OPENNESS TO FOREIGN INVESTMENT
Foreign investors generally find no major impediments to investing in Italy, although bureaucratic requirements can be burdensome. One hundred percent foreign ownership of Italian firms is allowed, but is not common. Some restrictions on foreign investment exist. The government has the authority to block mergers involving foreign firms for "reasons essential to the national economy" or if the home government of the foreign firm applies discriminatory measures against Italian firms. There are industry sectors that are either closely regulated or prohibited outright to foreign investors, such as defense and aircraft manufacturing. An U.S. investment company has, nonetheless, purchased a majority share in Avio, an aerospace company formerly controlled by Fiat group. Finmeccanica, a large aerospace and defense holding company, 33 percent owned by the GOI, now has a minority share of Avio. Outside these sectors, there are no screening or blocking procedures directed solely at foreign investment. Italian anti-trust law (which applies to domestic and foreign investors) gives the government the right to review mergers and acquisitions over certain financial thresholds.
In conformity with EU Treaty Article 43, Italy provides national treatment to foreign investors except in a few instances. The exceptions include limits to access to government subsidies for the film industry, some additional capital requirements for banks from countries not in the European Union (EU), and restrictions on non-EU airlines operating domestic routes. Italy also maintains restrictions in shipping. Companies may bring in non-EU workers only after government-operated employment offices have certified that no unemployed Italian is available to carry out the expected duties.
Foreign investment flows into Italy are weak. Net foreign investment in 2003 totaled USD 15.0 billion (equal to 1.1 percent of GDP), well below that of France (USD 46.5 billion), Spain (USD 25.4 billion), but slightly above that in Germany (USD 12.7 billion). Italian direct investment abroad in 2003 totaled USD 7.0 billion (0.5 percent of GDP), down from USD 15.5 billion (1.4 percent of GDP) in 2002. Analyses and surveys routinely cite excessive bureaucracy, high and complex tax structure, inadequate infrastructure and a rigid labor market as disincentives for foreign investment in Italy. We would add retroactive changes to regulations and legislation, a slow and non-transparent justice system and organized crime.
Firms incorporated in EU countries may offer investment services in Italy without establishing a presence. U.S. and other firms from non-EU countries may operate based on authorization from Italian Companies and Stock Exchange Commission, the security oversight body (CONSOB, Italy’s equivalent of SEC). CONSOB may deny such authorization to firms from countries that discriminate against Italian firms.
In the banking sector, privatizations and a wave of mergers and other alliances are reducing the formerly dominant role of the State. Authorization by the Bank of Italy, the country's central bank, is required to acquire more than five percent of a financial institution's capital (or to gain effective control of a financial institution, regardless of the amount of capital acquired). Non-bank companies (either Italian or foreign) may not acquire more than 15 percent of a bank's capital. Government authorization is required to offer life and property insurance and is usually based on reciprocal treatment for Italian insurers. Foreign insurance firms must prove that they have been active in life and property insurance for not less than ten years and must appoint a general agent domiciled in Italy.
There are some limits regarding foreign private ownership in banks. For instance, according to the banking law, a foreign institution seeking to increase its stake in a bank above five percent needs the authorization by the Bank of Italy, which often uses its authority to influence or forbid mergers.
Local practice and national legislation are used to restrict the expansion of modern, large-scale distribution units, such as chain stores, department stores, and large supermarkets. These subject applications for retail units above a certain merchandising floor area to a lengthy and cumbersome authorization process. The situation has improved recently.
Foreign investors are not prevented from investing in firms to be privatized, except in the defense sector. Privatization sales techniques have included private placement, worker shareholdings and management buy-outs and public stock offerings. Often the government establishes a "hard-core" group of shareholders who agree to keep their shares for a minimum period, say three years, or retain a "golden share" (modest government stake, but with controlling authority). The EU Commission has ruled against golden shares.
The Italian tax system does not discriminate between foreign and domestic investors. The Berlusconi government is implementing its ambitious ten-year effort to improve and expand the transportation system (both land and sea) and to renew Italy’s dilapidated transportation infrastructure funded with domestic and foreign private capital, in addition to some European Union and central government funds.
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
Laws governing physical property are adequate and enforced.
There is no limitation in either the Italian constitution or Italian civil law on the right to private ownership and establishment. In general, there is competitive equality between the private and public sectors. For years, Italian government bonds absorbed a large share of available domestic investment, but this share has declined as interest rates on those bonds dropped in the run-up to European economic and monetary union. As an alternative, Italian investors have turned to stocks and corporate bonds, significantly increasing the Milan stock exchange's capitalization as a result. This trend stopped as a result of the losses registered from mid-2000 through end-May 2003, when the Milan stock exchange suffered a 49 percent drop. Private Italian investors have also been badly financially hurt by bankruptcies of Argentine, Cirio, Parmalat and other bonds, and are hesitant to risk further losses.
PROTECTION OF PROPERTY RIGHTS
Laws governing physical property are adequate and enforced. The legal system protects and facilitates acquisitions and disposition of all property rights, such as land, building, and mortgages
In August 2000 the Italian Parliament enacted the long-awaited “anti-piracy” law, providing for higher criminal penalties for copyright violations. Italy has since been moved from the U.S. Trade Representative’s Special 301 IPR "Priority Watch List" to the “Watch List.” According to American film, music and software industry representatives, law enforcement efforts against piracy have been improving over recent years. In August 2001 the GOI passed implementing regulations for the copyright anti-piracy law. In January 2003, these were revised to permit exemptions for business software from the SIAE sticker requirement. The revised regulations appear to generally satisfy U.S. industry. The United States Government continues to closely monitor developments in this area.
In recent years, the Italian Government has substantially increased enforcement actions against both video and software pirates, creating an Interministerial Anti-Piracy Committee, specialized training courses for Italy's three law enforcement agencies, and "pools" of prosecutors specialized in administrative and civil cases involving intellectual property right in Milan, Rome, Naples and other major cities. However, further effort is needed to reduce the level of piracy, which remains unacceptably high.
Italy is a member of the Paris Union International Convention for the Protection of Industrial Property (patents and trademarks) to which the United States and about 85 other countries adhere. U.S. citizens generally receive national treatment in acquiring and maintaining patent and trademark protection in Italy. In addition, after filing a patent application in the United States, a U.S. citizen is entitled to a twelve-month period within which to file a corresponding application in Italy and receive the benefit in Italy of his or her first U.S. filing date (rights of priority). The priority right filing period for trademarks is six months.
Patent and trademark applications and inquiries should be addressed to:
Ministero dell'Industria, del Commercio, e dell’Artigianato Ufficio Italiano Brevetti e Marchi Via Molise, 19 00187 Rome, Italy
Applications and inquires concerning copyrights should be addressed to:
Presidenza del Consiglio dei Ministri Dipartimento per l’Informazione e per l’Editoria Via Boncompagni, 15 00187 Rome, Italy
Laws Governing Intellectual Property Rights
Patents and Licensing: The principal laws governing patent protection are Royal Decrees No. 3731 of October 30, 1859, No. 1127 of June 29, 1939, and Presidential Decree No. 338 of June 19, 1979. Decree 338 amends the former Italian legislation and implements the European Patent Convention. To be patentable, an invention must be novel, that is, it cannot have been available to the public anywhere else before the date of the filing or of the priority claimed and non obvious, that is, if the differences between the subject matter to be patented and the prior act are such that the subject matter would have been obvious to an ordinarily skilled person.
Patents are granted for 20 years from the effective filing date of application. They are assignable and transferable. A patent can be subject to compulsory licensing if not worked within 3 years from date of grant or four years from the filing date of application, whichever is later. In accordance with Italy’s Uruguay Round implementing statute (Law 747 of December 29, 1994) and the implementing decree enacted on March 19, 1996, the Italian law was amended so that the introduction or sale in Italy of items manufactured in foreign countries belonging to the World Trade Organization constitutes working of the invention.
Licensing and technical assistance agreements with foreign firms are encouraged by the government. The foreign exchange necessary to effect payment abroad (including the United States) of bona fide royalties and/or technical assistance fees can be obtained simply upon application to the Italian Exchange Office through a bank. Applicants are required to produce the original contract with the foreign concern and to submit a certified copy of such a contract. A certificate confirming the validity of the patent should also be submitted in the event that the contract provides for the use of patents.
Annual taxes must be paid during the period an Italian patent is in force. These taxes are progressive and range from euro .52 for the first year to euro 18.08 for the 15th year.
Trademarks: The principal trademark registration laws are Royal Decree No. 929 of June 21, 1942. Some types of terms may not be registered as trademarks, such as those deemed generic, those containing false indications of quality or origin of goods, and those with similar terms already registered by others in Italy or for which applications are pending. For some goods, geographic names may not be used in trademarks nor can the portraits of persons be registered without their consent.
Trademark applications are examined for acceptability of their format and consistency with the laws. If an application is in order, the mark will be registered. The first applicant is entitled to registration. However, any other person who claims to be the first user of the mark in Italy can have the prior registration cancelled, provided the claim can be proven. No claim of prior use can be made after the registered mark is 5 years old.
Trademarks are registered for 20 years from the effective application filing date and are renewable for similar periods. Failure to use a mark within three years after its registration can result in cancellation. Trademarks may be assigned to other users provided such action does not involve deceptive trade practices.
For administrative purposes, trademark products are classified under 42 groups (1-34 for products and 35-42 for services). Applications must indicate the appropriate classification.
Copyrights: Both Italy and the United States are signatories of the Universal Copyright Convention, which provides for mutual copyright protection. In Italy, copyrights are protected by Law No. 633 of April 22, 1941 and Decree Law No. 82 of August 23, 1946. Executive recognition in the form of copyright protection to the author is accorded intellectual creations pertaining to science, litera-ture, music, decorative arts, architecture, the theater, and motion pictures.
The following additional legislation relating to the protection of copyright was subsequently issued:
Illegal duplication of phonographic material (No. 406 7/29/81);
Illegal duplication and transmission of cinematographic film works (No. 400 7/20/85);
Illegal duplication of software (No. 518 12/20/92 - enacting EU Directive 91/250) – criminal sanctions for software piracy were subsequently increased by legislative decree in April 1996;
Rental and neighboring rights related to intellectual property (No. 685 11/16/94 - enacting EU rental rights directive and outlawing unauthorized “bootleg” recordings of live performances).
Further detailed information on procedures regarding patent, trademark, and copyright protection in Italy should be obtained from competent legal counsel.
EU Initiatives on Intellectual Property Rights (IPR) Protection
Italy is also a signatory to the European Patent Convention, which provides for a centralized European-wide patent protection system (Italy has not yet ratified the convention). The European Patents Act of 1977 provides increased legal protection, a patents court, and guidelines for compensation of an inventor. Under the European Convention, an applicant for a patent is to be granted a pre-examined 15-year, non-renewable European patent that has the effect of a national patent in all 16 countries that are signatories of the convention, based on a single application to the European Patent Office. This procedure should expedite the granting of patents. However, infringement proceedings remain within the jurisdiction of the national courts, which could result in some divergent interpretations. Further information may be obtained from the European Patent Office, Motorama-Haus, Rosenheimer Strasse 30, Munich, Germany.
The EU commission is attempting to harmonize copyright protection in several areas and views continued progress as a key part of its programs for the internal market. The software directive, approved by the European Council in 1991, entered into force on January 1, 1993. Seven member states including Italy have transposed the directive into national legislation. The directive on rental and lending rights, approved by the Council in 1992, was implemented in Italy in late 1994 (see above).
In September 1993, the Council adopted a directive on the harmonization of copyright laws in satellite broadcasting and cable retransmission (EU Directive 93/83). This measure allows satellite broadcasters to clear in their country of origin full copyright responsibility for their entire footprint throughout Europe. In an attempt to overcome the significant divergences among the member states in this area of IPR protection, in October 1993, the Council adopted the directive on the harmonization of the duration of copyright and of certain related rights (EU Directive 93/98). It provides for the term of copyright to be harmonized for a period of 70 years after the author's death. For related rights, it harmonizes the term of protection at 50 years from the date of production. Italian Decree Law 544 of June 1995 and Law 52 of February 1996 implemented these two directives.
FOREIGN TRADE ZONES / FREE PORTS
There are two free trade zones in Italy, located in Trieste and Venice, both in the northeast. Goods of foreign origin may be brought in without payment of taxes or duties, as long as the material is to be used in the production or assembly of a product that will be exported. The free-trade zone law also allows a company, of any nationality, to employ workers of the same nationality under that country's labor laws and social security systems.
Benefits of a free-trade zone include:
- customs duties deferred for 180 days from the time that the goods leave the free trade zone to enter another EU country;
- the goods may undergo transformation free of any customs restraints;
- absolute exemption from any duties on products coming from a third country.
MAJOR TAXATION ISSUES AFFECTING U.S. BUSINESS
The Italy-U.S. tax treaty contains provisions to avoid the double taxation of income for firms with operations in both countries. Royalties from patents and like properties are exempt from tax withholding under the treaty. They are freely remittable, subject to documentation requirements. In late 1999, Italian and U.S. tax authorities initialed a new tax treaty entitled to replace the old treaty. The new treaty covers royalties and a new Italian tax, called IRAP or regional tax of productive activities. Since the U.S. Congress and Italian Parliament have not yet ratified it, its provisions are not in force.
PERFORMANCE REQUIREMENTS/INCENTIVES
The GOI is in compliance with WTO Trade-Related Investment Measures (TRIMS) obligations. Investors do not face performance requirements specifically directed at foreigners. In the telecommunications sector, however, many new entrants are subject to performance requirements and must post a performance bond to receive a license to operate. The EU has challenged some of Italy's performance criteria for telecom licenses. The Italian government offers incentives designed to encourage private sector investment, by both Italian and foreign firms, in depressed areas, particularly in the underdeveloped or south of Italy. Foreign investors (U.S. and other foreign firms) are able to participate in government research and development programs based on reciprocal treatment for Italian firms. There are no discriminatory requirements (such as excessively onerous visa, residence and work permit requirements) inhibiting foreign investors mobility.
TRANSPARENCY OF THE REGULATORY SYSTEM
Italy is subject to single market directives mandated by the European Union, which are intended to harmonize many regulatory structures across EU countries. This includes the mutual recognition agreements negotiated between the EU and the U.S. The EU directives are intended to benefit EU member countries by creating a non-discriminatory, less restrictive trade regime. The directives are expected to yield significant benefits to non-EU trading partners (such as the U.S.) as well. Harmonization of standards relating to labeling, content, production, safety, etc., is aimed to reduce development costs and contribute to economies of scale for companies that wish to operate in Italy. Several EU directives deal with the issue of transparency in public sector contracts and subcontracts. The process of incorporating these directives into Italian law has focused new public attention on public works corruption scandals that rocked the Italian political world in the early 1990s. Current tax, labor, environment, health and safety regulations might discourage foreign investors. CORRUPTION On June 8, 2001, Italy passed law 231/2001, which amends the Italian criminal code and implements the OECD Anti Bribery Convention. The law went into effect on June 19, 2001, upon its publication in the official register. Italy, like the U.S., is a signatory to the 1997 OECD Convention on Combating Bribery that was ratified in September 2000 (law 300/2000). According to a 2001 study by Transparency International, the level of corruption in Italy is the highest among the G7 countries, but the situation had improved considerably from 2000. The study mentioned the ratification of the OECD Anti Bribery Convention and other transparency measures approved at local level. The wide-ranging "Bribesville" domestic corruption scandals of the early 1990s led to a wholesale reform of the Italian political structure, and sharp cutbacks in public works programs, which had been the source for kickbacks. Previous studies done by other organizations, such as the International Monetary Fund, cited the weight of bureaucracy, confusing regulations, the financing of political parties and the low level of civil servants’ wages as factors fostering corruption. A number of national and local political leaders have faced corruption charges and investigations. Former PM Craxi, convicted of corruption in absentia, died as a fugitive from justice in Tunisia. The Prime Minister himself, Silvio Berlusconi, has been accused of involvement in several corruption cases. Over the years, he has had convictions overturned and has been acquitted. One domestic case and one international case are still pending. There is no record of indictments in cases involving bribery of foreign government officials. Law enforcement officials are, however, investigating at least one suspected case of bribery of foreign government officials by an Italian company. Corruption is punishable under Italian law. As in all judicial processes, much discretion regarding punishment is left to the presiding judge in the case. Most corruption in the recent past has involved government procurement or bribes to tax authorities. Surveys of the business community in Italy routinely identify such domestic corruption as a disincentive to investing or doing business, particularly in the South and some other areas of Italy. Italian law does not allow tax deductibility of bribes paid to foreign officials. While there is no such explicit provision in the tax, Italian law does not consider such payments legitimate business expenses. In cases of suspected bribery, the prosecutor conducts an investigation with the aid of police investigators, including the financial police, national police and Carabinieri. Each of the police forces is authorized to investigate bribery, but the Guardia di Finanza (financial police), a law enforcement entity responsible for customs and financial crimes, is the principal government authority for combating domestic financial corruption. The national police have the specific mandate to investigate “crimes against public administration.” The Carabinieri, a branch of the Armed Forces that has responsibility for certain civilian law enforcement functions throughout he country, also play a key role. We are not aware that police forces have received any additional training or resources as a result of the conventions’ implementation. A very active office of Transparency International (TI) operates in Italy and followed closely the ratification and the implementation of the OECD Anti Bribery Convention and other potential concerns. At the moment, TI is following the legislative decree no. 61, of April 11, 2002, which would de-criminalize “false accounting” below five percent of the company’s profits or one percent of a company’s assets. TI officials argue that bribes can be hidden under false accounting methods and are concerned that this law would, provide loopholes for Convention violations. LABOR Unemployment in Italy is high, but only slightly above the average of the EMU zone of 8.8 percent, based on May 2003 data. According to April 2003 data, Italy’s unemployment rate was 8.9 percent nationwide, the lowest level since 1992. Traditional regional disparities remain unchanged, with the southern third of the country showing 18.4 percent unemployment (based on April 2003 statistics), compared to 3.7 percent in the northern third of the country and 6.6 percent in central Italy. Southern Italian unemployment is much higher in certain regions such as Calabria (25.1 percent), Campania (21.2 percent) and Sicily (20.8 percent) and therefore well above the euro zone average. The North’s shortage of labor has led to higher national levels of employment of unskilled and semi-skilled immigrants. Youth (fifteen to twenty-four years of age) and female unemployment continue to be significantly higher in all categories. In April 2003 youth unemployment rate was 26.7 per cent nationwide, but 49.3 percent in the south, while female unemployment rate was 12.0 percent nationwide and 26.5 percent in the south. Traditionally the highest rate is that for youth female unemployment rate in the south, which reached an all-time high level of 58.5 percent. There is a skilled labor pool in the North, where industries and services are more developed. In some areas of the North, labor shortages exist in engineering, nursing, information technologies, marketing, agriculture and for skilled manual workers. The South, where agriculture and the underground economy are more widespread, has an abundance of unskilled labor and well-educated young people who tend not to leave their regions to find a job. Immigrant workers are employed for seasonal harvesting, as well as construction, nursing, and lower-paying, services and unskilled jobs that no longer attract sufficient numbers of Italian workers. Despite low unemployment in the North, movement of workers from high unemployment areas is limited. The higher cost of living in northern cities (relative to the South), along with financial support from families and the availability of informal sector jobs, account at least in part for this anomaly. To encourage firms now operating in the underground economy to become legal entities, the GOI enacted legislation in November 2001 granting three years of tax incentives for such employers, with similar incentives for their employees. (The underground economy is estimated to amount to about 27 percent of GDP.) The tax incentives, approved as part of the Italian government’s so-called 100-day package, expired November 30, 2002. The package had limited success. As of late May 2003, only 159 employers and 500 workers had reportedly come forward. The Italian labor market is becoming somewhat more flexible. Legislative and regulatory changes in 1997, 1998, 1999 and 2003 encouraged the hiring of part-time employees by reducing employer social security contributions for these workers. Legislation decentralizing the public employment service was enacted, and private employment agencies will be allowed to operate. These changes opened the way for the hiring of temporary workers whose scope of activity is substantial, although not as great as in other countries having experience with this type of employment. Plans for more government investment in underdeveloped areas (especially incentives for companies' investments) are likely to be restricted by Italy's need to restrain government spending to remain within European monetary union spending guidelines. Wages and salaries represent slightly more than half the cost of labor to management. Indirect pay (annual leave, holidays, bonuses, seniority allowances, severance pay) and social security contributions can account for up to 45 percent of gross salary. Italian law provides workers with substantial legal protection against dismissal for other than economic reasons, imposing complex and costly consequences for employers. Although strikes are common in some industries - and especially in public transport - labor relations in Italy generally have been good. However, government initiatives to enact labor law reforms provoked extensive trade union opposition including, on April 16, 2002, an 8-hour general strike. Union displeasure centered on a Government proposal to modify Article 18 of the Workers’ Statute, a measure enacted in May 1970 based on prior union-employer agreement. Government officials held that Article 18 acts as an employment barrier, as it prohibits firms with more than 15 employees from firing workers without "just cause" as determined by labor courts (and thereby dissuades small firms from expanding over this threshold). The unions, for whom the Workers’ Statute represents a worker’s “Bill of Rights,” reject this argument and view Government efforts to change the law as an assault they resolutely oppose. Most Italian unions are grouped in four major national confederations: The General Italian Confederation of Labor - CGIL; the Italian Confederation of Workers’ Unions - CISL; the Italian Union of Labor - UIL; and the General Union of Labor - UGL. The first three organizations are affiliated with the International Confederation of Free Trade Unions (ICFTU), while the UGL has been associated with the World Confederation of Labor (WCL). The confederations negotiate national level collective bargaining agreements with the employer associations, which in effect are binding on all employers in a sector or industry. As the result of a July 1993 tripartite agreement that also involved employer groups, the confederations accepted wage moderation and, through a process known as concertazione (consensus formation), became active participants with government in forming economic and social policy. The spirit of this agreement has not been honored by any of the parties under the current administration. EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT Financial resources flow relatively freely in Italian financial markets, and credit is allocated on market terms. Foreign participation in Italian markets is not restricted. Capitalization on the Italian stock market is small relative to that of other G-7 countries. Activity on the stock market increased dramatically in 1999 and 2000, followed by a deceleration in 2001 and 2002. The market is technologically modern and efficiently administered. The Italian government bond market, among the world’s largest, is predominantly an electronic screen-based market, and is also administered efficiently. The Italian banking system used to be highly fragmented and was generally regarded as quite inefficient, with high operating costs and excessive dependence on interest rate spreads for income. The process of restructuring and modernization mandated by the Central Bank and the privatization process of the second half of the 1990s improved the efficiency of the Italian banking sector somewhat. As a result of mergers in the second half of the 1990s, the top five Italian banks control 54 percent of total assets (36 percent in 1995), in line with other European countries like France and Spain, but more concentrated than that in Germany and in the United States. Improved efficiency and credit management reduced the ratio between new uncollectable loans to total credit from 2.5 percent in the mid-1990s to one percent in 2001. This increased efficiency reverberated positively in the rates of international rating institutions. Government ownership of financial institutions, once common, has almost disappeared. The return on equity system wide improved substantially, but is still below the European average. ABI, Italy’s banking association, reports that the average tax rate of 53 percent, compared to a 37 percent EU average, hurts Italian banks' profitability. There are percentage limits on cross-shareholding among banks and between banks and non-bank companies. Complex cross-shareholding has been used to fight off takeover attempts in the financial sector, but this has not been directed at takeovers by foreign companies. CONVERSION AND TRANSFER POLICIES In conformance with EU directives, Italy has no foreign exchange controls. There are no special exchange rates, and currency transfers are freely permitted. There are no restrictions on repatriation of capital, earnings, remittances of profits, debt service, capital, capital gains, returns on intellectual property, imported issues or on payments to foreign creditors. Italians are free to undertake financial transactions abroad, including direct investments and purchases and sales of foreign securities, real estate and loans. Regulations formerly prohibiting residents from entering or leaving the country with bearer securities worth more than 10,329 euro (about $9,500) have been lifted. Residents may freely hold foreign exchange and euro in any form in Italy and abroad. Banks and authorized intermediaries must submit data on any foreign exchange transaction exceeding 10,329 euro to the foreign exchange office of the Bank of Italy. Italy’s participation in the Euro has simplified trade for those companies exporting to several EU countries. It also has created opportunities for U.S. companies with technologies and services that can assist Italian firms to compete in the more integrated European market. However, these changes also are expected to benefit European competitors who are increasing their presence in the Italian market through mergers and joint ventures with Italian firms. U.S. companies, already well known for innovation, will have to continue to emphasize the quality of their products, as well as focus on price and service, to maintain or improve their market share. EXPROPRIATION AND COMPENSATION The Italian constitution permits expropriation of private property for "public purposes". Compensation is guaranteed and must adequately compensate the legitimate proprietor for losses. Lenders are not covered by the same constitutional guarantee as proprietors. The constitution also authorizes the nationalization of enterprises, which provide essential public services or are indispensable to the national economy. There are a few longstanding disputes in Italy involving U.S. citizens who assert that municipal governments unjustly expropriated their real property or inadequately compensated them. However, this does not reflect any GOI discrimination against U.S. investments, companies or representatives in any specific sector of activity. DISPUTE SETTLEMENT U.S. investors in Italy have a choice in selecting a means of dispute resolution, which should be specifically set forth in the contract. Given the slowness of the Italian judicial system (normally at least five years for trial in a civil matter plus many more years for two automatic appeals), investors are advised to choose arbitration, which can be Italian or international. Though extremely slow, the Italian legal system is consistent with generally recognized principles of international law and there are provisions for enforcing property and contractual rights. Italian judges are very politically oriented, compared to U.S. standards. Judgments of foreign courts are accepted and enforced by Italian courts only upon request. Italy has a written and consistently applied commercial law and bankruptcy law. Italy’s bankruptcy law safeguards the creditors that are satisfied pro-quota. Monetary judgments are usually made in local currency (Euro). Italy, like all the other members of the EU, is a member of the World’s Bank International Center for the Settlement of Investment Disputes (ICSID). POLITICAL VIOLENCE Political violence is considered a low threat to foreign investments in Italy. BILATERAL INVESTMENT AGREEMENTS Italy has bilateral investment agreements with the following countries: Albania Algeria Angola (Signed but not in force yet) Argentina Armenia (Ratified by the Italian Parliament with law 232/02 Azerbaijan Bangladesh Barbados Belarus Bolivia Bosnia-Herzegovina (Ratified by the Italian Parliament with law 177/02) Brazil (Signed but not in force yet) Bulgaria Cameroon (Ratified by the Italian Parliament with law 20/03) Cape Verde (Ratified by the Italian Parliament with law 529/99) Congo, Rep of Chile China Croatia Cuba Czech Republic Egypt Eritrea (Ratified by the Italian Parliament with law 103/01) Estonia Ethiopia Gabon (Signed but not in force yet) Georgia Ghana (Signed but not in force yet) Hong Kong Hungary Indonesia India Iran (Ratified by the Italian Parliament with law 171/02) Jamaica Jordan Kazakhstan Kenya Kuwait Lebanon Latvia Lithuania Macedonia Malaysia Malta Moldavia (Ratified by the Italian Parliament with law 148/01) Mexico (Ratified by the Italian Parliament with law 48/02) Morocco Mongolia Mozambique (Approved by the Italian Parliament) Nigeria (Under discussion in the Parliament) Oman Pakistan (Ratified by the Italian Parliament with law 116/01) Paraguay (Approved by the Italian Parliament) Peru’ Philippines Poland Qatar ((Under discussion in the Parliament) Romania Russia Saudi Arabia Syria ((Under discussion in the Parliament) Slovak Republic South Korea Sri Lanka South Africa Tunisia Turkey (Under discussion in the Parliament) Uganda Ukraine United Arab Emirates Uruguay Uzbekistan Venezuela (Signed but not in force yet) Vietnam Zambia (Signed but not in force yet) Zimbabwe (Ratified by the Italian Parliament with law 112/01) The 1948 U.S.-Italy Friendship, Commerce and Navigation Treaty contains provisions that may protect U.S. investment in Italy. Generally, existing bilateral investment accords create favorable conditions and guarantees for capital investment. They include reciprocal guarantees of equal treatment vis-a-vis domestic firms and most-favored-nation status vis-a-vis third countries, assurances against expropriation without fair market compensation, and indemnities against losses suffered during war or revolution. Agreements also include statements allowing for the free transfer of returns, royalties and funds to maintain investments. They usually detail the procedures under which disputes would be arbitrated. OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS The U.S. Overseas Private Investment Corporation (OPIC) does not operate in Italy However, in March 2003, OPIC signed a Memorandum of Understanding with SIMEST (Società Italiana per le Imprese all’Estero), its Italian counterpart, to expand cooperation in a number of areas, particularly on projects in third countries. Italy is a member of the Multilateral Investment Guarantee Agency (MIGA). CAPITAL OUTFLOW POLICY In conformance with EU directives, Italy has no foreign exchange controls. There are no special exchange rates and currency transfers are freely permitted. There are no restrictions on repatriation of capital and earnings, or on payments to foreign creditors. MAJOR FOREIGN INVESTORS Italy has for several years been a net exporter of foreign investment. According to Italian Statistics provided by the Central Bank, net foreign investment in 2002 totaled $14.3 billion (equal to 1.2 percent of GDP), well below that of France (3.4 percent), Spain (3.2 percent) and Germany (1.9 percent). Italian direct investment abroad in 2002 totaled $15.5 billion (1.4 percent of GDP), down from $21.2 billion (1.9 percent of GDP) in 2001. Foreign investment flows into Italy are weak. Analyses and surveys routinely cite excessive bureaucracy, inadequate infrastructure and a rigid labor market as disincentives for foreign investment in Italy. In addition, retroactive changes to regulations and legislation, a slow justice system and concern about organized crime often serve as disincentives. The services sector remained the largest recipient of inflows at $8.8 billion, up from $8.1 billion registered in 2001. Investment in banking and insurance led the list, accounting for almost a half of the overall investment in services. Investment inflows in industrial activity increased to $4.9 billion in 2002. A key area of foreign industrial investment in Italy is the machine sector. The Bank of Italy estimates that the stock of total foreign direct investment in Italy at the end of 2001 was $121.2 billion, or 9.2 percent of GDP, of which U.S. investment amounted to $15.4 billion, 12.7 percent of total. The stock of total Italian direct investment abroad was $169.7 billion (12.9 percent of GDP). Italian investment in the U.S. was valued by the Bank of Italy at $17.4 billion (10.2 percent of total Italian direct investment overseas). According to Bank data, at the end of 2003, US and Switzerland had the largest stock of foreign direct investment in Italy of non-EU countries (respectively 11.8 and 11.2 percent of the total). EU countries as a whole account for 69.0 percent of foreign investment, with Netherlands, U.K., France, U.K. and Luxembourg the principal sources. Although Japan is an investor in Italy, both Italian investments in Japan and Japanese investment in Italy are modest: 1.8 percent and 0.5 percent of the respective totals. Except for Sweden, France, and Germany, Italy's European Union partners are net recipients of Italian investment. Among non-EU countries, the largest recipients of Italian investment are the United States, Brazil and Argentina. At the end of 2002, about two-thirds of U.S. investment in Italy was in industry and one-third was in services. The chemical sector has the largest share of U.S. industrial investment with $2.5 billion. The largest portion of service sector investment was in banking and insurance with $2.9 billion. Many well-known major multinationals, both U.S. and foreign, have a presence in Italy. General Electric, IBM, AT&T, Boeing, Pfizer, EDS, and McDonald’s are just a few of the American companies with sizeable investments in Italy. Slightly above 50 percent of Italy’s $22.2 billion direct investment in the U.S. at the end of 2002 was in the services sector, with the remainder in industry (39 percent) and energy (10 percent). The value of direct investment in banking and insurance activities was $5.2 billion. The top category among industrial investments was mechanical products, and the level of investment increased from $2.8 billion in 2001 to $3.3 billion in 2002. ITALIAN GOVERNMENT CONTACTS FOR INVESTMENT-RELATED ACTIVITES For information on foreign investment in Italy, contact Sviluppo Italia, a government body with offices in the U.S. and other countries, or the Italian Trade Commission in Rome as follows: Istituto Nazionale del Commercio Estero Area Cooperazione Investimenti e Rapporti con la UE e con OMC Via Liszt, 21 00144 Roma EUR Tel.: +39-06-5992-9381 Fax: +39-06-5992-6002/+39-06-5422-0007/+39-06-5421-8275 Sviluppo Italia Via Calabria, 46 00187 Roma Tel.: +39-06-421-1601 Fax: +39-06-4216-0816 Call center: +39 848-886-886 info@sviluppoitalia.it www.sviluppoitalia.it ; http://www.opportunitalia.it Italian foreign trade and foreign affairs structures were reshaped in 2001. The Foreign Trade Ministry was incorporated in the Productive Activities Ministry. This move also involved the Foreign Trade Institute (ICE), the Foreign Trade Insurance Services Agency (SACE), and SIMEST (Societa' Italiana per le Imprese all'Estero). Former Prime Minister Prodi's creation, Sviluppo Italia, created to develop business in Italy's South, will disappear. Plans are for the MFA to coordinate with and help Italy's southern regions become competitive on an international level. The MFA will enhance its Bureau for Multilateral Economic Affairs and its Bureau for European Integration for that purpose.
(See also Section VIII “Availability of Project Financing”.)