THE COUNTRY AT GLANCE by dominic.cecilia

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									PERU LEGAL GUIDE




        Bernardo Monteagudo 201, San Isidro, Lima 27, Perú
 Telf. (51-1) 264-4040/ 264-3620. Fax (51-1) 264-3080 / 264-4050
Email: postmaster@esola.com.pe; joseantonioolaechea@esola.com.pe;
                 Web site: http://www.esola.com.pe
The information contained herein has been updated as of December 15, 2007 and does not
  constitute legal advice. Professional services should be sought if legal advice is required.
                                                                   INDEX
ABOUT ESTUDIO OLAECHEA................................................................................... 5

I. THE COUNTRY AT A GLANCE............................................................................... 7
   A. Geography ...................................................................................................................................... 7
   B. Demography................................................................................................................................... 7
   C. Historical Summary ....................................................................................................................... 7
   D. The Constitutional and Political System.................................................................................... 9

II. INVESTMENT-GENERAL CONSIDERATIONS ............................................... 10
   A. Peruvian Economic History ......................................................................................................10
   B. Economic System ........................................................................................................................12
   C. Membership in Regional Economic and Trade Groups........................................................14
   D. Recent Economic Data ..............................................................................................................15
      1. Gross Domestic Product........................................................................................................15
      2. Inflation.....................................................................................................................................16
      3. The Currency Exchange Markets.........................................................................................16
      4. Peruvian External Debt ..........................................................................................................16
   E. Local Capital Markets .................................................................................................................17
   F. Privatizations Between 1991-2006 ............................................................................................19
   G. Recent Major Direct Investments ...........................................................................................22

III. TYPES OF MERCANTILE ORGANIZATIONS ................................................. 23
   A. Corporation ..................................................................................................................................23
      1. Closely Held Corporation (S.A.C.)........................................................................................24
      2. Openly Held Corporation (S.A.A.) .......................................................................................24
         2.1 Right to Information Out of the Meeting .....................................................................25
         2.2 Right for Requesting Meeting Call by the Shareholders..............................................25
         2.3 Right to Postpone a Shareholders’ Meeting ..................................................................25
         2.4 Right to Challenge Resolutions.......................................................................................25
         2.5 Right to Suspend a Resolution ........................................................................................25
         2.6 Right to Withdraw.............................................................................................................25
      3. Standard Corporation..............................................................................................................26
      4. Capital Structure.......................................................................................................................26
      5. Corporate Bodies .....................................................................................................................27
         5.1 Shareholders’ General Meetings .....................................................................................27
         5.2 The Board of Directors....................................................................................................27
   B. Limited Liability Company.........................................................................................................28
   C. General Partnership ....................................................................................................................28
   D. Simple Limited Partnership .......................................................................................................28
   E. Limited Partnership with Shares ...............................................................................................29
   F. Civil Company..............................................................................................................................29
   G. Foreign Branch............................................................................................................................29
   H. Association in Participation.......................................................................................................30
   I. Consortium ....................................................................................................................................30
   J. Mergers and Spin-Offs.................................................................................................................31
      1. Mergers......................................................................................................................................31
      2. Spin-Offs...................................................................................................................................31

IV. OTHER TYPES OF BUSINESS ORGANIZATIONS .......................................... 31
  A. Financial Institutions...................................................................................................................31
     1. Banks .........................................................................................................................................32
       2. Finance Companies .................................................................................................................32
       3. Branches of Foreign Banks ....................................................................................................33
       4. Representative Offices of Foreign Banks.............................................................................33
       5. Investment Banks ....................................................................................................................33
       6. Leasing Companies..................................................................................................................33
       7. Factoring Companies ..............................................................................................................33
       8. Bond and Guarantee Companies ..........................................................................................33
       9. Trustee Services Companies...................................................................................................34
       10. Real Estate Capitalization Companies ................................................................................34
    B. Insurance Companies..................................................................................................................34
    C. The Private Pension Fund Administrators ..............................................................................34

V. THE FOREIGN INVESTMENT REGIME ........................................................... 35
  A. Peruvian Foreign Investment Laws ..........................................................................................35
  B. Registration of Foreign Investment ..........................................................................................36
  C. Restrictions of Foreign Investment ..........................................................................................36
  D. Currency Investments ................................................................................................................36
  E. Remittance of Capital, Dividends and Royalties.....................................................................36
  F. Legal Stability Agreements for Private Investments...............................................................37
  G. Guarantees to Foreign Investment...........................................................................................37
  H. Making and Liquidating Loans..................................................................................................38

VI. CONSUMER PROTECTION MEASURES .......................................................... 38
  A. Antitrust........................................................................................................................................38
     1. Scope..........................................................................................................................................38
     2. Administrative Proceeding .....................................................................................................39
     3. Sanctions ...................................................................................................................................39
  B. Unfair Competition .....................................................................................................................40
     1. Scope..........................................................................................................................................40
     2. Administrative Proceeding .....................................................................................................40
     3. Sanctions ...................................................................................................................................41
  C. Consumer Protection ..................................................................................................................41
     1. Scope ........................................................................................................................................41
     2. Administrative Proceeding .....................................................................................................42
     3. Sanctions ...................................................................................................................................43
  D. Advertising ...................................................................................................................................43
     1. Scope..........................................................................................................................................43
     2. Administrative Proceeding .....................................................................................................44
     3. Sanctions ...................................................................................................................................45

VII. TAX CONSIDERATIONS .................................................................................... 45
  A. Income Tax ..................................................................................................................................45
     A.1 Companies .............................................................................................................................45
       1. Applicable Tax Rates ..........................................................................................................45
       2. Treatment of Losses ...........................................................................................................46
       3. Transfer Pricing Rules ........................................................................................................46
       4. Territorial Rules...................................................................................................................47
       5. Tax Credits ...........................................................................................................................47
       6. Withholding Taxes ..............................................................................................................47
     A.2 Individuals..............................................................................................................................48
       1. Determination of the Taxable Base..................................................................................48
       2. Deductions ...........................................................................................................................48
       3. Exemptions ..........................................................................................................................49


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          4. Applicable Rates ..................................................................................................................49
          5. Treatment of Losses ...........................................................................................................49
          6. Territorial Rules...................................................................................................................49
       A.3 Joint Ventures........................................................................................................................49
    B. General Sales Tax (IGV or VAT) .............................................................................................49
    C. Anticipated Recovery Regime....................................................................................................50
    D. Excise Tax (ISC) .........................................................................................................................50
    E. Financial Transactions Tax (ITF)..............................................................................................50
    F. Temporary Tax on Net Assets (ITAN) ....................................................................................51
    G. Real Estate Property Tax ...........................................................................................................51
    H. Other Matters. Tax Incentives & Tax Treaties.......................................................................52
       1. Regions with Special Tax Regimes.......................................................................................52
       2. Drawback.................................................................................................................................52
       3. Tax Stability Agreements ........................................................................................................52
       4. Tax Treaties to Avoid Double Taxation ..............................................................................52
       5. Future Conventions................................................................................................................52

VIII. INTELLECTUAL PROPERTY RIGHTS ........................................................ 52
  A. Property Rights ............................................................................................................................52
  B. Trademarks ...................................................................................................................................53
  C. Patents ...........................................................................................................................................54
  D. Copyright......................................................................................................................................55
  E. Computer Software .....................................................................................................................56
  F. Technology Transfer Agreements .............................................................................................56

IX. LABOR AND IMMIGRATION LAWS .................................................................. 56
  A. The Status of Labor Laws ..........................................................................................................56
     1. Employee/Employer Labor Relations .................................................................................57
     2. Employees’ and Employers’ Contributions .........................................................................58
     3. Unions and Employer Relations............................................................................................59
  B. Treatment of Foreign Workers..................................................................................................59

X. SECURITY INTERESTS ......................................................................................... 61
  A. General..........................................................................................................................................61
     1. Collateral Over Chattels..........................................................................................................61
     2. Mortgage ...................................................................................................................................62
     3. Antichresis ................................................................................................................................62
     4. Retention Right ........................................................................................................................62
     5. Trusts.........................................................................................................................................62
  B. Collaterals in a Bankruptcy Proceeding....................................................................................63
  C. Exercising Security Interests ......................................................................................................63
     1. Collateral Over Chattels..........................................................................................................63
     2. Other Guaranties .....................................................................................................................63

XI. ENVIRONMENTAL LAW .................................................................................... 64

XII. THE FOREIGN TRADE REGIME ..................................................................... 65
  A. Imports..........................................................................................................................................65
  B. Exports..........................................................................................................................................66
  C. Free Trade Zones and CETICO’s ............................................................................................66

XIII. BANKRUPTCY LAW ........................................................................................... 66
  A. Ordinary Proceeding...................................................................................................................67


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    B. Restructuring ................................................................................................................................68
    C. Liquidation....................................................................................................................................69
    D. Judicial Bankruptcy .....................................................................................................................70

XIV. LEGAL PROTECTION FOR THE FOREIGN INVESTOR............................ 70
  A. Contractual Choice of Law and Jurisdiction ...........................................................................70
  B. Enforcement of Foreign Judgments .........................................................................................71
  C. Arbitration ....................................................................................................................................71
  D. The Court System .......................................................................................................................73




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ABOUT ESTUDIO OLAECHEA

Founded in 1878, Estudio Olaechea is the oldest law firm in Peru and since that time has been
one of the leading law firms in the country.

The firm is an independent full-service law firm, dedicated to providing legal services to
companies, financial institutions and individuals seeking the highest professional standards in
Peru.

The firm particularly enjoys national and international prominence in the areas of finance,
securities, privatizations, mergers and acquisitions and general corporate work. The firm has
assisted many important transnational companies in establishing and performing their
businesses according to the highest Peruvian legal standards. The firm has an independent
correspondent relationship as the Peruvian member of Lex Mundi, Club de Abogados and the
International Network of Boutique Law Firms (INBLF), all considered global associations of
independent law firms of the highest level.

In order to service the specialized needs of our corporate clients, financial institutions and
individuals in connection with their Peruvian activities, Estudio Olaechea has organized
practice groups which approach the legal practice with a team work structure. The practice
groups are comprised of partners and associates who are highly experienced in the main
practice areas of the firm, emphasizing its expertise in dealing with current business trends in a
globalized world economy.

In this way the firm assists companies and individuals interested in privatizations and
concessions, corporate mergers and acquisitions, divestitures, including due diligence and legal
auditing procedures, corporate restructuring and bankruptcy. The firm’s attorneys represent
buyers, sellers, investors, shareholders’ groups and financial advisers in structuring, negotiating
and consummating complex domestic and international business combinations and other
commercial transactions. Many of the representative transactions managed by Estudio
Olaechea are international in scope.

As a matter of policy, the firm encourages the strategy of combining legal and business skills.
Our professionals have worked, studied and/or lived abroad, and are familiar with
international business and legal working practices. Moreover, the firm has long-standing and


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valued professional relationships with banks, financial institutions and public sector
authorities.

The main practice areas include Banking and Financing, Capital Markets, Competition Law,
Construction, Environmental Law, Energy Law, Intellectual Property, International Law,
Labor and Immigration, Litigation, Arbitration, M&A, Mining Law, Taxation, Transportation
and Communications, Oil and Gas Law.

The firm is equipped with state-of-the-art technology able to expeditiously handle all requests
from clients regarding case profess, expenses, fee status, billings, revenue and accounting
records in general. The firm keeps its technology up to date by constant upgrading and
modernization.

Finally, the firm has the biggest legal archive in Peru, accumulated since the firm’s foundation
in 1878. Its library is the most complete in civil law, containing more than 12,000 volumes and
Official Gazettes published since Peruvian independence in 1821.




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I. THE COUNTRY AT A GLANCE

A. Geography

Peru is the third largest country in South America after Brazil and Argentina with 1.28 million
square kilometers. Situated in the north-west of South America, Peru is bordered by Ecuador
and Colombia to the north; Brazil and Bolivia to the east, Chile to the south and the Pacific
Ocean to the west with a coastline 2,500 kilometers long. The country is roughly divided into
three distinct regions separated lengthwise by the Andean mountain range.

The coastal region is a baren strip of land 60 to 100 kilometers wide and cut occasionally by
shallow rivers creating fertile valleys, where it is grown with the aid of irrigation systems, sugar
cane, rice, cotton, asparagus, grapes, mangoes, etc. There is also an important production of
fish-meal of which Peru is one of the world’s leading exporters. Temperatures are mild due to
the Humboldt cold current and Peru supports scarce rainfall.

The Andes separate the coastal desert to the west from the jungle or Amazon basin to the east.
The mountain highlands have heights ranging from 2,000 to 6,768 m.a.s.l. Agriculture is
sparse and difficult due to the geographical conditions. On the slopes above the valleys,
terraces have been built to grow potatoes, and autochthonous graminae such as quinua, olluco,
cañiwa. On the central and southern plateau’s grasslands above 4,000 meters, one finds large
herds of llamas, alpacas, vicuñas and sheep. This was a densely populated area, though in the
last 25 years there has been a massive migration to the coast due to terrorism, though it is now
reverting. This region supports an important mining industry with copper, iron, zinc, lead,
silver and gold and generates one of the main sources of foreign exchange.

The jungle or Amazon basin is the largest region in Peru covering over 550,000 square
kilometers of low-lying rain forest. Recently, gas and oil were discovered and their exploitation
begun.


B. Demography

Peru has a population of approximately 27 million. Almost 72.3% of the population lives in
the urban area and 34.8% in the rural area. The population growth is roughly around 2.1% per
year. 35% of the inhabitants is below 14 years, 55% being between 15 and 55 years.


C. Historical Summary

Peru’s political history is confused and violent. Since its conquest by the Spaniards in 1535 the
Inca Dynasty, founded by Manco Capac around 1200 which was a militarist semi-feudal
society, collapsed under the Spaniards. The Spanish established a system of colonial rule that
exacted tribute from the local population which caused much friction between the conquerors
and local inhabitants. A viceroyalty was established in 1544 until 1821 when Peru gained its
independence.

The first years of Peruvian independence were marked by internal turmoil between the military
and the landed aristocracy both competing for power. The first president to exercise some real
control was Marshall Ramon Castilla between 1845-1851 and 1855-1860. Under his
presidency, the country was modernized and the “guano” resources were exploited but the


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revenues from its exportation and borrowings were quickly dilapidated.

The War of the Pacific (from 1879 to 1884) was declared by Chile to Peru and Bolivia and was
fought over the nitrate deposits on the south of Peru and Bolivia. The war was won by Chile
who annexed part of both countries. This was the prelude to decades of political instability
and the military took charge once more.

Towards the end of the century the economy was boosted by the exportation of primary
products and landowners reclaimed political control but these were ousted by Augusto Leguia
who governed for three
periods (from 1908 to 1912 and from 1919 to 1929) until he was overthrown in 1929. During
the 30’s a labor movement emerged: APRA (Alianza Popular Revolucionaria Americana) led
by Haya de la Torre but was proscribed in 1931. In 1945 APRA supported Jose Luis
Bustamante y Rivero as president, though they were ousted and proscribed again in 1948 until
1956 when it regained legitimacy and contended for the first time against Accion Popular led
by Fernando Belaunde. This election led APRA to shift from the political left to center-right.
Accion Popular took the role of radical reformer and APRA in order to counter the threat of
Accion Popular sought the backing of the Army and the elite. With their support APRA won
by a narrow margin electoral deadlock in the following election in 1962, which led to a period
of military control but in 1963 Belaunde again was given his chance and was elected president.
Dissatisfaction over the economical and reform program led to a left-wing military coup in
1968 conducted by General Velasco. A radical reform was imposed until 1975 when he was
replaced by General Morales Bermudez who led the next five years dealing with the crisis
caused by the overspending of his predecessor.

The 1980 elections were won again by Accion Popular with Belaunde as president but
economical difficulties, the threat of insurgents as Shining Path and the natural disasters from
the “El Niño” phenomenon defeated Accion Popular in the 1985 elections which were won
by the first time by APRA by itself, now on the center-left leadered by Alan Garcia. The next
five years were spent on free-spending, suspension of foreign credits when Peru was declared
ineligible by the International Monetary Fund, the World Bank and the International
Development Bank and the government ended submerged in a political and economic crisis.
Inflation reached above 7,000% per annum in 1989. During this period Shining Path, a
marxist-leninist movement which started in 1980 reached its peak with attacks in the rural
areas of the Andes, but later concentrated in Lima. The MRTA (Movimiento Revolucionario
Tupac Amaru) being regarded more as a criminal than as a terrorist organization also had its
share in subversive actions.

In 1990 Alberto Fujimori was elected president. Peru was living through one of the worst
crisis in its social, economic and political history. President Fujimori applied a shock policy
which at first resulted in a reduction in consumption and a cut-back in production. Reforms
were then implemented such as a vast program to restructure the State, privatize State-owned
enterprises, cut subsidies, open the market, fight tax evasion, thus creating a clear neo-liberal
policy. Fujimori also reinserted Peru in the international financing system and Peru became
eligible again for loans from the World Bank and other Multilateral Agencies and Commercial
Banks. Inflation began to drop dramatically (less than 3% per annum) and the economic
recuperation began. This probably would not have been possible without the dismantling of
Shining Path and the MRTA, which was successfully achieved and also with attempts to
control the narcotics business, revenue which has financed terrorism. Fujimori was reelected
as president in 1995 in response to his successful economic reforms and to his pacification
strategy.

In the elections held in 2000, Fujimori was reelected again as president but the elections were


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questioned for its impartiality. In October 2000, Fujimori resigned as President of Peru and
new elections were held without his participation. Alejandro Toledo was elected president with
more than 50% of the votes and in second place, Alan Garcia with more than 45% of the
votes. Toledo’s economic policy from 2001 to 2006 was successful, achieving 10.01%
accumulated inflation, international reserves of US$ 14.2 billion and an increase of GDP per
capita from S/ 4,680 to S/. 5,185 Nuevos Soles (As of July 7, 2006 the exchange rate was S/
3.23 Nuevos Soles per each US$ Dollar).

Presidential elections were held in April 2006 and Alan Garcia was elected again president of
Peru in second round with more than 53% of the votes. Ollanta Humala obtained 46% of the
votes.



D. The Constitutional and Political System

The Political Constitution of Peru was approved by Congress, ratified by the vote of Peruvians
in a referendum held on October 31, 1993 and consequently promulgated by the executive
branch on December 29, 1993. Congress had been dissolved on April 5, 1992, and a
Constituent Congress was elected to approve the text of a new Constitution to be submitted
to a referendum. The new Constitution has the clear objective of redefining the balance of
powers established in the Constitution of 1979.

The Republic of Peru is democratic, social, independent and sovereign. The State is not
divisible and its government is unitary, representative and decentralized. The government of
Peru is organized according to the principle of separation of powers. Peruvian government is
divided into three separate and independent branches: the Executive, the Legislative and the
Judiciary. The Constitution defines the jurisdiction of each branch, their members and the
criteria for the selection of such members.

The executive branch comprises the President of the Republic and the Ministers of State. The
President is elected for a five-year term and can not be immediately reelected. The president
can only be reelected for a 5 year term only after a minimum constitutional term has elapsed.
The legislative branch comprises the National Congress which is unicameral with one hundred
and twenty members elected for the five-year presidential period. The judiciary arrives at
independent decisions for the resolutions of cases in disciplinary, economic, and
administrative issues. The judiciary has four levels: the supreme court, various superior courts,
trial judges and justices of peace. The judicial system is organized according to Peruvian
political divisions. The political organization of the country has been changed into several
regions in order to decentralize the country. The extent and distribution of a decentralized
government has been left to legislative mandate. Currently, measures are being taken to this
respect.

The Constitution deals with individual fundamental rights and liberties. Peruvians have the
same rights before the law, such as the right to property, to work, to inherit, to participate in
political, social, economic and social life, to profess a religion or belief, to security, to equal
treatment regardless of sex, color, religion, language, opinion, economic situation, etc. The
Constitution protects these and other fundamental rights through the Constitutional Tribunal
who has jurisdiction over legal actions looking forward to protecting the violation of a
constitutional right by the authorities or by another citizen such as the habeas corpus, amparo,
habeas data and acción de cumplimiento.

Political parties must register with the National Electoral Jury to be legally eligible to run in an


                                                 9
election. The Constitution vests the Jury with the responsibility for overseeing and ensuring
the integrity of the electoral process.

In the economic arena with the 1993 Constitution, the basic economic rule is the
establishment of a free social market economy where all controls have been excluded, mainly
exchange rate and price controls; unfair market practices are prohibited. Business competition,
unrestricted investment and free flow of capital by national and foreign investors are
permitted. The market is the agent in charge of regulating the economic activity instead of the
State. Areas previously reserved for the State exploitation are being given to the private sector.
A privatization and concession process is in effect to allow the private sector to compete
efficiently in a market economy to prevent former State companies to continue incurring in
huge losses because of their inefficiency. The State has been reserved to devote its efforts to
social services, security and regulatory measures. The State monopoly over natural resources,
previously threatened by arbitrary expropriation has been abolished. Public services such as
transportation, energy, health, tourism, education and infrastructure can be given in
concession to the private sector.

In the judiciary area, the 1993 Constitution has established a Judicial Academy in charge of
preparing and educating the judges and prosecutors. The National Judicial Council, integrated
by members of different associations, is the authority responsible for appointing judges. The
purpose has been to give more autonomy from Congress in appointing judges since it has no
longer the right to ratify judges.

Conflicts of relations between the executive and legislative branches are treated in the 1993
Constitution. The President of Peru can dissolve Congress if it twice does not give a vote of
confidence to the Cabinet. The President is obliged to call elections within four months. The
President cannot dissolve Congress within the last year of his/her administration.


II. INVESTMENT-GENERAL CONSIDERATIONS

A. Peruvian Economic History

The territory now occupied by Peru was first inhabited twenty thousand years ago by bands of
collectors and hunters that followed the track of the animals they hunted. Cave paintings attest
to their existence. The birth of civilization in Peru started with the appearance of the Chavin
culture in the second millenium before Christ. This culture had as its main center Chavin de
Huantar, which is the representation of the architectural expression of a highly hierarchal
society evolved far beyond agriculture, hunting and fishing. Other cultures appeared such as
Paracas which left testimonies of the extraordinary development reached in the textile art and
mummies with trephined skulls. The Nazcas were distinguished for its ceramics and the
ingeniuos construction of aqueducts. The Mochicas were great architects, building their
temples in the shape of pyramids with sun-baked adobe bricks. The Tiahuanacos were famous
by its economy based on the breeding of llamas and alpacas and the cultivation of high
Andean altitude crops (potatoes and quinua). The Chimus were excellent goldsmiths whose
fabulous treasure is estimated to have been carried by the Spaniards to Spain either directly
from the temples or from the Incas who subdued them.

These cultures and others not mentioned here were subdued by the Incas in 1438. One
century before the arrival of the Spaniards, the Incas started an explosive expansion that
enabled them to conquer successively the numerous ethnic and regional groups scattered over
the Andes. The Incas formed a huge empire which extended from the South of Colombia and


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Ecuador to the North of Chile and Northwest of Argentina. The social-economic Inca
organization was socialist based on the ayllu, consisting of families which were assigned a plot
of land by the State for self-subsistence and for paying taxes. It is important to mention that
neither ceramics, weaving nor metallurgy reached during the Inca’s period had the refinement
and development of past civilizations. However, the Incas were outstanding in the art of civil
engineering and architecture as can be seen in Machupicchu and Cuzco.

The conquest represented a change in the Inca’s self-sufficient model to one of insertation in
the world through the exportation of minerals. Commerce and mining encouraged
development of the first Hispanic cities. Commerce was mainly in food and garments as a
result of the Indian’s work and imports from Spain. The monopolistic commerce between
Spain and Peru through Panama and the Port of Callao in Lima was supplanted in importance
by the Port of Buenos Aires. The imports affected the agriculture and incipient local industry.

When Peru emancipated from Spain in the XIX century, the greater part of the economic
activity was transferred from the mountain to the coast. Great resources of guano (fertilizer)
were exploited generating the most important product to be exported in the XIX century.
Sugar, cotton, wool, silver and saltpeter (salitre) were also exported. Notwithstanding the
existence of this great source of income from the guano for Peru, the economical growth
during this period was not high. Great part of the revenues were destined to the construction
of a railway linking the coast with the central mountains (the highest railway in the world), but
this not being enough Peru indebted itself externally. The industry could not develop
adequately due to the importation of goods with the guano revenues.

The end of the guano boom coincided with the war with Chile in 1879 and with the boom of
the sugar cane and cotton in the coast, causing a human polarization between the urban coast
and the central Andes. The Peruvian economy turned into a coastal economy and the lands
started to be concentrated into private large land estates.

The sugar boom brought the need to hire a great quantity of workers which was scarce in Peru
due that natives from the mountains were averse to work in the coast. Slaves were brought
from Africa to work in the sugar factories until slavery was abolished in 1854. The scarcity of
manpower was also resolved by bringing 87,000 coolies from China between 1849 and 1874.
In 1879, sugar commerce reached a third of all Peruvian exportations. The coastal agriculture
expanded to cotton farming in Piura, Lima and Ica, subsisting until today.

In the first half of the XX century, mining recovered by foreign investment in this sector,
diversifying besides silver, into copper, lead and zinc. In the twenties petroleum was found as a
new exportation product. The first world war helped the industry sector to recover with the
immigration of European entrepreneurs (basically from Italy, Japan, England and France).

In the fifties, mining reached its apex with the exploitation of copper, iron, silver, zinc and
lead. The coastal agriculture increased its exports of sugar and cotton; rice production
increased and in the jungle started the coffee production. During that decade, production
increased by an average of 8%. The State introduced industrialization promotion policies
which generated the migration from the country side to the great cities. This industrial
dynamism was particularly important in the chemical, metallurgy and paper sectors (they
represented one third of the Peruvian Industrial Product). In the decade of the sixties another
one third of the industry produced food and beverages and the rest was dominated by the
textile industry and metallurgical products. In all, in 1960 the industry produced one fourth of
the Gross National Product.

During the sixties till the end of the eighties, the State roll increased above all in the


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expenditure of public works generating a financial crisis in the balance of payments and the
impossibility of maintaining a consumption level artificially high. A process of agrarian reform
began. The property structure was changed through a major control and ownership by the
State in all the economic sectors. The State applied an ambitious plan of redistribution of
income, reserving for the State the strategic industries, controlling all agrarian
commercialization and foreign trade, nationalizing great part of foreign investments, including
the participation of workers in the management and revenues of private enterprises, and
expropriating the lands of land holders. However, industrial companies were not expropriated
following the advice of the Economic Commission for Latin America and the Caribbean
(CEPAL) of inside growth by protecting artificial and inefficient industries. To achieve the
participation of companies in the industrialization scheme, innumerable subsidies and market
restrictions were created. As a result of this policy, industrial enterprises were inefficient in
their production compared with the rest of the world. The tariff structure was based on a
protection scheme dominated by non-tariff measures and tariff exemptions given to
enterprises according to the priority assigned to each industry and the localization of the
industrial plant.

In 1983 the balance of payments registered the impact of the fall of all Peruvian exports. This
factor, united to the decrease of internal demand and the natural disasters occasioned by “the
Niño” phenomenon, caused the fall of the GNP by 12.3% with respect to 1982. The
government decided to restore the protectionist policies of industrial products applying once
more non-tariff barriers to imports. By 1988 all imports were subject to restrictions again. The
national currency was overvalued to increase internal consumption in the short term. Payment
of external debt was limited to only 10% of the exports value. The country’s international
reserves were exhausted and Peru reached an hyperinflation of about 7,000% per annum,
which caused that fiscal revenue was reduced to only 4% of GNP. Public investment was
reduced in extreme to only less than 1% of GNP. Peru turned into a country closed to
external credit and with scarce tax revenues, generating the contraction of the State and the
reversing into a deprived and black market society.

The socialist tendency of the last two decades was replaced by a neo-liberal movement
leadered by Alberto Fujimori who was elected president in 1990 and reelected in 1995 and by
Alejandro Toledo elected in 2000. The severe situation which they inherited was reverted as
will be seen in the following sections.


B. Economic System

Peru’s GDP as of 2006 is distributed as follows: land and cattle (8.3%); fishing (0.5%); mining
and hydrocarbons (6.1%); manufacturing (15.1%); construction (5.2%); commerce (14.5%);
and, other services (40.6%). GDP grew 3.9% in 2003, 5.2% in 2004, 6.4% in 2005 and 8.0% in
2006. The growth in the economy is affected by the “Niño” phenomenon in average every 2
to 7 years. This phenomenon is an alteration of the oceanographic and atmospheric climatic
conditions, characterized by an increase in the ocean’s temperature which generates
disturbances in the rain levels, causing a decrease in agriculture and fishing’s GDP.

The agricultural sector has always played a leading role in Peru, generating wealth, employment
and export earnings. It employs more than a third of the economically active population. Peru
is one of the most botanically and zoologically diverse countries in the world. Within its
borders it can count 84 of the 103 different micro-climates classified by the World Bank. Its
three distinct zones (coast, mountains and jungle) favor particular products and methods of
cultivation. The coast is especially productive. Its rare climatic combination of relative aridity,
sunshine and stable temperature allows for year round cultivation of many different products


                                                12
(e.g.. asparagus). The proximity of the agricultural lands to the transport infrastructure of the
coast makes exporting relatively easy and cheap to the seasonal markets of the northern
hemisphere. The mountains nature is against intensive production because irrigation is more
difficult and the land is further from infrastructure needed for distribution. The jungle has at
least two million hectares ready suitable for cultivation but infrastructure is not already
available.

The significant agricultural presence includes the production of rice (2.4 billion MT), sugar
cane (7.3 billion MT), corn (1.2 billion MT), coffee (0.3 billion MT), cotton (0.2 billion MT),
and potatoes (3.2 billion MT). The total harvested area by these products is about 1.5 million
hectares. Other agricultural products include marigold flowers, asparagus, sweet potatoes,
vegetables specially tomatoes and onions, and fruits such as mangoes and lemons.

The fishing sector prompted by Peru’s massive coastline is one of the country’s greatest assets.
There is a huge diversity in the fish stocks off the coast which has yet to be developed and
even the very well-established fishmeal industry shows considerable scope for expansion. In
1997, the fishing sector developed under anomalous conditions due to the “Niño”
phenomenon. Production in 1998 decreased 13.4% with respect to 1997. In 2001, the fishing
sector decreased 10.5.% due to cold weather but increased 3.1% in 2002. Production in 2003
decreased 13% with respect to 2002, increased 34% in 2004 with respect to 2003, 1.2% in
2005 with respect to 2004 and 2.7% in 2006 with respect to 2005. Fishmeal and fish oil
production account for the great majority of Peru’s fishing activity. The country ranks as one
of the three largest fishmeal exporters in the world. In 1991, Peru ranked number one. While
the fishing industry accounts for only about 0.5% of GDP as of 2006, it has a greater
proportional effect in exports. In 2006, total exports amounted to approximately US$ 23.8
billion with fishing exports at US$ 1.7 billion accounting for around 7.4% of total exports.

Foreign investment is being actively encouraged in the mining sector during the last decade.
Mining accounts for 5.6% of Peru’s GDP providing employment and promoting investment
in transport infrastructure. Moreover, mining provided for export earnings of about US$ 14.7
billion in 2006, representing 61.8% of all export earnings and 80.0% of the total earned by
traditional exports. Peru produces six major metals: copper, zinc, lead, silver, gold and iron.
Most of the mines in Peru are polymetallic with several different ores in the same deposit. In
2006 copper production reached 818,900 tones with exports valued at US$ 6.1 billion. Zinc
exports have been around US$ 2 billion. Other major export revenue earners in 2006 were
gold (US$ 4.0 billion), lead (US$ 713 million), silver (US$ 479 million), tin (US$ 346 million)
and iron (US$ 256 million).

In the past oil exports have made a significant contribution to export earnings. The failure of
the oil sector to perform was a result of insufficient foreign investment due to appropriations
of foreign companies by former governments. Export earnings from oil production in 2006
were about US$ 1.8 billion, representing only 7.4% of total exports.

A field that has been explored and is in production is the Camisea gas field located in Ucayali
to the north of Cuzco. This is the most important investment project for Peru. It is estimated
that Camisea holds 13.4 trillion cubic feet of gas and about 610 million barrels of LPG and
condensates. Some of the benefits for Peru to be derived from this project include royalty
revenues, savings through lower power generation costs and improved energy condition in
Peru.

The manufacturing sector’s proportion of GDP during 2006 was 15.1%. Non-traditional
exports amounted US$ 5.3 billion in 2006. Traditional export products (agricultural goods,
minerals, fishmeal, etc) still account for more than 77.0% of total exports. The main


                                               13
manufacturing industries are food and drink, textiles, fish processing, chemicals, petroleum
refining, metalworking and cement. Textiles are a sector in which Peru has a competitive
advantage because of the large supply of high-grade wool mainly from alpacas and vicuñas. In
2006, textiles were the best performing non-traditional product, earning US$ 1.5 billion
representing 27.9% of non-traditional exports.

During 1997, construction sector grew 18.9% mainly due to infrastructure works oriented
towards houses, commercial centers, hotels, offices, supermarkets, rehabilitation of roads and
the works to prevent damages from the Niño phenomenon. In 2002, the construction sector
increased by 7.9% after 3 consecutive years of recession. In 2003, it increased by 4.3%, in 2004
by 4.7%, in 2005 by 8.4% and in 2006 by 14.7%.


C. Membership in Regional Economic and Trade Groups

Trade blocks are growing in significance as Peru’s trade partners, proving clear evidence of the
importance of regional organizations such as the Andean Community of Nations and the
Latin America Integration Association (ALADI). Peru’s foreign trade is diversified and during
the last years it has been constituted by commercial relations with the Asian Pacific Economic
Cooperation Association (APEC), the North American Free Trade Commerce Treaty
(NAFTA), the Latin America Integration Association (ALADI), the European Union, the
Andean Group, MERCOSUR, among others.

Peru joined the General Agreement on Tariffs and Trade (GATT) in 1951. Under Fujimori’s
administration, the tariff system was liberalized and export subsidies were eliminated. Thus,
Peru is now consistent with the liberal principles and rules of GATT which has been replaced
by the World Trade Organization (WTO). Peru is a member of this group.

Peru was a member of ALALC (Latin American Free Trade Association) created in 1960 for
the establishment of a free trade zone in Latin America for a fixed term of 12 years. However,
ALADI (Latin America Integration Association) created in 1980 replaced ALALC. Peru is
currently a member of ALADI. This agreement was designed to lift trade barriers between all
Latin American countries and establish a common Latin American market. Peru has signed
several trade preference agreements (i.e. of economic complementation as well as partial
agreements) with ALADI member countries.

Peru is also a member of the Andean Community of Nations (former Andean Pact) since
1969. The countries’ intention was to undergo an economic integration that would allow them
to compete in equal conditions with bigger economies. As a first step in this direction Bolivia,
Colombia, Ecuador and Venezuela formed in 1993 an Andean Free Trade Zone by eliminating
their customs tariffs and opening their markets to each other. In July 1997, after a 5 year
suspension (during which Peru signed bilateral agreements with the other member States),
Peru became part of the Andean Free Trade Zone by gradually deregulating its trade with the
other member countries. According to the schedule approved by the Decision 414, Peru
should open its market to its Andean partners by 2005 (so far nearly 90% of this has been
achieved).

Moreover, a Customs Union was established by the Andean Community since 1995 (Decision
370) when Bolivia, Colombia and Ecuador adopted a common tariff to the import of goods
from non-member countries. Although Peru did not sign the agreement, under the
Declaration of Santa Cruz de la Sierra of January, 2002, it committed (with the other member
countries) to adopt a new common tariff.



                                              14
In May, 1999, the presidents of the member states committed to finally establish the Andean
Common Market by no later than 2005. This will involve a free movement of goods, services,
capitals and persons.

The Southern Common Market (MERCOSUR) was signed by four countries (Argentina,
Brazil, Uruguay and Paraguay) with the purpose of establishing a common market. In 2003,
after several negotiations, Peru has been included in MERCOSUR as associated state.

It should also be noted that on August 2002, the United States of America (USA) Senate
passed the Andean Trade Promotion and Drug Eradication Act (ATPDEA) that grants
preferential treatment to selected imports from Peru and other 3 members of the Andean
Community (Bolivia, Colombia and Ecuador) as part of an incentive system to encourage legal
trade as an alternative to drug production. The above mentioned statute will be in force until
February 2008, anticipating a possible Free Trade Agreement with USA.

Furthermore, Peru is an active member of the Asia-Pacific Economic Cooperation
Association (APEC) since 1998. The main purpose of this organization is to establish free and
open trade and investments among the country members reducing tariffs and other trade
barriers across the Asian-Pacific region.

Peru has also signed the agreements guaranteeing foreign investments against commercial and
non-commercial risks supervised by the Overseas Private Investment Corporation (OPIC), the
World Bank Multilateral Investment Guarantee Agency (MIGA) and the International
Convention for the Settlement of Investment Disputes (ICSID).

It is important to mention that Peru signed a Free Trade Agreement with Thailand which will
open the Asian market to Peruvian products.

Currently, Peru is carrying out negotiations with the European Union in order to sign a free
trade agreement. Regarding the free trade agreement with USA, the Peruvian Congress has
approved it as well as the USA Senate.


D. Recent Economic Data

1. Gross Domestic Product

Peru registered a phenomenal GDP growth rate of 12.9% in 1994, the highest in the world.
This increase was not an isolated issue but part of a favorable tendency. In fact, between 1993
and 1996, the Peruvian economy grew a total of 32.4%, the highest rate in Latin America.

Great part of this evolution in the production has been a result of the positive impact of the
reorganization of the economy mentioned in all along Section II. Growth is also explained,
among others, by the increase of foreign direct investment and exports, the latter accumulating
growth rates higher than that for the GDP since the economy stabilized. In fact, while exports
were about US$ 5.9 billion by 1996, at the end of 2006 they reached US$ 23.8 billion; an
increase of more than 403.40% in ten years. However, imports have also grown significantly
during the periods mentioned due to an increase in the demand for capital goods and
intermediate goods. Imports were about US$ 7.9 billion by 1996 and at the end of 2006 they
reached US$ 14.9 billion, an increase of 188.6% in ten years. GDP grew a modest 2.5% in
1996, and 6.9% in 1997, decreasing to (0.7%) in 1998, 0.9% in 1999, 3.0% in 2000, 0.2% in
2001, 5.2% in 2002, 3.9% in 2003, 5.2% in 2004, 6.4% in 2005 and 8.0% in 2006.



                                              15
2. Inflation

Peru has achieved a significant economic recovery during the 90’s. Annual inflation has been
reduced from more than 7,000% in 1990, to 139.2% in 1991, 56.7% in 1992, 39.5% in 1993,
15.4% in 1994, 10.2% in 1995, 11.8% in 1996, 6.5% in 1997, 6.0% in 1998, 3.7% in 1999,
3.7% in 2000, (0.1%) in 2001, 1.5% in 2002, 2.4% in 2003, 3.5% in 2004, 1.5% in 2005 and
1.1% in 2006.

Peru’s success in fighting against inflation has been a result of its strong undertaking with the
International Monetary Fund in maintaining the fiscal and monetary discipline. The fiscal
deficit decreased from 6.5% of GDP in 1990 to 2.5% of GDP in 2001, 2.5% of GDP in 2002,
1.7% of GDP in 2003, 1.0% of GDP in 2004, 0.3% of GDP in 2005 and a surplus of 2.0% of
GDP in 2006. These goals have been possible thanks to a significant improvement in fiscal
collections and a relative conservative policy in public spending.

3. The Currency Exchange Markets

Currently, Peru’s currency exchange market is determined by supply and demand. The
Peruvian Central Bank intervenes on a reduced basis only to stabilize the Peruvian currency’s
rate of devaluation or overvaluation against the US$ dollar or to avoid short term speculative
movements of the exchange rate. It is worth to mention that the Net International Reserves
amount to more than US$ 17.3 billion by 2006, covering at least 14 months of imports and
representing 72% of the banking system’s liquidity. Investors are free to exchange local
currency for foreign currency at market prices, and no governmental authorization is required
for foreign exchange transactions. The local currency is the Nuevo Sol and as of December,
2006, one US$ dollar is equivalent to S/. 3.20 Nuevos Soles. The exchange rate is based on a
floating rate.

Moreover, there are no restrictions on the flow of capital. Investors are allowed to use foreign
currency to purchase foreign goods and cover financial obligations. Individuals and companies
may maintain bank accounts in foreign currency whether these are current accounts, saving
accounts, term deposits, etc. either in local or foreign banks.

4. Peruvian External Debt

During President Garcia’s term (1985-1990) Peru was declared ineligible for International
Monetary Fund (IMF) lending and in 1987 was placed on non-accrual status, regarded as a bad
debtor by the World Bank. The government had unilaterally decided not to pay the external
debt but with only 10% of export earnings. In 1989 the Inter-American Development Bank
(IDB) also declared Peru as a non-accrual country.

President Fujimori took office in 1990 when for almost a decade Peru had stopped paying its
external debts and past due interests to its international creditors and had no access to
international financial markets. Peru’s outstanding debt by 1990 was about US$ 20 billion. The
external debt represented nearly 500% of Peru’s yearly export earnings and about half its
Gross Domestic Product.

Payment of past due interests to multilateral agencies, bilateral creditors and commercial banks
was critical for becoming eligible for new loans. Once standing interests were paid, Peru
became fully eligible for lending and disbursement, and has since then negotiated fresh loans
to support reforms in agriculture, energy, health, education and sanitation.

After Peru improved its relations with multilateral agencies and supplier creditors, it was then


                                               16
possible to resume significant negotiations with the London Club composed of commercial
banks participating in the Bank Advisory Committee under Citibank’s conduction. As of
March 1997, Peru finalized the restructuring of its debt with the closing of the Brady Plan.
The Brady Plan exchanged debt amounting to US$ 10.6 billion for a new nominal value of
US$ 4.9 billion. This debt carried the longest standing interests estimated at over 150% of
principal. (Principal amounted to US$ 4.2 billion and arrears to US$ 6.4 billion).

The reduction of debt obtained with the Brady Plan has brought benefits such as a reduction
in Peru’s country risk, which brings lower interest rates for nationals outside Peru, access to
international credit, more dynamism in the capital markets and a better management of
Peruvian international reserves’ returns.

In February 2002, the Government of Peru returned to the international capital markets after
74 years of absence with the issuance of sovereign bonds.

As of the end of 2006, foreign public debt amounted to US$ 22 billion, representing 23.5% of
GDP compared to 28.1% of GDP in 2005.



E. Local Capital Markets

Currently, there is only one stock exchange in Peru: the Lima Stock Exchange (LSE). Prior to
the 90’s, the LSE was relatively underdeveloped and little used. Subsidized interest rates and
high levels of inflation encouraged borrowers to use the credit market rather than seek equity
finance. The volume of stock market activity, both primary and secondary, as a proportion of
GDP dropped from about 13% in 1979 to 5% in the late 80’s. As of 1997, this volume
increased to 27% of GDP. In 1992, the LSE was ranked as the second most profitable
exchange in the world with a growth of 123.7% in US Dollar terms. During years 1993 and
1994, the LSE grew 89.7% and 51.2% in US Dollar terms, respectively. By 1997 the total stock
market capitalization of the LSE stood at US$ 17.4 billion.

However, as a result of the complex domestic scene and the volatile international setting, the
LSE lost part of the gains it achieved during the late nineties. Nevertheless, during years 2002
and 2003 the LSE achieved favorable results in the stock market price indexes. During year
2006 the LSE was the most profitable exchange in the world resulting in a 186.92% yield in
US Dollars terms.

The market capitalization for 2006 was US$ 60.20 billion. This figure was up from US$ 36.2
billion in 2005, US$20.11 billion in 2004, US$ 16.08 billion in 2003, US$ 12.6 billion in 2002,
US$ 10.9 billion in 2001 and US$ 10.5 billion in year 2000.

At the end of year 2006, the LSE had 241 listed companies.

The traded volume in the LSE in year 2006 was US$ 6.3 billion, increasing from the US$ 3.6
billion and US$ 2.5 billion traded in 2005 and 2004, respectively. It should be noted that Over
the Counter trading was deactivated in September 1999, and gradually debt instruments were
listed in the stock exchange session mechanism.

Since the 90’s several stock market reforms have been designed to increase the efficiency of
the capital markets and to boost trading activity. The key changes were contained in the
Securities Market Act passed under Legislative Decree No. 755 of November 1991, replaced
by Legislative Decree No. 861 of October 1996. Several amendments to the Securities Market


                                              17
Act were passed since October 1996. Thus, in June 2002 the mentioned statute was updated
by Supreme Decree No. 093-2002 EF.

The Peruvian capital market is regulated and monitored by the National Supervisory
Commission for Businesses and Securities (CONASEV), an agency similar to the United
States Securities and Exchange Commission (SEC). Once equity and/or debt securities are
registered in the Securities Market Registry of CONASEV, the issuer has an ongoing
obligation to disclose all material information and its trading and financial results to
CONASEV and to the LSE. All listed companies must disclose its financial statements to
CONASEV and to the LSE quarterly and annually.

An application (Registration Statement) to register a primary public offering must be filed with
CONASEV. The Registration Statement must contain information regarding the issuer’s legal
status, its financial health and its sphere of activities, and must also include the type of security
and offering mechanism to be used. If bonds are to be offered, then the prospectus must
describe the collateral backing the issue and give a proper outline of the rights and obligations
of future bondholders. Shares not registered with CONASEV may not be traded or listed on
the stock exchange. It has recently been enacted a special and more flexible regime applicable
to offerings to accredited investors.

Brokerage firms must be registered with CONASEV and must have a minimum paid-in-
capital of approximately US$ 360,000. As of today, there are 17 brokerage firms registered
with CONASEV. Brokerage firms charge a commission ranging from 0.3% to 1%. In addition
the stock exchange levies 0.0825% on transactions, 0.0075% for a guaranty fund, and 0.005%
for a liquidation fund, CONASEV a further 0.05% and the Institution for Compensation and
Liquidation of Securities (CAVALI ICLV), the clearing and settlement institution in Lima,
with 0.065%. A sales tax of 19% (VAT) is then charged on the total commissions.

The Securities Market Act (the “Act”) also establishes regulations regarding tender offers. It is
mandatory to make a Public Tender Offer (“OPA”) whenever there is an onerous transfer of a
number of shares with voting rights, convertible bonds, subscription rights, or other securities
which may confer the right to subscribe or to acquire shares with voting rights, which will
grant the acquiror a significant stake in the target corporation.

Significant stake is defined as any direct or indirect beneficial ownership of 25% or more of
the voting shares of a publicly traded corporation. It is also considered as significant stake (i)
the power to exercise the voting rights of shares representing 25% or more of a listed
corporation (without having a direct or indirect beneficial ownership) or (ii) the acquisition of
any amount of voting shares or the power to exercise political rights of shares which enables a
person (individual or entity) to (a) remove or appoint the majority of the board of directors or
(b) amend the bylaws of the corporation.

If a person (individual or entity) acquires or reaches a beneficial ownership of 25% or more of
the voting shares of a listed corporation then an OPA must be made. An OPA must also be
made if it is acquired a beneficial ownership of 50% or more or 60% or more of the voting
shares of a listed corporation.

Peruvian Capital Market jurisprudence has been enriched by several tender offers and hostile
takeovers which have taken place in the market, specially in the beer industry were three multi-
national corporations were seeking the control of Union de Cervecerias Peruanas Backus y
Johnston S.A.A., and in the mining sector were Compañia Minera Milpo S.A.A. made a hostile
tender offer pursuing the control of Compañia Minera Atacocha S.A.A.



                                                 18
The Act also regulates the establishment of mutual funds. Mutual funds are subject to some
diversification criteria. Accordingly, mutual funds are restricted to invest in: (i) no more than
15% of the total equity in a single company, (ii) no more than 15% of the total debt in a single
company, (iii) no more than 15% of the total assets of a mutual fund may be invested in equity
or debt securities issued by a single company, (iv) no more than 30% of the total assets of a
mutual fund may be invested in equity or debt securities issued by the same economic group.
The funds must have secured at least 50 registered holders in order to obtain CONASEV’s
approval, though no single holder is allowed more than 10% of the net worth.

At the end of December 2006, mutual funds administrated a patrimony of US$ 2.58 billion.
The number of participants in 2006 increased from 82,568 and 115,447 in 2004 and 2005
respectively to 167,492.

The most important investments done by the mutual funds during 2006 were reflected in
bonds (60.88%) and savings in financial institutions (31.28%). As of December 2006 there are
26 operative mutual funds.

In the past few bonds were issued in the Peruvian capital market. They were issued basically
by State bodies such as those issued by the Development Financial Corporation (COFIDE)
and some on behalf of leasing companies. The law exempted the interest and income on
leasing company bonds from income tax. Securities’ regulations allow debt to be issued in US
Dollars or Nuevos Soles and interest payments to be linked to a variety of references (such as
the UIT -tax unit-, GDP growth rates, etc.). Corporate bond issues have started to increase in
the Peruvian market since 1993 when the 37% tax on interest income was repealed. Interest
earned on bond issues is now income tax exempted provided the bonds are listed and issued
by a Peruvian corporation. The only entities which are subject to income tax on interest of
bonds are banks and financial institutions. The level of market activity in the local fixed
income market (i.e, debt securities) has increased from US$ 13 million in 1990 to
approximately US$ 0.770 billion in 2006. On the other hand, trading in equity securities
increased from US$ 1.19 billion in 2002 to approximately US$ 4.65 billion in 2006.

Trading on the LSE takes place from 9.30 am. to 1.30 pm, Monday through Friday, and is
conducted electronically in two simultaneous sessions: floor session (Rueda de Bolsa) and over
the counter session (OTC) (Mercado Abierto). During 1997, 56% was traded on the floor
session and 44% on OTC session.

Instruments traded on the floor session include letters of credit, promissory notes, bank bills,
bills of exchange, certificates of deposit, commercial papers and bonds.


F. Privatizations Between 1991-2006

Peru has taken aggressive steps to privatize State owned enterprises since 1991. As of 2006,
the flow of private investment reached the amount of US$ 15.61 billion.


List of Main Peruvian Companies Pendant of Privatization

The main companies and projects which are pendant of privatization by the Peruvian
government are the following:




                                               19
                                                                                          ESTIMATED
      SECTOR                              PROJECT                             TYPE       INVESTMENT
                                                                                            US$ MM

Agriculture             Olmos Hydroenergetic and Irrigation Proyect      Concession           N.A.
                                                                         (20 years)
Agriculture             Sugar Mills: Sugar Companies with Strategic      Sale of Share        N.A.
                        Partner.
Agriculture             Majes – Siguas Irrigation Project                Concession           260
                                                                         (20 years)
Agriculture             Lands: Sale of Lands in Jequetepeque - Zaña      Sale of Land          6

Agriculture             Etanol Maple                                     Concession           100

Capital Market          Cemento Andino S.A.                              Sale of Share        N.A.

Capital Market          Edegel S.A.A.                                    Sale of Share        N.A.

Mining                  Non metalic Mining Concession Bayovar            Concession           N.A.
                        (second fase)                                    N.A.
Tourism                 Chaco – La Puntilla Turist Complex               Sale of Land          4
Tourism                 Civic and Trade Center of Lima                   Concession           20.0
                                                                         (30 years)
Tourism                 Playa Hermosa Tourist Complex                    Sale of Land         N.A.
Tourism                 Quistococha Nacional Tourist Park                Concession           5.0
                                                                         N.A.
Decentralized Project   Banking Comercial Financial center of Villa      Concession      N.
                        El Salvador                                      N.A.            A.
Decentralized Project   Public Cleaning and Sanitary Landfill of Santa   Concession            8.0
                        Province                                         N.A.
Decentralized Project   Public Cleaning and Sanitary Landfill of         Concession            1.0
                        Huamanga Province                                N.A.
Transport               New Port Terminal in Paita                       Concession           80.1
Infrastructure                                                           N.A.
Transport               New Port Terminal for Minerals, Callao           Concession           N.A.
Infrastructure                                                           N.A.
Transport               New Port Terminal in Salaverry, Trujillo         Concession      To be defined
Infrastructure                                                           N.A.
Transport               New Port Terminal in Chimbote                    Concession           60.5
Infrastructure                                                           N.A.
Transport               New Port Terminal in San Martín (Pisco)          Concession           11.0
Infrastructure                                                           N.A.
Transport               New Port Terminal in Ilo                         Concession           90.0
Infrastructure                                                           N.A.
Road Networks           Road Networks No.4                               Concession           65.46
                                                                         N.A.
Road Networks           Road Networks No. 1                              Concession           122
                                                                         N.A.
Road Networks           Amazonas Centro IIRSA                            Concession           109.5
                                                                         N.A.
Road Networks           Interoceánica Tramos 1 y 5                       Concession           N.A.
                                                                         25 years
Road Networks           Coast – Mountains                                Concession           N.A.
                                                                         20 years
Electric system of      Electric system of transport of Lima and         Concession           280
transport               Callao                                           N.A.



                                                     20
                                                                                  ESTIMATED
      SECTOR                           PROJECT                            TYPE   INVESTMENT
                                                                                    US$ MM

Transport           Presidential Aircraft                          Sale             18.586

Transport           Interprovintial and interdepartment terminal   Concession         7.0
Infrastructure      of passengers of Huamanga                      N.A.

Transport           Interprovintial and interdepartment terminal   Concession         3.0
Infrastructure      of passengers of Cajamarca                     N.A.
Transport           Interprovintial and interdepartment terminal   Concession         3.8
Infrastructure      of passengers of Ica                           N.A.
Transport           Terminal System of passengers to Lima          Concession        40.0
Infrastructure      Metropolitana                                  N.A.
Transport           National Terrestrial, International and        Concession        9.15
Infrastructure      Interprovincial Terminal for Piura             N.A.

Telecomunications   Implementation of rural broadband              Concession        17.0
                                                                   N.A.
Telecomunications   Implementation of Telecomunications Rural -    Concession         9.0
                    Internet Rural                                 N.A.

Telecomunications   Band 900 MHz - wirelessgíreles                 Concession        N.A.
                                                                   20 years
Energy              Transmission Line for Machu Picchu –           Concession        60.0
                    Cotaruse                                       30 years
Energy              Entity distribution of electricity Norte /     Concession    To be defined
                    Centro                                         N.A.
Energy              Transmission Line Chilca - La                  Concession    To be defined
                    Planicie -Zapallal                             N.A.
Energy              Thermal Plant in Lima of 500 a 600 MW          Concession        300
                                                                   30 years
Energy              Concession of LT Vizcarra-Huallanca-           Concession        N.A.
                    Cajamarca-Carhuaquero and Reinforcement        30 years
                    of the LT Carhuamayo-Paragsha-Vizcarra

Hidrocarburos       Regionals Gasoductos - Ica Region              Concession        180
                                                                   30 years
Hydrocarbons        Concession of the Poliducto Pisco - Lurín      Concession        60.0
                                                                   30 years
Hydrocarbons        Regional Gasoductos - Zona Sur                 Concession        N.A.
                                                                   N.A.
Sanitation          Water supply for Lima                          Concession        170
                                                                   30 years
Sanitation          Sanitation services for Piura and Paita        Concession        290
                                                                   30 years
Sanitation          Sanitation services - PSP Huancayo             Concession        N.A.
                                                                   N.A.
Sanitation          Water supply for Lima - Huascacocha            Concession         50
                                                                   30 years
Industry            Metallurgical Industry (Sider)                 Concession        N.A.
                                                                   N.A.




                                                 21
G. Recent Major Direct Investments

As of December 31 2006, the total amount of direct foreign investment registered at
PROINVERSION is about US$ 15.44 billion compared to US$ 14.28 billion as of December
31 2005, and US$13.89 billion as of 2004. These amounts do not include investment projects,
loans, merchandise valuation or other assets not assigned to the local company’s equity. The
main sectors where foreign investment has been made is telecommunications, industrial,
energy and mining. Investments in telecommunications represent 34.69% of the total of
contributions up to December 31 2005. The most important foreign investment of the last
years was the one made by Telefonica de España in 1994, which bought most of the shares of
Compañía Peruana de Teléfonos (CPT) and Empresa Nacional de Telecomunicaciones
(ENTEL). The amount invested was US$ 2 billion of which US$ 1.4 billion were used to buy
the shares from the State and US$ 600 million were used as capital contribution for the
development of the company. In 2004 Telefónica bought the mobile operations of BellSouth
in Peru.

Foreign investment has also been significant in the energy sector. State-owned holding in
energy companies were sold and others assets were granted in concession to the private sector.
In February 2000, the Camisea Gas development was awarded to Pluspetrol-Hunt-SK
Consortium, and Techint-Pluspetrol-Hunt Pipeline Company of Peru-SK Corporation,
L’Enterprise Nationale Sonatrach-Graña y Montero Consortium was awarded the distribution
stage in October 2000. In April 2001, the Peruvian Government granted in concession the
electric transmission lines “La Oroya-Carhuamayo-Paragsha – Derivación Antamina and
Aguaytía-Pucallpa” in favor of “Interconexión Eléctrica S.A. E.S.P. and Transelca S.A.
E.S.P.”. Both of them are Colombians. In December 2001, PSEG acquired Electroandes,
through Transamerica Energy and PSEG Americas. In June 2002 the electric transmission
systems of ETECEN and ETESUR were granted in a 30-year concession to Colombian firm
“Interconexion Electrica S.A.”, which offered US$ 241.58 million and a projected investment
of US$ 10.5 million. On the other hand, ENERSUR was awarded with the use contract of
Yuncan (Contract for Use of Assets) offering US$ 205 million. The Yuncan project consists
on the construction of a hydroelectric plant with 130 MW installed power, including the
installation of 3 generators of 44.5 MW each to produce 901 Gwh per year. The construction
of 50 kms of Transmission Lines is also required for interconnection to the National Electric
System.

In the mining sector several important State-owned companies have been sold to foreign
investors. Worth to mention is the sale of Hierro Peru to the Chinese company Shougang
Corp. for US$ 120 million; the Quellaveco copper deposit to the Chilean company Mantos
Blancos for US$ 12 million; the Cajamarquilla zinc refinery to Cominco Ltd. and Marubeni for
US$ 193 million; the Ilo refinery to Southern Peru Copper Corporation for US$ 66.6 million;
and, the Tintaya mining company to Global Magma Ltd. and Magma Copper for US$ 246.9
million. As of September 16, 1998, the Canadian consortium Noranda-Teck-Rio Algom has
signed an investment agreement with the government to invest US$ 2.2 billion in the former
State-owned Antamina mining concern during the following three years, besides the US$ 300
million already invested in it for exploration. On March 15, 2005, Brazilian Companhia Vale
do Doce was awarded with the right to exploit the phosphates mining concession of Bayovar,
in the Northern Province of Piura. Brazilian group Gerdau acquired a majority interest in
Siderperu as part of a privatization process. Recently, the Peruvian Government gave in
concession the Michiquillay mining project to Anglo American Services within an international
public bid process.

In the financial sector, the main capital contributions have been made by (i) Banco Bilbao
Vizcaya from Spain for the purchase of Banco Continental for US$ 256 million; (ii) Banco


                                             22
Santander S.A. from Spain for US$ 97 million for the purchase of two local banks; (iii)
International Financial Holding for the purchase of Interbank for U$ 51 million; (iv) Banque
Sudameris from Italy for the purchase of Banco de Lima for US$ 100 million and then for the
purchase of Banco Wiese; and (v) Scotiabank from Canada for the purchase of Banco Wiese
Sudameris. Pension fund Prima AFP acquired AFP Union Vida from Santander group.

The mergers and acquisitions activity in the country have stand out in the last years; a clear
example is set by the acquisition of Colombian brewery Bavaria by SABMiller, thus the latter
acquiring control of Peru’s largest brewery Union de Cervecerias Peruanas Backus y Johnston
S.A.A. Within the same brewery sector, Ransa Comercial acquired 30% of Compañia
Cervecera Ambev Peru’s holding company. Additionally, grupo Gloria acquired a majority
stake in sugar company Empresa Agroindustrial Casa Grande, and many acquisitions have
occurred in the fishing industry, such as the purchase of Grupo Sindicato Pesquero del Peru
(SIPESA) by Tecnologica de Alimentos (Tasa) for US$ 130 million.

During the last years Peru has attracted many new investments such as Grupo Slim (América
Móvil), Enap, Votorantim, Latina Holding, Parque Arauco and consolidation of others such as
Telefonica, Phelps Dodge, Xstrata, among others. Likewise, new companies entered the
market as greenfield: HSBC Bank and Deutsche Bank. Companies such as Sumitomo,
Odebrecht, Andrade Gutierrez, Repsol, Pluspetrol, that are already established in Peru,
increased their investments in our country.

Spain and the UK are the main sources of investment for Peru making up 48.23% of
investment stock, while the first 10 countries originate 88.9% of accrued investment.



III. TYPES OF MERCANTILE ORGANIZATIONS
There are different structures that foreign investors may use according to their needs as
investment vehicles in Peru. They range from setting up any of the six different types of
companies or a foreign branch to forming two types of joint ventures: association in
participation or a consortium.

Peruvian law provides for several forms of corporate organizations, according to Law
N°26887, General Companies’ Law, which came into effect on January 1, 1998. The most
widely adopted forms are the Corporation (Sociedad Anónima) and the Limited Liability
Company (Sociedad Comercial de Responsabilidad Limitada). Besides these two, the Corporations
Law recognizes the existence of the General Partnership (Sociedad Colectiva), Simple Limited
Partnership (Sociedad en Comandita Simple), Limited Partnership with Shares (Sociedad en
Comandita por Acciones) and the Civil Company (Sociedad Civil).


A. Corporation

A corporation must have at least two shareholders which can be natural and/or juridical
persons. The duration can be for a fixed or indefinite term. Each shareholder has a limited
liability up to the amount of his/her contribution. Shareholders are liable only to the extent
that the share capital for which they have subscribed remains unpaid. There is no minimum
capital requirement to the formation of a corporation.

Incorporation of the company may be done by simultaneous or successive subscription of
shares. Simultaneous subscription occurs when the incorporators subscribe themselves all the


                                             23
share capital. Successive subscription occurs when the promoters offer the shares to the
public. At least twenty five percent of each share must be effectively paid up.

The corporation can take three forms: Closely Held Corporation, Publicly Held Corporation
or a Standard Corporation. The latter results when the corporation does not comply with any
of the requirements established for the Closely or Openly Held Corporation.


1. Closely Held Corporation (S.A.C.)

The Closely Held Corporation must have no more than twenty shareholders, its shares are not
registered in the Stock Market Public Registry, the establishment of a Board of Directors is
optional and the shareholders have a pre-emptive right in case of transfer of shares. However,
this right can be eliminated in the incorporation act.


2. Openly Held Corporation (S.A.A.)

The Openly Held Corporation will be considered as such if any of the following requirements
occur:

   •    The corporation has made a public offer of its shares or of liabilities convertible into
        shares;
   •    Has more than seven hundred and fifty shareholders;
   •    More than thirty five percent of its capital belongs to one hundred and seventy five or
        more shareholders where none of them holds more than five percent of the shares or
        two for one thousand of the capital;
   •    The corporation is incorporated as openly held; or
   •    All the shareholders with voting rights unanimously resolve to become an Openly
        Held Corporation.

The articles of incorporation and bylaws cannot contain clauses restricting the free
transferability of shares or any type of restriction to stock negotiation, nor clauses giving a
shareholder or corporation preferential right to acquire shares when these are transferred.

This corporation should have all its shares registered with the Stock Market Public Registry.
The National Supervisory Commission for Business and Securities (CONASEV) is the
government agency in charge of supervising and controlling the publicly held corporations.
CONASEV has the following powers:

    •   Require the adaptation to Publicly Held Corporation, when corresponding;
    •   Demand the adaptation of the Publicly Held Corporation to another type of
        corporation;
    •   Require the presentation of financial information and any other related information at
        the request of shareholders representing five percent of the subscribed capital;
    •   Call the shareholders’ general meeting or a special meeting when the corporation fails
        to call them on the opportunities established by the law or by the bylaws.


The minority shareholders’ rights in an Openly Held Corporation are the following:




                                              24
2.1 Right to Information Out of the Meeting

The Openly Held Corporation must provide the information required by shareholders, out of
the meeting, representing no less than 5% of the paid-in capital, provided it is not dealing with
reserved matters or matters whose disclosure may damage the corporation.

2.2 Right for Requesting Meeting Call by the Shareholders

The Openly Held Corporation, requires 5% of the subscribed shares with voting rights to
request the call of the Shareholders’ Meeting.

2.3 Right to Postpone a Shareholders’ Meeting

At the request of the shareholders representing 25% of the subscribed shares with voting
rights, the Shareholders’ Meeting shall be postponed for a single time, at least for three but no
longer than five days without issuing a new notice, in order to discuss and vote on matters in
which they consider not to have enough information.

2.4 Right to Challenge Resolutions

The resolutions of the Shareholders’ Meeting that contravene this law, the bylaws or the
articles of incorporation or damage, directly or indirectly, in benefit of one or several
shareholders, the corporate interests, may be judicially challenged. The resolutions incurring
in the grounds for annulment provided for in the law or the Civil Code may also be objected
in the form, manner and term indicated by law. There is no requirement of a percentage in
order to exercise this right. The mentioned challenge may be brought by the shareholders that
may have put on record their opposition to the resolution in the Shareholders’ Meeting, by the
shareholders absent and by those unlawfully deprived of their voting rights. The challenge
right expires two months after the date the resolution has been adopted if the shareholder was
present at the meeting; after three months if the shareholder was absent; and when concerning
resolutions to be recorded in the minutes, within the next month following their registration.
This right is also granted in the Standard Corporation and in the Closely Held Corporation.

2.5 Right to Suspend a Resolution

At the request of shareholders representing more than 20% of the fully subscribed capital, the
judge may order a precautionary measure for the suspension of the challenged resolution. The
judge shall order that the claimants provide a counterprecaution compensation for the
damages that may be caused by the suspension. This right is also granted in the Standard
Corporation and in the Closely Held Corporation.

2.6 Right to Withdraw

Right to withdraw occurs when the Openly Held Corporation decides to retire its shares or
obligations from The Stock Market Public Registry. This fact makes it loose its condition of
Openly Held Corporation and must adjust itself to another type of corporation. The
shareholders who did not vote in favor of the resolution, have the right to withdraw.

Likewise, in order to protect effectively the rights of the minority shareholders the corporation
should publish, in a term which should not exceed 60 days since the Shareholders’ Meeting
was held, the following requirements:

   1. The total number of unclaimed shares and its total value.


                                               25
    2. The total number of uncharged and demandable dividends.
    3. The place where the detailed lists are, and the place and hour in which the minority
       shareholders can claim their shares and charge their dividends.
    4. The list of shareholders that have not claimed their shares and profits.
    5. The amount expended on these protection processes (which should be paid by the
       corporation).

This publication has to be published in the Official Gazette as well as in the corporation’s web
page.

For those corporations that are in a process of liquidation or bankruptcy, the announcement
of the place where all the mentioned information is found and the hour of attention, is
required.


3. Standard Corporation

Corporations that do not comply with the requirements to be publicly held or privately held
are considered to be standard corporations, regulated by the general clauses established to all
corporations in Law N°26887.


4. Capital Structure

The Corporation may issue different types of shares. The difference among them could be
constituted by the rights granted to their holders, the obligations assumed or by both of them.
All stocks of the same class will have the same rights and obligations.

Likewise, the Corporation can issue non-voting stocks whether it is a Standard, Closely or
Openly Held Corporation. Non-voting stocks are not computed to determine the quorum
necessary to hold shareholders’ general meetings. This type of stocks confers the holder the
quality as shareholder with the following rights:

    •   Participate in the distribution of profits and net worth resulting from liquidation
        before any common stockholder;
    •   Be informed at least every semester about the Corporations’ activities and
        management;
    •   Oppose those agreements damaging their rights;
    •   Withdraw the Corporation in cases established by the law or the bylaws.


In case of capital increase, (i) subscribe voting stocks pro rata when the shareholders’ general
meeting agrees to increase the capital only through the creation of stocks with voting rights;
(2) subscribe pro rata stocks with voting rights and with the necessary number to maintain
his/her participation in the capital, in case the shareholders’ general meeting agrees that the
increase includes the creation of non-voting stocks, but in an insufficient number, so that the
holders of these stocks maintain their participation in the capital; (3) subscribe pro rata non-
voting stocks in cases of capital increase where the shareholders’ general meeting is not limited
to the creation of stocks with voting rights or in cases where the general meeting agrees to
increase the capital only through the creation of non-voting stocks; and (4) subscribe liabilities
or other convertible securities or with the right to be converted into stocks, applying the rules
set forth in the above numerals.



                                               26
5. Corporate Bodies

The administration and management of a corporation are carried out by the Shareholders’
General Meetings and by the Board of Directors’ Meetings.

5.1 Shareholders’ General Meetings

The Shareholders’ General Meeting is the highest decision making body of the corporation.
All shareholders, present, absent or dissident are submitted to the resolutions adopted by the
General Meeting. The meeting can be called by the Board of Directors, the management or by
twenty percent of the subscribed shares with voting rights. The law permits celebration of
universal meetings when all subscribed shares with voting rights are present and unanimously
agree to celebrate the meeting.

The Mandatory Meeting should meet at least once a year within the following three months of
the corporation’s fiscal year. The issues discussed include approval of the financial statements,
allocation of profits, election of members to the Board of Directors and compensations,
designation of external auditors and any other issue required by the bylaws or expressly stated
in the call.

Likewise, the general meeting is competent to remove the board of directors and name its
successors, modify the bylaws, increase or decrease the capital, issue bonds, agree on the sale
of assets when its value exceeds fifty percent of the corporation’s capital, order investigations
and special auditories, agree on the transformation, merger, spin-off, reorganization and
dissolution of the corporation and resolve about its liquidation.

5.2 The Board of Directors

The Board of Directors is elected by the Shareholders’ General Meeting. The bylaws will
establish the minimum, maximum or a fixed number of directors which will not be less than
three. Likewise, the bylaws determine their term of office which cannot be less than one year
nor more than three years. Reelection is permitted. The Shareholders’ General Meeting can
remove the directors at any time without a specific cause. The position is personal unless the
bylaws permit directors to be represented by others. It is not required to be a shareholder
and/or a resident to be elected director. However, the bylaws can establish this. The position
can only be held by natural persons, thus no corporation can be elected member of the board
of directors.

Under the new law, corporations are obliged to constitute their board of directors with the
representation of the minority (cumulative vote). In this sense, the law states that each share
has as many votes as there are members of the board to be elected. It could happen that
minority shareholders result obtaining a greater participation in the board of directors, with
respect to the percentage of capital that they hold.

The Board of Directors’ quorum is 50 percent plus one. However, the bylaws can establish a
higher quorum but never request the total assistance of all board members. Decisions are
adopted by majority of the attending directors, but the bylaws can establish a higher
requirement.

The General Companies’ Law does not establish any particular requirement for the board of
directors in an Openly Held Corporation.


                                               27
B. Limited Liability Company

The Limited Liability Company has its capital divided into participations of equal value, which
are accumulative and indivisible and cannot be represented by shares of stocks. The total
number of partners cannot be more than twenty. Partners do not personally respond for the
company’s obligations.

As with corporations, there is no minimum capital required. However, twenty five per cent of
each participation must be paid-in before registering the incorporation at the Commercial
Registry.

Company agreements will be achieved by the will of partners representing the majority of
capital. The bylaws can establish the way and manner these accords can be reached. However,
a general meeting is mandatory when requested by partners representing at least twenty
percent of the paid-in capital.

Management of the company is performed by one or more managers who may or may not be
partners, elected by the partners. Managers are prohibited to be involved on their own behalf
or on behalf of third parties in the same type of business as the company. No board of
directors is required.

Transferability of participations to heirs in case of death of a partner could be restricted by the
bylaws in favor of the other partners to acquire them. Partners’ participations are not freely
transferable to third parties. He/she must first offer his/her interests to the other partners
who have preemtive rights to purchase the participations. In case none of the partners exercise
this right, the company can purchase and amortize them, proceeding to reduce the capital. If
none of this occur, then the partner can freely transfer his/her interests to third parties.


C. General Partnership

This is a business organization where its partners are severally unlimited liable for the
obligations and debts of the company. This form of business organization is rarely used by
foreign investors. The General Partnership has a fixed term of duration. However, its duration
can be extended with the consent of all partners. Likewise, any amendment to partnership
agreements should be approved by all partners and registered in the Commercial Registry.
Transferability of partnership interests must be approved by all partners.

Unless stipulated otherwise, the company’s accords are adopted by the majority of votes,
computed in terms of persons. If the accords are to be adopted in terms of the capital held,
the partnership agreement should establish the vote that corresponds to each partner. In case
any partner has more than half of the votes, it is necessary to also have the vote of the partner
who contributes personal services.


D. Simple Limited Partnership

This type of business organization is formed by one or more active partners who are liable in
an unlimited and joint manner for obligations incurred by the partnership and one or more
non-active partners whose liability is limited to the payment of their respective contribution to


                                                28
the capital. These contributions cannot be represented by shares of stocks or any other type of
security. Unless agreed otherwise, non-active partners cannot participate in the administration
of the business.

To transfer contributions pertaining to active partners, it is required the unanimous consent of
active partners and fifty percent plus one of the votes corresponding to non-active partners
computed per capital. To transfer contributions of non-active partners it is necessary the
agreement of fifty percent plus one of the votes computed by persons (active partners) and
fifty percent plus one of the votes computed by capital (non-active partners).


E. Limited Partnership with Shares

This type of business organization also has active and non-active partners with the same
economic responsibilities as the Simple Limited Partnership. The difference relies on the fact
that all the capital stock must be divided into shares. The active partners are in charge of the
company’s administration. However, non-active partners can assume the administration in
which case he/she acquires the quality of active partner.

Shares belonging to active partners cannot be transferred without the consent of all of them
and fifty percent plus one of non-active partners, computed per capital for both types of
partners. Shares of non-active partners are freely transferable unless the partnership agreement
establishes clauses limiting it.


F. Civil Company

Civil companies are created by professionals, generally in the service area, exercising a jointly
economic purpose. There are two types of civil companies: (1) Ordinary Civil Company and
(2) Limited Liability Civil Company. In the first, partners are personally liable for the
company’s obligations, unless stated otherwise. In the latter, partners are not personally liable
and could not be more than thirty members. In both cases, the capital should be paid in the
act of incorporation. Participations cannot be incorporated as securities or shares of stocks.

Transferability of participations should be agreed by all partners and requires signature before
a notary public and registration in the Commercial Registry. Profits or losses are divided
among the partners if stated in the Partnership Agreement. Otherwise, it is divided in
proportion to their contribution. Those contributing services rather than capital can be
partners. His/her contribution is valued as the average of contributions made by the capitalist
partners, unless stated otherwise.

Partnership meeting is the highest authority of the company. Decisions are reached by
majority vote per capital unless stipulated by persons in the Partnership Agreement.
Amendments to it require the partners’ unanimous vote.


G. Foreign Branch

A foreign branch of a corporation incorporated and domiciled abroad can be established in
Peru by public deed which must be registered at the Commercial Registry. The public deed
must contain at least the following: (1) a document certifying that the main office in its
country of origin is currently in force and neither the bylaws nor the articles of incorporation


                                               29
contain any restriction to establish a foreign branch; (2) a copy of the bylaws and partnership
agreement; and, (3) the agreement by the competent corporate body to establish a foreign
branch, which must state the capital assigned to the foreign branch, the declaration that their
activities in the foreign country are included within its corporate purposes, the domicile of the
foreign branch, the designation of at least one permanent legal representative in the foreign
country, the proxy conferred to him/her, and its submission to Peruvian laws.


H. Association in Participation

This type of business consists of a written contractual agreement between a managing partner
(asociante) and a contributing partner (asociado). This agreement can be executed by two or more
natural and/or juridical persons for the purpose of executing a particular business or project.
The agreement is not subject to registration before the Commercial Registry.

The managing partner agrees to grant the contributing partner a participation in the results or
profits of one or more businesses of his/her own in exchange for a determinate contribution
(money, property and/or services) to the enterprise or project by the contributing partner. The
managing partner acts on his/her own name and the association in participation has no legal
name. Management of the business enterprise is solely performed by the managing partner
who is the only person responsible before third parties.

Unless stated otherwise, the contributing partner participates in the losses in the same
percentage as he/she participates in the profits. In any case, losses cannot exceed the amount
of his/her contribution.

The managing partner cannot include in his/her business third parties without the written
consent of the contributing partner.

The assets contributed by the contributing partner are presumed to belong to the managing
partner unless these assets are recorded in the Commercial Registry under the name of the
contributing partner.


I. Consortium

A Consortium is an agreement by which two or more persons actively and directly participate
in a specific project or enterprise to obtain economic benefits. Each party maintains its own
autonomy. Each member performs the activities entrusted to them by the Consortium or
assumed by them. When doing so, he/she must coordinate his/her activities with the other
members of the Consortium according to the procedures and mechanisms established in the
agreement.

The assets contributed to the Consortium remain in the property of each member contributor.
The joint acquisition of assets will be ruled under the joint ownership regime.

Each member of the Consortium is individually responsible against third parties for its
activities within the Consortium. Any rights or liabilities and responsibilities assumed by
him/her is taken at his/her own risk.

In case the Consortium enters into an agreement with third parties, the responsibility is
solidary among the consortium members, unless stated otherwise in the agreement or by law.



                                               30
The Consortium Agreement must establish the participation of each member in the profits
and losses. Otherwise, participation will be understood to be in equal parts for each member.


J. Mergers and Spin-Offs

1. Mergers

There are two different types of mergers provided for in the Company’s General Law: (i)
Merger by integration which implies that two or more companies integrate into the merging
company creating a new company; and, (ii) Merger by absorption whereby one or more
companies are incorporated into the surviving company. As mentioned in (i) the former(s)
is(are) dissolved but not liquidated.

In its initial phase, the merger procedure involves the elaboration of a Merger Agreement
Project, which is prepared by the companies to be involved in the merger and should be
approved by the board of directors or the company’s administration of each company by
majority vote. The merger must then be approved by the Shareholders’ Meeting or Assembly
of each of the companies involved. The call to the Shareholders’ Meeting or to the Assembly
must be published in the official gazzete with at least ten days prior to the meeting. Each
company involved in the merger should show the following documents to its shareholders,
partners, bondholders and other creditors: (i) the merger agreement project; (ii) the latest
financial statements audited; (iii) the shareholders’ agreement and bylaw of the merging
company; and (iv) the relation of the main shareholders, directors and administrators of each
of the companies involved in the merger.

In order for the merger to be legally valid it must be registered in the Public Registry.
Registration of the merger produces the extinction of the companies absorbed or integrated.
The merger agreement gives the shareholder or partner the right to withdraw. The creditor of
any of the participating companies in the merger has the right to file his/her opposition to the
merger.

2. Spin-Offs

Spin-off entails the transfer of part or all of a company’s assets to one or more companies
already in existence or formed for this purpose. If all the company’s assets are transferred, the
company will therefore be extinguished. If only part of the assets is transferred the spun-off
company is not extinguished but must reduce its capital. Rights and obligations of the spun-off
company will be distributed proportionately by the company(ies) receiving the assets. To spin-
off a company, it is necessary to comply with the same requisites established by law or by the
bylaw to modify the shareholders’ agreement or the bylaw. Spin-off transactions are subject to
similar rules applied to mergers, among others, the right of the shareholders to withdraw, the
right of creditors to oppose the spin-off, the registration of the spin-off before the Public
Registry and a spin-off agreement project.


IV. OTHER TYPES OF BUSINESS ORGANIZATIONS

A. Financial Institutions

Financial institutions are regulated by Law No. 26702 of December 9, 1996, the General Law



                                               31
for the Financial and Insurance Systems and Organic Law for the Banking and Insurance
Superintendency. National and foreign banks are treated equally. Foreign investors may either
establish a bank or a branch, or appoint a representative. The scope of action for financial
institutions has been widened to even permit them to act as multiple banks exercising different
functions by creating subsidiaries for leasing, mutual funds, brokerage, financial companies
and warehouses. The role of the State in the financial system has been limited to supervision
and setting monetary policies. Currently, all State banks have been privatized except for Banco
de la Nación (BN), which collects taxes for the government, pays public employees’ salaries
and benefits and represents the government before international credit contracts. BN is a large
bank with agencies all over the country.

The Peruvian Central Reserve Bank establishes the monetary policy. The Banking and
Insurance Superintendency (SBS) is the government agency in charge of authorizing and
supervising the activities of banks, finance companies and insurance companies listed below
(approvals of organization and incorporation, controls and inspections, authorizations of
special transactions, auditing of operations, replacement of directors and managers, among
others). The SBS can interpret the law, issue regulations and impose sanctions, including the
closing and dissolution of companies under its supervision. All the financial institutions must
be incorporated as corporations (Sociedad Anónima).


1. Banks

The bank must have at least a minimum of two shareholders and their shares must be listed in
the Lima Stock Exchange. Preferred stocks are permitted with or with non-voting rights.
Also, banks are subject to a minimum capital (at present approximately US$ 7.2 million),
which is adjusted quarterly according to inflation.

A bank is an institution whose main business consists of receiving money from the public on
deposit or under any other contractual mode, and using such money, its own capital and that
obtained from other sources of financing to grant loans under different modes, or apply them
to operations subject to market risks.

Banks may make all type of financial transactions, including acquisitions of securities, purchase
and sale of gold and precious metals, leasing operations, act as trustees where trusts involve
investment management, issuance of bonds and debentures, financial advisory services,
management of mutual funds (only through a subsidiary), brokerage activities, underwriting
and warehousing (only through a subsidiary). In terms of real estate, banks can only acquire
them for using them in their banking activities (i.e. agencies). The law establishes that personal
property and real estate acquired or received as part of payment of a debt by third parties must
be sold by the bank within one year. If not sold during this term, then the bank is obliged to
constitute a reserve for the amount in books of the personal property and real estate not sold.


2. Finance Companies

A finance company may perform activities similar to those of banks but cannot hold current
accounts or deposits payable on demand. Banks and finance companies are treated the same in
terms of incorporation and operation but finance companies’ paid-in capital requirement is
lower. Finance companies are institutions which obtain resources from the public and which
specialty consists on facilitating the placements of primary securities’ issues, operating with
bearer securities and rendering advisory services of financial nature.



                                               32
3. Branches of Foreign Banks

Foreign banks can establish branches in Peru after complying with the requirements
established by the SBS. The process is simpler than the one required for setting up a bank. The
foreign bank must pay the minimum capital required to establish a branch and appoint a
permanent legal representative vested with full powers to bind it in any matters concerning the
development of its operations. Branches of foreign banks do not have a board of directors in
Peru being enough to appoint personnel vested with full powers.


4. Representative Offices of Foreign Banks

Foreign banks may have representative offices in Peru to maintain business relations with local
banks and with potential clients for credit loans.

Representatives of financial companies from abroad shall be prohibited from:

        a. Carrying out transactions or offering services that are activities proper of their
           principal office.
        b. Receiving deposits or placing them directly in the country.
        c. Directly offering or placing within the country foreign securities and other
           negotiable instruments.


5. Investment Banks

Investment banks are corporations whose purpose is to promote investment in general, both
in the country and abroad, whether as direct investors or as intermediaries between investors
and entrepreneurs confronting capital requirements. They cannot receive deposits from the
public, make loans or grant contingent credits, and therefore, do not have credit portfolios.


6. Leasing Companies

Leasing companies are institutions specializing in the acquisition of personal property and real
estate to be assigned for the use of a natural or juridical person in return for the payment of a
periodic rent and with the option to buy such property for a predetermined value.


7. Factoring Companies

Factoring companies are institutions specializing in the acquisition of invoices approved by
payer, securities and generally any commercial paper representing debt.


8. Bond and Guarantee Companies

These are institutions specializing in granting bonds to guarantee natural or juridical persons to
other companies in the financial system or foreign companies in operations connected with
foreign trade.




                                               33
9. Trustee Services Companies

Trustee companies specialize in acting as trustee in the management of autonomous trustee
equity, or in the performance of trusteeships of any nature. Trusteeship is a juridical
relationship whereby the trustor transfers property under trust to another person, called the
fiduciary, for the setting up of a trust property subject to compliance with a specific end in
favor of a trustor or a third party called the trustee. Such trust property is separate from the
property of the fiduciary, trustor, or trustee or in due case, the recipient of any remaining
property. Trusts cannot be used to modify the inheritance law since our Civil Code forbids
imposing conditions and restrictions on the inheritance share corresponding to heirs
(ascendants, descendants and surviving spouse).


10. Real Estate Capitalization Companies

Real estate capitalization companies are those which are engaged in the purchase and/or
building of real estate, and with respect to this, enter into separate real estate capitalization
contracts with others, giving the investor the corresponding real estate unit on deposit. Such
contracts include the investor’s right to the option to acquire the real estate unit by paying for
it in cash at any time. Such companies may enter into passive contracts for the pre-financing
of real estate and issue mortgage certificates. This type of companies may not make loans.


B. Insurance Companies

Law No. 26702 does not distinguish between national and foreign investors in the insurance
sector. Thus, there is no discrimination against foreign investors whether they participate in
the capital of a company established by national investors or decide to establish their own
company. The Banking and Insurance Superintendency (SBS) is the agency in charge of
authorizing the incorporation of insurance companies and supervising their operations. The
SBS is vested with the power to impose sanctions and even the closing and liquidation of
insurance companies.

Foreign investors may opt to establish a company or appoint an intermediary or broker of
insurance or reinsurance. In case they decide to be incorporated in Peru, a minimum capital is
required. Brokers must be authorized by the SBS.

Insurance companies may only be established as corporations, with a minimum of two
shareholders. To incorporate an insurance company, prior SBS authorization is required.

Also, the law establishes the liberty to enter into insurance contracts in the country and
abroad. Thus, natural and juridical persons can enter into insurance contracts with companies
not established in Peru. In this case, the agreement must be performed directly and formalized
abroad, since the law forbids to contract or intermediate within the territory of Peru without
the SBS approval.


C. The Private Pension Fund Administrators

The Private Pension Fund System was created and regulated by Decree Law No. 25897 of
December 6, 1992. This law establishes the basic rules for the creation and operation of the
Private Pension Fund Administrators (AFPs).


                                               34
AFPs are corporations organized and operating under the General Companies’ Law and the
Pensions Law and its regulations. An AFP must have at least 5 shareholders not related
directly or indirectly. Their exclusive purpose is to administer a pension fund and to provide
the benefits established in the law. The AFP is only an administrator of the fund. Both the
administrator and the fund have separate assets and liabilities and must keep different
accounting. The formation of an AFP must be authorized by the AFP Supervisory Agency. Its
shares must be quoted in The Lima Stock Exchange.

The private pension system operates on a defined contribution basis whereby each affiliate’s
contributions are credited to an individual account. The contributions form investment funds,
which are administered by the AFPs. All investment income belongs to the funds. Retirement
benefits are determined by the balance in the employee’s individual account at the time of
retirement, which can be used to purchase an annuity from an insurance company or an AFP,
or to finance a retirement plan. The affiliation to the Private Pension System offers retirement,
death and disability benefits.


V. THE FOREIGN INVESTMENT REGIME

A. Peruvian Foreign Investment Laws

Peru’s foreign investment regime is governed by Legislative Decree No. 662 (The Foreign
Investment Promotion Law) and Legislative Decree No. 757 (Framework Law for Private
Investment) published on September 9, 1991 and November 13, 1991, respectively. Both laws
are regulated by Supreme Decree No. 162-92-EF of October 12, 1992.

Legislative Decree No. 662 creates mechanisms to guarantee foreign investors tax and legal
stability, availability of foreign currency and non-discriminatory treatment between national
and foreign investors, to stimulate flows of foreign capital.

Legislative Decree No. 757 contains provisions required for growth of private investment in
all economic sectors, including the elimination of all legal and administrative barriers and
distortions that block economic development and restrict free private initiative, leaving
competition to the companies in the private sector. This law also establishes basic provisions
regarding taxes, protecting investors from arbitrary changes.

Foreign investment is defined as investment coming from abroad and may be carried out in
any economic activity that generates income. It may take any of the following ways:

    1. Contributions made by foreign individuals or entities to the capital of a new or already
       existing company, in freely convertible currency or in physical or tangible goods.
    2. Investments in national currency that has the right of being repatriated.
    3. Conversion of private foreign debt into equity.
    4. Reinvestment of profits made in accordance with current laws.
    5. Acquisition of assets located in Peru.
    6. Intangible technological contributions such as trademarks, industrial models, technical
       assistance and technical know-how, patented or not, which may be classified as
       physical goods, technical documents and instructions.
    7. Investments in securities, negotiable instruments or bank certificates in foreign or
       domestic currency.
    8. Resources for joint-venture agreements or similar contracts, which grants the foreign


                                               35
       investor participation in the productive capacity of a company, without this involving
       capital contributions.
    9. Any other type of foreign investment that contributes to the country’s development.


With the exception mentioned in subparagraph C) below, all economic activities are open to
foreign investment with no restriction on the participation of foreign investors. Foreign
investors’ rights are the following: (i) have the same rights as national investors; (ii) may
acquire shares, equity interests or property rights from national investors; (iii) Remittance in
foreign currency of the entire amount of their profits after deducting the corresponding taxes.
Dividends received by foreign investors are subject to a 4.1% withholding tax; (iv) may remit
the entire capital in foreign currency; (v) no government authorization is required in any of the
cases mentioned in (i) to (iv). Remittances of foreign currency should be made through the
Peruvian banking system; and, (vi) have access to short, medium and long term internal credit
without limits.


B. Registration of Foreign Investment

Capital contributions must be channeled through the Peruvian banking system. Foreign
investments to be made in the country are automatically authorized. Once made, they shall be
registered with the Agency for the Promotion of Investment (PROINVERSION), which will
issue a certificate of registration reflecting the amount invested. PROINVERSION is also the
agency in charge of matters relating to the signing of stability agreements.


C. Restrictions of Foreign Investment

Participation of foreign investment in any sector has no prohibitions, except for some specific
activities and for the restriction established in the Political Constitution. Article 71 of our
Constitution states that foreign investors cannot acquire or posses, by any means, mines, land,
water, forests, fuel or energy sources, directly or indirectly, within 50 kilometers of the national
border.


D. Currency Investments

Investments in foreign currency do not require any previous official authorization. There is
complete freedom to hold and dispose of foreign currency in Peru and its value is set by
market supply and demand.


E. Remittance of Capital, Dividends and Royalties

Foreign investors do not need any type of authorization to transfer abroad funds from capital,
profits, dividends and royalties. These funds can be transferred in freely convertible currency
after taxes are paid. Dividends and any other form of allocation of profits are levied with taxes.
A rate of 4.1% will be applied, except for domiciled entities. On the other hand, royalties are
subject to a withholding tax rate of 30%.




                                                36
F. Legal Stability Agreements for Private Investments

National and foreign investors may sign legal stability agreements with the government -
through PROINVERSION- to maintain in effect certain legal provisions in force at the time
the investment is made. The legal stability is granted for 10 years. Legal provisions that could
be frozen include tax laws, free access to foreign exchange and the right to non-discriminatory
treatment between investors in companies on the basis of national or foreign participation.

To enjoy the benefits mentioned above, investors should be committed to alternatively: (i)
make capital contributions for no less than US$ 5,000,000; or, (ii) make capital contributions
for no less than US$ 10,000,000 provided such investment is made in mining or hydrocarbons
industries. These investments shall be made within two years after executing the legal stability
agreement.

The above investments can be made in cash, contributions to the capital stock of a company
already incorporated or to be incorporated in Peru, capitalization of debt, capitalization of
resources with remittance rights. The investment must be made by the same investor.

National companies receiving foreign investment can also enjoy tax stability, but only with
respect to income tax, provided the amount of foreign investment is greater than 50% of the
paid-in capital and reserves of the receiving company and the investment is for expanding the
productivity capacity or for technological improvement. The tax stability agreement may also
be signed when dealing with privatization of more than 50% of the stock of a State-owned
company. The recipient company could also obtain stability on the employee contractual
system and special promotion treatment.


G. Guarantees to Foreign Investment

Investors are authorized to contract insurance within Peru and abroad, in order to protect
their investments from commercial and non-commercial risks. The government offers
investors a coverage to protect their investments through the World Bank Multilateral
Investment Guarantee Agency (MIGA); agreement ratified by the Peruvian Congress on April
2, 1991. MIGA secures investments against non-commercial risks related to issues such as
money transfers, expropriation, war and civil disturbances, or in case of violation of
agreements signed with the investors. MIGA also offers advice services to improve the image
of signatory countries to attract investments.

On the other hand, Peru has subscribed a financing agreement with the United States of
America over the incentives for the investments that permit the «Overseas Private Investment
Corporation» (OPIC) to issue insurance, coinsurances or guaranties to open investments of
the United States of America in Peru. The OPIC promotes the development through financial
arrangements totally or partially supported by the government of the United States of
America.

Likewise, Peru has signed bilateral investment agreements with countries such as Korea,
Switzerland, Thailand, Bolivia, Great Britain, France, Paraguay, Czech Republic, Colombia,
Sweden, Italy, Rumania, China, Argentina, Spain, Portugal, Denmark, Holland, Germany,
Norway, Finland, Malaysia, Australia and Venezuela.

Peru has also signed the World Bank International Convention on the International Center for
Settlement of Investment Disputes between States and Nationals of other States (ICSID). This
is an international center created to solve investment controversies.

                                              37
H. Making and Liquidating Loans

Foreign exchange transactions are free and there are no restrictions for entering into loans in
foreign currencies. The disbursement is made in the currency agreed upon, and the borrower
is not obliged to convert the foreign loan into local currency. Loans made by foreign banks
and financial institutions to borrowers are not subject to any authorization or registration
requirements nor they have to be deposited for a fixed term with the Peruvian Central Bank or
any other government agency before being released to the borrower. Payment of interest and
repayment of the loan’s principal may be made without restrictions and does not require any
authorization.

Peruvian legislation does not establish any differences in local banks making loans to Peruvian
or foreign resident investors. Both are treated the same.

Interests paid by debtors unrelated to non-domiciled creditors are subject to a withholding tax
rate of 4.99% provided several requirements are met. Otherwise, a withholding tax rate of
30% will apply.

On the other hand, interests payable by domiciled banks and financial entities for using their
credit lines abroad are subject to a withholding tax rate of 1%.

Finally, interests generated from promotional loans provided directly by international
organisms or foreign government institutions through foreign financial intermediaries or
suppliers, are exempted from income tax until December 31, 2008.



VI. CONSUMER PROTECTION MEASURES

A. Antitrust

Legislative Decree No. 701, published on November 7, 1991, establishes the new antitrust
regulations in Peru. Decree Law No. 25868 (1992), Legislative Decree No. 788 (1994) and
Legislative Decree No. 807 (1996) introduced amendments in said law.

1. Scope

The antitrust law defines certain practices that are considered an infringement of the economic
order. There are two types of infringement: (i) abuse of a dominant position in the market,
which includes the unjustified refusal to fill product purchase orders, discriminatory pricing
and tying clauses; and (ii) restraints to free trade, which contemplates any form of collusion
among suppliers, producers, or deliverers of a service in order to restrict competition among
them. Specific cases of restraints to free trade includes, among others, the fixing of prices and
production, supply, demand and marketing conditions by companies that are current or
potential competitors; agreements to restrict production, distribution, and technical and
technological development; agreements that seek to apportion markets or the assignment of
production shares; concerted discrimination in prices or terms; and, the use of tying clauses.

It is important to mention that cases specified in the law for both types of infringement is
merely illustrative and the government can consider as antitrust practices other cases with
equivalent effect. It is only sufficient to prove that the case has an equivalent effect to other


                                               38
cases stated in the law. For the antitrust to be violated, there must exist either (i) or (ii).
Therefore, a monopoly can exist in the economy without committing a violation.

In contrast with other countries, Peruvian antitrust law has not established control laws to
approve mergers and acquisitions or any other form of corporate grouping, with some
exceptions. By Law No. 26876, published on November 19, 1997, the Commission for Free
Competition (hereinafter the Commission) of the National Institute for the Defense of
Competition and Protection of Intellectual Property INDECOPI must previously approve
cases of mergers and acquisitions between companies rendering electricity services within the
same interconnected system. Mergers and acquisitions control does also exist in other activities
such as for openly held corporations, mutual funds, securities’ brokers, banking and insurance
companies.


2. Administrative Proceeding

The Technical Secretariat of the Commission has the authority to investigate any irregularities
against the antitrust law and initiate administrative proceedings receiving prior approval from
the Commission. The proceeding can be filed by the Technical Secretariat or by any interested
party. The authority to decide on the proceedings filed by the Secretariat, in turn, is the
Commission which is an autonomous entity linked to INDECOPI. The Commission’s
decision may be appealed to the Competition Defense Court of INDECOPI (hereinafter the
Court) which is a court of last administrative resort. The Court’s decision may be judicially
appealed through a procedure initiated at the superior court through the administrative
contentious procedure, which may in turn be reviewed by the supreme court of justice as last
and definitive resort.

3. Sanctions

During the proceedings, the Technical Secretariat may suggest the Commission to impose on
the infractor precautionary measures seeking to halt the infringement. If the infringer does not
comply with the preventive measure, he/she will be subject to a fine of not less than ten (10)
UIT (approximately US$ 11,500) nor greater than a hundred (100) UIT (approximately US$
115,000). In case the infringer insists in not complying, the Commission can increase the fine
successively and infinitely. In addition to the fine, other penalties may be applied.

The amount of the fine will be established according to the gravity of the violation. In the
event of a minor or major infringement, the Commission may impose the infringers to pay a
fine of not more than 1,000 UIT (approximately US$ 1’150,000) as long as the fine does not
exceed 10% of the sales or gross income perceived during the previous fiscal year. If the
infringement is very serious, the Commission may impose a fine of more than 1,000 UIT
(approximately US$ 1’150,000) as long as the fine does not exceed 10% of the sales or gross
income perceived during the previous fiscal year. If the infringer is a company, the
Commission can also sanction the manager or legal representative with a fine of not more than
100 UIT (approximately US$ 115,000).

The Commission may consider that the infringer committed the violations deliberately, in
which case it will proceed to file criminal charges for abuse of economic power according to
the Criminal Code. Moreover, members of the board of directors can also be accused for
criminal charges. Likewise, a citizen harmed by practices that violate the antitrust law may also
bring civil action for damages against the violator.




                                               39
B. Unfair Competition

1. Scope

Peruvian legislation is oriented to prevent and sanction any act of unfair trade practice or
deceptive act in the usual course of business. This regulation applies to any act that is contrary
to honest commercial practices whether carried out by any natural person or legal entity.

The Unfair Competition Law, Decree Law No. 26122 rules those acts of unfair trade practice
and applies exclusively to those trade acts or commerce transactions carried out within
national territory or when importing goods.

Any method or practice in the conduct of usual trade or commerce contrary to honest
commercial practices and good faith shall be considered unfair and so an unlawful and
prohibited act.

Among others, the following acts are considered unfair: those deceptive acts causing
likelihood of confusion or of misunderstanding; defamatory, false and misleading
representations or conduct that deceive the public into believing that the business name,
reputation, or goodwill of one person is that of another; imitating a competitor’s product,
package, or trademark in circumstances where the consumer might be misled; false
affirmations made in the course of trade that are capable of discrediting a competitor’s
business, goods, or industrial or commercial activity; establish unsuitable and inappropriate
comparisons, violate industrial or trade secrets, any other fraudulent, deceptive or dishonest
trade practice which by its nature or aim could be considered similar or be assimilated to those
prohibited by the Unfair Competition Law.

For an act to be considered of unfair competition, it will suffice to inflict potential and illicit
harm to competitors, consumers or public order.


2. Administrative Proceeding

Claims for infringement are cognizable by the Committee of Repression of Unfair
Competition of the National Institute for the Protection of Free Competition and Intellectual
Property INDECOPI (hereinafter the Committee). The Committee will rule on the lawfulness
of any unfair commercial act or practice.

The administrative proceedings begin under party request when the victim files a formal
complaint before the Technical Secretary of the Committee.

Victims of an unfair trade practice may proceed to file a complaint at any time, when the
unfair competition act is taking place, when under threat that this may happen and even when
its effects have already stopped.

The right of action for unfair competition shall lapse two years following the last practice of
unfair act.

The Committee or the Technical Secretary, in this case due to inform the Committee and only
under special considerations, may initiate ex officio the proceedings for unfair competition
provided for in the Unfair Competition Law.

An appeal will proceed against the final ruling issued by the Committee, the same which will


                                                40
have to be resolved by the Competition Defense Court of INDECOPI (hereinafter the
Court). This appeal will also proceed against rulings imposing penalties or rulings ordering any
temporary or permanent injunction.

The term to submit the aforesaid appeal is of five (5) working days.

With the Court’s order, the parties will have all their right to initiate the administrative
contentious proceeding before the judicial power.

The term to start the administrative contentious proceeding is of three months (3) upon the
date when the ruling finishing the instance was notified.

The administrative contentious proceeding will be initiated at primary instance before the
contentious administrative office of the corresponding superior court of justice.

Rulings issued by the commissions, offices or the Repression of Unfair Competition Defense
Court will be immediately executed, without prejudice that the interested party could take any
further actions granted by law. The execution of a ruling issued by INDECOPI will be
suspended only by an order of the Court or by the supreme court of the judicial power.

3. Sanctions

If while the administrative proceeding is being carried out the Court resolves that an unfair
competition act has taken place, then the Court will apply a sanction: admonitions or an
administrative penalty. Without prejudice, the Court can order to cease the acts against the
law or forbear them to happen again.



C. Consumer Protection

1. Scope

The Consumer Protection Law, Legislative Decree Nº 716 (hereinafter the Law), applies to all
consumer relations undergone in national territory. Under this scope, all relationships between
individual consumers and the businesses that sell those goods and services, whether carried
out by any natural person or legal entity, that is any private or public legal entity, have to be
submitted to this Law.

This Law protects solely those final consumers. It is important to note that the Competition
Defense Court of INDECOPI (hereinafter The Court) has signaled out that a “final
consumer” is whom acquires, uses or enjoys any product or service for purposes that are
primarily personal, familiar or household, or for his/her immediate social circle benefit.

Pursuant to this Law, suppliers are responsible, among others, for the following:


            I. To supply safe goods and services that must correspond with the description
               and advertising labeled and have reasonably foreseeable conditions of use and
               durability. Goods must be fit and of satisfactory quality. In summary, the Law
               states that certain terms are implied in every transaction for the transfer of
               goods.



                                               41
           II. To provide consumers with relevant, clear and comprehensive information. In
               this sense, all information on national goods shall be offered in Spanish. When
               considering foreign goods, information related to warranty conditions,
               instructions, warnings and risks, as well as safety procedures in case of injury,
               shall also be in Spanish.

          III. Total sale’s prize of goods and services shall be offered in national currency
               (Nuevos Soles) and will include the Value Added Tax (VAT). If prize tag is in
               foreign currency, it shall have to be affixed as well in national currency in equal
               lettering and conditions.


The Law establishes that all consumers must receive any necessary and relevant information;
should not be discriminated in any foreseeable way and are entitled to damages, if the implied
conditions are breached.

2. Administrative Proceeding

Claims for infringement are cognizable by the Committee for Consumer Protection
(hereinafter the Committee) of INDECOPI. The Committee will rule on the lawfulness of any
act that contravenes a prescribed provision of the Law. The Committee is also entitled to grant
any administrative penalties and terminal or permanent injunctions established in the Law.

The time limit to file a formal complaint is two (2) years after the date on which the alleged
contravention occurred.

When consumers consider that their rights have been breached, they have two alternative ways
to obtain legal protection:


    I. Retort to the Citizens Service Office of INDECOPI. The aforesaid service is free and
       seeks to promote settlement out of Court. Should parties involved be unable to reach
       an agreement or if INDECOPI ex officio decides so, a formal administrative
       proceeding may be initiated.

   II. To make a formal complaint before the Technical Secretary of the Committee.


Any complaint may be filed directly by the consumer or his/her assignee.

The Committee or the Technical Secretary of the Committee, in this case due to inform the
Committee and only under special considerations, may initiate ex officio the proceedings
provided for in the Law.

An appeal will proceed against the final ruling issued by the Committee, the same which will
have to be resolved by the Court of INDECOPI. This appeal will also proceed against rulings
imposing penalties or rulings ordering any temporary or permanent injunction. The term to
submit the aforesaid appeal is of five (5) working days.

With the Court’s order, the parties will have all their right to initiate the administrative
contentious proceeding before the judicial power.

The term to start the administrative contentious proceeding is of three (3) months upon the


                                               42
date when the ruling finishing the instance was notified.

The administrative contentious proceeding will be initiated at primary instance before the
contentious administrative office of the corresponding superior court of justice.

Rulings issued by the Commission, Office or the Court will be immediately executed, without
prejudice on that the interested party could take any further actions granted by law. The
execution of a ruling issued by INDECOPI will be suspended only by an order of the Court
or by the supreme court of the judicial power.

3. Sanctions

The Law provides that the Committee may grant admonitions or an administrative penalty to
any supplier that should incur in an unlawful activity. Without prejudice, the Court can order
the necessary measures to revert the effects that the contravention could have caused.

Some of these measures are as follows:


     I. Closing the business for a maximum period of time of sixty (60) days.
    II. Seizure and destruction of goods.
   III. The publication of rectifying or informative advertises subdued to the Committee’s
        specifications.
   IV. Reimbursement of the prize paid.
    V. Replacement and repairing of the goods.
   VI. Any other means that the Committee may consider suitable to revert the effects
        caused by the infringement act or to prevent any future harm.

The administrative actions and corrective measures above detailed in the Law may be enforced
without considering the compensations and criminal penalties that could take place.



D. Advertising

1. Scope

In Peru, commercial advertising for goods and services are ruled by the Advertising Law,
Legislative Decree No. 691 and its ruling, Supreme Decree No. 20-94-ITINCI.

These standards will be applied in any sector or economic activity, regardless of the fact that
the recipient of the message is a final consumer, a broker or a goods and services supplier.

The advertising rules protect its commercial value as a mechanism of information and as an
element that allows for a smooth market functioning.

In this regard, it is established as commercial advertising any form of communication that has
the purpose or effect of promoting, directly or indirectly, the purchase of goods or contracting
of services, by attracting or deflecting consumer preferences.

It is not established as commercial advertising, political propaganda or institutional publicity,
the latter understood as one that aims at promoting behaviors of social relevance.



                                               43
Related to the advertisements content, the natural or legal person advertiser shall be liable if
the infringement relates to a feature inherent in the announced product.

On the other hand, being advertising a professional service, there is a joint and several liability
between the advertiser and the advertising agency, or who has produced the ad, when
advertising does not belong to the characteristics of the product advertised.

The media will also be responsible if they commit an offense linked to the dissemination
standards because it is able to exert control over what is published. These rules are the
governing conditions of transmission of some ads and can refer to the schedule or the media.

The advertisements’ audit, in all cases, can only take place after these are disseminated.


2. Administrative Proceeding

The only agency responsible for verifying compliance with the rules of advertising is the
Committee on Repression of Unfair Competition at INDECOPI (hereinafter referred to the
Committee).

All State agencies are unable to apply sanctions in the field of commercial advertising and must
report to the Committee the violations of the advertising rules known in the area of their
competence, so that this agency will proceed to impose the sanctions that legally correspond.
It is void any sanction ordered by a State agency that violates this provision.

The administrative proceeding before the aforesaid Committee may commence at the request
of a party or ex officio. This proceeding is initiated at the request of a party by filing a
complaint addressed to the Technical Secretary of the Committee. Meanwhile, the proceeding
is initiated ex officio by the Committee or the Technical Secretary, and in the latter case, giving
notice to the Committee only when it is considered necessary.

Against the final resolution issued by the Committee, proceeds the appeal recourse, the same
which shall be absolved by the Competition Defense Court of INDECOPI (hereinafter the
Court). That recourse also proceeds against the resolution that imposes fines and against the
resolution that imposes precautionary measures. The deadline for bringing such an action is
five (5) working days.

Once resolved by the Court, the administrative action concludes and the parties will have the
right to initiate administrative contentious proceeding before the judicial power.

The term to initiate the administrative contentious proceeding is three (3) months counted
from the resolution’s notification date that puts an end to the instance.

The administrative contentious proceeding will initiate in first instance before the
administrative contentious court of the respective superior court of justice.

The resolutions issued by the commission office or the Court will be executed immediately,
without prejudice that the interested party files the objection recourses permitted by law. The
execution of what is resolved by INDECOPI will only be suspended when the Court or the
supreme court of justice, if necessary, expressly agree to suspend the effects of the objected
resolution.




                                                44
3. Sanctions

If during the administrative proceeding the Court or the Committee concludes that an act
contrary to the publicity rules has been committed, they may apply an admonition sanction or
a fine without prejudice that the Committee orders the cessation of advertisements and/or
publicity rectification.

As above mentioned, the Committee is entitled to order, as complementary measure, the
publication of an amendment ad in order to correct the residual dissemination effect that the
misleading information through the advertisement could have caused in the market. Therefore,
its application will only correspond in the cases where its diffusion is suitable to correct the
distortion that the misleading information would have originated in the market.


VII. TAX CONSIDERATIONS
The Peruvian tax system is regulated by several statutes. The Tax Code is the main statute
which includes the principles that will guide the application of taxes, as well as provisions
about the nature of taxes, the faculties of the Tax Administration, the Tax Court, tax
proceedings and penalties.

The most important taxes levying individual investors and companies are the following: (i)
Income Tax; (ii) General Sales Tax; (iii) Excise Tax; (iv) Customs Duties; (v) Real Estate
Property Tax; (vi) Financial Transactions Tax; (vii) Temporary Tax on Net Assets; and (viii)
Social Security Contributions.

In Peru, specific tax measures are in force in order to promote private investments in several
economic activities, such as mining, oil and gas, and agriculture.

Also, there are some benefits referred to the advanced recovery of the General Sales Tax
Credit and facilities for the payment of Customs Duties for those companies involved in
exploration, development and/or exploitation of natural resources.


A. Income Tax

A.1 Companies

Peruvian-resident companies will be subject to taxation on their worldwide income. The
results of their overseas transactions will be compensated and then added to their domestic
source net income, but only if they result in a net income (losses from tax havens cannot be
compensated with foreign source income). Net losses from a foreign source cannot be offset
with domestic source net income for income tax purposes.

Non-resident companies, on the other hand, are levied only on their Peruvian source income.
Likewise, branches and other permanent establishments of non-resident entities are taxed on
their Peruvian source income only. The Peruvian Income Tax Law establishes rules in order to
determine whether the benefits obtained qualify as Peruvian source income.

1. Applicable Tax Rates

Income tax is applied on a five-category basis. Income obtained by resident companies is
considered as Third Category income and is generally subject to a 30% tax rate.


                                              45
In order to obtain the net income of domiciled companies all the expenses incurred in its
procurement, as well as those necessary for the maintenance of its source, may be deducted
from the company’s gross income, unless expressly prohibited by law.

2. Treatment of Losses

Resident companies may compensate their Peruvian source net losses by using one of the
following systems:

Carrying forward the total Peruvian source net loss obtained in a tax year for four (4) years, by
applying these losses on a year-by-year basis to income obtained during the aforementioned
term. Once this period is completed, the possibility of compensating the remaining losses with
profits is lost.

Carrying forward the total Peruvian source net loss obtained in a tax year by applying it on a
year-by-year basis to fifty percent (50%) of the income obtained during the immediately
subsequent tax years. Under this system losses may be carried forward for an indefinite period.

Under both systems, the exempt income will be considered in order to determine the
compensable net loss. If the taxpayer does not choose one of the above-mentioned systems,
the Tax Administration will apply the first system described.

3. Transfer Pricing Rules

The Tax Administration may adjust the price agreed to by the parties so that it reflects the
market price (i.e. meets the arm’s length standard), regardless of whether the parties are related
or located in tax havens.

However, special transfer pricing rules are applicable in the case of transactions involving
related parties or executed towards or from tax haven countries, where values assigned by the
parties caused a lesser tax to be paid in Peru.

In any case, transfer pricing rules are applicable in the following situations: international
transactions where two or more other jurisdictions are involved; domestic transactions where
at least one of the parties is not levied or exempt to taxation, is subject to a beneficial tax
regime or has executed a tax stabilization agreement; and domestic transactions in which at
least one of the parties suffered losses in the last 6 fiscal years.

According to Peruvian legislation the market price shall be determined by one of the following
methods: the compared uncontrolled price method (CUP), resale price method, cost plus
method, profit split method, residual profit split method or the transactional net margin
method; whichever is considered the most appropriate to reflect the arm’s length value.

The Income Tax Law establishes the rules applicable for the execution of Advance Price
Agreements (APA) with the Tax Administration.

Taxpayers subject to the Peruvian transfer pricing regulations must file an annual affidavit
regarding the transactions executed with related parties and/or tax haven residents, and keep
all the documentation supporting, among other things, the assessment of the transfer price as
well as the method used. They must also have a Technical Report supporting the assessment
of the transfer price.



                                               46
4. Territorial Rules

For taxation purposes, companies are deemed Peruvian residents if they have been
incorporated in the country. Resident companies are levied on their worldwide income.

Non-resident companies, on the other hand, are levied only on their Peruvian source income.
Likewise, branches and other permanent establishments of non-resident entities are taxed on
their Peruvian source income only.

5. Tax Credits

In order to avoid international double taxation, resident companies may credit against the
Peruvian Income Tax the amounts levied by the source country. However, the amount that
can be credited is subject to certain statutory limitations.


6. Withholding Taxes

a) Dividends

A 4.1% withholding tax will be applicable on dividends payable to individuals or non-resident
entities. Thus, dividends payable to resident entities are tax-exempt until they are subsequently
distributed to individuals or non-resident entities.

b) Royalties

Non-resident entities will be subject to a 30% withholding tax on royalties.

c) Interests

Interests from financing granted by non-resident entities will be subject to a withholding tax
rate of 4.99%, provided several requirements are met. Otherwise, a withholding tax rate of
30% will apply. Interests derived from loans between related parties will also be levied with a
30% withholding tax rate.

Interests payable to non-resident entities by resident banks and financial companies as a result
of the usage in the country of their credit lines abroad are subject to a withholding tax rate of
1%.

Interests generated from promotional loans provided either directly or through foreign
intermediaries by international organisms or foreign government’s agencies, are exempt from
the Income Tax until December 31, 2008.

d) Income Derived from the Lease of Ships and Aircraft

Income derived from the lease of ships and aircraft is subject to a withholding tax rate of 10%.

e) Technical Assistance

Income derived from services that qualify as “technical assistance” will be levied with a
withholding tax rate of 15% provided certain conditions are met.




                                               47
f) Other Income Realized by a Foreign Company

As a general rule, Peruvian source income obtained by non-resident entities is subject to a
withholding tax rate of 30%.

Notwithstanding, in order to determine the domestic source net income obtained by non
domiciled companies as a consequence of the transfer of goods, titles or rights, the cost
incurred in their acquisition and improvement, if any, may be deducted provided certain
requirements are met. In order to make said deduction the non-resident entities should obtain
a certification by the Tax Administration. Likewise, in regard to the exploitation of goods that
can suffer deterioration, an amount equal to 20% of the sum paid or credited may also be
deducted.

g) Income of an International Nature

Due to their international nature, several activities performed by non-resident companies and
their permanent establishments are deemed to generate different percentages of Peruvian
source net income. Thus, the effective tax rate is obtained in those cases by applying the
corresponding withholding tax rate to the percentage of said income considered of a Peruvian
source.


A.2 Individuals

Resident individuals are taxed on their worldwide income. Non-resident individuals are subject
to taxation only on their Peruvian source income. Foreign individuals will be regarded as non-
resident unless they stay in the country for more than 183 days within a period of 12 months.

1. Determination of the Taxable Base

Peruvian source revenues obtained by domiciled individuals may fall into the following
categories:

First category. Income produced by leasing operations
Second category. Income from other capitals
Fourth category. Income from independent labor
Fifth category. Income from dependent labor and independent work expressly stated by law

The taxable base is determined by deducting from the gross income of each of the above
mentioned categories the percentages established by the Income Tax Law (see below). If
income from more than one category were obtained, all income from different categories must
be added.

As in the case of companies, the results obtained by non domiciled individuals on their
overseas transactions will be offset and then added to their domestic source net income (if
they result in a net income) in order to obtain their global net annual income. Net losses from
a foreign source cannot be compensated with domestic source net income for Income Tax
purposes.


2. Deductions

Resident individuals are only allowed the following flat deductions:


                                               48
   •   First category: 20% of total gross income
   •   Second category: 10% of the total gross income
   •   Fourth category: 20% of total gross income, with a limit of 24 UIT (Tax Reference
       Unit). For year 2007, 1 UIT equals to S/. 3,450 (US$1,100.00, approximately).


3. Exemptions

A 7 UIT deduction can be applied to the sum of Fourth and Fifth category incomes.

4. Applicable Rates

Income regarding resident individuals is taxed subject to the following progressive cumulative
scale:

       Global Net Income                       Rate

       Up to 27 UIT                            15%
       More than 27 and up to 54 UIT           21%
       Over 54 UIT                             30%

Resident individuals will be subject to a 4.1% tax rate on dividends.

Income obtained by non-resident individuals is subject to a 30% withholding tax, with
exception of their income derived from the distribution of dividends that will be levied with a
withholding tax rate of 4.1%.

5. Treatment of Losses

No losses can be deducted or carried forward by individuals.

6. Territorial Rules

Resident individuals are levied on their worldwide source income, while non-resident
individuals are levied on their Peruvian source income only.
.

A.3 Joint Ventures

As a general rule, a Joint Venture that keeps independent accounting is considered by the
Peruvian Income Tax Law as taxpayer and, therefore, is levied as an independent corporation
rather than treated as a pass-through entity.

If the Joint Venture does not keep independent accounting; or if it is deemed to last less than
one year, the contracting parties (not the Joint Venture) will be levied directly on their income
related to the Joint Venture (i.e. pass-through entity).


B. General Sales Tax (IGV or VAT)

The General Sales Tax Law (IGV Law) regulates the value added tax (VAT) that levies (1) the


                                               49
sale of goods in the country; (2) the rendering or utilization of services in the country; (3)
construction contracts; (4) the first sale of real estate property performed by the constructor;
and (5) the importation of goods. The current IGV rate is 19%. Although the tax will be
applied on each level of the commercialization chain, it is designed to transfer to the final
consumer its economic burden.

In order to assess the corresponding IGV Tax due, the taxpayer will have to deduct from the
monthly gross tax the IGV Tax credit.

The gross tax of each levied transaction will be the amount resulting from the application of
the IGV Tax rate (19%) on the amounts received by the taxpayer for any transaction subject
to this tax. The addition of all the gross taxes corresponding to the levied transactions on a
monthly tax period will be the gross tax of said tax period.

The tax credit is the tax paid and separately assigned in the invoices that supports the
acquisition of goods, services and construction contracts, or the payment for the importation
of goods or for the utilization in the country of services rendered by non residents.

To have the right to the tax credit, the transactions (1) should be allowed as costs or expenses
of the company in accordance to the Income Tax legislation even if the taxpayer is not levied
by said tax; and (2) should be destined to transactions for which the IGV Tax should be paid.
In addition, certain formal requisites should also be complied.


C. Anticipated Recovery Regime

The IGV Law establishes the possibility of obtaining an anticipated recovery –through
negotiable notes of credit- of the IGV paid in the import or local acquisitions of certain capital
goods (basically machinery and new equipment registered as net asset, if certain conditions are
complied).

There is a special and more beneficial anticipated recovery regime applicable to companies
involved in public works of infrastructure and public services, as well as mining and oil
activities.

Likewise, a new IGV special anticipated recovery regime has been already approved. This new
special regime is addressed to any kind of activities, provided an Investment Contract is
entered into with the Peruvian Government for an amount not lesser than US$ 5’000,000.00.


D. Excise Tax (ISC)

The Excise Tax is applied on the sale of fuels (gas, gas-oils and diesel), alcoholic beverages,
vehicles, soft drinks (including mineral water), cigarettes and tobacco, as well as gambling,
lottery games, raffles and other related activities. Tax rates are variable and for some items this
tax is applied by charging a fix amount per unit sold.


E. Financial Transactions Tax (ITF)

In order to maintain the right to deduct the corresponding expenses, credits, etc, taxpayers
must use certain “authorized payment mechanisms” (basically instruments pertaining to the


                                                50
Peruvian banking system) in transactions above US$1,500.00. Since January 1, 2008, taxpayers
must use “authorized payment mechanisms” in transactions equal or above US$ 1,000.00.

In addition, a temporary Financial Transactions Tax (ITF) has been created to levy a series of
financial transactions made through the Peruvian banking system, irrespective of the amount.
The ITF paid may be credited against the corporate Income Tax.

During the year 2007, the ITF rate is 0,08%. For year 2008, ITF rate will be 0,07%; for year
2009, ITF rate will be 0,06%. Since 2010, ITF rate will be 0,05%.


F. Temporary Tax on Net Assets (ITAN)

This is a temporary tax that levies the value of Net Assets as of December 31 of the foregoing
year. The statute creating this temporary tax provides that certain assets may be deducted in
order to determine its taxable base.

The tax applies to those taxpayers that generate corporate income (Third category income)
and are subject to the General Income Tax Regime (i.e. it includes the branches, agencies and
other permanent establishments of foreign entities). The statute establishes certain cases in
which the taxpayer will be exempt of the tax.

The following progressive scale will be applicable to the tax base in order to determine the tax
due:

                       Net Assets                     Rate

                       Up to S/.1’000,000             0%
                       Over S/. 1’000,000             0.5%

The tax paid may be credited against the payments of the corresponding income tax. The
taxpayer may request its refund in case of tax losses or a minor tax assessed under the rules
general regime, provided certain conditions are complied.


G. Real Estate Property Tax

The Real Estate Property Tax is a local tax applied on the total value of real estate property
owned by a person within a local jurisdiction. The tax base is determined on the value of the
real estate property declared by the owner. The corresponding rates are applied according to
the following cumulative progressive scale:


                       Scale                          Rate

                       Up to 15 UIT                   0,2%
                       From 15 UIT to 60 UIT          0,6%
                       More than 60 UIT               1,0%




                                              51
H. Other Matters. Tax Incentives & Tax Treaties

1. Regions with Special Tax Regimes

Peruvian tax regulations have established special regimes for investment and industries in
specific regions of the country. The zones called CETICOS where it is possible to import
goods tax-free in order to transform them. However, the sale of those goods to other zones is
levied with normal taxes.

There is a special tax regime for companies located in the Peruvian Amazon region, which
includes lower tax rates for special activities in that area.

2. Drawback

Peru offers drawback incentives, which allows the partial or total restitution of Customs duties
that levied the import of goods either contained in exported goods or consumed during their
production, provided certain conditions are met.

In addition, exporters can also obtain a refund for the VAT that levied the purchase of goods
or services used in the production of the exported goods.

3. Tax Stability Agreements

Income tax stability agreements may be executed with the State. Said agreements help
investors to reduce political risk by “freezing” the basic rules and regulations (including certain
tax rules) in force at the moment of its execution. They may not be unilaterally modified by
the State, thus allowing the investors to foresee the rules that will govern their investment
during a reasonable term.

4. Tax Treaties to Avoid Double Taxation

Peru has signed bilateral conventions to avoid international double taxation with Canada (in
force since 2004) and Chile (also in force since 2004).

Peru has also signed a convention to avoid international double taxation with the other
member countries of the Andean Community (Colombia, Ecuador, Peru and Bolivia).

5. Future Conventions

The Executive branches of Brazil and Spain have signed conventions to avoid double taxation
with Peru, still being pending their ratification by the Congresses of these countries.
Negotiations for the execution of similar conventions are currently undergoing with the
technical commissions of Sweden, Switzerland, Italy, Thailand, France, and United Kingdom.



VIII. INTELLECTUAL PROPERTY RIGHTS

A. Property Rights

Peru is signatory to the Paris Convention for the Protection of Industrial Property, the Bern
Convention, the Lisbon Agreement, the Convention Establishing the World Intellectual


                                                52
Property Organization (WIPO), the Geneva Convention, the Interamerican Convention for
Trademark and Commercial Protection, the Trade Related Aspects of Intellectual Property
Rights Agreement (TRIPs), the Agreement establishing the World Trade Organization (WTO),
among others.

Industrial property is ruled by Legislative Decree No. 823 (The Industrial Property Law)
published on April 24, 1996, which covers patents of invention, certificates of protection,
utility models, industrial designs, industrial secrets, trademarks, trade names, appellations of
origin, among others. Peru is also a member of the Andean Community and has adopted
Decision No. 486. In case of conflict, the Andean Community Decision prevails.

The National Institute for the Defense of Competition and Protection of Intellectual Property
(hereinafter INDECOPI) is the national office in charge of intellectual property rights.


B. Trademarks

Protection of a trademark in Peru is subject to its registration by filing an application before
the Office of Distinctive Signs at INDECOPI. Usually, registration process takes
approximately four (4) months if appositions are not filed. Unregistered trademarks, with the
only exception of well-known distinctive signs, have no protection no matter its use.
International registered trademarks may be registered by third parties in Peru. However, the
right holder of a well-known distinctive sign may impede that third parties register the
trademark.

Likewise, under Decision No. 486, a registration application may be opposed if the trademark
is identical, or substantially similar to another trademark already registered or filed for
registration in any Andean Community country if it distinguishes the same goods or services,
or for goods or services in respect of which use of the trademark is likely to lead to confusion
or mistaken association.

However, parties in a proceeding are able to agree to the coexistence of identical or similar
trademarks, provided INDECOPI considers that such coexistence does not affect the
consumers’ general interest.

The Industrial Property Law establishes that national and foreign owners of trademarks are
subject to equal treatment. Any advantage, favor, privilege, or immunity granted to a member
of the Andean Community shall be accorded to the nationals of all other members of the
World Trade Organization or of the Paris Convention. The law does not distinguish between
individuals or corporations.

Any person who has duly filed an application for a trademark, in another member country of
the Andean Community or in countries that are members of the Paris Convention, or with a
national, regional, or international authority to which Peru is linked by a treaty establishing an
analogous right of priority, shall confer on the applicant or the applicant’s assignee the right of
priority for an unextendible period of six months.

An applicant claiming priority, granted in any international treaty or agreement to which Peru
is linked, should comply with the specified deadlines in the treaty or agreement he/she
invokes.

If the application meets the formal conditions established by INDECOPI, the Office of
Distinctive Signs shall order its publication. Within a period of thirty (30) days following the


                                                53
publication date, any person having a legitimate interest may for one time only, file a valid
opposition that could result in the invalidation of the trademark registration.

The Office of Distinctive Signs may, at the request of a party and once only, grant an
additional thirty-day (30) period in which to provide valid reasons for opposing registration of
the trademark.

The trademark applicant will have a thirty (30) day period following the notification, to
discharge any claim or file the required documentation. The Office of Distinctive Signs shall,
at the request of the trademark applicant, grant for one time only, a period of thirty (30)
additional days to provide valid reasons for the refutation.

At the expiration of this period, the Office of Distinctive Signs shall proceed to rule on those
objections, grant or refuse the trademark registration and inform the parties of its decision.

Registration of the trademark protects the holder to use it exclusively for ten (10) years and
may be renewed for successive ten-year periods. Renewal shall not require proof of trademark
use and shall be granted automatically on the same terms as the original registration. However,
a registration can be cancelled for unjustified non-use during an uninterrupted period of at
least three (3) years immediately before the start of the cancellation proceeding. The
competent government office shall request the owners of the trademark in question to assert
their arguments and submit the proof they deem convenient should there be any challenge by
a third party.


C. Patents

Patents for inventions can be granted in Peru, whether for goods or processes in all areas of
technology that are new, have an inventive level and are industrially applicable. The
government grants the patent holder the exclusive right to exploit the invention within its
territory. An invention may be deemed new when it is not included in the state of the art. The
state of the art comprises everything that has been made available to the public by a written or
oral description, use, marketing, or any other means prior to the filing date of the patent or,
where appropriate, of the priority claimed.

The first application for an invention patent that has been filed in another member country of
the Andean Community or in countries that are members of the Paris Convention, or with a
national, regional, or international authority to which Peru is linked by a treaty establishing an
analogous right of priority, shall confer the applicant or the applicant’s assignee the right of
priority for an unextendible period of one (1) year to file a patent and six (6) months to
register industrial designs.

The protection granted by the patent will have a term of twenty (20) years, as from the filing
date of the corresponding application with the Office of Inventions and New Technologies at
INDECOPI. Once the term is over, the patent shall assume a public nature.

To publish the patent application, it is submitted to the Office of Inventions and New
Technologies with the inventor’s petition, which includes among others, the data identifying
the applicant or person filing the application, a full and clear description of the invention and
the proof of payment of the prescribed fees. Assuming the inventor complies with all the legal
requirements, the Office of Inventions and New Technologies will officially publish a
summary of the application within eighteen (18) months. Thus, the application will be kept
secret for that time. Within a period of sixty (60) days following the date of publication, any


                                               54
person with a legitimate interest may, for one time only, submit valid reasons for contesting
the patentability of the invention An extended sixty (60) day period may be granted, upon
request. The patent applicant will have sixty (60) days following the notification to discharge
any claim or file the required documentation. An extended sixty (60) day period may be
granted. If the findings of the final examination are favorable, the patent shall be granted.

The patent holder is obliged to exploit the patented invention in any member country of the
Andean Community, either directly or through any authorized person. To maintain patents in
force, it is necessary to pay annuities from the third year after the filing date. These annuities
must be paid during the entire time the patent is in effect.

Under Decision No. 486, compulsory licensing may apply if the patent is not exploited or is
not sufficiently exploited within three (3) years from the date the patent is granted or within
four (4) years from its filing date, whichever is longer. Compulsory licenses are not exclusive
and may also be granted to assure free competition in the market to avoid practices of unfair
competition, for reasons of public interest, emergency or national security. The licensee must
pay the patent holder adequate compensation.


D. Copyright

Copyright is regulated by Decision N° 351 of the Andean Community and by Legislative
Decree N° 822 of April 23, 1996 (The Copyright Law) pursuant to which copyright protection
is available for books, pamphlets, magazines, lectures, addresses, speeches, didactic
explanations, musical composition, cinematographic works, dramatic works, choreographic
art, mimed works, audiovisual work, work of applied art and work of fine art, rough drafts,
drawings, sculptures, lithographs, prints, architectural works, photographs, illustrations, maps,
plans, plastic work relating to geography, topography, architecture or the sciences, slogans and
phrases, computer software, journalistic articles, press reports, editorials, comments,
translations and adaptations, among others.

Protection is given to the author regardless nationality, domicile, or the place of publication or
disclosure. Registration of the copyright is optional in Peru and not essential for its protection.
Registration shall be merely declaratory and shall not in itself confer rights. It serves as a
means of publicity and priority. However, registration is recommended in order to secure the
copyright for litigation purposes and therefore enforceable against third parties.

The Copyright Office of INDECOPI is the competent national authority in charge of
registering any copyright. It also has power to dictate precautionary measures, such as
confiscations and inspections, and to impose sanctions.

The law recognizes the author of the work as the original holder of the exclusive rights over it.
These rights can be opposed against third parties. A person or a corporation is allowed to own
the copyright to a work.

Copyrights over translations can exist even though the original work belongs to the public
domain. However, translations do not give any exclusive right over the original work. Thus,
the translator cannot prevent the publication of any other translation of the same original
work unless the new version is derived from its own.

In Peru copyrights are protected during the author’s life time and seventy years after his/her
death. Once this time elapses, the work belongs to the public domain.



                                                55
Proceedings in the civil and criminal courts may be brought against anyone who infringes
copyrights. Criminal courts can impose fines and imprisonment for several years to anyone
attempting against copyrights. The withholding income tax applicable to royalties derived from
copyrights is in the order of 30%, including for non-domiciled taxpayers.



E. Computer Software

Computer software is regulated by Legislative Decree N° 822 and Decision N° 351 of the
Andean Community. These regulations provide mainly for the protection of software as
copyright. The law does not give a different treatment to software developed abroad or in
Peru.

Computer programs are protected on the same terms as literary works. Economic rights expire
after seventy years counted from the first publication date. The protection of software does
not depend on registration, and the author needs not to register it. However, as with
copyrights, it is advisable to register it at INDECOPI for litigation purposes.


F. Technology Transfer Agreements

Technology transfer agreements, licenses for the use of patents, trademarks and other foreign
copyrights, technical assistance, basic and detail engineering and franchises may be signed
without any prior authorization from a government agency. However, this kind of agreements
which contains payment of royalties has to be submitted to registration by INDECOPI.

Agreements shall include clauses that identify the parties, expressly mentioning their domiciles
and nationalities, description of the technology transferred, value assigned to each element of
the contract as well as its duration. Agreement conditions can be freely negotiated, except that
INDECOPI will not register technology transfer agreements containing clauses prohibiting or
limiting any type of exportation to Andean Community countries of products manufactured.

These agreements give the right to remit abroad royalties or stipulated payments in strong
currency and through the banking system, after tax deduction. No government authorization is
required to forward royalties or payments.



IX. LABOR AND IMMIGRATION LAWS

A. The Status of Labor Laws

The Employment Law approved by Legislative Decree No. 728 of March 27, 1997, regulates
the relationship between individual employees and employers. The Labor Relations Law,
enacted by Supreme Decree N°. 010-2003-TR of October 5, 2003 regulates unions, collective
labor negotiations and strikes. Decree Law No. 689 of November 11, 1991 regulates the
specific conditions for contracting foreign employees.




                                              56
1. Employee/Employer Labor Relations

According to labor laws, employers can execute with employees non-term or fixed-term
agreements. The fixed-term agreements have a maximum term of five years. The term
depends on the type of agreement. The fixed-term and non-term employees are entitled to the
same rights and benefits.

Employees are entitled at least to a twenty four hour rest each working week, preferably on
Sundays. In Peru, the maximum working week is forty eight hours. Employer can establish a
different working week. The excess hours worked, in addition to the working week, are paid
with an increase of twenty five percent rate of the hour value for the first two additional hours
and with an increase of thirty five percent rate for the additional hours. Employees and
employers may voluntarily agree on extra hours. Employers can establish alternative or
cumulative working regimes due to production requirements.

The minimum monthly wage in Peru is about US$ 160. Employees are entitled to severance
payments when working more than four hours a day.

In the months of May and November of each year, employers must deposit as many twelfths
of the applicable remuneration earned by the employees. Fractions of a month must be
deposited in thirtieths. Applicable remuneration is defined as basic remuneration plus any
amounts earned by the employees in cash or kind as a consideration for their work, provided it
is freely available. There are specific rules to pay and deposit the severance payment.

Employees are entitled to two (2) bonuses per annum; one for Independence and one for
Christmas. Bonuses must be paid on the 15th of July and December, respectively. The amount
of the bonus consists of the basic remuneration amount plus any other amount fixed and
permanently earned by the employee and which is freely available. If the employee has worked
less than six months for the employer, he/she will receive a bonus in proportion to the
number of months worked.

Employees of companies earning income and subject to the private activity, with twenty or
more workers/employees, will share the company’s profits according to the percentages set
forth by law. Employees working for mining receive 8%, fishing 10%, industrial 10%,
telecommunications 10%, commercial 8% and other activities 5%.

Employees are entitled to thirty calendar day’s vacation for each full year of employment with
one employer. To deserve vacations, employees working six days a week must have actually
worked two hundred and sixty days a year. Employees working five days a week must have
worked two hundred and ten days a year. For computing working days, any of the following
cases is also considered as such: (i) employees who work at least four hours a day; (ii)
employees who work on his/her day off regardless of the effective number of hours worked;
(iii) four or more extra hours worked in a day; (iv) the first sixty days of absence within each
year of service due to common disease, occupational accidents or work-related illness; and (v)
other cases established by law.

Protection to unjustified dismissal is acquired by employees who have passed the trial period
of at least three months, working four or more hours a day. The trial period can be extended
to six months if the employee is qualified and to one year if he/she holds a managerial or
executive position. Once the employee has passed the trial period, he /she may not be fired
unless just cause, defined in the law. Employees fired without just cause have the right to a
special compensation. This one is equivalent to one and a half monthly remuneration per each
year of service, in case of non-term agreements and one and a half monthly remuneration per


                                               57
month until the agreement’s termination, in case of fixed-term agreements – in both cases,
with a maximum of twelve monthly remunerations.

2. Employees’ and Employers’ Contributions

Both the employee and the employer make different contributions for the employees’ benefit.

Pension Fund. If the employee is in the private system (AFP) the employer must discount
the employee the rate of 12.5% from his monthly remuneration. In case the employee works
for the public system the rate is 13%.

Income Tax. Income tax is discounted to the employee. The retention will be equivalent to a
twelfth of the income tax which corresponds to payment in a year. For such effects, it should
be made a projection of the annual remuneration that the employee will receive deducting an
amount corresponding to S/. 24,150.00, for year 2007.

To the difference obtained, the following rates will be applied:

   •   If the difference is less or equal to S/. 93,150        15%
   •   If the difference is higher than S/.93, 150 and
       less than S/.186,300                                    21%
   •   If the difference is higher than S/.186,300             30%

Once the rate is applied over the difference, it will be obtained the result of the annual tax
which is divided among the months of the year.

In any case, it should be pointed out that if the annual remuneration does not exceed the
amount of S/. 24,150.00, the employees will not be levied.

Social Security (EsSalud). Employers are obliged to register their employees in the national
health system and must pay for it the equivalent of 9% from the monthly remuneration of
each employee.

Private Health System (EPS). It is possible for employees to be affiliated to a Private Health
Company (EPS) that is complimentary to the service provided by EsSalud. In this case, the
employer must pay 2.25% of the employee’s salary to the EPS and the difference of 6.75% to
EsSalud. This contribution of 2.25% covers the basic medical attention, but it is possible that
the employee contributes with an additional amount to get a better covering.

Taking into consideration the above mentioned, the structure of the monthly costs for the
company that hires an employee will be the following:


                                             EMPLOYER               EMPLOYEE
            Remuneration                          100%
            ESSalud                                9%
            Vacations                            8.33%
            Bonuses                              16.66%
            Severance Payment (CTS)         11.66% (approx.)
            Monthly cost for employee
            Income Tax                                             According to scale
            AFP                                                         12.5%




                                               58
3. Unions and Employer Relations

Peru is a member of the International Labor Organization (ILO). Employees can constitute
different types of unions. Twenty or more employees are permitted to form a business union.
One hundred or more can form any of the other types of unions described forthwith. Unions
can be of four types: (i) Business Unions, formed by employees of different professions,
occupations or specialty, working for the same employer; (ii) Activity Unions, formed by
employees of diverse professions, specialties or occupations working for two or more
businesses in the same activity; (iii) Labor Unions, formed by employees of diverse enterprises
that perform the same occupation, profession or specialty; and (iv) Various Occupation
Unions, formed by employees of diverse professions, occupations or specialties working for
several or different enterprises, when in a specific place, province or region the number of
employees are less than the minimum necessary to constitute unions of other type.

Affiliation to a union is voluntary. To be a member of the union, employees must work in the
enterprise, activity, profession or occupation that corresponds to each type of union. Managers
and executive employees are not allowed to be part of unions, unless the bylaws establish
otherwise. Also, to become a member of a union, the employee must not be under trial period
and affiliated to another union.

Unions represent employees in collective labor negotiations with employers. The collective
bargaining agreement reached prevails over individual labor contracts. This agreement is for
one year unless the parties agree otherwise. If no agreement is reached between the union and
employer, parties may request the Labor Department to call for a conciliatory meeting. If no
conciliation is achieved, parties may request for arbitration. The arbitration authority, who can
be a person or an arbitration panel, can only decide about the position of the union or the
employer and may not suggest solutions different from those proposed by the parties.
However, the union maintains its right to opt for a strike and not for the arbitrage.

A strike is considered legal if it occurs in defense of labor rights established in the law, and if
more than fifty percent of the employees agree with it. Also, in order to be considered legal,
the collective bargaining process should have not been submitted to arbitration.


B. Treatment of Foreign Workers

Foreign people who enter Peru to carry out various activities are subject to different
immigration classifications. Each classification has a different type of visa. Legislative Decree
Nº 689, establishes the regulation of foreigners. Peruvian law recognizes the following
immigration classifications, among others:

Tourist. Foreign nationals who come to Peru without planning to establish a residence and
who cannot carry out any activities for profit or remuneration will receive a temporary visa.
This visa permits him/her to stay in the country for ninety days but could obtain two
extensions of thirty days each one. Exceptionally, a third extension of thirty days within one
year can be granted.

Business. Foreigners are allowed to come to Peru without planning to establish residence.
Foreigners are not permitted to receive income from Peruvian source, but are allowed to sign
contracts and settlement agreements. He/she will receive a temporary visa and may remain in
the country for ninety days, extendable by thirty days, within one year.



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Employee. The foreigner who comes into the country to perform labor activities provided
his/her labor agreement has been previously approved by the Labor Ministry, may receive a
resident visa and stay in the country for the term of the employment agreement.

Independent. The foreigner who obtains a resident visa as independent may stay indefinitely
in the country. There are three types of this visa: i) Investor: for the foreigner who comes to
Peru in order to make investments; ii) bondholder: for the foreigner who comes to Peru to live
from his/her income (at least, US$ 1,000 monthly); and iii) Professional: for the foreigner who
comes to Peru to practice his/her profession independently.

Immigrant. Foreign nationals who come to Peru with the intention of permanently residing
and carrying out his/her activities may obtain a resident visa and remain indefinitely.

Foreigners wishing to work in Peru are subject to the procedures for hiring foreigners
established in Legislative Decree No. 689 of November 5, 1991.

National and foreign companies can hire foreign personnel who enjoy the same rights and
obligations as Peruvian employees, unless certain limitations as stated below. The labor
agreement has to be in writing and approved by the respective Administrative Labor
Authority. The agreement term cannot exceed three years, although it is possible to renew the
contract subsequently for terms not greater than three years. There are some restrictions to
hiring foreign personnel:

    a. Foreign employees may not exceed 20% of the workforce of a business;
    b. Foreign employees may not receive remuneration exceeding 30% of the entire payroll
       of wages and salaries.


However, these restrictions are not applied for the following foreigners: (i) foreigners who
have a Peruvian spouse, ascendants, descendants or siblings; (ii) foreigners holding an
immigrant visa; (iii) foreigners where his/her country of origin has executed labor reciprocity
or double nationality agreements with Peru; (iv) personnel belonging to foreign companies
dedicated to transport, terrestrial, aerial or aquatic international service with flag and foreign
registration; (v) foreign personnel working for multinational service companies or banks; (vi)
foreign personnel providing services in Peru by virtue of bilateral or multilateral accords with
the Government of Peru; (vii) foreign investors, provided that during the term of the contract,
he/she maintains a permanent investment of not less than five U.I.T. (one U.I.T. is
approximately $1,100); and, (viii) artists, sportsmen and in general those participating in public
events within Peru, during a maximum period of three months per year.

Likewise, these two restrictions stated above can be waived by employers, in the following
cases: (i) when the personnel involved are professionals or specialized technicians; (ii) when
the personnel holds a management position in a new business activity or a restructured
business; (iii) when the personnel are teachers for private schools or colleges; (iv) when the
personnel belongs to the public sector or private companies that have signed agreements with
agencies, institutions or firms in the public sector; and, (v) any other case established by law.




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X. SECURITY INTERESTS

A. General

Under Peruvian law the basic security interests are: the collateral over chattel, mortgage,
antichresis, retention right and trust. The first two are the most widely used. The main
characteristic of interest securities in Peru is that they are collateral to an underlying obligation
and do not have an independent existence.


1. Collateral Over Chattels

The collateral over chattels is regulated under Law N° 28677, which entered into force on
May, 2006. The idea behind this law is to protect the credit rather than the debtor or the
creditor. It is quite an innovative law since it gives the parties a wide margin to regulate the
constitution and extension of the collateral.

This collateral guarantees all kind of obligations, current or future, determined or
determinable, subject or not to a modality and it can be granted with or without dispossession
of the chattel.

Open collateral over chattels can be constituted to guarantee own or third parties’ obligations.

During the duration of the collateral, the constituent of the collateral may constitute collateral
over chattel of second and posterior ranks over the same, giving notarial notice to the
guaranteed creditor of the first collateral.

The non-compliance of the guaranteed obligation grants the guaranteed creditor the right to
acquire the possession of the chattel, and, if pertinent, to retain the chattel affected by the
collateral. The guaranteed creditor will have the right to sell said chattel for the payment of the
guaranteed obligation.

Collateral over chattels may be constituted over present or future credits of the debtor or the
constituent of the collateral. The collateral over chattels is constituted through a constitutive
act of law which must be in writing and, inscribed in the pertaining registry in order to be
opposable to third parties. It is allowed for a third party to constitute collateral over chattels
without the consent of the debtor.

Collateral over chattels can be constituted in the following cases:

    1. Over chattels belonging to third parties, before the constituent acquires the property
       of said good.
    2. Over a future chattel, before it exists.
    3. To ensure the compliance of future or eventual obligations.

In the aforementioned cases, the characteristic of being a future chattel or a chattel belonging
to a third party or the character of being future or eventual of the guaranteed obligation must
be stated in the collateral’s constitutive act of law.

The efficacy of the pre constituted collateral over chattels is subject to the following rules:

    1. In the case of a chattel belonging to a third party, the constituent must acquire the


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       property of said chattel.
    2. In the case of a future chattel, the efficacy is subject to the existence of the chattel.
    3. In the case of a future or eventual obligation, the efficacy is subject to the actual
       contract of the obligation.

This collateral must be inscribed in the pertaining registry in order to be opposable to third
parties. Once the collateral acquires its efficacy, the effects of the collateral are dated back to
the inscription date.



2. Mortgage

Real estate property can be mortgaged. Mortgages must be executed before a public notary
who issues a public deed. Perfection of the collateral requires its filing in the Real Estate
Property Registry in the jurisdiction where the property is located. If there is a breach of the
underlying obligation, the secured party may commence a summary proceeding for the
foreclosure of the property and collect on the debt from the proceeds of the sale.

3. Antichresis

By the antichresis figure, real estate property is given to the secured party, who may use it and
take the profits in payment of the debt or the interest thereon. This collateral is formalized
through public deed, which must include the agreed income of the real estate property. The
obligation secured does not have to be related to the real estate property.

4. Retention Right

By the retention right, a creditor has the right to hold the debtor’s property, whether it is
personal or real estate property, on a temporary basis, if the underlying obligation is not
adequately guaranteed. In order to collect temporarily on the debt the secured party must
attach the debtor’s assets and demand foreclosure. The right of retention disappears as soon as
the debt is paid or when the latter is duly guaranteed.

The retention right cannot be executed among assets which are destined for deposit purposes
or for delivery to another person at the time they are received.

The retention right can be executed either judicially or extra judicially. Whenever the retention
right is executed extra judicially, it means that the creditor will not give back the asset to its
debtor until the underlying obligation is duly fulfilled. If the retention right is judicially
invoked, it constitutes an exception that opposes to the debtor’s action destined to accomplish
the recovery of the asset. In such a case, the judge could authorize the substitution of the
retention right for a sufficient guarantee.

5. Trusts

The trustor transfers property under trust to another person, called the fiduciary, for the
setting up of a trust property subject to compliance with a specific end in favor of a trustor or
a third party called the trustee. Such trust property is separate from the property of the
fiduciary, trustor, or trustee or in due case, the recipient of any remaining property.




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B. Collaterals in a Bankruptcy Proceeding

If the debtor is under a bankruptcy proceeding the collaterals are paid only after labor claims,
social security debts, as well as alimony obligations have been covered. If the proceeds from
the sale of assets are not enough to repay all creditors completely, the debtor will continue to
be liable for the balance due, which will be paid off by selling any goods subject to attachment
that he/she may subsequently acquire until his/her debt is declared completely paid.


C. Exercising Security Interests

1. Collateral Over Chattels

The law of collateral over chattels, Law Nº 28677 has elaborated a mechanism of extra-judicial
sale of chattels affected by a guarantee. It is considered invalid any sale agreed by the parties
for less than two thirds of the chattel’s value or of its commercial value at the time the sale was
produced. A judicial procedure is not necessary to perform the sale.

Also, this law established that it is valid the agreement in which the creditor adjudges the
chattel’s property in payment. Whenever the other party has not fulfilled its obligations, the
creditor communicates the debtor and its representative the decision of adjudicating the
chattel’s property.

When the guaranteed obligation becomes executable, the guaranteed creditor can proceed to
sell the chattel affected by the collateral in the terms established in the constitutive act of law
or in the following way:

 A specific and irrevocable power of representation will be granted in the act of law
constitutive of the collateral to sell and formalize the property transfer of the chattel affected
by the collateral. The guaranteed creditor is not allowed to be the representative. The power of
representation is inscribed in the pertaining registry.

 The sale’s price of the chattel affected by the collateral must be of at least two thirds of the
value agreed by the parties, or if a price was not agreed, it will be the commercial value of the
movable at the time of the sale.

 Once the noncompliance of the debtor is produced, the creditor must leave evidence of it
through a notarial letter addressed to the debtor and the representative and, in its case, to the
constituent. The guaranteed creditor can proceed to sell the movable affected by the collateral
after three working days following the date the notarial letter is received by the debtor.

It is permitted the pact by which the guaranteed creditor can adjudicate to himself/herself the
property of the movable affected by the collateral.

2. Other Guaranties

The Code of Civil Procedure governs the enforcement of any type of guaranties regulated in
section V of the Civil Code. The enforcement of the guarantee is related to the collection of a
debt due to the default of the debtor. Only in the case that the credit has no execution
instrument or it is not valid for some reason, the creditor must file an ordinary action to obtain
a court decision. In the other cases, the Code of Civil Procedure contemplates a specific
proceeding for the execution of guarantees.



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The intention of the guarantee execution proceeding is to auction assets belonging to the
debtor to satisfy the creditor’s claim. The process involves the auctioning of the collateral
assets of the debtor and if these assets are not sold the creditor could proceed to adjudicate
the guaranteed assets in his/her favor, except for the antichresis and the retention right. Once
the execution proceeding has been opened, the debtor will be summoned to pay the amount
claimed within 3 days. If the debtor does not pay, the court will seize the assets used as
collateral to cover payment of the principal debt, interests, costs and legal fees.

The assets attached will be appraised by an expert appointed for this purpose, unless the
parties have agreed on the value of the assets to be auctioned. The judge will set a date and
time for the auction to take place. If the assets are not sold in the first auction based on the
appraised value, then a second auction will be held and the assets attached will be offered at a
price that will arise after discounting a 15% of the price established for the first auction which
is the appraised value. If a third auction shall be held, the assets will be offered at a price that
will arise after making another discount of 15% over the last offered price. However, if at this
third auction, no bidders come up, the party that requested the execution of the assets given in
guarantee will be able to acquire the assets directly at the offered price of the last auction.

The proceeds obtained will be used to cover the creditor’s claim. However, if these assets are
not enough to pay the creditor’s claim, the creditor may proceed to attach other assets of the
debtor by initiating the executive proceeding according to the Code of Civil Procedure.


XI. ENVIRONMENTAL LAW
The Peruvian Constitution of 1993 assigns a special chapter to the environment and natural
resources.

Regarding the environment, the Peruvian State should determine the natural policy on this
matter and among others the State should promote the preservation of biological diversity and
of the natural protected areas.

Regarding natural resources, both natural renewable and non-renewable resources are
Peruvian patrimony, represented by the State, who has sovereign rights over their use. The use
of natural resources by individuals or private entities should be properly authorized by the
corresponding governmental entity (e.g., Ministry of Agriculture: water rights; Ministry of
Energy and Mines: mining concessions).

Peru’s Environmental General Law N° 28611, published on October 15th, 2005 determines
the legal framework for environmental management in our country. The importance of this
law lies in the development of the environmental national policy that establishes the basic
standards, objectives and strategies to guide governmental and private entities in all matters
concerning environmental conservation. Likewise, this law grants legitimacy to appear before
the court to any person and the ability to sue those who generate or contribute to generate
environmental damage.

On the other hand, this legal framework demands that every new activity susceptible to cause
environmental damages requires a report on environmental impacts. The details of this report
depend on the impact level to be caused by the activity under evaluation. Over certain impact
level it would be required the presentation of an Environmental Impact Study (EIA), which
should be approved by the competent authorities before carrying out such activity. The main
objective of the reports on environmental impacts is to identify the damages that will be
caused to the environment and to determine the measures to avoid or reduce such damages to


                                                64
tolerable levels. The report will be also used to inform the community about the impact of the
corresponding project, and the community will be able to give its opinion.

The Environmental General Law, points out the obligation of the enterprises that generate an
environmental impact to adapt to environmental regulations subsequent to its constitution
through the Adaptation and Environmental Management Program (PAMA).

The rules regarding the care of the environment include obligations to perform closing plans,
to be implemented when the corresponding contaminating activity is terminated looking for
the reduction of the negative impacts that could be originated during the whole life of the
contaminating activity. Likewise, the law also contemplates obligations regarding
environmental damages currently existing that need to be reduced or eliminated.

The Environmental General Law states that anyone who fails to fulfill with what is established
by the laws that regulate the environmental protection will be imposed with administrative
sanctions, which can go from fines, temporary closures, license suspensions, up to goods’
confiscations, among others.

Regardless of the corresponding administrative sanction, the individuals who fail to fulfill the
regulations related to environmental protection, will be subject not only to administrative or
civil responsibility, but also to criminal responsibility. The Criminal Code of 1991 contains a
specific chapter referred to felonies in environmental and natural resources matters.

Depending on the specific activity to be performed, special environmental regulations will
apply, but all of them are framed by the Environmental General Law referred to above.

In connection to agreements or international treaties, the most important that Peru has
subscribed are the Rio de Janeiro Environment and Development Convention of 1992
(Legislative Resolution No. 26181) and the Montreal Protocol on the Ozone Layer of 1993
(Legislative Decree No. 26178). These international treaties defend the sustainable
development principle in accordance with the Constitution.


XII. THE FOREIGN TRADE REGIME
Legislative Decree No. 668, enacted on September 1991, constitutes the legal framework of
our foreign trade system. The General Trade Law establishes, among other things, the free
importation of all types of goods (with some exceptions due to cultural, environmental and
security reasons) and the elimination of any prior governmental authorization, prohibition,
control, public and private registration requirements and other non-tariff restrictions, both on
imports and exports.


A. Imports

Importation of goods is subject to the following taxes:

CIF-ad-valorem duties, with rates varying from 0% to 20%, depending on the type of goods
imported. Most imports are subject to the 12% or 20% rates. Currently, an additional special
rate of 5% applicable to the importation of certain goods has been enforced.

Peru has signed bilateral agreements with several Latin American countries establishing
different tariffs and even zero-tariffs.


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The General Sales Tax is applicable at a rate of 19%.

The Excise Tax, with rates ranging from 10% to 50%, is applicable to a reduced number of
products, such as cigarettes, liquor, slot machines and some automobiles, etc.


B. Exports

Exports are not levied by taxes. Moreover, companies exporting manufactured products have
the right to reimbursement of indirect taxes through a drawback mechanism.

No prior authorizations, licenses or other administrative requisite is required, although there
are certain goods that might not be exported due to cultural or national security reasons, or in
order to avoid the extinction of native species.


C. Free Trade Zones and CETICO’s

On March 2002 the Peruvian Congress enacted Law No. 27688 creating a Free Trade Zone in
the department of Tacna (in the border with Chile). All goods entering this zone will be
considered to be outside Peruvian territory for customs purposes, and will be subject to a
special tax regime.

On the other hand, the Government has created the Centers for Exports, Transformation,
Industry, Commerce and Services (CETICO’s) in order to develop a manufacturing and
services industry in certain strategic areas of the country. CETICO’s are considered as Primary
Customs Zones with special treatment and, therefore, no customs tax, income tax, VAT, or
other taxes will be applied in these areas.

Goods entering these zones from other parts of the country will be considered exported
(giving even the right to demand a drawback and the VAT credit, if such is the case). Likewise,
goods produced in CETICO’s can be admitted in the country subject to the payment of the
corresponding customs duties. The companies that export at least 92% of the goods they
produce in CETICO’s will not be levied with the Income Tax, VAT or any other tax.

Currently, CETICO’s have been established in the following geographically strategic zones:
Paita, Ilo, Matarani, Tacna and Loreto.


XIII. BANKRUPTCY LAW
Bankruptcy proceedings are regulated by the General Insolvency System Law, which came
into effect by Law N° 27809 of August 8, 2002. The new mechanism established in the law
has prevented the closing down of many companies declared insolvent by the Peruvian
Insolvency Authority, known as the National Institution for the Protection of Free
Competition and Intellectual Property (hereinafter referred to as INDECOPI), providing
alternatives to bankruptcy such as companies’ restructuring.

The law establishes that creditors or the debtor have/has two options to choose: (i)
restructuring of the company; (ii) liquidation of the company. The law does not permit any
creditor to claim directly the bankruptcy of a company. Bankruptcy will only be declared if the



                                              66
creditor chooses to liquidate the company and the assets sold are not enough to pay all the
company’s debts.


A. Ordinary Proceeding

The initiation of an ordinary proceeding is a prerequisite to opt for the restructuring or
liquidation of the company. The request can only be filed by the creditors or by the debtor
before INDECOPI.

Ordinary proceedings can be filed by unpaid creditors whose claims are more than thirty days
overdue and represent more than fifty UIT (approximately, US$57,500.00). Likewise, the
debtor whether it is a natural or juridical person, can request the initiation of an ordinary
proceeding by certifying losses of more than one third of his/her net worth.

The opening of an ordinary proceeding requested by unpaid creditors, will be evaluated by
INDECOPI, and for that purpose, will verify the existence of the credit invoked and request
several information to the debtor, such as its financial statements and a detailed report of all its
obligations, establishing the identity and residence of each creditor, with the specific amounts
owed and the expiration date of each credit, among others.

The debtor would have the right to reply, choosing one of the following possibilities:

    1. Paying the credit that originated the debtor’s summons.
    2. Offering to pay creditors the whole amount owed, up to the date of its response, in
       which case the creditor would have to give its acceptance within the term of ten days,
       as silence means the acceptance of this payment offer.
    3. Denying the existence, amount or possibility of execution of the credit claimed by
       creditors.
    4. Accepting the authority’s finding.

If the debtor decides for the first option above mentioned, or offers to pay its creditor and the
latter accepts, INDECOPI will declare the creditor’s request of opening an ordinary
proceeding not granted and the administrative proceeding concluded, prior the confirmation
of the actual payment of the debt, in the first case. The ordinary proceeding will be also
declared not granted if the opposition of the debtor is declared grounded.

The ordinary proceeding will be declared dully installed if:

    1. Creditors reject the payment offer of the debtor.
    2. The debtor’s opposition turns out to be contrary to law, groundless or not admitted to
       procedure.
    3. The debtor recognizes the amount of the credit owed to the creditors and accepts the
       authority finding.
    4. The debtor does not make a pronouncement within a twenty days’ term since he/she
       was notified in order to appear in the proceeding.

Once INDECOPI rules granting the opening of the ordinary proceeding, this is published on
the Official Gazette “El Peruano” and turns public to every creditor. From that moment, all
the debtor’s obligations turn unenforceable. Guaranties are also unenforceable, unless they
were granted by a third party (different than the debtor).

Creditors (other than the one which started the ordinary proceeding) would be granted a term


                                                67
to submit their writs of credits’ recognition in order to not lose their right to participate in the
creditors’ meetings, by which the destiny of the company is decided.

The creditors’ meeting has the power to decide the company’s fate by replacing the
shareholders’ meeting during the term of the proceeding. The creditors’ meeting has to prove
the existence, origin, ownership and amount of the claims. Two possibilities arise once the
creditors’ meeting is installed: The debtor could be either liquidated or restructured.

If the company is to be liquidated, the law establishes the following preference order for the
payment of credits: (1) labor credits and related rights; (2) alimony credits ; (3) credits secured
with debtor’s assets; (4) tax-related credits, including credits of the Social Health Security -
ESSALUD; and (5) any other credit, such as simple claims or non guaranteed credits.

For the first creditors’ meeting call, quorum should be more than 66.6% of the credits that
have been recognized by INDECOPI. For the second creditors’ meeting call, the quorum
should be composed by the recognized creditors who assisted to the meeting. Once a quorum
is reached, the creditors’ meeting duty is to decide the fate of the company. If after the two
dates pointed out in the call the meeting has not been installed, INDECOPI will arrange
within a ten day term, after being requested by any party, that the petitioner of the proceeding
initiation or any other interested person involved with the proceeding orders the publication
of a new call. The creditor’s meeting has two options: (i) decide the continuance of the
debtor’s activities, in which case the company will enter into a net worth restructuring process;
(ii) decide to shut down the debtor’s operations, in which case the company will enter into a
dissolution and liquidation process, with the exception of non-attachable assets. The above
alternatives must be adopted in the fist call by a favorable vote of creditors representing more
than 66.66% of the claims allowed by INDECOPI against the insolvent company. In the
second call they will need the favorable vote of creditors representing more than 66.6% of the
present claims.

Besides the ordinary proceeding, there is a simpler proceeding called preventive proceeding
which could be filed only by the debtor with the purpose of rescheduling the debtor’s
obligations through a global refinance agreement with the majority of its creditors. If such
agreement fails to be approved, the debtor could be taken into an ordinary proceeding,
whenever the decision comes from more than 50% of the creditors which participated in the
creditors’ meeting and disapproved the referred global refinance agreement.


B. Restructuring

Restructuring occurs when the creditors’ meeting decides to continue with the debtor’s
activities. The debtor will enter into a patrimonial restructuring regime for the term
established in the corresponding restructuring plan. This term cannot surpass the date
established to cancel all the liabilities according to the payment schedule included in the
restructuring plan.

The creditors’ meeting will decide which management regime is convenient, choosing among
the following alternatives: (i) the company will continue to be managed by the former
administration; (ii) name a special management; or (iii) choose a combined management with
members of former administration and new managers (natural or juridical persons) elected by
the creditors’ meeting.

INDECOPI will opt for the dissolution and liquidation if the creditors’ meeting does not
meet, does not decide on the future of the debtor or does not agree on the restructuring plan


                                                68
or the liquidation agreement, depending on the case.

The restructuring plan has to be approved by the creditors’ meeting. The restructuring plan
must be approved within 60 days after the decision to restructure the company has been taken.
The plan must include mechanisms for putting the company in economic and financial order
and for paying its debts. While the plan is being executed, the company’s assets are legally
protected against actions that creditors may bring individually. The restructuring process
concludes after the payment of all the claims against the debtor has been demonstrated.
Evidenced the conclusion of the process, INDECOPI will lift the company’s insolvency
status, in which case the functions of the creditors’ meeting cease.


C. Liquidation

If the creditor’s meeting chooses to carry out the dissolution and liquidation of the company,
it will not be able to continue with the activities included in its line of business unless the
liquidation agreement has been subscribed. In case of non compliance with this requirement,
the company will be fined. Nevertheless, the creditors’ meeting can agree the continuance of
the activities only if they have chosen to carry out those activities simultaneously to the
liquidation process, as this modality will make assets more liquid. This kind of liquidation must
be done in no more than a six month term.

A liquidation agreement must be signed in case the creditors’ meeting decides for the
dissolution and liquidation of the company. The liquidation agreement must appoint a
liquidator registered before INDECOPI. The following effects derive from the dissolution
and liquidation decision:


    1. Creation of an indivisible state between the debtor and its creditors, which includes all
       the assets and liabilities of the first one, even though those liabilities do not have an
       expired term.
    2. Directors, managers and other executives cease in their functions of managing the
       goods of the insolvent. The liquidator assumes management.
    3. The liquidator appointed by the creditors’ meeting assumes management and legal
       representation of the debtor.
    4. All payment obligations of the debtor will be demandable, regardless of their
       expiration date.

All remission agreements will come into effect in relation to the total amount of creditors,
excluding the ones excepted by law. In the first call, these agreements must be approved by a
favorable vote of the creditors representing more than 66.6% of the claims allowed by
INDECOPI against the insolvent company. In the second call these agreements will need the
favorable vote of creditors representing more than 66.6% of the present claims.

The liquidator has the following attributions and faculties, among others: i) proceed to protect
the interests of the insolvent in the assets; (ii) dispose personal property and real estate,
amounts due, rights, and securities belonging to the insolvent; (iii) provisionally continue
running the business of the insolvent; (iv) terminate the employment contracts.(v) subscribe all
the necessary agreements, settle and carry on all the strictly necessary credit operations to
cover the expenses and liabilities originated in the liquidation, always informing these activities
to the creditors’ meeting, and (vi) request the release of all the liens and encumbrances over
the assets of the debtor.



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The liquidator is obligated to pay the claims duly recognized by INDECOPI for market exit
until the insolvent’s net worth covers them. If after paying, the net worth is not enough to
cover all the claims, the liquidator will demand the judicial bankruptcy of the insolvent.


D. Judicial Bankruptcy

The judge will declare the judicial bankruptcy of the insolvent and the extinction of the
enterprise after verifying the extinction of the net worth to cover all claims. The liquidator’s
functions end with the registration of the enterprise’s extinction in the corresponding registry.


XIV. LEGAL PROTECTION FOR THE FOREIGN INVESTOR

A. Contractual Choice of Law and Jurisdiction

Contractual choice of law and jurisdiction is regulated under the basic principles of private
international law incorporated in the Civil Code of 1984. Parties can agree on the applicable
law, provided the foreign law is compatible with the international public policy and morality.
All rights acquired under a foreign legal regime are recognized in Peru as long as these do not
contravene international public policy and morality.

If the parties do not specify the applicable law in contractual obligations, these are governed
by the law of the country where the obligation has to be executed. However, if contractual
obligations have to be performed in different countries, then the applicable law is that of the
place where the principal obligation takes place. If no principal contractual obligation can be
determined, the applicable law is that of the place of the contract’s formalization.

 Juridical persons are subject to the law of the country where they are formed. Juridical
persons formed abroad are recognized as such in Peru and can exercise their rights and actions
within the territory of Peru. To execute in the country actions included in their corporate
purposes, they must follow the regulations established in the Peruvian laws. The capacity
recognized to foreign juridical persons cannot exceed those given by Peruvian law to national
juridical persons.

In Peru, the applicable law for natural persons is the law of the country where a person is
domiciled. The change of domicile does not limit the capacity acquired based on the applicable
law in the former domicile.

Constitution, content and extinction of rights in rem over property is governed by the law of
the place where the property is situated, at the moment the right in rem is constituted. The
goods in traffic are considered to be situated in the place of its final destiny. Likewise,
constitution, transfer and extinction of rights in rem over transport means (ships, aircrafts)
subject to a registration regime, are governed by the law of the country where the transport
mean is registered.

The Civil Code provides that Peruvian courts have jurisdiction to know actions against
persons domiciled in the national territory. However, Peruvian courts have jurisdiction to
know actions with pecuniary effects brought against persons domiciled abroad in the following
cases:




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When the actions are related to rights in rem on assets situated in Peru. In case of real estate,
Peruvian jurisdiction is exclusive.

When the actions are related to obligations that have to be executed in Peruvian territory or
derive from contracts celebrated or facts performed in Peruvian territory. Jurisdiction is
exclusive in case of civil actions derived from criminal acts or faults perpetrated in Peru.

When parties expressly or tacitly elects Peruvian jurisdiction. A person becomes a party to a
suit if he/she tacitly submits himself/herself to a jurisdiction without making any reserve.

The election of a foreign forum to know judicial processes derived from actions with
pecuniary content will be recognized by Peruvian authorities as long as these are not based on
issues of exclusive Peruvian jurisdiction, do not constitute abuse of process or are against
Peruvian public policy.

Peruvian courts are vested with exclusive jurisdiction to hear all insolvency proceedings
relating to debtors domiciled in Peru. If the debtor is domiciled abroad, there is jurisdiction
with respect to the assets situated in Peru.

Peruvian forum will decline its jurisdiction if the parties have agreed to submit to arbitration
an issue of facultative Peruvian jurisdiction, unless the arbitrage agreement has contemplated
the eventual submission to Peruvian forum.

Peruvian forum lacks jurisdiction to know actions related to rights in rem on real estate
situated abroad. Likewise, it lacks jurisdiction when parties have agreed to submit the dispute
to a foreign jurisdiction.


B. Enforcement of Foreign Judgments

Foreign judgments may be enforced in Peru. The existence of reciprocity is presumed between
the country of origin of such judgment and Peru, unless proven otherwise based on treaties
signed between the country parties. If no treaty exists with the foreign country that originated
the judgment, the foreign judgment has the same force as Peruvian judgments in the foreign
country.

Foreign judgments have to be recognized in order to be enforceable in Peru. The Superior
Court is in charge of verifying the following: (i) the foreign judgment must not resolve issues
of exclusive Peruvian jurisdiction; (ii) the foreign judgment has to be rendered by a competent
forum; (iii) the defendant must be properly summoned; (iv) the judgment must be res judicata
according to the laws of the place of the process; (v) there should not be a pendent judgment
in Peru between the parties involved and related to the same purpose; (vi) the foreign
judgment should not be incompatible with other judgment previously dictated in Peru; and,
(vii) the foreign judgment must not be contrary to public policy and morality.


C. Arbitration

Law No. 26572 of January 5, 1996, known as the General Arbitration Law has established all
aspects related to arbitral process within the territory of Peru. This law also treats the
recognition and enforcement of foreign arbitral awards in Peru.

Arbitration in Peru may be national or international depending on the domicile of the parties


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involved.

Almost all disputes can be subject to an arbitrage, except for some controversies such as
criminal law, family and public interest matters, industrial property, bankruptcy proceedings,
etc. Once the parties have agreed an arbitration agreement, a court can no longer rule the
matter, unless the matter is evidently not subject to arbitration.

The arbitration agreement may be related to disputes which have already arisen as well as
those that may arise in the future. The arbitral agreement must be in writing, whether as a
clause inserted in a particular contract or as a separate agreement. If there is no previous
agreement, it is understood that the arbitral agreement is formalized in writing once the parties
participate in an arbitral proceeding without objecting the arbiters’ competence.

The matters that an arbitration agreement should contemplate, include among others, the
number of arbiters, the procedure to appoint them, the language to be used in the arbitration,
the applicable law, the dispute to be arbitrated, etc.

In case of national arbitration, the arbiters should be appointed provided they are uneven in
number, but in the absence of a provision they must be three. If the parties do not designate
the arbiters, the judge will appoint them. In international arbitration, the arbiters are in number
the ones elected by the parties. If there is no agreement to this respect, the arbiters will be
three. The arbiters can be appointed by the parties or by the arbitration association designated
by the interested party.

National and international arbitration can be of two types: conscience arbitration and law
arbitration. The main difference between them is that in the first case the arbiters resolve
according to their loyal knowledge and understanding, while in the second, the arbiter bases its
resolution on the law in force. Also, for conscience arbitration the arbiter can be any natural
person, national or foreigner, whereas for law arbitration, the arbiter must necessarily be an
attorney registered with the Peruvian Bar Association, whether he/she is national or foreign.

The arbitration proceeding is the one elected by the parties. Otherwise, if the parties refer to
an arbitration association, the rules of such association are applicable. The parties are also free
to agree on the place of arbitration but in the absence of such an agreement, the site will be
determined by the arbitration institution or the arbiters. Unless stated otherwise, the
arbitration tribunal will operate with the concurrence of the majority of the arbiters appointed.
Resolutions and the award should count necessarily with the vote of the majority of the
arbiters. The president of the arbitrage tribunal has diriment vote.

The award has the authority of res judicata and the parties are obliged to comply with its
resolution, once notified. The enforcement of an award is made through a district court and
follows the same procedure as in the case of a judgment.

Against the award, two remedies are admissible: The remedy of appeal (before a second
arbitral instance or before the judiciary) and the annulment recourse (before the judiciary).

However, the parties may agree that the award be unappealable and final. If it is the case, an
annulment recourse before the judiciary may be filed due to fault of the arbitration proceeding.

If the award is pending appeal or annulment, the court shall suspend the enforcement of the
award until its final resolution.

The appeal must be made before the Superior Court of the jurisdiction where the arbitration


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took place, or in its defect, before a second arbitral instance. Against what is resolved by the
Superior Court, does not proceed any resource.

Otherwise, the annulment recourse must be made before the Superior Court of the
jurisdiction where the arbitration took place. Against what is resolved by the Superior Court,
proceeds the cassation recourse only when the award was declared totally or partially null and
void.

Against international awards, only annulment recourse can be presented directly to the
Superior Court of the place where the arbitrage took place.


D. The Court System

Besides a Constitutional Tribunal, which is in charge of controlling the constitutionality of the
laws, the Peruvian judicial system consists of the following courts and judges:

    1.   The Supreme Court, which has jurisdiction over the entire nation.
    2.   Superior Courts, one or more in each department of Peru.
    3.   Trial Judges organized according to different specializations; and,
    4.   Judges of Peace.
    5.   Judges of Peace, located in rural areas.


According to the Constitution, Supreme and Superior magistrates will be appointed by the
National Judicial Council, with no intervention from the legislative and executive branches in
order to maintain the independence of the judicial power. This Council is formed by a person
appointed by the Supreme Court, other elected by the Supreme Attorneys, one elected by the
country´s Bar Associations, two appointed by other professional associations not related to
law, one elected by the deans of private universities and one by the deans of State universities.
Judges of peace are elected by popular vote.

The Peruvian justice system guarantees the double instance. Generally, most of the civil and
commercial trials are solved by the trial judges and the parties can only appeal to the Superior
Court.

The Supreme Court works as a Cassation Court. The reasons for presenting a cassation
resource are: (i) inappropriate use or misunderstanding of the legal regulations and
jurisprudence doctrine; (ii) The non application of the legal regulations or jurisprudence
doctrine; and (iii) The violation of the regulation that guarantees the right of adue process or
the infringement of essential legal regulations related to procedural issues.

The Supreme Court can also act as an appeal tribunal when the judgments have been
originated in the Superior Court or in the Supreme Court, in order to guarantee the double
instance.




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