08 Otoño

April 2011

Automotive and Auto Parts Industry

Investment opportunities in Uruguay

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1. Why invest in the Uruguayan automotive industry?

Great experience in assembling vehicles and manufacturing auto parts

Uruguay has had –for years now− vehicle assembly plants and auto parts manufacturers, both national and foreign. There are more than 40 companies today, several of which are internationally certified in terms of quality. Exports in the automotive industry have grown more than twice from 2005 to 2010.

Uruguay, a reliable country with a preferential access to the regional market

In Uruguay, foreign investors receive the same treatment as local investors. They are free to transfer funds and to repatriate profits.

Uruguay is part of Mercosur, an enlarged market with more than 240 million inhabitants (and sales for more than 4.2 million vehicles in 2010), and almost 400 million inhabitants including other South American countries with which Mercosur has economic complementarity agreements, such as Bolivia, Chile, Colombia, Ecuador, Peru and Venezuela.

In this regional environment, Uruguay has unlimited access to the Argentinean and Brazilian markets for products in the automotive industry, except for motorbikes and agricultural and road machinery.

The country has several origin regimes to export to Argentina and Brazil free of tariffs. Pursuant to one of them, only 30% of minimum regional content is required for new models during the first year. Under this regime, which has quantitative limitations, there is still an important margin for companies which intend to export both to Argentina and Brazil.

Uruguay also has special agreements within the Mercosur. The last one, signed in 2008, states that for Brazilian automotive products to enter our country free of tariffs, Brazil must import auto parts and vehicles from Uruguay.

Also an agreement with Mexico was signed in 2004, which allows Uruguayan automotive products to enter this country free of tariffs.

Uruguay has very attractive investment and exports promotion regimes

In 2007, an investment promotion regime was approved, which allows companies –under certain conditions– to compute up to 100% of the invested amount as a credit for future Corporate Income Tax payments.

There is also a beneficial regime for all exports, including:

VAT refund when purchasing materials

A Temporary Admission regime for imports of materials which are incorporated in the exported goods, whereby they do not pay taxes (tariffs and others)

An export pre-financing system

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Exporters of automotive products receive a 10% rebate of the exports' FOB value through credit certificates issued by the government

Important tariff discount for imports of kits used in local assembly of vehicles for the domestic market

Another benefit, for assembly companies only, is to be able to import supplies with a 2% tariff as long as full assembly in the country is completed (CKD or Complete Knock Down).

Uruguay is attracting important foreign investments in this industry

Affinia, ArcelorMittal, Bader, Dana, Faurecia, Fischer, GKN, Takata and Yazaki are some multinational companies supplying the regional and global market from industrial plants located in Uruguay.

These foreign investments are made within a context in which the flow of foreign direct investment to Uruguay has increased more than four times from 2001 to the present, representing 4% of the GDP in 2009 and 2010.

Image source: www.autopartes.org.uy

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2. Interesting information for the industry: global sales, production and exports in the region and in the country

The Uruguayan automotive industry has experienced a unique growth during the last years, especially during 2010, when foreign investments have increased both in vehicle assembling and in auto parts manufacturing. The industry projections are of growth in the next years due to the expansion of recent investments and the establishment of new ones.

Graphs 2.1 and 2.2 show that both physical production –measured through the Physical Volume Index– and employment in the industry have grown. At the end of 2010, approximately 2,000 people were employed, that is, approximately 2% of total employment in the manufacturing industry.

Graph 2.1 Evolution of the Physical Volume Index, 2006=1001

Source: INE, Annual Industrial Survey. Branch 3400.

Graph 2.2 Evolution of the Employed Staff Index, 2006=100

Source: INE, Annual Industrial Survey. Branch 3400.

2.1 Global production and exports of vehicles

Global production of vehicles2 went from 58 million in 2000 to 62 million in 2009. Recently, a fast production delocalization process from developed countries to emerging economies has been verified. China’s new position is especially remarkable; it produced 2 million vehicles in 2000 and almost 14 million in 2009, being in the first global position that year, ahead of Japan (7.9 million), United States (5.7 million) and Germany (5.2 million). See Graph 2.3.

1 INE information of Branch 3400 does not include leather upholstery for vehicles (registered in Branch 1912) or electrical

cables (registered in Branch 3100) or steel tubes (registered in Branch 2811). 2 Source: International Organization of Motor Vehicle Manufacturers (OICA), www.oica.net. It includes automobiles, light 2 Source: International Organization of Motor Vehicle Manufacturers (OICA), www.oica.net. It includes automobiles, light

commercial cars, heavy vehicles (trucks) and buses.

80

100

120

140

160

180

200

2006 2007 2008 2009 2010 2010/3 2010/4

Industry Automotive Industry

70

80

90

100

110

120

130

140

2006 2007 2008 2009 2010 2010/3 2010/4

Industry Automotive Industry

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Germany is still the leader in vehicle exports3, followed by Japan and further behind by USA, Spain and Belgium. China is placed in an even lower position. See Graph 2.4.

Graph 2.3 Main vehicle manufacturing countries, millions of units

Graph 2.4 Main vehicle exporting countries, US$ billion, 2009

0

2

4

6

8

10

12

14

16

2000 2005 2009

China USA Japan Germany

121

73

45 3128 6

0

20

40

60

80

100

120

140

Source: International Organization of Motor Vehicle

Manufacturers (OICA), www.oica.net. It includes

automobiles, light commercial cars, heavy vehicles (trucks) and buses.

Source: Uruguay XXI based on Customs information. It includes the harmonized customs codes 8701 to 8707 (passenger and load vehicles).

2.2 Production of vehicles in Mercosur and in Uruguay

The annual production of vehicles in Mercosur was 4.5 million units in 2010, including automobiles, light commercial cars, trucks and buses. In 2006, the production accounted for 3 million and it has not stopped growing since then, in spite of the recent world crisis. See Chart 2.1 and Graph 2.5.

3 Source: Uruguay XXI based on Customs information. It includes the harmonized customs codes 8701 to 8707 (passenger

and load vehicles).

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Chart 2.1 and Graph 2.5 Production of vehicles in Mercosur, 2006 to 2010, thousands of units

Year Brazil Argentina Uruguay Total

2006 2,612 432 0.9 3,045

2007 2,980 545 0.7 3,526

2008 3,216 597 1.1 3,814

2009 3,183 513 2.5 3,699

2010 3,644 717 4.0 4,365 Sources: for Brazil: Anfavea; for Argentina: Adefa; for Paraguay: CIP; for Uruguay: Ascoma. It includes automobiles, light utility cars, trucks and buses. Paraguay, 2010, estimation with data to September.

In Uruguay, the production of vehicles has taken up again a growing path in 2008 and 2009 after several years of stagnation. Vehicles are assembled in two previously existing plants and in a newly built plant, using kits imported from the headquarters and integrating auto parts of the national and regional industry.

Nordex plant in Colon, Montevideo, produces short series of trucks for the domestic market and for export for Renault (under an agreement with Renault Trucks of the Swedish group Volvo) and Aelous (under an agreement with the Chinese company Dongfeng Motor) and pick-up trucks to be exported to Brazil, Bongo model (under an agreement with Kia Motors from Korea).

Chery Automobile Co. Ltd. from China and Socma S.A. from Argentina produce Chery vehicles in the old Oferol plant. Since 2009, Chery Tiggo vehicles, and more recently Chery Face vehicles, have been manufactured to be exported to Brazil and Argentina.

Effa Motors. A new plant has been built on Route 1, Km 38, in the Department of San José, with national capital, which opened in April 2010. Vehicles are assembled there, with Chinese kits for the domestic market (15%) and to be exported to Brazil 85%. They commercialize their own brand (Effa) and another Chinese brand (Lifan). The initial investment in fixed assets was US$ 6.5 million.

2.3 Sales of vehicles in Mercosur and in Uruguay

Figures of vehicle sales in Mercosur are outstanding since they have almost doubled in four years, going from 2.4 million units in 2006 to 4.2 million in 2010, with a stable growth even during the recent world crisis (2008 and 2009). See Chart 2.2 and Graph 2.6.

3,0453,526 3,814 3,699

4,365

0

1000

2000

3000

4000

5000

2006 2007 2008 2009 2010

Brazil Argentina Mercosur

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Chart 2.2 and Graph 2.6 Sales of brand new vehicles in Mercosur, 2006 to 2010, thousands of units Year Brazil Argentina Paraguay Uruguay Total

2006 1,920 461 9.4 16.3 2,407

2007 2,444 565 12.9 20.8 3,043

2008 2,824 612 22.3 28.8 3,487

2009 3,154 487 13.5 28.4 3,683

2010 3,453 698 20.6 45.7 4,217

Sources: for Brazil: Anfavea; for Argentina: Adefa; for Paraguay: CIP and for Uruguay: Ascoma. It includes automobiles, light utility cars, trucks and buses. Paraguay, year 2010, estimation with data to September.

Sales of vehicles per brand in Mercosur are within the same range that in 2008, led by Volkswagen, Fiat and General Motora (62% of the total). See Graph 2.7. Something similar happens in Uruguay, with the same three brands leading sales –General Motors, Volkswagen and Fiat– even though in a different order and with less presence (49% of the total). Also, the Chery vehicle stands out (recently started being assembled in the country) with 5% of the market. See Graph 2.8.

Graph 2.7 Vehicle sales per brand in Mercosur, 2010

Graph 2.8 Vehicle sales per brand in Uruguay, 2010

Sources: for Brazil: Anfavea; for Argentina: Adefa; for Paraguay: CIP and for Uruguay: Ascoma.

Source: ASCOMA.

2,3713,029

3,465 3,7174,217

0

1000

2000

3000

4000

5000

2006 2007 2008 2009 2010

Brazil Argentina Mercosur

VW22%

Fiat21%

GM19%

Ford11%

Peugeot6%

Renault6%

Others15%

GM27%

VW12%

Fiat9%Nissan

5%Chery

5%

Peugeot4%

Renault4%

Toyota4%

Ford4%

Hyundai3%

Others23%

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2.4 Auto parts exports in Uruguay Uruguayan auto parts exports have been increasing from 2005 to 2010, going from US$ 140 million to US$ 228 million during this period.

Graph 2.9 Vehicles and auto parts exports, 2005 to 2010, US$ million

Vehicle exports grew in 2010 due to the Chinese cars that are now being assembled in the country. Altogether, the automotive and auto parts exports totaled US$ 331 million in 2010, and a greater growth is expected in the years to come. See Graph 2.7.

Source: Uruguay XXI based on data from the National Customs Office.

Auto parts exports are mainly concentrated on five products: 1) drive

Graph 2.10 Auto parts exports per type of product, in percentages, 2010

shafts and axle shafts, 2) leather upholstery, 3) steel tubes for bodywork, 4) electrical cables (harnesses) and 5) brake bands, discs and pads. See Graph 2.10.

Source: Uruguay XXI based on data from the National Customs Office.

1540 37

64 45103

140 150209 218

170

228155

190246

282

215

331

050

100150200250300350

2005 2006 2007 2008 2009 2010

Vehicles Auto parts Total

Axles and axle shafts,

35%

Leather upholstery,

29%

Steel tubes, 18%

Electrical cables,

10%

Brake parts, 4%

Others, 4%

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3. Promotional legal regulations and regional and international trade agreements favorable to produce and export from Uruguay Uruguay has Trade Agreements and Investment Protection Agreements with several countries and a set of legal regulations promoting investments and exports. All this generally favors most of the economic sectors. See Annex.

The automotive industry has been subject to a long history of industrial policies in view of its importance for the economy, taking into account the large number of parts that form a vehicle. Therefore, several companies which provide auto parts may develop around an assembling plant. Regional integration (Mercosur) in the productive environment gains a great significance in this sector.

These industrial policies are applied to the foreign trade environment and to an appropriate combination with the general promotion regulations (such as Temporary Admission and others, see Annex), representing a powerful incentive for the establishment of assembling plants and auto parts companies in Uruguay.

Trade agreements in Mercosur for the automotive industry4 The extra-zone tariffs for Mercosur are currently 20% for automobiles and light vehicles, trucks and buses, 14% or 18% for auto parts and 14% for agricultural and road machinery in general5. In the Mercosur framework, Uruguay has entered into bilateral economic complementarity agreements with Argentina and Brazil, from which arises the following (see Chart 1): 1) Uruguay may export car products to Argentina and Brazil at no cost and under no quantitative restrictions provided it complies with a minimum Regional Content Index6 of 60%7.

2) Regarding new models of vehicles or set or sub-sets of auto parts, approved in the Progressive Integration Program (PIP) for each exporter, the same are also exempted from fees and under no quantitative restrictions and a lower regional content is allowed:

40% at the beginning of the first year

50% at the beginning of the second year, and

60% at the beginning of the third year8

4 Source: ALADI (www.aladi.org/nsfaladi/textacdos.nsf/vaceweb) AAP.CE No. 2 Protocol 68 (with Brazil) and AAP.CE No. 57

and Additional Protocol (with Argentina). 5 March 2011.

6 ICR = [1 – (auto parts imports from outside the MERCOSUR-CIF/product sale price “exfactory”)] * 100. The minimum

Uruguayan content will be 20%. 7 ACE No. 2, Articles 5 a) and 10.

8 ACE No. 2, Articles 5 a) and 14.

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3) Uruguay may export to Argentina and Brazil at no cost with a preferential origin regime: a) Car products (vehicles, sets and sub-sets of auto parts), with a minimum Regional Content Index of 50%9. b) For new models of vehicles or sets or sub-sets of auto parts, included in the Progressive Integration Program approved for each exporter, the minimum Regional Content Index is:

30% for the first year of the project

35% for the second year

40% for the third year

45% for the fourth year, and

50% from the fifth year onwards10. In both cases there are quantitative restrictions (quotas):

vehicles and commercial light cars: up to 20,000 annual units to each country;

trucks and tractor trucks: up to 800 units to Argentina and up to 2,500 to Brazil;

armored cars: up to 500 and 1,200 units respectively;

auto parts sub-sets: up to US$ 60 million to Argentina and up to US$ 100 million to Brazil.

4) For armored vehicles manufactured in Uruguay, the tariff preference of 100% (that is, no tariff) is maintained, but there are certain quantitative restrictions. Moreover, the minimum Regional Content Index may be 50%11. Chart 3.1 Uruguay, origin regime of car products for exports to Argentina and Brazil

Existing models New models Armored vehicles

With no quantitative restrictions

60% 1st year: 40% 2nd year: 50% 3rd year: 60%

60%

With quantitative restrictions

50%

1st year: 30% 2nd year: 35% 3rd year: 40% 4th year: 45%

>= 5th year: 50%

50%

5) In 2008, Uruguay and Brazil agreed to reduce Uruguay’s automotive and auto parts commercial deficit with respect to Brazil through new trade parameters, which are variable in proportion to the Uruguayan exports to Brazil, verified during the previous year (applies

9 ACE No. 2, Articles 5 b) and 11.

10 ACE No. 2, Articles 5 b) and 15. 11 ACE No. 2, Articles 5 c) and 11.

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to light passenger vehicles, auto parts sets and sub-sets and utility cars). These new negotiated mechanisms are expected to enable a productive integration in the industry at a bilateral level with Brazil or at a regional level.

Trade agreement Mercosur-Mexico

In 2002, a specific agreement was signed with Mexico for the automotive industry, which allows exporting auto parts and vehicles to this country with no tariffs, under origin regimes that are quite favorable for Uruguay, especially when it comes to new products (50% in general and 30% for the first year of a new product, Annex II of ACE No. 55)12.

Benefit for vehicle assembling companies13

Automotive terminals may import vehicle kits with a preferential fee of 2% provided that they comply with a complete assembling process in the country (from CKD, a collection of pieces that are completely disassembled) and they destine their production to the domestic market. Export refund

There is a 10% refund over the value of vehicle and auto parts exports, through credit certificates issued by the Government, which may be used for paying customs taxes as well as taxes collected by the DGI (Tax Administration Office) or the BPS (Social Security System). These credit certificates may also be assigned to third parties. The refund cannot be applied together with the “Refund of other taxes”, applicable to goods exports14. Prefinancing of exports

A preferential regime has been established for the automotive sector, currently in force until June 30, 201115. Excise Tax discount to sales of brand-new electrical vehicles, hybrid vehicles and gasoline vehicles of lower displacement engine in the internal market

Decree 411/010 of December 30, 2010 established the following Excise Tax (IMESI) rates for sales of brand new vehicles in the internal market:

Electrical vehicles 5%, hybrid vehicles 3%

Gasoline vehicles, 20% for those up to 1,000 cc, 25% for those with more than 1,000 and up to 1,500 cc, 30% for those with more than 1,500 cc and up to 2,000 cc, 35% for those with more than 2,000 cc and up to 3,000 cc, and 40% for those with more than 3,000 cc.

12 ACE No. 55 of September 27, 2002, Additional Protocol of July 12, 2004 and a Free Trade Agreement between Mexico

and Uruguay of November 15, 2003. 13 Decree 340/996 of August 28, 1996.

14 See Annex, Government incentives to exports.

15 BCU’s communication 2009/063 of April 24, 2009.

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4. Recent investments in the industry

Foreign Direct Investment has considerably increased in Uruguay in the last years. See Graph 4.1. If classified by destination sector, approximately half of the investments are made in companies and banks and the other half are made in the real estate sector and in lands16. In the 2000’s, the countries that have invested the most were Spain, Argentina, USA, Brazil and England17.

Graph 4.1 Foreign Direct Investment in Uruguay, US$ million

Source: Central Bank of Uruguay

Before the integration of Mercosur, several international first-class companies such as General Motors, Ford, Fiat, etc. had vehicle assembling plants in Uruguay. Currently, Asian companies have begun to produce vehicles in the country, thus gaining internationalization experience. Around these companies and by seizing the exports opportunities Uruguay has to offer, a foreign flow of investment is generated to the auto parts sub-sector, which had been exporting products such as leather car seats for world-class vehicles, using excellent national raw materials and drive shafts and axle shafts, destined to global and regional auto parts terminals.

4.1 Assembling plants Asian vehicles manufacturers are carrying out dynamic investment processes. Some of them use old national plants, entering into agreements with their owners or acquiring them, while others build new assembling plants.

16 In 2008, FDI percentages were: 37% in companies, 6% in banks, 32% in the real estate sector and 23% in lands.

17 In 2008, FDI percentages per country were: Argentina 30%, Spain 13%, Brazil 10%, USA 8%, England 5% and others 34%.

332

847

1,4941,330

1,809

1,258

1,627

194

616

1,104

779 798

0200400600800

1.0001.2001.4001.6001.8002.000

2004 2005 2006 2007 2008 2009 2010

Total FDI FDI in companies and banks

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Chery-Socma

Chery company, which produced more than 800,000 automobiles in China during 2010, together with Socma S.A. from Argentina, which began producing Chery vehicles in the Oferol plant in 2009, nowadays directly manages the assembling plan, exporting the Tiggo and Face models to Brazil (52%) and Argentina (47%), data from the year 2010. It expects to increase the production to 20,000 units a year and later on to 40,00018.

Chongqing-Effa Motors

The Chinese company Chongqing Lifan, which manufactured more than 100,000 vehicles in 2009, has entered into a license and representation agreement for Mercosur with the plant Effa Motors19 for the production and sale of Lifan 320 and 620 models, as from the year 2010. The investment at the opening (April 2010) was of US$ 6.5 million, but it would reach US$ 15 million, allowing the production of 30,000 cars per year, employing 450 workers. The destination of the production will be 15% for the internal market and 85% for export, mainly to Brazil (90% of the exported products in 2010).

Kia Motors-Nordex

The Korean company Kia Motors entered into an agreement with the assembling plant Nordex, located in Colón, Department of Montevideo, to produce light trucks Kia Bongo 2500 as from 2010. 95% of the production will be exported to Brazil and 5% will be used in the internal Uruguayan market. The capacity of the plant is of 12,000 vehicles a year and it

18 Information provided by Chery-Socma’s management, February 25, 2011. 19 Effa Motors’ plant is located on Route 1, in the Department of San José with 33,000 m

2 of premises.

Image source: www.effamotors.com

Image source: www.ultimasnoticias.com.uy

Image source: www.genteynegocios.elpais.com.uy

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Image source: www.bader-leather.de

demanded an initial investment of US$ 25 million. The first export was carried out in December 2010. Dongfeng Motor-Nordex

Dongfeng Motor (DFM), a Chinese manufacturer of over 600,000 vehicles in 2009, began producing medium-sized Aeolus trucks in 2005 for the internal market in the Nordex plant and in 2010 it began exporting to Argentina.

Renault Trucks-Nordex

Renault Trucks from Volvo uses the Nordex plant (Santa Rosa Automotores) to produce heavy trucks such as Premium 440 DXi for the domestic market and to be exported to the region.

4.2 Auto parts In the auto parts sector, there are national companies mainly supplying the domestic replacement market and foreign companies which are focused on export. Some of these have been operating for many years in the country (Bader, Dana, GKN); others have recently made investments both in new industrial plants (Faurecia, Fischer, Takata, Yazaki) and in the acquisition of existing plants (ArcelorMittal, Affinia, Marfrig). Bader

Bader (Germany) is an industry which supplies fine leather upholstery for vehicles. Currently, Bader employs 4,200 workers in seven plants around the world, two of which are established in America (Mexico and Uruguay). Bader’s factory in Uruguay is located at the Department of San José. It began processing leather for vehicle upholstery in 1999, achieving its expansion in 2001, 2002 and 2007. As of 2010, its

Image source: www.autoanuario.com

Image source: www.autoanuario.com

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main exports were bound for Germany (37%), South Africa (29%) and Mexico (28%).

Dana-Talesol

Dana Holding Corporation, a U.S.-based company engaged in the design, engineering and production of spare parts and systems with added value for vehicle makers, employs 35,000 workers and has operations in 26 countries.

Image source: www.dana.com

Talesol Ejes Plant located at Montevideo, Uruguay, manufactures full Spicer light drive shafts for pickups and 4x4, exporting original equipment for automotive industries in South America, USA and Mexico. It began operations in 1996 and has supplied light drive shafts for Mercedes Benz, General Motors, Chrysler and it has been manufacturing rear drive shafts for Ford Ranger from 2001. It holds quality and environment protection certificates, ISO, QS 9000 and Ford Q1. It exports to Argentina (2010). GKN Driveline

GKN has factories in more than 30 countries with more than 38,000 employees. Its main factory is located in the United Kingdom and mainly operates in the automotive and aeronautic sectors.

In Uruguay, GKN was established in 1981 and has an industrial plant that produces axle shafts for automotive terminals. In 2010, its main exports were bound for Argentina (56%) and Brazil (38%) and, to a lesser extent, to USA (5%).

Image source: www.gkndriveline.com

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Affinia-Fanacif Uruguay

Affinia Group Inc. is a USA-based company with a material supply of spare parts for cars and heavy vehicles. It performs manufacturing and distribution operations in 11 countries and sales in more than 70 countries.

In Uruguay, Affinia owns Fanacif plant, located in Montevideo. It employs 165 workers and its main activity is the manufacture of brake pads, brake bands, brake discs and brake bells, selling in the domestic market and exporting to Argentina (48%), Brazil (28%), USA (12%) and other countries (2010).

Image source: www.affiniagroup.com

ArcelorMittal Montevideo

ArcelorMittal is a company that offers a vast range of steel products. It has industrial presence in more than 20 countries and is listed at the New York, Amsterdam and Paris stock exchanges as well as at other European countries' stock exchanges. One of its areas supplies automotive terminals.

In Uruguay, Arcelor Mittal Montevideo acquired the existing company, Cinter S.A. It produces stainless steel, aluminum-coated and carbon cold and hot-rolled steel pipes, with exports to Brazil (70%), Argentina (26%) and other American countries (2010).

Fischer Fischer Group of Germany established in Uruguay its fourth branch in America in 2009, after Canada, USA and Mexico. The company employs 1,500 workers in 8 countries. Its main activity is the manufacturing of steel pipes for exhausting systems in the automotive industry. From Uruguay it will supply, through its factory located in Montevideo, Peugeot, Volkswagen, Chevrolet, Fiat, Renault, Honda and Citroën plants within the Mercosur area.

Image source: www.fischer-group.com

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Marfrig-Zenda

Marfrig Group is a Brazilian food company specialized in the meat sector, with presence in 22 countries and it employs 90,000 workers. In Uruguay, after acquiring several cold-storage plants, it acquired Zenda in 2009, a Uruguayan leather-processing company for car, airplane and furniture upholstering.

Zenda also has industrial plants in Germany, Argentina, Mexico, South Africa and commercial offices in Chile, China and USA. Zenda’s upholstery is used as original equipment in luxury vehicles such as Audi, BMW, Peugeot, Toyota and others. In 2010, it exported to Germany (69%), Argentina (18%), Mexico (10%) and other countries.

Ruedas del Uruguay

The company Ruedas del Uruguay (with Argentinean capital) is currently fitting out a space at the Industrial Park of Juan Lacaze (Colonia) where it is installing its factory oriented to the production of truck rims bound for export. Operations are expected to begin in 2011.

Takata

Takata is a Japanese company that owns 46 plans in 17 countries and employs 31,000 workers. Its main activity is the production of airbags, safety belts and child retention systems. In 2010, it purchased a plot of land in Road 1, San José, Uruguay, to build a factory expected to employ 500 workers in three years and to export its airbag production to Brazil. The investment will amount to US$ 10 million and the opening is expected for November, 2011. The purchase was motivated by labor force conditions, availability of water, energy and easy access, among other aspects, as well as by the tax relieves offered. Trailers del Uruguay

In this case, the company installed at an Industrial Park (Juan Lacaze) will produce transportation trailers. It is made up of Argentinean capital and production is bound for export. Production is expected to begin in 2011.

Yazaki

The Japanese company Yazaki owns 87 industrial plants around the world. Its main activity is the production of auto parts (harnesses of electrical cables), cables in general and other items. In Uruguay, Yazaki was installed in Colonia in 2006 upon the assignment of a state area near the Port, employing approximately 400 workers.

In 2010, Yazaki opened its second factory in Uruguay at “Parque Tecnológico Canario” (Technology Park) in Canelones, with support from the Municipality, the Ministry of Transport and Public Works (MTOP), the Ministry of Industry, Energy and Mining (MIEM) and the National Corporation for Development (CND). It also produces electrical cables harnesses and electronic items for the automotive industry. Its production was exported in 2010 to Argentina (93%) and Brazil (7%). Nearly 1,000 workers are employed by this industrial plant.

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Image source: Lucca Design

Lucca Design

The company Lucca Design belongs to the Uruguayan group Ayax, created 65 years ago. Its main activity is the manufacturing of leather upholstery for vehicles. It began operations in 2004 and in 2005 it started exporting to Argentina as supplier of Toyota SUV Fortuner. In 2008 it started supplying another Toyota model in Argentina: Hilux vans. In 2011, Lucca Design incorporated leather upholstery for SUV Fortuner with Side Air-bag, using leading-edge technology, since it must open its seam in case of accident to enable the airbag inflation.20

20 Source: El País newspaper, El Empresario supplement, published on November 19, 2010. Picture provided by the

company.

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5. Main sector-related institutions and events

Institutions

Ministry of Industry, Energy and Mining (MIEM) Tel.: +598 2902 0231 www.miem.gub.uy National Industry Administration (DNI) Tel.: +598 2916 2411 www.dni.gub.uy Uruguayan Chamber of Industry (CIU) Tel.: +598 2604 0464 www.ciu.com.uy Chamber of Auto Parts (within CIU) Tel.: +598 2604 0464 ext. 210 www.autopartes.org.uy compaut@ciu.com.uy Chamber of Uruguayan Automotive Industries (CIAU) (within CIU) Tel.: +598 2903 0008 Association of Car Brand Concessionaires (ASCOMA) Tel.: +598 2408 1545 www.ascoma.com.uy

Events

Events in the country in which the automotive sector takes part

Expoactiva Nacional, agro-industrial annual fair (March 2011), organized by the Rural Association of Soriano. www.expoactiva.com.uy

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ANNEXES National and foreign investment promotion regulations

Foreign investors enjoy the same benefits as national investors and do not require prior authorization to get installed in the country.

Law 16,906 of January 7, 1998 declares the promotion and protection of national and foreign investments of national interest. Decree 455/007 updated the regulations of this law. By virtue of this decree and for any investment projects submitted and promoted by the Executive Branch, 51% and 100% of the invested amount may be computed as part of the Corporate Income Tax (IRAE), depending on the type of project. IRAE regular rate is 25%.

Personal property included in fixed assets and civil works are exempt from Wealth Tax. VAT included in the purchase of materials and services for civil works can be recovered.

Moreover, the import of personal property included in fixed assets which is not competitive in the national industry is exempt from import taxes or duties, as declared by said law.

Trade agreements

Uruguay has been part of the World Trade Organization (WTO) since its creation in 1995 and is part of the Latin American Integration Association (ALADI, 1980) along with ten South American countries, Cuba and Mexico.

In the framework of ALADI, it has been part of the Southern Common Market –MERCOSUR– with Argentina, Brazil and Paraguay. MERCOSUR became a customs union in 1995 with the free movement of goods, removal of tariffs and non-customs restrictions between the parties and a Common External Tariff to other countries. Venezuela is currently in the process of entering Mercosur.

Moreover, in the framework of ALADI, Mercosur has executed free-trade agreements with other South American countries: Chile (1996), Bolivia (1996), Colombia, Ecuador and Venezuela (2004) and Peru (2005) and, separately, an agreement with Israel (2007), all of which are oriented to create Free Trade Zones with duty-relief schemes which will be completed no later than 2014/2018, depending on the country.

Uruguay has also executed with Mexico a bilateral free-trade agreement (2003) which enables the free movement of goods and services between both countries (no tariff), with certain exceptions, to be completed in 2014.

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Investment protection agreements

Uruguay has executed investment performance, protection and promotion agreements with 26 countries, including but not limited to Spain, United States of America, Finland, France and United Kingdom.

Government’s incentives to exports

1. VAT refund when purchasing materials21

VAT paid in purchases is generally recovered by discounting VAT invoiced in sales, paying the State just the difference thereof. Since in exports said tax is not invoiced, the reimbursement of VAT included in the purchase of materials is authorized directly upon the company’s request. The Tax Administration Office (DGI) issues credit certificates which may be used in the payment of other taxes.

2. Refund of other taxes22

The State reimburses other internal taxes which make up the cost of an exported product through an alleged percentage of the FOB value determined by the Executive Branch (currently 4%).

3. Temporary Admission23

The import of materials and spare parts, packages and matrixes which will be included into the production of exported goods is exempt from customs duties and Value Added Tax. The only requirement is to make the export within a term of 18 months.

4. Financing of exports24

The Central Bank of Uruguay (BCU) has a pre-financing of exports system. In case exports receive pre or post bank financing, 30% (or 10% in some cases) thereof may be deposited with BCU, which will accrue interests on the overall financing instead of accruing interests on the amount thus deposited.

5. Free Trade Zones25

Uruguay has ten Duty-Free Zones or areas which operate under special customs regime which perform manufacturing activities and provide services to other countries where no customs duties are applied to incoming/outgoing goods and services. There is

21 Refer to Consolidated Text (Texto Ordenado) 1996, Title 10 (VAT), Article 9.

22 Decree 230/007 of June 29, 2007 with new taxes according to Decree 389/2009 of August 20, 2009, as amended.

23 Law 18,184 of October 27, 2007 as regulated by Decree 505/2009 of November 3, 2009.

24 See http://www.bcu.gub.uy/Politica-Economica-y-Mercados/Paginas/Lista-de-Informes.aspx?SID=34&SSID=21 Libro III,

Financiamiento de exportaciones 25 Law No. 15,921 of December 17, 1987. Law No. 15,921 (Article 2), Decree No. 71/001 (Article 3) and Decree No. 84/006

(Article 1).

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large exemption from national taxes such as Corporate Income Tax (IRAE) and others –with the sole exception of social security contributions for national personnel.

The sole requirement which must be met is contracting at least 75% of Uruguayan citizens within the overall payroll, although this percentage may be reduced prior authorization of the Executive Branch.

6. Free port, free airport and port warehouses26

Montevideo and other national ports, as well as the International Airport, operate under a free movement of goods policy. Therefore, goods are exempt from duties and surcharges applicable to imports for handling, fractioning and repackaging activities, among others (not involving manufacturing activities).

26 Ports Law No. 16,246 of April 8, 1992 and regulatory Decree No. 412/992 and Law No. 17,555 of September 18, 2002 on

Airports.

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Uruguay in short (2010)27

Official name Oriental Republic of Uruguay Geographical location South America, bordered by Argentina and Brazil Capital city Montevideo

Area 176,215 km

2. 95% of its territory is productive land fit for farming

exploitation Population (2010) 3.3 million Population growth (2010) 0,35% (annual) GDP per capita (2010) US$ 11,996 Currency Uruguayan peso ($) Literacy index 98%

Life expectancy 77 years

Form of state governance Democratic republic with presidential system Political division 19 departments Time zone GMT - 03:00 Official language Spanish

Main economic indicators 2005-2010

Indicators 2005 2006 2007 2008 2009 2010

GDP (growth % per year) 7.5% 4.3% 7.5% 8.6% 2.6% 8.5%

GDP (US$ million) 17,398 19,844 23,928 31,177 31,320 40,265

Population (million) 3.31 3.31 3.32 3.33 3.34 3.36

GDP per capita (US$) 5,263 5,987 7,199 9,351 9,363 11,996

Unemployment rate (annual average, % EAP) 12.20% 11.41% 9.64% 7.89% 7.66% 7.13%

Exchange Rate (UYU/US$, annual average) 24.4 24.0 23.4 20.9 22.6 20.06

Exchange Rate (annual average variation) -1.66% -2.51% -10.6% 7.74% -11.1%

Consumer Prices (% annual variation) 4.90% 6.38% 8.50% 9.19% 5.90% 6.93%

Exports (US$ million), goods and services 5,085 5,787 6,933 9,372 8,510 10,555

Imports (US$ million), goods and services 4,693 5,877 6,775 10,265 7,794 9,743

Commercial Surplus/Deficit (US$ million) 393 -90 158 -892 716 811

Commercial Surplus/Deficit (% of GDP) 2.3% -0.5% 0.7% -2.9% 2.3% 2.0%

Global Tax Result (% of GDP) -0.4% -0.5% 0.0% -1.5% -1.7% -1.1%

Capital gross formation (% of GDP) 16.5% 18.6% 19.0% 20.4% 18.8% 18.8%

Gross Debt (% of GDP) 80.2% 69.1% 68.2% 53.0% 69.9% 56.6%

Direct Foreign Investment (US$ million) 847.4 1,494 1,330 1,809 1,258 1,627

Direct Foreign Investment (% of GDP) 4.9% 7.5% 5.5% 5.8% 4.0% 4.0%

27 Source: Data regarding GDP were taken from the IMF; data regarding foreign trade, foreign direct investment (FDI),

exchange rates, International Reserves and External Debt were provided by BCU; population growth, literacy, unemployment and inflation indexes were provided by the National Statistics Institute.

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Investor Services

About us

Uruguay XXI is the Uruguayan investment and export promotion agency. Uruguay XXI provides free support to foreign investors, both to those who are in the process of assessing where to make their investments and those who have been operating in Uruguay for a long time.

Our Investor Services

Uruguay XXI is the first point of contact for foreign investors. Our services include, but are not limited to, the following:

Macro and sectorial information. Uruguay XXI regularly prepares researches on Uruguay and several sectors of economy.

Tailor-made information. We prepare personalized information to answer your specific questions, such as macroeconomic data, labor market, taxes and legal aspects, investment-promotion programs, localization and costs.

Contact with main players. We generate contacts with governmental entities, industrial players, financial institutions, research and development centers and potential partners, amongst others.

Promotion. We provide investment opportunities in strategic events, missions and business networking meetings.

Arrangement of visits to the country by foreign investors, including the setting of meeting agendas with, for instance, public authorities, suppliers, potential partners and chambers of commerce.

Publication of investment opportunities. We periodically publish in our page information on investment projects provided by state institutions and companies.

invest@uruguayxxi.gub.uy

www.uruguayxxi.gub.uy