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Argentina

Executive Summary

Argentina presents investment and trade opportunities, particularly in agriculture, energy, health, infrastructure, information technology, and mining. However, economic uncertainty, interventionist policies, high inflation, and persistent economic stagnation have prevented the country from maximizing its potential. The economy fell into recession in 2018, the same year then-President Mauricio Macri signed a three-year $57 billion Stand-By Arrangement (SBA) with the International Monetary Fund (IMF). President Alberto Fernandez and Vice President Cristina Fernandez de Kirchner’s (CFK) took office on December 10, 2019, and reversed fiscal austerity measures, suspended the IMF program, and declared public debt levels unsustainable.

In September 2020, Argentina restructured $100 billion in foreign and locally issued sovereign debt owed to international and local private creditors. Together, these transactions provide short-term financial relief by clearing principal payments until 2024. Unable to access international capital markets, the government relied on Central Bank money printing to finance the deficit, further fueling inflation. Although Argentina’s economy rebounded 10.3 percent in 2021, offsetting a 10 percent decline in 2020, the economy remains below pre-recession levels. In 2021, the Argentine peso (official rate) depreciated 17 percent, inflation reached 50.9 percent, and the poverty rate reached 37.3 percent.

Even as the pandemic receded and economic activity rebounded, the government cited increased poverty and high inflation as reasons to continue, and even expand, price controls, capital controls, and foreign trade controls. Agricultural and food exports such as beef, soy, and flour were frequent targets for government intervention. Beginning in May 2021, the government introduced bans and other limits on beef exports to address increasing domestic prices. However, the government also implemented incentives for exporters and investors in other industries. It eliminated export taxes for specific businesses and industries, including small and medium sized enterprises; auto and automotive parts exports over 2020 volumes; and information technology service exports from companies enrolled in the knowledge-based economy promotion regime. There were also investment promotion incentives in key export sectors such as agriculture, forestry, hydrocarbons, manufacturing, and mining.

The high cost of capital affected the level of investments in developing renewable energy projects, despite the potential for both wind and solar power. In an effort to expand production of oil and natural gas, the current administration provides benefits to the fossil fuel industry that impact the cost-competitiveness of renewable energy technologies. The government has encouraged the use of biofuels and electric vehicles. A proposed Law for the Promotion of Sustainable Mobility includes incentives and 20-year timelines to promote the use of technologies with less environmental impact in transportation.

After the first COVID-19 case was confirmed in Argentina in March 2020, the country imposed a strict nationwide quarantine that became one of the longest in the world. Argentina reopened its borders to tourists and non-residents on November 21, 2021. Hotel and lodging, travel and tourism, and entertainment activities have reopened, although many businesses went bankrupt during the shutdown. Most of the pandemic-related economic relief measures were phased out during 2021.

Both domestic and foreign companies frequently point to a high and unpredictable tax burden and rigid labor laws as obstacles to further investment in Argentina. In 2021, Argentina ranked 73 out of 132 countries evaluated in the Global Innovation Index, which is an indicator of a country’s ability to innovate, based on the premise that innovation is a driver of a nation’s economic growth and prosperity. In the latest Transparency International Corruption Perceptions Index (CPI), Argentina ranked 96 out of 180 countries in 2021, dropping 18 places compared to 2020.

As a Southern Common Market (MERCOSUR) member, Argentina signed a free trade and investment agreement with the European Union (EU) in June 2019. Argentina has not yet ratified the agreement. During 2021 there was little progress on trade negotiations with South Korea, Singapore, and Canada. Argentina ratified the WTO Trade Facilitation Agreement on January 22, 2018. Argentina and the United States continue to expand bilateral commercial and economic cooperation to improve and facilitate public-private ties and communication on trade, investment, energy, and infrastructure issues, including market access and intellectual property rights. More than 265 U.S. companies operate in Argentina, and the United States continues to be the top investor in Argentina with more than USD $8.7 billion (stock) of foreign direct investment as of 2020.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perception Index 2021 96 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 73 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $8.7 billion https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $9,070 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

5. Protection of Property Rights

11. Labor Policies and Practices

Argentine workers are among the most highly educated and skilled in Latin America. Foreign investors often cite Argentina’s skilled workforce as a key factor in their decision to invest in Argentina. Argentina has relatively high social security, health, and other labor taxes, however, high labor costs are among foreign investors’ most often cited operational challenges. The unemployment rate dropped to 8.6 percent at the end of 2021, according to official statistics. The government estimated unemployment for workers below 29 years old as more than double the national rate. Exacerbated by the COVID-19 pandemic, analysts estimate informality that it stands between 20 to 40 percent.

During 2020, the Argentine government implemented measures to alleviate the impact of the COVID-19 pandemic on the economy and employment. The government introduced measures to stimulate the economy and employment through public works and price limits; to protect workers in the workplace by promoting telework and offering leave for workers; and to support jobs and worker income by prohibiting employers from terminating employment. The government also facilitated social dialogue between the private sector and unions. The government has postponed implementation of Argentina’s ambitious Teleworking Contracts Regime, Law 27555, passed by Congress on July 30, 2020, and ratified by President Fernandez on August 14, 2020. The law entered into force on April 1, 2021. This law provides the legal framework for teleworking in employment settings that allow it.

Labor laws are comparatively protective of workers in Argentina, and investors cite labor-related litigation as an important factor increasing labor costs in Argentina. For example, one of the first measures passed by President Fernandez after he took office was Decree 34/2019 which established that employees dismissed without cause have the right to double the legal severance payment, the measure was extended until December 31, 2021, through Decree 39/2021. There are no special laws or exemptions from regular labor laws in the Foreign Trade Zones. Organized labor plays an important role in labor-management relations and in Argentine politics. Under Argentine law, the Ministry of Labor recognizes one union per sector per geographic unit (e.g., nationwide, a single province, or a major city) with the right to negotiate a collective bargaining agreement for that sector and geographic area. Roughly 40 percent of Argentina’s formal workforce is unionized. The Ministry of Labor ratifies collective bargaining agreements. Collective bargaining agreements cover workers in a given sector and geographic area whether they are union members or not, so roughly 70 percent of the workforce was covered by an agreement. While negotiations between unions and industry are generally independent, the Ministry of Labor often serves as a mediator. Argentine law also offers recourse to mediation and arbitration of labor disputes.

During 2021, the Ministry of Labor registered 855 labor and collective bargaining agreements. These agreements covered approximately 5.4 million workers.

Tensions between management and unions occur. Many managers of foreign companies say they have good relations with their unions. Others say the challenges posed by strong unions can hinder further investment by their international headquarters. Depending on how sectors are defined, some activities such as oil and gas production or aviation involve multiple unions, which can lead to inter-union power disputes that can impede the companies’ operations.

The Fernandez government does not intend to pursue a broad labor reform bill, preferring instead to allow firms and workers to negotiate any adjustments to labor conditions through the collective bargaining process. The Ministry of Labor has indicated interest in proposing a “gig economy” bill (ley de plataformas) that would extend basic labor rights to, e.g., delivery workers coordinated through information technology applications. Labor-related demonstrations in Argentina occurred periodically in 2021. Reasons for strikes include job losses, high taxes, loss of purchasing power, and wage negotiations. Labor demonstrations may involve tens of thousands of protestors. Past demonstrations have essentially closed sections of a city for a few hours or impeded traffic.

The Ministry of Labor has hotlines and an online website to report labor abuses, including child labor, forced labor, and labor trafficking. The Superintendent of Labor Risk (Superintendencia de Riesgos del Trabajo) has oversight of health and safety standards. Unions also play a key role in monitoring labor conditions, reporting abuses and filing complaints with the authorities. Argentina has a Service of Mandatory Labor Conciliation (SECLO), which falls within the Ministry of Labor. Provincial governments and the city government of Buenos Aires are also responsible for labor law enforcement.

The minimum age for employment is 16. Children between the ages of 16 and 18 may work in a limited number of job categories and for limited hours if they have completed compulsory schooling, which normally ends at age 18. The law requires employers to provide adequate care for workers’ children during work hours to discourage child labor. The Department of Labor’s 2020 Worst Form of Child Labor for Argentina can be accessed here: https://www.dol.gov/agencies/ilab/resources/reports/child-labor/argentina 

The Department of State’s 2020 Human Rights Report for Argentina can be accessed here:

https://www.state.gov/reports/2020-country-reports-on-human-rights-practices/argentina/

Argentine law prohibits discrimination on the grounds of sex, race, nationality, religion, political opinion, union affiliation, or age. The law also prohibits employers, either during recruitment or time of employment, from asking about a worker’s political, religious, labor, and cultural views or sexual orientation. These national anti-discrimination laws also apply to labor relations and other social relations.

Argentina has been a member of the International Labor Organization since 1919.

Brazil

Executive Summary

Brazil is the second largest economy in the Western Hemisphere behind the United States, and the twelfth largest economy in the world (in nominal terms) according to the World Bank. The United Nations Conference on Trade and Development (UNCTAD) named Brazil the seventh largest destination for global foreign direct investment (FDI) flows in 2021 with inflows of $58 billion, an increase of 133percent in comparison to 2020 but still below pre-pandemic levels (in 2019, inflows totaled $65.8 billion). In recent years, Brazil has received more than half of South America’s total amount of incoming FDI, and the United States is a major foreign investor in Brazil. According to Brazilian Central Bank (BCB) measurements, U.S. stock was 24 percent ($123.9 billion) of all FDI in Brazil as of the end of 2020, the largest single-country stock by ultimate beneficial owner (UBO), while International Monetary Fund (IMF) measurements assessed the United States had the second largest single-country stock of FDI by UBO, representing 18.7 percent of all FDI in Brazil ($105 billion) and second only to the Netherlands’ 19.9 percent ($112.5 billion). The Government of Brazil (GoB) prioritized attracting private investment in its infrastructure and energy sectors during 2018 and 2019. The COVID-19 pandemic in 2020 delayed planned privatization efforts and despite government efforts to resume in 2021, economic and political conditions hampered the process.

The Brazilian economy resumed growth in 2017, ending the deepest and longest recession in Brazil’s modern history. However, after three years of modest recovery, Brazil entered a recession following the onset of the global coronavirus pandemic in 2020. The country’s Gross Domestic Product (GDP) increased 4.6 percent in 2021, in comparison to a 4.1 percent contraction in 2020. As of February 2022, analysts had forecasted 0.3 percent 2022 GDP growth. The unemployment rate was 11.1 percent at the end of 2021, with over one-quarter of the labor force unemployed or underutilized. The nominal budget deficit stood at 4.4 percent of GDP ($72.4 billion) in 2021, and is projected to rise to 6.8 percent by the end of 2022 according to Brazilian government estimates. Brazil’s debt-to-GDP ratio reached 89.4 percent in 2020 and fell to around 82 percent by the end of 2021. The National Treasury projections show the debt-to-GDP ratio rising to 86.7 percent by the end of 2022, while the Independent Financial Institution (IFI) of Brazil’s Senate projects an 84.8 percent debt-to-GDP ratio. The BCB increased its target for the benchmark Selic interest rate from 2 percent at the end of 2020 to 9.25 percent at the end of 2021, and 11.75 percent in March 2022. The BCB’s Monetary Committee (COPOM) anticipates raising the Selic rate to 12.25 percent before the end of 2022.

President Bolsonaro took office on January 1, 2019, and in that same year signed a much-needed pension system reform into law and made additional economic reforms a top priority. Bolsonaro and his economic team outlined an agenda of further reforms to simplify Brazil’s complex tax system and complicated code of labor laws in the country, but the legislative agenda in 2020 was largely consumed by the government’s response to the COVID-19 pandemic. In 2021, the Brazilian government passed a major forex regulatory framework and strengthened the Central Bank’s autonomy in executing its mandate. The government also passed a variety of new regulatory frameworks in transportation and energy sectors, including a major reform of the natural gas market. In addition, the government passed a law seeking to improve the ease of doing business as well as advance the privatization of its major state-owned enterprise Electrobras.

Brazil’s official investment promotion strategy prioritizes the automobile manufacturing, renewable energy, life sciences, oil and gas, and infrastructure sectors. Foreign investors in Brazil receive the same legal treatment as local investors in most economic sectors; however, there are foreign investment restrictions in the health, mass media, telecommunications, aerospace, rural property, and maritime sectors. The Brazilian congress is considering legislation to liberalize restrictions on foreign ownership of rural property.

Analysts contend that high transportation and labor costs, low domestic productivity, and ongoing political uncertainties hamper investment in Brazil. Foreign investors also cite concerns over poor existing infrastructure, rigid labor laws, and complex tax, local content, and regulatory requirements; all part of the extra costs of doing business in Brazil.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perception Index 2021 96 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 57 of 129 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $70,742 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $7,850 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

5. Protection of Property Rights

11. Labor Policies and Practices

The Brazilian labor market is composed of approximately 107.8 million workers, including employed (95.7 million) and unemployed (12 million). Among employed workers, 38.95 million (40.7 percent) work in the informal sector. Brazil had an unemployment rate of 11.1 percent in the last quarter of 2021, although that rate was more than double (22.8 percent) for workers ages 18-24. Low-skilled employment dominates Brazil’s labor market. The nearly 40 million workers in the informal sector do not receive the full benefits that formal workers enjoy under Brazil’s labor and social welfare system. The informal market represents approximately 16.8 percent of Brazil’s GDP. In 2021, employees’ average monthly income reached the lowest level in recorded history, at R$ 2,587 ($488).

Since 2012, women have on average been unemployed at a higher rate than their male counterparts, a scenario worsened by the pandemic. Between 2012 and 2019, the difference in average employment rates between men and women was 3.3 percentage points. In 2020, the average rate difference reached 4.5 percentage points and in 2021, 5.8 percentage points. In the last quarter of 2021, the Brazilian men’s unemployment rate was 9 percent, while the women’s unemployment rate was 13.9 percent. This discrepancy in employment rates is also traditionally observed for people of color in Brazil: while unemployment rates for whites is 9 percent (below the national average), blacks and mixed-race unemployment rates are significantly higher, at 13.6 percent and 12.6 percent respectively.

Foreign workers made up less than one percent of the overall labor force, but the arrival of more than 305,000 economic migrants and refugees from Venezuela since 2016 has led to large local concentrations of foreign workers in the border state of Roraima and the city of Manaus. Since April 2018, the Brazilian government, through Operation Welcome’s voluntary interiorization strategy, has relocated more than 68,000 Venezuelans from the northern border region to cities with more economic opportunities. Migrant workers within Brazil play a significant role in the agricultural sector.

Workers in the formal sector contribute to the Time of Service Guarantee Fund (FGTS) the amount of one month’s salary over the course of a year. If a company terminates an employee, the employee can access the full amount of their FGTS contributions, or if the employee leaves voluntarily they are entitled to 20 percent of their contributions. Brazil’s labor code guarantees formal sector workers 30 days of annual leave and severance pay in the case of dismissal without cause. Unemployment insurance also exists for laid-off workers, equal to the country’s minimum salary (or more depending on previous income levels) for six months. The government does not waive any labor laws to attract investment.

Collective bargaining is common, and there are 17,630 labor unions operating in Brazil in 2022. Labor unions, especially in sectors such as metalworking and banking, are well organized in advocating for wages and working conditions. In some sectors, federal regulations mandate collective bargaining negotiations across the entire industry. A new labor law in November 2017 ended mandatory union contributions, which has reduced union finances by as much as 90 percent according to the Inter-Union Department of Statistics and Socio-economic Studies (DIEESE). According to the Brazilian Institute of Geography and Statistics (IBGE), the share of unionized workers dropped to 11.2 percent of the workforce in 2019. The Ministry of Labor reported 7,854 collective bargaining agreements in 2021, an increase compared to the 6,118 agreements reported in 2020. Employer federations also play a significant role in both public policy and labor relations. Each state has its own federations of industry and commerce, which report respectively to the National Confederation of Industry (CNI), headquartered in Brasilia, and the National Confederation of Commerce (CNC), headquartered in Rio de Janeiro.

Brazil has a dedicated system of labor courts that are charged with resolving routine cases involving unfair dismissal, working conditions, salary disputes, and other grievances. Labor courts have the power to impose an agreement on employers and unions if negotiations break down and either side appeals to the court system. As a result, labor courts routinely are called upon to determine wages and working conditions in various industries across the country. The labor courts system has millions of pending legal cases on its docket, although the number of new filings has decreased since November 2017 labor law reforms.

Strikes occur periodically, particularly among public sector unions. A strike organized by truckers’ unions protesting increased fuel prices paralyzed the Brazilian economy in May 2018 and led to billions of dollars in losses to the economy. Trucker strikes in 2021, however, had more limited impact.

Brazil has ratified 98 International Labor Organization (ILO) conventions and is party to the UN Convention on the Rights of the Child and major ILO conventions concerning the prohibition of child labor, forced labor, and discrimination. For the past four years (2018-2021), the Department of Labor, in its annual publication “Findings on the Worst forms of Child Labor,” has recognized Brazil for its moderate advancement in efforts to eliminate the worst forms of child labor. On July 28, 2021, President Jair Bolsonaro re-established the Ministry of Labor and Welfare as a separate ministry, reversing its January 2019 merger into the Ministry of Economy. In 2021, the GoB inspected 443 properties, resulting in the rescue of 1,937 victims of forced labor. Additionally, in 2020 GoB officials removed 810 child workers from situations of child labor, compared to 1,040 children in 2019.

Chile

Executive Summary

With the second highest GDP per capita in Latin America (behind Uruguay), Chile has historically enjoyed among the highest levels of stability and prosperity in the region. However, widespread civil unrest broke out throughout the country in 2019 in protest of the government’s handling of the economy and perceived systemic inequality. Pursuant to a political accord, Chile held a plebiscite in October 2020 in which citizens chose to redraft the constitution. Uncertainty about the outcome of the redrafting process may impact investment. Due to Chile’s solid macroeconomic policy framework, the country boasts one of the strongest sovereign bond ratings in Latin America, which has provided fiscal space for the Chilean government to respond to the economic contraction resulting from the COVID-19 pandemic through stimulus packages and other measures. As a result, Chile’s economic growth in 2021 was, according to the Central Bank’s latest estimation, between 11.5 percent and 12 percent. The same institution forecasts Chile’s economic growth in 2022 will be in the range of 1 to 2 percent due largely to the gradual elimination of COVID-19 economic stimulus programs.

Chile has successfully attracted large amounts of Foreign Direct Investment (FDI) despite its relatively small domestic market. The country’s market-oriented policies have created significant opportunities for foreign investors to participate in the country’s economic growth. Chile has a sound legal framework and there is general respect for private property rights. Sectors that attract significant FDI include mining, finance/insurance, energy, telecommunications, chemical manufacturing, and wholesale trade. Mineral, hydrocarbon, and fossil fuel deposits within Chilean territory are restricted from foreign ownership, but companies may enter into contracts with the government to extract these resources. Corruption exists in Chile but on a much smaller scale than in most Latin American countries, ranking 27 – along with the United States – out of 180 countries worldwide and second in Latin America in Transparency International’s 2021 Corruption Perceptions Index.

Although Chile is an attractive destination for foreign investment, challenges remain. Legislative and constitutional reforms proposed in response to the social unrest and the pandemic have generated concerns about the future government policies on property rights, rule of law, tax structure, the role of government in the economy, and many other issues. Importantly, the legislation enabling the constitutional reform process requires that the new constitution must respect Chile’s character as a democratic republic, its judicial sentences, and its international treaties (including the U.S.-Chile Free Trade Agreement). Despite a general respect for intellectual property (IP) rights, Chile has not fully complied with its IP obligations set forth in the U.S.-Chile FTA and remains on the U.S. Trade Representative (USTR) Special 301 Report for not adequately enforcing IP rights. Environmental permitting processes, indigenous consultation requirements, and cumbersome court proceedings have made large project approvals increasingly time consuming and unpredictable, especially in cases with political sensitivities. The current administration has stated its willingness to continue attracting foreign investment.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 27 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 53 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country (US$ billion, historical stock positions) 2020 23.0 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita (US$) 2020 13,470 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

5. Protection of Property Rights

11. Labor Policies and Practices

Unemployment in Chile averaged 9.1 percent of the labor force during 2021, while the labor participation rate was 58.5 percent of the working age population. Data on the labor participation of migrants is still pending. Chilean workers are adequately skilled and some sectors such as mining, agriculture, and fishing employ highly skilled workers. In general, there is an adequate availability of technicians and professionals. Estimates made by the National Institute of Statistics (INE) suggest informal employment in Chile constitutes 28.3 percent of the workforce.

Article 19 of the Labor Code stipulates that employers must hire Chileans for at least 85 percent of their staff, except in the case of firms with less than 25 employees. However, Article 20 of the Labor Code includes several provisions under which foreign employees can exceed 25 percent, independent of the size of the company.

In general, employees who have been working for at least one year are entitled to a statutory severance pay, upon dismissal without cause, equivalent to 30 days of the last monthly remuneration earned, for each year of service. The upper limit is 330 days (11 years of service) for workers with a contract in force for one year or more. The same amount is payable to a worker whose contract is terminated for economic reasons. Upon termination, regardless of the reason, domestic workers are entitled to an unemployment insurance benefit funded by the employee and employer contributions to an individual unemployment fund equivalent to three percent of the monthly remuneration. The employer’s contributions shall be paid for a maximum of 11 years by the same employer. Another fund made up of employer and government contributions is used for complementary unemployment payments when needed.

Labor and environmental laws are not waived in order to attract or retain investments.

During 2020, Labor Directorate data showed that 12,355 unions and 2,524 workers federations were active. In the same period, 273,706 workers were covered by collective bargaining agreements. Collective bargaining coverage rates are higher in the manufacturing (47,083), wholesale and retail; motor vehicles and motorcycles repair (43,676), and transportation and storage (20,468). Unions can form nationwide labor associations and can affiliate with international labor federations. Contracts are normally negotiated at the company level. Workers in public institutions do not have collective bargaining rights, but national public workers’ associations undertake annual negotiations with the government.

The Labor Directorate under the Ministry of Labor is responsible for enforcing labor laws and regulations. Both employers and workers may request labor mediation from the Labor Directorate, which is an alternate dispute resolution model aimed at facilitating communication and agreement between both parties.

Labor Directorate data shows that 494 legal strikes occurred in 2020, involving 86,152 workers. As legal strikes in Chile have a restricted scope and duration, in general they do not present a risk for foreign investment.

Chile has and generally enforces laws and regulations in accordance with internationally recognized labor rights of: freedom of association and collective bargaining, the elimination of forced labor, child labor, including the minimum age for work, discrimination with respect to employment and occupation, and acceptable conditions of work related to minimum wage, occupational safety and health, and hours of work. The maximum number of labor hours allowed per week in Chile is 45. On January 1, 2022, Chile raised its monthly minimum wage to CLP 350,000 – US$ 437 – for all occupations, including household domestic staff, more than twice the official poverty line. Workers older than 64 or younger than 19 years old are eligible for a special minimum wage of CLP 261,092 (US$ 326) a month. Information on potential gaps in law or practice with international labor standards by the International Labor Organization is pending.

Collective bargaining is not allowed in companies or organizations dependent upon the Defense Ministry or whose employees are prohibited from striking, such as in health care, law enforcement, and public utilities. Labor courts can require workers to resume work upon a determination that a strike causes serious risk to health, national security, the supply of goods or services to the population, or to the national economy.

The United States-Chile Free Trade Agreement (FTA) entered into force on January 1, 2004. The FTA requires the United States and Chile to maintain effective labor and environmental enforcement.

On November 16, 2021, the government enacted a law enabling teleworking for workers who are the legal guardians of children in preschool or below the age of 12 and for those workers who are the caregivers of individuals with specials needs or with limited physical mobility whenever the government declares a State of Constitutional Exception as a result of a public calamity (such as events produced by the nature) or public health events (including a pandemic). A bill lowering the maximum number of labor hours allowed per week in Chile from 45 to 40 hours is still pending approval by the Senate.

Colombia

Executive Summary

With improving security conditions in metropolitan areas, a market of 50 million people, an abundance of natural resources, and an educated and growing middle-class, Colombia continues to be an attractive destination for foreign investment in Latin America. Colombia ranked 67 out of 190 countries in the “Ease of Doing Business” index of the World Bank’s 2020 Doing Business Report (most recent report).

The Colombian economy grew by 10.6 percent in 2021, the largest increase in gross domestic product (GDP) since the statistical authority started keeping records in 1975. This followed a 6.8 percent collapse in 2020 due to the negative effects of the pandemic and lower oil prices, the first economic contraction in more than two decades. In July 2021, rating agencies Fitch and Standard & Poor’s (S&P) downgraded Colombia below investment grade status, citing the increasing fiscal deficit (7.1 percent of GDP for 2021) as the main reason for the downgrade. The Colombian Government passed a tax reform that entered into effect in January 2022, the Social Investment Law, that seeks to reactivate the economy, generate employment, and contribute to the fiscal stability of the country.

Colombia’s legal and regulatory systems are generally transparent and consistent with international norms. The country has a comprehensive legal framework for business and foreign direct investment (FDI). The 2012 U.S.-Colombia Trade Promotion Agreement (CTPA) has strengthened bilateral trade and investment. Colombia’s dispute settlement mechanisms have improved through the CTPA and several international conventions and treaties. Weaknesses include protection of intellectual property rights (IPR), as Colombia has yet to implement certain IPR-related provisions of the CTPA. Colombia became the 37th member of the Organization for Economic Cooperation and Development (OECD) in 2020, bringing the obligation to adhere to OECD norms and standards in economic operations.

The Colombian government has made a concerted effort to develop efficient capital markets, attract investment, and create jobs. Restrictions on foreign ownership in specific sectors still exist. FDI inflows increased 4.8 percent from 2020 to 2021, with 67 percent of the 2021 inflow dedicated to the extractives sector. Roughly half of the Colombian workforce in metropolitan areas is employed in the informal economy, a share that increases to four-fifths in rural areas. In 2021, the unemployment rate was 13.7 percent with 3.4 million people unemployed. The employed population reached 21.6 million, an increase of 0.9 percent compared to 2020.

Since the 2016 peace agreement between the government and the Revolutionary Armed Forces of Colombia (FARC), Colombia has experienced a significant decrease in terrorist activity. Several powerful narco-criminal operations still pose threats to commercial activity and investment, especially in rural zones outside of government control.

Corruption remains a significant challenge. The Colombian government continues to work on improving its business climate, but U.S. and other foreign investors continue to voice complaints about non-tariff, regulatory, and bureaucratic barriers to trade, investment, and market access at the national, regional, and municipal levels. Stakeholders express concern that some regulatory rulings in Colombia target specific companies, resulting in an uneven playing field. Investors generally have access at all levels of the Colombian government, but cite a lack of effective and timely consultation with regulatory agencies in decisions that affect them. Investors also note concern regarding the national competition and regulatory authority’s (Superintendencia de Industria y Comercio, SIC) differing rulings for different companies on similar issues, and slow processing at some regulatory agencies, such as at food and drug regulator INVIMA.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 87 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 67 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $7,767 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $5,790 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

5. Protection of Property Rights

11. Labor Policies and Practices

An OECD economic survey of Colombia was published in February 2022. The report mentions Colombia’s economy has recovered well from the COVID-19 crisis, but that the labor market remains weak. Colombia has one of the highest levels of poverty, income inequality, and labor market informality in Latin America. At the end of 2021, 46.8 percent of the urban workforce was working in the informal economy, with the national average hovering around 60 percent. The overall unemployment rate was 13.7 percent. The Colombian workforce has a wide range of skills, including managerial-level employees who are often bilingual, but faces large skills gaps and challenges in labor productivity. Colombia has made strong efforts to incorporate Venezuelan migrants into the formal economy, most notably the February 2021 announcement of ten-year Temporary Protected Status for the country’s estimated 1.8 million Venezuelan migrants.

Labor rights in Colombia are set forth in its Constitution, the Labor Code, the Procedural Code of Labor and Social Security, sector-specific legislation, and ratified international conventions, which are incorporated into national legislation. Colombia’s Constitution guarantees freedom of association and provides for collective bargaining and the right to strike (with some exceptions). It also addresses forced labor, child labor, trafficking, discrimination, protections for women and children in the workplace, minimum wages, working hours, skills training, and social security. Colombia has ratified all eight of the International Labor Organization’s (ILO’s) fundamental labor conventions, and all are in force. Colombia has also ratified conventions related to hours of work, occupational health and safety, and minimum wage.

The 1991 Constitution protects the right to constitute labor unions. Pursuant to Colombia’s labor law, any group of 25 or more workers, regardless of whether they are employees of the same company or not, may form a labor union. Employees of companies with fewer than 25 employees may affiliate themselves with other labor unions. Colombia has a low trade union density (9.5 percent). Where unions are present, multiple affiliation sometimes poses challenges for collective bargaining. The largest and most influential unions are composed mostly of public-sector employees, particularly of the majority state-owned oil company and the state-run education sector. Only 6.2 percent of all salaried workers are covered by collective bargaining agreements (CBAs), according to the OECD. The Ministry of Labor has expressed commitment to working on decrees to incentivize sectoral collective bargaining and to strengthen union representation within companies and regulate strikes in the essential public services sector. Strikes, when held in accordance with the law, are recognized as legal instruments to obtain better working conditions, and employers are prohibited from using strike-breakers at any time during the course of a strike. After 60 days of strike action, the parties are subject to compulsory arbitration. Strikes are prohibited in certain “essential public services,” as defined by law, although Colombia has been criticized for having an overly-broad interpretation of “essential.”

Foreign companies operating in Colombia must follow the same hiring rules as national companies, regardless of the origin of the employer and the place of execution of the contract. No labor laws are waived to attract or retain investment. In 2010, Law 1429 eliminated the mandatory proportion requirement for foreign and national personnel; 100 percent of the workforce, including the board of directors, can be foreign nationals. Labor permits are not required in Colombia, except for minors of the minimum working age. Foreign employees have the same rights as Colombian employees. Employers may use temporary service agencies to subcontract additional workers for peaks of production. Employers must receive advance permission from the Ministry of Labor before undertaking permanent layoffs. The Ministry of Labor typically does not grant permission to lay off workers who have enhanced legal protections (for example, those with work-related injuries or union leaders). The Ministry of Labor has committed to address using temporary or contract workers for jobs that are not temporary in nature, although significant challenges remain in this area.

Reputational risks to investors come with a lack of effective and systematic enforcement of labor law, especially in rural sectors. Homicides of unionists (social leaders) remain an ongoing concern. In January 2017, the U.S. Department of Labor issued a public report of review in response to a submission filed under Chapter 17 (the Labor Chapter) of the CTPA by the American Federation of Labor and Congress of Industrial Organizations and five Colombian workers’ organizations that alleged failures on the part of the government to protect labor rights in line with CTPA commitments. In October 2021, the Department of Labor published the second periodic review of progress to address issues identified in the submission report. For these reports and additional information on labor law enforcement see:

Czechia

Executive Summary 

The Czech Republic is a medium-sized, open economy with 71 percent of its GDP based on exports, mostly from the automotive and engineering industries.  According to the Czech Statistical Office, most of the country’s exports go to the European Union (EU), with 32.4 percent going to Germany alone.  The United States is the Czech Republic’s second largest non-EU export destination, following the United Kingdom.  While the Czech GDP dropped by 5.6 percent due to the economic impact of COVID-19 in 2020, it rebounded in 2021 to 3.3 percent according to the Czech Statistical Office.  The Ministry of Finance forecasts 3.1 percent growth for 2022.

The “Bill on Screening of Foreign Investments” entered into force May 1, 2021.  The law gives the government the ability to screen greenfield investments and acquisitions by non-EU investors.

The Czech Republic has taken strides to diversify its traditional investments in engineering into new fields of research and development (R&D) and innovative technologies.  EU structural funding has enabled the country to open a number of world-class scientific and high-tech centers.  EU member states are the largest investors in the Czech Republic.

The United States announced on February 15, 2020 plans to provide up to USD 1 billion in financing through the Development Finance Corporation (DFC) to the Three Seas Initiative Investment Fund, the dedicated investment vehicle for the Three Seas Initiative and its participating Central and Eastern European countries.  The Three Seas Initiative seeks to reinforce security and economic growth in the region through the development of energy, transportation, and digital infrastructure.  In December 2020 the DFC approved the first tranche of U.S. financial support for the Three Seas Initiative Investment Fund amounting to USD 300 million.

The European Bank for Reconstruction and Development (EBRD) agreed March 24, 2021, to a request from the Czech cabinet to return as an investor to the Czech Republic after a 13-year pause to help mitigate the impact of the COVID-19 pandemic on the economy.  The EBRD’s investments in the Czech Republic primarily focus on private sector assistance and should reach EUR 100 – 200 million annually (USD109-218 million).  The EBRD plans to be involved in investment projects in the Czech Republic temporarily (maximum five years).

The continued economic fallout from COVID-19 resulted in the Czech Republic’s highest historic state budget deficit of 419.7 billion crowns (USD 18.2 billion) in 2021.  In 2021, the Czech Republic appropriated approximately USD17 billion for the COVID-19 response, including USD7.7 billion in direct support, USD 6.7 billion in healthcare and social services expenses, and USD2.3 billion in loan guarantees.

The Czech Republic has adopted environmental strategies and policies to address the climate crisis.  Public procurement policies include environmental considerations, and the government provides subsidies to companies for using modern low-carbon technologies, renewables, and resource-effective processes.

There are no significant risks to doing business responsibly in areas such as labor and human rights in the Czech Republic.

The Czech Republic fully complies with EU and the Organization for Economic Cooperation and Development (OECD) standards for labor laws and equal treatment of foreign and domestic investors.  Wages continue to trail those in neighboring Western European countries (Czech wages are roughly one-third of comparable German wages).  While wage growth slowed in 2020 following the coronavirus pandemic, resulting in a 3.1 percent year-on-year increase, wages rose by 6.1 percent in 2021, according to the Czech Statistical Office.  As of the fourth quarter of 2021, wages grew primarily in the real estate, accommodation, and hospitality sectors.  As of January 2022, the unemployment rate remained the lowest in the EU, at only 2.3 percent.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 49 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 24 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 5,629 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 22,070 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

5. Protection of Property Rights  

Poland

Executive Summary

Poland’s strong fundamentals and timely macroeconomic policies have enabled the country’s economy to withstand several recent turbulent periods. In 2021, the Polish economy was recovering rapidly from the pandemic-induced recession, which had interrupted almost 30 years of continuous economic expansion. Policy actions including broad fiscal measures and unprecedented monetary support cushioned the socio-economic impact of the pandemic. Already in the second quarter of 2021, output returned to pre-crisis levels and annual growth in 2021 averaged 5.7 percent. The post-pandemic recovery has been sustained by robust private consumption. Despite pandemic-related challenges and the deterioration of some aspects of the investment climate, Poland remained an attractive destination for foreign investment. Solid economic fundamentals and promising post-COVID recovery forecasts continued to draw foreign, including U.S., capital. The Family 500+ program and additional pension payments continued in 2021 as key elements of the Law and Justice (PiS) party’s social welfare and inequality reduction agenda. The government increased the minimum wage and the labor market remained relatively strong, supported by a package of measures introduced in 2020 and continued in 2021 known as the “Anti-Crisis Shield.” The support measures amounted to approximately $55 billion. Prospects for future growth of the Polish economy are uncertain due to the outbreak of the war in Ukraine. High inflation, the highest in 20 years, is likely to continue and interest rates, which will rise along with it, will negatively impact the economy. The approval of Poland’s National Recovery Plan (KPO), however, and the transfer of EU funds envisaged therein, should make a positive impact.

In 2021, the government introduced an “Anti-Inflation Shield’ including a temporary reduction in value added tax (VAT) on electricity, gas, and heating as well as foodstuffs to prevent significant deterioration in consumption. A fiscal stimulus program (the “Polish Deal”) was also introduced and took effect in 2022. After only a few months of its implementation, the government has radically amended it. New solutions aimed at insulating the economy from the effects of the war in Ukraine will be introduced under the banner of an “Anti-Putin Shield.” These measures will include compensation to Polish businesses that operated in Russia, Ukraine, or Belarus; subsidies to the state-owned gas pipeline operator; regulated gas tariffs for households and “sensitive recipients” such as hospitals; subsidies for farmers to combat rising fertilizer prices; and a reduction of the income tax threshold. The proposal is still subject to consultations but is expected to be enacted into law in 2022. The current anti-inflationary measures are likely to be extended until the end of 2022. All of these policies will drastically increase fiscal spending and curtail tax revenue.

The Polish government has made gradual progress in simplifying administrative processes for firms, supported by the introduction of digital public services, but weaknesses persist in the legal and regulatory framework. Implemented and proposed legislation dampened optimism in some sectors (e.g., retail, media, energy, digital services, and beverages). Investors point to lower predictability and the outsized role of state-owned and state-controlled companies in the Polish economy as an impediment to long-term balanced growth. The government continues to push for the creation of state-controlled “national champions” that are large enough to compete internationally and lead economic development. Despite a polarized political environment, and a few less business-friendly sector-specific policies, the broad structures of the Polish economy are solid. Foreign investors are not abandoning projects planned before the outbreak of the war in Ukraine and some are even transferring activities from Ukraine and Belarus to Poland. Prospects for future growth will depend on the course of the war in Ukraine, but in the near-term, external and domestic demand and inflows of EU funds, as well as various government aid programs, are likely to continue to attract investors seeking access to Poland’s market of over 38 million people, and to the broader EU market of over 500 million.

In mid-2021, the Ministry of Economic Development and Technology finished public consultations on its Industry Development White Paper, which identifies the government’s views on the most significant barriers to industrial activity and serves as the foundation for Poland’s Industrial Policy (PIP) – a strategic document focused on digitization, security, industrial production location, the Green Deal, and modern society which sets the direction for long-term industrial development. In early 2022, the Ministry announced there was need for further analysis and introduction of new economic solutions due to the considerable changes in the EU energy policy, supply chain disruptions, and the geopolitical situation.

Poland’s well-diversified economy reduces its vulnerability to external shocks, although it depends heavily on the EU as an export market. Foreign investors also cite Poland’s well-educated work force as a major reason to invest, as well as its proximity to major markets such as Germany. U.S. firms represent one of the largest groups of foreign investors in Poland. The volume of U.S. investment in Poland was estimated at over $4.2 billion by the National Bank of Poland in 2020 and at around $25 billion by the Warsaw-based American Chamber of Commerce (AmCham). With the inclusion of indirect investment flows through subsidiaries, it may reach over $62 billion, according to KPMG and AmCham. Historically, foreign direct investment (FDI) was largest in the automotive and food processing industries, followed by machinery and other metal products and petrochemicals. “Shared office” services such as accounting, legal, and information technology services, including research and development (R&D), is Poland’s fastest-growing sector for foreign investment. The government seeks to promote domestic production and technology transfer opportunities in awarding defense-related tenders. There are also investment and export opportunities in the energy sector—both immediate (natural gas), and longer term (nuclear, hydrogen, energy grid upgrades, photovoltaics, and offshore wind)—as Poland seeks to diversify its energy mix and reduce air pollution. Biotechnology, pharmaceutical, and health care industries opened wider to investments and exports as a result of the COVID-19 experience. 2021 turned out to be a record year for venture capital investment in Poland. Compared to 2020, the value of investments in this area increased by 66 percent, exceeding $800 million. Around 15 percent of these transactions were investments in the sector of medical technologies.

Defense remains a promising sector for U.S. exports. The Polish government is actively modernizing its military inventory, presenting good opportunities for the U.S. defense industry. A law increasing the defense budget was adopted in March 2022. The law also amends the mechanism of military financing, expansion, and procurement. The defense budget is to increase to 3 percent of GDP from 2023, exceeding the NATO target of 2 percent. Under the new law, the Council of Ministers will be tasked with determining, every four years, the direction of the modernization and development of the armed forces for a 15-year planning period. Information technology and cybersecurity along with infrastructure also are sectors that show promise for U.S. exports, as Poland’s municipalities focus on smart city networks. A $10 billion central airport project may present opportunities for U.S. companies in project management, consulting, communications, and construction. The government seeks to expand the economy by supporting high-tech investments, increasing productivity and foreign trade, and supporting entrepreneurship, scientific research, and innovation through the use of domestic and EU funding. The Polish government is interested in the development of green energy, hoping to utilize the large amounts of EU funding earmarked for this purpose in the coming years and decades.

The Polish government plans to allocate money from the EU Recovery Fund (once Poland’s plan is approved) to pro-development investments in such areas as economic resilience and competitiveness, green energy and the reduction of energy intensity, digital transformation, the availability and quality of the health care system, and green and intelligent mobility. A major EU project is to synchronize the Baltic States’ electricity grid with that of Poland and the wider European network by 2025. Another government strategy aims for a commercial fifth generation (5G) cellular network to become operational in all cities by 2025, although planned spectrum auctions have been repeatedly delayed.

Some organizations, notably private business associations and labor unions, have raised concerns that policy changes have been introduced quickly and without broad consultation, increasing uncertainty about the stability and predictability of Poland’s business environment. For example, the government had announced an “advertising tax” on media companies with only a few months warning after firms had already prepared budgets for the current year. Broadcasters were concerned the tax, if introduced, could irreparably harm media companies weakened by the pandemic and limit independent journalism. Other proposals to introduce legislation on media de-concentration and limitations on foreign ownership have raised concern among foreign investors in the sector; however, those proposals seem to have stalled for the time being. The Polish tax system has undergone a major transformation with the introduction of many changes over recent years, including more effective tax auditing and collection, with the aim of increasing budget revenues. Through updated regulations in November 2020, Poland has adopted a range of major changes concerning the taxation of doing business in the country. The changes include the double taxation of some partnerships; deferral of corporate income tax (CIT) for small companies owned by individuals; an obligation to publish tax strategies by large companies; and a new model of taxation for real estate companies. In the financial sector, legal risks stemming from foreign exchange mortgages constitute a source of uncertainty for some banks. The Polish government has supported taxing the income of Internet companies, proposed by the European Commission, considering it a possible new source of financing for the post-COVID-19 economic recovery. A tax on video-on-demand services and the proposed advertising tax are two examples of this trend.

On April 8, 2021, Poland’s president signed legislation amending provisions of Poland’s customs and tax laws in an effort to simplify certain customs and tax procedures.

The “Next Generation EU” recovery package will benefit the Polish economic recovery with sizeable support. Under the 2021-2027 European Union budget, Poland will receive $78.4 billion in cohesion funds as well as approximately $27 billion in grants and $40 billion in loan access from the EU Recovery and Resilience Facility. The Polish government projects this injection of funds, amounting to around 4.5 percent of Poland’s 2021 GDP, should contribute significantly to the country’s growth over the period 2021-2027. As the largest recipient of EU funds (which have contributed an estimated 1 percentage point to Poland’s GDP growth per year), any significant decrease in EU cohesion spending would have a large negative impact on Poland’s economy. The risk of a suspension of EU funds is low, but the government has refused to comply with several rulings of the European Court of Justice.

Observers are closely watching the European Commission’s three open infringement proceedings against Poland regarding rule of law and judicial reforms initiated in April 2019, April 2020, and December 2021.  The Commission’s concerns include the introduction of an extraordinary appeal mechanism in the enacted Supreme Court Law, which could potentially affect economic interests in that final judgments issued since 1997 can now be challenged and overturned in whole or in part, including some long-standing judgments on which economic actors have relied.  Other issues regard the legitimacy of judicial appointments after a reform of the National Judicial Council that raise concerns about long-term legal certainty and the possible politicization of judicial decisions and undermining of EU law.

Russia’s invasion of Ukraine has led to an increase in economic, financial, and political risks.

Managing the fallout from the war in Ukraine will be the government’s priority. Poland faces a large-scale refugee influx and, as of April 2022, has already received close to three million refugees. The Polish government reacted rapidly, granting refugees the right of temporary residence and access to key public services (health, education), social assistance, and housing. According to the European Bank for Reconstruction and Development (EBRD), the war in Ukraine, if it ends within a few months, will cause a small and short slowdown in the growth of the Polish economy. The relatively limited consequences of the invasion for Poland’s economy are primarily due to the large influx of refugees to Poland. The EBRD expects this to be a strong consumption stimulus that will cushion the impact of weakening exports due to the war.

The Polish and global economies are currently operating in conditions of high uncertainty. Any forecasts, therefore, are subject to a large margin of error. The state of the Polish economy and the validity of forecasts will depend on the further course of the war in Ukraine, the decision of Ukrainian refugees on whether to stay in Poland, and the EU’s approval of Poland’s KPO.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 42 of 180 http://www.transparency.org/research/cpi/overview 
Global Innovation Index 2021 40 of 132 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2020 11,127 https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2020 15,240 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

5. Protection of Property Rights

11. Labor Policies and Practices

Poland has a well-educated, skilled labor force.  Productivity, however, remains below OECD averages but is rising rapidly and unit costs are competitive.  In the last quarter of 2021, according to the Polish Central Statistical Office (GUS), the average gross wage in Poland was PLN 5,995 per month ($1,500) compared to 5,458 ($1,444) in the last quarter of 2020.  Poland’s economy employed roughly 16.780 million people in the fourth quarter of 2021.  Eurostat measured total Polish unemployment at 2.9 percent, with youth unemployment at 11 percent in December 2021.  The unemployment rate was the same among male and female workers. GUS reports unemployment rates differently and tends to be higher than Eurostat figures.  Unemployment varied substantially among regions: the highest rate was 8.6 percent (according to GUS) in the north-eastern part of Poland (Warmia and Mazury), and the lowest was 3.1 percent (GUS) in the western province of Wielkopolska, at the end of the fourth quarter of 2021.  Unemployment was lowest in major urban areas.  Polish workers are usually eager to work for foreign companies, in Poland and abroad.  Since Poland joined the EU, up to two million Poles have sought work in other EU member states.

According to the Ministry of Family and Social Policy, more than 2 million “simplified procedure” work declarations were registered in 2021, of which 1.7 million were for Ukrainian workers (compared to 1.3 million a year earlier).  Under the revised procedure, local authorities may verify if potential employers have actual job positions for potential foreign workers.  The law also authorizes local authorities to refuse declarations from employers with a history of abuse, as well as to ban employers previously convicted of human trafficking from hiring foreign workers.  The 2018 revision also introduced a new type of work permit for foreign workers, the so-called seasonal work permit, which allow for legal work up to nine months in agriculture, horticulture, tourism, and similar industries.  Ministry of Family and Social Policy statistics show that during 2021, more than 400,000 seasonal work permits of this type were issued, of which more than 387,000 went to Ukrainians.  Ministry of Family and Social Policy statistics also show that in 2021, more than 504,000 foreigners received work permits, including more than 325,000 Ukrainians, compared with 295,272 in 2020.  On March 12, 2022, the new law on assistance to Ukrainian citizens in connection with the armed conflict on the territory of the country entered into force. Under the new law, Ukrainian citizens who fled their country as a result of the war can legally stay and work in Poland for up to 18 months.

Polish companies suffer from a shortage of qualified workers.  According to a 2022 report, “Barometer of Professions,” commissioned by the Ministry of Family and Social Policy, several industries suffer shortages, including the construction, manufacturing, healthcare, transportation, education, food processing, and financial industries.

The most sought-after workers in the construction industry include concrete workers, steel fixers, carpenters, and bricklayers.  Manufacturing companies seek electricians, electromechanical engineers, tailors, welders, woodworkers, machinery operators, and locksmiths.  Employment has expanded in service industries such as information technology, manufacturing, and administrative and support service activities.  The business process outsourcing industry in Poland has experienced dynamic growth.  The state-owned sector employs about a quarter of the work force, although employment in coal mining and steel are declining.

Since 2017, the minimum retirement age for men has been 65 and 60 for women.  Labor laws differentiate between layoffs and dismissal for cause (firing).  In the case of layoffs (when workers are dismissed for economic reasons in companies which employ more than 20 employees), employers are required to offer severance pay.  In the case of dismissal for cause, the labor law does not require severance pay.

Most workers hired under labor contracts have the legal right to establish and join independent trade unions and to bargain collectively. Individuals who are self-employed or in an employment relationship based on a civil law contract are also permitted to form a union. The law provides for the rights of workers to form and join independent trade unions, bargain collectively, and conduct legal strikes. The law prohibits antiunion discrimination and provides legal measures under which workers fired for union activity may demand reinstatement. Trade union influence is declining, though unions remain powerful among miners, shipyard workers, government employees, and teachers.  The Polish labor code outlines employee and employer rights in all sectors, both public and private, and has been gradually revised to adapt to EU standards. However, employers tend to use temporary and contract workers for jobs that are not temporary in nature.  Employers have used short-term contracts because they allow firing with two weeks’ notice and without consulting trade unions.  Employers also tend to use civil instead of labor contracts because of ease of hiring and firing, even in situations where work performed meets all the requirements of a regular labor contract.

Polish law requires equal pay for equal work and equal treatment with respect to signing labor contracts, employment conditions, promotion, and access to training.  The law defines equal treatment as nondiscrimination in any way, directly or indirectly on the grounds of gender, age, disability, race, religion, nationality, political opinion, ethnic origin, denomination, sexual orientation, and whether or not the person is employed temporarily or permanently, full time or part time.

The 1991 Law on Conflict Resolution defines the mechanism for labor dispute resolution.  It consists of four stages: first, the employer is obliged to conduct negotiations with employees; the second stage is a mediation process, including an independent mediator; if an agreement is not reached through mediation, the third stage is arbitration, which takes place at the regional court; the fourth stage of conflict resolution is a strike.

The Polish government adheres to the International Labor Organization’s (ILO) core conventions and generally complies with international labor standards.  However, there are several gaps in enforcing these standards, including legal restrictions on the rights of workers to form and join independent unions.  Cumbersome procedures make it difficult for workers to meet all of the technical requirements for a legal strike.  The law prohibits collective bargaining for key civil servants, appointed or elected employees of state and municipal bodies, court judges, and prosecutors.  There were some limitations with respect to identification of victims of forced labor.  Despite prohibitions against discrimination with respect to employment or occupation, such discrimination occurs.  Authorities do not consistently enforce minimum wage, hours of work, and occupational health and safety, either in the formal or informal sectors.

The National Labor Inspectorate (NLI) is responsible for identifying possible labor violations; it may issue fines and notify the prosecutor’s office in cases of severe violations.  According to labor unions, however, the NLI does not have adequate tools to hold violators accountable and the small fines imposed as punishment are an ineffective deterrent to most employers.  The United States has no FTA or preference program (such as GSP) with Poland that includes labor standards.

The grey economy’s share in Poland’s GDP is expected to increase to 18.9 percent in 2022, from 18.3 percent in 2021, according to Poland’s Institute of Forecasts and Economic Analyses (IPAG). IPAG estimates that the total value of the shadow economy in Poland will reach EUR 126.4 billion (PLN 590 billion) in 2022. According to IPAG, Russia’s ongoing war in Ukraine remains a significant factor of uncertainty and may additionally boost the grey economy to 19.4 percent. According to worldeconomics.com, the size of Poland’s informal economy is estimated to be 22.4 percent which represents approximately $354 billion at GDP PPP levels.

In 2021, Poland ranked 18 in the Mastercard Index of Women Entrepreneurs (MIWE) ranking offering women good conditions for running a business, down 12 places from 2020. According to the Mastercard report, 29 percent of companies in Poland are run by women. At the end of 2021, the share of women on the boards of the companies listed on the Warsaw Stock Exchange was only 17 percent, a decrease by one percent compared to 2020.

According to the analysis of data from the National Court Register carried out by the Dun & Bradstreet business intelligence agency, the number of companies owned by women in Poland at the end of 2021 decreased by three percent compared to 2020 and accounted for 32.5 percent of all companies. The number of women in the position of CEO decreased from 23.5 percent to 19.5 percent and as members of management boards from 30 percent to 25 percent. According to the Central Statistical Office (GUS) data, the share of women in the Polish labor market amounts to over 40 percent.

The pandemic undoubtedly contributed to the decline in women’s business activity. According to the report of the Foundation Success Written with Lipstick, one-third of surveyed business owners and co-owners admitted that they had problems with running a business in 2021, over a quarter recorded a drop in revenues, and eight percent had to suspend activities. Every fifth entrepreneur had to change the business profile of her company due to the pandemic.

The COVID-19 pandemic continued to dominate 2021, affecting the business world and forcing employers and employees to adapt to new working conditions. Due to the growing popularity of remote work, the Ministry of Labor has continued works aimed at introducing remote work to the provisions of the Labor Code for good. New regulations will be introduced in the first half of 2022.

The Philippines

Executive Summary

The Philippines remains committed to improving its overall investment climate and recovering from the COVID-19 pandemic. Sovereign credit ratings remain at investment grade based on the country’s historically sound macroeconomic fundamentals, but one credit rating agency has updated its ratings with a negative outlook indicating a possible downgrade within the next year due to increasing public debt and inflationary pressures on the economy. Foreign direct investment (FDI) inflows rebounded to USD 10.5 billion, up 54 percent from USD 6.8 billion in 2020 and surpassing the previous high of USD 10.3 billion in 2017, according to the Bangko Sentral ng Pilipinas (the Philippine Central Bank). While 2021 was a record year for inward FDI, since 2010 the Philippines has lagged behind regional peers in the Association of Southeast Asian Nations (ASEAN) in attracting foreign investment. The Philippines ranked sixth out of ten ASEAN economies for total FDI inflows in 2020, and last among ASEAN-5 economies (which include Indonesia, Malaysia, the Philippines, Singapore, and Thailand) in cumulative FDI inflows from 2010-2020, according to World Bank data. The majority of FDI equity investments in 2021 targeted the manufacturing, energy, financial services, and real estate sectors. (https://www.bsp.gov.ph/SitePages/MediaAndResearch/MediaDisp.aspx?ItemId=6189)

Poor infrastructure, high power costs, slow broadband connections, regulatory inconsistencies, and corruption are major disincentives to investment. The Philippines’ complex, slow, and sometimes corrupt judicial system inhibits the timely and fair resolution of commercial disputes. Traffic in major cities and congestion in the ports remain barriers to doing business. The Philippines made progress in addressing foreign ownership limitations that has constrained investment in many sectors, through legislation such as the amendments to the Public Services Act, the Retail Trade Liberalization Act, and Foreign Investment Act, that were signed into law in 2022.

Amendments to the Public Services Act open previously closed sectors of the economy to 100 percent foreign investment. The amended law maintains foreign ownership restrictions in six “public utilities:” (1) distribution of electricity, (2) transmission of electricity, (3) petroleum and petroleum products pipeline transmission systems, (4) water pipeline distribution systems, (5) seaports, and (6) public utility vehicles. The newly approved Retail Trade Liberalization Act aims to boost foreign direct investment in the retail sector by reducing the minimum per-store investment requirement for foreign-owned retail trade businesses from USD 830,000 to USD 200,000. It will also reduce the quantity of locally manufactured products foreign-owned stores are required to carry. The Foreign Investment Act will ease restrictions on foreigners practicing their professions in the Philippines and grant them access to investment areas that were previously reserved for Philippine nationals, particularly in the education, technology, and retail sectors.

In addition, the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act signed in March 2021 reduced the corporate income tax from ASEAN’s highest rate of 30 percent to 25 percent for large firms, and 20 percent for small firms. The rate for large firms will be gradually lowered to 20 percent by 2025. CREATE could attract new business investment, although some foreign investors have concerns about the phase-out of their incentive benefits, which are replaced by the performance-based and time-bound nature of the incentives scheme adopted in the measure.

While the Philippine bureaucracy can be slow and opaque in its processes, the business environment is notably better within the special economic zones, particularly those available for export businesses operated by the Philippine Economic Zone Authority (PEZA), known for its regulatory transparency, no red-tape policy, and one-stop shop services for investors. Finally, the Philippines’ infrastructure spending under the Duterte Administration’s “Build, Build, Build” infrastructure program is estimated to have exceeded USD100 billion over the 2017-2022 period.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 117 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 51 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 5,199 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 USD3,430 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

5. Protection of Property Rights

11. Labor Policies and Practices

Managers of U.S. companies in the Philippines report that local labor costs are relatively low and workers are highly motivated, with generally strong English language skills. As of December 2021, the Philippine labor force reached 49.5 million workers, with an employment rate of 93.4 percent and an unemployment rate of 6.6 percent. These figures include employment in the informal sector and do not capture the substantial rates of underemployment in the country. Youths between the ages of 15 and 24 made up more than 28.9 percent of the unemployed. More than half of all employment was in the services sector, with 56.6 percent. Agriculture and industry sectors constitute 25.6 percent and 17.8 percent, respectively.

Compensation packages in the Philippines tend to be comparable with those in neighboring countries. Regional Wage and Productivity Boards meet periodically in each of the country’s 16 administrative regions to determine minimum wages. The non-agricultural daily minimum wage in Metro Manila is approximately USD 10, although some private sector workers receive less. Most regions set their minimum wage significantly lower than Metro Manila. Violation of minimum wage standards is common, especially non-payment of social security contributions, bonuses, and overtime. Philippine law also provides for a comprehensive set of occupational safety and health standards. The Department of Labor and Employment (DOLE) has responsibility for safety inspection, but a shortage of inspectors has made enforcement difficult.

The Philippine Constitution enshrines the right of workers to form and join trade unions. The trend among firms using temporary contract labor to lower employment costs continues despite government efforts to regulate the practice. The DOLE Secretary has the authority to end strikes and mandate a settlement between parties in cases involving national interest. DOLE amended its rules concerning disputes in 2013, specifying industries vital to national interest: hospitals, the electric power industry, water supply services (excluding small bottle suppliers), air traffic control, and other industries as recommended by the National Tripartite Industrial Peace Council (NTIPC). Economic zones often offer on-site labor centers to assist investors with recruitment. Although labor laws apply equally to economic zones, unions have noted some difficulty organizing inside the zones.

The Philippines is signatory to all International Labor Organization (ILO) core conventions but has faced challenges with enforcement. Unions allege that companies or local officials use illegal tactics to prevent workers from organizing. The quasi-judicial National Labor Relations Commission reviews allegations of intimidation and discrimination in connection with union activities. Meanwhile, the NTIPC monitors the application of international labor standards.

Reports of forced labor in the Philippines continue, particularly in connection with human trafficking in the commercial sex, domestic service, agriculture, and fishing industries, as well as online sexual exploitation of children.

Vietnam

Executive Summary

Foreign direct investment (FDI) continues to be of vital importance to Vietnam, as a means to support post-COVID economic recovery and drive the government’s aspirations to achieve middle-income status by 2045. As a result, the government has policies in place that are broadly conducive to U.S. investment. Factors that attract foreign investment include government commitments to fight climate change issues, free trade agreements, political stability, ongoing economic reforms, a young and increasingly urbanized and educated population, and competitive labor costs. According to the Ministry of Planning and Investment (MPI), which oversees investment activities, at the end of December 2021 Vietnam had cumulatively received $241.6 billion in FDI.

In 2021, Vietnam’s once successful “Zero COVID” approach was overwhelmed by an April outbreak that led to lengthy shutdowns, especially in manufacturing, and steep economic costs. However, the government reacted quickly to launch a successful national vaccination campaign, which enabled the country to switch from strict lockdowns to a “living with COVID” policy by the end of the year. The Government of Vietnam’s fiscal stimulus, combined with global supply chain shifts, resulted in Vietnam receiving $19.74 billion in FDI in 2021 – a 1.2 percent decrease over the same period in 2020. Of the 2021 investments, 59 percent went into manufacturing – especially in electronics, textiles, footwear, and automobile parts industries; 8 percent in utilities and energy; 15 percent in real estate; and smaller percentages in other industries. The government approved the following major FDI projects in 2021: Long An I and II LNG Power Plant Project ($3.1 billion); LG Display Project in Hai Phong ($2.15 billion); O Mon II Thermal Power Plant Factory in Can Tho ($1.31 billion); Kraft Vina Paper Factory in Vinh Phuc ($611.4 million); Polytex Far Eastern Vietnam Co., Ltd Factory Project ($610 million).

At the 26th United Nations Climate Change Conference (COP26) Vietnam’s Prime Minister Pham Minh Chinh made an ambitious pledge to reach net zero emissions by 2050, by increasing use of clean energy and phasing out coal-fueled power generation. In January 2022 Vietnam introduced new regulations that place responsibility on producers and importers to manage waste associated with the full life cycle of their products. The Government also issued a decree on greenhouse gas mitigation, ozone layer protection, and carbon market development in Vietnam.

Vietnam’s recent moves forward on free trade agreements make it easier to attract FDI by providing better market access for Vietnamese exports and encouraging investor-friendly reforms. The EU-Vietnam Free Trade Agreement (EVFTA) entered into force August 1, 2020. Vietnam signed the UK-Vietnam Free Trade Agreement entered into force May 1, 2021. The Regional Comprehensive Economic Partnership (RCEP) entered into force January 1, 2022 for ten countries, including Vietnam. These agreements may benefit U.S. companies operating in Vietnam by reducing barriers to inputs from and exports to participating countries, but also make it more challenging for U.S. exports to Vietnam to compete against competitors benefiting from preferential treatment.

In February 2021, the 13th Party Congress of the Communist Party approved a ten-year economic strategy that calls for shifting foreign investments to high-tech industries and ensuring those investments include provisions relating to environmental protection. On January 1, 2021, Vietnam’s Securities Law and new Labor Code Law, which the National Assembly originally approved in 2019, came into force. The Securities Law formally states the government’s intention to remove foreign ownership limits for investments in most industries. The new Labor Code includes several updated provisions including greater contract flexibility, formal recognition of a greater part of the workforce, and allowing workers to join independent workers’ rights organizations, though key implementing decrees remain pending. On June 17, 2020, Vietnam passed a revised Law of Investment and a new Public Private Partnership Law, both designed to encourage foreign investment into large infrastructure projects, reduce the burden on the government to finance such projects, and increase linkages between foreign investors and the Vietnamese private sector.

Despite a comparatively high level of FDI inflow as a percentage of GDP – 7.3 percent in 2020 – significant challenges remain in Vietnam’s investment climate. These include widespread corruption, entrenched State Owned Enterprises (SOE), regulatory uncertainty in key sectors like digital economy and energy, weak legal infrastructure, poor enforcement of intellectual property rights (IPR), a shortage of skilled labor, restrictive labor practices, and the government’s slow decision-making process.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 87 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 44 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD 2,820 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 USD 2,650 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

5. Protection of Property Rights

11. Labor Policies and Practices

Although Vietnam has made some progress on labor issues in recent years, including, in theory, allowing the formation of independent unions, the sole union that has any real authority is the state-controlled Vietnam General Confederation of Labor (VGCL). Workers will not be able to form independent unions legally until the Ministry of Labor, Invalids, and Social Affairs (MOLISA) issues guidance on implementation of the 2019 Labor Code, including decrees on procedures to establish and join independent unions, and to determine the level of autonomy independent unions will have in administering their affairs. MOLISA expects to issue this guidance in 2022.

Vietnam has been a member of the International Labor Organization (ILO) since 1992 and has ratified seven of the core ILO labor conventions (Conventions 100 and 111 on discrimination, Conventions 138 and 182 on child labor, Conventions 29 and 105 on forced labor, and Convention 98 on rights to organize and collective bargaining). In June 2020 Vietnam ratified ILO Convention 105 – on the abolition of forced labor – which came into force July 14, 2021. The EVFTA also requires Vietnam to ratify Convention 87, on freedom of association and protection of the right to organize, by 2023.

Labor dispute resolution mechanisms vary depending on situations. Individual labor disputes and rights-based collective labor disputes must go through a defined process that includes labor conciliation, labor arbitration, and a court hearing. Only interest-based collective labor disputes may legally be pursued via demonstration, and only after undergoing through conciliation and arbitration. However, in practice strikes organized by ad hoc groups at individual facilities are not uncommon, and are usually resolved through negotiation with management. In 2021 there were 105 strikes nationwide, 20 fewer than in 2020 as reported by VGCL.

According to Vietnam’s General Statistics Office (GSO), in 2021 there were 50.7 million people participating in the formal labor force in Vietnam out of over 74.9 million people aged 15 and above, around 1.4 million lower than 2020. The labor force is relatively young, with workers 15-39 years of age accounting for half of the total labor force. 61.6 percent of women in the working age participate to the labor force in comparison to 74.3 percent of men in the working age while 65.3 percent of people in the working age in the urban areas participate in the labor force in comparison to 69.3 percent in the rural areas.

Estimates on the size of the informal economy differ widely. The IMF states 40 percent of Vietnam’s laborers work on the informal economy; the World Bank puts the figure at 55 percent; the ILO puts the figure as high as 79 percent if agricultural households are included. Vietnam’s GSO stated that among 53.4 million employed people, 20.3 million people worked in the informal economy.

An employer is permitted to dismiss employees due to technological changes, organizational changes (in cases of a merger, consolidation, or cessation of operation of one or more departments), when the employer faces economic difficulties, or for disruptive behavior in the workplace. There are no waivers on labor requirements to attract foreign investment.

Investment Climate Statements
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