trade Commission (CCM), which monitors the application of the common
trade policy instruments, reviews issues relating to such trade policies, intra-MERCOSUR
trade and trade with third countries, and meets at least once a month;
- the Joint Parliamentary Commission, an advisory body;
- the Economic-Social Consultative Forum, an advisory body;  and
- the MERCOSUR Administrative Secretariat.
19. There are several working groups in charge of the different negotiations which present their
recommendations to the GMC.  The GMC may a pprove these recommendations or, depending upon
their importance or subject matter, pass them on to the higher level CMC.  The latter, which is formed
by the Ministers of External Relations and Economy, adopts the decisions which are then signed by
the Presidents.  They then need to be implemented in national legislation or regulations, asappropriate.  The CCM receives recommendations from the different technical committees and can
raise them with the GMC;  the CCM adopts directives.
20. Most tariffs applicable to intra-zone trade were removed on 1 January 1995, when the
Common External Tariff (CET) came into force and some 85% of intra-trade became duty-free.  The
four countries agreed that circulation within  MERCOSUR of certain specified products would be
subject to tariffs to be reduced progressively to zero by December 1998 (Argentina and Brazil) and
December 1999 (Paraguay and Uruguay).
21. Regarding imports from third countries, at present each member is allowed a list of products
that are exceptions to the CET;  some of these products will be progressively removed from the
exceptions list by December 2001 and others by 2006.  Thus, full implementation of the CET (allmembers, all items) should be achieved by 2006.  Tariff reductions for products contained in national
exceptions lists may only be accelerated, not delayed.  Another important area of exception to the
CET is that individual members currently operate their own concessionary regimes and there are as
yet no plans for convergence of such regimes.
22. Negotiations among MERCOSUR partners are under way to harmonize remaining restrictions
on internal trade in agricultural products, automotive products and services.  Negotiations for the
establishment of a common automotive regime in the year 2000 are at an advanced stage; however,
no agreement had been reached by July 1998.  The issue of a sugar regime also remains unresolved.
A Protocol on Trade in Services which aims at liberalizing such trade within MERCOSUR over a
ten-year period was signed in December 1997;  negotiations on the liberalization programme are
                                                     
11 Uruguay XXI (1997).
12 LAIA Economic Complementarity Agreement No. 18.WT/TPR/S/50 Trade Policies Review
Page 22
scheduled to end during 1998 (Chapter IV).13  A first round of negotiations to establish the
preliminary lists of specific commitments was concluded at a meeting of the CCM in July 1998.
Coordination is also being strengthened in othe r areas as MERCOSUR encompasses a diversified
agenda including environment, justice, education and labour issues.
23. Consultations take place among the Minister s of Economy and Central Bank Governors on
macro-economic policy but there is no co-ordination as such and meetings are not held on a regularbasis.  Argentina has informally raised the idea of introducing a single currency, modelled on the
"Euro" but this is not yet under formal study.
14  Uruguay has not expressed a position regarding a
single currency.
24. The authorities consider the impact of ME RCOSUR on the Uruguayan economy to have been
beneficial.  Competition from MERCOSUR's partne rs has promoted restructuring and modernization
of the economy (see also Chapter IV (3)), and has contributed to an increase in the competitiveness of
the economy.  Moreover, Uruguay plans to have a central role within MERCOSUR.  This includes
becoming: a port and trans-shipment centre, a financial centre and a distribution centre, while
maintaining its position as a producer of agricultural and manufactured products.  MERCOSUR's
Secretariat is already located in Montevideo.
25. Concerns have been expressed about the possible trade-diverting effects of the MERCOSUR
integration scheme, in particular the boosting of intra-regional trade in inefficient sectors.15  A study
by the Economic Commission for Latin America a nd the Caribbean (ECLAC) shows that Uruguay's
unilateral reduction of tariffs and the deepening of the process of integration has resulted in an
increase in trade even with third countries.  The study claims that, even though there has been  a
geographic re-orientation of trade flows towards MERCOSUR partners, up to now trade creation has
outweighed trade diversion.  Exports of agricultural and dairy products, tobacco, textiles and clothing,and footwear towards the region increased, while imports of food, clothing, basic chemicals and
pharmaceuticals from the region also increased.  Trade diversion has occurred in basic chemicals,
pharmaceuticals and basic metals.  However, the study claims that these are only preliminary results.
First, the CET has not yet been fully implemented, and as Uruguay converges to the CET tariffs on
machinery and equipment, goods that Uruguay imports from third countries should come increasinglyfrom within the region.  Second, the fact that tr ade diversion has not increased under MERCOSUR
does not mean that it did not exist under prior LAIA agreements.  Third, macro-economic conditions
have favoured extra-regional imports, but if relative prices change, trade diversion could increase.
16
However, the substantial reduction in Uruguay's MFN tariff in the last decade (Chapter III), whileLAIA preferences were already operational, suggests that Uruguay has indeed become a more openmarket for third countries and this process has generally been advanced under MERCOSUR.
26. Two dispute settlement mechanisms exist within MERCOSUR:  an arbitration procedure
established through the Brasilia Protocol and a general procedure to deal with all complaints placed
before MERCOSUR's Trade Commission under the Ouro Preto Protocol.  Uruguay used the
mechanism established under the Brasilia Protocol once, and there have been some complaints againstUruguay.
27. In 1996, Chile became an associate member of MERCOSUR by signing a LAIA Economic
Complementarity Agreement with the group.  The most important aspect of this agreement is the
establishment of free trade for at least three quarters of tariff lines by January 2006 and free trade for
                                                     
13 Diario El País , 15 December 1998.
14 Reuters, 15 July 1998.
15 Yeats (1997).
16 ECL AC (1997).Uruguay WT/TPR/S/50
Page 23
all tariff lines by 2014.  As with other LAIA ag reements, the Chile-MERCOSUR agreement contains
regulations regarding rules of origin, safeguards, unfair trade practices, non-tariff restrictions,
competition policy, customs valuation, technical, sanitary and phytosanitary standards, export
incentive measures and a dispute settlement mechanism.17  The regional bloc signed a similar
agreement with Bolivia in 1997, providing for a free-trade zone by 1 January 2007.18
28. Since 1996 trade negotiations have been under way with Mexico to replace the existing
bilateral agreement.  No understanding has yet been reached, but Uruguay was able to extend its
agreement with Mexico until 31 December 1998.19
29. MERCOSUR's negotiations with the Andean Comm unity to sign a free-trade agreement has
not yet been concluded.  Thus, the previous bila teral agreements that each MERCOSUR country had
signed under LAIA were extended until September 1998.  Meanwhile, negotiations among the twogroups are continuing.
20  Among the more difficult issues to be settled are:  a schedule to reduce
tariffs on some 1000 sensitive products, rules of origin and a dispute settlement mechanism.21
30. These negotiations are parallel to the negotiations for the establishment of the Free-Trade
Area of the Americas (FTAA).
31. MERCOSUR also maintains an agreement with th e United States for the promotion of trade
and investment.22  In June 1998, MERCOSUR and Canada signed a trade and investment cooperation
agreement which would strengthen investment and bilateral trade.23
32. An Interregional Framework Agreement be tween the European Union (EU) and
MERCOSUR, was signed in 1995, calling for st ronger political dialogue, greater economic
cooperation and preparations for a free-trade area.  Three stages were defined to undertake the
negotiations:  (i) an analysis of merchandise trade flows; (ii) consultations to assess the impact of
trade liberalization; and (iii) the definition of concrete proposals.24  Negotiations to form the free-trade
zone are due to start in 1999.25  However, the agreement that would lead to the elimination of tariffs
over ten years has found strong opposition in Europe, mainly from competing producers of
agricultural products.26
(2) FOREIGN DIRECT INVESTMENT
33. The Government recognizes that foreign investment has an important role to play in the
continuing development of the economy and maintains a favourable policy stance through a number
of incentives.  However, there are no special benefits for foreign investors:  Uruguay does not
differentiate between national and foreign investors, all investments receive national treatment.
34. In the past, foreign direct investment (FDI) could have been channelled through the Foreign
Investment Law of 1974, under which in vestment contracts guaranteed, inter alia , tax and duty
                                                     
17 For a thorough description of this Agreement see WTO (1997c).
18 Uruguay XXI (1997).
19 Diario El País ,  9 December 1997
20 Diario El País , 15 December 1997.
21 Diario El País , 11 November 1997, 7 December 1997, and 11 December 1997 .
22 WTO (1998a), Geneva.
23 France-Presse, June 12, 1998; and Financial Times , 18 June 1998.
24 Diario El País , 13 November 1997
25 Búsqueda , 16 April 1998.
26 Financial Times,  9 July 1998;  and Búsqueda , 16 April 1998.WT/TPR/S/50 Trade Policies Review
Page 24
exemptions, access to financial markets, and repatriation of capital and profits. However, most
investors did not take advantage of this optional scheme since general regulations, such as the
Industrial Promotion Law of 1974, provided similar benefits without the registration requirement.
35. A new investment law, No. 16.906, was approved  on 7 January 1998.  This law puts domestic
and foreign investment clearly on the same footing, allowing equal access to all sectors, eliminating
credit restrictions and offering tax incentives.  Previously there were limitations on foreign equityparticipation in important areas of the Uruguayan economy.  Official authorization was required to
invest in areas such as:  electricity, hydrocarbons, basic petrochemicals, atomic energy, exploitation of
strategic minerals, banking and finance, railroads, telecommunications, radio, television, press and
certain activities entrusted by law to government-owned enterprises.  Nevertheless, authorization was
readily granted for equity participation in mining, hydrocarbons, and banking and finance.
27  Neither
foreign nor domestic equity participation in state monopolies is allowed (Chapter III).
36. Through the new law the State formally commits itself to not impeding through
discriminatory measures the establishment, management and use of investments.  Restrictions on
domestic medium- and long-term credit for foreigners have been removed.  Taxes on excess profits
have been eliminated;  free remittance of principal and profits is also guaranteed.  No priorauthorization for investment is necessary, nor are feasibility studies required except to qualify for non-
automatic benefits.  There is a guarantee to maintain for a certain number of years the tax regime in
force at the time of the investment.
37. Companies may qualify for automatic tax exemptions on the purchase of capital goods
destined for manufacturing, data-processing, equipment, incorporation of intellectual property and
technology.  These exemptions cover payment of the net-worth tax, the value-added tax (VAT) and
the internal specific tax (IMESI), an excise tax.  In addition, for certain investments, the Executive is
authorized to grant non-automatic deductions on the industry and commerce tax (IRIC), the
agricultural income tax (IRA), the net-worth ta x and duty exemptions for capital goods.  These
incentives are available for companies whose proposed investment is declared "promoted" by the
Government, taking account of the extent to which the investments incorporate technology, improve
competitiveness, boost export potential, promote industrial diversity and contribute to geographicaldecentralization, all provided that a feasibility study is approved by the Executive.  Investments of
US$50 million or more may also qualify.
38. In deciding on whether to qualify an enterprise for the above incentives, the Executive is
advised by the Application Commission formed by the Ministries of Economy and Finance;  Industry,
Energy, and Mines;  Livestock, Agriculture and Fish eries;  and Labour and Social Security;  and by
the Office of Planing and Budget and the Decentralization Commission which are in charge of
evaluating the investment projects.  However, prior to issuing a final recommendation, the
Commission consults with the pertinent Ministry or body.
39. The new law has attracted some concern because of apparently open-ended guarantees, the
degree of discretion granted to the Executive when deciding which investments are eligible for non-automatic benefits, the extent of benefits under the special regime for industrial restructuring, and
labour issues (regarding separation settlement between employers and employees which must be
finalized within a year of the employment termination date).
28  The special regime for industrial
restructuring aims at facilitating the restructuring of industries that produce goods included in
MERCOSUR's Final Adjustment Regi me (Chapter III).  These industries will be allowed to import
duty-free from other MERCOSUR countries such produc ts which they stop producing as a result of
                                                     
27 GATT (1992a), Geneva.
28 Diario El País , 15 December 1997;  and Búsqueda , 16 July 1998.Uruguay WT/TPR/S/50
Page 25
restructuring.  However, beneficiaries must also comply with an export programme:  exports of the
remaining goods that they produce must meet certain performance requirements.29  Investors willing
to avail themselves of these benefits must apply through the Application Commission, which will
advise the Executive.
40. The aim of the new law is to make Urugua y a more attractive investment location  vis-à-vis  its
MERCOSUR neighbours, who have attracted more FDI than Uruguay in recent years.30  A study by
ECLAC also noted that FDI had dropped slig htly in Uruguay after the Mexican crisis.31  However,
since investments do not need to be registered, the available FDI data may be misleading in indicating
lower FDI flows.  On the other hand, the small si ze of the domestic market, Uruguay's stringent
labour code, adding considerably to labour costs, and the country's high public utility costs are factors
which offset Uruguay's locational advantages and its well-educated labour force.
41. Foreign investors can also avail themselves of other preferential regimes provided through,
inter alia , the Industrial Promotion Law, the Forestry Law and the Tourism Law, as well as the free-
trade zone and temporary entry regimes (Chapter III).32
42. To promote foreign investment, a new trade a nd investment promotion office, Uruguay XXI,
was inaugurated on October 11, 1996.  This office is to become a one-stop window for foreigncompanies seeking to invest in Uruguay.  It is a specialized government office to assist potential
investors, organize business visits and missions and advise on financing sources.
33
43. Traditionally, Uruguay has been a safe place for investors because of its principle of defence
of private property, no personal income tax and its relative economic stability.34  The country has also
been very active in the promotion of both multilateral and bilateral agreements for the protection of
investments, as well as agreements to avoid double taxation.  In this context, several investment
protection agreements have been signed with the following countries and international organizations:
Belgium, Canada, Germany, Hungary, Italy, th e Netherlands, Poland, Rumania, Spain, Switzerland,
the United Kingdom, the Multilateral Investment Guarantee Agency (MIGA) and the Overseas
Private Investment Corporation (OPIC).35  Agreements to avoid double taxation have been signed
with Canada, Germany, Poland and Spain, while similar agreements are being negotiated with
Australia, Bulgaria, Chile, China, France, Israel, Korea, the Russian Federation, Sweden, the UnitedStates and Hong Kong, China.
36
                                                     
29 Article 18, Law 16.907, 7 January 1998.
30 Business Latin America, The Economist Intelligence Unit, 27 January 1998.
31 ECLAC (1998), Foreign Investment in Latin America: Report 1996 (http//www.eclac.cl/english/
Coverpage/Invest.html, 28 January 1998).
32 According to the authorities the benefits provided by the Industrial Promotion Law and the Tourism
Law have been incorporated into the new Investment Law (No. 16.906).
33 Dun & Bradstreet Information Services (1997).
34 The 1997 Constitution (Article 32), ensures private property rights.  Expropriations could take place
only in cases of need; these have to be approved by the legislature and the owner should be properly
compensated.
35 The investment insurance agreement with OPIC was signed in 1982 to insure U.S. investment
against risks resulting from expropriation, inconvertibility, war or other conflict affecting public order.
36 Dun & Bradstreet Information Services (1997).