[JPRT 105-51]
[From the U.S. Government Publishing Office]
105th Congress
2nd Session JOINT COMMITTEE PRINT S. Prt.
105-51
_______________________________________________________________________
COUNTRY REPORTS ON ECONOMIC
POLICY AND TRADE PRACTICES
__________
R E P O R T
SUBMITTED TO THE
COMMITTEE ON FOREIGN RELATIONS
COMMITTEE ON FINANCE
OF THE
U.S. SENATE
AND THE
COMMITTEE ON
INTERNATIONAL RELATIONS
COMMITTEE ON WAYS AND MEANS
OF THE
U.S. HOUSE OF REPRESENTATIVES
BY THE
DEPARTMENT OF STATE
IN ACCORDANCE WITH SECTION 2202 OF THE OMNIBUS TRADE AND
COMPETITIVENESS ACT OF 1988
COMMITTEE ON FOREIGN RELATIONS
JESSE HELMS, North Carolina, Chairman
RICHARD G. LUGAR, Indiana JOSEPH R. BIDEN, Jr., Delaware
PAUL COVERDELL, Georgia PAUL S. SARBANES, Maryland
CHUCK HAGEL, Nebraska CHRISTOPHER J. DODD, Connecticut
GORDON H. SMITH, Oregon JOHN F. KERRY, Massachusetts
CRAIG THOMAS, Wyoming CHARLES S. ROBB, Virginia
ROD GRAMS, Minnesota RUSSELL D. FEINGOLD, Wisconsin
JOHN ASHCROFT, Missouri DIANNE FEINSTEIN, California
BILL FRIST, Tennessee PAUL D. WELLSTONE, Minnesota
SAM BROWNBACK, Kansas
James W. Nance, Staff Director
Edwin K. Hall, Minority Staff Director
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COMMITTEE ON FINANCE
WILLIAM V. ROTH, Jr., Delaware, Chairman
JOHN H. CHAFEE, Rhode Island DANIEL PATRICK MOYNIHAN, New York
CHARLES E. GRASSLEY, Iowa MAX BAUCUS, Montana
ORRIN G. HATCH, Utah JOHN D. ROCKEFELLER IV, West
ALFONSE M. D'AMATO, New York Virginia
FRANK H. MURKOWSKI, Alaska JOHN BREAUX, Louisiana
DON NICKLES, Oklahoma KENT CONRAD, North Dakota
PHIL GRAMM, Texas BOB GRAHAM, Florida
TRENT LOTT, Mississippi CAROL MOSELEY-BRAUN, Illinois
JAMES M. JEFFORDS, Vermont RICHARD H. BRYAN, Nevada
CONNIE MACK, Florida J. ROBERT KERREY, Nebraska
Franklin G. Polk, Staff Director and Chief Counsel
Mark A. Patterson, Minority Staff Director and Chief Counsel
(ii)
COMMITTEE ON INTERNATIONAL RELATIONS
BENJAMIN A. GILMAN, New York,
Chairman
WILLIAM GOODLING, Pennsylvania LEE HAMILTON, Indiana
JAMES A. LEACH, Iowa SAM GEJDENSON, Connecticut
HENRY J. HYDE, Illinois TOM LANTOS, California
DOUG BEREUTER, Nebraska HOWARD BERMAN, California
CHRISTOPHER SMITH, New Jersey GARY ACKERMAN, New York
DAN BURTON, Indiana ENI F.H. FALEOMAVAEGA, American
Samoa
ELTON GALLEGLY, California MATTHEW G. MARTINEZ, California
ILEANA ROS-LEHTINEN, Florida DONALD M. PAYNE, New Jersey
CASS BALLENGER, North Carolina ROBERT ANDREWS, New Jersey
DANA ROHRABACHER, California ROBERT MENENDEZ, New Jersey
DONALD A. MANZULLO, Illinois SHERROD BROWN, Ohio
EDWARD R. ROYCE, California CYNTHIA A. McKINNEY, Georgia
PETER T. KING, New York ALCEE L. HASTINGS, Florida
JAY KIM, California PAT DANNER, Missouri
STEVEN J. CHABOT, Ohio EARL HILLIARD, Alabama
MARSHALL ``MARK'' SANFORD, South
Carolina WALTER CAPPS, California
MATT SALMON, Arizona BRAD SHERMAN, California
AMO HOUGHTON, New York ROBERT WEXLER, Florida
TOM CAMPBELL, California STEVE ROTHMAN, New Jersey
JON FOX, Pennsylvania BOB CLEMENT, Tennessee
JOHN McHUGH, New York BILL LUTHER, Minnesota
LINDSEY GRAHAM, South Carolina JIM DAVIS, Florida
ROY BLUNT, Missouri
JERRY MORAN, Kansas
KEVIN BRADY, Texas
Richard J. Garon, Chief of Staff
Michael H. Van Dusen, Democratic Chief of Staff
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COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut BARBARA B. KENNELLY, Connecticut
JIM BUNNING, Kentucky WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
(iii)
C O N T E N T S
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Page
Foreword......................................................... vii
Letter of Transmittal............................................ ix
Introduction..................................................... xi
Text of Section 2202 of the Omnibus Trade and Competitiveness Act
of 1988........................................................ xiii
Notes on Preparation of the Reports.............................. xv
Some Frequently Used Acronyms.................................... xvii
COUNTRY REPORTS*
Africa:
Ghana........................................................ 1
Nigeria...................................................... 5
South Africa................................................. 11
East Asia and the Pacific:
Australia.................................................... 17
China........................................................ 22
Hong Kong*................................................... 30
Indonesia.................................................... 34
Japan........................................................ 40
Korea, Republic of........................................... 45
Malaysia..................................................... 51
Philippines.................................................. 57
Singapore.................................................... 63
Taiwan*...................................................... 68
Thailand..................................................... 73
Europe:
The European Union........................................... 81
Austria...................................................... 91
Belgium...................................................... 95
Bulgaria..................................................... 100
Czech Republic............................................... 105
Denmark...................................................... 110
Finland...................................................... 115
France....................................................... 122
Germany...................................................... 126
Greece....................................................... 131
Hungary...................................................... 137
Ireland...................................................... 141
Italy........................................................ 146
Netherlands.................................................. 152
Norway....................................................... 157
Poland....................................................... 161
Portugal..................................................... 166
Romania...................................................... 171
Russia....................................................... 174
Spain........................................................ 180
(v)
Sweden....................................................... 186
Switzerland.................................................. 190
Turkey....................................................... 194
Ukraine...................................................... 199
United Kingdom............................................... 204
The Americas:
Argentina.................................................... 209
Bahamas...................................................... 214
Bolivia...................................................... 218
Brazil....................................................... 223
Canada....................................................... 230
Chile........................................................ 235
Colombia..................................................... 241
Costa Rica................................................... 247
Dominican Republic........................................... 253
Ecuador...................................................... 259
El Salvador.................................................. 264
Guatemala.................................................... 268
Haiti........................................................ 273
Honduras..................................................... 277
Jamaica...................................................... 283
Mexico....................................................... 290
Nicaragua.................................................... 297
Panama....................................................... 300
Peru......................................................... 306
Trinidad and Tobago.......................................... 311
Uruguay...................................................... 316
Venezuela.................................................... 320
Near East and North Africa:
Algeria...................................................... 329
Bahrain...................................................... 333
Egypt........................................................ 338
Israel....................................................... 345
Jordan....................................................... 351
Kuwait....................................................... 358
Morocco...................................................... 362
Oman......................................................... 367
Saudi Arabia................................................. 372
Syria........................................................ 377
South Asia:
Bangladesh................................................... 383
India........................................................ 389
Pakistan..................................................... 395
__________
*Reports also cover the following areas: Hong Kong and Taiwan.
FOREWORD
----------
The reports on individual country economic policy and trade
practices contained herein were prepared by the Department of
State in accordance with section 2202 of the Omnibus Trade and
Competitiveness Act of 1988 (P.L. 100-418).
Modeled on the State Department's annual reports on country
human rights practices, the reports are intended to provide a
single, comparative analysis of the economic policies and trade
practices of countries with which the United States has
significant economic or trade relationships. Because of the
increasing importance of, and interest in, trade and economic
issues, these reports are prepared to assist members in
considering legislation in the areas of trade and economic
policy.
Jesse Helms,
Chairman, Committee on Foreign Relations.
William V. Roth, Jr.,
Chairman, Committee on Finance.
Benjamin A. Gilman,
Chairman, Committee on International Relations.
Bill Archer,
Chairman, Committee on Ways and Means.
(vii)
LETTER OF TRANSMITTAL
----------
Department of State,
Washington, DC, January 31, 1998.
Hon. Jesse Helms,
Chairman, Committee on Foreign Relations.
Hon. William V. Roth, Jr.,
Chairman, Committee on Finance.
Hon. Albert Gore, Jr.,
President, U.S. Senate.
Hon. Newt Gingrich,
Speaker, House of Representatives.
Hon. Benjamin A. Gilman,
Chairman, Committee on International Relations.
Hon. Bill Archer,
Chairman, Committee on Ways and Means.
Dear Sirs: Section 2202 of the Omnibus Trade and
Competitiveness Act of 1988 requires the Department of State to
provide to the appropriate Committees of Congress a detailed
report regarding the economic policy and trade practices of
countries with which the U.S. has significant economic or trade
relationships. In this regard, I am pleased to provide the
enclosed report.
Sincerely,
Barbara Larkin,
Assistant Secretary, Legislative Affairs.
Enclosure
(ix)
INTRODUCTION
----------
Country Reports on Economic Policy and Trade Practices
The Department of State is submitting to the Congress its
Country Reports on Economic Policy and Trade Practices in
compliance with Section 2202 of the Omnibus Trade and
Competitiveness Act of 1988. As the legislation requires, we
have prepared detailed reports on the economic policy and trade
practices of countries with which the United States has
significant economic or trade relationships. This is the
Department of State's ninth annual report. It now includes
reports on 75 countries, customs territories and customs
unions.
Each report contains nine sections:
Key Economic Indicators: Each report begins with a
table showing data for key economic indicators in the
national income, monetary, and trade accounts.
General Policy Framework: This first narrative
section gives an overview of macroeconomic trends.
Exchange Rate Policies: The second section describes
exchange rate policies and their impact on the price
competitiveness of U.S. exports.
Structural Policies: The third section examines
structural policies, highlighting changes that may
affect U.S. exports to that country.
Debt Management Policies: The fourth section
describes debt management policies and their
implications for trade with the United States.
Significant Barriers to U.S. Exports and Investment:
The fifth section examines significant barriers, formal
and informal, to U.S. exports and investment.
Export Subsidies Policies: The sixth section focuses
on government actions, policies, and practices that
support exports from that country, including exports by
small businesses.
Protection of U.S. Intellectual Property: The
seventh section discusses the country's laws and
practices with respect to protection of intellectual
property rights.
Worker Rights: The final section has three parts.
--The first (subsections a through e) outlines the
country's laws and practices with respect to
internationally recognized worker rights.
--The second (subsection f) highlights conditions of worker
rights in goods-producing sectors where U.S.
capital is invested.
(xi)
--Finally, a table cites the extent of such investment by
sector where information is available.
The country reports are based on information supplied by
U.S. Embassies, which is analyzed and reviewed by the
Department of State in consultation with other U.S. Government
agencies. The reports are intended to serve as general guides
to economic conditions in specific countries. We have worked to
standardize the reports, but there are unavoidable differences
reflecting large variations in data availability. In some
cases, access to reliable data is limited, particularly in
countries making transitions to market economies. Nonetheless,
each report incorporates the best information currently
available. Because the reports were researched and compiled at/
by post and due at State in mid-November, the conclusions and
analysis may not fully or accurately reflect recent changes
brought about because of the Asian financial crisis.
Vonya B. McCann,
Acting Assistant Secretary of State
for Economic and Business Affairs.
TEXT OF SECTION 2202 OF THE OMNIBUS TRADE AND COMPETITIVENESS ACT OF
1988
----------
``The Secretary of State shall, not later than January 31 of
each year, prepare and transmit to the Committee on
[International Relations] *and the Committee on Ways and
Means of the House of Representatives, to the Committee on
Foreign Relations and the Committee on Finance of the
Senate, and to other appropriate committees of the
Congress, a detailed report regarding the economic policy
and trade practices of each country with which the United
States has an economic or trade relationship. The Secretary
may direct the appropriate officers of the Department of
State who are serving overseas, in consultation with
appropriate officers or employees of other departments and
agencies of the United States, including the Department of
Agriculture and the Department of Commerce, to coordinate
the preparation of such information in a country as is
necessary to prepare the report under this section. The
report shall identify and describe, with respect to each
country:
1. The macroeconomic policies of the country and their
impact on the overall growth in demand for United States
exports;
2. The impact of macroeconomic and other policies on the
exchange rate of the country and the resulting impact on price
competitiveness of United States exports;
3. Any change in structural policies [including tax
incentives, regulation governing financial institutions,
production standards, and patterns of industrial ownership]
that may affect the country's growth rate and its demand for
United States exports;
4. The management of the country's external debt and its
implications for trade with the United States;
5. Acts, policies, and practices that constitute
significant trade barriers to United States exports or foreign
direct investment in that country by United States persons, as
identified under section 181(a)(1) of the Trade Act of 1974 (19
U.S.C. 2241(a)(1));
6. Acts, policies, and practices that provide direct or
indirect government support for exports from that country,
including exports by small businesses;
7. The extent to which the country's laws and enforcement
of those laws afford adequate protection to United States
intellectual property, including patents, trademarks,
copyrights, and mask works; and
__________
*In 1995, the Committee on Foreign Affairs changed its name to the
Committee on International Relations.
(xiii)
8. The country's laws, enforcement of those laws, and
practices with respect to internationally recognized worker
rights (as defined in section 502(a)(4) of the Trade Act of
1974), the conditions of worker rights in any sector which
produces goods in which United States capital is invested, and
the extent of such investment.''
NOTES ON PREPARATION OF THE REPORTS
----------
Subsections a. through e. of the Worker Rights section
(section 8) are abridged versions of section 6 in the Country
Reports on Human Rights Practices for 1998, submitted to the
Committees on International Relations of the House of
Representatives and on Foreign Relations of the U.S. Senate in
January 1998. For a comprehensive and authoritative discussion
of worker rights in each country please refer to that report.
Subsection f. of the Worker Rights section highlights
conditions of worker rights in goods-producing sectors where
U.S. capital is invested. A table cites the extent of such
investment by sector where information is available. The Bureau
of Economic Analysis of the U.S. Department of Commerce has
supplied information on the U.S. direct investment position at
the end of 1995 for all countries for which foreign direct
investment has been reported to it. Readers should note that
``U.S. Direct Position Abroad'' is defined as ``the net book
value of U.S. parent companies' equity in, and net outstanding
loans to, their foreign affiliates'' (foreign business
enterprises owned 10 percent or more by U.S. persons or
companies). Where a figure is negative, the U.S. parent owes
money to the affiliate. The table does not necessarily indicate
total assets held in each country. In some instances, the
narrative refers to investments for which figures may not
appear in the table.
(xv)
SOME FREQUENTLY USED ACRONYMS
----------
ADB--Asian Development Bank
BIS--Bank for International Settlements
CACM--Central American Common Market
CARICOM--Caribbean Common Market
CAP--Common Agricultural Policy (of the EU)
CCC--Commodity Credit Corporation (Department of Agriculture)
EBRD--European Bank for Reconstruction and Development
EFTA--European Free Trade Association
EMS--European Monetary System (of the EU)
ERM--Exchange Rate Mechanism (of the EU)
ESAF--Enhanced Structural Adjustment Facility
EU--European Union
EXIMBANK-- U.S. Export-Import Bank
FOREX--foreign exchange
FY--fiscal year
GATS--General Agreement on Trade in Services
GATT--General Agreement on Tariffs and Trade
GDP--gross domestic product
GNP--gross national product
GSP--Generalized System of Preferences
IBRD--International Bank for Reconstruction and Development
(World Bank)
IFIs--international financial institutions (IMF, World Bank and
regional development banks)
ILO--International Labor Organization (of the United Nations)
IMF--International Monetary Fund
IDB--Inter-American Development Bank
IPR--intellectual property rights
LIBOR--London Interbank Offer Rate
MFN--most favored nation
NAFTA--North American Free Trade Agreement
NGOs--non-government organizations
NIS--Newly Independent States (of the former Soviet Union)
OECD--Organization for Economic Cooperation and Development
OPIC--U.S. Overseas Private Investment Corporation
PTT--Post, Telegraph and Telephone
SAP--Structural Adjustment Program (of the IMF/World Bank)
SDR--Special Drawing Rights (of the IMF)
STF--Structural Transformation Facility
TRIPs--WTO Agreement on Trade-Related Aspects of Intellectual
Property Rights
UR--Uruguay Round of trade negotiations in the GATT
(xvii)
USD--U.S. dollar
VAT--value-added tax
WIPO--World Intellectual Property Organization
WTO--World Trade Organization
AFRICA
----------
GHANA
Key Economic Indicators
[Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\............................. 6,179 6,342 6,012
Real GDP Growth (pct.) \3\.................. 4.5 5.2 5.5
GDP by Sector:
Agriculture............................... 2,533 2,574 2,465
Manufacturing............................. 525 539 511
Services.................................. 2,898 3,070 2,808
Government................................ 809 882 788
Per Capita GDP.............................. 370 375 340
Labor Force (000)........................... 6,000 6,150 6,250
Unemployment Rate (pct.).................... N/A N/A N/A
Money and Prices (annual percentage growth):
Money Supply Growth (M2).................... 37.5 34.2 40.0
Consumer Price Inflation.................... 70.8 32.7 27.5
Exchange Rate (Cedis/USD-Annual Average)
Official.................................. 1,200 1,637 2,205
Balance of Payments and Trade:
Total Exports FOB \4\....................... 1,431 1,571 1,600
Exports to U.S.\4\........................ 196 171 166
Total Imports CIF \4\....................... 1,687 1,937 1,903
Imports from U.S.\4\...................... 167 294 325
Trade Balance \4\........................... (256) 366) (303)
Balance with U.S.......................... 29 (123) (159)
External Public Debt........................ 5,074 5,347 5,400
Fiscal Deficit/GDP (pct.)................... 0.9 -1.5 1.4
Current Account Deficit/GDP (pct.).......... 2.0 5.0 5.0
Debt Service Payments/GDP (pct.)............ 10.6 8.0 N/A
Gold and Foreign Exchange Reserves.......... 592.9 709.9 700.0
Aid from U.S................................ 45 44 52
Aid from All Other Sources.................. 715 696 N/A
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available monthly data in
October 1997
\2\ GDP at factor cost
\3\ Percentage changes calculated in local currency
\4\ Merchandise trade
1. General Policy Framework
Ghana operates in a free market environment under a popularly-
elected civilian government. In December, 1996, Ghana had its second
experience in multiparty elections, since the inauguration of the 4th
Republic in January, 1993, with the reelection of President Jerry John
Rawlings for a second four-year term.
Rawlings headed a ``provisional'' regime from the end of 1981 until
January, 1993, when democratic government under a written constitution
was restored. Unlike the previous parliament, the present has an
opposition presence with 67 seats out of 200. An independent judiciary
acts as the final arbiter of Ghanaian laws. The next presidential and
parliamentary elections are scheduled for the year 2000.
Since 1983 Ghana has pursued an economic reform agenda aimed
generally at reducing government involvement in the economy and
encouraging private sector development. Inflationary pressures due to
government expenditure overruns prior to 1992 and 1996 presidential and
parliamentary elections and other factors continue to be felt.
Government has introduced measures to control and monitor its spending.
Despite measures being implemented to avoid fiscal deficit, first
quarter data of 1997 still show another sizable fiscal deficit
requiring continued high levels of domestic borrowing from the banking
system and the public. While Ghana has benefited from IMP programs in
recent years the current ESAF is off track due to fiscal and inflation
problems.
The Bank of Ghana is currently pursuing a high interest rate policy
in an attempt to absorb excess liquidity and contain inflationary
pressures. Short-term interest rates are now in the 40-50 percent
range. Inflation measured about 70 percent at year-end 1995 and has
consistently declined to about 28 percent at the end of September,
1997. Adequate rains and good harvests this year have moderated upward
pressure on food prices. However, growth in the money supply was 5
percent in the first quarter of 1997 which follows trends of the past
years. This could have serious consequences for inflation and
inflationary expectations in 1997.
The government's economic program has focused on the development of
Ghana's private sector, which historically has been weak. Privatization
of state-owned enterprises continues, with about two-thirds of 300
enterprises sold to private owners. Ghana achieved real economic growth
of 5.2 percent in 1996, up from the 4.5 percent recorded in 1995.
Growth in the mining sector has been particularly brisk in recent years
while agriculture (which still accounts for about 40 percent of GDP)
and manufacturing have recorded much slower growth. Other reforms
adopted under the government's structural adjustment program include
the elimination of exchange rate controls and the lifting of virtually
all restrictions on imports. The establishment of an Interbank Foreign
Exchange Market has greatly expanded access to foreign exchange. The
elimination of virtually all local production subsidies is further
indication of the government's intention to move toward a market
orientation for the economy.
2. Exchange Rate Policy
The foreign exchange value of the Ghanaian cedi is established
through the mechanism of an Interbank Market and Foreign Exchange
Bureaus, and currency conversion is easily obtained. As the demand for
imports has risen steadily, the government has allowed the cedi to
depreciate. During the past 12 months the value of the cedi relative to
the dollar has fallen by 28 percent and stood at 2260 cedi to the
dollar in November 1997. Nevertheless, Ghana's high rate of inflation
has resulted in an appreciation of the cedi's real exchange rate. In
general, the exchange rate regime in Ghana does not have any particular
impact on the competitiveness of U.S. exports.
3. Structural Policies
Ghana progressively wound down import quotas and surcharges as part
of its structural adjustment program. Tariff structures are being
adjusted in harmony with the ECOWAS Trade Liberalization Program.
Importers now are required to sign a declaration that they will comply
with Ghanaian tax and other laws. Imported goods currently enjoy
generally unfettered access to the Ghanaian market.
The government professes strong support for the principle of free
trade. However, it is also committed to the development of competitive
domestic industries with exporting capabilities. The government is
expected to continue to support domestic private enterprise with
various financial incentives. Ghanaian manufacturers seek stronger
protective measures and complain that Ghana's tariff structure places
local producers at a competitive disadvantage relative to imports from
countries enjoying greater production and marketing economies of scale.
High local production costs frequently boost the price of locally-
manufactured items above the landed cost of goods imported from Asia
and elsewhere. Reductions in tariffs have increased competition for
local producers and manufacturers while reducing the cost of imported
raw materials.
The government repealed a 17.5 percent value-added tax (VAT)
shortly after it was introduced in March 1995. The implementation of
the tax was handled badly and resulted in widespread public protests
and some street violence. The government has reverted to several
previously-imposed taxes, including a sales tax. Government has set in
motion a program to reintroduce a VAT bill and begin implementation in
1998,at a somewhat lower level than the previous proposed tax, after an
extensive public education effort.
4. Debt Management Policies
Persistent balance of payments deficits have resulted in a
continuing increase in foreign indebtedness. Swings in commodity
prices, especially gold and cocoa, have a dramatic impact on Ghana's
export revenues. In 1996 gold accounted for about 39 percent of total
export receipts, while cocoa accounted for 35 percent and timber for 9
percent. On the import side capital goods are the largest category,
followed by intermediate goods, fuel, and consumer goods.
Ghana's total outstanding external debt, including obligations to
the IMF, totaled approximately USD 5.4 billion at the end of the first
quarter of 1997. Outstanding obligations to the IMF under medium-term
facilities stood at USD 503 million at the end of the same period. At
that time, outstanding long-term debt was about USD 4.2 billion (about
78 percent of total debt), of which USD 1.2 billion and USD 3.0 billion
were owed to bilateral creditors and multilateral institutions,
respectively.
During the last decade the stocks of both domestic and external
debt have risen sharply. High domestic interest rates and the
depreciation of the cedi on foreign exchange markets have caused the
debt service burden in cedi terms to grow steadily. Nearly one-quarter
of total government expenditures during the first half of 1997 were for
the payment of interest on the public debt.
5. Significant Barriers to U.S. Exports
Import licenses: Ghana eliminated its import licensing system in
1989 but retains a ban on the importation of a narrow range of products
that do not affect U.S. exports. Importers must simply sign a
declaration that they will comply with the Ghanaian tax code and other
laws. Ghana is a member of the WTO.
Services barriers: The Ghanaian investment code proscribes foreign
participation in the following sectors: small scale wholesale and
retail sales, taxi and car rental services with fleets of fewer than
ten vehicles, lotteries, and barber and beauty shops.
Standards, testing, labeling, and certification: Ghana has
promulgated its own standards for food and drugs. The Ghana standards
board, the testing authority, subscribes to accepted international
practices for the testing of imports for purity and efficacy. Under
Ghanaian law, imports must bear markings identifying in English the
type of product being imported, the country of origin, the ingredients
or components, and the expiration date, if any. Non-complying goods are
subject to government seizure. The thrust of this law is to regulate
imported food and drugs; however, by its terms the law applies to non-
consumable imports as well. Locally-manufactured goods are subject to
comparable testing, labeling, and certification requirements. Four pre-
shipment inspection agencies contracted by government also perform
testing and price verification for some selected imports that are above
USD 5,000.
Investment barriers: The investment code guarantees free
transferability of dividends, loan repayments, licensing fees and
repatriation of capital; provides guarantees against expropriation or
forced sale; and delineates dispute arbitration processes. Foreign
investors are not subject to differential treatment on taxes, access to
foreign exchange, imports or credit. Separate legislation covers
investments in mining and petroleum and applies equally to foreign and
Ghanaian investors. The investment code no longer requires prior
project approval from the Ghana Investment Promotion Center (GIPC).
Government procurement practices: Government purchases of equipment
and supplies are usually handled by the Ghana Supply Commission (the
official purchasing agency) through international bidding and, at
times, through direct negotiations. Former government import monopolies
have been abolished. However, parastatal entities continue to import
some commodities. The parastatals no longer receive government
subsidies to finance imports. There has been a recent government
directive to centralize the purchase of government vehicles.
6. Export Subsidies Policies
The Government of Ghana does not directly subsidize exports.
Exporters are entitled to a 100 percent drawback of duty paid on
imported inputs used in the processing of exported goods. Bonded
warehouses have been established which allow importers to avoid duties
on imported inputs used to produce merchandise for export. The Export
Processing Zone (EPZ) Law, enacted in 1995, does not tax corporate
profits for the first ten years of business operation.
7. Protection of U.S. Intellectual Property
After independence in 1957, Ghana instituted separate legislation
for copyright (1961) and trademark (1965) protection based on British
law. Subsequently, the government passed modified copyright and patent
legislation in 1985 and 1992, respectively. Prior to 1992 the patent
laws of the United Kingdom applied in Ghana. Ghana is a member of the
Universal Copyright Convention, the World Intellectual Property
Organization, and the English-Speaking African Regional Intellectual
Property Organization. IPR holders have access to local courts for
redress of grievances. Few infringement cases have been filed in Ghana
in recent years. Ghana has not been identified as a priority country in
connection with either the Special 301 Watch List or Priority Watch
List.
Patent registration in Ghana presents no serious problems for
foreign rights holders. Fees for registration vary according to the
nature of the patent, but local and foreign applicants pay the same
rate.
Ghana has not yet become a popular location for imitation designer
apparel and watches. In cases where trademarks have been
misappropriated, the price and quality disparity would be apparent to
all but the most unsuspecting buyer.
Enforcement of foreign copyrights may be pursued in the Ghanaian
courts, but few such cases have actually been filed in recent years.
The bootlegging of computer software is an example of copyright
infringement taking place locally. There are no data available to
quantify the commercial impact of this practice. Pirating of videotapes
is another local practice that affects U.S. exports, but the evidence
suggests that this is not being done on a large scale. There is no
evidence of a significant export market for Ghanaian-pirated books,
cassettes, or videotapes.
In summary, infringement of intellectual property rights has not
had a significant impact on U.S. exports to Ghana. Pirated computer
software may become a more significant problem in the future, however,
as computer use grows.
8. Worker Rights
a. The Right of Association.--Trade unions are governed by the
Industrial Relations Act (IRA) of 1958, as amended in 1965 and 1972.
Organized labor is represented by the Trades Union Congress (TUC),
which was established in 1958. The IRA confers power on government to
refuse to register a trade union, but this right has not been exercised
by the current government or the previous military regime. No union
leaders have been detained in recent years, nor has the right of
workers to freely associate otherwise been circumscribed.
b. The Right to Organize and Bargain Collectively.--The IRA
provides a framework for collective bargaining and protection against
anti-union discrimination. Civil servants are prohibited by law from
joining or organizing a trade union. However, in December, 1992, the
government enacted legislation which allows each branch of the civil
service to establish a negotiating committee to engage in collective
bargaining for wages and benefits in the same fashion as trade unions
in the private sector. While the right to strike is recognized in law
and in practice, the government has on occasion taken strong action to
end strikes, especially in cases involving vital government interests
or public order. The IRA provides a mechanism for conciliation and
arbitration before unions can resort to industrial actions or strikes.
c. Prohibition of Forced or Compulsory Labor.--Ghanaian law
prohibits forced labor and it is not known to be practiced. The
International Labor Organization (ILO) continues to urge the government
to revise legislation that permits imprisonment with an obligation to
perform labor for offenses that are not countenanced under ILO
Convention 105, ratified by Ghana in 1958.
d. Minimum Age of Employment of Children.--Labor legislation in
Ghana sets a minimum employment age of 15 and prohibits night work and
certain types of hazardous labor for those under 18. The violation of
child labor laws is common and young children of school age can often
be found during the day performing menial tasks in the agricultural
sector or in the markets. Observance of minimum age laws is eroded by
local custom and economic circumstances that compel children to become
wage earners at an early age. Inspectors from the Ministry of Labor and
Social Welfare are responsible for enforcement of child labor laws.
Employers who violate laws prohibiting heavy labor and night work by
children are occasionally prosecuted.
e. Acceptable Conditions of Work.--In 1991 a Tripartite Commission
composed of representatives from government, organized labor, and
employers established minimum standards for wages and working
conditions. The daily minimum wage combines wages with customary
benefits such as a transportation allowance. The current daily minimum
wage is Cedis 2,000, about 90 cents at the present rate of exchange.
This sum does not permit a single wage earner to support a family and
frequently results in multiple wage earners and other family-based
commercial activity. By law the maximum work week is 45 hours, but
collective bargaining has established a 40-hour week for most unionized
workers.
f. Rights in Sectors with U.S. Investment.--U.S. investment in
Ghana is concentrated in the primary and fabricated metals sectors
(aluminum smelting and gold mining), food and related products (tuna
canning), petroleum marketing, and telecommunications. Labor conditions
in these sectors do not differ significantly from the norm, save that
wage scales in the metals and mining sectors are substantially higher
than elsewhere in the Ghanaian economy. U.S. firms have a good record
of compliance with Ghanaian labor laws.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum.......................... \1\
Total Manufacturing................ \1\
Food & Kindred Products.......... 0
Chemicals & Allied Products...... 0
Metals, Primary & Fabricated..... \1\
Machinery, except Electrical..... 0
Electric & Electronic Equipment.. 3
Transportation Equipment......... 0
Other Manufacturing.............. 0
Wholesale Trade.................... 0
Banking............................ 0
Finance/Insurance/Real Estate...... 0
Services........................... 0
Other Industries................... \1\
TOTAL ALL INDUSTRIES............... 219
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
NIGERIA
Key Economic Indicators
[Billions of U.S. dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production, and Employment:
Nominal GDP \2\............................. 47.0 48.7 N/A
Real GDP Growth (pct) \3\................... 2.2 3.3 1.4
GDP by Sector (pct):
Agriculture............................... 31.0 31.2 31.0
Manufacturing............................. 6.9 6.5 6.0
Services.................................. 22.9 23.0 23.1
Government................................ 10.2 9.9 N/A
Per Capita GDP (US$)........................ 260 250 N/A
Labor Force (millions)...................... 42.8 43.0 40.0
Unemployment Rate (pct)..................... 30.0 27.0 30.0
Money and Prices (annual percentage growth:
Money Supply Growth (M2).................... 10.3 25.7 N/A
Consumer Price Inflation.................... 73.0 28.0 12.5
Exchange Rate (naira/ US$ - annual average):
Official.................................. 22 22 22
Parallel.................................. 83 84 87
Weighted Average.......................... 72 82 82
Balance of Payments and Trade:
Total Exports FOB \4\....................... 11.7 13.95 N/A
Exports to U.S.\5\........................ 4.8 6.1 6.8
Total Imports CIF \4\....................... 9.3 6.9 N/A
Imports from U.S.\5\...................... 0.6 0.8 0.6
Trade Balance............................... 2.4 9.2 N/A
Trade Balance with U.S.\5\................ 4.2 5.2 6.2
Current Account Deficit/GDP (pct)........... -5.6 2.8 N/A
External Public Debt........................ 32.5 28.1 N/A
Debt Service Payments/GDP (pct)............. 16.4 15.3 N/A
Fiscal Deficit/GDP (pct).................... 0.05 -1.6 N/A
Gold and Foreign Exchange Reserves.......... 1.4 4.1 8.0
Aid from U.S. (US$ millions)................ N/A N/A N/A
Aid from All Other Sources.................. N/A N/A N/A
------------------------------------------------------------------------
\1\ 1997 figures, except exchange rates, are all estimates based on
available monthly data in November 1997.
\2\ GDP at factor cost. Conversion to U.S. dollars done with official
exchange rate of 21.9 naira to the dollar.
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade
Source: U.S. Department of Commerce and U.S. Census Bureau; exports
FAS, imports customs basis; 1997 figures are estimates based on data
available through November 1997.
1. General Policy Framework
Nigeria is Africa's most populous nation and the United States'
fifth largest oil supplier. It offers investors a low-cost labor pool,
abundant natural resources, and the largest domestic market in sub-
Saharan Africa. However, it also suffers from an autocratic military
government, inadequate infrastructure, confusing and inconsistent
regulations, and endemic corruption. Nigeria's crucial petroleum sector
provides the government with over 90 percent of all foreign exchange
earnings and about 60 percent of budgetary revenue. Agriculture, which
accounts for about 31 percent of GDP and employs about two-thirds of
the labor force is dominated by small-scale subsistence farming.
Nigeria is a member of the World Trade Organization.
After a period of relative fiscal austerity in the late 1980s, the
Nigerian government ran budget deficits of up to 12 percent of GDP
beginning in 1990. The deficit decreased to seven percent in 1994 and,
by postponing government spending (including for debt service), in 1995
shrank to negligible proportions. In 1996, the budget had a surplus of
1.6 percent of GDP. For the majority of 1997, the budget ran a reported
surplus. The deficit reduction and ensuing surplus came about primarily
through austerity--e.g., foregoing government projects and
infrastructure maintenance--as well as stronger-than-expected oil
revenue and the simple failure to budget enough to cover scheduled debt
service, resulting in arrears to foreign and domestic creditors.
Priority recommendations by international financial institutions
include unifying the dual exchange rate, greater budgetary
transparency, reducing large government fuel price subsidies (the
official price of gasoline was equivalent to about 55 cents per gallon
in November 1997), shelving a number of government projects which are
of doubtful economic value, and reducing leakages from government
income due to corruption.
In previous years, monetary policy had been driven by the need to
accommodate the government's budget deficit and a desire to reduce the
inflationary impact of the budget deficit on the economy. Deficits at
the federal level had been financed primarily by borrowing from the
Central Bank of Nigeria (CBN), which held 84 percent of the
government's domestic debt at the end of 1995. Since the Central Bank
monetizes much of the deficit, budgetary shortfalls have a direct
impact on the money supply and on price levels, which had risen rapidly
for several years but have since slowed. In 1996 the government also
began releasing money from an extra-budgetary account called the
Petroleum Trust Fund (PTF) for infrastructure and other projects.
In 1997 Nigeria has continued the policy of ``guided deregulation''
instituted in the 1995 budget. In conjunction with his 1994 budget
announcement, head of state General Sani Abacha announced the
abandonment of most 1986 structural adjustment program reforms and
instituted tight government control over key economic variables. In
response to the economic downturn caused by those measures, Abacha's
1995 budget abandoned the tightly regulated economic policies enacted
in 1994. Under the new policy, the Nigerian government reopened the
Autonomous Foreign Exchange Market (AFEM), loosened controls on foreign
investment and reduced tariffs and bans on some imports. The 1997
budget continued the trend of fiscal austerity and the slow
deregulation of the economy. Although Minister of Finance Anthony Ani
had announced that privatization of the telecommunications and
electrical generating parastatals would commence in 1997, virtually no
progress was made.
2. Exchange Rate Policy
In 1997 Nigeria continued the liberalizing of the foreign exchange
mechanism instituted in 1995. Under the foreign exchange decree of
1995, the AFEM was reestablished, allowing private companies to source
foreign exchange at the parallel market rate (about 85 naira to the
dollar in November 1997). The exchange rate of 22 naira to the dollar
has been retained for some official government transactions. Companies
can now hold domiciliary accounts in private banks, with account
holders having ``unfettered'' use of the funds. Foreign investors may
bring capital into the country without prior Finance Ministry approval,
and may service foreign loans and remit dividends. Currency exchange
offices are functioning, albeit with a limitation of $2,500 per
transaction. The Central Bank has continued to intervene in the AFEM at
regular intervals, going from monthly interventions in 1995 to weekly
interventions in 1996. The Nigerian Finance Minister pledged to end the
dual rates in the future.
3. Structural Policies
As stated in the December 1986 circular, ``Industrial Policy of
Nigeria,'' the Nigerian government maintains a system of incentives to
foster the development of particular industries, to encourage firms to
locate in economically disadvantaged areas, to promote research and
development in Nigeria, and to favor the use of domestic labor and raw
materials. The Industrial Development (Income Tax Relief) Act of 1971
provides incentives to ``pioneer'' industries deemed beneficial to
Nigeria's economic development. Companies given ``pioneer'' status may
enjoy a non-renewable tax holiday of five years, or seven years if the
pioneer industry is located in an economically disadvantaged area.
In 1995 Nigeria promulgated the Nigerian Investment Promotion
Commission Decree to replace the Enterprises Promotion Act. This decree
liberalized the foreign investment regime, allowing 100 percent foreign
ownership of firms outside the petroleum sector. Investment in the
petroleum sector is still limited to the existing joint-venture
agreement or production-sharing contracts with the Nigerian government,
though there has been discussion of the Nigerian government selling off
some or all of its part of the joint ventures. A foreign enterprise may
now buy shares of any Nigerian firm except those on the ``negative
list'': production of firearms, ammunition, narcotics, military and
paramilitary apparel. The Investment Promotion Decree provides for the
creation of an Investment Promotion Commission that will register
companies for foreigners after incorporation under the Companies and
Allied Matters Decree of 1990. The decree also abolishes the expatriate
quota system (except in the oil sector) and prohibits any
nationalization or expropriation of a foreign enterprise by the
Nigerian government except for such cases determined to be in the
national interest.
Nigeria has begun to implement the 1995 money laundering decree,
which introduced procedures designed to inhibit this practice, as well
as a decree against advance-fee fraud, called 419 fraud after the
section of the Nigerian criminal code that deals with it. However, as
of 1997, this implementation has exhibited only marginal success in
reducing financial fraud. The scope of 419 business fraud has brought
international notoriety to Nigeria and constitutes a serious
disincentive to exporters, since any international transaction must be
thoroughly vetted and confirmed.
4. Debt Management Policies
Debt service due, including payment of arrearages, is projected to
be over $8 billion annually for the next several years; the result of a
ballooning debt incurred during the latter half of the 1980s. The 1997
budget allowed only $2 billion for foreign debt payments, thus ensuring
continued build-up of arrears.
During the period 1986 to early 1992, on the basis of a
comprehensive structural adjustment program, Nigeria reached three
standby agreements with the IMF. The most recent of these was approved
in January 1991 and lapsed in April 1992. Discussions with the IMF
since then have shown some progress, as evidenced by the 1996 decapping
of interest rates and removal of the mandatory sectoral credit
allocations for banks, but have failed to result in a new agreement. No
new rescheduling agreement will be reached until an IMF program is re-
implemented and a successful track record has been established. In the
interim, Nigeria has initiated discussions with the multilateral
institutions regarding a medium- term economic program and has made
some progress at meeting their criteria.
In January 1992 in an effort to reduce its external stock of debt,
the Nigerian government concluded an agreement with the London Club
that gave commercial banks a menu of options from which to choose in
reducing Nigeria's commercial debt. The menu included debt buy backs
(currently at 56 cents to the dollar), new money bonds, and
collateralized par bonds. As a result of the agreement, Nigeria was
able to reduce its external debt by $3.9 billion, but the accumulation
of arrears and late interest on other debt, particularly Paris Club
debt, has essentially negated the gains. Including arrears, official
foreign obligations exceeded $34 billion as of November 1997.
Nigeria's Paris Club debt repayment obligations have continued to
grow while its record on debt repayment has deteriorated Nigeria's
record on debt repayment, meanwhile, has also deteriorated. In 1992
Nigeria made debt service payments of $2.7 billion against interest and
principal payment obligations of $5 billion. Faced with similar
obligations in the following years, external debt service payments were
only $1.6 billion for 1993, $1.8 billion for 1994, $2 billion for 1995,
and $2 billion for 1996, and $2 billion for 1997 as well.
5. Significant Barriers to U.S. Exports
As of November 1997, the importation of approximately 20 different
items, principally agricultural, is still banned. These bans were
initially implemented to restore Nigeria's agricultural sector and to
conserve foreign exchange. Although the bans are compromised by
widespread smuggling, the reduced availability of grains has raised
prices for both banned commodities and locally produced substitutes.
The government also discontinued subsidizing fertilizer for farmers in
1997.
In 1995 Nigeria announced a new tariff structure to be operated for
the next five years. The revision was aimed at narrowing the ranges of
many custom duties, increasing rate coverage in line with WTO
provisions, with fewer import prohibitions. The following previously
banned commodities are now subject to the indicated duty rates: rice,
50 percent; day old chicks and parent stock, 5 percent; sparkling wines
and champagne, 100 percent plus 40 percent excise; fruits and fruit
juices, 75 percent; jute bags, 45 percent; cigarettes, 200 percent;
cotton, 60 percent; wheat, 10 percent; and passenger vehicles, from 30
to 100 percent. However, a 25 percent across the board reduction in
import tariffs became effective in January 1997, and is now being
implemented, thus temporarily reducing the above listed duty rates.
This action followed complaints of importers that customs duty was
calculated on the basis of 80 naira to the dollar, rather than the
official rate of 22 naira to the dollar used in 1994. Also, in October
1995 the Nigerian ports authority reduced port charges by 60 percent in
Lagos and 70 percent at the other delta ports.
Other import restrictions apply to aircraft and ocean-going
vessels. Guidelines mandate that all imported aircraft and ocean-going
vessels be inspected by a government authorized inspection agent. In
addition, performance bonds and off-shore guarantees must be arranged
before either down payments or subsequent payments are authorized by
the Ministry of Finance.
In April 1996, in an effort to reduce congestion and corruption in
Nigerian ports and following a reported shortfall in customs duties,
the Nigerian government changed the procedures by which goods enter or
leave the country. The new regulations require a preshipment inspection
for all unaccompanied imports and exports regardless of value,
certifying the price, quantity, and quality before shipment; and
imports must be accompanied by an import duty report (IDR). Goods
arriving without an IDR will be confiscated by the Nigerian government.
In addition, all goods will be assessed a one percent surcharge to
cover the cost of inspection by the port authorities.
Nigeria generally uses an open tender system for awarding
government contracts, and foreign companies incorporated in Nigeria
receive national treatment. Approximately five percent of all
government procurement contracts are awarded to U.S. companies.
6. Export Subsidy Policies
In 1976, the government established the Nigerian Export Promotion
Council (NEPC) to encourage development of non-oil exports from
Nigeria. The Council administers various incentive programs including a
duty drawback program, the export development fund, tax relief and
capital assets depreciation allowances, and a foreign currency
retention program. The duty drawback or manufacturing in-bond program
is designed to allow the duty free importation of raw materials to
produce goods for export, contingent on the issuance of a bank
guaranteed bond. The performance bond is discharged upon evidence of
exportation and repatriation of foreign exchange. Though meant to
promote industry and exportation, these schemes have been burdened by
inefficient administration, confusion, and corruption, causing great
difficulty and in some cases losses to those manufacturers and
exporters who opted to use them.
The NEPC also administers the export expansion grant program, a
fund which provides grants to exporters of manufactured and semi-
manufactured products. Grants are awarded on the basis of the value of
goods exported, and the only requirement for participation is that the
export proceeds be repatriated to Nigeria. Though the grant amounts are
small, ranging from two to five percent of total export value, they may
constitute subsidies as defined by the WTO and raise questions about
compliance with WTO obligations.
7. Protection of U.S. Intellectual Property
Nigeria is a signatory to the Universal Copyright Convention and
the Berne Convention. In early 1993, Nigeria became a member of the
World Intellectual Property Organization (WIPO). Cases involving
infringement of non-Nigerian copyrights have been successfully
prosecuted in Nigeria, but enforcement of existing laws remains weak,
particularly in the patent and trademark areas. Despite active
participation in international conventions and the apparent interest of
the government in intellectual property rights issues, little has been
done to stop the widespread production and sale of pirated tapes,
videos, computer software, and books in Nigeria.
The Patents and Design Decree of 1970 governs the registration of
patents, and the Nigerian Standard Organization is responsible for
issuing patents, trademarks, and copyrights. Once conferred, a patent
gives the patentee the exclusive right to make, import, sell, or use
the products or apply the process. The Trademarks Act of 1965 governs
the registration of trademarks. Registering a trademark gives its
holder the exclusive right to use the registered mark for a particular
good or class of goods.
The Copyright Decree of 1988, based on WIPO standards and U.S.
copyright law, currently makes counterfeiting, exporting, importing,
reproducing, exhibiting, performing, or selling any work without the
permission of the copyright owner a criminal offense. Progress on
enforcing the 1988 law has been slow. The expense and length of time
necessary to pursue a copyright infringement case to its conclusion are
detrimental to the prosecution of such cases.
In the past, few companies have bothered to secure trademark or
patent protection in Nigeria because it is generally considered
ineffective. Losses from poor intellectual property rights protection
are substantial, although the exact cost is difficult to estimate. The
majority of the sound recordings sold in Nigeria are pirated copies and
the entire video industry is based on the sale and rental of pirated
tapes. Satellite signal piracy is common. Violation of patents on
pharmaceuticals is also a problem. The International Intellectual
Property Alliance estimated that U.S. companies lost $39 million in
1997 due to copyright piracy, excluding losses from computer software.
8. Worker Rights
a. The Right of Association.--Nigerian workers, except members of
the armed forces and employees designated essential by the government,
may join trade unions and may strike. Essential employees include
firefighters, police, employees of the Central Bank, the security
printers (printers of currency, passports, and government forms), and
customs and excise staff. Nigeria has signed and ratified the
International Labor Organization's (ILO) convention on freedom of
association. However, the government has decreed a single central labor
body, the Nigerian Labour Congress (NLC), and deregistered other
unions. In 1994, the government dissolved the NLC executive council and
imposed a sole administrator. Under Nigerian labor laws, any non-
agricultural enterprise that employs more than 50 employees is obliged
to recognize trade unions and must pay or deduct a dues checkoff for
employees who are members. However, in the past, the government has
threatened to withdraw the dues checkoff provision and make payment of
union dues completely voluntary if unions pursue strikes. Furthermore,
the government continues to hold labor leaders in detention without
charge. As a result of the government's failure to abide by ILO
conventions to which it has subscribed concerning worker rights and
freedom of association, it was the subject of an ILO ``special
paragraph'' censuring the Nigerian government. The Nigerian government
has yet to accept an ILO fact finding mission or take other steps to
mitigate the adverse findings that led to the ILO censure.
b. The Right to Organize and Bargain Collectively.--The labor laws
of Nigeria permit the right to organize and the right to bargain
collectively between management and trade unions. Collective bargaining
is common in many sectors of the economy. Nigerian labor law further
protects workers against retaliation by employers for labor activity
through an independent arm of the judiciary, the Nigerian Industrial
Court, which handles complaints of anti-union discrimination. Trade
unionists have complained, however, that the Nigerian judicial system's
slow handling of labor cases constitutes a denial of redress to those
with legitimate complaints. The government retains broad authority over
labor matters, and can intervene forcefully in labor disputes which it
feels contravene its essential political or economic programs. It has
taken such action in the case of the 1996 banning of the University
Lecturers' Union to force an end to their strike, and in August 1994
when it dismissed the executive councils of the NLC and the two leading
petroleum sector unions and replaced them with ``sole administrators.''
The administrators remain in control pending national executive council
elections that have yet to be held.
c. Prohibition of Forced or Compulsory Labor.--The 1974 Labor
Decree and the 1989 Constitution prohibit forced or compulsory labor.
While this prohibition is generally observed in practice, forced labor
has been ``employed'' in some community clean-up projects. The ILO has
noted that, with the 1989 Constitution suspended, Nigeria may not be
able to enforce the ILO convention against forced labor in the absence
of constitutional guarantees.
d. Minimum Age for Employment of Children.--Nigeria's 1974 labor
decree prohibits employment of children under 15 years of age in
commerce and industry and restricts other child labor to home-based
agricultural or domestic work. The law further stipulates that no
person under the age of 16 may be employed for more than eight hours
per day. The decree allows the apprenticeship of youths aged 13 to 15
under specific conditions. The government does not specifically
regulate service of apprentices over the age of 15. Primary education
is compulsory in Nigeria, though rarely enforced, and studies have
reported declining enrollment due mainly to the continuing
deterioration of public schools. The lack of sufficient public school
infrastructure has forced more children into the employment market.
e. Acceptable Conditions of Work.--Nigeria's 1974 labor decree
established a 40 hour work week, prescribed 2 to 4 weeks of annual
leave, set a minimum wage and stipulated that workers are to be paid
extra for hours worked over the legal limit. The decree also states
that workers who work on Sundays and legal public holidays must be paid
a full day's pay in addition to their normal wages. There is no law
prohibiting excessive compulsory overtime. The last government review
of the minimum wage, undertaken in 1991, raised the monthly minimum
wage from 250 naira to 450 naira ($20.45 in 1991 but only $5.60 in
1996). The 1974 decree contains general health and safety provisions.
Employers must compensate injured workers and dependent survivors of
those killed in industrial accidents. Enforcement of these laws by the
Ministry of Labor has been largely ineffective.
f. Rights in Sectors with U.S. Investment.--Worker rights in
petroleum, chemicals and related products, primary and fabricated
metals, machinery, electric and electronic equipment, transportation
equipment, and other manufacturing sectors are not significantly
different from those in other major sectors of the economy.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 61
Food & Kindred Products..................... \1\
Chemicals & Allied Products................. 19
Metals, Primary & Fabricated................ \1\
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. 2
Transportation Equipment.................... \1\
Other Manufacturing......................... -4
Wholesale Trade............................... \2\
Banking....................................... \1\
Finance/Insurance/Real Estate................. 0
Services...................................... 0
Other Industries.............................. 0
TOTAL ALL INDUSTRIES.......................... 978
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
\2\ Indicates a value between $-500,000 and $500,000.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
SOUTH AFRICA
Key Economic Indicators
[Billions of U.S. dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP (at factor cost)................ 118.8 112.6 115.5
Real GDP Growth (pct) \2\................... 3.5 3.0 2.0
GDP by Sector:
Agriculture............................... 5.18 5.46 5.22
Mining.................................... 9.30 9.11 9.03
Manufacturing............................. 28.84 26.75 27.43
Wholesale/Retail Trade.................... 19.35 18.10 18.53
Financial Service......................... 20.19 19.54 20.65
Government................................ 18.05 17.10 17.72
Per Capita GDP (US$) \3\.................... 2880 2659 3041
Labor Force (millions) \3\.................. 14.37 14.49 N/A
Unemployment Rate (percent) \3\............. 31.2 29.3 N/A
Money and Prices (annual percentage growth):
Money Supply (M2)........................... 13.9 15.8 16.0
Consumer Price Index........................ 8.7 7.4 8.6
Exchange Rate (Rand/US$ - annual
average):\4\
Official.................................. N/A N/A N/A
Balance of Payments and Trade:
Total Exports FOB \5\....................... 28.6 29.1 22.9
Exports to U.S \5\.......................... 2.2 2.3 0.5
Total Imports CIF \5\......................... 27.0 27.0 21.4
Imports from U.S............................ 2.8 3.1 1.2
Trade Balance \5\............................. 1.6 2.1 1.5
Trade Balance with U.S...................... -0.6 -0.8 -0.7
Current Account Deficit/GDP................... 2.1 1.6 1.1
External Public Debt \6\...................... 33.0 32.9 N/A
Debt Service Payments/GDP (pct)............... 6.7 7.0 N/A
Fiscal Deficit/GDP (pct)...................... 5.1 5.1 N/A
Gold and Foreign Exchange Reserves............ 4.2 2.3 4.9
Aid from U.S. (US$ millions).................. 187 176 110
Aid from other Countries...................... N/A N/A N/A
------------------------------------------------------------------------
\1\ Estimates for 1997 are based on third quarter estimates, seasonally
adjusted at annual rates, unless otherwise noted. The source of the
data is the Reserve Bank Quarterly Bulletin for December 1997. The
rate used to convert Rand figures into dollars is the weighted average
of the South African banks' daily rates based on their foreign
exchange transactions. The decline in the 1996 GDP estimate from the
1995 figure is due to the almost 23 percent drop in the value of the
South African rand against the U.S. dollar during 1996.
\2\ Figure provided is a second quarter estimate.
\3\ Estimates of population and employment are speculative due to
incomplete censuses during the apartheid era. The increase in the per
capita GDP figure for the third quarter of 1997 is largely accounted
for by revised South African government numbers on total population
based on census statistics gathered in 1996.
\4\ Prior to 1995, South Africa maintained an exchange rate for non-
resident investment and another for other transactions. The dual
exchange rate was eliminated and a unified rand established in mid-
March 1995.
\5\ All South African trade statistics include export and import data
for the five member countries of the Southern African Customs Union
(SACU), i.e., Botswana, Lesotho, Namibia, South Africa, and Swaziland.
Trade within the SACU is not included.
\6\ During the apartheid era, debt estimates were deflated by the South
African Government as a matter of policy. Since late 1994, the
accuracy of South African debt estimates released by the South African
Reserve Bank has dramatically improved.
1. General Policy Framework
South Africa is a middle-income developing country with an abundant
supply of natural resources, relatively well-developed financial,
legal, communications, energy, and transport sectors, a stock exchange
which ranks among the twenty largest in the world, and a modern
infrastructure supporting an efficient distribution of goods to major
urban centers throughout the region. With over three years having
passed since the historic election of President Nelson Mandela in the
country's first multi-racial elections, South Africa remains the most
advanced, broadly-based, and productive economy in Africa.
After more than four years of negative real GDP growth from 1988-
1992, the South African economy responded in 1993 with 1.1 percent real
growth. Since the election in early 1994 the economic has posted real
growth rates of 2.5 percent in 1994, 2.8 percent in 1995 and 3.1
percent in 1996. In 1997 the economic is estimated to have grown by
1.5-1.8%. With the exception of the gold mining industry, most sectors
of the economy have shared in the economic recovery, with manufacturing
showing the strongest rate of growth.
The new South African government demonstrated its commitment to
open markets, privatization, and a favorable investment climate with
the release of its macroeconomic strategy in June 1996. Called
``Growth, Employment and Redistribution,'' this policy framework
includes the introduction of tax incentives to stimulate new investment
in labor-intensive projects, expansion of basic infrastructure
services, the restructuring and partial privatization of state assets,
and continued reduction of tariffs and subsidies to promote economy
revitalization, improved services to the disadvantaged, and integration
into the global economic. Together with its demonstrated commitment to
its World Trade Organization (WTO) commitments, South Africa has moved
slowly but steadily towards free market principles. Implicit in these
policies is recognition of South Africa's daunting developmental
problems resulting from decades of apartheid-era policies. Black
economic empowerment, promotion of small, medium, and micro-enterprises
(SMMES), the extension of telecommunications, transportation, and other
infrastructure links to unserved rural areas, and extensive job
creation to offset population growth estimated at 1.8 percent remain
South Africa's highest governmental objectives.
Recent economic news, however, has not all been rosy. In 1997, the
South African Rand depreciated 4.0 percent against the U.S. dollar,
with the exchange rate going from 4.68 to beyond 4.87. Economists have
attributed the Rand's decline to turmoil in the Asian markets. The
balance of payments has remained positive due largely to privatization
receipts and international borrowing.
The South African government has made steady progress in redressing
many structural problems in the South African market. Over the last
decade, quantitative credit controls and administrative control of
deposit and lending rates have largely disappeared. In 1998, the South
African Reserve Bank (SARB) plans to induce a repurchase agreement
system to allocate Bank credit. Liquidity will be controlled through
reverse purchase agreements and government paper. In the past four
years, a restrictive monetary policy through the maintenance of
relatively high central bank lending rates, has curbed domestic
spending and reduced inflation to its lowest rate in over twenty years.
The South African government primarily finances its domestic debt
through the issuance of government bonds.
2. Exchange Control/Rate Policy
Under South African exchange regulations, exchange controls are
administered by the SARB's Exchange Control Department through
commercial banks that are authorized to deal in foreign exchange. All
international commercial transactions must be accounted for through
these ``authorized foreign exchange dealers.'' This provides the SARB
wide latitudes for determining short-term exchange rates. However, the
SARB is no longer the sole marketing agent for gold, having begun to
allow some private sales in 1997 and further liberalizing in early
1998. Except for a period in 1987 when it followed an implicit policy
of fixing the rand against the dollar, the SARB normally allows the
Rand to float but intervenes as deemed necessary to smooth market
adjustments and to ensure there is always a buyer in the market for
Rand.
The previous dual exchange rate in which a more favorable exchange
rate applied to foreign investment flows and outflows (the financial
rand) and a less favorable one to all other transactions (the
commercial rand ) was not acceptable in the new dispensation. On July
1, 1997, after more than three decades of strict controls, South Africa
relaxed its exchange control regime on residents. Private citizens are
now allowed a one-time investment of up to R200,000 in offshore
accounts, and are free to hold foreign currency accounts in South
African banks. Corporations can now transfer up to R30 million for new
foreign ventures outside the Southern African Development Community
(SADC) and R50 million for SADC investments. Institutional investors
can now invest abroad 3% of net inflows, and unit trusts are now
allowed to conclude asset swaps up to 10%. Dollar/Rand futures
contracts have been introduced, but under Reserve Bank supervision. The
ceiling on local borrowing by foreign-controlled resident entities has
been raised to 50% of foreign capital invested, up from a previous 25%.
However, foreign investments and assets swaps still require Reserve
Bank approval, except as noted above. A cautious and gradual approach
to further liberalization is the most likely scenario as current South
African gold plus foreign exchange reserves provide for about only ten
months coverage of imports.
3. Structural Policies
Prices are generally market-determined with the exception of
petroleum products and certain agricultural goods. Purchases by
government agencies are by competitive tender for project or supply
contracts. Bidders must pre-qualify, with some preferences allowed for
local content. Parastatals and major private buyers, such as mining
houses, follow similar practices, usually inviting only approved
suppliers to bid.
The main sources of government revenue in South Africa are income
taxes (30%) and the Value-Added Tax (VAT- 30%). Both personal and
corporate income tax rates are among the highest in the world. Although
the government had wished to phase down both individual and corporate
tax rates through year-end 1999, fiscal constraints have slowed plans
to do so. While maintaining the maximum personal income tax rate at 45
percent on incomes in excess of R100,000 (about $20,500), the
government also imposed in 1994 a ``one-time'' levy of 5 percent on all
income over R50,000 (about $10,250)--both corporate and individual--to
finance overruns associated with the governmental transition.
On a more positive note, the South African government has
undertaken some measures in the past two years to ease the tax burden
on foreign investors. It reduced the corporate primary income tax rate
to 35 percent from its previous rate 40 percent in 1994. The Non-
resident Shareholders Tax on foreign investors was scrapped effective
October 1, 1995. In addition, the Secondary Tax on Corporate Dividends
was halved to 12.5 percent in March 1996. The effective rate for
corporations is 42.2%.
4. Debt Management Policies
During the apartheid era, actual debt estimates were considered
state secrets of the South African government. Those debt estimates
released by the government and reported by international financial
authorities during the apartheid years must, therefore, be viewed with
skepticism. With the election of the new government, the SARB has
worked to redress this problem and issues revised estimates of foreign
and domestic debt. Although these revisions reflect a significant
upward adjustment of previous estimates, they, nonetheless, indicate
relative debt stability in recent years. At the end of 1996, the SARB
reported that total foreign debt, including Erobond borrowing, amounted
to approximately $33 billion. The ratio of total foreign debt to GDP
has remained steady at around 25-27 percent over the past four years,
while interest payments as a percentage of total export earnings
increase steadily declining slightly from 6.6 percent in 1993 to 6.8
percent in 1996.
South Africa is a member of the World Bank and International
Monetary Fund (IMF) and continues Article IV consultations with the
latter on a regular basis. In December 1993, after 27 years of economic
isolation, South Africa became an IMF borrowing nation with an $850
million drought relief loan, which South Africa subsequently repaid.
South Africa receives some technical assistance and has a project loan
with the World Bank.
5. Significant Barriers to U.S. Exports
Under the terms of the Import and Export Control Act of 1963, South
Africa's Minister of Trade and Industry may act in the national
interest to prohibit, ration, or otherwise regulate imports. In recent
years, the list of restricted goods requiring import permits has been
reduced, but still includes such goods as foodstuffs, clothing,
fabrics, wood and paper products, refined petroleum products and
chemicals. Nonetheless, the South African Government remains committed
to the simplification and eventual reduction of tariffs within the WTO
framework, and maintains active discussions with that body and its
major trading partners.
6. Export Subsidies Program
The primary subsidy regime of the South African Government was the
General Export Incentive Scheme (GEIS) through which South African
exporting companies received direct non-discriminatory cash subsidies
based on the value of exports, the degree of beneficiation or
processing, and the local content of the exported product. The South
African government has completely eliminated the GEIS program despite
considerable opposition from local manufacturers. The Department of
Trade and Industry ``revised'' the GEIS in early 1995, ``downsized'' it
again in early 1996, and have now completely phased it out as of July
11 1997. The stated reason for phasing out the scheme was that it was
not WTO-consistent. Instead, the government has focused on other, more
WTO-friendly means of promoting South African exports. The Export
Marketing Assistance scheme (EMA) offers financial assistance for the
development of new export markets, through financing for trade missions
and market research. The Export Finance Guarantee Scheme for small
exporters is the government's newest means of promoting small and
medium exporters through credit guarantees by participating financial
organizations. It commenced in November 1996, and to date 77 master
guarantees to the value of R45 million have been issued. It has not
been as successful as anticipated and concerted efforts to promote the
scheme are required. Provisions of the Income Tax Act also permit
accelerated write-offs of certain buildings and machinery associated
with benefication processes carried on for export and deductions for
the use of an export agent outside South Africa.
7. Protection of U.S. Intellectual Property Rights
In May 1995, the new Trademarks Act of 1993 replaced the Trademarks
Act of 1963, improving protection of internationally-known trademarks.
Parliament also passed the Designs Act of 1993, which introduced a
registration system providing protection for design proprietors for 10
years from the date of registration or issue, whichever is earlier. In
addition, the Patent Act of 1978 was most recently amended in 1988 to
provide patent protection of inventions and innovations for a period of
20 years from the date of filing, without extension. Other South
African IPR laws include the Plant Breeder's Rights Act of 1976 and the
Copyright Act of 1978 (amended in 1992).
In 1996, the South African parliament passed the ``Intellectual
Property Laws Rationalization Act, 1996,'' which integrated
intellectual property rights in the former homelands into the South
African system and extended South African intellectual property law to
the former homelands.
In 1997, two other intellectual property-related bills were passed
by the parliament and became effective in November. The ``Intellectual
Property Laws Amendment Bill'' amended the Patents Act of 1978, the
Trademarks Act of 1993, the Copyright Act of 1978, the Designs Act of
1993, the Merchandise Marks Act of 1941, and the Performers' Protection
Act of 1967. It is intended to ensure, inter alia, complete compliance
with the provisions of the WTO agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS) and Article 6 of the Paris
Convention. The ``Counterfeit Goods Bill'' created for the first time
in South Africa the offense of ``dealing in counterfeit goods.'' It
conveys new powers to the police, Customs and Excise, and DTI
inspectors to exercise powers of search and seizure of counterfeit
goods and store them pending outcome of a trial.
In recognition of progress made on the IPR front, United States
Trade Representative Charlene Barshefsky announced on October 2, 1996,
that South Africa would remain off the Special 301 Watch List, from
which it was provisionally removed in April of the same year.
South Africa is a member of international intellectual property
treaties such as the Paris Convention for the Protection of Industrial
Property, the Berne Convention for the Protection of Artistic and
Literary Works, and the World Intellectual Property Rights Organization
(WIPO).
8. Worker Rights
a. The Right of Association.--Freedom of association is guaranteed
by the constitution and given statutory effect by the recently-approved
Labor Relations Act. All workers in the private sector and most in the
public sector--with the exception of members of the National Defense
Force, the National Intelligence Agency, and the South African Secret
Service--are entitled to join a union. Moreover, no employee can be
fired or prejudiced because of membership in or advocacy of a trade
union. There are 201 registered trade unions and 47 unregistered trade
unions, with a total approximate membership of 3.4 million or 44
percent of the employed economically active population.
South Africa's largest trade union federation, the Congress of
South African Trade Unions (COSATU) is formally aligned with the
African National Congress (ANC) and the South African Communist Party
(SACP). Over 60 former COSATU members serve in national and provincial
legislatures and administrations. The second largest trade union
federation, the National Council of Trade Unions (NACTU), while
officially independent of any political grouping, has close ties to the
Pan Africanist Congress (PAC) and the Azanian Peoples Organization
(AZAPO).
The right to strike is also guaranteed in the constitution, and is
given statutory effect by the new Labor Relations Act (LRA). The LRA
has established a simple procedure for a protected strike, with the
requirement that the dispute first be referred for conciliation. If
conciliation fails to resolve the dispute, then a trade union is
entitled to engage in a legal strike. Such a strike is not liable to
criminal or civil action. The LRA does, however, permit employers to
hire replacement labor for striking employees after giving seven days
notice to the striking trade union.
The International Labor Organization (ILO) readmitted South Africa
in 1994. Originally an ILO member since its 1919 inception, South
Africa withdrew from the ILO in 1964.
b. The Right to Organize and Bargain Collectively.--South African
law defines and protects the right to organize and bargain
collectively. The government does not interfere with union organizing
and generally has not interfered in the collective bargaining process.
The new LRA statutorily entrenches ``organizational rights'', such as
trade union access to work sites, deductions for trade union
subscriptions, and leave for trade union officials, which will
strengthen trade union ability to organize workers.
The creation of the National Economic Development and Labor Council
(NEDLAC), a tripartite negotiating forum, has served to solidify the
role of trade unions as social partners with government and business in
the in the formation of economic and labor policy. In addition, the new
LRA creates workplace fora that will allow for better shop-floor
communication between management and labor over issues of work
organization and production. To receive statutory protection, these
fora currently can only be initiated by trade unions is businesses with
more than 100 employees.
c. Prohibition of Forced or Compulsory Labor.--Forced labor is
illegal under the constitution, and is not practiced.
d. Minimum Age of Employment of Children.--Employment of minors
under age 15 is prohibited by South Africa law. The LRA, however,
grants the Minister of Welfare discretionary powers to permit
employment of children under carefully described conditions in certain
types of work, such as in the agricultural sector. Enforcement of child
labor laws by the Ministries of Labor and Justice, however, are weak
and reactive, depending largely upon complaints made against specific
employers. As a result, use of child labor in the informal economy is
quite common.
e. Acceptable Conditions of Work.--There is no legally mandated
national minimum wage in South Africa. Instead, the Labor Relations Act
provides a mechanism for negotiations between labor and management to
set minimum wage standards industry by industry. To date, over 100
industries, including a majority of workers in the manufacturing
sector, are protected by the provisions of the Act. In those sectors of
the economy not sufficiently organized to engage in the collective
bargaining processes which establish minimum wages, the Wage Act grants
the Minister of Labor the authority to set minimum wages and
conditions. The Wage Act, however, does not apply to farm or domestic
workers.
Occupational health and safety issues remain a top priority of
trade unions, especially in the mining and heavy manufacturing
industries. Although government focus on these issues has increased
substantially (highlighted by the passage in 1993 of the Occupational
Health and Safety Act), South African industrial and mining processes
are still considered hazardous by international standards. Parliament
is currently studying a mines commission of inquiry on health and
safety issues in the mining sector, to determine ways to improve
existing mine health and safety legislation.
f. Worker Rights in Sectors with U.S. Investment.--The workers
rights conditions described above do not differ from those conditions
found in sectors with U.S. capital investment.
g. South Africa does not as yet have any export processing zones.--
Labor practices in these zones usually present problems with the trade
unions.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 778
Food & Kindred Products..................... 66
Chemicals & Allied Products................. 204
Metals, Primary & Fabricated................ 59
Machinery, except Electrical................ 33
Electric & Electronic Equipment............. \1\
Transportation Equipment.................... \1\
Other Manufacturing......................... 236
Wholesale Trade............................... 119
Banking....................................... \1\
Finance/Insurance/Real Estate................. \1\
Services...................................... 19
Other Industries.............................. 1
TOTAL ALL INDUSTRIES.......................... 1437
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
EAST ASIA AND THE PACIFIC
----------
AUSTRALIA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated] \1\ \2\
------------------------------------------------------------------------
1995 1996 1997
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \3\............................. 314.2 346.4 343.5
Real GDP Growth (pct)....................... 3.2 2.5 3.5
GDP by Sector: \4\
Agriculture............................... 10.5 13.3 13.5
Manufacturing............................. 99.9 109.3 106.8
Services.................................. 176.7 193.4 192.3
Government................................ 11.1 12.0 11.9
Per Capita GDP ($000s)...................... 17.5 19.2 19.1
Labor Force (000s).......................... 9,001 9,127 9,217
Unemployment Rate (pct)..................... 8.5 8.6 8.7
Money and Prices (anual percentage growth):
Money Supply (M3)........................... 9.2 9.5 10.0
Consumer Price Inflation.................... 5.1 1.5 1.0
Exchange Rate (Aust Dols=US$ annual average)
Official.................................. N/A N/A N/A
Balance Of Payments And Trade:
Total Exports FOB........................... 53.0 60.4 61.7
Exports to U.S............................ 3.4 3.9 4.3
Total Imports CIF........................... 57.3 61.5 60.5
Imports from U.S.......................... 12.4 14.1 13.7
Trade Balance............................... -4.3 -1.1 -1.2
Balance with U.S.......................... -9.0 -10.2 -9.4
External Public Debt........................ 74.4 79.0 72.1
Fiscal Deficit/Gdp (pct).................... 2.9 2.1 1.3
Current Account Deficit/GDP (pct)........... 5.2 4.1 3.9
Debt Service................................
Payments/GDP.............................. 2.5 2.5 2.4
Gold and Foreign Exchange Reserves.......... 14.7 15.8 16.6
Aid from U.S................................ 0 0 0
Aid from other countries.................... 0 0 0
------------------------------------------------------------------------
\1\ Exchange rate fluctuations must be considered when analyzing data.
Percentage changes are calculated in Australian dollars.
\2\ All figures based on data available in October 1997. 1997 figures
are estimates.
\3\ Income measure of GDP.
\4\ Production measure of GDP. ``Manufacturing'' includes mining,
utilities and construction.
1. General Policy Framework
Australia's developed market economy is dominated by its services
sector (65 percent of GDP), yet it is the agricultural and mining
sectors (8 percent of GDP combined) that account for the bulk (57 pct)
of Australia's goods and services exports. Australia's comparative
advantage in primary products is a reflection of the natural wealth of
the Australian continent and its small domestic market: just over 18
million people occupy a continent the size of the contiguous United
States. The relative size of the manufacturing sector has been
declining for several decades, and now accounts for just under 14
percent of GDP.
The Australian economy has been experiencing a cyclical downturn
over 1996-97, and has only just started responding to the cuts in
official interest rates made by the Reserve Bank of Australia (RBA)
between July 1996 and July 1997 (five cuts totaling 2.5 percent have
left the official cash rate at 5 percent). With inflation well under
control (Australia recorded annual price deflation for the first time
in 35 years during 1997), the task for economic policy makers is to
lower the unemployment rate, which remains stubbornly mired above 8.5
percent.
The Liberal/National coalition government continued its program of
fiscal consolidation in its budget for the 1997-98 fiscal year,
announcing an underlying budget deficit (which removes debt repayments
and assets from the headline balance) of $2.9 billion and a substantial
headline budget surplus. The government has stated its intention to
return the federal budget to balance by the 1999-2000 fiscal year.
2. Exchange Rate Policy
Australian Dollar exchange rates are determined by international
currency markets. There is no official policy to defend any particular
exchange rate level, although the RBA does operate in currency markets.
The RBA is active in what it describes as ``smoothing and testing''
foreign exchange rates, in order to provide a generally stable
environment for fundamental economic adjustment policies.
Australia does not have any major foreign exchange controls beyond
requiring RBA approval if more than A$5,000 in cash is to be taken out
of Australia at any one time, or A$50,000 in any form in one year. The
purpose of this regulation is to prevent tax evasion and money
laundering; authorization is usually automatic.
3. Structural Policies
The Government of Australia (GOA) is continuing a program of
economic reform, begun in the mid-1980s, that includes the reduction of
import protection and micro economic reform. Initially broad in scope,
the GOA's program now focuses on industry-by-industry changes. The GOA
is also continuing with the privatization of government assets, with
the national air carrier Qantas and the Commonwealth Bank fully
privatized, and one-third of the government telecommunications carrier
Telstra floated in November 1997.
The General Tariff Reduction Program, begun in March 1991, has
reached its conclusion, with most existing tariffs now at 5 percent.
However, the Passenger Motor Vehicles (PMV) and Textiles, Clothing and
Footwear (TCF) industries are still protected by high tariffs (22.5 and
34 percent respectively). These tariffs are scheduled to decline to 15
and 25 percent respectively by 2000 (where they will remain, pending
further review, until 2005).
There have been no major changes to the Australian taxation system
in recent years, with the only change of any note being a rise in the
tax on corporate profits from 33 to 36 percent (announced in 1996).
4. Debt Management Policies
Australia's net foreign debt has averaged between 30 and 40 pct of
GDP for several decades, and at the end of 1996 totaled around $150
billion (39.7 percent of GDP). Australia's gross external public debt
at the end of 1996 was $78 billion, or 21 percent of GDP. The public
sector accounts for 40 percent of Australia's gross external debt;
theremainder is the responsibility of the private sector. The net debt-
service ratio (the ratio of net income payable to export earnings) has
remained steady between 11 and 12 percent since 1994, down from 21
percent in 1990. Australia's credit ratings, as determined by Standard
and Poor's and Moody's, remained unchanged at AA and Aa2, respectively
in 1997.
5. Aid
Australia receives no foreign aid.
6. Significant Barriers to U.S. Exports
Australia is a signatory to the WTO, but is not a member of the WTO
Agreement on Government Procurement.
Import Licenses: Import licenses are now required only for certain
vehicles, textiles, clothing and footwear. Licensing had little impact
on U.S. products except for a small market among importers of used
automobiles.
Services Barriers: The Australian services market is generally
open, and many U.S. financial services, legal and travel firms are
established there. The banking sector was liberalized in 1992, allowing
foreign banks to be licensed as either branches or subsidiaries.
Broadcast licensing rules were also liberalized in 1992, allowing up to
20 percent of the time used for paid advertisements to be filled with
foreign-sourced material (far greater than the percentage of non-
Australian messages actually broadcast). As of January 1988, local
content regulations require that 55 percent of a commercial television
station's weekly broadcasts between the hours of 6:00 a.m. and midnight
must be dedicated to Australian-produced programs (The U.S. regrets
that this requirement was recently increased from 50 percent.)
Regulations governing Australia's pay-TV industry require that channels
carrying drama programs devote at least 10 percent of their programming
budget to new, locally-produced programs. State governments restrict
the development of private hospitals as a means of limiting public
health expenditures (medical expenses for private hospital care are
paid through government health programs).
Standards: Australia became a signatory to the GATT Standards Code
in 1992. However, Australia still maintains restrictive standards
requirements and design rules for automobile parts, electronic and
medical equipment, and some machine parts andequipment. Currently, all
Australian standards are being rewritten to harmonize them where
possible to international standards, with the objective of fulfilling
all obligations of the GATT Standards Code.
Labeling: Australian federal law requires that the country of
origin be clearly indicated on the front label of some types of
products sold in Australia. Various other federal and state labeling
requirements are being reconsidered in light of compliance with GATT
obligations, utility and effect on trade.
Commodity Boards: Several national and state commodity boards
control the marketing and export of certain Australian agricultural
products. Activities for these marketing authorities are financed by
the producers, but some boards enjoy export monopoly powers conferred
by the federal or state government. While some of the boards' domestic
activities have been deregulated, the export of wheat and rice remains
under the exclusive control of commodity boards. The Government of
Australia has indicated that the Australian Wheat Board (which strictly
regulates wheat marketing abroad) will retain its export monopoly until
at least 1999. The export of barely from certain states likewise
remains strictly regulated.
Investment: The government requires notification of (but normally
raises no objections to) investment proposals by foreign interests
above certain notification thresholds, including: acquisitions of
substantial interests in existing Australian businesses with assets of
A$5 million or more (A$3 million for rural properties); new businesses
involving an investment of A$10 million or more; portfolio investments
in the media sector of 5 percent or more; all non-portfolio investments
irrespective of size; takeovers of Australian companies valued of
either A$ 20 million or more, or for more than 50 percent of the target
company's total assets; and direct investments of foreign governments
irrespective of size. Investment proposals for entities involving more
than A$50 million in total assets are approved unless found contrary to
the national interest. Special regulations apply to investments in the
banking sector, the media sector, urban real estate and civil aviation.
Divestment cannot be forced without due process of law. There is no
record of forced divestment outside that stemming from investments or
mergers that tend to create market dominance, contravene laws on equity
participation, or result from unfulfilled contractual obligations.
Government Procurement: Since 1991, foreign information technology
companies with annual sales to the GOA of A$10-40 million (US$8-32
million) have been required to enter into Fixed Term Arrangements
(FTAs), and those with sales greater than A$40 million into
Partnerships for Development (PFDs). Under an FTA, a foreign company
commits to undertake to local industrial development activities worth
15 percent of its projected amount of government sales over a four-year
period. Under a PFD, a foreign firm agree to invest 5 percent of its
annual local turnover on R&D in Australia; export goods and services
worth 50 percent of imports (for hardware companies) or 20 percent of
turnover (for software companies); and achieve 70 percent local content
across all exports within the seven year life of the PFD.
The Information Technology Services Common Use Contract Panel
(ITSCUCP), established in 1995, is used by GOA agencies in planning and
implementing Information Technology (IT) purchases. The ITSCUCP
comprises a broad range of private companies (unlike its predecessor).
Any company may join upon demonstrating acceptable levels of Australian
product development, investment in capital equipment, skills
development and/or services support, local sourcing, and Australian R&D
activities.
The GOA's 1994 Employment and Industry Policy Statement requires
Industry Impact Statements to be drafted for government procurements of
A$10 million (US$8 million) or more, and establishes a two-envelope
system for such tenders. Bidders are required to submit detailed
information regarding Australian industrial development separately (in
the second envelope), and bids are judged both on price/product
specifications and industrial development grounds.
Sanitary and Phytosanitary Restrictions: Australia's geographic
isolation has allowed it to remain relatively free of exotic diseases.
Australia imposes extremely stringent animal and plant health
restrictions. The GOA is still examining measures that would allow the
lifting of phytosanitary barriers to the importation of U.S. cooked
chicken, but after more than seven years, no decision has been reached.
Other areas of concern include restrictions on the import of salmon,
pork, grapes, citrus, stone fruit and apples.
Motor Vehicles: The import of used vehicles manufactured after 1973
for personal use is banned, except where the car was purchased and used
overseas by the buyer for a minimum of three months. Commercial
importers must apply for a ``compliance plate'' costing A$ 20,000 for
each make of car imported. Left-hand drive cars must be converted to
right-hand drive (only by licensed garages) before they may be driven
in Australia.
7. Export Subsidies Policies
Australia has signed the GATT Subsidies Code and joined with the
U.S. in GATT negotiations to limit export subsidy use.
The coalition government severely curtailed assistance schemes to
Australian industry in its federal budget for the 1996-97 fiscal year.
Under the Export Market Development Grants Scheme, the Australian
government gives grants to qualifying firms of up to A$ 200,000, to
assist in offsetting marketing costs incurred when establishing new
export markets. There are also schemes available for drawbacks of
tariffs, and sales and excise taxes paid on the imported components of
exported products. Such schemes are available in the passenger motor
vehicle and the textiles, clothing and footwear industries. Grants
schemes and tariff concessions were subject to expenditure reductions
in the 1996-97 federal budget. The Research and Development Tax
Concession (available to firms undertaking eligible R&D) was also
reduced from 150 percent to 125 percent. ``Bounties'' (i.e., production
subsidies) were also cut heavily in the 1996-1997 budget. The only
remaining bounties are those for computer components producers (due to
expire on July 1, 1999) The bounty on shipbuilders expired on December
31, 1997.
The ``Factor (f)'' Scheme is designed to compensate manufacturers
of pharmaceutical products for the effects of the federal government's
intervention (through the National Health System) in the market for
consumer pharmaceuticals. Under the scheme, approved producers receive
payments (to raise returns received for selected pharmaceuticals) to
assist domestic drug research and development.
8. Protection of U.S. Intellectual Property
Australia provides comprehensive protection for intellectual
property, patents, trademarks, designs and integrated circuits.
Australia is a member of the World Intellectual Property Organization
(WIPO), and most multilateral IPR agreements, including, the Paris
Convention for the protection of industrial property, the Berne
Convention for the protection of literary and artistic works, the
Universal Copyright Convention, the Geneva Phonogram Convention, the
Rome Convention for the protection of Performers, Producers of
Phonograms, and Broadcasting Organizations, and the Patent Cooperation
Treaty.
Patents: Patents are available for inventions in all fields of
technology (except for human beings and biological processes relating
to artificial human reproduction). They are protected by the Patents
Act of 1990, which offers coverage for 20 years, subject to renewal.
Trade secrets are protected by common law, such as by contract. Design
features can be protected from imitation by registration under the
Designs Act for up to 16 years (upon application). In 1995, a
disagreement surfaced between the United States and Australia regarding
the application of the TRIPS Agreement's requirement to protect test
data. USTR has placed Australia on the Special 301 Watch List because
legislation introduced by the Australian government does not provide
adequate protection for test data submitted to regulatory authorities
for marketing approval of pharmaceutical and agricultural chemicals.
Discussions on this issue continue.
Trademarks and Copyrights: Australia provides TRIPs compatible
protection for both registered and unregistered well known trademarks
under the Trademark Act of 1995. The term of registration is ten years.
Copyrights are protected under the Copyright Act of 1968 for a term of
the life of the author plus 50 years. Computer programs can receive
copyright protection. The Australian government continues to consider
broadening the copyright fair use exemption to include the
decompilation of computer software. The Australian Copyright Act
provides protection regarding public performances in hotels and clubs.
Australia has effective protection against copyright piracy.
The government has introduced a bill into Parliament that would
permit parallel importation of sound recordings. If this bill passes,
parallel importation may be expanded to include toys, computer
software, and other goods. The Australian government is considering
recognizing moral rights for screenwriters, directors, and producers of
cinematographic works. Australia is listed as a ``Watch List'' country
under Special 301 in part for its failure to provide adequate
protection for pharmaceutical and agricultural chemicals test data in
addition to the copyright concerns listed above.
New Technologies: Infringement of technology does not appear to be
a significant problem. Australia has its own software industry and
accords protection to foreign and domestic production. Australia
manufactures only basic integrated circuits and semiconductor chips.
Australian television networks, which pay for the rights to U.S.
television programs, jealously guard against infringement. The
fledgling Australian cable TV networks appear to be doing the same.
9. Worker Rights
a. Right of Association.--Workers in Australia enjoy and practice
the rights to associate, to organize and to bargain collectively. In
general, industrial disputes are resolved either through direct
employer-union negotiations or under the auspices of the various state
and federal industrial relations commissions. Australia has ratified
the major international labor organization conventions regarding worker
rights.
b. Right to Organize and Bargain Collectively.--Approximately 30
percent of the Australian workforce belongs to a union. The industrial
relations system operates through independent federal and state
tribunals; unions are currently fully integrated into that process.
Legislation designed to reduce the powers of unions to represent
employees has been passed by federal parliament but remains to be
tested in the courts and through industrial dispute mechanisms.
c. Prohibition of Forced or Compulsory Labor.--Compulsory and
forced labor are prohibited by ILO conventions which Australia has
ratified, and are not practiced in Australia.
d. Minimum Age for Employment of Children.--The minimum age for the
employment of children varies in Australia according to industry
apprenticeship programs, but the enforced requirement in every state
that children attend school until age 15 maintains an effective floor
on the age at which children may be employed full time.
e. Acceptable Conditions of Work.--There is no legislatively
determined minimum wage. An administratively determined minimum wage
exists through minimum wage clauses contained in several federal awards
and some state awards (these effect workers mainly in the hospitality,
hotels and tourism sectors). For the most part however, minimum wages
in individual industries are specified in industry ``awards'' approved
by state or federal tribunals. Workers in Australian industries
generally enjoy hours, conditions, wages and health and safety
standards that are among the best and highest in the world.
f. Rights in Sectors with U.S. Investment.--Most of Australia's
industrial sectors benefit from some U.S. investment. Worker rights in
all sectors are essentially identical in law and practice and do not
differ between domestic and foreign ownership.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 1609
Total Manufacturing........................... 9360
Food & Kindred Products..................... 2031
Chemicals & Allied Products................. 2524
Metals, Primary & Fabricated................ 517
Machinery, except Electrical................ 875
Electric & Electronic Equipment............. 282
Transportation Equipment.................... 916
Other Manufacturing......................... 2215
Wholesale Trade............................... 2511
Banking....................................... 3742
Finance/Insurance/Real Estate................. 3395
Services...................................... 1437
Other Industries.............................. 6715
TOTAL ALL INDUSTRIES.......................... 28,769
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
PEOPLE'S REPUBLIC OF CHINA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]\1\ \2\
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP................................ 701.9 816.9 892.5
Real GDPGrowth (pct) \2\................... 10.5 9.6 9.0
GDP by Sector:\3\
Agriculture.............................. 144.5 167.3 170.1
Manufacturing............................ 297.8 350.4 442.3
Services................................. 259.6 299.2 228.5
Government............................... N/A N/A N/A
Per Capita GDP............................. 584.8 678.8 721.7
Labor Force (millions)..................... 687 697 707
Unemployment Rate (pct) \4\................ 2.9 3.0 3.1
Money And Prices (annual percentage growth):
Money Supply (M2).......................... 29 25 19
Consumer Price Inflation................... 10.1 7.0 3.4
Exchange Rate (Rmb/US$ annual average)
Official................................. 8.3 8.3 8.3
Balance of Payments and Trade:
Total Exports (FOB) \5\.................... 148.8 151.1 181.0
Exports to US............................ 45.6 51.5 60.0
Total Imports (CIF) \5\.................... 132.1 138.8 142.0
Imports from U.S. (FAS).................. 11.8 12.0 13.0
Trade Balance.............................. 16.7 12.2 39.0
Balance with U.S......................... 29.5 35.8 47.0
External Public Debt....................... 106.9 116.3 N/A
Fiscal Deficit/Gdp (pct)................... 2.2 0.8 0.3
Current Account Surplus/GDP (pct).......... 0.2 0.9 1.6
Debt Service
Payments/Exports (pct)................... 7.3 6.7 N/A
Payments/GDP (pct)....................... 1.5 1.2 N/A
Gold and Foreign Exchange Reserves......... 73.6 105.0 142.0
Aid from United States..................... 0 0 0
Aid from All Other Sources................. 0.4 0.3 N/A
------------------------------------------------------------------------
\1\ Estimated from third quarter and end August 1997 data.
\2\ Growth rate based on constant renminbi (RMB) prices using 1978
weights. All other income and production figures are converted into
dollars at the exchange rate.
\3\ Production and net exports are calculated using different accounting
methods and do not tally to total GDP. Agriculture includes forestry
and fishing; manufacturing includes mining.
\4\ ``Official'' urban unemployment rate; agricultural laborers are
assumed to be totally employed in China's official labor data.
\5\ Source: U.S. Department of Commerce (United States-China bilateral
trade data) for U.S. trade; PRC Customs (Chinese global trade data and
1997 estimates).
Sources: State Statistical Bureau Yearbook, People's Bank of China
Quarterly Statistical Bulletin, and U.S. Department of Commerce Trade
Data.
1. General Policy Framework
The Chinese economy has grown at an average rate of nine percent
per year since the 1979 economic reforms, with growth rates of 13
percent in 1992-1993, according to official data. The 1997 growth rate
may exceed 9 percent, according to official projections. (Though
China's official GDP figures tend to overstate growth, official data,
in general, reflect significant economic trends.) China appears to have
achieved a ``soft landing'' of single-digit inflation and stable growth
in 1996 and 1997. Retail price inflation, which exceeded 20 percent in
1994, stood at only 3.4 percent in September 1997 compared to the year-
earlier period. Price increases for services have been running somewhat
higher, however. China continues to attract large inflows of foreign
direct investment based on tax incentives, policies generally focused
on the use of market forces to sustain growth, and the economic
dynamism of the rapidly growing private sector. China's direct
investment inflows are expected to be about $42 billion in 1997, about
the same as in 1996.
The Five-Year Plan for 1996-2000 reaffirmed the importance of
China's economic expansion and, by implication, its private sector, by
calling for 8 percent annual GDP growth through 2000 and a further
doubling of GDP during 2000-2010. Economic reform and China's opening
to the outside world are central to China's development formula.
However, the Five-Year Plan also reconfirmed the role of state-owned
enterprises, which still directly account for 40 percent of total
industrial output. About one-half of China's state-owned enterprises
were reporting losses in 1997. The central government loudly endorsed
further reform of the state-owned sector at the 15th Congress of the
Chinese Communist Party (held in September 1997) but remains cautious
about the effects of reform on social stability and unemployment.
Underemployment (estimated at some 23 million persons in the state
sector workforce) is not reflected in the official estimate of an urban
unemployment rate of 3.1 percent. ``Triangular debt'' incurred by
state-owned enterprises, their banks, and their suppliers remains large
and inhibits economic and banking reform; many of these debts are
unlikely to be paid with cash or goods.
As China deepens its reforms, new challenges will include the
establishment of legal and political structures to sustain high levels
of foreign as well as private domestic investment. China must also
develop capital markets and financial institutions to allocate more
efficiently the large amounts of savings in the economy.
A key national priority of the 1996-2000 Five-Year Plan is to deal
with growing regional income disparities. This requires strengthening
the government's fiscal capacity and its ability to redistribute wealth
equitably. Tax reform has led to a more simplified code and has reduced
the gap in tax rates between state-owned and other enterprises. Tax
reforms and the new tax system began to reverse the declining share of
revenues as a percent of GDP in mid-1996. (This does not take into
account ``policy lending'' through the banking system, which ideally
should be included in any analysis of the government's fiscal
position.)
China made significant and numerous adjustments to its import
tariff schedule on April 1, 1996 and again on October 1, 1997. China's
simple average import tariff had decreased from greater than 40 percent
in 1995 to 17 percent in late 1997. However, nominal tariff rates on
items which are frequently smuggled into China, with attendant revenue
losses and rule of law problems, remain very high; such goods include
but are not limited to automobiles, wine and spirits. Import tariffs on
some items of great export interest to the United States and others of
China's trading partners remain high; these include the aforementioned
goods, capital equipment, and some vegetable oils and fresh fruits, for
example. As of late 1997, China was preparing to reinstitute capital
equipment tariff waivers for some types of equipment, in part to help
attract new inflows of foreign direct investment. China's import tariff
revenues climbed following the 1996 tariff reductions but import growth
remained anemic through late 1997.
China's undeveloped financial system remains small in comparison to
China's economic ambitions and inhibits the efficient allocation of
capital. However, China is moving forward with the legal framework
needed to improve the banking sector. In 1995, new banking laws were
adopted to facilitate the entry of foreign banks to China, although the
operation of these laws are still not fully tested. China now has 135
foreign bank branches, including 11 U.S. bank branches, concentrated in
coastal areas and large inland cities, including Beijing and Chengdu.
The entry of these banks reinforces China's efforts to carry out
financial sector liberalization. Their presence in the market is an
important channel for technology and know-how to drive further reform.
Despite attempts to commercialize the banking sector, the overhang of
previous debt in the form of policy loans to the state sector
complicates attempts to segregate and to manage policy loans still on
the books. China's large state banks are grappling with this problem,
but liquidating state enterprise assets would further raise
unemployment in the near term.
2. Exchange Rate Policies
Foreign-invested enterprises and authorized Chinese firms generally
have liberal access to foreign exchange in China for authorized trade-
related transactions. China maintains favorable rules for foreign
invested enterprises (FIEs), which can have foreign currency deposits
and keep their foreign exchange earnings. In 1997, the central bank
(Peoples Bank of China) began implementing a new policy to allow
Chinese enterprises earning more than more than 10 million dollars a
year in foreign exchange receipts to keep up to 15 percent of such
receipts. Previously, all Chinese firms were required to sell their
foreign exchange earnings to Chinese banks. One effect of this
continuing policy that mandates surrender of foreign exchange is an
artificially high level of foreign exchange reserves held at the
People's Bank of China, China's central bank.
The People's Bank of China introduced full convertibility of the
currency for current account (trade) transactions on December 1, 1996.
The move marked an important step forward on currency convertibility,
though China still restricts convertibility on its capital account.
Current account liberalization clearly removes foreign exchange
balancing from the agenda of China's financial authorities and places
it squarely on its trade agencies and the State Planning Commission. In
the past, balancing requirements placed on most foreign investors in
China have been ``justified'' by China's perceived need to accumulate
greater amounts of foreign exchange reserves. The new policy should
obviate any need to impose new or audit old foreign exchange balancing
requirements. Whether Chinese authorities will invalidate existing
foreign exchange balancing requirements required in earlier approvals
(and which remain as specific provisions in individual approval
documents) is still uncertain.
Chinese authorities describe the current exchange rate as a
``managed float.'' Since January 1996, the RMB exchange rate has
appreciated slightly against the U.S. dollar to just under 8.3:1. The
exchange rate is permitted to fluctuate in a narrow band around central
rates announced by the People's Bank of China. China uses the RMB/
dollar exchange rate as the basic rate, and RMB rates against other
currencies are calculated by referring to international market rates of
the previous day. This system is not particularly suited to exchange
rate fluctuations; the gap, when present, between cross rates and
international market rates provides arbitrage opportunities to dealers
while rendering the central bank cross rates inoperative because no
transactions occur at the central bank rate. China still lacks a
foreign exchange market where foreign exchange dealers interact
directly with international markets. China lacks market interest rates.
3. Structural Policies
Chinese officials claim that prices have been freed for about 95
percent of consumer goods and 85 percent of industrial inputs. As part
of its effort to control inflation, however, the Chinese government has
intervened in pricing for daily necessities, basic urban services, and
key commodities. China continues to maintain discriminatory pricing
practices with respect to some services and inputs offered to foreign
investors in China. At the same time, foreign-invested enterprises
often may use incentives, tax holidays, and grace periods to pay less
than the 33 percent corporate income tax rate to which they would
otherwise be subject. Chinese firms pay a corporate income tax of 30
percent.
In 1994, China issued a ``Framework Industrial Policy for the
1990s'' which announced plans to issue policies for the automotive,
telecommunications and transportation, machinery and electronics, and
construction sectors. The automotive industrial policy, issued in July
1994, contains import controls, local content and other performance
requirements for foreign investors, and temporary price controls for
sedans. Sectoral industrial policies for the chemicals and
petrochemicals and machinery industries were reportedly issued by the
State Planning Commission in 1997 but have not been published.
In 1996 and 1997, the State Tax Administration implemented further
reductions in the value-added tax rebate on exports begun in 1995
(currently 9 percent of the total 17-percent tax). Progress in paying
off past-due value-added rebates to many exporters may have contributed
to the surge in exports in 1997.
4. Debt Management Policies
At the end of 1996, China's external debt stood at about $116
billion, or 77 percent of exports, according to official Chinese data.
In the context of China's strong export performance and high foreign
exchange reserve levels, its current external debt burden is medium-
term and long-term and remains within acceptable limits. China's 1996
debt service ratio was 6.7 percent (ratio of repayment of principal and
interest on foreign debt to foreign exchange receipts of exports plus
services), down from 7.3 percent in 1995, according to Chinese data.
China's ratio of foreign debt to GDP declined from 15 percent in 1995
to 14 percent in 1996. The Asian Development Bank, the World Bank, and
Japan are China's major creditors, providing approximately 60 percent
of all China's governmental and commercial loans.
In 1995, China began drafting a law to govern management of
government debt to replace the 1992 ``Treasury Bond Regulations,''
which are deemed narrow-gauged and not sufficiently international in
scope. Though there is no clear timetable, the enactment of the new law
would formalize the legislative process of approving debt ceilings and
more clearly regulate the activities of intermediaries and investors in
the government bond market. The Fifth Party Plenum called for the
Finance Ministry to unify the management of the government's internal
and external debt. These objectives reflect official recognition of the
need to upgrade further China's capital markets and improve debt
management.
China's government bond market is still in its infancy. China
established a system of primary dealers in 1994 and there are
officially about 50 dealers. The Ministry of Finance authorizes them to
underwrite bonds on a contract basis for domestic customers. In July
1995, China ``auctioned'' bonds on a very small scale, but financial
experts do not regard these transactions as standard competitive
bidding because priority was assigned not according to interest rates
but to dealers who most quickly turned in their funds. Domestic
interest rates on government bonds are fixed at about one percentage
point above bank savings rates, which are ``policy,'' not market,
rates. In the last several years, China has introduced a wider variety
of maturities and instruments to manage its renminbi debt, but the
trend is generally towards more short- and medium-term maturities (six
months and 1-5 years). Some experts have observed that the continued
sharp rise in government borrowing in 1995 and 1996 (about RMB 150
billion and RMB 213 billion, respectively) reflects the decision of the
Third Plenum of the 14th Communist Party Congress that fiscal deficits
should be covered by bonds and not indiscriminate ``policy loans.''
5. Aid
The United States has provided occasional disaster-relief
assistance to the People's Republic of China to help flood-relief and
other humanitarian efforts in recent years. These have taken the forms
of occasional grants of no more than dollars 25,000 or donations of
goods. In addition, the United States operates a Peace Corps-affiliated
English-language training program in southwestern China's Sichuan
Province. China is a major recipient of other nations' assistance
programs and of multilateral assistance. Multilateral assistance
includes but is not limited to programs operated by the World Bank; the
World Food Program, United Nations Development Program, and other
United Nations-affiliated agencies and programs; the Asian Development
Bank; and other international financial institutions.
6. Significant Barriers to U.S. Exports
China continues to impose barriers to U.S. exports, although
reforms are liberalizing China's trade regime. Liberalization of
China's import regime has not kept pace with liberalization of its
export regime. In addition to prohibitively high tariffs which
discourage many imports, China maintains several hundred formal
nontariff measures (NTMs) to restrict imports, such as import licensing
requirements; import quotas, restrictions, and controls; tendering
requirements; and standards and certification requirements. China's
restrictive system of trading rights, which severely limit domestic and
foreign-invested enterprises' ability to directly import and export,
raises the cost of imported goods in China by funneling imports through
fee-collecting Chinese foreign trade companies. In most transactions,
U.S. suppliers are unable to sell directly to their ultimate customer.
Lack of regulatory transparency remains a problem, although China has
made progress in publishing trade-related rules. Use of unscientific
sanitary and phytosanitary measures is a barrier to exports of some
U.S. agricultural goods, including meat, citrus and Pacific Northwest
wheat. Nevertheless, industry has not noted significant improvement.
On October 10, 1992, the United States and China signed a
Memorandum of Understanding (MOU) on Market Access that commits China
to dismantle most of these barriers and gradually open its markets to
U.S. exports. The actions China has committed to take are consistent
with World Trade Organization (WTO) Agreements, including the General
Agreement on Tariffs and Trade (GATT).
In implementing the 1992 Market Access MOU, China has published
numerous previously ``confidential'' trade laws and regulations, both
at the central and subnational levels. Publication of trade-related
laws and regulations does not always precede implementation.
Information on China's import quotas, crucial for foreign and
domestic traders, has yet to be published on an itemized basis.
As a direct result of the Market Access MOU, China has removed over
1,000 quotas and licenses on a wide range of key U.S. exports such as
telecommunications digital switching equipment, computers, many
agricultural products, and medical equipment. As of late 1997, China
currently retains NTMs on 385 tariff-line items, according to Chinese
trade officials. The final NTM eliminations required under the MOU are
scheduled to occur no later than January 1, 1998.
Despite the removal of these quotas and licenses, there have been
indications that China is erecting new barriers to restrict imports.
Examples include new procedures regarding purchases of large-size
medical equipment, registration requirements for imported (but not
domestically manufactured) chemicals, and new industrial policies in
such areas as automobiles and electronics. In addition, continuing
restrictions on trading rights can act as a barrier for imports after
quotas have been removed, as in the case of crude oil imports. In the
context of China's World Trade Organization accession negotiations,
China has committed to significantly expand trading rights within three
years of its accession. U.S. and other foreign businesses have
continuing concerns about their abilities in China to amend business
licenses to broaden their scopes of permitted businesses and their
abilities to engage in distribution and after-sales service activities,
activities necessary to make China's promised trading rights
liberalization commercially meaningful.
High and unpredictable tariffs make importing into the Chinese
market difficult. Tariffs on imports can run as high as 100 percent on
goods such as automobiles. China announced plans in early 1996 to begin
phasing out import tariff waivers on capital equipment previously
available to foreign investors in China. Elimination of those waivers
could mean multimillion-dollar investment project cost increases for
foreign investors, and not surprisingly, contracted foreign investment
in China in the first three quarters of 1997 had decreased 35 percent
from the year-earlier period. China is preparing to reinstitute some
form of import tariff reduction or waiver for foreign investors in
1998, with high-technology equipment (yet to be defined by China) a
likely beneficiary of those tariff changes. Under commitments in the
1992 Market Access MOU, China lowered tariffs on several thousand items
of interest to U.S. exporters. As part of China's effort to accede to
the World Trade Organization Agreement, the United States is
negotiating with China on the further reduction of tariffs of concern
to U.S. companies. China had reduced its simple average import tariff
rate from more than 40 percent in 1995 to 17 percent in October 1997.
China announced in early 1996 that effective April 1, 1996, tariff-
rate quotas would apply to imports of wheat, corn, rice, soybeans, and
vegetable oils. As of late 1997, China had not announced tariff-rate
quota administration rules nor quota volumes. Out-of-quota tariff rates
range as high as 121.6 percent. This unfortunate lack of clarity and
information complicates trade in these goods.
Under the Market Access MOU, China agreed to base standards for the
import of agricultural products and livestock genetics on sound
science. Since 1992, the United States has signed a number of protocols
with China that have opened the door to U.S. exports of such products
as apples (from Washington, Oregon, and Idaho), cherries (from
Washington), grapes, live cattle, bovine embryos, bull semen,
ostriches, poultry and birds, swine, rabbits, and horses. On some key
agricultural products, however, China continues to use unscientific
sanitary and phytosanitary measures to block U.S. exports, especially
of meat, citrus fruit and Pacific Northwest wheat.
For manufactured goods, China has required quality licenses before
granting import approval, with testing based on standards and
specifications often unknown or unavailable to foreigners and not
applied equally to domestic products. In the Market Access MOU, China
committed to applying the same standards and testing requirements to
both foreign and domestic nonagricultural products.
In the Market Access MOU, China agreed to eliminate the use of
import substitution policies and measures, and promised that it would
not subject any imported products to such measures in the future, nor
deny approval for imports because an equivalent product is produced in
China. Nonetheless, the Chinese Government has continued to place local
content requirements on foreign investment in China, such as in the
automotive industrial policy announced in 1994.
China has made important reforms to its trade regime in recent
years. In addition to the above-mentioned actions to improve
transparency, lower tariffs, and remove nontariff measures, China has
adopted legislation or issued regulations on unfair competition,
foreign trade, labor, protection of intellectual property rights,
import quotas, commodities subject to inspection, and other trade-
related issues. Implementing regulations often have not been published.
China has only recently begun to reform and open its services
sector, and in most areas severely restricts or prohibits access to the
market. China has initiated limited experiments in such areas as
insurance, retailing, legal services, and tourist resorts. In
insurance, Guangzhou was added to Shanghai in 1995 as a second city
with limited (one company) foreign participation. In retailing, joint
venture department stores approved at the central level (with full
trading rights) remain limited to 22 stores in 11 cities and special
economic zones. China offered to increase that number to a total of 26
stores in WTO accession negotiations in late 1997, but the offer fails
to encompass an estimated more than 200 joint-venture department stores
approved at the provincial or municipal level. Access in two key areas
of interest to U.S. companies, telecommunications and financial
services, remains severely restricted. Concerns about decreasing
foreign investment in China is expected to prompt revision of foreign
investment guidelines in early 1998, which may result in greater
allowed foreign participation in some of China's services sectors.
Many joint ventures are highly dependent on China's state-owned
enterprises for downstream services. Some investors have been permitted
to set up their own marketing and service organizations, but many have
no choice but to rely on Chinese channels for support. Imports of audio
and video recordings continue to be hampered by unofficial quotas and
lax enforcement of intellectual property laws. China does not permit
foreign membership on its stock exchanges, although foreigners may hold
certain stock with restricted privileges. Representative offices of
foreign companies must hire their local employees through a labor
services company.
Significant barriers to investment in China warrant further reform.
Multiple, time-consuming approval procedures adversely affect
establishment of investments. Depending on the locality, investments
above dollars 30 million require national as well as local approval.
Export requirements, local content requirements, and foreign exchange
balancing requirements detract from China's investment climate. The
foreign exchange balancing requirements have become less of a doing-
business issue as China's foreign exchange reserves have rapidly grown
in the 1995-97 period, but such restrictions on existing investors have
not been eliminated. China also encourages the development of favored
domestic industries through tax incentives and tariff exemptions. China
permits repatriation of profits when a joint venture has earned
sufficient foreign exchange to cover the remitted amount. China
published investment guidelines in June 1995 cataloguing those sectors
in which foreign investment is encouraged, allowed, restricted, or
prohibited. China does not provide national treatment to foreign
investors on establishment or operation of investments. In some key
areas, such as input costs, foreign investors are often treated less
favorably than Chinese firms. Foreign investors may not own land in
China, though long-term land use deals may be approved. In at least one
case, a U.S. company has thus far been unable to have an international
arbitration award enforced in China.
Although open competitive bidding procedures are increasingly used
for both domestic and foreign-invested projects, the great majority of
government procurement contracts in China are handled through domestic
tenders or direct negotiations with selected suppliers. Projects in
certain fields require government approvals, usually from several
different organizations and levels. Procedures can be opaque and
foreign suppliers are routinely discriminated against in areas where
domestic suppliers exist.
Customs procedures are not applied uniformly throughout China. The
same product may be dutied at different rates in different Chinese
ports of entry. Some products are subject to different inspection or
registration procedures than domestic products. For instance, China's
chemical registration regulations are applied only to foreign-made
chemicals.
7. Export Subsidies Policies
China abolished direct subsidies for exports on January 1, 1991.
Nonetheless, many of China's manufactured exports receive indirect
subsidies through guaranteed provision of energy, raw materials or
labor supplies. Other indirect subsidies are also available such as
bank loans that need not be repaid or enjoy lengthy or preferential
terms. Tax rebates are available for exporters as are duty exemptions
on imported inputs for export production. China reduced the level of
its value-added tax rebates to exporters in 1995 and 1996 and fell
billions of dollars behind in making payments on the rebates. China
appears to have made progress in 1997 in reducing its value-added tax
rebate arrears.
In its on-going negotiations to accede to the World Trade
Organization (WTO), China announced in 1997 that it would not re-
introduce export subsidies for agricultural goods following its
accession. The Chinese National People's Congress at its March 1997
meeting released little public information about the central
government's budget revenue and expenditures, making it difficult to
verify that export subsidies are not still in place.
8. Protection of U.S. Intellectual Property
Since the signing of the U.S.-bilateral agreement on the protection
of intellectual property rights (IPR) in February 1995 and the
agreement in June 1996 on procedures for ensuring its effective
implementation, China has made significant progress in implementing IPR
regulations, education, and enforcement. China was taken off the
``Special 301 Watch List'' in 1996. However, its practices continue to
be monitored under Section ``306''.
Since 1995, China claims to have closed a total of 58 unauthorized
compact disc (CD) production lines, primarily in the southern provinces
of Guangdong and Fujian, and to have largely eliminated unauthorized CD
production in China. China claims that unauthorized CDs still sold in
China are imported from elsewhere, primarily Hong Kong and Macau. China
has instituted verification procedures, including foils and other
markings to identify authorized products and CD production equipment
now requires an official import license to be brought into the PRC.
China has offered cash rewards of up to some $35,000 for information
leading to closure of unauthorized CD production lines and has revised
its laws to provide criminal penalties for IPR violations.
The U.S. remains concerned that penalties imposed by PRC courts are
insufficient to act as a deterrent. Industry sources point out that
unauthorized CDs are still being sold in China. The U.S. has reiterated
requests for more detailed information, as per the terms of the 1996
Agreement, regarding closed CD factories and specific penalties imposed
on IPR violators.
End-user piracy of computer software remains a serious problem in
China, especially the sensitive issue of piracy within PRC government
ministries. The lack of agents in China authorized to accept trademark
applications from foreign companies makes it difficult for foreigners
to get trademarks registered. The lack of clarity on procedures to
protect well-known trademarks makes it overly difficult to oppose or
seek cancellation of marks registered by someone else. The Ministry of
Public Health has granted Chinese companies the right to manufacture a
pharmaceutical product while an American company was awaiting action on
its application for administrative protection on that product.
Regulations on the use of copyright agents by foreign companies have
not yet been finalized, effectively preventing the use of copyright
agents in obtaining copyrights for transactions by foreign companies.
The manufacture of counterfeit goods remains a serious, possibly
growing problem.
U.S. industry estimates of intellectual property losses in China
due to counterfeiting, piracy, and exports to third countries have
exceeded dollars 2 billion.
9. Worker Rights
a. The Right of Association.--China's 1982 Constitution provides
for ``freedom of association,'' but this right is subject to the
interest of the state and the leadership of the Chinese Communist
Party. China's sole officially recognized workers' organization, the
All-China Federation of Trade Unions (ACFTU), is controlled by the
Communist Party. Independent trade unions are illegal. The 1993 revised
Trade Union Law required that the establishment of unions at any level
be submitted to a higher level trade level organization. The ACFTU, the
highest level trade organization, has not approved the establishment of
independent unions. Workers in companies with foreign investors are
guaranteed the right to form unions, which then must affiliate with the
ACFTU.
b. The Right to Organize and Bargain Collectively.--China's
National Labor Law, which entered into force on January 1, 1995,
permits workers in all types of enterprises in China to bargain
collectively. The law supersedes a 1988 law that allowed collective
bargaining only by workers in private enterprises. The National Labor
Law provides for workers and employers at all types of enterprises to
sign individual as well as collective contracts. Collective contracts
should be worked out between ACFTU or worker representatives and
management and specify such matters as working conditions, wage
distribution, and hours of work. Individual contracts should then be
drawn up in line with the terms of the collective contract. Collective
contracts must be submitted to local government authorities for
approval within 15 days. Through the early autumn of 1997, Chinese
union and labor officials reported an increasing number of experiments
in collective bargaining particularly at foreign-invested enterprises
where capital interests are clearly delineated.
c. Prohibition of Forced or Compulsory Labor.--In addition to
prisons and reform through labor facilities, which contain inmates
sentenced through judicial procedures, China also maintains a network
of ``reeducation through labor'' camps, to which inmates are sentenced
through nonjudicial procedures. Inmates of reeducation through labor
facilities are generally required to work. Reports from international
human rights organizations and foreign press indicate that at least
some persons in pretrial detention are also required to work. Chinese
justice officials have stated that in reeducation through labor
facilities there is a much heavier emphasis on education than on labor.
Most reports conclude that work conditions in the penal system's light
manufacturing factories are similar to those in ordinary factories, but
conditions on farms and in mines can be harsh.
d. Minimum Age for Employment of Children.--China's National Labor
Law forbids employers to hire workers under 16 years of age and
specifies administrative review, fines and revocation of business
licenses of those businesses that hire minors. The Chinese Constitution
establishes the basic right of children to receive nine years of
compulsory education and to receive their subsistence from parents and
guardians. Laborers between the ages 16 and 18 are referred to as
``juvenile workers'' and are prohibited from engaging in certain forms
of physical work including labor in mines. In poorer isolated areas,
child labor in agriculture is widespread. China's vast reserve of
surplus adult labor minimizes incentives to employ children, and
China's urban child labor problem is relatively minor. No specific
Chinese industry is identifiable as a significant violator of child
labor regulations.
e. Acceptable Conditions of Work.--The National Labor Law codified
many of the general principles of China's labor reform, setting out
provisions on employment, labor contracts, working hours, wages, skill
development and training, social insurance, dispute resolution, legal
responsibility, supervision and inspection. The law does not set a
national minimum wage, but allows local governments to determine their
own standards on minimum wages. On May 1, 1995, China reduced the
national standard work week from 44 hours to 40 hours excluding
overtime. The National Labor Law mandates a 24-hour rest period per
week and does not allow overtime work in excess of three hours a day or
36 hours a month. The law also sets forth a required scale of overtime
compensation. While unemployment insurance schemes cover a majority of
urban workers (primarily state sector workers), it is impossible to
determine how many laid-off workers in fact receive any compensation.
Every work unit must designate a health and safety officer, and the
International Labor Organization has established a training program for
these officers. Moreover, while the right to strike is not provided for
in the 1982 Constitution, the Trade Union Law explicitly recognizes the
right of unions to ``suggest that staff and workers withdraw from sites
of danger'' and to participate in accident investigations. According to
Ministry of Labor statistics, released in November 1997, during the
first eight months of 1997 there were 10,251 work-related accidents
which claimed 10,434 lives. This represents a drop of approximately 10
percent when compared with the same 1996 time frame. The Ministry of
Labor cites failure to enforce and implement government safety
regulations as the primary cause for the high rate of accidents.
f. Rights in Sectors with U.S. Investment.--Worker rights practices
do not appear to vary substantially among sectors, but safety standards
are higher in U.S.-invested companies in general.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 904
Total Manufacturing........................... 1504
Food & Kindred Products..................... 133
Chemicals & Allied Products................. 249
Metals, Primary & Fabricated................ 26
Machinery, except Electrical................ \1\
Electric & Electronic Equipment............. 736
Transportation Equipment.................... \1\
Other Manufacturing......................... 189
Wholesale Trade............................... 108
Banking....................................... 74
Finance/Insurance/Real Estate................. \1\
Services...................................... \1\
Other Industries.............................. 187
TOTAL ALL INDUSTRIES.......................... 2,883
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
HONG KONG
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\.......................... 140.1 155.0 174.1
Real GDP Growth (pct).................... 4.5 4.9 5.5
GDP by Sector:
Agriculture........................... 0.2 N/A N/A
Manufacturing.......................... 11.0 N/A N/A
Services............................... 110.0 N/A N/A
Government............................. 12.3 13.7 15.4
Per Capita GDP (US$)..................... 21,617 23,086 25,432
Labor Force (000s)....................... 3,001 3,094 3,159
Unemployment Rate (pct).................. 3.2 2.8 2.5
Money and Prices (annual percentage
growth):
Money Supply (M2) \3\.................... 14.6 10.9 14.4
Consumer Price Inflation (pct)........... 8.7 6.0 7.0
Exchange Rate(HK$/US$):
Official............................... 7.73 7.73 7.75
Balance of Payments and Trade:
Total Exports (FOB) \4\.................. 173.8 180.8 189.1
Exports to U.S.\5\..................... 10.3 9.9 9.6
Total Imports (CIF)...................... 192.8 198.9 210.9
Imports from U.S.\5\................... 14.2 14.0 15.4
Trade Balance............................ -19.0 17.8 -21.8
Balance with U.S.\5\................... 3.9 4.1 5.8
External Public Debt..................... 0 0 0
Fiscal Deficit/GDP (pct) \6\............. 2.3 0.3 -1.0
Current Account Deficit/GDP (pct)........ -2.5 -1.0 -1.5
Debt Service Payments/GDP (pct).......... 0 0 0
Gold and Foreign Exchange Reserves (end
of period) \7\ 55.4 62.1 89.4
Aid from U.S............................. 0 0 0
Aid from All Other Sources............... 0 0 0
------------------------------------------------------------------------
\1\ Estimates based on available monthly data in September 1996
\2\ Expenditure-based GDP estimates
\3\ Money supply of Hong Kong dollars and foreign currencies
\4\ Of which domestic exports (as opposed to re-exports) constituted
17.2 percent (1995), 15.2 percent (1996) and 14.5 percent (1997
estimate based on data through August).
\5\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
FAS, imports customs basis; 1997 figures are estimates based on data
available through August 1997. Hong Kong merchandise trade includes
substantial re-exports (mainly from China) to the United States, which
are not included in these figures.
\6\ As of Q2 1997
\7\ As of Q2 1997; the Land Fund was included in the foreign exchange
reserves effective July 1, 1997
Sources: Census and Statistics Department
1. General Policy Framework
The Hong Kong Government pursues economic policies of
noninterference in commercial decisions, low and predictable taxation,
government spending increases within the bounds of real economic
growth, competition subject to transparent laws (albeit without
antitrust legislation) and consistent application of the rule of law.
With few exceptions, the government allows market forces to set wages
and prices, and does not restrict foreign capital or investment. It
does not impose export performance or local content requirements, and
allows free repatriation of profits. Hong Kong is a duty-free port,
with few barriers to trade in goods and services.
The Government regularly runs budget surpluses, and has amassed
large fiscal reserves. The corporate profits tax is 16.5 percent, and
personal income is taxed at a maximum rate of 15 percent. Property is
taxed. Interest, royalties, dividends, capital gains and sales are not.
Government spending has grown from approximately 14 percent of GDP in
the mid 1980s to about 19 percent by the early 1990s.
Because monetary policy is tied to maintaining the nominal exchange
rate linked to the U.S. dollar, Hong Kong's monetary aggregates have
effectively been demand determined. The Hong Kong Monetary Authority,
responding to market pressures, occasionally adjusts liquidity through
interest rate changes and intervention in the foreign exchange and
money markets.
On July 1, 1997, Hong Kong became a Special Administrative Region
of the PRC. China assumed responsibilities for Hong Kong's foreign
affairs and defense, but Hong Kong remains a separate customs territory
with a high degree of economic autonomy. It continues to manage its
financial and economic affairs, to use its own currency, and to
participate independently in international economic organizations and
agreements.
2. Exchange Rate Policies
The Hong Kong dollar is linked to the U.S. dollar at an exchange
rate of HK$7.8 = US$1.00. The link was established in 1983 to encourage
stability and investor confidence in the run-up to Hong Kong's
reversion to Chinese sovereignty in 1997. PRC officials have said they
support Hong Kong's policy of maintaining the link after 1997.
There are no multiple exchange rates and no foreign exchange
controls of any sort. Under the linked exchange rate, the overall
exchange value of the Hong Kong dollar is influenced predominantly by
the movement of the U.S. dollar against other major currencies. The
price competitiveness of U.S. exports is affected in part by the value
of the U.S. dollar in relation to third country currencies.
3. Structural Policies
There has been no major change in Hong Kong's free market approach
to economics. The government does not have pricing policies, except for
in a few still-regulated sectors such as telecommunications. Its
personal and corporate tax rates remain low, and it does not impose
import or export taxes. Over the past three years, Hong Kong has
completed its deregulation of interest rates covering almost 99 percent
of deposits, removing interest rate caps for deposits of seven days or
less. Consumption taxes on tobacco, alcoholic beverages, and some fuels
probably restrict demand for some U.S. exports. Hong Kong generally
adheres to international product standards.
Hong Kong's lack of antitrust laws has allowed monopolies or
cartels--some of which are government-regulated--to dominate certain
sectors of the economy. These monopolies/cartels do not necessarily
discriminate against U.S. goods or services, but they can use their
market position to block effective competition.
4. Debt Management Policies
The Hong Kong government has minuscule public debt. Repeated budget
surpluses have meant the government has not had to borrow. To promote
the development of Hong Kong's debt market, the government in March
1990 launched an exchange fund bills program with the issuance of 91-
day bills. Maturities have gradually been extended. Five-year notes
were issued in October 1993, extending maturities beyond Hong Kong's
reversion to Chinese sovereignty, followed by 7-year notes in late 1995
and 10-year notes in 1996. Under the Sino-British agreed minute on
financing the new airport and related railway, total borrowing for
these projects cannot exceed US$2.95 billion, and such borrowing ``will
not need to be guaranteed or repaid by the government.'' Liability for
repayment will rest with the two statutory bodies: the Mass Transit
Railway Corporation and the future Airport Authority.
5. Significant Barriers to U.S. Exports
Hong Kong is a member of the World Trade Organization, but is not a
party to the WTO's plurilateral agreement on civil aircraft. As noted
above, Hong Kong is a duty-free port with no quotas or dumping laws,
and few barriers to the import of U.S. goods.
Import licenses: Hong Kong requires import licenses for textiles,
rice, meats, plants, and livestock. The stated rationale for most
license requirements is to ensure health standards are met. The
requirements do not have a major impact on U.S. exports.
Services barriers: There are some barriers to entry in the services
sector:
Hong Kong has liberalized its telecommunications policy, but still
maintains a government-regulated monopoly on international voice
services.
Foreign ownership of local broadcasting stations or cable operators
cannot exceed 49 percent. Moreover, the government stipulates that
broadcasters use the Hong Kong Telecom International satellite uplink
rather than their own uplink.
A new bilateral civil aviation agreement gives U.S. air carriers
important new rights. However, the agreement does not permit code
sharing or allow U.S. carriers new fifth freedom passenger rights to
carry passengers beyond Hong Kong. These factors will limit expansion
of U.S. passenger carriers in the Hong Kong market.
Foreign law firms are barred from hiring local lawyers to advise
clients on Hong Kong law, even though Hong Kong firms can hire foreign
lawyers to advise clients on foreign law. Foreign law firms can become
``local law firms'' and hire Hong Kong attorneys, but they must do so
on a 1:1 ratio with foreign lawyers.
Foreign banks established after 1978 are permitted to maintain only
one branch (automated teller machines meet the definition of a branch).
Since 1994, these banks have been allowed to open a regional and a back
office at separate sites. Foreign banks can acquire local banks that
have unlimited branching rights.
6. Export Subsidies Policies
The Hong Kong government neither protects nor directly subsidizes
manufacturers. It does not offer exporters preferential financing,
special tax or duty exemptions on imported inputs, resource discounts,
or discounted exchange rates.
The Trade Development Council, a quasi-governmental statutory
organization, engages in export promotion activities and promotes Hong
Kong as a hub for trade services. The Hong Kong Export Credit and
Insurance Corporation provides insurance protection to exporters.
7. Protection of U.S. Intellectual Property
With respect to the legislative arena and international
conventions, Hong Kong's framework is world class. Hong Kong has
acceded to the Paris Convention on industrial property, the Berne
copyright convention, and the Geneva and Paris Universal Copyright
Conventions. For those conventions that only allow sovereign state
participation, China is applying all of them to Hong Kong post-1997 (a
continuation of the United Kingdom's practice). Hong Kong passed a
solid new copyright law in June 1997. Enforcement of copyright and
trademarks, however, remains a problem.
Copyrights: Sale of pirated products at retail shopping arcades is
widespread and blatant. The United States has urged the government at
senior levels to crack down on this retail trade, and on the
distributors/wholesalers behind them. Hong Kong has responded by
beefing up enforcement manpower in the customs agency and by conducting
more aggressive retail-level raids. Recent raids, using confiscatory
powers in the new copyright bill, have had some impact on the
operations of the largest and most notorious retail arcade, but pirated
goods remain easily available at more than a dozen other arcades. The
judiciary has slowly begun to increase sentences and fines on
infringers. Still, there is no effective deterrent to piracy. In 1997,
the number of compact disc production plants in Hong Kong rose
dramatically. While many of the plants appear to be legitimate
producers, a number are producing pirated discs, including for export
to China. The United States has urged the government to take measures
to detect and prevent production of pirated goods. The government has
decided to develop a new anti-piracy legislative package which, if
approved, should enable it to monitor and control production.
Trademarks: Sale of counterfeit items, particularly handbags and
apparel, is widespread in Hong Kong's outdoor markets. Customs
officials have conducted numerous raids, but these actions have had
little impact on the overall availability of counterfeit goods.
New Technologies: Computer chip manufacturers say Hong Kong remains
a major center for illicit chip ``re-marking,'' despite a number of
successful raids by Hong Kong Customs on re-marking centers.
There are no reliable figures on the total losses to U.S. firms
from piracy in and through Hong Kong. The Business Software Alliance
estimated in early 1997 that 62 percent of the business software sold
in Hong Kong was pirated; it estimates the level of piracy is higher
for non-business software. The U.S. music industry estimates that
twenty percent of the recorded music sold in Hong Kong is pirated.
8. Workers Rights
a. The Right of Association.--Local law provides for right of
association and the right of workers to establish and join
organizations of their own choosing. Trade unions must be registered
with the government. The government does not discourage or impede union
formation or discriminate against union members. Workers who allege
anti-union discrimination have the right to have their cases heard by a
government labor relations body. Work stoppage and strikes are
permitted; however, in practice, most workers must sign employment
contracts that state that walking off the job is a breach of contract
and can lead to summary dismissal. A bill passed just before Hong
Kong's July 1 reversion removed the longstanding requirement that
unions obtain government approval prior to affiliating with foreign
organizations. However, the Provisional Legislature subsequently
amended the new law to require notification to the Labor Department and
approval from a majority of union members prior to establishing links
to foreign labor organizations.
b. The Right to Organize and Bargain Collectively.--The
International Convention on the Right to Organize and Bargain
Collectively has been applied to Hong Kong without modification since
1975. However, collective bargaining has not been widely practiced. A
law passed by the pre-reversion legislature made collective bargaining
and related practices mandatory for unions representing 15 percent or
more of a company's total workforce in companies with over 50
employees. The Provisional Legislature subsequently repealed the law.
c. Prohibition of Forced or Compulsory Labor.--Compulsory labor is
prohibited under existing legislation.
d. Minimum Age for Employment of Children.--The ``Employment of
Children'' regulations prohibit employment of children under age 15 in
any industrial establishment. Children ages 13 and 14 may be employed
in certain non-industrial establishments, subject to conditions aimed
at ensuring a minimum of 9 years of education and protecting their
safety, health, and welfare. The government continues inspections to
safeguard against the employment of children. Few violations have been
found in recent years.
e. Acceptable Conditions of Work.--There is no minimum wage except
for foreign domestic workers. Aside from a small number of trades and
industries in which a uniform wage structure exists, wage levels are
customarily fixed by individual agreement between employer and employee
and are determined by supply and demand. Hours and conditions of work
for women and young persons aged 15 to 17 in industry are regulated.
There are no legal restrictions on hours of work for men. Overtime is
restricted in the case of women and prohibited for all persons under
age 18 in industrial establishments. In extending basic protection to
its work force, the government has enacted industrial safety and
compensation legislation. The Labor Department carries out inspections
to enforce legislated standards and also carries out environmental
testing and conducts medical examinations for complaints related to
occupational hazards.
f. Rights in Sectors with U.S. Investment.--U.S. direct investment
in manufacturing is concentrated in the electronics and electrical
products industries. Aside from hazards common to such operations,
working conditions do not differ materially from those in other sectors
of the economy. Relative labor market tightness and high job turnover
have spurred continuing improvements in working conditions as employers
compete for available workers.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 599
Total Manufacturing........................... 260
Food & Kindred Products..................... 15
Chemicals & Allied Products................. 68
Metals, Primary & Fabricated................ \1\
Machinery, except Electrical................ 490
Electric & Electronic Equipment............. 1085
Transportation Equipment.................... \1\
Other Manufacturing......................... 767
Wholesale Trade............................... 5022
Banking....................................... 1506
Finance/Insurance/Real Estate................. 4656
Services...................................... 815
Other Industries.............................. 823
TOTAL ALL INDUSTRIES.......................... 16,022
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
INDONESIA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP................................. 198.1 221.1 211.2
Real GDP Growth (pct)....................... 8.1 7.6 5.0
GDP by Sector: \2\
Agriculture............................... 33.5 36.8 N/A
Manufacturing............................. 50. 60.3 N/A
Services.................................. 71.0 80.5 N/A
Government................................ 10.4 10.5 N/A
Per Capita GDP (US$)........................ 1014 1116 1049
Labor Force (millions)...................... 82 85 88
Unemployment Rate (pct)..................... 4.4 4.6 N/A
Money and Prices (annual percentage growth):
Money Supply (M2) \5\....................... 27.6 30.8 13.1
Consumer Price Inflation (pct) \4\.......... 9.0 8.0 10.0
Exchange Rate (rupiah/US$):
(avg. for yr.)............................ 2249 2335 2900
Balance of Payments and Trade:
Total Exports (FOB) \3\..................... 45.5 50.4 25.6
Exports to US \3\......................... 7.4 8.2 3.3
Total Imports (CIF) \3\..................... 39.8 44.9 21.4
Imports from US \3\....................... 3.4 3.7 2.8
Trade Balance \3\........................... 5.7 5.5 4.2
Balance with US \3\....................... 4.0 4.5 0.5
External Public Debt........................ 108.5 116.5 117.3
Debt Service Payments/GDP (pct)............. 7.9 7.4 N/A
Current Account Deficit/GDP(pct)............ 3.6 3.9 3.0
Fiscal Deficit/GDP (pct) \4\................ -1.0 0.1 0.8
Gold and Foreign Exchange Reserves (end of
period) 14.7 17.1 19.2
Aid from U.S. (millions of US$)............. 96.0 71.0 72.5
Aid from All Other Sources.................. 5.3 5.2 N/A
------------------------------------------------------------------------
\1\ Estimates based on preliminary data in November 1997.
\2\ GDP at market prices. GDP figures for 1997 are preliminary
estimates.
\3\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
FAS, imports customs basis; 1997 figures are estimates for January--
June 1997 from Indonesian Central Bureau of Statistics.
\4\ Estimate for fiscal year 1997/98 (4/1/97-3/31/98)
\5\ 1997 figure is for January--September 1997
Sources: Government of Indonesia, U.S. Department of Commerce, IMF
1. General Policy Framework
Indonesia has made remarkable economic progress over the last 30
years. In 1967, it was one of the world's poorest countries, with per
capita GDP of $70 per person. Indonesia's estimated per capita GDP
passed $1000 in 1995, life expectancy has risen to 63 years from 41
years in 1965, and infant mortality and illiteracy rates have fallen
dramatically. Real GDP growth averaged over 7 percent per year from
1991-1996 with inflation confined to the 5-10 percent range. Slower
growth and higher inflation are expected in 1997 as a result of the
economic downturn sparked by sharp depreciations in mid-1997 of the
currencies of Indonesia and other Southeast Asian countries and
drought.
The government maintains a balanced budget in the sense that on-
budget expenditures do not exceed domestic revenue plus foreign
assistance receipts. The central bank controls the money supply through
the purchase and sale of its own open market instruments, known as
``Sertifikat Bank Indonesia'' (SBI's) and ``Surat Berharga Pasar Uang''
(SBPU's).
The Indonesian government has made steady progress in trade and
investment deregulation, usually by periodically implementing
``deregulation packages'' of liberalization measures. Through these
packages, the government has lowered investment barriers and instituted
a program of comprehensive tariff reduction by staged cuts. Its goal is
to reduce all tariffs in the 1-20 percent range to 5 percent or less by
2000, and to reduce all tariffs in the 20 percent and higher range to
10 percent or less by 2003. Although the deregulation packages have
made comparatively less progress in reducing non-tariff barriers, the
government's November 1997 package, prepared in collaboration with the
International Monetary Fund (IMF), ended some monopolies on food items
and pledged gradual opening of Indonesia's closed distribution system.
Indonesia's economic development offers promise for U.S. business.
U.S. exports to Indonesia have quadrupled since 1987. U.S. merchandise
exports to Indonesia grew by nearly 16 percent in 1996 to $8.2 billion.
The best prospects for U.S. exporters include equipment used in the
construction of infrastructure, machinery, agricultural products for
consumption and as manufacturing inputs, aviation equipment, and
household consumer goods. However, the rupiah depreciation and economic
downturn that characterized the second half of 1997 had an adverse
impact on exports from the United States and other countries.
2. Exchange Rate Policies
From late 1986 until August 1997, the rupiah was on a managed
float, depreciating slowly against a basket of trading partners'
currencies. Over the past several years, Bank Indonesia (the central
bank) had steadily widened the band between its buying and selling rate
on the rupiah in an effort to encourage the development of an interbank
foreign exchange market and discourage speculative short-term capital
flows. However, with pressure on the rupiah and the currencies of
neighboring countries, Bank Indonesia decided on August 14 to eliminate
its intervention band. Since then, the rupiah has essentially floated,
although Bank Indonesia continues to intervene on occasion in an effort
to stabilize the exchange rate; that support is an important element of
the IMF package mentioned above. As of late November 1997, the exchange
rate was 3,500 rupiah per U.S. dollar, amounting to an almost 50
percent nominal devaluation since the beginning of the year.
3. Structural Policies
In general, the government allows the market to determine price
levels. The government enforces a system of floor and ceiling prices
for certain ``strategic'' food products such as rice. The number of
such products was reduced by the government as part of its November
1997 economic reforms. In some cases, business associations, with
government support, establish prices for their products. Direct
government subsidies are confined to a few goods such as fertilizer and
electricity.
Individuals and businesses are subject to income taxes. In 1995,
the government reduced the highest marginal income tax rate on firms as
well as individuals to 30 percent for annual earnings in excess of
Rupiah 50 million (US$ 14,300 at the November 1997 exchange rate). A
value-added tax and import duties are other important sources of
government revenue. Companies can apply for an exemption from or a
rebate of import duties and VAT paid on inputs used to produce exports.
A number of agricultural and resource based products remain subject to
export taxes. They include sawn lumber, rattan, mineral ores, and palm
oil.
4. Debt Management Policies
Indonesia's foreign debt totals about $117 billion, with about $52
billion owed by the state sector and $65 billion by the private sector.
In 1997 Indonesia will devote the equivalent of approximately 34
percent of total export earnings to principal and interest payments on
its foreign debt. The government is fully committed to meeting official
debt service obligations and has no plans to seek debt rescheduling.
A Cabinet-level team was set up by the government in September 1991
to oversee foreign borrowing. The team is charged with reviewing
applications for foreign commercial credits to finance projects in
which the government or a state owned enterprise is involved. Financing
for purely private projects is not affected.
5. Significant Barriers to U.S. Exports
Import licenses: The government has been reducing the number of
items subject to import licenses and other non-tariff import barriers
such as special licensing requirements. Such barriers are concentrated
on agricultural commodities and selected strategic industries.
Services barriers: Despite some loosening of restrictions, services
trade entry barriers continue to exist in many sectors, particularly in
the financial sector. Foreign banks, securities firms, and life and
property insurance companies are permitted to form joint ventures with
local companies, but in most cases the capitalization requirements are
higher than for domestic firms, and there are legal requirements,
albeit not yet enforced in practice, that require foreign-owned
financial services firms to divest to a minority-level of ownership.
Removal of those sorts of barriers was under intensive discussion in
late 1997 within the framework of the World Trade Organization
Financial Services negotiations in Geneva.
Foreign accounting firms must operate through technical assistance
arrangements with local firms, but Indonesian citizenship is no longer
a requirement for licensing as an accountant. Foreign agents and
auditors may act only as consultants and may not sign audit reports.
Foreign law firms are not allowed to establish practices in Indonesia.
Attorneys are admitted to the bar only if they have graduated from an
Indonesian legal faculty or an institution recognized as the
equivalent. Foreign companies incorporated in Indonesia may issue
stocks and bonds through the capital market.
Distribution in the domestic market has been quite restricted. The
November 1997 deregulation package included a provision allowing
foreign firms that produce in Indonesia to directly distribute their
products domestically. Beginning in 2003, such firms may sell their
products at the retail level. Indonesia imposes a quota on the number
of foreign films which may be imported in a given year. Films may be
imported and distributed only by fully Indonesian-owned companies.
Standards, testing, labeling and certification: Despite a policy
which states that the Department of Health must decide within one year
of receipt of an application whether to grant registration for new
foreign pharmaceutical products, registration can take longer in
practice. Foreign pharmaceutical firms have seen copied products
available on the local market before their products were registered.
Through changes in its patent law, the government is addressing such
problems.
Investment barriers: The government is committed to increasing
foreign investment and to reducing burdensome bureaucratic procedures
and substantive requirements for foreign investors. The most
substantial measure was taken in June 1994, when the government dropped
initial foreign equity requirements and sharply reduced divestiture
requirements. Indonesian law now provides for both 100 percent direct
foreign investment projects and joint ventures with a minimum Indonesia
equity of 5 percent. In addition, the government opened several
previously restricted sectors to foreign investment, including harbors,
electricity generation, telecommunications, shipping, airlines,
railways, roads, and water supply. Some sectors remain restricted or
closed to foreign investment and are carried on the so-called negative
list. They include retail trade, some types of wood processing,
television and radio broadcasting, local shipping and transportation,
and logging.
Most foreign investment proposals must be approved by the Capital
Investment Coordinating Board (BKPM). Investments in the oil and gas,
mining, banking, securities and insurance industries are covered by
specific laws and regulations and handled by the relevant technical
ministries.
In a significant move, the government of Indonesia in September
1997 removed all foreign ownership limitations on firms publicly traded
on Indonesian stock markets (the Jakarta and Surabaya stock exchanges),
with the exception of banks, where a 49 percent foreign-ownership limit
remains.
In March 1996, Indonesia announced a ``pioneer'' auto industry
policy intended to promote the establishment of an indigenous
Indonesian auto industry. The program grants import tariff and tax
preferences to only one company which meets certain requirements,
including that it be fully Indonesian owned and that it meet specified
domestic content levels within three years. In addition, the company
could import up to 45,000 completely built-up units duty free while it
established production capacity. The United States, the European Union,
and Japan are engaged in dispute settlement procedures with Indonesia
on this matter under the World Trade Organization; Indonesia has
pledged to abide by the ruling.
Government procurement practices: In 1994, the government enacted a
procurement law to regulate government procurement practices and
strengthen the procurement oversight process. Most large government
contracts are financed by bilateral or multilateral donors who specify
procurement procedures. For large projects funded by the government,
international competitive bidding practices are to be followed. The
government seeks concessional financing which includes a 3.5-percent
interest rate and a 25-year repayment period with 7 years' grace. Some
projects do proceed on less concessional terms. Foreign firms bidding
on certain government-sponsored construction or procurement projects
may be asked to purchase and export the equivalent in selected
Indonesia products. Government departments and institutes and state and
regional government corporations are expected to utilize domestic goods
and services to the maximum extent feasible, but this is not mandatory
for foreign-aid-financed-goods and services procurement. State-owned
enterprises which have offered shares to the public through the stock
exchange are exempted from government procurement regulations.
Customs procedures: On April 1, 1997, the Indonesian Customs
Service resumed authority over inspections after a 12-year hiatus
during which Indonesia operated a post-shipment inspection system by
contract with Swiss firm Societe Generale de Surveillance (SGS).
Despite some initial uncertainty over the new post-audit system and
backlogs at the ports in the months following the switch, the
transition to the new system appears to be complete. The government is
now working to implement an electronic data interchange (EDI) system to
link Customs with importers and banks to smooth the flow of trade.
6. Export Subsidies Policies
Indonesia joined the GATT Subsides Code and eliminated export loan-
interest subsidies as of April 1, 1990. As part of its drive to
increase non-oil and gas exports, the government permits restitution of
VAT paid by a producing exporter on purchases of materials for use in
manufacturing export products. Exemption from or drawbacks of import
duties are available for goods incorporated into exports.
7. Protection of U.S. Intellectual Property
Indonesia is a member of the World Intellectual Property
Organization (WIPO) and in 1997 became full party to the Paris
Convention for the Protection of Intellectual Property, the Bern
Convention for the Protection of Literary and Artistic Works, the
Patent Cooperation Treaty, the Trademark Law Treaty, and the WIPO
Copyright Treaty.
Indonesia is making progress in improving intellectual property
protection. New patent, trademark, and copyright laws were enacted in
May 1997 in order to bring Indonesia's laws into compliance with the
WTO Agreement on Trade-Related Aspects of Intellectual Property. The
laws addressed many of the remaining inadequate penalties but lax
enforcement and a judicial system unfamiliar with intellectual property
law still pose problems for U.S. companies. The government has turned
its attention to improving enforcement of its IPR regime and public
awareness of the issues. In April 1997, the U.S. Trade Representative
cited Indonesia on its Special 301 Priority Watch List for IPR
protection. The government often responds to U.S. companies which put
forward specific complaints about pirated goods and trademark abuse,
but the court system can be capricious, and punishment of pirates of
intellectual property has been rare.
--Patents: Indonesia's 1997 patent law addressed several areas of
concern to U.S. companies, including compulsory licensing provisions, a
relatively short term of protection, and a provision which allowed
importation of 50 pharmaceutical products by non-patent holders.
--Trademarks: The April 1993 trademark law provided for
determination of trademark rights by registration rather than first
use. The law provides protection for well-known marks but because the
judicial process is time-consuming and unreliable, companies continue
to find it difficult to protect well-known marks in Indonesia. After
registration, marks must actually be used in commerce and cancellation
actions must be lodged within five years of the trademark registration
date.
--Copyrights: The government has demonstrated that it wants to stop
copyright piracy and that it is willing to work with copyright holders
to this end. In late 1997, the government reinvigorated its efforts to
combat pirated audio and video compact disks and software by
demonstrating a commitment to more strenuous enforcement.
--New technologies: Biotechnology and integrated circuits are not
protected under Indonesia intellectual property laws. The government is
in the process of preparing laws on trade secrets, industrial design,
and integrated circuits.
--Impact: U.S. industry has placed considerable emphasis on
improvement of Indonesia's intellectual property regime, but it is
difficult to estimate prospective losses incurred by current
inadequacies in protection.
8. Worker Rights
a. The Right of Association.--Private sector workers, including
those in export processing zones, are by law free to form worker
organizations without prior authorization. However, government policies
and current numerical requirements for union recognition constitute a
significant barrier to freedom of association and the right to engage
in collective bargaining. The federation of all-Indonesia trade unions
(FSPSI), the only trade union federation recognized by the government,
and single company ``plant-level unions'' can legally bargain on behalf
of employees or represent workers in the department of manpower's labor
courts. The government may dissolve a union if it believes the union is
acting against the national ideology, Pancasila, although it has never
actually done so, and there are no laws or regulations specifying
procedures for union dissolution.
Two labor groups other than FSPSI are active but not recognized by
the government: the Serikat Buruh Sejahtera Indonesia (SBSI, Indonesia
Prosperity Trade Union), and the Alliance of Independent Journalists
(AJI). The government considers the SBSI and AJI to be illegal and has
harassed them by arrests, interrogations, and disbanding meetings, but
has not formally banned them. As of November 1997, the leader of the
SBSI, Muchtar Pakpahan, was being tried on subversion charges.
Civil servants are not permitted to join unions and must belong to
KORPRI, a nonunion association whose central development council is
chaired by the Minister of Home Affairs. State enterprise employees,
defined to include those working in enterprises in which the state has
a 5-percent holding or greater, usually are required to join KORPRI,
but a small number of state enterprises have FSPSI units. Teachers must
belong to the teachers' association (PGRI). All organized workers
except civil servants have the legal right to strike. While state
enterprise employees and teachers rarely exercise this right, private
sector strikes are frequent.
b. The Right to Organize and Bargain Collectively.--Recognized
trade unions and plant level unions can legally engage in collective
bargaining and can collect dues from members through a checkoff system.
In companies without unions, the government discourages workers from
utilizing outside assistance, preferring that workers seek its
assistance. By regulation, negotiations must be concluded within 30
days or be submitted to the Department of Manpower for mediation and
conciliation or arbitration. Agreements are for two years and can be
extended for one year. According to NGOs involved in labor issues, the
provisions of these agreements rarely go beyond the legal minimum
standards established by the government, and the agreements are often
merely presented to worker representatives for signing rather than
being negotiated.
Although government regulations prohibit employers from
discriminating or harassing employees because of union membership,
there are credible reports from union officials of employer retribution
against union organizers, including firing, which is not effectively
prevented or remedied in practice. Charges of antiunion discrimination
are adjudicated by administrative tribunals. However, because many
union members believe the tribunals generally side with employers, many
workers reject or avoid the procedure and present their grievances
directly to the national human rights commission, parliament and other
agencies. Administrative decisions in favor of dismissed workers tend
to be monetary awards; workers are rarely reinstated. The provisions of
the law make it difficult to fire workers, but the law is often ignored
in practice.
The armed forces, which include the police, continue to involve
themselves in labor issues, despite the Minister of Manpower's
revocation in 1994 of a 1986 regulation allowing the military to
intervene in strikes and other labor actions. A 1990 decree gives the
agency for coordination of national stability (BAKORSTANAS) authority
to intervene in strikes in the interest of political and social
stability remains in effect.
c. Prohibition of Forced or Compulsory Labor.--The law forbids
forced labor, and the government generally enforces it. However,
according to credible sources, there are several thousand children
working on fishing platforms off the East coast of North Sumatra in
conditions of bonded labor. Most are recruited from farming
communities, and once they arrive at the work site, are not permitted
to leave for at least three months and until a replacement worker can
be found. Children receive average monthly wages of $17 to $32. They
live in isolation on the sea, working 12 to 20 hours per day in often
dangerous conditions, sleeping in the workspace with no access to
sanitary facilities. There are reports of physical, verbal and sexual
abuse of the children.
d. Minimum Age for Employment of Children.--Child labor exists in
both industrial and rural areas, and in both the formal and informal
sectors. According to a 1995 report of the Indonesian Central Bureau of
Statistics, four percent of Indonesian children between the ages of 10
and 14 work full-time, and another four percent work in addition to
going to school. Many observers believe that number to be significantly
understated, because documents verifying age are easily falsified, and
because children under 10 were not included. Indonesia was one of the
first countries to be selected for participation in the ILO's
international program on the elimination of child labor (IPEC).
Although the ILO has sponsored training of labor inspectors on child
labor matters under the IPEC program, enforcement remains lax.
e. Acceptable Conditions of Work.--Indonesia does not have a
national minimum wage. Rather, area wage councils working under the
supervision of the national wage council establish minimum wages for
regions and basic needs figures for each province--a monetary amount
considered sufficient to enable a single worker to meet the basic needs
of nutrition, clothing, and shelter. While Indonesia has succeeded in
dramatically lowering the level of poverty throughout the country, the
minimum wage rates until recently have usually lagged behind inflation
and even the basic needs figures. The government raised minimum wage
rates the last three years, and in 1996 required employers to pay
workers for 30 days during a month. In Jakarta the minimum wage is
about $57 (rp 172,500) per month. There are no reliable statistics on
the number of employers paying at least the minimum wage. Independent
observers' estimates range between 30 and 60 percent.
Labor-law and ministerial regulations provide workers with a
variety of other benefits, such as social security, and workers in more
modern facilities often receive health benefits, free meals, and
transportation. The law establishes 7-hour workdays and 40-hour work
weeks, with one 30-minute rest period for each 4 hours of work. The law
also requires 1 day of rest weekly. The daily overtime rate is 1\1/2\
times the normal hourly rate for the first hour, and twice the hourly
rate for additional overtime. Observance of laws regulating benefits
and labor standards varies from sector to sector and by region.
Employer violations of legal requirements are fairly common and often
result in strikes and employee protests. The Ministry of Manpower
continues publicly to urge employers to comply with the law. However,
in general, government enforcement and supervision of labor standards
are weak.
Both law and regulations provide for minimum standards of
industrial health and safety. In the largely western-operated oil
sector, safety and health programs function reasonably well. However,
in the country's 100,000 larger registered companies in the nonoil
sector, the quality of occupational health and safety programs varies
greatly. The enforcement of health and safety standards is severely
hampered by the limited number of qualified department of manpower
inspectors as well as by the low level of employee appreciation for
sound health and safety practices. Allegations of corruption on the
part of inspectors are common. Workers are obligated to report
hazardous working conditions. Employers are forbidden by law from
retaliating against those who do, but the law is not effectively
enforced.
f. Rights in Sectors with U.S. Investment.--Working conditions in
firms with U.S. ownership are widely recognized as better than the norm
for Indonesia. Application of legislation and practice governing worker
rights is largely dependent upon whether a particular business or
investment is characterized as private or public. U.S. investment in
Indonesia is concentrated in the petroleum and related industries,
primary and fabricated metals (mining), and pharmaceutical sectors.
Foreign participation in the petroleum sector is largely in the
form of production sharing contracts between the foreign companies and
the state oil and gas company, Pertamina, which retains controls over
all activity. All employees of foreign companies under this arrangement
are considered state employees and thus all legislation and practice
regarding state employees generally applies to them. Employees of
foreign companies operating in the petroleum sector are organized in
KORPRI. Employees of these state enterprises enjoy most of the
protection of Indonesia labor laws but, with some exceptions, they do
not have the right to strike, join labor organizations, or negotiate
collective agreements. Some companies operating under other contractual
arrangements, such as contract or work and, in the case of the mining
sector, cooperative coal contracts, do have unions and collective
bargaining agreements.
Regulations pertaining to child labor and child welfare are
applicable to employers in all sectors. Employment of children and
concerns regarding child welfare are not considered major problem areas
in the petroleum and fabricated metals sectors. Legislation regarding
minimum wages, hours of work, overtime, fringe benefits, health and
safety applies to all sectors. The best industrial and safety record in
Indonesia is found in the oil and gas sector.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 4742
Total Manufacturing........................... 353
Food & Kindred Products..................... 32
Chemicals & Allied Products................. 199
Metals, Primary & Fabricated................ 10
Machinery, except Electrical................ 2
Electric & Electronic Equipment............. \1\
Transportation Equipment.................... \1\
Other Manufacturing......................... \1\
Wholesale Trade............................... 93
Banking....................................... \1\
Finance/Insurance/Real Estate................. 431
Services...................................... \1\
Other Industries.............................. 1687
TOTAL ALL INDUSTRIES.......................... 7571
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
JAPAN
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP.............................. 5,143.0 4,623.1 \1\ 4,214
.5
Real GDP Growth (pct).................... 1.4 3.5 \2\ 1.2
GDP by Sector:
Agriculture............................ 99.3 N/A
Manufacturing.......................... 1,270.4 N/A
Services............................... 874.3 N/A
Government............................. 415.0 N/A
Per Capita Income (USD).................. 31,546 N/A
Labor Force (millions)................... 66.5 67.1 \3\ 67.9
Unemployment Rate (pct).................. 3.2 3.4 \4\ 3.4
Money and Prices (annual percentage
growth):
Money Supply (M2 + CD)................... 3.2 3.3 \3\ 3.0
Consumer Price Inflation................. 0.1 0.1 \3\ 1.6
Exchange Rate: (yen/USD)................. 93.90 108.81 120.40
Balance of Payments and Trade:
Total Exports (FOB)...................... N/A N/A N/A
Exports to United States (FOB)......... N/A N/A N/A
Total Imports (CIF)...................... N/A N/A N/A
Imports from United States (CIF)....... N/A N/A N/A
Trade Balance............................ N/A N/A N/A
Trade Balance with United States....... N/A N/A N/A
Current Account Surplus/GDP (pct)...... N/A N/A N/A
External Public Debt................... N/A N/A N/A
Debt Service Payments/GDP (pct)........ N/A N/A N/A
Fiscal Deficit/GDP (pct)............... 3.7 N/A N/A
Gold and Foreign Exchange Reserves....... 182.8 217.9 \5\ 223.9
Aid from United States................... 0 0 0
Aid from All Other Sources............... 0 0 0
------------------------------------------------------------------------
\1\ January-June, seasonally adjusted, annualized.
\2\ January-June, year-over-year, non-seasonably adjusted
\3\ January-September, non-seasonally adjusted average.
\4\ January-September, seasonally adjusted average.
\5\ As of end-August 1997.
Source: U.S. Department of Commerce and U.S. Census Bureau; exports
FAS, imports customs basis; 1996 figures are estimates based on data
available through November 1996.
1. General Policy Framework
The growth of Japan's economy, the world's second largest at
roughly $4.7 trillion, has stalled in 1997 due to a number of factors
(e.g., consumption tax increase, income tax breaks ended), after
posting relatively strong real GDP growth of 3.6 percent in 1996. Most
private sector forecasts now see growth in 1997 at below 1.0 percent.
The current economic slowdown, which began in mid-1991, is the
longest in Japan's postwar history. (Until 1992-3, Japan had never
experienced two consecutive years of less than 3 percent real growth in
the postwar period.) The surge in asset prices to unsustainable levels
and high rates of capital investment and hiring in the late 1980's gave
way by 1991 to sharply slower growth, corporate restructuring, and
balance sheet adjustment by businesses. Consumer sentiment has also
been noticeably weak.
In recent years, the Japanese Government has used public spending
to offset weak or negative private demand growth. Seven fiscal stimulus
packages between August 1992 and January 1997 have boosted public
investment spending substantially, while temporary tax cuts have
supported private demand.
Japan's 1996 external accounts posted global trade and current
account surpluses of $83 billion (BOP basis) and $66 billion,
respectively. Through the first 9 months of 1997, import volume
remained nearly flat due to sluggish domestic demand growth, while
exports rose by a robust 11.5 percent. The current account surplus
through the first 8 months of 1997 grew to an annualized level of
approximately $90 billion.
In order to ease credit conditions to support the economy, the Bank
of Japan lowered the official discount rate nine times between mid-1991
and September 1995, from 6.0 percent per year to 0.5 percent. Nominal
interest rates have set new record lows during 1997; still, bank
lending has remained sluggish.
2. Exchange Rate Policy
The yen has depreciated against the dollar in 1997. The average
exchange rate through the first 9 months of 1997 was 120 yen per
dollar, versus 109 yen per dollar in 1996. The United States-Japan
Financial Services Agreement of February 1995 resulted in significant
relaxation of foreign exchange controls, and Japanese authorities are
considering adopting additional decontrols in the near future in line
with Big Bang Financial Reform.
3. Structural Policies
Pricing Policy: Japan is a market economy, with prices generally
set in accordance with supply and demand. However, with very high gross
retail margins (needed to cover high fixed and personnel costs) and a
complex distribution system, Japan's retail prices exhibit greater
downward stickiness than in other large market economies. Moreover,
some sectors such as construction are susceptible to cartel-like
pricing arrangements, and in many key sectors heavily regulated by the
government (i.e., transport, warehousing) the government can still
exert some limited temporary authority over pricing.
Tax policy: Japanese corporate taxes are generally high by OECD
standards. While there is some discussion of a cut in the corporate
income tax rate in FY 98 from 37.5 percent to 34.5 percent. Income tax
levels vary by income bracket; the scale is highly progressive.
Temporary income tax cuts totaling 2 trillion yen per year expired at
the end of 1996, while the consumption tax was increased from 3 to 5
percent in April 1997. A one time two year tax cut has been proposed by
Prime Minister Hashimoto for 1998.
Regulatory and Deregulation Policy: Japan's economy remains highly
regulated, and the Japanese Government and business community recognize
that deregulation is a high priority issue. Still, opposition to change
remains strong among vested-interest groups, and the economy remains
burdened by numerous national and local government regulations, which
have the effect of impeding market access by foreign firms. Official
regulations also reinforce traditional Japanese business practices that
restrict competition, help block new entrants (domestic or foreign) and
raise costs. Examples of regulations that act as impediments include:
the Large Scale Retail Store Law, designed to protect local merchants
from large retail competition; severe restrictions on foreign lawyers;
and the Japanese Government's tight regulation of all nongovernmental
employment services, including job placement, executive search,
recruitment, personnel counseling and training, and temporary worker
services.
In April 1995 the Japanese Government issued a 3-year deregulation
action plan. The plan was revised in March 1996, and the final revision
was instituted in March 1997. The government has not yet announced its
plans to follow up this 3-year program. In June, 1996 the President and
Prime Minister agreed on an Enhanced Initiative on Deregulation and
Competition Policy under the United States-Japan Framework Agreement.
This Initiative focuses bilateral efforts on achieving concrete
deregulation in key sectoral and structural areas in Japan, such as
telecommunications, housing, financial services, medical devices and
pharmaceuticals, distribution and competition policy.
4. Debt Management Policies
Japan is the world's largest net creditor. The Bank of Japan's
foreign exchange reserves exceed $200 billion. It is an active
participant together with the United States in international
discussions of developing-country indebtedness issues in a variety of
fora.
5. Significant Barriers to U.S. Exports
Japan is the United State's third-largest export market. The U.S.
is the largest market for Japanese exports. However, in many sectors
U.S. exporters continue to enjoy incomplete access to the Japanese
market. While Japan has reduced its formal tariff rates on most imports
to relatively low levels, it has maintained non-tariff barriers--such
as non-transparency, discriminatory standards, and exclusionary
business practices--and tolerates a business environment that protects
established companies and restricts the free flow of competitive
foreign goods into the Japanese market. In October 1997 the
Administration cited autos, flat glass, paper products, and variety-by-
variety testing of fruit (including apples) as sectors where Japanese
trade practices give rise to particular concern, and noted bilateral
civil aviation relations and Japanese port practices as areas
warranting continued attention.
Agricultural and Wood Products: Some progress has been achieved
through continued U.S. pressure on Japan to liberalize its markets for
imported agricultural and wood products. However, tariffs on some
processed food products remain relatively high, and other barriers to a
liberalized market remain. For example, Japan continues to restrict,
for phyto-sanitary reasons, the entry of numerous fruits and
vegetables, such as pears and potatoes. In some cases, such as
cherries, nectarines and apples, phyto-sanitary protocols may include
only specific limited product varieties, excluding other, almost
identical varieties. Tariffs for wood products will be reduced under
Japan's Uruguay Round commitments, but remaining high tariffs will
continue to pose significant barriers to market access. Among
structural barriers, non-transparent bidding procedures for procurement
of building materials, including value-added wood products,
disadvantage foreign wood suppliers.
Telecom and Broadcast: Access to the telecommunications and
broadcasting services market remains constrained by both regulatory and
monopolistic practices. In recent years, Japan has adopted a series of
significant measures to foster a more pro-competitive regime in the
telecommunications sector. However, barriers remain. There are foreign
investment limits on cable TV and direct-to-home (DTH) satellite
broadcasting companies. A rigid and unnecessarily burdensome regulatory
system exists for DTH. Gaining access to utility poles and other
facilities needed to build competing infrastructure and in Nippon
Telegraph and Telephone (NTT) is extremely difficult. Equipment testing
and certification procedures are expensive and time-consuming. Even in
areas like interconnection and international simple resale, where the
Japanese government has proposed liberalizing measures, there is strong
concern that they will not be sufficient to foster real competition.
The planned restructuring of NTT is unlikely to go far enough in
deterring possible anti-competitive cross-subsidization. NTT's
continued use of proprietary standards makes it difficult for foreign
companies to sell to Japan's major purchaser of telecommunications
equipment.
Standards, Testing, Labeling, and Certification: Standards,
testing, labeling and certification problems hamper market access in
Japan. In some cases, advances in technology, products or processing
make Japanese standards outdated and restrictive. Domestic industry
often supports standards that are unique and restrict competition,
although in some areas external pressure has brought about the
simplification or harmonization of standards to comply with
international practices. Fresh agricultural products continue to be
subject to extensive restrictions including phytosanitary restraints,
required overseas production-site inspections, fumigation requirements
and tariff rate or import quotas.
Foreign direct investment (FDI): FDI into Japan has remained
extremely small in scale relative to the size of the economy. In 1996,
FDI totaled $6 billion, or 0.08 percent of GDP, as compared to $84
billion, or 1.4 percent, in the United States. The low level of FDI
reflects the high costs of doing business, the legacy of former
investment restrictions, and a continuing environment of structural
impediments to greater foreign investment. The challenges facing
foreign investors seeking to establish or enhance a presence in Japan
include laws and regulations that directly or indirectly restrict the
establishment of business facilities, close ties between government and
industry, informal exclusive buyer-supplier networks and alliances,
taxation and accounting practices, and a difficult regulatory and
opinion environment for foreign or domestic acquisitions of existing
Japanese firms.
Recently, the Japanese Government has implemented some potentially
useful measures from the perspective of increasing foreign direct
investment, including easing restrictions on foreign capital entry.
Still, most Japanese Government investment promotion measures to date
have been dictated by domestic priorities, and do not address the most
important concerns of potential foreign investors. In addition, the
acquisition of Japanese companies is difficult, due in part to cross
holding of shares between allied companies and a resulting small
publicly traded percentage of shares. This practice hinders the efforts
of foreign firms wishing to acquire distribution or service networks
through mergers or acquisitions.
Government Procurement Practices: Japan is a WTO member and became
a party to the WTO Government Procurement Agreement (GPA) which took
effect in January 1996. While government procurement in Japan at the
central, regional and local levels generally conforms to the letter of
the WTO agreement, there are reports that at some procuring entities,
established domestic competitors continue to enjoy informally
preferential access to tender information. In some sectors, unfair low
pricing remains a problem, preventing companies from winning based on
fairly priced bids. Moreover, some entities continue to draw up tender
specifications in a way that favors a preferred vendor, using design-
based specifications rather than more neutral performance-based
specifications.
Customs Procedures: Japanese customs has made progress in
automating its own clearing procedures, and efforts are underway to
integrate the procedures of other Japanese Government agencies over the
next several years; however, U.S. exporters still face relatively slow
and burdensome processing.
6. Export Subsidies Policies
Of the $9.439 billion that Japan allotted for official development
assistance in 1996, approximately 29.3 percent was earmarked for loan
aid.Japan has eliminated tied aid credits and now extends about 98
percent of its loan aid under officially untied terms. However, there
is also a suspicion that tied feasibility studies (funded by grant aid)
for untied loan aid projects may unfairly target specifications to
Japanese bidders.
7. Protection of U.S. Intellectual Property Rights
Japan is a party to the Berne and Universal Copyright Conventions,
the Paris Convention on Industrial Property, the Patent Cooperation
Treaty, and the WTO Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS). Japan's intellectual property rights (IPR)
regime affords national treatment to U.S. entities. Although Japan has
reduced average patent dependency in recent years, average patent
pendency in Japan is one of the longest among developed countries. This
long period, coupled with a practice of opening all patent applications
to public inspection 18 months after filing, exposes applications to
lengthy public scrutiny with the potential of limited legal protection.
Many Japanese companies use the patent filing system as a tool of
corporate strategy, making many applications to cover slight variations
in technology. Japanese courts have moved to accepting the doctrine of
equivalence which may reduce this practice. The rights of U.S.
subscribers in Japan can be circumscribed by filings of applications
for similar inventions or processes.
A United States-Japan IPR agreement, signed in August 1994, has
provided some relief from problems posed by the lengthy pendency period
and the practice of multiple opposition filing. In December 1994, the
Japanese Diet passed legislation introduced by the Japanese Patent
Office to revise the system effective January 1, 1996. The revised
system allows opposition filings only after a patent is granted.
Multiple opposition filings are consolidated and addressed in a single
proceeding, minimizing time and costs. In addition, revised guidelines
for patent examiners were introduced. These new guidelines directed
them to grant patents based on prophetic as well as working examples
(similar to U.S. and most other countries' practice) and importantly,
applied these guidelines to the substantial backlog of outstanding
applications.
Trademark applications are also processed slowly, averaging 2 years
and 3 months but sometime stretching to three or four years. Amendments
to the Trademark Law became effective in April 1, 1997 which aim to
provide better protection to well-known trademarks, reduce trademark
processing time, and eliminate unused trademarks from the registry.
End-user software primacy remains a major concern of U.S. software
producers. A campaign has been undertaken by these companies to help
ensure compliance in licensing arrangements. The process has met with
limited success in the Japanese courts.
In the area of copyright protection for sound recordings, the
Japanese Government amended its copyright law in December, 1996, to
extend retroactive protection of sound recordings to 50 years. This
complied with its WTO TRIPs obligations.
8. Worker Rights
a. The Right of Association.--The Constitution and Labor Laws of
Japan provide for the right of workers to freely associate in unions.
Approximately 23 percent of the labor force belongs to a union. The
Japanese Trade Union Confederation, Rengo, which represents 7.8 million
workers, is the largest labor organization. Both public and private
sector workers may join a union, although members of the armed forces,
police and firefighters may neither form unions nor strike. The right
to strike, although implicit in the Constitution, is seldom exercised.
The law prohibits retribution against strikers and is effectively
enforced.
b. The Right to Organize and Bargain Collectively.--The
Constitution provides unions with the right to organize, bargain and
act collectively. These rights are exercised freely, and collective
bargaining is practiced widely, particularly during the annual ``Spring
Wage Offensive'' of nationwide negotiations.
c. Prohibition of Forced or Compulsory Labor.--Article 18 of the
Constitution states that ``No person shall be held in bondage or any
kind. Involuntary servitude, except as punishment for crime, is
prohibited.'' This provision applies equally to adults and children,
and there are presently no known cases of forced or bonded labor.
d. Minimum Age for Employment and Status of Child Labor
Practices.--By law, children under the age of 15 may not be employed
and those under age 18 may not be employed in dangerous or harmful
jobs. Child labor is virtually non-existent in Japan, as both societal
values and the rigorous enforcement of the Labor Standards Law protect
children from exploitation in the workplace.
e. Acceptable Conditions of Work.--Minimum wages are set on both an
industrial and regional (prefectural) level. Minimum wage rates in
fiscal year 1997 ranged from $45 (5,368yen) per day in Tokyo to $38
(4,625 yen) in Okinawa. The Labor Standards Law provides for a 40-hour
work-week in most industries, and mandates premium pay for hours worked
beyond 40 in a week or 8 in a day. However, labor unions criticize the
Government for failing to enforce working hour regulations in smaller
firms. The Government effectively administers various laws and
regulations affecting workplace safety and health.
f. Worker Rights in Sectors with U.S. Investment.--Labor
regulations, working conditions and worker rights in sectors where U.S.
capital is invested do not vary from those in other sectors of the
economy.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 4816
Total Manufacturing........................... 16,534
Food & Kindred Products..................... 620
Chemicals & Allied Products................. 2486
Metals, Primary & Fabricated................ 327
Machinery, except Electrical................ 4918
Electric & Electronic Equipment............. 2173
Transportation Equipment.................... 2710
Other Manufacturing......................... 3301
Wholesale Trade............................... 7344
Banking....................................... 379
Finance/Insurance/Real Estate................. 9150
Services...................................... 816
Other Industries.............................. 555
TOTAL ALL INDUSTRIES.......................... 39,593
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
REPUBLIC OF KOREA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\.......................... 457.1 483.3 476.0
Real GDP Growth (percent) \3\............ 8.9 7.1 6.2
GDP by Sector:
Agriculture............................ 29.9 30.0 30.2
Manufacturing.......................... 122.7 124.8 123.0
Services............................... 256.8 275.6 275.0
Government............................. 35.9 39.01 38.0
Per Capita GDP (US$)..................... 10,037 10,548 10,530
Size of Labor force (000's).............. 20,797 21,188 21,500
Unemployment rate (pct).................. 2.0 2.0 2.2
Money and Prices (annual percentage
growth):
Money Supply (m2)........................ 15.5 16.2 18.0
Consumer Price Inflation (pct)........... 4.5 4.9 4.5
Exchange Rate (won/usd)
official............................... 770 807 896
Balance of Payments and Trade:
Total Exports FOB \4\.................... 125.0 129.7 140.0
Exports to U.S.\4\..................... 24.1 21.7 21.0
Total Imports CIF.\4\.................... 135.1 150.3 147.0
Imports from U.S.\4\................... 30.4 33.3 33.2
Trade Balance \4\........................ -10.1 -20.6 -7.0
Balance with U.S.\4\................... -6.3 -11.6 -12.2
External Public Debt..................... 3.0 2.6 3.0
Fiscal Deficit/GDP (pct)................. \5\ 0.4 -0.2 -0.5
Current Account
Deficit/GDP (pct)...................... 2.0 4.9 2.8
Debt Service
Payments/GDP (pct) \6\................. 1.9 2.0 2.3
Gold and Foreign Exchange Reserves....... 32.7 33.2 32.0
Aid from U.S............................. N/A N/A N/A
Aid from all other sources............... N/A N/A N/A
------------------------------------------------------------------------
\1\ 1997 annualized figures calculated based on available monthly data
as of October 1997.
\2\ GDP at market prices
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade, Korean government statistics
\5\ Surplus
\6\ Gross debt; includes non-guaranteed private debt
Sources: Bank of Korea, Korea Customs Service, U.S. Embassy
1. General Policy Framework
The Korean economy has enjoyed a remarkable, sustained expansion
over the last 30 years, averaging roughly nine percent real GDP growth
per year. The GDP growth rate in 1997, however, is projected to decline
to about 6.2 percent. Much of this downturn has been ascribed to a
cyclic worsening in Korea's terms of trade, especially lower prices for
some key exports (i.e., semiconductors, chemicals and steel) and the
weakening of the Japanese yen. A string of bankruptcies of large
business conglomerates in 1997 and the strains this has placed on the
banking system have contributed to the slower economic growth rate. In
the first 10 months of 1997, the Korean won and the Korean stock market
have declined by roughly 12 percent and 24 percent, respectively.
Exports accelerated in the third quarter posting 4.7 percent growth
for the first eight months of 1997. Although total imports showed
virtually no growth during the same eight-month period, capital goods
imports jumped 14 percent, and non-durable consumer goods imports grew
four percent, but grain imports dropped 21 percent compared to the
first eight months of 1996.
Price stability has generally been achieved through the
government's stringent monetary policies, with adjustments in the
reserve requirements and open market operations as its favored tools.
The public sector's role in the economy is relatively small, with taxes
and expenditures amounting to only 31 percent of GDP in 1997. Korea's
public expenditure places greater emphasis on public education and
investment than on transfer payments. The current administration, since
its inception in 1992, has pursued a policy of liberalization,
deregulation, and ``globalization,'' and today's Korea is significantly
more open and less stifled by regulation than it was five years ago.
2. Exchange Rate Policy
In 1997, the Bank of Korea regularly intervened in the market to
defend the declining value of the won. Stringent foreign exchange and
capital controls, which are only now being relaxed, continue to distort
trade and investment flows, and exchange rate adjustments. Since 1990,
the Bank of Korea (BOK) has used a weighted average of the prior day's
transactions at local banks to set the exchange rate. The BOK allows
the exchange rate to fluctuate on a daily basis within a band of plus/
minus 2.25 percent. However, the BOK did not maintain this band in
October 1997 in the face of heavy selling of the won. In the twelve
months ending October 31, 1997, the won depreciated by roughly 15
percent against the U.S. dollar.
3. Structural Policies
Korea's economy is based on private ownership of the means of
production and distribution, with basic pricing decisions left to the
private sector. The Government's past heavy-handed role in the economy
is being gradually replaced by more subtle efforts to steer the
direction of economic development such as through tax incentives and
discretionary enforcement of regulations. Since the mid-1980s, the
Government has eliminated most explicit import prohibitions, though a
variety of non-tariff barriers continue to hinder imports.
The Korean economy is notable for the high degree of concentration
of capital and industrial output in a small number of conglomerates
known locally as ``chaebols.'' The 30 largest chaebols account for
about one-third of the total capital of the domestic financial sector,
and about 35 percent of all manufacturing. Most chaebol are highly
leveraged which, in this period of slower economic growth, has resulted
in a number of bankruptcies.
Today, Korea is the United States' seventh largest trading partner
(fifth largest export market) and fourth largest recipient of U.S.
agricultural products. Korea has made significant investments in the
United States. In 1996, the United States replaced Japan as Korea's
single largest source of imports for the first time since 1993. Also,
in 1997, the United States, for the first time in three decades, will
likely replace Japan as Korea's single largest source of direct
investment.
4. Debt Management Policies
Korea's total foreign debt exceeds $130 billion (net foreign debt
of $45 billion) and interest rates on Korean debt in international
markets rose in 1997. However, with the rise of Korea's exports
beginning in the second half of 1997, its current account deficit has
declined in comparison to the same period in 1996.
5. Aid
The ROK does not receive bilateral or multilateral assistance.
6. Significant Barriers to U.S. Exports
The typical trade barriers U.S. exporters experience today are
mostly nontariff-related (Korea lowered its average tariff rate to 7.9
percent) and are rooted in non-transparent regulations which give too
much discretion to officials, but offer little recourse or
compensation. These affect licensing, inspections, type approval,
marking/labeling requirements and other standards. The United States
has challenged some Korean government agricultural policies in the
World Trade Organization (WTO). Trade restrictions effect a variety of
U.S. exports, including automobiles, a sector which was designated in
October 1997 as a Priority Foreign Country Practice (PFCP) under
Section 301 of the U.S. Trade Act, owing to tariff and non-tariff
market access barriers.
Import licensing requirements were dropped on all goods effective
January 1, 1997, except for roughly 80 items, mostly agricultural
products, which appear on a ``negative list.'' Products with health and
safety implications (such as pharmaceuticals, medical devices,
cosmetics), typically require additional testing or certification from
the relevant ministries before they can be sold in Korea, which can
result in considerable delays and costs. Registration requirements for
such products as chemicals, pharmaceuticals, processed food, medical
devices and cosmetics hamper entry into the market as well. The
registration process, in some cases, has resulted in the release of
proprietary information to Korean trade associations and local
competitors. Korea agreed to phase out its GATT Balance-of-Payments
restrictions, and is committed to eliminate most of the remaining
restrictions by 1997; some will not be liberalized, however, until the
year 2000.
Under the Uruguay Round, Korea will gradually expand its minimum
import quota for beef to 225,000 metric tons by the year 2000, while at
the same time expanding the proportion of the quota imported through
the ``simultaneous buy/sell system.'' In January 2001, Korea will
remove all non-tariff barriers to beef imports, including state
trading.
Effective January 1, 1993, a government decree outlined improved
procedures for setting standards and rules-making, including a
requirement for public notice, minimum comment periods and an
adjustment period prior to implementation. A full-fledged
Administrative Procedures Act was enacted in 1996. Effective
implementation of these initiatives, however, has been slow, and
government policy consultations with affected industries have often
omitted foreign firms.
The Korean government has implemented a number of financial sector
reform measures since 1993, including: lifting most controls on
interest rates, removing some documentation requirements on forward
foreign exchange contracts and a slight easing of foreign banks' access
to won currency funding. Additional financial reform, such as full won
convertibility and freedom of capital movement, will likely not occur
before 1998. Liberalization of foreign ownership of domestic shares and
bonds will be phased in through 2000. Other controls affecting, inter
alia, securities, credits and deposit accounts will be phased out
through 2001.
A significant barrier to growth in U.S. exports to Korea is the
government's restriction on the use of credit to finance imports, which
will be fully liberalized only for capital goods by 1998. Use of
limited deferred payment terms (extended as of December 1, 1995, to a
maximum of 180 days) is restricted to items with a tariff of ten
percent or less, which are generally raw materials; these controls will
be reduced (but not fully phased out) through 2001. Use of deferred
payment terms for other goods requires a license from foreign exchange
banks or permission from the Bank of Korea, which is rarely granted.
Government restrictions continue to deny national treatment to
foreign banks and securities firms in a number of areas. For example,
foreign banks face significant impediments in the form of restricted
access to local currency funding, difficulties in obtaining approval
for new financial products and capitalization rules. Subsidiaries of
foreign banks will not be allowed until the end of 1998. Foreign
securities firms face restrictions on their ability to lead-manage
security placements in overseas markets and they may not place orders
for foreign securities on behalf of Korean clients.
Recent regulatory changes have streamlined foreign investment
application procedures and eased a number of barriers to foreign direct
investment. As part of the Organization for Economic Cooperation and
Development (OECD) accession process, which was completed at the end of
1996, the government announced further liberalization of foreign
investment in restricted sectors. Earlier changes to laws and
regulations governing foreign purchases of land made it easier for
foreign investors to purchase land for staff housing and business
purposes, though there are still restrictions in place.
Continuing restrictions on access to offshore funding (including
offshore borrowing, intracompany transfers and intercompany loans),
however, continue to be burdensome. Foreign equity participation limits
remain in some sectors, and licensing requirements and other regulatory
restrictions can limit foreign direct investment in sectors nominally
open to foreigners. Foreign firms also face additional investment
restrictions in most professional services.
The Korean government has endorsed and supported periodic
``frugality campaigns'' led by civic groups against ``over-
consumption'' and ``luxury'' goods, most recently in the spring of
1997. Specific government targeting of imports has ceased for the most
part--and the Korean government issued public instructions to all
officials to this effect in the spring of 1997--but a residual anti-
import bias remains.
The streamlining of Korea's complex import clearance procedures is
a prime U.S. policy objective. Progress on this issue has been slow,
however, as the Korean government, in a number of cases, has cited the
need for legislation to make the necessary corrections. U.S. exporters
of food and agricultural products experienced an upsurge in safety and
sanitary inspections in October 1997 after Korean inspectors found e-
coli and lysteria bacteria in U.S. beef shipments.
Korea acceded to the WTO Government Procurement Agreement on
January 1, 1997. It has begun the process of bringing its laws and
regulations into line with the new multilateral requirements. However,
implementation will take time. In telecommunications, the Korean
government provided assurances to the United States in July 1997 that
it would not interfere in the equipment purchasing decisions of private
Korean telecommunications service providers. In accordance with its
obligations under the Information Technology Agreement, the Korean
government will eliminate tariffs on 203 categories of
telecommunication and information-related equipment by 1999; tariffs on
remaining categories will be phased out by 2004.
7. Export Subsidies Policies
Since the mid-1980's, Korea has been dismantling the once-prevalent
system of subsidies used to promote industrialization. The real benefit
of the few remaining subsidized lines of credit is insignificant in a
macroeconomic sense. The relative size of direct grants is small and
declining with regard to both the government budget and growing private
investment. The use of tax exemptions, the main vehicle for export
promotion, appears to be declining as well. However, the government
does expend large amounts of money in research and development in key
industrial sectors targeted for development, such as
telecommunications.
Other government programs directly support Korea's export
industries, including: customs duty rebates for raw material imports
used in the production of exports; short-term export loans for small-
and-medium sized enterprises (SMEs); rebates on the value-added tax; a
special consumption tax for export products; corporate income tax
benefits for costs related to the promotion of overseas markets; unit
export financial loans; and, special depreciation allowances for SMEs
which export. Korea also maintains a special loan program for SMEs to
facilitate exports to Japan.
8. Protection of U.S. Intellectual Property
Korean laws protecting intellectual property rights (IPR) are
adequate in most areas and enforcement has improved in recent years.
Under the U.S. Special 301, Korea's status was downgraded from
``Priority Watch List'' to ``Watch List'' in April 1997 in recognition
of the commitments made by the Korean government to improve its
intellectual property protection regime in a number of sectors of
concern to the United States. However, problem areas remain. The Korean
Supreme Court recently overturned a decision by the Korean Industrial
Property Office (KIPO) appellate trial board in favor of a U.S.
claimant in a trademark dispute.
Korea is a party to the World Intellectual Property Organization
Agreements, the Universal Copyright Convention, the Budapest Treaty on
the International Recognition of the Deposit of Microorganisms (1988),
the Geneva Convention regarding sound recordings (1987), the Paris
Convention for the Protection of Industrial Property (1980), and the
Patent Cooperation Treaty (1984). Korea joined the Berne Convention in
August 1996, and is a signatory to the ``New Treaties'' governing
digital copyrights recently concluded under the auspices of the World
Intellectual Property Organization.
Korean patent law is fairly comprehensive, offering protection to
most products and technologies. Yet the Korean Patent Office's
recognition of international ownership of patents is inconsistent. The
March 1998 start-up of an appellate court specializing in patent cases
may provide greater consistency in patent dispute rulings. In addition,
approved patents of foreign patent holders are vulnerable to
infringement. In its procurement process, the Korean government lacks
adequate controls effectively to prevent patent infringement,
especially in the high technology sector. Korean law provides for
compulsory licensing of patents when the invention is deemed necessary
for the national defense, for the public interest, or for the
protection of a dependent patent.
The Korean government's protection of trademarks has improved since
1991. A revised trademark law will come into effect on March 1, 1998.
Earlier in 1997, the trademark law was amended to afford protection to
3-dimensional trademarks. However, the law extends protection only to
domestically registered trademarks. Although the Unfair Competition
Prevention Act theoretically protects foreign trademarks and those not
otherwise protected, narrowly-based court decisions have made the Act
largely ineffective. The granting of a trademark under Korean law is
based on a ``first-to-file'' basis, and preemptive filings are a
problem. However, the new trademark law will contain provisions for
invalidating preemptive registrations. While Korea has made progress in
stemming the counterfeiting of goods in the domestic market, Korean
producers are still able to export counterfeits.
Korea's copyright law protects author's rights, but local
prosecutors take no action unless the rights holder files a formal
complaint. Korea is not in compliance with provisions of the WTO's
Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS), which stipulate that retroactive copyright protection should
extend back to 1947. Korea now only provides protection back to 1957.
Laws governing the protection of software copyright are expected to be
revised in 1998. Enforcement against copyright piracy is improving, but
such piracy is still prevalent, especially in educational and other
public institutions.
9. Worker Rights
a. The Right of Association.--With the exception of public sector
employees and teachers, Korean workers enjoy the right to free
association. White collar workers in the government sector cannot join
unions, but blue collar employees in the postal service, railways, and
telecommunications sectors, and the national medical center have formed
labor organizations. Unions may be formed with as few as two members
and without a vote of the full prospective membership. Until recently
the Trade Union Law specified that only one union was permitted at a
workplace, but labor law changes in 1997 authorize the formation of
competing labor organizations beginning in the year 2002. Workers in
government agencies and defense industries do not have the right to
strike. Unions in enterprises determined to be of ``essential public
interest,'' including utilities, public health, and telecommunications,
may be ordered to submit to government-ordered arbitration in lieu of
striking. In fact, work stoppages occur even in these sensitive
sectors. The Labor Dispute Adjustment Act requires unions to notify the
Labor Ministry of their intention to strike, and normally mandates a
10-day ``cooling-off period'' before a work stoppage may legally begin.
b. The Right to Organize and Bargain Collectively.--The
Constitution and the Trade Union Law provide for the right of workers
to bargain collectively and undertake collective action, but does not
grant government employees, schoolteachers or workers in defense
industries the right to strike. Collective bargaining is practiced
extensively in virtually all sectors of the Korean economy. The central
and local labor commissions form a semi-autonomous agency that
adjudicates disputes in accordance with the Labor Dispute Adjustment
Law. This law empowers workers to file complaints of unfair labor
practices against employers who interfere with union organizing or
practice discrimination against unionists. Labor-management antagonism
remains a serious problem, and some major employers remain strongly
anti-union.
c. Prohibition of Forced or Compulsory Labor.--The Constitution
provides that no person shall be punished, placed under preventive
restrictions, or subjected to involuntary labor, except as provided by
law and through lawful procedures. Forced or compulsory labor is not
condoned by the Government and rarely occurs.
d. Child Labor and Minimum Age for Employment of Children.--The
Government prohibits forced and bonded child labor and enforces this
prohibition effectively. The Labor Standards Law prohibits the
employment of persons under the age of 15 without a special employment
certificate from the Labor Ministry. Because education is compulsory
through middle school (about age 14), few special employment
certificates are issued for full-time employment. Some children are
allowed to do part-time jobs such as selling newspapers. In order to
obtain employment, children under 18 must have written approval from
their parents or guardians. Employers may require minors to work only a
limited number of overtime hours and are prohibited from employing them
at night without special permission from the Labor Ministry.
e. Acceptable Conditions of Work.--The government implemented a
minimum wage in 1988 that is adjusted annually. In October 1997 the
minimum wage was set at roughly $1.65 per hour. Companies with fewer
than 10 employees are exempt from this law. In practice, most firms pay
wages well above the minimum levels due to Korea's tight labor markets.
The maximum regular work week is 44 hours, with provision for overtime
to be compensated at a higher wage, but such rules are sometimes
ignored, especially by small companies. The law also provides for a
maximum 56-hour work week and a 24-hour rest period each week. Labor
laws were revised in 1997 to establish a flexible hours system that
allows employers to ask laborers to work up to 48 hours during certain
weeks without paying overtime so long as average weekly hours do not
exceed 44. The government's health and safety standards are not always
effectively enforced, but the accident rate continues to decline. The
number of work-related deaths remains high by international standards.
f. Rights in Sectors with U.S. Investment.--U.S. investment in
Korea is concentrated in petroleum, chemicals and related products,
transportation equipment, processed food and manufacturing. Workers in
these industrial sectors enjoy the same legal rights of association and
collective bargaining as workers in other industries. Manpower
shortages are forcing labor-intensive industries either to improve
wages and working conditions or to move offshore. Alternatively, some
firms are resorting to using ``illegal'' foreign workers in order to
contain costs.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 2107
Food & Kindred Products..................... 306
Chemicals & Allied Products................. 379
Metals, Primary & Fabricated................ \1\
Machinery, except Electrical................ \1\
Electric & Electronic Equipment............. 554
Transportation Equipment.................... 100
Other Manufacturing......................... 673
Wholesale Trade............................... 452
Banking....................................... 1671
Finance/Insurance/Real Estate................. 228
Services...................................... 96
Other Industries.............................. \1\
TOTAL ALL INDUSTRIES.......................... 5510
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
MALAYSIA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\............................. 85.5 99.5 \2\ 97.9
RealGDP Growth (pct) \3\.................... 9.5 8.2 8.0
By Sector: (1978 Prices)
Agriculture............................... 6.5 6.6 6.1
Manufacturing............................. 15.9 17.8 17.9
Mining And Petroleum...................... 3.6 3.7 3.4
Construction.............................. 2.2 2.4 2.4
Services.................................. 15.4 16.7 16.1
Government Services....................... 4.6 4.7 4.4
Per Capita GDP.............................. 4.2 4.7 4.2
Labor Force (000s).......................... 8,140 8,370 8,610
Unemployment Rate (pct)..................... 2.8 2.5 2.5
Money and Prices (annual pct growth):
Money Supply Growth (M2) (pct).............. 19.7 20.9 \4\ 21.3
Consumer Inflation (pct).................... 3.4 3.5 \4\ 2.6
Exchange Rate (Rm/US$ annual average)....... 2.5 2.51 2.8
Balance of Payments and Trade:
Total Exports FOB........................... 71.8 76.7 73.1
Exports to U.S.\5\........................ 17.5 17.8 18.5
Total Imports FOB........................... 71.7 73.3 69.6
Imports from U.S.\5\...................... 8.8 8.5 9.5
Trade Balance............................... 0.9 3.4 3.5
Balance with U.S.......................... 8.7 9.3 9.0
External Public Debt........................ 16.0 15.8 15.2
Fiscal Surplus/GDP (pct).................... 2.9 3.7 2.0
Current Account Def/GDP(pct)................ 10 4.9 4.8
Debt Srvc Payments/GDP (pct)................ 7.0 5.3 4.6
Gold & Foreign Exchange Reserves............ 25.5 27.9 22.1
Aid from U.S................................ 0.5 0.5 0.6
Aid from All Other Countries................ N/A N/A N/A
------------------------------------------------------------------------
\1\ Malaysian government estimates.
\2\ Converted at annual avg. exchange rates.
\3\ Calculated in ringgit to avoid exchange rate changes.
\4\ 1996 data to August only.
\5\ U.S. Department of Commerce Data.
\6\ Embassy estimates.
1. General Policy Framework
Malaysia has a relatively open, market-oriented economy which since
the country's independence in 1957 has exhibited sustained growth and
increasing diversification. over thepast decade, the economy, led by
strong performance in both foreign and domestic investment and
manufactured exports, boomed with average annual real GDP growth rates
of about 8 percent. Beginning in July 1997, however, Malaysian equity
markets experienced sharp declines, and the Malaysian currency (the
ringgit) depreciated sharply against the U.S.and other major
currencies. The GOM has attributed these declines to regional financial
turmoil. Between July 1 and December 12, for example, Malaysian equity
markets fell by 53.6 percent and the ringgit depreciated 49.5 percent
against the U.S. dollar. During his annual budget speech, the Deputy
Prime Minister (who is also Finance Minister) cautioned that the
economy is at a crossroads and fraught with uncertainties. The
Malaysian Government has projected that 1997 real GDP growth will slow
to 7 percent and that 1998 growth will be yet lower at 4-5 percent.
While the government since 1986 has scaled back its role as a producer
of goods and services, it continues to hold equity stakes and exerts
considerable influence in a wide range of privatized domestic companies
including in telecommunications, aviation, petroleum, shipping and
seaports. Many of these privatized companies hold monopoly or near-
monopoly positions in their sectors.
The construction of infrastructure projects has been increasingly
delegated to the private sector. Major infrastructure projects
currently under development include a multimedia super corridor and new
international airport in Kuala Lumpur. However, in an austerity drive,
the GOM recently deferred approximately $20 billion In other projects
including the Bakun hydro-electric project, northern regional
international airport, phase II of the Putrajaya administrative
capital, Kuala Lumpur linear city, highlands road, Straits of Melaka
bridge, and light rail projects for Penang and Johor.
The government has consistently moved to reduce the overall tariff
level over time for industries, such as motor vehicles. Malaysia has
been an active participant in multilateral and regional trade fora such
as the World Trade Organization and Asia-Pacific Economic Cooperation
(APEC) and will be the APEC chairman in 1998.
Fiscal policy: The government follows a conservative fiscal policy
and has generated a surplus in its accounts, excluding public
enterprises, for the last five years. The GOM indicated that it will
pursue more stringent belt-tightening in 1998 in order to stabilize the
economy, further reduce the current account deficit, and restore
confidence in Malaysia's currency and stock markets. Among other
measures, the GOM has announced it will cut government spending 18
percent. As a result, the public sector surplus for 1998 is projected
to triple to 6.2 billion ringgit (7.5 percent of GNP), up from 1.9
billion ringgit (1.9 percent of GNP) in 1997.
Monetary policy: Monetary aggregates are controlled by Bank Negara
(the central bank) through open market operations, changes in reserve
requirements, and influence over banking sector interest rates. The
beginning of 1997 found high levels of monetary growth driven by rapid
growth in credit. Fearful of inflationary pressures and channeling of
credit to non-productive activities, the government acted in March to
curb credit escalation, particularly for real estate development, and
has progressively strengthened financial sector prudential
requirements. The 1998 budget targets a reduction in credit expansion
from 29 percent to 20 percent.
2. Exchange Rate Policy
Malaysia maintains a flexible, substantially open foreign exchange
regime. Most foreign transactions including repatriation of capital and
remittance of profits are permitted, but some restrictions apply.
Foreign currency accounts are not generally allowed except for
exporters (who must hold their foreign currency accounts with ``tier-
1'' banks and maintain overnight balances of between usd 1 million and
usd 5 million) and resident individuals who need foreign currency for
educational or employment purposes (whose foreign currency accounts are
limited to USD 100,000).
The value of the ringgit has fallen consistently (from 2.5 rm/1 usd
on 7/1 to 3.78 rm/1 USD on 12/12) throughout the last half of the year
as markets perceived the Malaysian currency (as well as other
currencies in the region) as overvalued and eroding export
competitiveness and developed doubts about the country's economic
management. Until early July, Bank Negara (the central bank) maintained
its policy of managing the value of the ringgit against a basket of
currencies of Malaysia's major trading partners. It used an estimated
$4 billion in reserves (15% of the total) to defend the ringgit at
2.525 ringgit/US$1. On July 10 when the Thai baht was floated, the
Malaysian authorities opted to let the nominal rate fluctuate more
widely in favor of keeping interest rates low. Since then Bank Negara
has reportedly intervened to defend the ringgit in a limited number of
circumstances. Between May 1 and December 31 the ringgit depreciated
54.5%. At end of 1997 the three-month interbank interest rate was 9%.
Malaysia maintains relatively low trade barriers in most sectors
but uses tariffs and import licensing to protect some to maintain a
stable exchange rate and is now largely allowing the ringgit to float.
3. Structural Policies
Investment policies: The government encourages direct foreign
investment particularly in export-oriented manufacturing and high-tech
industries, but retains considerable discretionary authority over
individual investments. Especially in the case of investments aimed at
the domestic market, it has used this authority to restrict foreign
equity (normally to 30 percent) and to require foreign firms to enter
into joint ventures with local partners. Facing a tight labor supply
situation, foreign companies have sometimes found it difficult to gain
permission from the Malaysian Government to bring in sufficient workers
from abroad to run their plants efficiently. Most foreign firms also
face restrictions in the number of expatriate workers they are allowed
to employ. In October 1996, the government announced that high-
technology and information-technology companies which establish in the
multimedia super corridor will be allowed attractive tax incentives.
Pricing policies: Most prices are market-determined but controls
are maintained on some key goods, such as fuel, public utilities,
cement, motor vehicles, rice, flour, cooking oil, sugar and chicken.
The government has signaled that companies are not to pass to consumers
the increased costs resulting from the ringgit's depreciation.
Tax policies: tax policy is geared toward raising government
revenue and discouraging consumption of ``luxury'' items. Income taxes,
both corporate and individual, comprise 44 percent of government
revenue with indirect taxes, export and import duties, excise taxes,
sales taxes, service taxes and other taxes accounting for another 37.6
percent. The remainder comes largely from dividends generated by state-
owned enterprises and petroleum taxes. To spur exports, the 1998 budget
provides significant income tax exemptions, accelerated depreciation
schedules, and special allowances for export-oriented companies. In the
1998 budget, the overall corporate income tax rate for petroleum and
other companies was cut by 2 percentage points.
Regulatory policies: Malaysia maintains several regulatory agencies
including the department of civil aviation and department of
telecommunications. Most of these agencies fall under the jurisdiction
of government ministries and have the dual mandate of both regulating
and promoting the industries under their purview.
Standards: Malaysia has extensive standards and labeling
requirements, but these appear to be implemented in an objective,
nondiscriminatory fashion. In many cases, the government is moving to
adopt international standards. Food product labels must provide
ingredients, expire dates and, if imported, the name of the importer.
Electrical equipment must be approved by the Ministry of International
Trade and Industry, telecommunications equipment must be ``type
approved'' by the Department of Telecommunications and aviation
equipment must be approved by the Department of Civil Aviation.
Pharmaceuticals must be registered with the Ministry of Health. In
addition, the Standards and Industrial Research Institute of Malaysia
(SIRIM) provides quality and other standards approvals.
4. Debt Management Policies
Malaysia has generally strong credit ratings in international
financial markets. Malaysia's medium and long-term foreign debt (both
public and private sector) is expected to stand at usd 28.4 billion at
the end of 1997, about 29 percent of GDP. Malaysia's debt service ratio
declined from a peak of 18.9 percent of gross export earnings in 1986
to an estimated 6 percent in 1997.
5. Significant Barriers to U.S. Exports
Introduction: Tariffs are the main instrument used to regulate
goods imports, but import licenses are also used. Although duties on a
trade-weighted basis average less than 10 percent, the rates for tariff
lines where there is significant local production are often higher.
Licenses are required for the import of goods in 51 product categories.
In some cases, the licensing system is used to administer health and
safety standards, in other cases to protect domestic industries. In
order to reduce the current account deficit, Malaysian government
recently increased tariff increases on certain items (below), said that
non-essential construction projects would be eliminated, announced that
``lumpy'' imports such as passenger aircraft and ships would be
delayed, and called on Malaysian companies to exercise austerity.
Import restrictions on motor vehicles: Malaysia maintains high
tariffs, an import licensing system, and local content restrictions on
imported motor vehicles and motor vehicle parts. These restrictions
have severely hampered the ability of U.S. firms to penetrate the
Malaysian market. The government has announced that local content
restrictions will be phased out by the year 2000 to comply with WTO
commitments. However, it recently increased tariffs dramatically on
both completely built-up (cbu) and completely knocked-down (ckd) units.
------------------------------------------------------------------------
product OldTariff New Tariff
------------------------------------------------------------------------
automobiles (cbu)................... 140-200 pct 140-300 pct
automobiles (ckd)................... 42 pct 80 pct
vans (cbu).......................... 35 pct 42-140 pct
vans (ckd).......................... 5 pct 40 pct 4wd/
multipurpose(cbu)................... 50 pct 60-200 pct 4wd/
multipurpose (ckd).................. 5 pct 40 pct
motorcycle (cbu).................... 60 pct 80-120 pct
motorcycle (ckd).................... 5 pct 30 pct
------------------------------------------------------------------------
In addition, excise duties on motorcycles, will increase from a maximum
of 20 percent to a maximum of 50 percent. A 10 percent sales tax will
be imposed on motorcycles with engines over 200 cc.
Import restrictions on construction equipment: In October 1997,
Malaysia imposed a restrictive licensing regime on imports of heavy
construction equipment and raised import duties (detailed below) for
the second year in a row; in October 1996, it had raised duties on
construction equipment from 5 to 20 percent. In addition, depreciation
rates for imported heavy equipment will be reduced from 20 to 10
percent in the first year and annual allowances will be reduced from
between 12 percent and 20 percent to 10 percent.
------------------------------------------------------------------------
Product Old Tariff New Tariff
------------------------------------------------------------------------
heavy mach/equip.................... 0 pct 5 pct
multi-purpose vehicles.............. 0-30 pct 50 pct
special purpose vehicles............ 35 pct 50 pct
construction materials.............. 5-25 pct 10-30 pct
------------------------------------------------------------------------
Import restrictions on tobacco and cigarettes: To encourage greater
use of local tobacco in cigarettes and to maintain high domestic leaf
prices, the government levies import duties of rm 50 (USD 13.5) per
kilogram, plus five percent ad valorem on unprocessed tobacco. The
quantities of flue-cured tobacco which may be imported are subject to
government approval.
Telecommunications: In the recently concluded WTO negotiations on
basic telecommunications services, Malaysia made commitments on most
basic telecommunications services and adopted the reference paper on
regulatory commitments. Malaysia guaranteed market access and national
treatment for these services only through acquisition of up to 30
percent of the shares of existing licensed public telecommunications
operators. It did not guarantee the ability to provide resale service.
Duties on high value food products: Duties for processed and high
value products, such as canned fruit, snack foods, and many other
processed foods, range between 20 and 30 percent.
Plastic resins: In December 1993, tariffs were increased for a five
year period from 2 to 30 percent (for non-ASEAN countries) and from 1
to 15 percent (for ASEAN countries) on plastic resins. In 1994, the
government also instituted a five-year restrictive import licensing
system.
Tariff quota for chicken parts: Although the GOM applies a zero
import duty on chicken parts, imports are regulated through licensing
and sanitary controls and import levels well below the those called for
in the tariff-rate quota agreed during the Uruguay Round but never
implemented.
Rice import policy: The sole authorized importer is a government
corporation (BERNAS) with the responsibility of ensuring purchase of
the domestic crop and wide power to regulate imports.
Film and paper product tariffs: Malaysia applies a 25 percent
tariff on imported instant print film that is estimated to cause an
annual trade loss to U.S. industry of 10-25 million U.S. dollars. In
August 1994, the Malaysian Government raised tariffs on several
categories of imported kraft linerboard (used in making corrugated
cardboard boxes) to between 20 and 30 percent, depending on the
category. These tariff increases are to be phased out after five years
and are subject to review every two years.
Professional services: Foreign professional services providers are
generally not allowed to practice in Malaysia. Foreign law firms may
not operate in Malaysia except as minority partners with local law
firms, and their stake in any partnership is limited to 30 percent.
Foreign lawyers may not practice Malaysian law or operate as foreign
legal consultants. They cannot affiliate with local firms or use their
international firm's name. Foreign architecture firms may only operate
as affiliates of Malaysian companies. Foreign architectural credentials
are not always accepted. Foreign engineering companies must establish
joint ventures with Malaysian firms and receive ``temporary
licensing;'' this license is granted on a project-by-project basis and
is subject to an economic needs test and other criteria imposed by the
licensing board.
Banking: No new licenses are being granted to either local or
foreign banks; foreign banks must operate as locally-controlled
subsidiaries. Foreign-controlled companies are required to obtain 60
percent of their local credit from Malaysian banks.
Insurance: Branches of foreign insurance companies are required to
be locally incorporated by June 30, 1997, and foreign share holding not
exceeding 51 percent is permitted. Foreign share holding not exceeding
51 percent is also permitted for the existing foreign shareholders of
locally incorporated insurance companies which were the original
shareholders of the companies. New entry by foreign insurance companies
is limited to equity participation in locally incorporated insurance
companies and aggregate foreign share holding in such companies shall
not exceed 30 percent.
Securities: Foreigners may hold up to 49 percent of the equity in a
stockbroking firm. currently there are 11 stockbroking firms which have
foreign ownership and 20 representative offices of foreign brokerage
firms. Fund management companies may be 100 percent foreign-owned if
they provide services only to foreign investors, but are limited to 70
percent foreign-ownership if they provide services to both foreign and
local investors.
Advertising: Foreign film footage is restricted to 20 percent per
commercial, and only Malaysian actors may be used. The government of
Malaysia has an informal and vague guideline that commercials cannot
``promote a foreign lifestyle.'' Advertising of alcohol and tobacco
products is severely restricted.
Television and radio broadcasting: The Malaysian Government
maintains broadcast quotas on both radio and television programming.
Sixty percent of television programming is required to originate from
local production companies owned by ethnic Malays. This share is
scheduled to increase to 80 percent by the year 2000. Sixty percent of
radio programming must be of local origin.
Government procurement: Malaysian government policy calls for
procurement to be used as leverage to support national objectives such
as encouraging greater participation of ethnic Malays in trade and
industry, transfer of technology to local industries, reducing the
outflow of foreign exchange, creating opportunities for local companies
in the services sector, and generating concessions that enhance
Malaysia's export capabilities. As a result, foreign companies do not
face a level playing field in competing for contracts and in most cases
are required to take on a local partner before their bid will be
considered. Some U.S. companies have voiced concerns about the
transparency of decisions and decisionmaking processes.
6. Export Subsidy Policies
Malaysia offers several export allowances. Under the export credit
refinancing (ECR) scheme operated by the central bank, commercial banks
and other lenders provide financing to exporters at an interest rate of
6 percent for both post-shipment and pre-shipment credit. Malaysia also
provides tax incentives to exporters, including double deduction of
expenses for overseas advertising and travel, supply of free samples
abroad, promotion of exports, maintaining sales offices overseas, and
research on export markets.
7. Protection of U.S. Intellectual Property
Malaysia is a member of the World Intellectual Property
Organization (WIPO), and most multilateral IPR agreements, including
the Berne Convention for the Protection of Literary and Artistic Works,
and the Paris Convention. Police and legal authorities are responsive
to requests from U.S. firms for investigation and prosecution of
copyright infringement cases, though pirated videotapes and computer
software continue to be widely available. Concerns have been raised
that fines levied on convicted infringers may not have sufficient
deterrent effect. A new problem is the establishment of a number of
manufacturing plants reportedly producing pirated copyrighted material.
The Malaysian Government is aware of the problem and has expressed its
determination to move against illegal operations. Trademark
infringement and patent protection have not been serious problem areas
in Malaysia for U.S. companies.
8. Worker Rights
a. The Right of Association.--By law most workers have the right to
engage in trade union activity, and approximately 10 percent of the
work force are members of trade unions. Exceptions are certain
categories of workers labeled ``confidential'' and ``managerial and
executives,'' as well as police and defense officials. Government
policy places a de facto ban on the formation of national unions in the
electronics sector, but allows in-house unions.
b. The Right to Organize and Bargain Collectively.--Collective
bargaining is the norm in Malaysian industries where workers are
organized. However, collective bargaining rights are effectively
restricted by compulsory arbitration requirements.
c. Prohibition of Forced or Compulsory Labor.--There is no evidence
that forced or compulsory labor occurs in Malaysia for either Malaysian
or foreign workers.
d. Minimum Age for Employment or Compulsory Labor.--No child under
the age of 14 may be engaged in any employment except light work in a
family enterprise or in public entertainment, work performed for the
government in a school or training institution, or employment as an
approved apprentice. In addition regulations prohibit children from
working more than 6 hours per day, more than 6 days per week, or at
night. However, there have been reports of widespread employment of
children below the age of 14 working full-time on plantations.
e. Acceptable Conditions of Work.--Working conditions are generally
on a par with industrialized country standards. The Occupational Safety
and Health Act covers all economic sectors except the maritime sector
and the military. Other laws provide for retirement programs,
disability and workman's compensation benefits. No comprehensive
national minimum wage legislation exists, but certain classes of
workers are covered by minimum wage laws. Plantation and construction
work is increasingly being done by contract foreign workers whose
working conditions are often inferior to those of direct hire workers.
f. Rights in Sectors with U.S. Investment.--The largest
concentration of U.S. investment in Malaysia is in the petroleum
sector. Pay and benefits are considered excellent. The second largest
concentration of U.S. investment is in the electronics sector,
especially the manufacture of components, such as semiconductor chips.
Many U.S. electronic component manufacturers operate plants in
Malaysia, employing more than 50,000 Malaysian workers.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 733
Total Manufacturing........................... 3711
Food & Kindred Products..................... \1\
Chemicals & Allied Products................. \1\
Metals, Primary & Fabricated................ \2\
Machinery, except Electrical................ 223
Electric & Electronic Equipment............. 2971
Transportation Equipment.................... 0
Other Manufacturing......................... 336
Wholesale Trade............................... 172
Banking....................................... \1\
Finance/Insurance/Real Estate................. 233
Services...................................... 7
Other Industries.............................. \1\
TOTAL ALL INDUSTRIES.......................... 5277
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
PHILIPPINES
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP.............................. 74.1 83.8 83.6
Real GDP Growth (pct) \2\................ 4.8 5.7 4.8
Nominal GDP By Sector:
Agriculture............................ 16.0 17.9 17.3
Manufacturing.......................... 17.0 18.9 17.9
Services............................... 34.3 39.3 40.2
Government \3\......................... 7.7 8.9 9.4
Per Capita GDP (US$)..................... 1,081 1,193 1,165
Labor Force (000s)....................... 28,380 29,733 30,500
Unemployment Rate (pct).................. 9.5 8.6 8.7
Money and Prices (annual percentage
growth):
Money Supply Growth (M2) \4\............. 25.2 15.8 20.0
Consumer Price Inflation................. 8.1 8.4 6.0
Exchange Rate (pesos/US$--annual average)
Interbank Rate.......................... 25.71 26.22 29.20
Balance of Payments and Trade:
Merchandise Exports, FOB................. 17.4 20.5 25.5
Exports to U.S.\5\..................... 7.0 8.2 10.0
Merchandise Imports, FOB................. 26.4 31.9 37.3
Imports from U.S.\5\................... 5.3 6.1 7.5
Trade Balance............................ -8.9 -11.3 -11.8
Balance with U.S.\5\................... 1.7 2.1 2.5
Current Account Deficit/GDP (pct)........ 4.4 4.5 5.0
External Public Sector Debt.............. 30.1 27.4 N/A
Debt Service Payments/GDP (pct).......... 6.8 5.9 6.5
Fiscal Surplus/GDP (pct)................. 20.6 0.3 0.4
Gold and Foreign Exchange Reserves....... 7.8 11.7 10.5
Aid from U.S. (US$ millions) \6\......... 89.0 164.0 N/A
Aid from Other Bilateral Sources (US$
Millions)\6\............................ 1,499.0 1,556.0 N/A
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available monthly data in
October 1997.
\2\ Percentage changes based on local currency.
\3\ Government construction and services gross value added.
\4\ Growth rate of year-end M2 levels.
\5\ Source: U.S. Department of Commerce; exports FAS, imports customs
basis; 1997 figures are estimates based on data available through
November 1997.
\6\ Inflows per balance of payments, net of inflows from the U.S.
Veterans Administration (USVA).
Sources: National Economic and Development Authority, Bangko Sentral ng
Pilipinas, Department of Finance.
1. General Policy Framework
The Philippines, a founding member of the Association of Southeast
Asian Nations (ASEAN) and the World Trade Organization (WTO), has a
population of 70 million, growing at 2.3 percent yearly. Agriculture
absorbs nearly half of the employed but contributes less than one-
fourth of GDP. Electronics and garments are the leading exports.
Overseas workers remittances are a major source of capital inflows. The
domestic savings rate, although improving, remains at a low 23 percent
of GNP (1996 estimate).
The administration of President Fidel Ramos (now serving a six-year
term that ends in 1998) has pursued a wide-ranging program of economic
liberalization. Significant progress have been made in liberalizing the
trade, foreign exchange and investment regimes; privatizing state-owned
enterprises; lowering entry barriers in such sectors as banking,
insurance, aviation, telecommunications, and oil; and addressing
infrastructure needs under a Build-Operate-Transfer (BOT) program.
These reforms have underpinned sustained economic growth since 1993,
have attracted investments and have led to strong export growth. GNP
per capita first surpassed the equivalent of $1,000 in 1995. At the
same time, poverty and a skewed income distribution remain serious
concerns.
The Philippines has posted fiscal surpluses since 1994 through a
combination of revenue measures and expenditure cuts, but maintaining
fiscal balance remains a challenge. Over half of the budget is
earmarked for non-discretionary disbursements (such as personnel and
debt service payments). Direct taxes constitute less than 40 percent of
total tax collections. As privatization receipts taper and tariffs
decline, weak tax collection/administration represents a threat to
longer-term fiscal and macroeconomic stability. A package of tax
reforms passed in late 1997 may begin to remedy this situation.
The 1993 financial restructuring of the Central Bank (Bangko
Sentral ng Pilipinas--BSP) restored the monetary authority's ability to
conduct effective open market operations. As a result, reserve
requirements have been reduced from their high pre-1993 levels. Since
1993, foreign exchange flows (spurred by the acceleration of foreign
exchange and investment liberalization) have played an increasingly
major role in money supply growth, posing an additional challenge for
the monetary authorities.
2. Exchange Rate Policy
Reflecting major reforms phased in since 1992, current account
transactions are fully convertible. Except for some restrictions on
foreign debt and investments, the Philippines no longer maintains
restrictions on capital account transactions. There are no barriers to
full and immediate capital repatriation and profit remittances. In
September 1995, the Philippines joined the ranks of ``Article VIII''
International Monetary Fund (IMF) member countries, underscoring its
commitment to an open foreign exchange and payments regime. The
Government phased out a forward foreign exchange cover scheme for oil
imports between December 1994 and March 1997.
Foreign exchange rates generally evolve freely in the interbank
market, although the BSP imposes limits on banks' overbought and
oversold foreign exchange positions. In mid-July 1997, as a regional
currency turmoil escalated, the Bankers Association of the Philippines
(BAP) abandoned a foreign ``volatility band'' (first adopted in late
1994) in order to allow the Philippine peso to seek new, lower levels
more freely. Responding to intermittent volatile episodes, the BAP re-
introduced a wider band on October 7, 1997, which limits interbank
forex fluctuations to 4 percent above or below the previous trading
afternoon's weighted average.
3. Structural Policies
Prices are generally determined by free market forces, with the
exception of basic public utilities. March 1996 legislation phased in
the full deregulation of the downstream oil industry by February 1997,
lifting controls over imports and new industry entrants. The last phase
also abolished government-set ceilings on petroleum prices and oil
firms' profit margins. A November 5 Supreme Court decision, however,
ruled that the legislation violated the constitution's anti-monopoly
provisions.
March 1996 legislation lowered foreign investment barriers further
by abolishing one of three negative lists (i.e., ``List C'', which
protected ``adequately served'' sectors such as insurance, travel
agencies, tourist lodging firms, and conference organizers) under the
l991 Foreign Investment Act. The legislation also lowered the minimum
capitalization requirement (from $500,000 to $200,000) at which
majority foreign ownership would be allowed. Effective January 1997,
the Government lifted limits on domestic borrowings by foreign firms.
On October 21, 1997, President Ramos signed legislation increasing the
maximum foreign ownership of securities underwriting firms from 49
percent to 60 percent.
The Philippines' Tariff Reform Program is gradually lowering
applied duty rates on nearly all items, although the government is
currently (November 1997) considering freezing or slowing down the
staging of tariff reductions on some items. The major exception to the
tariff reduction program is in agriculture. Quantitative restrictions
(QRs) on ``sensitive'' agricultural products (except rice) were
replaced with tariffs. Aside from zero-duty commitments under the WTO
Information Technology Agreement, the Philippines is moving towards two
rates by the year 2003 for raw materials, manufactured goods, and non-
sensitive agricultural products by the year 2003--three percent for raw
materials and intermediate goods, and 10 percent for finished products
by 2003--and a final uniform five percent applied tariff rate by 2004.
The Philippines began implementing an ``expanded'' value added tax
(EVAT) law in January 1996, extending coverage of the earlier 1988 law
to additional goods and services. Reflecting concerns over sustainable
revenue flows, the government launched in 1995 a ``Comprehensive Tax
Reform Program'' (CTRP) to simplify the tax system and widen the tax
base. The final phase of CTRP legislation, focusing on personal and
corporate income taxes, was signed into law December 1997.
4. Debt Management Policies
The Bangko Sentral ng Pilipinas (BSP) requires prior approval of
certain types of foreign debt agreements: private sector loans to be
serviced by foreign exchange purchases from the banking system; and
loans either incurred or guaranteed by the public sector. The foreign
debt level (estimated at $42.6 billion) has been growing, but debt
servicing is no longer a major problem. The ratio of debt servicing to
exports has fallen from 40 percent in the early 1980s to under 13
percent. The Philippines reentered the voluntary international capital
markets in 1993 after a decade's absence, and has succeeded in retiring
or exchanging some of its earlier debt for instruments carrying longer
maturities and more favorable terms. The Philippines has had four debt
rescheduling rounds with official bilateral (Paris Club) creditors; the
Government did not exercise a fifth Paris Club debt rescheduling
agreement. The IMF approved a three-year extended arrangement in mid-
1994, which the Philippines intends to use as an exit program on or
before the end of 1997, upon completion of the CTRP (see Section 3).
The Philippines' exit is likely to be delayed because of the region's
economic turmoil and a Supreme Court decision on oil price
deregulation.
5. Significant Barriers to U.S. Exports
Tariffs: In July 1995, the Philippines adopted a minimum access
volume (MAV) system that licenses imports of some 85 ``sensitive''
agricultural products. Among those were products, such as pork and
poultry, on which the government had undertaken minimum access
commitments in the Uruguay Round (UR). The United States has sought
consultations with the Philippines under the WTO regarding
implementation of MAV's on these products. In some cases, products that
had previously been imported without restriction, are now subject to
the MAV system. This has resulted in the application of prohibitive
tariff levels in cases where no MAV's (subject to in-quota rates) were
established. Administrative requirements for import certificates under
the MAV system for all products are burdensome. Imported automotive
vehicles are subject to a 40 percent applied tariff rate (scheduled to
fall to 30 percent in 2000), the highest applied duty rate currently in
the Philippine tariff schedule, as part of an effort to encourage local
assembly. The Philippines provides participants in its ``Motor Vehicle
Development Program'' with a number of other incentives to encourage
local assembly, such as a 3% duty rate on completely-knocked down (CKD)
vehicle kits. The government has stated its intention to terminate
certain provisions of these programs by the year 2000, in compliance
with its WTO obligations. High excise taxes on larger engines
significantly limit sales of vehicles imported from the United States.
Import Licenses: Trade reforms have greatly reduced import
restrictions. Certain items, including firearms, ammunition, and
dangerous drugs, are still subject to import regulation for reasons of
health, morals, and/or national security.
State Trading: The National Food Authority remains the sole
importer of rice and continues to be involved in imports of corn.
Excise taxes: Excise taxes on distilled spirits have the effect of
discriminating against imports by imposing a lower tax (eight pesos, or
about $0.24 per proof liter) on products which use indigenously
available materials (such as coconut, palm, cane, and certain root
crops). Specific taxes on distilled spirits produced from other raw
materials, which would apply to most imports, range from 75 pesos
(about $2.20) to 300 pesos (about $8.80) per proof liter, depending on
the retail price.
Services Barriers: Banking--May 1994 banking legislation permitted
10 foreign banks to open branches in the Philippines. Presently,
foreign entry is limited to 60 percent ownership of either a new local
subsidiary or an existing domestic bank. Foreign branch banks are
limited to putting up six branches each. Four foreign banks that had
been operating in the Philippines since before 1948 are allowed to add
six branches each to their respective networks. Current regulations
provide that majority Filipino-owned domestic banks should, at all
times, control at least 70 percent of total banking system assets.
Securities--Membership in the Philippine stock exchange is open to
foreign-controlled stock brokerage firms, provided they are
incorporated under Philippine laws. Foreign ownership in securities
underwriting companies is limited to 60 percent. Companies not
established under Philippine law are not allowed to underwrite
securities for the Philippine market, but may underwrite Philippine
issues for foreign markets. Financing companies must be at least 60
percent Filipino-owned.
Insurance--Although foreign entry has been liberalized,
capitalization requirements vary according to the extent of foreign
equity. As a general rule, only the Philippines' Government Service
Insurance System may provide coverage for government-funded projects. A
1994 administrative order extended this policy to BOT-funded projects.
Current regulations require all insurance/professional reinsurance
companies operating in the country to cede to the industry-owned
National Reinsurance Corporation of the Philippines (NRCP) at least 10
percent of outward reinsurance placements.
Professional services--The Philippine Constitution (Section 14 of
Article XII) reserves the practice of licensed professions to
Philippine citizens. This includes, inter alia, law, engineering,
medicine, accountancy, architecture, and customs brokerage. Philippine
law (R.A. 8182) also requires that preference be given to Philippine
citizens in the hiring of consultants and other professionals necessary
for the implementation of projects funded by foreign assistance.
Telecommunications--The Philippine Constitution (Section 10 of
Article XII) limits foreign ownership in telecommunication firms to 40
percent.
Shipping--The Maritime Industry Authority prohibits foreign-flagged
vessels from the carriage of domestic trade.
Standards, Testing, Labeling, and Certification: Of the total 1,625
Philippine National Standards, 15 percent are aligned with
international norms. The government, for reasons of public health,
safety and national security, implements regulations that affect U.S.
exports of drugs, food, textiles and certain industrial goods. U.S.
pharmaceutical firms believe that the ``Generic Act'' of 1988, which
promotes the use of generic drugs and which requires that a drug's
generic name must appear above its brand name on all packaging,
represents a trade barrier. The Department of Agriculture has not
established conditions of import in relation to plant health for a
range of fresh fruits and vegetables; therefore, phytosanitary permits
necessary for importing these products are not issued.
Local inspection for standards compliance is required for imports
of a range of industrial products including lighting fixtures,
electrical wires and cables, sanitary wares and household appliances,
medical equipment, cosmetics, portland cement and pneumatic tires. For
other goods, however, the Philippines accepts U.S. manufacturers' self-
certification of conformance.
Investment Barriers: The Foreign Investment Act of 1991 contains
two categories of foreign investment ``negative lists''. ``List A''
covers activities in which foreign equity is excluded or limited by the
Constitution and other laws. These include investments in mass media,
practice of licensed professions (see above), retail trade, processing
of corn and rice, small-scale mining and private security agencies,
which are reserved for Filipinos. In addition to land ownership (where
a 40 percent foreign-equity ceiling applies), varying foreign ownership
limitations are imposed, among others, on companies engaged in
advertising (30%), employee recruitment (25%), private construction
(40%), financing (40%), public utilities (40%), education (40%), and
the exploration and development of natural resources (40%). ``List B''
limits foreign ownership (generally to 40 percent) for reasons of
public health, safety and morals, or to protect local small and medium-
sized firms. To protect smaller firms, a company must be capitalized at
a minimum of $200,000 to be more than 40 percent foreign-owned.
The Philippines generally imposes a foreign ownership ceiling of 40
percent on firms seeking incentives with the Board of Investment (BOI)
under the annual Investment Priorities Plan. While there are exceptions
to the ceiling, divestment to reach the 40 percent level is required
within 30 years. The BOI imposes industry-wide local-content
requirements under its motor-vehicle development programs and requires
participants to generate, via exports, a certain ratio of the foreign
exchange needed for import requirements. The government intends to
phase out these trade-related investment measures by the year 2000.
Government Procurement Practices: Contracts for government
procurement are awarded by competitive bidding and, in general,
government procurement policies do not discriminate against foreign
bidders. However, preferential treatment of local suppliers is
practiced in government purchases of medicines, rice, corn, and iron/
steel materials for use in government projects. Contractors for
infrastructure projects which require a public utility franchise (i.e.,
water and power distribution, public telephone and transportation
systems) must be at least 60 percent Filipino-owned. For other major
contracts (such as BOT projects) not involving a public utility
franchise, a foreign constructor must be duly accredited by its
government to undertake construction work. The Philippines is not a
signatory of the WTO plurilateral Government Procurement Agreement.
Customs Procedures: All imports valued at over $500 are permitted
entry only when accompanied by a preshipment inspection report--``Clean
Report of Findings''--issued by Societe Generale de Surveillance (SGS),
the authorized, contracted, inspection firm. Refrigerated products are
exempt. The preshipment inspection requirement extends to exports to
certain operations in free-trade zones, such as those at Clark and
Subic Bay, even though such zones are technically outside the customs
territory of the Philippines. The SGS contract to perform preshipment
inspection services expires in mid-1998, and is currently up for
renewal.
To assess import duty, the Bureau of Customs has shifted from
``home consumption value'' to ``export value'' as an interim step
towards a shift to ``transaction value'' before the year 2000. Many
U.S. exporters assert that the use by the Bureau of Customs of the
``export value'' method of valuation has resulted in unwarranted
``uplifts'' in valuation (and in the assessed dutiable value).
6. Export Subsidies Policies
Firms (including exporters) engaged in activities under the
Investment Priorities Plan may register with the Board of Investment
(BOI) for fiscal incentives under the 1987 Omnibus Investment Code.
These incentives include income-tax holidays, preferential tax/duty
treatment of imported capital equipment, tax credits for domestically
purchased equipment, and income-tax deductions for incremental labor
expenses. In addition to these general incentives, some benefits apply
specifically to BOI-registered export firms (such as tax credits for
raw-material imports, and tax/duty exemptions on imported spare parts).
Export companies in government-designated export zones and industrial
estates registered with the Philippine Economic Zone Authority enjoy
basically the same incentives as BOI-registered firms.
Enterprises accredited under the Export Development Act may also
take advantage of time-bound incentives which include: duty-free
importation of capital equipment and accompanying spare parts through
1997; partial tax credit through 1997 for locally purchased raw
materials, equipment and spare parts for exporters of nontraditional
products; tax credit until 1999 for imported inputs and raw materials
not readily available locally; and tax credit for increases in the
current year's export revenues, contingent on performance and local
content.
7. Protection of U.S. Intellectual Property
On June 6, 1997, President Ramos signed into law a new Intellectual
Property Code which, when it takes effect January 1, 1998, should
significantly improve the legal framework for IPR protection.
Implementing regulations, however, have yet to be promulgated. The new
Code creates an Intellectual Property Office, with original
jurisdiction to resolve certain disputes concerning licensing, and
significantly increases penalties for infringement and counterfeiting.
The Philippines is a party to the Paris Convention for the Protection
of Industrial Property and the Patent Cooperation Treaty. It is also a
member of the World Intellectual Property Organization (WIPO).
Despite the creation in February 1993 of the Inter-agency Committee
on Intellectual Property Rights as the body charged with recommending
and coordinating enforcement oversight and program implementation,
serious problems remain with IPR enforcement. Insufficient funding is a
major problem. Joint government-private sector efforts have improved
administrative enforcement; but when IPR owners must use the courts,
enforcement is slower and less certain. The designation in 1995 of 48
courts to handle IPR violations has done little to speed up the
process, since these courts also continue to handle non-IPR cases,
without the provision of additional resources. Because of the lengthy
nature of court action, many cases are settled out of court.
Patents: The new Code moves the Philippines to a ``first-to-file''
system, and increases the term of patent from 17 to 20 years. The
holder of a patent is guaranteed an additional right of exclusive
importation of his invention.
Trademarks: The new IP Code no longer requires prior use of
trademarks in the Philippines as a requirement for filing a trademark
application. Also eliminated was the requirement that well-known marks
be in actual use in Philippine commerce or registered with the Bureau
of Patents, Trademarks, and Technology Transfer. Trademark
counterfeiting is widespread, with many well-known international
trademarks copied, including denim jeans, designer shirts, playing
cards, sporting equipment and personal beauty and health care products.
Some U.S. firms have had success in curbing piracy in cooperation with
Philippine enforcement agencies, particularly the National Bureau of
Investigation.
Copyrights: The new Code expands IP protection by clarifying
protection of computer software as literary works (although it includes
a fair use provision on decompilation), repealing a long-standing
compulsory reprint license for books, and establishing exclusive rental
rights in several categories of works and sound recordings. It also
provides terms of protection for sound recordings, audiovisual works,
and newspapers and periodicals that are compatible with the WTO
Agreement on Trade-related Intellectual Property Rights (TRIPs).
However, a number of gaps and ambiguities remain; for example, the new
Code fails to provide clearly an exclusive right for copyright owners
over broadcast, rebroadcast, cable retransmission or satellite
retransmission of their works.
New Technologies: The new Code protects layout designs
(topographies) of integrated circuits. The new Code provides for the
patentability of micro-organisms and non-biological and microbiological
processes.
Software and video piracy remains widespread; according to the
Business Software Alliance, the piracy rate for software is estimated
at between 90-95%, while that for motion pictures is around 70%.
Enforcement actions have not effectively reduced these figures. The
illegal retransmission of copyrighted works by cable television
stations, i.e. without authorization from or payment to the copyright
owners, is also a significant problem, especially outside Manila. The
U.S. IP industry estimates potential trade losses in 1996 due to piracy
of software at $82 million; for motion pictures, $22 million; and for
sound recordings, $3 million.
8. Worker Rights
a. The Right of Association.--All workers (including public
employees) have a right to form and join trade unions, a right which is
exercised without government interference. Trade unions are independent
of the government and generally free of political party control. Unions
have the right to form or join federations or other labor groupings.
Subject to certain procedural restrictions, strikes in the private
sector are legal. Unions are required to provide strike notice, respect
mandatory cooling-off periods, and obtain majority member approval
before calling a strike.
b. The Right To Organize and Bargain Collectively.--The Philippine
Constitution guarantees the right to organize and bargain collectively.
The Labor Code protects and promotes this right for employees in the
private sector and in government-owned or controlled corporations. A
similar but more limited right is afforded to employees in most areas
of government service. Dismissal of a union official or worker trying
to organize a union is considered an unfair labor practice. Labor law
and practice are uniform throughout the country, although there have
been complaints about some local attempts to maintain ``union free/
strike free'' policies in several of the export processing zones. In
the garment industry, the widespread use of short-term, contract
workers is an obstacle to workers forming unions or obtaining medical
and retirement benefits.
c. Prohibition of Forced or Compulsory Labor.--The Philippines
prohibits forced labor.
d. Minimum Age for Employment of Children.--Philippine law
prohibits the employment of children below age 15, with some exceptions
involving situations under the direct and sole responsibility of
parents or guardians, or in the cinema, theater, radio and television
in cases where a child's employment is essential. The Labor Code allows
employment for those between the ages of 15 and 18 for such hours and
periods of the day as are determined by the Secretary of Labor, but
forbids employment of persons under 18 years in hazardous work. A
significant number of children are employed in the informal sector of
the urban economy or as unpaid family workers in rural areas.
Acceptable Conditions of Work.--A comprehensive set of
occupational safety and health standards exists in law. Statistics on
actual work-related accidents and illnesses are incomplete, as
incidents (especially in regard to agriculture) are underreported.
Workers do not have a legally protected right to remove themselves from
dangerous work situations without jeopardy to continued employment.
f. Rights in Sectors with U.S. Investment.--U.S. investors in the
Philippines generally apply U.S. standards of worker safety and health,
in order to meet the requirements of their home-based insurance
carriers. Some U.S. firms have resisted efforts by their employees to
form unions, with local government support.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 1530
Food & Kindred Products..................... 470
Chemicals & Allied Products................. 462
Metals, Primary & Fabricated................ 35
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. 353
Transportation Equipment.................... 0
Other Manufacturing......................... 209
Wholesale Trade............................... 259
Banking....................................... 371
Finance/Insurance/Real Estate................. \1\
Services...................................... \1\
Other Industries.............................. 395
TOTAL ALL INDUSTRIES.......................... 3349
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
SINGAPORE
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP 85.3 94.0 98.7
Real GDP (1990 prices)................... 72.3 77.7 80.1
Real GDP Growth (pct) \2\................ 8.8 7.0 6.5
GDP By Sector:
Agriculture............................ 0.1 0.16 0.17
Manufacturing.......................... 22.4 24.5 25.7
Services............................... 44.3 49.2 52.8
Government............................. 7.0 8.4 8.9
Per Capita GDP........................... 24,456 26,539 27,395
Labor Force (000s)....................... 1749 1802 1856
Unemployment Rate (pct).................. 2.7 3.0 3.0
Money and Prices (annual percentage
growth):
Money Supply Growth (M2)................. 8.5 9.8 9.7
Consumer Price Inflation (pct)........... 1.7 1.4 1.8
Exchange Rate (Sd/US$) annual average.... 1.42 1.41 1.46
Balance of Payments and Trade:
Total Exports FOB \3\.................... 11.8 12.5 12.6
Exports To U.S. CIF \3\................ 1.9 2.0 2.1
Total Imports CIF \3\.................... 12.4 13.1 13.4
Imports From U.S. FAS \3\.............. 1.5 1.7 1.8
Trade Balance \3\........................ -6.2 -6.3 -8.4
Trade Balance With U.S. \3\............ 3.2 3.6 2.8
Fiscal Surplus/GDP (pct)................. 6.3 3.6 3.2
Current Account Surplus/GDP (pct)........ 16.9 15.0 17.4
Debt Service Payments/GDP (pct).......... 0 0 0
Reserves................................. 68.5 76.4 81.2
Aid from U.S............................. 0 0 0
Aid from Other Sources................... 0 0 0
------------------------------------------------------------------------
\1\ 1997 Figures Are Projections Based On Most Recent Data Available.
\2\ Percentage Changes Calculated In Local Currency.
\3\ Merchandise Trade. United States-Singapore Trade Data Was Taken From
Usdoc Instead Of Gos sources, As The Latter Includes Transshipments To
And From Regional Countries.
1. General Policy Framework
A city-state with a population of 3.5 million astride one of the
major shipping lanes of the world, Singapore has long adopted economic
policies that encourage open trade and investment. Singapore's annual
trade is about three times the size of its GDP, and transshipments make
up 40 percent of its merchandise exports. Foreign funds comprised 70
percent of its total investment in manufacturing in 1996. These
policies have allowed this small country to develop one of the world's
most successful open trading and investment regimes. Singapore actively
promotes trade liberalization in the region through APEC and ASEAN. It
is a founding member of the World Trade Organization (WTO), and hosted
the first WTO Ministerial in December of 1996.
Internally, Singapore's free-market economic policies have created
a climate conducive to economic growth, including a competitive
business environment, and a transparent and corruption-free regulatory
framework. At the same time, it has a sizable public sector in the form
of government-linked companies (which have private shares as well) that
account for nearly 60 percent of GDP. Over the past decade, Singapore's
real GDP grew at an average annual rate of 9.0 percent; 1996's economic
growth rate dropped to 7 percent. The financial and business services
sector, in particular, has grown to eclipse manufacturing, with the
former now contributing about 31 percent (to the latter's 26 percent)
of GDP.
The government pursues conservative fiscal policies designed to
encourage high levels of savings and investment. For most of the years
since the 1970's--and the past nine consecutive years--the Government
has had a budget surplus. In 1996, its fiscal surplus amounted to 3.6
percent of the country's GDP. The Central Provident Fund (CPF)
compulsory savings program, which requires that 20 percent of an
individual's income be placed in a tax-exempt account (with employer
matching funds), is the basis for the national savings rate of nearly
50 percent of GDP. Individual CPF accounts may be used only, in part,
to finance public housing purchases and investment in government-
designated trustee stocks. The government invests heavily in the
country's social and physical infrastructure, including education,
transportation, public housing subsidies and CPF contributions.
The Monetary Authority of Singapore (MAS), the country's central
bank, engages in limited money-market operations to influence interest
rates and ensure adequate liquidity in the banking system. Its key
objective is to maintain stability and rarely to stimulate or reduce
economic growth. Interest rates are low (currently 3.41 percent for
three-month money and a 6.26 percent prime lending rate which has
remained steady since 1995). There are no controls on capital
movements, thus limiting the scope for an independent monetary policy.
The exchange rate is the MAS's most important tool for controlling
inflation. Although inflation is low by international standards (1.4
percent based on C.P.I. numbers in 1996), an acute labor shortage and
land scarcity have intensified inflationary pressures.
Singapore has become a major center for electronics, chemicals, oil
refining and financial services, acting as a hub for the growing
Southeast Asian market. Singapore's sound economic policies which
promote private investment have attracted about 1300 U.S. companies to
Singapore, with cumulative investments of USD 15 billion in 1996. The
U.S. moved up to become Singapore's largest trading partner, accounting
for 17.3 percent of Singapore's total trade in 1996. U.S. exports to
Singapore in 1996 were USD 16.7 billion and Singapore's exports to the
U.S. were USD 20.3 billion.
2. Exchange Rate Policy
Singapore has no exchange rate controls. Exchange rates are
determined freely by daily cross rates in the international foreign
exchange markets. At the same time, the MAS uses currency swaps and
direct open market operations to keep the Singapore dollar within a
desired trading range. It does impose restrictions on Singapore dollar
lending (SGD 5 million) to non-residents, or to local residents for use
abroad, as a check against the internationalization of the Singapore
dollar. The MAS maintains a strong currency to check inflation, given
Singapore's extreme exposure to international trade.
The Singapore dollar appreciated about 54 percent against the U.S.
dollar from 1986 to 1996, with its rise slowed somewhat in 1996 due to
more moderate economic growth and less than two percent inflation.
Since the beginning of 1997, it has depreciated by over ten percent
against the U.S. dollar largely in connection with the region's
currency crisis. This could have an impact on U.S. imports as prices of
American products rise in the local market. On the other hand, the
Singapore dollar has appreciated significantly against the other
currencies in the region, thus minimizing the inflationary impact on
its economy.
3. Structural Policies
Singapore's prudent economic policies have allowed for steady
economic growth and the development of a reliable market, to the
benefit of U.S. exporters. Singapore was the eighth largest customer
for U.S. products in 1996. Prices for virtually all products are
determined by the market. The Government conducts its bids by open
tender and encourages price competitionthroughout the economy.
The Singapore government has gradually reduced corporate income tax
levels from 40 percent in 1986 to the current 26 percent. It aims to
bring the corporate tax rate down further to 25 percent in the next few
years. Foreign firms are taxed on the same basis as local firms. There
is no tax on capital gains. The Government implemented a three percent
value-added Goods and Services Tax (GST) in 1994 but reduced corporate
(by one percent)and personal (by three percent) taxes. It also began
providing tax rebates of up to SGD 700 on individual income tax in
1994. With these changes, it is estimated that three out of four
Singaporeans will end up not having to pay personal income taxes, thus
increasing the disposable incomes available to the average Singaporean
consumer. In 1996, given continued budget surpluses, the Government
also decided to make additional contributions to public housing and
retirement schemes. At the same time, it raised stamp duties and
imposed credit restrictions and a capital gains tax on short-term
property sales to curb speculation in the real estate market.
Many of Singapore's public policy measures are tailored to attract
foreign investments and ensure an environment conducive to their
efficient business operations and profitability. Investment policies
are open and transparent. Although the Government seeks to develop more
high-tech industries, it does not impose production standards, require
purchases from local sources, or specify a percentage of output for
export.
4. Debt Management Policies
Singapore's external public debt was a negligible USD 3.1 million
at the end of 1994 and was retired completely in 1995. This was one of
the factors that enabled the country to weather the currency crisis
which engulfed the region in the second half of 1997. Singapore's
budget surpluses and mandatory savings have allowed the government wide
latitude in supporting infrastructure, education, and other programs
contributing significantly to national development.
5. Aid
Singapore does not receive financial assistance from foreign
governments.
6. Significant Barriers to U.S. Exports
Singapore has one of the world's most liberal and open trade
regimes. Approximately 98 percent of imports enter duty-free, with
tariffs primarily levied on cigarettes and alcohol for social reasons.
Excise taxes are levied on petroleum products and motor vehicles
primarily to restrict motor vehicle use. There are no non-tariff
barriers to foreign goods. Import licenses are not required, customs
procedures are minimal and highly efficient, the standards code is
reasonable and the government actively encourages foreign investment.
All major government procurements are by international tender. The
Government formally acceded to the WTO Government Procurement Agreement
in September 1997.
Singapore maintains some market access restrictions in the services
sector. No new banking licenses for local retail banking have been
issued for more than two decades (to either foreign or domestic
institutions) because the Monetary Authority considers Singapore over-
banked. Foreign banks currently hold 22 of the 34 full (local retail)
banking licenses. Full licensed foreign banks, however, are not allowed
additional branches or ATM machines although local banks are allowed to
expand. At the same time, the MAS continues to encourage the growth of
the offshore banking industry in Singapore. It recently raised the
Singapore dollar lending limit for offshore banks (to Singapore-based
firms) from SGD 100 to SGD 200 million. No new licenses for direct
(general) insurers are being issued, although reinsurance and captive
insurance licenses are freely available. Foreign companies hold about
three-quarters of the 59 direct insurance licenses.
The telecommunications sector has been steadily liberalized since
1989. Restrictions on the sale of telecommunication consumer goods and
the provision of value-added network services (VANS) have been lifted.
Singapore Telecom (Singtel) has been privatized and its regulatory
functions assumed by the Telecommunications Authority of Singapore
(TAS). Private investors now own up to 19 percent of shares in Singtel.
In April 1996, MobileOne (a Singapore-foreign joint venture) became the
second cellular phone service provider in Singapore, thus ending
Singtel's monopoly in the telephone services market. Three new paging
service providers also entered the market at the same time. TAS has
also announced that it will issue new licenses for up to two new basic
telephone service providers to begin operation in 2000, and additional
ones in 2002. Worldcom, the fourth largest U.S. long-distance operator,
has formed a joint venture to bid for a basic services license.
7. Export Subsidies Policies
Singapore does not subsidize exports although it does actively
promote them. The Government offers significant incentives to attract
foreign investment, almost all of which is in export-oriented
industries. It also offers tax incentives to exporters and reimburses
firms for certain costs incurred in trade promotion, but it does not
employ multiple exchange rates, preferential financing schemes, import-
cost-reduction measures or other trade-distorting policy tools.
8. Protection of U.S. Intellectual Property
The Singapore government recognizes the importance of intellectual
property rights (IPR), especially in connection with further
investments--both foreign and domestic--in the technologically-advanced
sectors of the economy. It has taken concrete measures to improve the
protection of IPR over the years and, as a result, Singapore has one of
the lowest rates of IPR piracy in Asia. Singapore is a member of the
World Intellectual Property Organization (WIPO), and has ratified the
Uruguay Round Accord including the TRIPS provisions. Singapore is not a
party to the Berne Convention or the Universal Copyright Convention.
In 1987, following close consultation with the U.S. Government,
Singapore enacted strict, comprehensive copyright legislation which
relaxed the burden of proof for copyright owners pressing charges,
strengthened civil and criminal penalties and made unauthorized
possession of copyrighted material an offense in certain cases. In
January 1991 Singapore similarly strengthened its Trademark Law. In
1994, Singapore enacted a new Patents Act. Although Singapore did not
commit to implementing the TRIPS agreement by 1 January 1996, as
required for developed countries, amendments making the Patent Law
fully TRIPS consistent came into effect in January 1996. Singapore is
now also drafting amendments to its Copyright Law, expecting to make it
TRIPS consistent by the end of 1997.
Singapore was placed on the Special 301 Watch List in 1997 partly
because its Copyright Law was not TRIPS consistent. (Note: Singapore
claimed ``developing country'' status under TRIPS, thus not binding
itself to meet the 1 January 1996 deadline for a ``developed
country.'') Other outstanding issues included the lack of rental rights
for sound recordings and software, inadequate protection against making
bootleg copies of musical performances, the limited scope of copyright
protection for cinematographic works and overly broad exceptions from
copyright protection.
Copyrights: Despite government efforts, IP owners associations have
reported an upsurge in pirated music CDs and CD ROMs available in the
country since 1995, part of which were thought to have been smuggled in
and others manufactured in Singapore. A successful series of raids
conducted by the police, assisted by the International Federation of
Phonographic Industries (IFPI), in July 1997 resulted in the
confiscation of 78,000 pirated music CD's. In another case, however,
the Chief Justice quashed a warrant used by BSA and the police in a
raid on a local CD manufacturer. More generally, IP associations have
cited the inadequacy of the current ``self-policing'' system, and are
pressing the government to assume a more active and direct role in the
investigation and prosecution of IPR cases. They have called for the
enactment of even stronger laws and regulations to protect IPR. In
response, government agencies have met with local CD manufacturers and
IP owners associations to consider new measures to deal with the
problem.
Recent estimates by Business Software Alliance (BSA) show software
piracy losses rising to USD 56.5 mil in 1996 from USD 40.4 mil in 1995
and USD 37.3 mil in 1994. Singapore's piracy rate was estimated to have
risen back up to 59 percent in 1996 from 53 percent (the lowest in
Asia) in 1995 and 61 percent in 1994. In the area of music CDs, IFPI
estimated Singapore's CD piracy level to have risen gradually from 12
percent in 1994 to nearly 17 percent in 1996.
9. Worker Rights
a. The Right of Association.--Article 14 of the Singapore's
constitution gives all citizens the right to form associations,
including trade unions. Parliament may, however, based on security,
public order, or morality grounds impose restrictions. The right of
association is delimited by the Societies Act and labor and education
laws and regulations. In practice, communist labor unions are not
permitted. Singapore's labor force numbered 1.8 million in 1996, with
some 255,020 workers organized into 83 trade unions.
b. The Right to Organize and Bargain Collectively.--Over ninety
percent of these workers in unions are affiliated with an umbrella
organization, the National Trades Union Congress (NTUC), which has a
symbiotic relationship with the Government. The NTUC's leadership is
made up mainly of Members of Parliament belonging to the ruling
People's Action Party (PAP). The Secretary-General of the NTUC is also
an elected Minister without portfolio in the Prime Minister's office.
The Trades Union Act authorizes the formation of unions with broad
rights. Collective bargaining is a normal part of labor-management
relations in Singapore, particularly in the manufacturing sector.
Collective bargaining agreements are renewed every two to three years,
although wage increases are negotiated annually.
c. Prohibition of Forced or Compulsory Labor.--Under sections of
Singapore's Destitute Persons Act, any indigent person may be required
to reside in a welfare home and engage in suitable work.
d. Minimum Age for Employment of Children.--The Government enforces
the Employment Act, which prohibits the employment of children under 12
years and restricts children under 16 from certain categories of work.
e. The Singapore labor market offers relatively high wage rates and
working conditions consistent with international standards.--However,
Singapore has no minimum wage or unemployment compensation. Because of
labor shortages, wages have generally stayed high. The government
enforces comprehensive occupational safety and health laws. Enforcement
procedures, coupled with the promotion of educational and training
programs, reduced the frequency of job-related accidents by one-third
over the past decade. The average severity of occupational accidents
has also been reduced.
f. Rights in Sectors with U.S. Investment.--U.S. firms have
substantial investments in several sectors of the economy, including
petroleum, chemicals and related products, electric and electronic
equipment, transportation equipment, and other manufacturing areas.
Labor conditions in these sectors are the same as in other sectors. The
growing labor shortage has forced employers, especially in the
construction and electronics industries, to hire many unskilled foreign
workers. Over 400,000 foreign workers are employed legally in
Singapore, 22 percent of the total work force. The government controls
the number of foreign workers through immigration regulation and
through levies on firms hiring them. Foreign workers face no legal
discrimination, but, because they are mostly unskilled workers, they
are generally paid less than Singaporeans.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 2799
Total Manufacturing........................... 5870
Food & Kindred Products..................... \1\
Chemicals & Allied Products................. 360
Metals, Primary & Fabricated................ 214
Machinery, except Electrical................ 1590
Electric & Electronic Equipment............. 3226
Transportation Equipment.................... \1\
Other Manufacturing......................... 254
Wholesale Trade............................... 1777
Banking....................................... 507
Finance/Insurance/Real Estate................. 2521
Services...................................... 487
Other Industries.............................. 189
TOTAL ALL INDUSTRIES.......................... 14150
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
TAIWAN
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
GDP (at current prices).................. 260.2 272.3 288.2
Real GDP Growth (percent)................ 6.0 5.7 6.6
GDP by Sector:
Agriculture............................ 9.2 8.9 8.2
Manufacturing.......................... 73.2 76.0 79.5
Services............................... 129.3 138.0 149.7
Government............................. 27.4 28.7 30.2
Per Capita GDP (US$)..................... 12,164 12,732 13,373
Labor Force (000s)....................... 9,210 9,310 9,400
Unemployment Rate (percent).............. 1.8 2.6 2.6
Money and Prices (annual percentage
growth):
Money Supply (M2)........................ 9.4 9.1 9.0
Consumer Price Inflation................. 3.7 3.1 2.6
Exchange Rate (NT$/US$) \2\
Official............................... 27.27 27.46 28.50
Balance of Payments and Trade:
Total Exports (FOB) \3\.................. 111.7 115.9 123.7
Exports to U.S. (CV) \4\............... 29.0 29.9 32.4
Total Imports (CIF) \3\.................. 103.6 102.4 113.5
Imports from U.S. (FAS) \4\............ 19.3 18.4 20.3
Trade Balance \3\........................ 8.1 13.5 10.2
Trade Balance with U.S. \4\............ 9.7 11.5 12.1
External Public Debt..................... 0.3 0.1 0.05
Fiscal Deficit/GDP (pct)................. 7.4 7.4 6.3
Current Account Deficit/GDP (pct)........ 1.8 3.8 2.1
Debt Service Payments/GDP (pct).......... 2.4 1.8 2.0
Gold and Foreign Exchange Reserves....... 95.9 93.6 92.1
Aid from U.S. \5\........................ 0 0 0
Aid from Other Countries................. 0 0 0
------------------------------------------------------------------------
\1\ 1997 figures are estimated based on data from the Directorate
General of Budget, Accounting and Statistics, or extrapolated from
data available as of September 1997.
\2\ Average of figures at the end of each month.
\3\ Taiwan Ministry of Finance (MOF) figures for merchandise trade.
\4\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
FAS, imports customs basis; 1997 figures are estimates based on data
available through August 1997. Taiwan MOF figures for merchandise
exports (FOB) to and imports (CIF) from U.S. respectively were (US$
billions): (1995) 26.4/20.8, (1996) 26.9/20.0, (1997) 29.2/22.5.
\5\ Aid disbursements stopped in 1965.
1. General Policy Framework
For four and a half decades, Taiwan has maintained rapid economic
growth and macroeconomic stability. Annual economic growth during this
period averaged 8.5 percent. In 1996, real gross domestic product (GDP)
increased 5.7 percent; it is expected to grow by 6.6 percent in 1997.
Per capita GDP was US$12,732 in 1996. As of August 1997, Taiwan held
US$88 billion in foreign exchange reserves, the third largest in the
world (after Japan and the PRC). Prices rose 3.1 percent in 1996 and
are expected to rise 2.6 percent in 1997.
Rising labor and land costs have led many manufacturers in labor
intensive industries to move offshore, mainly to Southeast Asia and
mainland China. The pace of relocation has now slowed, however, in
large part because those intending to move have already done so.
Industrial growth is now concentrated in capital and technology
intensive industries such as petrochemicals, computers, and electronic
components, as well as consumer goods industries. Services account for
over sixty percent of GDP. Exports of goods and services account for
nearly half of GDP.
Falling official savings and growing public expenditures have
caused domestic public debt to increase steadily. The Taiwan
authorities now rely largely on domestic bonds and bank loans to
finance major expenditures. In 1997, Taiwan adopted austerity measures
to control the government budget deficit. As a result, outstanding
public debt will decline from 21 percent of GNP in fiscal year 1997
(July 1-June 30) to 20 percent in fiscal year 1998. During the same
period, the central government's deficit will fall by half, from four
percent of GNP to two percent. Defense spending still accounts for the
largest share of public expenditures (about one quarter) but is falling
in relative terms. The greatest pressure on the budget now comes from
growing demands for improved infrastructure and social welfare
spending, including a national health insurance plan initiated in early
1995.
Taiwan wishes to accede to the World Trade Organization (WTO)
Agreement in the near future. It also aims to develop into an Asia
Pacific regional operations center, and is an active member of the Asia
Pacific Economic Cooperation (APEC) forum. Taiwan has in recent years
accelerated liberalization of its trade and investment regime.
2. Exchange Rate Policies
Taiwan has a floating exchange rate system in which banks set rates
independently. The Taiwan authorities, however, control the largest
banks authorized to deal in foreign exchange. The Central Bank of China
(CBC) intervenes in the foreign exchange market when it feels that
speculation or ``drastic fluctuations'' in the exchange rate may impair
normal market adjustments. The CBC uses direct foreign exchange trading
by its surrogate banks and public policy statements as its main tools
to influence exchange rates. Beginning in July 1996, the CBC ceased to
set banks' overbought and oversold positions; banks are now authorized
to set these positions. In May 1997, the CBC lifted limits on banks'
foreign liabilities. The CBC, however, still limits the use of
derivative products denominated in New Taiwan Dollars.
Trade-related funds flow freely into and out of Taiwan. Most
restrictions on capital account flows have been removed since late
1995. Laws restricting repatriation of principal and earnings from
direct investment have been lifted in principle, but some necessary
amendments are still pending in the Legislative Yuan. Despite
significant easing of previous restrictions on foreign portfolio
investment, some limits remain in place.
3. Structural Policies
Six state-owned enterprises have been either totally or partially
privatized in the past three years. Two more are targeted for
privatization in 1998. State-owned enterprises account for ten percent
of GDP, a proportion which shrinks annually. Taiwan's Fair Trade
Commission (FTC) acts to thwart noncompetitive pricing by state-run
monopolies. FTC exemptions granted five years ago to several state-run
monopolies were not renewed in 1997, making such firms subject to anti-
monopoly laws.
In July 1997, Taiwan began implementing tariff reductions on 289
high-tech goods as part of its commitment to the multilateral
Information Technology Agreement. It is expected that tariffs will be
lowered on an additional 1,130 items in early 1998 (legislation is
pending). Taiwan's current average nominal tariff rate is 8.6 percent;
the trade-weighted rate is 3.6 percent. High tariffs and pricing
structures on some goods--in particular on some agricultural products--
nevertheless hamper U.S. exports. Taiwan continues to ban imports of
products such as peanuts, poultry products, and bellies and offal of
hogs. The Taiwan Tobacco and Wine Monopoly Bureau (TTWMB) has a
monopoly on domestic production of cigarettes and alcoholic beverages.
The United States is seeking to improve market access for these and
other products as part of Taiwan's WTO accession process.
4. Debt Management Policies
Unofficial estimates put Taiwan's outstanding long- and short-term
external debt at US$17.5 billion as of December 1996, equivalent to 6.4
percent of GDP. Official figures show that Taiwan's long term
outstanding external public debt totaled US$89 million, compared to
gold and foreign exchange reserves of about US$93.6 billion. Taiwan's
debt service payments in 1996 totaled US$3.0 billion, only two percent
of exports of goods and services.
Foreign loans committed by Taiwan authorities exceed US$1 billion.
Taiwan offered low-interest loans to the Philippines, Eastern Europe,
Vietnam, South Africa, and Latin America, mostly to build industrial
zones and to foster development of small and medium enterprises (SME).
Taiwan also contributes to the Asian Development Bank (ADB), one of the
two multilateral development banks in which it has membership. Taiwan
is also a member of the Central American Bank for Economic Integration
(CABEI). The ADB, CABEI, and the European Bank for Reconstruction and
Development (EBRD) have all floated bonds in Taiwan.
5. Significant Barriers to U.S. Exports
Accession to the WTO Agreement by Taiwan will open markets for some
U.S. goods and services. Currently more than 86 percent of all import
categories are exempt from controls. Some 878 categories require
approval from relevant authorities. Another 287 require import permits
from the Board of Foreign Trade or pro forma notarization by banks.
Imports of 264 categories are banned, including ammunition and some
agricultural products. In June, 1997, Taiwan began implementing the HS
system to bring its tariff schedule into line with international
standards.
Financial: Taiwan continues to liberalize steadily its financial
sector. Taiwan enacted a Futures Exchange law in March 1997; a futures
market will be established in late 1997 or early 1998. The Securities
and Exchange Law was amended in May 1997 to remove restrictions on
employment of foreigners by securities firms, effective upon Taiwan's
accession to the WTO Agreement. Limits remain on foreign ownership in
listed companies. Foreign investors, both individual and qualified
foreign institutional investors, are subject to some limits on their
portfolio investment and restrictions on their capital flows.
Banking: In May 1997, banks' foreign liabilities limits were
removed. In June 1997, the restriction that commercial paper guaranteed
by a foreign bank could not exceed ten times the bank's local net worth
was dropped. Also in June 1997, the annual limit on a company's trade-
related outward (or inward) remittances was raised from US$20 million
to US$50 million. Inward/outward remittances unrelated to trade by
individuals or companies are still subject to annual limits. NT-dollar-
related derivative contracts may not exceed one-third of a bank's
foreign exchange position.
Legal: Foreign lawyers may not operate legal practices in Taiwan
but may set up consulting firms or work with local law firms. Qualified
foreign attorneys may, as consultants to Taiwan law firms, provide
legal advice to their employers only. Draft legislation is pending
which would clarify the status and scope of work for foreign-licensed
attorneys.
Insurance: In May 1997, the financial authorities announced that in
principle insurance companies would be allowed to set some premium
rates and policy clauses without prior approval from regulators.
Insurance companies are still required to report such rates and
clauses. In July 1995, Taiwan removed a prohibition against mutual
insurance companies; as of October 1997, however, authorities had not
issued implementing regulations. In 1996, a U.S. mutual insurance firm
was denied authorization to establish a branch in Taiwan.
Transportation: The United States and Taiwan concluded an Open
Skies Agreement in February 1997. An amendment to the Highway Law
allowing branches of U.S. ocean and air freight carriers to truck
containers and cargo in Taiwan went into effect on November 1, 1997.
Telecommunications: As part of a long-term liberalization plan,
authorities in early 1997 awarded 8 mobile telephone licenses, 8 paging
licenses, 20 trunking radio licenses, and 8 mobile data licenses to
private service providers. Maximum allowable direct and indirect
foreign investment in these private service providers is limited to
20%, although Taiwan has proposed increasing the limits to just below
50%. Private service providers currently face excessively high
interconnection fees imposed by monopoly wireline provider Chunghwa
Telecom. Taiwan's Directorate General of Telecommunications has been
unwilling to mediate the interconnection fee problem, putting U.S.-
invested mobile providers at a significant cost disadvantage to
Chunghwa, with whom they also compete.
Pharmaceuticals and Medical Devices: Under pricing principles
adopted in late 1996, Taiwan's Bureau of National Health Insurance
discriminates against imported drugs by setting prices for leading
brand-name products at artificially low levels, while providing
artificially high reimbursement prices for locally-made generics.
Foreign drug makers also face long delays in seeking regulatory
approval and pricing from relevant authorities for new drugs. In a
similar way, imported medical devices are put at a competitive
disadvantage by a reimbursement system which fails to account for
significant quality differences between different brands of medical
devices.
Motion Pictures: Taiwan restricts the import of foreign film prints
to 38 per title (up from 31 as of June 1997). No more than 11 theaters
in any municipality may show the same foreign film simultaneously.
Effective August 1997, multi-screen theaters are allowed to show a film
on up to three screens simultaneously, up from the previous limit of
one. Taiwan has pledged to abolish these restrictions upon accession to
the WTO Agreement.
Standards, Testing, Labeling, and Certification: Taiwan will bring
its laws and practices into conformity with the WTO Agreement on
Technical Barriers to Trade as part of its WTO accession. U.S.
agricultural exports in particular suffer under existing requirements.
These include a lack of an internationally-accepted set of pesticide
tolerance levels for imported fruits and vegetables, stringent
microbiological and chemical testing of imported food products, and
standards on preservatives for soft drinks. Imported agricultural goods
are routinely tested while local agricultural products usually are not.
Industrial products such as air conditioning and refrigeration
equipment, electric hand tools, and synthetic rubber gloves must
undergo redundant and unnecessary testing requirements, which include
destructive testing of samples. Imported autos face stringent noise,
emissions, and fuel efficiency testing requirements. In 1997, Taiwan
authorities promulgated new electromagnetic emissions standards for
computer and other electronic goods. Discussions are underway on
arrangements to avoid disrupting U.S. computer exports to Taiwan.
Investment Barriers: Since 1996, Taiwan has relaxed investment
restrictions in a host of areas, including petroleum refining, coal
coking, office digital electronic switching systems, and a number of
other value-added network services. Foreign investment remains
prohibited in key industries such as agriculture, basic wire line
telecommunications, broadcasting, and liquor and cigarette production.
In October 1997, Taiwan streamlined foreign investment review
procedures.
Limits on foreign equity participation in a number of industries
have been relaxed in the past year; for example, permissible
participation in shipping companies was raised from 50 to 100 percent.
Foreign ownership limits for securities investment trust companies were
removed in 1996. Other limits--such as a 33-percent limit on holdings
in airlines, air cargo forwarders and air cargo ground-handling--remain
unchanged. However, an amendment to the Civil Aviation Law that would
raise the holding limit to 50 percent is now pending legislative
approval. In August 1997, Taiwan raised the cap on foreign investment
in independent power projects from 30 percent to 49 percent. Local
content requirements in the automobile and motorcycle industries will
be lifted as part of Taiwan's WTO accession. Restrictions on employment
of foreign administrative personnel in foreign-invested firms remain in
place.
Procurement Practices: Taiwan has committed to adhere to the WTO
Agreement on Government Procurement (AGP) as part of its WTO accession
process. The draft Government Procurement Law includes giving the
Dispute Settlement Committee increased authority to arbitrate contract
disputes, not just bid challenges. The law is expected to be passed in
1997. The U.S. concluded its bilateral discussion on Government
Procurement with Taiwan in December 1997.
6. Export Subsidies Policies
There are few subsidy and tax policies to subsidize exports.
Taiwan's small rice and sugar exports enjoy indirect subsidies through
guaranteed purchase prices higher than world prices. Producers of some
fruit, poultry, and livestock receive financial assistance with
packaging, storage, and shipping via marketing cooperatives and
farmers' associations. Taiwan's Tobacco and Wine Monopoly Bureau
guarantees prices for products used in production of its products.
Taiwan authorities also offer guaranty prices for a portion of rice and
other cereal crops produced by farmers. Taiwan subsidizes the
manufacture of fertilizer by offering lower fuel prices to domestic
manufacturers.
7. Protection of U.S. Intellectual Property
The United States removed Taiwan from the Special 301 list in
November 1996 based on its implementation of a comprehensive, 18-point
IPR action plan. Taiwan authorities implemented new regulations
requiring Taiwan CD manufacturers to use source identification (SID)
codes on their products. They plan to begin requiring SID's on video
CD's as well. They stepped up enforcement actions and continued
education efforts. Taiwan also opened an IPR service window to assist
foreign firms facing IPR infringement.
Taiwan is not a party to any major multilateral IPR conventions. In
line with WTO Agreement accession efforts, Taiwan has passed laws to
protect integrated circuit layouts, personal data, and trade secrets.
Likewise, the Legislative Yuan in April 1997 passed an amended Patent
and Trademark Law. As a result, Taiwan's IPR legal structure, with the
exception of its Copyright Law, is consistent with the WTO Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPs).
Copyrights: Export of counterfeit copyrighted goods has dropped
markedly over the past few years, but unauthorized copying of computer
software and manufacture of counterfeit video games remain problems.
Taiwan currently protects copyrights dating from 1965. The revised
Copyright Law now under review in the Legislative Yuan will bring
Taiwan into TRIPs conformity by extending retroactive protection to 50
years upon Taiwan's accession to the WTO.
8. Worker Rights
a. The Right of Association.--The Labor Union Law (LUL) restricts
the right of association of workers on Taiwan. It forbids civil
servants, teachers, and defense industry workers to organize trade
unions and forbids workers to form competing trade unions and
confederations. However, as democratization has continued, workers have
gradually established independent labor organizations, either legally
or illegally. During 1997, the number of unions and their members
declined slightly due to relatively slow economic growth and to jobs
taken by foreign labor. As of June 1997, three million workers, or 32
percent of Taiwan's labor force, belonged to 3,706 labor unions.
b. The Right to Organize and Bargain Collectively.--With the
exception of civil servants, teachers, and defense industry workers,
the LUL, the Law Governing the Handling of Labor Disputes, and the
Collective Agreement Law give workers the right to organize and bargain
collectively. However, the laws also restrict workers' exercise of
these rights. The LUL, for example, stipulates that workers shall not
strike to demand an increase in wages exceeding standard wages.
Collective bargaining agreements exist mainly in large-scale
enterprises. As of June, 1997, there were 295 such collective
agreements.
c. Prohibition of Forced or Compulsory Labor.--The Labor Standards
Law prohibits forced or compulsory labor. The maximum jail sentence for
violation of the law is five years. Except for cases involving
prostitution, there were no reports of such practices in 1997.
d. Minimum Age for Employment of Children.--The Labor Standards Law
stipulates age 15, after completion of the 9-year compulsory education
required by law, as the minimum age for employment. County and city
labor bureaus enforce minimum age laws. Child labor is rare in Taiwan.
e. Acceptable Conditions of Work.--The Labor Standards Law (LSL)
mandates basic labor standards. At present, the law covers 3.6 million
of Taiwan's 6.4 million salaried workers. In October 1997, the minimum
wage was raised by 3 percent from NT$15,360 to NT$15,840 (or about
US$520) per month. During this period, the average wage in the
manufacturing sector was over NT$37,000(or about US$1,320), more than
twice the legal minimum wage. The LSL limits the work week to 48 hours
(8 hours per day, 6 days per week) and requires one day off every 7
days. In December 1996, the LSL was adjusted to give employers more
flexibility in adhering to work hour limits. In addition to wages,
employers typically provide workers with additional payments and
benefits, including a portion of national health insurance and labor
insurance premiums, the distribution of labor welfare funds, meals, and
transportation allowances.
f. Rights in Sectors with U.S. Investments.--U.S. firms and joint
ventures generally abide by Taiwan's labor law regulations. In terms of
wages and other benefits, workers rights do not vary significantly by
industrial sector.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 2778
Food & Kindred Products..................... 124
Chemicals & Allied Products................. 1222
Metals, Primary & Fabricated................ \1\
Maachinery, except Electrical............... 185
Electric & Electronic Equipment............. 1180
Transportation Equipment.................... \1\
Otther Manufacturing.......................... 87
Wholesale Trade............................... 540
Banking....................................... 575
Finance/Insurance/Real Estate................. 243
Services...................................... 158
Other Industries.............................. \1\
TOTAL ALL INDUSTRIES.......................... 4509
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
ASource: U.S. Department of Commerce, Bureau of Economic Analysis
THAILAND
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997(est)
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP............................... 167.3 185.9 \2\ \4\ 18
8.7
Real GDP growth (pct)..................... 8.6 6.5 \2\ 1.5
GDP by sector:
Agriculture............................. 18.2 19. 6 N/A
Manufacturing........................... 48.3 55.0 N/A
Services................................ 20.6 22.4 N/A
Government.............................. 6.2 6.6 N/A
Per capita GDP............................ 2,770 3,034 \2\ \4\ 3,
100
Labor force............................... 33.6 34.0 34.4
Unemployment rate......................... 2.6 2.6 \2\ 5.0
Money and prices (annual percent of growth):
Money supply growth....................... 17.0 12.0 14.3
Consumer price inflation.................. 5.8 6.0 \5\ 9.5
Exchange rate (baht/US$, annual average)
Official................................ 24.92 25.3 \2\ \4\ 40
.0
Balance of payments and trade:
Total exports FOB......................... 55.4 57.3 56.2
Exports to U.S.......................... 11.3 11.1 11.4
Total imports CIF......................... 70.4 72.4 66.5
Imports from U.S........................ 6.4 6.9 7.2
Trade balance............................. -15.0 -15.1 -10.0
Balance with U.S........................ 4.9 4.1 4.2
External public debt...................... 16.4 16.5 \1\ 16.2
Fiscal surplus/(pct)...................... 2.7 2.2 \5\ 1.0
Current account Deficit /GDP (pct)........ -8.1 -8.0 \5\ 5.0
Debt service Payments /GDP (pct).......... 2.8 N/A N/A
Gold and Foreign Exchange Reserves........ 37.0 39.5 \5\ 23.0
Aid from U.S. (US$ millions).............. 31.2 N/A N/A
Aid from all other sources................ N/A N/A N/A
------------------------------------------------------------------------
\1\ Bank of Thailand
\2\ Various U.S. official sources, including U.S. Embassy estimates
\3\ Thai Development Research Institute
\4\ NOTE: The exchange rate on October 31, 1997 was 40 baht to $1.00.
However, GDP in 1997 is calculated at the 1996 exchange rate in order
to provide a better measure of real growth and per capita income in
the Thai economy for 1997. If the 1997 GDP were calculated at 40 baht
to the U.S. dollar, the Thai GDP would be approximately $119 billion,
and the per capita income approximately $1,960 (assuming a 1997
population of 60.8 million).
\5\ IMF estimates.
1. General Policy Framework
The government of Prime Minister Chavalit Yongchaiyut has generally
continued the economic policies of previous governments, giving some
additional attention to the redress of economic disparities and
dislocations caused by rapid development in the Central regions of the
country. The Northeast, particularly, has not shared in the country's
rapid growth. However, the government is currently very unstable
because it has failed to cope with a serious economic decline that has
afflicted the country throughout 1997.
Thailand's economy is export-oriented, bolstered by a free market
philosophy. Within the last generation Thailand's economy has changed
from one primarily based upon agriculture, with some light industries,
to one dominated by manufacturing and services. While about 52 percent
of the Thai labor force is still engaged in agriculture, at least on a
part time basis, the growing service, manufacturing, and wholesale and
retail trades now account for about two thirds of Thailand's GDP.
After years of an overheated economy with rapid growth, in late
1996 and into 1997 the Thai economy led a regional downturn. There are
both long and short term causes for the current serious decline. Thai
competitiveness in labor intensive industries (such as textiles) has
been falling as its ASEAN neighbors take a greater share of those
markets. There is a shortage of well educated management and workers
capable of shifting smoothly into higher-tech industries, where
Thailand's economic future lies. An inadequate infrastructure,
especially in the overcrowded Bangkok area, is an ongoing problem.
If those long term problems are worrying for future prospects, the
short term problems are more critical. The Thai stock market, which had
been declining for years, reached eight year lows in the last quarter
of 1997. Over-building in the property sector, financed by a large
number of questionable loans, resulted in the rapid collapse of booming
property construction during 1997. Though sales have stagnated, prices
do not yet reflect the debacle. The finance sector was severely shaken
by the suspension of 58 troubled finance companies. In August 1997, the
Thai Government agreed to accept the terms of an International Monetary
Fund loan containing conditions that forbid a bail out of suspended
finance firms.
After months of speculation and denials by the government that any
such move was being considered, the Baht began a ``managed float'' in
July, 1997. The Baht immediately fell in value, and has continued to
spiral downward since that time. Offshore debt quickly became onerous.
Yet exports (except in textiles and agro-industries) have not reaped
the usual gains of a cheaper currency because many of Thailand's
products are assembled with components bought abroad which come at
higher prices. Credit has been extremely tight, thereby denying the
business sector the liquidity a recovery would require. Growth of
Thailand's gross domestic product fell from 6.5 percent in 1996 to an
estimated 1-2 percent in 1997.
Thailand's current account deficit was a much-publicized factor in
Thailand's economic slowdown during 1996, and a key reason for Moody's
adjustment of Thailand's short term debt risk rating in September 1996.
The current account deficit rose during 1995 to 13.5 billion dollars,
equivalent to 8 percent of GDP, and 14.7 billion (7.9 percent of GDP)
in 1997. However, the current account deficit problem has been
alleviated by the falling demand for imports, and should fall to five
percent of GDP this year.
Although exports are down in many sectors, textiles are suddenly
doing well again, as are agro-industries, primarily because they depend
less upon imported inputs. By the end of the first quarter of 1997,
exports were valued at 56.2 billion dollars. The government depends
upon exports to bring the country through the current economic crisis,
but with other ASEAN currencies also devaluing it is not likely that
Thailand will long retain a dominant share of the region's textile
exports.
During 1996 Thailand continued to enjoy a budget surplus. However,
in fiscal 1997 Thailand registered the first deficit in a decade. In
fiscal 1998, the Thai Government's target is a budget surplus equal to
one percent of G.D.P., which it will reach through a series of heavy
spending cut-backs and tax increases.
2. Exchange Rate Policy
From 1984 to 1997 the Baht was pegged to a basket of currencies of
Thailand's principle trading partners, with the U.S. dollar
representing the largest share. The exchange rate averaged about 25
Baht to the dollar during most of that period. On July 2, 1997 the Baht
was allowed to float, and began to lose value immediately. At the
beginning of the last quarter an exchange rate of 35 Baht to the dollar
was average, and is predicted to fall further by the end of the year.
This has made American exports very expensive for the Thais.
In May 1990 the Thai Government announced a series of measures to
liberalize the exchange control regime. Thailand accepted the
obligations of the IMF Article VIII which covers reduction of
restrictions on international transactions. Commercial banks were given
permission to process foreign exchange transactions, and substantial
increases were allowed in the ceilings for money transfers to escape
the requirement for Bank of Thailand pre-approval. Since 1992 banks in
Thailand have offered foreign currency accounts. The Central Bank has
also raised limits on Thai capital transfers abroad and allows free
repatriation (net of taxes) of investment funds, profits, loan
repayments, and dividends. Companies may transfer foreign exchange
among subsidiaries without switching the funds into Baht.
3. Structural Policies
In 1992 then Prime Minister Anand launched a series of economic
reforms, and Thailand's obligations within the WTO and ASEAN have also
prompted reforms in tariff rates, trade regulations, regulation of
financial institutions, and currency policies.
The Thai taxation code has undergone revision since 1992, when a 7
percent value added tax (VAT) system was introduced. The previous tax
regime was clumsy and complicated, with a multi-tiered structure for
assessing business taxes. In September of 1997 the Thai Government
announced an increase in the VAT, from seven to ten percent (most basic
foodstuffs are excepted). This was necessary to raise revenues, and to
meet IMF rescue package requirements. An exemption for businesses
making less than $24,000 per annum remains in place. Firms grossing
between $24,000 and $48,000 per annum pay a rate of 1.5 percent, up .5
percent. Exporters are ``zero rated'' but must file VAT returns and
apply for a rebate. The corporate tax rate is currently 30 percent of
net profits for all firms. A proposal pending in Parliament would
substitute a tax credit for the VAT rebate.
A new tax treaty between the United States and Thailand was signed
in November 1996, and ratified by the U.S. Senate in October, 1997. The
treaty will enter into force after the exchange of the instruments of
ratification. Smaller American firms, in particular, have been
disadvantaged by the lack of a reciprocal tax agreement. The new treaty
will provide for the elimination of double taxation and give American
firms tax treatment equivalent to that enjoyed by Thailand's other tax
treaty partners.
4. Debt Management Policies
During 1997, as a result of lowered demand for imports, Thailand's
current account deficit is projected to decline to about five percent
of GDP, which is the IMF target. The prime rate has ranged between 10.5
and 14 percent for over five years. It currently stands at 14.25
percent.
5. Significant barriers to U.S. exports
Moving to meet its WTO and ASEAN tariff reduction commitments,
Thailand instituted tariff reductions beginning in January 1995. There
were further reductions on 4,000 items at the beginning of 1997.
However, the critical need for revenue has led to the imposition of
higher duties, surcharges, and excise taxes on ``sin'' items and a
range of luxury imports. These will affect American wine and beer
exports, particularly. Items already slated for tariff reduction under
AFTA and WTO agreements are not affected by the new exactions.
At the beginning of 1997 the total number of tariff rate categories
was reduced from 39 to six, with the following spread: zero percent on
such goods as medical equipment and fertilizer, one percent for raw
materials, electronics components, and vehicles for international
transport, five percent for primary and capital goods, ten percent for
intermediate goods; 20 percent for finished products, and 30 percent
for goods needing ``special protection.'' This last category includes
agricultural products, autos and auto parts, alcoholic beverages, and a
few other ``sensitive'' items. Import tariff quotas are applied to a
total of 23 categories of agricultural products.
Thailand is in the aligning its import license procedures with its
WTO obligations. Import licenses are still required for 26 categories
of items, down from 42 categories in 1995-1996. Licenses are required
for many raw materials, petroleum, industrial, textile, and
agricultural items. Import licenses can sometimes be used to protect
unproductive local industries and to encourage greater domestic
production. Some items which do not require licenses must nevertheless
comply with the regulations of concerned agencies, offer extra fees, or
provide certificates of origin.
The Thai Food and Drug Administration issues licenses for food and
pharmaceutical imports. This process can be a barrier due to the cost,
the length of the process, and occasional demands for proprietary
information. Licenses cost about $600 and must be renewed every three
years. Pharmaceutical import licenses cost about $480 and must be
renewed every year. This is not exorbitant, but the costs mount in the
requirements for laboratory analysis. Costs of between $40 to $120 per
item are usual for sample food products imported in bulk. Sealed,
packaged foods can cost about $200 per item. Pharmaceuticals must be
registered for a fee of about $80, and pharmaceuticals must be
inspected and analyzed for another fee of about $40 per item. The
process can take more than three months to complete.
The Thai Government is easing barriers to imports of farm products.
Typically import-duty reductions are in line with WTO commitments, and
this may be expected to improve market access for some American
products. In some cases, the Thai measures go beyond their WTO
commitments. For example, the lifting of quotas and the reduction of
import duties on soybeans and soybean meal in October, 1996 boosted
U.S. exports of both commodities. The Thai Government is currently
considering whether these liberalization measures should be maintained
in 1998, and whether access for corn should be further improved.
Nevertheless, duties on many high-value fresh and processed foods
remain high, even though rates are slated to decline between 35 and 50
percent under WTO rules. Entry into Thailand is still expensive for
most U.S. high-value fresh and value-added processed foods. There are
no longer specific duties on most imported agricultural and food
products, except wine and spirits, which will continue to have very
high rates. In addition, the recently increased excise tax on wine will
significantly constrain what had been a growing market for American
wines. Rice will continue to be protected, but within WTO schedules.
Arbitrary customs valuation procedures sometimes constitute a
serious barrier to U.S. goods. The Department of Customs has used the
highest previously declared invoice value as a benchmark for assessing
subsequent shipments from the same country. That allowed Customs to
disregard the invoice value of a shipment in favor of the benchmark
amount. This practice has had a particularly damaging effect upon trade
in agricultural products, which often have seasonally fluctuating
values. However, the Thai Government is instituting a program of
customs reform that, if adopted successfully, will remedy some of the
problems at the ports of entry. These reforms include adoption of the
World Customs Organization Harmonized Code and the use of an Electronic
Data Interchange system. The pilot program for these reforms is slated
to be operational by the first of January 1998.
Customs duties are sometimes arbitrary in other ways. For example,
import duties on unfinished materials are higher than those upon
finished goods in some categories, which is a burden to American firms
that manufacture or assemble in Thailand.
In the past Thailand restricted the activities of foreign banks.
The total of foreign banking assets in Thailand recently exceeded 7.5
percent of the national total. Although there have been moves toward
liberalization, foreign banks are still disadvantaged in a number of
ways. They are limited in the number of branches they may open. The
numbers of expatriate management personnel is limited to six in
branches and two in Bangkok International Banking Facilities (BIBFs).
Until recently, foreigners were limited to an aggregate maximum of 25
percent share in any Thai Bank. However, in October 1997, the Thai
Government ruled that foreigners may hold a majority share in Thai
financial institutions for ten years, after which they must dilute
ownership to 49 percent in the event that they increase capitalization.
In order to be consistent with WTO requirements, Thailand is
undertaking a liberalization of banking regulations. In late 1996 and
early 1997 the Thai Government issued 7 more foreign bank and 7 more
BIBF licenses.
Thai law and regulations formerly limited foreign equity in new
local insurance firms to 25 percent or less. In June of 1996 the
cabinet approved raising this limit to 49 percent. This has yet to be
written into law, and awaits the approval of the Council of State and
the new Parliament.
Under a 1979 Thai law aliens are forbidden to engage in the stock
brokerage business. However, foreigners may own up to 49 percent of
service companies. Foreign ownership of Thai finance and credit firms
is limited to 25 percent for companies formed after the law was passed,
and 40 percent for those formed before.
Telecommunications services are a government monopoly in Thailand.
The Thai Government expects to have the telecommunications master plan
for privatization in place by the end of 1997. Implementation of this
plan, which will involve the reorganization of the existing state
enterprises into stock companies, is expected to take up to two years.
6. Export Subsidies
Thailand ratified the Uruguay Round Agreements in December 1994.
Thailand maintains several programs which benefit manufactured products
or processed agricultural products and which may constitute export
subsidies. These include subsidized credit on some government-to-
government sales of Thai rice (agreed on a case-by-case basis),
preferential financing for exporters in the form of packing credits,
tax certificates for rebates of packing credits, and rebates of taxes
and import duties for products intended for re-export. In September
1993 Thailand established an Export-Import Bank which has taken over
administration of some of these programs, particularly that of packing
credits, and in October 1997 the Ex-Im bank was authorized to offer an
additional $500 million worth of packing credits through commercial
banks. This was done to help liquidity levels for exporters during the
current economic crisis, and the program will run for one year. The
Thai Ex-Im Bank offers a 10 percent rate, about four points below the
prime rate offered by other banks.
7. Protection of Intellectual Property
Improved protection for U.S. copyright, patent, and trademark
holders has been an important bilateral trade issue for several years.
After passage of a revised copyright law in 1994, the U.S. moved
Thailand from Special 301 ``priority watch list'' to ``watch list''
status. The Thai Government also agreed to provide ``pipeline
protection'' through administrative means for certain pharmaceutical
products not entitled to full patent protection under the 1992 patent
law. In recognition of this progress the U.S. restored a number of GSP
benefits that had been denied to Thailand under Special 301. Several
other bills designed to bring Thailand into compliance with its TRIPS
requirements, including an amendment to the Patent Act that would
abolish the pharmaceutical review board, are currently under
consideration. Thailand is a member of most international IPR treaties,
including TRIPS.
The Thai Government has also made some effort to improve
enforcement, making about 7600 arrests and seizing three million
pirated items under its intellectual property laws since 1993. A
specialized Intellectual Property Department in the Ministry of
Commerce has cooperated with U.S. industry associations to coordinate
both legal reforms and enforcement efforts, including raids. In 1997,
the Parliament passed legislation establishing a separate intellectual
property court that should result in a more efficient judicial system
and tougher sentencing. The court began operation in December 1997.
Piracy remains a serious problem, however. The U.S. pharmaceutical,
film, and software industries estimate lost sales at over $200 million
annually. Despite new and improved laws, judicial proceedings remain
slow and the fines actually imposed are light. To date, no one has
served time in jail for copyright infringement. The police have not
always been cooperative, let alone proactive, in combating piracy.
Partly as a result, arrests and seizures of illicit goods have fallen
sharply since 1994. In an October 1997 off-cycle review under Special
301, the USTR determined that Thailand should remain on the Watch List.
8. Worker rights
a. The Right of Association.--The Labor Relations Act of 1975 gives
workers in the private sector most internationally recognized labor
rights, including the freedom to associate. They may form and join
unions and make policy without hindrance from the government and
without reprisal or discrimination for union activity. Unions in
Thailand may have relationships with unions in other countries, and
with international labor organizations. In 1991 the Thai parliament
enacted the state enterprise labor relations act (SELRA), denying state
enterprise workers the rights other workers enjoyed under the 1975 law.
The Thai Government has promised to amend the SELRA, and to restore
those rights. The new legislation was approved by the cabinet, and
separate versions of the bill were passed by the House and the Senate
in September 1997. A joint scrutinizing committee is meeting to find
compromise language for the bill.
b. The Right to Organize and Bargain Collectively.--The 1995 act
grants Thai workers the right to bargain collectively over wages,
working conditions, and benefits. About 900 private sector unions are
registered in Thailand. State enterprise employees and civil servants
still may not form unions, but this will be addressed in the pending
SELRA legislation. State enterprise employees, essential workers
(transportation, education, and health care personnel), and civil
servants may not strike. They may be members of employee associations,
however. Collective bargaining is unusual in Thailand, and industry-
wide collective bargaining is all but unknown. However, representatives
of public sector associations and private sector unions do sit on
various government committees dealing with labor matters, and are
influential in setting national labor policies, such as the minimum
wage.
c. Prohibition of forced or compulsory labor.--The Thai
constitution prohibits forced or compulsory labor except in cases of
national emergency, war, or martial law. However, Thailand remains the
target of ILO actions under Convention 29 (forced labor) because child
prostitution persists despite recent government moves to step up
enforcement of the laws which prohibit it, and to cooperate with ILO
programs.
d. Minimum age for employment of children.--The minimum age for
employment in Thailand is thirteen. Children between the ages of 13 and
15 are restricted to light work in non-hazardous jobs, and must have
department of labor permission to work. Night-time employment of
children is prohibited. A bill to raise the minimum working age to 15
has been passed by the house, but a competing bill passed by the senate
does not raise it. A joint committee is now approaching a compromise on
raising the age limit. The government has backtracked on its commitment
to raise the years of compulsory education from six to nine years and
has instead adopted a policy of improving the opportunities of students
for study beyond the sixth grade. Recently the government has doubled
the size of the corps of labor inspectors, but enforcement is not
rigorous.
e. Acceptable Conditions of Work.--Working conditions vary widely
in Thailand. Large factories generally meet international health and
safety standards, though there have been serious lapses involving loss
of life. The Government has increased the number of inspectors and
raised fines for violators. The usual work day in industry is eight
hours. Wages in profitable export industries often exceed the legal
minimum. However, in the large informal industrial sector wage, health,
and safety standards are low and regulations are often ignored. Most
industries have a legally mandated 48 hour maximum work week. The major
exceptions are commercial establishments, where the maximum is 54
hours. Transportation workers are restricted to 48 hours per week.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 1830
Total Manufacturing........................... 1782
Food & Kindred Products..................... 67
Chemicals & Allied Products................. 380
Metals, Primary & Fabricated................ \1\
Machinery, except Electrical................ \1\
Electric & Electronic Equipment............. 505
Transportation Equipment.................... 1
Other Manufacturing......................... 176
Wholesale Trade............................... 449
Banking....................................... 549
Finance/Insurance/Real Estate................. 222
Services...................................... 40
Other Industries.............................. 382
TOTAL ALL INDUSTRIES.......................... 5254
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
EUROPE
----------
EUROPEAN UNION
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP............................... 7201.4 7318.9 7509.2
Real GDP growth (pct)..................... 2.4 1.8 2.6
GDP by sector:
Agriculture............................. N/A N/A N/A
Manufacturing........................... N/A N/A N/A
Services................................ N/A N/A N/A
Government.............................. N/A N/A N/A
Per Capita GDP (US$ Thous)................ 21.1 20.0 20.6
Labor force (0000)........................ 155.4 155.0 N/A
Unemployment rate (pct)................... 10.9 10.9 10.8
Money and Prices (annual percentage growth):
Money supply growth (M2/M3)............... 4.5 5.2 N/A
Consumer price inflation.................. 3.0 2.6 2.1
Exchange rate:
(ECU/US$ annual average)................ 0.76 0.78 0.87
Balance of payments and trade:
Total exports FOB......................... 743.7 764.2 N/A
Exports to U.S.......................... 132.4 150.4 N/A
Total imports CIF......................... 717.7 740.1 N/A
Imports from U.S........................ 136.5 159.3 N/A
Trade balance............................. 26.0 24.1 N/A
Balance with U.S........................ -4.1 -8.9 N/A
External public debt (pct of GDP)......... 71.0 73.0 72.4
Fiscal deficit/GDP (pct).................. 5.1 4.3 2.7
Current balance/GDP (pct)................. 0.5 0.8 1.1
Debt Service Payments/GDP (pct)........... N/A N/A N/A
Gold and Foreign Exchange Reserves........ N/A N/A N/A
Aid from U.S.............................. N/A N/A N/A
Aid from Other Sources.................... N/A N/A N/A
------------------------------------------------------------------------
\1\ Estimates
1. General Policy Framework
The European Union (EU), our largest trade and investment partner,
is a supranational organization comprised of fifteen European
countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece,
Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden,
and the United Kingdom. It is unique in that the Member States have
ceded to it increasing authority over their domestic and external
policies, especially with the 1986 ``Single Market'' and the 1993
``Maastricht'' amendments to the 1958 Treaty of Rome (the Treaty).
Individual Member State policies, however, may still present problems
for U.S. trade, in addition to the occasional EU-wide problems.
The EU's authority is clearest in the economic realm. A
longstanding customs union, the EU--with the ratification by the Union
and its fifteen Member States of the Uruguay Round Agreements--now
represents the collective interest of the Member States in the WTO
Committee on Trade in Goods. (The Member States retain some authority
over intellectual property and services issues, and both the EU and the
Member States are represented in the TRIPS and GATS Committees.)
Internally, the Treaty guarantees the free movement of goods, services,
capital and people among the Member States, and many of the ``Single
Market'' program measures were intended to harmonize Member States'
domestic laws in order to eliminate non-tariff barriers to these flows.
In addition, the European Commission enforces Treaty provisions against
anti-competitive practices throughout the EU. More recently, the
Maastricht Treaty mandated an ``Economic and Monetary Union'' among the
Member States no later than January 1, 1999 and gave the EU competence
over investment from third countries, although Member State barriers to
such investment existing on December 31, 1993 continue in force until
superseded by EU law.
The EU itself currently has only very limited fiscal and no
monetary policy powers. The Union's budget is limited to 1.27 percent
of EU GDP; by law, expenditures must be balanced by revenues from the
Member States. (The EU has no independent taxing authority.)
Expenditures, at less than $100 billion, are divided generally among
agricultural support (50 percent), ``structural'' policies to promote
growth in poorer regions (35 percent), other internal policies (five
percent), external assistance (five percent) and administrative and
miscellaneous (five percent).
The EU's indirect influence over Member State fiscal and monetary
policy, however, is considerable, and growing in the run-up to Economic
and Monetary Union. The EU now adopts annual ``guidelines'' on Member
State economic policy, and the Member States are striving to achieve
the ``convergence criteria'' for monetary union: maximum deficits of
three percent of GDP; gross national debt of 60 percent of GDP;
inflation and interest rate levels no more than one and a half
percentage points above the average of the three lowest rates among the
Member States, and two years of relative exchange rate stability. These
efforts to restrain fiscal policy may have dampened aggregate demand in
the EU. Imports rose by 8% in 1996.
2. Exchange Rate Policy
As noted, the EU intends to establish an Economic and Monetary
Union (EMU) with a common monetary and exchange rate policy no later
than 1999. During the second stage of EMU, which began on January 1,
1994, the Member States continue to coordinate their exchange rate
policies through the European Monetary System (EMS) and, specifically,
its Exchange Rate Mechanism (ERM). The European Monetary Institute
facilitates and monitors implementation of these arrangements. Member
states retain full authority to set monetary policies during the second
stage of EMU.
The EMS and ERM aims are to promote monetary, price, and exchange
rate stability in Europe by limiting the fluctuations of participating
currencies within a certain range around bilateral central parity
rates. Pressures in foreign exchange markets in September 1992 led the
United Kingdom and Italy to suspend their participation in the ERM, and
compelled adjustment of the parities for other currencies in subsequent
months. In part to relieve these pressures, on August 2, 1993, the ERM
fluctuation band was widened from 2.25 to 15 percent.
The EMS and ERM are not aimed at influencing trade flows with the
United States or other third countries and are consistent with the
articles of agreement of the International Monetary Fund.
3. Structural Policies
Single Market: The European Union's ``1992'' Single Market was
officially inaugurated on January 1, 1993 with the disappearance of
most intra-EU border controls on movement of goods, services, capital
and people. The legislative program is largely complete, although there
are delays in Member State implementation of Community rules in
national law and national differences in interpretation of those rules.
The net effect of the Single Market exercise has been freer movement,
fewer Member State regulations for products and service providers to
meet, and real consolidation of markets. Some aspects of the program,
however, have created problems for U.S. exporters, such as Directives
on procurement for utilities and on television broadcasting, and
conditions for negotiation of mutual recognition agreements on testing
and certification of regulated products (all discussed below).
Disparate enforcement of single market measures within the EU and lack
of sufficient monitoring resources to ensure consistent application of
these measures are increasingly placing U.S. exporters at a
disadvantage in some markets because enforcement and monitoring at the
border are more vigorous. EU efforts to increase monitoring and
enforcement efforts are notable in some areas, but resources remain
severely limited.
Tax Policy: Tax policy remains the prerogative of the Member
States, who must approve by unanimity any EU legislation in this
domain. EU legislation to date in this area has been aimed at
eliminating tax-induced distortions of competition within the Union. As
such, it has focused on harmonizing value-added and excise taxes;
eliminating double taxation of corporate profits, interest, and
dividends; and facilitating cross-border mergers and asset transfers.
4. Debt Management Policies
The EU raises funds in international capital markets, but does so
largely for cash management purposes and so does not have any
significant international debt. The European Investment Bank,
reportedly the world's largest multilateral development bank, also
raises funds in international markets (with the implicit guarantee of
the EU and its Member States), but it has an extremely favorable
balance sheet and retains the highest credit rating. Finally, the EU
has used its borrowing power to on-lend to key developing countries,
especially in Central Europe and the newly independent states of the
former Soviet Union; it traditionally refuses to reschedule such loans.
5. Significant Barriers to U.S. Exports
A. Import Policies
Import, Sale and Distribution of Bananas: On July 1, 1993, the EU
implemented a new banana import regime to replace individual Member
State rules for banana imports. Elements of the new regime have caused
a significant erosion of U.S. companies' share of the EU banana market.
A ``framework agreement,'' which the EU negotiated with four of the
five countries that had challenged the regime in the GATT, did not
commit the EU to reform those aspects of the regime which are most
harmful to U.S. banana marketing firms and in fact led to further
discrimination against U.S. banana companies in favor of EU firms.
After a year of investigation and informal consultations with the EU
failed to achieve a resolution of the issue, in October 1995 the United
States, joined by Guatemala, Honduras and Mexico, held formal WTO
consultations with the European Union in an effort to resolve the
bananas dispute. Ecuador joined the United States and its other Latin
American partners in another request for formal WTO consultations on
the bananas issue in February 1996, followed by a panel request by the
same complainants.
On May 22, 1997, the panel ruled that the EU banana import regime
violates both the General Agreement on Trade in Services and the
General Agreement on Tariffs and Trade in Goods by depriving U.S.
banana distribution services companies and Latin American banana
producers of a fair share of the EU market. The panel's findings were
confirmed by the WTO Appellate Body on September 9, 1997. The panel
report and Appellate Body report were adopted at the Dispute Settlement
Body meeting of September 25, 1997. WTO rules require that the findings
of these reports be fully and promptly implemented within a
``reasonable period of time.'' The maximum period of time for
implementation that has been agreed thus far under the WTO's dispute
settlement mechanism is 15 months. The EU and complacent countries are
currently discussing the nature and timing of EU implementation of the
WTO findings.
Ban on Fur from Animals Caught in Leg-hold Traps: A 1991 community
Regulation calls on the Member States to prohibit the importation of
furs of certain species of animals from countries that either have not
endorsed an internationally agreed standard on humane trapping or that
have not prohibited the use of certain steel jaw leg hold restraining
traps. During 1996, the United States participated in discussions with
the EU Commission, Canada, and the Russian Federation to develop such a
standard. As the trapping industry in the United States is regulated at
the sub-dederal level, the United States did not take steps to become a
party to an international agreement on this issue among the EU, Canada,
and the Russian Federation. With the participation of the U.S. states,
however, the United States Government in 1997 was able to negotiate
with the EU Commission a non-legally binding ``Agreed Minute'', which
included standards that were acceptable to U.S. competent authorities.
In December, 1997, the U.S. and EU signed the Agreed Minute and the
United States also communicated to the EU about a program by the U.S.
states under which they were planning to phase out, subject to certain
specified derogations and safeguards, certain jawed leg hold
restraining traps. With the approval of the agreed minute by the EU
Council, the EU did not impose its proposed ban on certain U.S. fur
imports.
Rice: As part of the concessions made to the United States as
compensation for the accession of Austria, Finland, and Sweden to the
EU, the EU agreed to implement tariff rate quotas for imports of 38,000
metric tons of milled rice and 8,000 metric tons of brown rice from the
United States. While progress has been made on implementation of these
tariff rate quotas, they have yet to be made operational.
EU Implementation of Uruguay Round Grain Tariff Commitments: On
July 1, 1995, the EU implemented its Uruguay Round commitment for
grains and rice using a reference price system. In adopting the
reference price system, it appeared that the EU would exceed its
binding for products valued above the applicable reference price.
Through WTO Article XXIII consultations, the U.S. gained an agreement
that helps improve access to the EU. In the agreement, the EU committed
to implement, on a one-year trial basis, a system allowing importers of
brown rice the possibility to cumulatively recover duty overages that
might occur, which was implemented on July 1, 1997. The EU also agreed
to future consultations if the reference price system results in duties
greater than those committed to in the Uruguay Round.
Service Barriers
EU Broadcast Directive.--In 1989, the EU issued the Broadcast
Directive which included a provision requiring that a majority of
entertainment broadcast transmission time be reserved for European
origin programs ``where practicable'' and ``by appropriate means.'' By
the end of 1993, all EU Member States had enacted legislation
implementing the Broadcast Directive. The United States has held
consultations under GATT Article XXII with the EU concerning the
Directive because the broadcast quotas appear to violate the Member
States' obligations under the GATT. The United States has reserved its
right to take further action under WTO dispute settlement procedures
and is closely monitoring implementation of these measures. While the
EU did not make specific commitments to liberalize trade in the sector,
the United States succeeded in preventing the exclusion of the audio-
visual sector from coverage under the General Agreement on Trade in
Services (GATS). The EU remains on the Special 301 ``Priority Watch
List'' in part because of the Broadcast Directive.
The process begun by the Commission in 1993 to revise the Broadcast
Directive in an effort to strengthen quotas was finally concluded in
April 1997 through a conciliation committee that resolved differences
between the European Parliament and the Council. The final agreement on
the revised Directive left the original quota language in place.
Computer Reservation Services.--U.S. Computer Reservation Services
(CRS) companies have had difficulty cracking the EU market, as each
Member State market tends to be dominated by the CRS owned by that
Member State's carrier. The EU's 1993 CRS ``Code of Conduct'' compelled
one U.S. CRS firm to establish subsidiaries in virtually every Member
State, at a cost of more than $10 million, and there are questions
whether the Code may be used to establish ``charging principles'' which
could further erode the ability of U.S. firms to gain market share. In
addition, German Rail, which owns one-third of the largest European CRS
firm in Germany, has thus far refused to deal on an equal basis with
U.S. CRS firms, severely affecting their ability to expand in the
German market. In 1995, the German Competition Office issued an
injunction against German Rail over this, which has not yet fully
resolved the problem. U.S. CRS firms face similar problems in Spain and
France. In 1996, a U.S. CRS firm filed a complaint with the EU
competition authority through the U.S. Department of Justice (DOJ)
against possible anticompetitive practices by a European firm. This is
the first case of its kind arising under the Positive Comity provision
of the U.S-EC agreement regarding the application of their computer
laws. The EU investigation is on track and, while the Commission cannot
say when it will be complete, the final ruling may address some of the
above concerns.
Airport Ground-handling.--In December 1995, the Council agreed on a
common position liberalizing the market to provide ground-handling
services at EU airports above a certain size by January 1, 1998. While
generally welcoming this, U.S. airline companies and ground-handling
service providers remain concerned that airports can continue to have a
monopoly service provider through January 1, 2002 and can also limit
the number of firms which can provide certain services on the airport
tarmac (ramp, fuel, baggage and mail/freight handling) either for
themselves or for other carriers. To some extent, these potential
barriers are offset by more liberal provisions in the bilateral air
services agreements which the U.S. concluded with seven EU Member
States (Germany, Belgium, the Netherlands, Luxembourg, Denmark, Sweden
and Finland).
Postal Services.--U.S. express package services like UPS and
Federal Express remain concerned that state owned postal monopolies in
many EU countries restrict their market access and subject them to
unequal competitive conditions. Proposals to liberalize many postal
services and to otherwise constrain the advantages enjoyed by the
monopolies have been put on hold, and in any case may not be sufficient
to fully redress these problems.
C. Standards, Testing, Labeling and Certification
Standardization.--EU Member States still have widely differing
standards, testing and certification procedures in place for some
products. Despite internal mutual recognition, these differences can
serve as barriers to the free movement of these products within the EU
and can cause lengthy delays in sales due to the need to have products
tested and certified to account for differing national requirements.
Nonetheless, the advent of the ``New Approach'' Directive, which
streamlines technical harmonization and the development of standards
for certain product groups, based on minimum health and safety
requirements, generally points toward the harmonization of laws,
regulations, standards, testing, quality and certification procedures
in the EU. However, the European standardization process is still
closed to U.S. firms' direct participation and in several instances
discriminatory design based standards have been adopted.
Standardization, testing, and certification continue to play an
increasingly significant role in U.S.-EU trade relations, as evidenced
by the Transatlantic Business Dialogue (TABD) having adopted the goal
of ``approved once accepted everywhere in the Transatlantic
marketplace.'' The U.S. Department of Commerce anticipates that EU
legislation covering regulated products will eventually be applicable
to 50 percent of U.S. exports to Europe. Given the enormity of U.S./EU
trade, EU legislation and standardization work in the regulated areas
is of considerable importance. Although there has been some progress in
implementation, a number of problems related to this evolving EU-wide
legislative environment have caused concerns to U.S. exporters. These
include lags in the development of EU standards, lags in the drafting
of harmonized legislation for regulated areas, inconsistent application
and interpretation by Member States of the legislation that is in
place, overlap among Directives dealing with specific product areas,
gray areas between the scope of various Directives, and unclear marking
and labeling requirements for these regulated products before they can
be placed on the market. While many such problems are not deliberate
trade barriers, their existence can impede U.S. exports to the European
Union.
Mutual Recognition Agreements.--The EU is implementing an internal
harmonized approach to testing and certification, as well as providing
for the mutual recognition of national laboratories designated by
Member States to test and certify ``regulated'' products. The EU
encourages mutual recognition agreements between private sector parties
for the testing and certification of non-regulated products.
One difficulty for U.S. exporters is that only ``notified bodies''
located in Europe are empowered to grant final product approvals of
regulated products. While there are some laboratories in the U.S. which
can test regulated products under subcontract to a notified body, the
limited number of such labs means that such subcontracting procedures
are unlikely to provide sufficient access for U.S. exporters. Moreover,
these labs cannot issue the final product approval but must send test
reports to their European affiliate for final review and approval,
delaying the process and adding costs for U.S. exporters.
The U.S. and the EU have negotiated a resolution to this hindrance
to trans-Atlantic trade in several sectors through what are known as
mutual recognition agreements (MRAs). MRAs will permit a U.S. exporter
to test and certify his products to the requirements of the EU in the
United States. They will similarly facilitate EU exports to the United
States. Both sides have targeted early 1998 as the date for entering
into the transition periods provided for in the MRAs.
Approval of Biotechnology and Novel Food Products Uncertain in
EU.--Both U.S. and European companies have encountered difficulties in
EU approval of agricultural products developed with biotechnology.
Existing EU Regulations and Directives for the approval of these
products have not been applied in a predictable and transparent manner.
A number of recent U.S. product approval requests have been subject to
delays because of political opposition to biotechnology rather than
legitimate health or safety concerns. This uncertain regulatory
environment continues to generate problems for not only the companies
developing products but also agricultural producers who might benefit
from the products' release. In addition, the EU's novel foods
Regulation contains provisions for mandatory labeling of biotech foods
that--depending on how they are implemented--may serve to heighten
consumer concerns rather than educating consumers.
Ban on Growth Promoting Hormones in Meat Production.--The EU
banned, effective January 1, 1988, the use of all growth promoting
hormones, including natural and synthetic hormones, in livestock
production. The ban also applies to meats and meat products imported by
the EU on or after January 1, 1989. As a consequence, the United States
launched a formal WTO dispute settlement procedure in May 1996
challenging the EU's import ban. The initial WTO finding, released in
August 1997, found in favor of the United States. However, this has
been appealed by the EU. A ruling on the appeal is due in early 1998.
Veterinary Equivalency.--The United States and the European
Commission concluded negotiations on a veterinary equivalency agreement
in April 1997 after over three years of often contentious negotiations.
When implemented, the Agreement will establish the terms of trade for
nearly all animal products between the U.S. and the EU, over $3.5
billion annually. The agreement incorporates the principles on the
recognition of equivalent systems set out in the Uruguay Round
Agreement on sanitary and phytosanitary measures. It would allow for
the recognition of U.S. sanitary measures as equivalent to, or
providing an equal level of protection for human and animal health as
EU measures, rather than require strict compliance with EU
requirements.
During the course of the negotiations the U.S. lost access to the
EU market for several products because of new EU import requirements,
most notably $50 million in poultry meat, but also some pet food and
dairy products. Implementation of the agreement would reopen access for
most of these products, except poultry, and would improve import
conditions for many other products. In addition, the EU committed to
study anti-contamination techniques used by U.S. poultry processors
with the goal of resolving the outstanding poultry issue.
The EU had not formally approved the agreement by October 1, 1997,
the date to begin implementation envisioned at the conclusion of
negotiations. If not approved by the EU by early 1998, significant U.S.
trade could be disrupted by further changes to EU import requirements.
Specified Risk Materials Ban: A ban published by the EU in July
1997 was to have prohibited, as of January 1, 1998 the use of certain
``specified risk materials'' (SRMs) in all products due to concerns
over the transmission of BSE (Bovine Spongiform Encephalopathy, or
``Mad Cow Disease''). SRMs are broadly defined as the head and spinal
cord of bovine animals. At risk are billions of dollars in trade of
pharmaceuticals, cosmetics, pet food, industrial products ranging from
tires to film, tallow and tallow derivatives. The U.S. does not
consider coverage of U.S. products under the EU ban as scientifically
based because the U.S. is BSE-free. In December, the EU Commission
decided to postpone implementation of the ban until April 1, 1998. The
U.S. is continuing talks with the EU to help avoid unnecessary
disruption in international trade as a result of the ban. The UK
unilaterally implemented a more limited SRM ban as of January 1, 1998,
which was expected to have minimal negative effect on U.S. exports.
Beef Labeling.--Beginning January 1, 1998, any labeling on beef
packaged for consumer sales must be approved by EU and Member State
authorities. This Regulation is an attempt to provide consumers with
information regarding the beef marketing chain due to the concerns
about the transmission of BSE. While the upcoming system is voluntary,
any claims on labels, such as country of origin or production method,
must be verified. These requirements currently do not apply to sales of
beef for use in hotels, restaurants or institutions in the EU. Member
States may implement compulsory labeling of beef beginning January 1,
1998 only for beef from animals born, raised and slaughtered on their
national territory. An EU-wide compulsory beef labeling system is
currently legislated to become operational on January 1, 2000.
Additional details about exact application procedures are currently
being proposed by he European Commission and should be released
shortly. In the short run, this Regulation will affect over 20 percent
of current U.S. beef shipments to the EU. In the long run, i.e., after
January 1, 2000, all beef sold in the EU will be required to carry
compulsory labels. While this EU system will not be identified until
July 1999, all U.S. beef would likely be shut out of the EU market if
labeling requirements are not met by that time.
Voluntary Eco-Labeling Scheme.--On March 23, 1992, the European
Council approved an EU-wide eco-labeling scheme. The scheme is a
voluntary program which permits a manufacturer to obtain an eco-label
for a product when its production and life-cycle meets general and
specific criteria established for that particular product. U.S. and EU
technical and policy officials met in three rounds of consultations in
1995 and 1996 to discuss the EU process for developing criteria and to
address specific U.S. industry concerns related to the fine paper and
textile sectors.
In early and mid-1996 Member State representatives voted to adopt
eco-label criteria for bed linens and t-shirts and for the fine paper
product sector. The U.S. Government is concerned that the process for
developing criteria has been insufficiently transparent and failed to
provide for adequate participation by non-EU interest groups, leading
potentially to discriminatory criteria. The U.S. and EU have agreed to
continue bilateral consultations. The U.S. has urged the Commission to
participate in a regular dialogue on this issue as a way to mitigate
potential misunderstandings and adverse trade consequences.
Packaging Labeling Requirements.--In 1996, the Commission put
forward a proposed Directive that would establish marking requirements
for packaging to indicate recyclability and/or reusability. The United
States has expressed two potential concerns with this Directive. First,
to the extent that the EU's new marking requirements differ from other
marks widely used in the United States and being developed in the
International Standards Organization (ISO), the U.S. is concerned that
packaging, marketing and distribution operations will become more
complicated and costly for both U.S. and European firms wishing to sell
their products abroad, without achieving any concomitant environmental
benefit. The second concern is related to Article 4 of the proposed
Directive, which would prohibit the application of other marks to
indicate recyclable or reusable packaging. Based on U.S. experience,
this requirement is likely to pose a particular problem for glass and
plastic containers, as it would require companies to create new molds
solely for use in the European market. Discussions underway in the ISO
may go a long way to resolving the potential problems, especially as
the Commission has indicated its willingness to review the proposed EU
marks in light of an eventual ISO agreement.
Metric Labeling.--In accordance with a 1980 Directive adopted to
harmonize systems of measurement throughout the EU, metric-only
labeling will be required on most products entering the European Union
after December 31, 1999. Exporters, both European and American, have
begun to focus on this deadline and are now openly voicing their
objections, citing the costs of complying with conflicting EU metric-
only and U.S. mandatory dual-labeling requirements. There is some
indication of European Commission willingness to study the trade
implications of the 1980 Directive more thoroughly and to re-open the
issue for industry input.
D. Investment Barriers
The European Union has a growing role in defining the way in which
U.S. investments in the Member States are treated. Although Member
State governments traditionally were responsible for policies governing
non-EU investment, in 1993 the Maastricht Treaty shifted competence
over third country investment from the Member States to the Union. In
many cases,Member State practices remain of more direct relevance to
U.S. investors. Member States negotiate their own bilateral investment
protection and tax treaties, and retain general responsibility for
their investment regimes. However, although Member State barriers
existing on December 31, 1993 remain in effect, but these may now be
superseded by EU law. In addition, branches of non-EU financial service
institutions remain subject to individual member country authorization
and regulation.
In general, the EU supports the notion of national treatment for
foreign investors, and the European Commission has traditionally argued
that any company established under the laws of one Member State must as
a ``Community company'' receive national treatment in all Member
States, regardless of its ultimate ownership. However, some
restrictions on U.S. investment do exist under EU law and others have
been proposed:
Ownership Restrictions.--The benefits of EU law in the aviation and
maritime areas are reserved to firms majority-owned and controlled by
EU nationals.
Reciprocity Provisions.--EU banking, insurance and investment
services Directives include ``reciprocal'' national treatment clauses,
under which financial services firms from a third country may be denied
the right to establish a new business in the EU if the EU determines
that the investor's home country denies national treatment to EU
service providers. In the recently adopted Hydrocarbons Directive, this
notion may have been taken further to require ``mirror-image''
reciprocal treatment, under which an investor may be denied a license
if its home country does not permit EU investors to engage in
activities under circumstances ``comparable'' to those in the Union. It
should be noted, however, that thus far no U.S.-owned firms have been
affected by these reciprocity provisions.
Access to Government Grant Programs.--The European Union does not
preclude U.S. firms established in Europe from having non-
discriminatory access to EU funded research and development grant
programs, although in practical terms association with a known
``European'' firm helps win grant awards. In another area, the
Commission in November 1995 proposed the establishment of a guarantee
fund to promote European cinema and television production. Only firms
majority-owned and effectively controlled by EU nationals would be
eligible to receive loan guarantees from the fund. This proposal has
not yet been adopted and we are not aware that any U.S. firm has
complained about it.
MAI Negotiation.--The EU and its Member States are participating
actively in the OECD negotiations toward a Multilateral Agreement on
Investment (MAI), which should help reduce existing and preclude any
further discriminatory measures. The EU approach to the negotiations
has been generally constructive, although in recent international
negotiations the Union has argued for a ``regional economic
integration'' provision that would allow it, and its Member States, to
deny U.S. firms most favored nation treatment and potentially other
rights and benefits under EU law.
Anti-Corruption Conventions.--The EU has elaborated a common
position for its Member States in the Council of Europe and OECD
negotiations on anti-corruption conventions. The position would
restrict the ability of Member States to agree to any convention that
goes beyond the two relatively weak EU conventions agreed among the
Member States, even though no Member State has yet ratified the EU
conventions.
E. Government Procurement
In 1990, in an effort to open government procurement markets in the
EU, the EU adopted a Utilities Directive covering purchases in the
water, transportation, energy and telecommunications sectors. This
Directive, which went into effect in January 1993, requires open,
objective bidding procedures (a benefit for U.S. firms) but
discriminates against non-EU bids absent an international or bilateral
agreement. The Directive's discriminatory provisions were waived for
the heavy electrical sector in a Memorandum of Understanding (MOU)
between the U.S. and the EU, signed in May 1993.
On April 15, 1994, the U.S. and the EU concluded a procurement
agreement that expanded upon the 1993 MOU. The 1994 agreement extended
non-discriminatory treatment to over $100 billion of procurement on
each side, including all goods procurement by all EU subcentral
governments, as well as to selected procurement by 37 U.S. states and 7
U.S. cities. Much of the agreement is implemented through the WTO
Government Procurement Agreement which took effect January 1, 1996. The
1994 agreement, however, did not end the discrimination with respect to
telecommunications procurement. Consequently the U.S. retained the
sanctions it imposed against the EU in 1993.
On April 30, 1996 USTR Barshefsky cited Germany under Title VII for
its failure to implement its procurement obligations. On October 1,
1996 she announced that agreement had been reached with Germany to
reform its procurement system. The German Government's draft
procurement reform legislation is under consideration in Parliament.
F. Telecommunications Market Access
U.S. telecommunications equipment industry access to EU member
nations varies widely from relatively open to nearly closed. As
described in the section on government procurement, most EU Member
States discriminate against non-EU bids in the telecommunications
sector. In addition, market access is impeded through standards and
standard-setting procedures, testing, certification and attachment
policies. However, those state-owned telecommunications firms that are
losing monopoly are displaying a more open approach to procurement in
an effort to lower costs.
The situation in basic telecommunications services is evolving as
the EU works to meet its obligation to permit competition in this area
by January 1, 1998 as required by the GATS Basic Telecoms (GBT)
agreement. Implementation of the GBT is proceeding unevenly among the
15 EU Member States. 1998 will be a year of challenges as new firms
test previously closed markets in Europe, and former telecoms
monopolies react to the new competition. Close monitoring of this
process will be necessary to ensure full implementation of the GBT by
EU Member States and the introduction of free and fair competition to
this formerly-closed market.
G. Customs
Reclassification of Information Technology Products: In June 1995,
the EU adopted a Regulation reclassifying certain local area network
(LAN) adapter cards from the tariff category for automatic data
processing (ADP) equipment to the telecommunications apparatus
category, resulting in increases in the tariffs on these products to a
level above the rate provided for in the EU's schedules under the GATT
1994. In addition, since the Uruguay Round, customs authorities in
certain EU Member States have taken action to reclassify LAN adapter
cards and multimedia-equipped personal computers from ADP equipment to
other tariff categories. The reclassification has the effect or raising
duty rates to levels above the bound rate for ADP equipment, thereby
possibly impairing EU tariff concessions in contravention of Article II
of the GATT 1994. After a number of rounds of technical talks in 1996
failed to achieve progress on the issue, the U.S. in November 1996
requested formal consultations with the EU in the WTO. A WTO dispute
settlement panel was established on February 25, 1997. The panel
report, released in October 1997, found the EU's reclassification
actions inconsistent with its obligations under Article II of the GATT
1994.
6. Export Subsidy Policies
Agricultural Product Subsidies.--The EU grants direct export
subsidies (restitutions) on a wide range of agricultural products
including wheat, wheat flour, beef, dairy products, poultry, and
certain fruits, as well as some manufactured products such as pasta.
Payments are nominally based upon the difference between the EU price
and the world price, usually calculated as the difference between the
EU internal price and the lowest offered price by competing exporters.
However, due to the complexities of EU law and the availability of non-
agricultural subsidies, such as preferential loans and structural
funds, it is suspected that other subsidies exist that support EU
export activities for agricultural products.
The Uruguay Round agreement requires the EU to reduce direct export
subsidies over six years by 21 percent in volume and 36 percent in
value from a 1986-90 base period. Under the agreement, the EU is
required to cut export subsidies by about $5-7 billion from recent
levels.
Processed Cheese Exports.--On October 1, 1997, Ambassador
Barshefsky announced that USTR was invoking WTO dispute settlement
procedures in the context of a Section 301 investigation to challenge
practices by the EU that circumvent the EU's commitments under the WTO
to limit subsidized exports of processed cheese. Under its inward
processing system for dairy products, the EU produces cheese for export
from dairy components such as nonfat dry milk and butter. The processor
receives a subsidy upon the cheese being exported, but the EU counts
these subsidies against its export subsidy-ceiling for the
components,rather that that for cheese. The U.S. contends this is a
breach of the EU's export subsidy obligations. WTO Article XXII
consultations with the EU on these practices were held in November
1997.
Canned Fruit.--The United States and five other producing countries
(Argentina, Australia, Brazil, Chile and South Africa) are continuing
to exchange letters with the European Commission regarding the EU's
internal support regime for canned fruit. These governments believe
that the operation of the EU support regime for fresh peaches and pears
has allowed EU fruit processors to unfairly undercut the domestic and
export prices for canned fruit of the EU's trading partners. Despite
the EU's claims of adherence to the letter of the 1985 U.S.-EC Canned
Fruit Agreement, oversupply of the fresh fruit under the support regime
may allow processors in certain Member States to ignore the minimum
price requirements of the agreement. The industries in all five
countries have been hurt by EU exports of cheap canned fruit.
Modifications in the overall fruit and vegetable production scheme may
improve the situation, but it is too early to tell. Consultations are
scheduled for mid-November 1997.
Shipbuilding Subsidies.--EU Member States provide subsidies and
other forms of aid to their shipbuilding industries. The European
Commission sets annual ceilings for subsidies for shipbuilding and ship
conversions (but not ship repair) under its Seventh Directive. Until
December 31, 1997, the ceiling is nine percent of gross investment for
new ships and 4.5 percent for conversions and small vessels (under 10
million ECU). In June 1989, the Shipbuilders Council of America (SCA)
filed a Section 301 petition, seeking elimination of subsidies and
trade distorting measures for the commercial shipbuilding and repair
industry. In response, USTR undertook to negotiate a multilateral
agreement in the OECD to eliminate all subsidies for shipbuilding by
OECD member countries. An Agreement was reached in July 1994 and signed
in December to take effect on January 1, 1996. The EU ratified it and
adopted implementing legislation in December 1995. However, the Senate
has not given its advice and consent to ratification of the Agreement.
In October 1997, the Commission proposed that pending U.S.
ratification, the Seventh Directive be extended through 1998. In 1999
and 2000, contract-related aid would continue at current ceilings. From
2001, the only contract-related aid allowed would be home and export
credits under OECD rules on export credits for ships, operating aid
would no longer be allowed, and permissible aid (e.g. for closures,
R&D, the environment) would be subject to new rules. The Commission
also suggested that Member States consider a ``home built'' requirement
for tax benefits or state guarantees for the purchase of new ships.
Discussions on the Agreement continue in the U.S. Congress.
7. Protection of U.S. Intellectual Property
The EU and its Member States support strong protection for
intellectual property rights. The Member States are members of all the
relevant WIPO conventions, and they and the EU regularly join with the
U.S. in encouraging other countries to sign up to and fully enforce
high IPR standards, including those in the TRIPS agreement. The EU,
like the United States, is now considering additional legislation in
new areas of IPR protection, as shown in the Commission's recent
Communication, Copyright and Related Rights in the Information Society.
The Commission has designated four priorities for legislative action:
reproduction right, communication to the public right, legal protection
of anti-copying systems and distribution right. The Commission takes
the position that digital technology and divergent Member State IPR
laws require harmonization at the Community level.
Trademarks: The U.S. Government has declined to join the Madrid
Protocol, which concerns the international registration of trademarks,
because the Protocol allows intergovernmental organizations to have a
vote separate and independent from their member states. The U.S.
Government continues to press the Commission to cooperate in finding a
resolution to this impasse since the Protocol's system of trademark
registration cannot be truly international without U.S. Government
membership.
8. Worker Rights
Labor legislation remains largely the purview of the individual
Member States, although the EU has adopted a number of regulations
related to occupational safety and health and with respect to employee
participation in company decision making. In addition, the EU has
decided that GSP beneficiaries may receive an extra margin of
preference if they meet certain worker rights standards. This GSP
incentive regime is expected to enter into force in 1998.
Extent of U.S. Investment.--Composit figures for U.S. investment in
the European Union are not available. See data for member countries.
______
AUSTRIA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\................... 230,783.7 226,600.3 201,175.5
Real GDP growth (pct.)............ 1.5 1.3 1.6
GDP by sector:
Agriculture..................... 3,521.8 N/A N/A
Manufacturing................... 53,531.7 N/A N/A
Services........................ 107,936.5 N/A N/A
Government...................... 31,002.0 N/A N/A
Per capita GDP.................... 28,998 28,281 24,100
Labor force (000s)................ 3,655 3,646 3,646
Unemployment rate (pct) \3\..... 3.9 4.4 4.4
Money and Prices (annual percentage
growth):
Money supply (M2)................. 9.4 2.8 0.0
Consumer price index.............. 2.2 1.9 1.5
Exchange rate (AS/US$ annual
average \4\)..................... 10.08 10.59 12.25
Balance of Payments and Trade:
Total exports (FOB)............... 57,541.1 57,808.3 53,991.8
Exports to U.S.................. 1,707.7 1,840.2 1,755.1
Total imports (CIF)............... 66,272.9 67,305.0 62,604.1
Imports from U.S................ 2,780.7 3,000.9 2,775.5
Trade balance..................... -8,731.8 -9,496.7 -8,612.3
Balance with U.S................ -1,073.0 -1,160.7 -1,020.4
External public debt.............. 30,912.0 29,405.0 26,122.4
Fiscal deficit.................... 5.0 3.7 2.7
Current account deficit/GDP (pct). 2.0 1.8 2.2
Debt service payments/GDP (pct)
\5\.............................. 1.7 1.5 1.5
Gold and foreign exchange reserves
(year-end)....................... 23,627.5 24,473.6 N/A
Aid from U.S...................... 0 0 0
Aid from all other sources........ 0 0 0
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available data in October
1997 and latest available economic forecasts of September 1997.
\2\ GDP at market prices.
\3\ unemployment rate according to EU method.
\4\ there is only an official rate, no parallel rates.
\5\ debt service payments on external public debt.
1. General Policy Framework
Austria, a member of the European Union (EU) since January 1, 1995,
has a well developed market economy with a high standard of living.
With exports of goods and services reaching over 40 percent of GDP,
Austria's economy is closely integrated with other EU member countries,
especially with Germany. Austria's entry into the EU has drawn an
influx of foreign investors attracted by Austria's access to the single
European market and by more liberal policies promoting competition and
dismantling protectionism. Like many European countries, Austria has
undergone a period of slow economic growth: in 1995, Austria's GDP grew
by 1.5 percent, in 1996 by 1.3 percent and in 1997 by a projected 1.6
percent. Economic prospects are expected to brighten in 1998 with
expected growth of around 2.5 percent.
Austria is well on its way to meeting all Maastricht convergence
criteria for monetary union. While total public debt still stands at 70
percent of GDP, its upward trend is expected to reverse in 1997 as a
result of privatization efforts, the 1996 budget consolidation program
and austerity measures. The total public sector deficit is expected to
decline to 3 percent of GDP in 1997. The 1997/98 budget proposals
presented to Parliament contain further measures to stabilize the
deficit at a low level. Cuts mainly affect the civil service and
Austria's generous social system, the two major causes of the
government deficit. The deficit is mainly financed through issuance of
government bonds.
The European Union's single market, the economic transformation
occurring in Central Europe and envisaged EU enlargement pose
significant challenges to the Austrian economy. To meet increased
competition from both the EU and Central European countries, less
competitive, low-tech production will have to shift towards more
specialized value-added manufacturing. To improve efficiency and
resource allocation, the service sector, particularly
telecommunications and the energy sector, will have to be further
deregulated and liberalized. While wage-price rigidities, barriers to
market entry and a complex regulatory environment remain, the
government has taken decisive measures to foster more liberal policies
to adapt to EU standards.
2. Exchange Rate Policies
Over the last 15 years, the Austrian National Bank (ANB) has
pursued a ``hard schilling'' policy, adjusting interest rates to peg
the Austrian schilling (AS) to the German mark (DM), at an exchange
rate of AS7 to DM1, instead of setting money supply and other monetary
targets. Since Austria joined the EU, the ANB has reaffirmed publicly
its determination to continue this policy, as well as its intention to
participate in the ``hard core'' of the EMU, those countries expected
to be included among the initial entrants to the EMU on January 1,
1999.
For the Austrian Government, EMU participation is the most
important future project--a view agreed to by most political parties,
bankers, economic chambers, associations of industrialists, business
managers and economists. There is also wide agreement that non-
participation would be a disaster and mean failure of Austria's hard
currency policy. The government is making a major effort to meet all
EMU convergence criteria and has implemented austerity measures in
1996/97, an approach it will continue in 1998.
In 1996, the Austrian schilling (and the German mark) lost ground
against the U.S. dollar and many other European currencies. This trend
continued in the first half of 1997 as the dollar rose strongly against
the schilling and the mark.
3. Structural Policies
Austria's accession to the EU has required the government to
accelerate structural reforms and to liberalize its economy. Most non-
tariff barriers to merchandise trade have been removed. Cross-border
capital movements and market access for foreign bonds have been fully
liberalized.
In 1996, as part of its austerity program, the Austrian government
implemented a number of changes to the tax code to raise revenues.
Measures included the introduction of an energy tax on electricity and
natural gas, cuts in personal income tax allowances and tax credits, as
well as increases in the interest income tax rate from 22 to 25 percent
and in the minimum corporate tax to about $4,700 annually (the 34
percent corporate tax rate remains unchanged). Rules for the
deductibility of losses have also been tightened. The economy was fully
impacted by these measures in 1997.
The Austrian government continues to be a major player in the
national economy. However, the scope of government interventionist
policies, a traditional feature of the Austrian economy, has been
significantly reduced in recent years. The government continues to sell
off state-owned enterprises in an effort to cut back its dominant
economic role and to fulfill the Maastricht criteria for EMU. It no
longer has majority ownership in formerly state-controlled companies
such as OMV, VOEST or Elin. Subsidy programs have also been scaled back
to conform to EU regulations.
1997 saw the passage of a more liberal business code, which eases
access to licensed professions and broadens the scope of their
activity. Additionally, Austria's 1993 procurement law was amended to
comply with EU regulations. A 1994 Environmental Impact Assessment Act
regulates the environmental impact of large industrial and
infrastructure projects. Licensing procedures under this and other
environmental legislation are viewed by industry as costly and
cumbersome.
4. Debt Management Policies
Austria's external debt management has had no significant impact on
U.S. trade. At the end of 1996, the Austrian federal government's
external debt amounted to $28.0 billion (21 percent of the government's
overall debt) and consisted of 92 percent bonds and 8 percent credits
and loans. Debt service on the federal government's external debt
amounted to $3.5 billion in 1996, or 1.5 percent of GDP and 3.7 percent
of total exports of goods and services. In 1996, total public sector
external debt amounted to $30.2 billion or 13 percent of GDP. Total
gross public debt was 70 percent of GDP at the end of 1996. Republic of
Austria bonds are rated AAA by recognized international credit rating
agencies.
5. Significant Barriers to U.S. Exports
On Austria's accession to the EU, approximately two thirds of
existing tariffs were lowered or eliminated, while about one third was
increased. Over half of all products from non-EU countries enter
without any tariff. U.S. exports of chemicals, plastics, computers,
photographic equipment, semiconductors and integrated circuits were
affected adversely by Austria's EU entry.
The EU's Common Agricultural Policy (CAP) also has had a negative
impact on imports of U.S. agricultural goods into the Austrian market.
Import duties for some key U.S. agricultural products such as tobacco,
rice and raisins rose considerably. In 1995, The United States and the
EU negotiated an agreement to compensate the United States for these
tariff increases. The EU ban on imports of hormone-treated beef
severely restricts U.S. exports of beef to Austria. This issue is
currently before the WTO, which has ruled against the EU, and is not
expected to be resolved before 1998.
Austria's 1993 Banking Act presents a number of obstacles for
market entry of U.S. banks. Branches of non-EU banks must be licensed,
while EU banks may operate branches on the basis of their home country
licenses. For bank branches or subsidiaries from a non-EU member
country, the limits for single large loan exposures and open foreign
exchange positions will shrink considerably on December 31, 1998, when
the endowment capital from their parent companies may no longer be
included in the capital base used for calculating these limits.
Providers of financial services, such as accountants, tax
consultants, and property consultants, must submit specific proof of
their qualifications, such as university education or number of years
of practice. Other service activities also require a business license,
for which one of the preconditions is legal residence. Under the WTO
General Agreement on Trade in Services, Austrian officials insist that
Austria's commitments on trade in professional services extend only to
intra-corporate transfers. U.S. service companies often form joint
ventures with an Austrian firm to get around these restrictions.
Austrian labeling and marking requirements are not as strict as
those in the United States. Safety warnings are not mandated on
electrical devices, nor is labeling in the German language required. A
federal law requires that packaged food be marked with an expiration
date. With regard to labeling of food and additives containing
genetically modified organisms (GMO's), Austria is in full compliance
with EU regulations, but the government may proceed with labeling
requirements that may not conform to EU regulations.
Harmonization of national legislation with EU labeling and marking
requirements is well under way, along with quality and safety
standards. Ultimately, as this process is completed, a ``CE'' mark will
be required for most manufactured imports. Relevant EU directives are
being implemented, with varying transition periods for different
product categories. For instance, the EU directive for toys has already
been implemented, while the transition period for explosives for civil
use ends Dec. 31, 2002.
The government welcomes foreign investment, particularly in the
high technology and automotive sectors, with no formal sectoral or
geographic restrictions. In most business activities, 100 percent
ownership is permitted. Investment incentives are abundant, including
EU structural subsidies in some locations. U.S. companies receive
national treatment with the exception of property acquisition. However,
while any company, including U.S. firms, must obtain approval from the
land commission of the province in which it wishes to purchase land,
very rarely do U.S. firms encounter problems, especially when they wish
to locate in commercial zones or industrial parks.
A 1997 U.S. Investor Confidence Survey compiled by the American
Chamber of Commerce cites issues such as high labor, telecommunications
and energy costs, the complex Austrian legal situation, and
difficulties in obtaining work permits for key personnel as major
obstacles. In a recent public statement, the Austrian economics
minister committed to a maximum of 90 days turnaround time for property
acquisition applications. Moreover, the reform of the Residence Law and
the Foreign Workers Employment Law enacted in mid-1997 exempts skilled
U.S. labor (e.g. managers and their dependents) from an increasingly
restrictive quota system for residence permits.
Austria is a party to the WTO Government Procurement Agreement.
Austria does not have restrictive ``buy-national'' laws, and the
principle of the best bidder is usually maintained. However, offset
requirements are common in defense contracts. Austria's first federal
procurement law was enacted in 1993. 1997 saw the passage of new
procurement legislation in line with EU guidelines, particularly
regarding the services sector.
6. Export Subsidies Policies
The government provides export promotion loans and guarantees
within the framework of the OECD export credit arrangement and the WTO
Agreement on Subsidies and Countervailing Measures. The Austrian
Kontrollbank (AKB), Austria's export financing agency, offers export
financing programs for small and medium-sized companies with annual
export sales of up to $9.5 million. Following Austria's accession to
the EU, the AKB stopped providing economic risk guarantees for short
term financing of exports to OECD countries. A 1995 amendment to
Austria's Export Guarantees Act (AFG) enables the AKB to guarantee
untied credits. In 1996, the AKB made its export guarantee system more
transparent by publishing conditions and eligible country lists.
7. Protection of U.S. Intellectual Property
Austria is a member of all principal multilateral intellectual
property agreements and organizations, including the World Intellectual
Property Organization (WIPO). Austrian laws are largely consistent with
international standards. To implement EU directives on satellite
broadcasting and copyright duration, Austria amended its copyright law
in 1996. This amendment, which became effective April 1, 1996, states
that ``tourist establishments'' (such as hotels, inns, etc.) may
publicly perform cinematographic works (or other audiovisual works,
including videos) for their guests in exchange for a compulsory license
fee to the copyright holders, but without their authorization. The
United States has urged the Austrian government to rescind this
provision of the law, which is inconsistent with its international
obligations.
A levy on imports of home video cassettes and a compulsory license
for cable transmission are required under Austrian copyright law. Of
total revenues, 51 percent currently go to a special fund for social
and cultural projects, not to the copyright owners. It is expected that
as of 1998, cable transmission rights will be exclusive to the legal
owner. Austrian copyright law requires that the owner of intellectual
property prove the entire chain of rights up to the producer. In the
case of films, this requirement has made prosecution of cases of video
piracy difficult. The United States government continues to consult
with Austria on this issue.
8. Worker Rights
a. The Right of Association.--Workers in Austria have the
constitutional right to associate freely and the de facto right to
strike. Guarantees in the Austrian Constitution governing freedom of
association cover the rights of workers to join unions and engage in
union activities. Labor participates in the ``social partnership,'' in
which the leaders of Austria's labor, business, and agricultural
institutions give their concurrence to new economic legislation and
influence overall economic policy.
b. The Right to Organize and Bargain Collectively.--Austrian unions
enjoy the right to organize and bargain collectively. The Austrian
Trade Union Federation (OGB) is exclusively responsible for collective
bargaining. All workers except civil servants are required to be
members of the Austrian Chamber of Labor. Leaders of the OGB and labor
chamber are democratically elected. Workers are legally entitled to
elect one-third of the board of major companies.
c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory
labor is prohibited by law.
d. Minimum Age of Employment of Children.--The minimum legal
working age is 15. The law is effectively enforced by the labor
inspectorate of the Ministry for Social Affairs.
e. Acceptable Conditions of Work.--There is no legally-mandated
minimum wage in Austria. Instead, minimum wage scales are set in annual
collective bargaining agreements between employers and employee
organizations. Workers whose incomes fall below the poverty line are
eligible for social welfare benefits. Over half of the workforce works
a maximum of either 38 or 38.5 hours per week, a result of collective
bargaining agreements. The Labor Inspectorate ensures the effective
protection of workers by requiring companies to meet Austria's
extensive occupational health and safety standards.
f. Rights in Sectors with U.S. Investment.--Labor laws tend to be
consistently enforced in all sector, including the automotive sector,
in which the majority of U.S. capital is invested.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 1021
Food & Kindred Products..................... 5
Chemicals & Allied Products................. \1\
Metals, Primary & Fabricated................ 1
Machinery, except Electrical................ 79
Electric & Electronic Equipment............. 399
Transportation Equipment.................... \1\
Other Manufacturing......................... 79
Wholesale Trade............................... 384
Banking....................................... \1\
Finance/Insurance/Real Estate................. 1007
Services...................................... 300
Other Industries.............................. -23
TOTAL ALL INDUSTRIES.......................... 2902
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
BELGIUM
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
GDP (at current prices) \2\.............. 268.9 263.5 245.7
Real GDP Growth (pct) \3\................ 1.9 1.4 2.3
GDP by Sector (pct):
Agriculture............................ 1.7 N/A N/A
Construction........................... 5.4 N/A N/A
Energy................................. 4.3 N/A N/A
Industry............................... 19.6 N/A N/A
Services............................... 55.0 N/A N/A
Nontradable Services................... 13.9 N/A N/A
Real Per Capita GDP (US$) \4\............ 27,684 25,651 24,512
Labor Force (000s)....................... 4,293 4,284 4,283
Unemployment Rate (pct).................. 9.9 9.7 9.5
Money and Prices (annual percentage
growth):
Money Supply Growth (M2)................. 6.1 -6.2 7.6
Consumer Price Inflation................. 1.5 2.1 2.0
Exchange Rate (BF/US$)................... 29.5 30.95 34.52
Balance of Payments and Trade:
Total Exports FOB \5\.................... 145 153 172
Exports to U.S.\6\..................... 12.5 12.5 14.0
Total Imports CIF \5\.................... 154.9 151.8 158.5
Imports from U.S.\6\................... 12.8 12.4 12.0
Trade Balance \5\........................ -9.9 1.2 13.5
Balance with U.S.\6\................... -0.3 -0.1 -2.0
Current Account/GDP (pct)................ 5.1 5.0 5.5
External Public Debt..................... 36.8 32.7 32.7
Debt Service Payments/GDP................ N/A N/A N/A
Fiscal Deficit/GDP (pct)................. -5.1 -4.1 -3.2
Gold and Foreign Exchange Reserves....... 17.3 18.8 18.1
Aid from U.S............................. 0 0 0
Aid for All Other Sources................ 0 0 0
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on monthly data available in
October 1997.
\2\ GDP at factor cost
\3\ Percentage changes calculated in local currency
\4\ At 1985 prices
\5\ Merchandise trade
\6\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
FAS, imports customs basis. 1995 and 1995 figures include trade with
Luxembourg under the customs union. 1997 figures are estimates for
Belgium only based on data available through October 1997.
1. General Policy Framework
Belgium possesses a highly developed market economy, the tenth
largest among the OECD industrialized democracies. The service sector
generates more than 70 percent of GDP, industry 25 percent and
agriculture two percent. Belgium ranked as the ninth-largest trading
country in the world in 1996, with exports and imports each equivalent
to about 70 percent of GDP. Three-quarters of Belgium's trade is with
other European Union (EU) members. Only five percent is with the United
States. Belgium imports many basic or intermediate goods, adds value,
and then exports final products. The country derives trade advantages
from its central geographic location, and a highly skilled,
multilingual and industrious workforce. Over the past 30 years, Belgium
has enjoyed the second-highest average annual growth in productivity
among OECD countries (after Japan).
Throughout the late 1970s and the 1980s, Belgium ran chronic budget
deficits, leading to a rapid accumulation of public sector debt. By
1996, debt was equal to 127 percent of GDP. Because of the high Belgian
savings rate, Belgium has largely financed its budget deficits from
domestic savings. Foreign debt represents less than 10 percent of the
total and Belgium is a net creditor on its external account.
Belgium's macroeconomic policy since 1992 has aimed at reducing the
deficit to 3.0 percent of GDP and reversing the growth of the debt/GDP
ratio in order to meet the criteria for participation in Economic and
Monetary Union (EMU) set out in the EU's Maastricht Treaty. Since 1992,
the Belgian government has implemented budget austerity measures of
more than $30 billion, or about 10 percent of GDP. Even though 75
percent of these measures were revenue increases rather than
expenditure cuts, they had the advantage of being mostly structural in
nature, as opposed to one-time measures. The deficit declined to 3.2
percent of GDP in 1996 and is estimated at 2.6 percent of GDP in 1997.
The government's 1998 budget, presented in October 1997, projects a 2.3
percent deficit and a reduction in the debt/GDP ratio to 122 percent.
Belgium has no chance of reaching the Maastricht Treaty debt/GDP target
of 60 percent, but expects to demonstrate sustained progress towards
the target in order to qualify for early EMU membership.
Economic growth, which on a quarter by quarter basis dropped in the
second half of 1996, picked up in 1997 as net exports joined business
investment as a source of growth. At 2.5 percent, average GDP growth
remained relatively modest in 1997. For 1998, growth is expected to be
near 3 percent. Business investment, driven by the improvement in
profitability over the past few years, is also supported by low
interest rates and a relatively high degree of capacity utilization in
the manufacturing industry. Higher demand in the Netherlands, Germany
and France is likely to pull Belgian exports up. Moreover, the
appreciation of the dollar and some European currencies vis a vis the
BF in 1996 and 1997 should also contribute to the growth of exports.
Belgium's unemployment situation improved slightly over the past
two years. Standardized EU data put Belgium's unemployment rate at 9
percent in November 1997, one percent below the EU's average. A further
reduction in unemployment will probably be very modest: efforts by
business to neutralize high labor costs have increased productivity,
but have also aggravated unemployment by reducing the labor component
of economic growth.
In 1993, Belgium completed its process of regionalization and
became a federal state consisting of three regions: Brussels, Flanders
and Wallonia. Each region was given substantial economic powers,
including trade promotion, industrial development, research and
environmental regulation.
2. Exchange Rate Policy
Belgian monetary policy basically shadows German interest rates
closely in order to keep the Belgian franc (BF) close to its central
parity with the German mark (DM) within the European Monetary System's
Exchange Rate Mechanism (ERM). The near collapse of the ERM in July
1993 placed enormous pressures on this ``strong franc'' policy as
currency traders focussed on Belgium's high debt and budget imbalance.
The National Bank of Belgium and government used high short-term
interest rates, jawboning and currency market interventions to support
the BF. Although the BF briefly slipped by about seven percent against
the central parity rate with the DM, it regained its parity by late
1993. Since then, the BF has remained within two percent of its DM
parity. The result has been low inflation (even below Germany's level)
and a much-reduced interest rate premium over German bonds. It has also
meant an appreciation of the BF against the weaker European currencies.
Belgian manufacturers have complained about the impact of the BF's
appreciation on their competitiveness, particularly compared to weak-
currency Europeans such as Spain and Italy.
3. Structural Policies
Belgium is a very open economy, as witnessed by its high levels of
exports and imports relative to GDP. Belgium generally discourages
protectionism. The federal and regional governments actively encourage
foreign investment on a national treatment basis.
Tax policies: Belgium's tax structure was substantially revised in
1989. The top marginal rate on wage and salary income is 55 percent.
Corporations (including foreign-owned corporations) pay a standard
income tax rate of 39 percent. Small companies pay a rate ranging from
29 to 37 percent. Branches and foreign offices pay income tax at a rate
of 43 percent, or at a lower rate in accordance with the provisions
contained in a double taxation treaty. Under the present bilateral
treaty between Belgium and the United States, that rate is 39 percent.
Despite the reforms of the past five years, the Belgian tax system
is still characterized by relatively high rates and a fairly narrow
base resulting from numerous exemptions. While indirect taxes are lower
than the EU average as a share of total government revenues, personal
income taxation and social security contributions are particularly
heavy. Total taxes as a percent of GDP are the fourth highest among
OECD countries. Taxes on income from capital are by comparison quite
low; since October 1995, the tax rate on interest income is 15 percent,
and the tax rate on dividends is 25 percent for residents. There is no
tax on capital gains.
Belgium has instituted special corporate tax regimes for
coordination centers, distribution centers and business service centers
(including call centers) in recent years in order to attract foreign
investment. These tax regimes provide for a ``cost-plus'' definition of
income for intragroup activities and have proven very attractive to
U.S. firms.
Regulatory policies: The only areas where price controls are
effectively in place concern energy, household leases and
pharmaceuticals. With the exception of the latter, none of these has
any serious impact on U.S. business in Belgium.
4. Debt Management Policies
Belgium is a member of the G-10 group of leading financial nations,
and participates actively in the IMF, the World Bank, the EBRD and the
Paris Club. Belgium is also a significant foreign assistance donor
nation. It closely follows development and debt issues, particularly
with respect to the Congo and some other African nations.
Belgium is a net external creditor, thanks to the household
sector's foreign assets which exceed the external debts of the public
and corporate sectors. Only about 10 percent of the Belgian
government's overall debt is owed to foreign creditors. Moody's top Aa1
rating for the country's bond issues in foreign currency reflects
Belgium's integrated position in the EU, its significant improvements
in fiscal and external balances over the past few years, its economic
union with the financial powerhouse Luxembourg, and the reduction of
its foreign currency debt. The Belgian government has no problems
obtaining new loans on the local credit market. Because of the reform
of monetary policy in 1991, as well as greater independence granted in
1993 to the National Bank of Belgium, direct financing in Belgian
francs by the central bank has become impossible.
5. Significant Barriers to U.S. Exports
From the inception of the EU's single market, Belgium has
implemented most, but not all, trade and investment rules necessary to
harmonize with the rules of the other EU member countries. Thus, the
potential for U.S. exporters to take advantage of the vastly expanded
EU market through investments or sales in Belgium has grown
significantly. Some barriers to services and commodity trade still
exist, however, including:
Telecommunications: The federal government is gradually opening up
the previously monopolistic telecommunications sector. In 1996, the
government sold 49 percent of Belgacom, the public telephone operator,
to a consortium of Ameritech, Tele Danmark and Singapore Telecom. In
September 1996, a second cellular operator started operations. On
January 1, 1998, a second telephone operator, Telenet, will enter the
telecoms market, using Belgium's extensive cabling network. Telenet is
a joint-venture with 20 percent participation by U.S. West. To further
open mobile telecommunication in Belgium, a third cellular license will
be issued in 1998. The United States has taken issue with the
regulation of the directory services market, but a solution appears
likely. Begium has yet to sign the protocol that embodies the
commitments made as part of the WTO Basic Telecommunications Agreement.
The deadline for signing the protocol was December 1, 1997.
Ecotaxes: The Belgian government has adopted a series of ecotaxes,
in order to redirect consumer buying patterns towards materials seen as
environmentally less damaging. These taxes will raise costs for some
U.S. exporters, since U.S. companies selling into the Belgian market
must adapt worldwide products to varying EU member state environmental
standards.
Retail service sector: Some U.S. retailers, including Toys'R' Us
and McDonalds, have experienced considerable difficulties in obtaining
permits for outlets in Belgium. Current legislation is designed to
protect small shopkeepers, and its application is not transparent.
Belgian retailers also suffer from the same restrictions, but their
existing sites give them strong market share and power in local
markets.
Public procurement: In January 1996, the Belgian government
implemented a new law on government procurement to bring Belgian
legislation into conformity with European Union directives. The
revision has incorporated some of the onerous provisions of EU
legislation, while improving certain aspects of government procurement
at the various governmental levels in Belgium. We will continue to
monitor the implementation of the new law. Belgian public procurement
still manifests instances of poor public notification and procedural
enforcement, requirements for offsets in military procurement and
nontransparency in the procurement process.
Broadcasting and motion pictures: Belgium voted against the EU
broadcasting directive (which requires a high percentage of European
programs ``where practical'') because its provisions were not, in the
country's view, strong enough to protect the fledgling film industry in
Flanders. The Flemish (Dutch-speaking) region and the Francophone
community of Belgium have local content broadcasting requirements for
private television stations operating in those areas. The EU has taken
the Walloon and Flemish communities to the European Court of Justice
concerning these requirements. TNT has experienced considerable
problems in arranging distribution of its signal on Belgian cable,
while NBC and Viacom, via their majority interest in the TV 4 channel,
face similar problems with broadcasting authorities in Flanders.
6. Export Subsidies Policies
There are no direct export subsidies offered by the Belgian
government to industrial and commercial entities in the country, but
the government (both at the federal and the regional level) does
conduct an active program of trade promotion, including subsidies for
participation in foreign trade fairs and the compilation of market
research reports. In addition, exporters are eligible for a reduction
in social security contributions by employers and benefit from generous
rules for cyclical layoffs. The latter programs come close to the
definition of a subsidy in the case of a company engaged in exporting.
All of these programs are offered to both domestic and foreign-owned
exporters. The United States has raised with the Belgian government and
the EU Commission concerns over subsidies via an exchange rate program
to Belgian firms producing components for Airbus.
7. Protection of U.S. Intellectual Property.
Belgium is party to the major intellectual property agreements,
including the Paris, Berne and Universal Copyright Conventions, and the
Patent Cooperation Treaty. Nevertheless, an estimated 20 percent of
Belgium's video cassette and compact disc markets are composed of
pirated products. For software, the share of pirated copies has dropped
from 58 to 48 percent in one year, still representing a loss of $700
million to the industry. (1995 figures, no estimates available yet for
1996.)
Copyright: On June 30, 1994, the Belgian Senate gave its final
approval to the revised Belgian copyright law. National treatment
standards were introduced in the blank tape levy provisions of the new
law. Problems regarding first fixation and non-assignability were also
solved. The final law states that authors will receive national
treatment, and allows for sufficient manoeuvrability in neighbouring
rights. However, if Belgian right holders benefit from less generous
protection in a foreign country, the principle of reciprocity applies
to the citizens of that country. This is the case for the U.S., which
does not grant protection of neighboring rights to Belgian artists and
performers, nor to Belgian producers of records and movies. As a
consequence, U.S. citizens in Belgium are subject to the same
restrictions.
Patents: A Belgian patent can be obtained for a maximum period of
twenty years and is issued only after the performance of a novelty
examination.
Trademarks: The Benelux Convention on Trademarks established a
joint process for the registration of trademarks for Belgium,
Luxembourg and the Netherlands. Product trademarks are available from
the Benelux Trademark Office in The Hague. This trademark protection is
valid for ten years, renewable for successive ten-year periods. The
Benelux Office of Designs and Models will grant registration of
industrial designs for 50 years of protection. International deposit of
industrial designs under the auspices of the World Intellectual
Property Organization (WIPO) is also available.
8. Worker Rights
a. The Right of Association.--Under the Belgian constitution,
workers have the right to associate freely. This includes freedom to
organize and join unions of their own choosing. The government does not
hamper such activities, and Belgian workers in fact fully and freely
exercise their right of association. About 60 percent of Belgian
workers are members of labor unions. This number includes employed,
unemployed and workers on early pension. Unions are independent of the
government, but have important links with major political parties.
Unions have the right to strike and strikes by civil servants and
workers in ``essential'' services are tolerated. Teachers, nurses,
railway workers, air controllers and Sabena personnel have conducted
strikes in recent years without government intimidation. Despite
government protests over wildcat strikes by air traffic controllers, no
strikers were prosecuted. Also, Belgian unions are free to form or join
federations or confederations and are free to affiliate with
international labor bodies. However, the International Confederation of
Free Trade Unions (ICFTU) in 1996 noted with concern the increasingly
common practice of using civil court rulings to end strikes. The IFCTU
report states that the rulings include a threat of fines against
strikers, and that such rulings call into question the free exercise of
the right to strike. There was a sharp decrease in this kind of court
rulings throughout 1996 and 1997.
b. The Right to Organize and Bargain Collectively.--The right to
organize and bargain collectively is recognized, protected and
exercised freely. Every other year, the Belgian business federation and
unions negotiate a nationwide collective bargaining agreement covering
2.4 million private-sector workers, which establishes the framework for
negotiations at plants and branches. Public sector workers also
negotiate collective bargaining agreements. Collective bargaining
agreements apply equally to union and non-union members, and over 90
percent of Belgian workers are covered by collective bargaining
agreements. Under legislation in force, wage increases are limited to a
nominal 6.1 percent for the 1997-98 period. The law prohibits
discrimination against organizers and members of unions, and protects
against termination of contracts of members of workers' councils,
members of health and safety committees, and shop stewards. Effective
mechanisms such as the labor courts exist for adjudicating disputes
between labor and management. There are no export processing zones.
c. Prohibition of Forced and Compulsory Labor.--Forced or
compulsory labor is illegal and does not occur. Domestic workers and
all other workers have the same rights as non-domestic workers. The
government enforces laws against those who seek to employ undocumented
foreign workers.
d. Minimum Age for Employment of Children.--The minimum age for
employment of children is 15, but schooling is compulsory until the age
of 18. Youth between the ages of 15 and 18 may participate in part-time
work/part-time study programs and may work full-time during school
vacations. The labor courts effectively monitor compliance with
national laws and standards. There are no industries where any
significant child labor exists.
e. Acceptable Conditions of Work.--In May 1996, the monthly
national minimum wage rate for workers over 21 was set at BF43,665
($1,260); 18-year-olds can be paid 82 percent of the minimum, 19-year-
olds 88 percent and 20-year-olds 94 percent. The Ministry of Labor
effectively enforces laws regarding minimum wages, overtime and worker
safety. By law, the standard work week cannot exceed 40 hours and must
have at least one 24-hour rest period. Comprehensive provisions for
worker safety are mandated by law. Collective bargaining agreements can
supplement these laws.
f. Rights in Sectors with U.S. Investment.--U.S. capital is
invested in many sectors in Belgium. Worker rights in these sectors do
not differ from those in other areas.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 370
Total Manufacturing........................... 8425
Food & Kindred Products..................... 507
Chemicals & Allied Products................. 5757
Metals, Primary & Fabricated................ 138
Machinery, except Electrical................ \1\
Electric & Electronic Equipment............. 492
Transportation Equipment.................... \1\
Other Manufacturing......................... 1027
Wholesale Trade............................... 2225
Banking....................................... 282
Finance/Insurance/Real Estate................. 4130
Services...................................... 2274
Other Industries.............................. 897
TOTAL ALL INDUSTRIES.......................... 18604
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
BULGARIA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP 13.0 9.5 9.5
Real GDP Growth (pct)....................... 2.1 -10.9 -7.4
GDP by Sector:
Agriculture............................... 1.7 1.1 1.2
Manufacturing............................. 4.1 3.0 2.9
Services.................................. 6.0 5.1 5.1
Per Capita GDP.............................. 1,543 1,129 1,130
Labor Force (000s).......................... 3,575 3,570 3,535
Unemployment Rate (pct) \2\................. 11.4 10.8 14.3
Money and Prices (annual percentage growth):
Money Supply Growth (M2).................... 39.6 124.5 245.4
Consumer Price Inflation.................... 32.9 311 584
Exchange Rate (Leva/US$ - annual average)
\3\
Official.................................. 67.2 175 1675
Balance of Payments and Trade:
Total Exports FOB........................... 5.1 4.2 4.8
Exports to U.S. (US$ mlns) \4\............ 188 116 164
Total Imports CIF........................... 4.7 4.0 4.3
Imports from U.S. (US$ mlns) \4\.......... 132 138 110
Trade Balance............................... 0.4 0.2 0.5
Balance with U.S. (US$ mlns) \4\.......... 56 -22 54
Currrent Account Balance/GDP (pct).......... -0.5 0.9 1.8
External Public Debt........................ 9.4 9.6 9.7
Debt Service Payments/GDP (pct)............. 8.1 13.1 9.9
Fiscal Deficit/GDP (pct).................... -6.4 -13.4 -6.3
Gross Foreign Exchange Reserves and Gold.... 1.6 0.8 2.4
Aid from U.S. (US$ mlns) \5\................ 42.0 27.8 26.1
Aid from All Other Sources.................. N/A N/A N/A
------------------------------------------------------------------------
\1\ 1997 figures are estimates based on available 6-10 month data
\2\ Annual average
\3\ Rate depreciated from 32.1:1 to 66:0 from January to December 1994,
and from 70.7:1 to 487:1 from January to December 1996. The rate
subsequently declined to 2920:1 in mid-February 1997, and then was
fixed to the DM at 1000:1 on July 1, 1997.
\4\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
FAS, imports customs basis; 1997 figures are estimates based on data
available through October 1997.
\5\ USAID and DOD humanitarian assistance. DOD was $512,236 in FY95,
$314,692 in FY96 and $635,086 in FY97.
1. General Policy Framework
Bulgaria is a parliamentary republic ruled by a democratically
elected government. It has successfully conducted several rounds of
democratic elections since 1989. A reform-minded coalition led by the
center-right Union of Democratic Forces (UDF) won an outright majority
in April 1997 pre-term parliamentary elections, called after a
discredited socialist government elected in December 1994 voluntarily
relinquished power. The current president, elected in November 1996,
also came from the ranks of the UDF.
The new government which took office in 1997 has made a firm
commitment to undertaking the long-delayed reforms needed to transform
Bulgaria into a market economy, and has won the support of
international financial institutions for its efforts. The task is made
more difficult by the legacy of delays and half-hearted reforms under
previous governments with an uncertain underlying commitment to market
principles. For years, quasi-fiscal deficits were allowed to
accumulate, and the debts of loss-making state-owned enterprises led to
systematic decapitalization of the banks. In 1996, Bulgaria entered
into a deep economic crisis, triggered by recurring runs on bank
deposits, which began in late 1995 and eventually affected most of the
banking sector. The crisis of 1996 and early 1997 unified the country
around the need to make changes. The situation stabilized when the new
government made a credible commitment to reform, embodied in an
agreement with the IMF to institute a currency board form of exchange
regime, with the lev fixed to the German mark. The government has also
made progress in implementing long-delayed reforms in the banking
sector, privatizing state-owned assets, and liberalizing the economy. A
World Bank Financial and Enterprise Sector Adjustment Loan was approved
in October 1997.
Bulgaria's association agreement with the European Union (EU) took
effect January 1, 1994, and Bulgaria is actively pursuing its goal of
EU membership. Bulgaria acceded to the World Trade Organization (WTO)
at the end of 1996. The bilateral investment treaty with the United
States took effect in June 1994. A bilateral treaty for avoidance of
double taxation is under negotiation.
2. Exchange Rate Policy
Under the new currency board arrangement, the Bulgarian lev (BGL)
is fixed by law at BGL 1000/DM. The Bulgarian National Bank (BNB) sets
an indicative daily U.S. dollar rate (based on the dollar/DM exchange
rate in Frankfurt) for statistical and customs purposes, but commercial
banks and others licensed to trade on the interbank market are free to
set their own rates.
Only some of the commercial banks are licensed to conduct currency
operations abroad. Companies may freely buy foreign exchange for
imports from the interbank market. Companies are required to
repatriate, but no longer to surrender, earned foreign exchange to the
central bank. Bulgarian citizens and foreign persons may also open
foreign currency accounts with commercial banks. Foreign investors may
repatriate 100 percent of profits and other earnings, except that
profits and dividends derived from privatization transactions in which
Brady bonds were used for half the purchase price may not be
repatriated for four years, and initial capital for ten years. Capital
gains transfers appear to be protected under the revised Foreign
Investment Law; free and prompt transfers of capital gains are
guaranteed in the bilateral investment treaty. A permit is required for
hard currency payments to foreign persons for direct and indirect
investments and free transfers unconnected with import of goods or
services.
3. Structural Policies
Bulgaria's legal structure does not inhibit U.S. exports, which are
more affected by the domestic economic situation and Bulgaria's
isolation from trade financing. In the past, implementation of reforms
has been hindered by slow decision-making, parliamentary delays, and
bureaucratic red tape. However, the new government has shown an ability
to deliver needed legislative reforms and a willingness to listen to
the views of those outside government, including international
financial institutions, donors and the private sector. The new Foreign
Investment Law adopted in October 1997 was drafted with input from
foreign investors. One of the government's key priorities is
accelerated privatization. A mass privatization program developed by
the socialist government and patterned on the Czech voucher system was
carried out in 1996-97, with somewhat disappointing results. The new
government is preparing revisions to the program to make it more
flexible and more effective. Market privatization, which stagnated
under the socialists until the need for cash inflows forced them to
close some large deals, is now increasingly being put in the hands of
international intermediaries. This ``privatization of privatization''
is expected to increase transparency of the process and reduce the
controversy which has tended to accompany major deals. In October 1996
Bulgaria enacted a new Collateral Loan Law (with implementation in
1997), setting out procedures for secured lending, and revised the
Commercial Code.
Bulgaria revised both its Income Tax and Profits Tax laws in 1996,
and the current government is considering further changes to make the
overall tax burden hopefully less onerous for business, provided that
the government can improve overall tax collections. The VAT was raised
from 18 to 22 percent in July 1996 as part of the IMF program. Poor tax
collection is a problem for the budget, and there is a significant
informal economy which goes largely unreported and untaxed.
4. Debt Management Policies
Bulgaria's former Communist regime more than doubled the country's
external debt from 1985 to 1990. With more than $10 billion
outstanding, the government declared a debt service moratorium in March
1990, then resumed partial servicing of the debt in late 1992. In April
1994, Bulgaria rescheduled its official (``Paris Club'') debt for 1993
and 1994. In June of that year, it concluded a Brady plan-type
agreement to reschedule $8.1 billion of its debt to commercial
creditors (``London Club''), reducing its commercial debt by 47
percent. While debt servicing requirements will rise in absolute terms
over the next 5-7 years, if reforms and foreign investment continue to
take hold, debt servicing in relation to GDP should decline. In
addition to its external debt (over $9 billion at the end of 1997),
Bulgaria has a considerable domestic debt burden, of which
approximately $950 million is dollar-denominated. Falling interest
rates associated with the currency board have considerably eased the
debt burden, and Bulgaria has plans to issue up to $300 million in
Euro-obligations.
In July 1996, the IMF approved a 20-month standby arrangement of
approximately $580 million. However, because of failure to implement
conditions, only one tranche was disbursed. A 14-month standby
arrangement worth approximately $500 million was approved in April
1997, together with a $150 million Compensatory and Contingency
Financing Facility, and tranches have so far been disbursed on
schedule. A long-delayed $100 million World Bank Financial and
Enterprise Sector Adjustment Loan was approved in October 1997; a
further $70 million loan is anticipated once further reforms in the
banking sector have been implemented.
5. Significant Barriers to U.S. Exports
Bulgaria acceded to the World Trade Organization in December 1996.
Bulgaria also acceded to the WTO plurilateral Agreement on Civil
Aircraft and committed to sign the Agreement on Government Procurement
within a year. Bulgaria ``graduated'' from Jackson-Vanik requirements
and was accorded unconditional MFN treatment by the United States in
October 1996.
Average Bulgarian import tariffs are relatively high, on top of
which Bulgaria implemented a 5 percent import surcharge in July 1996
(which declined to 4 percent in July 1997, and is scheduled to decline
further over the next four years) as part of the 1996 IMF program. In
previous years, some U.S. investors have reported that high import
tariffs on products needed for the operation of their establishments in
Bulgaria served as a significant barrier to investment. However, the
new Foreign Investment Law exempts capital contributions in kind valued
at over $100,000 from VAT and customs.
Import licenses are required for a specific, limited list of goods
which includes radioactive elements, rare and precious metals and
stones, ready pharmaceutical products, and pesticides. The Bulgarian
government has declared that it grants licenses within three days of
application in a nondiscriminatory manner. The U.S. Embassy has no
complaints on record from U.S. exporters that the import-license regime
has negatively affected U.S. exports. Armaments and military-production
technology and components also require import licenses and can only be
imported by companies licensed by the government of Bulgaria to trade
in arms (see below). Dual-use items are also controlled.
The Bulgarian government states that its system of standardization
is in line with internationally accepted principles and practices, but
there were two cases in 1997 involving U.S. commodities held at
Bulgarian ports for supposedly not meeting Bulgarian standards.
Imported goods must meet Bulgarian standards, and in testing and
procedures imported goods are accorded treatment no less favorable than
that for domestic products. The testing and certification process
generally requires at least two months. All imports of goods of plant
or animal origin are subject to phytosanitary and veterinary control,
and relevant certificates should accompany such goods.
Foreign persons cannot own land in Bulgaria because of a
constitutional prohibition, but foreign-owned companies with Bulgarian
registration are considered to be Bulgarian persons. Foreign persons
may acquire ownership of buildings and limited property rights, and may
lease land. Local companies where foreign partners have controlling
interests must obtain prior approval (licenses) to engage in certain
activities: production and export of arms/ammunition (note that only
firms with over 50 percent Bulgarian participation can be licensed for
international trade in arms); banking and insurance; exploration,
development and exploitation of natural resources; and acquisition of
property in certain designated geographic areas/zones.
There are no specific local content or export-performance
requirements nor specific restrictions on hiring of expatriate
personnel, but residence permits are often difficult to obtain.
Bulgaria committed itself in the United States-Bulgarian Bilateral
Investment Treaty to international arbitration in the event of
expropriation, disinvestment, or compensation disputes.
Foreign investors complain that massive tax evasion by private
domestic firms combined with the failure of the authorities to enforce
collection from large, often financially-precarious, state-owned
enterprises places the foreign investor at a real disadvantage.
The 1997 Law on Assignment of Government and Municipal Contracts is
the first clear-cut procedure for government procurement to be
introduced in Bulgaria. It is equally applicable to local and foreign
potential providers, and, with few exceptions treats them both equally.
Government procurement works mostly by competitively bid international
tenders. Under the new law, participants in pre-contract procedures
(tender, two-phase tender, silent auction, or negotiations with three
or more potential contractors) may appeal against violations of the
applicable procedures. General government supervision for compliance is
exercised by the National Audit Chamber. Each ministry has a government
procurement office which is responsible for overseeing the process.
There have been problems of lack of clarity in many tendering
procedures. U.S. investors are also finding that in general neither
remaining state enterprises nor private firms are accustomed to
competitive bidding procedures to supply goods and services to these
investors within Bulgaria. However, tenders organized under projects
financed by international donors have tended to be open and
transparent.
Bulgaria uses the single customs administrative document used by
European Community members. A one percent customs clearance fee is
assessed on all imports and exports.
6. Export Subsidies Policies
The Bulgarian government applies no export subsidies at the
present. However, the 1995 Law for the Protection of Agricultural
Producers established a State Fund for Agriculture whose regulations
give it the authority to stimulate the export of agricultural and food
products through export subsidies or export guarantees.
7. Protection of U.S. Intellectual Property
Bulgarian intellectual property legislation is generally adequate,
with modern patent and copyright laws and criminal penalties for
copyright infringement, but enforcement is seriously deficient,
resulting in widespread piracy, particularly in music CDs and CD-ROMs.
As a result, Bulgaria was placed on the U.S. Trade Representative's
Special 301 Watch List in October 1996.
In 1995, Bulgaria signed a government-to-government agreement with
the United States to improve intellectual copyright protection. As a
result, Bulgaria became a signatory to the Rome and Geneva Phonograms
Conventions, added criminal penalties for copyright infringement, and,
in April 1996, introduced a system of title verification for music and
video recordings. The system was amended in April 1997 to include
software on CD-ROM. Nevertheless, video, compact disk and computer
program piracy remains a serious concern. Bulgaria is one of the
world's top exporters of illegal CDs and CD-ROMs.
Bulgaria's Trademark and Industrial Design Law is in need of
updating; a revised law has been drafted. U.S. industries cite the
illegal use of trademarks as a barrier to the Bulgarian market. A Law
for the Protection of New Types of Plants and Animal Breeds was adopted
in September 1996; a law on the topography of integrated circuits is in
preparation.
Bulgaria is a member of the World Intellectual Property
Organization (WIPO) and a signatory to the following agreements: the
Paris Convention for the Protection of Intellectual Property; the Rome
Convention for the Protection of Performers, Producers of Phonograms
and Broadcast Organizations; the Geneva Phonograms Convention; the
Madrid Agreement for the Repression of False or Deceptive Indications
of Source of Goods; the Madrid Agreement on the International
Classification and Registration of Trademarks; the Patent Cooperation
Treaty; the Universal Copyright Convention; the Berne Convention for
the Protection of Literary and Artistic Works; the Lisbon Agreement for
the Protection for Appellations of Origin and their International
Registration; the Budapest Treaty on the International Recognition of
the Deposit of Microorganisms for the Purpose of Patent Protection; and
the Nairobi Treaty on the Protection of the Olympic Symbol. On acceding
to the WTO, Bulgaria agreed to implement the Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPs) without a transitional
period.
In early 1997, the International Intellectual Property Association
estimated trade losses in Bulgaria for U.S. companies due to piracy at
$178.9 million. The chief damages were reportedly in sound recordings
and musical compositions ($95 million), computer programs ($62 million
for entertainment software alone, and $8.4 million for business
software, an increasingly growing problem), and motion pictures ($13
million from videocassettes and an unquantified amount from cable TV
piracy).
8. Worker Rights
a. The Right of Association.--The 1991 Constitution provides for
the right of all workers to form or join trade unions of their own
choice. This right appears to have been freely exercised in 1997.
Estimates of the unionized share of the workforce range from 30 to 50
percent. This share continues to shrink as large firms lay off workers,
and most new positions appear in small, non-unionized businesses.
Bulgaria has two large trade union confederations, the Confederation of
Independent Trade Unions of Bulgaria (CITUB) and Podkrepa. CITUB, the
successor to the trade union controlled by the former Communist regime,
now operates as an independent entity. Podkrepa, an independent
confederation created in 1989, was one of the earliest organizations
within the Union of Democratic Forces, but is no longer a member of the
UDF. In 1995 a third trade union confederation, the Community of Free
Union Organizations in Bulgaria (CFUOB), was admitted to the National
Tripartite Council (NTCC), which includes employers and the government.
In October 1996, a new labor union/civic organization called
``Promyana'' (``Change'') was founded with the explicit goal of
removing the Bulgarian Socialist Party (BSP) from power via early
elections. Although never officially registered as a labor union,
Promyana attracted members of various professions and trades to its
ranks and participated visibly in the anti-BSP demonstrations of
January and early February 1997 which played a key role in convincing
the BSP to relinquish power. The 1992 Labor Code recognizes the right
to strike when other means of conflict resolution have been exhausted,
but ``political strikes'' are forbidden, a prohibition widely ignored
in January and early February 1997. Workers in essential services
(including military, police, energy production and supply, and health
sectors) are prohibited from striking, but common practice by such
workers is to hold an ``effective strike'' in which they stop or slow
their activities for an hour or two, a practice employed repeatedly in
the politically-motivated popular unrest in January and early February.
There was no evidence that the Government interfered with the right to
strike and several work stoppages took place. The Labor Code's
prohibitions against anti union discrimination include a 6-month period
of protection against dismissal as a form of retribution. While these
provisions appear to be within international norms, there is no
mechanism other than the courts for resolving complaints, and the
burden of proof in such a case rests entirely on the employee. There
are no restrictions on affiliation or contact with international labor
organizations, and unions actively exercise this right.
b. The Right to Organize and Bargain Collectively.--The Labor Code
institutes collective bargaining, which is practiced both nationally
and on a local level. The legal prohibition against striking for key
public sector employees weakens their bargaining position; however,
these groups were able to influence negotiations by staging protests
and engaging in other pressure activities without going on strike. Both
CITUB and Podkrepa complained that while the legal structure for
collective bargaining was adequate, many employers failed to bargain in
good faith or to adhere to concluded agreements. Labor observers viewed
the Government's enforcement of labor contracts as inadequate. There
were several instances in which an employer was found guilty of anti-
union discrimination, but the employers appealed the decisions. The
backlog of cases in the legal system delayed further action,
effectively postponing, perhaps indefinitely, redress of workers'
grievances.
c. Prohibition of Forced or Compulsory Labor.--The constitution
prohibits forced or compulsory labor. Many observers have argued that
the practice of shunting minority and conscientious-objector military
draftees into work units which often carry out commercial construction
and maintenance projects is a form of compulsory labor.
d. Minimum Age for Employment of Children.--The Labor Code sets the
minimum age for employment of children at 16, and 18 for dangerous
work. Employers and the Ministry of Labor and Social Welfare are
responsible for enforcing these provisions. Child labor laws are
enforced well in the formal sector. However, underage employment has
increased in the informal and agricultural sectors as collective farms
are broken up and the private sector continues to grow. In addition,
children are known to work on family-owned tobacco farms.
e. Acceptable Conditions of Work.--The national monthly minimum
wage is approximately $26 (45,500 leva). The Labor Code provides for a
standard work week of 40 hours, with at least one 24-hour rest period
per week. The Ministry of Labor and Social Welfare is responsible for
enforcing both the minimum wage and the standard work week. Enforcement
has been generally effective in the state sector (although there are
reports that state-run enterprises fall into arrears on salary payments
to their employees if the firms incur losses), but weaker in the
emerging private sector. Bulgaria has a national labor safety program
with standards established by the Labor Code. The Constitution states
that employees are entitled to healthy and nonhazardous working
conditions. The Ministry of Labor and Social Welfare is responsible for
enforcing these provisions. Under the Labor Code, employees have the
right to remove themselves from work situations that present a serious
or immediate danger to life or health without jeopardizing their
continued employment. In practice, refusal to work in situations with
relatively high accident rates or associated chronic health problems
would result in loss of employment for many workers.
f. Rights in Sectors with U.S. Investment.--Overall U.S. investment
is relatively small according to official Bulgarian information. Few
sectors have an active U.S. presence. Conditions do not significantly
differ in these sectors from the rest of the economy. The same
obligation of collective bargaining and adherence to labor standards
prevails in the export processing zones, and unions may organize
workers in these areas.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 0
Total Manufacturing........................... 8
Food & Kindred Products..................... \1\
Chhemicals & Allied Products................ 0
Metals, Primary & Fabricated................ 0
Machinery, except Electrical................ \1\
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... 0
Wholesale Trade............................... 0
Banking....................................... 0
Finance/Insurance/Real Estate................. 0
Services...................................... 0
Other Industries.............................. 0
TOTAL ALL INDUSTRIES.......................... 8
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
CZECH REPUBLIC
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\............................. 47.3 54.0 54.6
Real GDP Growth (pct) \3\................... 4.8 4.1 1.8
GDP by Sector (pct): \4\
Agriculture............................... 5.2 5.0 5.0
Manufacturing............................. 26.6 26.6 26.6
Services.................................. 53.4 54.4 55.4
Government \5\............................ 31.8 31.2 30.9
Per Capita GDP (US$)........................ 4,592 5,314 5,285
Labor Force (000s).......................... 4,777 5,107 5,000
Unemployment (pct).......................... 2.9 3.5 5.2
Money and Prices (annual percentage growth):
Money Supply Growth (M2) \6\................ 19.8 9.2 7.7
Consumer Price Inflation.................... 9.1 8.8 8.7
Exchange Rate (CKR/US$):
Official \7\.............................. 26.55 27.14 31.76
Balance of Payments and Trade: \7\
Total Exports FOB \7\....................... 17.1 21.9 16.3
Exports to U.S. (US$ millions)............ 363 468 405
Total imports CIF \7\....................... 20.9 27.7 19.7
Imports from U.S. (US$ mlns).............. 363 945 774
Trade Balance \8\........................... -3.8 -5.8 -3.4
Balance with U.S. (US$ mlns).............. 0 -477 -369
Current Account Deficit/GDP (pct)........... 2.88 8.5 7
External Public Debt........................ 16.5 20.8 22.2
Debt Service Payments/GDP (pct)............. 5.5 6.0 8.9
Fiscal Deficit/GDP (pct).................... 0 0 0
Gold and Foreign Exchange Reserves.......... 17.0 16.1 14.7
Aid from U.S. (US$ millions) \8\............ 19.9 6.0
Aid from All Other Sources \9\.............. 140.1 N/A N/A
------------------------------------------------------------------------
\1\ Unless stated otherwise, 1997 figures are based on the latest
estimates of the Czech Statistical Office dated Nov. 3, 1997, and/or
on the unofficial estimates from the Czech National Bank.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ 1997 figures are for the first half year only.
\5\ Central government spending as pct of GDP.
\6\ Seven-month data for 1997. 5.1 pct growth over the same period in
1996.
\7\ Nine-month data for 1997 exchange rate and trade. Official Czech
Statistical Office estimate of the trade deficit for 1997, based on
data available through September 1997, is 138.8 billion CZK ($4.2
billion at 33 CZK per $ rate). Czech imports do not include re-exports
of U.S. goods through other countries.
\8\ U.S. assistance phased out by October 1, 1997. To that date, it
totalled approximately $145 million.
\9\ Aggregate figure for EC-Phare program in 1990-1996 is 434 million
ECU.
1. General Policy Framework
The Czech Republic has largely consolidated its economic transition
to a western market economy with most enterprises now in private hands.
While facing problems with external imbalances and industrial
restructuring, the country enjoys a smoothly functioning democracy with
a favorable macroeconomic climate, a moderate national debt, a low
budget deficit, strong foreign currency reserves, relatively low
inflation and moderate unemployment. Preliminary data suggest GDP
growth of 1.8 percent for 1997, following growth of 4.1 percent in
1996. GDP growth in the range of 2.5-3.1 is forecast for 1998.
Inflation in August 1997 was running at close to 10 percent on an
annual basis because of increases in regulated prices in mid-1997.
However, the Czech Statistical Office estimates inflation for the year
at around 9 percent. Wages grew by 9.7 percent in nominal terms in the
first nine months of 1997.
The current government has pursued a balanced budget policy and the
coalition and opposition parties have agreed in principle on a balanced
budget for 1998. While the government had to trim expenditures in April
and May of 1997 in order to minimize the budget deficit for 1997,
projections for the next year indicate that it can likely achieve a
balanced budget through continued tight fiscal control.
At the same time, vital micro economic tasks remain important, such
as completing the privatization of the steel, utilities,
telecommunications and financial sectors, restructuring firms to
maintain competitiveness, and strengthening the regulatory framework.
The austerity packages announced in April and May also included
proposals to address these structural problems. However, these
initiatives, notably privatization of the major banks and enhanced
capital markets regulation, are only now being implemented.
Integrating the Czech economy into the West, and specifically into
the European Union, remains a government priority. The Czech Republic
continues to take steps to harmonize its legal system and standards and
regulations with EU countries. The Czech Republic formally applied for
EU membership in 1996 and is expected to be invited to begin
negotiations with the EU in early 1998.
Currently, over 70 percent of output is produced by nominally or
wholly private firms. Overall unemployment rate for 1997 is predicted
to be 5.2 percent. Projected levels for 1998 are in the range of 5.5-6
percent.
During the first nine months of 1997, the Czech Republic's trade
deficit reached $3.4 billion, following a trade deficit of $5.8 billion
for 1996. For the first nine months of 1997, imports increased by 11.6
percent, while exports grew by 15.6 percent. This is the best result in
the past two years. The Czech Statistical office estimates the 1997
trade deficit will be $4.2 billion. Factors explaining the improved
trade performance include the depreciation of the Czech crown in May,
austerity measures announced by the Government in April and May as well
as economic revival in western Europe. Austerity measures should
continue to dampen current robust consumer demand for imported goods.
The merchandise trade deficit is partially offset by surpluses in
services, mainly tourism ($4 billion in 1996 and $1.7 in 1997 first
half), and transportation. The Czech Republic's current account deficit
remained high in the first half of 1997 at $2 billion and the Czech
Statistical Office's latest estimate for the 1997 current account
deficit is $3.1 billion, compared to $4.3 in 1996. Foreign capital
inflows reached over $8 billion in 1995 and $4 billion in 1996 but
slowed down to $540 million in the first half of 1997. Experts forecast
a capital account surplus of $3-3.5 billion in 1997, compared to $4.3
billion in 1996.
2. Exchange Rate Policy
The Czech crown is fully convertible for most business purposes.
The Foreign Exchange Act, providing for full current account
convertibility, was enacted by the parliament in October 1995. The law
made the Czech crown convertible for all trade transactions and many
investment transactions. For example, Czechs are free to make direct
investments and purchase real estate abroad. Under the law, the Central
Bank and the Finance Ministry can take further steps toward capital
account convertibility by removing controls on outflows of capital
without additional legislation.
In May, speculative pressure on the currency forced the central
bank to float the Czech crown (which had previously moved in an
exchange rate band of plus/minus 7.5 percent). As a result, the crown
depreciated by 10-15 percent.
3. Structural Policies
The Czech government sees full membership in the European Union
(EU) as its highest priority. An EU association agreement came into
effect in February 1995. The Czech Republic is to begin negotiations on
joining the EU in early 1998 but membership is not expected before
2000. The Czech Republic became the first post-communist member of the
Organization of Economic Cooperation and Development (OECD) in December
1995. As part of its accession to the OECD, the Czech government agreed
to meet, with a small number of exceptions, OECD standards for equal
treatment of foreign and domestic investors and restrictions on special
investment incentives. The United States succeeded in using the
membership process to encourage the Czech Republic to make several
improvements to the business climate for U.S. firms.
The Czech government continues its program of income tax
reductions. For 1998, the corporate profit tax will go down from 39% to
35%. The 1998 personal income tax changes are limited to adjusting tax
brackets for inflation. As of 1997, expatriates no longer benefited
from special tax relief equal to 25% of Czech taxable income.
In 1995, the government started to provide for tax write-offs of
bad debts, although with considerably less generous treatment of pre-
1995 debts, which had been a priority goal of U.S. business. Companies
unable to collect debts due after Jan 1, 1995 will be able to write
them off over three years. Companies will also be able to write off up
to 10 percent per year of bad debts dating before Dec. 31, 1994. Both
provisions allow a firm to write off the first year's share of a bad
debt without filing suit against the debtor. However, in order to
obtain the following years' write-offs, the creditor firm must prove
that it tried to collect the due amount for 12 months without success.
U.S. firms have complained that Czech tax legislation effectively
penalizes use of holding company structures by leveling both corporate
tax and dividend withholding tax on profit flows between group
companies, thus creating double taxation on such profits. The tax
changes for 1998 reduces but do not eliminate this burden. Czech law
also does not permit intra-group use of losses (i.e., offsetting losses
in one group entity against profits in another) and imposed corporate
tax on dividends received from foreign holdings without allowing use of
a foreign tax credit for the underlying tax suffered in the
subsidiary's home jurisdiction.
4. Debt Management Policies
The Czech Republic maintains a moderate foreign debt and has
received investment grade ratings from the major international credit
agencies. As of mid-1997, the gross foreign debt was approximately
$21.2 billion. The Czech Republic repaid its entire debt with the IMF
ahead of schedule.
5. Significant Barriers to U.S. Exports
The Czech Republic is committed to a free market and maintains a
generally open economy with few barriers to trade and investment. The
Government has adopted a WTO tariff code with a trade-weighted average
tariff of 5-6 percent. This is being reduced to close to 4 percent in
accordance with Czech commitments in the Uruguay Round. Most EU exports
enjoy lower tariffs under the Czech Republic's EU association
agreement, moving to zero tariffs by 2000. In April 1997, the Czech
Republic imposed an import deposit scheme for most products which
required importers to deposit 20% of the value of the goods in an non-
interest bearing account for six months. This scheme was abolished,
however, as of August 21.
Trade in agricultural/food products is generally free of major
trade barriers although technical barriers continue to hamper imports
of certain products. In anticipation of EU membership, the Czech
Republic is rewriting much of its legislation related to standards and
trade in agricultural/food products. During this transition phase, it
is not always clear which rules apply, a situation which has led to
some delays in getting products approved for import. The harmonization
of standards with the EU will ease the paperwork burden for those
exporters already exporting to the EU. However, the alignment of the
Czech food legislation with the EU also means that certain products
currently prohibited in the EU are also prohibited in the Czech
Republic.
Other complaints expressed by American firms in the Czech Republic
include: the continuing imposition of high taxes; instances of a lack
of a transparent bidding process; general slowness of decision-making
in the government; excessive red tape; and the maintenance of higher
tariffs against non-European goods while gradually lowering those for
European Union countries as specified in the EU association agreement.
In addition, those firms which deal with privatization authorities have
complained of long delays involved in the privatization process.
The Czech government is required by law to hold tenders for major
procurement. After two amendments, a 10 percent price advantage for
domestic firms still remains. The Czech Republic is not a member of the
WTO Government Procurement Agreement.
Still, American business people often cite a convoluted--or in some
cases corrupt--bureaucratic system at both national and local levels
which can act as an impediment to market access. Often considerable
time is spent by a potential investor to finalize a deal, or enforce
the terms of a contract, and the U.S. Embassy is frequently asked to
intercede on an investor's behalf. European companies have sought to
use the Czech Republic's interest in EU membership to gain advantage in
commercial competition.
By law, the government does not differentiate between foreign and
domestic investors, or between foreign investors from different
countries. The Czech Republic committed not to discriminate against
foreign investors in privatization sales, outside of a few excepted
sectors, in joining the OECD. In some cases, the Czech government has
had to overcome political resistance to foreign investment in certain
sensitive sectors. This opposition has come from economic nationalists
as well as managers with an interest in the status quo. Examples
include the petrochemical, telecommunications and brewery sectors. The
ban on foreign ownership of real estate remains another important
exception, although foreign-owned Czech firms may purchase real estate
freely.
American investors interested in starting joint ventures with or
acquiring Czech firms have experienced problems with unclear ownership
and lack of information on company finances. Investors have complained
about the difficulty of protecting their rights through legal means
such as a secured interest. In particular, investors have been
frustrated by the lack of effective recourse to the court system. The
slow pace of the courts are often compounded by judges' limited
understanding of complex commercial cases. Also, in 1995, the Czech
Republic imposed a Czech language requirement for trade licenses needed
for most forms of business. This requirement can be fulfilled by a
Czech partner, but this can be burdensome and involve additional risks.
The opaque nature of the stock market puts U.S. investors and
financial services providers at a competitive disadvantage. While stock
market reforms were enacted in 1996 to help protect small shareholders
and increase transparency of transactions, the Finance Ministry
enforcement of them has been uneven. As part of its April austerity
package, the Government proposed stricter rules and an independent
``Securities Commission'' to enforce them. Parliament recently approved
a bill to create such a body and it may start operations in 1998.
6. Export Subsidies Policy
In mid-1995, the Czech Export Bank started to provide export
guarantees and credits to Czech exporters. The bank has a policy of
following the OECD consensus on export credits. Additionally, the
government maintains a fund through which it purchases domestic
agricultural surpluses for resale on international markets. For some
commodities, pricing is established at a level which includes a subsidy
to local producers.
7. Protection of U.S. Intellectual Property
The Czech Republic is bound to the Berne and Universal copyright
conventions and the Paris Convention on industrial property. The
government is working to ensure that Czech laws for the protection of
intellectual property meet or exceed those of western Europe. Existing
legislation guarantees protection of all forms of property rights,
including patents, copyrights, trademarks, and semiconductor chip
layout design. While the Czech authorities have made some strides in
enforcement, problems with delays in indictments and prosecutions
remain. The U.S. government, working with U.S. industry, pressed the
Czech government to take specific steps to improve enforcement of IPR
norms. Steps taken include creation of an inter ministerial committee
on IPR enforcement and increased priority for police action against IPR
crimes.
The Czech government addressed certain key shortfalls in IPR laws
of concern to the United States in amendments to the trademark law and
the copyright law adopted by Parliament in June 1995 and April 1996.
The trademark law change brings Czech law into compliance with relevant
EU directives and the WTO TRIPs agreement. The change simplifies
administrative steps concerning registration and sale of trademarks. It
strictly defines trademark fraud and bans unauthorized registration and
use in the Czech Republic of generally well-known trademarks not yet
registered in this country. In addition, prior to registration of a
trademark, the application will be made public to allow for protests by
legitimate trademark owners in the case of a fraudulent application.
The amendment to the copyright law is also designed to bring Czech
law into full compliance with the WTO TRIPs agreement and EU standards.
The amendment incorporates the EU software directive into Czech law,
providing computer programs with the same protection as literary
creations and narrowing the personal use provision. Extensive
cooperation between the U.S. government and industry resulted in
satisfactory language on the key issue of ownership of software. The
amendment as enacted extends coverage to software created by an
independent contractor as well as by an employee. Under previous Czech
law, no author could transfer his rights to the software; an author was
only allowed to license the software to an employer.
8. Worker Rights
a. The Right of Association.--The law provides workers the right to
form and join unions of their own choosing without prior authorization,
and the government respects this right. The work force was 45 to 50
percent unionized in 1996. Workers have the right to strike, except for
those whose role in public order or public safety is deemed crucial.
The law requires that labor disputes be subject first to mediation and
that strikes take place only after mediation efforts fail. Unions are
free to form or join federations and confederations and affiliate with
and participate in international bodies. This freedom is fully
exercised.
b. The Right to Organize and Bargain Collectively.--Czech law
provides for collective bargaining, which is generally carried out by
unions and employees on a company basis. Wage regulation was abolished
in 1995.
c. Prohibition of Forced or Compulsory Labor.--The law prohibits
forced or compulsory labor, and it is not practiced.
d. Minimum Age for Employment for Children.--The Labor Code
stipulates a minimum working age of 15 years, although children who
have completed courses at special schools (schools for the severely
disabled) may work at age 14.
e. Acceptable Conditions of Work.--The government sets minimum wage
standards. The current minimum wage is 2,500 crowns (about $95) per
month. The minimum wage provides a sparse standard of living for an
individual worker although, when combined with allowances available to
families with children, provides an adequate standard of living for a
worker and a family. The law mandates a standard work week of 42+
hours. It also requires paid rest of at least 30 minutes during the
standard 8 to 8+ hour workday, as well as annual leave of 3 to 4 weeks.
Overtime ordered by the employer may not exceed 150 hours per year or 8
hours per week as a standard practice. Industrial accident rates are
not unusually high. Workers have the right to refuse work endangering
their life or health without risk of loss of employment.
f. Rights in Sectors with U.S. Investment.--All of the above
observations on worker rights apply to firms with foreign investment.
Rights in these sectors do not differ from those in other sectors of
the economy. Conditions in sectors with U.S. investment do not differ
from those in other sectors of the economy.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 180
Food & Kindred Products..................... -23
Chemicals & Allied Products................. 113
Metals, Primary & Fabricated................ 0
Machinery, except Electrical................ \1\
Electric & Electronic Equipment............. \1\
Transportation Equipment.................... 9
Other Manufacturing......................... 54
Wholesale Trade............................... 17
Banking....................................... \1\
Finance/Insurance/Real Estate................. 2
Services...................................... -3
Other Industries.............................. \1\
TOTAL ALL INDUSTRIES.......................... 380
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
DENMARK
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\........................ 148,143 148,998 136,200
Real GDP Growth (pct.) \3\............. 2.8 2.5 3.0
GDP by Sector:
Agriculture.......................... 6,196 6,166 5,600
Manufacturing........................ 29,786 29,206 27,200
Services............................. 71,250 71,054 65,300
Government........................... 32,821 33,402 30,000
Per Capita GDP ($)..................... 28,307 28,310 25,586
Labor Force (000s)..................... 2,809 2,793 2,825
Unemployment Rate (pct.)............... 10.3 8.8 8.0
Money and Prices (annual percentage
growth):
Money Supply Growth (pct.)............. 4.1 7.2 7.0
Consumer Price Inflation (Pct.)........ 2.1 2.1 2.2
Exchange Rate: (DKK/$ annual average)
Official............................. 5.60 5.79 6.60
Balance of Payments and Trade:
Total Exports FOB \4\.................. 50,616 51,111 47,000
Exports to U.S.\4\................... 2,002 2,067 2,000
Total Imports CIF \4\.................. 45,583 45,113 43,000
Imports from U.S.\4\................. 1,998 2,166 2,200
Trade Balance \4\...................... 5,033 5,998 4,000
Balance with U.S.\4\................. 4 -99 -200
External Public Debt................... 47,500 45,078 38,600
Fiscal Deficit/GDP (pct.).............. 1.9 1.4 -0.5
Current Account Surplus/GDP (pct.)..... 1.1 1.6 0.5
Debt Service Payments/GDP (pct.)....... 2.8 2.6 2.3
Gold and Forex Reserves................ 11,358 14,718 17,900
Aid From U.S........................... N/A N/A N/A
Aid From Other Sources................. N/A N/A N/A
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available data as of October
27, 1997.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade (excluding EU Agricultural Export Subsidies).
1. General Policy Framework
Denmark is a small, highly industrialized ``value-added'' country
with a long tradition of extensive foreign trade, free capital
movement, and political stability. It is also endowed with an efficient
and well-educated labor force and a modern infrastructure effectively
linking Denmark with the rest of Europe. Denmark's natural resources
are concentrated in oil and gas fields in the North Sea which have,
together with renewable energy, made Denmark a net exporter of energy
since 1996.
The Danish economy is strong, with a balance of payments surplus, a
small public budget surplus, and low inflation. The Danish Government
has pursued a carefully monitored economic policy including a fiscal
policy of minimum public expenditure increases and a tight monetary and
exchange rate policy. However, its extensive foreign trade makes the
economy vulnerable to foreign ``shocks''.
Developments during 1997 in some key economic indicators--rising
private consumption, reduced unemployment, and a declining surplus on
the balance of payments--are warning signals for the otherwise strong
economy. The balance of payments surplus has been particularly
important in sustaining foreign confidence in the Danish economy.
During 1997, the Government reacted promptly by introducing measures to
curb private consumption, which included compulsory pension savings in
order to reduce purchasing power. The 1997 public budget shifted from
deficit into a small surplus as a result of higher revenues and lower
expenditures for unemployment and other transfer income costs.
Denmark welcomes foreign investment. Ambassador Edward E. Elson
recently founded the Danish-American Business Forum, which promotes
increased direct investment, exchanges of know-how, and U.S./Danish
joint ventures. Roughly 75 of the leading Danish and American firms in
Denmark are members of this elite organization.
Danish monetary policy puts a high priority on price stability.
Denmark has pursued a fixed exchange rate policy since the early
1980's. This policy, and Denmark's full liberalization of capital
movements in 1988, leaves the Danish Central Bank limited room to adopt
independent interest rate and liquidity policies. Danish monetary
policy is linked closely to that of Germany.
Denmark has opted out of the European Monetary Union's (EMU) third
phase (establishment of a single EU currency and relinquishment of
jurisdiction over monetary policy), although the country's economic
performance exceeds the established convergence criteria for
membership.
2. Exchange Rate Policy
Denmark is a member of the European Monetary System (EMS) and its
Exchange Rate Mechanism (ERM). For more than a decade, the Government
has successfully resisted solving Denmark's economic problems through
exchange rate adjustments. In September 1997, the trade-weighted value
of the krone was 3.7 percent lower than in September 1996, due mostly
to the krone's depreciation against the pound, the dollar and the yen.
Over the last year, the krone has fallen almost 15 percent against the
dollar (from DKK 5.80 to DKK 6.81 to $1.00), but so far with limited
impact on U.S. exports to Denmark.
3. Structural Policies
Danish price policies are based on market forces. Entities with the
ability to fix prices because of their market dominance are regulated
by a Competition Agency. Denmark during 1997 changed its competition
legislation from the former ``control'' principle to the
internationally recognized ``prohibition'' principle.
The highest marginal individual income tax rate is over 60 percent,
and applies to all taxpayers with earnings in the ``middle income''
level or higher (in 1996, approximately $37,000). Foreign executives
working in Denmark may benefit from more lenient income taxation (a
flat 33 percent tax on gross income in 1997). Danish employers are
almost alone in the EU in paying virtually no nonwage compensation.
Most sick leave and unemployment insurance costs are paid by the
Government. Employees pay their contribution to unemployment insurance
out of their wages, while two-thirds of unemployment benefits are paid
from general revenues.
The Danish Value Added Tax (VAT), of 25 percent is the highest in
the EU. As VAT revenues constitute more than one-quarter of total
central government revenues, a reduction would have severe budgetary
consequences. The Government therefore has no plans to reduce the VAT,
and hopes that EU VAT rate harmonization will raise VAT rates of other
EU countries. Environmental taxes are increasingly being imposed on
industry (with some roll-back for antipollution efforts) and on
consumers. The corporate tax rate is 34 percent and favorable
depreciation rules and other deductions exist.
4. Debt Management Policies
Denmark has run a balance of payments surplus since 1990.
Consequently, foreign debt has gradually fallen from over 40 percent of
GDP in 1990 to 26 percent in 1996. Net interest payments on the debt
cost Denmark seven percent of its export earnings. Standard and Poor's
and Moody's Investors Service rate Denmark AA+ and AA1, respectively.
Denmark's public sector is a net external debtor, while the private
sector is a net creditor. At the end of 1996, the government sector's
net foreign debt, including foreign exchange reserves, totalled $40
billion, almost equal to the value of krone-denominated government
bonds held abroad.
During 1996, central government debt denominated in foreign
currencies fell slightly to $15 billion at the end of the year. Of the
total debt, 74 percent is denominated in German marks, 7 percent in
French francs, 6 percent in Swiss francs, and 5 percent in British
pounds. Dollar-denominated debt comprises only two percent. The debt
has an average term of 1.9 years.
Denmark's central government deficits are not monetized, but
instead financed through sale of government bonds and treasury bills on
market terms. The monetary policy instruments used by the Central Bank
to manage liquidity are certificates of deposit, repurchase agreements
(so-called repos) and current account deposits. The Central Bank issues
two-week deposit certificates each week to absorb liquidity and re-
purchases both treasury bills and deposit certificates in order to
supply liquidity to commercial banks.
For a number of years, the Central Bank has successfully used small
discount rate adjustments of between 0.25 and 0.5 percent to control
liquidity. On October 27, 1997, the official discount rate stood at 3.5
percent. Low inflation (two percent during 1997) vis-a-vis higher
market interest rates has produced higher real interest rates.
5. Significant Barriers to U.S. Exports
Denmark imposes few restrictions on import of goods and services or
on investment. Denmark adheres to all GATT/WTO codes and to all EU
legislation which impacts on trade and investment. U.S. industrial
product exporters face no special Danish import restrictions or
licensing requirements. Agricultural goods must compete with domestic
production, protected under the EU's Common Agricultural Policy.
As standards are being harmonized within the EU Single Market, new
nontariff trade barriers (NTBs) have surfaced in individual EU member
countries. As Danish firms have found it difficult to win bids on
government procurement contracts in other EU countries, Denmark has
taken the lead within the EU to work with the European Commission to
combat these problems. The Ministry of Business and Industry's National
Agency for Trade and Industry and Danish Competition Authority assist
Danish firms facing non-tariff trade barriers.
Denmark provides national and, in most cases, nondiscriminatory
treatment to all foreign investment. Ownership restrictions apply only
in a few sectors: hydrocarbon exploration (which usually requires
limited government participation, but not on a ``carried-interest''
basis); arms production (non-Danes may hold a maximum of 40 percent of
equity and 20 percent of voting rights); aircraft (foreign citizens or
airlines may not directly own or exercise control over aircraft
registered in Denmark); and ships registered in the Danish
International Ships Register (a Danish legal entity or physical person
must own a significant share--about 20 percent--and exercise
significant control over the ship or the ship must be on bareboat
charter to a Danish firm).
Danish law provides a reciprocity test for foreign direct
investment in the financial sector, but that has not been an obstacle
to U.S. investment. Two U.S. banks--Republic National Bank of New York
and the State Street Bank Trust Company--have representative offices in
Denmark. A number of other U.S. financial entities operate in Denmark
through subsidiaries in other European countries, including Citicorp
(through its U.K. subsidiary), GE Capital Equipment Finance (through
Sweden), and Ford Credit Europe (through the U.K.).
The Government liberalized the Danish telecommunications sector in
1997. The large U.S. company Ameritech took over a controlling interest
(42 percent) of the former government-controlled Tele Danmark A/S in
October 1997. A number of foreign telecom operators, including Swedish
Telia and French Mobilix, are making inroads into the Danish market,
which has increased competition. Sonofon, a private cellular mobile
telephone network (General Systeme Mobile-GSM) with U.S. Bell South
participation, competes with Tele Danmark's GSM operation.
Danish government procurement practices meet the requirements of
the GATT/WTO Public Procurement Code and EU public procurement
legislation. Denmark has implemented the EU's ``Supplies'' Directive
93/36/EEC, ``Works'' Directive 93/37/EEC and ``Utilities'' Directive
93/38/EEC. A 1993 administrative note advised the Danish central and
local governments of the EU/U.S. agreement on reciprocal access to
certain public procurement.
In compliance with EU rules, the Government and its entities apply
environmental and energy criteria on an equal basis with other--price,
quality and delivery--terms in procurement of goods and services. This
may eventually restrict U.S. companies' ability to compete in the
Danish public procurement market. For example, the EU ``Ecolabel'' and
EU ``Ecoaudit'' requirements may be difficult for U.S. companies to
meet. Offsets are used by the Danish Government only in connection with
military purchases not covered by the GATT/WTO code and EU legislation.
Denmark has no ``Buy Danish'' laws.
There is no record of any U.S. firm complaining about Danish
customs procedures. Denmark has an effective, modern and swift customs
administration.
U.S. firms resident in Denmark generally receive national treatment
regarding access to Danish R&D programs. In some programs, however,
Denmark requires cooperation with a Danish company. There is no record
of any complaints by U.S. companies in this area.
6. Export Subsidies Policies
EU agricultural export restitutions (subsidies) to Denmark totalled
$536 million (five percent of the value of total Danish agricultural
exports) in 1996. Government support for agricultural export promotion
programs is insignificant. Denmark has no direct subsidies for its
nonagricultural exports except for shipbuilding. Denmark welcomed the
1994 OECD agreement to phase out shipbuilding subsidies
internationally.
The Government does not directly subsidize exports by small and
medium size companies. Denmark does, however, have programs which
indirectly assist export promotion and establishment of export networks
for small and medium sized companies, research and development, and
regional development aimed at increasing exports. Denmark has one of
the EU's lowest rates of state aid to industry (less than two percent
of GDP). Danish subsidization of its shipbuilding industry is within
the ceiling set in the EU Shipbuilding Directive (nine percent of the
contract value) and accounts for about one-third of total Danish state
aid to industry.
Denmark also has a well-functioning export credit and insurance
system. In its foreign development assistance, Denmark requires that 50
percent of all bilateral assistance be used for Danish-produced goods
and services. These programs apply equally to foreign firms which
produce in and export from Denmark.
7. Protection of U.S. Intellectual Property
Denmark is a party to and enforces a large number of international
conventions and treaties concerning protection of intellectual property
rights.
Patents: Denmark is a member of the World Intellectual Property
Organization, and adheres to the Paris Convention for the Protection of
Industrial Property, the Patent Cooperation Treaty, the Strasbourg
Convention and the Budapest Convention. Denmark has ratified the
European Patent Convention and the EU Patent Convention.
Trademarks: Denmark is a party to the 1957 Nice Arrangement and to
this arrangement's 1967 revision. Denmark has implemented the EU
trademark directive aimed at harmonizing EU member countries'
legislation, but continues to apply the ``global consumption'' rather
than ``regional consumption'' principle (see Impact on U.S. Trade
below). Denmark strongly supports efforts to establish an EU-wide
trademark system. Denmark has enacted legislation implementing EU
regulations for the protection of the topography of semiconductor
products, which also extends protection to legal U.S. persons.
Copyrights: Denmark is a party to the 1886 Berne Convention and its
subsequent revisions, the 1952 Universal Copyright Convention and its
1971 revision, the 1961 International Convention for the Protection of
Performers, and the 1971 Convention for the Producers of Phonograms.
There is little piracy in Denmark of CDs or audio or video cassettes.
However, computer software piracy is more widespread and estimated at
over $100 million annually.
Piracy of other intellectual property, including books, appears
limited. However, U.S. authors are not receiving all royalties from
Denmark for photocopies of their works used in Danish schools. There is
no evidence of Danish import or export of pirated products.
New Technologies: There are no reports of possible infringement of
new technologies.
Impact on U.S. Trade with Denmark: Trademark-protected U.S.
products may be ``parallel imported'' (i.e, imported outside the normal
contractual channels of distribution) for sale in Denmark, because
Denmark continues to observe the ``global consumption'' principle. The
German Supreme Court has ruled against the sale of parallel imported
products from third countries without the approval of the trademark
owner (Germany applies the ``regional consumption'' principle). Because
of this ruling, a Danish company owned by a U.S. citizen has been
stopped from selling parallel imported U.S.-made jeans to most other EU
markets. This company alone, which accounts for some ten percent of
total EU parallel imports of U.S.-produced jeans, claims to have lost
sales worth some $25 million.
Denmark is named on the Special 301 Watch List because of its
failure to meet its TRIPS obligations to provide unannounced searches
and provisional relief as required by TRIPS Article 50. The issue is
the subject of bilateral U.S./Danish consultations. The United States
is also concerned about Denmark's failure to protect, as required by
article 39.3 of the TRIPS agreement, confidential test data submitted
to the Danish Environmental Protection Agency for approval of certain
chemical products.
8. Worker Rights
a. Right of Association.--Workers in Denmark have the right to
associate freely, and all (except those in essential services and civil
servants) have the right to strike. Approximately 80 percent of Danish
wage earners belong to unions. Trade unions operate free of government
interference. They are an essential factor in political life and
represent their members effectively. During 1996, 75,700 workdays were
lost due to labor conflicts compared with 197,300 in 1995. Greenland
and the Faroe Islands have the same respect for worker rights,
including full freedom of association, as Denmark.
b. Right to Organize and Bargain Collectively.--Workers and
employers acknowledge each others' right to organize. Collective
bargaining is widespread. The law prohibits anti union discrimination
by employers against union members, and there are mechanisms to resolve
disputes. Salaries, benefits, and working conditions are agreed in
biennial or triennial (the industry sector) negotiations between the
various employers' associations and their union counterparts. If
negotiations fail, a national conciliation board mediates, and its
proposal is voted on by both management and labor. If the proposal is
turned down, the Government may force a legislated solution (usually
based upon the mediator's proposal). In case of a disagreement during
the life of a contract, the issue may be referred to the Labor Court.
Decisions of that court are binding. Labor contracts which result from
collective bargaining are, as a general rule, also used as guidelines
in the nonunion sector. Labor relations in non EU parts of Denmark--
Greenland and the Faroe Islands--are generally conducted in the same
manner as in Denmark.
c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory
labor is prohibited and does not exist in Denmark.
d. Minimum Age for Employment of Children.--The minimum age for
full-time employment is 15 years. A change in the work environment law,
which implemented EU Council Directive 94/33/EU, entered into force in
June 1996. This provides for tightening of employment rules for those
under 18 years of age, setting a minimum of 13 years of age for any
type of work. The law is enforced by the Danish Working Environment
Service (DWES), an autonomous arm of the Ministry of Labor. Danish
export industries do not use child labor.
e. Acceptable Conditions of Work.--There is no legally mandated
work week or national minimum wage. The work week set by labor
contracts is 37 hours. The lowest wage in any national labor agreement
is $11 per hour. Danish law provides for five weeks of paid vacation
each year. Danish law also prescribes conditions of work, including
safety and health; duties of employers, supervisors, and employees;
work performance; rest periods and days off; medical examinations; and
maternity leave. The DWES ensures compliance with work place
legislation. Danish law provides for government-funded parental and
educational leave programs.
Similar conditions, except for leave programs, are found in
Greenland and the Faroe Islands, but in these areas the work week is 40
hours. Unemployment benefits in Greenland are either contained in labor
contract agreements or come from the general social security system. A
general unemployment insurance system in the Faroe Islands was
established in August 1992. Sick pay and maternity pay, as in Denmark,
fall under the social security system.
f. Rights in Sectors with U.S. Investment.--Worker rights in those
goods-producing sectors in which U.S. capital is invested do not differ
from the conditions in other sectors.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 349
Total Manufacturing........................... \1\
Food & Kindred Products..................... 273
Chemicals & Allied Products................. 37
Metals, Primary & Fabricated................ \1\
Machinery, except Electrical................ -37
Electric & Electronic Equipment............. -13
Transportation Equipment.................... (2)
Other Manufacturing......................... 74
Wholesale Trade............................... 249
Banking....................................... (d)
Finance/Insurance/Real Estate................. 668
Services...................................... 480
Other Industries.............................. 8
TOTAL ALL INDUSTRIES.......................... 2171
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
FINLAND
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP (at factor cost) \9\.......... 110.5 108.8 \1\ 101.
6
Real GDP Growth (pct)..................... 5.1 3.3 \1\ 4.5
GDP by Sector: \9\
Agriculture, forestry & logging......... 5.0 4.5 \1\ 4.2
Manufacturing, construction mining &
quarrying.............................. 36.5 35.0 \1\ 33.4
Electricity, gas & water supply......... 3.0 3.0 \1\ 2.5
Services................................ 45.9 46.2 \1\ 42.7
Government.............................. 21.0 20.8 \1\ 18.9
Other activities........................ 2.3 2.3 \1\ 2.1
Per Capita GDP \9\........................ 21,594 21,200 \1\ 19,7
66
Labor Force (000s)........................ 2,526 2,532 \1\ 2,54
8
Unemployment Rate (pct) \10\.............. 16.9 16.0 \1\ 15.0
Money and Prices:
Money Supply Growth (M2) (annual
percentage growth)....................... 5.96 -2.0 \2\ 1.0
Consumer Price Inflation.................. 1.0 0.6 \1\ 1.2
Exchange Rate
(FIM/US$ - annual average).............. 4.36 4.59 \3\ 5.16
Balance of Payments and Trade:
Total Exports FOB......................... 40.4 40.5 \4\ 22.7
Exports to U.S.......................... 2.7 4.1 \4\ 1.7
Total Imports CIF......................... 29.5 30.7 \4\ 17.1
Imports from U.S........................ 2.1 3.0 \4\ 1.2
Trade Balance............................. 10.9 9.8 \4\ 5.6
Balance with U.S........................ 0.6 1.1 \4\ 0.5
External Public Debt...................... 39.5 38.1 \5\ 35.0
Fiscal Deficit/GDP (pct) \7\.............. 5.0 3.1 \1\ 1.3
Current Account Surplus/GDP (pct)......... 4.1 3.8 \1\ 3.5
Debt Service Payments/GDP (pct)\6\........ 5.4 5.8 \1\ 5.7
Gold and Foreign Exchange Reserves........ 11.2 7.9 \8\ 12.3
Aid from U.S.............................. N/A N/A N/A
Aid from All Other Sources................ N/A N/A N/A
------------------------------------------------------------------------
\1\ Estimate, Ministry of Finance
\2\ August 1996 - August 1997
\3\ January-September 1997, Bank of Finland middle rate
\4\ January-July 1997, Board of Customs
\5\ August 1997, Ministry of Finance
\6\ General Government Interest Expenditures
\7\ Public Sector's Budget Deficit (EMU)
\8\ August 1997, Bank of Finland
\9\ Declines in Nominal and Per Capita GDP (despite positive growth
rates) are due to the depreciating value of the Finnish Markka.
\10\ According to the New Labor Force Study
1. General Policy Framework
At the beginning of the 1990's, the Finnish economy encountered a
severe recession, after a period of rapid growth in the 1980s. GDP
growth came to a standstill in 1990 and the following year declined by
7 percent. Industrial output and exports bottomed out in 1991, and
total industrial output did not start to grow again until 1993.
Unemployment began decreasing in 1994 but remains persistently above
European Union (EU) averages. EU membership, which took place on
January 1, 1995, has helped spur structural change in several sectors.
Economic growth accelerated in the latter half of 1996, and overall
GDP growth for 1997 is expected to be 4.5 percent. Industrial output is
showing strong growth, bouncing back up towards pre-1990 levels.
Inflation remained subdued in the first half of 1997 and wage driven
cost pressures are expected to be modest due to a two-year centralized
wage settlement which expires on 31 January 1998. The economic recovery
so far, however, has produced few new jobs. High unemployment, coupled
with low levels of business investment, has resulted in flat government
revenues and continued large budget deficits. The deficit is financed
by foreign and (increasingly) domestic borrowing through the issuance
of bonds.
Slow but steady improvements in Finland's macro economic outlook
should result in a public sector deficit-to-GDP ratio of 1.3 percent in
1997. According to the Ministry of Finance convergence program,
Finland's public sector deficit is projected to disappear in 1998, and
in 2001 there should be a 1.9 per cent budget surplus with a debt/GDP
ratio of 52 per cent. With pension funds purchasing increasing amounts
of government bonds, it is expected that total public debt for 1997
will amount to about 59.1 percent of GDP, just below the EMU criteria
of 60 percent. A result of the recession of the early 1990s and the
concomitant increase in public debt has been the fact that interest
payments on debt are the fastest growing government expenditure. Debt
servicing accounted for 11.6 percent of government expenditures in 1996
and is estimated to rise to 14.1 percent of total expenditure in 1997.
Modest cuts in government social programs and aid to municipalities are
helping to keep the debt from rising even faster.
In 1997 Finland's tax ratio (gross wage-earner taxation, including
compulsory employment pension contributions, relative to GDP) was 48.3
percent, third highest among OECD countries. This tax ratio is
estimated to drop slightly in 1998, to 47.6 percent.
Despite high levels of foreign debt servicing, Finland's balance of
payments outlook remains good. Finland has maintained a current account
surplus since 1994. The 1996 current account surplus of $4.8 billion is
expected to fall to about $4.1 billion in 1997 (3.5 percent of total
output). The surplus in merchandise trade in 1997 is expected to remain
approximately at 1996 levels. As a result of current account surpluses,
net foreign debt as a ratio of GDP is decreasing, and is expected to be
45.5 percent by the end of 1997, compared to 54.1 percent in 1993.
Finnish economic policy is determined to a large extent by
consultation and coordination within the EU. EU membership, for
example, has resulted in new competition legislation that could help to
reduce the cartelized nature of many Finnish industries. Legislation
which took effect at the beginning of 1993 liberalizing foreign
investment restrictions has helped spur a sharp increase in foreign
portfolio investment and hence has contributed to the
internationalization of large Finnish companies. The rise in stock
market activity is also due to lower domestic interest rates.
Reflecting an improvement in the country's relative competitiveness
within the EU, foreign direct investment, particularly from the U.S.
and Sweden, has increased significantly in recent years. Finland is
hoping to capitalize on its location and expertise to serve as a
gateway for foreign investors in the former Soviet Union and the Baltic
states. This effort has scored some successes as foreign firms
establish production and warehousing facilities in eastern Finland,
close to the major Russian markets.
EU membership and budgetary constraints have brought about some
reform in Finland's highly protected agricultural sector. Finland is
slowly transitioning to the EU agricultural regime. The EU agreed to
pay compensations totaling approximately $585 million through 1999 for
the decrease in value of stocks and other costs associated with
Finland's joining the EU. Finland was also granted permission to pay
national adjustment support for five years until year 1999. However,
these support mechanisms will not be adequate to prevent major
structural changes in the agricultural sector. Over the long run,
structural changes will entail a reduction in the number of farmers and
consolidation of surviving farms into larger, more efficient units.
In 1996 producer prices for agriculture fell more in Finland than
in any other EU country. In 1997 food prices average 11.2 percent lower
than in 1994 (prior to Finland's EU membership). This fall in prices
has been caused by the reduction of producer prices to EU levels and by
intensified competition from EU agricultural imports. So far, most
Finnish producers have maintained their domestic market shares, but at
the cost of significantly lower profits. Agricultural output is
expected to expand by about one percent in 1997 but to decline in 1998.
2. Exchange Rate Policy
A 1996 amendment to the Currency Act provides the legislative basis
for Finland's participation in the Exchange Rate Mechanism (ERM) of the
European Monetary System. Finland joined the ERM in October 1996, at
the central rate of 1 ECU = 5.80661 FIM (currently 1 ECU = $1.12). As
from 25 November 1996 the ECU central rate is FIM 5.85424.
By joining the ERM, Finland hopes to position itself among the
first countries to join Economic and Monetary Union (EMU), in which
member countries will share a common currency. As a participant in the
ERM, Finland also takes part in the mutual intervention arrangements
coordinated between the various central banks, which contribute to
essential economic policy goals by stabilizing the exchange rate. 1997
is an especially important year for Finland because the eligibility in
satisfying the EMU's convergence criteria will be gauged using 1997
statistics. The current upswing of the economy all but guarantees that
Finland is a viable candidate for participating in the third stage of
the EMU. The first round of EMU participants, which will be selected in
the Spring of 1998, almost certainly will include Finland.
3. Structural Policies
Finland replaced its turnover tax with a value added tax (VAT) in
June 1994. While the change has had little effect on overall revenues,
several areas not previously taxed or taxed at a lower rate, including
things such as corporate and consumer services and construction, are
now subject to the new VAT. The government has kept the basic VAT rate
at the same level as the old turnover tax (22 percent). Some goods and
services, including movie tickets, medicines, use of sporting
facilities, and books, are taxed at a 12 percent rate. Food stuffs are
taxed at a 17 percent rate. Passenger transportation, accommodation, TV
licenses, and admission fees to cultural and entertainment events are
taxed at a 6 percent rate. Other services, including health care,
education, insurance, newspaper & periodical subscriptions and rentals
are not subject to VAT. According to the 1998 budget proposal,
Finland's value added taxes will be harmonized with EU regulations so
that there are only two VAT rates below the primary rate of 22 percent.
Food stuffs will still be taxed at a rate of 17 percent rate. It has
been proposed that the present 12 percent and 6 percent tax rates be
combined at 8 percent.
Agricultural and forestry products continue to be subject to
different forms of non-VAT taxation. A uniform tax rate of 28 percent
on capital gains took effect in 1996, which includes dividends, rental
income, insurance, savings, forestry income, and corporate profits. The
sole exception was bank interest, where the tax rate was increased from
20 to 25 percent at the beginning of 1994.
In March 1997, European Union commitments required the
establishment of a tax border between the autonomously governed, but
territorially Finnish, Aland Islands (Ahvenanmaa) and the rest of
Finland. As a result, the trade of goods and services between the rest
of Finland and Aland is now treated as if it were trade with a non-EU
area. The trade effect of this treatment is minimal since the Aland
Islands are part of the EFTA tariff area.
The structure of taxation has been revised modestly to give greater
incentives to work and to hire new labor. This had led to income tax
reductions of FIM 8 billion for 1996 and 1997. Draft budgets for 1998
include an additional 2 percent income tax reduction worth FIM 750
million. Even with this reduction, however, the tax/GDP ratio will
remain at historically high levels. Decisions concerning future levels
of income taxation will be made in conjunction with the next round of
centralized wage settlement negotiations, due to begin in the winter of
1997. Trade unions publicly have affirmed the importance of keeping
inflation under control (The Bank of Finland's target is 2 percent), as
well as maintaining the competitiveness of Finnish industry. Given
these goals, increases in labor costs over the next two years should be
fairly low.
To offset reductions in income tax the Finns have raised so-called
``environmental taxes.'' The 1998 budget proposal includes increased
taxes on petrol. There are also tax breaks for use of clean fuels. For
example the draft budget proposes a permanent tax break of 50 percent
for natural gas. Use of wood or wood-based fuels in the production of
electricity will be promoted through the refund of electricity taxes
paid for wood produced electricity.
The sharp decline in interest rates and liberalization of foreign
investment has resulted in a strong revival of the Finnish stock market
and greater corporate use of equity markets. It has also substantially
increased the percentage of foreign ownership of many of Finland's
leading companies, and is the preferred vehicle for privatization or
partial privatization of companies with significant state ownership.
The previous Center - Conservative government initiated a program aimed
at privatizing as much of the state-owned companies as the Finnish
Parliament would permit and the market could absorb. The present
government agrees that state ownership at its present level is no
longer necessary in manufacturing and energy production. The basic
strategy has been to reduce the government's stake through the issuance
of stock, rather than by selling off companies to individual investors.
In every case, however, the State has retained a substantial holding in
majority privatized firms. This minority holding ensures that the State
will remain the largest shareholder.
Currently, four of Finland's ten largest companies are majority
state-owned. The Government of Finland reduced its ownership in two
state companies in 1996, Valmet (engineering) and Kemira (chemicals).
The proportion of Valmet owned by the state declined by nearly 40
percent (to 20.3 percent government owned) and of Kemira by nearly 20
percent (to 53.8 percent government owned). The Government of Finland
raised over FIM 3.2 billion from its sale of shares in Valmet and
Kemira. In April 1997 the Ministry of Trade and Industry was authorized
to sell shares of state-owned Rautaruukki (steel), after which the
government's share of Rautaruukki will be no more than 41%. There are
33 companies in Finland with varying degrees of state ownership.
As a result of the recession of the early 1990s, industrial
subsidies have increased by about 80 percent of GDP in real terms. The
government has begun, however, to reduce subsidies in line with the
need for greater fiscal discipline and Maastricht Treaty criteria for
monetary union. General horizontal subsidies form the bulk of aid in
Finland, including assistance for research and development,
environmental protection, energy and investment. All companies
registered in Finland have access to government assistance under
special development programs. Foreign-owned companies are eligible for
government incentives on an equal footing with Finnish owned companies.
Government incentive programs are mainly aimed at investment in areas
deemed to be in need of development. The support consists of cash
grants, loans, tax benefits, investments in equity, guarantees and
employee training.
4. Debt Management Policies
Since the early 1990's Finland has rapidly accumulated external
debt in order to finance recession-induced budget deficits. Under the
government's EMU convergence program, the general government debt is
projected to drop to 56.3 percent of GDP by 1999. Finnish corporations,
formerly heavy users of foreign capital, are now reducing foreign
obligations. However, financing requirements of the central government
have not diminished significantly. In January 1997, Moody's upgraded
its rating on Finnish long-term government bonds to their second best
rating--Aa1. Standard & Poor's rating was upgraded in December 1996 to
AA, which is the third best. Finnish debt issues continue to sell
easily in international financial markets.
Finland is an active participant in the Paris Club, the London Club
and the Group of 24, providing assistance to East and Central Europe
and the former Soviet Union. It has been a member of the IMF since
1948. Finland's development cooperation programs channel assistance via
international organizations and bilaterally to a number of African,
Asian, and Latin American countries. In response to budgetary
constraints and changing priorities, Finland has reduced foreign
assistance from 0.78 percent of GDP in 1991 to 0.34 percent of GDP in
1997.
5. Significant Barriers to U.S Exports
Finland became a member of the EU in 1995, and, as a result, has
had to adopt the EU's tariff schedules. The agricultural sector remains
the most heavily protected area of the Finnish economy, with the bulk
of official subsidies in this sector. The amount of these subsidies is
determined by the difference between intervention and world prices for
agricultural products. Since joining the EU, the difference between
these two prices has decreased for most agricultural items, resulting
in lower, albeit still significant, subsidy levels. As part of its
terms of EU accession, Finland temporarily imposes higher tariffs than
EU levels on the following items: footwear, rubber, plastic, metals,
raw hides and skins and some electric machinery. This transition period
ends in 1998.
In mid-1996 the Finnish government's inter-ministerial licensing
authority began to oppose within the EU U.S. company applications for
commercialization of genetically modified organisms (GMOs) such as
insect resistant corn. The Environmental Ministry appears to favor
mandatory consumer-oriented labeling of GMOs. Other ministries are more
supportive of GMO commercialization. In the absence of clear EU
guidelines, the Government of Finland continues to take a case-by-case
approach to GMO-related issues.
The Finnish service sector is undergoing considerable
liberalization in connection with EU membership. Legislation
implementing EU insurance directives have gone into effect. Finland has
exceptions in insurance covering medical and drug malpractice and
nuclear power supply. Restrictions placed on statutory labor pension
funds, which are administered by insurance companies, will in effect
require that companies establish an office in Finland. In most cases
such restrictions will cover workers' compensation as well. Auto
insurance companies will not be required to establish a representative
office, but will have to have a claims representative in Finland.
1995 was the first year of fully open competition in the
telecommunications sector in Finland. The Telecommunication Act of
August 1996 allows both network operators and service operators to use
competitor telecommunication networks in exchange for reasonable
compensation. The Telecommunication Act was replaced by the
Telecommunications Market Act of 1997, which improved the opportunities
of telecommunication operators to profitably lease each other's
telecommunications connections.
The government requires that the Finnish broadcasting company
devote a ``sufficient'' amount of broadcasting time to domestic
production, although in practical terms this has not resulted in
discrimination against foreign produced programs. Finland has adopted
EU broadcasting directives, which recommend a 51 percent European
programming target ``where practicable'' for non-news and sports
programming. Finland does not intend to impose specific quotas and has
voiced its opposition to such measures in the EU.
With the end of the Restriction Act in January 1993, Finland
removed most restrictions on foreign ownership of property in Finland.
Only minor restrictions remain, such as requirements to obtain
permission of the local government in order to purchase a vacation home
in Finland. But even restrictions such as this will be abolished as by
January 2000, bringing Finland fully in line with EU norms.
Finland is a signatory to the WTO Government Procurement Agreement
and has a good record in enforcing its requirements. In excluded
sectors, particularly defense, counter trade is actively practiced.
Finland is purchasing fighter aircraft and associated equipment valued
at $3 billion from U.S. suppliers. One hundred percent offsets are
required, as a condition of sale, by the year 2005. As of October 1997,
$2.7 billion (or 80 per cent of the total) worth of offsets have been
made.
Finland has in most cases completed the process of harmonizing its
technical standards to EU norms. It has streamlined customs procedures
and harmonized its practices with those of the EU.
6. Export Subsidies Policy
The only significant Finnish direct export subsidies are for
agricultural products, such as grain, meat, butter, cheese and eggs as
well as for some processed agricultural products. While Finland has
advocated worldwide elimination of shipbuilding subsidies through the
OECD Shipbuilding Agreement, in January 1996 Finland decided to
temporarily provide subsidies (the 9 percent EU norm) to promote
shipbuilding exports.
7. Protection of U.S. Intellectual Property
The Finnish legal system protects property rights, including
intellectual property, and Finland adheres to numerous international
agreements and organizations concerning intellectual property. In 1996,
Finland joined the European Patent Convention (EPC).
Finland is a member of WIPO, and participates primarily via its
membership in the EU. The idea of protection of intellectual property
is well developed. For example, the incidence of software piracy is
lower than in the U.S., and by some measures (e.g. BSA) is the lowest
in the world.
The Finnish Copyright Act, which traditionally also grants
protection to authors, performing artists, record producers,
broadcasting organizations and catalog producers, is being amended to
comply with EU directives. As part of this harmonization, the period of
copyright protection was extended from 50 years to 70 years. Protection
for data base producers (currently a part of catalog producer rights)
will be defined consistent with EU practice. The Finnish Copyright Act
provides for sanctions ranging from fines to imprisonment for up to two
years.
Search and seizure are authorized in the case of criminal piracy,
as is the forfeiture of financial gains. Computer software has been
covered by the Copyright Act since 1991.
Information on copying and copyright infringement is provided by
several copyright holder interest organizations such as the Copyright
Information and Anti-Piracy Center. The Business Software Alliance
(BSA), a worldwide software anti-piracy organization, began operations
in Finland in January 1994. According to a recent survey, the rate of
software piracy in Finland (41% in 1996) is one of the lowest in
Europe.
8. Worker Rights
a. The Right of Association.--The Finnish Constitution contains
specific guarantees for the right of workers to form trade unions and
assemble peacefully. The right to strike is guaranteed by law, with
some exceptions for provision of essential public sector services.
These rights are honored in practice; trade unions are among the most
powerful political forces in Finland. About 80 percent of the work
force is unionized. These applies to employers as well. Unions are
free, independent, democratic and associate in three federations as
well as internationally.
b. The Right to Organize and Bargain Collectively.--The right to
organize and bargain collectively is protected both in law and in
practice. While collective bargaining traditionally has been conducted
according to national guidelines agreed among employers, the three
central trade union organizations and the government, in the past two
years wage negotiations have been more decentralized. Workers are
legally protected against anti-union discrimination. Complaint
resolution is governed by collective bargaining agreements as well as
by labor laws, both of which are adequately enforced.
c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory
labor is prohibited by the constitution; this prohibition is honored in
practice.
d. Minimum Age For Employment of Children.--Sixteen is the minimum
age for full-time employment (eight hours per day). Children that are
fifteen years old may work up to six hours per day under certain
restricted conditions. In Finland education is compulsory for children
from 7 to 16 years of age. Child labor laws are effectively enforced.
There are virtually no complaints of exploitation of children in the
work force.
e. Acceptable Conditions of Work.--Finland has no legislated
minimum wage, but non-union employees are required to receive the
minimum wage established by collective bargaining for unionized workers
in each sector. These minimum wages generally afford a decent standard
of living for workers and their families. The maximum standard legal
work week is 5 days, not exceeding 40 hours. In practice most contracts
call for standard work weeks of 37-38 hours. Employees working in
shifts or during the weekend are entitled to a 24-hour rest period
during the week. The law is effectively enforced as a minimum, and many
workers enjoy even stronger benefits through well enforced collective
bargaining agreements.
Finland's health and safety laws are among the strictest in the
world. They are enforced effectively by government inspectors and
actively monitored by the unions. Workers can refuse to work under
dangerous conditions without risk of penalty.
f. Rights in Sectors with U.S. Investment.--There is no difference
in the application of worker rights between sectors with U.S.
investment and those without.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 461
Food & Kindred Products..................... 1
Chemicals & Allied Products................. 219
Metals, Primary & Fabricated................ \1\
Machinery, except Electrical................ 32
Electric & Electronic Equipment............. \1\
Transportation Equipment.................... -1
Other Manufacturing......................... 79
Wholesale Trade............................... 358
Banking....................................... \1\
Finance/Insurance/Real Estate................. 3
Services...................................... 91
Other Industries.............................. \1\
TOTAL ALL INDUSTRIES.......................... 1033
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
FRANCE
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP............................... 1,535 1,539 1,376
Real GDP growth........................... 2.1 1.5 2.3
GDP by sector \2\ 1,985 1,980 N/A
Ariculture.............................. 36 36 N/A
Manufacturing........................... 408 399 N/A
Services................................ 1,276 1,278 N/A
Government and non-profit services........ 264 268 N/A
Per capita GDP............................ 26,422 26,403 23,482
Labor force............................... 25,378 25,613 25,630
Unemployment rate......................... 11.6 12.3 12.5
Money and Prices (annual percentage growth):
Money supply growth (M3) \3\.............. 4.3 -3.4 -0.1
Consumer Price Inflation.................. 1.8 2.0 1.3
Exchange rate (FF/US$-annual average)..... 5.0 5.1 5.9
Balance of Payments and Trade:
Total Exports (FOB) \4\................... 284 215 186
Exports to US \4\....................... 17 17 17
Total Imports (CIF) \4\................... 271 198 172
Imports from US \4\..................... 22 23 22
Trade Balance (CIF/FOB)................... 13 17 15
Balance with US \4\..................... -5 -5 -4
External public debt...................... N/A N/A N/A
Fiscal Deficit/GDP (percentage)........... 5.0 4.1 3.1
Current Account \5\....................... 11 21 22
Surplus/GDP (percentage).................. 0.7 1.3 1.6
Debt service.............................. N/A N/A N/A
Payments as a percentage of GDP........... N/A N/A N/A
Gold and Foreign Exchange Reserves \6\.... 58 59 56
Aid from US............................... N/A N/A N/A
Aid from all other sources................ N/A N/A N/A
------------------------------------------------------------------------
\1\ Embassy estimates based on published French governmentdata unless
otherwise indicated.
\2\ GDP excludes value added tax and other taxes.
\3\ 1997 figure reflects M3 as of August 1997.
\4\ 1997 estimate based on seven months.
\5\ 1997 estimate based on seven months
\6\ 1997 figure reflects reserves as of August 1997.
1. General Policy Framework
France is the fourth largest industrial economy in the world, with
annual Gross Domestic Product about one-fifth that of the United
States. In terms of international trade, France is the fourth largest
importer and exporter in the global market, and is a world leader in
high technology, defense, agricultural products, and services. France
is the tenth largest trading partner of the United States and the third
largest in Europe (after the United Kingdom and Germany). Given the
weak, 1.5% growth of the French economy in 1996, U.S. merchandise
exports to France increased by only 1.2 percent to $14.4 billion, while
merchandise imports from France grew 8 percent to $19.2 billion,
according to U.S. Commerce Department data. This results in a U.S.
merchandise trade deficit with France of about $5 billion. French trade
data, which account differently for re-exports and transshipments via
neighboring European countries, tell a different story: France believes
that it had a trade deficit of about $5 billion with the U.S. in 1996.
The different data can lead to different conclusions about trade policy
approaches on both sides of the Atlantic. Trade in services adds around
$12 billion more to the total volume of trade between the U.S. and
France. The U.S. and France are the world's top two exporters in
several important sectors: defense products, agricultural goods, and
services.
Promoting job-creating growth is the overarching economic policy
objective of the French government. Stronger growth, led by export
sectors, started to take hold in the second half of 1997, but this
should not be sufficient to generate a significant reduction in
France's current 12.5 percent unemployment rate in the near future.
Expectations are for annual real GDP growth of approximately 2.3
percent in 1997, followed by growth in the range of 3.0 percent in
1998. While considerable progress has been made on structural reforms
over the past decade, further efforts, including continued tax and
fiscal deficit reduction, privatization, increasing the flexibility of
labor markets, and financial sector deregulation, will be necessary if
France is to achieve its full economic potential.
With exports and imports each accounting for about 30 percent of
GDP, France's open external sector is a key part of its economy. The
French government has encouraged the development of new markets for
French products, particularly in Asia and Latin America and has
promoted exports by small and medium-sized firms. France has also
actively sought to attract foreign investment. Restrictions on non-EU
investors apply only in sensitive sectors, such as telecommunications,
agriculture, defense, and aviation, and are generally applied on a
reciprocal basis.
2. Exchange Rate Policies
France is a member of the European Monetary System and a
participant in the Exchange Rate Mechanism (ERM). The movement of the
franc is limited to a narrow band around its ERM central parity.
Central bank interventions are usually coordinated with those of other
governments, both within the ERM and as part of broader international
economic policy coordination efforts among industrialized countries,
including the United States.
French monetary, fiscal and exchange rate policy remains committed
to the objective of implementing Economic and Monetary Union (EMU) as
of January 1, 1999. The value of the franc depreciated by 12 percent
against the dollar between January and the end of September 1997.
3. Structural Policies
Over the past decade, the government has made considerable progress
reducing its role in the economy through fiscal reform and
privatization. The general government deficit as a share of GDP has
fallen from 6 percent in 1994 to an estimated 3.0 to 3.2 percent in
1997. The government has targeted a government deficit equivalent to
3.0 percent of GDP for 1998. Deficit reduction by the central
government and the social security system has been achieved both
through spending restraint and tax increases. Yet, government receipts
in France accounted for 50.4 percent of GDP in 1996 according to the
OECD. This was the highest rate in the G-7 and among the highest in the
industrialized world.
The privatization policy of France's new Socialist government (in
office since June 1997) is more restrained than that of its center-
right predecessor. Officials have said they will support partial sales
of state interests in publicly owned corporations when it is in the
public interest or necessary for the international competitiveness of
the company. Thus, the government has gone ahead in selling 23.2
percent of its 100 percent stake in France Telecom and said it will
allow the sale of a minority stake in Air France. It is also planning
to go ahead with the privatization of the insurance giant GAN and its
CIC banking group subsidiary. The government has also announced that it
plans to merge some of the activities of the government owned defense
electronics firm Thomson CSF with the privately owned Alcatel-Alsthom
group and aircraft manufacturer Dassault.
Progress on regulatory reform has varied by sector. Substantial
progress, for example, has been made in implementing the EU directive
on telecommunications liberalization; with the end to France Telecom's
monopoly on basic telephone services on January 1, 1998 and with a new
independent telecommunications regulatory authority (l'Autorite de
Regulation des Telecommunications--ART) beginning operation in 1997;.
There has also been some progress in implementing domestic civil
aviation deregulation in accordance with EU directives. The government
has, however, resisted calls for deregulation of the electricity and
postal sectors. Many observers see banking regulatory reform as a key
priority area for the French economy in which progress so far has been
slow. French-U.S. bilateral civil aviation relations have been based on
``comity and reciprocity'' since the 1992 renunciation of the bilateral
civil aviation agreement by France. Negotiations for an open-skies
agreement continue, but progress has been slow.
4. Debt Management Policies
The budget deficit is financed through the sale of government bonds
at weekly and monthly auctions. As a member of the G-10 group of
leading financial nations, France participates actively in the
International Monetary Fund, the World Bank, and the Paris Club. France
is a leading donor nation and is actively involved in development
issues, particularly with its former colonies in North and Sub-Saharan
Africa. France has also been a leading proponent of debt reduction and
relief for the highly indebted poor countries.
5. Significant Barriers to U.S. Exports
In general, France's trade policies are determined by European
Union agreements and practices. These policies include preferential
trade agreements with African, Caribbean, and Pacific countries under
the Lome Convention, and agreements with the Maghreb countries.
Although in most cases France follows import regulations as prescribed
by the Common Agricultural Policy and various EU directives, there are
a number of agricultural products for which France implements
unilateral restrictions (irrespective of EU policy) that affect U.S.
exports. For instance, French decrees and regulations currently
prohibit the import of the following agricultural products: poultry,
meat and egg products from countries (including the United States) that
use certain feed compounds; products made with enriched flour; and
exotic meats (e.g., ostrich, emu and alligator) unless authorized by
special derogation. Also, current regulations discriminate against
imports of bovine semen and embryos (from the United States) by
strictly controlling their marketing in France.
While the vast majority of bilateral trade occurs without
controversy, U.S. companies sometimes complain about France's complex
technical standards and unduly long testing procedures. Such procedures
must usually be done in France and test requirements and standards
sometimes appear to exceed reasonable requirements to ensure proper
performance and safety. Most of the complaints have involved
electronics, telecommunications equipment and agricultural
phytosanitary standards.
Since September 1996, the French government has banned imports of
U.S. pet food because of technical veterinary policy differences on
processing. This dispute, which has affected about $20 million in U.S.
exports, remains under negotiation.
France's implementation of the EU broadcast directive limits U.S.
and other non-EU audiovisual exports. France applies quotas mandating
local content. Nevertheless, U.S. products maintain a high market
share. U.S. movies, with almost 60% of the French box office, face no
government restrictions. The French government and industry are closely
watching the development of new broadcast technologies. Continuation
and growth of a strong French A/V sector is a government priority.
The 1992 restructuring of the French legal services system has
restricted the provision of legal services in France by U.S. and other
non-EU law firms and lawyers. The elimination of the ``legal
consultant'' category under which most American lawyers have practiced
in the past has created substantial problems. New-to-market U.S.
lawyers must currently pass the regular French bar exam, or an
alternate short-form exam for non French nationals, in order to
practice any type of law in France. Both exams require a strong command
of French and French law. These tests remain, however, subjective and
can be subject to the whim of a particular ``jury.''
As noted above, the French government actively courts foreign
investment and has progressively liberalized its investment approval
regime since the mid-1980s. With unemployment high, and government
officials well aware that U.S. companies can now gain access to the
entire EU market by investing in any EU country, attracting foreign
investment to France is a priority. Non-EU nationals may be denied
national treatment in the following sectors: agriculture, financial
services, accounting, legal services, air transport, maritime
transport, road transport, publishing, telecommunications, and tourism.
These restrictions are generally applied on a reciprocal basis. The
U.S. and European countries are currently working within the World
Trade Organization and OECD to eliminate many of these restrictions.
France offers a variety of financial incentives to foreign
investors and its investment promotion agency, DATAR, provides
extensive assistance to potential investors both in France and through
its agencies to the world. By book value, which underestimates its true
size, the United States is currently the largest investor in France,
with 20 percent of foreign investment.
France is a party to all WTO agreements, including the Agreement on
Government Procurement.
6. Export Subsidy Policy
France is a party to the OECD guidelines on the arrangement for
export credits, which includes provisions regarding the concessionality
of foreign aid. To match U.S. export promotion policies that it regards
as highly successful, the French government has begun examining ways to
promote exports more aggressively, particularly to the emerging markets
in East Asia and Latin America. These efforts include providing
information and other services to potential exporters, particularly
small and medium-sized enterprises.
There are virtually no direct French government subsidies to
agricultural production. Government support of agricultural production
comes mainly from the budget of the European Union under the Common
Agricultural Policy, whose subsidy reform has been blocked by the
French. The French government also offers indirect assistance to French
farmers in many forms, such as easy credit terms, start-up funds, and
retirement funds.
7. Protection of U.S. Intellectual Property
As a major innovator, France has a strong stake in defending
intellectual property rights worldwide. Under the French intellectual
property rights regime, industrial property is protected by patents and
trademarks, while literary/artistic property and software are protected
by the French civil law system of ``authors rights'' and ``neighboring
rights.'' France is a party to the Berne Convention on copyrights, the
Paris Convention on industrial property, the Universal Copyright
Convention, the Patent Cooperation Treaty, and the Madrid Convention on
trademarks. U.S. nationals are entitled to receive the same protection
of industrial property rights in France as French nationals. In
addition, U.S. nationals have a ``priority period'' after filing an
application for a U.S. patent during which to file a corresponding
application in France.
The differences between the U.S. and French IPR systems regarding
the work of performing artists and audiovisual productions can cause
difficulties for American artists and producers. For example, the levy
imposed on purchases of blank video tape to compensate rights holders'
losses due to private copying of audiovisual works, is in part supposed
to be redistributed to authors and producers. Because of the way
``producers'' are defined under French law, only part of the funds that
the United States believes should accrue to American entities have been
paid to them. American artists whose works are performed on French
radio and television also have not been paid royalties which French
collecting societies have received on their behalf. There are lawsuits
and multilateral negotiations in progress on these issues.
8. Worker Rights
a. The Right of Association.--The French constitution guarantees
the right of workers to form unions. Although union membership has
declined to ten percent of the workforce, the institutional role of
organized labor in France is far greater than its numerical strength.
The French government regularly consults labor leaders on economic and
social issues, and joint works councils play an important role even in
industries that are only marginally unionized.
b. The Right to Organize and Bargain Collectively.--The principle
of free collective bargaining was established after World War II, and
subsequent amendments to labor laws encourage collective bargaining at
national, regional, local and plant levels.
c. Prohibition of Forced or Compulsory Labor.--French law prohibits
anti union discrimination and forced or compulsory labor.
d. Minimum Age of Employment of Children.--With a few minor
exceptions for those enrolled in apprenticeship programs, children
under the age of 16 may not be employed in France.
e. Acceptable Conditions of Work.--The minimum wage is currently FF
37 per hour (about $6.43) and will be raised to FF 39 on January 1,
1998. The legal work week currently stands at 39 hours, but is
scheduled to be lowered to 35 hours with implementation beginning in
2000. In general terms, French labor legislation and practice
(including occupational safety and health standards) are fully
comparable to those in other industrialized market economies. France
has three small export processing zones, where regular French labor law
and wage scales apply.
f. Right in Sectors with U.S. Investment.--Labor law and practice
are uniform throughout all industries, including those sectors and
industries with significant U.S. investment.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 1103
Total Manufacturing........................... 16,600
Food & Kindred Products..................... 2036
Chemicals & Allied Products................. 5584
Metals, Primary & Fabricated................ 1645
Machinery, except Electrical................ 2845
Electric & Electronic Equipment............. 607
Transportation Equipment.................... 1138
Other Manufacturing......................... 2746
Wholesale Trade............................... 4141
Banking....................................... 739
Finance/Insurance/Real Estate................. 7392
Services...................................... 2939
Other Industries.............................. 1086
TOTAL ALL INDUSTRIES.......................... 34,000
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
GERMANY
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\ \5\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\ 2,413 2,355 2,108
GDP Growth (pct) \3\.................. 1.8 1.4 2.5
GDP By Sector (pct GDP):
Agriculture......................... 1.5 1.5 N/A
Manufacturing....................... 35.7 35.1 N/A
Services............................ 48.9 49.8 N/A
Government.......................... 13.8 13.6 N/A
Per Capita GDP ($).................... 29,572 28,729 25,780
Labor Force (000's)................... 34,871 34,460 34,050
Unemployment Rate (pct)............... 9.4 10.2 11.4
Money and Prices (annual percentage
growth):
Money Supply Growth (M2)................ -1.9 4.6 3.0
Consumer Price Inflation................ 1.8 1.5 1.8
Exchange Rate
(DM/US$-Annual Average)............. 1.43 1.50 1.73
Balance of Payments and Trade:
Total Exports FOB \4\................. 522.8 521.6 509.0
Exports to U.S.\4\.................. 38.1 40.0 N/A
Total Imports CIF \4\................. 463.3 456.0 434.0
Imports from U.S.\4\................ 31.6 32.6 N/A
Trade Balance \4\..................... 59.5 65.6 75.0
Balance with U.S.................... 6.5 7.4 N/A
Current Account Deficit/GDP (pct)..... 1.0 0.6 0.3
External Public Debt.................. 393.1 410.8 N/A
Fiscal Deficit/GDP (pct).............. -3.5 -3.5 -3.1
Debt Service Payments/GDP (pct)....... 3.8 3.7 3.7
Gold and Foreign Exchange Reserves.... 57.3 57.2 47.0
Aid from U.S.......................... N/A N/A N/A
Aid from all other Sources............ N/A N/A N/A
------------------------------------------------------------------------
\1\ 1997 Figures are all estimates based on available monthly data in
October 1997 and consensus forecasts.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in national currency.
\4\ Merchandise trade.
\5\ Decline in dollar-denominated GDP due to foreign exchange
fluctuations.
1. General Policy Framework
The German economy is the world's third largest, equivalent to just
over two trillion dollars (in nominal terms). Real GDP growth, which
reached 1.4 percent in 1996, is expected to continue to strengthen
through 1998. Most German public and private forecasters estimate
growth of around 2.5 percent for 1997 and a slightly higher growth rate
in 1998. This expansion is largely fueled by higher exports and, to a
lesser extent, by higher equipment investment. Consumer demand remained
sluggish in 1997 and the construction sector was a drag on the overall
economy.
The leading private economic institutes, in a report issued in late
October 1997, expect that for the first time since unification, growth
in western Germany in 1997 will be stronger than that in the east.
Unemployment remains high and, particularly in eastern Germany, the
number of jobless is growing. Many experts estimate that German
unemployment will set post-war records during the first quarter of
1998, largely due to the continued sharp deterioration in the east.
Even moderate growth of 2.5 percent a year or more, is unlikely to
significantly reduce unemployment.
The German ``social market'' economy is organized on free market
principles and affords its citizenry a secure social safety net
characterized by generous unemployment, health, educational and basic
welfare benefits. In the 1990s, German fiscal policy has also been
driven by the financial exigencies of the country's reunification. The
country's generous social welfare system was extended as a whole to
eastern Germany, and the government further committed itself to trying
to quickly raise eastern German production potential via public
investment and generous subsidies to attract private investment.
However, overall unit labor costs in eastern Germany are still quite
high as productivity growth has lagged behind wage increases. This has
resulted in heavy job losses and greatly increased Germany's
unemployment compensation costs. As a result, western Germany continues
to transfer substantial sums to eastern Germany (more than DM 140
billion annually, or almost five percent of German GDP). These
transfers have accounted for the dramatic ballooning of public sector
deficits and borrowing since 1990. In addition, high marginal tax rates
along with generous allowances and loopholes have combined to increase
incentives to utilize legal and other means of tax avoidance.
This trend, along with declining employment, has led to a serious
erosion of income and value added tax revenues. Total tax revenues in
1997 may actually be lower than the DM 800 billion collected in 1996.
While revenues have stagnated, unemployment and unification-related
spending have pushed the expenditure side. In 1997 the government has
twice resorted to freezes on discretionary expenditure, and is working
hard to meet the Maastricht fiscal deficit criteria for European
Monetary Union of three percent of GDP. Although government and other
estimates indicate the deficit may fall to 2.5 percent in 1998, the
above-mentioned problems (and perhaps even higher levels of
unemployment) will make it difficult to further reduce the deficit in
the short run.
In the early part of the current decade, relatively high rates of
inflation (the consumer price index rose an average 4.8 percent in 1992
and 1993) and money growth, upward pressure on wages, and fiscal
deficits preoccupied the German central bank (Bundesbank). The
Bundesbank places overriding importance on price stability and thus
responded to the rising inflation in 1991/92 by hiking short-term
interest rates, which peaked in July 1992 at post-war highs. Since
then, the central bank discount rate has declined by 6.25 percentage
points, with the most recent cut, to a historic low of 2.5 percent,
occurring in April 1996. While wage settlements in 1997 have been
moderate, import price pressure due to a depreciation of the DM pushed
inflation to above 2.0 percent during 1997 although inflation has since
moderated somewhat.
The growth of M3, a carefully watched indicator, has recently
fallen, staying within the Bundesbank's target range for the fourth
month in a row. The government's public sector deficits are financed
primarily through sales of government bonds, the maximum maturity of
which normally is ten years, although 30 year bonds are occasionally
sold. The Bundesbank's primary monetary policy tool is short-term
liquidity provided to the banking system via repurchasing operations,
at a ``repurchasing'' rate which the Bundesbank largely determines. To
preempt inflationary pressures the Bundesbank raised this rate by 30
basis points in October 1997 to 3.30 percent.
2. Exchange Rate Policies
The Deutsche Mark is a freely convertible currency, and the
government does not maintain exchange controls. Germany participates in
the exchange rate mechanism of the European Monetary System and has
stated its firm intention to be one of the initial members of the
European Monetary Union. The Bundesbank intervenes in the foreign
exchange markets infrequently, usually in cooperation with other
central banks in order to counter disorderly market conditions.
3. Structural Policies
Since the end of the second World War, German economic policy has
been based on a ``social-market'' model which is characterized by a
substantially higher level of direct government participation in the
production and services sector than in the United States. In addition,
an extensive regulatory framework, which covers most facets of retail
trade, service licensing and employment conditions, has worked to limit
market entry by not only foreign firms but also German entrepreneurs.
Although the continuation of the ``social market'' model remains
the goal of all mainstream political parties, changes resulting from
the integration of the German economy with those of its European Union
partners, the shock of German unification, pressure from globalization
on its traditional manufacturing industries, and record high
unemployment have forced a rethinking of the German post-war economic
consensus in the so-called ``Standort Deutschland'' debate (Germany as
a location for business and investment). The government has declared a
roll back of the State's role in the economy to pre-unification levels
to be a principal objective of economic policy and is looking at other
ways to restructure the economy and reduce the overall tax burden.
Several structural impediments to the continued growth an
diversification of the German economy have been identified. These can
be broadly grouped as follows:
(1) a rigid labor market;
(2) a regulatory system that discourages new entrants;
(3) high marginal tax rates and high social charges; and
(4) inadequate access to risk and venture capital for start-up
firms.
In recognition of the above problems, the German Government has
been pursuing a program of tax reform, privatization, and deregulation
since the mid-1980s. The governing coalition's 1997 proposal for major
reform of income taxation was rejected by the opposition-controlled
upper house. As a result, top marginal personal income tax rates remain
at 53 percent of income and the threshold marginal income personal tax
rate at 26 percent. Business tax rates also remain high. However, due
to loopholes and generous allowances, effective business and personal
tax rates are substantially below marginal rates and the tax base has
eroded. Tax reform is expected to be an important issue in the fall
1998 elections.
In recent years, the government has carried out a reorganization of
the German Federal Railroad and completed transforming the operating
entities of the German Federal Post into stock companies. In
conjunction with the liberalization of the telecommunications sector,
the government-owned Deutsche Telekom was substantially privatized in
what was one of the largest stock offerings in history. The revenue is
being put back into Telekom. The German Government has fulfilled its
commitment to open the telecommunications network monopoly to
competition as of January 1, 1998, the date when its nes Post and
Telecommunications Regulatory Authority began operation. The federal
government also has sold its remaining stake in the national airline,
Lufthansa.
Despite the progress in recent years, lack of competition remains a
problem in many protected sectors, which drives up business costs in
Germany. Services which continue to be subject to excessive regulation
and market access restrictions include communications, energy, banking
and insurance. The government intends to review existing legislation
which limits price competition between firms, as well as laws which
reduce competition in the insurance, transport and telecommunication
sectors. Despite opposition from small shop owners, on November 1, 1996
legislation was implemented permitting stores to stay open longer on
week nights and Saturdays, thereby mitigating a long-standing example
of over regulation in the German economy. While retail revenues remain
flat, the majority of consumers have lauded the expanded hours.
Paralleling German Government efforts to deregulate the economy, the
European Union is expected to continue to pressure its member states to
reduce barriers to trade in services within the Community. U.S. firms,
especially those with operations located in several European Union
member states, should benefit from such market integration efforts over
the long term.
4. Debt Management Policies
Germany has recorded persistent current account deficits since 1991
due to a dramatic drop in the country's traditionally strong trade
surplus, related in part, to strong eastern German demand. These
deficits are fairly small, however, in relation to GDP. With demand in
eastern Germany slowing and exports strengthening, the trade surplus
has increased steadily, reaching the high pre-unification level of some
$75 billion in 1997. The strong deterioration of the services balance
in recent years, caused principally by German tourism expenditures
abroad, has also contributed to the persistent current account
deficits. The factor income balance has also worsened in recent years
due to government interest payments to foreigners holding increasing
stocks of German debt. Nonetheless, due to large current account
surpluses from the 1970's until the current decade, Germany remains the
world's second-largest creditor, with net foreign assets estimated at
roughly $150 billion by mid-1997.
5. Significant Barriers to U.S. Exports
Germany is the United States' sixth-largest export market and its
fifth-largest source of imports. During the first eight months of 1997,
U.S. exports to Germany totaled $15.5 billion (FOB basis), while U.S.
imports from Germany reached $25.6 billion (FOB basis). Other than
E.U.-imposed restrictions, there are few formal barriers to U.S. trade
and investment in Germany. However, ingrained consumer behavior and the
intense competition prevailing in German product and services markets
often makes gaining market share a difficult challenge, especially for
new-to-market companies. Nevertheless, the Federal Republic of Germany
is, on the whole, an excellent place for U.S. companies to do business.
Import licenses: Germany has abolished almost all national import
quotas. The country enforces, however, import license requirements
placed on some products by the European Union, such as the tariff quota
on Latin American bananas imposed by the EU's banana import regime. As
a result of this discriminatory marketing arrangement, U.S. fruit
trading companies have lost market share in Germany. Recent rulings by
the World Trade Organization's dispute resolution panel and the WTO
Appeals body, (finding the EU banana regime to violate both the General
Agreement on Trade in Services and the General Agreement on Trade in
Goods), will require EU members (including Germany) to reform this
trading regime.
Service Barriers: Foreign access to Germany's insurance market is
still limited to some degree. All telecommunications services will be
fully open to competition beginning in January 1998, when the EU's
telecommunications market liberalization comes into effect.
Liberalization is expected to open up opportunities for U.S.
telecommunications service providers. Germany has no foreign ownership
restrictions on telecommunications services.
Standards, Testing, Labeling, and Certification: Germany's
regulations and bureaucratic procedures are complex and can prove to be
a hurdle for U.S. exporters unfamiliar with the local environment.
Overly complex government regulations offer--intentionally or not--
local producers a degree of protection. Health and safety standards,
for example, when overzealously applied, can unnecessarily complicate
market access for many U.S. products (e.g., genetically modified
organisms).
Government Procurement Practices: German procurement procedures
generally appear to comply with WTO Procurement Agreement (to which the
E.U. is a signatory), and the United States-Germany Treaty of
Friendship, Commerce, and Navigation. Germany has strict domestic anti-
corruption and anti-bribery laws, and is considered one of the least
corruption countries of the 33 countries which signed the OECD Anti-
bribery Convention in December 1997.
However, U.S. equipment makers have continued to express
frustration about market access barriers in German power generation
market, despite this formal agreement and there have been problems with
some aspects of Germany's bid challenge system. As a result, in July
1996, Germany was formally identified under Title VII of the 1988 Trade
Act for discriminating against U.S. electrical equipment firms. The
case was put on hold in the fall of 1996, following the German
cabinet's approval of a proposal to reform German procurement law. A
draft procurement reform bill which substantially addresses U.S.
concerns was submitted to the upper Chamber of the parliament
(Bundesrat) in September 1997, and is expected to be promulgated in the
spring of 1998.
Investment Barriers: The German Government and industry actively
encourage foreign investment in Germany. Foreign companies with
investment complaints in Germany generally list the same investment
problems as domestic firms: high tax rates, expensive labor costs, and
burdensome regulatory requirements.
Customs Procedures: Administrative procedures at German ports of
entry do not constitute a problem for U.S. suppliers.
6. Export Subsidies Policy
Germany does not directly subsidizes exports outside the European
Union's framework for export subsidies for agricultural goods.
Governmental or quasi-governmental entities do provide export
financing, but Germany subscribes to the OECD guidelines that restrict
the terms and conditions of export finance.
7. Protection of Intellectual Property
Intellectual property is generally well protected in Germany.
Germany is a member or the World Intellectual Property Organization; a
party to the Bern Convention for the Protection of Artistic and
Literary Works, the Paris Convention for the Protection of Industrial
Property, the Universal Copyright Convention, the Geneva Phonograms
Convention, the Patent Cooperation Treaty, the Brussels Satellite
Convention, and the Treaty of Rome on Neighboring Rights. U.S. citizens
and firms are entitled to national treatment in Germany, with certain
exceptions. Despite Germany's implementation of its commitment under
the intellectual property rights portions (TRIPS) of the Uruguay round,
some U.S. firms continue to have concerns about the level of software
piracy in Germany. Germany's 1993 implementation of the EU's Software
Copyright Directive, as well as an educational campaign by the software
industry have helped improve Germany's performance in this area.
8. Worker Rights
a. The Right of Association.--Article IX of the German Constitution
guarantees full freedom of association. Workers' rights to strike and
employers' rights to lock-out are also legally protected.
b. The Right to Organize and Bargain Collectively.--The
Constitution provides for the right to organize and bargain
collectively, and this right is widely exercised. Due to a well-
developed system of autonomous contract negotiations, mediation is
uncommon. Basic wages and working conditions are negotiated at the
industry level and then are adapted, through local collective
bargaining, to particular enterprises. Nonetheless, some firms in
Eastern Germany have refused to join employer associations, or have
withdrawn from them, and then bargained independently with workers. In
other cases, associations are turning a ``blind eye'' to firm-level
negotiations. Likewise, some large firms in the west withdrew at least
part of their workforce from the jurisdiction of the employers
association, complaining of rigidities in the centralized negotiating
system. They have not, however, refused to bargain as individual
enterprises. The law mandates a system of work councils and worker
membership on supervisory boards, and thus workers participate in the
management of the enterprises in which they work. The law thoroughly
protects workers against anti-union discrimination.
c. Prohibition of Forced or Compulsory Labor.--The German
constitution guarantees every German the right to choose his own
occupation and prohibits forced labor, although some prisoners are
required to work.
d. Minimum Age for Employment of Children.--German legislation in
general bars child labor under age 15. There are exemptions for
children employed in family farms, delivering newspapers or magazines,
or involved in theater or sporting events.
e. Acceptable Conditions of Work.--There is no legislated or
administratively determined minimum wage. Wages and salaries are set
either by collective bargaining agreements between industrial unions
and employer federations, or by individual contracts. Covering about 90
percent of all wage and salary earners, these agreements set minimum
pay rates and are legally enforceable. These minimums provide an
adequate standard of living for workers and their families.
f. Rights in Sectors with U.S. Investment.--The enforcement of
German labor and social legislation is strict, and applies to all firms
and activities, including those in which U.S. capital is invested.
Employers are required to contribute to the various mandatory social
insurance programs and belong to and support chambers of industry and
commerce which organize the dual (school/work) system of vocational
education.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 22,741
Food & Kindred Products................... 2460
Chemicals & Allied Products............... 4815
Metals, Primary & Fabricated.............. 1476
Machinery, except Electrical.............. 4163
Electric & Electronic Equipment........... 1492
Transportation Equipment.................. 5501
Other Manufacturing....................... 2855
Wholesale Trade............................... 2886
Banking....................................... 1395
Finance/Insurance/Real Estate................. 11,597
Services...................................... \1\
Other Industries.............................. 2261
TOTAL ALL INDUSTRIES.......................... 44,259
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
GREECE
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\........................ 100,595 103,834 103,618
Real GDP growth (pct) \3\.............. 2.0 2.6 3.5
GDP by Sector:
Agriculture.......................... 9,820 9,658 8,876
Manufacturing........................ 22,334 24,374 23,465
Services............................. 71,897 77,898 82,378
-of which
Government........................... 13,174 13,576 13,509
Per Capita GDP (Dollars)............... 10,910 11,668 11,243
Labor Force (000s)..................... 4,249 4,327 4,381
Unemployment Rate (pct)................ 10.0 10.4 10.1
Money and Prices (annual percentage
growth):
Money Supply Growth (M3 Dec)........... 10.3 9. 8.5
Consumer Price Inflation............... 8.8 8.3 5.7
Exchange Rate (DRS/US$-annual average)
Official............................. 231.7 240.7 275.0
Balance of Payments and Trade:
Total Exports FOB \4\A................. 9,990 11,300 12,000
\4\B................................. 5,783 5,770 6,000
Exports to U.S.\4\C.................. 397 506 N/A
Total Imports CIF\4\A.................. 22,325 27,222 28,000
\4\B................................. 22,929 24,135 24,500
Imports from U.S.\4\C................ 1,519 825 N/A
Trade Balance\4\A...................... -12,425 -15,922 -16,000
\4\B................................. -17,146 -18,365 -18,500
Balance with U.S..................... -1,121 -319 N/A
External public debt................... 30,589 30,700 31,000
Fiscal Deficit/GDP (General Government)
(pct) 7.6 4.2 2.4
Current Account
Deficit/GDP (pct).................... 2.5 3.7 4.0
Debt Service (Public Sector) Payments/
GDP (pct)............................. 5.2 5.5 6.9
Gold and Foreign Exchange Reserves..... 15,376 19,177 15,000
Aid from U.S........................... N/A N/A N/A
Aid from all Other Sources............. N/A N/A N/A
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available monthly data in
October 1997.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\A Merchandise Trade; National Statistical Service of Greece; Customs
Data.
\4\B Trade; Bank of Greece data; on a settlement basis. The Bank of
Greece data, especially those on exports underestimate true trade
figures since exporters are no longer obliged to deposit their export
receipts in Greece. The Bank of Greece is preparing a new set of
accounts (to be ready in 1997) to be in line with other EU central
banks.
\4\C Merchandise Trade; U.S. Department of Commerce.
1. General Policy Framework
Greece has been a member of the European Union (EU) since 1981. Its
market economy is segmented into the state sector (estimated at 40
percent of GDP) and the private sector (60 percent of GDP). It has a
population of 10.6 million and a work force of about 4 million. Some of
Greece's economic activity remains unrecorded. (Estimates of how much
of the economy remains unrecorded vary, due, at least in part, to
deficient data collection). The moderate level of development of
Greece's basic infrastructure--road, rail, telecommunications--reflects
its middle-income status. Per capita GDP is 11,243 dollars, the lowest
in the EU.
Services make up the largest and fastest growing sector of the
Greek economy, accounting for about 71 percent of GDP (including
government services). Tourism, shipping, trade, banking,
transportation, communications, and construction are the largest
service sub-sectors. Greece is an import-dependent country, importing
more than it exports. In 1996, Greece had a trade deficit of 15.9
billion dollars based on total trade of 38.5 billion dollars. A
relatively small industrial base and lack of adequate investment in the
last 15 years have restricted the export potential of the country. Over
Valuation of the currency as a result of the anti-inflationary ``hard
drachma'' policy, coupled with low public sector productivity,
continues to erode the competitiveness of a large part of the Greek
economy. Greece exports primarily light manufactured and agricultural
products, and imports more sophisticated manufactured goods. Tourism
receipts, emigrant remittances, shipping receipts, and transfers from
the EU form the core of invisibles earnings. Substantial funds from the
EU (about 20 billion dollars) are allocated for major infrastructure
projects (road and rail networks, ports, airports, telecommunications
etc.) being built over the period 1994-99. However, the Greek
government has been slow in utilizing these funds. According to the
Greek government, about 40 percent of the funds allocated under the
1994-99 Delors II package have been utilized to date.
The government is in its fourth year of an austerity program
designed to meet the Maastricht Treaty's convergence criteria for the
European Monetary Union (EMU) and has announced that this policy
(convergence) will continue in 1998. The results of the austerity
program on the economy have been positive. By September 1997, inflation
has fallen to 4.9 percent, the lowest rate since 1965. Investment and
consumer confidence remain strong and the growth of GDP in 1997 is
projected to be around 3.5 percent, up from 2.6 percent in 1996.
Unemployment, which stood at 10.4 percent in 1996 is projected to drop
slightly to 10.1 percent in 1997. The chronic government budget deficit
has also been reduced (4.2 percent for 1997) thanks mainly to higher
taxes, a crack down on rampant tax evasion and lower interest payments
on government debt. However, real progress in reducing public
expenditures has been limited due to fierce opposition to structural
reforms by labor unions, professional associations, politicians, and
the media.
Greece's huge government debt (111.8 percent of GDP or 133.9
billion U.S. Dollars in 1996) stems to a great extent from government
acquisition of failing enterprises and a bloated public sector. The
government employs directly about 15 percent of the total labor force.
Greece's social security program has also been a major drain on public
spending. Deficits are financed primarily through issuance of
government securities.
Monetary policy is implemented by the Bank of Greece (the central
bank). The Bank uses the discount and other interest rates in its
transactions with commercial banks as tools to control the money
supply. The State continues to retain privileged access to credit via
the still low-taxed status accorded to government debt obligations
(which includes the right of Greek residents to purchase government
debt obligations without having to declare their source of income to
the tax authorities). Treasury bills and state bonds are issued by the
Ministry of Finance but they are expected to comply with the monetary
targets set by the Bank of Greece.
2. Exchange Rate Policy
Foreign exchange controls have been progressively relaxed since
1985. Medium and long-term capital movements have been fully
liberalized. Most restrictions on short-term capital movements were
lifted in 1994. Remaining restrictions on short-term capital movements
were lifted on August 1, 1997, although some controls still exist to
facilitate enforcement of money laundering laws and tax collection.
Greece's foreign exchange market is now in line with EU rules on free
movement of capital.
Despite recent exchange-rate liberalization, Greece retains a
``crawling-peg'' system for fixing the value of the drachma. Informal
mechanisms are also available to the Bank of Greece to help determine
the currency's value. In order to combat the high rate of inflation
(which, at triple the EU average is well above that of Greece's
principal trading partners), the Bank of Greece has kept the drachma
virtually pegged to the ECU. This has had an adverse impact on the
country's export potential. There has been pressure from domestic
industry for depreciation of the drachma, but the government has so far
resisted this out of concern over inflation. The drachma depreciated
only by one percent against the ECU in 1996. The 1994-99 economic
convergence program provides for no change of the drachma parity
against the ECU from 1997 onwards.
3. Structural Policies
Greece's structural policies are largely dictated by the need to
comply with the provisions of the EU Single Market and the Maastricht
Treaty on Economic and Monetary Union. The 1994-99 Convergence Program,
designed to enable Greece to comply with the Maastricht Treaty
criteria, set targets that should encourage significant structural
reforms, including privatizations. Progress in this area, however, has
been very limited. After privatizing a few small banks and shipyards,
the government raised capital for the telephone monopoly OTE through an
April 1996 public flotation of new shares. A subsequent sale of
existing shares in June 1997 reduced the government holding to 80
percent of OTE. As part of its 1998 fiscal policy, the government has
decided to proceed with the sale of minority stakes in several state
owned organizations (Public Power Corporation, Duty Free Shops, Olympic
Airways Catering); two small banks; assets (hotels) of the National
Tourist Organization; and a few remaining industries currently under
the supervision of the state Industrial Reconstruction Organization
(IRO). It is unclear whether these ``privatizations'' will change the
companies' management practices and commercial viability.
Pricing Policies. The only remaining price controls are on
pharmaceuticals. The last change in pharmaceutical prices in October
1997 inhibited imports of some U.S. pharmaceuticals. The Greek
government can also set maximum prices for fuel and private school
tuition fees, and has done so several times in the last two years.
About one quarter of the goods and services included in the
consumer price index (CPI) are produced by state-controlled companies.
As a result, the government retains considerable indirect control over
pricing. While this distorts resource allocations in the domestic
economy, it does not directly inhibit U.S. imports (with the exception
of pharmaceuticals).
Tax policies. Tax legislation passed in January 1997:
--abolished the majority of income tax exemptions or deductions,
including the ability of multinational firms to deduct more
than token royalty and home office expenses without seeking
a waiver from a special interministerial committee;
--imposed taxation on all categories of bank deposits which had
been exempted from the 15 percent tax withholding;
--imposed a 7.5 percent tax rate on all government securities
issued or renewed as of 1/1/97;
--increased tax rates on ships under the Greek flag;
--introduced taxation on real property holdings, including those of
non-profit organizations;
--raised the tax rate on profits of all banks to 40 percent. (This
benefited branches of foreign banks which for the previous
two years had been taxed at 40 percent while Greek banks
were taxed at a 35 percent rate.)
Higher corporate and personal property taxes are planned for 1998.
There are plans to index rates at least for lower income brackets to
compensate for inflation.
4. Debt Management Policies
Greece's ``General Government Debt'' (Maastricht definition) was
133.9 billion dollars, or 111.8 percent of GDP (market prices) in 1996
(end year). Foreign exchange reserves fluctuated in the first half of
1997 between 16.3 and 20.5 billion dollars or 8 to 10 months of
imports.
Servicing of external debt (public sector) in 1997 (interest and
amortization) is estimated to equal 59.6 percent of exports and 6.9
percent of GDP. About 65 percent of the external debt is denominated in
currencies other than the dollar. Foreign debt does not affect Greece's
ability to import U.S. goods and services.
Greece has regularly serviced its debts and has generally good
relations with commercial banks and international financial
institutions. Greece is not a recipient of World Bank loans or
International Monetary Fund programs. In 1985, and again in 1991,
Greece received a balance of payments loan from the EU.
5. Significant Barriers to U.S. Exports
Greece has both EU-mandated and Greek government-initiated trade
barriers. Greece maintains specific barriers in services such as law,
aviation, and motion pictures:
--Greece maintains nationality restrictions on a number of
professional and business services, including legal advice.
Restrictions on legal advice do not apply to EU citizens,
and U.S. companies can generally circumvent these barriers
by employing EU citizens.
--The Greek flag air carrier, Olympic Airways, has a monopoly in
providing ground handling services to other airlines, who
must either contract from Olympic or self-handle. As of
January 1, 1998, airlines will be able to choose between
two ground handling agents, one of which will be Olympic.
This is part of an EU-directed liberalization of ground
handling.
--Greece insists on testing U.S. wheat shipments for karnal bunt
disease; it will not accept U.S.D.A. certificates stating
that wheat comes from areas free from the disease. The
testing method used provides a high incidence of false
positive results. After one shipment was rejected late in
1996, Greek importers have been unwilling to risk importing
from the U.S.
--Greece has not been responsive to applications for introduction
of bioengineered (genetically modified) seeds for field
tests despite support for such tests by Greek farmers.
--Greek film production is subsidized by a 12 percent admissions
tax on all motion pictures. Moreover, enforcement of Greek
laws protecting intellectual property rights for film,
software, music, and books is problematic (see below).
Investment barriers:
Both local content and export performance are elements which are
seriously taken into consideration by Greek authorities in evaluating
applications for tax and investment incentives. However, they are not
legally mandatory prerequisites for approving investments. New
investment incentive legislation is under preparation.
Greece restricts foreign and domestic private investment in public
utilities. Private power production for sale to the national grid is
limited to ``nontraditional'' energy sources (e.g. wind and solar).
U.S. and other non-EU investors receive less advantageous treatment
than domestic or other EU investors in the banking, mining, maritime,
and air transport sectors, and in broadcasting. There are also
restrictions for non-EU investors on land purchases in border regions
and certain islands (on national security grounds).
Greek laws and regulations concerning government procurement
nominally guarantee nondiscriminatory treatment for foreign suppliers.
Officially, Greece also adheres to EU procurement policy, and Greece
has adhered to the GATT Government Procurement Code since 1992.
Nevertheless, many of the following problems still exist: occasional
sole-sourcing (explained as extensions of previous contracts); loosely
written specifications which are subject to varying interpretations;
and allegiance of tender evaluators to technologies offered by
longtime, traditional suppliers. Firms from other EU member states have
had a better track record than U.S. firms in winning Greek government
tenders. It has been noted that U.S. companies submitting joint
proposals with European companies are more likely to succeed in winning
a contract. The real impact of Greece's ``buy national'' policy is felt
in the government's offset policy (mostly for purchases of defense
items) where local content, joint ventures, and other technology
transfers are required.
In December 1996, the Greek Parliament passed legislation (Law
2446, article 16) which allows public utilities in the energy, water,
transport, and telecommunications sectors to sign ``term agreements''
with local industry for procurement. ``Term agreements'' are contracts
in which Greek suppliers are given significant preference. The reason
for the signing of these agreements is to support the national
manufacturing base. This was made possible as a result of Greece's
receipt of an extension until January 1, 1998, to implement the EU's
Utilities Directive 93/38.
6. Export Subsidies Policies
The Greek Government does not use any form of national subsidies to
support exports. Some agricultural products (most notably cotton, olive
oil, tobacco, cereals, canned peaches, and certain other fruits and
vegetables) receive production subsidies from the EU which enhance
their export competitiveness.
7. Protection of U.S. Intellectual Property
Greek laws extend protection of intellectual property rights to
both foreign and Greek nationals. Greece is a party to the Paris
Convention for the Protection of Industrial Property, the European
Patent Organization, the World Intellectual Property Organization, the
Washington Patent Cooperation Treaty, and the Bern Copyright
Convention. As a member of the EU, Greece is in the process of
harmonizing its legislation with EU rules and regulations. The WTO-
TRIPS agreement was incorporated into Greek legislation as of February
28, 1995 (Law 2290/95).
Despite Greece's legal framework for and voiced commitment to
copyright protection, piracy of copyrighted material remains
widespread. Greece took an important step toward addressing this
problem by enacting a new copyright law in February 1993 (Law 2121/93),
which offers a high standard of protection for all copyrighted works.
Furthermore, Law 2328/95 (voted in the summer of 1995 and effective as
of August 3, 1995) establishes a new systematic legal framework for the
radio-television market, whose archaic development following
termination of the state monopoly in 1989 encouraged piracy of
copyrighted films and TV shows.
Inability of rights holders to obtain effective action against TV
stations pirating copyrighted works resulted in Greece being elevated
in December 1994 to the USTR's ``Priority Watch List'' under the
``Special 301'' provision of the 1988 Trade Act. Just prior to an out-
of-cycle review in December 1996, the Greek government presented an
``Action Plan'' of specific steps it promised to take by April 1997 to
enforce its 1995 media law to end piracy of copyrighted audio-visual
products and to protect copyrighted software. The Greek government,
however, has been slow in implementing the ``Action Plan,'' and the
level of copyright piracy remained the same. In April 1997, the USTR
gave Greece until July 1997 to reduce piracy or face a challenge in the
World Trade Organization for failure to enforce its commitments under
the TRIPS Agreement. Discussions with Greek officials continue in view
of recent government steps to license television stations and control
piracy at the local level.
Although Greek trademark legislation is fully harmonized with that
of the EU, another intellectual property protection problem is the lack
of effective protection of trademarks, particularly in the apparel
sector.
Intellectual property appears to be adequately protected in the
field of patents. Patents are available for all areas of technology.
Compulsory licensing is not used. Patents and trade secrets are
protected by law for a period of twenty years. There is a potential
problem concerning the protection of test data relating to non-patented
products. Violations of trade secrets and semiconductor chip layout
design are not problems in Greece.
8. Worker Rights
The Greek economy is characterized by significant labor-market
rigidities. Greek labor law prohibits laying off more than two percent
per month of total personnel employed by a firm. This restricts the
flexibility of firms and the mobility of Greek labor and contributes to
unemployment.
a. The Right of Association.--Approximately 30 percent of Greek
workers are organized in unions, most of which tend to be highly
politicized. While unions show support for certain political parties,
particularly on issues of direct concern to them, they are not
controlled by political parties or the government in their day-to-day
operations. The courts have the power to declare strikes illegal,
although such decisions are seldom enforced. Employers are not
permitted to lock out workers, or to replace striking workers (public
sector employees under civil mobilization may be replaced on a
temporary basis).
b. The Right to Organize and Bargain Collectively.--The right to
organize and bargain collectively was guaranteed in legislation passed
in 1955 and amended in February 1990 to provide for mediation and
reconciliation services prior to compulsory arbitration. Anti-union
discrimination is prohibited, and complaints of discrimination against
union members or organizers may be referred to the Labor Inspectorate
or to the courts. However, litigation is lengthy and expensive, and
penalties are seldom severe. There are no restrictions on collective
bargaining for private workers. Social security benefits are legislated
by parliament and are not won through bargaining. Although civil
servants have no formal system of collective bargaining, they negotiate
their demands with the Ministry for Public Administration.
c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory
labor is strictly prohibited by the Greek constitution and is not
practiced. However, the government may declare ``civil mobilization''
of workers in case of danger to national security or to social and
economic life of the country.
d. Minimum Age of Employment of Children.--The minimum age for work
in industry is 15, with higher limits for certain activities.
e. Acceptable Conditions of Work.--Minimum standards of
occupational health and safety are provided for by legislation.
Although the Greek General Confederation of Labor (GSEE) has
characterized health and safety legislation as satisfactory, it has
also charged that enforcement of the legislation is inadequate, citing
statistics indicating a relatively high number of job-related accidents
in Greece. Inadequate inspection, outdated industrial plants and
equipment, and poor safety training of employees contribute to the
accident rate.
f. Rights in Sectors with U.S. Investment.--Although labor/
management relations and overall working conditions within foreign
business enterprises may be among the most progressive in Greece,
worker rights do not vary according to the nationality of the company
or the sector of the economy.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 145
Food & Kindred Products..................... \1\
Chemicals & Allied Products................. 78
Metals, Primary & Fabricated................ 0
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. \1\
Transportation Equipment.................... 0
Other Manufacturing......................... 33
Wholesale Trade............................... 83
Banking....................................... 89
Finance/Insurance/Real Estate................. 66
Services...................................... 61
Other Industries.............................. \1\
TOTAL ALL INDUSTRIES.......................... 506
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
HUNGARY
Key Economic Indicators \1\
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP................................. 44.3 43.9 \2\ 43.5
Real GDP growth (pct)....................... 1.5 1.0 3.5
GDP by Sector:\3\
Agriculture............................... 2.8 3.0 3.1
Manufacturing............................. 8.8 9.2 9.4
Construction.............................. 2.0 2.0 2.0
Services.................................. 24.0 23.6 23.1
Government................................ 7.5 6.9 6.6
Per Capita GDP (US$)........................ 4,273 4,351 4,290
Labor Force (000s).......................... 6,252 6,215 6,200
Unemployment Rate (pct)..................... 11.1 10.8 8.6
Money and Prices (annual percentage growth):
Money Supply Growth......................... 18.4 20.9 \4\ 20.4
Avg. Consumer Price Inflation............... 28.2 23.6 18.0
Official Exchange Rate...................... 125.7 152.6 188
(HUF/US$ - annual average)
Balance of Payments and Trade Total Exports
FOB........................................ 12.9 15.7 17.3
Exports to U.S. (US$ mlns) \5\............ 547 653 1,009
Total Imports CIF........................... 15.5 18.1 19.9
Imports from U.S. (US$ mlns) \5\.......... 295 331 465
Trade Balance............................... -2.3 -2.4 -2.6
Balance with U.S. (US$ mlns) \5\.......... 252 322 543
Current Account Deficit/GDP (pct)........... 5.3 4.0 3.7
Net External Public Debt.................... 11.0 9.5 5.0
Debt Service Payments/GDP (pct)............. 17.3 21 10-11
Fiscal Deficit/GDP (pct).................... 6.7 3.2 \6\ 4.9
Gold and Foreign Exchange Reserves.......... 12.0 9.8 \7\ 8.2
Aid from U.S. (US$ mlns).................... 27.2 17.0 15.0
Aid from All Other Sources.................. N/A N/A N/A
------------------------------------------------------------------------
\1\ Source: Ministry of Finance and National Bank, except where
otherwise noted. 1997 projected figures based on data available
through October 1997
\2\ Apparent decrease is due to the ongoing Hungarian forint devaluation
against the U.S. dollar
\3\ GDP by sectors is higher than total GDP due to double counting
\4\ January-June 1997
\5\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
FAS, imports customs basis; 1997 figures projected based on trade
through August
\6\ Increase in 1997 due solely to changed methodology for interest
payments
\7\ July 1997
1. General Policy Framework
Starting in the late 1960s, Hungary's former communist regime began
economic reforms along capitalist lines that continued until the end of
communism in 1989. Some academics estimate that Hungary was one-third
of the way to capitalism in 1989. The first democratic government
(1990-94) began significant economic reform, particularly in trade and
foreign investment, but did not complete social welfare and external
debt rationalization. An austerity program implemented by the new
government in 1995 in the face of rising fiscal and current account
deficits brought economic stabilization. Concurrent and subsequent
economic restructuring should provide for sustainable growth in the
medium term. The current government has accelerated the pace of
economic reform, particularly in privatization. Hungary leads Central
Europe in relative and absolute inflows of foreign direct investment,
with at least $16 billion since 1989. In 1997, Hungary continued to
enjoy solid increases in industrial output, exports, and overall
output, while continuing to reduce inflation.
The revised Foreign Exchange Law, effective January 1, 1996, made
the Hungarian forint essentially convertible for current account
transactions. The government's stabilization and restructuring package
introduced in March 1995 has led to lower fiscal and current account
deficits. The government has also significantly lowered government
expenditures as a percentage of GDP. A signatory to the Uruguay Round
Agreement and a founding member of the World Trade Organization,
Hungary joined the Organization for Economic Cooperation and
Development (OECD) in May 1996 and, as a part of that process, is
further liberalizing capital account transactions. Hungary seeks to
harmonize its laws and regulations with European Union standards by
1999 and hopes to join the EU as early as 2002.
A new Law on Privatization, passed in May 1995, improved
transparency and initiated a simplified process. Privatization has
progressed dramatically since late 1995, particularly in the energy,
telecommunication, and banking sectors. Currently about 80 percent of
the country's GDP is derived from the private sector. The government
hopes to complete the privatization process by 1998, by which time the
private sector should account for about 85 percent of GDP.
Hungary's per capita foreign debt decreased significantly in 1997.
Foreign direct investment since 1989 exceeds net foreign debt. Hungary
has an unblemished debt payments record and since late 1996 has been
rated investment grade by all the major rating agencies. Foreign
currency reserves stood at $8.2 billion through July 1997, enough for
seven months of imports. The government finances the fiscal deficit
primarily through government bonds, issued both domestically and
abroad. The consolidated budget deficit in 1997 will equal about 4.9
percent of GDP, down from 8.2 percent in 1994. The 1997 result will
exceed the 1996 figure due solely to the now on-budget costs of public
external debt service (which until 1997 were partially in the National
Bank budget).
The government continues to adhere to stabilization and
restructuring efforts. A partial privatization of the pension system in
July 1997 will broaden and deepen capital markets. Unfinished reform
efforts include health care and local government financing. Following
declines of 11 percent in 1995 and 6 percent in 1996, net real wages
will increase by 3.5 to 4.5 percent in 1997. The government projects a
$1.5 to 2 billion current account deficit for 1997, down from $2.5
billion in 1995. Foreign direct investment will exceed the current
account deficit, preventing an increase in net external debt.
In accord with government policy to promote foreign direct
investment, Hungarian law allows the establishment of companies in
customs-free zones which are exempt from foreign-exchange requirements
and indirect taxation tied to the turnover of goods. Tax exemptions for
significant investments are also under consideration.
The Hungarian National Bank (MNB) carries out monetary policy
through open market operations focusing on an interest rate policy
consistent with disinflation and within the constraints of the foreign
exchange regime. Commercial banks can conclude foreign exchange swap
transactions with the MNB.
2. Exchange Rate Policy
As of January 1, 1996, the forint became fully convertible for
almost all current account transactions within Hungary. Foreigners and
Hungarians can maintain both hard currency and forint accounts. At the
end of 1996 the German Mark replaced the 70 percent share of the ECU in
the currency basket to which the forint is pegged (the dollar remains
30 percent of the basket). In August 1997 the government reduced the
monthly rate of devaluation from 1.1 to 1.0 percent. Improved
macroeconomic performance has helped slow average annual inflation from
28.3 percent in 1995 to a projected 18 percent for 1997.
3. Structural Policies
Prices for most consumer product and services are freely set by the
market. Nonetheless, prices for public transport, utilities such as
gas, electricity and water, pharmaceuticals, and vehicle fuel continue
to be partially set by the state. The government offers a wholesale
floor price for unprocessed agricultural products. Privatized energy
companies expected a cost-plus-eight percent price structure beginning
January 1, 1997, as stipulated in the 1995 Law on Privatization.
Despite quarterly price reviews by an independent regulatory office,
prices are not quite at the market levels expected by foreign energy
firms. Foreign investors are nonetheless working with the government to
boost current and future production.
Tax changes designed to cut inflation and release extra resources
to the business sector took effect in 1997. Personal income taxes were
lowered by an average 1.5 percent and the highest rate was cut from 48
to 42 percent. Employer social security contributions have dropped from
42 to 39 percent under changes effective in 1997. The flat company tax
remains at 18 percent, while the current 23 percent supplementary
profit tax on distributed net profit will be replaced by a 20 percent
withholding tax. Investments of at least HUF 1 billion (about $5.2
million as of October 1997) or that increase exports by more than HUF
600 million ($3.1 million) receive a 50 percent tax preference for up
to five years; investments of at least HUF 3 billion in less developed
regions can receive up to 10 years full tax holiday. In the 1997-98
budget, employer social insurance contributions will probably decrease
by 1 to 2 percent, while corporate taxes on turnover will likely
increase; overall taxation is unlikely to decrease.
A new Competition Law which came into effect January 1, 1997,
eliminated a provision that had allowed foreign firms registered
outside Hungary to execute mergers through their parent companies
abroad. This law conforms with EU regulations.
Major legislation has been passed and further legislation is
expected in the area of structural budget reform, including fiscal
expenditure, health care, and local government financing. In July 1997
Parliament approved a new Pension system which mandates private pension
funds alongside (and eventually partially replacing) the current fully-
funded public system. The next government is likely to reform health
care and local government financing, in order to further reduce state
expenditures.
4. Debt Management
Hungary has one of the highest per capita foreign debts in Europe,
with gross foreign debt expected to be $25.5 billion at the end of 1997
versus $26 billion in 1996. Through 1997, net foreign debt is projected
to be $12.5 billion, down from $14 billion in 1996. Net public debt was
$5.0 billion at the end of October 1997, slightly over half of the
level at the end of 1996. The government has consistently met all
external interest and principal payments on time. The government
concluded a standby credit agreement with the International Monetary
Fund in March 1996, and has complied with its provisions while avoiding
any credit draw down. The agreement will expire in February 1998 and
not be renewed. Hungary received an investment grade rating on long-
term debt from the two leading U.S. credit rating agencies in late
1996. Hungary projects to have reserves of $8.2 billion by the end of
1997.
5. Significant Barriers to U.S. Exports
On July 1, 1997, as pledged, the government eliminated an import
surcharge it had imposed as part of the March 1995 austerity package.
Also as of that date, Hungary joined the Pan European Free Trade Zone
and Cumulation System. Import duty must be paid on imports from outside
the Pan-European Zone, which may then be exported duty-free to other
countries within the Pan European Region. However, duty paid on
intermediate goods processed and then exported outside the Pan-European
Region is not refunded.
Although 95 percent of imports (in value terms) no longer require
prior government approval, some 20 product groups, mainly cars,
textiles, and precious metals, are still affected by quotas. Hungary
imposes a $750 million global quota on imports of consumer goods. Under
WTO rules, Hungary will phase out quotas on textiles and apparel by
2004. As a result of the Uruguay Round, quotas on agricultural products
and processed foods have been replaced by tariffs.
Importers must file a customs document (VAM 91 form) with a product
declaration and code number, obtained from the Central Statistical
Office. Upon importation, the importer must present Commercial Quality
Control Institute (KERMI) certified documentation to clear customs.
This permit may be replaced by other national certification and testing
agency documents, such as those of the National Institute for Drugs.
Hungary participates in the International Organization for
Standardization (ISC) and the International Electro-Technical
Commission (IEC).
Foreign ownership is allowed in sectors open to private investment.
Foreign investment is restricted or prohibited in civil aviation,
defense, the media, and farmland.
Under the November 1995 law on government procurement, public
tenders must be invited for purchases of goods with a value over HUF 10
million ($51,000), construction projects worth HUF 20 million
($102,000), and designs and services worth over HUF 5 million
($26,500). Bids containing more than 50 percent Hungarian content
receive a 10 percent price preference. This procurement process does
not apply to military purchases, gas, oil, and electricity contracts.
6. Export Subsidy Policies
There are no direct export subsidies on industrial products, but
some agricultural product groups receive export subsidies from the
state. The Export-Import Bank and Export Credit Guarantee Ltd., both
founded in 1994, provide credit and/or credit insurance for 8 to 10
percent of total exports. Over the past several years, agricultural
export subsidies exceeded Hungary's Uruguay Round commitments in the
range and value of products subsidized; in October 1997, the WTO
approved an agreement with Hungary to phase out excess subsidies in the
coming years, in which the Hungarian Government also committed not to
expand exports of subsidized products to new markets.
7. Protection of U.S. Intellectual Property
Hungary belongs to the World Intellectual Property Organization,
the Paris Convention on Industrial Property, the Nice Agreement on
Classification and Registration of Trademarks, the Madrid Agreement
Concerning Registration and Classification of Trademarks, the Patent
Cooperation Treaty, and the Berne and the Universal Copyright
Conventions.
In 1993, the United States and Hungary signed a comprehensive
bilateral intellectual property rights treaty. Law Number VII (1994) on
the Amendment to Industrial Property and Copyright Legislation,
effective July 1994, extended patent protection for pharmaceutical/
chemical products and addressed rights of intellectual property by
providing the legal means to prevent proprietary information from being
disclosed or acquired by other than ``honest commercial practices.'' A
Media Law enacted in December 1995 requires firms in the electronic
media to respect international copyrights and includes enforcement
provisions against individual offenders as well as corporate violations
that affect license renewals. Two laws protecting intellectual property
entered into force in January 1992. Act XXXVIII of 1991 protects
utility models, and Act XXXIX of 1991 protects the topography (layout
design) of semiconductor chips.
However, a complaint by DuPont Merck calls into question the
effectiveness of Hungary's enforcement structure for IPR protection.
The inability to resolve this case in more than seven years has sparked
concerns about what appears to be persistent problems in the Hungarian
judicial system which make it difficult to prevent patent infringement.
Hungary was listed on the Other Observations portion of the 1997
Special 301 review to encourage a speedy resolution to these concerns.
8. Worker Rights
a. The Right of Association.--The 1992 Labor Code, as amended in
1997, recognizes the right of unions to organize and bargain
collectively and permits trade union pluralism. Workers have the right
to associate freely, choose representatives, publish journals, and
openly promote members' interests and views. With the exception of
military personnel and the police, they also have the right to strike.
b. The Right to Organize and Bargain Collectively.--Labor laws
permit collective bargaining at the enterprise and industry levels. The
Interest Reconciliation Council (ET), a forum of representatives from
employers, employees, and the government, sets minimum and recommended
wage levels in the public sector. Trade unions and management negotiate
private wage levels. The Ministry of Labor drafts labor-related
legislation, and special labor courts enforce labor laws. Affected
parties may appeal labor court decisions in civil court. The 1992
legislation prohibits employers from discriminating against unions and
their organizers.
c. Prohibition of Forced or Compulsory Labor.--The Labor Ministry
enforces the legal prohibition of compulsory labor.
d. Minimum Age for Employment of Children.--The Labor Code forbids
work by minors under the age of 14, and regulates labor conditions for
minors age 14 to 16 (e.g., in apprentices programs).
e. Acceptable Conditions of Work.--The Labor Code specifies
conditions of employment: termination procedures, severance pay,
maternity leave, trade union consultation rights in management
decisions, annual and sick leave entitlement, and conflict resolution
procedures.
f. Rights in Sectors with U.S. Investment.--Conditions in specific
goods-producing sectors in which U.S. capital is invested do not differ
from those in other sectors of the economy.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \2\
Total Manufacturing........................... 655
Food & Kindred Products..................... 21
Chemicals & Allied Products................. 66
Metals, Primary & Fabricated................ \1\
Machinery, except Electrical................ \2\
Electric & Electronic Equipment............. \1\
Transportation Equipment.................... \1\
Other Manufacturing......................... 52
Wholesale Trade............................... 85
Banking....................................... \1\
Finance/Insurance/Real Estate................. 5
Services...................................... \1\
Other Industries.............................. 1081
TOTAL ALL INDUSTRIES.......................... 1910
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
\2\ Indicates a value between $-500,000 and $500,000.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
IRELAND
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\........................... 54,816 60,397 61,194
Real GDP Growth (pct) \3\................. 10.4 7.7 8.1
GDP by Sector:\2\
Agriculture............................. 2,845 2,858 N/A
Industry................................ 21,286 23,168 N/A
Services................................ 26,176 29,565 N/A
Government.............................. 2,803 3,090 N/A
Per Capita GDP (thousands)................ 17,224 18,587 18,471
Labor Force (000's)....................... 1,430 1,475 1,514
Unemployment Rate (pct) \4\............... 12.1 11.9 10.3
Money and Prices (annual percentage growth):
Money Supply Growth (M3).................. 14.1 23.1 25.0
Consumer Price Inflation.................. 2.4 1.7 1.6
Exchange Rate (Ip/usd)
official................................ 0.62 0.62 0.67
Balance of Payments and Trade:
Total Exports (FOB) \5\................... 44.4 48.5 51.3
Exports to U.S.......................... 3.6 4.5 N/A
Total Imports (CIF) \5\................... 32.5 35.0 37.2
Imports from U.S........................ 5.8 5.5 N/A
Trade Balance............................. 12.0 13.5 14.1
Balance with U.S........................ -2.2 -1.0 N/A
External Public Debt \6\.................. 17,465 13,949 N/A
Fiscal Deficit/GDP (pct) \7\.............. -2.1 -0.9 0.6
Current Account Balance/GDP (pct)......... 2.8 2.0 1.6
Debt Service Payments/GDP (pct)........... 6.2 5.9 N/A
Gold And Foreign Exchange Reserves \6\.... 8,757 7,936 9,500
Aid from U.S.\8\.......................... 5 5 5
Aid from other sources \9\................ 1,189 1,142 1,256
------------------------------------------------------------------------
\1\ US Embassy forecasts
\2\ GDP at factor cost
\3\ GDP at constant market prices (local currency).
\4\ ILO definition (measured in april of each year)
\5\ Merchandise Trade
\6\ End Year
\7\ General Government.
\8\ Each year the United States contributed $19.6 million to the
International Fund to Ireland (IFI). A quarter of this amount is
estimated to be spent in the Republic of Ireland's border
constituencies.
\9\ These figures include transfers from the EU's European Social Fund,
Regional Development Fund, Cohesion Fund and Special Programme for
Northern Ireland and the border constituencies, as well as the
contributions from countries other than the United States to the IFI.
Sources: Central Bank of Ireland (cbi); Central Statistics Office (CSO);
Irish Trade Board (ITB); National Treasury Management Agency (NTMA).
1. General Policy Framework
Ireland is a small open economy on the periphery of Europe, with a
population of 3.62 million. Despite its peripheral geographic location,
Ireland has one of the greatest exposures to international trade of any
country in the world, with total imports and exports equivalent to just
under 147 percent of GDP in 1996. Increasing openness to trade has been
accompanied by fast economic growth; In 1997 Ireland is expected to be
the fastest growing OECD economy for the fourth consecutive year (total
Irish output has increased by just over 50 percent in real terms since
1990.) despite strong economic growth, inflation has been kept under
tight control and the balance of payments has remained in surplus.
Increased consumer confidence has resulted from rising disposable
incomes, low interest rates, fast employment and strong growth in
property prices. In recent years economic growth has been broadly
based, with strong contributions from both domestic and foreign demand.
Fiscal policy: After the runaway deficits of the mid 1980s, the
Irish Government has maintained a relatively tight fiscal policy,
keeping the general government deficit below 2.5 percent of GDP since
1989. This is consistent with the provisions of the 1992 Maastricht
Treaty, which require countries hoping to enter EMU in 1999 to, amongst
other things, keep their fiscal deficits below three percent of GDP.
furthermore, Ireland's debt/GDP ratio has fallen from over 125 percent
in 1987 to just under 73 percent in 1996, and is expected to fall
further to 67 percent by the end of 1997. In nominal terms, the debt
amounted to just over $51 billion (using average 1996 exchange rates).
Of this, 29 percent was denominated in a foreign currency, down from 41
percent at end 1993. Most new government borrowing is made through the
sale of Irish pound-denominated securities, although a large proportion
of these are purchased by non-residents.
Personal income and consumption taxes form the bulk of total
government tax revenue. There are two personal tax rates; the standard
26 percent rate and the higher 48 per cent rate. The higher rate kicks
in at slightly below the median industrial wage (about $23,000).
Emboldened by fast tax revenue growth, and as part of the current
national wage agreement, the current administration has promised to
make substantial cuts in the personal income tax rates over the next
five years. The rate of value added tax (consumption tax), at 21
percent is also high, but is the subject of some control at EU level.
Corporate taxation makes a relatively modest contribution to the public
finances. This is largely as a result of the special 10 percent rate
available to companies producing internationally-traded manufactured
goods and services, and to companies operating in certain industrial
zones. The standard rate of corporate tax is 36 percent, although this
is expected to fall rapidly towards the special rate over the next five
years.
Monetary policy: Monetary policy is operated by the central bank of
Ireland, and is conducted without political interference. The goal of
monetary policy is price stability. in the pursuit of this objective,
the central bank gives priority to the maintenance of a firm exchange
rate under the framework of the European Monetary System's exchange
rate mechanism (ERM see below.) It has been largely successful in this
regard; inflation has averaged only 2.2 percent in the five years to
1996 and is expected to average 1.6 percent in 1997, which will almost
certainly ensure that Ireland satisfies the Maastricht inflation
criteria for EMU. The primary tool of monetary policy in Ireland is the
adjustment of the discount rate (known as the short-term facility),
although the central bank also frequently engages in open market
operations. In making its assessment of future consumer price
movements, the central bank takes account of trends in money supply,
private sector credit and a range of intermediate price indicators. As
the final stage of EMU approaches, Irish official interest rates will
have to converge with those of the European core, and the ability of
the Irish central bank to pursue a monetary stance appropriate for
domestic conditions will be undermined.
2. Exchange Rate Policies
The Irish pound is a freely convertible currency and the government
does not maintain any exchange rate controls. Participation in the ERM
since 1979 requires Ireland to maintain the Irish pound within 15
percent of its central rate against the weakest and strongest of the
other currencies in the grid. Compliance is achieved through central
bank intervention in the foreign exchange markets and through the
prevention of monetary policy divergence from the European core. In
ratifying the 1992 Maastricht treaty, Ireland committed itself to
participation in the third and final phase of EMU, which is scheduled
to begin on January 1, 1999. Successive Irish governments have since
reaffirmed this commitment, and Ireland is now highly likely to be
among the first wave of EU countries to adopt the new currency, the
euro, from 1999 onwards. The decision by the UK to remain outside of
EMU for the foreseeable future has sparked a debate over the Irish
pound's appropriate conversion rate into the euro, with farmers and
exporters anxious to ensure that swings in the value of sterling after
1999 do not damage the competitiveness of Irish goods in the UK,
Ireland's largest trading partner. The Irish pound fell strongly
against the dollar during late 1996 and the first half of 1997, and is
expected to average ip 0.67:USD 1 in 1997, down from ip 0.62:USD 1 in
1996.
3. Structural Policies
Economic policy in Ireland is geared primarily towards lowering
unemployment and raising average living standards, although income
redistribution and social cohesion are also important goals. After the
failure of expansionary fiscal policies of the late 1970s to stimulate
growth, government policymakers have focused on creating an environment
attractive to private enterprise, and in particular to inward direct
investment by export-oriented multinationals. The most important
policies in this regard have been the following:
(a) tight control over the public finances in order to maintain
macroeconomic stability--in 1997 the fiscal budget may be in balance
for the first time in over 50 years; (b) the development of a social
consensus on economic policy through national wage agreements
negotiated by the government, employers and trade unions. the latest
agreement, partnership 2000, took effect at the beginning of 1997 and
trades off continued moderation by trade unions in wage demands against
substantial cuts in personal taxation; (c) the availability of a
special 10 percent rate of corporate taxation and generous grants to
attract foreign investment; (d) a commitment to the single European
market and to participation in EMU; (e) high levels of investment in
education and training--of all OECD countries only the Japanese
workforce has a higher proportion of trained engineers and scientists;
(f) improvements in physical infrastructure--structural investment
between 1993 and 1999 is expected to total around $16 billion (almost
$4,500 per head). much of this will have been funded by generous EU
transfers.
The success of the above policies in attracting foreign investors
and raising incomes has had two distinct effects on U.S. exports to
Ireland; (a) approximately 500 U.S. firms are now located in Ireland.
These companies import a large proportion of their capital equipment
and operating inputs from parent companies and other suppliers in the
United States. Accordingly, the largest component of U.S. exports to
Ireland is office machinery and equipment, followed by electrical
machinery and organic chemicals. Furthermore, as U.S. firms in Ireland
become increasingly integrated with the local economy, sales by u.s.
parent companies to local Irish enterprises are believed to have
increased dramatically, although the data on this remains sketchy; (b)
the fast growth in both personal incomes and corporate profitability in
Ireland has led to a strong increase in demand for U.S. capital and
consumer goods from Irish companies and workers. the combination of the
above two effects has seen U.S. exports to Ireland quadruple between
1983 to 1996. As a result, the United States has become Ireland's third
largest source of imports, behind only the UK and Germany.
4. Debt Management Policies
The National Treasury Management Agency (NTMA) is the state agency
responsible of the management of the government debt. Ireland's general
government debt at end 1996 amounted to just over $51 billion (using
average 1996 exchange rates), equivalent to just under 73 percent of
GDP. The bulk of the national debt was accumulated in the 1970's and
early 1980's, partly as a result of high oil prices, but more generally
as a result of expanding social welfare programs and public-sector
employment. However, increased fiscal rectitude since the late 1980s
means that Ireland is expected to be the only EU member state which
will have a lower debt/GDP ratio in 1997 than it had in 1991. Foreign
currency debt at end 1996 made up approximately 29 percent of the
total, down from just over 41 percent at end 1993. Most new government
borrowing is financed through the issuance of Irish pound securities,
although a substantial proportion of these are purchased by non-
resident investors. The total debt servicing cost in 1996 was around $4
billion, equivalent to 5.8 percent of GDP. Debt servicing costs are
expected to continue falling as a proportion of national income and
total government expenditure. This should pave the way for further
reform of the personal taxation system, thus increasing consumer demand
for U.S. exports of goods and services.
5. Aid
Each year the United States contributes $19.6 million to the
International Fund for Ireland, of which around 5 million is estimated
to be spent in the border constituencies of the Republic of Ireland,
with the balance being spent in the UK province of Northern Ireland.
6. Significant Barriers to U.S. Exports
The United States is Ireland's third largest source of imports,
behind only the UK and Germany. Total exports from the United States
into Ireland in 1996 were valued at $5.5 billion (15.5 percent of total
Irish imports), up from just over $3 billion in 1990. With Irish
exports to the U.S. in 1996 standing at $4.5 billion, the trade balance
between the two countries favors the U.S. by about $1.0 billion.
As a member of the EU, Ireland administers tariff and non-tariff
barriers in accordance with applicable EU policies. with regard to
services trade, Ireland maintains some barriers in the aviation
industry: airlines serving Ireland may provide their own ground
handling services, but are prohibited from providing similar services
to other airlines. The Irish banking and insurance sectors are slowly
becoming deregulated. Full deregulation in insurance will not occur
until 1998.
The Irish Government liberalized the corporate market for telecom
services on July 1, 1997 as directed by the European Commission.
However, Telecom Eireann, the state telecom company, will retain its
monopoly on providing voice telephony services to residential users
until 2000, as opposed to most EU countries who must liberalize their
markets by 1998. Ireland ratified the WTO telecoms agreement by the end
of 1997. The deal will requires Ireland to end restrictions on
international interconnection of mobile telephones by January 1, 1999,
instead of 2001 as originally hoped for by the government. Ireland also
dropped its restrictions to telex and telegraph services from January
1, 2000 to January 1, 1998.
Although some liberalization has taken place in recent years,
Ireland still maintains some of the strictest animal and plant health
import restrictions in the EU. These, together with EU import duties,
effectively exclude many meat-based foods, fresh vegetables and other
agricultural exports from the United States. Restrictions also apply to
foods containing genetically modified organisms (GMOS), bananas from
outside the Caribbean area, and cosmetics containing specified risk
materials (SRMS), although as with other goods, these policies are
determined at EU level.
Ireland has been a member of the World Trade Organization (WTO)
since it came into effect on January 1, 1995. The WTO agreement was
ratified by the Irish Parliament in November 1994. As member of the EU,
however, Ireland participates in a large number of EU regional trade
agreements, which may distort trade away from countries with whom
Ireland trades purely on an MFN, non-preferential WTO basis.
7. Export Subsidies Policies
The government generally does not provide direct or indirect
support for local exports. However, companies located in designated
industrial zones, namely the Shannon Duty Free Processing Zone (SDFPZ)
and Ringaskiddy Port, receive exemptions from taxes and duties on
imported inputs used in the manufacture of goods destined for non-EU
countries. furthermore, Ireland applies a special 10 percent rate of
corporation tax (the standard rate is 36 percent) to companies
producing internationally traded manufactures and services and to
companies operating out of the SDFPZ and the international financial
service center in Dublin. Although Ireland is adamant that this is a
purely national tax issue, the European Commission's competition
authorities view the tax as a form of export subsidization and would
like to see the preferential rate eliminated over the next few years.
Since January 1992 the government has provided export credit
insurance for political risk and medium-term commercial risk in
accordance with OECD guidelines. As a participant in the EU's Common
Agricultural Policy, the Irish Department of Agriculture, Food and
Forestry administers CAP export refund and other subsidy programs on
behalf of the EU Commission.
8. Protection of U.S. Intellectual Property
Ireland is a member of the World Intellectual Property Organization
and a party to the International Convention for the Protection of
Intellectual Property. However, there are legislative deficiencies and
the Department of Enterprise, Trade and Employment is now drafting new
intellectual property legislation.
Ireland's copyright law does not conform to the WTO's agreement on
Trade Related Aspects of Intellectual Property (TRIPS) and does not
adequately protect copyright holders. examples of TRIPS inconsistencies
include absence of a rental right for sound recordings, no ``anti-
bootlegging'' provision, and very low criminal penalties, all of which
have contributed to high rates of piracy in Ireland (it has been
claimed that up to 70 percent of computer software used in Ireland is
pirated. This is especially ironic given that Ireland is now the
world's second largest exporter of packaged software.) In April the
U.S. government initiated WTO dispute settlement proceedings against
Ireland and has placed Ireland on its special 301 watch list, which
identifies countries which do not adequately protect intellectual
property. In order to correct these deficiencies the government is in
the process of drafting a new copyright bill, which it expects to
submit to parliament in the second half of 1998.
Patents: Ireland's patent law also fails to conform to the TRIPS
Agreement in at least two respects: (1) the compulsory licensing
provisions of the 1992 patent law are inconsistent with the ``working''
requirement prohibition of TRIPS Articles 27.1 and the general
compulsory licensing provisions of Article 31; and (2) compulsory
licensing conditions provided for in the 1964 patent law, which
continues to apply to some applications processed after December 20,
1991, do not conform to the non-discrimination requirement of TRIPS
Article 27.1. The Irish Government is expected to make a ministerial
order in early 1998 which will bring Irish patent legislation into
conformity with the TRIPS Agreement.
Trademarks: In accordance with EU Council Directive 89/104/European
Economic Community (EEC), the harmonization of trademark laws, EU
Council Regulation (EC) no. 40/94, Community Trademark And The
Registration Of Trademarks In Services Industries, among others, new
legislation was required to replace the Trademarks Act of 1963. The
Trademarks Act 1996 was signed into law in July 1996. As yet, there
appear to be no problems with the new law.
9. Worker Rights
a. The Right of Association.--The right to join a union is
guaranteed by law, as is the right to refrain from joining. The
industrial relations act of 1990 prohibits retribution against strikers
and union leaders. About 55 percent of workers in the public sector and
45 percent in the private sector are trade union members. Police and
military personnel are prohibited from joining unions or striking, but
they may form associations to represent them in matters of pay, working
conditions, and general welfare. The right to strike is freely
exercised in both the public and private sectors. The Irish Congress of
Trade Unions (ICTU), which represents unions in both the Republic and
Northern Ireland, has 65 member-unions with 682,211 members.
b. The Right to Organize and Bargain Collectively.--Labor unions
have full freedom to organize and to engage in free collective
bargaining. Legislation prohibits anti-union discrimination. In recent
years, most terms and conditions of employment in Ireland have been
determined through collective bargaining in the context of a national
economic pact. The current 3-year agreement, partnership 2000, which
expires at the end of 1999, trades off continued moderation by trade
unions in wage demands against cuts in personal taxation by the
government. Employer interests in labor matters are generally
represented by the Irish Business And Employers Confederation.
The Labor Relations Commission, established by the Industrial
Relations Act of 1990, provides advice and conciliation services in
industrial disputes. The Commission may refer unresolved disputes to
the Labor Court. The Labor Court, consisting of an employer
representative, a trade union representative, and an independent
chairman, may investigate trade union disputes, recommend the terms of
settlement, engage in conciliation and arbitration, and set up joint
committees to regulate conditions of employment and minimum rates of
pay for workers in a given trade or industry.
c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory
labor is prohibited by law and does not exist in Ireland.
d. Minimum Age of Employment of Children.--By law, children are
required to attend school until the age of 15. the employment of
children under 15 is generally prohibited by the 1977 Protection of
Young Persons (Employment) Act, but 14-year-olds are allowed to do
light, nonindustrial work during school holidays with the written
permission of their parents. The law limits the number of hours which
children under age 18 may work. These provisions are enforced
effectively by the Department of Enterprise, Trade And Employment.
e. Acceptable Conditions of Work.--At present no national hourly
minimum wage exists in Ireland, although the current government has
promised to abide by its electoral commitment to introduce a minimum
wage during its term of office and has already established a commission
to investigate the appropriate level. Minimum wages have been operating
in certain low paid industries, such as textiles and cleaning, but
these have applied to a relatively small proportion of the workforce.
The standard work week is 39 hours. Working hours in the industrial
sector are limited to 9 hours per day and 48 hours per week. Overtime
is limited to 2 hours per day, 12 hours per week, and 240 hours in a
year.
f. Rights in Sectors with U.S. Investment.--Worker rights described
above are applicable in all sectors of the economy, including those
with significant U.S. investment.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 7457
Food & Kindred Products..................... 348
Chemicals & Allied Products................. 290
Metals, Primary & Fabricated................ 241
Machinery, except Electrical................ 222
Electric & Electronic Equipment............. 1435
Transportation Equipment.................... -2
Other Manufacturing......................... 2312
Wholesale Trade............................... 470
Banking....................................... \1\
Finance/Insurance/Real Estate................. 2780
Services...................................... 863
Other Industries.............................. 74
TOTAL ALL INDUSTRIES.......................... 11,749
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.Source:
U.S. Department of Commerce, Bureau of Economic Analysis
______
ITALY
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\........................ 1,087.0 1,214.2 1,139.7
Real GDP Growth (pct) \3\.............. 2.9 0.7 1.0
GDP by Sector:
Agriculture.......................... 35.6 39.9 N/A
Manufacturing........................ 301.9 332.4 N/A
Services............................. 544.2 608.0 N/A
Government........................... 205.3 233.9 N/A
Per Capita GDP (US$)................. 18,959 21,131 19,834
Labor Force (millions)............... 22.7 22.9 23.0
Unemployment rate (pct).............. 12.0 12.2 12.2
Money and Prices (annual percentage
growth):
Money Supply (M2)...................... 1.9 3.2 4.0
Consumer Price Inflation............... 5.4 3.9 1.9
Exchange Rate (Lira/US$ - annual
average)
Official............................. 1629 1543 1700
Balance of Payments and Trade:
Total Exports FOB \4\.................. 234.0 250.8 138.9
Exports to U.S.\4\................... 16.8 18.4 10.8
Total Imports CIF \4\.................. 206.1 207.0 119.3
Imports from U.S.\4\................. 9.9 10.2 5.3
Trade Balance \4\...................... 27.9 43.8 46.8
Balance with U.S.\4\................. 7.0 8.2 5.5
Current Account Surplus/GDP (pct)...... 2.5 3.4 3.0
External Public Debt................... 51.6 65.2 76.0
Debt Service Payments/GDP (pct) \5\.... 11.8 11.1 11.0
Fiscal Deficit/GDP (pct)............... 7.0 6.7 3.0
Gold and Foreign Exchange Reserves..... 57.7 69.8 65.3
Aid from U.S........................... N/A N/A N/A
Aid from All Other Sources............. N/A N/A N/A
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on data available through
October 1997.
\2\ GDP at factor cost
\3\ Percentage changes calculated in local currency
\4\ Merchandise trade. 1997 data through July
\5\ Represents total debt servicing costs; less than six percent of
total debt is foreign debt.
1. General Policy Framework
The Italian economy is the world's fifth largest, having undergone
a dramatic transformation into an industrial power in the last 50
years. Italy maintains an open economy, and is a member of major
multilateral economic organizations such as the Group of Seven (G-7)
industrialized countries, the Organization for Economic Cooperation and
Development, the World Trade Organization, the International Monetary
Fund, and the European Union.
Italy has a dynamic private sector characterized primarily by a
large number of small and medium-sized firms, although there are some
large companies with well-known names and extensive overseas operations
(Fiat, Pirelli and Olivetti for example). Economic activity is
concentrated in northern Italy, resulting in a divergence of wealth
between north and south that remains one of Italy's most difficult
economic and social problems. The Italian government traditionally has
played an active role in the economy through regulation and through
ownership of several large industrial and financial companies; recent
privatizations have reduced somewhat the government's presence.
Italy's most pressing macroeconomic problems remain its public
sector deficit and public debt. For years, government spending was
boosted by generous social welfare programs, inefficiency and projects
designed to achieve political objectives, creating large public sector
deficits that were financed by incurring debt.
In the last few years, Italy has begun to address these problems in
order to qualify for first-round membership in European Monetary Union.
The deficit, which was 6.76 percent of GDP in 1996, is expected to drop
to 3.0 percent in 1997, the level required for monetary union. The
stock of debt, almost all of it held domestically, represents about 124
percent of GDP, but has been dropping. The government hopes to continue
reducing it. Interest rates on Italian government securities have come
down substantially as the government gets its financial house in order,
and European rates converge in the run-up to monetary union.
Price stability is the primary objective of the Bank of Italy's
monetary policy; the Bank has carried out a restrictive monetary policy
in an effort to defeat Italy's long-term inflation problem. It appears
to be working. M-2 grew only 3.2 percent in 1996, well below the rate
of nominal GDP growth (5.8 percent), and inflation is expected to
average 1.9 percent in 1997. The Bank of Italy uses indirect
instruments, primarily open market operations exercised through
repurchase agreements with commercial banks, to implement its monetary
policy. The central bank discount window is seldom used, although
changes in the discount rate are used to signal policy shifts, as
occurred in June, 1997, when the Bank of Italy reduced the discount
rate.
2. Exchange Rate Policy
The Italian lira re-entered the Exchange Rate Mechanism of the
European Monetary System (EMS) in November 1996, after a four-year
absence. Participation in EMS is a prerequisite for membership in the
European Monetary Union (EMU) and obligates Italy to maintain the lira
within a 15 percent band of fluctuation vis-a-vis central parities with
other EMU currencies. Since re-entry to EMS, the lira has fluctuated
closely around the new parities, an indication that financial markets
think Italy's currency is priced about right.
The government has been successful at avoiding undue pressure on
the lira. It will continue this approach in the months leading up to
May, 1998, when countries selected for monetary union will set exchange
rates vis-a-vis one another, and January 1999, when monetary union
actually begins and countries begin using the new joint currency, the
euro.
3. Structural Policies
Italy has not implemented any structural policies over the last two
years which directly impede U.S. exports. Several long-standing
irritants regarding access by U.S. banks and financial service firms to
the Italian market have been resolved or are nearing resolution.
Certain characteristics of the Italian economy impede growth and reduce
import demand. These include rigid labor markets, underdeveloped
financial markets, and a continued heavy state role in the production
sector. There has been some progress at addressing these structural
issues. Privatization is reducing the government's role in the economy.
The 1993 ``single banking law'' removed a number of anachronistic
restrictions on banking activity. Italy's implementation of EU
financial service and capital market directives in 1996 has injected
further competition into the sector.
U.S. financial service firms are no longer subject to an
incorporation requirement to operate in the Italian market, although
they must receive permission to operate from the government's
securities regulatory body. In August 1996, the Bank of Italy
eliminated certain lending limits based on branch capital which had put
non-EU banks at a disadvantage vis-a-vis EU banks. U.S. financial
service firms and banks are active in Italy, in particular in the
wholesale banking and bond markets. In general, U.S. and foreign firms
can invest freely in Italy, subject to restrictions in sectors
determined to be of national interest, or in cases which create anti-
trust concerns.
4. Debt Management Policy
Although Italy has not had problems with external debt or balance
of payments since the mid 1970's, its domestic public debt is extremely
high at 124 percent of GDP. Public debt is financed primarily through
domestic capital markets, with securities ranging from three months to
thirty years. Italy's official external debt is relatively low,
constituting roughly 5.9 percent of total debt. Italy maintains
relatively steady foreign debt targets, and uses issuance of foreign-
denominated debt essentially as a source of diversification, rather
than because of need.
5. Significant Barriers to U.S. Exports
Import Licensing: With the exception of a small group of largely
agricultural items, practically all goods originating in the U.S. and
most other free-world countries can be imported without import licenses
and free of quantitative restrictions. There are, however, monitoring
measures applied to imports of certain sensitive products. The most
important of these measures is the automatic import license for
textiles. This license is granted to Italian importers when they
provide the requisite forms.
Service Barriers: Telecommunications services are still tightly
regulated by the state, which essentially maintains a monopoly (aside
from dedicated fixed-line networks owned by, i.e., the parastatal
electricity company ENEL) on fixed-line voice telephony (but not on
cellular service) and the telecommunications infrastructure, including
all switching. Enhanced services must be offered over the public
switched network or through dedicated leased circuits. Omnitel Pronto
Italia, which is 43 percent U.S.-owned, began offering cellular service
in December 1995 after winning the competition for the second cellular
operating license--making it Telecom Italia's only competitor at
present. Italy plans to award a third cellular license, for DCS-1800
service, but the government's notional date for this competition has
slipped from 1996 into 1997 and most recently to February 1998. Italy
passed a law in 1997 to establish an independent regulatory
``Authority'' for all communications, including telecoms and
broadcasting; but the Authority is not expected to be established until
mid-late 1998. U.S. and other observers will be watching closely to see
how Italy respects the EU's January 1, 1998 deadline for full
liberalization of its telecoms sector.
In keeping with the 1989 EU Broadcast Directive, Italy's 1990
Broadcast Law requires that upon conclusion of three years from
concession of a national broadcast license, a majority of TV broadcast
time for feature films be reserved for EU-origin films. The Italian law
also requires that half of the European quota be dedicated to Italian
films.
The Government of Italy introduced a telecommunications reform bill
in July 1996 that included a provision to make 51 percent European
content mandatory during prime time. The bill remains before the
Italian Parliament as of October 1997. If enacted, the bill would make
Italy's TV broadcast quota stricter than the EU norm. (The European
Parliament voted in November 1996 to let stand EU Broadcast Directive
language that quotas will be applied ``where practicable . . . and
using appropriate means.'' The European Parliament thereby rejected
more restrictive language.)
Standards: As a member of the EU, Italy applies the product
standards and certification approval process developed by the European
Community. Italy is required by the Treaty of Rome to incorporate
approved EU directives into its national laws. However, there is
frequently a long lag in implementing these directives at the national
level. In addition, in some sectors such as pollution control, the
uniformity in application of standards may vary according to region,
further complicating the certification process. Italy has been slow in
accepting test data from foreign sources, but is expected to adopt EU
standards in this area.
Most standards, labeling requirements, testing and certification
for food products have been harmonized within the European Union.
However, where EU standards do not exist, Italy can set its own
national requirements and some of these have been known to hamper
imports of game meat, processed meat products, frozen foods, alcoholic
beverages, and snack foods/confectionery products. U.S. exporters of
``health'' foods, weight loss/diet foods, baby foods and vitamins
should work closely with an Italian importer, since Italy's labeling
laws regarding health claims can be particularly stringent. Italy is
still working on specific sectors of the food law to bring the
regulations up to date scientifically in the areas of hygiene/
sanitation. In the case of food additives, coloring and modified
starches, Italy's laws are considered to be close to current U.S. laws,
albeit sometimes more restrictive.
U.S. exporters should be aware that any food or agricultural
product transshipped through Italian territory must meet Italian
requirements, even if the product is transported in a sealed and bonded
container and is not expected to enter Italian commerce.
Some professional categories (e.g. engineers, architects, lawyers,
accountants) face restrictions that limit their ability to practice in
Italy without either possessing EU/Italian nationality, having received
an Italian university degree, or having been authorized to practice by
GOI institutions.
Rulings by individual local customs authorities can be arbitrary or
incorrect, resulting in denial or delays of entry of U.S. exports into
the country. Considerable progress has been made in correcting these
deficiencies, but problems do arise on a case-by-case basis.
Investment Barriers: While official Italian policy is to encourage
foreign investment, industrial projects require a multitude of
approvals and permits, and foreign investments often receive close
scrutiny. These lengthy procedures can present extensive difficulties
for the uninitiated foreign investor. There are several industry
sectors which are either closely regulated or prohibited outright to
foreign investors, including domestic air transport, aircraft
manufacturing, and the state monopolies (e.g., railways and tobacco
manufacturing).
Italian anti-trust law gives the government the right to review
mergers and acquisitions over a certain threshold value. The government
has the authority to block mergers involving foreign firms for
``reasons essential to the national economy'' or if the home government
of the foreign firm does not have a similar anti-trust law or applies
discriminatory measures against Italian firms. A similar provision
requires government approval for foreign entities' purchases of five or
more percent of an Italian credit institution's equity.
Government Procurement: In Italy, fragmented, often non-transparent
government procurement practices and previous problems with corruption
have created obstacles to U.S. firms' participation in Italian
government procurement. Italy has, however, made some progress in
making the laws and regulations on government procurement more
transparent. Italy has not yet fully updated its government procurement
code, nor has it completely implemented EU directives on government
procurement. The pressure to reduce government expenditures while
increasing efficiency is resulting in increased use of competitive
procurement procedures and somewhat greater emphasis on best value
rather than automatic reliance on traditional suppliers.
6. Export Subsidies Policies
Italy subscribes to EU directives and Organization for Economic
Cooperation and Development (OECD) and World Trade Organization (WTO)
agreements on export subsidies. Through the EU, it is a member of the
General Agreement on Tariffs and Trade (GATT) Subsidies Agreement, and
as a WTO member, is subject to WTO rules. Italy also provides extensive
export refunds under the Common Agricultural Policy (CAP), as well as
an extensive array of export promotion programs. Grants range from
funding of travel for trade fair participation to funding of export
consortia and market penetration programs. Many programs are aimed at
small-to-medium size firms. Italy provides some direct assistance to
industry and business firms to improve their international
competitiveness. This assistance includes export insurance through the
state export credit insurance body, as well as interest rate subsidies
under the OECD consensus agreement.
The Italian peach processing sector receives subsidies to
compensate them for having to pay the EU minimum grower price for their
raw product. It is recognized that this grower price is above the world
market price for peaches and a U.S.-E.U. agreement is in place to
monitor the level of subsidies paid. However, there is concern that the
processors may receive extra benefits from loopholes in the system.
The Italian wheat processing sector (pasta) in the past received
indirect subsidies to build plants and infrastructure. While these
plants are still operating, there are no known programs similar to the
initial subsidies operating at present.
7. Protection of U.S. Intellectual Property
The Italian Government is a member of the World Intellectual
Property Organization, and a party to the Bern and Universal Copyright
conventions, the Paris Industrial Property and Brussels Satellite
conventions, the Patent Cooperation Treaty, and the Madrid Agreement on
International Registration of Trademarks.
Since 1989, the U.S. Trade Representative has placed Italy on the
Intellectual Property Rights (IPR) ``watch list'' under the Special 301
provision of the United States Trade Act of 1988, primarily reflecting
problems with protection of copyrights for computer software and film
videos. Enactment in Italy (at the end of 1992) of the EU software
directive making software copyright violations a criminal offense was a
major step forward. In response to U.S. IPR concerns, the Italian
authorities have created an Interministerial Anti-Piracy Committee,
introduced IPR training courses for law enforcement officers, and
created specialized ``pools'' of prosecutors charged with combating
intellectual property crimes in major municipal centers (e.g., Milan,
Rome, and Naples). Italian implementation of the EU Rental Rights
Directive in November 1994 established explicit protections for rental,
distribution, and lending rights, as well as penal sanctions against
the bootleg recording of performances. A decree-law issued in June 1995
(and subsequently passed by Parliament as a permanent law) extended
copyright protection in Italy from 50 to 70 years in accordance with
the EU Directive on Copyright Duration.
Film, sound recording, and software piracy remains a serious
problem, despite a significant increase in raids and confiscation of
illegal product and reproduction equipment. In October 1996, the
Italian government introduced in Parliament anti-piracy legislation
that would impose administrative penalties and increase criminal
sanctions. As of October 1997, the bill was still awaiting final
Parliamentary approval. The U.S. will continue to monitor developments
in this area closely.
New Technologies: In the spring of 1997, the Italian Minister of
Health signed a decree banning the cultivation of Ciba Geigy's Bt Corn
in Italy, despite the fact that no Bt seed varieties are currently
included in Italy's National Seed Register. This decision was taken on
the advice of Italy's Interministerial Biotechnology Commission,
ostensibly based on their opinion that there was a lack of a proper
monitoring program regarding Bt corn's effect on the ecosystem. After
the Biotech Commission reversed its decision, and following EC pressure
to remove the ban, the Minister of Health signed the legislation
removing the ban in late September.
Intellectual property protection is generally not a problem for
agricultural products with the exception of sluggish approval policies
for genetically-modified organisms.
8. Worker Rights
a. The Right of Association.--The law provides for the right to
establish trade unions, join unions, and carry out union activities in
any workplace employing more than 15 employees. Trade unions are free
of government controls and no longer have formal ties with political
parties. Workers are protected from discrimination based on union
membership or activity. The right to strike is embodied in the
Constitution, and is frequently exercised. Hiring workers to replace
strikers is prohibited. A 1990 law restricts strikes affecting
essential public services such as transport, sanitation, and health.
The law prohibits discrimination by employers against union members
and organizers. It requires employers who have more than 15 employees
and are found guilty of anti-union discrimination to reinstate the
workers affected. In firms with fewer than 15 workers, an employer must
state the grounds for firing a union employee in writing. If a judge
deems these grounds spurious, he can order the employer to reinstate or
compensate the worker.
b. The Right to Organize and Bargain Collectively.--The
Constitution provides for the right of workers to organize and bargain
collectively and these rights are respected in practice. In practice
(though not by law), national collective bargaining agreements apply to
all workers regardless of union affiliation. There are no export
processing zones.
c. Prohibition of Forced or Compulsory Labor.--The law prohibits
forced or compulsory labor, and it does not occur.
d. Minimum Age for Employment of Children.--The law forbids
employment of children under 15 years of age (with some exceptions).
There are also specific restrictions on employment in hazardous or
unhealthy occupations of males under age 18 and females under age 21.
Enforcement of the minimum age laws is effective only outside the
extensive ``underground'' economy, which is mainly in Southern Italy.
e. Acceptable Conditions of Work.--Minimum wages are set not by law
but rather by national collective bargaining agreements. These specify
minimum standards to which individual employment contracts must
conform. In case of disputes, the courts may step in to determine fair
wages on the basis of practice in comparable activities or agreements.
A 1997 law reduced the work week from 48 hours to 40. The regular
work week should not exceed six days, and the regular work day eight
hours, with some exceptions. Most collective agreements provide for a
36- to 38-hour work week. Overtime may not exceed two hours a day or an
average of 12 hours per week.
The law sets basic health and safety standards and guidelines for
compensation for on-the-job injuries. European Union directives on
health and safety have also been incorporated into domestic law; some
have already taken effect and others will be phased in during 1997.
Labor inspectors are from local health units or from the Ministry of
Labor. They are few, given the scope of their responsibilities. Courts
impose fines and sometimes prison terms for violation of health and
safety laws. Workers have the right to remove themselves from dangerous
work situations without jeopardy to their continued employment. Women
are usually forbidden to work at night.
f. Rights in Sectors with U.S. investment.--Conditions do not
differ from those in other sectors of the economy.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 549
Total Manufacturing........................... 11,549
Food & Kindred Products..................... 849
Chemicals & Allied Products................. 3409
Metals, Primary & Fabricated................ 539
Machinery, except Electrical................ 2681
Electric & Electronic Equipment............. 1892
Transportation Equipment.................... 395
Other Manufacturing......................... 1784
Wholesale Trade............................... 2537
Banking....................................... 320
Finance/Insurance/Real Estate................. 1900
Services...................................... 1474
Other Industries.............................. 358
TOTAL ALL INDUSTRIES.......................... 18,687
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
NETHERLANDS
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated] \1\
------------------------------------------------------------------------
1995 1996 1997 \2\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \3\........................... 394.4 395.0 362.3
Real GDP Growth (pct) \4\................. 2.3 3.3 3.75
GDP by Sector:
Agriculture............................. 14.8 14.3 12.7
Manufacturing........................... 61.3 59.3 52.9
Services................................ 224.1 220.4 196.7
Government.............................. 35.8 34.2 30.6
Per Capita GDP (US$)...................... 25,611 25,652 23,373
Labor Force (000s)........................ 6,394 6,471 6,557
Unemployment Rate (percent)............... 8.3 7.6 6.9
Money and Prices (annual percentage growth):
Money Supply (M2)......................... 4.8 5.4 8.0
Consumer Price Inflation.................. 2.0 2.1 2.25
Exchange Rate (guilders/US$ - annual
average)
Official................................ 1.61 1.69 1.95
Balance of Payments and Trade:
Total Exports (FOB) \5\................... 210.1 212.0 203.1
Exports to U.S.\6\...................... 6.4 6.6 7.0
Total Imports (CIF) \5\................... 185.0 186.7 179.1
Imports from U.S.\6\.................... 16.6 16.6 19.0
Trade Balance \5\......................... 15.6 15.0 12.3
Balance with U.S.\6\.................... -10.2 -10.0 -12.0
Current Account Surplus/GDP (pct)......... 6.2 6.3 7.0
External Public Debt \6\.................. 0 0 0
Debt Service Payments/GDP (pct) \7\....... 9.0 8.3 6.9
Fiscal Deficit/GDP (pct).................. 4.0 2.3 2.0
Gold and Foreign Exchange Reserves........ 42.6 36.4 33.0
Aid from U.S.............................. 0 0 0
Aid from All Other Sources................ 0 0 0
------------------------------------------------------------------------
\1\ All figures have been converted at the average guilder exchange rate
for each year.
\2\ 1997 figures are official forecasts or estimates based on available
monthly data in October 1997
\3\ GDP at factor costs
\4\ Percentage changes calculated in local currency
\5\ Merchandise trade
\6\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
FAS, imports customs basis; 1997 figures are estimates based on data
available through October 1997.
\7\ All public debt is domestic and denominated in guilders. Debt
service payments refers to domestic public debt.
Sources: Central Bureau of Statistics (CBS), Netherlands Central Bank
(NB), Central Planning Bureau (CPB)
1. General Policy Framework
The Netherlands is a prosperous and open economy, and depends
heavily on foreign trade. It is noted for stable industrial relations;
a large current account surplus from trade and overseas investments;
net exports of natural gas; and a location as a European transportation
hub with excellent ports, and air, road, rail, and inland waterway
transport.
Dutch trade and investment policy is among the most open in the
world. The government has reduced its role in the economy since the
1980s, and privatization and deregulation continue with little debate
or opposition. Nevertheless, the state dominates the energy sector, and
plays a large role in public transport, aviation, and
telecommunications.
Dutch economic policy is geared towards environmentally sustainable
economic growth and development by way of economic restructuring,
energy conservation, environmental protection, regional development,
and other national goals. Policy is guided by a national environmental
action plan.
A three-party coalition in office since August 1994, is nearing the
end of its term in office, and general elections are planed for May,
1998. Helped by strong (by EU standards) economic growth, the coalition
has achieved many of its policy targets agreed in the 1994 coalition
accord. The Dutch economy continues as one of Europe's strongest, and
can look forward to continued brisk GDP growth in 1997 (3.25 percent)
and 1998 (3.75 percent), fueled predominantly by rising consumer
demand, higher investment, and firming exports. This is the strongest
economic growth performance in the 1990s. A swine fever epidemic which
swept through the Netherlands in 1997 has reduced the growth outlook
for that year by at least 0.6 percentage points. Consumer price
inflation of slightly over two percent in 1997 and 1998 continues
moderate, and unemployment of less than seven percent (EU definition)
remains well below the EU average. A strong current account surplus of
well over seven percent of GDP in 1997 and 1998 continues as one of the
strong features of the Dutch economy.
The Netherlands has been relatively successful in meeting the
criteria for European Economic and Monetary Union (EMU). Fiscal policy
aims at striking a balance between further reducing public spending,
and lowering taxes and social security contributions. The budget
deficit should fall from 2.3 percent of GDP in 1996 to 1.4 percent
1998, which is well below the three percent EMU criterion. The stock of
public debt will fall from a high of 77.2 percent of GDP in 1996 to
70.4 percent in 1998, still well over the 60 percent EMU criterion. A
falling budget deficit is expected to further reduce the debt to GDP
ratio, and close the gap with the EMU debt criterion.
The deficit is largely funded by government bonds. Since January 1,
1994, financing has also been covered by Dutch Treasury Certificates
(DTC). DTCs replace a standing credit facility for short-term deficit
financing with the Central Bank which, under the Maastricht Treaty, was
abolished in 1994.
2. Exchange Rate Policies
Dutch monetary policy aims at exchange rate stability. This is
regarded as a sine-qua-non for a small open economy like the
Netherlands, which is heavily dependent on foreign trade. Since the
European Monetary System (EMS) was introduced in 1979, the Netherlands
Central Bank (NB) has maintained a stable exchange rate between the
guilder and the German mark using interest rate policy. The guilder is
one of Europe's strongest currencies and remains in the original EMS
2.25 point fluctuation band. A strong guilder should encourage imports
from the United States and reduce exchange rate risk for U.S. investors
in the Netherlands. There are no multiple exchange rate mechanisms.
There are no exchange controls, although Netherlands residents must
obtain an NB exchange license for certain large international financial
transactions.
The NB controls money market rates by adjusting short term rates
and by varying the terms of banks' access to NB financing. The NB's
open market policy gives the bank a tool to influence short term rates.
3. Structural Policies
Tax policies: The Dutch recently took the first step towards a
fundamental reform of the tax system, partly with a view to further EU
integration. The new tax regime for the 21st century entails a
substantial reduction of wage and individual income taxes, and
simultaneous broadening of the tax base as well as rising VAT rates.
The highest marginal tax rate on wage and salary income will be reduced
from 60 percent to 50 percent. When implemented, the new tax plan will
yield a more transparent and equitable tax system and result in an
appreciable shift from taxation of labor to taxation of consumption.
The Dutch corporate income tax rate is among the lowest in the EU. As
of January 1, 1997, corporations (including foreign-owned corporations)
pay a standard corporate tax rate of 36 percent over the first 100,000
guilders of profits, with the excess being taxed at 35 percent.
Effective January 1, 1998, the 36 percent rate will be further reduced,
resulting in a rate of 35 percent on all taxable profits. In recent
years, Dutch and foreign multinationals have increasingly established
their group finance activities outside the Netherlands due to
attractive tax regimes elsewhere. In an attempt to reverse this trend,
a bill became effective January 1, 1997, offering finance companies of
multinationals a more friendly tax regime. Under certain conditions,
companies conducting group financing activities will be allowed to
establish an international financial services reserve for tax purposes
of up to 80 percent of its annual profits. The reduced profits will
then be subject to the standard corporate tax rate
Regulatory Policies: Limited, targeted, transparent investment
incentives are used to facilitate economic restructuring and to promote
economic growth throughout the country. Measures blend tax incentives
and subsidies and are available to foreign and domestic firms alike.
There are also subsidies to stimulate R&D and to encourage development
and use of new technology by small and medium sized firms.
New Dutch competition legislation will become effective on January
1, 1998, which will comply with EU competition legislation. The new law
will include a provision for the supervision of company mergers by a
new competition agency. The law is expected to boost competition,
improve transparency, and provide greater de facto access to a number
of sectors for foreign companies.
4. Debt Management Policies
With a current account surplus of over seven percent of GDP and no
external debt, the Netherlands is a major creditor nation. The Dutch
have run a surplus on current account since the early 1980s. During
that period, gross public sector debt (EMU criterion) grew sharply, to
79.1 percent of GDP by 1995. Since the late 1980s, the Dutch fiscal
balance has drastically improved. Most observers now predict a
significant decline of the debt to GDP ratio towards the EMU 60 percent
criterion over the next four years. Debt servicing and rollover has
fallen to almost seven percent of GDP, with interest payments alone at
four percent of GDP. All government debt is domestic and denominated in
guilders. There are no difficulties in tapping the domestic capital
market for loans, and public financing requirements are generally met
before the end of each fiscal year. The Netherlands is a major foreign
assistance donor nation with a bilateral and multilateral development
assistance budget of 1.1 percent of GDP equal to $4.3 billion in 1998.
Official Development Aid (ODA) amounts to 0.8 percent of GDP or $3.1
billion. The Netherlands belongs to, and strongly supports, the IMF,
the World Bank, EBRD, and other international financial institutions.
5. Significant Barriers to U.S. Exports
The Dutch pride themselves on their open market
economy,nondiscriminatory treatment of foreign investment, and a strong
tradition of free trade. Foreign investors receive full national
treatment, and the Netherlands adheres to the OECD investment codes and
the international convention for dispute settlement. There are no
significant Dutch barriers to U.S. exports, and relatively few trade
complaints are registered by American firms against Dutch firms. The
few trade barriers that do exist result from common EU policies. The
following are areas of potential concern for U.S. exporters:
Agricultural trade barriers: These result from the Common
Agricultural Policy (CAP) and common external tariffs, which severely
limit imports of U.S. agricultural products. Bilateral import barriers,
although usually connected with EU-wide regulations, do arise in
customs duties, grading, inspection and quarantine. Overzealous
implementation of EU rules and procedures increasingly hinder commodity
and product entry. Although only a few cases have been reported to
date, an increasing pattern of delayed or rejected shipments of
agricultural commodities, food and beverages appears to have developed.
Also, in the absence of EU-wide regulations, tedious approval and
administrative procedures hamper the import of some agricultural
products, e.g., genetically modified organisms (GMOs). Some of these
rejections or delays in clearance cause major financial and logistical
problems to Dutch importers and U.S. exporters for particular products,
thus dampening trade prospects and flows.
Offsets for defense contracts: All foreign contractors must provide
at least 100 percent offset/compensation for defense procurement over
five million Dutch guilders (about $2.7 million). The seller must
arrange for the purchase of Dutch goods or permit the Netherlands to
domestically produce components or subsystems of the systems it is
buying. A penalty system for noncompliance with offset obligations is
under consideration.
Broadcasting and media legislation: The Media Act was amended in
1992 to admit local and foreign commercial broadcasters onto the cable
network. The Dutch comply with the EU Broadcast Directive, but U.S.
television shows and films are popular and readily available.
Cartels: Although the export sector of the Dutch economy is open
and free, cartels exist in the domestic sector of the economy. A new
cartel law which took effect in 1996 bans cartels unless its proponents
can conclusively demonstrate a public interest. The United States knows
of only two complaints by U.S. firms of having been disadvantaged by
cartels in the Netherlands, and neither involved U.S. exports.
Public procurement: Dutch public procurement practices comply with
the requirements of the GATT/WTO Agreement on Public Procurement and
with EU public procurement legislation. The Netherlands has fully
implemented the EU's Supplies Directive 93/36/EEC, Works Directive 93/
37/EEC, and the Utilities Directive 93/38/EEC. Implementation of EU and
GATT public procurement obligations have contributed to greater
transparency of the Dutch public procurement environment at central and
local government level. Independent studies show that transparency and
enforcement in this area can be deficient, especially at the local
level, and procurement may be contingent on offset or local content
requirements. The EU Utilities Directive may force more public
notification and end the effective duopoly in Dutch power generation
and distribution.
6. Export Subsidies Policies
Under the Export Matching Facility, the Dutch government provides
interest subsidies for Dutch export contracts competing with government
subsidized export transactions in third countries. These subsidies
bridge the interest cost gap between Dutch export contracts and foreign
contracts which have benefited from interest subsidies. The government
provides up to 10 million guilders (about $5.5 million) of interest
subsidies per export contract, up to a maximum of 35 percent per export
transaction. An export transaction must have at least 60 percent Dutch
content to be eligible. For defense, aircraft and construction
transactions, the minimum Dutch content is one-third.
There is a local content requirement of 70 percent for exporters
seeking to insure their export transactions through the Netherlands
Export Insurance Company. The Dutch provide some subsidies for
shipping. Under strict conditions, Dutch ship owners ordering new
vessels or buying existing vessels not older than five years may be
eligible for a premium of 10 percent of the contract price distributed
over five years. The government may also guarantee loans to Dutch
shipping companies for investment purposes. The present guideline is
the seventh EU Directive. In conformity with the OECD understanding on
subsidies, the government also grants interest rate subsidies (maximum
two percent) to Dutch shipbuilders up to 80 percent of a vessel's cost
with a maximum repayment period of 8.5 Years. This subsidy is only
available when ``matched'' by similar offers by non-EU shipyards. As
long as 1994 OECD agreement to phase out shipbuilding subsidies
internationally has not been ratified by all parties, the Dutch will
continue to support their shipbuilding industry. Despite termination of
the EU shipbuilding subsidies regime in 1996, the shipbuilding
subsidies budget earmarks 30 million guilders ($18 million) in 1997.
7. Protection of U.S. Intellectual Property
The Netherlands has a generally good record on IPR protection, with
the exception of the enforcement of antipiracy laws. It belongs to the
World Intellectual Property Organization (WIPO), is a signatory of the
Paris Convention on industrial property and the Bern copyright
convention, and conforms to accepted international practice for
protection of technology and trademarks. Patents for foreign investors
are granted retroactively to the date of original filing in the home
country, provided the application is made through a Dutch patent lawyer
within one year of the original filing date. Patents are valid for 20
years. Legal procedures exist for compulsory licensing if the patent is
determined to be inadequately used after a period of three years, but
these procedures have rarely been invoked. Since the Netherlands and
the United States are both parties to the Patent Cooperation Treaty
(PCT) of 1970, patent rights in the Netherlands may be obtained if PCT
application is used.
The Netherlands is a signatory of the European Patent Convention,
which provides for a centralized Europe-wide patent protection system.
This convention has simplified the process for obtaining patent
protection in the member states. Infringement proceedings remain within
the jurisdiction of the national courts, which could result in
divergent interpretations detrimental to U.S. investors and exporters.
The limited scope of resources devoted to enforcement of antipiracy
laws is of concern to U.S. producers of software, audio and video
tapes, and textbooks. Legislation was enacted in early 1994 to
explicitly include computer software as intellectual property under the
copyright statutes, and the government is working with industry on
enforcement.
8. Worker Rights
a. The Right of Association.--The right of Dutch workers to
associate freely is well established. One quarter of the employed labor
force belongs to unions, but union-negotiated collective bargaining
agreements are usually extended to cover about three quarters of the
workforce. Membership in labor unions is open to all workers including
military, police, and civil service employees. Unions are entirely free
of government and political party control and participate in political
life. They also maintain relations with recognized international bodies
and form domestic federations. The Dutch unions are active in promoting
worker rights internationally. All union members, except most civil
servants, have the legal right to strike. Civil servants have other
means of protection and redress. There is no retribution against
striking workers. In the European Union, the Netherlands has one of
lowest percentages of days lost due to labor strikes. In 1996, seven
days were lost due to industrial disputes compared with 691 days in
1995.
b. The Right to Organize and Bargain Collectively.--The right to
organize and bargain collectively is recognized and well-established.
There are no union shop requirements. Discrimination against union
membership is illegal and does not exist. Dutch society has developed a
social partnership among government, private employers, and trade
unions. This tripartite system involves all three participants in
negotiating guidelines for collective bargaining agreements which, once
reached in a sector, are extended by law to cover the entire sector.
Such generally binding agreements (AVVs) cover most Dutch workers.
c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory
labor is prohibited by the constitution and does not exist.
d. Minimum Age for Employment of Children.--Child labor laws exist
and are enforced. The minimum age for employment of young people is 16.
Even at that age, youths may work full time only if they have completed
the mandatory 10 years of schooling and only after obtaining a work
permit (except for newspaper delivery). Those still in school at age 16
may not work more than eight hours per week. Laws prohibit youths under
the age of 18 from working at night, overtime, or in areas which could
be dangerous to their physical or mental development. In order to
promote the employment of young people who have finished formal
schooling, the Netherlands has a reduced minimum wage for employees
between ages 16 and 23.
e. Acceptable Conditions of Work.--Dutch law and practice
adequately protect the safety and health of workers. A forty hours work
week is established by law, but collective bargaining agreements often
set a shorter work week. The average work week for adults working full
time is 38 hours, but collective bargaining negotiations are heading
towards and eventual 36 hours work week. The high level of part-time
work have lowered the estimated actual work week to 35.8 hours.
Collective bargaining negotiations are heading towards an eventual 36
hours work week for full-time employees. The legally-mandated minimum
wage is subject to semiannual living cost adjustment. Working
conditions are set by law, and regulations are actively monitored.
f. Rights in Sectors with U.S. Investments.--The worker rights
described above hold equally for sectors in which U.S. capital is
invested.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 2564
Total Manufacturing........................... 10,472
Food & Kindred Products..................... 1224
Chemicals & Allied Products................. 4058
Metals, Primary & Fabricated................ 585
Machinery, except Electrical................ 1029
Electric & Electronic Equipment............. 839
Transportation Equipment.................... 548
Other Manufacturing......................... 2190
Wholesale Trade............................... 3910
Banking....................................... 134
Finance/Insurance/Real Estate................. 23,592
Services...................................... 2424
Other Industries.............................. 1571
TOTAL ALL INDUSTRIES.......................... 44,667
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
NORWAY
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP............................. 146,531 157,533 159,000
Real GDP Growth (pct)................... 3.6 5.3 3.9
GDP By Sector:
Agriculture........................... 3,604 3,476 3,450
Oil and Gas Production................ 16,713 23,268 24,000
Manufacturing......................... 18,145 18,500 18,000
Services.............................. 84,854 87,845 88,550
Government............................ 23,215 24,444 25,000
Per Capita GDP.......................... 33,570 35,930 36,095
Labor Force (000s)...................... 2,131 2,246 2,303
Unemployment Rate (percent)............. 4.9 4.9 4.2
Money and Prices:
Money Supply (M2) (pct. ch.)............ 5.4 6.2 4.8
Cons. Price inflation (pct. ch.)........ 2.4 1.3 2.5
Exchange Rate \2\ (NOK/US$)............. 6.34 6.46 7.05
Balance of Payments And Trade:
Total Exports FOB....................... 42,151 49,796 48,500
Exports to U.S.\3\.................... 2,508 3,509 3,100
Total Imports CIF....................... 34,214 36,896 36,500
Imports from U.S.\3\.................. 2,183 2,380 2,450
Trade Balance........................... 7,937 12,900 12,000
Balance with U.S...................... 325 1,129 650
External Public Debt.................... 9,686 6,892 3,000
Debt Service Payments................... 976 2,857 3,960
Fiscal Surplus/GDP (pct)................ 0.4 6.3 6.7
Current Acc. Surplus/ GDP (pct)......... 3.3 7.2 8.6
Gold And Foreign Exchange Res........... 22,664 26,368 34,000
Aid from U.S............................ 0 0 0
Aid from other Countries................ 0 0 0
------------------------------------------------------------------------
\1\ 1997 Figures are all Estimates Based on Monthly Data in November
1997
\2\ Central Bank overnight lending rate; Not annual percentage growth
\3\ Norwegian foreign trade statistics. Exports exclude Norwegian oil
shipped to the U.S. from terminals overseas
1. General Policy Framework
Exploitation of Norway's vast energy resources--including oil, gas,
and hydropower--will continue to drive the country's economic growth
for at least the next two decades. Offshore, Norway's remaining
discovered oil reserves will last for another 16 years at current
extraction rates, while the equivalent figure for natural gas is 108
years. Energy-intensive industries such as metal processing and
fertilizer production will remain prominent on the mainland due to the
availability of abundant hydropower.
Some constraints continue to limit Norway's economic flexibility
and ability to maintain international competitiveness. Availability of
labor is limited by Norway's small 4.3 million population and a
restrictive immigration policy. Norway is also a high-cost country with
a highly centralized collective bargaining process and the government
providing generous social welfare benefits. Several inefficient
sectors, including agriculture, survive largely through subsidies and
protection from international competition. These sectors face a long
period of adjustment as the government implements its obligations under
the Uruguay Round and the European Economic Area (EEA) Accord, which is
bringing Norway into the European Union's (EU's) ``Single Market.''
State intervention in the economy remains significant. The
government owns just over 50 percent of domestic businesses, including
majority stakes in the two largest industrial conglomerates and the two
largest commercial banks. While new legislation governing investment
was implemented in 1995 to meet EEA and WTO obligations, screening of
foreign investment and restrictions on foreign ownership remains.
The government's dependence on petroleum revenue has increased
substantially since the early 1970's, generating an estimated 22
percent of total government 1997 revenue. Following the 1986 collapse
of world oil prices, the government used oil revenue to cover
shortfalls in the non-oil portion of the budget in the 1986-1994
period. With overall budget posting a surplus in 1995, Norway has
eliminated its net foreign debt; and the government is projecting a
budget surplus of about USD nine billion (15 percent of the budget) for
1997. The surplus is being set aside in an oil fund to supplement
future budgets after 2015, when oil revenues may be substantially less.
No general tax incentives exist to promote investment, although tax
credits and government grants are offered to encourage investment in
northern Norway. Several specialized state banks provide subsidized
loans to sectors including agriculture and fishing. Transportation
allowances and subsidized power are also available to industry.
Although rejecting EU membership in November 1994 following a
national referendum, Norway has preferential access to EU markets and
theoretically is bound to nearly all EU directives (except regulating
agriculture) through the EEA Accord which entered into force in January
1994. The former Labor party government (which resigned October 13) had
announced it did not plan to apply for EU membership in the 1997-2000
period, The new centrist coalition government has no plans for EU
membership.
The government controls the growth of the money supply through
reserve requirements imposed on banks, open market operations, and
variations in the Central Bank overnight lending rate. Since the
government's priority is to maintain a stable exchange rate, the
Central Bank's flexibility is limited in using the money supply as an
independent policy instrument.
2. Exchange Rate Policy
The Norwegian Krone remains on a managed float with the central
bank using open market operations and interest rate policy to keep the
currency stable. While the Krone was unpegged from the ECU in December
1992, Norway continues to keep the Norwegian Krone stable vis-a-vis
European currencies included in the ECU. The New Coalition Government
has announced that this policy will continue until further notice.
Quantitative restrictions on credit flows from private financial
institutions were abolished in the late 1980's. Norway dismantled most
remaining foreign exchange controls in 1990. U.S. companies operating
within Norway have never reported problems to the Embassy in remitting
payments.
3. Structural Policies
The government's highest economic priorities include maintaining
high employment, generous welfare benefits, and rural job
opportunities. Thus, parts of the mainland economy--particularly
agriculture and rural industries--remain protected and cost inefficient
from a global viewpoint with Norway's agricultural sector remaining the
most heavily subsidized in the OECD. While some progress has been made
in reducing subsidies in the manufacturing industry, support remains
significant in areas including food processing and shipbuilding
A revised legal framework for the functioning of the financial
system was adopted in 1988, strengthening competitive forces in the
market and bringing capital adequacy ratios more in line with those
abroad. Further liberalization in the financial services sector
occurred when Norway joined the EEA and accepted the EU's banking
directives. The Norwegian banking industry has returned to
profitability following reforms prompted by the banking crises in the
early 1990's.
Norway has taken some steps to deregulate the non-bank service
sector. However, large parts of the transportation and
telecommunications markets remain subject to restrictive regulations,
including statutory barriers to entry. Looking ahead, the GON remains
committed to an ambitious structural reform program which may gradually
improve U.S. market access, but progress will likely be slow for
political reasons.
4. Debt Management Policies
Norway's prudent budgetary and foreign debt policies in recent
years are limiting the state's exposure in foreign markets. The
government's gross external debt (about USD seven billion at the end of
1996) will likely decline through 1997 and 1998 thanks to the GON's
strong financial position. Norway's overall public and private foreign
debt (foreign liabilities less foreign assets) evaporated in mid-1995
with rising foreign trade surpluses contributing to the improvement.
Since 1990, the Government has allowed the private sector increased
access to long-term foreign capital markets to facilitate improvements
in the term structure of its foreign debt. Following the floating of
the krone in December 1992, foreign capital inflows have contributed to
falling Norwegian interest rates.
5. Aid
There are no aid flows between Norway and the U.S.
6. Significant Barriers to U.S. Exports
Norway supports the principles of free trade but significant
barriers to trade remain in place. While Norway is in the process of
reforming its agricultural support regime, the government maintains
high agricultural tariffs which are administratively adjusted when
internal market prices fall outside certain price limits. These
unpredictable administrative tariff adjustments disrupt advance
purchase orders and severely limit agricultural imports into Norway
from the U.S. and other distant markets.
State ownership in Norwegian industry continues to raise
competitive issues in a number of sectors including telecommunications,
financial services, oil and gas, and alcohol and pharmaceutical
distribution. Despite some ongoing reforms, Norway still maintains
regulatory practices, certification procedures and standards that limit
market access for U.S. materials and equipment in a variety of sectors,
including telecommunications and oil and gas materials and equipment.
While there has been substantial banking reform, competition in
this sector still remains distorted due to government ownership of the
two largest commercial banks, and the existence of specialized state
banks which offer subsidized loans in certain sectors and geographic
locations.
Restrictions also remain in the distribution of alcohol and medical
drugs, which historically have been handled through state monopolies.
Norway is obligated to terminate these monopolies under the EEA Accord
but implementation is slow. The European Free Trade Association (EFTA)
Surveillance Agency (ESA--the organization responsible for insuring EEA
compliance) has been monitoring Norway's progress in these areas. While
Norwegian policy clearly favors liberalization, progress has been
limited due to opposition by Norwegian trade unions and other interest
groups which are concerned about safeguarding national ownership.
7. Export Subsidy Policies
As a general rule the Government of Norway does not subsidize
exports, although some heavily subsidized goods, such as dairy
products, may be exported. The Government indirectly subsidizes
chemical and metal exports by subsidizing the electricity costs of
manufacturers. In addition, the Government provides funds to Norwegian
companies for export promotion purposes. Under its WTO obligations,
Norway is reducing its agricultural subsidies in stages over six years.
Norway has also ratified the OECD shipbuilding subsidy agreement and
will eliminate shipbuilding subsidies as soon as the agreement is
ratified by other major shipbuilders including the United States and
Japan.
8. Protection of U.S. Intellectual Property
The impact of Norwegian IPP practices on U.S. trade is negligible.
Norway is a signatory of the main intellectual property accords,
including the Bern Copyright and Universal Copyright Conventions, the
Paris Convention for the Protection of Industrial Property, and the
Patent Cooperation Treaty.
Norwegian officials believe that counterfeiting and piracy are the
most important aspects of intellectual property rights protection. They
complain about the unauthorized reproduction of furniture and appliance
designs and the sale of the resultant goods in other countries, with no
compensation to the Norwegian innovator.
Product patents for pharmaceuticals became available in Norway in
January 1992. Previously, only process patent protection was provided
to pharmaceuticals.
9. Worker Rights
a. The Right of Association.--Workers have the right to associate
freely and to strike. The Government can invoke compulsory arbitration
under certain circumstances with the approval of Parliament.
b. The Right to Organize and Bargain Collectively.--All workers,
including government employees and the military, have the right to
organize and to bargain collectively. Labor legislation and practice is
uniform throughout Norway.
c. Prohibition of Forced or Compulsory Labor.--Forced labor is
prohibited by law and does not exist.
d. Minimum Age for Employment of Children.--Children are not
permitted to work full time before age 15. Minimum age rules are
observed in practice.
e. Acceptable Conditions of Work.--Ordinary working hours do not
exceed 37.5 hours per week, and 25 working days of paid leave are
granted per year (31 for those over 60). There is no minimum wage in
Norway, but wages normally fall within a national wage scale negotiated
by labor, employers, and the government. The Workers' Protection and
Working Environment Act of 1977 assures all workers safe and physically
acceptable working conditions.
f. Rights in Sectors with U.S. Investment.--Norway has a tradition
of protecting worker rights in all industries, and sectors where there
is heavy U.S. investment are no exception.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 3898
Total Manufacturing........................... 705
Food & Kindred Products..................... \1\
Chemicals & Allied Products................. 16
Metals, Primary & Fabricated................ 3
Machinery, except Electrical................ 36
Electric & Electronic Equipment............. -1
Transportation Equipment.................... \1\
Otther Manufacturing........................ 19
Wholesale Trade............................... 353
Banking....................................... \1\
Finance/Insurance/Real Estate................. 763
Services...................................... \1\
Other Industries.............................. 73
TOTAL ALL INDUSTRIES.......................... 6103
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
POLAND
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP............................. 119,100 134,500 137,000
Real GDP Growth (pct)................... 7.0 6.1 5.5
GDP by Sector (pct):
Agriculture........................... 6.4 5.8 N/A
Manufacturing......................... 21.7 20.6 N/A
Services.............................. N/A N/A N/A
Government............................ N/A N/A N/A
Per Capita GDP (US$).................... 3,084 3,482 3,800
Labor Force (000s)...................... 17,597 17,847 17,550
Unemployment Rate (pct)................. 14.9 13.2 10.7
Money and Prices (annual percentage
growth):
Money Supply Growth (M2)................ 34.9 29.3 25.3
Consumer Price Inflation................ 21.6 18.5 13.0
Exchange Rate (PZL/US$ - annual average)
Official.............................. 2.42 2.70 3.30
Balance of Payments and Trade:
Total Exports FOB \2\................... 22.9 24.4 26.4
Exports to U.S.\3\.................... 0.6 0.6 0.7
Total Imports CIF....................... 29.1 37.1 44.5
Imports from U.S.\3\.................. 0.77 0.97 1.2
Trade Balance........................... -6.2 -12.7 -18.1
Balance with U.S.\3\.................. -0.11 0.34 -0.52
External Public Debt.................... 44.0 40.6 38.4
Fiscal Deficit/GDP (pct)................ 2.6 2.5 2.2
Current Account Surplus/Deficit/GDP
(pct) \4\.............................. 4.6 -1.0 N/A
Debt Service Payments/GDP (pct)\5\...... 2.9 1.9 1.8
Gold and Foreign Exchange Reserves...... 15.0 18.0 20.1
Aid from U.S. (USD millions) \6\........ 90.4 66 52.7
Aid from Other Sources (USD millions)... 390 419 N/A
------------------------------------------------------------------------
\1\ 1997 figures are Polish Government predictions as of Oct. 1997,
unless otherwise noted
\2\ Source: Polish Government trade figures, which include direct trade
only. U.S. data includes transshipments via third countries
\3\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
FAS, imports customs basis; 1997 figures are Embassy estimates based
on data available through August 1997.
\4\ Including estimated unrecorded trade
\5\ Debt service includes paid interest and principal.
\6\ Source: U.S. Government estimate.
1. General Policy Framework
Introduction: Since 1989, Poland has steadfastly pursued a policy
of liberalizing trade, investment and capital flow measures; it stands
out as one of the most successful and open transition economies. In
1997, Poland is expected to post its fourth year of GDP growth above 5
percent and is expected to maintain this pace through the year 2000.
The privatization of small and medium state-owned companies and a
liberal law on establishment allowed for the rapid development of a
vibrant private sector responsible for at least two-thirds of economic
activity. In contrast, Poland's large agriculture sector remains
handicapped by structural problems, surplus labor, inefficient small
farms, and lack of investment. A shadow ``grey economy'' is estimated
at 15--20 percent of GDP.
Government Priorities: The government's determination to enter the
EU affects all parts of its economic policies. The chair of the
Committee for European Integration is a position of cabinet level rank.
Each ministry has an EU integration department. The Poland--EU
Association Agreement has resulted in growing tariff differentials some
U.S. exporters have said will disadvantage them.
Improving Poland's worsening current account deficit is a priority.
To date, the government has resisted pressure for protectionist
solutions and continues to support regional free trade initiatives.
Poland is an active member of the Central European Free Trade Agreement
(CEFTA). In 1997 Poland also signed free trade agreements with Croatia,
Israel and Lithuania. The government approved an export strategy which
emphasizes promotion and a more aggressive export assistance program.
Fiscal Policy: The government continues to hold the budget deficit
to less than three percent of GDP (if privatization revenues are
included and certain unfunded liabilities are excluded). Domestic
commercial banks finance most of the deficit. Further progress on
public finance depends mainly on comprehensive reform of the social
welfare system and privatization of Poland's remaining state sector.
The social welfare system consumes around 16 percent of GDP, funded in
part by a 48 percent payroll tax. Poland implemented a limited mass
privatization plan through national investment funds in which over 90
percent of those eligible participated. However, restructuring and
privatization of ``sensitive sectors'' (eg. coal, steel) has been
delayed; the government has also postponed long-awaited privatizations
in aviation, energy, and telecommunications.
Monetary Policy: The President of the independent National Bank of
Poland (NBP) sets monetary policy and has had considerable success at
reducing inflation through control of the money supply. Starting in
1998, monetary policy will be set by an independent committee selected
by the President and the parliament. The NBP's principal tools have
been reserve requirements, basic interest rates, and open market
operations. The NBP's tight money policies have contributed to a
reduction in inflation from 600 percent in 1990 to 13 percent in 1997.
In an effort to slow the growth in domestic demand for credits, the NBP
significantly tightened monetary policy. In 1997 it raised interest
rates, increased reserve requirements and even began taking retail
deposits. Real deposit interest rates rose from 0 percent in 1996 to 5
percent in mid-1997.
2. Exchange Rate Policies
In 1991 the NBP began managing the exchange rate through a crawling
peg mechanism against a basket of reserve currencies (in percentage
terms: Dollar--45; D-Mark--35; Sterling--10; and French and Swiss
Francs--5 each). Since mid-1995, the zloty has been allowed to float
within a seven percent band of the peg. The zloty depreciated against
the dollar in real terms about ten percent in 1995 and 1996, which
should benefit U.S. exporters.
Poland has consistently followed a policy of liberalizing exchange
rate controls, achieving IMF Article VIII current account
convertibility in 1995. In 1996, the government eliminated the
requirement for Polish firms to convert their foreign currency earnings
into zloty. As part of the OECD accession process, Poland liberalized
rules governing capital account transactions and in 1997 removed nearly
all limits on capital account outflows by Polish citizens.
In 1998, the Polish zloty is to become fully convertible in current
account transactions, payments and transfers. The new regulations will
also liberalize capital flow to and out of Poland, although certain
restrictions will remain as regards Polish investments in countries
which are not members of OECD and with which Poland has not concluded
relevant bilateral agreements (permits will be required from the
central bank). There will also be restrictions concerning deposits by
foreign nationals in Polish banks.
3. Structural Policies
Prices Most subsidies and controls on the prices of consumer goods
were eliminated in Poland's 1990 ``big bang'' shock therapy. Price
controls on fuel (especially coal), and electricity continue, though
the Polish government has pledged to the EU to deregulate prices and
start to privatize both sectors in the next several years.
Taxes: Poland introduced a value added tax in 1993. In 1996 the
Polish Parliament voted to reduce corporate tax from 40 percent in 1996
to 32 percent by 2000. Poland continues to establish special economic
zones which provide foreign investors with substantial tax holidays.
Personal income tax rates range from 20 to 44 percent, though the
Ministry of Finance would like to lower the highest rate to 40 percent
in 1998. U.S. investors often complain about inconsistent tax
administration. The lowering of tariffs in line with WTO, EU and CEFTA
commitments and the elimination of the three percent import surcharge
in 1997 has diminished customs receipts.
Regulatory Policies: The primary difficulties concern product
certification standards (below) and regulation of telecommunications in
favor of the state-owned telephone company. New products/technology
never before sold in Poland require Ministry of Industry approval.
4. Debt Management Policies
Poland's foreign debt situation has dramatically improved since its
default in the 1980s. The agreements with the Paris Club (1991) and the
London Club of commercial banks (1994), reduced debt by nearly half
($23 billion in net present value terms). At the end of 1997, Poland's
total foreign debt was estimated at $38.4 billion, including $27.5
billion to the Paris Club, $7.7 billion Brady bonds, $1.9 billion to
the World Bank, and $0.72 billion Eurobonds. Total repayments for 1997
total $2.4 billion ($1.0 billion in principal, $1.4 billion in
interest), amounting to 9.0 percent of exports and 1.8 percent of GDP.
Flush with soaring foreign exchange reserves, Poland fully repaid its
IMF drawings in July 1995. In 1995 it also received an investment grade
rating from various rating agencies and returned to international
capital markets with a $250 million Eurobond flotation. Total state
debt (foreign and domestic) shrank to 51.3 percent of GDP by 1997. The
new constitution prohibits the NBP from financing the budget deficit
(as of 1 January 1999).
5. Aid
The U.S. provided Poland with $52.7 million in aid in 1997. Of this
sum, $40.13 million was SEED Act funds to help Poland's transition to a
free market democracy. The remaining $12.5 million was military aid.
6. Significant Barriers to U.S. Exports
Import Licenses: Poland is a member of the WTO. Import licenses are
required for strategic goods on the Wassenaar dual use and munitions
lists. It also issues licenses for beer and wine, fuel, tobacco, dairy
and poultry. The plant quarantine inspection service issues a mandatory
phytosanitary import permit for all imports of live plants, fresh
fruits, and vegetables into Poland. Several common weed seeds have
quarantine status, which hampers U.S. grain exports to Poland.
Certificates from the Veterinary Department in the Ministry of
Agriculture are also required for meat, dairy and live animal products.
U.S. bovine genetics have only limited access to the Polish market. In
1997, Polish parliament passed a new animal breeding law which will
affect future access for livestock genetics products. The law will
become effective in April 1998.
Services Barriers: The situation in this area has improved, but
many barriers remain, especially in telecommunications, financial
services, and legal services. The government has announced a
privatization plan for the state telecommunications monopoly starting
in 1998 and agreed to open domestic long-distance service to
competition in 1999 and international services in 2003. Local service
licenses are being awarded, but interconnectability remains the domain
of the state monopoly. As a condition of its accession to the OECD,
Poland agreed to allow firms from OECD countries to open branches and
representative offices in the insurance and banking sector starting in
1999. The government allows foreign banks to open subsidiaries.
Beginning January 1998 a new banking law and a new law on the central
bank will come into force. A new law giving preferential treatment to
EU citizen lawyers was passed but has not yet gone into effect.
Standards, Testing, Labeling, and Certification: The primary Polish
regulation which may adversely affect U.S. exports is a requirement for
some 1400 products sold in Poland to obtain a safety ``B'' certificate
from a Polish test center. This regulation was initially set to go into
effect in 1995, but has been postponed and should go into effect in
1998. Under the ``B'' rule, the EU ``CE'' mark and ISO 9000 will
accelerate the certification process. New laws allowing for self-
certification may be implemented in 1998. U.S. companies have
complained about the complexity and slowness of the testing process as
well as vague information on fees and procedures.
Investment Barriers: Polish law permits 100 percent foreign
ownership of most corporations (sole proprietorships and partnerships
not allowed; the legal form requirement will remain through January 1,
1999). However, the outgoing government coalition declared that the
state should retain a key role in certain ``strategic sectors'':
mining, steel, defense, transportation, energy, banking, and
telecommunications. It is too early to tell how the new government will
deal with those sectors.
The Polish State Treasury often retains a significant stake in
enterprises being privatized. Foreign companies owning a large minority
stake are meant to have managerial control of the enterprise, but in at
least one joint venture, Centertel, the supposedly passive Polish
majority stake holder seized control and prevented additional
investment, leading the U.S. partner to file for arbitration. A
settlement was later reached in this case.
Certain controls remain on foreign investment. Broadcasting
legislation restricts foreign ownership to a 33 percent stake. Foreign
stakes in air and maritime transport, fisheries, and long-distance
telecommunications are capped at 49 percent. No foreign investment is
currently allowed in international telecommunications or gambling. The
government continues to work on auto assembly/manufacturing regulatory
changes which would encourage operators to increase domestic content
and move towards full manufacturing operations.
As a result of OECD accession, Poland allows foreign entities to
purchase up to 4000 square meters of urban land or up to one hectare of
agricultural land without a permit. Larger purchases, or the purchase
of a controlling stake in a Polish company owning real estate, require
approval from the Ministry of Interior and the consent of both the
Defense and Agriculture Ministries.
Government Procurement Practices: Poland's new government
procurement law is modelled on the UN model procurement code and based
on competition, transparency, and public announcement. It does not,
however, cover most purchases by state-owned enterprises. The only
single source breaches of the stated preference for unlimited tender
come for reasons of state security or national emergency. There have
been several complaints alleging lack of transparency and impartiality
in regard to the Huzar helicopter armament tender. The domestic
performance section in the law requires 50 percent domestic content and
gives domestic bidders a 20 percent price preference. Companies with
foreign participation organized under the Joint Ventures Act of 1991
may qualify for ``domestic'' status. There is also a protest/appeals
process for tenders viewed to be unfairly awarded. Since September
1997, Poland has the status of an observer to the WTO's Government
Procurement Agreement (GPA).
Customs Procedures: Poland has a harmonized tariff system, having
signed the GATT customs valuation code in 1989. The customs duty code
currently binding in Poland has different rates for the same
commodities, depending on the point of export. Poland's Association
Agreement with the EU, the CEFTA agreement and the FTA with Israel,
Croatia and Lithuania grants firms from these areas certain tariff
preferences over U.S. competitors.
Some American companies have been critical of Polish Customs'
performance, citing long delays, indifferent and incompetent officials,
and inconsistent application of customs rules. The Polish government
acknowledges the problems that developed since the opening of Poland's
economy in 1989 have overwhelmed border and port facilities and
personnel. In response, the Parliament overhauled customs law and
procedures. The new Customs Law will come into effect January 1998.
7. Export Subsidies Policies
With its 1995 accession to the WTO, Poland ratified the Uruguay
Round Subsidies Code. Poland has eliminated past practices of tax
incentives for exporters, but it provides for drawback levies on raw
material imports from EU and CEFTA countries which are processed and
reexported into finished products within thirty days. The sugar
refining industry, coal, and a number of politically powerful state-
owned enterprises continue to directly or indirectly receive production
subsidies which result in lower export prices. Poland's policy of
rolling-over unused WTO sugar subsidy allowances to be used in
combination with current year allowances has been protested by the U.S.
and others within the WTO.
Polish industry and exporters are critical of the government for
not providing more support for export promotion. The one existing
export insurance scheme has very limited resources and rarely
guarantees contracts to high-risk countries such as Russia, placing
Polish firms at a disadvantage to most western counterparts. It covers
only one percent of Polish exports.
8. Protection Of U.S. Intellectual Property
The Polish government has made major strides in improving
protection of intellectual property rights. The United States-Polish
Bilateral Business and Economic Treaty contains provisions for the
protection of U.S. intellectual property. It came into force in 1994,
once Poland passed a new copyright law which offers strong criminal and
civil enforcement provisions and covers literary, musical, graphical,
software, audio-visual works, and industrial patterns. Poland also
adheres to the Berne Convention (Paris Text, 1971), the Rome Convention
on Sound Recordings, and TRIPS provisions within the WTO. Poland's 1993
Patent Law, in all other ways adequate, did not provide 20 year
pipeline protection favored by the pharmaceutical industry.
Much of the pirated or fake items available in Poland are imported
from abroad (CDs from Bulgaria and Russia; hosiery from Italy) rather
than being manufactured in Poland. Industry associations estimate 1996
levels of piracy in Poland to be: 20 percent in sound recordings; 10
percent in books and video, and 80 percent in software.
While enforcement has improved noticeably, remaining difficulties,
particularly in the prosecution of IPR cases, allow for continuing, if
reduced, levels of piracy and trademark infringement. Due to a lack of
manpower and resources, Polish authorities often rely on rights holders
to provide preliminary evidence of violations. In one important 1996
case, a large U.S.-based firm successfully defended several trademarks
by employing local counsel.
9. Worker Rights
The Labor Code, which became effective June 1996, thoroughly
redefined the rights and duties of employers and employees in more
modern, free-market terms.
a. The Right of Association.--Polish law guarantees all civilian
workers, including military employees, police and frontier guards, the
right to establish and join trade unions of their own choosing, the
right to join labor federations and confederations, and the right to
affiliate with international labor organizations. Independent labor
leaders have reported that these rights are largely observed in
practice.
b. The Right to Organize and Bargain Collectively.--The laws on
trade unions and resolution of collective disputes generally create a
favorable environment to conduct trade union activity. Labor leaders,
however, reported numerous cases of employer discrimination against
workers seeking to organize or join unions in the growing private
sector.
c. Prohibition of Forced or Compulsory Labor.--Compulsory labor,
except for prisoners convicted of criminal offenses does not exist.
d. Minimum Age for Employment of Children.--Polish law contains
strict legal prescriptions over the conditions in which children may
work. The State Labor Inspectorate has reported that increasing numbers
of Polish children now work and that many employers violate labor rules
by underpaying or paying them late.
e. Acceptable Conditions of Work.--The large size of the grey
economy, along with the insufficient number of labor inspectors,
complicate enforcement of minimum wage requirements and minimum
workers' health and safety standards. Enforcement is a problem of
unclear jurisdiction.
f. Rights in Sectors with U.S. Investment.--Observance of the five
worker rights conditions in firms which have U.S. investment generally
meets and can exceed those in comparable Polish firms. Over the last
several years, there have been relatively few cases where Polish unions
have charged managers of U.S.-based firms of violating Polish labor
law; those that have arisen have been largely resolved. In cases where
American companies purchase an existing Polish enterprise, unions
usually continue to operate. There tend to be no unions, however, where
U.S. firms build new facilities.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 0
Total Manufacturing........................... 639
Food & Kindred Products..................... 267
Chemicals & Allied Products................. 38
Metals, Primary & Fabricated................ \1\
Machinery, except Electrical................ -4
Electric & Electronic Equipment............. -1
Transportation Equipment.................... \1\
Other Manufacturing......................... \1\
Wholesale Trade............................... 95
Banking....................................... \1\
Finance/Insurance/Real Estate................. 20
Services...................................... \1\
Other Industries.............................. 40
TOTAL ALL INDUSTRIES.......................... 933
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
PORTUGAL
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\........................... 103.5 108.0 101.5
Real GDP Growth (pct) \3\................. 2.3 3.3 3.5
GDP by Sector:
Agriculture............................. 4.9 5.0 5.1
Industry................................ 35.6 36.2 36.8
Services................................ 59.5 58.8 58.1
Per Capita GDP............................ 10,452 10,914 10,251
Labor Force (000s)........................ 4,551 4,583 4,622
Unemployment Rate (pct)................... 7.2 7.3 6.9
Money and Prices (annual percentage growth):
Money Supply (M2)......................... 8.1 9.3 3.0
Consumer Price Inflation (pct)............ 4.1 3.1 2.2
Exchange Rate (PTE/USD - annual average).. 150.0 154 175.0
Balance of Payments and Trade:
Total Exports FOB \4\..................... 24.1 25.3 24.1
Exports to U.S.\4\...................... 1.1 1.1 1.1
Total Imports CIF \4\................... 32.6 34.9 33.2
Imports from U.S.\5\.................... 0.9 1.1 1.2
Trade Balance \4\......................... -8.5 -9.6 -9.1
Balance with U.S.\5\.................... 0.2 0.0 -0.1
Current Account Deficit/GDP (pct)......... -0.7 -2.5 -2.0
External Public Debt...................... 12.3 12.6 12.7
Debt Service Payments/GDP (pct)........... 13.1 10.1 9.4
Fiscal Deficit/GDP (pct).................. 5.8 3.2 2.9
Gold and Foreign Exchange Reserves........ 21.7 21.4 18.7
Aid from U.S.............................. 0 0 0
Aid from All Other Sources................ N/A N/A N/A
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available monthly data in
October 1997.
\2\ GDP at factor cost
\3\ Percentage changes calculated in local currency
\4\ Merchandise trade
\5\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
FAS, imports customs basis; 1997 figures are estimates based on data
available through November 1997.
1. General Policy Framework
The government seeks to modernize Portuguese markets, industry,
infrastructure, and workforce in order to match the productivity and
income levels of its more advanced European Union (EU) partners.
Portugal's per capita GDP (on a purchasing power parity basis) rose to
close to 69.4 percent of the EU average in 1996 from 52.9 percent in
1985.
The government aims to be in the first round of EU countries to
join the European Economic and Monetary Union (EMU) on January 1, 1999.
Portugal currently meets three of the EMU convergence criteria--the
exchange rate, long-term interest rates, and inflation--and is on track
to satisfy the remaining two--the general government deficit and debt.
The current policy mix to ensure first-round EMU membership includes
continued budget discipline and tight monetary policy in support of a
stable exchange rate; wage moderation to support the disinflation
process; and privatization and free trade policies to increase the
efficiency and productivity of the economy.
Portuguese agriculture accounts for about 5 percent of GDP,
industry for 35 percent, and services for 60 percent. Portuguese
exports are based on both traditional industries--textiles, clothing,
footwear, cork/wood products, beverages (wine), porcelain/earthenware,
and glass/glassware--and burgeoning modern ones--machinery, transport
equipment (autos and components), minerals/metals, and chemicals. Sales
of the two year-old AutoEuropa (Ford/VW) plant amounted to 2.2 percent
of GDP
and 12 percent of merchandise exports in 1996. The tourism industry
continues to expand: some 23.3 million tourists visited Portugal in
1996 from Spain, the United Kingdom, Germany, France, the Netherlands,
Belgium, and the United States.
Portugal traditionally runs a large merchandise trade deficit,
which is made possible by net receipts from tourism, remittances from
Portuguese workers abroad, and net transfers from the EU. Net EU
transfers averaged over 3 percent of GDP during 1995-1997 and are
expected to be 2.6 billion dollars or 2.5 percent of GDP in 1998.
During 1989-1996, Portugal's current account was broadly in balance and
foreign direct investment averaged 2 percent of GDP.
Fiscal Policy: The government finances its deficit through issuance
of medium-term escudo and foreign currency-denominated treasury
obligations. The risk premium on 10-year escudo-denominated bonds
versus equivalent German bonds declined from over 400 basis points in
October 1995 to about 35 basis points in October 1997. The GOP enjoys a
solid international credit rating (AAA on long-term debt in escudos, AA
on long-term debt in foreign currency) and has ready access to
international financial markets. Three kinds of government spending put
pressure on the deficit: government personnel outlays, including
pensions; current transfers for social programs; and domestic
counterpart funding for major public investment projects co-financed
with the EU. As in other EU countries, value-added taxes (17 percent in
Portugal's case) raise prices to consumers. Other direct taxes, such as
the stamp tax on financial transactions, and the cylinder-based
automobile tax, affect product demand in specific markets.
Monetary Policy: The government subordinates monetary policy to the
need to maintain a stable exchange rate. Interest rates and the
monetary aggregates generally reflect market conditions. The Bank of
Portugal intervenes as necessary--through liquidity absorption/
provision and foreign exchange operations--to smooth market exchange
rate fluctuations and ensure medium-term price stability.
2. Exchange Rate Policy
Portugal participates in the Exchange Rate and Intervention
Mechanism (ERM) of the European Monetary System (EMS). In accordance
with this agreement, Portugal maintains the spot exchange rates between
the Portuguese escudo and the currencies of the other participants
within margins of 15 percent above or below the cross rates based on
the central rates expressed in European Currency Units (ECUs).
The monetary authorities have kept the escudo within a narrow band
around its central rate against the German mark for the past two years.
Strong dollar appreciation against the escudo in 1997 reduced the price
competitiveness of U.S. products in Portugal, but U.S. exports have
continued to grow in line with increased economic growth/import demand
in Portugal.
3. Structural Policies
The Portuguese government continues to liberalize the economy to
stimulate growth and convergence with EU standards. Investment in new
public infrastructure, privatization and foreign direct investment are
changing the face of the economy and creating demand for U.S. exports.
Portugal is rapidly improving its road, energy, health, and
environmental infrastructure. The government has earmarked a large
portion of its 20 billion dollar EU-backed regional development
financing package for 1997-2000 for new infrastructure projects. Site
construction and associated urban renewal for the Lisbon World
Exposition in 1998 involves investment of 5 billion dollars in the
Lisbon area, of which 3 billion dollars will have been made by 1998. A
4.5 billion dollar natural gas pipeline from Algeria through Morocco to
Spain and Portugal involves investment of 2 billion dollars in Portugal
and will supply 2.5 billion cubic metres of natural gas per year for 25
years on a take-or-pay basis. The northern rail modernization, subways,
dams, water treatment facilities, and environmental projects offer
numerous additional opportunities for U.S. exporters of equipment and
services.
The government has steadily rolled back the state presence in the
economy since joining the European Community in 1986. Full or partial
privatization of over 100 companies since 1989 (including major
banking, insurance, energy, telecommunications, cement, and steel
companies) has reduced the weight of the state-held sector in the
economy from 20 percent to 10 percent. By the end of 1997,
privatization will have yielded over 15 billion dollars in cumulative
receipts, equivalent to an average of almost 2 percent of GDP per year,
one of the highest ratios in the OECD. Privatization has helped to
reduce public debt, increased the efficiency of Portuguese industry,
promoted the development of the local equity market, and contributed to
the development of more sophisticated Portuguese industrial and
financial groups. Formerly state-owned companies will be streamlining
and upgrading operations under private management and thereby creating
new markets for U.S. goods and services.
Foreign investments in the automotive, electronics and financial
sectors are steadily integrating Portugal's economy with those of
Europe and other developed countries. These investments have direct
spiller effects for U.S. exports.
4. Debt Management Policies
Portugal's external public debt is relatively small and can be
serviced comfortably. Direct state external debt stands at about 12.7
billion dollars--12.5 percent of GDP and 68 percent of international
reserves. In July 1997, the debt service ratio stood at 9.4 percent,
with long-term principal and interest payments amounting to 6.9 percent
and 2.5 percent, respectively, of current account receipts. Large gold
and foreign exchange reserves (amounting to 18 percent of GDP), and the
ability to tap international financial markets on favorable terms,
enable Portugal to manage balance of payments pressures and maintain
financial stability.
Portugal is an aid donor nation and a Member of the OECD
Development Assistance Committee. Portugal closely follows development
issues in its former African colonies. Portugal's official development
assistance as a proportion of GDP peaked at 0.36 percent in 1992 and
fell to 0.25 percent in 1996. A large proportion of Portugal's aid is
in the form of debt forgiveness and refinancing on concessional terms
of private sector loans to Lusophone African countries, principally
Angola and Mozambique.
5. Significant Barriers to U.S. Exports
As of January 1, 1993, all barriers to trade, capital flows and
labor mobility between Portugal and its EU partners were eliminated.
Most barriers to U.S. exports, therefore, are common to all EU member
states.
Quantitative import restrictions remain for the following products:
automobiles, fabrics and nets, fuses, parts of footwear, iron and steel
tubes and pipes, and weaving machines for certain countries. Textiles
are covered by the Multi-Fiber Arrangement (MFA) and protected by EU-
wide quotas that are being phased out over 10 years under the Uruguay
Round Agreement.
Portugal follows EU directives for standards, testing, labeling,
and certification. The Portuguese Quality Institute establishes
national standards and implements EU directives. Portugal has already
adopted most EU directives into Portuguese law. The Portuguese
Telecommunications Institute sets standards for telecommunication
products, and the National Laboratory of Civil Engineering sets
construction standards.
Low voltage electrical and electronic equipment must meet the
requirements of EC directive 73/23/EEC. Imported textiles, apparel, and
leather goods must carry a label indicating country of origin and
composition by percentage of the fabric.
EU-funded Projects: Portuguese law does not discriminate against
foreign firms in bidding on EU-funded projects. Nevertheless, as a
practical matter, foreign firms bidding on EU-funded projects have
found that having an EU or a Portuguese partner (depending on the
project) enhances their prospects. For certain high-profile direct
imports (i.e., aircraft), the GOP has shown a political preference for
EU products (i.e., Airbus).
Value-Added Tax: Value-added tax (IVA) is collected at the time of
import on products coming from outside the EU. Portuguese importers and
distributors therefore have an incentive to import U.S. products
through another EU country, rather than directly from the United
States, in order to defer paying IVA until the product has been sold.
In some instances, however, the need to take a circuitous route to
obtain U.S. products without up-front IVA payment encourages Portuguese
importers/distributors to buy European products instead.
The government offers a generous package of incentives to foreign
investors, including 100 percent foreign-owned subsidiaries. The
package of incentives ranges from 25 to 35 percent of the total
investment but can go higher to attract certain desired investments.
Portugal's 1990 privatization law limits non-EU participation in
state-owned enterprises being privatized. Portugal limits non-EU
investment to 15 percent in television broadcasting and 25 percent in
complementary telecommunications. It limits foreign investment in the
capital of public service telecommunications operators to 25 percent.
Non-EU investment in financial services is subject to an economic needs
test. Only companies headquartered in Portugal and whose majority of
capital and management control belongs to Portuguese national entities
can receive licenses to operate marine and air transport. Air transport
between the Azores and Madeira and mainland Portugal remains a public
monopoly.
Government procurement legislation makes no distinction as to
country of origin. The only exception is for purchases of items
manufactured in Indonesia. In July 1993, the GATT accepted Portugal's
list of entities covered by the Government Procurement Code.
6. Export Subsidies Program
Portugal instituted the Special Program of Support for the Export
Sector (PEASE) to promote diversification of Portugal's export markets.
Under this program, the government contracts with a private insurance
firm, COSEC, to provide political risk coverage for interbank credit
lines to support Portuguese exports to ``non-traditional'' (high-risk)
markets. In addition, Portugal recently announced a new package of
direct financial support (mainly credit subsidies) for Portuguese firms
expanding their international operations.
7. Protection of U.S. Intellectual Property
The Portuguese Industrial Code largely conforms with the trademark
and patent provisions of the TRIPs agreement and additional revisions
are currently being considered to bring it into full compliance.
Portugal's current substantive law on copyright protection, promulgated
in 1985, is also largely in accordance with TRIPs. EU directives on
rental and broadcasting have been transposed into law. Portugal is a
member of the World Intellectual Property Organization and is party to
the Berne and Universal Copyright Conventions and the Paris Industrial
Property Convention.
Portuguese software law explicitly offers copyright protection for
computer programs and stipulates stiff fines for software piracy.
Business and software organizations have taken a proactive role in the
fight against piracy, and industry sources indicate that the piracy
rate, while above the EU average, continues to decline. Enforcement
action against unauthorized copying of software and audio and video
cassettes also improved significantly last year.
8. Worker Rights
a. The Right of Association.--Workers in both the private and
public sectors have the constitutional right to associate freely and
establish unions in the workplace ``to defend their interests.'' Unions
may be established by profession or industry. Strikes are permitted for
any reason, including political causes; they are not common, usually of
short duration, and generally are resolved through direct negotiations.
Two principal labor federations exist and are closely affiliated with
political parties. There are no restrictions on formation of additional
labor unions. Unions function without hindrance by the government.
There are no restrictions on unions' ability to join federations or on
federations' ability to affiliate with international labor bodies.
b. The Right to Organize and Bargain Collectively.--Unions are free
to organize without interference by the government or by employers.
Collective bargaining is provided for in the Constitution and is
practiced extensively in the public and private sectors. Collective
bargaining disputes rarely lead to prolonged strikes. If a long strike
occurs in an essential sector such as health, energy, or
transportation, the government may order the workers back to work for a
specific period. This did not occur in 1997.
c. Prohibition of Forced or Compulsory Labor.--Forced labor is
prohibited and does not occur. This prohibition is enforced by the
General Labor Inspectorate (IGT).
d. Minimum Age for Employment of Children.--The minimum employment
age is 16 years. The two main labor federations and observers from
other European countries have charged that a number of ``clandestine''
companies in the textile, shoe, and construction industries exploit
child labor. The IGT confirms that hundreds of children under the age
of 16 are employed illegally, mainly in the northern cities of Porto
and Braga, but believes the number is declining. In 1996, the
government created the National Inter-Ministerial Commission to Combat
Child Labor (CNCTI) with the aim of eradicating child labor in
Portugal. In 1997, the CNCTI, the Ministry of Employment, and one of
the unions undertook a public education campaign targeted at high-risk
communities to convince parents to keep their children in school. The
Ministry of Education required teachers to inform the IGT in the event
of continued absences or declines in productivity on the part of
students. The Ministry of Employment published a ``blacklist'' of
companies caught illegally employing child labor and denied those
companies access to EU funding or benefits. Nevertheless, one union
maintains that the CNCTI has too little independent funding to be able
carry out its functions.
e. Acceptable Conditions of Work.--Minimum wage legislation covers
full-time workers, as well as rural workers and domestic employees age
18 or over. The monthly minimum wage of about 315 dollars (56,700
escudos), which came into effect on January 1, is generally enforced.
Along with widespread rent controls, basic food and utility subsidies,
and a guaranteed minimum income that is steadily expanding to cover the
most needy communities, the minimum wage affords a basic standard of
living for a worker and family. Average monthly earnings range from
about 460 dollars (83,469 escudos) for skilled low-level personnel to
about 1,580 dollars (284,263 escudos) for higher management personnel.
The maximum legal working day is 8 hours and maximum working week
is 40 hours. For public sector employees, the maximum working week is
39 hours. Current law permits a maximum of 2 hours of paid overtime per
day and 200 hours per year, with a minimum interval of 12 hours between
normal working days. The Ministry of Employment monitors compliance
through its regional inspectors and working hour limits are respected
in practice. Employees receive 22 days of paid annual leave, plus
vacation and Christmas (``13th month'') bonuses. Employers are legally
responsible for accidents at work and are required by law to carry
accident insurance. Although an existing body of law regulates safety
and health, unions continue to argue for stiffer laws. The General
Directorate for Hygiene and Labor Safety develops safety standards and
the IGT is responsible for enforcing them. A relatively large
proportion of accidents occurs in the construction industry, where
unions claim many foreign workers are hired illegally and work under
unregulated conditions. Major accidents involving loss of life on some
high-profile public and private projects have focused the government's
attention on improving worker safety in the construction sector in
particular. There is also considerable concern about poor environmental
controls in the textile industry.
f. Worker Rights in Sectors with U.S. Investment.--Legally, worker
rights apply equally to all sectors of the economy.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 689
Food & Kindred Products..................... 181
Chemicals & Allied Products................. 235
Metals, Primary & Fabricated................ \1\
Machinery, except Electrical................ \1\
Electric & Electronic Equipment............. \1\
Transportation Equipment.................... \1\
Other Manufacturing......................... 45
Wholesale Trade............................... 451
Banking....................................... \1\
Finance/Insurance/Real Estate................. 148
Services...................................... 331
Other Industries.............................. \1\
TOTAL ALL INDUSTRIES.......................... 1854
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
ROMANIA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\........................... 35.3 35.52 31.4
Real GDP Growth (pct) \3\................. 7.1 4.1 -2.0
GDP by Sector:
Agriculture............................. 7.0 6.9 6.8
Industry................................ 12.3 12.7 10.6
Services \4\............................ 16.2 15.9 14.0
Per Capita GDP (US$)...................... 1,565 1,564 1,389
Labor Force (millions).................... 10.5 10.4 10.4
Unemployment (pct)........................ 9.5 6.3 9.0
Money and Prices (annual percentage growth):
Money Supply Growth (M2).................. 71.6 66.0 111.8
Consumer Price Inflation.................. 27.8 56.9 151.4
Exchange Rate (Leu/US$ - annual average)
Official................................ 2,033 3,082 7,161
Balance of Payments and Trade:
Total Exports FOB \5\....................... 7.9 8.1 8.8
Exports to U.S. (US$ mlns) \6\.......... 200.8 180 300
Total Imports CIF \5\....................... 9.5 10.6 10.5
Imports from U.S. (US$ mlns) \6\........ 419.4 375.8 347.6
Trade Balance \5\......................... -1.6 -2.5 -1.7
Balance with U.S. (US$ mlns) \6\........ -218.6 -195.8 -47.6
Current Account Deficit/GDP (pct)......... 4.9 7.3 5.1
External Public Debt...................... 6.8 9.1 10.4
Debt Service Payments/GDP................. 3.8 5.6 8.0
Fiscal Deficit/GDP (pct).................. -2.6 -3.9 -3.7
Gold and Foreign Exchange Reserves \7\.... 2.27 2.54 4.41
Aid from U.S. (US$ millions) \8\.......... 39.0 26.0 33.1
Aid from All Other Sources \8\ (US$
millions)................................ 200.7 142.6 76.9
------------------------------------------------------------------------
\1\ All figures for 1997 are estimates extrapolated from dataavailable
in October, 1997.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ Government expenditure is included in services.
\5\ Merchandise trade.
\6\ Source: Romanian National Statistics Commission.
\7\ Total banking system net international reserves; end of period.
\8\ Does not include military aid.
1. General Policy Framework
In early 1997, Romania's newly elected government adopted an
economic reform program, backed by a stand-by agreement with the IMF.
The Government of Romania has seen some success in implementing the
macroeconomic stabilization program: inflation has dropped, the current
account deficit has been reduced, foreign exchange reserves have
increased, and the exchange rate has stabilized. The government deficit
is within the IMF-target of 4.5 percent of GDP. The government has been
less successful, however, in its restructuring and privatization
efforts. More than half of industrial production remains in state
hands.
Romania is committed to becoming a member of the European Union,
which is by far Romania's largest trading partner. In the first seven
months of 1997, the EU received 57.3 percent of Romania's total
merchandise exports and provided 51.7 percent of its merchandise
imports. In contrast, the United States accounted for only 3.95 percent
of Romania's exports and 3.92 percent of its imports during the same
period.
2. Exchange Rate Policy
The foreign exchange market was liberalized in February, 1997 and
has been functioning effectively since that time. Romania has passed
legislation to implement full leu-convertibility by the end of January,
1998, which will increase domestic confidence in the economic reform
program.
3. Structural Policies
Economic reform has entailed creating new laws in virtually every
sphere: commerce, privatization, intellectual property, banking, labor,
foreign investment, environment, and taxation. While new legislation is
necessary to create a basis for a market economy, the rate of change of
legislation has also served as a brake on trade and investment. For
example, an emergency law on foreign investment was issued in June,
1997, but the necessaryimplementing regulations were not put in place
until October. In the interim, Parliament decided to redraft the
legislation to provide a level playing field for domestic as well as
foreign investors. The result has been to significantly slow the inflow
of investment until the legal framework is clarified.
In the agricultural sector, Romania has made significant progress
in its reform program. Prices for almost all products have been
liberalized, export quotas have been lifted, and tariffs have been
reduced. Privatization and liquidation of state-owned farms is on
track.
In contrast, Romania has moved slowly to privatize and reform
state-owned banks or to restructure heavy industry, which remains
largely in state hands. In August, 1997 the government announced plans
to close 16 energy-intensive industries which cannot pay their bills.
Implementation of the plan has been uneven.
4. Debt Management Policies
At the end of 1996, Romania's medium and long-term external debt
amounted to $6.9 billion. At the same time, the short-term debt
amounted to $1.2 billion. The National Bank's foreign exchange reserves
amounted to $550.7 million, and the commercial banks' reserves reached
$1.6 billion. At the same time, Romania had claims against foreign
countries worth $3 billion, stemming from economic transactions prior
to December, 1989.
Romania's foreign indebtedness and external debt service ratio
remain relatively low and manageable. The ceiling for 1997 foreign
borrowing has been set at $3.2 billion by law.
5. Significant Barriers to U.S. Exports
Traditionally defined trade and investment barriers are not a
significant problem in Romania. There are no laws which directly
prejudice foreign trade or business operations, although EU and members
of the Central European Free Trade Area (CEFTA) enjoy tariff
preferences for some goods as a result of Romania's Association
Agreement with the European Union and membership in CEFTA as of July,
1997.
Bureaucratic red tape and uncertainties in the legal framework can
make doing business in Romania difficult. There is little experience in
Western methods of negotiating contracts and, once concluded, there is
no effective means to enforce contracts. In addition, title insurance
is not available for property acquisitions and purchasers are
potentially subject to legal challenge by former owners or managers.
The absence of effective legal means for pressing claims against
debtors is a further complication for foreign investors.
The cost of doing business in Romania is high, particularly for
office rentals, transportation, and telecommunication services. Lack of
an efficient, modern payments system further delays transactions in
Romania. The capital requirements for foreign investors are not
onerous, but income taxes are steep. Foreign companies investing over
certain amounts qualify for some tax exemptions.
Investment barriers are few in Romania. The Foreign Investment Law
allows up to 100 percent foreign ownership of an investment project
(including land), and there are no legal restrictions on the
repatriation of profits and equity capital. Governmental approval of
joint ventures requires extensive documentation. U.S. investment in
Romania is increasing and by November, 1997, totaled $254.5 million,
ranking the United States second among foreign investors after the
Netherlands.
Romania is a member of the World Trade Organization, but not a
signatory to the agreement on government procurement or civil aircraft.
6. Export Subsidies Policies
The Romanian government does not provide export subsidies but does
attempt to make exporting attractive to Romanian companies. For
example, the government provides for the total or partial refund of
import duties for goods that are processed for export or are
incorporated into exported products. The Romanian Export-Import Bank
engages in trade promotion activities on behalf of Romanian exporters
of goods produced in Romania.
There are no general licensing requirements for exports from
Romania, but the government does prohibit or control the export of
certain strategic goods and technologies. For example, the government
has on occasion banned the export of various commodities due to
domestic shortages. There are also export controls on imported or
domestically produced goods of proliferation concern.
7. Protection of U.S. Intellectual Property
Romania has made significant progress in the area of intellectual
property protection since the end of the communist era. Patent and
trademark laws are in place and legislation on pipeline protection for
pharmaceuticals is expected to be passed by the Parliament early in
1998. Copyright legislation, which was enacted in 1996, has sparked new
interest among American technology firms in investing and marketing
their products in Romania. The Romanian government has proven receptive
to offers of international assistance in enforcement, but has yet to
establish a strong enforcement record in the copyright area.
Pirated copies of audio and video cassette recordings are
available, but not openly displayed. In a few cases, pirated films are
broadcast via local cable television stations. Illegal compact discs
sold in Romania are imported, but there are no known exports of pirated
products from Romania. An industry association representing U.S.
companies estimated annual losses due to piracy of intellectual
property at roughly $45 million in 1996.
Romania is member of Berne (the Stockholm Convention of (1968),
World Intellectual Property Organization, the Paris Industrial Property
Convention, the Patents Cooperation Treaty, the Madrid Convention, and
the Hague Convention on Industrial Design, Drawings and Models. As a
country in transition, Romania will implement the WTO agreement on
intellectual property on January 1, 2000.
8. Worker Rights
a. The Right of Association.--All workers except public employees,
police, and military personnel, have the right to associate freely and
to form and join labor unions without prior authorization. Labor unions
are free from government or political party control but may engage in
political activity. Labor unions may join federations and affiliate
with international bodies, and representatives of foreign and
international organizations may freely visit and advise Romanian trade
unionists.
b. The Right to Organize and Bargain Collectively.--Workers have
the right to bargain collectively. Basic wage scales for employees of
state-owned enterprises are established through collective bargaining
with the state. There are legal limitations on the right to strike only
in industries such as defense, health care, transportation, and
telecommunications, which the government considers critical to the
public interest.
c. Prohibition of Forced or Compulsory Labor.--The Constitution
prohibits forced or compulsory labor. The Ministry of Labor and Social
Protection effectively enforces this prohibition.
d. Minimum Age for Employment of Children.--The minimum age for
employment is 16. Children as young as 14 may work with the consent of
their parents or guardians but only ``according to their physical
development, aptitude, and knowledge.'' Working children under 16 have
the right to continue their education, and employers are obliged to
assist in this regard.
e. Acceptable Conditions of Work.--Minimum wage rates are generally
observed and enforced. The Labor Code provides for a standard work week
of 40 hours, with overtime for work in excess of 40 hours, and paid
vacations of 18 to 24 days annually. Employers are required to pay
additional benefits and allowances to workers engaged in dangerous
occupations. Nevertheless, some labor organizations press for
healthier, safer working conditions. The Ministry of Labor and Social
Protection has established safety standards for most industries, but
enforcement is inadequate and employers generally ignore the Ministry's
recommendations. On average, women experience a higher rate of
unemployment than men and earn lower wages despite educational
equality. The average gross monthly wage in September 1997 was around
$100.
f. Rights in Sectors with U.S. Investment.--Conditions do not
appear to differ in goods-producing sectors in which U.S. capital is
invested. Extent of U.S. Investment in Selected Industries--U.S. Direct
Investment Position Abroad on an Historical Cost Basis--1995
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 0
Total Manufacturing........................... \1\
Food & Kindred Products..................... \1\
Chemicals & Allied Products................. \1\
Metals, Primary & Fabricated................ 0
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... 1
Wholesale Trade............................... -1
Banking....................................... \1\
Finance/Insurance/Real Estate................. 0
Services...................................... 0
Other Industries.............................. \1\
TOTAL ALL INDUSTRIES.......................... 63
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
RUSSIA
Key Economic Indicators \1\
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\........................... 1,630 2,256 2,678
Real GDP Growth (pct)..................... -4 -2.8 0.3
GDP by Sector:
Manufacturing \2\....................... 75.0 97.4 97.6
Services \2\............................ 76.4 109.3 124.2
Per Capita GDP \3\........................ 2,711 2,581 2,485
Labor Force (000s)........................ 73,000 73,000 72,000
Unemployment Rate (pct)................... 8.2 9.3 9.2
Money and Prices (annual percent growth):
Money Supply Growth (M2).................... 126 34 25
Consumer Price Index........................ 131 22 15
Exchange Rate:
(ruble/US$ - annual average)............ 4557 5775 5780
Balance of Payments and Trade:
Total Exports (FOB) \4\................... 78.2 85.0 84.0
Exports to U.S.\4\...................... 4.3 4.8 4.1
Total Imports (CIF) \4\................. 46.7 45.9 42.8
Imports from U.S.\4\.................... 2.6 2.9 3.0
Trade Balance \4\......................... 31.5 39.1 41.2
Balance with U.S.\4\.................... 1.7 1.9 1.1
Current Account \4\....................... 17.0 19.4 18.1
External Public Debt \4\.................. 728 1,069 1,289
Debt Service Payments/GDP (pct)........... 1.9 2.1 1.4
Fiscal Deficit/GDP (pct).................. 5.4 8.0 6.5
Gold and Foreign Exchange \5\............. 17.1 15.3 24.5
Aid from U.S. (US$ millions) \6\.......... 286 182 150
Aid from All Other Sources................ N/A N/A N/A
------------------------------------------------------------------------
\1\ Figures are from the Russian Statistics Committee (Roskomstat) and
U.S. Embassy estimates.
\2\ In trillions of Russian rubles. Reliable dollar figures can not be
developed due to quality of the data, high inflation and rapid
depreciation of the ruble against the dollar.
\3\ In rubles, 1990 prices. Reliable dollar figures can not be
developed.
\4\ Source: State Customs Committee 1997 trade data are estimates based
on first six months.
\5\ Source: International Monetary Fund. 1997 data as of June.
\6\ USAID, total obligations for the year.
1. General Policy Framework
At the start of 1996, Russia embarked on a three-year economic
stabilization program characterized by tight monetary and fiscal
policy. This program formed the basis for a three-year $10.2 billion
Extended Fund Facility (EFF) credit from the IMF. While performance has
generally been deemed satisfactory, the IMF delayed disbursements in
July, October, and December 1996 due to poor government revenue
collections, a problem that persists.
Despite the revenue shortfalls, the Government has held the line on
spending, and the Central Bank has maintained a tight monetary policy.
The fiscal deficit is largely financed by domestic bond issues. As a
result, inflation has continued to decline, from an annual rate of 131%
in 1995 to 14.9% in August, 1997. However, compressed government
spending has led to a build-up of arrears, creating a ripple effect
throughout the economy. The Government has moved to address the
problem, eliminating pension arrears and the bulk of wage arrears to
military servicemen, with a pledge to bring all public sector wages
current by January 1, 1998. The Government is pursuing tax reform to
widen the tax base and increase revenues. At the same time, the draft
1998 budget attempts to reduce the expenditure side of the equation to
bring revenues and expenditures closer in line.
There are very preliminary indications that, after five straight
years of decline, the economy may be recovering. Overall industrial
production in July 1997 was 1.2% higher than the comparable 1996
period. Virtually all of this increase is due to increased estimates of
the activity of small businesses and the shadow economy, the accuracy
of which is difficult to measure. Production at large and medium firms
in July was down 2.8% versus the year earlier level. Freight haulage,
an often used secondary indicator of economic activity, was also down
6.5% in July over the same period last year. Early data for July
indicates a 5.6% decline in exports over the same period in 1996.
Imports, including estimates for informal shuttle trade are essentially
flat for the seven months ending in July.
2. Exchange Rate Policy
Russia has been an IMF Article VIII signatory since July 1, 1996,
removing all restrictions from current account transactions. Since that
time, the Central Bank has employed a ``crawling band'' mechanism to
manage the currency, generally pursuing a policy of gradual nominal
depreciation. Exchange rates have remained at the upper level of the
band parameters of 5500-6100 in January to 5750-6350 at year's end.
Tight monetary and fiscal policy, together with a healthy trade surplus
and increasing capital inflows has created pressure to appreciate the
ruble and, in real terms, the ruble has appreciated very slightly since
the beginning of 1997. 1998 exchange rate policy will be announced at
the end of November.
3. Structural Policies
The pace of economic liberalization was renewed in March 1997
following sluggish progress in 1996. The GOR moved forward on a program
to restructure the ``natural monopolies'' in Russia's electricity, rail
and gas sectors, starting with reasserting its own influence on the
boards of directors. There has been early progress on rationalizing
pricing, to help lower costs of these key inputs for manufacturing
enterprises and plans to continue in this direction are on track. The
GOR has also managed to reduce subsidization of housing services,
though this remains a heavy burden for municipal budgets. To attack the
problem of weak management skills among Russian entrepreneurs,
President Yeltsin has proposed an initiative to increase business and
management training for Russians domestically and abroad.
Approximately 70 percent of GDP is now produced by private
companies. The July 1997 auction of a portion of the state
telecommunications holding company, Svyazinvest, indicated that the
government was shifting away from the non-competitive practices that
characterized the controversial loans-for-shares program. The GOR has
promised more openness and transparency in future privatizations, and
to increase the revenues from the program. By October, actual 1997
privatization proceeds exceeded the year's target by 85%--a real
turnaround from years of under-performance.
Taxes in Russia are confusing, subject to constant revision and
inconsistently applied. The Government submitted a revised draft tax
code, designed to streamline and rationalize the tax system, to the
Duma in April. Legislators approved the code in its first reading
(three are required for legislation to become law) in June, but
signaled that they still had major concerns with the Government's
draft. Discussion about how best to pursue tax reform is on-going.
However, implementation of any new approved provisions, whether
encapsulated in a unified code or submitted as separate legislation,
will be gradually phased-in.
4. Debt Management Policies
After rescheduling, Russia has an external debt servicing to
exports ratio of 5.8%. In 1996, the Paris Club of official creditors
rescheduled Russia's outstanding stock of debt (more than $40 billion,
including debt inherited from the former Soviet Union) over 25 years.
The agreement is subject to periodic reviews which are tied to
performance under the IMF EFF program. In October 1997, Russia
concluded an agreement with the London Club of commercial creditors to
reschedule $24 billion of commercial debt. Russia will commence
payments under the rescheduling agreement in December, 1997. In
September 1997, Russia also joined the Paris Club as a creditor, in an
effort to recoup some of the estimated $52 billion in debt owed to it
by Paris Club debtor nations. Russia re-entered international capital
markets in November 1996 and has successfully placed two Eurobond
issues (for $2 billion and DM2 billion) to date. Such international
borrowings are expected to become a standard feature of government
financing in 1998 and beyond.
5. Significant Barriers to U.S. Exports
In general, Russia relies on tariff barriers for protection of
domestic industry. Russia raised import tariffs in several stages
beginning from zero when the Soviet Union split up. In March 1995, by
presidential decree, these rates were revised to raise the floor
(except for a small list of zero-duty goods) to five percent and lower
the ceiling (except for a few luxury goods) to 30 percent. In the
spring of 1996, the Government raised tariffs on alcoholic beverages,
chicken and some other food products, resulting in an average weighted
tariff of 14 percent. In addition, excise taxes and value added taxes
(VAT) are applied to selected imported goods. Excise taxes vary from 20
percent to 570 percent on a price exclusive basis. The VAT rate is
currently 20 percent with the exception of selected food products,
where it is 10 percent and VAT is applied to the import price plus
tariff plus excise tax.
Import licenses are required for importation of various goods,
including ethyl alcohol and vodka, combat and sporting weapons, self-
defense articles, explosives, military and ciphering equipment,
encryption software and related equipment, radioactive materials and
waste including uranium, strong poisons and narcotics, and precious
metals, alloys and stones. In October 1997, the Committee on Defensive
Trade Measures proposed licensing of color TV imports, to go into
effect in 1998; this proposal awaits decision by the Council of
Ministers. Most import licenses are issued by the Russian Ministry of
Foreign Economic Relations (MINFER) or its regional branches, and
controlled by the State Customs Committee. Import licenses for sporting
weapons and self-defense articles are issued by the Ministry of
Internal Affairs.
The June 1993 Customs Code standardized Russian customs procedure
in accordance with international norms. However, customs regulations
change frequently, (often without sufficient notice), are subject to
arbitrary application, and can be quite burdensome.
Based on Russia's July 1993 Consumer Protection law, many products
imported for sale into the Russian Federation are required to have a
certificate of conformity issued by the Russian State Committee on
Standards (Gosstandart). Gosstandart tests and certifies products
according to a combination of international (notably European Union and
Russian Government) standards. Certificates are required for each food
import shipment, as well as additional sanitary and phytosanitary
certificates as necessary. Manufactured items can receive certificates
allowing import of a good over a three-year period. U.S. companies have
complained of costly procedures and arbitrary certification
requirements. The Russian Federation is considering the establishment
of reciprocal standardization with the United States and other
countries and acceptance of foreign certification by accredited
institutions.
In July 1997, the Russian government announced the current food
labeling law, which requires that imported food have labels in the
Russian language containing information on content, nutritional value,
shelf life, conditions of storage, and use of the product. The Russian
importer is responsible for complying with the import labeling
requirements, not the U.S. exporter or supplier. The new law
strengthens the role of the State Committee for Standards (Gosstandart)
in managing these requirements by providing instructions and other
details. Gosstandart also proposed in 1997 use of a new holographic
mark of conformity with Russian regulations for a few goods, but this
requirement, which is considered by foreign investors to be costly and
unnecessary, has not been finalized.
Although under current law little of Russia's legislation in the
services sector is overtly protectionist, the domestic banking,
securities and insurance industries have secured concessions in the
form of presidential decrees. Foreign participation in banking, for
example, is limited to 12 percent of total banking capital. In
practice, because of latent protectionism and nontransparent
requirements, foreign companies are often disadvantaged vis-a-vis
Russian counterparts in obtaining contracts, approvals, licenses,
registration, and certification, and in paying taxes and fees.
Negotiation of greater market access for foreign firms is complicated
by the fact that service industries are not yet well developed and the
Russian government still needs to decide the degree of foreign
participation it will permit. Many service industries still lack
comprehensive regulatory legislation.
Although there are no current, significant legal barriers to doing
business in Russia, Russian foreign investment regulations and
notification requirements are confusing and contradictory. The Ministry
of Finance, local authorities and/or various central government bodies
all register foreign investments. Prior approval is required for
investment in new enterprises using assets of existing Russian
enterprises, foreign investment in defense industries (which may be
prohibited in some cases), investment in the exploitation of natural
resources, all investments over 50 million rubles, investment ventures
in which the foreign share exceeds 50 percent, or investment to take
over incomplete housing and construction projects. Additional
registration requirements exist for investments exceeding 100 million
rubles. Projects involving large scale construction or modernization
may also be subject to expert examination for environmental
considerations. Although the situation has improved over the past few
years, foreigners encounter significant restrictions on ownership of
real estate in some cities and regions in Russia.
The 1991 Investment Code guarantees foreign investors rights equal
to those enjoyed by Russian investors. Senior GOR officials have
reconfirmed many times Russia's desire to attract foreign participation
in privatization, but in practice the bounds of the foreign role varies
by sector and region. For example, foreign participation is sharply
limited in some ``strategic'' sectors. In the 1995 loans-for-shares
privatization program, foreign investors were banned from the oil, gas,
and precious metals sectors.
The government maintains a monopoly on the sale of precious and
several rare-earth metals and conducts centralized sales of diamonds,
and conducts centralized purchases for export of military technology.
In September and October, gold and diamond trading were liberalized
slightly, but state control is still intact. In August 1997, a series
of presidential decrees were enacted which established tighter control
over military exports by the state enterprise Rosvooruzheniye, enabled
two additional state firms to sell military goods and technology, and
opened the door to future direct sales by arms manufacturers, if
licensed and approved by the Ministry of Foreign Economic Relations.
The Russian legislature is currently considering amendments to the
Russian Law on Foreign Investments; the first version of this bill,
considered in February 1997, was more restrictive than current
legislation and likely to discourage foreign investment and trade.
Proposals in the draft legislation would restrict or ban foreign
investment in numerous industries and services; impose new barriers to
the import of capital equipment; introduce ambiguities into Russia's
legal protection of intellectual property rights, and reduce investment
climate stability by limiting grandfathering provisions.
Most of these issues are the subject of discussion, as Russia
continues negotiations on its accession to the World Trade Organization
(WTO). By the end of 1997, the Government had completed seven WTO
working party meetings. Russia has indicated that its initial WTO
market access offer for goods could be tabled in early 1998; the
services offer is expected to take more time. Russia is not yet a
signatory of the WTO Government Procurement or Civil Aircraft
agreements.
6. Export Subsidies Policies
The Government of the Russian Federation has not instituted export
subsidies, although a 1996 executive decree allows for provision of
soft credits for exporters and government guarantees for foreign loans.
The government does provide some subsidies for the production of coal.
Soft credits are at times provided to small enterprises for specific
projects.
7. Protection of U.S. Intellectual Property
In 1992-93, Russia enacted laws strengthening the protection of
patents, trademarks and appellations of origins, and copyright of
semiconductors, computer programs, literary, artistic and scientific
works, and audio/visual recordings. Legal enforcement of intellectual
property rights (IPR) improved somewhat in 1997 with a series of raids
on pirates and some seizures of CD's at the border by Russian Customs.
A new criminal code took effect January 1, 1997, that contains
considerably stronger penalties for IPR infringements. By presidential
decree, a higher patent chamber is to be established at the Russian
Patent and Trademark Agency (Rospatent) which should bring greater
expertise and efficiency to the resolution of patent and trademark
disputes. Rospatent is also seeking to establish a Russian Trademark
Owners Association to represent the concerns of trademark holders.
Nevertheless, widespread sales of pirated U.S. video cassettes,
recordings, books, computer software, clothes, toys, foods and
beverages continues and several U.S. industry groups have charged that
losses from violation of intellectual property rights in Russia are
exceeded only by those in China. This lack of enforcement resulted in
Russia being placed on the Priority 301 watch list in 1997. The lack of
sufficient retroactive copyright protection for U.S. works in Russia
remains a key issue of concern for the United States.
The patent law includes a grace period, procedures for deferred
examination, protection for chemical and pharmaceutical products, and
national treatment for foreign patent holders. Inventions are protected
for 20 years, industrial designs for ten years, and utility models for
five years. The law on trademarks and appellation of origins introduces
for the first time in Russia protection of appellation of origins. The
law on copyright and associated rights, enacted in August 1993,
protects all forms of artistic creation, including audio/visual
recordings and computer programs as literary works for the lifetime of
the author plus 50 years. The September 1992 law on topography of
integrated microcircuits, which also protects computer programs,
protects semiconductor topographies for ten years from the date of
registration.
Russia has succeeded to the obligations of the former Soviet Union
under the Universal Copyright Convention, the Paris Convention, the
Patent Cooperation Treaty, and the Madrid Agreement. In March 1995
Russia acceded to the Berne Convention and the Geneva Phonograms
Convention. Under the United States-Russian bilateral investment treaty
(signed in 1992 but not yet ratified by the Russian Parliament) Russia
has undertaken to protect investors' intellectual property rights. The
bilateral trade agreement stipulates protection of the normal range of
literary, scientific and artistic works through legislation and
enforcement.
8. Worker Rights
a. The Right of Association.--Legally, workers enjoy the right to
join and form trade unions. Roughly 55 percent of the labor force is
organized. The Federation of Independent Trade Unions of Russia (FNPR),
the successor organization to the communist trade unions, dominates the
trade union movement. FNPR unions frequently include management as part
of the bargaining unit. Employee benefits can vary depending on union
affiliation, and can discourage the formation of new unions.
b. The Right to Organize and Bargain Collectively.--Collective
bargaining is protected under the law. Most strikes, however, are
considered technically illegal since often the labor dispute at issue
was not first reviewed by an arbitration court. The court has the right
to order the confiscation of union property to settle damages and
losses to an employer if a strike is found to be illegal. An increasing
number of strikes are therefore organized by strike committees, rather
than unions.
Various employers have refused to negotiate collective bargaining
agreements. Management also frequently refuses to provide the financial
information demanded by trade unions. If trade unions ask for such
information, enterprise management is legally required to provide it.
There have been incidences of reprisals for organizing, protesting and
strike activity.
Russia has no export processing zones. Worker rights in the special
economic zones/free trade zones are fully covered by the Labor Code.
c. Prohibition of Forced or Compulsory Labor.--The Labor Code
prohibits forced or compulsory labor.
d. Minimum Age for Employment of Children.--Regular employment for
children under the age of 16 is prohibited under the Labor Code. The
Code also regulates the working conditions of children under the age of
18, including banning dangerous, nighttime and overtime work. Children
may, under certain specific conditions, work in apprenticeship or
internship programs at age 14 and 15. Although, in some instances,
children can be found selling consumer goods on street corners,
accepted social prohibitions against employment of children and the
availability of adult workers at low wage rates combine to prevent
widespread abuse of child labor.
e. Acceptable Conditions of Work.--Non-payment of wages continues
to be the most widespread abuse of the Labor Code experienced by
Russian workers. As of July 1997, official government statistics showed
that workers were owed 54.6 trillion rubles or roughly 9.4 billion
dollars in accumulated wage arrears. About 80-90 percent of all arrears
are due to failure to pay by enterprises. Wage arrears are the primary
reason for the over 5000 enterprises and organizations that were struck
in January and February 1997, and the over 4000 that were struck in
March 1997. Wage arrears affect all manner of workers, from air traffic
controllers to draftees in the military and are especially prevalent in
the education, medicine, industry and energy/coal sectors. Wage arrears
across industries range between three and nine months. The government
in 1997 succeeded in paying off pension arrears and the bulk of wage
arrears for the military and was working to complete elimination of
arrears for all other workers paid out of the budget.
Although a small but increasing percentage (perhaps 6 percent) of
workers owed back wages have sought relief through the court system,
this has proved to be a lengthy process. Indexation of back wages is
not automatic.
Many enterprises, because of systemic non-payments and debts owed
them, are not in a position to pay their employees. Elsewhere, poor
management and corruption have meant that workers are not paid even
though managers control sufficient funds to do so. Neither enforcement
actions by the labor ministry and court judgments against enterprises
have been sufficient to stem wage arrears. A presidential spokesman
said that illegal non-payment of wages continues because there is a
minimum of disciplinary measures specified in the Civil Code and no
criminal liability. Criminal liability for administrative violations of
labor legislation was annulled in January 1997. In order to draw public
and federal government attention to their plight, and place political
pressure on the enterprises to resolve their wage arrears, many workers
resorted to mass hunger strikes, demonstrations, picketing, blocking
roads and rail lines, hostage-taking, and, in individual instances,
suicide.
Wage arrears are a very significant problem for workers because of
the relative lack of labor mobility, due to both lack of a developed
real estate market and the system of residency permits Still in effect
in some cities, such as Moscow. The minimum wage in Russia in 1997 was
83,490 rubles (roughly 14 dollars) per month.
Workers were also at high levels of risk of industrial accidents or
death. In 1995, the leading cause of death for Russians of working age
was accidents and traumas, which caused 39 percent of deaths in this
age group versus 16 percent for all age groups. In 1996, work-related
deaths and injuries increased over 1995, to 6.1 injuries per 1000
workers, up from 5.5.in 1995.
f. Rights in Sectors with U.S. Investment.--Observance of worker
rights in sectors with significant U.S. investment (petroleum,
telecommunications, food) did not significantly differ from other
sectors.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 258
Total Manufacturing........................... 298
Food & Kindred Products..................... \1\
Chemicals & Allied Products................. 16
Metals, Primary & Fabricated................ \1\
Machinery, except Electrical................ 1
Electric & Electronic Equipment............. -1
Transportation Equipment.................... (2)
Other Manufacturing......................... 4
Wholesale Trade............................... \1\
Banking....................................... \1\
Finance/Insurance/Real Estate................. 503
Services...................................... -3
Other Industries.............................. 204
TOTAL ALL INDUSTRIES.......................... 1311
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
SPAIN
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Real GDP (1986 prices) \2\................ 334.4 336.7 \3\ 300.
0
Real GDP growth (pct) \4\................. 2.7 2.3 3.2
GDP (at current prices)................... 559.6 580.9 527.0
By sector:
Agriculture............................. 16.4 20.1 17.5
Industry................................ 135.0 136.2 122.0
Construction............................ 46.0 45.2 40.0
Services................................ 330.7 344.8 310.0
Government.............................. 93.4 95.7 83.5
Per capita GDP............................ 14,239 14,595 13,165
Labor Force (000s)........................ 15,878 15,936 16,100
Unemployment Rate (pct)................... 22.8 21.7 21.0
Money and Prices (annual percentage growth):
Money supply (M2)........................... 3.1 7.0 10.0
Consumer Price Inflation.................. 4.7 3.6 2.2
Exchange rate
(Pta/US dol - Annual Average)........... 124.7 126.6 147.0
Balance of Payments and Trade:
Total exports FOB \5\..................... 90.7 102.8 90.0
Exports to U.S.\5\...................... 3.8 4.3 4.2
Total imports CIF \5\..................... 113.6 122.5 106.0
Imports from U.S.\5\.................... 7.4 8.0 7.1
Trade Balance \5\......................... -22.9 -19.7 -16.0
Balance with U.S.\5\.................... -3.6 -3.7 -2.9
Fiscal deficit/GDP (pct).................. 6.6 4.4 3.0
External Public debt...................... N/A N/A N/A
Debt service payments (paid).............. N/A N/A N/A
Gold and foreign exchange reserves........ 38.2 61.8 75.0
------------------------------------------------------------------------
\1\ 1997 Figures are all estimates based on available monthly data in
August 1997.
\2\ GDP at factor cost.
\3\ Devaluation
\4\ Percentage changes calculated in local currency.
\5\ Merchandise trade.
1. General Policy Framework
Spain's economy is growing well, even better than expected for 1997
(originally expected growth was 3.0 percent, but latest projections
show 3.2 percent). This growth is expected to continue at similar
levels through 1998. Growth is broadly based and enjoys major support
from agricultural exports, capital goods investment, and finally, after
a slight fall off in 1996, private consumption.
Increases in private consumption offset declines on construction
investment and public sector consumption as the current government (led
by the Partido Popular since March 1996) continues to maintain a tight
fiscal policy.
The stock market has reached new highs throughout the year and
weathered well the gyrations of late October 1997. Due to substantial
investment inflows Spain enjoys an increasingly positive current
account and a narrowing trade deficit with the United States.
Much of Spain's economic policy has focused on meeting Maastricht
Treaty targets which set out criteria for consideration to join the
European Monetary Union. These policies have already reaped benefits in
the form of lower interest rates and low inflation rates which have
helped Spain promote investment and spur consumer demand. These latter
activities have provided greater than anticipated tax receipts which in
turn have allowed Spain to meet handily government deficit/GDP targets.
Annual inflation, at 2.1 percent, is at its lowest level in over thirty
years. Past government budget cuts, higher than expected tax receipts,
and lower than expected payments for servicing government debt will
allow this government's deficit/GDP ratio to fall below 3 percent in
1997. However, the government debt/GDP ratio is expected to reach 69.6
percent in 1997 (above the Maastricht target of 60 percent).
Unemployment remains the one area in which structural policies have
not yet made significant inroads. The present government encouraged
direct negotiations between employers and unions on employment terms in
1996 instead of looking to the government to make changes through
legislation. Earlier this year the two sides agreed on changes in
hiring practices that would lessen somewhat the high fixed cost of
permanent new hires. This step in the right direction, combined with a
buoyant economy, have succeeded in lowering the unemployment rate to
below 20 percent for the first time since 1992. Continuing rigidities
in the labor market, if unaddressed, will affect Spain's
competitiveness in a single currency area.
2. Exchange Rate Policy
Spain's major interest is in staying within a very close margin
with the DM to prepare for the fixing of exchange rates. The rate has
remained at 84-85 pesetas to the DM throughout 1997. We believe the
Bank of Spain has intervened on various occasions to forestall a rise
in the peseta/DM rate. Foreign currency reserves stand at 72.1 billion
dollars as of October 1997, up from 61.8 billion dollars in 1996.
3. Structural Policies
As a member of the European Union, Spain has eliminated tariff
barriers for imports from other EU countries and applies common EU
external tariffs to imports from non-EU countries. Similarly Spain will
be bound to the mutual recognition agreements in its application of
certain non-tariff regulations applied to eight categories of goods
from the United States.
In 1989, as part of the investment sector reforms necessary to
comply with EU membership, Spain made stock market rules and operations
more transparent and provided for the licensing of investment banking
services. The reform also eased conditions for obtaining a broker's
license. A 1992 investment law removed many administrative requirements
for foreign investments. EU resident companies (i.e. companies deemed
European under Article 58 of the Treaty of Rome) are free from almost
all restrictions. Non-EU resident investors must obtain Spanish
government authorization to invest in broadcasting, gaming, air
transport, or defense. Restrictions on broadcasting and in transport
are facing increasing pressure as the government looks to privatizing
its national airline (perhaps in 1999), and completes the privatization
of its telephone company.
Faced with the loss of the Spanish feed grain market as a result of
Spain's membership in the EU, the United States negotiated an
Enlargement Agreement with the EU in 1987 which established a 2.3
million ton annual quota for Spanish imports of corn, specified non-
grain feed ingredients and sorghum from non-EU countries. The Uruguay
Round agreement had the effect of extending this agreement
indefinitely. The United States remains interested in maintaining
access to the Spanish feed grain market and will continue to press the
EU on this issue. U.S. exports of corn and sorghum, valued at about 500
million dollars annually, are an important part of U.S. trade with
Spain.
Under its EU accession agreement, Spain was forced to transform its
structure of formal and informal import restrictions for industrial
products into a formal system of import licenses and quotas. While
Spain does not enforce any quotas on U.S.-origin manufactured products,
it still requires import documents for some goods, which are described
below. Neither of the following documents constitute a trade barrier
for U.S.-origin goods.
Import Authorization, (Autorizacion Administrativa de Importacion,
AAI) is used to control imports which are subject to quotas. Although
there are no quotas against U.S. goods, this document may still be
required if part of the shipment contains products or goods produced or
manufactured in a third country. In essence, for U.S.-origin goods, the
document is used for statistical purposes only or for national security
reasons.
Prior notice of imports (Notificacion previa de importacion) is
used for merchandise that circulates in the EU Customs Union Area, but
is documented for statistical purposes only. The importer must obtain
the document and present it to the General Register.
Importers apply for import licenses at the Spanish General Register
of Spain's Secretariat of Commerce or any of its regional offices. The
license application must be accompanied by a commercial invoice that
includes freight and insurance, the C.I.F. price, net and gross weight,
and invoices number. License application has a minimum charge. Customs
accepts commercial invoices by fax. The license, once granted, is
normally valid for six months but may be extended if adequate
justification is provided.
Goods that are shipped to a Spanish customs area without proper
import licenses or declarations are usually subject to considerable
delay and may run up substantial demurrage charges. U.S. exporters
should ensure, prior to making shipments, that the necessary licenses
have been obtained by the importing party. Also, U.S. exporters should
have their importer confirm with Spanish customs whether any product
approvals or other special certificates will be required for the
shipment to pass customs.
The Government of Spain has signed and ratified the Marrakech
Agreement which concluded the Uruguay Round of multilateral trade
negotiations and established the World Trade Organization.
4. Debt Management Policy
Twenty percent of Spanish medium and long-term debt is held by non-
residents. The Spanish government has standby loan arrangements in
foreign currency with a consortia of foreign banks and has an agreement
with several investment banks to float bonds in foreign markets as an
alternative to domestic financing. Approximately one-third of Spanish
government debt is short-term (less than one year) and less than one
quarter is long-term (i.e. maturities greater than five years).
At the end of October 1997, international reserves at the Bank of
Spain totaled 72.1 billion dollars.
5. Significant Barriers to U.S. Exports
Import Restrictions: Under the EU's Common Agricultural Policy
(CAP), Spanish farm incomes are protected by direct payments and
guaranteed farm prices that are higher than world prices. One of the
mechanisms for maintaining this internal support are high external
tariffs that effectively keep lower priced imports from entering the
domestic market to compete with domestic production. However, the
Uruguay Round agreement has required that all import duties on
agricultural products be reduced by an average of 36 percent during the
six year period beginning in 2000.
In addition to these mechanisms, the EU employs a variety of strict
animal and plant health standards which act as barriers to trade. These
regulations end up severely restricting or prohibiting Spanish imports
of certain plant and livestock products. One of the most glaring
examples of these policies is the EU ban on imports of hormone treated
beef, imposed in 1989 with the stated objective of protecting consumer
health. Despite a growing and widespread use of illegal hormones in
Spanish beef production, the EU continues to ban U.S. beef originating
from feed lots where growth promotants have been used safely and under
strict regulation for many years. In August 1997, the WTO ruled that
the ban was illegal and must be removed. The WTO is expected to rule on
the EU's appeal of that decision in early 1998.
One important aspect of Spain's EU membership is how EU-wide
phytosanitary regulations, and regulations that govern food
ingredients, labeling and packaging impact on the Spanish market for
imports of U.S. agricultural products. The majority of these
regulations took effect on January 1, 1993 when EU ``single market''
legislation became fully implemented in Spain, and now agricultural and
food product imports into Spain are subject to the same regulations as
in other EU countries.
While many restrictions that had been in operation in Spain before
the transition have now been lifted, for certain products the new
regulations impose additional import requirements. For example, Spain
now requires any foodstuff that has been treated with ionizing
radiation to carry an advisory label. In addition, a lot marking is now
required for any packaged food items. Spain, in adhering to EU-wide
standards, continues to impose strict requirements on product labeling,
composition, and ingredients. Like the rest of the EU, Spain prohibits
imports which do not meet a variety of unusually strict product
standards. Food producers must conform to these standards, and
importers of these products must register with government health
authorities prior to importation.
Telecommunications: While most of the EU member countries will
liberalize their telecommunications markets beginning January 1, 1998,
Spain has obtained a derogation from the EU Commission to delay
complete liberalization of its telecommunications sector until December
1998. Prior to this date, the Spanish Government plans to phase in
competition in basic telephony through a duopoly comprised of recently
privatized monopoly operator Telefonica, and (also recently privatized)
second operator Retevision. Cable operators could also provide basic
telephony beginning January 1, 1998, but only using their own networks;
that is, they cannot provide basic telephony by interconnecting with
the Telefonica or Retevision networks. This, in combination with
several other mitigating factors, has resulted in a slow start for the
establishment of the cable sector in Spain. The Spanish Government has
also announced plans for a third fixed telephony license to be issued
sometime in 1998.
On the other hand, digital television, especially via satellite,
has emerged as a promising industry in the Spanish market. There are
two digital television platforms, Via Digital and Canal Satellite
Digital, which currently offer digital television programming.
Retevision has announced plans to offer a competing digital TV package
provided over a terrestrial network. Spain's mobile telephony market
has also experienced a very rapid growth in subscribers. Bidding for a
third mobile license is scheduled for sometime in early 1998. New
opportunities are emerging in advanced telecommunications services,
including the Internet and high-speed data transmission. Finally, the
Spanish Government recently established the Telecommunications Market
Commission as an independent regulatory authority to oversee all
activity in this sector.
Government Procurement: Spain's Uruguay Round government
procurement obligations took effect on January 1, 1996. Under the
bilateral U.S.-EU government procurement agreement, Spain's obligations
took effect also on January 1, 1996, except those for services which
took effect on January 1, 1997. Offset requirements are common in
defense contracts and some large non-defense related and public sector
purchases (e.g. commercial aircraft and satellites).
Television Broadcasting Content Requirements : The EU revision of
the 1989 ``Television Without Frontiers'' Broadcast Directive was
completed in 1997, without significant change. It left intact the
flexible language of the original version as regards the quota regime
which mandates that 51 percent of broadcast time be allocated to
European content and avoided extending its scope to the new
technologies. Therefore, insofar as it was affected by this directive,
the market in Spain for U.S. audiovisual products remains the same.
Motion Picture Dubbing Licenses and Screen Quotas: In January 1997,
the Spanish Government adopted the implementing regulations for the
1994 Cinema Law, which had provoked a strong reaction from U.S.
industry because of protectionist provisions that sought to reserve a
portion of the theatrical market for EU-produced films. Thanks to
successful industry-government negotiations, the new regulations
significantly ease the impact of the 1994 law on non-EU producers and
distributors as it applies to screen quotas and dubbing licenses. For
screen quotas the new required ratio for exhibitors is changed from one
day of EU-produced film for every two days of non-EU-produced film to
one day for every three days. The incentive provision for films dubbed
into a minority language film such as Catalan is more generous than the
original version.
For dubbing licenses, the regulations established a three-tiered
system. Up to three licenses may be earned by showing a single EU-
produced film--the first when the film's box office receipts exceed 10
million pesetas, the second when they exceed 20 million pesetas, and a
third when they exceed 30 million pesetas. If a film is dubbed, it must
be dubbed into a minority language and earn at least 5 million pesetas
in the minority language version to qualify for the third license.
Despite these protectionist elements, Spain's theatrical film system
has been modified sufficiently so that it is no longer a major source
of trade friction as it was in recent years.
Product Standards and Certification Requirements: Product
certification requirements (homologation) have been liberalized
considerably since Spain's entry into the EU. After several years in
which telecommunications equipment faced difficulties, Spain adapted
its national regulations in this area to conform to EU directives. For
example, now all telecom equipment must carry the CE mark, which
certifies that it complies with all applicable EU directives. This
process may take three to four months after all tests have been
performed and necessary documents are submitted. However, recognition
from other EU countries and an early presentation of all documentation
can speed up the process considerably. There is still some uncertainty
as to whether the earlier exemption from homologation and certification
requirements for equipment imported for military use is still valid.
In general there has been improved transparency of process. For
example, the CE registration for medical equipment from any of the EU
member states is considered valid here. Thus, the product registration
procedure is shortened (to about six months) and no longer must be
initiated by a Spanish distributor. Pharmaceuticals and drugs still
must go through an approval and registration process with the Ministry
of Health requiring several years unless previously registered in an EU
member state or with the London-based EU Pharmaceutical Agency, in
which case the process is shortened to a few months. Vitamins are
covered under this procedure; however, import of other nutritional
supplements is prohibited, and they are dispensed only at pharmacies.
Spanish authorities have been cooperative in resolving specific trade
problems relating to standards and certifications brought to their
attention. The United States has been negotiating with the EU for
mutual recognition of product standards and acceptance of testing
laboratory results.
6. Export Subsidies Policies
Spain aggressively uses ``tied aid'' credits to promote exports,
especially in Latin America, the Maghreb, and more recently, China.
Such credits reportedly are consistent with the OECD arrangement on
officially supported export credits.
As a member of the EU, Spain benefits from EU export subsidies
which are applied to many agricultural products when exported to
destinations outside the Union. Total EU subsidies of Spanish
agricultural exports amounted to about 220 million dollars in 1996.
Spanish exports of grains, olive oil, other oils, tobacco, wine, sugar,
dairy products, beef, and fruits and vegetables benefited most from
these subsidies in 1996.
7. Protection of U.S. Intellectual Property
Spain adopted new patent, copyright, and trademark laws, as agreed
at the time of its EU accession in 1986. It enacted a new patent law in
March of 1986, a new copyright law in November 1987, and a new
trademark law in November of 1988. All approximate or exceed EU levels
of intellectual property protection. Spain is a party to the Paris,
Berne, and Universal copyright conventions and the Madrid Accord on
Trademarks. Spanish government officials have said that their laws
reflect genuine concern for the protection of intellectual property.
In October 1992, Spain enacted a modernization patent law which
increases the protection afforded patent holders. At that time, Spain's
pharmaceutical process patent protection regime expired and product
protection took effect. However, given the long (10 to 12 year)
research and development period required to introduce a new medicine
into the market, industry sources point out that the effect of the new
law will not be felt until after the turn of the century. U.S.
pharmaceutical manufacturers in Spain complain that this limits
effective patent protection to approximately eight years and would like
to see the patent term lengthened. Of at least equal concern to the
U.S. industry is the issue of parallel imports, i.e. lower-priced
products manufactured in Spain that are diverted to northern European
markets where they are sold at higher prices. U.S. companies have
suffered significant losses as a result. While the pharmaceutical
sector would like the Spanish government to intervene, it looks to the
EU Commission to resolve this Single Market problem.
The copyright law is designed to redress historically weak
protection accorded movies, video cassettes, sound recordings and
software. It includes computer software as intellectual property,
unlike the prior law. In December 1993, legislation was enacted which
transposed the EU software directive. It includes provisions that allow
for unannounced searches in civil lawsuits. Some searches have taken
place under these provisions.
According to industry sources, Spain has a relatively high level of
computer software piracy despite estimated declines in the last two
years. Industry estimates for 1996 show a drop to 63 percent from 74
percent in 1995. Therefore, concerned groups have focused increasingly
on enforcement, with industry and government cooperating on a series of
problems aimed at educating the judiciary, police and customs officials
to be more rigorous in their pursuit of this problem.
Motion picture (i.e. video) and audio cassette piracy also remains
a problem. However, thanks to the Spanish government prohibition on
running cable across public thoroughfares and strict enforcement of the
copyright law that holds that no motion picture can be shown without
authorization of the copyright holder, the incidence of ``community''
video piracy has declined.
Spain's trademark law incorporates by reference the enforcement
procedures of the patent law, defines trademark infringements as unfair
competition and creates civil and criminal penalties for violations.
The government has drafted a new trademark law which will incorporate
TRIPs, the EU Community Trademark Directive, and the Trademark Law
Treaty, and which it anticipates will be enacted in 1998. National
authorities seem committed to serious enforcement efforts and there
continue to be numerous civil and criminal actions to curb the problem
of trademark infringement. To combat this problem in the textile and
leather goods sector, the Spanish government had begun to promote the
creation and sale of devices to protect trademark goods and to train
police and customs officials to cope more effectively. Despite these
efforts, industry estimates rank Spain as the country with the second
highest incidence of trademark fraud in the clothing sector in Europe.
8. Worker Rights
a. The Right of Association.--All workers except military
personnel, judges, magistrates and prosecutors are entitled to form or
join unions of their own choosing without previous authorization. Self-
employed, unemployed and retired persons may join but may not form
unions of their own. There are no limitations on the right of
association for workers in special economic zones. Under the
constitution, trade unions are free to choose their own
representatives, determine their own policies, represent their members'
interests, and strike. They are not restricted or harassed by the
government and maintain ties with recognized international
organizations.
b. The Right to Organize and Bargain Collectively.--The right to
organize and bargain collectively was established by the Workers
Statute of 1980. Trade union and collective bargaining rights were
extended to all workers in the public sector, except the military
services, in 1986. Public sector collective bargaining in 1989 was
broadened to include salaries and employment levels. Collective
bargaining is widespread in both the private and public sectors. Sixty
percent of the working population is covered by collective bargaining
agreements although only a minority are actually union members. Labor
regulations in free trade zones and export processing zones are the
same as in the rest of the country. There are no restrictions on the
right to organize or on collective bargaining in such areas.
c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory
labor is outlawed and is not practiced. Legislation is effectively
enforced.
d. Minimum Age for Employment of Children.--The legal minimum age
for employment as established by the Workers Statute is 16. The
Ministry of Labor and Social Security is primarily responsible for
enforcement. The minimum age is effectively enforced in major
industries and in the service sector. It is more difficult to control
on small farms and in family-owned businesses. Legislation prohibiting
child labor is effectively enforced in the special economic zones. The
Workers Statute also prohibits the employment of persons under 18 years
of age at night, for overtime work, or for work in sectors considered
hazardous by the Ministry of Labor and Social Security and the unions.
e. Acceptable Conditions of Work.--Workers in general have
substantial, well defined rights. A 40 hour work week is established by
law. Spanish workers enjoy 12 paid holidays a year and a month's paid
vacation. The employee receives his annual salary in 14 payments--one
paycheck each month and an ``extra'' check in June and in December. The
minimum wage is revised every year in accordance with the consumer
price index. Government mechanisms exist for enforcing working
conditions and occupational health and safety conditions, but
bureaucratic procedures are cumbersome.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 191
Total Manufacturing........................... 7109
Food & Kindred Products..................... 1689
Chemicals & Allied Products................. 990
Metals, Primary & Fabricated................ 203
Machinery, except Electrical................ 579
Electric & Electronic Equipment............. 954
Transportation Equipment.................... 1736
Other Manufacturing......................... 958
Wholesale Trade............................... 1023
Banking....................................... 1572
Finance/Insurance/Real Estate................. 733
Services...................................... 517
Other Industries.............................. 248
TOTAL ALL INDUSTRIES.......................... 11,393
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
SWEDEN
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\........................... 231.4 252.0 233.6
Real GDP Growth (pct) \3\................. 3.6 1.1 2.3
By sector:
Agriculture............................. 1.5 1.6 1.5
Manufacturing........................... 49.2 51.2 47.5
Services................................ 98.9 106.1 98.4
Government.............................. 43.5 48.5 45.0
Per Capita GDP (US$) \2\.................. 24,647 28,319 26,377
Labor Force (000's)....................... 4,319 4,310 4,340
Unemployment Rate (pct)................... 7.7 8.1 8.4
Money and Prices (annual percentage growth):
Money Supply (M3) \4\....................... 2.7 11.5 2.2
Consumer Price Inflation.................. 2.8 0.8 1.0
Exchange Rate (SEK/US$)................... 7.13 6.70 7.69
Balance of Payments and Trade:
Total Exports FOB \5\..................... 79.8 84.5 90.1
Exports to U.S.\6\...................... 6.2 7.0 7.5
Total Imports CIF \5\..................... 64.9 66.6 69.9
Imports from U.S.\6\.................... 3.4 3.9 4.0
Trade Balance \5\......................... 14.9 17.9 20.2
Balance with U.S.\6\.................... 2.8 3.1 3.4
External Public Debt \7\.................. 54.9 59.5 52.4
Fiscal Deficit/GDP (pct).................. 7.9 2.5 1.4
Current Account Surplus/GDP (pct)......... 2.1 2.4 3.1
Debt Service Payments/GDP (pct)........... 8.60 12.23 10.62
Gold and Foreign Exchange Reserves........ 24.0 20.9 14.6
Aid from U.S.............................. 0 0 0
Aid from All Other Sources................ 0 0 0
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available monthly data in
October 1997.
\2\ Decrease due to depreciation of currency
\3\ Percentage changes calculated in local currency
\4\ Source: The central bank. M3 is the measurement used in Sweden, very
close to a potential Sweden, very close to a potential Swedish M2-
figure.
\5\ Merchandise trade
\6\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
FAS, imports customs basis; 1997 figures are estimates based on data
available through October 1997.
\7\ Source: Swedish National Debt Office
1. General Policy Framework
Sweden is an advanced, industrialized country with a high standard
of living, extensive social services, a modern distribution system,
excellent transport and communications links with the world, and a
skilled and educated work force. Sweden exports a third of its Gross
Domestic Product (GDP) and is a strong supporter of liberal trading
practices. Sweden became a member of the European Union (EU) on January
1, 1995, (and had already harmonized much of its legislation and
regulation with the EU's as a member of the European Economic Area).
Sweden uses both monetary and fiscal policy to achieve economic
goals. Active labor market practices are particularly important. The
Central Bank enjoys significant autonomy in pursuit of its avowed goal
of price stability. Fiscal policy decisions in the late 1980's to lower
tax rates while maintaining extensive social welfare programs swelled
the government budget deficit and public debt, most of which is
financed domestically. Since the beginning of 1995, however, Sweden has
made impressive strides with its economic convergence program, having
restored macroeconomic stability and created the conditions for
moderate, low-inflation economic growth.
During 1995 and 1996, Sweden has pulled out of its worst and
longest recession since the 1930s. (GDP declined by six percent from
1991 to 1993). Unemployment has recently averaged 12 to 14 percent.
(Swedes quote two unemployment figures, open and ``hidden.'' ``Hidden''
unemployment, those in government training and work programs, accounts
for some 5 percentage points of total unemployment.) In 1992 the
Swedish krona came under pressure and was floated late that year;
Swedish interest rates soared but have come down rapidly during 1996-
1997 and are now about one percentage point above German rates.
Sweden's export sector is strong, resulting in large trade balance
surplus and increasing current account surplus since 1994. Domestic
demand has only recently started to pick up, and it is expected to
contribute to the growth in 1997. Structural changes in recent years
have prepared the way for future economic growth. The Social Democratic
government at the end of the 1980's and the conservative coalition
government at the beginning of the 1990's deregulated the credit
market; removed foreign exchange controls; reformed taxes; lifted
foreign investment barriers; and began to privatize government-owned
corporations.
2. Exchange Rate Policies
Sweden floated the currency in November 1992 after briefly
defending the krona during the turbulence in European financial
markets. From 1977 to 1991 the krona was pegged to a trade weighted
basket of foreign currencies in which the dollar was double weighted.
From mid-1991 the krona was pegged to the ECU.
Sweden dismantled a battery of foreign exchange controls in the
latter half of the 1980's. No capital or exchange controls remain. (The
Central Bank does track transfers for statistical purposes).
3. Structural Policies
Sweden's tax burden exceeds 50 percent of GDP (53.8 percent for
1997). Central government expenditure during the recent severe
recession was nearly 75 percent of GDP. The maximum marginal income tax
rate on individuals is 55 percent. Effective corporate taxes are
comparatively low at 28 percent, though social security contributions
add ABOUT 40 percent to employers' gross wage bills. The value added
tax is two-tiered, with a general rate of 25 percent and a lower rate
of 12 percent for food, domestic transportation, and many tourist-
related services.
Trade in industrial products between Sweden, other EU countries,
and EFTA countries is not subject to customs duty, nor are a
significant proportion of Sweden's imports from developing countries.
When Sweden joined the EU, its import duties were among the lowest in
the world, averaging less than five percent ad valorem on finished
goods and around three percent on semi-manufactures. Duties were raised
slightly on average to meet the common EU tariff structure. Most raw
materials are imported duty free. There is very little regulation of
exports other than military exports and some dual use products that
have potential military or non-proliferation application.
Sweden began abolishing a complicated system of agricultural price
regulation in 1991. Sweden's EU membership and consequent adherence to
the EU's common agricultural policy has brought some re-regulation of
agriculture.
4. Debt Management Policies
Central government borrowing guidelines require: that most of the
national debt be in Swedish crowns; that the borrowing be predictable
in the short term and flexible in the medium term; that the
government(that is, the Cabinet) direct the extent of the borrowing;
and that the government report yearly to the Parliament.
Sweden's Central Bank and National Debt Office have borrowed
heavily in foreign currencies since the fall of 1992, increasing the
central government's foreign debt five-fold to about a third of the
public debt. Management of the increased debt level so far poses no
problems to the country, but interest payments on the large national
debt grew rapidly in the early 1990's. Total debt in late 1997 is about
76 percent of GDP.
5. Significant Barriers to U.S. Exports and Investment
Sweden is open to imports and foreign investments and campaigns
vigorously for free trade in the World Trade Organization (WTO) and
other fora. Import licenses are not required except for items such as
military material, hazardous substances, certain agricultural
commodities, fiberboard, ferro alloys, some semi-manufactures of iron
and steel. Sweden enjoys licensing benefits under section 5(k) of the
U.S. Export Administration Act. Sweden makes wide use of EU and
international standards, labeling, and customs documents in order to
facilitate exports.
Sweden has harmonized laws and regulations with the EU's. Sweden is
now open to virtually all foreign investment and allows 100 percent
foreign ownership of businesses and commercial real estate, except in
air and maritime transportation and the manufacture of military
materiel. Foreigners may buy and sell any corporate share listed on the
Stockholm Stock Exchange. Corporate shares may have different voting
strengths.
Sweden does not offer special tax or other inducements to attract
foreign capital. Foreign-owned companies enjoy the same access as
Swedish-owned enterprises to the country's credit market and government
incentives to business such as regional development or worker training
grants.
Public procurement regulations have been harmonized with EU
directives and apply to central and local government purchases in
excess of ECU 400,000. Sweden is required to publish all government
procurement opportunities in the European Community Official Journal.
Sweden participates in all relevant WTO codes concerned with government
procurement, standards, etc. There are no official counter-trade
requirements.
6. Export Subsidies Policies
The Swedish government provides basic export promotion support
through the Swedish Trade Council, which it and industry fund jointly.
The government and industry also fund jointly the Swedish Export Credit
Corporation, which grants medium and long-term credits to finance
exports of capital goods and large-scale service projects.
Sweden's agricultural support policies have been adjusted to the
EU's common agricultural policy, including intervention buying,
production quotas, and increased export subsidies.
There are no tax or duty exemptions on imported inputs; no resource
discounts to producers; and no preferential exchange rate schemes.
Sweden is a signatory to the GATT subsidies code.
7. Protection of U.S. Intellectual Property
Swedish law strongly protects intellectual property rights having
to do with patents, trademarks, copyrights, and new technologies. The
laws are adequate and clear. However, enforcement is not as strong as
it should be, especially in the area of copyright protection for
software. The police and prosecutors need additional resources, some
specialized training to help with acquiring and preserving evidence,
and clear signals from the top of the government that copyright
protection is a real priority, especially within Swedish public sector
organizations.
The courts are efficient and honest. Sweden supports efforts to
strengthen international protection of intellectual property rights,
often sharing U.S. positions on these questions. Sweden is a member of
the World Intellectual Property Organization and is a party to the
Berne Copyright and Universal Copyright Conventions and to the Paris
Convention for the Protection of Industrial Property, as well as to the
Patent Cooperation Treaty. As an EU member, Sweden has undertaken to
adhere to a series of other multilateral conventions dealing with
intellectual property rights.
8. Worker Rights
a. The Right of Association.--Laws protect the freedom of workers
to associate and to strike, as well as the freedom of employers to
organize and to conduct lock-outs. These laws are fully respected. Some
83 percent of Sweden's work force belongs to trade unions. Unions
operate independently of the government and political parties, though
the largest federation of unions has always been linked with the
largest political party, the Social Democrats.
b. The Right to Organize and Bargain Collectively.--Labor and
management, each represented by a national organization by sector,
negotiate framework agreements every two to three years. More detailed
company agreements are reached locally. The law provides both workers
and employers effective mechanisms, both informal and judicial, for
resolving complaints.
c. Prohibition of Forced or Compulsory Labor.--The law prohibits
forced or compulsory labor, and the authorities effectively enforce
this ban.
d. Minimum Age of Employment of Children.--Compulsory nine-year
education ends at age 16, and the law permits full-time employment at
that age under supervision of local authorities. Employees under age 18
may work only during daytime and under supervision. Union
representatives, police, and public prosecutors effectively enforce
this restriction.
e. Acceptable Conditions of Work.--Sweden has no national minimum
wage law. Wages are set by collective bargaining contracts, which non-
union establishments usually observe. The standard legal work week is
40 hours or less. Both overtime and rest periods are regulated. All
employees are guaranteed by law a minimum of five weeks a year of paid
vacation; many labor contracts provide more. Government occupational
health and safety rules are very high and are monitored by trained
union stewards, safety ombudsmen, and, occasionally, government
inspectors.
f. Rights in Sectors with U.S. Investment.--The five worker-right
conditions addressed above pertain in all firms, Swedish or foreign,
throughout all sectors of the Swedish economy.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 5554
Food & Kindred Products..................... \1\
Chemicals & Allied Products................. \1\
Metals, Primary & Fabricated................ 10
Machinery, except Electrical................ 778
Electric & Electronic Equipment............. 33
Transportation Equipment.................... \1\
Other Manufacturing......................... \1\
Wholesale Trade............................... 378
Banking....................................... \1\
Finance/Insurance/Real Estate................. 961
Services...................................... 635
Other Industries.............................. -19
TOTAL ALL INDUSTRIES.......................... 7629
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
SWITZERLAND
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP................................. 302.6 292.6 246.8
Real GDP Growth (pct) \2\................... 0.8 -0.7 -0.4
GDP By Sector \2\
Agriculture.............................. 5.8 N/A N/A
Manufacturing............................. 94.3 N/A N/A
Services.................................. 204.9 N/A N/A
Government \3\............................ 46.4 44.7 37.6
Per Capita GDP (000s)....................... 43.7 41.7 34.7
Labor Force (000s) \4\...................... 2,677 2,649 2,609
Unemployment Rate (pct)..................... 3.5 3.9 4.5
Money and Prices (annual percentage growth):
Money Supply (M3)........................... 2.2 7.1 6.7
Consumer Price Inflation (pct).............. 1.8 0.8 0.6
Exchange Rate(SFr/US$)...................... 1.18 1.21 1.48
Balance of Payments and Trade:
Total Exports \5\........................... 77.5 76.2 69.5
Exports to U.S............................ 6.6 6.8 6.7
Total Imports \5\........................... 76.8 74.5 69.2
Imports from U.S.......................... 4.5 4.9 4.9
Trade Balance \5\........................... 0.7 1.8 0.3
Balance with U.S.......................... 2.1 1.9 1.8
External Public Debt.\6\.................... 69.6 71.6 64.3
Fiscal Deficit/GDP (pct).................... 2.2 2.8 3.2
Current Account Surplus/GDP (pct)........... 7.0 6.9 7.9
Debt Service Payments/GDP (pct)............. 0.9 0.8 0.9
Gold & Foreign Exchange Reserves \7\........ 44.4 40.6 40.3
Aid from the U.S............................ 0 0 0
Aid from All Other Sources.................. 0 0 0
------------------------------------------------------------------------
\1\ All 1997 figures are estimated.
\2\ Estimates for 1996
\3\ Including Social welfare expenditures
\4\ Full-time workers only
\5\ Merchandise trade excluding gold and other precious metals, jewels,
artwork antiques; Source: Swiss CustomsAdministration; 1997 figures
are estimates based on data available through August 1997.
\6\ Federal government only, excluding cantons and communities
\7\ As of 8/97
1. General Economic Framework
Switzerland is a small, highly developed, internationally oriented,
and open multilingual market, characterized by a developed
manufacturing sector, a highly skilled workforce, a large services
sector and a high savings rate. Per capita GDP is the highest in
Europe. When Swiss voters decided in December, 1992 to reject the
European Economic Area (EEA) Treaty, Switzerland found itself in the
awkward position of being located in the heart of Europe, without being
part of the EEA or a member of the EU. With over 60 percent of its
exports going to Europe, the Swiss government is making every effort to
maintain its competitiveness in Europe while diversifying its export
markets. Currently, Switzerland is in bilateral negotiations with the
EU covering a number of sectors, but talks have been stalled for months
over the thorny issue of fees for EU trucks transiting Switzerland.
After economic prosperity in the eighties, the Swiss economy has
been Western Europe's weakest since 1990, with growth averaging less
than one percent per year. As a result, Switzerland has run large
deficits causing a corresponding increase in public debt. The federal
government is seeking to reduce the deficit to less than one billion
Swiss Francs in 2001 by strictly controlling expenditures. No
systematic use is made of fiscal policy to stimulate the economy. In
April 1997, however, the Swiss Parliament voted to spend USD 379
million on an investment program to help the Swiss economy pull out of
recession. Most of the funds will be spent in the construction sector
to renovate public infrastructure. USD 41 million will be provided to
maintain the apprenticeship program and USD 14 million will be spent
for the promotion of technology and innovation.
The Swiss National Bank (SNB) is independent from the Finance
Ministry. The main objective of the SNB's policy is price stability.
Monetary policy is conducted through open market operations. The
discount rate is used by the SNB as a signal to the public.
2. Exchange Rate Policies
Since the extremely weak domestic economic outlook became clear,
the SNB has prevented further appreciation of the Swiss franc by
accelerating growth of the money supply. The high Swiss franc had been
seen as one of the main reasons for the weak performance of exports. In
the mid and long term, the SNB does not follow any exchange rate
policy, and the Swiss franc is not pegged to any foreign currency.
3. Structural Policies
Few structural policies have a significant effect on U. S. exports.
One exception is telecommunications. In 1997, the Swiss Parliament
decided to liberalize and privatize the Swiss telecommunications
sector, opening a market to investment and competition from U.S. firms.
The liberalization is scheduled for implementation by January 1, 1998.
Agriculture is heavily regulated and supported by the federal
government. Farmers' revenues are pegged to those of blue collar
workers in industry through guaranteed prices or direct payments. As a
result of the Uruguay Round, Switzerland converted all non-tariff
barriers into tariffs and must reduce them by an average of 30 percent
by the year 2000. In June 1996, Swiss voters supported a revision of
the agriculture article in the Federal Constitution. The new article
establishes the basis for decoupling agricultural subsidies from
production to promote more market-based and environmentally friendly
production. The Swiss parliament is currently (fall 1997 and winter
1998) debating the government's proposal for agricultural reform.
In early 1996, the new cartel law came into effect, introducing the
presumption that horizontal agreements setting prices, production
volume, or territorial distribution diminish effective competition and
are therefore unlawful. As part of its Uruguay Round commitments,
Switzerland enacted legislation on January 1, 1996, providing for
nondiscrimination and national treatment in public procurement at the
federal level. A separate law makes less extensive guarantees at the
cantonal and community levels.
4. Debt Management Policies
As a net international creditor, debt management policies are not
relevant to Switzerland.
5. Aid
Switzerland does not receive any aid payments.
6. Significant Barriers to U.S. Exports
Import Licenses: Import licenses for many agricultural products are
subject to tariff-rate quotas and tied to an obligation for importers
to take a certain percentage of domestic production. Tariffs remain
quite high for most agricultural products that are also produced in
Switzerland.
Services Barriers: The Swiss services sector features no
significant barriers to U.S exports. Foreign insurers wishing to do
business in Switzerland are required to establish a subsidiary or a
branch here. Foreign insurers may offer only those types of insurance
for which they are licensed in their home countries. The most serious
barriers to U.S. exports existed in
the area of telecommunications. In 1997 however, parliament
approved a legislative package which will liberalize and privatize the
Swiss telecommunications sector by January 1, 1998, opening this market
to foreign competitors.
Standards, Testing, Labeling, and Certification: By adopting EU
automobile standards in 1995, Switzerland allowed cars made in the EU
(including EU-made products of U.S. manufacturers) to enter the Swiss
market without further testing. This development threatened to put
automobiles manufactured in the United States at a competitive
disadvantage. As a result of action by the United States, Switzerland
agreed that U.S.-made cars imported directly by individuals can be
registered with only minimal modification and testing. However, the
United States is still seeking complete parity with the favorable
access now enjoyed by EU models and encouraging the Swiss government to
recognize U.S. auto standards and test results. Certification of pet
food continues to be a problem for U.S. exports. While the problem for
pet food containing poultry was resolved in 1997, the problem with pet
food containing beef continues. The Swiss government passed a new law
at the end of 1996 stipulating that products containing genetically
modified organisms must be labeled as such. This administrative
requirement threatens to make even worse the difficulties in importing
packaged, consumer ready food products. The slow process for approving
genetically modified products also presents problems for imports from
the U.S. Switzerland approved imports of genetically modified soybeans
well after the EU and as of October, 1997 still had not approved
imports of any genetically modified corn. Other standards and technical
regulations in force in Switzerland are based on international norms.
Labels are required to be in German, French and Italian.
Investment Barriers: In most cases, foreign investment in
Switzerland is granted national treatment. Some restrictions on foreign
investment apply to the following areas: ownership of real estate by
foreigners; aviation services; limits on the number of foreign workers;
and restrictions concerning the number of foreign directors on the
boards of corporations registered in Switzerland. For reasons of
national security, foreign participation in the hydroelectric and
nuclear power sectors, operation of oil pipelines, transportation of
explosive materials, television and radio broadcasting, ownership of
Swiss-based airlines, and maritime navigation, are restricted by law.
The board of directors of a joint stock company must consist of a
majority of members permanently residing in Switzerland and having
Swiss nationality. Government Procurement Practices: Switzerland is a
signatory of the WTO Government Procurement Agreement and fully
complies with WTO rules concerning public procurement. On the cantonal
and local levels, a new law passed by the Parliament in October 1995
provides for nondiscriminatory access to public procurement. The U. S.
and Switzerland reached a bilateral agreement in mid-1996 on a text
which expands the scope of public procurement.
Customs Procedures: Customs procedures in Switzerland are
straightforward and not burdensome. All countries are afforded WTO
most-favored-nation treatment.
7. Export Subsidies Policies
Switzerland's only subsidized exports are in the agricultural
sector, where exports of dairy products (primarily cheese) and
processed food products (chocolate products, grain-based bakery
products, etc.) benefit from state subsidies. On rare occasions,
exports of domestic products such as beef, experiencing temporary
surpluses, are also subsidized. The United States and other WTO members
raised in the WTO the issue of Swiss beef export subsidies, which
violated WTO rules. The implementation of the Uruguay Round agreement
requires a gradual reduction of export subsidies and prohibits the
introduction of subsidies for new products, such as beef.
8. Protection of U.S. Intellectual Property
Switzerland has one of the best regimes in the world for the
protection of intellectual property, and protection is afforded equally
to foreign and domestic rights holders. Switzerland is a member of all
major international intellectual property rights conventions and was an
active supporter of a strong IPR text on the GATT Uruguay Round
negotiations. Enforcement is generally very good. It is expected that
by mid-1998 the Swiss will be in full compliance with their obligation
under TRIPS to protect company test data required by national
authorities in order to obtain approval to market pharmaceuticals. New
directives by the Swiss Intercantonal Office for the Control of
Medicines will mandate a ten-year protection period for such data. The
lack of protection in this area has caused a problem recently for one
U.S. company. However, if the new protection period is implemented on
schedule, it is very unlikely that any further problems would arise for
U.S. firms.
Patent protection is very broad, and Swiss law provides rights to
inventors that are comparable to those available in the United States.
Switzerland is a member of both the European Patent Convention and the
Patent Cooperation Treaty (PCT), making it possible for inventors to
file a single patent application in the United States (or other PCT
country, or any member of the European Patent Convention, once it
enters into force) and receive protection in Switzerland. If filed in
Switzerland, a patent application must be made in one of the country's
three official languages (German, French, Italian) and must be
accompanied by detailed specifications and, if necessary, by technical
drawings. The duration of a patent is 20 years. Renewal fees are
payable annually on an ascending scale. Patents are not renewable
beyond the original 20-year term, with the exception of
pharmaceuticals, where the Swiss adopted a patent term restoration
procedure in 1995.
According to the Swiss Patent Law of 1954, as amended, the
following items cannot be covered by patent protection: surgical,
therapy and diagnostic processes for application on humans and animals;
inventions liable to disturb law and order and offend ``good morals'';
and animals and biological processes for their breeding. In virtually
all other areas, coverage is identical to that in the United States.
Trademarks are well protected. Switzerland recognizes well known
trademarks and has established simple procedures to register and renew
all marks. The initial period of protection is 20 years. Service marks
also enjoy full protection. Trademark infringement is very rare in
Switzerland--street vendors are relatively scarce here, and even they
tend to shy away from illegitimate or gray market products.
A new copyright law in 1993 improved a regime that was already
quite good. The new law explicitly recognizes computer software as a
literary work and establishes a remuneration scheme for private copying
of audio and video works which distributes proceeds on the basis of
national treatment. According to industry sources, software piracy is
on the rise, however. The problem appears to be largely due to illegal
copying by individuals and perhaps some retail establishments. It is
highly unlikely that there are any exports. Owners of television
programming are fully protected and remunerated for rebroadcast and
satellite retransmission of their works, and rights holders have
exclusive rental rights. Collecting societies are well established.
Infringement is considered a criminal offense. The term of protection
is life plus 70 years.
The Swiss also protect layout designs of semiconductor integrated
circuits, trade secrets, and industrial designs. Protection for
integrated circuits and trade secrets is very similar to that available
in the U.S., and protection for designs is somewhat broader.
Industry sources estimate lost sales due to software piracy at $121
million in 1996. Trade losses and denied opportunities for sales and
investment in all other IPR sectors are minor in comparison.
9. Workers Rights
a. The Right of Association.--All workers, including foreign
workers, have freedom to associate freely, to join unions of their
choice, and to select their own representatives.
b. The Right to Organize and Bargain Collectively.--Swiss law gives
workers the right to organize and bargain collectively and protects
them from acts of anti-union discrimination. The right to strike is
legally recognized, but a unique informal agreement between unions and
employers has meant fewer than 10 strikes per year since 1975. There
were no significant strikes in 1997.
c. Prohibition of Forced or Compulsory Labor.--There is no forced
or compulsory labor, although there is no legal prohibition of it.
d. Minimum Age for Employment of Children.--The minimum age for
employment of children is 15 years. Children under 13 may be employed
in light duties for not more than 9 hours a week during the school year
and 15 hours otherwise. Employment between ages 15 and 20 is strictly
regulated.
e. Acceptable Conditions of Work.--There is no national minimum
wage. Industrial wages are negotiated during the collective bargaining
process. Such wage agreements are also widely observed by non-union
establishments. The Labor Act establishes a maximum 45-hour work week
for blue and white collar workers in industry, services, and retail
trades, and a 50-hour work week for all other workers. The law
prescribes a rest period during the work week. Overtime is limited by
law to 260 hours annually for these working 45 hours per week and to
220 hours annually for those working 50 hours per week.
The Labor Act and the Federal Code of Obligations contain extensive
regulations to protect worker health and safety. The regulations are
rigorously enforced by the Federal Office of Industry, Trades, and
Labor. There were no allegations of worker rights abuses from domestic
or foreign sources.
f. Rights in Sectors with U.S. Investments.--Except for special
situations (e.g. employment in dangerous activities regulated for
occupational, health and safety or environmental reasons), legislation
concerning workers rights does not distinguish among workers by sector,
by nationality, by employer, or in any other manner which would result
in different treatment of workers employed by U.S. firms from those
employed by Swiss or other foreign firms.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 703
Total Manufacturing........................... 4426
Food & Kindred Products..................... \1\
Chemicals & Allied Products................. 937
Metals, Primary & Fabricated................ 190
Machinery, except Electrical................ 789
Electric & Electronic Equipment............. 494
Transportation Equipment.................... \1\
Other Manufacturing......................... 633
Wholesale Trade............................... 10,341
Banking....................................... 2083
Finance/Insurance/Real Estate................. 16,826
Services...................................... 1241
Other Industries.............................. 131
TOTAL ALL INDUSTRIES.......................... 35,751
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
TURKEY
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP............................... 169.8 182.3 194
Real GDP Growth (pct)..................... 7.2 7.0 6.0
GDP by Sector:
Agriculture............................. 26.7 30.7 N/A
Manufacturing........................... 44.7 38.5 N/A
Services................................ 84.9 91.8 N/A
Government.............................. 13.6 15.3 N/A
Per Capita GDP (US$)...................... 2,755 2,962 3,000
Labor Force (000s)........................ 22,446 23,030 \2\ 22,5
37
Unemployment Rate (pct)................... 6.6 5.8 \2\ 5.9
Money and Prices (annual percent growth):
Money Supply Growth (M2).................. 93.4 130.3 96
Consumer Price Inflation.................. 89.1 80.4 85
Exchange Rate (TL/US$, avg)............... 45,705 81,137 152,000
Balance of Payments and Trade:
Total Exports FOB......................... 21.6 23.1 26
Exports to U.S.......................... 1.5 1.6 1.9
Total Imports CIF......................... 35.7 42.9 46
Imports from U.S........................ 3.7 3.2 3.5
Trade Balance............................. -14.1 -19.9 -20
Balance with U.S........................ -2.2 -1.6 -1.6
External Public Debt...................... 73.3 79.8 \3\ 81.2
Fiscal Deficit/GDP (pct).................. -4.0 -8.1 -9
Current Account Deficit/GDP (pct)......... -1.3 -2.4 -2.4
Debt Service Payments/GDP (pct)........... 6.9 6.4 7.0
Gold and For Exchange Reserves \4\........ 24.4 27.8 31.1
Aid from U.S.............................. 0.41 0.36 0.31
Aid from other sources.................... N/A N/A N/A
------------------------------------------------------------------------
\1\ Unless otherwise indicated, 1997 figures are estimates based on
available monthly data in November 1997.
\2\ As of April 1997.
\3\ As of end-June 1997
\4\ Includes reserves held by Central Bank and commercial banks. 1997
figure is as of 10/10/97.
1. General Policy Framework
From the establishment of the Republic in 1923 until 1981, Turkey
was an insulated, state-directed economy. In 1981 the country embarked
on a new course. The government abandoned protectionist policies and
opened the economy to trade and investment. The state gave up much of
its role in directing the economy and abolished many outdated
restrictions on private business. These reforms unleashed the country's
private sector and have brought impressive benefits. Since 1981,
Turkey's average 4.8 percent real GNP growth rate has been the highest
of any OECD country. In terms of market opening, Turkey's efforts
reached a new stage in 1996 with the finalization of a customs union
with the European Union. Turkey has now harmonized nearly all of its
trade and industrial policies with those of the EU. Over the coming
years, Turkey is likely to reap substantial benefits from the customs
union, both in terms of trade creation and improved economy efficiency.
This should have an overall positive impact on U.S. exports.
Despite the impressive reforms introduced since 1981, Turkey
continues to suffer from an inefficient public sector (including
substantial state ownership in the industrial sector) and weak, often
populist, political leadership. These remain the source of the
country's perennial problems--large budget deficits and high
inflation--and are a bottleneck to sustainable growth. Inflation has
averaged about 75 percent since 1988, and is likely to exceed 90
percent in 1997. In 1994, mismanagement of these economic imbalances
triggered a financial crisis and forced the government to introduce a
tough austerity program. The 1994 recession was Turkey's worst since
World War II. The economy has bounced back strongly, however, growing
by over 6 percent each year since 1995, indicating that Turkey's
cyclical boom-bust growth pattern remains unbroken. Strong domestic
demand has sparked a surge in imports, as has the reduction of import
duties and surcharges which accompanied the introduction of the customs
union on January 1, 1996.
After declining in 1994 and 1995, the budget deficit and public
sector borrowing requirement (PSBR) both rose significantly in 1996 and
1997, reflecting in part the cost of the 1995 elections and populist
economic measures introduced by the governments which have followed.
The budget deficit is likely to reach 10 percent of GNP in 1997. To
finance the deficit in the face of political uncertainty, the
government is forced to offer very high interest rates on short term
domestic bonds, further exacerbating the deficit. Turkey's recent
coalition governments have had little success implementing the
structural reform elements of the 1994 program. Public sector reform--
including privatization, social security and tax reforms, and trimming
of agricultural and other subsidy programs--is widely acknowledged as
the key to resolving the economy's problems and setting the stage for
stable, private sector led growth. Turkey and the IMF concluded a
standby arrangement in 1994, which lapsed in 1995; they are discussing
the possibility of a new agreement.
Building on significant liberalization of the economy in the mid-
1980s, Turkey's private sector has become less dependent on the
government. As a result, it has grown at an even faster pace than the
overall economy, while it also expanded its share of Turkey's GDP.
Turkey's most successful companies are foreign oriented and very
competitive. U.S. companies have experienced a boom in exports to
Turkey, expanding both their market share and their overall value of
trade. The United States maintains a large and growing trade surplus
with Turkey.
2. Exchange Rate Policy
The Turkish lira (TL) is fully convertible and the exchange rate is
market determined, although the Central Bank sets a daily reference
rate. The Central Bank intervenes in money markets to dampen short term
exchange rate fluctuations and manage the TL's rate of depreciation.
Overvaluation of the TL from 1989-93 was a significant factor in
the 1994 financial crisis. As a result, the TL depreciated against the
dollar in real terms in 1994. Since then, the government's stated
policy has been to maintain a stable real TL exchange rate, measured
against a trade-weighed dollar/German mark basket. Since 1994, however,
the TL has again appreciated in real terms, with the process
accelerating somewhat during 1997.
3. Structural Policies
Since 1980, Turkey has made substantial progress implementing
certain structural reforms and liberalizing its trade, investment, and
foreign exchange regimes. The resulting high growth rate and high rate
of creation of private businesses has generated tremendous demand for
imported goods, particularly capital goods and raw materials, which
together account for over 85 percent of total imports.
The government's failure to pursue unfinished structural reform
measures has constrained private sector growth and prevented the
economy from functioning at full efficiency. State-owned enterprises
still account for some 35 percent of manufacturing value added;
although many of these firms are profitable, transfers to state firms
constitute a substantial drain on the economy. Government control of
key retail prices (especially in the energy and utilities sectors) also
contributes to market distortion, as prices are sometimes manipulated
to meet political objectives. The government actively supports the
agricultural sector through both subsidized inputs and crop support
payments.
Turkey and the European Union entered into a customs union on
January 1, 1996. Turkey has adopted the EU's common external tariff for
third countries, which has resulted in lower tariffs for U.S. products.
Nearly all industrial goods from EU and EFTA countries, however, now
enter Turkey duty free. The government has also abolished various
import surcharges. As part of the customs union agreement, Turkey has
revised its trade, competition, and incentive policies to meet EU
standards.
4. Debt Management Policies
As of June 1997, Turkey's gross outstanding external debt was $81
billion, 75 percent of which is government debt. Debt service payments
in 1997 will amount to an estimated 6.9 percent of GNP (and 51 percent
of exports). Turkey has had no difficulty servicing its foreign debt in
recent years.
Turkey's relatively low credit rating since 1994 has limited its
access to foreign borrowing, although in late 1997, Turkey successfully
floated large ten-year Eurodollar and Euromark issues. As a result,
Turkey's domestic debt stock has increased significantly. With the
government forced to offer high real interest rates for short periods
to attract capital, interest payments have become a large budget
burden. In 1997 they account for nearly 30 percent of total budget
expenditures; they are forecast to be 40 percent of 1998 expenditures.
5. Aid
In 1997, the United States provided Turkey with $22 million in
Economic Support Funds (grant assistance), $175 million in Foreign
Military Financing (market-rate loans), $4.4 million in assistance
under a USAID-funded family planning program, $1.4 million in
International Military Education and Training funding, and $400,000 in
counter-narcotics assistance. Turkey receives significant grant and
loan aid from the European Union, but much of this is on hold as the
result of political disputes.
6. Significant Barriers to U.S. Exports
The introduction of Turkey's customs union with the EU in 1996
resulted in reduced import duties for U.S. industrial exports. The
weighted rate of protection for non-EU/EFTA industrial products dropped
from 11 percent to 6 percent. By comparison, the rate of protection for
industrial exports from EU and EFTA countries in 1995 had been 6
percent; nearly all these goods now enter Turkey duty free. There have
been very few complaints from U.S. exporters that the realignment of
duty rates under the customs union has disrupted their trade with
Turkey. The customs union does not cover agricultural trade. U.S.
exporters have voiced increasing frustration over barriers to
agricultural trade, most notably a ban on the import of livestock due
to an outbreak of foot and mouth disease in 1996. Although the disease
was brought under control by December 1996, and despite government
promises to lift the ban, it remained in effect as of November 1997.
Import Licenses: Import licenses are generally not required for
industrial products. The exception is products which need after-sales
service (e.g. photocopiers, ADP equipment, diesel generators). Licenses
are required for agricultural commodities. In addition, the government
requires certification that quality standards are met for importation
of human and veterinary drugs and certain foodstuffs. This has posed
problems for U.S. exporters. In 1996 the government tightened standards
for levels of various toxins found in grain, effectively halting U.S.
grain exports. Discussions with the Ministry of Agriculture
successfully resolved the issue on an interim basis. As of November
1997, imports of paddy rice were similarly banned because of concerns
about a possible nematode in imported rice; a U.S. government survey of
rice stocks should permit this trade to resume.
Government Procurement Practices: Turkey is not a signatory of the
WTO Government Procurement Agreement. It normally follows competitive
bid procedures for domestic, international and multilateral development
bank assigned tenders. U.S. companies sometimes become frustrated over
lengthy and often complicated bidding and negotiating processes. Some
tenders, especially large projects involving coproduction, are
frequently opened, closed, revised, and opened again. There are often
numerous requests for ``best offers''; in some cases, years have passed
without the selection of a contractor.
U.S. bidders for Turkish government contracts were subject to a 15
percent withholding tax. A bilateral tax treaty between the U.S. and
Turkey was signed in March 1996 and ratified by the U.S. Senate in
October 1997. The Turkish parliament approved the treaty in December
1997.before the end of the year, it will enter into force in 1998. The
treat will eliminate this withholding tax for U.S. bidders.
Investment Barriers: The United States-Turkish bilateral investment
treaty entered into force in May 1990. Turkey has an open investment
regime. There is a screening process for foreign investments, which the
government applies on an MFN basis; once approved, firms with foreign
capital are treated as local companies. There are, however,
restrictions on the level of foreign capital in firms established in a
number of sectors including banking, insurance, petroleum,
broadcasting, aviation and maritime transportation. The right to third
party arbitration, a condition for the BIT, has not been upheld by
Turkish courts, a source of major concern to many investors.
7. Export Subsidies Policies
Turkey employs a number of incentives to promote exports, although
programs have been scaled back in recent years to comply with EU
directives and GATT/WTO standards. Turkish Eximbank provides exporters
with credits, guarantees, and insurance programs. Certain tax credits
are also available to exporters.
8. Protection of U.S. Intellectual Property
Turkey's intellectual property has improved in certain respects
since 1995. After years of complaints from western businesses and
governments about weak intellectual property laws and lax enforcement,
the Turkish Parliament approved a number of new laws in mid-1995 as
part of Turkey's harmonization with the EU in advance of the customs
union. The new patent, trademark, copyright and other laws, as well as
Turkish acceptance of a number of multilateral intellectual property
conventions, have given Turkey a comprehensive legal framework for
protecting intellectual property rights. Efforts are underway to
educate businesses, consumers, judges, prosecutors and others on the
implications of the new laws. However enforcement efforts remain lax
and as a result copyright and patent piracy is widespread. The Turkish
judicial system remains overburdened and it will likely be some time
before the necessary elements for a smoothly functioning system are in
place.
Copyrights: In June 1995 Parliament passed a bill amending Turkey's
1951 copyright law. The bill:
--extends the term of copyrights from 20 to 70 years,
--extends coverage to computer software,
--increases fines for violators, and
--removes many previous exemptions to full copyright protection.
Turkey also acceded to a number of international copyright
conventions during 1995, including the Paris Act (1971) of the Berne
Convention and the 1961 Rome Convention.
While a significant improvement, the amended copyright law still
has deficiencies. The government has acknowledged the need for further
amendments to bring Turkey's laws fully into compliance with Uruguay
Round standards, but its ability to pass legislation in 1996 and 1997
has been hampered by multiple changes of government.
Patents: A new patent law came into effect in June 1995 replacing
Turkey's 19th century patent law. The new law was subsequently amended
in August and November of 1995. Turkish officials insist the law is
fully compatible with the Uruguay Round's TRIPs agreement, although
U.S. officials have questioned the law's broad compulsory licensing
provisions.
The United States has pressed for further improvements, including
coverage for pharmaceutical products which will not begin until 1999 in
accordance with Turkey's Customs Union commitments to the EU. The
legislation does not contain ``pipeline'' protection for pharmaceutical
products. The Turkish Patent Institute is now accepting applications
for pharmaceutical patents in accordance with the TRIPs agreement's
``mailbox'' provisions.
Trademarks: Along with the patent law, Turkey replaced its
trademark law in 1995. Here, too, it remains to be seen how effective
the Turkish bureaucracy and legal system will be in controlling the
current widespread counterfeiting of foreign trademarked products.
Turkey acceded to a number of international patent and trademark
conventions in 1995, including:
--the Stockholm Act (1979) of the Paris Convention for Protection
of Industrial Property,
--the Patent Cooperation Treaty (1984),
--the Strasbourg Agreement on International Patent Classifications,
--the Geneva Act (1979) of the Nice Agreement on International
Classification of Goods and Services, and
--the Vienna Agreement establishing an international classification
of figurative elements of marks.
9. Worker Rights
a. The Right of Association.--All workers except police and
military personnel have the right to associate freely and form
representative unions. Most workers also have the right to strike, but
the Constitution does not permit strikes among workers employed in the
public utilities, petroleum, sanitation, education and national defense
sectors, or by workers responsible for protection of life and property.
Turkish law requires collective bargaining before a strike. Solidarity,
wildcat, and general strikes are illegal. The law on free trade zones
forbids strikes for ten years following their establishment, although
union organizing and collective bargaining are permitted. The high
arbitration board settles disputes in all areas where strikes are
forbidden.
b. The Right to Organize and Bargain Collectively.--Apart from the
categories of public employees noted above, Turkish workers have the
right to organize and bargain collectively. The law requires that in
order to become a bargaining agent, a union must represent not only
``50 percent plus one'' of the employees at a given work site, but also
10 percent of all workers in that particular branch of industry
nationwide. After the Ministry of Labor certifies the union as the
bargaining agent, the employer must enter good faith negotiations with
it.
c. Prohibition of Forced or Compulsory Labor.--The Constitution
prohibits forced or compulsory labor, and it is not practiced.
d. Minimum Age for Employment of Children.--The Constitution
prohibits work unsuitable for children, and current legislation forbids
full time employment of children under 15. The law requires that school
children of age 13 and 14 who work part time must have their working
hours adjusted to accommodate school requirements. The Constitution
prohibits children from engaging in physically demanding labor, such as
underground mining, and from working at night. The laws are effectively
enforced only in organized industrial and service sectors. Unionized
industry and services do not employ underage children. In the informal
sector, many children under 13 work as street vendors, in home
handicrafts, on family farms, and in other enterprises.
e. Acceptable Conditions of Work.--The Ministry of Labor is legally
obliged, through a tripartite government-union-industry board, to
adjust the minimum wage at least every two years and does so regularly.
Labor law provides for a nominal 45 hour work week and limits the
overtime that an employer may request. Most workers in Turkey receive
nonwage benefits such as transportation and meal allowances, and some
also receive housing or subsidized vacations. In recent years, fringe
benefits have accounted for as much as two-thirds of total remuneration
in the industrial sector. Occupational safety and health regulations
and procedures are mandated by law, but limited resources and lack of
safety awareness often result in inadequate enforcement.
f. Rights in Sectors with U.S. Investment.--Conditions do not
differ in sectors with U.S. investment.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 87
Total Manufacturing........................... 594
Food & Kindred Products..................... 186
Chemicals & Allied Products................. 103
Metals, Primary & Fabricated................ \1\
Machinery, except Electrical................ \1\
Electric & Electronic Equipment............. \1\
Transportation Equipment.................... 87
Other Manufacturing......................... 117
Wholesale Trade............................... 75
Banking....................................... \1\
Finance/Insurance/Real Estate................. -1
Services...................................... \1\
Other Industries.............................. 2
TOTAL ALL INDUSTRIES.......................... 1025
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
UKRAINE
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP................................... 36.0 40.6 48.75
Real GDP Growth (pct) \2\..................... -11.8 -10.0 -3.4
GDP by Sector:
Agriculture............................... 4.9 14.50 15.29
Manufacturing............................. 12.7 N/A N/A
Services (annual pct change).............. -11.7 -12.7 N/A
Government................................ N/A N/A N/A
Per Capita GDP (US$)........................ 680 854 863
Labor Force (millions)...................... 21.2 21.2 21.2
Unemployment Rate (pct)..................... 0.6 1.1 3.1
Money and Prices (annual percentage growth):
Money Supply Growth (M2).................... 117 40 N/A
Consumer Price Inflation.................... 181 40 12.6
Exchange Rate (hryvnia/US$ - annual average)
Official.................................. 1.47 1.84 1.85
Balance of Payments and Trade:
Total Exports, FOB \3\...................... 13.6 18.46 18.38
Exports to U.S. (US$ mlns) \4\............ 406 507 500
Total Imports, CIF\3\....................... 16.0 19.35 19.78
Imports from U.S. (US$ mlns) \4\.......... 223 395 450.7
Trade Balance \3\......................... -2.3 -.89 -1.4
Balance with U.S. (US$ mlns) \4\.......... 183 122 267
Current Account Deficit/GDP (pct)........... -4.3 -3.1 N/A
External Public Debt/GDP (pct).............. 8.1 9.9 N/A
Debt Service Payments/GDP (pct)............. 3.7 3.5 N/A
Fiscal Deficit/GDP (pct).................... 6.7 6.0 N/A
Gold and Foreign Exchange Reserves.......... 1.1 1.7 N/A
Aid from U.S. (US$ millions) \5\............ 44.8 545.8 369.07
Aid from All Other Sources.................. N/A N/A N/A
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available monthly data
through August 1997, or are 1997 forecast. Source: Government of
Ukraine
\2\ Percentage changes calculated in local currency
\3\ Merchandise trade
\4\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
FAS, imports customs basis; 1996 figures are estimates based on data
available through November 1996.
\5\ Figures are actual FY expenditures. Cumulative budgeted assistance
(credits and grants)for FY 92-96 totals $2.09 billion.
1. General Policy Framework
Ukraine, a country which celebrated its sixth anniversary of
independence in August 1997, has followed a course of democratic
development, social stability, and economic reform. Since independence,
Ukraine has changed governments, held parliamentary elections, drafted
and passed a Constitution, eliminated its inherited nuclear weapons,
created new governmental institutions, curbed inflation, introduced a
new currency (the ``hryvnia''), and assumed an active foreign policy. A
tremendous amount of work still lies ahead--particularly in the area of
economic development and the creation of an economic environment
conducive to true market forces. Progress has been relatively slow--but
the movement is in a forward direction.
Ukraine's economic inheritance from the Soviet Union of a large
defense sector and energy-intensive heavy industry has made transition
to a market economy particularly difficult. The move to market pricing,
the interruption of relationships with producers and suppliers in other
parts of the former Soviet Union, and the delay in undertaking serious
economic reforms have led to steep declines in production and
widespread hardship among the population. Ukraine's principal resources
and economic strengths include rich agricultural land, significant coal
and more modest gas and oil reserves, a well developed infrastructure,
a strong scientific establishment, and an educated, skilled workforce.
Ukraine is an important emerging market at the crossroads of Eastern
Europe, Russia, Central Asia, and the Middle East, and holds great
potential for becoming an important new market for U.S. trade and
investment. A significant number of both large multinationals and
smaller foreign investors are present in this challenging market.
Ukraine's ultimate trade and investment potential will depend largely
on the success of its attempts to accelerate the movement toward a
market economy.
Economic reform in Ukraine began in earnest in October 1994, when
President Leonid Kuchma laid out his economic credo in a speech to the
Ukrainian parliament and set the country's course on a definitive
direction toward a free market. Ukraine still has much progress to make
in the areas of privatization, tax reform, and contract enforcement.
The government has had its greatest success in achieving macroeconomic
stability. Inflation, for example, was reduced from a rate of over 400
percent in 1994 to 40 percent in 1996; the rate in 1997 is likely to be
lower than 15 percent. The exchange rate (vis-a-vis the U.S.) dollar
has been steady within a narrow band in 1996 and 1997.
Ukraine entered 1997 with a comprehensive macroeconomic reform
plan--Ukraine Economic reform 1997--that held great promise. The
package consisted primarily of tax reforms and deregulation measures
designed to stimulate economic developments, coax business out of the
shadow economy, improve government revenues and strengthen the pension
system. Economic Reform 1997 was heralded as a breakthrough in the
government's commitment to long-term, sustainable economic reform.
However, due to a lack of cohesion within the government and a failure
by the Kuchma administration and the cabinet of Ministers to fully
embrace Economic Reform 1997, the package was unable to overcome
entrenched interests in the parliament, where it was dissected and
scrutinized in its many parts rather than considered as a package of
interdependent reforms. Although many important components such as the
Value Added Tax (VAT) and Enterprise Profit Tax Reform were eventually
passed, the bulk of the program has not been enacted.
The 1997 Budget was sent back to the cabinet several times for
revision based on only those provisions in the package that were
enacted. The 1997 budget was finally passed in July, and even those who
voted for it conceded that it was ``unrealistic.'' This was a primary
factor in the postponement of the International Monetary Fund's (IMF)
Extended Fund Facility in favor of a less demanding and shorter-term
stand-by loan. Disagreement over the government's failure to get the
budget through the parliament, as well as to deal with a host of other
pressing issues such as official corruption and mounting wage arrears,
were factors in President Kuchma's dismissal of Prime Minister
Lazarenko and therefore, under the Constitution, the entire cabinet.
This change in government further delayed implementation of measures
that were crucial to reform and international financial institution
(IFI) conditionalities.
Ukraine's budget deficit, which in the early years of independence
was very large and financed through highly inflationary borrowing from
the National Bank of Ukraine (NBU), is now largely under control,
although continued shortfalls in expected revenue have meant that the
government normally operates on a ``cash management'' basis and wage
arrears are common. The main sources of deficit financing are limited
government borrowing from the NBU, increasing issuance of domestic
government securities, and inflows of international financing through
grants and credits. The latter are largely from official sources. The
role of IFIs, in particular the IMF and the World Bank, has been very
important in Ukraine.
The NBU considers fighting inflation a top priority, and is aware
that Ukraine's thin monetary base, a legacy of previous hyperinflation,
means that even small changes in the money supply can be potentially
inflationary. Weak control over government spending also presents
challenges, as do Ukraine's relatively large inflows of international
assistance and its substantial debt repayment obligations, which are
spread unevenly throughout the year. Ukraine has cut back on credits to
industry and agriculture, which previously had led to high inflation.
2. Exchange Rate Policy
Ukraine has had a single unified exchange rate since October 1994.
The exchange rate is determined by daily auctions of the Ukrainian
Interbank Currency Exchange (UICE). A large number of currency exchange
points also exists. The difference between the UICE-set rate and the
average rates at the currency exchange points is normally
insignificant. The National Bank of Ukraine intervenes in the currency
market to prevent rapid changes in the exchange rate and normally tries
to keep the hryvnia inside an informally set trading band against the
dollar. Ukraine's policy of requiring the mandatory exchange into
hryvnia of 50 percent of foreign currency earnings remains unchanged.
Despite significant progress in other areas, Ukraine still maintains a
number of restrictions on current account and capital account payments.
Tough restrictions are also maintained for capital account
transactions. Any borrowing abroad has to be approved by the National
Bank of Ukraine (NBU). All these regulations do not seem to stem the
excessive flow of foreign currency within the economy.
3. Structural Policies
Ukraine's burdensome and nontransparent tax structure remains a
major hindrance to foreign investment and business development. In
addition, the regulatory environment is chaotic and taxes excessively
high, forcing much business activity underground and providing fertile
ground for corruption. The Ministry of Finance has moved to adopt new
budget procedures for 1998, including spending ceilings by ministry and
budget justifications by program and spending priorities. The
government is in the process of establishing a one-stop business
registration process designed to have businesses registered within five
days, reduce licensing requirements to the minimum deemed necessary for
health and safety, and centralize issuance in the new Licensing
Chamber. A draft Customs Code is advancing, and import and export
tariffs and restrictions on most products have been reduced.
Progress on mass privatization has been promising, with sufficient
numbers of enterprises entering the privatization pipeline to make the
goal of privatizing 8,000 large and medium enterprises by the end of
1997 achievable. The July passage of the 1997 Privatization program by
the parliament and other recent measures have helped accelerate the
process and expedite the sale of large ``blue chip'' enterprises. About
34,000 small scale enterprises out of a total of 40-45,000 have been
privatized. The State Property Fund, Ukraine's privatization authority,
streamlined its procedures for attracting strategic investors and has
begun holding commercial and noncommercial tenders for enterprises that
are being privatized according to individual plans.
4. Debt Management Policies
Ukraine's foreign debt stood at about $11-12 billion in late 1996.
The largest amount is owed to Russia and Turkmenistan, primarily for
past trade credits for deliveries of gas, which have been rescheduled
into long-term state credits. Ukraine owes another $2.5 billion to
international financial institutions and bilateral export credit
agencies. The proportion of debt to Russia and Turkmenistan is
continuing to decline, since Ukraine is no longer building up
significant arrearages for fuel deliveries. Debt service as a percent
of GDP, approximately three percent in 1996, is expected to climb in
1997 as larger portions of previously rescheduled debt to Russia and
Turkmenistan become due.
Ukraine has begun to borrow from commercial markets, placing a loan
with a Japanese bank in August. Ukraine had planned to issue formal
Eurobonds and Samuraibonds in 1997, but world financial turmoil and
Ukraine's fiscal problems have put them on hold. Ukraine has made
extensive use of IMF resources, starting with a Systemic Transformation
Facility in fall 1994, a standby loan in spring 1995, and a second
standby loan in spring 1996. Ukraine failed to negotiate a three year
Extended Fund Facility agreement with the IMF in 1997 and instead has
negotiated another stand-by agreement. Ukraine also has made extensive
use of World Bank structural adjustment lending.
5. Significant Barriers to U.S. Exports
The daunting menu of a VAT (20 %), import duties (ranging from 5-
200%) and excise taxes (10-300%) present a major obstacle to trade with
Ukraine. A limited number of goods, including raw materials, component
parts, equipment, machinery, and energy supplies imported by commercial
enterprises for ``production purposes and their own needs'' are
exempted from VAT. Many agricultural enterprises are also exempt from
the VAT.
Import duties differ and largely depend upon whether a similar item
to that being imported is produced in Ukraine; if so, the rate may be
higher. A list of goods subject to excise taxes includes alcohol,
tobacco, cars, tires, jewelry, and other luxury items. Excise duty
rates are expressed as a percentage of the declared customs value, plus
customs duties and customs fees paid for importing products.
The significant progress made in the last few years on economic
stabilization and the reduction in inflation have greatly improved
conditions for U.S. companies in Ukraine. However, foreign firms need
to develop cautious and long term strategies which take full account of
the problematic commercial environment. The underdeveloped banking
system, poor communications networks, difficult tax and regulatory
climate, increasing occurrences of crime and corruption, limited
opportunities to participate in privatization, and lack of a well
functioning legal system impede U.S. exports and investment to Ukraine.
Ukraine's domestic production standards and certification
requirements apply equally to domestically produced and imported
products. Product testing and certification generally relate to
technical, safety and environmental standards as well as efficacy
standards with regard to pharmaceutical and veterinary products. At a
minimum, imports to Ukraine are required to meet the certification
standards of their country of origin. In cases where Ukrainian
standards are not established, country of origin standards may prevail.
U.S. exports to Ukraine receive preferential custom rates if the
following three criteria are met: (1) the company is registered in the
United States; (2) the goods have a certificate to prove U.S. origin;
and (3) the goods are imported directly from the United States. There
are no special registration or other requirements, according to the
State Customs Committee. Duties on goods imported for resale are
subject to varying ad valorem rates. Imported goods are not considered
legal imports until they have been processed though the port of entry
and cleared by Ukrainian customs officials. Import licenses are
required for very few goods, primarily medicines, pesticides, and some
industrial chemical products.
6. Export Subsidies Policies
As part of its efforts to cut the budget deficit, the government
has significantly reduced the amount of subsidies it provides to state-
owned industry over the last two years. Nonetheless, subsidies remain
an important part of Ukraine's economy, particularly in the coal and
agriculture sectors. These subsidies, however, appear not to be
specifically designed to provide direct or indirect support for
exports, but rather to maintain full employment and production during
the transition to a market-based economy. The government does not
target export subsidies specifically to small business. Ukraine's
subsidy policy may change in the context of its negotiations to join
the World Trade Organization (WTO). The country's fifth WTO Working
Party meeting was held in November 1997. Ukraine has tabled WTO marke
access offers for both goods and services.
7. Protection of U.S. Intellectual Property
Ukraine is committed legislatively to the protection of
intellectual property, but enforcement remains inadequate. Ukraine is a
successor state to many of the conventions and agreements signed by the
former Soviet Union and is a member of the World Intellectual Property
Organization (WIPO). It is a member of the Paris Convention on
industrial property and the Universal Copyright Convention, and in 1995
joined the Berne Convention. Ukraine is also a member of the
International Copyright Convention, the Madrid Agreement on
registration of marks, and the Patent Cooperation Treaty.
Ukraine has established a comprehensive legislative system for the
protection of intellectual property rights. Since 1993 Ukraine has
enacted five IPR laws covering inventions, industrial designs,
trademarks, plant varieties, and copyrights. Computer programs and
sound recordings can be copyrighted according to Articles 18 and 19 of
the Ukrainian copyright law. There are no data on infringement or
counterfeiting of trademarks. According to the Ukrainian Patent Agency,
there are also no statistics on the extent of piracy of books, music
recordings, videos, or computer software, although pirated movie
videos, software music cassettes and CDs are widely and openly
available in stores and street kiosks in Kiev and other major cities.
Piracy and counterfeits clearly affect U.S. exports.
8. Worker Rights
a. The Right of Association.--The new constitution guarantees the
right to join trade unions to defend ``professional, social and
economic interests.'' Under the constitution all trade unions have
equal status, and no government permission is required to establish a
trade union. The 1992 law on citizens' organizations stipulates
noninterference by authorities in the activities of these organizations
and their right to establish and join federations and to affiliate with
international organizations on a voluntary basis. In negotiating wages
with the government, all unions are permitted to participate. In
principle, all workers and civil servants including members of the
armed forces are free to form unions, but in practice the government
discourages certain categories of workers (e.g., nuclear power plant
workers) from doing so.
There are no official restrictions on the right of unions to
affiliate with international trade union bodies. The independent
miners' union and independent trade unions have not been pressured to
limit their contacts with international nongovernmental organizations.
The AFL/CIO has a permanent representative in Kiev who interacts freely
with the consultative council of independent trade unions.
b. The Right to Organize and Bargain Collectively.--The law on
labor conflict resolution guarantees the right to strike to all but
members of the armed forces, civil and security services, and employees
of ``continuing process plants'' (e.g., metallurgical factories). This
law prohibits strikes that ``may infringe on the basic needs of the
population'' (e.g., rail and air transportation). Strikes based on
political demands are illegal. However, this has not stopped miners and
other workers from striking and making political as well as economic
demands.
The law on enterprises states that joint worker-management
commissions should resolve issues concerning wages, working conditions,
and the rights and duties of management at the enterprise level.
Overlapping spheres of responsibility frequently impede the collective
bargaining process. The government, in agreement with trade unions,
establishes wages in each industrial sector and invites unions to
participate in the negotiations. Under current law, disputes are to be
resolved by the courts. There have been cases in which such disputes
have not been settled in a fair and equitable manner.
c. Prohibition of Forced or Compulsory Labor.--The Constitution
prohibits compulsory labor, and it is not known to exist.
d. Minimum Age for Employment of Children.--The minimum employment
age is 17. In certain nonhazardous industries, however, enterprises may
negotiate with the government to hire employees between 14 and 17 years
of age, with the consent of one parent. School attendance is compulsory
to the age of 15, a regulation vigorously enforced by the Ministry of
Education.
e. Acceptable Conditions of Work.--The labor code provides for a
maximum 40-hour work week, a 24-hour day of rest per week, and at least
15 days of paid vacation per year. Stagnation in some industries (e.g.,
defense industry) significantly reduced the work week for some
categories of workers. The Constitution and other laws contain
occupational safety and health standards, but these are frequently
ignored in practice. Lax safety standards caused many serious mine
accidents, resulting in 243 deaths over 8 months of 1996 (358 in all of
1995), which represents a considerable increase in the ratio of
fatalities per ton of coal extracted amid decreasing coal output. In
theory workers have a legal right to remove themselves from dangerous
work situations without jeopardizing continued employment. In reality,
however, independent trade unionists report that asserting this right
would result in retaliation or perhaps dismissal by management.
f. Rights in Sectors with U.S. Investment.--Enterprises with U.S.
investment frequently offer higher salaries and are more observant of
regulations than their domestic counterparts. Otherwise, conditions do
not differ significantly in sectors with U.S. investment from those in
the economy in general.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 0
Total Manufacturing........................... 1
Food & Kindred Products..................... 0
Chemicals & Allied Products................. 0
Metals, Primary & Fabricated................ 0
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... 1
Wholesale Trade............................... 2
Banking....................................... 0
Finance/Insurance/Real Estate................. 0
Services...................................... 0
Other......................................... \1\
TOTAL ALL INDUSTRIES.......................... \1\
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
UNITED KINGDOM
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise noted] \1\
------------------------------------------------------------------------
1995 1996 1997 \2\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP............................... 960.8 1002.9 1091.9
Real GDP Growth........................... 2.5 2.7 2.6
GDP by Sector:\3\
Agriculture............................. 18.2 18.4 N/A
Industry................................ 290.9 301.7 N/A
Services................................ 465.5 485.8 N/A
Government.............................. 180.6 187.4 N/A
Per Capita GDP (US$))..................... 16,430 17,100 18,600
Labor Force (millions).................... 28.1 28.2 28.1
Unemployment Rate (pct)................... 8.6 8.3 7.9
Money and Prices (annual percentage growth):
Money Supply (M4)......................... 9.8 9.6 11.8
Consumer Price Inflation.................. 3.5 2.4 2.7
Exchange Rate (US$/BPS)................... 1.58 1.56 1.63
Balance of Payments and Trade:\4\
Total Exports FOB......................... 244.8 262.1 274.4
Exports to U.S.\5\...................... 28.4 31.0 34.8
Total Imports FOB......................... 268.0 287.5 295.2
Imports from U.S.\5\.................... 32.0 35.6 40.5
Trade Balance............................. -23.1 -25.4 -20.8
Balance with U.S.\5\.................... -3.7 -4.7 -5.7
Current Account Deficit/GDP............... 1.5 1.5 .75
External Public Debt...................... N/A N/A N/A
Debt Service Payments/GDP (pct)........... N/A N/A N/A
Fiscal Deficit/GDP (pct).................. 5.4 4.0 1.5
Gold and Foreign Exchange Reserves........ 47.0 46.3 41.1
Aid from U.S.............................. 0 0 0
Aid from All Other Sources................ 0 0 0
------------------------------------------------------------------------
\1\ Converted from British pound sterling (BPS) at the average exchange
rate for each year.
\2\ 1997 figures estimated from data available through September.
\3\ No sectoral data is available for 1997. For 1995 and 1996, sectors
do not add to total due to treatment of net exports and construction.
\4\ Merchandise trade (does not include services)
\5\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
FAS, imports customs basis; 1997 figures are estimates based on data
available through September 1997.
Sources: U. K. Office for National Statistics, Bank of England
1. General Policy Framework
The United Kingdom (UK) has a free market economy and a liberal
financial services environment.
In May, 1997, the Labour Party won an overwhelming Parliamentary
majority, ending 17 years of Conservative government. The new Prime
Minister, Tony Blair, inherited a strong economy, with the recovery
from the 1990-92 recession in its fifth year. Gross Domestic Product
(GDP) expanded 2.3 percent in 1996 and at a 3.0 percent annual rate
during the first half of 1997. Most analysts expect growth to slow in
the second half of 1997 and in 1998 as tighter monetary and fiscal
policy combine with a stronger sterling to put a brake on the economy.
Underlying inflation averaged 3.0 percent in 1996, and is now slightly
above the 2.5 percent target range. Unemployment has fallen
significantly, reaching 7.1 percent in summer 1997, well below that of
many continental European nations.
Fiscal Policy: The sharp recession of 1990-92 led to a record
budget deficit in 1993, encouraging the previous government to launch a
deficit reduction program in 1994. This and the economic recovery has
helped begin to unwind the deficit. The new government's determination
to live within spending limits set by the previous government, along
with the introduction of additional revenue measures in July 1997, has
put the UK on a clear course to achieve fiscal balance by the year
2000. The General Government Financial Deficit was 4.0% of GDP in
fiscal year 1996 (April 1996-March 1997) and is expected to fall to
1.5% in fiscal year 1997 and 0.25% in fiscal year 1998.
Tax Policy: The new government promised during the campaign not to
raise the personal income tax rate or broaden the Value Added Tax
(VAT). The bottom and top personal tax rates thus remain at 20 and 40
percent. The government intends, however, to strengthen incentives for
work and savings, and will review the tax (and benefit) system to that
end. This may produce tax reform in the medium-term. The capital gains
tax is being reviewed; findings will be reported in March 1998. The
main corporate tax rate was reduced in July 1997 to 31 percent from 33
percent; the small companies' rate was reduced to 21 from 23 percent.
Labour also undertook a controversial measure to tax the windfall gains
of privatized utilities; this tax is expected to yield 5.2 billion
pounds sterling over three years, which will be used to help finance
the government's new Welfare-to-Work program. Other domestic tax
revenue sources include the VAT (currently 17.5 percent) and excise
taxes on alcohol, tobacco, retail motor fuels and North Sea oil
production.
Monetary Policy: After the UK was effectively forced from the
Exchange Rate Mechanism (ERM) at the beginning of 1993, the Tory
government established an inflation target as the guiding objective for
monetary policy. The new Labour government has reiterated the
importance of a low inflation policy. It quickly granted the Bank of
England independence to set interest rates, with the aim of achieving
an inflation target of 2.5 percent. The UK manages monetary policy
through open market operations by buying and selling overnight funds
and commercial paper. There are no explicit reserve requirements in the
banking system.
2. Exchange Rate Policy
Since the UK's withdrawal from the ERM in January 1993, the pound
sterling has floated freely. Sterling's trade weighted exchange rate
(1990=100) averaged 86.3 in 1996. In the first nine months of 1997, it
averaged 99.6. This appreciation reflects a variety of factors,
including higher interest rates in the UK than in continental Europe
and possibly concerns in the market about European Economic and
Monetary Union (EMU).
The new Labour government has indicated it views EMU favorably,
although it has also declared it ``unlikely'' that the UK will join EMU
when it is launched on January 1, 1999. Should the government decide to
pursue EMU membership, it has promised to seek approval from Parliament
and from the public (either through a referendum or general election)
before proceeding.
3. Structural Policies
The UK economy is characterized by free markets and open
competition, and the government promotes these policies within the EU
and in international trade fora. The UK's low labor costs and labor
market flexibility are often credited as major factors influencing the
UK's success in attracting foreign investment.
Prices for virtually all goods and services are established by
market forces. Prices are set by the government in those few sectors
where the government still provides services directly, such as urban
transportation fares, and government regulatory bodies monitor the
prices charged by telecommunications, electric, natural gas and water
utilities. The UK's participation in the EU Common Agricultural Policy
significantly affects the prices for raw and processed food items, but
prices are not fixed for any of these items.
Over the past 17 years, Conservative governments pursued growth and
increased economic efficiency through structural reform, principally
privatization and deregulation. The financial services and
transportation industries were deregulated. The government sold its
interests in the automotive, steel, coal mining, aircraft and air
transportation sectors. Electric power (except nuclear), rail
transportation and water supply utilities were also privatized. Local
bus transportation is in the process of privatization. Subsidies were
cut substantially, and capital controls lifted. Employment legislation
significantly increased labor market flexibility, democratized unions,
and increased union accountability for the industrial acts of their
members. The Labour government in general is expected to continue this
approach, and has launched further reviews of the regulatory systems
governing utilities and transportation.
Although these structural policies have achieved substantial
economic results, some segments of the economy have still not adjusted.
Social welfare programs and the business community are still adjusting
to job losses and changes in the business climate resulting from
deregulation and privatization.
4. Debt Management Policies
The UK has no meaningful external public debt. London is one of the
foremost international financial centers of the world, and British
financial institutions are major intermediaries of credit flows to the
developing countries. The British government is an active participant
in the Paris Club and other multilateral debt negotiations.
5. Significant Barriers to U.S. Exports
Structural reforms and open market policies make it relatively
easy for U.S. firms to enter UK markets. The UK does not maintain any
barriers to U.S. exports other than those implemented as a result of EU
policies.
6. Export Subsidies Policies
The government opposes export subsidies as a general principle, and
UK trade-financing mechanisms do not significantly distort trade. The
Export Credits Guarantee Department (ECGD), an institution similar to
the Export-Import Bank of the United States, was partially privatized
in 1991.
Although much of ECGD's business is conducted at market rates of
interest, it does provide some concessional lending in cooperation with
the Department for International Development (DFID, akin to the U.S.
Agency for International Development) for projects in developing
countries. Occasionally the United States objects to financing offered
for specific projects.
The UK's development assistance program also has certain ``tied
aid'' characteristics. The UK adheres to the OECD ``Arrangement on
Officially-Supported Export Credits'' to minimize the distortive
effects of such programs.
7. Protection of U. S. Intellectual Property
UK intellectual property laws are strict, comprehensive and
rigorously enforced. The UK is a signatory to all relevant
international conventions, including the Convention Establishing the
World Intellectual Property Organization (WIPO), the Paris Convention
for the Protection of Industrial Property, the Berne Convention for the
Protection of Literary and Artistic Works, the Patent Cooperation
Treaty, the Geneva Phonograms Convention and the Universal Copyright
Convention.
New copyright legislation simplified the British process and
permitted the UK to join the most recent text of the Berne Convention.
The United Kingdom's positions in international fora are very similar
to the U.S. positions.
8. Worker Rights
a. The Right of Association.--Unionization of the work force in
Britain is prohibited only in the armed forces, public sector security
services, and police force.
b. The Right to Organize and Bargain Collectively.--Nearly 9
million workers, about a third of the work force, are organized.
Employers are not legally required to bargain with union
representatives, but are barred from discriminating based on union
membership. Employers are allowed to pay workers who don't join a union
higher wages than union members doing the same work. The 1993 Trade
Union Reform and Employment Rights Act limited that prohibition under
certain special circumstances in matters short of dismissal. The new
Labor Government has promised it will require union recognition where
at least half the workers belong to a trade union. A white paper
outlining this proposal is due early in 1998.
The 1990 Employment Act made unions responsible for members'
industrial actions, including unofficial strikes, unless union
officials repudiate the action in writing. Unofficial strikers can be
legally dismissed, and voluntary work stoppage is considered a breach
of contract.
During the 1980s, Parliament eliminated immunity from prosecution
in secondary strikes and in actions with suspected political
motivations. Actions against subsidiaries of companies engaged in
bargaining disputes are banned if the subsidiary is not the employer of
record. Unions encouraging such actions are subject to fines and
seizure of their assets. Many unions claim that workers are not
protected from employer secondary action such as work transfers within
the corporate structure.
c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory
labor is unknown in the UK.
d. Minimum Age for Employment of Children.--Children under the age
of 16 may work in an industrial enterprise only as part of an
educational course. Local education authorities can limit employment of
children under 16 years old if working will interfere with a child's
education.
e. Acceptable Conditions of Work.--The new government has promised
to establish a minimum wage, which was abolished by the Trade Union
Reform and Employment Rights Act of 1993. A Tri-partite Commission is
expected to make a specific recommendation in 1998 regarding the level.
Daily and weekly working hours are not now limited by law, although the
EU directive outlawing mandatory work weeks longer than 48 hours will
be implemented soon.
Hazardous working conditions are banned by the Health and Safety at
Work Act of 1974. A health and safety commission submits regulatory
proposals, appoints investigatory committees, does research and trains
workers. The Health and Safety Executive (HSE) enforces health and
safety regulations and may initiate criminal proceedings. This system
is efficient and fully involves workers' representatives.
f. Rights in Sectors with U.S. Investment.--U.S. firms in the UK
are obliged to obey legislation relating to worker rights.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 14,889
Total Manufacturing........................... 32,341
Food & Kindred Products..................... 4202
Chemicals & Allied Products................. 8846
Metals, Primary & Fabricated................ 1771
Machinery, except Electrical................ 6756
Electric & Electronic Equipment............. 2705
Transportation Equipment.................... 1384
Other Manufacturing......................... 6677
Wholesale Trade............................... 7365
Banking....................................... 5260
Finance/Insurance/Real Estate................. 68,339
Services...................................... 8521
Other Industries.............................. 5846
TOTAL ALL INDUSTRIES.......................... 146,560
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis
AMERICAS
----------
ARGENTINA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
GDP (at current prices) \2\................. 276 291 310
Real GDP growth (pct)....................... -4.4 4.3 6.0
GDP by Sector (pct):
Agriculture............................... 8.3 8.5 8.5
Maufacturing.............................. 29.7 29.2 30
Mining.................................... 1.9 1.9 2.5
Services.................................. N/A N/A N/A
Government................................ 15.5 15.8 15.5
Per Capita GDP (US$)........................ 8,100 8,300 8,900
Labor Force (millions)...................... 13.9 14.0 14.0
Unemployment Rate (pct)..................... 16.4 17 13.7
Money and Prices (annual percentage growth):
Money Supply (M2) \3\....................... -10.0 4.0 1.4
Consumer Price Inflation \3\................ 1.6 0.5 1.0
Exchange Rate (Peso/US$).................... 1.0 1.0 1.0
Balance of Payments and Trade:
Total Exports (FOB)......................... 20.8 23.7 26
Exports to the U.S. \4\................... 1.8 2.3 2.5
Total Imports (CIF)......................... 19.8 23.7 30
Imports from the U.S.\4\.................. 4.2 4.5 5
Trade Balance............................... 1.0 0.6 -4.0
Balance with the U.S.\4\.................. -2.4 -2.2 -2.5
External Public Debt........................ 80.1 87.0 100
Fiscal Deficit/GDP (pct).................... -3.0 -1.8 -1.4
Current Account Deficit/GDP (pct)........... -1.3 -1.6 -2.8
Debt Service Payments/GDP (pct)5.5 6.55.4...
Gold and Foreign Exchange Reserves.......... 15.9 16.0 20.0
Aid from United States...................... 0 0 0
Aid from All Other Sources.................. N/A N/A N/A
------------------------------------------------------------------------
\1\ Figures for 1997 are Embassy estimates.
\2\ Nominal GDP is virtually the same in dollars or pesos. In April
1991, when the convertibility plan took effect, the peso was tied to
the U.S. dollar at the rate of one to one.
\3\ End of period.
\4\ Source: U.S. Department of Commerce and U.S Census Bureau; exports
FAS, imports customs basis; 1996 figures are estimates based on data
available through November 1996.
1. General Policy Framework
President Carlos Menem's far-reaching reform program, which began
in earnest in 1991, has revitalized Argentina's economy. From 1991 to
1994, real GDP growth averaged nearly eight percent annually. However,
due principally to the Mexican peso crisis, real GDP fell 4.4 percent
in 1995. The economy rebounded in 1996 with a GDP growth of 4.3
percent. In 1997, GDP growth will exceed six percent. Inflation remains
low with the annual rate of increase for consumer prices in 1997
expected to be below 1.0 percent--a major accomplishment given
Argentina's bouts with hyperinflation within the last decade. A stable
exchange rate and reductions in trade barriers resulted in a boom in
imports, particularly from the United States, during 1991-94. In 1997,
Argentina's trade deficit with the United States is projected to be
about 2.5 billion dollars. Argentina is expected to incur a four
billion dollar overall trade deficit in 1997, reflecting strong demand
for imports generated by rapid economic growth.
The number of financial institutions in Argentina dropped from over
200 in December 1994 to about 120 by the end of 1997. In many respects,
Argentina's macroeconomic perspectives are better than at any time
since December 1994. Argentina remains one of the hemisphere's most
promising emerging markets.
The public sector budget is expected to run a deficit in 1997 of
about 4.5 billion dollars--less than 1.5 percent of GDP. Tax collection
has improved, but evasion is a major problem for the government. Still,
impressive economic growth and increases in consumption generated
better tax receipts in 1997 than in 1996.
The Central Bank of Argentina controls the money supply through the
buying and selling of dollars. Under the Convertibility Law of 1991,
the exchange rate of the Argentine peso is fixed to the dollar at the
rate of one to one. This rate is expected to remain unchanged in the
medium term.
2. Exchange Rate Policy
Argentina has no exchange controls. Customers may freely buy and
sell currency from banks and brokers at market prices. The Central Bank
buys and sells dollars at the rate of one peso per dollar.
3. Structural Policies
The Menem administration's reform program has made significant
progress in transforming Argentina from a closed, highly regulated
economy to one based on market forces and international trade. The
government's role in the economy has diminished markedly through the
privatization of most state firms, including the large oil firm YPF in
1993. The authorities have also eliminated price controls on almost all
goods and services. Still, recurrent trade deficits from 1992 to 1994
and high unemployment led the government to take some ad hoc
protectionist measures. For example, in 1994 the authorities imposed
increased ``specific'' duties on almost all textile and footwear
imports, followed in 1995 by increased duties on apparel imports.
Subsequently, the government put in place burdensome certificate-of-
origin and labeling requirements on imports of these, and other
unrelated products. In February 1997, Argentina repealed the existing
``specific'' duties on footwear--only to immediately reinstate them
under a safeguard investigation. At the same time, the United States
requested formation of a WTO panel to review Argentina's footwear and
textile regimes, as well as the three-percent statistical tax. In a
preliminary ruling in September 1997, the WTO panel found that the
textile regime and statistical tax violate Argentina's WTO commitments.
Further, in November 1997, the Government of Argentina put in place
pre-shipment inspection requirements for imports of most consumer goods
and vehicle products.
Argentina, Brazil, Paraguay and Uruguay established the Southern
Cone Common Market (Mercosur) in 1991, and on January 1, 1995, formed a
partial customs union with a common external tariff (cet) covering
approximately 85 percent of trade. The CET ranges from zero to 23
percent. Initially, the government exempted some products from the cet,
such as capital goods, informatics and telecommunications, to help
support the modernization of the industrial infrastructure. However, in
August 1996 tariffs on these items were increased to the Mercosur
level. As a result, many non-Mercosur products entering Argentina now
face higher tariffs. Chile signed a free trade agreement with Mercosur,
effective October 1, 1996, but will not participate in the cet. Bolivia
also entered into a similar pact on April 30, 1997. Mercosur is also
discussing the prospect of a free trade agreement with the Andean
community. In January 1998, the Government of Argentina put in place a
three percent increase in its CET allowing for exceptions in capital
goods, informatics, telecommunications and other items.
Argentina signed the Uruguay Round agreements in April 1994, its
congress ratified the agreements at the end of 1994, and Argentina
became a founding member of the WTO on January 1, 1995.
4. Debt Management Policies
Argentina's public debt maturities are mostly concentrated in the
longer term. Debt increased in 1997 and approached $100 billion--
slightly less than 30 percent of gdp. Argentina is expected to make
total debt service (principal and interest) payments of about $15
billion per year through 1999. Interest payments on public debt in 1998
will represent only about two percent of gdp. There is no indication
that Argentina will face debt financing difficulties in the medium
term.
5. Significant Barriers to U.S. Exports
One of the key reforms of the Menem administration has been to open
the Argentine economy to international trade. The government abolished
the import licensing system in 1989, and in 1990 cut the average tariff
from nearly 29 percent to less than 10 percent. However, Mercosur
common external tariff rates are slightly higher, so that Argentina's
average tariff is now closer to 17 percent. In August 1996, to increase
revenue in the aftermath of the Tequila crisis, the Government of
Argentina raised the tariff on capital goods--from ten to fourteen
percent--to boost revenues. Capital goods account for over 40 percent
of U.S. exports.
Barriers to U.S. Exports: despite the generally open market for
imports, the authorities occasionally erect protectionist barriers,
such as the increase in ``specific'' duties applied to textiles and
footwear in January 1994. Restrictions apply to imports of a broad
range of used and manufactured equipment as well. In May 1996 the
government issued a resolution requiring local generation of a majority
of cable TV channels carried by cable and pay television operators in
Argentina. The resolution also obliges all operators to register their
programming with a government regulatory body. U.S. companies fear the
measure will limit the entrance of new foreign channels and
programming, but it has had little impact to date on their operations.
Argentina also protects the automobile assembly industry through a
combination of quotas and heavy tariffs. Nevertheless, the number of
foreign-manufactured vehicles on the roads is increasing because of
heavy demand that outstrips local production. The government plans to
dismantle the present auto protection scheme by 2000, when a common
Mercosur auto policy is scheduled to take effect.
Standards: Argentina generally recognizes U.S. and European
standards. However, as the government and its Mercosur partners
gradually establish a more structured and defined standards system, the
standards requirements are becoming progressively more complex,
particularly for medical products. Under the WTO Agreement on Technical
Barriers to Trade, Argentina established an ``enquiry point'' to
address standards-related enquiries. While this enquiry point exists
formally at the Direccion General de Industria, it is not fully
functional at present.
Service Barriers: in January 1994, the authorities abolished the
distinction between foreign and domestic banks. U.S. banks are well
represented in Argentina and are some of the more dynamic players in
the financial market. U.S. insurance companies are active in providing
life, property and casualty, and workers compensation insurance. The
privatization of pension funds has also attracted U.S. firms.
Investment Barriers: There are very few barriers to foreign
investment. Firms need not obtain permission to invest in Argentina.
Foreign investors may wholly own a local company, and investment in
shares on the local stock exchange requires no government approval.
There are no restrictions on repatriation of funds.
A United States-Argintina bilateral investment treaty came into
force on October 20, 1994. Under the treaty, U.S. investors enjoy
national treatment in all sectors except shipbuilding, fishing and
nuclear power generation. An amendment to the treaty removed mining,
except uranium production, from the list of exceptions. The treaty
allows arbitration of disputes by the International Center for the
Settlement of Investment Disputes or any other arbitration institution
mutually agreed by the parties.
Government Procurement Practices: Argentina is not a signatory to
the WTO Government Procurement Agreement, and the ``Buy Argentina''
program was permanently eliminated in October 1991. Government
procurement in Argentina is subject to articles 55 through 64 of the
Accounting Law (Ley de Contabilidad del Estado). Government purchases
of less than $100, 000 are affected by direct invitation to bid; no
tender is published. Purchases of between $100,000 and $1,000,000
require published tenders and an open bidding process. When required,
tenders are published in the Official Gazette. Tenders for purchases of
less than $5,000,000 are published for a period of two to four days;
for purchases of more than $5,000,000 tenders are published for a
period of eight days.
Customs Procedures: Customs procedures are cumbersome and time-
consuming, thus raising the cost for importers. Installation of an
automated system in 1994 has eased the burden somewhat. The government
is resorting more frequently to certificate-of-origin requirements and
reference prices to counter under invoicing and ``social'' dumping,
primarily from the Far East. In 1997, the government merged the customs
and tax authorities to boost revenue collection and improve efficiency.
It instituted a preshipment inspection system in late 1997 to verify
the price, quality and quantity of imports. The system will be
implemented by six private firms.
6. Export Subsidies Policies
As a WTO member, Argentina adheres to WTO subsidies obligations. It
also has a bilateral agreement with the United States to eliminate
remaining subsidies provided to industrial exports and ports located in
the Patagonia region. Nevertheless, the government retains minimal
supports, such as reimbursement of indirect tax payments to exporters.
The government also maintains an industrial specialization program
which allows certain industries that boost their exports to report a
comparable amount of imports at a reduced tariff. The program will end
in the year 2000.
7. Protection of U.S. Intellectual Property
Argentina is a member to most treaties and international agreements
on intellectual property, including the Paris Convention on Industrial
Property (Lisbon revision and nonsubstantive portions of the Stockholm
revision), the Brussels and Paris revisions of the Berne Convention,
the Universal Copyright Convention, the Geneva Phonogram Convention,
the Treaty of Rome and the Treaty on the International Registration of
Audiovisual Works. In addition, Argentina is a member of the World
Intellectual Property Organization (WIPO). However, reform of
Argentina's patent system has in recent years been a contentious
bilateral issue. The United States suspended fifty percent of
Argentina's GSP benefits in May 1997, because of its failure to enact
adequate patent protection for pharmaceuticals, and Argentina remains
on the Special 301 Priority Watch List. U.S. industries have cited
enforcement of existing intellectual property protection as problematic
in several instances.
Patents: after a three-year conflict between the Argentine
executive and congress over the issue of patent protection for
pharmaceutical products, the executive issued a March 1996 decree
consolidating previous patent legislation. Under the decree, Argentina
will issue patents for pharmaceuticals starting in November 2000. The
decree does not provide patent protection for products under
development, and contains ambiguous language on parallel imports and
compulsory licenses. For example, the decree bans parallel imports but
allows the import of products which have been licitly placed in
commerce in a third country. Compulsory licenses can be awarded in
cases of anti competitive practices or for failure to work a patent.
The March 1996 decree improves earlier Argentine patent
legislation, but provides less protection than that originally proposed
by the executive. The decree also does not meet the concerns of the
U.S. Pharmaceutical industry. In December 1996, the Argentine congress
passed a data confidentiality law that fails to provide effective
protection for test data submitted to Argentine health authorities by
companies seeking marketing approval for pharmaceutical and
agrochemical products. Despite these flaws, the Argentine executive
does not plan to seek further changes in the patent regime or data law
before the year 2000.
Copyrights: Argentina's Copyright Law, enacted in 1933, is adequate
by international standards. Recent decrees provided protection to
computer software and extended the term of protection for motion
pictures from 30 to 50 years after the death of the copyright holder.
As in many countries, video piracy is a serious problem. Efforts are
underway to combat this, including arrests, seizure of pirated
material, and introduction of security stickers for cassettes. However,
a recent lower court decision, currently on appeal to the supreme
court, put in question the application of criminal sanctions in cases
involving unauthorized use of computer software. A bill making criminal
sanctions clearly applicable in software piracy cases is pending in the
Chamber of Deputies.
Trademarks: Trademark laws and regulations in Argentina are
generally good. The key problem is a slow registration process, which
the government has striven to improve.
Trade Secrets: Argentina has no trade secrets law as such, but the
concept is recognized and encompassed by laws on contract, labor and
property. Penalties exist under these statutes for unauthorized
revelation of trade secrets.
Semiconductor Chip Layout Design: Argentina has no law dealing
specifically with the protection of layout designs and semiconductors.
This technology conceivably could be covered by existing legislation on
patents or copyrights, but this has not been verified in practice.
Nevertheless, Argentina has signed the wipo treaty on integrated
circuits.
8. Worker Rights
a. The Right of Association.--All Argentine workers except military
personnel are free to form unions. Union membership is estimated at 30-
40 percent of the work force. Unions are independent of the government
and political parties, although most union leaders are affiliated with
President Menem's Justicialist Party. Unions have the right to strike,
and strikers are protected by law. Argentine unions are members of
international labor associations and secretariats and participate
actively in their programs.
b. The Right to Organize and Bargain Collectively.--Argentine law
prohibits anti-union practices. The trend continues towards bargaining
on a company level, in contrast to negotiating at the national level on
a sectoral basis, but the adjustment has not been easy for either
management or labor. Both the federal government and a few highly
industrialized provinces are working to create mediation services to
promote more effective collective bargaining and dispute resolution.
c. Prohibition of Forced or Compulsory Labor.--The constitution
prohibits forced labor, and there were no reports of such incidents
during 1995.
d. Minimum Age for the Employment of Children.--The law prohibits
employment of children under 14, except in rare cases where the
Ministry of Education may authorize a child to work as part of a family
unit. Minors aged 14 to 18 may work in a limited number of job
categories, but not more than six hours a day or 35 hours a week. The
law is effectively enforced except in some isolated rural areas where
government monitoring capabilities are thin.
e. Acceptable Conditions of Work.--The national monthly minimum
wage is $200. Federal labor law mandates acceptable working conditions
in the areas of health, safety and hours. The maximum workday is eight
hours, and the work week is limited to 48 hours. The government has
enacted reforms aimed at giving small and medium enterprises greater
flexibility in the management of their personnel. The government is
also striving to modernize the system of workers compensation.
Argentina has well-developed health and safety standards, but the
government often lacks sufficient resources to enforce them.
f. Rights in Sectors with U.S. Investment.--Argentine law does not
distinguish between worker rights in nationally-owned enterprises and
those in sectors with U.S. investment. The rights enjoyed by Argentine
employees of U.S.-owned firms in Argentina equal or surpass Argentine
legal requirements.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 851
Total Manufacturing........................... 3703
Food & Kindred Products..................... 1013
Chemicals & Allied Products................. 1690
Metals, Primary & Fabricated................ 195
Machinery, except Electrical................ \2\
Electric & Electronic Equipment............. 57
Transportation Equipment.................... 195
Other Manufacturing......................... 554
Wholesale Trade............................... 773
Banking....................................... 957
Finance/Insurance/Real Estate................. 1097
Services...................................... 206
Other Industries.............................. 512
TOTAL ALL INDUSTRIES.......................... 8060
------------------------------------------------------------------------
\1\ Indicates a value between $-500,000 and $500,000.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
THE BAHAMAS
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997
------------------------------------------------------------------------
Income, Production and Employment:
GDP (at current prices)................. 3,500 3,750 N/A
Real GDP Growth......................... 1.3 3.7 4.0
GDP by Sector (percent of total):
Tourism............................... 50 50 60
Finance............................... 12 12 12
Manufacturing......................... 4 4 3
Agriculture/Fisheries................. 4 4 3
Government............................ 12 12 12
Other................................. 18 18 10
Per Capita GDP (US$) \1\................ 11,059 11,115 N/A
Labor Force (000s)...................... 143.0 146.6 N/A
Unemployment Rate (percent)............. 11.1 11.5 N/A
Money and Prices (annual percent change):
Money Supply Growth (M2)................ 7.2 6.0 \3\ 6.9
Retail Price Inflation.................. 2.1 1.4 0.4
Exchange Rate (B$/US$$)................. 1.00 1.00 1.00
Balance of Payments and Trade:
Total Exports (FOB)..................... 175.9 201.7 N/A
Exports to U.S.\2\...................... 156.0 165.4 N/A
Total Imports (CIF)..................... 1155.5 1261.6 N/A
Imports from U.S.\2\.................. 660.5 725.0 N/A
Trade Balance........................... -979.6 -1059.9 N/A
Balance with U.S.\2\.................. -504.5 -652.0 N/A
Current Account Deficit/GDP (pct)....... 5.6 7.9 N/A
External Public Debt.................... 90.9 77.0 N/A
Debt Service Payments/GDP (pct)......... 2.5 2.6 N/A
Fiscal Deficit/GDP...................... 0.6 1.2 N/A
Foreign Exchange Reserves............... 170.6 163.0 \3\ 298.
2
Aid from U.S............................ 0 0 0
Aid from Other Countries................ N/A N/A N/A
------------------------------------------------------------------------
\1\ Source: Interamerican Development Bank
\2\ Source: U.S. Department of Commerce
\3\ At June 1997
Source: Central Bank of The Bahamas and the Department of Statistics
1. General Policy Framework
The Bahamas is a politically stable, middle-income developing
country. The economy is based primarily on tourism and financial
services, which account for approximately 60 percent and 12 percent of
GDP respectively. The agricultural and industrial sectors, while small,
continue to be the focus of government efforts to produce new jobs and
diversify the economy.
The United States remains the Bahamas' major trading partner. U.S.
exports to The Bahamas increased from $660.5 million in 1995 to $725
million in 1996 and account for approximately 55 percent of all
imports. Although certain areas of economic activity are reserved for
Bahamian citizens, The Bahamian government actively encourages foreign
investment in unreserved areas and promotes the free trade zone on
Grand Bahama. Capital and profits are freely repatriated, and personal
and corporate income is not taxed by the Bahamian government.
Designation under the Caribbean Basin Initiative (CBI) trade program
allows qualified Bahamian goods to enter the United States duty free.
The Bahamian government enacted a policy in the 1995-1996 budget in
which the annual amount of new borrowings would be no greater than the
amount of debt redemption. The 1997-1998 budget totaling $968 million
provides for recurring expenditures of $846 million, an increase of
$256.6 million including $26 million from the 1995/96 budget. A total
of $68.4 million has been allocated for repayment of government debt.
Overall, the budget concentrates on improving health care services,
education and training programs, and reducing crime. Although the
budget again
held no new taxes and did not raise existing taxes, the GCOB expects
sustained economic expansion and improvements in revenue collection to
support revenue growth. The government instituted new customs duty
exemptions to stimulate Family Island development and encourage growth
in small scale tourist resorts in the Bahamas.
Recurrent revenue for 1997-1998 is projected at $766.3 million,
representing an increase of seven percent over the 1996-1997 fiscal
year. This figure also reflects an additional $40 million in
anticipated savings, not yet identified at the time of the budget
process. The commercial banks' prime lending rate remained at 6.75
percent.
2. Exchange Rate Policy
The Bahamian dollar is pegged to the U.S. dollar at an exchange
rate of 1:1, and the Bahamian government recently repeated its long-
standing commitment to maintain parity.
3. Structural Policy
Price controls exist on 13 bread basket items, as well as gasoline,
utility rates, public transportation, automobiles, and auto parts. The
rate of inflation is estimated at 0.4 percent.
The Bahamas is recognized internationally as a tax haven. The
government does not impose income, inheritance or sales taxes. In the
1995-1996 budget, the government lowered taxes and reduced the stamp
duty on various tourism related items including: liqueurs and spirits,
jewelry and watches, perfumes, toilet water, table linens, and non-
leather designer handbags. The government hopes this measure will
increase the country's competitive edge in the tourism sector and
expects merchants to pass these savings on to tourists. These
concessions were also instituted to safeguard employment in retail
trade catering to tourists and promote the price competitiveness of
goods in the Bahamian market. The rate of stamp duty on cigarettes was
also lowered.
Certain goods may be imported conditionally on a temporary basis
against a security bond or deposit which is refundable upon re-
exportation. These include: fine jewelry, goods for business meetings
or conventions, traveling salesman samples, automobiles or motorcycles,
photographic and cinematographic equipment, and equipment or tools for
repair work.
In 1993 the Bahamian government repealed the Immovable Property
(Acquisition by Foreign Persons) Act, which required foreigners to
obtain approval from the Foreign Investment Board before purchasing
real property in the country, and replaced it with the Foreign Persons
(Landholding) Act. Under the new law, approval is automatically granted
for non-Bahamians to purchase residential property of less than five
acres on any single island in the Bahamas, except where the property
constitutes over fifty percent of the land area of a cay (small island)
or involves ownership of an airport or marina.
The new law also provides for a two-year real property tax
exemption for foreign persons acquiring undeveloped land in The Bahamas
for development purposes, provided that substantial development occurs
during those two years. The tax structure for foreign property owners
is as follows:
--$1-$3,000 - the standard property tax is $30.00.
--$3,001-$100,000 - the property tax is 1 percent of the assessed
value.
--over $100,000 - the property tax is 1+ percent of the assessed value.
This new legislation has stimulated the second home/vacation home
market and revived the real estate sector.
In addition, the government lowered the rate of stamp duty on real
estate transactions in the 1995-1996 budget. The stamp duty reduction
ranges from two percent on transactions under $20,000 to eight percent
on transactions over $100,000.
To increase revenues, the airport departure tax was raised from $13
to $15 per person in 1993. The harbor departure tax was lowered from
$20 to $15 per person effective April 1, 1992 because of protests from
ship operators.
Although the Bahamas encourages foreign investment, the government
reserves certain businesses exclusively for Bahamians, including
restaurants, most construction projects, most retail outlets, and small
hotels. Other categories of businesses are eligible solely as joint
ventures.
The Bahamas Investment Authority (BIA), a ``one-stop shop'' for
foreign investment, was established in 1992. BIA's mandate is to:
develop investment policies; promote investment; evaluate project
proposals; monitor projects and provide support. Project proposals for
foreign investment in the Bahamas have to be presented to BIA for
evaluation and final approval. BIA also coordinates with other
government agencies regarding investment matters.
Other measures providing trade and investment incentives include:
--The International Business Companies Act - simplifies procedures and
reducing costs for incorporating companies.
--The Industries Encouragement Act - provides duty exemption on
machinery, equipment, and raw materials used for
manufacturing.
--The Hotel Encouragement Act - grants refunds of duty on materials,
equipment, and furniture required in construction or
furnishing of hotels.
--The Agricultural Manufacturers Act - provides exemption for farmers
from duties on agricultural imports and machinery necessary
for food production.
--The Spirit and Beer Manufacturers Act - grants duty exemptions for
producers of beer or distilled spirits on imported raw
materials, machinery, tools, equipment, and supplies used
in production.
--The Tariff Act - grants one-time relief from duties on imports of
selected products deemed to be of national interest.
The Hawksbill Creek Agreement of 1954 granted certain tax and duty
exemptions on business license fees, real property taxes, and duties on
building materials and supplies in the town of Freeport on Grand Bahama
Island. In July 1993, the government enacted legislation extending most
Hawksbill Creek tax and duty exemptions through 2054, while withdrawing
exemptions on real property tax for foreign individuals and
corporations. The Prime Minister declared, however, that property tax
exemptions might still be granted to particular investors on a case-by-
case basis.
The Bahamas is a beneficiary of the United States' Caribbean Basin
Initiative (CBI) trade program, permitting the country to export most
goods duty-free to the United States.
The Casino Taxation Act was amended in October 1995 to allow for
the establishment of small scale casinos through the reduction of the
basic tax and winnings tax rates for casinos of less than 10,000 square
feet. The basic tax was reduced from $200,000 to $50,000 for casinos
with floor space of less than 5,000 square feet. The tax rises to
$100,000 for casinos of 5,000-10,000 square feet. Unlike the winnings
tax rate for traditional casinos (25 percent of the first $20 million),
small casinos pay a progressive winnings tax rate of 10 percent on the
first $10 million of gross winnings, and 15 percent thereafter.
4. Debt Management Policies
The Bahamas' national debt increased to $1.63 billion at the end of
June 1997 from $1.54 billion at year end 1996. Debt amortization
amounted to 88.1 million with $56.7 million applied towards internal
domestic and foreign currency obligations and 31.4 million for external
debt.
5. Significant Barriers to U.S. Exports
The Bahamas is a more than $700 million market for U.S. companies.
Substantial duties apply to most imports regardless of country of
origin. Deviations from the average duty rate often reflect policies
aimed at import substitution. Tariffs on items produced locally are at
a rate designed to provide protection to local industries. The Ministry
of Agriculture occasionally issues temporary bans on the import of
certain agricultural products when it determines that a sufficient
supply of locally grown items exits. The government's quality standards
for imported goods are similar to those of the United States.
The Ministry of Agriculture imposed a ban on banana imports in
October 1995, creating a monopoly for locally grown bananas. The ban
has been extended to include other varieties of produce for which the
Ministry determines that demand can be met by local farmers (e.g.
Christmas poinsettias, romaine lettuce, yellow squash, and zucchini).
In June 1996, the Ministry announced a ban on the importation of
fruits, vegetables, flowers, plants or other propagate materials from
Caribbean countries unless the Department of Agriculture is assured
that the country is free of the pink (or hibiscus) mealy bug. Shipments
must be accompanied by a phytosanitary certificate issued by the
Ministry of Agriculture in the country of origin. The Ministry
continues to enforce its ban on imports of citrus from Florida, which
was instated in 1995 because of reported outbreaks of canker disease.
Imports of citrus plants are permitted from states other than Florida.
6. Export Subsidies Policies
The Bahamian government does not provide direct subsidies to
private industry. The Export Manufacturing Industries Encouragement Act
provides exemptions from duty for raw materials, machinery, and
equipment to approved export manufacturers. The approved goods are not
subject to any export tax.
7. Protection of U.S. Intellectual Property
The Bahamas is a member of the World Intellectual Property
Organization (WIPO)and a party to the Paris Convention on industrial
property and the Berne Convention on copyright (older versions for some
articles of the latter are used). It is also a member of the Universal
Copyright Convention. Although local intellectual property laws exist,
enforcement is generally weak.
Copyrights: The majority of videos available for rent are the
result of unauthorized copying of videotapes from promotional tapes
provided by movie distributors, U.S. hotel ``pay-for-view'' movies and
shows, or from satellite transmissions. It is doubtful that pirated
videotapes are exported. In May 1996, the government passed a bill to
amend the Copyright Act to provide for payment of equitable royalties
to copyright owners (particularly Bahamian musicians) of works
broadcast on radio and television. In September a local radio station
was ordered to pay copyright damages to the Performing Rights Society
of London for failing to enter a defense in an action accusing the
station of breach of copyright laws.
8. Workers Rights
a. Right of Association.--The constitution specifically grants
labor unions the rights of free assembly and association. Unions
operate without restriction or government control, and are guaranteed
the right to strike and to maintain affiliations with international
trade union organizations.
b. Right to Organize and Bargain Collectively.--Workers are free to
organize, and collective bargaining is extensive for the 34,225 workers
(25 percent of the work force) who are unionized. Collective bargaining
is protected by law and the Ministry of Labor is responsible for
mediating disputes. The Industrial Relations Act requires employers to
recognize trade unions.
c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory
labor is prohibited by the Constitution and does not exist in practice.
d. Minimum Age for Employment of Children.--While there are no laws
prohibiting the employment of children below a certain age, compulsory
education for children up to the age of 16 years and high unemployment
rates among adult workers effectively discourage child employment.
Nevertheless, some children sell newspapers along major thoroughfares
and work at grocery stores and gasoline stations, generally after
school hours. Children are not employed to do industrial work in the
Bahamas.
e. Acceptable Conditions of Work.--The Fair Labor Standards Act
limits the regular work week to 48 hours and provides for at least one
24-hour rest period. The Act requires overtime payment (time and a
half) for hours in excess of the standard. The Act permits the
formation of a wages council to determine a minimum wage. To date no
such council has been established. However, the GCOB recently
instituted a minimum wage for public service employees who are paid
hourly wages. A new minimum labor standards act is under consideration
which will cover employees in both the public and private sectors. This
act contains new guarantees of employee rights to paid vacations, sick
leave, redundancy payments and protection against unfair dismissal.
The Ministry of Labor is responsible for enforcing labor laws and
has a team of several inspectors who make on-site visits to enforce
occupational health and safety standards and investigate employee
concerns and complaints. The Ministry normally announces these
inspections ahead of time. Employers generally cooperate with the
inspections in implementing safety standards. A 1988 law provides for
maternity leave and the right to re-employment after childbirth.
Workers rights legislation applies equally to all sectors of the
economy.
f. Rights in Sectors with U.S. Investment.--Authorities enforce
labor laws and regulations uniformly for all sectors and throughout the
economy, including within the export processing zones.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 70
Total Manufacturing........................... \1\
Food & Kindred Products..................... 0
Chemicals & Allied Products................. \1\
Metals, Primary & Fabricated................ 0
Machinery, except Electrical................ 1
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... 1
Wholesale Trade............................... 170
Banking....................................... 390
Finance/Insurance/Real Estate................. 1188
Services...................................... 56
Other Industries.............................. \1\
TOTAL ALL INDUSTRIES.......................... 2021
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
BOLIVIA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997
------------------------------------------------------------------------
Income, Production and Employment:\1\
Nominal GDP................................. 6,760 7,100 7,500
Real GDP Growth (pct)....................... 3.9 4.0 4.2
GDP by Sector (pct of total):
Agriculture.............................. 15.0 14.9 N/A
Manufacturing............................. 16.7 16.8 N/A
Services.................................. 27.6 30.3 N/A
Government................................ 9.1 9.1 N/A
Per Capita GDP (US$)........................ 913 935 965
Labor Force (million)....................... 2.2 2.4 2.5
Unemployment Rate (pct) \2\................. 3.6 4.1 5.0
Money and Prices (annual percentage growth):
Money Supply Growth (M2) \3\................ 21.4 12.8 9.0
Consumer Price Inflation.................... 12.5 8.0 7.0
Average Exchange Rate (Bs/US$).............. 4.82 5.09 5.30
Trade and Balance of Payments:
Total Exports (FOB)......................... 1,181 1,295 1,400
Exports to the U.S. (FAS) \4\............. 331 326 310
Total Imports (CIF)......................... 1,433 1,656 1,900
Imports from the U.S. (Customs) \4\....... 316 458 490
Trade Balance............................... -252 -361 -500
Balance with U.S.\4\...................... 14 -132 -180
Current Account Deficit/GDP................. -5.0 -5.1 -7.3
External Public Debt........................ 4,523 4,366 4,200
Debt Service Payments/GDP (pct)............. 7.7 4.8 3.3
Fiscal Deficit/GDP (pct).................... 1.8 2.1 3.8
Gold and Foreign Exchange Reserves.......... 650 950 980
Aid from U.S.\5\............................ 90 84 120
Aid from All Other Sources \5\.............. 183 188 168
------------------------------------------------------------------------
\1\ Sources: National Institute of Statistics, Central Bank of Bolivia
(INE) - all 1997 data are projections
\2\ For urban areas; data does not consider underemployment
\3\ Data excludes dollars, which distorts its representativeness
\4\ Source: U.S. Census Bureau and Embassy estimates
\5\ Aid disbursed
1. General Policy Framework
Following a prolonged period of economic instability characterized
by hyperinflation, the Paz Estenssoro Administration (1985-89)
initiated a series of economic reforms in 1985 which relied on a
greater market-orientation and encouraged efficiencies through opening
the economy to international competition. These reforms included
allowing the currency to float, permitting commercial banks to set
their own interest rates, eliminating import and investment permit
requirements, opening economic activities previously reserved for
state-owned corporations to private investment and entering into an IMF
stand-by program.
The Paz Zamora Administration (1989-93) generally continued these
market-oriented policies. The Sanchez de Lozada Administration (1993-
97) greatly expanded on this base, with its ``capitalization'' of five
large state-owned corporations (preceded by the establishment of the
regulatory framework) and its ``popular participation'' program (which
devolved budgetary authority to municipalities). It also inter alia
passed milestone legislation which would form the basis for the
eventual transformation of the judicial and the pension systems.
The various economic reforms undertaken since 1985 have succeeded
in curbing inflation, in promoting steady economic growth and in
encouraging the growth of private investment and savings (principally
in U.S. dollars). The government projects that the economy will grow by
about four percent in 1997, with inflation dropping to less than seven
percent.
Bolivia's macroeconomic indicators have shown steady improvement
since the dark days of the early 1980s. Commercial bank deposits have
more than doubled since 1992, to over $3.2 billion as of September
1997, about 40 percent of GDP. Despite persistent trade deficits,
official foreign exchange reserves held by the Central Bank have
grown--to $1.1 billion in September 1997, equal to about eight months'
imports--thanks to large inflows of foreign investment and donor
assistance. The government reduced the budget deficit of the non-
financial public sector to 2.1 percent of GDP in 1996. Tax revenues
have improved, thanks to better administration and an increase of the
taxpayer population. Direct transfers the government once received from
the former public enterprises which were capitalized have been more
than offset by direct taxes.
The money supply (both M1 and M2) has grown slowly since 1985, with
M1 now averaging around 5 percent of GDP. The published figures for
money in circulation is misleading, however, since there are billions
of U.S. dollars in circulation side-by-side with the boliviano. Dollars
are a legal means of exchange, and contracts can be written in dollars.
Banks offer dollar accounts and make loans in dollars. In fact, nearly
89 percent of the $3.1 billion of deposits in the Bolivian financial
system is denominated in dollars.
The preponderance of the U.S. dollar and the low rate of domestic
inflation have both tended to stabilize interest rates throughout the
economy. In September 1997, the average rate paid on dollar deposits
was 8.1 percent, and the average rate charged on dollar loans was 16.3
percent. Increased bank competition--including new entrants from
abroad--and new legal reserve requirements should place a downward
pressure on the spread charged by banks, making loans less expensive
over time.
2. Exchange Rate Policy
There is free currency conversion at local banks and exchange
houses. The official exchange rate is set by a daily auction of dollars
managed by the Central Bank, which sets an undisclosed minimum floor
price for the dollars. With this mechanism, the Central Bank has
allowed the boliviano to depreciate slowly to preserve its purchasing
power parity. Parallel exchange rates have consistently stayed within
one percent of the official rate. There are no restrictions on
remittances. The official exchange rate fell by 5.1 percent in 1995 and
4.8 percent in 1996, with respect to the dollar.
3. Structural Policies
In 1990, the government reduced tariffs from 16 to 10 percent for
all imports except for capital goods, which has a tariff of five
percent. The government charges a 13 percent value-added tax and a
three percent transaction tax on all goods, whether imported or
produced domestically. There are also excise taxes charged on some
consumer products. No import permits are required, except for the
import of arms and pharmaceutical products.
A variety of laws have liberalized the economy significantly. The
1990 Investment Law establishes guarantees inter alia the free
remission of profits, the freedom to set prices and full convertibility
of currency. It essentially guarantees national treatment for foreign
investors and authorizes international arbitration. A law authorizing
international arbitration was enacted in 1996. There are no limits
placed on foreign equity participation. The 1996 Hydrocarbons Law
authorized YPFB (the petroleum parastatal) to enter into joint ventures
with private firms and to contract companies to take over YPFB fields
and operations, including refining and transportation. Full
deregulation of fuel prices is expected to take effect in late 1997. A
new mining law taxed profits (a tax which can be credited against taxes
paid in the United States) and opened up border areas to foreign
investors as long as their Bolivian partners hold the mining
concession.
In 1993 the Congress passed a new banking law which established
clear rules for commercial banks and authorized them to maintain
foreign currency accounts. A Central Bank law passed in October 1995
increased its autonomy and established stricter requirements governing
capital, reserves and lending.
The cornerstone of President Sanchez de Lozada's economic program
was the capitalization (privatization) program of the largest state-
owned companies: YPFB (oil), ENDE (electricity), ENTEL
(telecommunications), LAB (airline), ENFE (railroad) and VINTO (tin/
antimony smelter). Capitalization gave the ``strategic'' partner 50
percent ownership and management control; the partner paid a fixed
price and committed to a set investment plan. The other 50 percent
remained in Bolivian hands, with the predominant share going to the
Pension Fund Managers (AFP) which will manage the reformed pension
system. The capitalization of all the listed companies has been
completed, with the exception of VINTO.
The capitalization strategy was designed to boost investment,
increase output and efficiency, reduce corruption, increase fiscal
revenues and create jobs. Strategic investors have pledged about $1.6
billion in the capitalized companies: ENDE, $142 million; ENTEL, $610
million; LAB, $47 million; ENFE, $39 million; and, YPFB, $834 million.
The capitalization of smaller companies has netted an additional $100
million. The Banzer Administration has announced its intentions to
privatize many of the few remaining companies in government hands.
4. Debt Management Policies
The Bolivian government owes about $4.2 billion to foreign
creditors, 64 percent of which is owed to international financial
institutions (principally the Inter-American Development Bank, the
World Bank and the Andean Development Corporation). Another 35 percent
is owed to foreign governments and only 0.6 percent is owed to private
banks. Capitalization reduced the total stock of debt significantly,
since the new owners assumed part of the parastatal's debt as well as a
share of the equity. Bilateral debt payments have been rescheduled six
times by the Paris Club, and several foreign governments have forgiven
substantial amounts of the bilateral debt unilaterally. In 1997,
Bolivia was declared eligible for the Highly Indebted Poor Country
(HIPC) program, which should reduce this stock even further once it
comes into effect.
The Bolivian Government has reduced its commercial debt from over
$700 million in 1985 to $29 million in September 1997. The government
achieved this by buying back its outstanding debt on the market (at
rates as low as 11 cents on the dollar) and by exchanging other debt
claims for investment bonds.
5. Significant Barriers to U.S. Exports
There are no significant barriers to U.S. exports to Bolivia. The
1993 Export Law prohibits the import of products which might affect the
preservation of wildlife, particularly nuclear waste. Bolivia became a
member of the World Trade Organization (WTO) in September 1995.
The Investment Law essentially guarantees national treatment for
foreign investors. The one real barrier to direct investment--a
prohibition on foreigners holding mining concessions within 50
kilometers of the border--is applied uniformly to all foreign
investors. Bolivians with mining concessions near the border, however,
may have foreign partners as long as they are not from the country
adjacent to that portion of the border, except if authorized by law.
There are no limitations on foreign equity participation, and dozens of
Bolivian companies are wholly owned by U.S.-based investors.
6. Export Subsidies Policies
The government does not directly subsidize exports. The 1993 Export
Law replaced a former drawback program with one in which the government
grants rebates of all domestic taxes paid on the production of items
later exported.
7. Protection of U.S. Intellectual Property
In September 1996, the U.S. Trade Representative placed Bolivia on
the Special 301 Watch List for failure to protect Intellectual Property
Rights (IPR) adequately. At that time, the International Intellectual
Property Alliance (which represents U.S. copyright industries)
estimated that U.S. companies lost $42 million in 1995 and $28 million
in 1996 in Bolivia due to piracy of motion pictures, sound recordings,
computer programs and books.
Regional Andean Pact Decisions primarily define scope of protection
for patents, trademarks, copyrights and plant varieties. These
decisions are currently being reviewed by the Andean Community. The
current decisions are deficient with respect to patents and trademarks
in the areas of compulsory licensing, working requirements and
transitional (``pipeline'' protection). In May 1997, Bolivia issue a
Supreme Decree on software which clarifies that computer software is
protected under Boliva's copyright law.
Weak enforcement of existing laws has done little to discourage
piracy in Bolivia, despite the high-level attention drawn to the issue
by the USTR's designation. There is some movement, however: in
September 1997, the Banzer Administration enacted Law No. 1788, which
created a National Service of Intellectual Property which (once
established) will be responsible for protecting IPR. For the first
time, patents, trademarks and copyright issues will be the
responsibility of one agency.
Bolivia's accession to the WTO obliges it to comply with the Trade-
Related Aspects of Intellectual Property Rights (TRIPS) by the end of
1999. Boiliva is a member of the Berne Convention for the Protection of
Literacy Works and the Paris Convention for the Protection of
Industrial Property.
8. Worker Rights
a. The Right of Association.--Workers may form and join
organizations of their choosing. Although the Labor Code requires prior
governmental authorization to establish a union, permits only one union
per enterprise, and allows the government to dissolve unions, the
government has not enforced these provisions in recent years. While the
Code denies civil servants the right to organize and bans strikes in
public services (including banks and public markets), nearly all
civilian government workers are unionized. Workers are not penalized
for union activities. In theory, the Bolivian Labor Federation (COB)
represents virtually the entire work force; approximately one-half of
the workers in the formal economy belong to labor unions. Some members
of the informal economy also participate in labor organizations.
Workers in the private sector frequently exercise the right to strike.
Solidarity strikes are illegal, but the government does not prosecute
those responsible, nor does it impose penalties.
The COB has called numerous strikes to protest the government's
economic reforms, but they were poorly attended and ineffectual. The
radical Trotskyite leadership of the urban teachers union has conducted
several strikes closing public schools for a few days at a time, in
opposition to the educational reform program that deprived the union of
its exclusive control of education. The COB demonstrations that
habitually have disrupted public order in major cities have been
largely absent in 1997. There were, however, several short-lived
strikes by health and municipal workers and by workers in some private
enterprises, over specific issues involving their work places.
Unions are not free from influence by political parties. Most
parties have labor committees that try to sway union activity, causing
fierce political battles within unions. Most unions also have party
activists in the unions.
The law allows unions to join international labor organizations.
The COB became an affiliate of the formerly Soviet-dominated World
Federation of Trade Unions (WFTU) in 1988.
b. The Right to Organize and Bargain Collectively.--Workers may
organize and bargain collectively. Collective bargaining (voluntary
direct negotiations between unions and employers without participation
of the government) is limited but growing.
The COB contends that it still is the exclusive representative of
all Bolivian workers. Consultations between government representatives
and COB leaders are common but have little effect on wages or working
conditions. The COB issues a list of demands and the government
concedes some points, but rarely grants wage increases exceeding
inflation. Capitalization of the major state enterprises has further
eroded COB's legitimacy as the sole labor representative. Private
employers, now including management of some of the capitalized
enterprises, may use public sector settlements as guidelines for their
own adjustments and in fact often exceed them. These adjustments,
however, usually result from unilateral management decisions or from
talks between management and employee groups at the local shop level,
without regard to the COB.
The law prohibits discrimination against union members and
organizers. Complaints go to the National Labor Court, which can take a
year or more to rule. Union leaders say problems are often moot by the
time the court rules. Labor law and practice in the seven special free
trade zones are the same as in the rest of Bolivia.
c. Prohibition of Forced or Compulsory Labor.--The law prohibits
forced or compulsory labor. Reported violations were the unregulated
apprenticeship of children, agricultural servitude by indigenous
workers, and some individual cases of household workers effectively
imprisoned by their employers.
d. Minimum Age for Employment of Children.--The law prohibits
employment of persons under 18 years of age in dangerous, unhealthy or
immoral work. The labor code is ambiguous on conditions of employment
for minors aged 14 to 17; it permits apprenticeship for those 12 to 14.
This practice has been criticized by the International Labor
Organization. Urban children hawk goods, shine shoes, and assist
transport operators. Rural children often work with parents from an
early age. Children are not generally employed in factories or formal
businesses but, when employed, often work the same hours as adults.
The past two governments attempted to revise the labor code but
desisted in the face of COB opposition. Responsibility for enforcing
child labor provisions resides in the Labor Ministry, but the
provisions generally are not enforced.
e. Acceptable Conditions of Work.--The law establishes a minimum
wage (about $45 per month), bonuses and fringe benefits. The minimum
wage does not provide a decent standard of living, and most workers
earn more. Although the minimum wage falls below prevailing wages in
most jobs, certain benefit calculations are pegged to it. The minimum
wage does not cover about 20 percent of urban workers--e.g., vendors
and shoe polishers--nor does it cover farmers, some 30 percent of the
working population.
Only half the urban labor force enjoys an 8-hour workday and a work
week of 5 or 5\1/2\ days, because the maximum work week of 44 hours is
not enforced. The Labor Ministry's Bureau of Occupational Safety has
responsibility for protection of workers' health and safety, but
relevant standards are poorly enforced. Work conditions in the mining
sector are particularly bad. Although the State Mining Corporation has
an office charged with safety, many mines, often old and using
antiquated equipment, are dangerous and unhealthy.
In some cooperative mines, miners earn less than three dollars per
12-hour day. They work without helmets, boots or respirators in mines
where toxic gases abound. They must buy their own supplies (including
dynamite), have no scheduled rest periods and must survive underground
from 24 to 72 hours continuously with little water and food.
f. Rights in Sectors with U.S. Investment.--The majority of U.S.
investment is in mining, power generation and the petroleum industry.
Rights in these are legally the same as in other sectors. However,
conditions and salaries for workers in the petroleum industry are
generally better than in other industries because of stronger labor
unions in that industry.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 84
Total Manufacturing........................... 0
Food & Kindred Products..................... 0
Chemicals & Allied Products................. 0
Metals, Primary & Fabricated................ 0
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... 0
Wholesale Trade............................... \1\
Banking....................................... \1\
Finance/Insurance/Real Estate................. 0
Services...................................... 0
Other Industries.............................. 19
TOTAL ALL INDUSTRIES.......................... 311
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
BRAZIL
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\............................. 718 750 790
Real GDP Growth (pct) \3\................... 4.2 3.0 3.2
GDP By Sector (pct)
Agriculture............................... 5.1 3.0 N/A
Industry.................................. 2.0 2.5 N/A
Services.................................. 6.0 3.4 N/A
Per Capita GDP (US$) \4\.................... 4,611 4,746 4,950
Labor Force (millions)...................... 74.1 75.6
Unemployment Rate (pct)..................... 4.6 5.4 6.0
Money and Prices (annual percentage growth):
Money Supply (M2)........................... 56.6 40.0 33.7
Consumer Price Index \5\.................... 22.0 9.1 6.2
Exchange Rate (R/US$ - annual average)
Commercial................................ 0.9 1.0 1.1
Balance of Payments and Trade:
Total Exports FOB \6\....................... 46.5 47.7 53.4
Exports to U.S.\7\........................ 8.8 8.8 10.1
Total Imports FOB \6\....................... 49.9 53.3 63.2
Imports from U.S.\7\...................... 11.4 12.7 15.0
Trade Balance \6\........................... -3.4 -5.5 -9.8
Balance with U.S.\7\...................... -2.6 -3.9 -4.9
Fiscal Deficit/GDP (pct) \8\
Nominal................................... 7.1 6.1 4.9
Operational (inflation adj)............... 4.8 3.9 2.8
Current Account Deficit/GDP (pct)........... 2.5 3.3 4.3
External Public Debt \9\.................... 87.5 84.3 N/A
Debt Service/GDP (pct)...................... 1.5 1.7 2.0
Gold and Foreign Exchange Reserves (int'l
liquidity)................................. 51.8 60.0 52.0
Aid from U.S. (US$ millions) \10\........... 15.0 13.9 12.9
Aid from Other Countries.................... N/A N/A N/A
------------------------------------------------------------------------
\1\ 1997 figures estimated based on January-September data, excepting
when noted
\2\ GDP at market prices
\3\ Percentage changes calculated in local currency
\4\ At current prices; 1997 figures estimated based on January-June data
\5\ INPC
\6\ Merchandise trade
\7\ Source: U.S. Department of Commerce and U.S. Census Bureau;exports
FAS, imports customs basis; 1997 figures are estimates basedon data
available through August 1996.
\8\ 1997 figures are estimates based on data available through August
1996.
\9\ Nonfinancial public sector (excludes Petrobras and CVRD)
\10\ USAID only
1. General Policy Framework
Brazil is in the fourth year of an economic restructuring program
designed to bring inflation down, dismantle state control of the
economy, reduce market barriers, and encourage greater private sector
(including foreign) investment to achieve sustainable long term growth.
Since the introduction of a new currency, the Real, in July 1994,
domestic inflation has dropped from an average monthly 50 percent in
the first half of 1994 to less than one-half percent per month in 1997.
Key to this achievement have been high real interest rates to attract
foreign capital, a strong currency and market-opening measures which
increased competition and exerted downward pressure on prices for
traded goods in particular. Long term economic stabilization with
improved real growth depends on continuing privatization in the medium
run and, more importantly in the longer term, fiscal reforms at the
federal, state and municipal levels of government. A portion of the
reform package was approved in 1997, many private and state banks have
been reorganized or privatized, and the federal government has embarked
on an ambitious program to restructure state finances.
With the drop in inflation, the public sector has had a harder time
balancing budgets. Brazil ran a deficit (including interest payments)
in 1995 equal to five percent of GDP after four years of nearly
balanced budgets, but was able to reduce this figure to four percent of
GDP in 1996 and will likely realize a slightly lower operational
deficit in 1997. To further reduce spending, the government has
proposed constitutional reforms of the civil service and social
security. Revenue enhancing tax reforms are also on the table. These
have proved to be very controversial within the Congress.
The federal government tries to contain spending by limiting budget
disbursements to cash-on-hand. Constitutionally mandated earmarks and
transfers, the need to meet a large public payroll, and servicing of
federal and state net debt of some $260 billion (34 percent of GDP)
leave the government less than 10 percent of revenues for discretionary
spending. As a result, infrastructure investment has been squeezed. The
states have increasingly resorted to borrowing to pay their public
employees, thus incurring the additional cost of high domestic interest
rates. State-owned enterprises are running small surpluses on a primary
basis (before interest payments) due to higher public tariff levels and
ongoing privatization in this sector.
The stabilization plan was premised on tight monetary policy. With
fiscal reforms lagging, monetary policy has had to bear most of the
burden. Together with greater availability of credit, higher real
incomes due to price stabilization and a hike in the minimum wage freed
pent-up consumer demand and led to a consumption boom in 1994/95. Lower
trade barriers and a strong currency prompted a surge in imports, which
doubled their 1993 level by 1996. In contrast, exports grew only 13
percent in 1994, seven percent in 1995, and three percent in 1996. To
dampen consumption and stave off a widening current account deficit,
the government tightened monetary policy by imposing high bank reserve
requirements and credit restrictions in 1995. High domestic real
interest rates also inhibit business investment, particularly by small
and medium sized businesses that cannot borrow overseas. As a result,
real growth slowed from over four percent in 1995 to three percent in
1996. Concerned about a widening current account deficit, which will
likely reach 4.3 percent of GDP in 1997, the government adopted a
number of measures in 1997 to discourage imports and encourage exports
including imposing restrictions on import finance and consumer credit
and expanding the official export credit program.
In response to the import surge and resulting large monthly trade
deficits in late 1994 and early 1995, in March 1995 the government
significantly raised import tariffs on a range of consumer durable
goods, including automobiles, toys, and shoes. The new tariff levels
are as high as 63 percent on some products. Through the adoption of a
special ``ex-tarifario'' regime, however, the tariff increases exempted
most capital goods, which constitute a significant portion of U.S.
exports to Brazil. The exemption was phased out for most capital goods
in September 1997. In December 1995 Brazil implemented a complex
automotive products import regime. The regime liberalizes imports of
capital goods and inputs for domestic manufactures of vehicle parts. It
also permits domestic vehicle manufacturers to import finished vehicles
at a 50 percent reduction to the current 63 percent duty, but links
this benefit to export performance and local content requirements which
appear inconsistent with Brazil's WTO obligations. The regime expires
in 1999 and will be replaced by an as-yet-undefined Mercosur regime in
the year 2000.
In March 1997, Brazil imposed new import financing rules that are
adversely affecting a range of U.S. exports to Brazil. The measure
requires importers to purchase foreign exchange to pay for most imports
upon importation or 180 days in advance, rather than when payment is
due under the contract. The measure, which provides more favorable
treatment for imports from Mercosur members and associate members such
as Bolivia and Chile, effectively increases the cost of many imports by
eliminating or reducing supplier credits of less than one year. Despite
the restrictive measures--measures which the Brazilian government
maintains are temporary--access to Brazilian markets in most sectors is
generally good, and most markets are characterized by competition and
participation by foreign firms through imports, local production and
joint ventures.
Brazil and its Southern Common Market (Mercosur) partners,
Argentina, Paraguay and Uruguay, implemented the Mercosur Common
External Tariff (CET) on January 1, 1995. The CET currently covers
approximately 85 percent of 9,000 tariff items; most of the remaining
15 percent will be covered by the CET by 2001, and all will be covered
by 2006. CET levels range between zero and 23 percent. With the
exception of tariffs on computers, some capital goods, and products
included on Brazil's national list of exceptions to the CET (such as
shoes, automobiles and consumer electronics) the maximum Brazilian
tariff is now 23 percent; the most commonly applied tariff is 17
percent. Mercosur is now negotiating free trade agreements with its
South American neighbors. An association agreement with Chile went into
effect on October 1, 1996, an agreement with Bolivia was signed the
same month, and negotiations with the Andean Pact began in November
1996.
The Brazilian Congress ratified the GATT Uruguay Round Agreements
in December 1994 and Brazil became a founding member of the WTO.
2. Exchange Rate Policy
Brazil has three exchange rates: commercial, tourist (or floating),
and parallel. The commercial rate is used for commercial and financial
transactions registered with the Central Bank. The tourist rate is used
for individual transactions, such as travel, education, and other
unilateral transfers. The parallel rate is similar to the tourist rate,
but is not recorded with the Central Bank. The spread between the three
rates has narrowed with stabilization. Central Bank officials state
that they intend to unify the commercial and tourist rates eventually.
When introduced in July 1994, the new currency, the Real, was
pegged at parity with the U.S. dollar but quickly appreciated. The
Central Bank established a new system of trading bands in March 1995
and has subsequently devalued very gradually, first within the bands
and then by adjusting the bands upward. Since February 1997, the
trading band has been 1.05 to 1.14 Reals for one U.S. dollar.
Currently, the Central Bank is pursuing a ``crawling peg'' policy of
nominal depreciation of the Real against the dollar at the rate of 0.6
percent per month. Due to slowing domestic inflation, the real
effective exchange rate against the dollar has already depreciated
several percentage points.
3. Structural Policies
While some administrative improvements have been made in recent
years, the Brazilian legal and regulatory system is far from
transparent. The government has historically exercised considerable
control over private business through extensive and frequently changing
regulations. As part of its efforts to keep inflation down, the
government has in the past regularly frozen public utility rates. In
1995, the government stated its intention to phase in ``full cost
recovery'' pricing for utility rates over the next two years and has
made significant progress in this direction.
Brazil is accelerating its privatization program initiated in 1990
to reduce the size of the government and improve public sector fiscal
balances. Steel companies and most petrochemical companies owned by the
government, the main exception being Petrobras, have already been
privatized. The majority of voting shares in mining conglomerate
Companhia Vale do Rio Doce (CVRD) was sold to the private sector in May
1997. Several electric utilities have been privatized thus far in 1997
and telecommunications concessions auctioned. The Rio de Janeiro State
bank, Banerj, was sold to the private sector and the Sao Paulo state
bank, Banespa, should be ready for auction by mid-1998. Further telecom
privatization plans include the break-up and sale of national monopoly
Telebras. An independent regulatory agency known as Anatel was
established in November 1997 to oversee this process.
Brazil's tax system is extremely complex, with a wide range of
income, consumption, and payroll taxes levied at the federal, state and
municipal levels. Because of difficulties in passing comprehensive tax
reform through Congress, the government has focused on limited
revisions by executive order. In late 1995, it passed revisions to the
corporate and individual income tax regimes. In 1996, it exempted
exports and capital purchases from the state-collected value added tax
and announced a single tax on the gross receipts of small and medium
enterprises. While the overall objective remains simplification, the
government imposed an additional tax on financial transactions for a
two-year period beginning in 1997 to finance the health system. The
government has announced plans to transform the current system into one
where a federal value-added tax, state and city sales taxes, and a
selective excise tax would replace the current system of multiple
taxation.
4. Debt Management Policies
Brazil's total external debt by the end of 1996 was $178 billion,
of which 47 percent was owed by the public sector (excluding Petrobras
and CVRD) and the remainder by the private sector. While total external
debt rose 12 percent in the year, external public sector debt fell both
absolutely and as a share of the total. Debt service represented 1.7
percent of Brazil's Gross Domestic Product and almost 27 percent of
merchandise exports. Brazil concluded a commercial debt rescheduling
agreement (without an IMF stand-by program) in April 1994 after twelve
years of negotiations and has fully complied with the commitments made
in this agreement. Terms have lengthened and spreads narrowed on both
public and private sector external debt although the trend may have
reversed after the financial market upheaval in October. Brazil's
growing internal public sector debt remains a concern.
5. Significant Barriers to U.S. Exports
Import Licenses: Although Brazil requires import licenses for
virtually all products, most licenses are issued automatically through
the Secretariat of Foreign Trade's computerized trade documentation
system, SISCOMEX. Some products however, are still subject to non-
automatic licensing. The SISCOMEX system has been fully operational
since January 1997, and has streamlined import documentation. Import
licensing generally does not pose a barrier to U.S. exports. Import
licenses are now used primarily for statistical purposes and generally
are issued automatically within five days. However, obtaining an import
license can occasionally still be difficult.
Agricultural Barriers: While progress has been made in the area of
fruit and vegetable regulations between the United States and Brazil,
sanitary and phytosanitary (SPS) measures remain significant barriers
in many cases. SPS restrictions or complaints are sometimes not
followed up by Brazilian authorities to clearly identify the pest of
concern.
Brazil prohibits the entry of poultry and poultry products from the
United States, alleging lack of reciprocity. Brazil had previously
granted conditional approval for U.S. poultry exports, which was
withdrawn when the United States could not grant Brazil an exception to
the standard U.S. approval process. Following the lead of the European
Union, Brazil prohibits the importation of beef treated with anabolic
hormones; however, beef imports from the United States have been
allowed on a waiver basis since 1991. In October 1995, Brazil
prohibited the importation of live sheep from the United States due to
scrapie (a sheep disease), although scrapie is believed to exist in
Brazil.
Brazil officially adopted the harmonized phytosanitary standards of
the Southern Cone Phytosanitary Committee (COSAVE--Argentina, Chile,
Paraguay and Uruguay are also parties) On July 18, 1996, the U.S.
Department of Agriculture and the Brazilian Ministry of Agriculture
reached a bilateral agreement which enables most U.S. fruit, grain, and
seed exports to meet the new phytosanitary requirements. However, U.S.
horticultural products still frequently face difficulties at Brazilian
ports.
Services Barriers: Restrictive investment laws, lack of
administrative transparency, legal and administrative restrictions on
remittances, and arbitrary application of regulations and laws limit
U.S. service exports to Brazil. In some areas, such as construction
engineering, foreign companies are prevented from providing technical
services in government procurement contracts unless Brazilian firms are
unable to perform them. Restrictions exist on the use of foreign
produced advertising materials.
Many service trade possibilities, in particular services in the
oilfield and mining industries, have been restricted by limitations on
foreign capital under the 1988 Constitution. Unless approved under
specific conditions, foreign financial institutions are restricted from
entering Brazil or expanding pre-1988 operations. The Brazilian
Congress approved five constitutional amendments in 1995 that
eliminated the constitutional distinction between national and foreign
capital; opened the state telecommunications, petroleum and natural gas
distribution monopolies to private (including foreign) participation;
and permitted foreign participation in coastal and inland shipping.
However, the degree to which these sectors are actually opened will
depend on implementing legislation. Legislation permitting the
licensing of private cellular phone networks to compete with existing
parastatal monopolies was passed in May 1996, but it requires majority
(51 percent) Brazilian ownership of eligible companies.
Foreign legal, accounting, tax preparation, management consulting,
architectural, engineering, and construction industries are hindered by
various barriers. These include forced local partnerships, limits on
foreign directorships and non-transparent registration procedures.
Foreign participation in the insurance industry has responded
positively to market-opening measures adopted in 1996. However,
problems remain with market reserves for Brazilian firms in areas such
as import insurance and the requirement that parastatals purchase
insurance only from Brazilian-owned firms. In June 1996, the Brazilian
government legally ended the state's monopoly on reinsurance but the
monopoly has yet to end in practice and its persistence is keeping
costs high for insurers, both domestic and foreign.
Investment Barriers: Various prohibitions restrict foreign
investment in petroleum production and refining, internal
transportation, public utilities, media, shipping, and other
``strategic industries.'' In other sectors, Brazil limits foreign
equity participation, imposes local content requirements and links
incentives to export performance. Some of these restrictions may be
reduced once the 1995 Constitutional amendments are implemented,
although new restrictions were introduced in the auto sector in 1995.
Foreign ownership of land in rural areas and adjacent to international
borders is prohibited.
Informatics: The 1991 Informatics Law eliminated prohibitions and
requirements for government prior review for informatics imports,
investment, or manufacturing by foreign firms in Brazil. However,
import duties remain high (up to 35 percent) on informatics products,
and Brazilian firms receive preferential treatment in government
procurement and have access to certain fiscal and tax benefits. For a
foreign-owned firm to gain access to most of these incentives, it must
commit to invest in local research and development and meet customer
service and export and local training requirements. The Software Law of
1987 (Law 7646) requires that all software be ``catalogued'' by the
Informatics Secretariat of the Ministry of Science and Technology prior
to its commercialization in Brazil. Market access for U.S. software has
improved. A law which precluded non-Brazilian software from the market
if a ``similar'' Brazilian product existed has been de facto
eliminated. A tax on remittances of royalties, in addition to a
withholding tax, have also been eliminated. A draft law that would
eliminate the ``cataloguing'' requirement and would extend the term of
protection to 50 years was passed by the Chamber of Deputies in early
1996 and awaits action by the Senate.
Government Procurement: Brazil is not a signatory to the WTO
Government Procurement Agreement. Federal, state and municipal
governments, as well as related agencies and companies, follow a ``buy
national'' policy. Brazil permits foreign companies to compete in any
procurement related to multilateral development bank loans and opens
selected procurements to international tenders. Given the significant
influence of the state-controlled sector, discriminatory procurement
policies are a relatively substantial barrier to U.S. exports in
Brazil's market.
Law Number 8666 of 1993, covering most government procurement
(except informatics and telecommunications), requires nondiscriminatory
treatment for all bidders, regardless of nationality or origin of
product or service. However, regulations introduced in late 1993 allow
consideration of non-price factors, give preferences to
telecommunications, computer, and digital electronics goods produced in
Brazil, and condition eligibility for fiscal benefits on local content
requirements. In March 1994, the government issued Decree 1070, which
requires federal and parastatal entities to give preference to locally
produced computer and telecommunications products and services based on
a complicated and nontransparent price/technology matrix. Bidders that
meet one or more of the criteria for preferential treatment are allowed
a price differential of up to 12 percent over other bidders.
6. Export Subsidies Policies
In general, the Brazilian government does not provide direct
subsidies to exporters, but does offer a variety of tax and tariff
incentives to encourage export production and encourage the use of
Brazilian inputs in exported products. Incentives include tax and
tariff exemptions for equipment and materials imported for the
production of goods for export, excise and sales tax exemptions on
exported products, and excise tax rebates on materials used in the
manufacture of export products. Exporters enjoy exemption from
withholding tax for remittances overseas for loan payments and
marketing, and from the financial operations tax for deposit receipts
on export products. Excise and sales tax exemptions have now been
extended to agricultural and semi manufactured export products as well
as to manufactured products. Exporters are also eligible for a rebate
on social contribution taxes paid on locally acquired production
inputs.
An export credit program, known as PROEX, was established in 1991.
Under the program, the government provides interest rate guarantees to
commercial banks which finance export sales, thus ensuring Brazilian
exporters access to financing at rates equivalent to those available
internationally. Capital goods, automobiles and auto parts, and
consumer goods are eligible for financing under PROEX.
7. Protection of U.S. Intellectual Property
Brazil's new Industrial Property Law took effect in May 1997. In
nearly all respects, the new law brings Brazil's patent and trademark
regime up to international standards specified in the Uruguay Round
TRIPs agreement. The new law, however, includes compulsory licensing
and local working requirements which appear to be TRIPs-inconsistent.
It would permit the granting of a compulsory license if a patent owner
has failed to ``work'' the patented invention in Brazil (manufacture
locally) within three years of issuance. A product would be recognized
as ``worked'' in cases in which local production was found to be
``economically unviable.'' Implementation remains to fully realize the
benefits of the new law.
Brazil is a signatory to the GATT Uruguay Round accords, including
the TRIPS agreement, ratified by the Brazilian Congress in December
1994. Brazil is a member of the World Intellectual Property
Organization and a signatory to the Berne and Universal copyright
conventions, the Washington Patent Cooperation Treaty, and the Paris
Convention on industrial property.
Patents: The new law provides patent protection for chemical and
pharmaceutical substances, chemical compounds and processed food
products, which were not patentable under Brazil's 1971 law. The law
also provides for patent protection of genetically altered
microorganisms. In addition, it extends the term for product patents
from 15 to 20 years. The law provides ``pipeline'' protection for
pharmaceutical products that have been patented in other countries but
not yet placed on the market. A Plant Variety law, passed in April
1997, provides protection to producers of new varieties of seeds.
Trade Secrets: The new Industrial Property Law specifically allows
criminal prosecution for revealing trade secrets of patented items,
with a penalty of imprisonment for three months to a year or a fine.
The regulations as written are somewhat narrower than TRIPS. However,
the Brazilian government argues that since it incorporated TRIPS
Article 39 into law when the Uruguay Round agreements were ratified, in
effect a TRIPS-consistent level of protection is available.
Trademarks: The new Industrial Property Law provides for
significant improvements in Brazil's trademark regime, including better
protection for internationally known trademarks. Trademark licensing
agreements must be registered with the National Institute of Industrial
Property to be enforceable. However, failure to register licensing
agreements will no longer result in cancellation of trademark
registration for non-use.
Copyrights: While Brazil's copyright law generally conforms to
international standards, the 25 year term of protection for computer
software falls considerably short of the Berne Convention standard of
the life of the author plus 50 years. A bill designed to improve
protection for computer software programs was passed by the Chamber of
Deputies in early 1996; the bill is pending in the Senate. The bill
would extend the term of protection to 50 years, protect software
programs as literary works, and recognize exclusive rental rights. In
July 1997, the government redrafted a bill that would offer adequate
and effective copyright protection for books, films, videocassettes,
sound recordings and musical compositions in an effort to bring
Brazil's copyright protection to the level of TRIPS.
U.S. private sector estimates that piracy of videocassettes, sound
recordings and musical compositions, books and computer software
continues at substantial levels. The Senate passed a bill in 1990 that
was reformulated in early 1997. The 1997 bill passed the Chamber of
Deputies in December 1997, with amendments It returns now to the
Senate. In the last two years, enforcement of Brazilian laws against
video and software piracy has improved. The government has also
initiated action to reduce the importation of pirated sound recordings
and videocassettes.
Semiconductor Chip Layout Design: A bill to protect layout designs
of integrated circuits was introduced in April 1996.
Impact on U.S. Trade: The U.S. pharmaceutical industry estimates
losses of approximately $600 million due to past inadequate
intellectual property protection, however the passage of the new
Industrial Property Law in May 1996 has brought over $2 billion in
pharmaceutical investment. Rightholders of U.S. copyright industries
lost over $700 million in Brazil due to piracy in 1996. The U.S.
software industry claims losses of $356 million, and estimates that 68
percent of the business software in use in Brazil was illegally
obtained. The Motion Picture Association of America estimates its 1996
annual losses due to media piracy in Brazil at about $100 million.
8. Worker Rights
a. The Right of Association.--Brazil's Labor Code provides for
union representation of all Brazilian workers (excepting military,
uniformed police and firemen), but imposes a hierarchical, unitary
system, funded by a mandatory ``union tax'' on workers and employers.
Under a restriction known as ``Unicidade'', the code prohibits multiple
unions of the same professional category in a given geographical area.
In practice, ``Unicidade'' has proven less restrictive in recent
years as more liberal interpretations of its restrictions have
permitted new unions to form. The primary source of continuing
restriction is the system of labor courts, which retain the right to
review the registration of new unions, and adjudicate conflicts over
their formation. Otherwise, unions are independent of the government
and of political parties. Approximately 20 to 30 percent of the
Brazilian work force is organized, with well over half of this number
affiliated with an independent labor central. Intimidation of rural
labor organizers by landowners and their agents continues to be a
problem.
The Constitution provides for the right to strike except in the
case of military, police and firemen. Essential services must remain in
operation during a strike, and workers must notify employers at least
48 hours before beginning a walkout. The Constitution prohibits
government interference in labor unions but provides that ``abuse'' of
the right to strike (such as not maintaining essential services, or
failure to end a strike after a labor court decision) is punishable by
law.
b. The Right to Organize and Bargain Collectively.--The
Constitution provides for the right to organize. With government
assistance, businesses and unions are working to expand and improve
mechanisms of collective bargaining. The scope of issues legally
susceptible to collective bargaining is narrow and the labor court
system exercises normative powers with regard to the settlement of
labor disputes, thereby discouraging direct negotiation. The Cardoso
administration has made expansion of collective bargaining one of its
major objectives in the labor sector. On June 30, 1995, the government
ended the indexing of wages to inflation, reduced the role of labor
courts in wage negotiations, allowed for mediation, and provided
greater latitude for collective bargaining. In many cases wages are set
through free negotiations; labor court decisions set them in others.
The Constitution prohibits the dismissal of employees who are
candidates for or holders of union leadership positions. Nonetheless,
dismissals take place, with those dismissed required to resort to a
lengthy court process for relief. In general, the authorities do not
effectively enforce laws protecting union members from discrimination.
c. Prohibition of Forced or Compulsory Labor.--The Constitution
prohibits forced labor. Nevertheless, forced labor is common on farms
producing charcoal for use in the sugar and steel industries. Local
police admit that overseers or owners of many farms withhold pay from
migrant laborers and use force to retain and intimidate them, but the
jurisdiction for such violations falls to the Ministry of Labor, which
has only 2,300 inspectors for all of Brazil. Labor organizations allege
that in mining and the rural economy, thousands of workers, including
minors, are subjected to debt bondage, with violence used to retain or
punish workers who attempt to escape. The federal government has taken
a number of steps to clamp down on forced labor but admits that
existing enforcement resources are inadequate.
d. Minimum Age of Employment of Children.--The minimum working age
under the Constitution is 14 years, except for apprentices; however,
judges can authorize employment for children under 14 years of age when
they deem it appropriate. The law requires permission of the parents or
guardians for minors to work, and they must attend school through the
primary grades. The law bars minors from night work, work that
constitutes a physical strain, and employment in unhealthful,
dangerous, or morally harmful conditions. Legal restrictions intended
to protect working minors under age 18 are rarely enforced, however.
Official figures state that nearly 3 million 10- to 14-year old
children (or 4.6 percent of the work force) are employed. Many children
work alongside their parents in cane fields, cutting hemp, or feeding
wood into charcoal ovens. Frequent accidents, unhealthy working
conditions, and squalor are common in these cases.
e. Acceptable Conditions of Work.--The Ministry of Labor sets
occupational health and safety standards, but has insufficient
resources for adequate inspection and enforcement of these standards.
The law requires employers to establish internal committees for
accident prevention in work places, and protects employee members of
these commissions from being fired from their committee activities.
Such firings do occur, however, and legal recourse usually requires
years for resolution.
f. Rights in Sectors with U.S. Investment.--U.S. investment is
concentrated heavily in the transportation equipment, food, chemicals,
petroleum distribution and electric/electronic equipment industries.
Labor conditions in industries owned by foreign investors generally
meet or exceed the minimum legal standards established under Brazil's
Labor Code.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 698
Total Manufacturing........................... 19346
Food & Kindred Products..................... 2855
Chemicals & Allied Products................. 4111
Metals, Primary & Fabricated................ 961
Machinery, except Electrical................ 2188
Electric & Electronic Equipment............. 662
Transportation Equipment.................... 3437
Other Manufacturing......................... 5131
Wholesale Trade............................... 530
Banking....................................... 1164
Finance/Insurance/Real Estate................. 3019
Services...................................... 264
Other Industries.............................. 1146
TOTAL ALL INDUSTRIES.......................... 26166
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
CANADA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \1\........................... 565.5 585.1 610.3
Real Growth Rate (pct).................... 2.3 1.5 3.6
GDP by Sector (pct):
Goods \3\............................... 32 34 34
Services \3\............................ 68 66 66
Agriculture \3\......................... 2 2 2
Government \3\.......................... 22 21 21
Per Capita GDP............................ 19,220 19,621 20,252
Total Labor Force (000s).................. 14,928 15,147 15,388
Unemployment Rate (pct) \2\............... 9.5 9.7 9.2
Money and Prices (annual percentage growth):
Money Supply Growth(M1) \3\............... 5.0 10.7 12.1
Consumer Price Inflation \2\.............. 2.1 1.6 1.8
Exchange Rate: (C$/US$)................... 1.3727 1.3635 1.3729
Balance of Payments and Trade:
Merchandise Exports....................... 193.0 205.8 214.1
Exports to U.S.......................... 150.0 162.7 169.1
Merchandise Imports....................... 168.4 175.7 189.4
Imports from U.S........................ 126.6 133.4 145.8
Merchandise Trade Balance................. 24.6 30.1 24.7
Balance with U.S........................ 23.4 29.3 23.3
Current Account/GDP (pct)................. -1.0 0.5 -0.3
Net Public Debt \4\....................... 418.4 435.1 N/A
Debt Service Payments/GDP (pct) \4\....... 6.0 5.7 N/A
Federal Deficit/GDP (pct) \4\............. -3.7 -1.1 N/A
Gold and Foreign Exchange Reserves........ 15.2 20.6 20.1
Aid from U.S.............................. N/A N/A N/A
Aid from All Other Sources................ N/A N/A N/A
------------------------------------------------------------------------
\1\ 1997 data = Embassy projections unless otherwise footnoted.
\2\ 1997 = Conference Board of Canada projection.
\3\ 1997 = actual as of September 30, 1997.
\4\ GOC data for actual and 1997 projections.
1. General Policy Framework
Canada is the world's seventh-largest market economy. Production
and services are predominantly privately owned and operated. However,
the federal and provincial governments provide a broad regulatory
framework and redistribute incomes among individuals and provinces.
Federal government economic policies since the mid-1980s have
emphasized the reduction of public sector interference in the economy
and the promotion of private sector initiative and competition.
Nevertheless, federal government regulatory regimes affect foreign
investment, most notably U.S. firms operating in telecommunications,
broadcasting, publishing and financial services.
Canadian federal and provincial governments have made great strides
in reducing their respective budget deficits in a non-inflationary
environment. Canada's fiscal year runs from April 1-March 31. In FY96-
97, the federal deficit dropped to 1.1 percent of GDP, the lowest in
over 20 years, and a marked improvement from five percent just two
years earlier. Canada's credit rating remains firm and the Conference
Board of Canada's Survey of Forecasters, published September 29, 1997,
calls for the Canadian economy to grow by 3.6 percent in 1997 and 3.5
percent in 1998.
The United States-Canada trading relationship is the largest in the
world. In 1996, total two-way trade in goods and services was US$353.5
billion. Approximately 80 percent of Canada's merchandise exports are
destined for the United States, while merchandise imports from the U.S.
comprise 77 percent of the total. Since the implementation of the North
American Free Trade Agreement (NAFTA) in 1994, U.S. exports to Canada
have increased by over 30 percent. Motor vehicles and parts account for
approximately 20 percent of U.S. merchandise exports to Canada,
followed by exports of machinery and equipment and industrial
equipment. The stock of total foreign direct investment in Canada in
1996 was US$132.3 billion, of which US$90 billion or 68 percent was
U.S.-owned. Roughly 40 percent of the assets of Canadian manufacturing
companies are foreign-owned; of this total, about 75 percent belong to
U.S. firms.
The Bank of Canada is the country's central bank. The Governor of
the Bank is responsible for conducting monetary policy and uses such
tools as management of cash balances with the chartered banks, open
market operations, and adjustment of the overnight money lending rate,
which is analogous to the U.S. federal funds rate.
2. Exchange Rate Policy
The Canadian dollar is a fully convertible currency, and exchange
rates are determined by supply and demand conditions in the exchange
market. There are no exchange control requirements imposed on export
receipts, capital receipts, or payments by residents or non-residents.
The Bank of Canada operates in the exchange market on almost a daily
basis to try to maintain orderly trading conditions and smooth rate
movements.
3. Structural Policies
Prices for most goods and services are established by the market.
The most important exceptions are government services, services
provided by regulated public service monopolies, most medical services,
and supply-managed agricultural products (eggs, poultry and dairy
products).
The principal sources of federal tax revenue are corporate and
personal income taxes and the goods and services tax (GST), a multi-
stage seven percent value-added tax on consumption. The personal and
corporate income tax burden, combining federal and provincial taxes and
surcharges, is significantly higher than in the U.S.
Federal government regulatory regimes affect foreign investment
(see section 5 below). Although foreign-owned bank subsidiaries are
subject to federal restraints on their operations and growth, U.S.
banks have been exempted from most of these restrictions under the
United States-Canada Free Trade Agreement (US-CFTA). This continues
under NAFTA. However, some restrictions still apply, although the
federal government has committed itself to introduce legislation by the
end of 1997 to allow foreign bank branching. In mid-1992, Canada
implemented financial sector reforms that largely eliminated the
barriers among banks, trust companies and insurance companies.
Aviation is not included in the NAFTA. On February 24, 1995, the
United States and Canada signed a new Air Transport Agreement which
immediately eliminated most restrictions on air services between the
two countries and will virtually deregulate the transborder market over
three years.
4. Debt Management Policies
The Government of Canada has a stated goal to balance its books by
FY1998-99. The federal government's net debt burden--the level of net
debt relative to the size of the economy--fell to 73.1 percent in
FY1996-97 from 74 percent the previous year. This marked the first
significant reversal after 25 years of virtually uninterrupted
increases in the debt-to-GDP ratio. While foreigners are receptive to
holding Canadian securities, the federal government has launched
initiatives to place more of the country's debt with Canadians and
reduce international obligations. In FY1996-97, the federal government
had no new net borrowing requirements.
5. Significant Barriers to U.S. Exports
On January 1, 1989, Canada and the United States began to implement
the US-CFTA, a free trade agreement to eliminate over a ten year period
virtually all tariff and non-tariff barriers to trade between the two
countries. The US-CFTA was superseded on January 1, 1994, with the
inauguration of the NAFTA, which extends the US-CFTA to Mexico and
expands it in the areas of services, investment and government
procurement. Canada is a member of the World Trade Organization and has
passed legislation to implement the Uruguay Round agreement.
Nevertheless, a number of Canadian practices constitute barriers to
U.S. exports to Canada.
Canada applies various restrictions to imports of supply-managed
products (dairy, eggs and poultry), fresh fruit and vegetables,
potatoes, processed horticultural products and live swine. The United
States continues to pursue these issues bilaterally. With regard to
Canada's milk pricing policies, the United States maintains that Canada
(1) is providing export subsidies without regard to its export subsidy
reduction commitments, and (2) has failed to fulfill its WTO commitment
to provide access for 64,500 metric tonnes of fluid milk exports
annually. The U.S. held consultations under WTO dispute settlement
procedures in November 1997 to address the issue.
Provincial legislation and Liquor Board policies regulate Canadian
importation and retail distribution of alcoholic beverages. U.S.
exporters object to provincial minimum import price requirements, and
cost-of-service and packaging size issues hinder the importation of
U.S. wine.
Canadian customs regulations limit the temporary entry of
specialized equipment needed to perform short-term service contracts.
Certain types of equipment are granted duty-free or reduced-duty entry
into Canada only if they are unavailable from Canadian sources.
Although NAFTA has broadened the range of professional equipment
permitted entry, it has not provided unrestricted access.
Under Canada's Special Import Measures Act (SIMA), Canadian
companies have brought antidumping and countervailing duty actions
against U.S. companies. Dumping margins in successful cases constitute
a significant barrier to U.S. exports. The Canadian Parliament reviewed
the SIMA in 1996-97 and is expected to consider modifications to the
Act in 1997-98.
Various restrictions limit U.S. access to the Canadian market for
publications. In 1997, a WTO panel ruled in favor of the U.S. in a case
concerning such measures, which included a ban on imports of magazines
with advertising directed at Canadians, a special 80% excise tax on
split-run magazines, and discriminatory postal rates on imported
magazines (the Sports Illustrated case). The U.S. and Canadian
governments have agreed that Canada has a 15-month period to eliminate
these restrictions. The Canadian government has said they will be
replaced with WTO-consistent support measures. Canadian regulations
designed to promote Canadian culture result in certain content
restrictions that adversely affect U.S. program suppliers.
Under the Investment Canada Act, the Broadcast Act, the
Telecommunications Act, and policies affecting energy, publishing,
telecommunications, transportation, broadcasting and cable television
firms, Canada maintains laws and policies with respect to foreign
ownership which interfere with new or expanded foreign investment in
these sectors. While foreign investment in the banking and financial
services sectors has been restricted under the Bank Act and related
statutes, the government has committed to introduce legislation by the
end of 1997 to allow foreign bank branching.
Under the Investment Canada Act of 1985, the Canadian government
must be given notice of any investment by a non-Canadian to establish a
new Canadian business, regardless of size, or to acquire direct control
of any existing Canadian business which either has assets of C$5
million or more, or a business that is identified by regulation to be
culturally sensitive or in the indirect control of any existing
Canadian business with assets of C$50 million. The C$5 million
threshold is increased to C$168 million in the case where the acquiring
non-Canadian entity is a national of a member of the World Trade
Organization (WTO), and there is no review process applicable to an
indirect acquisition of a Canadian business by an entity that is a
national of a member of the WTO.
In most cases, Canada prohibits acquisition of a majority share of
Canadian book publishing and distributing companies by non-Canadians,
and requires in these sectors that foreign-owned subsidiaries in Canada
be divested to Canadians within two years if the ownership of the
parent changes hands. The Investment Canada Act also has specific
policies restricting foreign investment in the film distribution
sector.
Under the CFTA and the NAFTA, greenfield investments by U.S.
investors are not subject to screening by Investment Canada except in
cultural industries. Direct takeovers of existing Canadian companies
are subject to a screening threshold which was C$150 million in 1994,
and adjusted for GDP growth.
Canada's Telecommunications Act allows the federal regulator, the
Canadian Radio-Television and Telecommunications Commission, to forbear
from regulating competitive segments of the industry, and exempts
resellers from regulation. The Act and its regulations restrict foreign
ownership of telecommunication firms (minority ownership/control) and
the licensing of certain services. However, as a part of its WTO offer
on basic telecommunications, Canada has committed itself to market
opening initiatives in mobile satellite services, mobile satellite
basic telecom services, and international telecommunications services.
In the banking sector, the Bank Act of 1980 made chartering of
foreign-owned banking subsidiaries possible for the first time.
Currently, foreign banks are still not permitted to enter Canada as
direct branches. However, as stated earlier, the federal government has
committed itself to introduce legislation this year to allow foreign
bank branching and has committed in its WTO Financial Services offer to
have this law in place by June 30, 1999. The US-CFTA eliminated other
discriminatory restrictions on U.S. bank subsidiaries in Canada.
6. Export Subsidies Policies
Canada largely eliminated its export subsidies on western-grown
wheat, barley, oats, canola and many other agricultural commodities in
1995. Export credit guarantees to support bulk and processed
agricultural product exports are available through the Canadian Wheat
Board and the Export Development Corporation, both crown corporations.
Due to lack of transparency, data on the value and/or volume of
commodities exported with credit guarantee support, destination
countries, and terms are very limited.
In 1995 and 1996, Canada eliminated its producer levy-funded export
subsidy program for dairy products, and implemented instead a program
that enables dairies to acquire milk at a discount on the condition
that the resulting products are exported or incorporated into certain
further processed food products. The prices farmers receive for milk
delivered under this program are lower than those received for milk
manufactured into dairy products for domestic sale. Canada contends
that by implementing these changes it has eliminated export subsidies
for dairy and is in compliance with its WTO commitments on export
subsidies. The United States maintains that Canada continues to provide
export subsidies, and initiated WTO dispute settlement proceedings in
October 1997.
7. Protection of U.S. Intellectual Property
The Canadian government has longstanding legislation to protect
intellectual property rights, and these laws are effectively enforced.
In 1993 the Canadian government amended the Patent Act to eliminate
compulsory licensing for pharmaceuticals, thereby extending patent
protection to the standard 20 years.
In 1993 Canada proclaimed the Integrated Circuit Topography Act, a
law protecting semiconductor chip design.
1989 amendments to the Canadian Copyright Act granted explicit
copyright protection for computer programs, and provided a right of
payment for retransmission of broadcast programming as required by the
US-CFTA. In January 1994, the Copyright Act was amended to reflect the
changes required by NAFTA, e.g., rental rights for computer programs
and sound recordings; protection for data bases and other compilations;
and increased measures against all categories of pirated works.
Canada passed revisions to its Copyright Act in April 1997. While
certain parts of the new Act are still waiting to be proclaimed into
law, the revisions extend music broadcast royalty rights to producers
and performers (``neighboring rights''), impose a levy on blank audio
cassettes to compensate artists, and make it an offense for booksellers
to obtain books from any source other than the exclusive agent for the
Canadian market. The neighboring rights amendment will benefit only
Rome Convention signatories. U.S. producers and performers could
benefit under NAFTA only if the United States passes a similar law. The
next stage of copyright reform will be a review of Bill C-32 three
years from the date that the entire bill is proclaimed into law. The
U.S. placed Canada on the Special 301 ``Watch List'' because of the
provisions in the revised Copyright Act.
8. Worker Rights
a. The Right of Association.--Except for members of the armed
forces, workers in both the public and private sectors have the right
to associate freely. These rights, protected by both the federal labor
code and provincial labor legislation, are freely exercised.
b. The Right to Organize and Bargain Collectively.--Workers in both
the public and private sectors freely exercise their rights to organize
and bargain collectively. Some essential public sector employees have
limited collective bargaining rights which vary from province to
province. 37.5 percent of Canada's non-agricultural work force is
unionized.
c. Prohibition of Forced or Compulsory Labor.--There is no forced
or compulsory labor practiced in Canada.
d. Minimum Age Employment of Children.--Generally, workers must be
17 years of age to work in an industry under federal jurisdiction.
Provincial standards (covering more than 90 percent of the national
work force) vary, but generally require parental consent for workers
under 16 and prohibit young workers in dangerous or nighttime work. In
all jurisdictions, a person cannot be employed in a designated trade
(become an apprentice) before the age of 16. The statutory school-
leaving age in all provinces is 16.
e. Acceptable Conditions of Work.--Federal and provincial labor
codes establish labor standards governing maximum hours, minimum wages
and safety standards. Those standards are respected in practice.
f. Rights in Sectors with U.S. Investment.--Worker rights are the
same in all sectors, including those with U.S. investment.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 10997
Total Manufacturing........................... 43817
Food & Kindred Products..................... 5355
Chemicals & Allied Products................. 7388
Metals, Primary & Fabricated................ 3036
Machinery, except Electrical................ 2848
Electric & Electronic Equipment............. 1726
Transportation Equipment.................... 11224
Other Manufacturing......................... 12240
Wholesale Trade............................... 7764
Banking....................................... 974
Finance/Insurance/Real Estate................. 15816
Services...................................... 4729
Other Industries.............................. 7490
TOTAL ALL INDUSTRIES.......................... 91587
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
CHILE
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP................................. 67.3 71.9 79.5
Real GDP Growth (pct)....................... 8.5 7.2 6.5
GDP by Sector:
Agriculture/Fishing....................... 5.4 5.7 6.1
Mining.................................... 5.3 6.0 6.7
Manufacturing............................. 11.3 11.7 12.5
Construction.............................. 3.7 4.0 4.5
Services.................................. 29.9 32.3 35.5
Government................................ 1.7 1.7 1.9
Per Capita GDP (US$)........................ 4,700 5,100 5,400
Labor Force (000s).......................... 5,497 5,522 5,600
Unemployment Rate (pct)..................... 5.5 5.5 5.5
Money and Prices (annual percentage growth):
Money Supply (M2)........................... 26.8 23.2 19.5
Consumer Price Inflation (pct).............. 8.2 6.6 5.9
Exchange Rate(peso/US$)..................... 397 412 415
Balance of Payments and Trade:
Total Exports (FOB) \2\..................... 16.4 15.4 16.9
Exports to U.S............................ 1.9 2.6 2.7
Total Imports (CIF)......................... 15.3 17.4 17.6
Imports from U.S.......................... 3.6 4.1 4.5
Trade Balance............................... 1.1 -2.0 -0.7
Balance with U.S.......................... -1.7 -1.5 -1.8
Current Account Deficit/GDP (pct)........... 0.2 -4.1 -3.5
External Public Debt........................ 21.8 23.0 26.3
Debt Service Payments/Exports (pct)......... 23.6 27.3 25.0
Fiscal Deficit/GDP (pct).................... N/A N/A \3\ N/A
Gold and Foreign Exchange Reserves (US$
billions).................................. 14.8 15.5 18.8
Aid from U.S. (US$ millions)................ 3.6 0.3 0.2
Aid from All Other Sources.................. N/A N/A N/A
------------------------------------------------------------------------
\1\ 1997 Estimates based on monthly data available in November 1997.
\2\ All figures merchandise trade. Source: Central Bank of Chile.
\3\ The Government of Chile has run a fiscal surplus for more than a
decade.
Sources: Central Bank of Chile
1. General Policy Framework
Chile's economy has grown rapidly for more than a decade. This
growth has been fueled by steadily rising domestic savings and foreign
investment. Copper remains the country's most important product,
accounting for about 42 percent of export earnings in the first nine
months of 1997. However, exports of fish, forestry products, fresh
fruit, and manufactured products are also important. Chile's investment
grade credit rating is the highest in Latin America, and Chilean firms
finance investment by borrowing, issuing bonds, and selling stock
abroad as well as in Chile. Many Chilean firms are also expanding
abroad.
The government of Eduardo Frei (1994-present) has continued Chile's
emphasis on macroeconomic stability and the economy's export
orientation. The government has generated fiscal surpluses in each of
the years 1988-1996, and it is projected to do so in 1997. The pace of
privatization has slowed in the last few years. The independent central
bank has gradually loosened foreign exchange restrictions on capital
outflows. The government remains concerned about the potential effects
on the exchange rate of rapid foreign currency inflows. As of late
1997, pending legislative proposals would allow banks to do business
abroad and would privatize Chile's water and sewage companies.
The Central Bank's monetary policy adjusts interest rates to affect
domestic spending. In this way, it aims to gradually reduce inflation
while keeping the economy on a path of steady growth. It has sought to
stabilize the exchange rate by buying or selling dollars to keep the
exchange rate within a preannounced range.
Indicators for 1997 suggest that real GDP growth will exceed the
government's target of 5.5 to 6.0 percent. Inflation will be near the
Central Bank's target of 5.5 percent. Unemployment will average about 6
percent. Despite falling world copper prices since the highs achieved
in 1995, increases in gross output of copper have kept the contribution
of copper to export earnings relatively level. Chile will likely
experience a merchandise trade deficit of some $700-800 million in
1997. The current account will be even more negative due to the
country's normal services deficit. Foreign investment flows continue to
more than balance the negative performance of the current account, and
accumulated reserves as of November 1997 were greater than $18 billion.
2. Exchange Rate Policies
The Central Bank allows the peso-dollar exchange rate to fluctuate
within a 12.5 percent band on either side of the reference rate. The
reference exchange rate moves each day according to changes in the
exchange rates of the dollar, mark, and yen and the difference between
Chilean and foreign inflation, together with an adjustment allowing a
2% annual appreciation of the real exchange rate. The Central Bank buys
or sells dollars in the official inter-bank market when the peso
threatens to move more than twelve and one-half percent above or below
the reference exchange rate. The Central Bank does this only to reduce
what it believes are short-term fluctuations. It does not attempt to
block long-term trends in the exchange rate, and it has shifted the
reference exchange rate twice since 1992 to reflect long-term
strengthening of the peso.
Over the last several years, the Central Bank has gradually reduced
restrictions on foreign exchange outflows. In 1995, it lifted the
requirement that exporters remit some of their foreign currency
earnings through the inter-bank market. A legal parallel market
operates with rates almost identical to the inter-bank rate. Over the
last decade, the peso has appreciated in real terms against the dollar
because of Chile's trade surpluses, strong inflows of foreign capital,
and the dollar's weakness on international markets; this trend
continued throughout most of 1997, despite the dollar's strength
elsewhere. Since the Asian turmoil began October 23, the peso has
depreciated steadily against the dollar, with some intervention by the
Central Bank.
3. Structural Policies
Pricing policies: The government rarely sets specific prices.
Exceptions are urban public transport and some public utilities and
port charges. State enterprises generally purchase at the lowest
possible price, regardless of the source of the material. U.S. exports
enter Chile and compete freely with other imports and Chilean products.
Chile's free trade agreements with Mexico, Canada and Mercosur give
exporters from those countries significant competitive advantages--
virtually all Mexican and Canadian exports enter the Chilean market
duty free. Import decisions are typically related to price
competitiveness and product availability. (Certain agricultural
products are an exception. See section 5.)
Tax policies: An 18 percent value-added tax (VAT) applies to all
sales transactions and accounts for over 40 percent of total tax
revenue. There is an 11 percent tariff on virtually all imports
originating in countries with which Chile does not have a free trade
agreement. Computers enter Chile duty-free as a result of the
Information Technology Agreement. Personal income taxes are levied only
on income over about $6,000 per year. The top marginal rate is 45
percent on annual income over about $75,000. Profits are taxed at flat
rates of 15 percent for retained earnings and 35 percent for
distributed profits, with incentives for business donations to
educational institutions. Tax evasion is not a serious problem.
Regulatory policies: Regulation of the Chilean economy is limited.
The most heavily regulated areas are utilities, the banking sector,
securities markets, and pension funds. No government regulations
explicitly limit the market for U.S. exports to Chile (although other
government programs, like the price band system for some agricultural
commodities described below, displace U.S. exports). In recent years,
the government has introduced rules permitting private investment in
the construction and operation of public infrastructure projects such
as toll roads. Most Chilean ports are administered by a state-owned
firm, although legislation is pending to permit private concessions.
4. Debt Management Policies
Due to Chile's vigorous economic growth and careful debt management
over the last decade, foreign debt is no longer a major problem. As of
mid-1997, Chile's public and private foreign debt was about $23.5
billion, or around 30 percent of GDP. (In 1985, the debt-to-GDP ratio
was 125 percent.) Since the mid-1980s, public sector debt has declined
steadily. In 1995, the government and the Central Bank prepaid over
$1.5 billion in debt to the International Monetary Fund (IMF).
5. Significant Barriers to U.S. Exports
Chile has few barriers to U.S. exports and is a member of the WTO.
Nevertheless, treatment in some areas, especially agricultural
commodities, diverges from international norms. Chile agreed in the
GATT Uruguay Round not to raise its tariff rates above 25 percent. This
is being phased in for a few agricultural products; their maximum rate
is now 29 percent. The uniform Chilean tariff rate is currently 11
percent on all goods except for used goods, which are subject to a 16.5
percent tariff. Chile has free trade agreements which will lead to
duty-free trade in most products by the late 1990s with Mexico,
Venezuela, Colombia, Ecuador and the Mercosur bloc. Tariffs also are
lower than 11 percent for certain products from member countries of the
Latin American Integration Association (ALADI) and products imported by
diplomats and the Chilean military.
The 18 percent VAT is applied to the CIF value of imported products
plus the 11 percent import duty. Duties may be deferred for seven years
for capital goods imports purchased as inputs for products to be
exported. Duties may be waived on capital goods to be used solely for
production of exports. (See section six.) Automobiles are subject to
additional taxes based on value and engine size. The engine tax, which
is scheduled to be phased out by 1999, applies to vehicles with engines
of over 1,500 cc, while the value tax is 85 percent of the CIF value
over a certain price level (around $10,300 in 1997). These taxes
discourage sales of larger and more expensive vehicles, including most
U.S.-made automobiles. Despite these taxes, sales of U.S.-made vehicles
are rising.
Another tax that has the effect of discouraging U.S. exports is the
70 percent tax on whiskey, which is produced in only small volumes
domestically and which competes with other domestically produced
liquors taxed at lower rates. In mid-1997, the government introduced a
law that would change the liquor tax system whereby whiskey would still
face higher tax rates than domestically produced liquors with a lower
alcohol content. Moreover, the measure would raise the taxation on
virtually all other imported distilled spirits.
Import licenses: According to legislation governing the Central
Bank since 1990, there are no legal restrictions on licensing. Import
licenses are granted as a routine procedure. Imports of used
automobiles and most used car parts are prohibited.
Investment barriers: Chile's foreign investment statute, Decree Law
600, sets the standard of treatment of foreign investors in the same
manner as Chilean investors. Foreign investors using DL 600 sign a
contract with the government's Foreign Investment Committee
guaranteeing the terms and tax treatment of their investments. These
terms include the rights to repatriate profits immediately and capital
after one year, to exchange currency at the official inter-bank
exchange rate, and to choose between either national tax treatment at
35% or a guaranteed rate for the first ten years of an investment at
42%. Approval by the Foreign Investment Committee is generally routine,
but the committee has rejected some ``speculative'' investments. In
late 1997, the government modified its DL 600 policy to restrict
investment entering under the law's provisions to projects worth more
than $1 million. In addition, projects of more than $15 million are now
routinely vetted with the Central Bank to identify possible
``speculative'' flows. Finally, associated external loan financing in
excess of the value of direct foreign investment flows cannot enter
under the provisions of DL 600 (i.e., to enter free of deposit
provisions, foreign loan leveraging cannot exceed a ratio of 1:1).
Investment not entering Chile through DL 600 can enter under
Chapter 14 of the Central Bank Regulations. Under Chapter 14, investors
must deposit 30 percent of the value of capital inflows in a non-
interest bearing Central Bank account (known as the ``encaje'') for one
year. The purpose of the policy is to limit speculative investment
which seeks to take advantage of Chile's high interest rates and
thereby to help stabilize the value of the Chilean peso, which has
appreciated significantly in recent years. The policy has not managed
to stop the local currency's revaluation. The encaje is applied to
inflows of foreign capital into stocks, bonds, bank deposits, and real
estate as well, which in the view of local authorities do not increase
the Chilean economy's productive capacity or improve technology. There
is no tax treaty between Chile and the United States, so profits of
U.S. companies operating in Chile are taxed by both governments.
However, U.S. firms generally can claim credits on their U.S. taxes for
taxes paid in Chile.
Firms may invest without using DL 600 or registering with the
foreign investment committee by bringing capital in through foreign
exchange dealers or private banks under Chapter 14. Few firms use this
means of investment, as it subjects funds to the encaje and it lacks
the guarantees provided by the contract with the foreign investment
committee.
There are some deviations, both positive and negative, from the
nondiscrimination standard. Foreign investors receive better than
national treatment on taxation, as they have the option of fixing the
tax rate they will pay at 42 percent for ten years or paying the
prevailing domestic rate, which is at present lower.
There are also examples of less than national treatment. D.L. 600
allows the Central Bank to restrict the access of foreign investors to
domestic borrowing in an emergency in order to prevent distortion of
local financial markets. The Central Bank has never exercised this
power.
Other examples of less than national treatment are certain sectoral
restrictions on foreign investment. With few exceptions, fishing in the
country's 200-mile Exclusive Economic Zone is reserved for Chilean-flag
vessels with majority Chilean ownership. Such vessels also are the only
ones allowed to transport by river or sea between two points in Chile
(``cabotage'') cargo shipments of less than 900 tons or passengers. The
automobile and light truck industry is the subject of trade-related
investment measures, although U.S. firms are among those helped as well
as those harmed. Manufacturers based in the United States and France
receive import protection in the form of the taxes noted above, which
protect their Chilean production. The manufacturers also receive tax
benefits for the use of local inputs and for exporting auto components.
Despite these measures, imports make up around 85 percent of the auto
market.
Oil and gas deposits are reserved for the state. Private investors
are allowed concessions, however, and foreign and domestic nationals
are accorded equal treatment.
Services barriers: Full foreign ownership of radio and television
stations is allowed, but the principal officers of the firm must be
Chilean. A freeze in force since the early 1980s on the issuance of new
bank licenses means that would-be bankers (domestic as well as foreign)
must acquire existing banks. The Government of Chile hoped to
promulgate banking reform legislation by the end of 1997 that would,
inter alia, end the freeze.
Principal nontariff barriers: The main trade remedies available to
the Chilean government are surcharges, minimum customs values,
countervailing duties, antidumping duties, and import price bands.
Chile's most significant nontariff barrier is the import price band
system for certain agricultural commodities, which currently applies to
wheat, wheat flour, vegetable oils, and sugar. When import prices are
below a set threshold, surtaxes are levied on top of the across-the-
board 11 percent tariff in order to bring import prices up to an
average of international prices over previous years.
The Chilean government may apply country-specific duties on
products that it determines to have received subsidies from exporting
countries and on products that it determines to have been dumped at
below-market prices. Some industry sources have claimed that surtaxes
occasionally have been applied to agricultural imports without
reasonable evidence of subsidies or dumping. In the past, these duties
have been applied to items such as Argentine wheat flour and Chinese-
made shoes. As of late 1997, none are in effect.
Animal health and phytosanitary requirements: Chile has been slow
to recognize pest-free areas in the United States that would facilitate
the export of many U.S. fruits and vegetables to Chile. When
promulgating changes in its regulations, Chile does not allow the
public a period for comment on the proposed rule. Procedures and
tolerances for testing imported chicken for the presence of salmonella
present such a severe commercial risk that local importers are
reluctant to import such products. Chile's unique beef grading and
labeling requirements deter the trade from considering the importation
of beef cuts from the United States.
Government procurement practices: The government buys locally
produced goods only when the conditions of sale (price, delivery times,
etc.) are equal to or better than those for equivalent imports. In
practice, given that many categories of products are not manufactured
in Chile, purchasing decisions by most state-owned companies are made
among competing imports. Requests for public and private bids are
published in the local newspapers.
6. Export Subsidies Policies
With minor exceptions, the Chilean government does not provide
exporters with direct or indirect support such as preferential
financing or export promotion funds. It does, however, offer a few
nonmarket incentives to exporters. For example, paperwork requirements
are simplified for nontraditional exporters. The government also
provides exporters with quicker returns of VAT paid on inputs than
other producers receive. In 1997, alleged Chilean subsidies became the
focus of a countervailing duty investigation by the Department of
Commerce of Chilean salmon exports to the United States.
The most widely used indirect subsidy for exports is the simplified
duty drawback system for nontraditional exports. This system refunds to
exporters of certain products a percentage of the value of their
exports, rather than refunding the actual duty paid on imported inputs
to production (as is the case in Chile's standard drawback program).
All Chilean exporters may also defer tariff payments on capital imports
for a period of seven years. If the capital goods are used to produce
exported products, deferred duties can be reduced by the ratio of
export sales to total sales. If all production is exported, the
exporter pays no tariff on capital imports.
Chile's forestry subsidy indirectly promotes exports, because most
of Chile's forestry products are exported. The government subsidizes
about 75 percent of planting costs and certain management costs for the
first generation of trees in a plantation. The value of the subsidy is
adjusted for inflation and treated as taxable income when the trees are
harvested several years later. Forestry industry representatives say
the subsidy, when allocated over the life of plantations, amounts to an
interest-free loan for about 5 percent of total costs. Both foreign
investors and Chileans are eligible for the subsidy. The law which
established the subsidy in 1974 (DL 701) expired in 1996 but may be
renewed.
7. Protection of U.S. Intellectual Property
Chile's intellectual property regime is basically compatible with
international norms, and industry representatives have welcomed
government enforcement efforts. Continuing deficiencies in patent
protection, however, have kept Chile on the USTR Special 301 watch list
since 1989. Efforts to enforce intellectual property rights in Chilean
courts have been successful. Chile does not have an explicit statute
for protecting the design of semiconductors nor does it have
comprehensive trade-secret protection. Chile belongs to the World
Intellectual Property Organization. Contracts may set fees and
royalties only as a percentage of sales, and payments for the use of
trade secrets and proprietary processes are usually limited to three
percent.
Patents: The industrial property law promulgated in September 1991
substantially improved Chile's protection of industrial patents, but it
falls short of international standards. The law provides a patent term
of 15 years from the date of grant. (The Uruguay Round agreements
require Chile to adopt a 20-year standard by 2003.) The law does not
consider plant and animal varieties or surgical methods to be
patentable. Most importantly, the law does not provide pipeline
protection for pharmaceutical patents filed abroad before the law's
promulgation. Because of the lack of pipeline protection and the long
lead times involved in the marketing of new pharmaceutical products,
the law will not prevent local companies from pirating foreign
pharmaceutical patents of products introduced into the market for
several more years. In addition, the registration procedures required
by the Health Ministry to market new drugs are more onerous for first-
to-file firms, which tend to be foreign firms. Finally, payments for
the use of patents may not exceed five percent of sales.
Copyrights: Piracy of video and audio tapes has been subject to
criminal penalties since 1985. Chilean authorities have taken
aggressive enforcement measures against video, video game, audio, and
computer software pirates in recent years, and piracy has declined in
each of these areas. In the mid-1980s, the software piracy rate was
believed to be around 90 percent; it is currently estimated between 65
and 70 percent, believed to be the lowest rate in Latin America. The
decline is in part the result of a campaign by the U.S. and
international industry, with the cooperation of Chile's courts and
government, to suppress the use of pirated software. Greater access to
authorized dealers and service has also helped to reduce the rate of
piracy. Industry sources say that penalties remain low relative to the
potential earnings from piracy and that stiffer penalties would help to
deter potential pirates. Copyright protection is 50 years. U.S.
recording industry officials have said that Chile's copyright law
grants producers less favorable treatment vis-a-vis authors than is the
international norm.
Trademarks: Chilean law provides for the protection of registered
trademarks and prioritizes trademark rights according to filing date.
Local use of a trademark is not required for registration. Payments for
use of trademarks may not exceed one percent of sales.
Impact of Chile's intellectual property practices on U.S. trade:
Although it is difficult to accurately estimate damages, most observers
believe that the U.S. pharmaceutical industry has suffered most from
the infringement of its intellectual property (in this case, patent)
rights in Chile. The local association of U.S. research-based
pharmaceutical companies assesses market loss at some $200 million
annually. Chile's software developer's association has estimated that
some $70-80 million worth of software was pirated in Chile in 1996.
8. Worker Rights
a. The Right of Association.--Most workers have a right to join
unions or to form unions without prior authorization, and around 13
percent of the work force belongs to unions. Government employee
associations benefited from legislation in 1995 which gave them the
same rights as unions. Reforms to the labor code in 1990 removed
significant restrictions on the right to strike. Those reforms require
that a labor inspector or notary be present when union members vote for
a strike.
b. The Right to Organize and Bargain Collectively.--The climate for
collective bargaining has improved, and the number of contract
negotiations has grown steadily. The process for negotiating a formal
labor contract is heavily regulated, a vestige of the statist labor
policies of the 1960's. However, the law permits (and the Aylwin and
Frei governments have encouraged) informal union-management discussions
to reach collective agreements outside the regulated bargaining
process. These agreements have the same force as formal contracts.
c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory
labor is prohibited in the constitution and the labor code, and there
is no evidence that it is currently practiced.
d. Minimum Age for Employment of Children.--Child labor is
regulated by law. Children as young as 14 may be legally employed with
permission of parents or guardians and in restricted types of labor.
Some children are employed in the informal economy, which is more
difficult to regulate. A 1997 government study estimated that about
125,000 minors worked. Most of these children worked in the
countryside, and many of them worked with their parents.
e. Acceptable Conditions of Work.--Minimum wages, hours of work,
and occupational safety and health standards are regulated by law. The
legal work week is 48 hours. The minimum wage, currently around $170
per month, is set by government, management, and union representatives,
or by the government if the three groups cannot reach agreement. Lower-
paid workers also receive a family subsidy. The minimum wage and wages
as a whole have risen steadily over the last several years. As a
result, poverty rates have declined dramatically in recent years, from
46 percent of the population in 1987 to 23 percent in 1996. Currently
11 percent of salaried workers earn the minimum wage.
f. Rights in Sectors with U.S. Investment.--Labor rights in sectors
with U.S. investment are the same as those specified above. U.S.
companies are involved in virtually every sector of the Chilean economy
and are subject to the same laws that apply to their counterparts from
Chile and other countries. There are no special districts where
different labor laws apply.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 591
Food & Kindred Products..................... \1\
Chemicals & Allied Products................. 195
Metals, Primary & Fabricated................ -113
Machinery, except Electrical................ 5
Electric & Electronic Equipment............. 9
Transportation Equipment.................... \1\
Other Manufacturing......................... 256
Wholesale Trade............................... 367
Banking....................................... 565
Finance/Insurance/Real Estate................. 2046
Services...................................... \1\
Other Industries.............................. 2777
TOTAL ALL INDUSTRIES.......................... 6745
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
COLOMBIA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated] \1\
------------------------------------------------------------------------
1995 1996 1997 \2\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP............................... 80.6 88.2 98.6
Real GDP Growth (pct) \3\................. 5.7 2.1 2.0
GDP by Sector: (pct) \7\
Agriculture and Fishing................. 20 19 19
Manufacturing........................... 19 18 18
Commerce................................ 12 11 11
Services (Financial and other).......... 29 30 29
Government.............................. 15 17 18
Per Capita GDP (US$)...................... 2,125 2,285 2,509
Labor Force (000s)........................ 16,456 16,639 16,822
Unemployment Rate (pct)................... 9.5 11.3 12.2
Money and Prices (annual percentage growth):
Money Supply Growth (M2).................. 35.7 14.6 23.0
Consumer Price Inflation.................. 19.5 21.6 18.0
Exchange Rate (peso/US$ - annual average).
Market.................................... \4\ 926 1,037 1,090
Balance of Payments and Trade:
Total Exports FOB \5\..................... 9.8 10.6 11.4
Exports to U.S.\5\...................... 3.8 4.3 4.1
Total Imports CIF \5\..................... 13.9 12.8 13.5
Imports from U.S.\6\.................... 4.6 4.7 5.5
Trade Balance \6\......................... -4.1 -3.9 -3.1
Balance with U.S.\6\.................... -0.8 -1.1 -1.4
External Public Debt...................... 15.1 15.9 17.1
Fiscal Deficit/GDP (pct).................. -2.5 -4.1 -4.4
Current Account Deficit/GDP (pct)......... -5.4 -3.9 -2.7
Debt Service Payments/GDP (pct)........... 2.5 2.9 0.7
Gold and Foreign Exchange Reserves........ 8.5 9.9 10.3
Aid from U.S. (US$ millions).............. 0.0 0.1 0.1
Aid from All Other Sources................ N/A N/A N/A
------------------------------------------------------------------------
\1\ Sources for all figures in table: National Planning Department
\2\ 1997 figures are all annualized estimates based on available data in
October 1997.
\3\ Percentage changes calculated in local currency
\4\ Colombia has no official rate. Figures shown are annual average
interbank market rates.
\5\ Merchandise trade only.
\6\ Source: Dept of Commerce NTDB
\7\ Embassy Estimate
1. General Policy Framework
Colombia is a free market economy with major commercial and
investment links to the United States. Transition from a highly
regulated economic regime to an unrestricted access market has been
underway since 1990. The U.S. is Colombia's largest trading partner,
receiving 40 percent of Colombia's exports and providing 37 percent of
Colombia's imports in 1996. The U.S. is also the dominant source of
foreign investment in Colombia, holding by far the largest individual
country share of foreign direct investment: $3.7 billion, or 44 percent
of the estimated total direct foreign investment of $8.3 billion.
Colombia's ``apertura'' (economic liberalization) program,
initiated during the 1990-1994 administration of Cesar Gaviria, opened
the Colombian economy to international trade and capital inflows by
slashing tariff duties and eliminating non-tariff barriers, by actively
negotiating free trade agreements, and by reforming foreign exchange
and tax legislation, labor regulations and the foreign investment
regime. Apertura also led to the privatization of state enterprises,
ports, railroads and banks. The privatization process practically
stopped during the first two years of the Samper Administration and has
improved only slightly since then with the privatization of electricity
generation plants, the state coal company, Carbocol, and the nation's
seventh-largest bank, Banco Popular. Each privatization project must
receive prior approval from Congress, which can lead to delays. The
government earned $1.7 billion in privatization revenue in 1997.
Possible future privatizations include banks, the electricity grid, and
the government's stake in a coal mine, Cerrejon. Revenues from
privatization helped reduce the overall fiscal deficit in 1997.
The Samper Administration has not rejected apertura, but it has
attempted to reduce some of the economic dislocation caused by rapid
economic change. A safety net approach known as the ``Salto Social''
(targeting Colombia's poor, who constitute over a third of the
population) was initiated in 1994. Its programs involved increased
spending for infrastructure projects in the areas of health, education
and housing, which aimed at job creation as well as increasing public
services over the period 1994-1998. The ``salto social'' was
undermined, however, by the failure of GDP to achieve the 6 percent
growth for 1996 targeted in the plan, and has been all but abandoned in
1997. Growth in real GDP for 1996 was a mere 2.1 percent and
projections for 1997 growth range between 2.0 and 3.0 percent.
Agriculture, which has been particularly hard hit by apertura
policies, benefits, inter alia, from ``absorption agreements,'' which
require domestic food processors to purchase the total production of
certain domestic crops at higher than ``normal'' prices. If processors
can show domestic crops were purchased at support prices established in
absorption agreements, the Colombian government then grants them
reductions in import duties paid on equivalent imported commodities.
Monetary policy is aimed at the gradual reduction of inflation
while remedying the steady peso revaluation of recent years. The policy
has come under sharp criticism during 1996-97 from public and private
sectors alike as the government did not meet the targeted inflation
rate for 1996 and continues to struggle with a revaluating peso. 1996
inflation was projected to be 17 percent but actually came in at 21.6
percent. Similarly, the peso devalued only 2 percent in nominal terms,
far short of the planned 13.5 percent. The strong peso, resulting from
large inflows of foreign capital from direct investment, public and
private borrowing, the sale of Colombia's petroleum products and the
laundered proceeds of illicit drug sales, continues to adversely affect
the price competitiveness of Colombia's exports.
The Colombian government has been operating with budget deficits
over the last two years, caused principally by efforts to fund the
National Economic Development Plan and increased by constitutionally
mandated transfers of central government funds to local governments.
This policy of deficit spending, along with the attempt to reduce
inflation, kept interest rates high and contributed to the current
economic slowdown which started mid-1996. The government fiscal deficit
for 1997 is projected to be 4.4 percent.
Colombian law 170 of December 1994 adopted the World Trade
Organization Treaty, which Colombia formally ratified on March 30,
1995.
2. Exchange Rate Policy
Colombia has a floating exchange rate system operating on a free-
market basis and administered by the central bank. The central bank has
determined a ``price band'' within which the daily quotation of the
peso's dollar price may move; the bank may intervene in the market,
buying or selling pesos, to keep the currency value within the band.
Each day the Banking Superintendency reports an interbank market rate
(TRM) based on commercial bank and financial corporation transactions.
The strength of the peso in recent years has improved the price
competitiveness of U.S. exports to Colombia and has resulted in a
significant shift in the balance of bilateral trade: according to
Ministry of Foreign Trade statistics, Colombia's trade deficit with the
U.S. grew from $0.7 billion in 1991 to $1.5 billion in 1996. Colombia's
trade deficit in 1996 was $3.1 billion worldwide.
In an effort to reduce the revaluationary pressures on the peso,
the central bank imposed a deposit requirement on most types of foreign
borrowing. thirty percent of all new foreign loan proceeds must be kept
in a special non-interest bearing account for 18 months. This
requirement does not apply to loans of less than $5,000, less than 6
months, international credit cards, and loans for the purchase of
capital goods.
The inter-bank peso exchange rate closed 1997 with a 28.36 nominal
depreciation, near the ceiling of the exchange rate band. The real
exchange rate depreciated against the dollar by 8% in 1997, and is
expected to appreciate by 3% in 1998 on the strength of continued
strong export performance in the oil and coffee sectors and inflows of
FDI. Net international currency reserves were $9.96 billion as of
December 5, enough to cover roughly nine months of imports. The
consensus forecasts an increase in foreign currency reserves to $11.3
billion in 1998.
3. Structural Policies
Pricing policies: As a member of the Andean Community (formally
known as the Andean Pact), Colombia has price regulations related to
some agricultural imports. The so-called ``price band'' system affects
products like wheat, sorghum, corn, sugar, rice, barley, milk and
chicken parts. The government also regulates or establishes prices of
gasoline, electricity, water, sewage and telephone services, public
transportation, rents, education tuition and pharmaceutical products.
Tax policies: There is no corporate or individual tax paid on
income from dividends, provided that the money stays in Colombia; if
the money is subsequently transferred out of the country, a
``remittance tax'' of 7 percent is levied. Income derived as capital
gains is taxed at 35 percent. All consumers in Colombia pay a Value-
Added Tax of 16 percent on most products other than foods and basic
medicines. The tax on patrimony (capital) was eliminated, encouraging
stock investments. However, a ``war tax'' based on large amounts of
patrimony is regularly discussed as a means of financing the military.
Colombia has had several tax reforms over the last few years which
has created some uncertainty with investors. As an example, one reform
eliminated a ten-year tax holiday for mixed cellular telephone
companies, a holiday which benefited some foreign companies. To help
mitigate this problem, in December 1995, the Colombian Congress passed
legislation authorizing the Colombian Government to enter into
contracts with taxpayers guaranteeing the tax rate up to a maximum of
ten years. In return for this guarantee, corporations pay an additional
two percentage points in corporate taxes.
Regulatory policies: All foreign investment in petroleum
exploration and development in Colombia must be carried out under a
stringent profit-sharing association contract between the investor and
the state petroleum company, Ecopetrol. U.S. oil companies have
expressed interest in increasing exploration and development activities
in Colombia if contract and tax requirements are made more flexible. In
October 1997, Ecopetrol announced changes in the terms of its new
contracts, but the impact of these changes is as yet, undetermined.
Under a recent Andean Pact automotive policy, Colombia and
Venezuela have decided to impose strict regional content requirements
in the automotive assembly industry and require auto assemblers to
satisfy a minimum percentage foreign exchange contribution to offset
foreign exchange spent on auto imports.
4. Debt Management Policies
Colombia's debt management strategy is aimed at accessing new
sources of credit in the external and domestic capital markets and on
improving the debt profile of the country generally, with the objective
of providing priority financing for social programs and infrastructure
improvements that are key elements of the national development plan.
The Colombian government has in recent years made approximately
$1.8 billion in advance debt repayments. As of March 1997, total
external indebtedness (public and private) was $30.5 billion,
approximately 31 percent of GDP.
5. Significant Barriers to U.S. Exports
Import licenses: Prior import licenses are required for some
commodities, drug precursor chemicals, armaments and munitions,
donations, and some imports by government entities. Although the
government abolished import licensing requirements in 1991, it has
continued to use prior import licensing to restrict the importation of
certain agricultural products, such as powdered milk during Colombia's
high milk production season, and chicken parts.
In addition, the Ministry of Agriculture must approve import
licenses for products which, if imported, would compete with domestic
products purchased under ``absorption agreements.'' Some of these
products, which include important U.S. exports to Colombia, are wheat,
malting barley, corn, rice, sorghum, and wheat flour.
Services barriers: Legal services: the provision of legal services
is limited to those licensed under Colombian law. Foreign law firms can
operate in Colombia only by forming a joint venture with a Colombian
law firm and operating under the licenses of the Colombian lawyers in
the firm.
Insurance: a commercial presence is required in order to sell
policies other than those for international travel or reinsurance.
Mining and hydrocarbons: Colombian law requires that at least 80
percent of employees of companies in this sector be Colombian
nationals.
Information processing: a commercial presence is required to
provide this service.
Advertising: at least 50 percent of programmed advertising
broadcast on television must have local content.
Standards, testing, labelling, and certification: The Colombian
Foreign Trade Institute (INCOMEX) requires specific technical standards
for a variety of products. The particular specifications are
established by the Colombian Institute of Technical Standards
(ICONTEC). Certificates of conformity must be obtained from the
Superintendency of Industry and Commerce before importing products
which are subject to standards.
Investment barriers: Foreign and national investors receive equal
treatment in Colombia. One hundred percent foreign ownership is
permitted in virtually all sectors of the Colombian economy. Exceptions
include activities related to national security and the disposal of
hazardous waste. As a measure against money laundering, foreign direct
investment (FDI) in real estate is prohibited except in connection with
other investment activities.
All foreign investments must be registered with the Central Bank's
foreign exchange office within three months in order to assure the
right to repatriate profits and remittances. All foreign investors,
like domestic investors, must obtain a license from the Superintendent
of Companies and register with the local Chamber of Commerce. The
Ministry of Communications must approve applications in that sector.
Government procurement practices: Government procurement
regulations, although guaranteeing national treatment to all investors,
do require that foreign firms without an active local headquarters in
Colombia certify that Colombian companies enjoy reciprocity in similar
bids under their countries' procurement legislation. The U.S. Embassy
in Bogota routinely provides such certification. Several road
construction and airport contracts for U.S. companies have been
approved with little ado; on the other hand, some U.S. companies have
complained of corruption in contract processes. Colombia is not a party
to the WTO Agreement on Government Procurement.
Customs Procedures: Imported merchandise inspection can be pre-
arranged through pre-shipment inspection entry, and duties can be pre-
paid through commercial banks. For certain items, pre-shipment
inspection is mandatory.
6. Export Subsidies Policies
Colombia has sharply reduced its export subsidies, and its subsidy
practices are generally compatible with WTO standards. At present the
Colombian government manages only two export subsidy programs. One, the
CERT (``certificado de reembolso tributario''), refunds a percentage of
the FOB value of an export. Under a 1990 bilateral agreement, the CERT
does not apply to goods exported to the U.S. The other export subsidy,
known as the ``Plan Vallejo,'' allows for duty exemptions on the import
of capital goods and raw materials used to manufacture goods that are
subsequently exported.
7. Protection of U.S. Intellectual Property
Colombia has made significant improvements in its intellectual
property rights protection, but does not yet appear to provide adequate
and effective protection. The country has been placed on the ``watch
list'' under the Special 301 provision of the 1988 Omnibus Trade Act
for the last five years. Colombia, which is a WTO member, has ratified
its Uruguay Round implementing legislation. Colombia is a member of the
World Intellectual Property Organization (WIPO), the Paris Convention
for the Protection of Industrial Property, the Patent Cooperation
Treaty and the Union for the Protection of New Plant Varieties.
Colombia belongs to the Berne and Universal Copyright Conventions, the
Buenos Aires and Washington Conventions, the Rome Convention on
Copyrights and the Geneva Convention for Phonograms. It is not a member
of the Brussels Convention on Satellite Signals.
Patents and trademarks: Colombia is a member of the Inter-American
Convention for Trademark and Commercial Protection. Colombia requires
registration and use of a trademark in Colombia to exercise trademark
protection. Trademark registrations have a ten-year duration and may be
renewed for successive ten-year periods. Although Colombian law
provides, for example, twenty-year protection for patents and reversal
of burden of proof in cases of alleged patent infringement, it is
deficient in the areas of compulsory licensing provisions, working
requirements, biotechnology inventions, transitional (``pipeline'')
protection, and protection from parallel imports. Enforcement of
trademark legislation in Colombia is making some progress, although
contraband and counterfeiting are widespread.
Copyrights: Colombia's 1993 copyright law significantly increased
penalties for copyright piracy, and record levels of seizures of
pirated material took place in 1994 and 1995. Enforcement problems
arise, however, not only at the police level, but also in the judicial
system, where there have been complaints about the lack of respect for
preservation of evidence and frequent perjury.
New technologies: Colombia has a modern copyright law which gives
protection for computer software for 50 years and defines computer
software as copyrightable subject matter, but does not classify it as a
literary work. Colombia's recently passed Television Broadcast Law
potentially increased protection for all copyrighted programming by
regulating satellite dishes, but its enforcement remains to be seen.
Semiconductor design layouts are not protected under Colombian law.
U.S. industry estimates that video cassette piracy represents over
75 percent of the video market, sound recording piracy has soared to 66
percent of the market, and business software piracy represents 67
percent of the market. Satellite programmers estimate that there are
about 3.6 million Colombian households that receive satellite signals,
while only 220,000 are legally subscribed.
8. Worker Rights
a. The Right of Association.--Colombian law recognizes the rights
of workers to organize unions and to strike. The labor code provides
for automatic recognition of unions that obtain at least 25 signatures
from the potential members and that comply with a simple registration
process at the labor ministry. The law penalizes interference with
freedom of association. It allows unions to freely determine internal
rules, elect officials and manage activities, and forbids the
dissolution of trade unions by administrative fiat. Unions are free to
join international confederations without government restrictions.
b. The Right to Organize and Bargain Collectively.--The
constitution protects the right of workers to organize and engage in
collective bargaining. Workers in larger firms and public services have
been most successful in organizing, but these unionized workers
represent only a small portion of the economically active population.
According to Labor Ministry figures, approximately seven percent of
Colombia's workers are organized into 2,235 unions. High unemployment
(over 12 percent as of September 1997), traditional anti union
attitudes, and weak union organization and leadership limit workers'
bargaining power in all sectors.
c. Prohibition of Forced or Compulsory Labor.--The Constitution
forbids slavery and any form of forced or compulsory labor, and this
prohibition is respected in practice.
d. Minimum Age for Employment of Children.--The Constitution bans
the employment of children under the age of 14 in most jobs, and the
labor code prohibits the granting of work permits to youths under the
age of 18. This provision is respected in larger enterprises and in
major cities. Nevertheless, Colombia's extensive and expanding informal
economy remains effectively outside government control. Some 800,000
children between the ages of 12 and 17 work, according to Labor
Ministry studies. These children work--often under substandard
conditions--in agriculture or in the informal sector, as street
vendors, in leather tanning, and in small family-operated mines.
e. Acceptable Conditions of Work.--The government sets a uniform
minimum wage for workers every January to serve as a benchmark for wage
bargaining. The minimum wage for 1997 is approximately $158 per month.
Because the minimum wage is based on the government's target inflation
rate, which has been exceeded during 1995 and 1996, the minimum wage
has not kept up with inflation in recent years. However, in 1997, the
inflation was projected to be 18 percent and as of October, appears to
be on target. By government estimates, the price of the family shopping
basket (``canasta fmiliar'') is 2.4 times the minimum wage. Moreover,
the earnings of 60 percent of all Colombian workers are equal to or
less than twice the minimum wage. The law provides for a standard 8
hour workday and 48-hour work week, but does not specifically require a
weekly rest period of at least 24 hours. Legislation provides
comprehensive protection for workers' occupational safety and health,
but these standards are difficult to enforce, in part due to the small
number of labor ministry inspectors.
f. Rights in Sectors with U.S. Investment.--U.S. foreign direct
investment is concentrated principally in the petroleum, coal mining,
chemicals and manufacturing industries. Worker rights conditions in
those sectors tend to be superior to those prevailing elsewhere in the
economy, owing to the large size and high degree of organization of the
enterprises.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 1122
Total Manufacturing........................... 1325
Food & Kindred Products..................... 362
Chemicals & Allied Products................. 447
Metals, Primary & Fabricated................ 52
Machinery, except Electrical................ \2\
Electric & Electronic Equipment............. \1\
Transportation Equipment.................... \1\
Other Manufacturing......................... 324
Wholesale Trade............................... 131
Banking....................................... \1\
Finance/Insurance/Real Estate................. 323
Services...................................... \1\
Other Industries.............................. 397
TOTAL ALL INDUSTRIES.......................... 3468
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
\2\ Indicates a value between $-500,000 and $500,000.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
COSTA RICA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP................................... 9.0 9.0 9.5
Real GDP Growth \2\........................... 2.5 -0.7 3.0
GDP Growth by Sector:
Agriculture............................... 4.0 -.6 1.0
Industry.................................. 3.0 1.5 2.4
Services.................................. 3.0 3.0 5.0
Government................................ 2.5 2.0 2.1
Per Capita GDP.............................. 2,799 2,800 2,825
Labor Force (000s).......................... 1,232 1,278 1,330
Unemployment (pct).......................... 5.2 5.8 5.4
Money And Prices (annual percent growth):
Money Supply Growth (M2).................... 9.9 11.0 21.0
Consumer Price Inflation.................... 22.6 14.0 12.0
Exchange Rate (Colones/US$ - annual average
Official.................................. 190.0 218.0 242.0
Balance of Payments and Trade:
Total Exports (FOB) \3\..................... 2.6 2.7 2.9
Exports to U.S. (FOB) \3\................. 1.0 1.0 1.1
Total Imports (CIF) \3\..................... 3.3 3.4 3.7
Imports from U.S. (CIF) \3\............... 1.5 1.6 1.6
Trade Balance \3\........................... -0.7 -0.8 -0.8
Balance with USA \3\...................... -0.1 0.1 0.1
External Public Debt........................ 3.3 2.9 3.2
Fiscal Deficit/GDP (pct).................... 5.7 6.3 4.0
Current Account Deficit/GDP (pct)........... 2.9 3.5 3.0
Debt Service Payments/GDP (pct)............. 5.7 6.3 6.0
Gold & Foreign Ex Reserves.................. 1.0 0.9 0.8
Aid from U.S................................ 7.5 10.5 21.9
Aid from All Other Sources.................. N/A N/A N/A
------------------------------------------------------------------------
\1\ Central Bank projections
\2\ Calculated in constant 1966 Costa Rican colones
\3\ Merchandise Trade. Goods processed in free trade zones are reported
at value of net exports.
Source: Min of Planning, Central Bank of Costa Rica, Min of Foreign
Trade, Gen Directorate of Statistics and Census
1. General Policy Framework
As of October 1997 the Costa Rican economy is recovering gradually,
but steadily, from its 1996 contraction, the worst since the aftermath
of the 1979 petroleum price shocks and the country's 1980-84 foreign
debt problems. Official forecasters predict 1997 Gross Domestic Product
(GDP) growth of 3 percent.
After two years of public sector spending restrictions, postponed
private sector investment, uncertainty with respect to fiscal problems,
and slowdowns in the tourism and export sectors, 1997 has witnessed a
modest renewal of construction of tourist facilities and increasing
exports of traditional and nontraditional products. Investment and
aggregate consumption have been hindered by interest rates that
continue to exceed 30 percent while inflation is only 12 percent.
Despite an 18 percentage point decline in the interest rate from a 1995
peak near 48 percent, uncertainty as to whether interest rates would
persist at lower levels has inhibited the investment needed to maintain
growth rates sufficient to compensate for population growth of 2.1
percent.
During 1996 government borrowing from the public sector and state
owned utility companies was used to finance the fiscal deficit. Such
borrowing became an important concern, owing to the resultant upward
pressure on interest rates and the attendant burden imposed on private
companies and consumers. Despite persistent efforts, public officials
have been unable to convince public and private banks to reduce the
point spread between borrowing and lending interest rates. As a result,
financial institutions are having a difficult time placing loans.
Nevertheless, the Government of Costa Rica continues trade and
economic policies in favor of open markets, international competition
and reduced trade barriers. Active International Monetary Fund (IMF),
World Bank, and Inter-American Development Bank programs have supported
these policies. However, resistance to this general policy has resulted
from European Community restrictions on banana exports, domestic
pressure to restrict foreign competition, constitutional protection of
state owned monopoly enterprises, disagreements with major trade
partners within the World Trade Organization framework, and domestic
political pressures. Foreign trade, while affected by the general
downturn in the economy, continues to grow, particularly imports. In
1996 food imports (wheat, corn, processed foods) increased,
compensating for lower production levels. Consumer durable goods and
automobile imports increased as well. Costa Rica continues to have a
sizable trade imbalance, particularly with the United States, from
which it imported about $500 million more than it exported in 1996.
2. Exchange Rate Policy
The exchange rate policy reflects practices established in March
1993 by the Central Bank, involving daily minuscule devaluations of the
currency. The Central Bank sets the single exchange rate every morning
through its sale or purchase of foreign currency. Additionally, all
foreign transactions by state institutions are channeled through the
Central Bank. Commercial banks are free to negotiate foreign exchange
prices, but they must liquidate their foreign exchange positions daily
with the Central Bank.
During 1996 the exchange policy resulted in a 13.4 percent
devaluation of the local currency against the U.S. dollar (18 percent
devaluation in 1995) in line with the Central Bank's goal of
maintaining a ``neutral'' exchange rate (a rate of devaluation similar
to internal price increases). By this rule, the local currency is
expected to depreciate 11 percent against the dollar in 1997. Freely
traded dollars from tourism and capital investment continued to flow
into Costa Rica, partly offsetting the impact of the trade deficit on
the current account. The free and sufficient supply of foreign currency
continued to be a significant factor in increasing imports during 1996
and 1997.
3. Structural Policies
Until January 19, 1995 consumer protection laws in Costa Rica
regulated prices and profit margins and prohibited price speculation,
although most price controls and all margin controls had been suspended
by executive decree. On that date, Law Number 7472 removed most price
and all profit margin controls, while imposing antitrust rules and
protecting consumers against product misrepresentation and price
fixing.
Other laws and regulations affecting U.S. exports to Costa Rica
include the mandatory use of metric units, detailed labeling
requirements, including the required use of Spanish, and strength
requirements for car bumpers. Pharmaceuticals, veterinary drugs and
chemicals, including chemicals that are component parts, must be
registered and approved by the Ministry of Health before the chemicals
or finished products can be imported. Chemicals and pesticides exported
to Costa Rica must be legally available in the exporting country. The
government simplified contracting laws and regulations in 1996 to
enhance the ability of foreign companies to compete. The maximum value
of direct purchases by public institutions was increased while the
appeal process in case of a contested bid awards was shortened.
Purchasing decisions by state institutions follow detailed laws and
regulations on public bidding. They generally require the institution
to purchase the least costly alternative within terms of the bid. Local
suppliers are not subsidized and do not enjoy any special advantages
over foreign suppliers. U.S. companies have a wide market in
pharmaceuticals, machinery, electrical, and transportation equipment.
No tax provisions specifically discriminate against the import of U.S.
goods. Tax evasion is a criminal offense. Public officials, private
companies, and individuals face more stringent capital gains reporting
requirements in an effort at better control of corrupt practices.
4. Debt Management Policies
Costa Rica's foreign debt totaled $2.86 billion on December 31,
1996 (equivalent to 31.6 percent of GDP), a decrease of $600 million
from year-end 1995. However, to take advantage of lower interest rates,
the Government of Costa Rica is attempting to convert some of its more
costly local currency denominated internal debt to dollar denominated
foreign debt. Consequently, foreign official debt will increase by
about $400 million by December 1997 amounting to approximately $3,26
billion, equivalent to 35.9 percent of GDP. Costa Rica will continue to
experience pressure on its balance of payments, especially its trade
account. Continued foreign investment and tourism income will be needed
to avoid foreign exchange shortages.
At $763 million in 1996, the trade deficit was nearly matched by
capital inflows and tourism income. Exports were $2.68 billion, growing
by $105 million, an increase of 4.1 percent during 1996 (21.0 percent
in 1995). Imports were $3.44 billion in 1996, a 5.5 percent increase
from 1995. Costa Rica is current with its official foreign debt
servicing, which amounts to about 6 percent of GDP. The total foreign
debt is expected to reach $3.26 billion by December 31, 1997.
Costa Rica undertook adjustment programs with the IMF and the World
Bank during the past decade, as well as five Paris Club arrangements
and a 1989 Brady debt buy-back scheme with the United States, which
reduced Costa Rica's official debt by $1.1 billion. Multilateral
institutions have focused on the immediate problem of internal debt in
addition to the normal dialogue on the other issues. The government
spends almost a third of its budget in paying interest on outstanding
bonds, more than the amount spent on salaries to public employees.
Internal debt service has left little for capital improvements or
imports of U.S. goods and services. High interest rates, the result of
the Central Bank's counter inflation policy, boosts debt service costs
for the Finance Ministry.
5. Aid
The U.S. government provided approximately $21.9 million in total
assistance to Costa Rica in fiscal year 1997. Over one half of that
amount was for the Screw Worm Eradication Program. Total military
assistance was approximately $1.86 million. Although Costa Rica
abolished its military forces in 1948, the United States provides
assistance to Costa Rica's civilian security forces.
6. Significant Barriers to U.S. Exports
As of December 1994, in compliance with the General Agreement on
Tariffs and Trade (GATT) Uruguay Round requirements, tariffs replaced
all import licenses or permits, and the Central Bank no longer licenses
imports. Imports and exports are now registered for statistical
purposes only. The government regulates solvents and precursor
chemicals used in the production of narcotics to prevent illegal use.
Surgical and dental instruments and machinery can be sold only to
licensed importers and health professionals. The Ministry of Health
must register and certify all food products, medicines, toxic
substances, chemicals, insecticides, pesticides and agricultural inputs
prior to any sale.
Foreign companies and persons may legally own equity in Costa Rican
companies, including real estate. However, several activities are
reserved to the state and are accessible to private investors only
through concessions granted by the government. These activities include
public utilities, insurance, the production and distribution of
electricity, hydrocarbon and radioactive minerals extraction and
refining, and the operation of ports and airports. Financial reform
legislation, approved by the legislative assembly in October 1995,
allows private banks to offer demand deposits. An electricity
cogeneration law enacted in 1994 allows some private sector
participation in the energy sector. Recognizing the difficulty of
public financing of large infrastructure projects, the legislature
passed a modification to this law allowing for BOT (build-operate-
transfer) and BLT (build-lease-transfer) plants. Such plants will
revert to the state after an agreed-upon period. The legislature has
not acted on several initiatives to modify the scope of private
electricity generation as well as the telecommunications state
monopoly. Modification of state participation in commercial activities
remains a divisive political issue.
Many service industries are so rigorously controlled that foreign
participation is practically impossible. Medical practitioners,
lawyers, certified public accountants, engineers, architects, teachers,
and other professionals must be members of local guilds which stipulate
residency, examination, and apprenticeship requirements that can only
be met by longtime residents of Costa Rica. Investment in such private
sector activities as customs brokerage firms is limited to Costa Rican
citizens. In October 1994 the Constitutional Court invalidated the law
limiting ownership of newspapers and radio and TV stations to Costa
Rican citizens, deeming the law discriminatory.
The government encourages the development of nontraditional exports
and tourism and provides incentives for U.S. investment. No
restrictions exist on foreign equity participation. The share of
foreign workers in an enterprise is limited by law, but the Ministry of
Labor generally grants permission for foreigners to work. Permits for
foreign participation in management have always been granted. No
requirements exist for foreign owners to work in their own companies.
No restrictions exist on the repatriation of profits and capital.
Procurement by the government and other state institutions is
conducted through open public bidding, but the law allows private
tenders and direct contracting of goods and services in limited
quantities or, in case of emergency, with the consent of the
Comptroller General. Public bidding is complicated and foreign bidders
are frequently disqualified for failure to comply with the detailed
procedures. The lengthy and costly appeal process often causes losses
due to interim price changes, as bidders cannot alter their bids.
Potential vendors may experience frustration owing to protracted
contract award appeals, and bid and performance bond requirements.
Nonetheless, no special requirements apply to foreign suppliers. U.S.
companies regularly win public contracts. Competition is fierce among
international suppliers. Frequently, the winner must propose
comprehensive packages that include performance guarantees and
financing. All exporters must have a legally responsible representative
in Costa Rica to sell goods or services. On May 2, 1995 the legislative
assembly enacted Law Number 7494 for administrative contracting. This
law and its implementing regulations were designed to simplify
procedures and expedite contracting with state institutions.
Customs procedures can be costly and complex. Most large
enterprises must have customs specialists on the payroll, in addition
to employing the services of customs brokers. Customs brokers must be
bonded Costa Rican companies, which enjoy a monopoly on the handling of
imports. All importers and exporters, including U.S. companies, suffer
from defective customs procedures, poor administration and inadequate
facilities. The government has implemented reforms to automate and
streamline the system to improve efficiency.
Customs valuation has been a problem for U.S. fresh fruit
exporters, as the Costa Rican government chooses to use formulas rather
than invoice values to calculate duties. The result has often been that
the goods are valued far above their true value at the time of the
sales transaction. Another issue facing fruit imports is the imposition
of a luxury tax on many fruits not grown in Costa Rica. This tax
affects such U.S. exports as apples, grapes and pears. Phytosanitary
restrictions on fresh produce further limit U.S. exports of fresh
fruits.
In 1997 the Government of Costa Rica opened tariff rate quotas for
poultry and dairy products that had been agreed to as part of Costa
Rica's GATT Uruguay Round commitments. Trade has begun in these
products, although sanitary barriers hinder the U.S. export of a number
of meat products to Costa Rica.
The government's expropriation policy is a disincentive to U.S.
investment in Costa Rica. The government has expropriated large amounts
of land for national parks, and biological and indigenous reserves.
Squatters have also occupied undeveloped portions of property owned by
U.S. citizens. In a number of cases, some dating back over 25 years,
the government has not yet provided adequate compensation. While it is
possible to obtain compensation through the court system, the time,
cost, and frustration of litigating against the government diminish the
value of such efforts. Still, the government has made significant
progress in resolving a number of expropriation cases. Claimants also
have recourse to international arbitration through the International
Center for the Settlement of Investment Disputes (ICSID), to which
Costa Rica acceded in early 1993. Negotiations continue between the
Government of Costa Rica and a group of U.S. investors to finalize
submission of the first expropriation case to ICSID. In addition to
international arbitration, local arbitration has been employed since
1991. In cases where land is occupied by squatters, Costa Rican land
tenure laws favor the squatters. These squatters are sometimes violent,
and police protection of landowners in rural areas is often inadequate.
In some cases, the government has expropriated property taken over by
squatters.
7. Export Subsidy Policies
Under Costa Rica's 1972 Export Promotion Law, exporters could be
awarded Tax Credit Certificates (CATs) and Incremental Export
Certificates, both of which were found to be countervailable subsidies
by the U.S. Department of Commerce. The government subsequently
terminated both programs, though negotiable CATs still circulate. Two
other programs favoring exporters, the Export Contract and the
Temporary Admission (drawback) regime, lapsed in 1996. What remains is
the Export Processing Law of 1981, which covers eight free trade zones
in the country. The law provides, among other things, for the duty-free
import of inputs, an income tax holiday, and exemption from taxes on
remittances abroad.
8. The Protection of U.S. Intellectual Property
Costa Rica is a signatory to most major intellectual property
rights conventions and agreements, and is a member of the World
Intellectual Property Rights Organization. However, significant
weaknesses exist in the country's Intellectual Property Rights system,
particularly in enforcement and in patent protection. Costa Rica
signed, but has not yet ratified, the revised Central American
Convention on Industrial Property. In May 1995 the legislative assembly
ratified the Paris Convention for the Protection of Industrial
Property. The government sent a draft patent law to implement the GATT
Uruguay Round commitments to the legislative assembly in September
1995. The draft proposed a five-year transition period for
implementation which would end in 1999.
Copyrights: Costa Rica is a signatory to the following copyright
conventions: Mexico City Convention on Literary and Artistic Copyrights
(1902); Rio de Janeiro Convention on Patents, Industrial Designs,
Trademarks and Literary and Artistic Property (1906); Buenos Aires
Convention on Literary and Artistic Copyrights (1910), and as revised
at Havana (1928); Inter-American Convention on the Rights of the Author
(1946); Universal Copyright Convention (Paris 1971); Rome Convention
for the Protection of Performers, Producers of Phonograms and
Broadcasting Organizations (1961); Bern Convention for the Protection
of Literary and Artistic Works (Paris Act 1971); Convention for the
Protection of Producers of Phonograms (Geneva 1971); and Central
American Convention (1982).
Costa Rica's copyrights laws are generally adequate. The major
problem for copyright holders is enforcement. On May 10, 1994 the
government modified copyright law (Number 6683 of October 1, 1982) to
extend protection to all forms of intellectual creations, including
music scores, paintings, software programs, books, etc. The
modifications also increase protection by directing the police to
prevent unauthorized presentations of protected works. On May 24, 1994
the Government of Costa Rica issued regulations implementing Law Number
6683 that provide better protection and mandate police participation.
The cable television industry now operates almost entirely under
quitclaim agreements with foreign producers. However, a number of
hotels continue to pirate satellite transmission signals. Pirated
videocassettes are widely available. An authorized distributor of
videocassettes has begun enforcement efforts to regularize the
videocassette market.
Patents: Costa Rica is a signatory to the following patent
conventions: the Convention of Paris (1883) and the Rio de Janeiro
Convention on Patents, Industrial Designs, Trademarks and Literary and
Artistic Property (1906). Costa Rican patent laws are deficient in
several key areas. The patent protection term is far too short. Patents
are granted for nonrenewable 12-year terms. In the case of products
deemed ``in the public interest,'' patents are granted only for one
year. This exception applies to all pharmaceuticals, items with
therapeutic applications, chemical and agricultural fertilizers,
agrochemicals and all beverage and food products. However, the proposed
new patent legislation is designed to meet Costa Rica's patent
obligations under the GATT Uruguay Round.
No patent protection is available for plant or animal varieties or
for any biological or microbiological process or products, although the
government is working on a legislative proposal that would protect such
products. Costa Rica also has broad compulsory licensing requirements
that force patent owners to license inventions that are not produced
locally. The limited patent protection available cannot be enforced
until local production has begun. Costa Rican law also provides for
compulsory dependent patent licensing and for expropriation of patents.
Trademarks: Costa Rica is a signatory to the following trademark
conventions: Paris Convention (1883); Rio de Janeiro Convention on
Patents, Industrial Designs, Trademarks, and Literary and Artistic
Property (1906); and Central American Treaty on Industrial Property
(1970)
Trademarks, service marks, trade names and slogans can be
registered in Costa Rica. Registration is renewable for ten-year
periods from the date of registration. Counterfeit goods are widely
available in Costa Rica and compete with goods manufactured under
trademark authorization. Speculators have sometimes registered famous
trademarks, subsequently demanding compensation when the legitimate
rights holders enter the market. Litigation to remove such speculative
registrations can be long and expensive.
Trade secrets are protected by existing laws, and Article 24 of the
constitution protects the confidentiality of communications. The penal
code stipulates prison sentences for divulging trade, employment, or
other secrets, with doubled punishment for public servants. Some laws
stipulate criminal and civil penalties for divulging trade secrets. The
burden of enforcement is on the affected party.
9. Worker Rights
a. The Right of Association.--The law specifies the right of
workers to join labor unions of their choosing without prior
authorization, although some barriers exist in practice. Unions operate
independently of government control and may form federations and
confederations and affiliate internationally. Costa Rica has no
restrictions on the right of private sector employees to strike. The
constitution and labor code formally restrict the right of public
sector workers to engage in strikes, but the legislative assembly
recently repealed penalties against labor leaders who initiate such
strikes. Many workers in Costa Rica join solidarity associations, under
which employers provide easy access to savings plans, loans, recreation
centers, and other benefits in return for their agreement to employ
nonconfrontational methods to settle disputes. Both solidarity
associations and labor unions coexist at some work places, primarily in
the public sector.
b. The Right to Organize and Bargain Collectively.--The
constitution protects the right to organize. Reforms to the labor code
enacted in 1993 provide protection from dismissal for union organizers
and members during union formation and require employers found guilty
of discrimination to reinstate workers fired for union activities.
Unions in the private sector have the right to engage in collective
bargaining. Nonetheless, workers in the public sector cannot engage in
collective bargaining because the 1978 Public Administration Act makes
labor law inapplicable in relations between the government and its
employees.
c. Prohibition of Forced or Compulsory Labor.--The constitution
prohibits forced or compulsory labor and requires employers to provide
adequate wages to workers in accordance with minimum wage standards.
Laws prohibit forced and bonded labor by children. The government
enforces this prohibition effectively.
d. Minimum Age For Employment of Children.--The constitution
provides special employment protection for women and children and
establishes the minimum working age at 12 years, with special
regulations in force for workers under 15. Children between 15 and 18
can work a maximum of seven hours daily and 42 hours weekly, while
children between 12 and 15 can work a maximum of five hours daily and
30 hours weekly. Authorities prohibit the employment of youth under 18
in the banana industry. The National Children's Institute, in
cooperation with the Labor Ministry, enforces these regulations in the
formal sector, but child labor remains an integral part of the informal
economy.
e. Acceptable Conditions of Work.--The constitution provides for a
minimum wage, and a national wage council sets minimum wage and salary
levels of the private and public sectors every six months. Workers may
work a maximum of eight hours during the day and six at night, up to
weekly totals of 48 and 36 hours, respectively. Industrial,
agricultural, and commercial firms with ten or more workers must
establish management-labor committees and allow government work place
inspections. Work place enforcement is less effective outside the San
Jose area.
f. Rights in Sectors with U.S. Investment.--All labor regulations
apply throughout Costa Rica, including in the country's export
processing zones. Companies in sectors with significant U.S. investment
generally respect worker rights, especially at plants under U.S.
management and ownership. Abuses occur more frequently at plants
operated by investors based outside the United States.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 353
Food & Kindred Products 64
Chemicals & Allied Products 127
Metals, Primary & Fabricated 32
Machinery, except Electrical 0
Electric & Electronic Equipment 63
Transportation Equipment 0
Other Manufacturing 67
Wholesale Trade............................... \1\
Banking....................................... 0
Finance/Insurance/Real Estate................. \1\
Services...................................... \1\
Other Industries.............................. -30
TOTAL ALL INDUSTRIES.......................... 1205
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
DOMINICAN REPUBLIC
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\............................. 12.1 13.5 14.4
Real GDP Growth (pct) \3\................... 4.8 7.3 7.4
GDP by Sector:
Agriculture............................... 1.5 1.6 1.0
Manufacturing............................. 2.1 2.1 2.4
Services.................................. 3.6 3.7 4.0
Government................................ 1.0 1.0 1.0
Per Capita GDP (US$)........................ 1,500 1,572 1,750
Labor Force (000s).......................... 3,499 3,522 3,614
Unemployment Rate (pct)..................... 16.5 16.5 15.9
Money and Prices (annual percentage growth):
Money Supply Growth (M2).................... 17 18 17
Consumer Price Inflation.................... 7.2 4.0 10.0
Exchange Rate (DR peso/US$ - annual average)
Official.................................. 12.87 12.87 14.02
Balance of Payments and Trade:
Total Exports FOB (US$ millions) \4\........ 0.7 0.8 0.9
Exports to U.S.\5\........................ 3.4 3.6 3.7
Total Imports CIF (US$ millions) \4\........ 2.8 2.9 3.0
Imports from U.S.\5\...................... 3.0 3.2 3.3
Trade Balance \4\........................... 2.1 -2.1 -2.1
Balance with U.S.\5\...................... 0.4 0.4 0.4
Current Account Deficit/GDP (pct) \6\....... 0.1 -1.7 -1.8
External Public Debt........................ 3.8 3.6 3.6
Fiscal Surplus/GDP (pct).................... -0.5 1.1 0.5
Debt Service Payments/GDP (pct)............. 4.8 3.0 3.0
Gold & Foreign Exchange Reserves \7\........ 0.3 0.5 0.5
Aid from U.S. (US$ millions) \8\............ 13.3 13.3 13.3
Aid from All Other Sources.................. N/A N/A N/A
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available monthly data
through September 1997.
\2\ GDP at factor cost
\3\ Percentage changes calculated in local currency
\4\ Central Bank figures. These statistics do not include significant
trade through free trade zones.
\5\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
FAS, imports customs basis; 1996 figures are estimates based on data
available through November 1996.
\6\ IMF calculations
\7\ U.S. Embassy calculations of gross reserves including certain liquid
assets
\8\ Calculation based on U.S. fiscal year
Source: Economic Studies Department, Central Bank of the Dominican
Republic, unless otherwise indicated
1. General Policy Framework
During 1997, the economy of the Dominican Republic continued to
grow with the Central Bank pointing to a possible GDP growth rate of
over seven percent for the second year in a row. After falling to about
4 percent in 1996, official inflation has grown in 1997 and may reach
10 percent at an annual rate. The official exchange rate was devalued
from 12.87 to 14.00 Pesos to the Dollar in December 1996. After some
minor fluctuations, the exchange rate has been stable in 1997.
Because of the Dominican Republic's high propensity to import,
changes in the exchange rate are politically significant. With the aim
of keeping the peso stable, the Central Bank maintains a high interest
rate structure to retain short term capital. Foreign exchange
operations also play a role in meeting money supply targets since the
Central Bank's purchase of pesos for dollars tends to reduce the money
in circulation within the country.
According to the Central Bank the money supply grew 19 percent from
June 1996 to June 1997. The Central Bank regulates the money supply by
issuance of new money through the banking system and by the purchase or
issuance of debt instruments of the Central Bank itself. Since there is
no secondary market for government securities and no liquid security
market, the tools available to the Central Bank are limited. The
Central Bank can modify bank reserve requirements but rarely does so.
Banks resort to the discount window of the Central Bank only rarely.
The Bank Superintendent's Office has continued to work for improved
banking regulation, phasing in more rigorous prudential norms which it
applies with greater consistency. Although the Dominican Republic has
no deposit insurance, the Central Bank guaranteed deposits at
Bancomercio, the country's third largest bank, when it failed in early
1996, and subsequently supervised its sale to another Dominican bank.
The Bank Superintendent's Office has also recently acted to pay off
some of the smaller depositors in a number of other failed financial
institutions.
Gross foreign exchange reserves rose to about $526 million
according to the Central Bank. The reserve figures include some Central
Bank assets which are not actually available for use in payments.
According to its latest report, the Central Bank calculates that its
net liquid reserves are approximately $180 million. The GODR continued
timely payments of foreign private bank debt and most payments on
renegotiated Paris Club debt. The arrearage to the U.S. Dept. of
Agriculture Commodity Credit Corp (CCC), however, has continued to grow
and is now over $130 million. The Central Bank has continued to make
some payments of interest in 1997, but the total has grown as new
arrearages have accumulated. In 1997 the GODR has compensated the
Central Bank for foreign debt payments carried out on its behalf. In
the past, the Central Bank obtained the dollars needed for debt service
by monetary expansion and compensated for this expansion by issuing
``certificados de participacion'' which are short term debt
instruments. While this helps absorb excess liquidity, interest
payments on these certificates may also be covered by net money
creation.
Government cash flows are currently in surplus according to the
Central Bank, demonstrating the Fernandez Government commitment to the
maintenance of macroeconomic stability. On an accrual basis, however,
there is probably a significant deficit. The government has accumulated
large arrears to domestic suppliers and contractors. The central
government has also repeatedly provided subsidies to profligate state
enterprises without regard to efficiency or production targets. The
exact size of this debt is unknown, but has been variously put at the
peso equivalent of 150 to 600 million dollars. This domestic debt is
owed to foreign firms now or previously operating in the Dominican
Republic, as well as to purely local firms. Current government
financial flows leave substantial doubt about the ability of the
Dominican government to pay this debt. President Fernandez, however,
recently announced the formation of a government commission to study
the possibility of covering this debt by the issuance of bonds.
The Dominican Republic has ratified the GATT 94 and participates in
WTO meetings. The Dominican government has not yet fully implemented
the Uruguay Round Agreements. Agricultural products continue to be
imported based on a discretionary licensing system.
2. Exchange Rate Policy
The official exchange rate continues to be set by the Central Bank.
At the end of 1996, the Fernandez Administration announced unification
of exchange rates based on a market determined rate. The official rate
was devalued from 12.87 Pesos = 1 U.S. Dollar to 14 pesos/U.S. dollar
on December 23, 1996. After some minor fluctuation, the rate has been
stable at approximately 14.02 pesos = 1 U.S. dollar so far in 1997 and
the unofficial rate remains relatively stable in a range of 14.30-14.50
pesos to the dollar. Traditional exporters such as sugar, cocoa, and
coffee producers, credit card companies, and airlines are still
required by law to sell foreign exchange to the Central Bank at the
official rate, thus prejudicing their profitability, but most
businesses and individuals are free to carry out foreign exchange
transactions through the commercial banking system. The market rate is
influenced by Central Bank activities such as dollar sales and the use
of its considerable regulatory discretion to ``jawbone'' banks.
3. Structural Policies
Most domestic prices are determined by market forces, although
distortionary government policies sometimes limit the operation of
these forces. High tariff and non-tariff barriers also increase the
cost of doing business in the Dominican Republic. Since tariff reform
enacted by presidential decree in 1990 and modified by law in 1993, no
further reform has affected U.S. exporters, although President
Fernandez has submitted a proposal to Congress to decrease all tariffs.
The 1990 tariff regime reduced and simplified the tariff schedule to
six categories with seven tariff rates ranging from 3 to 35 percent. It
also replaced some quantitative import restrictions with tariffs and
transformed all tariffs to ad valorem rates. While it marked an
improvement over the previous tariff regime, this reform still left the
Dominican Republic with high trade barriers. Few imports actually enter
at the maximum 35 percent tariff rate, however, since together with
other taxes and fees, it acts as an effective barrier to trade. 40
percent of government revenues come from duties, taxes and fees
collected on imports.
The Dominican government has continued to implement changes in its
tax system aimed at increasing revenues. The concept of taxable income
has been enlarged, marginal tax rates on individuals and companies have
been reduced and capital gains are no longer considered exempted
income. The Fernandez Administration has submitted additional proposals
for changes in the tax system to the Congress as part of an economic
reform package. In May, 1992 a new labor code was promulgated with
provisions which increased a variety of employee benefits. Public and
private sector minimum wages have increased by approximately 25 and 20
percent respectively in 1997.
Government policy prohibits new foreign investment in a number of
areas including public utilities, national defense production, forest
exploitation and domestic air, surface and water transportation. Some
government regulations, such as the process required to obtain the
permits to open new businesses, choke economic growth and innovation.
The difficulties of protecting intellectual property rights have slowed
the availability of modern medicines. The failure to protect the tenure
of landowners has impeded investment in modern agricultural techniques.
4. Debt Management Policies
The total external debt of the Dominican government is now
approximately $3.7 billion. A significant portion of the official debt
was rescheduled under the terms of Paris Club negotiations concluded in
November 1991. In August 1994 the Dominican government successfully
concluded debt settlement negotiations with its commercial bank
creditors. The deal involved a combination of buy-back schemes and
rescheduling. Payment to foreign private and public creditors in the
financial sector has generally been current since then, with the
exception of the CCC credits mentioned above.
Government payments to foreign non-financial institutions are
notoriously slow. Some debts are ten years old. The Fernandez
government formed a government committee to evaluate the public debt
contracted by previous administrations. Foreign debt service for 1996
was $706 million.
5. Significant Barriers to U.S. Exports
Trade barriers: Tariffs on most products fall within the 5 to 35
percent range. In addition, the Government of the Dominican Republic
imposes a 5 to 80 percent selective consumption tax on ``non-
essential'' imports such as home appliances, alcohol, perfumes,
jewelry, and automobiles.
The Dominican Republic continues to require a consular invoice and
``legalization'' of documents, which must be performed by a Dominican
consulate in the U.S. Fees for this service vary by consulate but can
be quite substantial. Some importers now pay the consular invoice fee
in Santo Domingo directly to Customs. Moreover, importers are
frequently required to obtain licenses from the Dominican Customs
Service.
There are food and drug testing and certification requirements, but
these are not burdensome.
Customs procedures: In the past bringing goods through Dominican
Customs was a slow and arduous process, but there is anecdotal evidence
that this situation has improved. Customs Department interpretation of
exonerated materials being brought into the country still provokes
complaints, however, and business persons here sometimes spend
considerable time and money to get items through Customs.
Arbitrary customs clearance procedures sometimes cause problems for
business. The use of ``negotiated fee'' practices to gain faster
customs clearance continues to put some U.S. firms at a competitive
disadvantage in the Dominican market. Customs officials routinely
reject invoice prices as a basis for computing duties and customs fees
and use their own assumed value database. This applies to virtually all
non-free trade zone imports.
Government procurement practices: The Dominican Republic has a
centralized Government Procurement Office, but the procurement
activities of this office are basically limited to expendable supply
items of the government's general office work. In practice, each public
sector entity has its own procurement office, both for transactions in
the domestic market and for imports. Provisions of the U.S. Foreign
Corrupt Practices Act often put U.S. bidders on government contracts at
a serious disadvantage in what are sometimes non-transparent bidding
procedures.
Prohibitions on land ownership: Ownership by foreigners of more
than approximately one-half acre (2,000 square meters) needs
presidential approval.
Investment barriers: Legislation designed to improve the investment
climate passed in November 1995. Its implementing regulations were
issued by the Fernandez Administration in September 1996. The
legislation does not contain procedures for settling disputes arising
from Dominican government actions (the largest source of investment
disputes). Seizures of foreign investors' property, refusal to honor
customs exoneration commitments, and the previous government's refusal
to consider claims for payment reduced the attractiveness of the
investment climate, notwithstanding passage of the new law. The
Fernandez Administration, however, has approached its commitments with
a new attitude.
Foreign investment must receive approval from the Foreign
Investment Directorate of the Central Bank to qualify for repatriation
of profits (the new law provides for repatriation of 100 percent of
profits and capital and nearly automatic approval of investments).
The electricity sector continues to be a weak link in the Dominican
economy. Businesses operating in the Dominican Republic cannot depend
on the public electric utility to be a reliable source of electricity.
Legislation governing the privatization of the government-owned
electricity company (CDE) as well as of other state enterprises,
however, was passed by the Congress in June and CDE is pressing ahead
with this process.
Foreign employees may not exceed 20 percent of a firm's work force.
This is not applicable when foreign employees only perform managerial
or administration functions.
Dominican expropriation standards (e.g., in the ``public
interest'') do not appear to be consistent with international law
standards; several investors have outstanding disputes concerning
expropriated property. The Fernandez Administration wishes to resolve
these issues and is currently negotiating with several investors. The
Dominican Republic does not recognize the general right of investors to
binding international arbitration.
All mineral resources belong to the state, which controls all
rights to explore or exploit them. Private investment has been
permitted in selected sites. Currently, foreign investors are exploring
for gold, natural gas, and copper. The process of choosing and
contracting such areas has not been transparent.
Investors operating in the Dominican Republic's free trade zones
(FTZ's) experience far fewer problems in dealing with the government
than do investors working outside the zones. For example, materials
coming into or being shipped out of the zones are reported to move
quickly, without the kinds of bureaucratic difficulties mentioned
above. Restrictions on profit remittances did not apply to free trade
zone businesses even before passage of the new Foreign Investment Law.
6. Export Subsidies Policies
The Dominican Republic has two sets of legislation for export
promotion: the Free Trade Zone Law (Law no. 8-90, passed in 1990) and
the Export Incentive Law (Law no. 69, passed in 1979). The Free Trade
Zone Law provides 100 percent exemption on all taxes, duties, and
charges affecting the productive and trade operations at free trade
zones. These incentives are provided to specific beneficiaries for up
to 20 years, depending on the location of the zone. This legislation is
managed jointly by the Foreign Trade Zone National Council and the
Dominican Customs Service.
The Export Incentive Law provides for tax and duty free treatment
of inputs from overseas that are to be processed and re-exported as
final products. This legislation is managed by the Dominican Export
Promotion Center and the Customs Service. In practice, use of the
export incentive law to import raw materials for process and re-export
is cumbersome and delays in clearing Customs can take anywhere from 20-
60 days. This customs clearance process has made completion of
production contracts with specific deadlines difficult. As a result,
non-free trade zone exporters rarely take advantage of the Export
Incentive Law. Most prefer to import raw materials using the normal
customs procedures which, although more costly, are more rapid and
predictable.
There is no preferential financing for local exporters nor is there
a government fund for export promotion.
7. Protection of U.S. Intellectual Property
Although the Dominican Republic is a signatory to the Paris
Convention and the Universal Copyright Convention, and in 1991 became a
member of the World Intellectual Property Organization, the lack of a
strong regulatory environment results in inadequate protection of
intellectual property rights. The Dominican Republic was added to the
Section 301 Watch List by the Office of the U.S. Trade Representative
in 1997.
Patents (product and process): patents are difficult to get and to
enforce against a determined intellectual property thief. In a local
pharmaceutical market of approximately $110 million per year, 70
percent of the total is locally produced or packaged. A significant
percent of that total is believed to be counterfeit. Resolutions issued
by the government at year end 1996 and early 1997 concerning the
registration process unfortunately further encourage the violation of
pharmaceutical patents in the Dominican Republic.
Trademarks and copyrights: in general, copyright laws are adequate
under international obligations, but, as noted above, enforcement is
weak and piracy is widespread. Video, audio recordings, and software
are being pirated. Apparel trademarks are also counterfeited and sold
in the local market. The Dominican Government has taken some steps this
year to help remedy shortcomings in this area, including seizure of
pirated goods, but protection remains inadequate.
Some television and cable operators re-broadcast signals without
compensating either the original broadcaster or the originator of the
recording. The U.S. Motion Picture Association (MPA) had estimated that
losses to its members due to theft of satellite-carried programming
were more than one million dollars per year.
Impact of IPR policies on U.S. trade: non-protection of
intellectual property rights is so widespread that it is virtually
impossible to quantify its impact on United States-Dominican trade but
we believe it to be substantial.
8. Worker Rights
a. The Right of Association.--The Constitution provides for the
freedom to organize labor unions and also for the right of workers to
strike (and for private sector employers to lock out workers). All
workers, except military and police, are free to organize, and workers
in all sectors exercise this right. The government respects association
rights and places no obstacles to union registration, affiliation or
the ability to engage in legal strikes. Organized labor represents
little more than 10 percent of the work force and is divided among
three major confederations, four minor confederations and a number of
independent unions.
b. The Right to Organize and Bargain Collectively.--Collective
bargaining is lawful and may take place in firms in which a union has
gained the support of an absolute majority of the workers. Only a
minority of companies has collective bargaining pacts. The Labor Code
stipulates that workers cannot be dismissed because of their trade
union membership or activities.
The Labor Code applies in the 36 established free trade zones
(FTZ's) which include 288 U.S.-owned or associated companies and employ
approximately 172,000 workers, mostly women. Some FTZ companies have a
history of discharging workers who attempt to organize unions.
c. Prohibition of Forced or Compulsory Labor.--There were numerous
reports of forced overtime in factories. Employers, particularly in the
FTZ's, sometimes locked the exit doors of factories after normal
closing time so that workers could not leave. There have been reports
of workers being fired for refusing to work overtime and both employers
and workers state that new hires are not informed that overtime is
optional.
d. Minimum Age for Employment of Children.--The Labor Code
prohibits employment of youth under 14 years of age and places
restrictions on the employment of youth under the age of 16. These
restrictions include a limitation of no more than six hours of daily
work, no employment in dangerous occupations or establishments serving
alcohol and limitations on nighttime work. Dominican law requires six
years of formal education.
The high level of unemployment and lack of social safety net create
pressures on families to allow children to earn supplemental income.
Tens of thousands of children work selling newspapers, shining shoes or
cleaning cars, often during school hours. The government has proposed a
fine for the parents of truant children.
e. Acceptable Conditions of Work.--The Constitution provides the
government with legal authority to set minimum wage levels and the
Labor Code assigns this task to a National Salary Committee. Congress
may also enact minimum wage legislation. The Labor Code establishes a
standard work period of eight hours per day and 44 hours per week. The
Code also stipulates that all workers are entitled to 36 hours of
uninterrupted rest each week. The Code grants workers a 35 percent
differential for work over 44 hours up to 68 hours per week and double
time for any hours above 68 hours per week.
The Dominican Social Security Institute (IDSS) sets work place
safety and health conditions. The existing social security system does
not apply to all workers and is underfunded.
Work place regulations and their enforcement in the FTZ's do not
differ from those in the country at large, although working conditions
are sometimes better. Conditions for agricultural workers are in
general much worse, especially in the sugar industry.
f. Rights in Sectors with U.S. Investments.--U.S.-based
multinationals active in the FTZ's represent one of the principal
sources of U.S. investment in the Dominican Republic. Some companies in
the FTZ's adhere to significantly higher worker safety and health
standards than do non-FTZ companies. In other categories of worker
rights, conditions in sectors with U.S. investment do not differ
significantly from conditions in sectors lacking U.S. investment.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 284
Food & Kindred Products..................... 5
Chemicals & Allied Products................. \1\
Metals, Primary & Fabricated................ 0
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. \1\
Transportation Equipment.................... 0
Other Manufacturing......................... 247
Wholesale Trade............................... -3
Banking....................................... \1\
Finance/Insurance/Real Estate................. 1
Services...................................... \1\
Other Industries.............................. 13
TOTAL ALL INDUSTRIES.......................... 465
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
ECUADOR
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP............................... 17.9 19.0 19.6
Real GDP Growth (pct)..................... 2.3 2.0 3.3
GDP by Sector:
Agriculture, Fishing.................... 2.1 2.3 2.4
Petroleum, Mining....................... 1.9 2.0 1.9
Manufacturing........................... 3.8 4.1 4.3
Commerce, Hotels........................ 3.6 3.7 3.9
Finance, Business Services.............. 1.0 1.0 1.0
Government, Other Services.............. 2.1 2.3 2.4
Per Capita GDP (US$)...................... 1,563 1,638 1,669
Labor Force (estimate - 000s)............. 3,670 3,220 3,380
Urban Unemployment (pct).................. 6.9 8.3 6.9
Money and Prices (annual percentage growth):
Money Supply (M2) \2\..................... 41.8 43.9 28.2
Consumer Price Inflation.................. 22.8 26.0 32.0
Exchange Rate (sucres/US$ - annual
average)
Central Bank............................ 2,527 3,145 4,002
Market.................................. 2,565 3,190 4,070
Balance of Payments and Trade:
Total Exports FOB \3\..................... 4.4 4.9 2.4
Exports to U.S.\4\...................... 1.9 1.9 0.9
Total Imports CIF \3\..................... 4.2 3.7 2.2
Imports from U.S.\3\.................... 1.5 1.2 0.7
Trade Balance FOB \3\..................... 0.3 1.4 0.3
Balance with U.S.\4\.................... 0.4 0.7 0.2
External Public Debt...................... 12.4 12.5 12.6
Debt Service Payments/GDP (pct)........... 21.9 36.0 29.2
Current Account Deficit/GDP (pct)......... 4.6 6.6 -4.0
Fiscal Balance/GDP (pct).................. -2.0 -4.0 -2.5
Gold and Foreign Exchange Reserves........ 1.6 1.8 2.2
Aid from U.S. (FY - US$ mlns)............. 16.5 13.5 11.5
Aid from Other Sources (US$ mlns)......... 231 N/A N/A
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on data available in October
1997.
\2\ 1997 figure is for August 1996-August 1997.
\3\ Merchandise trade. All figures of 1997 are for first half of year.
\4\ Figures for 1997 are first quarter only.
Source: Ecuadorian Government and Central Bank of Ecuador data.
1. General Policy Framework
The Ecuadorian economy is based on petroleum production, along with
exports of bananas, shrimp and other primary agricultural products.
Industry is largely oriented to servicing the domestic market but is
becoming more export-oriented. During the oil boom of the 1970s, the
Ecuadorian government borrowed heavily from abroad, subsidized
consumers and producers, and expanded the state's role in economic
production. These policies led to chronic macroeconomic instability in
the 1980s.
The 1992-1996 government of Sixto Duran-Ballen sought to stabilize
the economy, modernize the state, and expand the role of the free
market. However, privatization and other structural reforms are
required to improve the investment climate and prospects for long-term
growth. By 1994 a sound macroeconomic program had resulted in a
balanced budget and reduced inflation. Those accomplishments were
undermined by a series of shocks during 1995, including the outbreak of
fighting on the border with Peru, a corruption scandal and political
crisis involving the then-vice president, and several months of
electricity rationing. The problems resulted in skyrocketing interest
rates, a growing number of past-due loans, and the failure of a major
financial institution. GDP growth slowed during 1995, increasing by
only 2.3 percent instead of a projected 4 percent. The uncertainty
associated with the 1996 elections, the rise of the populist Abdala
Bucaram to the presidency, contradictory treatment of foreign
investors, and delays in the announcement of the new government's
economic program helped prevent an economic recovery. Economic reform
stalled under Bucaram's six-month government (August 1996-February
1997) which was characterized by increased corruption and decreased
investment. The current interim government of Fabian Alarcon (February
1997-August 1998) is faced with a number of challenges including
implementing the Duran-Ballen era reforms, privatizing the state-owned
telephone company, cutting the inflation rate to international levels,
improving the electricity generating sector, and increasing social
investment. The government projects economic growth for 1997 to be 3.3
percent.
The consolidated fiscal deficit for 1997 exceeds 2.5 percent of
GDP. Significant revenue measures will be required to achieve the goal
of a balanced budget for 1998. Public sector expenditures (including
state enterprises but excluding the military's capital budget, which is
funded by a direct off-budget allocation of oil revenues) accounted for
12.2 percent of GDP in 1996. Debt service is the largest area of
government spending, followed by education, defense and agriculture.
The government remains highly dependent on revenue from oil exports and
domestic fuel sales.
The Central Bank attempts to smooth out fluctuations in liquidity
through weekly bond auctions and interventions in the secondary market
but no longer uses bank reserve requirements as a monetary tool. During
periods of capital inflows, the government compensates for the
inflationary effects of foreign exchange influx by increasing its sucre
deposits at the Central Bank. Annual M2 Percentage growth in 1996
increased from 42 percent to 44 percent. The August 1996-August 1997
growth rate was 28 percent. The Duran-Ballen policy of depreciating the
currency at a rate slower than inflation helped reduce the annual
increase in consumer prices from 60 percent in 1992 to 23 percent in
1995. However, the inflation rate rose to 26 percent in 1996, and will
likely reach 32 percent in 1997. The shocks of 1995, combined with the
previous government's willingness to tighten liquidity in order to
protect both the exchange rate and foreign reserves, kept average real
interest rates on 90-day deposits above 20 percent for most of 1995 and
1996. Due to greater liquidity and a deepening recession, real interest
rates on deposits dropped to slightly negative figures by October 1997.
2. Exchange Rate Policy
The monetary authorities introduced a narrow, pre-announced
exchange rate band in December 1994. As a result of market pressures,
the band was adjusted twice in 1995 and was substantially broadened in
August 1996. The annual devaluation rate is currently projected at 21
percent.
Foreign currency is readily available on the free market, trading
at 4,200 sucres to the dollar by November 1997. Although some
government officials have criticized currency speculators, there are no
restrictions on the movement of foreign currencies into or out of
Ecuador. By the end of October 1997, foreign exchange reserves amounted
to a near record $2.25 billion, enough to cover imports for nearly six
months.
3. Structural Policies
The Alarcon and previous administrations have enjoyed only partial
success in carrying out structural reforms designed to promote
investment and economic growth. Progress has been made on budget
reform, reduction of public employment levels, and elimination of some
unnecessary and market-distorting regulations. With exceptions for
pharmaceuticals, some foodstuffs and fuels, all prices are now set by
the free market. New laws have established a basis for the development
of equity capital markets, modern regulation of financial institutions,
and improvement in the security of agricultural land tenure for both
peasants and agribusiness. In most cases, however, implementation has
lagged behind legislation.
The 1993 state modernization law allowed private sector
participation in ``strategic sectors'' of the economy, including
petroleum, electricity and telecommunications, but only on a concession
basis. The National Modernization Council (CONAM) has sought to promote
privatization, and the state development banks have sold much of their
equity shares in commercial enterprises to the private sector. The
armed forces have expressed interest in selling some shares in
military-owned companies to private sector partners. The Alarcon
administration is implementing the 1995 telephone privatization law and
expects to sell 35 percent of the shares in state telephone company
EMETEL by December 1997. Congress completed action on a similar
electricity sector privatization law in September 1996, but the
implementation schedule is still unclear. The Alarcon government has
decided to expand the current oil pipeline that runs across the Andes
by mid-1998. Steps have been taken toward granting private concessions
for public works, the civil registry, airports, ports, and postal and
railroad services. The Alarcon administration has not yet addressed the
need for major reform of public education and the social security
system's insolvent pension program.
Investment liberalization measures in 1991 and 1993 provided
foreign investors with full national treatment and eliminated prior
authorization requirements for investment in most industries, including
finance and the media. Specific restrictions, most applicable to
Ecuadorian as well as foreign investors, remain for petroleum, mining,
electricity, telecommunications and fishing investments. A bilateral
investment treaty with the United States that provides for free
transfers and a binding arbitration dispute settlement procedure
entered into force in May 1997. Income tax rates on foreign and
domestic companies have been equalized at 25 percent. A value-added tax
of 10 percent applies to imports and sales of goods and services in the
formal sector. An excise tax on certain products continues to be
applied to imports in a discriminatory manner. Although the 1993
hydrocarbons law is relatively investor-friendly, recent
administrations have failed to respect many existing contracts with
foreign investors in the oil sector.
4. Debt Management Policies
As of mid-1997, Ecuador's external public debt was $12.6 billion,
roughly the same level as the previous year. Interest on public foreign
debts in 1996 amounted to 13.3 percent of goods and services exports.
While expressing a desire to reduce the debt burden, President Alarcon
has promised to honor Ecuador's obligations.
In February 1995 Ecuador completed a comprehensive restructuring of
its $7.1 billion external commercial bank debt and associated arrears.
Service on the commercial debt should average about 1.7 percent of GDP
through the year 2000 but will rise thereafter unless the government
takes steps to retire some of its debt stock. Ecuador concluded
bilateral rescheduling agreements with most of its official creditors
under a 1994 Paris Club agreement but again ran substantial bilateral
arrears in 1995-1997 and has stated its intention to seek another Paris
Club rescheduling. During 1996 Ecuador failed to meet the targets of
the IMF-monitored program that replaced the 1994 standby arrangement,
with which Ecuador had quickly fallen out of compliance.
5. Significant Barriers to U.S. Exports
Ecuadorian trade policy was substantially liberalized during the
early 1990's, resulting in a reduction of tariffs and tariff
dispersion, elimination of most nontariff surcharges, and enactment of
an in-bond processing industry (maquila) law. The Duran-Ballen
administration continued the move towards open trade by concluding
bilateral free trade agreements with its Andean Pact partners,
Colombia, Bolivia and Venezuela. After two years of negotiations with
its major trading partners, Ecuador joined the World Trade Organization
(WTO) in January 1996. However, the government failed to meet deadlines
for fulfilling all of its WTO obligations to eliminate remaining
nontariff barriers. In June 1997, the government of Ecuador publicly
stated that the WTO TRIPS agreement is in force in Ecuador. However,
while legislation to protect intellectual property rights had been
introduced by December 1997, it had not yet been ratified by Ecuador's
Congress.
Duties and fees for most imports into Ecuador fall in the 5 to 20
percent range. Ecuador joined with Colombia and Venezuela to establish
an Andean common external tariff in February 1995. Special exemptions
allow Ecuador to continue to charge higher rates for about half of the
items on the common tariff schedule.
Customs procedures can be difficult but are not normally used to
discriminate against U.S. products. The Alarcon administration has
moved to repair damage done to customs services that occurred under the
Bucaram administration by focusing on corruption and improving
efficiency. The government has yet to implement its commitment not to
use sanitary and phytosanitary restrictions to block the entry of
certain imports of consumption products and agricultural goods from the
United States, but increased the number of Ecuadorian institutions that
are authorized to issue sanitary and phytosanitary permits. Import bans
on used clothing, used cars and used tires have yet to be eliminated,
despite Ecuador's promise in its WTO accession protocol to do so by
July 1996. Andean Pact price bands that result in high effective
tariffs for a variety of agricultural products are to be phased out.
The government no longer sets minimum prices for assessing customs
duties on certain imports.
All importers must obtain a prior import license from the Central
Bank, obtainable through private banks. Licenses are usually made
available for all goods. A 1976 law that prevented U.S. and other
foreign suppliers, but not domestic suppliers, from terminating
existing exclusive distributorship arrangements without paying
compensation was repealed in September 1997. However, despite the
repeal of this law, the USG is concerned that the discriminatory WTO-
inconsistend Dealers's Act may continue to be applied in pending court
cases or against U.S. companies that have existing contracts that were
in force prior to the repeal of the Dealer's Act. Foreigners may invest
in most sectors, other than public services, without prior government
approval. There are no controls or limits on transfers of profits or
capital, and foreign exchange is readily available.
Government procurement practices are not sufficiently transparent
but do not usually discriminate against U.S. or other foreign
suppliers. However, bidding for government contracts can be cumbersome
and time-consuming. Bids for public contracts are often delayed or
canceled. Many bidders object to the requirement for a bank-issued
guarantee to ensure execution of the contract.
6. Export Subsidies Policies
Ecuador does not have any explicit export subsidy programs.
7. Protection of U.S. Intellectual Property
Ecuador's protection of intellectual property is based primarily on
regional Andean Pact decisions that protect patents, trademarks,
copyrights and plant varieties. These decisions are in the process of
being updated to meet TRIPS standards. A November 1996 Andean Pact
court decision overturned Ecuadorian regulations that provided
transitional or pipeline protection for previously unpatentable
products. The Bucaram government repealed its implementing regulations
covering the Andean patent and trademark regime and pipeline provisions
in 1996. However, the Alarcon administration reinstituted most of the
regulations in September 1997.
Ecuador and the United States signed a bilateral intellectual
property rights agreement (IPRA) in October 1993 that guarantees full
protection for copyrights, trademarks, patents, satellite signals,
computer software, integrated circuit layout designs and trade secrets.
However, the Ecuadorian Congress has not yet ratified the IPRA or
enacted legislation to harmonize local law with the agreement's
provisions. In a positive step, Ecuador publicly announced in June 1997
that it is adhering to its WTO TRIPS obligations. It introduced
comprehensive legislation in December 1997 to protect intellectual
property rights. It is pending before Ecuador's Congress.
Enforcement of intellectual property rights remains a problem for
Ecuador. Copyright infringement occurs, and there is widespread local
trade in pirated audio and video recordings, as well as computer
software. Local registration of unauthorized copies of well-known
trademarks is a problem, since the government does not adequately
monitor and control such registrations. Some local pharmaceutical
companies produce or import patented drugs without licenses and have
sought to block improvements in patent protection.
8. Worker Rights
a. The Right of Association.--Under the Ecuadorian constitution and
labor code, most workers in the parastatal sector and private companies
enjoy the right to form trade unions. Public sector workers in non-
revenue earning entities, as well as security workers and military
officials, are not permitted to form trade unions. Less than 12 percent
of the labor force, mostly skilled workers in parastatal and medium-to-
large sized industries, is organized. Except for some public servants
and workers in some parastatals, workers by law have the right to
strike. Sit-down strikes are allowed, but there are restrictions on
solidarity strikes. Ecuador does not have a high level of labor unrest.
Most strike activity involves public sector employees.
b. The Right to Organize and Bargain Collectively.--Private
employers with more than 30 workers belonging to a union are required
to engage in collective bargaining when requested by the union. The
labor code prohibits discrimination against unions and requires that
employers provide space for union activities. The labor code provides
for resolution of conflicts through a tripartite arbitration and
conciliation board process. Employers are not permitted to dismiss
permanent workers without the express permission of the Ministry of
Labor. The in-bond (maquila) law permits the hiring of temporary
workers in maquila industries, effectively limiting unionization in the
sector. Employers consider the labor code to be unfavorable to their
interests.
c. Prohibition of Forced or Compulsory Labor.--Compulsory labor is
prohibited by both the constitution and the labor code, and is not
practiced.
d. Minimum Age of Employment of Children.--Persons less than 14
years old are prohibited by law from working, except in special
circumstances such as apprenticeships. Those between the ages of 14 and
18 are required to have the permission of their parents or guardian to
work. In practice, many rural children begin working as farm laborers
at about 10 years of age, while poor urban children under age 14 often
work for their families in the informal sector.
e. Acceptable Conditions of Work.--The labor code provides for a
40-hour work week, two weeks of annual vacation, a minimum wage and
other variable, employer-provided benefits such as uniforms and
training opportunities. The minimum wage is set by the Ministry of
Labor every six months and can be adjusted by Congress. Mandated
bonuses bring total monthly compensation to about $159. The Ministry of
Labor also sets specific minimum wages by job and industry so that the
vast majority of organized workers in state industries and large
private sector enterprises earn substantially more than the general
minimum wage. The labor code also provides for general protection of
workers' health and safety on the job, and occupational health and
safety is not a major problem in the formal sector. However, there are
no enforced safety rules in the agriculture sector and informal mining.
f. Worker Rights in Sectors with U.S. Investment.--The economic
sectors with U.S. investment include petroleum, chemicals and related
products, and food and related products. U.S. investors in these
sectors are primarily large, multinational companies which abide by the
Ecuadorian labor code. In 1996 there were no strikes or serious labor
problems in any U.S. subsidiary. U.S. companies are subject to the same
rules and regulations on labor and employment practices governing basic
worker rights as Ecuadorian companies.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum 697
Total Manufacturing........................... 98
Food & Kindred Products..................... -9
Chemicals & Allied Products................. \1\
Metals, Primary & Fabricated................ 24
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. \1\
Transportation Equipment.................... \1\
Other Manufacturing......................... 41
Wholesale Trade............................... 56
Banking....................................... \1\
Finance/Insurance/Real Estate................. \1\
Services...................................... 0
Other Industries.............................. -5
TOTAL ALL INDUSTRIES.......................... 855
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
EL SALVADOR
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997\1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP............................. 9.6 10.6 11.7
Real GDP Growth (pct)................... 6.3 3.0 4.0
GDP by Sector:
Agriculture........................... 1.4 1.4 1.5
Manufacturing......................... 2.1 2.3 2.4
Services.............................. 3.9 5.2 5.6
Government............................ 0.5 0.6 0.6
Per Capita GDP \2\...................... 1,778.0 1,937.0 2,100.0
Labor Force (000s) \3\.................. 2,176.0 2,219.0 2,260.0
Unemployment Rate (pct) \4\............. 7.6 7.6 7.7
Money And Prices (Annual Percentage
Growth):
Money Supply Growth (M2)................ 19.0 14.0 14.0
Consumer Price Inflation................ 11.4 7.8 3.5
Exchange Rate (Colon/US$)............... 8.75 8.75 8.75
Balance Of Payments And Trade:
Total Exports FOB \5\................... 1.7 1.8 2.0
Exports to U.S. (US$ mlns)............ 844 955 1,080
Total Imports CIF \5\................... 3.3 3.2 3.5
Imports from U.S. (US$ mlns) \5\...... 1,700.0 1,606.0 1,800.0
Trade Balance........................... -1.7 -1.4 -1.5
Balance with U.S. (US$ mlns).......... -856 -651 -720
External Public Debt.................... 2.2 2.5 2.4
Debt Service Payments/GDP (pct)......... 3.2 4.2 3.0
Current Account Deficit/GDP (pct)....... -2.8 -1.7 -1.9
Fiscal Deficit/GDP (pct)................ 0.9 2.3 2.0
Gold and Foreign Exchange Reserves...... 936.0 1,100.0 1,300.0
Aid from U.S.(US$ mlns)................. 120.0 57.7 60.1
Aid from All Other Sources \6\.......... 78.0 16.0 38.0
------------------------------------------------------------------------
\1\ 1997 figures are central bank estimates based on August data.
\2\ Per capita growth based on 1992 census data.
\3\ Economically active population, i.e., all those over age 15.
\4\ Figures do not include underemployment
\5\ Including gross maquila.
\6\ Grants only; figures do not reflect NGO assistance and bilateral
loan programs.
1. General Policy Framework
The 1992-1995 post war boom, during which growth averaged 6.5
percent per year, faded in 1996 due to an abrupt shift in monetary
policy, price hikes in basic services and an increase in the value-
added tax. The index of economic activity (IVAE) started to fall at the
end of 1995, and hit bottom in November 1996. The economy grew 3
percent in 1996.
Data from the first eight months of 1997 indicate that the economy
is now experiencing a modest recovery from the 1996 slow-down. The IVAE
increased from 0.4 percent in December 1996 to 4.3 percent in August
1997. Growth has been led by a strong performance in the external
sector. The recovery has taken place within the context of a declining
inflation rate which is expected to be 3 to 4 percent in 1997 compared
to 7.8 percent in 1996. The outlook for 1998 is for more of the same--
modest growth of about 4 percent with continued price stability.
The Central Bank continues to pursue a conservative monetary
policy. The money supply expanded only 14 percent in 1996, versus 19
percent in 1995. Projected expansion for 1997 is again 14 percent.
Interest rates on loans for less than a year, are down to 16 percent in
mid-1997 compared to 19 percent two years ago. Medium and long-term
interest rates also went down from 20 to 18 percent.
Delays in the privatization program, especially the sale of the
state telephone company and the electricity distribution companies, a
progressive reduction in import duties and the slow-down in the
economic activity contributed to an increase in the fiscal deficit from
0.9 percent of the GDP in 1995, to 2.3 percent in 1996. Additionally,
the Government of El Salvador increased expenditures to meet
commitments derived from the 1992 Peace Accords, especially in social
areas and infrastructure. The deficit has been financed with official
domestic and external bonds. By law, the Central Bank is not allowed to
finance government deficits. The 1996 slow-down brought a modest
decrease in imports (slightly less than 1 percent), while exports
showed a 7.7 percent increase. As in the previous years, the large
trade deficit in El Salvador has been offset by family remittances and
external aid. Remittances continue to be the second most important
source of foreign exchange after exports, and a major factor in El
Salvador's macroeconomic stability. Remittances are increasing at an
annual rate of 6.5 percent, and an estimated 1.25 billion dollars will
enter the national economy during 1997.
2. Exchange Rate Policy
The colon has been informally pegged at 8.75 per dollar since 1994.
Large inflows of dollars from Salvadorans working in the United States
offset a significant trade deficit. At the end of August 1997, the net
international reserves at the Central Bank were 1.32 billion dollars,
the highest level in history.
3. Structural Policies
The United States is El Salvador's main trade partner. Imports from
the U.S. have increased an average of 27 percent per year since 1992.
Imports from the U.S., which constitute about 50 percent of all El
Salvador's imports, are projected to reach 1.8 billion dollars in 1997,
up from 1.6 billion in 1996. Key to this trend is the multi-year
program, currently under way, to radically lower tariff barriers. Under
this program, tariffs for most capital goods and raw materials have
been reduced to zero or one percent, and tariffs on intermediate and
finished goods are scheduled to fall to a maximum rate of 15 percent by
July 1999. In September 1997, the Government of El Salvador launched a
new, simplified Customs Procedure system which reduces the former
cumbersome 20 step import process to seven steps. Close to 80 percent
of all Salvadoran imports consist of capital and intermediate products.
The government of El Salvador has an open procurement policy in
practice, and U.S. companies compete actively for contracts.
El Salvador has liberal legislation under which it is privatizing
the state owned telephone company (ANTEL), four electricity
distribution companies, sugar mills, and the administration of pension
funds. All of these projects represent good opportunities for U.S.
suppliers and investors. The sale of government energy generation
plants is pending restructuring of the state Electricity Commission,
which is scheduled for the end of 1998.
Prices, with the exception of bus fares and utilities, are set by
the market. Companion legislation to the telecommunications and
electric privatization bills set up a commission to monitor the
telecommunications and electrical sectors, and the National Assembly is
considering formulas to limit maximum utility price hikes in the
future.
The 13 percent value-added tax (VAT) is applied to all goods and
services, domestic and imported, with a few limited exceptions for
basics like dairy products, fresh fruits and vegetables, and medicines.
At the end of 1994, the government replaced a price band mechanism,
introduced in 1990 to regulate the tariffs on basic grains. The
government policy on basic grain tariffs is set by seasonal supply and
demand conditions in the local market. Currently, yellow corn is
imported duty free; while white corn enters duty free from February 1
through July 31, and is subject to a 15 percent ad-valorem rate from
August 1 to January 31.
4. Debt Management Policies
El Salvador has traditionally pursued a conservative debt policy.
External debt stood at $2.524 billion at December 1996, a 12.5 percent
increase over the previous year. Almost 70 percent of this debt has
been contracted with international financing institutions , and 30
percent with bilateral organizations and other sources. The debt
service in 1996 amounted to 442 million dollars or 4.2 percent of the
GDP, and is considered moderate. El Salvador's prudent debt policies
have been recognized by improved risk ratings on its official debt
instruments by organizations such as Moody's and Standard and Poor.
The government of El Salvador has succeeded in obtaining
significant new credits from diverse international sources over the
last year and a half. Some 300 million dollars have been contracted
from international institutions and governments (Spain, Germany, Japan)
for infrastructure works and social programs to be undertaken over the
next few years.
5. Aid.
Aid grants from the U.S. totaled an estimated 60.1 million dollars
in 1997. Military assistance from the U.S. totaled 450,000 dollars in
1997.
6. Significant Barriers to U.S. Exports
There are no legal barriers to U.S. exports of manufactured goods
or bulk, non-agricultural products to El Salvador. Most U.S. goods face
tariffs from 0 to 19 percent. Current tariffs are scheduled to fall to
15 percent for final goods, and 5 to 10 percent for intermediate
products, by mid 1999. Higher tariffs are applied to automobiles,
alcoholic beverages, textiles and some luxury items, but the Salvadoran
government also plans to reduce these tariffs before 1999.
Generally, standards have not been a barrier for the importation of
U.S. food products. Poultry is the notable exception; since 1992, the
government of El Salvador has maintained a zero tolerance policy for
several common avian diseases such as salmonella, effectively blocking
all imports of U.S. poultry. The Ministry of Agriculture requires a
Certificate of Free Salmonella showing that the product has been
approved by U.S. Health Authorities for public sale. Importers may also
be required to deliver samples for laboratory testing, but this
requirement has not been enforced. All fresh food, agricultural
commodities and live animals must be accompanied by a phytosanitary or
sanitary certificate. Basic grains and dairy products also must have
import licenses. Authorities have not enforced the Spanish language
labeling requirement.
El Salvador is a member of the WTO and expects to implement a full
range of its Uruguay Round Commitments on schedule. The government is
an active participant in the Summit of the Americas/Free Trade of the
Americas Process. El Salvador chairs the FTAA Market Access Group. The
country is a member of the Central American Common Market, and together
with Guatemala and Honduras, is negotiating a Free Trade Agreement with
Mexico.
El Salvador officially promotes foreign investment in virtually all
sectors of the economy. Foreign investment laws allow unlimited
remittance of net profits, except for services where the law allows 50
percent. No restrictions exist on establishing foreign banks or
branches of foreign banks in El Salvador.
7. Export Subsidies Policies
El Salvador does not employ direct export subsidies. It offers a
six percent rebate to exporters of non-traditional goods based on the
FOB value of the export, but exporters have found it very difficult to
collect. Free zone operations are not eligible for the rebate but enjoy
a 10-year exemption from income tax as well as duty-free import
privileges.
8. Protection of U.S. Intellectual Property
El Salvador was removed from the Special 301 Watch List in July
1996 after a newly created enforcement unit began a series of raids on
copyright and trademark violators. Initial busts centered on cassette
and video vendors, but also included books and trademark clothing
items. In 1997, enforcement efforts continued. Government officials
also have begun working with local representatives of pharmaceutical
manufacturers to identify and seize pirated medicines. In addition,
they have identified software piracy as a priority.
El Salvador's current law protecting intellectual property rights
took effect in October 1994. The 1994 law, together with El Salvador's
acceptance of TRIPS disciplines, addresses several key areas of
weakness. Patent terms are lengthened to 20 years and the definition of
patentability is broad. Compulsory licensing applies only in cases of
national emergency. Computer software is also protected, as are trade
secrets. Trademarks, however, are still regulated by the Central
American Convention for the Protection of Industrial Property. It is an
occasional practice to license a famous trademark and then seek to
profit by selling it when the legitimate owner wants to do business in
El Salvador. In November 1994, El Salvador signed an amended version of
the convention, which, among other things, would address this issue.
The revised convention will take effect upon ratification by three of
the participating Central American governments. According to Salvadoran
government officials, they are working on a draft for a separate
semiconductor chip law.
With international funding, the Salvadoran government is completing
a two-year comprehensive reorganization of its antiquated National
Registry Office. The registration process has been simplified and
computerized and significant progress is being made to reduce backlogs
and to adjudicate oppositions.
The government of El Salvador is currently engaged in negotiations
with the U.S. on a bilateral IPR agreement. El Salvador is a signatory
to the Geneva phonograms, Paris industrial property, and Berne
copyright conventions. It does not belong to the International
Convention for the Protection of New Varieties of Plants (UPOV) or the
Washington Satellite Convention.
9. Worker Rights
a. Right of Association.--The Constitution prohibits the Government
from engaging in anti union actions against workers trying to organize
and the 1994 Labor Code streamlined the process required to form a
union in the private sector. Unions and strikes are legal only in the
private sector. Employees of autonomous public agencies may form unions
but not strike. Nevertheless, many workers including those in the
public sector form employee associations that frequently carried out
strikes that, while technically illegal, were treated as legitimate.
Approximately 20 percent of the workforce are members of unions, public
employees associations, or peasant organizations.
b. The Right to Organize and Bargain Collectively.--The
Constitution and the Labor Code provide for collective bargaining
rights, but only to employees in the private sector and in autonomous
government agencies, such as utilities (currently undergoing
privatization) and the port authority. However, both private sector
unions (by law) and public sector employee associations (in practice)
use collective bargaining.
c. Prohibition of Forced or Compulsory Labor.--The Constitution
prohibits forced or compulsory labor, except in the case of calamity
and other instances specified by law. This provision is followed in
practice.
d. Status of Child Labor Practices and Minimum Age for
Employment.--The Constitution prohibits the employment of children
under the age of 14. Children may receive special Labor Ministry
permission to work, but only where such employment is absolutely
indispensable to the sustenance of the minor and his family. This is
most often the case with children of peasant families who traditionally
work during planting and harvesting seasons. Child labor is not usually
found in the industrial sector.
e. Acceptable Conditions of Work.--The minimum wage did not change
in 1997. Effective July 1995, the minimum wage is $4.40 (38.50 colones)
per day for commercial, industrial, and service employees; and $3.30
(28.60 colones), plus a food allowance, per day for agroindustrial
workers. The Government of El Salvador has announced that the minimum
wage will be reviewed during the first quarter of 1998. The law limits
the workday to 6 hours for youths between 14 and 18 years of age and 8
hours for adults, and it mandates premium pay for longer hours. The
Labor Code sets a maximum normal work week of 36 hours for youths and
44 hours for adults.
f. Rights in Sectors with U.S. Investment.--U.S. investment in El
Salvador is distributed fairly evenly inside and outside the so-called
``maquilas'' or free zones. The labor laws apply equally to all
sectors, including the free zones. During the last few years, most free
zone companies have accepted the provisions of voluntary codes of
conduct from their parent corporations or U.S. purchasers. These codes
include worker rights protection clauses. In April, the Salvadoran
Apparel Industry Association (ASIC) announced an industry wide code of
conduct, currently being implemented, with worker rights protection.
The great majority of companies in the free zones provide much better
salaries and working conditions than is offered elsewhere in the
private sector. Nevertheless, there were credible reports of factories
dismissing union organizers. In addition, accusations persist of
companies abusing their workers. This year the Labor Ministry increased
the number of inspectors and inspections, improved the professional
training of the inspector corps, and made a better effort to follow up
on such complaints.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 91
Total Manufacturing........................... 32
Food & Kindred Products..................... \1\
Chemicals & Allied Products................. \1\
Metals, Primary & Fabricated................ \1\
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. -2
Transportation Equipment.................... 0
Other Manufacturing......................... \1\
Wholesale Trade............................... 3
Banking....................................... \1\
Finance/Insurance/Real Estate................. \1\
Services...................................... \1\
Other Industries.............................. \1\
TOTAL ALL INDUSTRIES.......................... 198
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
GUATEMALA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP............................... 14,735 15,803 17,633
Real GDP Growth (pct.).................... 3.6 3.1 4.1
GDP by Sector (pct.):
Agriculture............................. 24 24 24
Manufacturing........................... 21 21 21
Services................................ 47 47 47
Government.............................. 8 8 8
Per Capita GDP (US$)...................... 1389 1446 1603
Labor Force (000s)........................ 3,081 3,200 3,320
Unemployment Rate (pct) \2\............... 5.2 5.2 5.2
Money and Prices (annual percentage growth):
Money Supply Growth (M2).................. -3.9 5.4 N/A
Consumer Price Inflation.................. 8.6 10.8 9.0
Exchange Rate (Quetzal/USD annual average) 5.83 6.10 6.10
Balance of Payments and Trade:\1\
Total Exports FOB \3\..................... 2.0 2.1 2.9
Exports to U.S.......................... 0.6 0.8 1.0
Total Imports CIF \3\..................... 3.2 3.1 3.3
Imports from U.S........................ 1.4 1.4 1.5
Trade Balance \3\......................... -12 -1.0 -0.4
Balance with U.S.\3\.................... -0.7 -0.7 -0.6
Current Account........................... 4.8 5.0 3.0
External Public Debt \4\.................. 2.1 2.1 2.2
Fiscal Deficit/GDP (pct) \4\.............. 0.6 0.1 0.1
Debt Service Payments/GDP (pct) \4\....... 2.4 2.2 2.4
Gold and Foreign Exchange Reserves (Net).. 0.6 0.8 1.2
Aid from U.S.............................. 36 29 70
Aid from Other Countries.................. N/A N/A N/A
------------------------------------------------------------------------
\1\ All 1997 figures are Embassy estimates based on data available as of
November 1, 1997.
\2\ Does not reflect estimated 40 to 50 percent underemployment.
\3\ Merchandise trade data from Guatemalan Customs and Central Bank.
Trade data does not include U.S. 250 million in value added by the
apparel assembly industry.
\4\ Data from Government of Guatemala Budget Projection.
1. General Policy Framework
Since he assumed office in January 1996, President Alvaro Arzu and
the National Advancement Party (PAN), which also has a majority in the
Congress, have worked to implement a program of economic liberalization
and to modernize the state. The signing of the final peace accord in
December 1996 which ended the country's 36-year armed internal conflict
has removed a major obstacle to foreign investment. Among the
government's remaining challenges, however, are the elimination of
bureaucratic inefficiency, official fraud and corruption, and the
establishment of internal security.
Guatemala's economy, the largest in Central America, is generally
open. For the last five years real GDP growth has averaged about 4
percent and population growth about 2.9 percent annually.
Infrastructure deficiencies, particularly in education, electricity
service, telecommunications, and transportation, constrain more rapid
development. The Guatemalan government recently has liberalized aspects
of the financial services industry, decontrolled petroleum prices, and
revised the commercial code. Legislation was passed in 1996 to
liberalize the telecommunications and electricity sectors and these
industries are in the process of demonopolization and privatization.
The government has also awarded a concession for operation of the
railroad and will concession elements of the civil aviation authority
and the country's major sea ports. In August of 1995 Guatemala became a
founding member of the WTO.
Agriculture and commerce are the dominant economic activities, each
contributing approximately 25 percent of GDP; manufacturing accounts
for 15 percent of GDP and government about 10 percent. The agricultural
sector accounts for two thirds of exports and about half of all
employment, though there is much underemployment in all sectors.
Activity in the agricultural sector is concentrated in production of
the traditional products of coffee, sugar, and bananas. Non-traditional
agricultural exports, e.g., specialty vegetables and fruits, berries,
shrimp, and ornamental plants and flowers, account for an increasing
share of export revenues. Other non-traditional industries that have
experienced recent growth and have favorable prospects are apparel
assembly for export and tourism. Remittances from family members abroad
are a significant source of foreign exchange, accounting for perhaps as
much as $500 million per year.
Government tax revenues have historically been less than 8 percent
of GDP. Since 1994 the Central Bank (Bank of Guatemala) has been
prohibited from financing the deficit, forcing the government to issue
treasury bonds, most of which were short-term. In 1996 the government
was able to issue securities for longer terms (two and three years) at
lower rates of interest. Guatemala in 1997 successfully placed $150
million in dollar-denominated notes in the international market. Debt
service costs should decline significantly in 1998, but will increase
in subsequent years as Guatemala borrows to finance social and economic
development programs specified in the peace accords. Though the central
bank's restrictive monetary policies have helped keep inflation at an
average of about 10 percent, the result has been increasing operating
losses for the central bank, high commercial bank lending rates, and a
shortage of financing for real investment. Though commercial bank
lending rates declined in 1997, private sector investment has not
increased significantly.
2. Exchange Rate Policy
Guatemala has an open, relatively undistorted exchange regime. The
quetzal-dollar exchange rate has remained relatively stable since 1994.
The Bank of Guatemala intervenes only infrequently to dampen
speculation. There were at least four such interventions in 1997. There
are no legal or other constraints on remittances or other capital flows
and there has been no parallel exchange market in Guatemala for several
years. Financial institutions' holdings must be in quetzales, though a
number of local banks offer dollar denominated accounts in which the
funds are actually held offshore. The holding of dollar deposits within
the country has been proposed but not yet enacted.
Nominal devaluation of the quetzal for 1997 will be about two
percent, resulting in a real appreciation against the dollar of
approximately six to seven percent. The average exchange rate for 1997
was Q. 6.10 to the dollar. High real interest rates stimulated capital
inflows during 1996, resulting in an excess of foreign exchange
relative to demand. Interest rates declined in 1997 and though there
has been some withdrawal of capital, net foreign exchange inflows
remain positive.
3. Structural Policies
Government tax revenues are projected to be $1.76 billion in 1997,
a 5 percent increase over 1996 revenues. The increase is due to an
increase in the fuel tax, duties collected on a higher volume of
imports, improved administration, and higher prices and incomes.
As part of the peace process the government is committed to
increasing spending on social, infrastructure expansion, and economic
development programs. This additional spending will be financed by $1.9
billion in foreign grants and loans and the equivalent of an additional
$700 million in locally generated funds. Guatemala is committed to
increasing tax collections to 12 percent of GDP by the year 2000. The
GOG probably will meet its interim targets of 8.6 and 10.0 percent of
GDP for 1997 and 1998, respectively, but revenue targets for 1999 and
2000 will be more difficult to attain. The government introduced a new
package of taxes to take effect in January 1998, but no congressional
action had been taken by November 1, 1997. A legislative proposal to
create an autonomous tax collection and administration authority is
expected to be approved by the congress.
4. Debt Management Policies
The Guatemalan budget projects a public debt at the end of 1997 of
approximately $2 billion. Foreign debt is projected at $1.23 billion,
or 7.0 percent of GDP. Most of this debt is long-term, low-interest
debt with International Financial Institutions. The Guatemalan
Government appropriated $425 million in the 1997 budget for debt
service and amortization, or 2.4 percent of GDP, of which external debt
service is budgeted at $123 million, or .7 percent of GDP.
5. Significant Barriers to U.S. Exports
Guatemala applies the Common External Tariff schedule of the
Central American Common Market which has a range of from zero to 19
percent for almost all agricultural and industrial goods. Imports are
not generally subject to non-tariff trade barriers, though arbitrary
customs valuation and excessive bureaucracy occasionally create delays
and complicate the importation process.
Guatemala has complied with virtually all of its WTO commitments,
eliminating import licenses and creating tariff rate quotas (TRQs) for
rice, corn, wheat and wheat flour, apples, and pears. The Ministry of
Economy has implemented a new import policy for poultry that enlarges
the TRQ to the level of Guatemala's final WTO commitment and reduces
the in-quota tariff. However, all poultry parts are valued at a minimum
of 56 cents/lb. for customs purposes, significantly increasing the
effective tariff rate and the cost of imported poultry products.
Guatemala's current import tariff rates for agricultural products are
below the WTO tariff bindings.
Processed foods are required to be registered with the Ministry of
Health by each individual importer. However, importers have the option
of joining an association of importers and paying a fee for the use of
other members' registrations. Processed foods must also be labeled in
Spanish. Enforcement of this requirement has been lax, though
compliance is increasing. Full enforcement could significantly impact
imports from the United States.
Sanitary licenses are required for all imports of animal origin.
Inspection of the processing plant in the country of origin, at the
importers' expense, is technically required for the license, however,
implementation has been uneven, limiting trade disruption.
Importers should be aware that manifests must be consularized, an
administrative process that can be time consuming. Delays in obtaining
consularization have resulted in some losses to shipments of
perishables.
Some restrictions remain on foreign investment, but foreign
investors generally receive national treatment. Subsurface minerals,
petroleum, and other resources are property of the state and
concessions are typically granted in the form of production-sharing
contracts. The solicitation and contracting process for energy
concessions tends to be protracted and less than fully transparent.
Restrictions on housing construction are so onerous they virtually
exclude foreign participation.
By law, radio and television stations can be operated only by
Guatemalan citizens or by corporations which are at least 75 percent
Guatemalan-owned. Foreigners can own no more than 30 percent of ``small
mining'' or forestry companies. Ground transportation is limited to
companies with at least 60 percent Guatemalan ownership. Licensing
requirements for fishing operations are enforced in such a way as to
ensure at least minority Guatemalan participation.
Foreign firms are barred from directly selling insurance or
providing legal, accounting or other licensed professional services.
This hurdle can be overcome by establishing a locally incorporated
subsidiary or through a correspondent relationship with a local firm.
Most of the ``Big Six'' U.S. accounting firms are represented through
one of these methods.
6. Export Subsidies Policy
There are no export subsidies.
7. Protection of U.S. Intellectual Property
Protection provided intellectual property is inadequate. Penalties
are insufficient, enforcement is weak and a poorly trained judiciary is
slow to provide injunctive relief. Though local cable television
companies have reduced broadcasting of unauthorized programming
considerably and video piracy has diminished, the U.S. industry still
suffers significant losses. Guatemala has been on the Special 301 Watch
list for the past several years for inadequate IPR protection. Piracy
and resale of computer software programs is also common. Guatemala has
acceded to the Berne Convention, but has not acceded to the Paris
Convention. Computer software is not protected under copyright law.
The right to copy, publish and distribute is clearly protected and
the criminal code was modified in August 1995 to include prison
sentences of 4 to 6 years and fines ranging from 50,000 to 100,000
quetzales (approx. $8,300 to $16,600) for copyright violations. Control
over leasing or rental of protected works is less clear. Despite
membership in the Rome and Geneva Conventions, Guatemala generally does
not enforce protection of sound recordings.
Guatemala's patent law is outdated and does not protect
mathematical methods, living organisms, commercial plans, surgical,
therapeutic or diagnostic methods, or chemical compounds or
compositions. Protection is limited to 15 years (10 years for the
production of food, beverages, medicines and agrochemicals), and
subject to compulsory licensing provisions and local exploitation
requirements. Patent rights do not extend to any action executed in the
pursuit of education, research, experimentation, or investigation.
Patent rights do not preclude the importation of counterfeit goods
unless the product is being produced in Guatemala. Protection lapses
six years from the date of the patent if the product is not being
produced locally. Legislation is pending before the Congress to address
these issues and bring Guatemalan law into line with international
standards.
The Central American Convention for the Protection of Industrial
Property (CACPIP) is the legal basis for protection of trademarks in
Guatemala. It is currently under revision to bring it more into line
with emerging international standards and to simplify the registration
process. Guatemalan law does not provide sufficient protection against
counterfeiting or misuse of trademarks, and the right to exclusive use
is granted to the first to file. There is no requirement for use, nor
any cancellation process for non-use. A firm wishing to market in
Guatemala whose trademark has been registered by another party must
either buy out that party or pay a royalty. Legislation to improve
trademark protection is pending.
8. Worker Rights
a. The Right of Association.--The right of association is
guaranteed by the Constitution. Less than eight percent of the labor
force is unionized; there are more than 1000 unions, the majority of
which are private sector unions. The Ministry of Labor has
significantly simplified and accelerated the process of obtaining legal
authorization to form a union. This procedure now takes 23 working
days. Significant changes were made in 1993 to modernize the Labor
Code. In addition, the process for resolving ``work place'' disputes
has been decentralized with the opening of 21 branch offices of labor
inspectors.
b. The Right to Organize and Bargain Collectively.--The Labor Code
allows collective bargaining if at least 25 percent of a company's
employees are union members. Anti-union practices, including
discharging workers for attempting to organize a union, are legally
forbidden. However, despite a major increase in labor inspectors and
inspections, enforcement of labor laws depends on an overloaded and
inefficient labor court system. The labor movement remains fractious. A
widespread, historical distrust of unions by both employers and many
workers, as well high rates of unemployment and underemployment,
combine to make organizing and collective bargaining difficult.
c. Prohibition of Forced or Compulsory Labor.--The Constitution
prohibits forced labor. Labor for prisoners with sentences of more than
two years is obligatory, but this labor may not be used as punishment
for expression of political or other opinions, or as a method of
political reeducation.
d. Minimum Age for Employment of Children.--By law, children under
the age of 14 may work only with written permission of their parents,
certified by the Ministry of Labor. However, tens of thousands of
children under 14 work in both the formal sector, including
agriculture, and the informal sector, generally in family enterprises.
The Ministry of Labor has initiated a program to educate minors about
their rights as workers.
e. Acceptable Conditions of Work.--The Constitution provides for a
44-hour normal work week. The average number of hours worked per week
in 1995 was close to 45. Occupational safety and health regulations
exist but often are not strictly enforced. The minimum wage is far
below the level necessary to support an urban family of four and not
all workers are paid the legally-mandated minimum wage.
f. Rights in Sectors with U.S. Investment.--Generally,
international corporations adhere to the labor code and respect
workers' rights. Though there have been some complaints about treatment
of workers in garment assembly factories (maquilas), especially in some
of those operated by Koreans, observation of and respect for workers'
rights has improved in this sector recently, due both to increased
publicity and also to cooperation between the Ministry of Labor and the
Korean Ambassador.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 93
Total Manufacturing........................... 114
Food & Kindred Products..................... 40
Chemicals & Allied Products................. 26
Metals, Primary & Fabricated................ -5
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... 53
Wholesale Trade............................... \1\
Banking....................................... \1\
Finance/Insurance/Real Estate................. 11
Services...................................... \2\
Other Industries.............................. 7
TOTAL ALL INDUSTRIES.......................... 217
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
\2\ Indicates a value between $-500,000 and $500,000.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
HAITI
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\............................. 2,327 2,660 2,713
Real GDP Growth (pct) \3\................... 4.5 2.8 1.8
GDP by Sector:
Agriculture............................... 1,019 N/A N/A
Manufacturing............................. 309 N/A N/A
Services.................................. 549 N/A N/A
Government................................ 450 N/A N/A
Per Capita GDP (US$)........................ 322 363 347
Labor Force (000s).......................... 4,000 4,000 4,100
Unemployment Rate (pct, est.)............... 65 65 65
Money and Prices (annual percentage growth):
Money Supply Growth (M2)...................... 29.2 9.1 14.7
Consumer Price Inflation.................... 30.2 20.5 16.2
Exchange Rate (gourde/US$ - annual average)
Market.................................... 14.4 15.6 16.3
Balance of Payments and Trade:
Total Exports FOB \4\....................... 84 86 N/A
Exports to U.S.\5\........................ 130 144 175
Total Imports FOB \4\....................... 436 400 N/A
Imports from U.S.\5\...................... 550 475 473
Trade Balance \4\........................... -352 -314 N/A
Balance with U.S.\5\...................... -420 -331 -298
Current Account Deficit/GDP (pct)........... 4.4 3.4 2.9
External Public Debt........................ 898 912 1028
Debt Service Payments/GDP (pct)............. 1.6 1.1 1.0
Fiscal Deficit/GDP (pct).................... 4.8 3.2 1.0
Gold and Foreign Exchange Reserves (net).... 169 134 159
Aid from U.S.\6\............................ 260 115 145
Aid from All Other Sources.................. 430 266 428
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available monthly data in
October 1996. Fiscal year is October-September. Fiscal year data used
because calendar year data unavailable in many cases.
\2\ GDP at factor cost
\3\ Percentage changes calculated in local currency
\4\ Merchandise trade for calendar year; does not include U.S. goods
imported for processing and re-exported under the Caribbean Basin
Initiative.
\5\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
FAS, imports customs basis; 1997 figures are estimates based on data
available through October 1997. Figures include substantial amounts of
U.S. goods imported for processing and re-exported under Caribbean
Basin Initiative.
\6\ New commitments; USAID includes program assistance, budget support,
and support for peacekeeping operations and police.
Source: IMF ESAF document, except where noted
1. General Policy Framework
Haiti has a predominantly agriculture-based, market-oriented
economy. Historically, Haiti's economic performance has been strongly
influenced by the United States, its principal trading partner and
largest bilateral aid contributor. Following the restoration of
President Jean-Bertrand Aristide on October 15, 1994, Haiti embarked on
an economic program based on macroeconomic stabilization, trade
liberalization, privatization, civil service reform, and
decentralization. The Haitian government slashed tariffs to a maximum
of 15 percent and plans to cut tariffs in FY97 to a maximum of 10
percent.
Popular opposition to ``structural adjustment'' caused the Aristide
government to slip on its commitments to the international financial
institutions. In October 1995, inadequate commitment on privatization,
civil service reform, and other structural reforms tied to loans from
the IMF and World Bank thwarted a scheduled signing of the Structural
Adjustment Credit (SAC) and the Enhanced Structural Adjustment Facility
(ESAF), and prompted the resignation of Prime Minister Smarck Michel.
The new administration under President Rene Preval took office in
March 1996 and immediately moved to implement the structural adjustment
program. The government proceeded to control expenditures and eliminate
some 1,500 ``ghost employees.'' By September, Parliament passed civil
service reform legislation and a modernization law to enable the
government to proceed with privatization through the granting of
management contracts, concessions, or ``recapitalizations'' (the
forming of joint ventures with private investors through partial
divestitures of state-owned enterprises).
The government's medium term macroeconomic goal calls for 4.5
percent real GDP growth in FY 1997/98, a rate the government believes
it can sustain for several years thereafter. FY 1997's twelve-month
rate of inflation was 18%, but inflation is expected to decline to
single digits in FYs 1998-1999. The unprecedented amount of aid ($2.4
billion over the next three years) pledged by the international
community for Haiti's social and economic reconstruction will give the
Haitian government a unique opportunity to fund and implement systemic
changes that will permit sustained economic reform. Strong pressure for
greater expenditure on wage increases, rehabilitation of political and
economic infrastructures, and social programs will heighten the need to
maximize revenue collection. In FY 97 the government realized a 34%
increase in customs and tax revenues.
Reserve requirements (which currently stand at 30 percent for
primary reserves) have been the Central Bank's primary monetary policy
tool. They have been used to control the money supply and to assist in
the financing of the public sector debt. Since November 1996, the
Central Bank has successfully conducted bond auctions to control
liquidity in the economy, which allow for lower reserve requirements.
The Central Bank has a rediscount facility and a lending facility for
commercial banks. Use of the rediscount facility has been limited by a
lack of eligible financial paper to rediscount. Use of the lending
facility has been limited by the relatively high interest rate charged
(usually the legal maximum), and low legal limits relative to bank
capital on the amounts commercial banks can borrow. An interbank market
also exists.
Haiti's fiscal record is weak. Tax collection historically has been
quite poor and fiscal restraint equally lacking. Government deficits,
caused by a bloated public sector, central government support for
inefficient state-owned enterprises, and significant unbudgeted
expenses, were all financed through Central Bank credit and/or foreign
borrowing or grants. In April 1996 the Ministry of Finance and Central
Bank put the government on a day-to-day cash basis. This was
discontinued in FY 97. The government showed greater cash management
system restraint in fiscal disbursements, and Central Bank credit to
the government sharply declined. These actions, along with a successful
effort to improve tax collection in FY 96, allowed the government to
meet IMF performance benchmarks and to negotiate an ESAF agreement,
which was approved by the IMF board on October 18, 1996. The long delay
in approving a FY 97 budget and the delay in appointing a new prime
minister and government during 1997 led to the need to renegotiate of
the ESAF program in FY 98.
2. Exchange Rate Policy
For decades Haiti's currency, the gourde, was officially tied to
the U.S. dollar at the rate of five to one. A parallel market for
foreign exchange emerged in the early 1980s, but for several years the
official exchange rate continued to hold for some transactions. On
September 16, 1991, the Central Bank ceased all operations at the
official rate. In April 1995, the Central Bank abolished the 40 percent
surrender requirement of export earnings. Haiti now has no exchange
controls or restrictions on capital movements. Dollar accounts are
available at local commercial banks. The gourde is allowed to float
freely relative to the U.S. dollar and other currencies. The exchange
rate has gently declined from 15.5 to 17 gourdes per U.S. dollar during
FY 97. Some critics of tight central bank monetary policy, particularly
in the banking and export sectors, feel the gourde has become
overvalued and might face swifter depreciation in the future.
3. Structural Policies
The government's role in Haiti's market-oriented economy has been
sharply reduced since 1986/87. In the few cases where the government
has attempted to control prices or supplies, its efforts were
frequently undercut by contraband or overwhelmed by the sheer number of
small retailers. Consumer prices are governed by supply and demand,
though the small Haitian market is imperfect for determining some
prices. Gasoline pump prices and utility rates are more effectively
regulated, and are probably the only exceptions to market prices. By
law, gasoline pump prices are adjusted to reflect changes in world
petroleum prices and exchange rate movements.
Haiti's tax system is inefficient. Direct taxes on salary and wages
represent only about 25 percent of receipts. Moreover, tax evasion is
widespread and taxpayers previously were not registered with the tax
bureau (DGI, Direction Generale des Impots). Not surprisingly, the
government has made improved revenue collection a top priority. The DGI
has organized a large taxpayers' unit which focuses on identifying and
collecting the tax liabilities of the 200 largest corporate and
individual taxpayers in the Port au Prince area, which are estimated to
represent over 80 percent of potential income tax revenue. Efforts are
also being made to identify and register all taxpayers through issuance
of a citizen taxpayer ID card. In addition, the value added tax has
been extended to include sectors previously exempt (banking services,
agribusiness, and the supply of water and electricity). Collection
remains weak and inefficient, though receipts rose by 34% in 1997 (in
nominal terms).
4. Debt Management Policies
Following the 1991 coup which ousted President Aristide, Haiti
suspended all payments on its foreign debt. When President Aristide
returned to office in October 1994, Haiti's arrears with the
international financial institutions (IFIs) totalled some $84 million.
The international community made it an immediate priority to clear
Haiti's arrears with the IFIs so that new lending could begin.
On May 30, 1995, the Paris Club agreed to reschedule all of Haiti's
bilateral debt to Paris Club members. Roughly two-thirds of this debt
($75 million) was forgiven under ``Naples'' terms. The balance was
rescheduled over 26-40 years. An overwhelming percentage (91 percent in
FY 1995, 85 percent in FY 1996) of Haiti's debt is in concessional
loans from the IFIs. These loans typically have 10 year grace periods,
40 year payback periods, and negative real interest rates.
Haiti's external public debt will rise to about 40% of GDP in
fiscal years 1998-1999 (from 34% at the end of FY 96). Haiti's external
debt service will rise to about 19% of exports of goods and services in
1998 from 17%. With this modest debt service burden, the country should
be able to meet all its obligations in a timely manner. However, debt
service capacity is sensitive to unexpected changes in the rate of
growth of exports and changes in import prices.
5. Significant Barriers to U.S. Exports
With the lifting of all economic sanctions against Haiti, the sharp
reduction in tariffs, and the government's decision to remove all
import licenses and the 40% foreign exchange surrender requirement on
export earnings, there are no significant barriers to U.S. exports. The
resumption of normal trade in October 1995 unleashed tremendous pent-up
demand for U.S. goods. The import of firearms and other weapons into
Haiti is controlled for foreign policy reasons. Haitian importers must
obtain a license to purchase such goods from U.S. suppliers. Haiti,
through the Presidential Commission for Growth and Modernization, is
actively working to facilitate foreign trade and investment.
6. Export Subsidy Policies
Haiti has no export subsidy programs.
7. Protection of U.S. Intellectual Property
Infringement of intellectual property rights has not been a
significant issue in Haiti. The economy produces a small variety of
products, most of which are for export to the United States and other
countries that do not tolerate open infringement. Most manufactured
goods sold here are imported. The most obvious example of intellectual
property rights infringement is the handful of video outlets where poor
quality pirated videotapes compete with legitimate products. Pirated
music cassettes are also widely available and the outside walls of many
schools are brightly painted with (generally poor) representations of
licensed animated characters.
Although the legal system affords protection of intellectual
property rights, weak enforcement mechanisms, inefficient courts, and
poor judicial knowledge of commercial law dilute the effectiveness of
this statutory protection. Moreover, injunctive relief is not available
in Haiti, so the only way to force compliance (should it become
necessary) is to jail the offender. Efforts to reform and improve the
Haitian legal system, now being undertaken with the assistance of
international advisors, may prevent more extensive abuse of
intellectual property rights as Haiti's economic recovery progresses.
Haiti is signatory to the Buenos Aires Convention of 1910 and the
Paris Convention of 1883 with regard to patents, and to the Madrid
Agreement with regard to trademarks, and is a member of the World
Intellectual Property Organization. However, Haiti is not a signatory
to the Berne Convention on copyright.
8. Worker Rights
a. The Right of Association.--The constitution and the labor code
guarantee the right of association and provide workers, including those
in the public sector, the right to form and join unions without prior
government authorization. The law protects union activities, while
prohibiting closed ``union shops.'' The law also requires unions, which
must have a minimum of ten members, to register with the Ministry of
Social Affairs within 60 days of their formation.
Six principal labor federations represent about five percent of the
total labor force, including about two to three percent of labor in the
industrial sector. Each maintains some fraternal relations with various
international labor organizations.
b. The Right to Organize and Bargain Collectively.--The labor code
protects trade union organizing activities and stipulates fines for
those who interfere with this right. Unions are theoretically free to
pursue their goals, although government efforts to enforce the law are
non-existent. Unions complain that employers do not allow unions access
to workers, and individuals who attempt to join unions risk being
fired. Organized labor activity is concentrated in the Port-au-Prince
area, in state enterprises, the civil service, and the assembly sector.
The high unemployment rate and anti-union sentiment among some factory
workers has limited the success of union organizing efforts. Collective
bargaining is nearly nonexistent, especially in the private sector.
Employers can generally set wages unilaterally.
Haiti has no export processing zones, and the labor code does not
distinguish between industries producing for the local market and those
producing for export. Employees in the export-oriented assembly sector
enjoy wages and benefits above the legal minimums. Wages appear to be
somewhat higher in the more capital-intensive industries producing for
the local market.
c. Prohibition of Forced or Compulsory Labor.--The labor code
prohibits forced or compulsory labor. However, some children continue
to be subjected to unremunerated labor as domestic servants. Rural
families are often too large for the adult members to support, and
children are sometimes sent to work for urban middle-class families in
exchange for room and board. Reports of abuse are common, but the
Ministry of Social Affairs rarely exercises its authority to remove
children from abusive situations.
d. Minimum Age for Employment of Children.--The minimum employment
age in all sectors is 15 years. Fierce adult competition for jobs
ensures that child labor is not a factor in the industrial sector. As
in other developing countries, rural families in Haiti often rely on
their children's contribution of labor in subsistence agriculture.
Children under 15 commonly work at informal sector jobs to supplement
family income. The International Labor Organization has criticized the
Ministry of Social Affairs' enforcement of child labor laws as
inadequate.
e. Acceptable Conditions of Work.--The legal minimum daily wage is
36 gourdes (about $2.12). Annually, a minimum wage worker earns about
$670, an income considerably above the per capita gross domestic
product, but sufficient only to permit the family to live in very poor
conditions. The majority of Haitians work in subsistence agriculture, a
sector where minimum wage legislation does not apply.
The labor code governs individual employment contracts. It sets the
standard workday at 8 hours, and the work week at 48 hours, with 24
hours of rest on Sunday.
The code also establishes minimum health and safety regulations.
The industrial and assembly sectors largely observe these guidelines.
The Ministry of Social Affairs does not, however, effectively enforce
work hours or health and safety regulations.
With more than 50 percent and possibly 75% of the active population
unemployed or underemployed, workers are often not able to exercise the
right to remove themselves from dangerous work situations without
jeopardy to continued employment.
f. Rights in Sectors with U.S. Investment.--U.S. direct investment
in goods-producing sectors in Haiti is limited, consisting of ownership
of two garment factories and a very few joint ventures in export-
substitution industries. In general, conditions differ little from
other sectors of the economy. Wages paid in these industries tend to be
above the legal minimum, and in the case of industries producing for
the local market, often a multiple of the legal minimum. Employers in
these sectors frequently offer more benefits than the average Haitian
worker receives, including free medical care and basic medications at
cost.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... \1\
Food & Kindred Products..................... 0
Chemicals & Allied Products................. 0
Metals, Primary & Fabricated................ 0
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... \1\
Wholesale Trade............................... 0
Banking....................................... 2
Finance/Insurance/Real Estate................. 0
Services...................................... 2
Other Industries.............................. 0
TOTAL ALL INDUSTRIES.......................... 45
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
HONDURAS
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\........................... 3,461 3,444 3,679
Real GDP Growth (pct):.................... 4.3 3.0 4.5
GDP by Sector:
Agriculture............................. 735 665 N/A
Manufacturing........................... 614 630 N/A
Services................................ 1,824 1,793 N/A
Government.............................. 202 195 N/A
Per Capita GDP(U.S$) \3\.................. 633 611 634
Labor Force (000s)........................ 1,796 1,883 1,955
Unemployment Rate (pct) \4\............... 6.6 6.3 6.3
Money and Prices (annual percentage growth):
Money Supply (M2)......................... 21.6 37.4 N/A
Consumer Price Inflation.................. 29.5 25.4 15.0
Exchange Rate (LP/US$ - annual average)
Official................................ 9.47 11.84 13.00
Balance of Payments and Trade:
Total Exports............................. 1,297 1,422 1,602
Exports to U.S.\6\...................... 1,441 1,796 N/A
Total Imports CIF \5\..................... 1,723 1,929 1,955
Imports from U.S.\6\.................... 1,281 1,641 N/A
Trade Balance............................. -426 -507 -353
Trade Balance with U.S.................. 161 155 N/A
Current Account Deficit/GDP (pct) \7\..... 5.5 5.0 -2.0
External Public Debt...................... 3,946 3,762 N/A
Debt Service Payments/GDP (pct)........... 12.0 11.0 N/A
Fiscal Deficit/GDP (pct).................. 4.3 3.4 2.5
Gold and Foreign Exchange Reserves........ 109 283 440
Aid from U.S.\8\.......................... 42.3 43.0 28.5
Aid from Other Countries \8\.............. 119 96 116
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available monthly data in
October 1997.
\2\ GDP at factor cost.
\3\ Using GDP at factor cost results in a lower measure of per capita
GDP income.
\4\ Represents urban unemployment. Underemployment approaches 30
percent.
\5\ Merchandise trade; does not include re-exports under the Caribbean
Basin Initiative.
\6\ Source: U.S. Department of Commerce and U.S. Census Bureau;exports
FAS, imports customs basis.
\7\ (-) indicates a surplus current account.
\8\ See section (5)
1. General Policy Framework
Despite abundant natural resources and substantial U.S. and
multilateral economic assistance, Honduras remains one of the poorest
countries in the hemisphere with a per capita income of under $700 and
low health and education indicators. In the 1980s, unfavorable terms of
trade for primary exports such as bananas and coffee, high external
debt levels, and flawed economic policies doomed Honduras to a decade
of low growth rates and declining living standards.
From 1990 until 1993, the government of President Callejas embarked
on an ambitious economic reform program, including dismantling price
controls, lowering import tariff duties and removing many non-tariff
barriers to trade. The Honduran government adopted a free market
exchange rate regime, licensed foreign exchange trading houses, removed
interest rate ceilings, and adopted modern national investment
legislation. Unfortunately, in 1992 and 1993, a sharp rise in public
sector investment spending reversed the progress on the fiscal front
and raised the deficit to 11.2 percent of GDP for 1993. External grant
inflows financed part of the fiscal gap, but the monetized fiscal
deficit resulted in a resurgence in domestic inflation.
Inaugurated in January 1994, President Carlos Roberto Reina
inherited an economy in the grips of stagflationary conditions due to
an unprecedented energy crisis, declining output of key agricultural
products (basic grains and bananas), and extravagant public investment
policies of the former Callejas Administration. Over the last several
years, the government of President Reina made significant advances in
moving toward economic stability and structural reform. Reina has taken
a series of measures to reduce the fiscal deficit including cutting
current expenditures, increasing tax collections, reducing public
employment, and negotiating with the IMF a series of measures that cut
the fiscal deficit to 3.4 percent of GDP in 1996. On the structural
side, the Reina Government's policy initiatives gathered steam allowing
for the enactment of major reforms in the fourth quarter of 1995,
including the passage of a modern financial sector reform law and
legislation authorizing the government to privatize the national
telephone company and international airports. Additional significant
reforms enacted since the last quarter of 1996 include: the passage of
the Law to reform the Central Bank (making it autonomous and the lender
of last resort), the Public Administration Law (to streamline
government), the continued increase in the consumption tax on motor
fuels, the unification of the Central Bank reserve requirement and its
extension to previously uncovered financial instruments, passage of tax
code reform, the increase in tariffs for telephone subscribers and
electricity consumers, and a decision to align (reduce) Honduran
tariffs on raw material imports with those of other Central American
countries. Major structural reforms pending further action include
progress toward issuing bids for the sale of one-half the assets of the
telephone monopoly (HONDUTEL), passage of the Mining Law, approval of a
general concessions law, concessioning the country's four international
airports, and the planned reduction in the corporate income tax rate
from a range of 40 percent to 25 percent.
Under President Reina, the restrictive (anti-inflationary) monetary
policies of the Central Bank have been further tightened. Absolute
limits have been imposed on public sector borrowing. The reserve
requirement (currently an effective 31 percent) remains the favored
policy tool to control money supply growth and inflation, although open
market operations are taking on an increasing role.
Honduras became a founding member of the World Trade Organization
(WTO) on January 1, 1995. Honduras also concluded negotiations with the
U.S. on a Bilateral Investment Treaty (BIT), which was signed on July
1, 1995, although this treaty has not been ratified by either nation's
Congress.
2. Exchange Rate Policy
The Central Bank sets the weekly base exchange rate by calculating
the difference between the expected monthly rate of domestic inflation
and estimated inflation among Honduras's 12 major trading partners. The
Central bank allows buyers to bid at prices up to 5 percent above or
below the base rate.
The Foreign Exchange Repatriation Law passed in September 1990
requires all Honduran exporters, except those operating in free-trade
zones and export processing zones, to repatriate 100 percent of their
export earnings through the commercial banking system. Presently,
commercial banks are required to sell 100 percent of these repatriated
earnings to the Central Bank, which in turn auctions up to 65 percent
of them daily in the open market.
3. Structural Policies
Trade Policy: In an effort to increase trade and maintain its
competitiveness with its Central American neighbors, Honduras has cut
its import duties to between 0 and 20 percent for most items. In 1995
Honduras and other Central American Common Market (CACM) members agreed
to work toward the full implementation of a common external tariff
ranging between 0 and 15 percent for most products but allowed each
country to determine the timing of changes. In keeping with this
commitment, on April 24, 1997 the Honduran Congress passed the Tariff
Matching Law. This law effectively reduces tariff rates for raw
materials and inputs produced outside of the Central American Region
from 5 percent to 3 percent as of May 1, 1997 and to 1 percent as of
December 1, 1997. Tariffs on capital goods, medicines and agricultural
inputs were previously reduced to 1 percent on January 1, 1997.
Honduras also intends to reduce its extra regional tariffs for other
goods (intermediate and finished) over the next several years to
between 10 and 17 percent.
Pricing Policy: The only products under price controls at present
are coffee, medicines and petroleum products. The price of gasoline,
diesel and liquid propane gas is strictly controlled by the government.
Tax Policies: Honduras has long maintained a high corporate tax
rate. This rate has been generally considered a major disincentive to
foreign direct investments not covered by the tax exemptions for
export-oriented firms operating in free trade zones and industrial
parks. The top marginal corporate tax rate is 40 percent, although the
government plans to reduce the tax to 25 percent in the near future. In
order to compensate for the reduction in the corporate tax rate the
government is expected to significantly increase the sales tax or
introduce a value-added tax. The most important sources of government
revenue are the income tax, the 7 percent sales tax, taxes on fuels,
and import duties.
4. Debt Management Policies
Since early 1990, the Honduran government has been working to
restore the country's credit worthiness, reschedule its external debt
and regain support from the multilateral development banks. Honduras's
large and growing external debt represents a major constraint on
growth, despite favorable Paris Club debt rescheduling agreements in
July 1995 and March 1996 and over $500 million in debt forgiveness by
the U.S. and other countries this decade.
The foreign debt of Honduras was $4.086 billion in 1996, of which
$3.762 billion (92 percent) corresponded to the public sector and $324
million to the private sector. Sixty-one percent of Honduras's total
debt was owed to multilateral lending institutions, 32 percent to
bilateral lenders and 7 percent to private creditors. The foreign debt
figure for 1996 was $156.7 million less than in 1995. Honduras paid
approximately $376.6 million in principal and interest payments on its
foreign debt in 1996. Debt service remains high, equivalent to
approximately 19 percent of total exports and around 30 percent of the
government budget.
In June 1992, the IMF approved a three-year (1992-95) enhanced
structural adjustment facility (ESAF), allowing Honduras to obtain a
second favorable Paris Club agreement in October 1992. In 1993 the
Callejas government took on substantial new commercial debt obligations
for public investment projects and failed to make scheduled debt
service payments to the United States and other Paris Club creditors.
The Paris Club agreement was technically suspended in August 1993,
pending agreement with the IMF on an economic program and payment of
all Paris Club arrears. In January1995, the IMF Board approved the
letter-of-intent for a second year of a three year ESAF. Under the
negotiated terms Honduras received $28 million in World Bank reflows
and $30 million in IMF balance of payments support. In July 1995,
Honduras also succeeded in obtaining favorable Paris Club rescheduling
terms for its bilateral debt. In March 1996 Honduras again received
favorable Paris Club rescheduling terms from its bilateral creditors.
The rescheduling, however, was contingent upon Honduras reaching
agreement with the IMF on a third year ESAF, which it was unable to do
because it did not comply fully with the ambitious goals of its 1995
and 1996 economic programs. It has succeeded in negotiating a staff
monitored program (SMP) with the Fund for the remainder of 1997, and is
meeting the benchmarks set under the SMP. Honduras hopes to negotiate a
new ESAF with the Fund soon after the new government assumes office in
January of 1998.
5. Aid
Over the last three fiscal years, USAID/Honduras has disbursed
approximately $109.3 million, including $13.8 million in PL-480 Title
II funds and $10.0 million in PL480 Title III funds. The annual
distribution of these expenditures show a marked decrease over this
period, falling from $40.6 and $41.4 million in 1995 and 1996,
respectively, to $27.3 million in 1997. These expenditures were used
for development activities in the areas of health, education, economic
growth and policy, democracy, and natural resources and the
environment. In 1997 Honduras received $500 thousand for IMET
(International Military Education and Training). Currently there
remains approximately $12.2 million in residual FMS (Foreign Military
Sales) monies to support construction, maintenance, and sustainment of
equipment. These monies are expected to be exhausted over the next few
years. In 1997, the USG also provided Honduras with $195 thousand to
support anti-narcotics efforts and $1.0 million for the Department of
Justice's ICITAP (International Criminal Investigative Training
Assistance Program) Program to provide technical assistance and
training to professionalize civilian police institutions. Honduras also
receives substantial assistance from the international financial
institutions in the form of soft loans.
6. Significant Barriers to U.S. Exports
Import Policy: While reforms have gone far to open up Honduras to
U.S. exports and investment, a number of protectionist policies remain.
For example, although all import licensing requirements have been
eliminated, Honduras has resorted to an onerous zoo sanitary system
that effectively denies market access to U.S. chicken parts.
Services Barriers: Under Honduran law, special government
authorization must be obtained to invest in the tourism, hotel and
banking service sectors. Foreigners are not permitted majority
ownership of foreign exchange trading companies. Foreigners may not
hold a seat in Honduras's two stock exchanges or provide direct
brokerage services in these exchanges.
Labeling and Registration of Processed Foods: Honduran law requires
that all processed food products be labeled in Spanish and registered
with the Ministry of Health. The laws are inconsistently enforced at
present. However, these requirements may discourage some suppliers.
Investment Barriers: Several restrictions exist on foreign
investment in Honduras, despite the 1992 investment law. For example,
special government authorization is required for foreign investment in
the following sectors: forestry, telecommunications, basic health
services, air transport, fishing and aquaculture, exploration of sub-
surface resources, insurance and financial services, private education
services, and agriculture and agro-industrial activities exceeding land
tenancy limits established by the Agricultural Modernization Law of
1992 and the Land Reform Law of 1974. The law also requires Honduran
majority ownership in certain types of investment, including
beneficiaries of the National Agrarian Reform Law, commercial fishing
and direct exploitation of forest resources and local transportation.
Honduran law also prohibits foreigners from establishing businesses
capitalized at under 150,000 lempiras (about $11,500). In all
investments, at least 90 percent of a company's labor force must be
national, and at least 80 percent of the payroll must be paid to
Hondurans. Finally, while a one-stop investment window has been
instituted in the Ministry of Industry, Trade, and Tourism to
facilitate investment, the ministry has not provided complete
information or assistance to the foreign investor.
Government Procurement Practices: The Government Procurement Law
(Decree No. 148.5) governs the contractual and purchasing relations of
Honduran state agencies. Under this law, foreign firms are given
national treatment for public bids, although they are required to act
through a local agent. In practice, U.S. firms complain about a
mismanagement and lack of transparency of Honduran government bid
processes. These deficiencies have been particularly evident in recent
public tenders for energy projects, which have dragged on without
conclusion.
Customs Procedures: Honduras' customs administrative procedures are
burdensome. There are extensive documentary requirements and red tape
involving the payment of numerous import duties, customs surcharges,
selective consumption taxes, and warehouse levies.
7. Export Subsidies Policies
With the exception of free trade zones and industrial parks, almost
all export subsidies have been eliminated. The Temporary Import Law
(RIT), passed in 1984, allows exporters to bring raw materials and
capital equipment into Honduran territory exempt from customs duties if
the product is to be exported outside Central America. This law also
provides a ten-year tax holiday on profits from these exports under
certain conditions.
The Export Processing Zones (ZIPs) are exempted from the payment of
import duties and other charges on goods and capital equipment. In
addition,the production and sale of goods within the ZIPs are exempt
from state and municipal taxes. Firms operating in ZIPs are exempt from
income taxes for 20 years and municipal taxes for 10 years.
8. Protection of U.S. Intellectual Property
In 1997, Honduras was identified in the ``Watch List'' Category of
the U.S. Government's annual Special 301 review due to a lack of
effective protection of IPR. Since 1992, Honduras has been the subject
of a continuing review under the Generalized System of Preferences
(GSP) for deficiencies in its IPR regime. On September 1, 1993 the
Honduran Congress approved new copyright, trademark, and patent
legislation. The government also took substantial action to improve the
IPR climate by curbing cable piracy (approximately 90 percent of the
market is legal) and creating an office in the Ministry of Industry,
Trade, and Tourism to implement and enforce its IPR laws. In 1995 the
Government of Honduras drafted and submitted to the Honduran Assembly
amendments intended to address shortcomings found in Honduras's 1993
copyright law, but the legislation was stalled. However, on February 8,
1997, the Government of Honduras, under decree number 191-96, passed
amendments to the 1982 Honduran Penal Code which for the first time
included stiff criminal penalties for violators of IPR rights. IPR
violators are now subject to incarceration from three to six years.
Honduras has also submitted the Central American Convention on
Industrial Property to its Congress for consideration. Despite this
progress, IPR protection remains problematic in Honduras. On May 28,
1997, the Office of the U.S. Trade Representative published in the
Federal Register a notice informing the public that a determination has
been made that Honduras fails to provide adequate and effective means
under its laws for foreign nationals to secure, exercise, and enforce
exclusive rights in intellectual property. The Trade Policy Staff
Committee (TPSC) will recommend to the President that he withdraw $5
million in duty-free treatment accorded Honduras under the Generalized
System of Preferences (GSP) program and the Caribbean Basin Initiative
(CBI) unless the problems are remedied. The Notice stems from the 1992
GSP petition filed by the Motion Picture Exporters Association (now the
MPAA) and is primarily concerned with the continued unauthorized
broadcasting of pirated videos and rebroadcasting of U.S. satellite
programming.
A report prepared by the International Intellectual Property
Alliance estimates that losses in Honduras due to copyright
infringements cost U.S. firms $5 million in 1996.
Patents: The patent law enacted in September 1993 provides patent
protection for pharmaceuticals, although the patent term of seventeen
years from the date of application must be extended by at least three
years to meet international standards.
Trademarks: The illegitimate registration of well-known trademarks
is a problem in Honduras, in spite of 1993 modifications to the
trademark law.
Copyrights: The piracy of books, sound and video recordings,
compact discs, computer software, and television programs is widespread
in Honduras. Despite some progress, copyright protection remains
problematic. The Government of Honduras filed a complaint with a
criminal court judge in October of 1997 against the owners of two
alleged pirating stations. The Government has also conducted several
raids this year against suppliers of pirated audio and audio-visual
products.
9. Worker Rights
a. The Right of Association.--Workers have the legal right to form
and join labor unions; the unions are independent of government and
political parties. Three large peasant organizations are affiliated
directly with the labor movement. Unions frequently participate in
public rallies against Government policies, and make extensive use of
the news media to advance their views. Since only about fourteen
percent of the work force is unionized, however, the economic and
political influence of organized labor has diminished in recent years.
The Constitution provides for the right to strike, along with a wide
range of other basic labor rights, which the authorities honor in
practice. The Civil Service Code, however, denies the right to strike
to all Government workers, other than employees of state-owned
enterprises. There were illegal work stoppages during the year,
conducted by public sector employees in health and related industries.
b. The Right to Organize and Bargain Collectively.--The law
protects workers' rights to organize and to bargain collectively;
collective bargaining agreements are the norm for companies in which
workers are organized. However, although the Labor Code prohibits
retribution by employers for trade union activity, it is a common
occurrence. Employers actually dismiss relatively few workers for union
activity, once a union is recognized; such cases, however, may
discourage workers elsewhere from attempting to organize. Workers in
both unionized and nonunionized companies are under the protection of
the Labor Code, which gives them the right to seek redress from the
Ministry of Labor. The Ministry of Labor took action in several cases,
pressuring employers to observe the code. Labor or civil courts can
require employers to rehire employees fired for union activity, but
such rulings are uncommon. Labor leaders criticize the Ministry for not
enforcing the Labor Code, for taking too long to make decisions, and
for being timid and indifferent to workers' needs. Under a November
1995 Memorandum of Understanding between the Ministry of Labor and the
Office of the United States Trade Representative, which called for
greater enforcement of the Honduran Labor Code, the Ministry has made
significant progress toward enforcing the code. The Ministry has
increased its inspections of the maquiladoras and the training of its
inspectors; it needs to do more, however, to adhere completely to
international labor standards. Along with other Central American
nations, the Government of Honduras in August agreed to carry out a
program supported by the U.S. Agency for International Development to
modernize the inspection and labor-management functions of its Ministry
of Labor.
c. Prohibition of Forced or Compulsory Labor.--The Constitution and
the law prohibit forced or compulsory labor. Although there were no
official reports of such practices in the area of child labor, there
were credible allegations of compulsory overtime at Export Processing
Zone (EPZ) plants, particularly for women, who constitute an estimated
eighty percent of the work force in the maquiladora sector.
d. Status of Child Labor Practices and Minimum Age for
Employment.--The Constitution and the Labor Code prohibit the
employment of minors under the age of sixteen, except that a child who
is fifteen years of age is permitted to work with the permission of his
parents and the Ministry of Labor. The new Children's Code prohibits a
child of fourteen years of age or less from working, even with parental
permission, and establishes prison sentences of three to five years for
individuals who allow children to work illegally. An employer who
legally hires a fifteen-year-old must certify that the child has
finished or is finishing his compulsory schooling. The Ministry of
Labor grants a number of work permits to fifteen-year-olds each year.
It is common, however, for younger children to obtain these documents,
or to purchase forged permits containing the Labor Ministry's
letterhead. The Ministry of Labor cannot effectively enforce child
labor laws, except in the maquiladora sector, and violations of the
Labor Code occur frequently in rural areas and in small companies. Many
children work on small family farms, as street vendors, or in small
workshops to supplement the family income.
e. Acceptable conditions of Work.--In 1995, the Government decreed
a 25 percent increase in the minimum wage. Daily pay rates vary by
geographic zone and the sector of the economy affected; urban workers
earn slightly more than workers in the countryside. The lowest minimum
wage occurs in the agricultural sector, where it ranges from $1.92 to
$2.31 (25 to 30 lempiras) per day, depending on whether the employer
has more than fifteen employees; the highest minimum wage is $3.05 (39
lempiras) per day in the export sector. All workers are entitled to the
equivalent of an additional one month's salary in June and December of
each year. The law prescribes a maximum eight-hour day and a 44-hour
work week. There is a requirement of at least one 24-hour rest period
every eight days. The Labor Code provides for a paid vacation of ten
workdays after one year, and of twenty workdays after four years.
However, employers frequently ignored these regulations due to the high
level of unemployment and underemployment and the lack of effective
enforcement by the ministry of labor.
f. Rights in Sectors with U.S. Investment.--Worker rights in
sectors with U.S. investment are respected more fully than those in
other sectors of the economy lacking substantive U.S. participation.
For example, in a number of U.S.-owned maquila plants, workers have
shown little enthusiasm for unionizing, since they consider their
treatment, salary, and working conditions to be as good as, or better
than, those in unionized plants. In establishing new investments in
Honduras, U.S. businesses in recent years consciously have constructed
their plants to meet more stringent U.S. Government laws and
regulations.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 237
Food & Kindred Products..................... \1\
Chemicals & Allied Products................. 0
Metals, Primary & Fabricated................ 2
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... \1\
Wholesale Trade............................... \1\
Banking....................................... 5
Finance/Insurance/Real Estate................. 25
Services...................................... 0
Other Industries.............................. -145
TOTAL ALL INDUSTRIES.......................... 145
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
JAMAICA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP............................. 4,650.5 5,460.1 6,118.8
Real GDP Growth Rate \2\................ 0.5 1.7 1.0
GDP By Sector:
Agriculture........................... 431.0 455.7 N/A
Mining................................ 329.5 321.8 N/A
Manufacturing......................... 812.3 918.5 N/A
Construction and Installation........... 596.1 637.4 N/A
Electricity And Water................... 102.2 114.5 N/A
Transportation and Communication........ 385.2 584.1 N/A
Retail Trade............................ 1,081.0 1,237.5 N/A
Real Estate & Business Services......... 211.7 255.7 N/A
Government Services..................... 426.9 622.7 N/A
Finance................................. 62.3 60.6 N/A
Other................................... 212.3 251.6 N/A
Total................................... 4,650.5 5,460.1 N/A
GDP Per Capita (US$).................... 1,867.7 2,166.7 2,428.1
Labor Force (000's) \3\................. 1,150.0 1,142.7 N/A
Unemployment Rate(pct).................. 16.2 16.0 N/A
Money And Prices (annual percentage
growth):
Money Supply Growth (M2)................ 38.5 14.4 \4\ 7.4
Consumer Price Inflation................ 25.6 15.8 12.0
Exchange Rate(Jd/US$)................... 35.54 37.02 37.0
Balance of Payments and Trade:
Total Exports FOB....................... 1.4 1.4 1.4
Exports to U.S........................ 520.8 510.9 440.0
Total Imports CIF....................... 2,831.8 2,916.4 3,100.0
Imports from U.S...................... 1,425.3 1,513.7 1,450.0
Trade Balance........................... -1,395.0 -1,529.5 -1,705.0
Balance with U.S...................... -904.5 -1,002.8 -1,010.0
External Public Debt \5\................ 3,451.9 3,231.9 3,341.0
Fiscal Surplus/Deficit/GDP (pct) \6\.... 3.7 -15.6 N/A
Debt Service Payments................... 592.6 579.5 N/A
Net Official Reserves \7\............... 428.0 706.6 573.8
Aid from U.S.\8\........................ 28.9 26.4 24.4
Aid from Other Countries \9\ 1.......... 64.5 281.0 N/A
------------------------------------------------------------------------
\1\ 1997 Figures Are All Estimates Based On Available Monthly Data As Of
October 1997.
\2\ Growth Rate Is Based On Jamaican Dollars Whereas Real GDP Is Shown
In U.S. Dollars.
\3\ Government Reports Account For The 1996 Decline In Workforce By A
Reduction Of 8,600 In The Youth Group (I.E. Under Age 25) Due To
Overall Aging Of The Workforce And Departure Of Youth From The
Workforce To Enter Vocational/Training Programs. The Adult Work Force
Increased By 1,000 To 844,000 In 1996.
\4\ Jan-July 1997
\5\ Figure As Of July 97.
\6\ Jamaican Fiscal Year (April-March) Deficit.
\7\ Figure Based On July 97.
\8\ Estimates Include Development, Food, And Military Assistance.
\9\ Commitments For Development Assistance From Jamaica's Cooperation
Partners.
1. General Policy Framework
Jamaica is an import-oriented economy with imports of goods and
services totaling two-thirds of GDP. during the year, imports of
consumer goods have increased over imports of capital goods and raw
materials. Tourism (13.3 percent of GDP), bauxite/alumina (9.2 percent
of GDP), and manufacturing (such as apparel, processing of sugar,
beverages and tobacco, etc.--18.1 percent of GDP) are the major pillars
sustaining the economy. In 1996, these three sectors accounted for 76
percent ($2.364 billion) of the country's foreign exchange earnings.
Remittances are also a significant source of income and bring in over
USD 700 million annually. Both GDP and foreign exchange inflows are
sensitive to external economic factors, particularly with respect to
commodity prices and the services/tourism sector.
According to statistics, Jamaica has an aging labor force: over
half are age 35 and above. About 58 percent of Jamaica's work force is
employed in the services sector, contributing about 76.7 percent of
GDP. Agriculture, which contributes about 8 percent of GDP, employs 23
percent of the workforce. The primary products are sugar, bananas,
coffee and cocoa. The small size of the Jamaican economy and relatively
high production costs (e.g., domestic interest rates) have reduced the
contribution of the manufacturing sector over the last several years to
about 18.1 percent of GDP in 1996. Although apparel still accounts for
nearly three-quarters of non-traditional exports and a third of total
domestic merchandise exports, the industry is contracting. Several
factories closed in 1997, following more than a dozen factory closures
in 1996. Consequently, current employment in the industry is down to
approximately 27,000, a decline of 28 percent from peak employment in
1994.
The Jamaican economy suffered negative growth of 1.7 percent in
1996, following flat growth of 0.5 percent in 1995. Contraction in
economic growth is expected to continue during 1997, influenced by:
losses and failures of major financial companies necessitating sector-
wide government support; slow growth in the agricultural sector due to
prolonged drought, low prices and high production costs of export crops
such as sugar; the lack of export competitiveness in the manufacturing
sector; high interest rates and internal debt burden; and low levels of
investment.
To address the economic slowdown, the National Industrial Policy
(NIP) was adopted by the Government of Jamaica in March 1996 as a long-
term measure to achieve sustained economic growth and development.
During the first year, the NIP's target was to achieve macro-economic
stability by maintaining a stable exchange rate and reducing inflation
and interest rates. These objectives were substantially achieved during
the course of the year. The NIP's second phase (a three-year period
beginning in 1997) aims at stable growth with stability by stimulating
investment and export diversification.
Since the end of 1995, the banking and insurance sector has
experienced serious difficulties caused by a mismatch of assets and
liabilities, where many of the assets are non-performing real estate
loans or real estate projects that did not work as planned.
Interlocking ownership of nearly bankrupt insurance companies and banks
has also complicated matters. Sectoral difficulties have been
exacerbated by government policies to strictly control the money
supply.
In February 1997, the Financial Institutions Structural Adjustment
Company (FINSAC) was established by the Government of Jamaica to
operate a support and rehabilitation program. In addition, legislation
is being drafted to strengthen the sector. This includes: a deposit
insurance scheme; more explicit legal definition of the functions of
various financial entities; limitations on unsecured credit to persons
connected with a financial institution; and a transfer of powers from
the Ministry of Finance to the Central Bank which will expand its
oversight authority.
Other support programs to bolster the economy include equity
funding from the public sector financial institutions through the
National Investment Bank of Jamaica (NIBJ). the government has provided
both financial and technical assistance to the export apparel sector
and the coffee industry in order to save these industries from
collapse. The government is also formulating a major recovery plan for
the island's failing sugar industry, a key export.
The Jamaican fiscal year (JFY) April 1997/March 98 budget calls for
JDOLS 106.6 billion in outlays. This is a reduction from the revised
1996/97 budget of JDOLS 114 billion. (the revision from the original
JDOLS 100 billion accounts for the GOJ financial sector rescue package
and related expenses) for JFY 1997/98, recurrent expenditure is
estimated at JDOLS 65.25 billion and capital expenditure at JDOLS 41.34
billion, a six percent decline over the revised 1996/97 estimates. The
budget is designed to meet the government's target to limit inflation
for the year to a range between six and ten percent with no more than
one percent monthly inflation. debt servicing accounts for 45.7 percent
of the total budget, followed by: social and community services (25.1
percent); general government services (9.3 percent); economic
development (9.3 percent); defense affairs, public order and safety
(6.6 percent); with the balance applied to miscellaneous, including
unallocated, expenditures (4 percent).
The government hopes to finance the budget through an expected
total revenue of JDOLS 75 billion through recurrent, capital revenue,
and the capital development fund. The remainder will be financed from
external debt (33.8 percent of total deficit, or JDOLS 14.1 billion)
and internal debt (JDOLS 17.7 billion). The government continues to
reduce excess liquidity by issuing ``repos,'' reverse repurchase of
treasury bills, (i.e., sale of securities with an agreement to buy back
on a later date at a given rate). The Bank of Jamaica's open market
operations are a means by which the Government of Jamaica funds its
fiscal deficit.
The Bank of Jamaica (BOJ) continued its tight monetary policy to
absorb excess liquidity by issuing long term securities (local
registered stock) and short-term T-bill rate to decline from a peak of
44.8 percent in April 1996 to 17.7 percent in August 1997. however,
since May 1997, the rate has fluctuated due to government intervention:
the T-bill rate as of September 1997 was 23.53 percent. A further rise
is predicted by the end of the year. increases in T-bill rates have
affected commercial bank lending rates. In September 1997, the lending
rates averaged 45 percent. Lending rates are expected to rise further
as T-bill rates rise. Interest payments on the maturing securities have
served to increase liquidity, necessitating additional security
offerings.
Until early 1995, most funds acquired by the Bank of Jamaica
through the issuance of certificates of deposit (``cds'') were borrowed
by the government and used to finance current expenditures. Excess
liquidity is now dealt with by requiring commercial banks to place
approximately 47 percent of their deposits with the Central Bank as a
reserve (25 percent is a cash reserve requirement which earns no
interest). Other entities such as merchant banks and trusts also have
deposit and cash reserve requirements at lower levels. These
restrictions have limited credit to the private sector and led to
increased interest rates (currently 40-50 percent) affecting investment
in the productive sectors. In addition, loan default rates at
commercial banks are estimated at about 12 percent.
The Bank of Jamaica achieved a positive stock of net international
reserves (NIR) in 1993 for the first time since the mid 1970's. The NIR
has remained positive, reaching its peak of $715.6 million in January
1997. As of September 1997, due to Central Bank interventions to
maintain the exchange rate, the NIR declined to approximately USD 585.5
million, the equivalent of 12.24 weeks of imports.
2. Exchange Rate Policy
On September 26, 1991, exchange controls were eliminated to allow
for free competition in the foreign exchange market. The principal
remaining restriction is that foreign exchange transactions must be
done through an authorized dealer. Licenses are regulated. Any company
or person required to make payments to the government by agreement or
law (such as the levy and royalty due on bauxite) will continue to make
such payments directly to the Bank of Jamaica. further, 5 percent
(lowered from 20 percent) of foreign exchange purchases by authorized
dealers (commercial banks and cambios) must be paid directly to the
BOJ. in addition, according to an agreement between the Petroleum
Company of Jamaica (PETROJAM) and the commercial banks, 10 percent of
foreign exchange purchases go to PETROJAM.
Since April 1994, to promote an increase in the official inflows of
foreign exchange, the government has allowed an increasing number of
cambios (money changers) to act as authorized dealers along with banks.
In 1996, total foreign exchange inflows through these dealers increased
by 115.4 percent to $ 3.3 billion. From January to September 1997,
foreign exchange inflows into the official trading market increased by
11.1 percent over the corresponding period in 1996 to $2.6 billion. The
average weighted selling rate is slipping. On June 9, 1997, the rate
was JDOLS 35.23 to$1.00; by October 15, 1997, it was JDOLS 36.09 to
$1.00. The decline is the result of uncertainty and speculation arising
from unfavorable economic conditions. There is a broad perception in
the market that the present exchange rate is not sustainable and will
not be defended by the Bank of Jamaica after the upcoming national
elections. However, the exchange rate of the Jamaican dollar still
remains within a targeted band through the bank of Jamaica's
intervention.
3. Structural Policies
In order to create an environment of free and fair competition and
to provide consumer protection, the Fair Competition Act was introduced
in 1993. Prices are generally determined by free market forces with
many products traditionally marketed to provide for fairly high
markups. However, certain public utility items such as bus fares,
water, electricity, and telecommunications are still subject to price
controls. Prices of these items can be changed only after ministerial
approval.
Taxation accounts for 94.5 percent of total recurrent and capital
revenue. Major sources of tax revenue include: personal income tax
(40.1 percent of tax revenue), value added tax (33.5 percent) and
import duties (10.3 percent). Although no new taxes have been imposed
in fiscal year 97/98, the government proposes to raise additional
revenue through a rigorous program to enhance tax compliance.
Jamaica implemented the Caribbean Economic Community (CARICOM)
Common External Tariff (CET) on February 15, 1991. Under the CET, goods
produced in CARICOM states are not subject to import duty. Third-
country imports are presently subject to import duties ranging between
0 percent and 30 percent, with higher rates applicable to certain
agricultural items. In addition to the CET, all items (except certain
basic foods) carry a 15 percent general consumption tax. Alcoholic
beverages and tobacco imports carry an additional stamp duty of 25-56
percent and a special consumption tax of 5.0-39.9 percent. Non-basic,
finished goods, and goods competing with those produced in CARICOM
states carry higher duty rates. The tariff rate will be phased down to
a range of 0 to 20 percent by January 1998. The Government of Jamaica
offers incentives to approved foreign investors that eliminate or
reduce taxes, including income-tax holidays and duty-free importation
of capital goods and raw materials.
All monopoly rights of the state Jamaica Commodity Trading Company
(JCTC) ceased December 31, 1991, but it retains responsibility for the
procurement of commodities under government to government agreements
such as the P.L. 480 program. The U.S. embassy is unaware of any
government regulatory policy that would have a significant
discriminatory or adverse impact on U.S. exports.
4. Debt Management Policies
Jamaica's stock of external (foreign) debt declined by 6.37 percent
to JDOLS 3.23 billion in 1996, the lowest since 1986. For the first
time since 1989, there was no instance of debt forgiveness by official
bilateral creditors. About 53 percent of the external debt is owed to
bilateral donors (the United States is the largest bilateral creditor),
34 percent to multilateral institutions (down due to reduced dependence
on the IMF), 11 percent to private creditors (9 percent to commercial
banks; 2 percent to other commercial institutions), and the remaining 2
percent towards bonds.
Actual debt-servicing during 1996 accounted for 17.98 percent
($592.56 million) of exports of goods and services, of which 5.81
percent represents interest payments. The ratio of total outstanding
external debt to exports of goods and services declined from 154
percent in 1993, to 136.24 percent in 1994, to 109.61 percent in 1995,
and to 100.3 percent in 1996, mainly from debt reduction and
improvement in exports. The 1996 external debt per capita was $1,282
billion, a reduction of 7.5 percent from 1995.
Debt-servicing continues to be a major burden on the government
budget (46 percent). in 1995 Jamaica ended its borrowing relationship
with the IMF, but continues repayment to the IMF which has contributed
to the reduction of the debt burden. In 1995 Jamaica also completed its
multi-year rescheduling arrangement (MYRA) with the Paris Club,
negotiated in 1992. The MYRA provided for rescheduling of $281.2
million of principal and interest for the period October 1992 to
September 1995. The government does not envisage future recourse to
rescheduling of debt under MYRA.
Jamaica's internal debt has ballooned in recent years from JDOLS
23.4 billion in 1993 to JDOLS 49.1 billion in 1994, to JDOLS 59.5
billion in 1995, to JDOLS 77.7 billion in 1996. As of July 1997, the
internal debt stood at JDOLS 95.8 billion. Main contributors to
increasing internal debt were: (a) neutralizing the effect of increased
domestic liquidity from the net international reserve accumulation; (b)
budgetary financing; (c) liquidity support to commercial banks; and (d)
intervening to absorb excess liquidity to maintain a stable exchange
rate of the Jamaican dollar. Domestic debt is composed of government
securities such as:T-bills (13.7 percent), local registered stock (69.6
percent), bonds (7.6 percent), and loans from commercial banks and
other entities (9.1 percent).
5. Aid
Jamaica received $305.88 million of official development assistance
from multilateral agencies and other countries on a bilateral basis.
Bilateral sources contributed $95.4 million ($75.7 million as loans and
$19.7 million as grants), while multilateral financial institutions
contributed loans of $136.4 million and grants $74.08 million.
The United States is a major aid contributor. In 1997, $12.6
million was disbursed as development assistance, $10 million was
provided under the P.L. 480 program, and another $1.75 million as
military aid. In addition, there were 105 Peace Corps personnel who
provided technical assistance in the areas of health, education,
environment and small business development.
6. Significant Barriers to U.S. Exports
Import licenses: although considerable headway has been made in the
area of trade liberalization, some items still require an import
license, including: milk powder, refined sugar, plants and parts of
plants for perfume or pharmaceutical purposes, gum-resins, vegetable
saps and extracts, certain chemicals, motor vehicles and parts, arms
and ammunition, certain toys, such as water pistols, and gaming
machines.
Services barriers: foreign investors are now encouraged to invest
in almost any area of the economy except for insurance, where foreign
ownership is limited to 49 percent except for individually approved
exceptions that are assessed on their merits. There are still certain
restrictions in the communications field: under an agreement with the
government, Telecommunications of Jamaica (TOJ), a subsidiary of the
British firm cable and wireless, enjoys monopoly rights until 2013.
Under the new cable T.V. policy, preference is given in granting
licenses to companies that are incorporated in Jamaica and in which
majority ownership and controlling interest are held by Jamaican or
CARICOM nationals. in most other areas, there do not appear to be any
economic or industrial strategies that have discriminatory effects on
foreign-owned investments. A variety of foreign franchises, including
fast foods, ice cream and dry cleaning facilities, have successfully
entered the market during 1997.
Standards, testing, labeling, and certification: the Jamaican
Bureau of Standards administers the Standards Act, the Processed Food
Act and the Weights and Measures Act. Products imported into Jamaica
must meet the requirements of these acts. These include requirements
for labeling. Items sold in Jamaica must conform to recognized
international quality specifications. In most cases, Jamaica follows
U.S. standards. In recent years, the Bureau has become increasingly
vigilant in terms of monitoring the quality of products sold on the
local market. The quarantine division inspects and determines standards
in the case of live animals. Meat imports may be inspected by the
Ministry of Health. In 1995, an amendment to the Weights and Measures
Act was passed aimed at enforcing compliance with the metric system of
measurement. Imported goods are expected to conform to the metric
system.
Investment barriers: The Government of Jamaica welcomes foreign
investment and there are no policies or regulations reserving areas
exclusively to Jamaicans. Although foreigners are not excluded from
participation in privatization/divestment activities, the government
appears to favor the sale of such assets to national investors. While
each investment proposal is assessed on its own merits, investments are
preferred in areas which may increase productive output and use of
domestic raw materials, earn or save foreign exchange, generate
employment, or introduce new technology. The screening mechanisms are
standard and nondiscriminatory. The main criterion is the credit-
worthiness of the company. Environmental impact assessments are
required for new developments. Although both foreign and domestic
companies have complained that ``red tape'' is a hindrance in doing
business, foreign investors are treated the same as domestic investors
before and after investment.
Government procurement practices: government procurement is
generally done through open tenders. U.S. firms are eligible to bid.
The range of manufactured goods produced locally is relatively small,
so instances of foreign goods competing with domestic manufacturers are
very few. The government has taken steps to strengthen and expand the
Contractor General's office for effective monitoring and awarding of
contracts.
Customs procedures: customs clearance problems remain a concern to
domestic and foreign business despite some streamlining of customs
procedures. In order to facilitate the movement of goods, the
government has simplified documentation and clearance requirements for
exporters. In addition, a preclearance system was put in place in 1995
to facilitate the processing of documentation for imports.
computerization of the entire system is still underway.
7. Export Subsidies Policies
The Export Industry Encouragement Act allows approved export
manufacturers access to duty-free imported raw materials and capital
goods for a maximum of ten years. Other benefits are available from the
Jamaican Government's Export-Import Bank, including access to
preferential financing through the Export Development Fund, lines of
credit, and export credit insurance.
In December 1996, the Government of Jamaica launched phase one of a
Special Assistance Program (SAP) for the export apparel industry. The
objective is to improve competitiveness by encouraging companies to
make structural changes and implement operational efficiencies. The SAP
is targeted at reducing operational costs, specifically in the areas of
rent, security and financing. During phase one of the program, a grant
of JDOLS 40 million ($1.1 million) was made available to cover 5
percent of the companies' costs. Phase two of the program, which came
into effect in August 1997, provides an additional JDOLS 160 million
($4.4 million) to address the broader development of the industry,
particularly in those areas which will enhance long-term
competitiveness.
8. Protection of U.S. Intellectual Property
Jamaica is a member of the World Intellectual Property Organization
(WIPO) and of the Berne Convention (copyright protection). The Jamaican
constitution guarantees property rights and has enacted legislation to
protect and facilitate the acquisition and disposition of all property
rights, including intellectual property. Legislation is being revised
to bring Jamaica into conformity with WTO requirements for the
protection of intellectual property. On a bilateral basis, Jamaica and
the United States signed an intellectual property rights agreement in
March, 1994, though the Jamaican law has not been brought into
compliance with those objectives. In addition, a bilateral investment
treaty (BIT) came into force in March 1997 which also contains
obligations to respect intellectual property.
Jamaican laws address major areas of intellectual property rights
(IPR) protection. However, while laws on copyrights have been revised
in recent years, the patent and trademark laws need substantial
updating to be consistent with international agreements. In these
areas, efforts to draft new laws are still underway. Remedies available
include injunctions, damages, seizure and disposal/destruction of
infringing goods. Penalties may include fines or imprisonment. Video
and broadcast piracy is illegal but widespread. Licensing for
broadcasts is required for subscription TV. In January 1997, four
applicants were approved for licensing. The Broadcasting Commission is
presently evaluating 43 applications for subscriber t.v. All licensees
are required to receive permission from the program providers before
broadcasting.
The patent and trademark laws have been under prolonged review for
updating in accordance with WTO intellectual property obligations
(i.e., the ``TRIPS'' agreement). a trademark bill is reportedly near
completion; patent legislation is still being drafted. there is no
statute specifically addressing new technologies.
Levels of IPR enforcement are limited by overall demands on police
and overburdened courts. The government is making efforts to deal with
the lack of public awareness by seminars and publications.
Litigation is a viable option in protecting intellectual property.
In 1997, in individual lawsuits in jamaican courts, U.S. corporations
McDonald's and K-Mart successfully defended their names and service
marks against trademark infringement.
9. Worker Rights
a. The Right of Association.--The Jamaican constitution guarantees
the rights of assembly and association, freedom of speech, and
protection of private property. These rights are widely observed.
b. The Right to Organize and Bargain Collectively.--Article 23 of
the jamaican constitution guarantees the right to form, join and belong
to trade unions. This right is freely exercised. Collective bargaining
is widely used as a means of settling disputes. Industrial actions
(generally brief strikes) are frequently employed in both private and
public sector disputes. The Labor Relations and Industrial Disputes Act
(LRIDA) codifies regulations on worker rights. About 15 percent of the
work force is unionized, and unions have historically played an
important economic and political role in Jamaican affairs. The public
sector is highly unionized. Throughout 1997, the Ministry of Finance
has been negotiating new two-year agreements covering tens of thousands
of public sector employees. Reduced levels of inflation have enabled
government negotiators to avoid budget-busting public sector salary
increases.
No free zone factory is unionized. Jamaica's largest unions claim
this is because unionization is discouraged in the free zones. The
ongoing contraction of the apparel industry and a lack of alternatives
for its workforce (largely female heads of household, with minimal
qualifications for other employment) are additional disincentives for
unionization at the present time. However, in tourist areas, workers
are often drawn away by more attractive employment opportunities in the
local tourism sector.
c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory
labor is not practiced. Jamaica is a party to the relevant ILO
conventions.
d. Minimum Age for Employment of Children.--The Juvenile Act
prohibits child labor, defined as the employment of children under the
age of twelve, except by parents or guardians in domestic,
agricultural, or horticultural work. While children are observed
peddling goods and services, child labor is not institutionalized. Both
government and societal views are intolerant of the practice and the
use of child labor in formal industries (e.g., textiles/apparel) is
virtually non-existent.
e. Acceptable Conditions of Work.--A 40-hour week with 8-hour days
is standard, with overtime and holiday pay at time-and-a-half and
double time, respectively. The minimum wage is JDOLS 800 for a 40-hour
week or JDOLS 20 per hour. There are frequently additional allowances
(e.g., for transportation, meals, clothing, etc.). Unemployment
compensation or ``redundancy pay'' is included in the negotiation of
specific wage and benefit packages. Jamaican law requires all factories
to be registered, inspected and approved by the Ministry of Labor.
Inspections are limited by scarce resources and a narrow legal
definition of ``factory.''
f. Rights in Sectors with U.S. Investment.--U.S. investment in
Jamaica is concentrated in the bauxite/alumina industry, petroleum
products marketing, food and related products, light manufacturing
(mainly in-bond apparel assembly), banking, tourism, data processing,
and office machine sales and distribution. Worker rights are respected
in these sectors and most of the firms involved are unionized, with the
important exception of the garment assembly firms. No garment assembly
firms in the free zones are unionized; some outside the free zones are
unionized. There have been no reports of U.S.-related firms abridging
standards of acceptable working conditions. Wages in U.S.-owned
companies generally exceed the industry average.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 187
Food & Kindred Products..................... 0
Chemicals & Allied Products................. 175
Metals, Primary & Fabricated................ 0
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... 12
Wholesale Trade............................... \1\
Banking....................................... \1\
Finance/Insurance/Real Estate................. 6
Services...................................... \1\
Other Industries.............................. \1\
TOTAL ALL INDUSTRIES.......................... 1675
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
MEXICO
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP (US$ billions) \2\............ 286.3 334.8 410.0
Real GDP Growth (pct) \3\................. -6.2 5.1 7.1
GDP by Sector (US$ billions):
Agriculture............................. 16.61 20.42 23.8
Manufacturing........................... 50.68 59.93 76.7
Services................................ 176.36 205.23 249.4
Per Capita GDP (US$)...................... 3,139 3,604 4,350
Labor Force (millions).................... 34.9 36.3 36.6
Unemployment Rate (pct)................... 6.3 5.5 3.8
Money and Prices (annual percentage growth):
Money Supply Growth (M2).................... 17.3 25.7 31.3
Consumer Price Inflation.................... 52.0 27.7 16.0
Exchange Rate (peso/US$).................... 6.42 7.60 7.92
Balance of payments and trade:
Total Exports FOB \4\..................... 79.5 96.0 110.4
Exports to U.S.\4\...................... 61.7 74.2 94.2
Total Imports FOB \4\..................... 72.5 89.5 107.4
Imports from U.S.\4\.................... 46.3 56.8 78.8
Trade Balance \4\......................... 7.1 6.5 3.0
Balance with U.S.\4\.................... 12.4 13.0 15.4
External Public Debt...................... 164.2 157.4 151.2
Fiscal Deficit/GDP (pct).................. 0.0 -0.1 0.5
Current Account Deficit/GDP (pct)......... 0.3 0.5 1.5
Debt Service Payments/GDP (pct)........... 22.8 21.0 N/A
Gold and Foreign Exchange Reserves........ 15.7 17.5 27.8
Aid from U.S.............................. N/A N/A N/A
Aid for All Other Sources................. N/A N/A N/A
------------------------------------------------------------------------
\1\ 1997 figures are estimates based on the December 1997 ``Consensus
Forecasts'' or other data available as of December 1997
\2\ GDP at factor cost
\3\ Percentage changes calculated in local currency
\4\ Merchandise trade
1. General Policy Framework
Mexico has recovered on the macroeconomic level from the severe
recession triggered by the peso crisis of December 1994. Continued
tight fiscal and monetary policies in response to this crisis, coupled
with gains in exports led to macroeconomic recovery. Nonetheless, at
the domestic economy level many Mexicans have not yet benefited in
spite of gradually increasing employment opportunities, as a
substantial drop in inflation began to support consumer purchasing
power only late in the year.
The real growth rate in GDP should reach 7.2 percent in 1997. Total
exports, led by the maquiladora industry, will probably exceed 110
billion dollars, enabling Mexico to maintain a trade surplus of three
billion dollars (15 billion with the United States). In addition,
inflation will continue to fall from 52 percent in 1995 to 15.72
percent in 1997.
In June 1997 the Government of Mexico projected an average annual
growth rate of five percent through 2000. Private economic observers
generally agree with this positive forecast. Mexico is also
aggressively seeking to expand its export markets through bilateral and
multilateral trade agreement and investment protection negotiations
with countries and multilateral organizations in Latin America, Europe
and Asia.
The principal objectives of Mexican monetary policy have been first
and foremost to combat inflation, to reduce the volatility of the peso
in foreign exchange markets, and to promote capital inflows. The
central bank is controlling the monetary base to achieve these
objectives.
The Mexican government has pursued restrictive fiscal policies
since 1995 to help reduce inflationary pressures, stabilize financial
markets, temper the current account deficit, and bolster domestic
savings.
2. Exchange Rate Policy
In December 1994, Mexico abandoned its exchange band mechanism,
which had been in place since 1991, in favor of a free-floating
exchange rate. The peso has floated freely since then with only
infrequent interventions by the Bank of Mexico (Mexico's central bank).
In the last two years the peso has enjoyed remarkable stability, and
the Bank of Mexico has not intervened in the foreign exchange market
since 1995. To accumulate foreign reserves and weaken the peso to
support exporters, the Bank offers credit institutions monthly options
to sell dollars to the central bank. The Bank of Mexico has purchased
up to $600 to $800 million of these options from banks in a single
month. The amount of these options, however, are viewed by the Bank of
Mexico to be too small to have an appreciable impact on the exchange
rate.
The volatility which marked the peso in the 1993 to 1995 period
disappeared in the last half of 1996 and has been absent throughout
1997. In the first nine months of 1997, the peso traded from 7.72 to
7.98 pesos per U.S. dollar. The strength of the peso in this period has
not hurt U.S. exports to Mexico, since, according to U.S. trade data,
U.S. exports to Mexico were up 25 percent in the first eight months of
1997 compared to the first eight months of 1996.
3. Structural Policies
Regulation of the Mexican economy continues to decrease
significantly. Mexico introduced legislation in 1993 to promote greater
competition, limit monopolistic behavior, and prohibit practices that
restrain trade. The Mexican Federal Competition Commission, established
by that legislation, now has functioned successfully for more than two
years. A 1993 Foreign Trade Law eliminated most nontariff trade
restrictions and established remedies for unfair trade practices, such
as export subsidies and dumping. The Mexican customs service has been
modernized and automated, and a program to professionalize personnel is
underway. The customs law reforms, implemented in 1996, have greatly
assisted in the effort to weed out corruption. A project to examine all
government regulations and to reduce them continues moving forward,
with several federal ministries and the Federal District having
completed their work. State and local deregulation is also planned for
the future.
The Government of Mexico has privatized or eliminated more than
1,000 parastatal companies since 1986. State enterprises thus far
privatized include commercial banks, the telephone company, a
television network, airlines, steel production, and several major
industrial facilities. President Zedillo is continuing the
privatization trend. In 1997 the two major Mexican rail lines were
concessioned and multiple contracts were let for private sector
construction of power plants and for distribution of natural gas to
strategically chosen communities. The Mexican government continues
working to privatize management and some facilities at ports, airports
and railroads. The government announced plans to sell up to 49 percent
of its secondary petrochemical plants, despite opposition party
resistance. In addition, Mexico has signed two protocols in 1997
relating to satellite transmissions. It received bids on October 17,
1997 for the privatization of SATMEX, and followed through with the
opening of long-distance telephone competition in Mexico's 60 largest
cities. Competition for local telephone service is also right around
the corner.
4. Debt Management Policies
Mexico has largely achieved the objectives laid out in the
emergency economic program developed to cope with the 1995 peso crisis.
During 1996 and the first half of 1997, public sector debt declined
substantially in real terms. The maturity of public debt has been
extended, the debt profile has been reconfigured, the composition of
external debt has been altered dramatically, and Mexico has
successfully returned to international capital markets. Among the most
telling indicators of the success of Mexico's debt strategy were early
repayment to the U.S. Treasury of all of the economic support funds
extended to Mexico during the 1995 crisis, and the placement by Mexico
of over 24 billion dollars in international capital markets.
At the end of the first half of 1997, Mexico's net public sector
external debt was 97.5 billion dollars, a slight decrease from 1996.
Net external borrowing is limited by law to 5 billion dollars annually.
In 1997 total amortization of public external debt will be 32.3 billion
dollars, compared to 28.5 billion dollars in 1996.
5. Significant Barriers to U.S. Exports
Import Licenses: Mexico committed, under the General Agreement on
Tariffs and Trade (GATT), and now the World Trade Organization (WTO)
Agreement, as well as under NAFTA, eventually to eliminate all import
licensing requirements. The Mexican government still requires import
licenses for slightly under 200 product categories, many of which are
in the agricultural sector. For U.S. and Canadian exporters to Mexico,
NAFTA replaced agricultural import licenses with tariff rate quotas.
The NAFTA agriculture sector reduces or eliminates tariffs at various
rates over the maximum fifteen year span allowed under that agreement.
Restrictive phytosanitary and zoo sanitary requirements impede exports
of some agricultural products.
Insurance: Until 1990, the Mexican insurance market was closed to
foreigners. With the introduction of NAFTA, U.S. and Canadian insurers
that had joint venture operations in Mexico were allowed to increase
their ownership share from 30 percent in 1994 to 51 percent in 1996 and
100 percent by the year 2000. Companies not already in Mexico may set
up joint ventures and obtain majority control by 1998. U.S. insurers
may also establish wholly-owned subsidiaries in Mexico, subject to
aggregate market share limits which will be eliminated in 2000. Some
third-country firms have entered through affiliates or subsidiaries in
the United States or Canada under the NAFTA arrangement.
Telecommunications: The main restriction in the telecommunications
sector is a limitation on foreign investment in telephone and value-
added services to a 49-percent equity position. However, in cellular
telephony, foreign investors may participate up to 100 percent, subject
to approval by the National Foreign Investment Commission.
Nevertheless, foreign investors may only participate through a Mexican
corporation. Mexico modified its constitution in 1995 to allow for
private participation and equity in Mexican telecommunication
satellites, including ownership of transponders. The Government's
satellite firm was scheduled to be privatized through sale of stock in
late 1997. Foreign investment is limited to a 49 percent equity
position. The Telmex monopoly on long distance and International
telephone service ended in August 1996 for corporate accounts and for
residential service in the 60 largest cities in 1997. Eight firms are
authorized to provide long distance service, five of which have U.S.
partners. Local, basic telephone service is already technically open to
competition.
Financial Services: There are no major barriers to financial
services. Mexico continued during 1995 to promote competition and
diversification in the financial sector by encouraging foreign
investment. New rules adopted in 1995 allow foreign banks to acquire up
to 100 percent ownership in existing banks that have less than six
percent of the total capital in the banking system (effectively
excluding Mexico's three largest banks). Foreigners may now own up to
25 percent of the total net capital of the banking system. Also, both
Mexican and foreign individuals and companies may own up to 20 percent
of a Mexican financial institution. As a group, foreigners can now own
up to 49 percent of a bank, stock brokerage house, or financial group.
Standards, Testing, Labeling, and Certification: Mandatory,
government-enforced standards play a much greater role in Mexico than
they do in the United States. The government has been the primary actor
in determining product standards, labeling and certification policy,
with some input from the private sector and, to a lesser extent, from
consumers. However, the Mexican government has been revamping its
entire system for formulating product standards, testing, labeling and
certification, including revising the Federal Law on Metrology and
Standardization in May 1997. These changes provide greater transparency
and increased private sector participation in the standards and
certification process.
Other Barriers: There have been complaints that Mexico's anti-
dumping procedures are less than transparent. Furthermore, appeals for
reversal of decisions have been described as cumbersome. In addition, a
question has arisen about the transparency of the proceedings of the
Federal Competition Commission.
Mexican law requires that Mexican standards be based on
``international standards,'' but Mexican standards sometimes will
incorporate U.S. and Canadian standards when those differ from the
international benchmark. Under NAFTA, Mexico is committed to
recognizing U.S. conformity assessment bodies beginning in 1998, on the
same terms that it applies to Mexican laboratories.
In 1996 and 1997 the government implemented major changes in its
general labeling requirements for both imported and domestic products.
At the same time, in June 1997 the government announced immediate
implementation of commodity-specific labeling requirements at the
border. The transition process for U.S. exporters to meet the new
labeling rules has been relatively smooth, and the government has
demonstrated its willingness to adjust the new policies to accommodate
exporter's interests.
The extensive use of mandatory standards, testing and labeling has
the potential of acting as a barrier to trade and can raise the cost of
exporting to Mexico. The Mexican government has displayed an increased
willingness to work with U.S. industry to address U.S. concerns while
continuing to protect the Mexican consumer. Problems remain with
restrictions against U.S. meat grades in three Mexican states.
Investment Barriers: The National Foreign Investment Commission
decides questions of foreign investment in Mexico. The country's
constitution and Foreign Investment Law of 1992 reserve certain sectors
to the state (such as oil and gas extraction and the transmission of
electrical power) and a range of activities to Mexican nationals (for
example, forestry exploitation, domestic air and maritime
transportation). Despite remaining restrictions, the Foreign Investment
Law greatly liberalized foreign investment, eliminating the requirement
for government approval in around 95 percent of foreign investments.
The constitution was amended in 1995 to allow foreign investment in
railroads, telecommunications and satellite transmission. Privatization
of the country's secondary petrochemical complexes also will be
allowed, but will be limited to 49 percent of existing facilities.
Newly built petrochemical plants may have up to 100 percent foreign
investment.
NAFTA opened Mexico to greater U.S. and Canadian investment by
assuring U.S. and Canadian companies' national treatment, the right to
international arbitration and the right to transfer funds without
restrictions. NAFTA also eliminated some barriers to investment in
Mexico such as trade balancing and domestic content requirements.
Mexico additionally has implemented its commitment under NAFTA to allow
the private ownership and operation of electric generating plants for
self-generation, co-generation, and independent power production. In
1995, Mexico issued regulations for the first time allowing private
sector participation in the transportation, distribution and storage of
natural gas. Contracts let in 1997 under the new regulations constitute
one of the major success stories in Mexico's ongoing infrastructure
development.
Investment restrictions still prohibit foreigners from acquiring
title to residential real estate within 50 kilometers of the nation's
coasts and 100 kilometers of the borders. However, foreigners may
acquire the effective use of residential property in the restricted
zones via a trust through a Mexican bank. At this time, only Mexican
nationals may own gasoline stations whose gasoline is supplied by
Pemex, the state-owned petroleum monopoly. These gasoline stations also
only carry Pemex lubricants, although other lubricants are manufactured
and sold in Mexico. Both foreigners and Mexican citizens themselves
encounter problems with enforcement of property rights.
Government Procurement Practices: There is no central government
procurement office in Mexico. Government agencies and public
enterprises use their own purchasing offices to buy from qualified
domestic or foreign suppliers, subject to guidelines issued by the
Comptroller's Secretariat. In 1991, Mexico abandoned the rule that
state-owned enterprises give preference in procurement to national
suppliers. Suppliers from all countries may bid on most government
tenders, and requirements for participation are the same for foreign
and domestic suppliers. Because NAFTA allows some smaller contracts for
goods, services or construction to be let without requiring them to be
open to competition from suppliers in other NAFTA countries, the
procurement law enacted in 1994 distinguishes between procurement
contests open to national versus international suppliers. The law,
however, acknowledges Mexico's procurement obligations under NAFTA and
other international trade agreements.
A specific preferential treatment in public procurement is granted
to domestic drug suppliers (which includes foreign companies
established in Mexico). NAFTA gradually increases U.S. suppliers'
access to the Mexican government procurement market, including the
state oil company, Pemex, and the Federal Electricity Commission (CFE),
which are the two largest purchasing entities in the Mexican
government. Under NAFTA, Mexico immediately opened 50 percent of Pemex
bids to competition by foreign suppliers. U.S. firms have been active
in CFE power plant bides.
Customs Procedures: In 1996 Mexico enacted a new customs law which
simplifies a number of procedures, including bond-posting requirements.
Traders and Mexican customs brokers agree that Mexican customs
procedures have improved dramatically in recent years. Remaining
complaints center on the delay in obtaining implementing regulations
for various sections of the new customs law.
6. Export Subsidies Policies
The Mexican government has not had an export subsidy program.
However, in October 1997 the Government announced a program to
subsidize sugar exporters for the shortfall between export and domestic
prices in the first nine months of that year. Otherwise, provisions for
promoting exports in the Foreign Trade Law have been limited to
training and assistance in finding foreign sales leads, project
financing (at market rates) for export oriented business ventures, and
special tax treatment for companies that have significant export sales.
7. Protection of U.S. Intellectual Property
Mexico is a party to the major international agreements regulating
the protection of intellectual property rights (IPR): the World
Intellectual Property Organization agreements, the Berne Convention for
the Protection of Literary and Artistic Works, the Paris Convention for
the Protection of Industrial Property, the Universal Copyright
Convention, the Geneva Phonograms Convention, the Brussels Satellite
Convention, and the Convention for the Protection of New Varieties of
Plants. While Mexico was not on a Special 301 watch list in 1997, it
was cited in ``Other Observations'' because of problems with piracy.
The Mexican government has been strengthening its domestic legal
framework for protecting intellectual property. In 1997 it implemented
a new copyright law and amended its penal code to strengthen penalties
against copyright piracy. Regulations are still being promulgated. It
also amended its 1991 Industrial Property Law, effective October 1,
1994, to create the Mexican Institute for Industrial Property (IMPI),
giving this agency enhanced powers to implement Mexico's IPR laws.
Mexico passed a law in 1996 providing protection to plant species. In
December 1997 Mexico enacted an integrated circuits law.
Mexico is implementing regulations adopted pursuant to NAFTA
providing for nondiscriminatory national treatment in IPR matters,
establishing certain minimum standards for protection of sound
recordings, computer programs and proprietary data, and by providing
express protection for trade secrets and proprietary information. The
term of patent protection was extended from 14 to 20 years from the
date of filing. Trademarks are granted for 10-year renewable periods. A
feature of the amended law is that it is sufficient for a company to
have its mark recognized among U.S. industry to be protected in Mexico.
Although federal authorities conduct investigations and carry out
raids on pirates, there have been few criminal convictions stemming
from these actions. In some instances, criminal cases have been
compromised by leaks and loss of evidence. The new copyright law
permits IMPI to take administrative action against copyright
violations. With the entry into force of the new customs law, Mexican
customs authorities for the first time are authorized to seize pirated
merchandise. Mexico is working with the U.S. through the Bilateral
Working Group on Intellectual Property Rights to improve coordination
and enforcement in the two countries.
8. Worker Rights
a. The Right of Association.--The Constitution and the Federal
Labor Law (FLL) give workers the right to form and join trade unions of
their own choosing. Mexican trade unionism is well developed with about
30 percent of the work force members in thousands of unions. Although
no prior approval is required to form unions, they must register with
the federal labor secretariat or state labor boards to gain legal
status. Federal or state authorities reportedly use this administrative
procedure to improperly withhold registration from groups considered
disruptive to government policies, employers, or unions. Union
registration was the subject of follow-up activities in 1996 and 1997,
pursuant to a 1995 agreement reached in ministerial consultations and
in follow-up activities in 1996 under the North American Agreement on
Labor Cooperation (the NAFTA labor side agreement). Unions,
federations, and labor centrals freely affiliate with international
trade union organizations. The FLL protects labor organizations from
government interference in their internal affairs. The law permits
closed shop and exclusion clauses, allowing union leaders to vet and
veto new hires and force dismissal of individuals the union expels.
Such clauses are common in collective bargaining agreements. Again in
1997, the Committee of Experts of the International Labor Organization
(ILO) found that such restrictions violate freedom of association, and
asked the Mexican government to amend these provisions. A 1996 Mexican
supreme court decision invalidated similar restrictions in the laws of
two states.
Most labor confederations, federations and separate national unions
are allied with the governing Institutional Revolutionary Party (PRI).
Union officers help select, run as, and campaign for PRI candidates in
federal and state elections, and support PRI government policies at
crucial moments. This gives the unions influence on government
policies, but limits their freedom of action. Rivalries within and
between PRI-allied organizations are strong. Party and legislative
reforms would emphasize individual rather than sectional (labor)
membership. A few small labor federations and independent unions are
not allied to the PRI.
b. The Right to Organize and Bargain Collectively.--The FLL
strongly upholds this right. The public sector is almost totally
organized. Industrial areas are also heavily organized. The law
protects workers from anti-union discrimination but enforcement is
uneven. Industry or sectoral agreements carry the weight of law in some
sectors and apply to all sector firms, unionized or not, though this
practice is becoming less common. The FLL guarantees the right to
strike. On the basis of interest by a few employees, or a strike notice
by a union, an employer must negotiate a collective bargaining
agreement or request a union recognition election. In 1995, at union
insistence, annual national pacts negotiated by the government and
major trade union, employer and rural organizations ceased to limit
free collective bargaining, which had been done for the past decade.
While the government, major employers, and unions meet occasionally
(most recently in October 1997) to reaffirm the Alliance for Economic
Recovery or agree on tax breaks or minimum wage increases, the
government remains committed to free collective bargaining without
guidelines or interference.
c. Prohibition of Forced or Compulsory Labor.--The Constitution
prohibits forced labor and none has been reported in many years, with
the exception of abuses of refugees and illegal immigrants in the state
of Chiapas (see Section 2D of the 1997 Human Rights Report).
d. Minimum Age for Employment of Children.--The FLL sets 14 as the
minimum age for employment, but those under 16 may work only six hours
a day, with prohibitions against overtime, night labor, and performing
hazardous tasks. Enforcement is reasonably good at large and medium
sized companies but is inadequate at small companies and in agriculture
and is nearly absent in the informal sector. The ILO reports 18 percent
of children aged 12 to 14 work, often for parents or relatives. Most
child labor takes place in the informal sector (including myriad street
vendors), in agriculture and in rural areas. Although enforcement is
spotty, the Mexican government formally requires that children attend a
minimum of nine years of school and has the ability to hold parents
legally liable for their children's nonattendance. The government has a
cooperative program with UNICEF to increase educational opportunities
for youth.
e. Acceptable Conditions of Work.--The FLL provides for a daily
minimum wage set annually effective January 1 by the tripartite
(government/labor/employers) National Minimum Wage Commission. Any
party may ask the Commission to reconvene to consider a special
increase. In December 1996 the Commission adopted a 17 percent
increase. In Mexico City and nearby industrial areas, Acapulco,
southeast Veracruz state's refining and petrochemical zone and most
border areas, the minimum wage has been 22.44 pesos (3.39 dollars).
However, minimum wage earners actually are paid 25.76 pesos due to a 14
percent supplemental fiscal subsidy (tax credit to employers).
Approximately 12 percent of the labor force earns the minimum wage.
Industrial workers tend to average three to four times the minimum
wage. The law and collective agreements provide extensive additional
benefits. Those benefits which are legally required include social
security (IMSS), medical care and pensions, individual worker housing
and retirement accounts, substantial Christmas bonuses, paid vacations,
profit sharing, maternity leave, and generous severance packages.
Employer costs for these benefits run from 27 percent of payroll at
small enterprises to over 100 percent at major firms with strong union
contracts. Eight hours is the legal workday and six days the legal work
week, with pay for seven. Workers who are asked to exceed three hours
of overtime per day or work overtime on three consecutive days receive
triple the normal wage for that overtime. For most industrial workers,
especially under union contract, the true work week is 42 hours with
seven days' pay. This is why unions jealously defend the legal ban on
hiring and paying wages by the hour.
Mexico's occupational safety and health (OSH) laws and rules are
relatively advanced. Employers must observe ``General Regulations on
Safety and Health in the Work Place'', which reflects close NAFTA
consultation and cooperation) issued jointly by the Labor Secretariat
(STPS) and the Social Security Institute (IMSS). FLL-mandated joint
labor-management OSH committees at each plant and office meet at least
monthly to review work place safety and health needs. Individual
employees or unions may complain directly to STPS/OSH officials;
workers may remove themselves from hazardous situations without
reprisal and bring complaints before the federal labor board at no
cost. STPS and IMSS officials report compliance is reasonably good at
most large companies, though federal inspectors are stretched too thin
for effective enforcement. There are special problems in construction,
where unskilled, untrained, and poorly educated transient labor is
common.
f. Rights in Sectors with U.S. Investment.--Conditions do not
differ from those in other industrialized sectors of the Mexican
economy.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 169
Total Manufacturing........................... 11,408
Food & Kindred Products..................... 3,977
Chemicals & Allied Products................. 1,920
Metals, Primary & Fabricated................ 419
Machinery, except Electrical................ 572
Electric & Electronic Equipment............. 454
Transportation Equipment.................... 1,842
Other Manufacturing......................... 2,224
Wholesale Trade............................... 764
Banking....................................... 443
Finance/Insurance/Real Estate................. 2,864
Services...................................... 515
Other Industries.............................. 2,585
TOTAL ALL INDUSTRIES.......................... 18,747
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
NICARAGUA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\............................. 1,888 1,969 2,068
Real GDP Growth (pct) \2\ \3\............... 4.3 4.5 5.0
GDP by Sector:\2\
Agriculture \4\........................... 645 673 707
Manufacturing............................. 303 308 324
Services \5\.............................. 819 877 918
Government................................ 121 111 119
Per Capita GDP (US$) \2\.................... 433 438 447
Labor Force (000s).......................... 1,488 1,537 1,583
Unemployment Rate (pct)..................... 18.2 16.1 13.9
Money and Prices (annual percentage growth):
Money Supply Growth (M2).................... 17.8 26.9 46.0
Consumer Price Inflation (pct).............. 11.1 12.1 8.0
Exchange Rate (Cordobas/US$ - annual
average)
Official.................................. 7.53 8.44 9.47
Parallel.................................. 7.61 8.44 9.47
Balance of Payments and Trade:
Total Exports FOB \6\....................... 526 671 809
Exports to U.S.\7\........................ 238 350 420
Total Imports CIF \6\....................... 962 1,160 1,421
Imports from U.S.\7\...................... 250 262 315
Trade Balance \6\........................... -435 -489 -612
Balance with U.S.\7\...................... -11 88 105
External Public Debt (US$ blns)............. 10.3 6.1 6.1
Fiscal Deficit/GDP (pct).................... 5.4 5.9 \8\ 3.4
Current Account Deficit/GDP (pct)........... 30.5 25.2 30.3
Debt Service Payments/GDP (pct)............. 12.8 12.6 16.5
Gold and Foreign Exchange Reserves.......... 80 104 143
Aid from U.S................................ 31 26 27
Aid from All Other Sources.................. 493 357 328
------------------------------------------------------------------------
\1\ All 1997 figures are projections based on data available in October
1997.
\2\ 1995 and 1996 GDP data revised by Central Bank in October 1997.
\3\ Percentage changes calculated in local currency.
\4\ Includes livestock, fisheries, and forestry.
\5\ Includes construction and mining.
\6\ Merchandise trade.
\7\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
FAS, imports customs basis; 1997 figures are estimates based on trade
data through July 1997.
\8\ Combined public sector deficit after foreign donations.
1. General Policy Framework
Nicaragua's transition from a centralized to a market-oriented
economy began with the 1990 election of President Violeta Chamorro. Her
administration brought inflation under control, liberalized the foreign
trade regime, and got the economy growing again. After a decade of
decline, real GDP expanded by 3.3 percent in 1994, 4.3 percent in 1995,
and 4.5 percent in 1996. With the January 1997 inauguration of
President Arnoldo Aleman of the center-right Liberal Alliance,
Nicaragua began to quicken the pace of its opening to foreign trade.
The economy is projected to grow by 5.0 percent in 1997.
At the end of its first year in office, the Aleman administration
faced important economic challenges, including: meeting the
requirements of an Enhanced Structural Adjustment Facility with the
International Monetary Fund; making progress on the resolution of
thousands of Sandinista-era property confiscation cases; and reducing
unemployment and poverty in the hemisphere's second-poorest nation.
Nicaragua remains essentially agricultural, with a small
manufacturing base. It is dependent on imports for most manufactured,
processed and consumer items. A member of the World Trade Organization,
Nicaragua has reduced tariffs, eliminated most nontariff barriers and
foreign exchange controls. The United States is Nicaragua's largest
trading partner, with both exports and imports expanding in recent
years. Nicaragua's large current account deficit and fiscal deficit are
counterbalanced by strong inflows of foreign assistance and private
capital.
2. Exchange Rate Policy
Since January 1993, the Nicaraguan government has followed a
crawling-peg devaluation schedule. The cordoba to dollar rate is
adjusted daily, with the real exchange rate held essentially constant.
A legal parallel exchange market supplies foreign currency for all
types of exchange transactions. The spread between the official and
parallel markets was under one percent in 1997. The government
eliminated all significant restrictions on the foreign exchange system
in 1996.
3. Structural Policies
Pricing Policies: The Nicaraguan government maintains price
controls only on sugar, domestically produced soft drinks, certain
petroleum products, and pharmaceuticals. However, in the past, the
government has negotiated voluntary price restraints with domestic
producers of important consumer goods.
Tax Policies: Nicaragua maintains a maximum tariff level of from 5
to 15 percent of CIF value on most imports. Intermediate goods and raw
materials produced in Central America are exempt. An additional
temporary protection tariff of 10 to 35 percent of CIF value is levied
on almost all imported items. This tariff will drop to a maximum of 15
percent in the year 2000. Some 550 products are also assessed a
specific consumption tax of from 4 to 20 CIF value. The country's 15
percent sales tax is charged (in a cascading fashion) on all imported
goods that are not categorized as basic food basket items. Overall
import taxation levels on so-called ``fiscal'' goods (e.g., tobacco,
soft drinks and alcoholic beverages) are particularly high. Thus,
importers of many types of consumer items confront a total import tax
burden of 30 to 59 percent.
4. Debt Management Policies
The Chamorro administration inherited a $10.7 billion debt from the
Sandinista regime in 1990. Over the next seven years, Nicaragua
negotiated a series of deals (including a mid-1997 debt write-off by
the Central American Bank for Economic Integration) that reduced its
stock of debt to $6.1 billion. Despite this progress, Nicaragua's debt,
at almost three times GDP, remains unsustainably high. Accordingly, the
Aleman government has made debt reduction a top priority. Two promising
avenues for debt reduction are with the Paris Club ($1.4 billion) and
through the IMF/World Bank debt reduction initiative for the heavily
indebted poor countries ($1.6 billion). However, to be eligible for
those programs, Nicaragua must first show satisfactory performance
under an IMF program.
5. Aid
Nicaragua is highly dependent on foreign aid to cover its trade and
fiscal deficits. More than half of its assistance is provided by
multilateral financial institutions like the Inter-American Development
Bank and World Bank. European countries, Japan, Taiwan, and the U.S.
are also major donors. Nicaragua is not believed to be getting military
aid from any source.
6. Significant Barriers to U.S. Exports
Import Licenses: In most cases, the issuance of import licenses is
a formality. Permits are required only for the importation of sugar,
firearms and explosives. U.S. exporters of food products must meet some
phytosanitary requirements.
Services Barriers: Although 10 private banks are now operating, no
U.S. bank has yet re-entered the Nicaraguan financial market.
Legislation passed in 1996 opened the insurance industry to private
sector participation and four private insurance companies have been
formed.
Investment Barriers: Remittance of 100 percent of profits and
original capital three years after investment is guaranteed through the
Central Bank at the official exchange rate for those investments
registered under the Foreign Investment Law. Investors who do not
register their capital may still make remittances through the parallel
market, but the government will not guarantee that foreign exchange
will be available. The U.S. Embassy is aware of no investor who has
encountered remittance difficulties since the inception of the Foreign
Investment Law in 1991. The fishing industry remains protected by
requirements involving the nationality and composition of vessel crews,
and a requirement for domestic processing of the catch.
Customs Procedures: Importers complain of steep secondary customs
costs, including customs declaration form charges and consular fees. In
addition, importers are required to utilize the services of licensed
customs agents, adding further costs.
Private Property Rights: The need to resolve thousands of cases of
homes, businesses and tracts of land confiscated without compensation
by the Sandinista government during the 1980s remains a divisive issue
in Nicaragua. The Nicaraguan government has made the resolution of
these cases a priority. Nonetheless, potential investors must carefully
verify property titles before purchase.
In 1996, Nicaragua ratified the United States-Nicaragua Bilateral
Investment Treaty that is designed to improve protection for investors.
The treaty has not yet been submitted to the U.S. Senate for
ratification.
7. Export Subsidy Policies
Beginning in 1998, all exporters will receive tax benefit
certificates equivalent to 1.5 percent of the FOB value of the exported
goods. In addition, foreign inputs to export goods enter duty-free and
are exempt from value-added tax. Exporters of non-traditional goods
(e.g., goods other than coffee, cotton, sugar, wood, lobster and sea-
harvested shrimp) receive exemptions of 65 percent of product value on
income tax liabilities. Although this benefit expires after 1997, the
government's Export Promotion Committee is empowered to extend
exemptions beyond that date to exports of key interest to the country.
8. Protection of U.S. Intellectual Property
The Nicaraguan government has indicated a firm commitment to
providing adequate and effective intellectual property right
protection. Current levels of protection, however, still do not meet
international standards.
Although unable to dedicate extensive resources to protecting
intellectual property rights, Nicaragua is in the process of
modernizing its intellectual property rights protection regime. The
National Assembly is currently reviewing a proposal for a new copyright
law, while the government is preparing a proposal for a new patent law
(existing copyright and patent legislation date from the turn of the
century). The trademark law was updated in 1994, and Nicaragua has
codified the Central American Convention for the Protection of
Intellectual Property. Nicaragua ratified the Convention's Protocol on
Trademarks in July 1996 and, in April 1997, approved the technical
portion of a proposed Central American Convention for the Protection of
Industrial Property, Inventions and Industrial Designs. In December
1997, Nicaragua and the U.S. initialed a bilateral IPR agreement
covering patents, trademarks, copyright, trade secrets, plant
varieties, integrated circuits and encrypted satellite signals In
addition, Nicaragua signed a free trade agreement with Mexico, which
includes a chapter on protection of trademarks and copyrights.
Nicaragua acceded to the Paris Convention for the Protection of
Industrial Property in 1995. The National Assembly has not yet ratified
the Berne Convention on Copyrights. Nicaragua is a signatory to the
following copyright conventions:
Mexico Convention on Literary and Artistic Copyrights (1902)
Buenos Aires Convention on Literary and Artistic Copyrights (1910)
Inter-American Copyrights Convention (1946)
Universal Copyright Convention (Geneva 1952 and Paris 1971)
Brussels Convention on Satellites (1974)
Trademarks: Protection of well-known trademarks is a problem area
for Nicaragua. Current procedures allow individuals to register a
trademark without restriction for a renewable 10-year period at a low
fee.
Copyrights/New Technology: Pirated videos are readily available in
video rental stores nationwide, as are pirated audio cassettes and
software. In addition, cable television operators are known to
intercept and retransmit U.S. satellite signals, a practice that
continues despite a trend of negotiating contracts with U.S. sports and
news satellite programmers. A report prepared in 1994 by the
International Intellectual Property Alliance estimated that losses in
Nicaragua due to copyright infringements cost U.S. firms $5.3 million
annually.
9. Worker Rights
a. The Right of Association.--The Constitution provides for the
right of workers to organize voluntarily in unions. This right was
reaffirmed in the new labor code which entered into effect in November
1996. Less than half of the formal sector workforce, including
agricultural workers, is unionized, according to labor leaders. The
Constitution recognizes the right to strike. Unions freely form or join
federations or confederations, and affiliate with and participate in
international bodies.
b. The Right to Organize and Bargain Collectively.--The
Constitution provides for the right to bargain collectively. The right
was reaffirmed in the 1996 labor code. According to the code, companies
engaged in disputes with employees must negotiate with the employees'
union if they are organized.
c. Prohibition of Forced or Compulsory Labor.--The Constitution
prohibits forced or compulsory labor. There is no evidence that it is
practiced.
d. Minimum Age for Employment of Children.--The Constitution
prohibits child labor that can affect normal childhood development or
interfere with the obligatory school year. The 1996 labor code raised
the age at which children may begin working with parental permission
from 12 to 14. Parental permission is also required for 15 and 16 year-
olds. The law limits the workday for such children to 6 hours and
prohibits night work. However, because of the economic needs of many
families and lack of effective government enforcement mechanisms, child
labor rules are rarely enforced, except in the small, formal sector of
the economy.
e. Acceptable Conditions of Work.--The 1996 labor code maintains
the constitutionally mandated 8-hour workday. The standard legal work
week is a maximum of 48 hours, with one day of rest. The 1996 code
established that severance pay shall be from one to five months
duration, depending on the length of employment and the circumstances
of termination. The code also seeks to bring the country into
compliance with international standards of work place hygiene and
safety, but the Ministry of Labor lacks adequate staff and resources to
enforce these provisions. Minimum wage rates were raised in November
1997, but the majority of urban workers earn well above the minimum
rates.
f. Rights in Sectors with U.S. Investment.--Labor conditions in
sectors with U.S. investment do not differ from those in other sectors
of the formal economy.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... -5
Food & Kindred Products..................... 0
Chemicals & Allied Products................. 0
Metals, Primary & Fabricated................ 0
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. \1\
Transportation Equipment.................... 0
Other Manufacturing......................... \1\
Wholesale Trade............................... 3
Banking....................................... 0
Finance/Insurance/Real Estate................. 0
Services...................................... 3
Other Industries.............................. 0
TOTAL ALL INDUSTRIES.......................... \1\
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
PANAMA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP................................. 7906 8109 8608
Real GDP (1982 prices)...................... 6200 6351 6579
Real GDP Growth (pct)....................... 1.8 2.5 3.6
Real GDP by Sector (1982 prices):
Agriculture............................... 509 512 515
Manufacturing............................. 1143 1180 1223
Services.................................. 3644 3737 3894
Government................................ 903 921 947
Real Per Capita GDP......................... 2356 2376 2402
Labor Force (000s).......................... 1008 1011 1044
Unemployment Rate (pct)..................... 14.0 13.9 13.1
Money and Prices (annual percentage growth):
Money Supply (M2) Growth (pct) \2\.......... 7.3 5.8 0.8
Consumer Price Inflation.................... 0.9 1.3 1.2
Exchange Rate (Balboa/USD - annual average). 1 1 \3\ 1
Balance of Payments and Trade:
Total Exports FOB \4\....................... 565 569 592
Exports to U.S............................ 220 228 231
Total Imports CIF \4\....................... 2510 2652 2950
Imports from U.S.......................... 979 1246 1239
Trade Balance \4\........................... -1945 -2083 -2358
Balance with U.S.......................... -759 -1018 -1008
Colon Free Zone:\5\
Exports................................... N/A 5524 6211
Imports................................... N/A 4661 5425
External Public Debt........................ 5891 5070 5052
Fiscal Deficit(-)/GDP (pct) \6\............. -0.1 -0.4 N/A
current Account Deficit(-)/GDP (pct)........ -4.3 -0.7 N/A
Debt Service Ratio (pct).................... 16.4 18.2 12.2
Gold and Foreign Exchange Reserves \7\...... 763 849 1056
Aid from U.S................................ 19.1 6.3 5
Aid from all other sources.................. N/A 226 N/A
------------------------------------------------------------------------
\1\ Figures for 1997 are estimated unless otherwise indicated.
\2\ Figure is based on IMF 10/97 International Financial Statistics. M2
= Deposit Money + Quasi Money. Figure for 1997 as of March 1997.
\3\ The Balboa/Dollar exchange rate is fixed at 1:1. The legal tender is
the U.S. Dollar, so there is no parallel exchange rate.
\4\ Trade statistics do not include the Colon Free Trade Zone.
\5\ The Colon Free Zone (CFZ) is the largest free trading area in the
hemisphere. Historically, the United States supplies 13% of CFZ
imports and takes 5% of CFZ exports.
\6\ Figures indicate deficit of the nonfinancial public sector as
percent of GDP.
\7\ Figure is based on IMF 10/97 International Financial Statistics.
Panama reports no gold holdings. Figure for 1997 as July 1997.
1. General Policy Framework
Panama's economy is based on a well developed services sector that
accounts for 73 percent of GDP. Services include the Panama Canal,
container port activities, flagship registry, banking, insurance,
government, and the Colon Free Zone. The industrial sector, which
accounts for 19 percent of GDP, is made up of manufacturing, mining,
utilities, and construction. Agriculture, forestry and fisheries
account for the remaining eight percent of GDP.
After three years in office, the Perez Balladares government has
implemented economic policy reforms to liberalize the trade regime,
privatize state-owned enterprises, lower tariffs, restructure unfunded
pension programs, and attract foreign investment. A banking reform law
is currently before the legislature. Panama became a member of the
World Trade Organization (WTO) in June 1997, the last Latin American
country to do so. Since then, the government has initiated a plan to
further lower tariffs, ultimately to institute an across-the-board 10
percent tariff ceiling. When implemented, this would leave Panama with
the lowest tariff ceiling in Latin America. Primary objectives of the
government continue to be the development of the reverted U.S. military
bases and the privatization of public enterprises.
The economy grew 2.5 percent in real terms in 1996, up from 1.8
percent in 1995. The Embassy estimates 3.6 percent growth in 1997.
Principal growth sectors have been the Panama Canal, shipping and port
activities, the Colon Free Zone, construction, and water and electric
utilities. After growing by 4.6 percent in the first four months of
1997, agricultural production fell by 0.2 percent in the second
trimester, largely due to the harmful effects of El Nino.
The use of the U.S. dollar as Panama's currency means fiscal policy
is the government''s only macroeconomic policy instrument. Therefore,
government spending and investment are strictly bound by tax and non-
tax revenues (including payments by the Panama Canal Commission) as
well as the government''s ability to borrow. The ability to use fiscal
policy as a tool has been further constrained by declining resources.
Lending by international financial institutions has been slow, as
Panama tries to meet the loan programs'' policy reform conditionality.
2. Exchange Rate Policy
Panama''s official currency, the balboa, is pegged to the U.S.
dollar at a 1:1 ratio. The balboa circulates in coins only. All paper
currency in circulation is U.S. currency. The fixed parity means price
and availability of U.S. products in Panama depend on transportation
costs and tariff and nontariff barriers to entry. U.S. exports have no
risk of foreign exchange losses on sales in Panama.
3. Structural Policies
The Government of Panama is committed to trade liberalization and
reduction of structural economic distortions. With accession to the WTO
and following negotiations with international financial institutions,
Panama implemented significant tariff reductions. Moreover, the
government initiated in August 1997 a program of further reductions,
ultimately to achieve an across-the-board 10 percent tariff ceiling.
When fully implemented, this would leave Panama with the lowest tariff
ceiling in Latin America. Panama is close to completing a Free Trade
Agreement with Chile and plans to complete one with Mexico early next
year. In addition, the Panamanian Chamber of Commerce recently signed
an agreement with its Taiwanese counterpart to promote and negotiate a
free trade agreement.
Panama is pressing forward with large privatization initiatives.
The Government privatized ports at opposite ends of the Panama Canal by
signing a $22 million per year contract with Hutchison Whampoa, a Hong
Kong shipping and port management company. This bid was roundly
criticized as less than transparent. The telecommunications company was
partially privatized in a sale to Cable & Wireless (U.K.). Conversely,
this bidding action was praised as open and transparent. In addition,
the government has signed contracts for construction of private toll
roads, has privatized a horse racetrack, and it is nearing completion
on a contract for reviving the transisthmian railroad. Plans for
further privatizations include electricity generation and distribution
facilities, the national sugar mills, the international airport, and a
large convention center.
The restrictive Panamanian Labor Code was revised in 1995, though
strong opposition allowed only marginal reform. Unions continue to
oppose labor reform initiatives, on occasion violently. In 1996, a
special labor regime for export processing zones was created by
executive decree. The constitutionality of the decree was challenged
and the question is presently pending before the Supreme Court.
Notwithstanding several health and housing programs, the Government
estimates that 48 percent of Panamanians live in poverty, with 9.6
percent living in severe poverty. Considering the relatively high per
capita income level of over $3,000 (current dollars), Panama''s
historically skewed income distribution does not appear to be abating.
4. Debt Management Policies
In September 1997, Panama issued $700 million in 30 year global
bonds, using $600 million to retire Brady bonds and retaining $100
million in cash. This follows the issuance of $500 million in eurobonds
in February 1997. The success of both offerings indicates the positive
view of Panama''s debt in world markets. The government has reduced its
public debt from a level of almost $5.9 billion in 1995 to $5 billion
currently.
5. Aid
In FY 1997, aid from the United States included USAID disbursements
of $4.9 million. The objectives of the USAID program in Panama are 1)
to improve the management and protection of the Panama Canal watershed,
and 2) to facilitate the smooth transfer of the Panama Canal and the
productive use of the reverted properties in the canal area. In
addition, the United States Department of Defense (DOD) provided
security assistance to Panama totaling $50,000 in FY 1997. The
government used this Foreign Military Sales Credit to purchase spare
parts, excess defense articles, and individual pieces of equipment for
the Panamanian Public Forces.
Development aid from other sources came primarily from the
International Development Bank (IDB) with $90.1 million disbursed in
1996 and a projected $1 billion loan program over the next several
years. The International Monetary Fund (IMF) disbursed $78.5 million in
1996 under the stand-by facility, following disbursements of $13.7
million in 1995. The World Bank disbursed the second tranche of $30
million under an economic recovery loan approved in 1992. The World
Bank also disbursed $1.95 million in loans targeted for rural health
and education. Germany, Spain and Japan provided a total of
approximately $23 million in commodity and technical assistance in
1996. The European Union provided funding to finance a portion of the
Panama Canal Universal Congress, to establish the Panama Canal Museum,
and to study future canal traffic, all totaling approximately $1.2
million.
6. Significant Barriers to U.S. Exports and Investment
The Perez Balladares government has followed through on its
commitment to liberalize Panama''s trade. With its accession to the WTO
and its initiative to further lower tariffs, Panama has transformed a
tariff regime that just a few years ago was one of the highest in the
region.
Government regulation and occasional intervention in the Panamanian
economy have tended to reduce transparency, hinder competition and
hamper the efficient allocation of investment. The government''s
economic liberalization program has been designed to reduce these
distortions and increase competition and competitiveness, but has
fallen short in some areas. Bid procedures for certain privatizations
and government-financed major projects have been questioned over
transparency and there have been some seemingly unjustified rebids,
most notably in the ports privatization.
The Panamanian judicial system also presents potential obstacles to
investors. There is presently a 100,000 case backlog in criminal and
civil cases, increasing at approximately 20,000 per year. In addition,
questions have arisen over the potential for corruption in the judicial
process. For example, the Assembly brought impeachment proceedings
against a Supreme Court Justice last year over bribery allegations, but
was deadlocked along party lines.
The combination of relatively high costs for both utilities and
labor makes unit production costs higher than average for the region.
Also, investors complain of burdensome and excessive product
registration requirements. The government is trying, however, through a
``one-stop shopping'' concept, to make its regulations more investor-
friendly for those producing for export.
As a WTO member, Panama''s customs valuation system conforms to
international standards. The processing of customs documents for
imports is generally fast, efficient, and reliable. However, some
importers have complained of product misclassification and, in isolated
cases, demands for excessive duties.
In financial services, restrictions on foreign ownership is minimal
except for finance companies. U.S. banks, insurance companies and
brokerages are welcome and in some cases are lenders in the local
market.
7. Export Subsidies Policies
The Universalization Law, enacted in June 1995, allows any company
to import raw materials or semi processed goods at a duty of three
percent for domestic consumption or production, or duty free for export
production. In addition, companies not receiving benefits under the
``Special Incentives Law'' of 1986 will be allowed a tax deduction of
up to 10 percent on their profits from export operations through 2002.
The Tax Credit Certificate (CAT) program, which subsidizes
production of non-traditional exports, is being phased out. The new
policy allows exporters to receive CATs until 1997 equal to 20 percent
of the exports'' national value added. From 1997 to 2000, the
percentage decreases to 15 percent of value added and the program is
eliminated altogether after 2000.
8. Protection of U.S. Intellectual Property
Panama passed Law No. 15 of August 8, 1994 to modernize its
copyright protection regime. It was not until October 3, 1995, however,
that the Cabinet finally implemented the law via Decree 261. The
Legislative Assembly passed a new Industrial Property Law, covering
patents and trademarks, in May 1996. It went into effect in November
1996. These measures, if adequately enforced, would significantly
improve inadequate past enforcement of intellectual property rights.
The new Copyright Law, with implementing legislation, strengthens
copyright protection, facilitates prosecution of copyright violators
and makes copyright infringement a felony, punishable by fine and
incarceration. The bill also protects computer software as a literary
work. The next major challenge for Panama in the copyright field is the
creation of the judicial infrastructure necessary to enforce the law.
The Industrial Property Law establishes a standard of 20 years of
protection for all patent holders, in place of the former range of 5 to
20 years for Panamanians and 5 to 15 years for foreigners. The bill
also protects processes. The laws imposes a working requirement on
patent holders, although the patent holder can satisfy the working
requirement by importing the product. Under the law, the government is
able to issue compulsory licenses only after notice to and a hearing
for the patent holder. In addition, a patent holder can still preserve
his rights by beginning manufacture or importation within one year of
the initial notification of the compulsory licensing proceeding. The
recipient of a compulsory license must have the capacity to manufacture
the product himself in Panama. The Industrial Property Law also
provides for protection of trademarks and trade secrets. It simplifies
trademark registration, and gives protection for 10 years, renewable
for an unlimited number of additional 10-year periods.
Video and sound recording piracy has long been a problem in Panama.
The Recording Industry Association of America alleges that pirates
reproduce and distribute cassettes and compact discs from the Colon
Free Zone (CFZ) to Panama, Central America, and South America. U.S.
firms have also complained about trademark infringement by firms in the
CFZ and about use of the CFZ as a transshipment point for pirated
products. Panamanian police authorities have raided several CFZ
warehouses in response to concerns about illegal transshipments and
illegal assembly activity. They also have conducted numerous raids
against video clubs and illegal reproduction operations in Panama City
and elsewhere in the country. American owners of IPR nevertheless
complain that piracy continues on a wide scale and that the Government
has not pursued the problem vigorously enough.
Pursuant to a complaint filed by Nintendo of America, the United
States Trade Representative (USTR) is conducting an investigation into
Panama''s enforcement of intellectual property rights. The outcome of
the investigation will determine whether Panama keeps or loses benefits
derived from the General System of Preferences and the Caribbean Basin
Initiative.
On April 30, 1997, the USTR placed Panama on the Special 301
``Watch List,'' expressing concern over deficiencies in Panama''s IPR
enforcement regime, especially in policing the Colon Free Zone. Panama
has made encouraging progress in strengthening its enforcement
capability, especially in the Attorney General''s Office. As a result,
the USTR removed Panama from the ``Watch List'' on October 27 and
mentioned it in ``Other Observations'', stipulating that further
progress, especially in CFZ enforcement, must be made to avoid being
placed on the list at the next regularly scheduled review.
In June 1997, the Legislative Assembly ratified Panama''s accession
to the WTO, binding Panama to implement the WTO Agreement on Trade
Related Aspects of Intellectual Property. Panama is a member of the
World Intellectual Property Organization, the Geneva Phonograms
Convention, the Brussels Satellite Convention, the Paris Convention for
the Protection of Industrial Property, the Universal Copyright
Convention, and the Berne Convention for the Protection of Literary and
Artistic Works.
9. Worker Rights
a. The Right of Association.--Private sector workers have the right
to form and join unions of their choice, subject to registration by the
government. Neither the government nor the political parties control or
financially support unions. There are 257 active unions, grouped under
6 confederations and 48 federations, representing approximately 10
percent of the employed labor force. Civil service workers are
permitted to form public employee associations and federations, though
not unions. Union organizations at every level may and do affiliate
with international bodies.
b. The Right to Organize and Bargain Collectively.--The Labor Code
provides most workers with the right to organize and bargain
collectively. The law protects union workers from anti union
discrimination and requires employers to reinstate workers fired for
union activities. The Labor Code also establishes a conciliation board
in the Ministry of Labor to resolve complaints and it provides a
procedure for arbitration. The Civil Service Law allows most public
employees to organize and bargain collectively and grants them a
limited right to strike.
c. Prohibition of Forced or Compulsory Labor.--The Labor Code
prohibits forced or compulsory labor, and neither practice has been
reported.
d. Minimum Age for Employment of Children.--The Labor Code
prohibits the employment of children under 14 years of age as well as
those under 15 years if the child has not completed primary school;
children under age 16 years cannot work overtime; those under 18 years
cannot work at night. Children between the ages of 12 and 15 may
perform light farm work that does not interfere with their education.
The Ministry of Labor enforces these provisions in response to
complaints and may order the termination of unauthorized employment.
However, it has not enforced child labor provisions in rural areas due
to insufficient staff.
e. Acceptable Conditions at Work.--The Labor Code establishes a
standard work week of 48 hours and provides for at least one 24-hour
rest period weekly. It also establishes minimum wage rates, though in
the relatively high cost urban areas, the minimum wage is not
sufficient to support a worker and family above the poverty level. The
Ministry of Labor does not adequately enforce the minimum wage law due
to insufficient personnel and financial resources. The government sets
and enforces occupational health and safety standards. It conducts
periodic inspections of particularly hazardous employment sites as well
as doing so in response to complaints. Workers may remove themselves
from situations that present an immediate health or safety hazard
without jeopardizing their employment. Health and safety standards
generally emphasize safety rather than long-term health hazards.
Complaints of health problems continue in the banana, cement, and
milling industries.
f. Rights in Sectors with U.S. Investment.--Worker rights in
sectors with U.S. investment generally mirror those in other sectors.
As mentioned above, the banana industry, which has significant U.S.
investment, continues to produce complaints of health hazards largely
due to workers exposure to pesticides. The Panama Canal operates under
separate labor regulations.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 839
Total Manufacturing........................... 150
Food & Kindred Products..................... 2
Chemicals & Allied Products................. \1\
Metals, Primary & Fabricated................ \2\
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... \1\
Wholesale Trade............................... 559
Banking....................................... 80
Finance/Insurance/Real Estate................. 16,527
Services...................................... 108
Other Industries.............................. -7
TOTAL ALL INDUSTRIES.......................... 18,256
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
\2\ Indicates a value between $-500,000 and $500,000.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
PERU
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\............................. 47.0 48.4 50.2
Real GDP Growth (pct)....................... 7.0 2.8 6.0
GDP by Sector (percent) \3\
Agriculture............................... 12.2 12.6 11.0
Fisheries................................. 1.1 1.1 0.9
Mining and Petroleum...................... 10.6 10.7 11.0
Manufacturing............................. 21.9 21.9 22.9
Construction.............................. 9.3 8.6 9.3
Government................................ 5.2 5.0 3.9
Commerce.................................. 12.4 3.2 4.9
Per Capita GDP (US$)........................ 2,000 2,025 2,075
Labor Force (000s).......................... 7,400 7,550 7,740
Unemployment Rate (pct) \4\................. 8.4 7.9 8.0
Money and prices: (annual percent change):
Money Supply (M2)\5\........................ 28.8 23.8 24.5
Consumer Price Inflation \4\................ 10.2 11.8 8.2
Exchange Rate (sol/US$ - annual average) 2.25 2.45 2.64
Balance of Payment and Trade:
Total Exports (FOB)......................... 5.6 5.9 7.0
Exports to U.S.\6\........................ 1.0 1.2 1.6
Total Imports (FOB)......................... 7.8 7.9 8.1
Imports from U.S.\6\...................... 1.8 1.8 1.8
Merchandise Trade Balance................... -2.2 -2.0 -1.1
Balance with U.S.\6\...................... -0.8 -0.6 -0.2
Current Account Deficit/GDP (pct)........... 7.3 5.9 5.0
External Public Debt........................ 25.2 23.4 20.0
Debt Service/Exports........................ 37.5 31.2 24.0
Fiscal Deficit/GDP (pct) \7\................ 2.7 1.3 0.5
Foreign Exchange Reserves................... 6.6 8.5 10.5
Aid from U.S. (US$ millions)................ 112 72 100
Aid from Other Countries (US$ mlns)......... 275 280 290
------------------------------------------------------------------------
\1\ 1996 figures are estimates
\2\ Peru's GDP is the subject of considerable debate. Estimates within
the Government of Peru vary widely. We have used Ministry of Economy
and Finance figures here. The National Institute of Statistics is
currently constructing a new GDP estimate based on 1994 as a base
year.
\3\ Estimates for 1996 are for the first nine months of the year.
\4\ Lima Metropolitan Area only
\5\ Figures are for money supply in national currency only. The majority
of financial system liquidity consists of dollars.
\6\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
FAS, imports customs basis; 1996 figures are estimates based on data
available through November 1996.
\7\ Excludes privatization receipts.
Source: Central Reserve Bank, National Institute of Statistics, Ministry
of Labor and Embassy estimates.
1. General Policy Framework
Peru is essentially a free market economy which provides
significant trade and investment opportunities for U.S. companies. This
is due largely to the economic reform program launched by President
Alberto Fujimori in 1990 and continued through 1997. Over the past
seven years, the Peruvian government has implemented a wide-ranging
privatization program, strengthened and simplified its tax system,
opened the country to foreign investment, and lifted exchange controls
and restrictions on remittances of profits, dividends and royalties.
Macroeconomic/Fiscal Overview: The economy rebounded sharply in
1997: real GDP will probably grow about six percent after growing only
2.8 percent in 1996. In mid-1995, the government began to tighten the
monetary base, slowing the economy, over concern for the current
account deficit which had risen to over 7 percent of GDP in 1995. The
current account deficit will drop to around 5.1 percent of GDP for 1997
as exports pick up and imports level off. Inflation too has been
brought under control since the hyperinflationary period Peru
experienced in 1989 and 1990. After increasing 11.8 percent in 1996,
the consumer price index for 1997 is expected to rise less than eight
percent, the lowest level in 20 years. The government is expected to
run a primary budget surplus of 1.5 percent for 1997. Despite Peru's
macroeconomic improvement, unemployment and low wages remain
significant problems.
Trade Policy: Peru's economy is largely open to imports. As Peru's
largest trading partner, the U.S. exported over $1.8 billion to Peru in
1997. Peru's average tariff rate has dropped consistently since it hit
80 percent in 1990. In early 1997, the government reduced the average
tariff from about 16 percent to 13 percent, although, for selected
agricultural products, the rate can reach as high as 25 percent. As a
member of the Andean Community and of the Latin American Integration
Association (ALADI), Peru grants duty-free access to many products
originating in those countries. Peru is also in negotiations to
establish free trade agreements with Chile and Mexico and participates
as part of the Andean Community in trade talks with MERCOSUR.
Monetary Policy: The Central Bank manages the money supply and
affects interest and exchange rates through open-market operations,
rediscounts and reserve requirements on dollar and sol deposits.
Dollars account for two thirds of total liquidity (the legacy of
hyperinflation), which complicates the government's efforts to manage
monetary policy. The Central Bank does not finance the fiscal deficit.
Recurrent government expenditures have been in balance with revenues
since late 1990, and the combined fiscal deficit (resulting from debt
payment) has been financed by external sources. Over the last four
years, a strong inflow of foreign capital, primarily from
privatizations, has more than offset the merchandise trade deficit, and
net foreign reserves have grown to more than $10 billion (they were
negative in mid-1990). Peru reached agreement in July 1996 to
reschedule its official debt (Paris Club) and closed a deal with its
commercial creditors (Brady Plan) in March 1997.
2. Exchange Rate Policy
The exchange rate for the Peruvian new sol is determined by market
forces, with some intervention by the Central Bank to stabilize
movements. There are no multiple rates. The 1993 constitution
guarantees free access to and disposition of foreign currency. There
are no restrictions on the purchase, use or remittance of foreign
exchange. Exporters conduct transactions freely on the open market and
are not required to channel their foreign exchange transactions through
the Central Bank.
Some industry groups have been pressuring the government to
intervene to devalue the sol, but the government has thus far adhered
to its laissez-faire policy. Given the fixation of most Peruvians on
the dollar, a real devaluation of the sol will remain difficult to
achieve.
3. Structural Policies
In the short span of six years, Peru has been converted from an
economy dominated by a protectionist and interventionist state to a
liberal economy dominated by the private sector and market forces.
Several major state-owned businesses have been privatized in the past
four years. Although the timetable for the privatization program has
slipped over the past couple of years, the government has said it plans
to sell the remaining state-owned enterprises by the end of 1998. Still
to be sold are the remaining parts of the petroleum company
(Petroperu), the remaining electrical utilities, the water and sewage
utilities, and the remaining mining properties. In early 1997, the
government announced that it would begin a new phase of the
privatization program by selling concessions to build and/or operate
public facilities such as airports, roads, and ports. U.S. companies
have participated heavily in the privatization program, particularly in
the mining, energy, and petroleum sectors.
Price controls, direct subsidies, and restrictions on foreign
investment have been eliminated. A major revision of the tax code was
enacted at the end of 1992, and the once corrupt and inefficient tax
authority (SUNAT) was completely revamped, as was the customs
authority. Tax collection has improved from 4 percent of GDP in 1990 to
over 14 percent by late 1997. Customs collections have more than
tripled since the early 1990s, despite the sharp cut in tariff rates.
Although income tax collection has increased, the government still
relies heavily on its 18 percent value-added tax (VAT). There are also
sometimes high selective consumption taxes on certain items, such as
automobiles.
4. Debt Management
Peru's long- and medium-term public external debt at the end of
June 1997 totaled about $20 billion--roughly one third of GDP. Total
service payments due on the debt for 1997 are estimated at $1.7
billion.
Peru cleared its arrears with the Interamerican Development Bank in
September 1991. In March 1993 it cleared its $1.8 billion in arrears to
the International Monetary Fund (IMF) and World Bank and negotiated an
Extended Fund Facility with the IMF for 1993-95. The Paris Club
rescheduled almost $6 billion of Peru's official bilateral debt in
1991. A second Paris Club rescheduling in May 1993 lowered payments for
the period March 1993 to March 1996 from $1.1 billion to about $400
million. A third rescheduling was completed on July 20, 1996, under
which the Club creditors agreed to reschedule approximately $1 billion
in ``official debt'' payments coming due between 1996 and 1999 and to
reschedule some debt originally rescheduled in 1991 in order to smooth
out Peru's debt service profile.
Nearly one and one-half years after reaching a preliminary
agreement with its commercial creditors, Peru closed out a $10.5
billion Brady Plan commercial debt restructuring in March 1997. The GOP
estimates annual obligations under the deal at about $300 million. With
the Brady closing and the July Paris Club rescheduling, Peru is now
current with nearly all its international creditors.
5. Significant Barriers to U.S. Exports
Almost all non-tariff barriers to U.S. exports and obstacles to
direct investment have been eliminated over the past seven years.
Import licenses have been abolished for all products except firearms,
munitions and explosives; chemical precursors (used in cocaine
production); and ammonium nitrate fertilizer, which has been used as a
blast enhancer for terrorist car bombs. The following imports are
banned: fireworks, used clothing, used shoes, used tires, cars over
five years old and trucks over eight years old. Peru became a founding
member of WTO in January 1995.
A new tariff structure that went into effect in April 1997 lowered
the average tariff rate from 16 to 13 percent but raised tariffs on
agricultural products and imposed an additional ``temporary'' tariff on
agricultural goods, in a move to try to promote domestic investment in
the sector. Under the new system, a 12 percent tariff applies to more
than 95 percent of the value of products imported into Peru; a 20
percent to most of the rest; while a few products are assessed rates
(because of the additional ``temporary'' tariffs) of up to 25 percent.
Peru grants duty-free access to a wide range of products originating in
countries in the Andean Community and to some products from countries
in the Latin American Integration Association (known by its Spanish
acronym ALADI).
In addition to the ``temporary'' tariffs on agricultural goods,
another set of import surcharges imposed in May 1991 remain in effect
on 20 categories of agricultural products, covering five basic
commodities: wheat, rice, corn, sugar and milk products. The surcharges
are calculated monthly, according to prevailing international prices
for each commodity. The Peruvian government defends the surcharges as
necessary to protect Peruvian farmers from subsidized international
competition and cushion the effect of an overvalued sol and structural
adjustment. In 1993, the government agreed to discuss phasing out the
surcharges by 1997 as a condition for disbursement of an Interamerican
Development Bank trade-sector loan. The government began reducing the
surcharge levels in April 1994. Because of high international prices
during 1997, surcharges were practically non-existent.
Customs procedures have been simplified and the customs
administration made more efficient in recent years, although some
importers have reported valuations problems. As part of the reform of
customs Peru implemented a system of preshipment inspections, through
which private inspection firms evaluate all incoming shipments worth
more than $5,000. The importer must pay up to 1 percent of the FOB
value of the goods to cover the cost of the inspection. Some U.S.
exporters have complained that the inspection system contributes to
customs delays.
There are virtually no barriers to investing in Peru, and national
treatment for investors is guaranteed in the 1993 constitution.
However, a conflicting provision of law restricts the majority
ownership of broadcast media to Peruvian citizens. There are no
prohibitions on the repatriation of capital or profits.
6. Export Subsidies Policies
The Peruvian government provides no direct export subsidies. The
Andean Development Corporation, of which Peru is a member, provides
limited financing to exporters at rates lower than those available from
Peruvian banks (but higher than those available to U.S. companies).
Exporters can receive rebates of the import duties and a portion of the
value-added tax on their inputs. In June 1995, the government approved
a simplified drawback scheme for small exporters, allowing them to
claim a flat 5-percent rebate, subject to certain restrictions.
Exporters can also import, on a temporary basis and without paying
duty, goods and machinery that will be used to generate exports and
that will themselves be reexported within 24 months.
7. Protection of U.S. Intellectual Property
Peru passed two new laws in April 1996 designed to improve its
intellectual property rights protection regime and to bring its
national laws into conformity with Andean Community decisions and other
international obligations on intellectual property. While the new laws
are an improvement, they contain several deficiencies, and the
government will need to make further changes to its laws to come into
conformity with the WTO's Agreement on Trade-Related Aspects of
Intellectual Property (TRIPS) by the year 2000, when the transition
period under the TRIPS agreement ends. The government is generally
proactive in promoting and protecting intellectual property rights for
domestic and foreign interests. While enforcement has been stepped up,
piracy remains widespread. Peru has been on the ``watch list'' under
the ``Special 301'' provision of the 1988 Trade Act since 1992.
Peru is a signatory to the Berne Convention for the Protection of
Literary and Artistic Works, the Universal Copyright Convention, the
Paris Convention on Industrial Property, the Geneva Convention for the
Protection of Sound Recordings and the Brussels Convention on the
Distribution of Satellite Signals and is a member of the World
Intellectual Property Organization. In December 1994, the Peruvian
Congress ratified the WTO TRIPS agreement.
Patents and Trademarks: Peru's 1996 Industrial Property Rights law
provides an effective term of protection for patents and prohibits
devices that decode encrypted satellite signals, along with other
improvements. In June 1997, based on an agreement reached with the U.S.
government, the government of Peru resolved several apparent
inconsistencies with the TRIPS agreement provisions on patent
protection and most-favored nation treatment for patents in the 1996
law through the issuance of an executive decree. Peruvian law does not
provide for pipeline protection for patents or protection from parallel
imports. Peruvian law provides for trademark protection, but
counterfeiting of trademarks and imports of pirated merchandise are
widespread.
Copyrights: Peru's copyright law is generally consistent with the
TRIPS agreement. However, textbooks, books on technical subjects, audio
cassettes, motion picture videos, and software are widely pirated.
While the government, in coordination with the private sector, has
conducted numerous raids over the last few years on large-scale
distributors and users of pirated goods and has stepped up other types
enforcement, piracy continues to be a significant problem for
legitimate owners of copyrights in Peru.
9. Worker Rights
Articles 28 and 42 of the Peruvian constitution recognize the right
of workers to organize, bargain collectively and strike. Out of an
estimated economically active population of 8.5 million, only about
five percent belong to unions. More than half the workforce is employed
in the informal sector, beyond government regulation and supervision.
a. The Right of Association.--Peruvian law allows for multiple
forms of unions across company or occupational lines. Workers in
probational status or on short-term contracts are not eligible for
union membership. Union leaders complain that increasing numbers of
employers are hiring workers under temporary personal services
contracts to prevent union affiliation. Public employees exercising
supervisory responsibilities are excluded from the right to organize
and strike, as are the police and military. The amount of time union
officials may devote to union work with pay is limited to 30 days per
year. Membership or non-membership in a union may not be required as a
condition of employment. However, there is no provision in the law
requiring employers to reinstate workers fired for union activities.
Although some unions have been traditionally associated with political
groups, unions are prohibited by law from engaging in explicitly
political, religious or profit-making activities. The International
Labor Organization (ILO) in June 1996 called on the Peruvian government
to enhance freedom of association.
b. The Right to Organize and Bargain Collectively.--Bargaining
agreements are considered contractual agreements, valid only for the
life of the contract. Unless there is a pre-existing labor contract
covering an occupation or industry as a whole, unions must negotiate
with each company individually. Strikes may be called only after
approval by a majority of all workers (union and non-union) voting by
secret ballot. Unions in essential public services, as determined by
the government, must provide sufficient workers, as determined by the
employer, to maintain operations during the strike. Companies may
unilaterally suspend collective bargaining agreements for up to 90 days
if required by force majeur or economic conditions, with 15 days notice
to employees. The Peruvian Congress approved a new employment law in
June 1995 that union leaders claim restricts union freedom and the
freedom to bargain collectively by making it easier to fire workers.
The unions filed a complaint about this new law with the ILO, and the
ILO noted that the new law failed to effectively guarantee the
protection of workers against acts of anti-union discrimination and to
protect workers' organizations against acts of interference by
employers.
c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory
labor is prohibited, as is imprisonment for debt. There are periodic
reports of forced labor in remote mountainous and jungle areas, which
the government claims is located beyond its control. In response to a
complaint filed with the ILO, the government in 1994 acknowledged the
existence of such practices and said it had taken measures to end them.
d. Minimum Age of Employment.--The minimum legal age for employment
is 16. Although education through the secondary level is free and
compulsory, many school-aged children must work to support their
families. Much of the child labor takes place in the informal economy
without government supervision of wages or conditions. A recent
government study indicated that 8 percent of the workforce was between
the ages of six and 14.
e. Acceptable Conditions of Work.--The 1993 constitution provides
for a maximum eight-hour work day, a 48-hour work week, a weekly day of
rest and 30 days annual paid vacation. Workers are promised a ``just
and sufficient wage'' (to be determined by the government in
consultation with labor and business representatives) and ``adequate
protection against arbitrary dismissal.'' No labor agreement may
violate or adversely affect the dignity of the worker. These and other
benefits are readily sacrificed by workers in exchange for regular
employment, especially in the informal sector.
f. Rights in Sectors with U.S. Investment.--U.S. investment in Peru
is concentrated primarily in the mining and petroleum sectors, and more
recently in electrical generation. Labor conditions in those sectors
compare favorably with other parts of the Peruvian economy. Workers are
primarily unionized, and wages far exceed the legal minimum.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 194
Total Manufacturing........................... 94
Food & Kindred Products..................... \1\
Chemicals & Allied Products................. 58
Metals, Primary & Fabricated................ 6
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... \1\
Wholesale Trade............................... 60
Banking....................................... \1\
Finance/Insurance/Real Estate................. \1\
Services...................................... 27
Other Industries.............................. 1,475
TOTAL ALL INDUSTRIES.......................... 2,075
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
TRINIDAD and TOBAGO
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
GDP (at current prices)................... 5,201 5,449 5,650
Real GDP Growth (pct)..................... 2.4 3.1 3.7
GDP by sector:
Services................................ 2,620 2,794 2,905
Agriculture............................. 106 114 118
Petroleum............................... 1,420 1,451 1,462
Manufacturing........................... 445 447 450
Government.............................. 526 541 525
Per Capita GDP (actual)................... 4,116 4,288 4,346
Labor Force (000s)........................ 526 530 545
Unemployment Rate (pct) 17.2 16.2 14.5
Money and Prices (annual percentage growth):
Money Supply (M2) \2\..................... 3.5 -0.8 5.8
Consumer Price Inflation.................. 5.3 3.6 3.7
Exchange Rate (TT$/US$)................... 5.89 6.03 6.29
Balance of Payments and Trade:
Total Exports FOB......................... 2,464 2,490 2,663
Exports to U.S.......................... 941 1,094 1,005
Total Imports CIF......................... 1,937 2,134 2,509
Imports from U.S........................ 880 800 1,211
Trade Balance............................. 493 341 154
Balance with U.S.\3\.................... 61 294 -206
Current Account Deficit/GDP (pct)......... 0.8 -0.5 -0.7
External Public Debt...................... 1,905 1,858 1,755
Debt Service Payments/GDP (pct)........... 8.4 6.0 11.2
Fiscal Deficit/GDP (pct).................. -0.002 -0.01 -0.7
Gold and Foreign Exchange Reserves........ 467 564 \4\ 879
Aid from U.S.\5\.......................... 0.4 1.0 3.0
Aid from Other Countries.................. N/A N/A N/A
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on seven months of data, except
as noted. 1995 and 1996 figures have been revised. All statistics
compiled by the Central Statistical Office (CSO) except BOP figures
which are compiled by the Central Bank.
\2\ Through August 1997.
\3\ According to CSO, Trinidad and Tobago had a trade deficit with the
U.S. of $203 million at the end of July 1997 due to high imports of
machinery and materials in April 1997 for use in several petrochemical
plants under construction. Projected year -end deficit is based on
July data plus average import and export levels for the rest of 1997.
U.S. Department of Commerce data available as of October 1997 does not
show a U.S. surplus
\4\ As of September 1997.
\5\ Represents primarily security assistance and counter narcotics
program funding. Includes USIA and USDA exchanges.Represents primarily
security assistance and counter narcotics program funding. Includes
USIA and USDA exchanges.
1. General Policy Framework
Trinidad and Tobago's substantial oil and natural gas reserves made
it one of the richest countries in the Western Hemisphere during the
oil booms of the seventies and early eighties. Much of the oil revenue
windfall was used to subsidize state-owned companies and to fund social
and infrastructure projects, which became a drain on government
finances. A dramatic increase in domestic consumption contributed to
over valuation of the currency with a resulting decline in non-oil
exports. The collapse of oil prices in the mid-1980's, and concurrent
decrease in Trinidadian oil production caused a severe recession from
which Trinidad and Tobago only recovered in 1994. Although structural
reforms have begun to stimulate growth in non-hydrocarbon sectors,
overall economic prospects remain closely tied to oil, gas and
petrochemical prices and production.
Since 1992, the government has successfully turned the state-
controlled economy into a market-controlled one. In 1992, it began a
large-scale divestment program and has since partially or fully
privatized the majority of state-owned companies. The government has
also dismantled most trade barriers, with only a small number of
products remaining on a ``negative list'' (requiring import licenses)
or subject to import surcharges.
Trinidad and Tobago aggressively courts foreign investors, and
initialed a bilateral investment treaty with the United States in 1994
which came into force on December 26, 1996. New U.S. investment grew to
US$646 million in 1996, and is expected to top US$1 billion in 1997.
Estimates are that new U.S. direct investment over the period 1996-1998
will reach nearly US$2.5 billion.
The government uses a standard array of fiscal and monetary
policies to influence the economy, including a 15 percent value-added
tax (VAT) and corporate and personal income taxes of up to 35 percent.
Improvements in revenue collection since 1993 have boosted VAT, income
tax and customs duty revenues dramatically, contributing to small
public sector budget surpluses in both 1995 and 1996 in spite of
increased outlays. Simplification of the personal income tax regime in
1997, by eliminating many deductions in favor of a set standard
deduction, and restructuring of the Board of Inland Revenue were
designed to further boost revenue collection. Another surplus, expected
to exceed the budgeted target, is likely for 1997.
The exchange rate, which was loosely managed by the Central Bank
after it was floated in 1993, has remained relatively stable. It had
depreciated by about 4.5 percent through early 1996. In late 1996 and
the first half of 1997 supply and demand imbalances led to some
volatility. The currency has now depreciated a total of 11.7 percent
since flotation, with approximately half of the slide occurring in the
fourth quarter of 1996 and first quarter of 1997. The Central Bank
relies largely on commercial bank reserve requirements to control the
money supply, raising them as high as 23 percent in 1996 (21 percent in
October 1997). The Bank has begun to use open-market operations to
control liquidity in an effort to reduce local interest rates and spur
investment. Inflation has declined steadily since 1991, falling to 3.6
percent in 1996, and holding at 3.7 percent through September 1997.
2. Exchange Rate Policy
In April 1993 the government removed exchange controls and floated
the TT dollar, which had been pegged to the U.S. dollar at the rate of
TT$4.25 since 1988. After flotation, the TT dollar adjusted to an
initial rate of TT$5.76 to one U.S. dollar. The Central Bank loosely
manages the rate through currency market interventions and
consultations with the commercial banks. The average rate in 1995
stabilized at just under TT$6.00 to US$1.00. In 1996 foreign exchange
pressure mounted, and a decision by the Central Bank to allow a freer
float led to a depreciation, which went as low as TT$6.23 to US$1.00 in
December, 1996. In early November 1997, the rate hovered around TT$6.29
to US$1.00. Foreign exchange supply depends heavily on the quarterly
tax payments and purchases of local goods and services by a small
number of large multinational firms, of which the most prominent are
U.S. owned. Foreign currency for imports, profit remittances, and
repatriation of capital is freely available. Only a few reporting
requirements have been retained to deter money laundering and tax
evasion. The fall in value of the TT dollar from its previous pegged
rate of TT$4.25 to US$1.00 lowered imports from the United States in
1993. However, the dismantling of tariff and trade barriers and
liberalization of the investment regime led to a 36 percent growth of
imports from the United States in 1995. While imports from the U.S.
fell slightly in 1996, they are expected to rise sharply in 1997 to
over US$ 1 billion, due largely to machinery imports for several mostly
U.S.-content petrochemical plants which have begun construction.
3. Structural Policies
Pricing Policies: Generally, the market determines prices. The
government maintains domestic price controls only on sugar,
schoolbooks, and pharmaceuticals.
Tax Policies: With the exception of Caribbean Community (CARICOM)-
origin goods, most goods entering Trinidad and Tobago have been subject
to varying import charges, including customs duties, stamp taxes,
import surcharges and value-added tax (VAT). Most of these charges have
been reduced since 1994. The stamp tax on imports was eliminated as
part of the policy of bringing import charges down to the CARICOM
Common External Tariff (CET) level. In 1997 the CET ranges from zero to
40 percent. It is being reduced on a phased basis to a maximum of 20
percent by 1998. An increasing variety of raw materials and machinery
in approved sectors is exempt from all customs duties. Duties on
manufacturing inputs were reduced across the board in August 1995 to
2.5 percent from 5 percent and eliminated in several categories. Import
surcharges (additional to CET) of from 5 to 103 percent (the latter
only on a very limited range of poultry parts) are still levied on most
meats, milk, and some fruits and vegetables, which were previously
subject to quotas under the ``negative list.'' The surcharge on meats
(except chicken) will be eliminated in 1998. The surcharge for chicken
will go from 10 to 5 percent in 1998 and to zero in 1999, and the one
for vegetables will go from 30 to 15 percent in 1998 and to zero in
1999. Most of the remaining surcharges will also be phased out by 1999.
As part of its tariffication program, in March 1997 the Government of
Trinidad and Tobago removed sugar from the negative list, replacing the
import license requirement with a 60 percent surcharge on cane and beet
sugar, and a 75 percent surcharge on refined sugar. The surcharge is in
addition to the 40 percent CARICOM CET on sugar.
The standard rate of VAT is 15 percent; however, many basic
commodities are zero-rated. Excise tax is levied only on locally
produced petroleum products, tobacco and alcoholic beverages. The
corporate tax rate was lowered in 1994 from a maximum of 45 percent to
38 percent, and again in 1995 to 35 percent. While the tax code does
not favor foreign investors over local investors, profits on sales to
markets outside CARICOM are tax exempt, which benefits firms with non-
CARICOM connections.
Regulatory Policies: All imports of food and drugs must satisfy
prescribed standards. Imports of meat, live animals and plants, many of
which come from the United States, are subject to specific regulations.
The import of firearms, ammunition and narcotics are rigidly controlled
or prohibited.
4. Debt Management Policies
Trinidad has repaid all but US$ 14.1 million of a US$335 million
International Monetary Fund loan and enjoys excellent relations with
the international financial institutions. Its major lender is the
Inter-American Development Bank (IDB), which by mid-1997 was disbursing
US$554.1 million in loans. Total external debt has declined steadily,
falling to US$1.85 billion at the end of 1996, and declining further to
US$1.75 billion in the first quarter of 1997 (latest available figure).
The debt to GDP ratio fell to 34 percent in 1996, but debt service as a
percent of exports rose from 18.8 percent in 1995 to 19.4 percent in
1996. While total debt continued to decline in 1997, debt service will
again increase to cover a large balloon payment due in 1997. Increased
exports, however, should lower debt service as a percentage of exports
to around 12 percent in 1997.
The lower total debt burden has allowed the government more
flexibility in lowering import duties and trade barriers, benefiting
U.S. exports. Responsible debt management and macroeconomic stability
have led Moody's to upgrade Trinidad and Tobago's sovereign credit
rating from BA2 to BA1. Another upgrade is expected after a mid-1997
Moody's review. Standard and Poor's has given Trinidad and Tobago an
initial rating of BB+ (Both are among the highest in the hemisphere.)
5. Aid
USAID does not maintain a mission or any active programs in
Trinidad and Tobago. The only funding that comes to Trinidad and Tobago
either directly or indirectly through USAID is through provision of
free condoms to the International Planned Parenthood Federation, which
are then transferred to the Trinidad and Tobago Family Planning
Association. USAID also approves Section 607 transfers of USG surplus
property to a local charitable organization. The total value of
transfers under these two programs in 1996 was just over US$ 1 million.
The majority of U.S. assistance to Trinidad and Tobago is in the form
of support for justice and security and counter-narcotics programs.
Expenditures for all Department of Defense programs in Trinidad and
Tobago in 1996 totaled US$1.9 million (including salary and
transportation costs for training missions). For 1997 Individual
Military Education Training (IMET) is funded at US$200,000, and Foreign
Military Finance Program (FMF) at US$285,000.
6. Significant Barriers to U.S. Exports
Trinidad and Tobago is highly import-dependent, with the United
States supplying about 37.5 percent of total imports in 1996 and an
estimated 48.2 percent in 1997. Only a limited number of items remain
on the ``negative list'' (requiring import licenses). These include
live poultry, fresh fish and some other seafood, some oils and fats,
paper for wrapping tobacco, coconut, copra, left-hand drive vehicles,
used right-hand drive vehicles, pesticides, and boats under 250 tons.
Foreign ownership of service companies is permitted. Trinidad and
Tobago currently has one wholly U.S.-owned bank, several U.S.-owned air
courier services, and one U.S. majority-owned insurance company.
The Trinidad and Tobago Bureau of Standards (TTBS) is responsible
for all trade standards except those pertaining to food, drugs and
cosmetic items, which the Chemistry, Food and Drug Division of the
Ministry of Health monitors. The TTBS uses the ISO 9000 series of
standards and is a member of ISONET. Standards, labeling, testing and
certification rarely hinder U.S. exports. However, in 1996 and 1997,
importers of U.S. goods complained about overly rigid standards for
used clothes and tires.
Foreign direct investment is actively encouraged by the government,
and there are few if any remaining restrictions. Investment is screened
only for eligibility for government incentives and assessment of its
environmental impact. Both tax and nontax incentives may be negotiated.
On September 26, 1994 the government signed a bilateral investment
treaty with the United States, granting national treatment and other
benefits to U.S. investors. The treaty came into force on December 26,
1996. The repatriation of capital, dividends, interest, and other
distributions and gains on investment may be freely transacted. Several
foreign firms have alleged that there are inconsistencies in the
granting of long-term work permits. These generally fall into two
categories, either that a permit is not granted to an official of a
company which is competing with a local firm, or that the authorities
threaten not to renew a permit because a foreign firm has not done
enough to train and promote a Trinidadian into the position.
Government procurement practices are generally open and fair, with
the government and government-owned companies adhering to an open
bidding process. Some government entities request prequalification
applications from firms, then notify prequalified companies in a
selective tender invitation. Trinidad and Tobago signed the Uruguay
Round Final Act on April 15, 1994, and became a WTO member on April 1,
1995, but is not a party to the WTO Government Procurement Agreement.
Customs operations are being restructured and streamlined with the
help of U.S. government advisors. UNCTAD's ASYCUDA trade facilitation
system (automated system for customs data) was adopted on January 1,
1995. Customs clearance can be time consuming because of bureaucratic
delays.
7. Export Subsidies Policies
The government does not directly subsidize exports. The state-run
Trinidad and Tobago Export Credit Insurance Company insures up to 85
percent of export financing at competitive rates. The government also
offers incentives to manufacturers operating in free zones (export
processing zones) to encourage foreign and domestic investors. Free
zone manufacturers are exempt from customs duties on capital goods,
spare parts and raw materials, and all corporate taxes on profits from
manufacturing and international sales.
8. Protection of U.S. Intellectual Property
Trinidad and Tobago signed an Intellectual Property Rights
Agreement with the United States in 1994 which, along with Trinidad's
commitments under the WTO TRIPs agreement, necessitated revisions of
most IPR legislation. All new pieces of legislation have been
proclaimed by the President. While the government's awareness of the
need for IPR protection has improved, enforcement of existing
regulations remains lax.
Trinidad and Tobago is a member of the Universal Copyright
Convention, the Berne Convention for the Protection of Literary and
Artistic Works, the Paris Convention for the Protection of Industrial
Property, the Patent Cooperation Treaty, the Classification Treaties
and the Budapest Treaty. It became a member of the Brussels Convention
in 1996. It has signed, but has yet to deposit its Instruments of
Accession to, the Trademark Law Treaty and the 1978 Union for the
Protection of New Varieties of Plants. As a member of the Caribbean
Basin Initiative, the government is committed to prohibiting
unauthorized broadcasts of U.S. programs.
The 1997 Copyright Act became effective as of October 1, 1997. The
Act was written with the assistance of the World Intellectual Property
Organization, and was forwarded to the United States for comment in
compliance with the U.S./Trinidad and Tobago Bilateral Memorandum of
Understanding on Intellectual Property Rights. The new Act offers
protections equivalent to those available in the U.S. Enforcement of
IPR laws remains a concern under the new Act. The Copyright
Organization of Trinidad and Tobago has stepped up its enforcement
activity since the new law came into effect, but has primarily targeted
unauthorized use of locally-produced music products. Video rental
outlets in Trinidad and Tobago are replete with pirated videos, and
pirated audio cassettes are sold openly in the street and in some
stores. Local Cable TV operators feel that they will have to increase
rates or eliminate some channels to comply with the new law.
The 1997 Patent Law generally complies with the obligations of the
United States-Trinidad and Tobago bilateral IPR agreement and TRIPS
with the possible exception of certain compulsory licensing provisions.
The new Trademark Amendment Act came into effect in September 1997.
Trademarks can be registered for a period of 10 years, with unlimited
renewals. Counterfeiting of trademarks is not a widespread problem in
Trinidad and Tobago.
New technologies: Larger firms in Trinidad and Tobago generally
obtain legal computer software, but some smaller firms use wholly or
partially pirated software or make multiple copies of legally purchased
software. Licensed cable companies are faced with unlicensed cable
operators and satellite owners who connect neighborhoods to private
satellites for a fee. Licensed cable companies provide customers with
some U.S. cable channels for which they have not obtained rights,
arguing that since these services are not officially for sale in
Trinidad, they are not stealing them. The HBO and Cinemax networks have
now appointed agents in Trinidad to collect fees.
Given the popularity of U.S. movies and music, and the dominance of
the United States in the software market, U.S. copyright holders are
the most heavily affected by the lack of copyright enforcement. By
signing the IPR agreement, the government has acknowledged that IPR
infringement is a deterrent to investment and that it is committed to
improving both legislation and enforcement.
9. Worker Rights
a. The Right of Association.--The 1972 Industrial Relations Act
provides that all workers, including those in state-owned enterprises,
may form or join unions of their own choosing without prior
authorization. Union membership has declined, with an estimated 20 to
28 percent of the work force organized in 14 active unions. Most unions
are independent of government or political party control, although the
Sugar Workers Union is historically allied with the UNC party. (The
Prime Minister was formally president of the Sugar Workers Union.) The
Act prohibits anti-union activities before a union is legally
registered, and the Labor Relations Act prohibits retribution against
strikers. Both laws contain grievance procedures.
b. The Right to Organize and Bargain Collectively.--The right of
workers to bargain collectively is established in the Industrial
Relations Act of 1972. Anti-union discrimination is prohibited by law.
The same laws apply in the export processing zones.
c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory
labor is not explicitly prohibited by law, but there have been no
reports of its practice.
d. Minimum Age for Employment of Children.--The minimum legal age
for workers is 12 years. Children from 12 to 14 years of age may only
work in family businesses. Children under the age of 18 may legally
work only during daylight hours, with the exception of 16 to 18 year
olds, who may work at night in sugar factories. The probation service
in the Ministry of Social Development and Family Services is
responsible for enforcing child labor provisions, but enforcement is
lax. There is no organized exploitation of child labor, but children
are often seen begging or working as street vendors. Some are used by
criminals as guards or couriers.
e. Acceptable Conditions of Work.--There is no national minimum
wage; however, the government has set minimum wage standards in 53 job
categories in five nonunionized occupational groupings ranging from
US$26 to US$57 per week. The rates were to be adjusted for cost-of-
living increases at regular intervals, but Parliament has never
considered an adjustment since passing the laws. A minimum wage is not
sufficient to support a worker and family, but most workers earn more
than the minimum. The government has proposed establishing a national
minimum wage at TT$7 per hour (about US$1.10/hour). The standard work
week is forty hours, with no cap on overtime.
The Factories and Ordinance Bill of 1948 sets occupational health
and safety standards in certain industries. State inspectors monitor
conditions in work places and workers who refuse to perform work
because of hazardous conditions are protected from retribution under
the Industrial Relations Act of 1972. New occupational safety and
health legislation is under consideration by the government.
f. Rights in Sectors with U.S. Investment.--Employee rights and
labor laws in sectors with U.S. investment do not differ from those in
other sectors.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 479
Total Manufacturing........................... \1\
Food & Kindred Products..................... \1\
Chemicals & Allied Products................. \1\
Metals, Primary & Fabricated................ \1\
Machinery, except Electrical................ \2\
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... 2
Wholesale Trade............................... 0
Banking....................................... \1\
Finance/Insurance/Real Estate................. 13
Services...................................... 2
Other Industries.............................. \1\
TOTAL ALL INDUSTRIES.......................... 1,057
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
\2\ Indicates a value between $-500,000 and $500,000.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
URUGUAY
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated] \1\
------------------------------------------------------------------------
1995 1996 1997 \2\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \3\............................... 17.7 18.9 19.6
Real GDP Growth (pct)......................... -2.0 4.9 5.0
GDP by Sector:
Agriculture............................... 1.7 1.9 2.0
Manufacturing............................. 3.1 3.4 3.4
Services.................................. 7.9 8.5 N/A
Government................................ 1.7 1.8 N/A
Per Capita GDP (US$)........................ 5,551 5,918 6,240
Labor Force (000s).......................... 1,344 1,334 1,324
Unemployment Rate (pct)..................... 10.3 11.9 11.5
Money and Prices (annual percentage growth):
Money Supply Growth (M2).................... 38.2 29.4 25.3
Consumer Price Inflation.................... 35.4 24.3 16.0
Exchange Rate (Uruguayan Peso/US$-annual
average)
Interbank floating selling rate........... 6.35 7.98 9.5
Balance Of Payments And Trade:
Total Exports FOB \4\......................... 2.1 2.4 2.7
Exports to U.S. (US$ mlns)................ 123 167 190
Total Imports CIF \4\....................... 2.9 3.3 3.9
Imports from U.S. (US$ mlns).............. 282 398 490
Trade Balance \4\........................... -0.8 -0.9 -1.2
Balance with U.S.(US$ mlns)............... -159 -231 -253
External Public Debt........................ 4.9 5.4 5.6
Fiscal Deficit/GDP (pct).................... 1.6 1.6 1.6
Current Account Deficit/GDP (pct)........... 1.2 1.6 1.6
Debt Service Payments/GDP (pct)............. 3.8 3.8 3.5
Gold and Foreign Exchange Reserves (net).... 2.0 2.1 2.1
Aid from U.S.(US$ mlns)..................... 1.0 0.44 0.45
Aid from All Other Sources(US$ mlns)........ N/A 62.5 62.5
------------------------------------------------------------------------
\1\ Data In Uruguayan Pesos Was Converted Into U.S. Dollars At The
Average Interbank Selling Rate For Each Year.
\2\ 1997 Figures Are All Estimates Based On Available Monthly Data In
October 1997.
\3\ GDP At Producer Price -Billions Of U.S. Dollars
\4\ Merchandise Trade
Sources: Uruguayan Central Bank And National Institute Of Statistics.
1. General Policy Framework
Uruguay has a small, relatively open economy. The historical basis
of the economy has been agriculture, particularly livestock production.
Agriculture remains important both directly (beef, wool and rice) and
indirectly for inputs to other sectors (textiles, leather and meat).
Industry, which diversified beyond agro-industry into chemicals and
consumer goods for local consumption, has declined in the face of
greater competition, and now accounts for only 20 percent of GDP. The
service sector, particularly tourism and financial services, now
dominates the economy, accounting for over 60 percent of GDP. Banking
benefits from Uruguay's open financial system. Per capita income of
$6,000 puts Uruguay in the world bank's upper-middle income grouping.
Since the mid-1980s, Uruguay has maintained an open capital account
and has allowed unrestricted currency transactions and market-
determined interest rates. Liberalization has had the support of the
last two administrations, and has included membership in the southern
cone common market (MERCOSUR), reduced deficit spending, downsized
government, and lower inflation. The government has lifted many state
monopolies.
Intra-MERCOSUR harmonization is advancing rapidly, as is trade.
Trade with neighboring Argentina and Brazil now accounts for almost
half of Uruguay's overall trade with the world. The United States is
the third largest Uruguayan trading partner, and since 1991 it has
enjoyed a rapidly growing trade surplus. In 1996, the United Sates
bought 7.0 percent of Uruguay's exports ($167 million) and provided
12.0 percent of the country's imports ($398 million). Tariff rates have
declined to zero percent for most MERCOSUR products. On January 1,
1995, a common external tariff (CET) entered into effect on imports
from non-MERCOSUR countries, ranging (with some exceptions) between
zero and 20 percent.
The government of President Julio Maria Sanguinetti, which took
office in March 1995, has been implementing a three-stage stabilization
program consisting of: a) an immediate fiscal adjustment package
focused mainly on industrial tax incentives and increased payroll and
consumption taxes; b) a medium-term program for government downsizing;
and, c) a long-term program for social security reform to address one
of the main sources of the deficit. A fiscal adjustment law to
implement the tax measures of the stabilization program went into
effect in May 1995.
At the end of December 1996, the public sector deficit had
decreased to 1.6 percent of GDP, and as of 1997's first-half, the
budget deficit is 1.7 percent (on a 12-month basis) mostly explained by
the cost of implementing structural reforms. The inflation rate
decreased to 24.3 percent for 1996, and the rate for the twelve-month
period ending September 1997 had further decreased to 17.0 percent. The
Ministry of Finance projects eight percent inflation for 1998.
2. Exchange Rate Policy
The Uruguayan Government allows the peso to float against the
dollar within a seven percent range. The band currently rises by 1.0
percent per month and will rise by 0.8 percent starting November 1997.
The Central Bank regularly buys and sells dollars to keep the peso's
value within the band. The gap between devaluation and inflation was
1.3 percentage points at the end of 1996, and by September 1997 grew to
1.7 percentage points (on a 12-month basis).
Uruguay has no foreign exchange controls. The peso is freely
convertible into dollars for transactions and much of the economy is
dollarized.
3. Structural Polices
The national government is slowly eliminating redundant functions
and divesting itself on non-essential activities. Central
administration reform aims to reduce the number of central government
employees by 10,000 out of a total of 40,000. Almost all levels of
government are encouraging the private sector to play a greater role,
and they are facilitating its access to areas formerly reserved for the
state. Many formerly restricted activities have been transferred to the
private sector under contract, concession or sale, and the government
ended its insurance and mortgage monopolies in 1995. Social security
reform is being implemented, lowering the structural government deficit
in the long-run. The reform is converting the highly deficit-ridden
public system into a solid bifurcated system of public and private
providers.
Price controls are limited to a small set of products and services
for public consumption, such as bread, milk, passenger transportation,
utilities and fuels. The government relies heavily on consumption taxes
(value-added and excise) for its general revenue.
4. Debt Management Policies
As of 1997's first quarter, the Uruguayan external debt was $2.7
billion, ninety percent of which is public. Since 1996, Uruguay has
been extending the maturity of its debt. Debt service in 1996 was $666
million, equivalent to 18 percent of combined merchandise and service
exports, and less than 4 percent of GDP. In late 1996 and 1997,
Uruguay's risk classification for long-term debt issued in foreign
currency improved to BBB minus (Standard & Poor's, Moody's, Duff &
Phelps and Europe's IBCA), reaching investment grade status, and
enabling U.S. pension funds to invest in Uruguay.
Total net foreign exchange reserves amounted to $2,100 million as
of August 1997, equivalent to 7.5 months of imports, and enough to
cover total external debt service for three years. An IMF stand-by
program is in place.
5. Aid
Uruguay receives little non-military aid from the United States.
From time to time, Uruguay receives excess U.S. defense articles (seven
helicopters in 1997). During 1997 Uruguay received US$ 300,000 under
the international military education and training program. Bilateral
counter narcotics assistance totaled US$ 150,000 in 1997. A Peace Corp
program closed in 1997. Using 6 million dollars from a debt reduction
program, the United States Government and the Uruguayan Government
jointly manage the Americas Fund. This fund is designed to use monies
otherwise due to the United States into local environmental and child
welfare programs. According to the Uruguayan Presidency's Office Of
Budget and Planning, total estimated aid received from all other
sources in 1996 and 1997 amounts to 125 million dollars (the Government
of Uruguay keeps aid statistics on a two-year basis).
6. Significant Barriers to U.S. Exports
Certain imports require special licenses or customs documents.
Among these are pharmaceuticals, some types of medical equipment and
chemicals, firearms, radioactive materials, fertilizers, vegetable
products, frozen embryos, livestock, bull semen, anabolics, sugar,
seeds, hormones, meat and vehicles. To protect Uruguay's important
livestock industry, imports of bull semen and embryos also face certain
numerical limitations and must comply with animal health requirements,
a process which can take years. Bureaucratic delays also add to the
cost of imports, although importers report that a
``debureaucratization'' commission has improved matters.
Few significant restrictions exist in services. U.S. banks continue
to be very active in off-shore banking. There are no serious
restrictions on professional services such as law, medicine or
accounting. Those from abroad wishing to practice these professions in
Uruguay, must prove equivalent credentials to those required of locals.
Similarly, travel and ticketing services are unrestricted. A law
allowing foreign companies to offer insurance coverage in Uruguay was
passed in October 1993.
There have been significant limitations on foreign equity
participation in certain sectors of the economy. Investment areas
regarded as strategic require government authorization. These include
electricity, hydrocarbons, banking and finance, railroads, strategic
minerals, telecommunications and the press. Uruguay has long owned and
operated state monopolies in petroleum, rail freight, telephone service
and port administration. Passage of port reform legislation in April
1992 allowed for privatization of various port services. The state-
owned natural gas company was privatized in late 1994. Cellular
telecommunications are operated by both private consortia and the
state-owned phone company (ANTEL). Legislation to privatize ANTEL was
overturned by referendum in 1992. Several state-owned firms, however,
grant the concession of specific services to privately-owned companies.
Government procurement practices are well-defined, transparent and
closely followed. Tenders are generally open to all bidders, foreign
and domestic. However, a government decree establishes that local
products or services of equal quality to, and no more than ten percent
more expensive than foreign goods or services, shall be given
preference. Among foreign bidders, preference will also be given to
those who offer to purchase Uruguayan products. Uruguay has not signed
the GATT/WTO government procurement code.
Following a recent reduction in the top rate, Uruguay's tariff
structure now varies between zero and twenty percent. Most imports from
MERCOSUR member countries enter free of duty. The only exemptions to
tariff regulations, in the context of anti-dumping legislation, are
reference prices and minimum export prices, fixed in relation to
international levels and in line with commitments assumed under the
WTO. These are applied to neutralize unfair trade practices which
threaten to damage national production activity or delay the
development of such activities, and are primarily directed at Argentina
and Brazil. Minimum export prices have been scheduled to be phased out,
but a number are still in effect.
7. Export Subsidies Policies
The government provides a nine percent subsidy to wool fabric and
apparel producers using funds from a tax on greasy and washed wool
exports. Uruguay is a signatory of the GATT/WTO subsidies code.
8. Protection Of U.S. Intellectual Property
Uruguay's intellectual property rights (IPR) regime does not yet
meet international standards. The most serious lack of IPR protection
is the specific exclusion of pharmaceuticals and chemical products from
patent protection. Uruguay's copyright law dates to 1937; the extent to
which it protects computer software is subject to judicial
interpretation each time a case is presented. Uruguay is a member of
the World Intellectual Property Organization (WIPO) and a party to the
Berne Convention, the Universal Copyright Convention (UCC) and the
Paris Convention for the protection of industrial property. Registering
a foreign trademark without proving a legal commercial connection with
the trademark is no longer a possibility; enforcement of trademark
rights is adequate. Public/private sector commissions have been
drafting IPR legislation on patents, copyrights and trademarks to bring
Uruguay up to international standards. None of the bills had been
approved by Parliament as of the end of 1997. Uruguay was mentioned in
the ``Other Observations'' section during the 1997 Special 301 review
due to difficulties in copyright and patent protection.
The government does not discriminate between foreign and domestic
patent holders. Owners and assignees of foreign patents may register
patents in Uruguay, provided application is made within three years of
registration in the country of origin. Registered patents are protected
for ten years, less the period of protection already enjoyed in the
country of origin. Licensing is not mandatory. Pharmaceuticals and
chemical products are not patentable. The lack of patent protection for
pharmaceuticals has had a marked negative effect on U.S. trade and
investment in the sector.
Foreign trademarks may be registered in Uruguay and receive the
same protection as domestic trademarks. Protection is afforded for ten
years initially and is renewable.
Uruguay affords copyright protection to, inter alia, books,
records, videos, and software. Despite legal protection, enforcement of
copyrights for software is still weak and pirating of software is
estimated at 80 percent. Software suppliers have estimated that losses
due to pirating are in excess of $10 million. There is also
considerable pirating of videotapes and music cassettes. The
international intellectual property rights alliance estimates trade
losses from copyright piracy of books, motion pictures, sound
recordings and musical compositions at over $9 million.
9. Worker Rights
a. The Right of Association.--The constitution guarantees the right
of workers to organize freely and encourages the formation of unions.
Labor unions are independent of government or political party control.
b. The Right to Organize and Bargain Collectively.--Collective
bargaining takes place on a plant-wide or sector-wide basis, with or
without government mediation, as the parties wish.
c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory
labor is prohibited by law and in practice.
d. Minimum Age for Employment of Children.--Children as young as 12
may be employed if they have a work permit. Children under the age of
18 may not perform dangerous, fatiguing, or night work, apart from
domestic employment.
e. Acceptable Conditions of Work.--There is a legislated minimum
wage. The standard work week is 48 hours for six days, with overtime
compensation. Workers are protected by health and safety standards,
which appear to be adhered to in practice.
f. Rights in Sectors with U.S. Investment.--Workers in sectors in
which there is U.S. investment are provided the same protection as
other workers. In many cases, the wages and working conditions for
those in U.S.-affiliated industries appear to be better than average.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 162
Food & Kindred Products..................... 134
Chemicals & Allied Products................. \1\
Metals, Primary & Fabricated................ 2
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... \1\
Wholesale Trade............................... 45
Banking....................................... 167
Finance/Insurance/Real Estate................. \1\
Services...................................... 3
Other Industries.............................. 0
TOTAL ALL INDUSTRIES.......................... 431
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
VENEZUELA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\......................... 76.4 67.0 80.4
Real GDP Growth (pct) \3\............... 3.4 -1.6 5.0
GDP by Sector:
Agriculture........................... 3.7 3.3 4.0
Manufacturing......................... 16.5 14.1 16.9
Services.............................. 27.3 23.4 26.0
Government............................ 6.4 5.6 6.7
Per Capita GDP (US$).................... 3,496 3,002 3,525
Labor Force (000s)...................... 8,609 9,025 9,224
Unemployment Rate (pct)................. 10.2 12.4 11.5
Money and prices (annual percentage
growth):
Money Supply Growth (M2)................ 36.2 51.9 41.9
Consumer Price Inflation................ 56.6 103.2 40.0
Exchange Rate (Bs/US$-annual average)
Official.............................. 176.8 \4\ 419.
4 489.0
Balance of Payments and Trade:
Total Exports FOB \5\................... 18.6 22.8 23.9
Exports to U.S........................ 9.7 12.9 14.9
Total Imports FOB \5\................... 11.4 10.6 12.5
Imports from U.S...................... 4.6 4.7 5.9
Trade Balance \5\....................... 7.2 12.2 11.4
Balance with U.S...................... 5.1 8.2 9.0
External Public Debt.................... 26.9 24.7 23.2
Fiscal Surplus/GDP (pct)................ -4.8 6.5 0.1
Current Account Surplus/GDP (pct)....... 3.0 11.0 8.0
Debt Service Payments/GDP (pct)......... 7.7 8.2 6.8
Gold and Foreign Exchange Reserves...... 9.7 15.2 18.3
Aid from U.S. (US$ thousands) \6\....... 750 800 950
Aid from All Other Sources.............. N/A N/A N/A
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available monthly data in
November 1997.
\2\ GDP at market value
\3\ Percentage changes calculated in local currency
\4\ On April 22, 1996, the government abandoned the fixed rate of 290
bolivars to the dollar, eliminated exchange controls, and allowed the
currency to float. For the remainder of 1996, the bolivar hovered
around 470 bolivars to the dollar. During the period of exchange
controls, the parallel rate was the effective exchange rate resulting
from the trading of Brady Bonds on the Caracas Stock Exchange.
\5\ Merchandise trade
\6\ Counternarcotics assistance and aid under the International Military
Education and Training Program
1. General Policy Framework
Venezuela is back on a free market footing and experiencing strong
economic growth following President Rafael Caldera's decision in April
1996 to abandon a two-year experiment with foreign exchange and price
controls. The elimination of the controls, which were put in place to
deal with a severe financial crisis in the banking sector, essentially
revived the economic liberalization program begun by former President
Carlos Andres Perez in 1989. In 1997, most of the banks and insurance
companies taken over by the state during the 1994-95 financial crisis
were re-privatized. The government also successfully privatized the
state steel company SIDOR, selling 60% of the company for $1.72 billion
in cash plus assumed debt. President Caldera signed landmark
legislation in June 1997 to reform the country's 60-year-old severance
pay system, which both business and labor agreed had become an obstacle
to competitiveness, job creation and economic growth. Under the old
system, departing employees received up to two months pay based on
their most recent salary; the new system does away with
``retroactivity'' (i.e., basing the entire benefit on the most recent
salary) and allows employers to calculate their severance benefits
annually and to make monthly deposits into a pension fund or similar
account.
Venezuela is rich in natural resources, including petroleum,
natural gas, hydroelectric power, bauxite, iron ore, coal, gold, and
diamonds. The petroleum industry dominates Venezuela's economy,
accounting in 1996 for roughly 27 percent of the country's GDP, 61
percent of central government revenues, and 78 percent of export
earnings. The role of petroleum is likely to become even more important
as the state petroleum company (PDVSA) continues to open the sector to
private capital with the goal of doubling production over the next 10
years, from its current level of 3.4 million barrels per day (b/d) to
more than 6 million b/d by 2007. At the same time, however, the
government has begun efforts to diversify the Venezuelan economy by
expanding non-oil exports. Toward that end, the government created a
new Ministry of Industry and Commerce in January 1997, which merged the
former Ministry of Development with the Foreign Trade Institute. A new
Foreign Trade Bank (BANCOEX) also began operations in October 1997 with
a charter to promote as well as finance exports. The idea is to make
trade policy one of the main instruments of economic development.
Real GDP contracted in 1996 as a result of macroeconomic
adjustments, but grew by an estimated five percent in 1997, led by the
oil sector (which expanded nine percent). Overall GDP growth is
expected to remain strong through 1998. The lifting of exchange
controls and the corresponding devaluation caused an inflationary burst
in 1996, which pushed the consumer price index to more than 100
percent, the highest level ever recorded in Venezuela. The government
cut inflation to 38 percent in 1997 and has announced its goal of
reducing inflation to 20 percent in 1998. But those plans may be de-
railed by the new labor reforms, continued high public spending, and
large inflows of foreign investment, all of which have increased
monetary liquidity. Under the labor reforms, employers had to pay,
within six months, a quarter of the severance pay accrued under the old
system plus a quarter of the transfer bonus given to workers for making
the switch. Public spending continues to be a paramount concern because
rather than fulfilling plans to reduce public employees (roughly 15
percent of the labor force), the government has allowed the public
bureaucracy to grow at the state and local level. The inflow of foreign
capital increased significantly in 1997 as the country's investment
climate improved.
2. Exchange Rate Policy
The Central Bank of Venezuela (BCV) has maintained an almost fixed
bolivar/dollar exchange rate as an anchor against inflation since the
elimination of exchange controls and the large devaluation in April
1996. The BCV's official policy is to manage the bolivar within a 15-
percent band of fluctuation and to devalue the central parity of the
band at about 1 percent per month, but the actual rate of depreciation
of the bolivar has been much less. The bolivar/dollar exchange rate was
470 in May 1996 and only reached the 500 level at the end of 1997. The
BCV sells short-term monetary notes (known as TEMS), government bonds
(known as DPNS) and dollar reserves to support the bolivar. The BCV can
exert considerable influence over the exchange rate because it receives
around 80 percent of the country's supply of dollars. PDVSA, the chief
earner of foreign exchange, is required by law to sell its dollar
proceeds to the BCV, which in turn supplies these dollars to the local
market.
At the end of the 1997, there was concern that the bolivar was
again overvalued since the exchange rate had remained essentially
unchanged in the face of continuing high domestic inflation. Non-
traditional and agricultural exports have been hurt and import demand
has increased, which in turn has dampened economic growth in the non-
oil sector. Nonetheless, the BCV is expected to continue using the
bolivar as an anchor against inflation through 1998. The Finance
Ministry still retains the right to intervene in the foreign exchange
market without consulting the BCV under the 1995 Foreign Exchange Law.
Nevertheless, the government is unlikely to resort to foreign exchange
controls given its large amount of international reserves and the
failure of the controls to stem capital flight during the 1994-95
financial crisis.
3. Structural Policies
Pricing policies: The government lifted price controls on all basic
goods and services in April 1996, with the exception of
pharmaceuticals, as part of its economic reform program. Price labeling
rules were relaxed in 1996. There is no longer a requirement to stamp
an unalterable maximum price on items leaving the factory. The
government eliminated the remaining subsidy on gasoline in 1997,
bringing domestic retail prices up to export prices.
Tax policies: Income received from any economic activity carried
out in Venezuela is subject to taxation. The maximum income tax rate
for individuals and corporations is 34 percent. Venezuelan law does not
differentiate between foreign and Venezuelan-owned companies, except in
the petroleum sector. Hydrocarbon revenues of PDVSA are subject to a
67.7 percent income tax, in addition to a 16.7 percent royalty payment
on production. Most joint ventures with PDVSA are liable for the same
level of income tax, except for those involved in the development and
refining of heavy and extra-heavy crudes and off-shore natural gas,
which are subject to a reduced rate of 34 percent. The government in
September 1996 announced that future projects involving extra-heavy
crude oil would also be entitled, on a case-by-case basis, to
reductions in the 16.7 percent royalty payment to as low as 1.5
percent.
Since 1993, the government has imposed a one percent corporate
assets tax, assessed on the gross value of assets (with no deduction
for liabilities) after adjustment for depreciation and inflation. On
August 1, 1996, the government raised its wholesale tax, which is also
applied against imports, from 12.5 to 16.5 percent. Venezuela also
applies a luxury tax, at a rate of 10 or 20 percent, on certain items
such as jewelry, yachts, high-priced automobiles and cable television.
4. Debt Management Policies
Venezuela's public sector external debt stood at $24.7 billion at
the end of 1996 and was expected to decrease by $1.5 billion during
1997. The 1996 stock of external debt included $17.7 billion in
commercial bank debt rescheduled in 1990 and $7.0 billion in
nonrestructured debt (including commercial bank debt and military
promissory notes). External debt represents about 30 percent of GDP. In
1996, Venezuela's debt service totaled about $5.5 billion, or
approximately 24 percent of export earnings. Venezuela also continues
to carry a heavy domestic debt burden largely incurred during the 1994-
95 financial crisis and as a result of the 1997 labor reforms. Internal
debt service represented 43 percent of total debt service in 1996.
In September 1997, the government carried out a controversial debt
swap, in which it issued $4 billion of uncollateralized ``global''
bonds to replace $4.44 billion worth of Brady bonds. Finance Minister
Matos Azocar argued that the swap reduced the government's stock of
debt by $440 million, but the Congress countered that the plan would
ultimately end up costing the government more as a result of higher
annual interest payments and a longer period of repayment. Matos was
censured by Congress for failing to seek its authorization before going
forward with the bond issue. Soon after, in December 1997, he was
forced to resign under Congressional pressure on an unrelated issue.
At the end of 1997, Venezuela was trying to negotiate a new stand-
by arrangement with the IMF, which would cover the remaining period
left in the current government (i.e., until December 1998). The
previous 12-month stand-by agreement expired at the end of June 1997.
Venezuela does not expect to draw on the IMF facility, but wants a
stand-by arrangement to lend credibility to its reform program.
5. Aid
The United States provides Venezuela counternarcotics assistance as
well as aid under the International Military Education and Training
Program (IMET). In fiscal year 1997, the United States provided an
estimated $600,000 in counternarcotics assistance and $350,000 in IMET
training assistance.
6. Significant Barriers to U.S. Exports
General: After many years of following an economic policy based on
import substitution, Venezuela began to liberalize its trade regime
with its accession to the General Agreement on Tariffs and Trade (GATT)
in 1990. Venezuela became a founding member of GATT's successor, the
World Trade Organization (WTO), in 1995 following completion of the
Uruguay Round negotiations. Venezuela implemented the Andean Pact's
Common External Tariff (CET) in 1995, along with Colombia and Ecuador.
The CET, with a five-tier tariff structure of 0, 5, 10, 15, and 20
percent, reflects old import substitution ideas as it imposes the
highest tariff rates on finished goods and the lowest rates on raw
materials and inter mediate products. The country's average import
tariff on a trade-weighted basis is roughly 10 percent. Under the
Andean Pact's Common Automotive Policy (CAP), assembled passenger
vehicles are an exception to the 20-percent maximum tariff and are
subject to 35-percent import duties. Imports of used automobiles, used
clothing and used tires remain prohibited, even though Venezuela agreed
to eliminate all GATT-inconsistent quantitative restrictions by the end
of 1993 as part of its accession to the GATT.
Venezuela implemented the Andean Pact price band system in 1995 for
certain agricultural products, including feed grains, oil seeds, oiled
products, sugar, rice, wheat, milk, pork and poultry. In 1996, yellow
corn was added to the price band system. Under the system, ad valorem
tariff rates for these products are adjusted according to the
relationship between market commodity reference prices and established
floor and ceiling prices. When the reference price for a particular
market commodity falls below the established floor price, the tariff
for that commodity and related products is adjusted upward. Conversely,
when the reference price exceeds the established ceiling, the tariff is
reduced. Floor and ceiling prices are set once a year based on average
CIF prices during the past five years.
Import Licenses: Venezuela does not have an import licensing
regime, but sanitary and phytosanitary certificates from the Ministries
of Health and Agriculture are required for most pharmaceutical and
agricultural imports. The government uses these measures to restrict
agricultural and food imports. The import of U.S. poultry has been
banned since 1993 on the basis that there is a history of avian
influenza in the United States. Agricultural authorities, however, have
failed to establish that this disease does not already exist in
Venezuela. The government had a similar ban in place against U.S. pork
and swine, but that ban was lifted in April 1997 after the Ministry of
Agriculture was presented with evidence that porcine reproductive and
respiratory syndrome (PRRS) already exists in Venezuela.
The Ministry of Agriculture implemented a yellow corn import
licensing system in February 1997, ostensibly to administer its WTO
tariff rate quota for sorghum and yellow corn, but in actuality, to
enforce domestic sorghum absorption requirements. Under this system,
feed manufacturers must purchase a government assigned amount of
domestic sorghum, at the official price, in order to obtain import
licenses for yellow corn. The Ministry of Agriculture has announced
that it may establish similar import license requirements for white
corn, rice and powdered milk.
Service Barriers: Professionals working in disciplines covered by
national licensing legislation (e.g., law, architecture, engineering,
medicine, veterinary practice, economics, business administration/
management, accounting, and security services) must re-validate their
qualifications at a Venezuelan university and pass the associated
professional exam. Foreign journalists who want to work in the domestic
Spanish-language media face similar re-validation requirements.
Standards, Testing, Labelling and Certification: The Venezuelan
Commission of Industrial Standards (COVENIN) requires certification
from COVENIN-approved laboratories for imports of over 300 agricultural
and industrial products. U.S. exporters have experienced difficulties
in complying with the documentary requirements for issuance of COVENIN
certificates. Some Venezuelan importers of U.S. products have alleged
that the COVENIN applies these standards more strictly to imports than
to domestic products. The government in March 1996 introduced a new
requirement for certificates of origin for imports that are ``similar
to goods which currently have anti dumping or compensatory measures
applied to them.'' Importers complained that the new requirement, which
primarily affects textile and garment goods, would be burdensome and
time-consuming.
Investment Barriers: Foreign investment is restricted in the
petroleum sector, with the exploration, production, refining,
transportation, storage, and foreign and domestic sale of hydro-carbons
reserved to the government and its entities under the 1975 Hydrocarbons
Law. However, private companies may engage in hydrocarbons-related
activities through operating contracts, or through equity joint
ventures as long as the joint ventures guarantee state control of the
operation, are of limited duration, and have the prior authorization of
Congress. Since 1993, PDVSA has been opening the oil sector to
increasing amounts of foreign investment through operating contracts
and joint ventures.
The exploitation of iron ore is also reserved to the state and not
open to foreign investment. While there are no formal barriers to
foreign investment in the rest of the mining sector (including the
processing of iron), the long, drawn-out process for obtaining mining
concessions effectively inhibits it. Venezuela limits foreign equity
participation (except that from other Andean Community countries) to
19.9 percent in enterprises engaged in television and radio
broadcasting; Spanish language press; and professional services
subjected to national licensing legislation.
Under the Common Automotive Policy, all automotive assemblers in
Venezuela are required to incorporate a minimum amount of regional
content. The local content requirement for passenger cars was 32
percent in 1997 and is scheduled to rise to 33 percent for 1998. The
government enforces a ``one-for-one'' policy which requires foreign
performers giving concerts in Venezuela to give stage time to national
performers. There is also an annual quota regarding the distribution
and exhibition of Venezuelan films; a requirement that at least half of
the television programming must be dedicated to national programs; and
a requirement that a least half of the FM radio broadcasting from 7
a.m. to 10 p.m. be dedicated to Venezuelan music.
Venezuela's Organic Labor Law places quantitative and financial
restrictions on the employment decisions made by foreign investors.
Article 20 of the law requires that industrial relations managers,
personnel managers, captains of ships and air planes, and foremen be
Venezuelan. Article 27 limits foreign employment in companies with ten
or more employees to 10 percent of the work force, and restricts
remuneration for foreign workers to 20 percent of the payroll. The
shortage of skilled Venezuelan workers in the booming oil sector makes
it difficult for foreign oil companies to meet this requirement.
Article 28 allows for temporary exceptions to Article 27 and outlines
the requirements to hire technical experts when equivalent Venezuelan
personnel are not available.
Government Procurement Practices: The 1990 Law of Tenders states
that for general and selective tenders within a ``reasonable range,''
preference will be given to those which score highest on national
content, labor impact, national value-added, local participation, and
technology transfer. The government also applies an unwritten policy
that local goods be purchased unless the price of such goods is 25
percent more than the landed cost of competing foreign products. PDVSA
is permitted to make foreign purchases if domestic firms cannot meet
quantity, quality or delivery requirements. In addition, imported
material supplied by local representatives of foreign manufacturers are
classified as ``domestic purchases.'' Companies wanting to sell to a
Venezuelan governmental agency must be registered in the National
Register of Contractors, which is maintained by the Central Office of
Statistics. Venezuela is not a signatory of the WTO Agreement on
Government Procurement.
Customs Procedures: Venezuelan customs is plagued by corruption and
antiquated procedures which frequently delay the clearance of incoming
goods. In October 1996, however, the government took the first step in
modernizing customs procedures by initiating a new computerized
operation at La Guaira, one of the country's main ports. The computer
system, known as SAVIA, automatically classifies incoming shipments and
charges the appropriate customs duties based on information supplied by
importers. SAVIA increases efficiency and reduces the potential for
corruption by choosing at random those containers which need to be
inspected. Traditionally, all incoming shipments have been individually
opened and appraised by assigned customs agents.
7. Export Subsidies Policies
Venezuela has a duty drawback system that provides exporters with a
rebate of customs duties paid on imported inputs. Exporters can also
get a rebate of the 16.5 percent wholesale tax that is levied on
imported inputs. Foreign as well as domestic companies are eligible for
these rebates, which are given in the form of tax refund certificates
(CERTs) denominated in bolivars. Exporters of selected agricultural
products--coffee, cocoa, some fruits and certain seafood products--
receive a tax credit equal to 10 percent of the export's FOB value.
President Caldera issued a decree in March 1997 allowing industrial
projects (including tourism) that are designed to either generate
foreign exchange or to produce goods for the export market to receive
an exoneration from the 16.5 percent wholesale tax during their ``pre-
operative'' stage of development. The exoneration is good for up to
five years.
8. Protection of Intellectual Property
Intellectual property rights protection in Venezuela has improved
significantly over the last few years, but U.S. companies continue to
express concern about inadequacies in the enforcement of patents,
trademarks and copyrights. The Venezuelan court system has proven to be
an unreliable means for pursuing IPR claims. As a result, Venezuela
remains on the Special 301 Watch List.
Venezuela is a member of the World Industrial Property Organization
(WIPO) and is a signatory to the Berne Convention for the Protection of
Literary and Artistic Works, the Geneva Phonograms Convention, the
Paris Convention for the Protection of Industrial Property and the
Universal Copyright Convention. It has yet to accede to the Patent
Cooperation Treaty or the Brussels Convention Relating to the
Distribution of Program-Carrying Signals Transmitted by Satellite.
Venezuela has ratified, but not yet fully implemented, the WTO
Agreement on Trade-Related Aspects of Intellectual Property (TRIPS).
The government took a significant step forward in improving
enforcement by forming a special anti-piracy unit (COMANPI) in July
1996 to enforce copyright law. In its first several months of
existence, COMANPI had notable success in combating video piracy, while
more recently it has concentrated on countering the wide-spread piracy
of satellite signals and cable television. The government plans to
expand the mandate of COMANPI in 1998 to include enforcement of patents
and trademarks as well as copyrights. In March 1997, the government
created a new Intellectual Property Office (SAPI), which merges the
existing Industrial Property Office (SARPI) with the National Copyright
Office. SAPI, which is expected to focus and improve enforcement
efforts, is scheduled to become operational in January 1998. A new
customs law, which includes measures to impede the importation of
pirated goods, has been approved by the Chamber of Deputies and is
expected to win full approval of the Congress in early 1998.
Patents: Andean Pact Decisions 344 and 345, which came into effect
in 1994, are comprehensive and offer a significant improvement over
previous standards of protection for patents and trademarks provided by
Venezuela's 1955 Industrial Property Law. The Decisions are faulty,
however, since they include compulsory licensing provisions, working
requirements, and restrictions on biotechnical inventions. In addition,
the Decisions deny pharmaceutical patent protection for medicines
listed on the World Health Organization' List of Essential Drugs, and
they lack provisions concerning transitional (``pipeline'') protection
and protection from parallel imports. The Decisions also lack
provisions for enforcing intellectual property rights. Venezuela has
been pressing to begin the process of modifying Decision 344 to make it
consistent with TRIPS, but other Andean Community members prefer to
wait until closer to the TRIPS implementation deadline of January 1,
2000. The government has proposed legislation to update the 1955
Industrial Property Law, but it is still awaiting action by Congress.
Trademarks: Decision 344 improves protection for famous trademarks,
prohibits the co-existence of similar marks, and provides for
cancellation of trademark registrations based on ``bad faith.''
However, problems remain with Venezuela's trademark application
process. Current procedures enable local pirates to produce and sell
counterfeit products, despite their involvement in lengthy opposition
proceedings. Trademark piracy is common in the clothing, toy and
sporting goods sector and enforcement remains inadequate.
Copyrights: Andean Pact Decision 351 and Venezuela's 1993 Copyright
Law are modern and comprehensive and have substantially improved
protection of copyright products in Venezuela. The Copyright Law
extended copyright protection to all creative works, including computer
software. Despite the arrival of COMANPI, computer software and video
piracy is still common. Unauthorized reception and retransmission of
U.S. satellite signals and services is also widespread.
New Technologies: Decision 351 and Venezuela's Copyright Law
protect computer software, satellite signals and cable television, but
enforcement is still inadequate. Decision 344 excludes from patent
protection diagnostic procedures, animals, genetic material obtained
from humans and many natural products but includes provisions for the
protection of industrial secrets.
9. Worker Rights
a. The Right of Association.--Both the Constitution and labor law
recognize and encourage the right of unions to organize. The
comprehensive 1990 Labor Code extends to all private sector and public
sector employees (except members of the armed forces) the right to form
and join unions of their choosing. One major union confederation, the
Venezuelan Confederation of Workers (CTV), and three smaller ones, as
well as a number of independent unions, operate freely. About 25
percent of the national labor force is unionized.
b. The Right to Organize and Bargain Collectively.--The Labor Code
protects and encourages collective bargaining, which is freely
practiced. Employers must negotiate a collective contract with the
union that represents the majority of their workers. The code also
contains a provision stating that wages may be raised by administrative
decree, provided that the Congress approves the decree. The law
prohibits employers from interfering with the formation of unions or
with their activities and from stipulating as a condition of employment
that new workers must abstain from union activity or must join a
specified union.
c. Prohibition of Forced or Compulsory Labor.--The Labor Code
states that no one may ``obligate others to work against their will.''
d. Minimum Age for Employment of Children.--The Labor Code allows
children between the ages of 12 and 14 years to work only if the
National Institute for Minors or the Labor Ministry grants special
permission. Children between the ages of 14 and 16, however, need only
the permission of their legal guardians. Minors may not work in mines
or smelters, in occupations ``that risk life or health'' or could
damage intellectual or moral development, or in ``public spectacles.''
Those under 16 years of age cannot work more than six hours a day or 30
hours a week. Minors under the age of 18 years may work only during the
hours between 6 a.m. and 7 p.m.
e. Acceptable Conditions of Work.--Effective May 1997, the monthly
minimum wage for the private sector is $151 (74,640 bolivars) for urban
workers and $137 (67,940 bolivars) for rural workers. The law excludes
only domestic workers and concierges from coverage under the minimum
wage decrees. The Ministry of Labor enforces minimum wage rates
effectively in the formal sector of the economy, but generally does not
enforce them in the informal sector. The 1990 Labor Code reduced the
standard work week to a maximum of 44 hours, and requires ``two
complete days of rest each week.'' The Code also states that employers
are obligated to pay specific amounts (up to a maximum of 25 times the
minimum monthly salary) to workers for accidents or occupational
illnesses, regardless of who is responsible for the injury.
f. Rights in Sectors with U.S. Investment.--Workers in sectors in
which there is U.S. investment are provided the same protection as
other workers. The wages and working conditions for those in U.S.-
affiliated industries are better than average in the majority of cases.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 489
Total Manufacturing........................... 1597
Food & Kindred Products..................... 430
Chemicals & Allied Products................. 190
Metals, Primary & Fabricated................ 62
Machinery, except Electrical................ 75
Electric & Electronic Equipment............. 17
Transportation Equipment.................... 285
Other Manufacturing......................... 539
Wholesale Trade............................... 325
Banking....................................... \1\
Finance/Insurance/Real Estate................. 139
Services...................................... \1\
Other Industries.............................. 952
TOTAL ALL INDUSTRIES.......................... 3,592
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
NEAR EAST AND NORTH AFRICA
----------
ALGERIA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\......................... 41,578 45,741 45,996
GDP by sectors:\2\
Agriculture........................... 4,295 4,971 3,866
Manufacturing......................... 4,379 4,245 4,077
Construction.......................... 4,225 4,399 4,493
Hydrocarbons.......................... 10,615 13,404 14,144
Services.............................. 9,571 10,071 10,288
Government............................ 8,493 8,651 9,128
Real GDP Growth \3\..................... 3.2 4.1 -1.5
Real per capital GDP.................... 1,459 1,493 1,444
Labor force (millions).................. 7.56 7.81 7.95
Unemployment rate (pct)................. 28.1 27.9 28.5
Fiscal deficit/GDP (pct)................ -1.5 3.0 1.4
Money and prices (annual percentage):
Money supply (M2)....................... 10.5 14.4 17.9
Consumer price index.................... 29.8 18.7 5.0
Exch. rate (annual avg)
Official \4\.......................... 47.3 54.7 57.3
Balance of Payments and Trade:
Total exports........................... 10,940 13,960 13,870
Oil/gas............................... 9,730 12,640 12,390
Total imports CIF....................... 12,110 11,240 9,760
Trade balance........................... -1,170 2,720 4,110
Exports to U.S.\6\...................... 1,810 2,270 2,730
Imports from U.S.\6\.................... 775 632 685
Balance with U.S........................ 1,040 1,640 2,050
Current account deficit/GDP (pct)....... -5.4 2.8 5.6
External public debt.................... 31,573 33,651 34,000
Debt service/GDP (pct).................. 11.2 8.9 10.0
Gold and foreign exchance reserves...... 4,110 6,230 7,520
Aid from U.S.\7\........................ 165 165 156
Aid from all sources \8\................ 349 420 312
------------------------------------------------------------------------
\1\ U.S. Embassy estimates based on partial data furnished by Algeria's
Central Bank and its National Economic and Social Council
\2\ GDP at current market price
\3\ Percentage changes calculated in local currency
\4\ Bank of Algeria and U.S. Embassy estimate
\5\ U.S. Embassy estimates
\6\ 1997 Data, nine months USDOC data projected
\7\ In thousand dollars, IMET and USIA exchanges
\8\ OECD DAC data for 1993, 1994, 1995; net ODA disbursements including
rom multilateral institutions
1. General Policy Framework
The Algerian market presents significant commercial opportunities
to U.S. exporters. Algeria has major oil and gas reserves being readied
for nearby export markets, and U.S. technology and know-how are highly
prized. While the hydrocarbon sector is already a large market for U.S.
exports, there are other markets for U.S. goods and services in
Algeria. The government has deregulated the trade sector. Higher export
earnings and debt payment rescheduling have provided banks with foreign
exchange to finance imports. Algeria has a growing population, and its
infrastructure is in desperate need of renovation. Many of its
industrial firms have equipment that was purchased 20 to 30 years ago.
Over the medium and long term, Algeria should thus be a large and
expanding market for U.S. exports of food, machinery, modern services
and investment capital.
U.S. exports to Algeria rose about 8.4 percent in 1997.This is
still about 12.0 percent below that of 1995. Despite Algeria's
extremely poor agricultural harvest in 1996-1997, U.S. food exports to
Algeria fell short of peak levels attained previously. Lack of USG-
guaranteed medium-term credits placed U.S. exporters at a disadvantage
in competition with European firms. In addition, in 1997 Sonatrach and
its partners initiated fewer new hydrocarbon capital investment
projects than during the previous two years. This development led to a
reduced demand for imports of equipment of U.S. origin for the sector
in which United States-Algerian commercial ties are strongest.
During the next two years, Algeria's domestic consumption and
investment is expected to rise as the government will loosen slightly
the tight fiscal and monetary policies that it has been pursuing these
last three years in conjunction with an IMF-backed reform program. The
government believes that it can prudently pursue a growth-oriented
policy, given the budget surpluses it had in 1996 and 1997. These were
3.0 percent and 1.4 percent of gross domestic product, respectively.
The government achieved these surpluses largely because of unusually
firm oil prices and consequent larger-than-expected hydrocarbon tax
revenues and because of a cap on budgetary expenditures, in particular
those associated with various public investment projects. This year's
surplus again enabled the government to pay off a part of Algeria's
domestic public debt.
The instruments of monetary policy in Algeria remain limited. The
Bank of Algeria controls monetary growth primarily via bank lending
limits. Interest rates are set by the government. In late 1997 the
Central Bank rediscount rate stood at 11.0 percent, and commercial bank
lending rates ranged between 13.0 and 17.5 percent. Although the
government has sold bonds to help finance its deficit, total sales
remain relatively small.
High interest rates restrict private investment in Algeria, as have
lower real government capital expenditures. In addition, the unstable
security environment raises investment risk. As a result, private
businessmen in Algeria rarely undertake projects which do not promise
payback within a few years.
2. Exchange Rate Policy
The dinar is convertible for all current account transactions, and
may be fully convertible by the end of 1998. Meanwhile, private and
public importers may buy foreign exchange from five commercial banks
for commercial transactions. Since the end of 1995, banks can obtain
foreign exchange in a full-fledged interbank foreign exchange market.
Although commercial banks may buy foreign exchange from the Bank of
Algeria at regular weekly auctions, at which is set the price of the
dinar, they are no longer required to surrender to the Bank of Algeria
the foreign exchange they acquire elsewhere and may trade these
resources among themselves. However, since the Central Bank buys the
hydrocarbon export proceeds of the national oil company, Sonatrach, the
Bank plays the dominant role in the foreign exchange market. The
primary objective of its intervention policy is to avoid sharp
fluctuations of the exchange rate.
3. Structural Policy
The government has changed major aspects of its regulatory,
pricing, and tax policies as part of its overall structural adjustment
program during the past four years. It has loosened its tight hold on
state-owned company purchase, production, and pricing decisions in
order to give their managers greater autonomy. During late spring 1997
the government suspended its program of emergency financing for state-
owned firms that had recourse to such funding to cover overdrafts and
otherwise pay off outstanding debt. The government also pursued its
policy of eliminating subsidies and partially removed those on energy
products at the end of the year.
The government transformed its ordinary budget deficits of 1994 and
1995 into surpluses in 1996 and 1997 largely because of increases in
revenues related to hydrocarbon exports, which accounted for about 60
percent of fiscal revenues during the last two years. It derived nearly
all of its remaining budgetary revenues from indirect taxes and customs
duties. In 1996, the government modified its import duty schedule so
that eight different rates cover all foodstuffs, semi-finished, and
finished products, the top rate being 45 percent in 1997. The IMF has
recommended that the government at least double its income tax
collection as a percent of gross national product. It accounted for
only 1.6 percent in 1995, fell to 1.3 percent in 1996, and may not have
exceeded the latter percentage in 1997. Members of the World Trade
Organization are actively considering Algeria's request for membership
in the organization.
4. Debt Management
Algeria rescheduled much of its $32 billion foreign debt following
the conclusion of an IMF Standby Agreement in April 1994 and a
subsequent three-year extended fund facility in April 1995. The most
important accord reached in 1995 was the rescheduling of $7.5 billion
due to the Paris Club countries between 1995 and 1998. It was then
agreed that Algeria could reschedule some of its interest payments. The
government also concluded a $3.2 billion rescheduling agreement with
London Club bankers in May 1995 which allows the Bank of Algeria to
delay payments until 2000.
Algeria's Central Bank estimated the 1995 rescheduling deferred the
payment of debt totaling $3.6 billion, which then enabled Algeria to
finance a 9.4 percent hike in imports from 1994 levels. Although the
government projected at that time that imports would continue to rise
about six percent annually for the remainder of the decade, imports
declined 7.2 percent in 1996 and again by 13.2 percent in 1997.
Meanwhile, Algeria's foreign exchange reserves rose from $4.1 billion
in 1995 to $7.5 billion in 1997.
Algeria continued to meet its IMF-backed Extended Fund Facility
obligations throughout 1997. Since the expected payment of principal
and interest on the debt that has been rescheduled calls for
disbursements of $5.21, $5.81, $5.63, and $5.51 billion during the next
four years, respectively, the Central Bank believes it can limit to
under fifty percent the share of export earnings that will be used for
debt service during the next four years. As a result of the
rescheduling and a rise in exports, the share of export earnings spent
on debt service payments fell from 49 percent in 1994 to 33 percent in
1997. The Central Bank forecasts that debt service as a proportion of
exports will be 36.8 percent, 37.8 percent, 33.5 percent, and 30.3
percent during 1998-2001.
In order to meet this debt service and support an increase in the
real output of goods and services, the government is counting on
hydrocarbon export revenues remaining at least at the current level and
on a substantial rise in non-hydrocarbon export revenues between now
and the end of this decade. While the former is feasible if crude oil
continues to sell at $18.00 a barrel or more, the latter is less
likely. Petroleum and gas export earnings rose from $9.7 billion in
1995 to $12.4 billion in 1997. However, non-hydrocarbon exports totaled
only $280 million in 1994. While these exports rose to $750 million in
1996, $180 million of this then represented exports to Russia that were
accepted as reimbursement of bilateral debt. Algeria's non-hydrocarbon
exports totaled $570 million in 1997.
The Central Bank is estimating that the growth of Algeria's gross
domestic product (GDP) in value terms will be about 6.5 percent per
annum during the next four years (1997-2001). The Central Bank assumes
that Algeria's balance of payments will be such during this period that
its stock of outstanding debt will decline by more than $4.0 billion
between 1997 and 2001 (from $34.0 billion to $29.7 billion). Under
these assumptions, outstanding debt as a proportion of GDP will decline
from 69.7 percent to 47.8 percent by the end of the period.
5. Barriers to U.S. Exports
Algeria has largely deregulated its merchandise trade regime.
Import licenses are no longer required. The only imports which are
prohibited for security or religious reasons are firearms, explosives,
narcotics, and pork products. The government insists on particular
testing, labeling, or certification requirements being met, however.
The Ministry of Health requires distributors to obtain authorizations
to sell imported drugs, which must have been marketed in their country
of origin before they may be imported. Government regulations stipulate
that imported products, particularly consumer goods, must be labeled in
Arabic and French. This regulation is being enforced. Algeria's customs
administration has simplified import clearance procedures, but the
process remains time-consuming.
The government has deregulated some service sectors, notably
insurance and banking. Air couriers are allowed to operate in Algeria
subject to approval of the Algerian Ministry of Post and
Telecommunications (PTT). DHL offers service in several Algerian
cities. Although the PTT has a monopoly on all telecommunications
services, it permits the local production, importation, and
distribution of telecommunications equipment.
There are no absolute barriers to or limitations on foreign
investment in Algeria. The 1991 Hydrocarbons Sector Law and the 1991
Mining Law govern investments in these two sectors. Production sharing
agreements are routine. A 1993 investment code broadly deregulated the
investment regime in other sectors.
The Algerian government's procurement practices do not adversely
affect U.S. exports. Algeria participates officially in the Arab League
Boycott against Israel, but we know of no instance in which U.S. firms
have been disadvantaged by Algeria's policy in this regard. The
government occasionally uses counter trade practices to encourage the
sale of goods locally produced.
6. Export Subsidy Policies
About 90 percent of Algeria's export revenues are derived from oil
and natural gas exports. The government does not provide direct
subsidies for hydrocarbon or non-hydrocarbon exports. The government
reactivated a Non-Hydrocarbon Exports Insurance and Guarantee Program
in 1996, but it has had little effect. Electric power remains
subsidized despite recent rate hikes, which confers an implicit subsidy
to Algerian exporters and final consumers. The benefit of this subsidy
is offset by the cost effect of an overvalued dinar (its official rate
is slightly above the parallel rate), the effect of which is an
implicit tax on Algerian exporters. Almost all export restrictions have
been removed, the exceptions being palm seedlings, sheep, and artifacts
of historical and archaeological significance.
7. Protection of U.S. Intellectual Property
Algeria is a member of the Paris Industrial Property Convention and
the 1952 Convention on Copyrights. Algerian legislation protects
intellectual property and its enforcement is adequate. We know of no
reports of cases of infringement, counterfeiting, or piracy.
Patents: Patents are protected by the Law of December 7, 1993 and
administered by the Institut Algerien de Normalisation et de Propriete
Industrielle (INAPI). Patents are granted for 20 years from the date
the patent request is filed and are available for all areas of
technology.
Trademarks: Trademark protection is afforded by the laws of March
19, 1966 and of July 16, 1976. In 1986, authority for the granting and
enforcement of trademark protection was transferred from INAPI to the
Centre National du Registre du Commerce (CNRC). INAPI sources indicate
that a new law is under consideration which would transfer trademark
authority back to INAPI.
Copyrights: An April 1973 Algerian law provides copyright
protection for books, plays, musical compositions, films, paintings,
sculpture and photographs. The law also grants the author the right to
control the commercial exploitation or marketing of the above products.
The 1973 law is being amended to include protection for (among other
things) videos and radio programs.
Algeria's intellectual property practices have had no adverse
affect on U.S. trade. We have received no reports from U.S. firms of
losses of export or investment opportunities due to imported or
locally-produced counterfeit or pirated goods.
8. Worker Rights
a. The Right of Association.--Workers may form and be represented
by trade unions of their choice. Government approval for the creation
of a union is required. Unions may not affiliate with political parties
or receive funds from abroad, and the government may suspend a union's
activities if it violates the law. Unions may form and join federations
or confederations, and they have affiliations with international labor
bodies.
b. The Right to Organize and Bargain Collectively.--A 1990 law
permits all unions to engage in collective bargaining. This right has
been freely practiced. While the law prohibits discrimination by
employers against union members and organizers, there have been
instances of retaliation against strike organizers. Unions may recruit
members at the workplace.
c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory
labor has not been practiced in Algeria and is incompatible with the
constitution.
d. Minimum Age of Employment of Children.--The minimum employment
age is 16 years and inspectors can enforce this regulation. In
practice, many children work part- or full-time in small private
workshops and in informal sector trade.
e. Acceptable Conditions of Work.--The 1990 Law on Work Relations
defines the overall framework for acceptable conditions of work. The
law mandates a 40-hour work week. A guaranteed monthly minimum wage of
6,000 Algerian dinars ($100) has been set by the government. A decree
regulates occupational and health standards. Work practices that are
not contrary to the regulations regarding hours, salaries, and other
work conditions are left to the discretion of employers in consultation
with employees.
f. Worker Rights in Sectors with U.S. Investment.--Nearly all of
the U.S. investment in Algeria is in the hydrocarbon sector. Algerian
workers in this sector enjoy all the rights defined above. These
workers at American firms enjoy better pay and safety than do fellow
workers elsewhere in the economy.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 0
Food & Kindred Products..................... 0
Chemicals & Allied Products................. 0
Metals, Primary & Fabricated................ 0
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... 0
Wholesale Trade............................... 0
Banking....................................... 0
Finance/Insurance/Real Estate................. 0
Services...................................... 0
Other Industries.............................. \1\
TOTAL ALL INDUSTRIES.......................... 600
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
BAHRAIN
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP Growth (percent)................ 4.0 6.1 5.0
GDP By Sector:
Agriculture............................... 52 58 58
Manufacturing............................. 1,108 1,043 1,050
Services.................................. 1,157 1,157 1,157
Government................................ 979 991 991
GDP Per Capita.............................. 8,720 8,941 8,900
Labor Force (000)........................... 258 231 235
Unemployment Rate (percent)................. 15 15 15
Money and prices (annual percentage growth):
Money Supply (M2)........................... 6.1 2.9 2.1
Exchange Rate (US$/BD)...................... 2.65 2.65 2.65
Balance of Payments and Trade:
Total Exports \2\ (FOB)..................... 4,102 4,590 4,500
Exports to U.S............................ 130.5 106.5 100
Total Imports (CIF)......................... 3,706 4,082 4,100
Imports from U.S.......................... 271.2 301.5 300.0
Trade Balance............................... 396.0 508.5 400.0
Trade Balance with U.S.\3\.................. -141 -195 -200.0
External Public Debt........................ N/A N/A N/A
Current Account Deficit/GDP (percent)....... 3 0 0
Debt Service Payments/GDP (percent)......... N/A N/A N/A
Gold And Foreign Exchange Reserves.......... 959 1,037 1,000
Aid from U.S................................ 0 0 0
Aid from All Other Sources.................. 50.0 50.0 50.0
------------------------------------------------------------------------
\1\ 1997 Figures are all estimates based on availablemonthly data in
October 1997.
\2\ Exports include transhipment which accounts for 14 percent of non-
oil exports from Bahrain.
\3\ Figures reflect merchandise trade.
1. General Policy Framework
Although the government of Bahrain has controlling interest in many
of the island's major industrial establishments, its overall approach
to economic policy, especially those policies which affect demand for
U.S. exports, can best be described as laissez faire. Except for
certain basic foodstuffs, the price of goods in Bahrain is determined
by market forces, and the importation and distribution of foreign
commodities and manufactured products is carried out by the private
sector. Owing to its historical position as a regional trading center,
Bahrain has a well developed and highly competitive mercantile sector
in which products from the entire world are represented. Import duties
are primarily a revenue device for the government and are assessed at a
ten percent rate on most products. The Bahraini Dinar (BD) is freely
convertible, and there are no restrictions on the remittance of capital
or profits. With the exception of the petroleum sector, Bahrain does
not tax either corporate or individual earnings. Bahrain is a member of
the WTO.
Over the past two decades, the Government of Bahrain has encouraged
economic diversification by investing directly in such basic industries
as aluminum smelting, petrochemicals, and ship repair, and by creating
a regulatory framework which has fostered Bahrain's development as a
regional financial and commercial center. Despite diversification
efforts, the oil and gas sector remains the cornerstone of the economy.
Oil and gas revenues constitute over 55 percent of governmental
revenues, and oil and related products account for about 80 percent of
the island's exports. Bahrain's oil production amounts to about 40,000
barrels a day and it receives oil revenues from the 140,000 b/d
produced from Saudi Arabia's Abu Sa'fa off-shore oilfield.
The budgetary accounts for the central government are prepared on a
biennial basis. The budget for 1997 and 1998 was approved in December
1996. Budgetary revenues consist primarily of receipts from oil and
gas, supplemented by fees and charges for services, customs duties, and
investment income. Bahrain has no income taxes and thus does not use
its tax system to implement social or investment policies. In 1996,
revenue was $1.63 billion and expenditures were $1.83 billion. The
resulting $198 million shortfall is being financed through the issuance
of three-month and six-month treasury bills to domestic banks according
to the normal practice of recent years. Budget figures for 1998 project
an additional $198 million deficit which also will be financed through
the issuance of treasury bills.
The instruments of monetary policy available to the Bahrain
Monetary Agency (BMA) are limited. Treasury bills are used to regulate
dinar liquidity positions of the commercial banks. Liquidity to the
banks is provided now through secondary operations in treasury bills,
including: (a) discounting treasury bills; and (b) sales by banks of
bills to the BMA with a simultaneous agreement to repurchase at a later
date (``repos'') starting in 1985, the BMA imposed a reserve
requirement on commercial banks equal to five percent of dinar
liabilities. Although the BMA has no legal authority to fix interest
rates, it has published recommended rates for bahraini dinar deposits
since 1975. In 1982, the BMA instructed the commercial banks to observe
a maximum margin of one percent over their cost of funds, as determined
by the recommended deposit rates, for loans to prime customers. In
August 1988, special interest rate ceilings for consumer loans were
introduced. In May 1989, the maximum prime rate was abolished, and in
February 1990, new guidelines permitting the issuance of dinar
Certificates of Deposit (CD's) at freely negotiated rates for any
maturity from six months to five years were published.
2. Exchange Rate Policies
Since December 1980, Bahrain has maintained a fixed relationship
between the bahraini dinar and the U.S. dollar at the rate of one U.S.
dollar equals 0.377 BD. Bahrain maintains a fully open exchange system
free of restrictions on payments and transfers. There is no black
market or parallel exchange rate.
3. Structural Policies
As a member of the six-nation Gulf Cooperation Council (GCC),
Bahrain participates fully in GCC efforts to achieve greater economic
integration among its member states (Kuwait, Oman, Qatar, Saudi Arabia,
the United Arab Emirates, and Bahrain). In addition to according duty-
free treatment to imports from other GCC states, Bahrain has adopted
GCC food product labeling and automobile standards. Efforts are
underway within the GCC to enlarge the scope of cooperation in fields
such as product standards and industrial investment coordination. In
recent years, the GCC has focused its attention on negotiations on a
trade agreement with the European Union. If these negotiations are
successfully concluded, such an agreement could have a long-term
adverse impact on the competitiveness of U.S. products within the GCC,
including Bahrain. Bahrain is an active participant in the ongoing
U.S.-GCC economic dialogue. For the present, U.S. products and services
compete on an equal footing with those of other non-GCC foreign
suppliers. Bahrain participates officially in the primary Arab league
economic boycott against Israel, but does not observe secondary and
tertiary boycott policies against third-country firms having economic
relationships with Israel.
With the exception of a few basic foodstuffs and petroleum product
prices, the Government of Bahrain does not attempt to control prices on
the local market. Because most manufactured products sold in Bahrain
are imported, prices are basically dependent upon the source of supply,
shipping costs, and agents' mark-ups. Since the opening of the Saudi
Arabia-Bahrain causeway in 1985, local merchants are less able to
maintain excessive margins, and as a consequence, prices have tended to
fall toward the levels prevailing in other GCC countries.
Bahrain is essentially tax-free. The only corporate income tax in
Bahrain is levied on oil, gas, and petroleum companies. there is no
individual income tax, nor does the island have any value added tax,
property tax, or production tax. Bahrain has customs duties and a few
indirect and excise taxes, which include a tax on gasoline, a ten
percent levy on rents paid by residential tenants, a 12.5 percent tax
on office rents, and a 15 percent tax on hotel room rates are imposed.
4. Debt Management Policies
The Government of Bahrain follows a policy of strictly limiting its
official indebtedness to foreign financial institutions. To date, it
has financed its budget deficit through local banks. Bahrain has no
International Monetary Fund or World Bank programs.
5. Aid
Bahrain receives budgetary support and project grants from Saudi
Arabia, Kuwait, and the United Arab Emirates. On April 1, 1996, Saudi
Arabia began giving Bahrain 100 percent of the revenue from the 140,000
barrels per day of oil produced from the offshore Abu Sa'fa field.
6. Significant Barriers to U.S. Exports
Standards: Processed food items imported into Bahrain are subject
to strict shelf life and labeling requirements. Pharmaceutical products
must be imported directly from a manufacturer which has a research
department and must be licensed in at least two other GCC countries,
one of which must be Saudi Arabia.
Investment: The government actively promotes foreign investment and
in recent years promulgated regulations permitting 100 percent foreign
ownership of new industrial enterprises and the establishment of
representative offices or branches of foreign companies without local
sponsors. Most other commercial investments are subject to government
approval and generally must be made in partnership with a Bahraini
national controlling 51 percent of the equity. except for citizens of
Kuwait, Saudi Arabia, and the United Arab Emirates, Foreign Nationals
are not permitted to purchase land in Bahrain. The government
encourages the employment of local nationals by setting local national
employment targets in each sector and by restricting the issuance of
expatriate labor permits.
Government procurement practices: The government makes major
purchasing decisions through the tendering process. For major projects,
the ministries of works and agriculture, and of power and water, extend
invitations to selected, prequalified firms. Likewise, construction
companies bidding on government construction projects must be
registered with the Ministry of Works and Agriculture. Smaller
contracts are handled by individual Ministries and Departments and are
not subject to prequalification.
Customs procedures: The customs clearance process is used to
enforce the primary boycott of Israel. While goods produced by formerly
blacklisted firms may be subjected to minor delays, the secondary and
tertiary boycotts are no longer used as the basis for denying customs
clearance, and the process of removing firms from the blacklist has
become routine, upon application by the subject firm. Bahraini customs
also enforces the commercial agencies law. Goods manufactured by a firm
with a registered agent in Bahrain may only be imported by that agent,
or, if by a third party, upon payment of a commission to the registered
agent.
7. Export Subsidies Policies
The Government of Bahrain provides indirect export subsidies in the
form of preferential rates for electricity, water, and natural gas to
selected industrial establishments. The government also permits the
duty-free importation of raw material inputs for incorporation into
products for export and the duty-free importation of equipment and
machinery for newly established export industries. The government does
not specifically target subsidies to small businesses. Bahrain is a
member of the World Trade Organization.
8. Protection of U.S. Intellectual Property
Bahrain has a good patent and trademark law; there are few, if any,
reports of violations of U.S. Patents and Trademarks in Bahrain, and
pharmaceutical companies in particular have expressed satisfaction with
the law. However, the country's 1993 copyright protection law is
deficient and, until recently, the gob was not actively involved in
enforcement. Bahrain, recently, has stepped up enforcement of copyright
piracy, however, it was retained on the special 301 watch list
following the April 1997 review. In February 1995, Bahrain joined the
World Intellectual Property Organization (WIPO), and it signed the Bern
Convention for the Protection of Literary and Artistic Works and the
Paris Convention for the Protection of Industrial Property on October
29, 1996. Moreover, government officials responsible for IPR
enforcement have opened a dialogue with embassy officials concerning
Bahrain's 301 watch list status.
The 1993 Copyright Law does not give explicit protection to sound
recordings although the Bahrain government has said that its protection
of musical works includes sound recordings. Similarly, it explicitly
protects only those foreign works ``first published in Bahrain'' and
works of Arab authors who are citizens of states that have ratified the
Arab Convention for the Protection of authors. The law does, however,
explicitly extend copyright protection to computer programs, and it
includes a definition of such programs.
Piracy of U.S. intellectual property, including audio and video
cassettes and computer software, is a serious problem. Copies of newly
released films appear in Bahrain soon after they are released to
theaters in the U.S. Some of these originate as hand-held videocamera
recordings made during theater performances; others are copied from
promotional cassettes or from pay-tv programs. Legitimate video or
laser disc copies of films also are used as originals to produce high
quality pirated copies, but normally without payment of additional
royalties.
The Copyright Protection Office (CPO), under the jurisdiction of
the Ministry of Cabinet Affairs and Information, registers intellectual
property works and provides verification of registration. The CPO,
however, has no active role in actually enforcing copyrights. Copyright
holders are responsible for filing and pursuing private lawsuits
against any copyright infringements. In its first nine months of
existence, the CPO registered only five copyrights (movies, computer
programs, and books combined, but no sound recordings).
9. Worker Rights
a. The Right of Association.--The partially suspended 1973
constitution recognizes the right of workers to organize, but western-
style trade unions do not exist in Bahrain, and the government does not
encourage their formation. Article 27 of Bahrain's Constitution states:
``freedom to form associations and trade unions on national bases and
for lawful objectives and by peaceful means shall be guaranteed in
accordance with the conditions and in the manner prescribed by the law.
No person shall be compelled to join or remain in any association or
union.''
In response to labor unrest in the mid-1950's and in 1965 and 1974,
the government passed a series of labor regulations which, among other
things, allow the formation of elected workers' committees in larger
Bahraini companies. Worker representation in Bahrain today is based on
a system of Joint Labor-management Committees (JLC's) established by
Ministerial decree. Between 1981 and 1984, 12 JLC's were established in
the major state-owned industries. In 1994, four new JLC's were
established in the private sector, including one in a major hotel.
b. The Right to Organize and Bargain Collectively.--Bahraini labor
law neither grants nor denies workers the right to organize and bargain
collectively. While the JLC's described above are empowered to discuss
labor disputes, organize workers' services, and discuss wages, working
conditions, and productivity, the workers have no independent,
recognized vehicle for representing their interests on these or other
labor-related issues.
c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory
labor is prohibited in Bahrain, and the Labor Ministry is charged with
enforcing the law. The press often performs an ombudsman function on
labor problems, reporting instances in which private sector employers
occasionally compelled foreign workers from developing countries to
perform work not specified in their contracts, as well as Labor
Ministry responses. Once a complaint has been lodged by a worker, the
Labor Ministry opens an investigation and takes action.
d. Minimum Age for Employment of Children.--The minimum age for
employment is 14. Juveniles between the ages of 14 and 16 may not be
employed in hazardous conditions or at night, and may not work over six
hours per day or on a piecework basis. Child labor laws are effectively
enforced by Labor Ministry inspectors in the industrial sector; child
labor outside that sector is less well monitored, but it is not
believed to be significant outside family-operated businesses.
e. Acceptable Conditions of Work.--Minimum wage scales, set by
government decree, exist for public sector employees and generally
afford a decent standard of living for workers and their families.
Current minimum wage for the public sector is 236.60 dollars (91
dinars) a month. wages in the private sector are determined on a
contract basis. For foreign workers, employers consider benefits such
as annual trips home and housing and education bonuses part of the
salary.
Bahrain's labor law mandates acceptable working conditions for all
adult workers, including adequate standards regarding hours of work
(maximum 48 hours per week) and occupational safety and health.
Complaints brought before the Labor Ministry which cannot be settled
through arbitration must, by law, be referred to the fourth high court
(labor) within 15 days. In practice, most employers prefer to settle
such disputes through arbitration, particularly since the court and
labor law are generally considered to favor the worker.
f. Rights in Sectors with U.S. Investment.--U.S. capital investment
in Bahrain is concentrated in the petroleum sector. It primarily
consists of minority share interests in the Bahrain Petroleum Company,
the Bahrain National Gas Company, and the Bahrain Aviation Fuelling
Company. There are also joint venture factories producing plastic
bottle caps, tissues, and pipes. Workers at all these companies enjoy
the same rights and conditions as other workers in Bahrain.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... -59
Total Manufacturing........................... \1\
Food & Kindred Products..................... \1\
Chemicals & Allied Products................. 0
Metals, Primary & Fabricated................ 0
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. 0
Transportation Equipment.................... -5
Other Manufacturing.........................
Wholesale Trade............................... \1\
Banking....................................... -46
Finance/Insurance/Real Estate................. \1\
Services...................................... 5
Other Industries.............................. 0
TOTAL ALL INDUSTRIES.......................... -30
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
EGYPT
Key Economic Indicators \1\
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997
------------------------------------------------------------------------
Income, Production and Employment:
GDP (at current factor cost)................ 56.3 63.1 72
Real GDP Growth (pct)....................... 4.7 5.0 5.3
GDP by Sector:
Agriculture............................... 7.0 7.3 N/A
Industry/Mining........................... 7.3 7.9 N/A
Of Which: Petroleum..................... 4.3 4.3 N/A
Services.................................. 20.5 26.1 N/A
Government................................ 3.1 3.3 N/A
Per Capita GDP (US$)........................ 730 738 1233
Labor Force (in millions)................... 16.5 17.4 N/A
Unemployment Rate (pct)..................... 9.6 9.4 N/A
Money and prices:
Money Supply (M2)........................... 11.1 10.5 5.1
Consumer Price Inflation.................... 9.4 7.3 6.2
Exchange Rate (LE/US$-annual average)
Market Rate............................... 3.39 3.39 3.39
Balance of Payments and Trade:
Total Exports FOB........................... 5.0 4.6 4.9
Exports to U.S............................ 0.6 0.7 N/A
Total Imports CIF........................... 12.8 13.8 14.4
Imports from U.S.......................... 3.0 3.0 N/A
Trade Balance............................... -7.9 -9.2 -9.5
Balance with U.S.......................... -2.4 -2.4 N/A
Current Account Balance/GDP (pct)........... 0.7 -0.2 0.8
External Public Debt........................ 33.0 31.4 28.8
Debt Service Payments/GDP (pct)............. 3.4 3.2 2.5
Fiscal Deficit/GDP (pct).................... 1.5 1.3 0.8
Gold and Foreign Exchange Reserves.......... 16.7 17.5 20.3
Aid from U.S................................ 1.9 2.3 N/A
Aid from All Other Sources.................. N/A N/A N/A
------------------------------------------------------------------------
\1\ Except as noted, all figures are for Egyptian fiscal years 1994/5;
1995/6 and 1996/7 running from July through June. Primary sources are
Egyptian and U.S. government data and IMF international financial
statistics.
\2\ Bilateral trade figures are based on calendar years.
\3\ Aid figures are based on calendar years.
1. General Policy Framework
Egypt continues to institute reforms to reduce the State's role and
increase reliance on market mechanisms. In 1991, Egypt lifted most
foreign exchange controls, unified the exchange rate, instituted a
sales tax, reduced the budget deficit, freed interest rates and began
financing the deficit through Treasury bill auctions. In the last five
years, a stable Egyptian pound (LE) exchange rate against the dollar
and high interest rates have prompted dedollarization and fed a steady
growth in the money supply. In early 1996, following the creation of a
new government, Egypt entered a critical new phase of economic reform.
The new Cabinet is focusing on improving Egypt's export
competitiveness, liberalizing its trading regime, encouraging the
private sector, eliminating obstacles to doing business in Egypt and
improving Egypt's investment climate. The Cabinet continues to enjoy
broad-based support among Egyptian businessmen and positive reviews
from international observers.
In 1993, the 314 public sector enterprises were organized into 17
holding companies, which are permitted to sell, lease or liquidate
company assets and to sell government-owned shares. According to
government estimates, the state enterprise sector's book value amounts
to LE 90 billion ($27 billion). Egypt's commitment to privatization is
repeatedly affirmed by government top officials who seem to be
convinced that reform is the right policy and committed to push the
process through. Nevertheless, its international credibility as a
willing seller could be weakened by the significant slow down in the
privatization program in 1997. In January 1997, the government
announced its plan for the year: to privatize 33 companies through
anchor investor sales and 12 companies in initial public offerings
(IPOs). Only 28 companies were sold in 1997.
A sluggish stock market through much of 1997 contributed to the
slowdown in IPO sales. For example, three second tranche offerings of
previous IPOs failed in the third quarter of 1997. It was only when the
downward trend of the stock market had bottomed out later in the year
that the GOE was able to proceed with IPO sales. The fourth quarter saw
the pace of privatization speed up, perhaps fueled by GOE keenness to
maintain the international credibility of the economy in the aftermath
of Luxor incident. Out of the 28 companies privatized in 1997, 16
companies have been privatized in the fourth quarter. This brings the
number of firms that have been privatized up to 70 out of 314 public
enterprises and the balance of sales proceeds to LE12.6bn.
To date only 10 companies have been sold to anchor investors (AI).
Problems encountered with AI sales seem to have inspired the GOE to
proceed further with privatizations, even when the possibility of a
successful IPO is remote. The GOE should be encouraged to continue to
consider the ai option, where appropriate, as it can yield the benefit
of a rapid transfer of technical and managerial expertise. Better
information and a more transparent privatization process could help
alleviate the public's unease with AI sales, as well as boost
international investor confidence.
The GOE has made recent progress in removing some of the hurdles to
the privatization program, such as in the areas of valuation and
pricing of public enterprises. The GOE has been keen on raising
disclosure and reporting standards to international levels. Plans to
restructure 80 troublesome public enterprises have been announced.
International firms will be called to acquire stakes in public
enterprises and take over management. Late in 1997 the GOE announced
that Egypt Telecom will be changed into a joint stake company as a step
toward its privatization. The same approach will be applied to
electricity generation companies which are set for merger and then
privatization. The 1998 program includes the sale of 50 public
enterprises. The GOE is also opening to the private sector key areas to
the private sector key areas long owned by the public sector as a
matter of national interest. These include sectors like maritime
services, telecommunications and major infrastructure projects. Meeting
these ambitious targets will be a real challenge for the GOE.
While these policies are encouraging, considerable work still needs
to be done to foster the growth of private sector. For example, local
and overseas businessmen continue to site pervasive red tape as a
barrier to investment and economic growth. Although most commodity
import bans were eliminated in 1993, key areas of domestic industry
remain protected by relatively high tariff rates. With some exceptions,
Egypt's maximum tariff stands at 50 percent, with a trade weighted
average of 17 percent in 1996.
The United States is Egypt's largest supplier, with 1995 exports to
Egypt nearing $2.9 billion. Approximately $200 million worth of exports
are financed annually through USAID's Commodity Import Program, $800
million through various USAID projects and about $165 million under
Department of Agriculture programs (GSM 102). A substantial portion of
the $1.3 billion in U.S. military assistance finances U.S. exports to
Egypt.
2. Exchange Rate Policy
In November 1991 Egypt adopted a free market exchange system
subject only to Central Bank buying and selling intervention. High
interest rates and stable exchange rates have stimulated large capital
inflows and dedollarization of the economy. Central Bank foreign
exchange reserves stand at a substantial $20.4 billion. New inflows are
concentrated in short-term deposits and Treasury bills, but medium-term
corporate issues and Treasury bonds are now also being offered. In June
1996, the Parliament passed a bill amending the banking law that allows
foreign ownership in joint venture banks to exceed 49 percent, thus
encouraging greater competition. In July 1996, another bill eliminated
one of the articles of Foreign Exchange Law 39/1994 that placed a
restriction of five years on the repatriation of Egyptian real estate
sale proceeds owned by foreigners residing outside Egypt.
Exchange rate stability and the sharp increase in the availability
of hard currency should increase opportunities for U.S. exports to
Egypt.
3. Structural Policies
The Egyptian government freed all industrial prices with the
exception of pharmaceuticals, cigarettes, rationed sugar, and rationed
edible oil. It still subsidizes mass-consumption of bread, which
stimulates demand for U.S. wheat. The government has shown no sign of
relaxing price controls on pharmaceutical products, which are
administered inflexibly and hinder U.S. and other foreign
pharmaceutical sales. While energy, transportation and water prices are
expected to remain administered, price increases have brought domestic
petroleum product prices to about 88 percent of international prices
and electricity prices to about 77 percent of long-run marginal costs.
(the exact figure remains in dispute between the World Bank and the
government.) The government is also in the process of deregulating the
cotton sector and reactivating the cotton exchange.
Effective October 1, 1996, Egypt again reduced tariffs across the
board by 10 to 15 percent, lowering the maximum tariff from 70 percent
to 55 percent. the maximum tariff was further reduced to 50 percent in
July 1997. Another round of cuts in august 1997 lowered rates on a
number of selected capital and consumer goods. rates went from 30
percent to 5 percent on computer software, from 30 percent to 15
percent on various processed foods, and from 35 percent to 10 percent
on gold jewelry.
Egypt instituted a general sales tax (GST) in May 1991, but the tax
is currently applied to importers and manufacturers only. Fear of
social unrest has made the government reluctant to develop the GST into
a full value-added tax. Taxes on certain consumer goods (alcoholic and
soft drinks, tobacco and petroleum products) not integrated in the GST
were raised and progressively converted to ad valorem taxes. A unified
income tax has been adopted which reduces marginal tax rates,
simplifies the tax rate structure, and aims to improve administration
of tax policy.
4. Debt Management Policies
In early 1991, official creditors in the Paris Club agreed to
reduce by 50 percent the net present value of Egypt's official debt,
phased in three tranches of 15, 15 and 20 percent. Release of the three
tranches was conditioned on successful review of Egypt's reform program
by the IMF. At about the same time, the United States forgave $6.8
billion of high-interest military debt. As a result, Egypt's total
outstanding medium- and long-term debt has declined to about USD 31
billion, and debt service payments have been reduced from 46 percent of
export earnings to around 10 percent. Egypt has cleared up its
arrearages to Paris Club creditor countries and is committed to
remaining current on its Paris Club payments. The reduction in Egypt's
debt service bill has helped it reduce dramatically the budget deficit,
create macroeconomic stability and build a high level of reserves.
In 1996, Egypt began a new round of discussions with the IMF. In
October 1996, the two sides agreed to an ambitious package of
structural reform measures through 1998, and the IMF approved a USD 291
million Precautionary Stand-By Agreement for Egypt. Given the success
of its economic policies, Egypt has not had to draw on this facility.
The arrangement with the IMF paved the way for the release of the final
$4.2 billion tranche of Paris Club relief, reducing Egypt's annual debt
servicing burden by $350 million.
5. Significant Barriers to U.S. Exports
Egypt participated in the Uruguay Round negotiations and became a
member of the World Trade Organization in June 1995.
Import barriers: U.S. exports face a number of import barriers,
such as high tariffs and quality control requirements that discriminate
against imports. In 1996, Egypt's new prime minister reaffirmed the
country's commitment to an economic reform program, supported by the
IMF and the World Bank, to liberalize Egypt's highly centralized and
regulated economy. Egypt does not require import licenses. For food and
non-food imports that have a limited shelf-life, the government
mandates that they should not exceed half the shelf-life at time of
entry into Egypt. The importation of commodities manufactured using
ozone-depleting chemicals is prohibited.
Services barriers: The Egyptian government runs many service
industries either partially or entirely, including airports and ports.
However, private firms dominate advertising, accounting, car rental and
a wide range of consulting services. Egypt participated in the December
1997 WTO financial services negotiations and is currently modifying
laws and regulations in accordance with its commitments.
Banking: Since March 1993, Egypt has allowed existing foreign bank
branches to conduct local currency operations. Two U.S. bank branches
have received licenses to do so. Foreign brokers are permitted to
operate in the Egyptian stock exchange. In June 1996, the parliament
passed a bill amending the banking law and allowing foreign ownership
in joint venture banks to exceed 49 percent, thus encouraging greater
competition. While committee to privatizing one of the nation's four
national banks (which dominate the market with more than 70 percent of
deposits), the GOE missed its objective of identifying by the end of
1997 which bank is to be privatized. An amendment to the banking law
must be passed in order to allow the privatization of a national bank.
Securities: international investors are permitted to operate in the
Egyptian stock market largely without restriction. Several new
entrants, including U.S. and European firms, have established or
purchased stakes in brokerage firms in 1997.
Insurance: A law passed in 1995 permits foreign companies to hold a
minority stake in Egyptian insurance companies. Foreign firms may also
operate as majority share holders in the free trade zones and in
reinsurance, neither of which is likely to prove attractive to foreign
investors. Four public-sector companies (one of which is a reinsurance
company) dominate the market. There are five private sector insurance
companies, three of which are joint ventures with U.S. firms. Two of
the joint ventures are operating in the free zones. Effective January
1, 1998, foreign insurance companies can operate in Egypt with up to
100 percent ownership. In the WTO financial services negotiations, the
U.S. asked Egypt to eliminate the economic needs test in life, health,
and personal accident insurance in the year 2000, and non-life
insurance in the year 2002. the U.S. also asked Egypt to delete a
proposed limitation on market access for life, health, and person
accident insurance: The U.S. further requested Egypt to consider making
insurance brokerage commitments, at least on a phased-in basis, by 2002
or 2003.
Telecommunications: Egypt has begun to open its telecommunications
market to international participation by negotiating large build-own-
operate-transfer (BOOT) contracts with U.S. and other foreign
companies. These contracts include fixed line and equivalent services
as well as pay telephones. The former ARENTO (Arab Republic of Egypt
National Telecommunications Organization), which became known as
telecom Egypt in 1997, is also preparing to spin off mobile telephone
operations to a new company or companies with some private ownership.
Mobile telephone became available in Egypt in November 1996 and demand
is high. Egypt was not a signatory to the WTO Basic Telecommunications
Agreement concluded in February 1997 and was not involved in the
negotiations. Improvement in telecom Egypt procurement procedures and
the overall regulatory framework of the multi-billion dollar Egyptian
telecommunications market would help ensure that U.S. firms can compete
fairly.
Maritime transportation: maritime transport lines have in recent
history been operated as a government monopoly. As of January 6, 1998,
this changed when the Egyptian parliament passed a law allowing private
ownership of maritime transportation companies. Inefficient state run
ports and airports have imposed heavy costs on the Egyptian economy,
constituting a barrier to increased trade and investment.
Standards, testing, labeling and certification: Many items removed
from the ban list, including meat, fruits, vegetables, household
appliance, and transformers, were added to the list of commodities
requiring inspection for quality control before importation.
Agricultural commodities have been increasingly subject to quarantine
inspection, so much so that some importers have begun scheduling pre-
inspection visits to the U.S. to facilitate import procedures upon
arrival in Egypt. In August 1994, five more items were added to the
list, which now consists of 131 items, including foodstuffs, spare
parts, construction products, electronic devices, appliances, and many
consumer goods.
Although Egyptian authorities stress that standards applied to
imports are the same as those applied to domestically-produced goods,
importers report that testing procedures for imports differ, and that
tests are carried out with faulty equipment by testers who often make
arbitrary judgments. Five Egyptian ministries or agencies make rules
for agricultural imports and issue permits: Agriculture, Health,
Economy, Industry, and Scientific Research. The rules conflict with
international practice. For example, the Ministry of Health's
regulations for labeling processed food conflict with those of the
ministry of industry.
Further, Egypt sets the shelf life of processed foods by
regulation, as opposed to the standard international practice of
allowing producers to determine the life of their product. Early in
1994, the government decreed that (mainly food) products entering
Egyptian ports must have 50 percent or more of their shelf life
remaining. Egyptian shelf life standards ignore quality differences
between producers and often have been established without scientific
basis. An August 1994 decree extended shelf life standards to certain
non food imports, such as syringes and catheters.
Product specification also can be a barrier to trade. For example,
Egyptian standard no. 1522 of 1991 concerning inspection of imported
frozen meat requires that meat imported for direct consumption contain
no more than seven percent fat, a level virtually never reached in
premium beef exports. Sales of up to $2 million of high quality U.S.
beef annually have been jeopardized. Egypt has not yet developed clear
standards for determining if imported poultry parts are derived from
poultry slaughtered according to Islamic rules. Once these standards
are in place, Egypt will lift the ban on imports of poultry parts. The
U.S. is currently challenging these standards in the WTO committee on
agriculture.
Decrees recently issued by the Ministries of Trade and Supply and
Agriculture are expected to have an immediate and detrimental effect on
U.S. exports of meat and poultry to Egypt, unless current efforts to
have them modified or rescinded are successful. For example, the decree
issued by the Ministry of Trade and Supply requires, inter alia, that
the name and address of the Egyptian importer be included on the label
which must be inserted in each package. That information often is not
available at the time the product is packed. The decree signed by the
Minister of Agriculture, but not yet in effect, would require Egyptian
importers to cover the cost of pre-inspection at site of all
consignments destined for the Egyptian market, a cost that importers
who deal in small quantities will not be able to afford.
All imported goods are required to be marked and labeled on each
package in Arabic with the brand and type of the product, country of
origin, date of production and expiry date, and any special
requirements for transportation and handling of the product. An Arabic-
language catalog must accompany imported tools, machines and equipment.
Although standards for vehicles are still lacking, the government
mandates that cars imported for commercial purposes must be accompanied
by a certificate from the manufacturer stating that they are suited for
tropical climates.
Investment barriers: under the 1992 U.S.--Egypt Bilateral
Investment Treaty (BIT), Egypt is obliged to maintain critical elements
of an open investment regime, including national and MFN treatment of
foreign investment (with exceptions limited by the treaty), free
financial transfers, and international law standards for expropriation
and compensation. Moreover, the BIT establishes procedures for U.S.
investors in Egypt to enforce the treaty's obligations directly
including through international arbitration. Generally, current
Egyptian law meets or surpasses BIT standards in all categories.
In principle, investors are now assured of automatic approval for
projects in sectors which do not appear on a ``negative list''. This
``negative list'' includes the following: military and related
products; tobacco and tobacco products; and investment in the Sinai
(except for exploration of oil, gas and mineral resources). Amendments
in 1995 permit majority Egyptian investments in the Sinai in any
sector.
In May 1997, President Mubarak signed a new law reaffirming basic
guarantees for investors and modifying the framework for investment
incentives. It offers automatic approval for most new-to-market
companies and particular advantages for investors in 16 sectors
including agriculture, maritime transportation, and computer software
development. The new law still permits the General Authority for Free
Zones and Investment (GAFI), now a unit of the Ministry of Economy,
substantial discretion in granting investment incentives. In general,
incentives are geographically based to encourage investment outside
Cairo, with tax holidays up to 20 years available to companies located
in parts of upper Egypt. As a result, grandfathering of pre-existing
incentives has been denied to some recently established U.S. companies
for planned expansions of operations in major cities.
Government procurement practices: Egypt by law gives national
bidders a 15 percent price advantage on government tenders. Closed
bidding is rare, as national law requires tendering for all significant
projects. The tender process is subject to frequent complaints of lack
of transparency, poor enforcement of rules, and rigged outcomes. As in
other markets, U.S. companies claim that European and Asian competitors
make payments to win tenders that are forbidden under the U.S. law.
Such claims are difficult to assess. Egypt is not a signatory of the
WTO Government Procurement Agreement.
The government recently proposed amendments to its 1983 procurement
law to the Egyptian parliament, but withdrew them for further study
before the last session ended in June 1997. However, changes to the
1994 statute governing arbitration approved in 1997 allow the parties
to agree to appoint any accepted legal body to arbitrate disputes
between public enterprises and private domestic and international
suppliers. In the past, the only recourse was the state council, which
took years, in some cases, to settle disputes.
Customs procedures: in 1993, Egypt adopted the harmonized system of
customs classification. Exporters and importers claim, however, that
customs duty assessment is often arbitrary, and rates charged are often
higher than prescribed in the tariff code. Tariff valuation is
calculated from the so-called ``Egyptian selling price'' which is based
on the commercial invoice that accompanies a product the first time it
is imported. Customs authorities retain information from the original
commercial invoice and expect subsequent imports of the same product
(regardless of the supplier) to have a value no lower than that noted
on the invoice from the first shipment. As a result of this presumption
of increasing prices, and the belief that under-invoicing is widely
practiced, customs officials routinely increase invoice values from 10-
30 percent for customs valuation purposes.
6. Export Subsidies Policies
Direct export subsidies do not exist in Egypt. Exporting
industries, including investment law 8 projects, may benefit from duty
exemptions on imported inputs (if released under the temporary release
system) or receive rebates on duties paid on imported inputs at the
time of export of the final product (if released under the drawback
system). Under its commitments to the world bank, the Egyptian
government has increased energy and cotton procurement prices, and has
abolished privileges enjoyed by public sector enterprises (subsidized
inputs, credit facilities, reduced energy prices and preferential
custom rates), thus reducing the indirect subsidization of exports.
7. Protection of U.S. Intellectual Property
Egypt, as a party to the Berne Convention for the protection of
literacy and artistic works and the Paris Convention for the protection
of industrial property, bears a commitment to protect U.S. inventions,
trademarks, and artistic works. The government passed an improved
copyright law in 1992 and added software protection in early 1994.
In April 1994, the U.S. Trade Representative (USTR) lowered Egypt
from the Special 301 ``Priority Watch List'' to the ``Watch List'' due
to improvements in copyright protection, and in 1995, the USTR placed
Egypt on the list of countries ``to be monitored for progress
achieved.'' The United States is working closely with Egypt to improve
intellectual property rights protection. However, due to lack of
progress in this area, Egypt was placed again on the ``Watch List'' in
1996 and then the ``Priority Watch List'' in 1997.
Copyright piracy, while still an issue, has been greatly reduced
since 1993. It still affects most categories of works, including motion
pictures (in video cassette format), sound recordings, printed matter
(notably medical textbooks) and computer software. The People's
Assembly passed amendments to Egypt's 1954 copyright law in June 1992.
Penalties against piracy were increased substantially and computer
software was afforded specific protection. In March 1994, the People's
Assembly passed additional amendments which treat computer software as
a literary work, thus ensuring a fifty year term of protection
consistent with the Berne convention. The government initially made
considerable progress in enforcing the new regulations, but suspended
enforcement for a one year period beginning in June 1996 to allow more
time for the local business community to adjust. The U.S. government
and U.S. firms have worked closely with Egypt in this area, and
effective steps resumed in August 1997 to combat software piracy.
The existing Egyptian patent law dates from 1949 and provides
protection far below international standards. It contains overly broad
compulsory licensing provisions and excludes from patentability
substances prepared or produced by chemical processes if such products
are intended to be used as food or medicine. Moreover, the patent term
is only 15 years from the application filing date, compared with the
international standard of 20 years. A 5-year renewal may be obtained
only if the invention is of special importance and has not been
adequately worked to compensate patent holders for their efforts and
expenses.
Compulsory licensing limits the effectiveness of patent protection.
a compulsory license may be granted if the patent is not worked or is
inadequately worked within three years following the patent grant. The
law does not provide for the alternative period of four years from the
date of filing, as the Stockholm act of the Paris Convention requires.
a patent may be forfeited for non-working two years after issuance of
the first compulsory license. The Egyptian law's definition of
infringement does not include the use, sale, or importation of a
product made using a process patented in Egypt.
Since 1993, U.S. experts have met regularly with Egyptian experts
responsible for revising the patent law. However, this legislation has
never been finalized and submitted to the People's Assembly. The United
States remains very concerned that Egypt has not yet passed a new,
modern patent law. In addition, the U.S. is concerned about a delay in
implementation of pharmaceutical product protection until the year
2005. The value of U.S. export sales to Egypt lost due to deficient
patent protection is unknown. Egypt has indicated that it is likely to
submit an improved, new patent law to the People's Assembly soon,
although the government did not do so during 1997.
Allegations of trademark infringement are made periodically by U.S.
and other foreign firms operating in Egypt. The Egyptian trademark law
is not enforced strenuously and the courts have only limited experience
in adjudicating infringement cases. Fines amount to less than $100 per
seizure, not per infringement, although criminal penalties are
theoretically available. Egypt is currently considering completely
revising its laws in order to enhance significantly legal protection
for trademarks and industrial designs.
New technologies: There is no separate legislation protecting
semiconductor chip layout design, although Egypt signed the Washington
semiconductor convention. Plant and animal varieties do not receive
protection under current law.
Estimated trade losses due to piracy in 1993 (the most recent
figures available) were $84 million, of which approximately $11 million
were due to video piracy (a significant drop from the 1992 level of $37
million prior to passage of copyright law 38/92), and $52 million due
to computer software piracy. U.S. officials continue to stress the need
for better enforcement efforts by Egyptian authorities and underscore
the importance of police activity being followed by prosecutions and
court decisions.
8. Worker Rights
a. The Right of Association.--Egyptian workers may, but are not
required to, join trade unions. A union local or worker's committee can
be formed if 50 employees express a desire to organize. Most members
(about 25 percent of the labor force) are employed by state-owned
enterprises. There are 23 industrial unions, all required to belong to
the Egyptian Trade Union Federation (ETUR), the sole legally recognized
labor federation. However, the International Labor Organization (ILO)
has long noted that a law requiring all unions to belong to a single
federation infringes on a worker's freedom of association. The
government has shown no sign that it intends to accept more than one
federation. ETUF leadership asserts that it actively promotes worker
interests and that there is no need for another federation. the ETUF
leadership is elected freely and speaks vigorously on behalf of
workers' concerns, but public confrontations between ETUF and the
government are rare.
b. The Right to Organize and Bargain Collectively.--The proposed
new labor law provides statutory authorization for collective
bargaining and the right to strike, rights which are not now adequately
guaranteed. Under the current law, unions may negotiate work contracts
with public sector enterprises if the latter agree to such
negotiations, but unions otherwise lack collective bargaining power in
the state sector. Under current circumstances, collective bargaining
does not exist in any meaningful sense because the government sets
wages, benefits, and job classifications by law. Larger firms in the
private sector generally adhere to such government-mandated standards.
c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory
labor is illegal and not practiced.
d. Minimum Age for Employment of Children.--In march 1996, the
Egyptian parliament adopted a new ``comprehensive child law'' which had
been drafted by the national council for childhood and motherhood. The
minimum age for employment was raised from 12 to 14. Provincial
governors may authorize ``seasonal work'' for children between 12 and
14. Education is compulsory until age 15. An employee must be at least
15 to join a labor union. The labor law of 1981 states that children 14
to 15 may work six hours a day, but not after 7 p.m. and not in
dangerous activities or activities requiring heavy work. Child workers
must obtain medical certificates and work permits before they are
employed. Recent estimates by the Egyptian government and local non-
governmental organizations put the number of children working at 2
million, although verification is impossible. While an estimated
720,000 children, work on farms, children also work as apprentices in
repair and craft shops, in heavier industries such as brick making and
textiles, and as workers in leather factories and in carpet-making,
which largely supply the export market. Enforcement of child labor laws
is minimal at best; violations abound, as the laws lack penalties
severe enough to deter child labor. Economic pressures, rural
tradition, the inadequacy of the education system, and lack of
government control in remote areas will make it difficult to improve
the conditions of Egypt's working children in the near future.
e. Acceptable Conditions of Work.--The government and public sector
minimum wage is approximately usd 20 a month for a six-day, 48-hour
work week. Base pay is supplemented by a complex system of fringe
benefits and bonuses that may double or triple a worker's take-home
pay. The average family can survive on a worker's base pay at the
minimum wage rate. The minimum wage is also legally binding on the
private sector, and larger private companies generally observe the
requirement and pay bonuses as well. The Ministry of Manpower sets
worker health and safety standards, which also apply in the free trade
zones, but enforcement and inspection are uneven.
f. Rights in Sectors with U.S. Investment.--The worker rights
described in the foregoing sections also apply to workers in the
following industries: petroleum, food and related products, metal, non-
electric machinery, electric and electronic equipment, and
transportation equipment.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 1189
Total Manufacturing........................... 215
Food & Kindred Products..................... \1\
Chemicals & Allied Products................. -34
Metals, Primary & Fabricated................ \1\
Machinery, except Electrical................ \1\
Electric & Electronic Equipment............. 1
Transportation Equipment.................... \1\
Other Manufacturing......................... 1
Wholesale Trade............................... 29
Banking....................................... 151
Finance/Insurance/Real Estate................. \1\
Services...................................... 51
Other Industries.............................. \1\
TOTAL ALL INDUSTRIES.......................... 1647
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
ISRAEL
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP............................... 86.7 95.2 97.9
Real GDP growth (pct)..................... 7.1 4.4 2.0
GDP by sector:
Agriculture............................. 2.5 2.7 2.8
Manufacturing........................... 16.4 18.0 18.5
Services................................ 49.2 54.1 55.6
Public sector \2\....................... 18.6 20.3 20.9
Per capita GDP (dollars).................. 15,635 16,740 16,750
Labor force (000s) \3\.................... 2,110 2,160 2,210
Unemployment rate (pct) \3\............... 6.9 6.7 7.7
Money and prices
Money growth (M2) (pct) \4\............... 35 26 22
Consumer inflation (pct) \4\.............. 8.1 10.6 9.0
Exchange rate (NIS/$) \3\................. 3.0 3.2 3.5
Balance of Payments and Trade:
Total exports (FOB)....................... 19.0 20.5 22.1
Exports to U.S.......................... 5.7 6.3 6.9
Total imports (CIF) \5\................... 28.3 29.9 29.0
Imports from U.S.\5\.................... 5.3 6.0 5.6
Trade balance \5\......................... -9.3 -9.4 -6.9
Balance with U.S.\5\.................... 0.4 0.3 1.3
External public debt (gross).............. 23.8 25.5 26.0
Fiscal deficit/GDP (pct).................. 4.2 3.6 2.8
Current acct deficit/GDP (pct)............ 5.5 5.6 3.5
Debt service/GDP (pct) \6\................ 6.1 6.5 6.6
Gold and FX reserves \4\.................. 8.1 11.4 18.0
Aid from U.S.............................. 3.1 3.1 3.1
Aid from other countries.................. N/A N/A N/A
------------------------------------------------------------------------
\1\ Projected on basis of preliminary data
\2\ Includes public nonprofit institutions
\3\ Annual average
\4\ End of period
\5\ Non-military trade only
\6\ Includes private sector debt service
1. General Policy Framework
After a remarkable economic boom in the first half of the 1990s,
when real GDP grew by an average six percent per year and the economy
expanded by a cumulative 40 percent, Israel entered a period of slower
growth in 1996 that is expected to persist well into 1998. Israel's
growth rate, which hit 7.1 percent in 1995, fell to 4.4 percent in 1996
and an estimated 2.0 percent in 1997. Only a modest upturn is expected
for 1998.
The slowdown in economic growth results from such factors as a
waning of the stimulative effects of the mass immigration wave of the
early 1990s, high interest rates, fiscal retrenchment, and an increase
in political uncertainty following setbacks in the Middle East peace
process. The slowdown has been reflected in an estimated five percent
decline in gross domestic investment in 1997, and an roughly three
percent drop, in dollar terms, in total imports. Imports from the
United States also fell in 1997, by an estimated seven percent, after
several consecutive years of rapid growth.
In 1996, Israel adopted a multi year program of budget deficit
reduction intended to reduce the deficit from 2.8 percent of GDP in
1997 to 1.5 percent by 2001. Public debt, at 90 percent of GDP in 1996,
remains high, although well below the peak of 170 percent reached in
1985. While the economy has grown rapidly in the 1990s, only limited
progress has been made in reducing the ratio of government spending to
GDP, which was 47 percent in 1997. Spending for education, health, and
transfer payments has grown rapidly in recent years, while the defense
budget, which consumed some 10 percent of GDP in 1996, has remained
virtually flat in real terms.
Monetary policy aims to reduce Israeli inflation, which has
averaged 10 percent in recent years, to the OECD average level by 2001.
The central bank's principal policy tool is its interest rate on
``monetary loans'' to the commercial banks. High domestic interest
rates have led Israelis to increase substantially their use of foreign
currency-denominated credit, which rose by 30 percent in the first six
months of 1997. To keep the shekel within its target zone, the central
bank was forced to absorb the resulting inflow of foreign exchange,
sterilizing the effect on domestic liquidity of such purchases through
increased borrowings from the public.
Despite the current economic slowdown, Israel appears well
positioned to return to its potential growth rate of perhaps four to
five percent due to the rapid development of such high-tech sectors as
software, telecommunications, biomedical equipment, and semiconductors.
Such fields represent attractive and growing markets for U.S.
suppliers.
2. Exchange Rate Policy Framework
Under the crawling-peg ``diagonal'' exchange rate system introduced
in 1991, the shekel floats within a target zone against a five-currency
basket composed of the dollar, yen, mark, pound, and French franc. In
June 1997, the zone was broadened from the previous plus or minus seven
percent from the midpoint to plus or minus fourteen percent. In
addition, the preplanned rate of depreciation of the lower edge of the
zone was changed from six to four percent annually, while the slope of
the upper bound was left at six percent. This change will result in a
further two percent widening of the band, to plus or minus fifteen
percent, on the model of the European monetary system. During most of
1997, high interest rates kept the shekel at or near the lower, or most
appreciated, edge of the zone.
Israel ended all foreign exchange restrictions for current account
transactions in 1993 and is progressively reducing its remaining
capital controls. A target date of May 1998, the fiftieth anniversary
of Israel's independence, has been set for the full convertibility of
the shekel.
3. Structural Policies
Over the past decade, Israel has gradually reduced the degree of
government control over the economy while increasing the influence of
domestic and international competition. Significant reforms, with
important commercial implications, are being implemented in the
telecommunications sector. In 1997, two private consortia, each with a
U.S. firm as a participant, began offering international telephone
service in competition with the established government-owned company;
prices for international calls fell by as much as 80 percent. In
addition, a tender was announced for a third cellular telephone
company. Further liberalization is planned for 1999, when the domestic
telecommunications market is to be opened to competition.
Israel's long-stalled privatization program came to life in 1997,
when the government raised almost $3 billion from the sale of shares in
government-owned companies and banks, more than twice its planned
target for the year. The most important transaction was the sale to an
American-Israeli investor group of a controlling 43-percent stake in
Bank Hapoalim, Israel's largest bank, which controls an estimated eight
percent of the Israeli economy through its extensive holdings in
Israeli industry. Other noteworthy transactions included the sale of
additional portions of Israel Chemicals Ltd, the telecommunications
company Bezeq, and Banks Leumi and Discount, Israel's second and third
largest, respectively. Israel plans to sell off its national airline,
El Al, on the local stock market in 1998, if the issues of Saturday
flight service and the cost of El Al's extraordinary security
precautions can be resolved.
In the energy sector, a U.S.-based company has been awarded the
first contract for the construction of a privately-operated independent
electric power generating plant. In the future, up to 10 percent of
Israel's electricity will be generated by such independent producers;
another 10 percent may be imported. Israel is also designing its first
natural gas importation and distribution system and is considering a
variety of mechanisms to maximize competition in this sector as well.
4. Debt Management Policies
In the 11 years after its 1985 stabilization program, Israel's net
external debt fell from 73 to 21 percent of GDP. Its policies of demand
restraint, notably the tightening of fiscal policy undertaken in 1997,
were adopted in part to curb a growing external deficit and a possible
rebound in the debt ratio. Israel is taking advantage of the five-year,
$10 billion U.S. loan guarantee program to finance the additional
investments required for immigrant absorption and to refinance existing
debt on more favorable terms. Preparing for the expiration of the loan
guarantee program, Israel has begun to tap the international markets
under its own name, and has made several successful offerings in the
U.S., European, and Japanese bond markets.
5. Aid
Annual U.S. assistance to Israel includes $1.8 billion in military
aid, of which $1.325 billion is for procurement from the United States.
U.S. aid also includes a $1.2 billion cash grant, $55 million to assist
with the absorption of new immigrants, and various forms of military
R&D, notably for missile defense.
6. Significant Barriers to U.S. Exports
With the exception of some categories of agricultural produce and
processed foods, all duties on products from the United States were
eliminated under the 1985 United States-Israel Free Trade Area
Agreement (FTAA) by January 1, 1995. The FTAA liberalized and expanded
the trade of goods between the United States and Israel, and spurred
discussions on freer trade in services, including tourism,
telecommunications, and insurance.
Israel ratified the Uruguay Round Agreement on January 15, 1995.
Israel became a member of the World Trade Organization on April 21,
1995 and implemented the WTO regime on January 1, 1996.
The United States-Israel FTAA allows the two countries to protect
sensitive agricultural subsectors with nontariff barriers including
import bans, quotas, and fees. These limitations have been carried
forward into the WTO regime. Most quantitative limits have been
translated into tariff rate quotas, while items previously banned now
bear prohibitively high tariffs or fees that make imports of such goods
uncompetitive with domestic production. The principal U.S. goods
affected by these measures include poultry and dairy products, fish,
and most fresh produce.
In late 1996, the United States and Israel agreed on a five-year
program of agricultural market liberalization. The agreement covers all
agricultural products and provides for increased access during each
year of the agreement via tariff rate quotas and reductions in tariff
levels for a significant number of U.S. goods.
Israel has two unique forms of protection for locally produced
goods. The first is Harama, meaning ``uplift,'' which is applied at the
pre-duty stage to the CIF value of goods to bring the value of the
products to an acceptable level for customs valuation. Israel
calculates import value according to the Brussels Definition of Value
(BDV), a method which tolerates uplifts of invoice prices. For purposes
of calculating duty and other taxes, the Israeli Customs Service
arbitrarily uplifts by two to five percent the value of most products
which exclusive agents import, and by 10 percent or more the value of
other products. Israel is not a signatory to the GATT Valuation Code,
although it has expressed its intention to become one.
The second uniquely Israeli form of protection is TAMA, a Hebrew
acronym standing for additional quota percentage. TAMA is a post-duty
uplift designed to convert the CIF value plus duty to an equivalent
wholesale price for purposes of imposing purchase tax. Coefficients for
calculation of the TAMA vary from industry to industry and from product
to product.
In addition, purchase taxes that range from 25 to 95 percent are
applied on goods ranging from automobiles to some agriculture and food
items. Israel has eliminated or reduced purchase taxes on many products
including consumer electronics, building inputs, and office equipment.
Where remaining, purchase taxes apply to both local and foreign
products. However, when there is no local production, the purchase tax
becomes a duty equivalent charge.
Israel has reduced the burden of some discriminatory measures
against imports. Although Israel agreed in 1990 to harmonize standards
treatment, either dropping health and safety standards applied only to
imports or making them mandatory for all products, implementation of
this promise has been slow. Enforcement of mandatory standards on
domestic producers can be spotty, and in some cases (e.g.,
refrigerators, auto headlights, plywood, carpets, and packaging/
labelling for food items) standards are written so that domestic goods
meet requirements more easily than imports. Israel is in the process of
amending its law on standards which should facilitate entry of some
standard U.S. units. Israel has agreed to notify the United States of
proposed new, mandatory standards to be recorded under the GATT.
However, packaging and labelling standards continue to prevent the
importation of a broad range of U.S. foods.
The Standards Institution of Israel is proposing a bilateral Mutual
Recognition Agreement of Laboratory Accreditation with the United
States that could result in the acceptance of U.S.-developed test data
in Israel. The proposed program would eliminate the need for redundant
testing of U.S. products in Israel to ensure compliance with mandatory
product requirements.
The Israeli government actively solicits foreign private
investment, including joint ventures, especially in industries based on
exports, tourism, and high technology. Foreign firms are accorded
national treatment in terms of taxation and labor relations, and are
eligible for incentives for designated ``approved'' investments in
priority development zones. There are generally no ownership
restrictions, but the foreign entity must be registered in Israel.
Profits, dividends, and rents can generally be repatriated without
difficulty through a licensed bank. About 100 major U.S. companies have
subsidiaries in Israel and some 170 Israeli companies have subsidiaries
in the United States. Investment in regulated sectors, including
banking, insurance, and defense industries, requires prior government
approval.
Israel has one free trade zone, the Red Sea port city of Eilat. In
addition to the Eilat Free Trade Zone, there are three free ports:
Haifa Port (including Kishon); Port of Ashdod; and the Port of Eilat.
Enterprises in these areas may qualify for special tax benefits, and
are exempt from indirect taxation.
Israel is a party to the Uruguay Round Government Procurement
Agreement, which provides wide coverage of Israeli government entities
and enables more open and transparent international tendering
procedures. While the Israeli government provides information to the
U.S. government on existing and proposed tenders issued by government
entities valued at over $50,000, some U.S. companies report problems in
receiving timely notice of Israeli government tenders. Moreover, U.S.
suppliers are totally locked out of Ministry of Defense food tenders
for the army and other security forces. Complex technical
specifications and kashrut requirements discourage foreign
participation.
The Government of Israel frequently seeks offsets (subcontracts to
Israeli firms) of up to 35 percent of total contract value for
purchases by ministries, state-owned enterprises, and municipal
authorities. Failure to enter or fulfill such industrial cooperation
agreements (investment, co-development, co-production, subcontracting,
purchase from Israeli industry) may disadvantage a foreign company in
government awards. Although Israel pledged to relax offset requests on
civilian purchases under the FTAA, U.S. firms may still encounter
requests to enter into offset arrangements. Israeli government agencies
and state-owned corporations not covered by the Uruguay Round
Government Procurement Agreement follow this ``Buy Israel'' policy to
promote national manufacturers.
Recent legislation codified and strengthened a 15 percent cost
preference given domestic suppliers in many Israeli public procurement
purchases, although the legislation recognized the primacy of Israel's
bilateral and multilateral procurement commitments. This preference can
reach as high as 30 percent for domestic suppliers located in priority
development areas.
In addition to its WTO multilateral trade commitments and its FTAA
with the United States, Israel also has free trade agreements (FTAs)
with the European Union (EU), Canada, Turkey, Slovakia, the Czech
Republic, Hungary, and the EFTA states. It also has a preferential
trade agreement with Jordan. With respect to all other countries,
Israel substituted steep tariffs for nontariff barriers previously
applied to trade, and is gradually reducing these tariffs. Israel's
import liberalization program and negotiation of new free trade
agreements have diluted U.S. advantages under the bilateral FTAA.
As part of the Middle East peace process, Israel has granted duty
free access to its market for 50,000 metric tons of fresh and processed
agricultural products from Jordan; it has also committed itself to
allowing unlimited access for agricultural produce from the Palestinian
Authority after 1997. This preferential access reduces the
competitiveness of U.S. products in the Israeli market.
7. Export Subsidies Policies
The United States-Israeli FTAA included an agreement to phase out
the subsidy element of export enhancement programs and not to institute
new export subsidies. Israel has already eliminated grants, except in
the case of agricultural export and import substitution crops. In 1993,
Israel eliminated the major remaining export subsidy, an exchange rate
risk insurance scheme which paid exporters five percent on the FOB
value of merchandise. Israel still retains a mechanism to extend long-
term export credits, but the volumes involved are small, roughly $250
million. Israeli export subsidies have resulted in past U.S.
antidumping or countervailing duty cases. Israel has been a member of
the GATT Subsidies Code since 1985.
The Knesset passed legislation in 1994 authorizing creation of free
processing zones (FPZs). Qualifying companies operating in the FPZs are
exempt from direct taxation for a twenty-year period, and imported
inputs are not subject to import duties or tariff or most health and
safety regulations generally in effect throughout Israel. Companies are
also exempt from collective bargaining and minimum-wage requirements,
although subject to other labor requirements. The legislation was
originally intended to promote investment in export-related industries,
but the wording of the legislation as passed does not limit applicant
companies to exporters or providers of services to overseas clients.
Accordingly, the FPZs do not appear to violate the United States-
Israeli FTAA export subsidies commitment.
8. Protection of U.S. Intellectual Property
Cable television, video, and software piracy is common in Israel.
Israel currently has an antiquated copyright law which, together with
the low priority given to IPR enforcement by the authorities, has
allowed an upsurge in piracy. Concern over the increase in illegal
copying and sale of video and audio recordings was a factor behind
Israel's inclusion in the Special 301 watch list in 1997. A revised
copyright law, with updated IPR requirements, is under review. The
proposed legislation includes enhanced rights of distribution in
connection with rental rights and imports of copyrighted materials.
Rental rights will cover all protected works, including sound
recordings, cinematographic works, and computer programs. A cable
broadcast law is also under consideration. Israel is a member of the
International Center for the Settlement of Investment Disputes (ICSID)
and the New York Convention of 1958 on the recognition and enforcement
of foreign arbitral awards.
Current Israeli patent law contains overly broad licensing
provisions concerning compulsory issuance for dependent and non-working
patents. A draft revision of Israel's patent law is under review; the
revised law would upgrade IPR patent protection and would eliminate
compulsory licensing. In addition, revised laws are under consideration
for protection of industrial designs, trademarks, and integrated
circuits.
Israel is also considering an amendment to the patent law which
would allow nonpatent holders to produce patented pharmaceutical
products prior to the expiration of patent rights in order to submit
data to foreign and Israeli health authorities to gain marketing
approval. The United States has urged Israel to model its legislation
as closely as possible on the comparable provision of U.S. law.
Israel is a party to the Paris Convention for the Protection of
Industrial Property, the Universal Copyright convention, and the Berne
Copyright Convention. In addition, as a signatory of the GATT Uruguay
Round and World Trade Organization (WTO) agreements, including Trade in
Intellectual Property and Services (TRIPS), and Israel is in the
process of making all revisions necessary to meet all GATT TRIPS
requirements.
9. Worker Rights
a. The Right of Association.--Israeli workers may join freely
established organizations of their choosing. Most unions belong to the
General Federation of Labor (Histadrut) and are independent of the
government. In 1995, membership in the Histadrut dropped sharply after
the federation's links with the nation's largest health maintenance
organization were severed. A majority of the workforce still was
covered by Histadrut's collective bargaining agreements. Non-Israeli
workers, including nonresident Palestinians from the West Bank and Gaza
who work legally in Israel, may not be members of Israeli trade unions,
but are entitled to some protection in organized workplaces. The right
to strike is exercised regularly. Unions freely exercise their right to
form federations and affiliate internationally.
b. The Right to Organize and Bargain Collectively.--Israelis fully
exercise their legal right to organize and bargain collectively. While
there is no law specifically prohibiting antiunion discrimination, the
Basic Law against discrimination could be cited to contest
discrimination based on union membership. There are currently no export
processing zones, although the Knesset has passed legislation
authorizing creation of free processing zones, as discussed in section
6.
c. Prohibition of Forced or Compulsory Labor.--The law prohibits
forced or compulsory labor, and neither Israeli citizens nor
nonresident Palestinians working in Israel are subject to such
practices.
d. Minimum Age for Employment of Children.--Children who have
attained the age of 15 years, and who are liable to compulsory
education under the compulsory education law, may not be employed
unless they work as apprentices under the apprenticeship law.
Notwithstanding these provisions, children who have completed their
14th year may be employed during a period of official school holidays.
Employment of those aged 16 to 18 is restricted to ensure time for rest
and education. Ministry of Labor inspectors enforce these laws, but
advocates of children's rights charge that enforcement is inadequate,
especially in smaller, unorganized workplaces. Illegal employment of
children does exist, probably concentrated in urban light-industrial
areas.
e. Acceptable Conditions of Work.--Legislation in 1987 established
a minimum wage at 45 percent of the average wage, calculated
periodically and adjusted for cost of living increases. Union officials
have expressed concern over enforcement of minimum wage regulations,
particularly with respect to employers of illegal nonresident workers.
Along with union representatives, the Labor Inspection Service enforces
labor, health, and safety standards in the workplace. By law, maximum
hours of work at regular pay are 47 hours per week (eight hours per day
and seven hours the day before the weekly rest). The weekly rest must
be at least 36 consecutive hours and include the Sabbath. Palestinians
working in Israel are technically covered by the law and collective
bargaining agreements that cover Israeli workers.
f. Rights in Sectors with U.S. Investment.--Worker rights in
sectors of the economy in which U.S. companies have invested are as
described above.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 1329
Food & Kindred Products..................... \1\
Chemicals & Allied Products................. \1\
Metals, Primary & Fabricated................ \1\
Machinery, except Electrical................ \1\
Electric & Electronic Equipment............. 852
Transportation Equipment.................... 2
Other Manufacturing......................... 290
Wholesale Trade............................... \1\
Banking....................................... 0
Finance/Insurance/Real Estate................. 167
Services...................................... 216
Other Industries.............................. 109
TOTAL ALL INDUSTRIES.......................... 1886
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
JORDAN
Key Economic Indicators \1\
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \2\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \3\............................. 6,642 7,257 7,800
Real GDP Growth (pct.) \4\................ 6.9 5.2 5.0
GDP by Sector:
Agriculture............................. 305 329 335
Manufacturing........................... 883 971 981
Services................................ 1,090 1,171 1,210
Government.............................. 1,046 1,118 1,196
Per Capita GDP (US$)...................... 1,548 1,635 1,700
Labor Force (000s)........................ 1,042 1,072 1,150
Unemployment Rate (pct) \5\............... 15.0 13.0 15.0
Money and prices (annual percentage growth):
Money Supply Growth(M2)................... 6.6 0.3 9.7
Consumer Price Inflation.................. 2.4 6.5 4.0
Exchange Rate (JD/US$ - annual average)
Official................................ 0.701 0.709 0.709
Balance of Payments and Trade:
Total Exports FOB \6\..................... 1,434 1,466 1,520
Exports to U.S.\6\...................... 21 20 25
Total Imports CIF \6\..................... 3,696 4,292 3,700
Imports from U.S.\6\.................... 343 416 430
Trade Balance \6\......................... -2,263 -2,825 -2,180
Balance with U.S.\6\.................... -321 -397 -405
Current Account Deficit/GDP(pct).......... 3.7 3.1 2.9
External Public Debt...................... 6,373 6,659 6,700
Debt Service Payments/GDP(pct)............ 7.1 7.9 8.4
Fiscal Deficit/GDP........................ 2.5 4.9 3.1
Gold and Foreign Exchange Reserves \7\.... 611 817 850
Aid from U.S.\8\.......................... 468 154 282
Aid from All Other Sources................ 261 270 280
------------------------------------------------------------------------
\1\ Source: Central Bank of Jordan's (CBJ) Monthly Bulletin, July 1997
and CBJ's Annual Report, 1996.
\2\ 1997 figures are estimates based on data available from the Ministry
of Finance, and an official report of the Minister of Finance on
October 11.
\3\ GDP at current market prices.
\4\ Percentage changes calculated in local currency.
\5\ Unemployment rate for 1997 is based on GOJ estimates.
\6\ Merchandise trade; exports and imports customs basis.
\7\ Represents net foreign exchange reserves plus gold.
\8\ US assistance in 1995 and 1997 includes 417.2 and 63.5 million
dollars in U.S. debt forgiveness in 1995 and 1997 respectively. U.S.
military aid to Jordan amounted to 31.6 million dollars in FY 1997.
1. General Policy Framework
In early 1997, the Government of Jordan (GOJ) announced four major
goals for its economic programs for the year. They were: real annual
economic growth of 6.5 percent; consumer price inflation of four
percent; current account deficit/GDP ratio of 2.9 percent; and a budget
deficit/GDP ratio of 3.9 percent. The Government's economic agenda also
seeks to: reduce the external debt, build reserves, close the deficit
in the current account of the balance of payments, increase
productivity, promote greater savings and investment, reduce the fiscal
deficit, boost employment, and maintain low inflation.
The government announced that it will begin a ``national economic
structural adjustment program'' upon completion of the current IMF-
managed program that expires in 1998. The government continues its
policies of economic liberalization and privatization of state-owned
enterprises. State ownership of or investment in business was valued at
900 million dollars as of October 1997.
Jordan's Minister of Finance reported to the Council of Ministers
on October 11 that growth during 1997 would not reach its target of 6.5
percent. It will likely be around 5.0 percent. Growth was dampened by
high interest rates and less-than-expected growth in the construction
and manufacturing sectors. The official rate of unemployment is 15
percent. However, private sources report the real rate to be closer to
19-20 percent.
Jordan's budget for 1997 called for a 7.4 percent increase in
domestic revenue and a 4.9 percent increase in public expenditure over
1996. Accordingly, domestic revenues are expected to reach 2.3 billion
dollars (28.6 percent of GDP) and public expenditures 2.7 billion
dollars (33.6 percent of GDP). Government officials have said they hope
to reduce the budget deficit to one percent in 1998. The Minister of
Finance reported on October 11 that the 1997 budget deficit may drop
below the 3.9 percent target to 3.1 percent of GDP. Although the
government has been successful in containing public expenditures and
reducing the budget deficit since 1995, gross national consumption
continues to increase. It rose by 590 million dollars in 1996 despite
an increase of 360 million dollars in gross national investment and an
increase of 74 million dollars in domestic savings.
The Minister of Finance announced that the Government's budgetary
plans for 1998 and onwards include expanding the tax base, allocating
funds for regular annual increases in wages for government employees,
and raising prices of government services. The 1998 budget will also
include increases in some salary differentials or premiums endorsed by
the Council of Ministers.
Jordan continues to face a very high public debt burden. The GOJ
has said it will seek to keep the balance of outstanding external debts
below 87 percent of GDP during 1997. External debt will reach 6.7
billion during 1997, according to the Minister of Finance. Jordan will
resume international borrowing for development purposes as soon as the
current IMF Economic Adjustment Program (1992-1998) is completed.
Although the new economic adjustment program will be national rather
than IMF-run, the government is expected to seek IMF credit
arrangements to cover economic needs for the period 1998-2002, i.e.,
during implementation of the new social and economic development plan
now being drafted by the Ministry of Planning.
The Central Bank of Jordan (CBJ) continues to auction certificates
of deposit (CDs) with three- and six-month maturities, to contain
domestic credit and control the prime rate in the banking system. In
the summer of 1997, the CBJ lowered the rate of interest paid on three-
and six-month CDs by nearly two percent. These rates currently stand at
7.55 and 7.50 percent, respectively. GOJ monetary policy of high
interest rates, in place since 1995, has succeeded in maintaining a
stable dinar and building forex reserves.
2. Exchange Rate Policy
The Central Bank of Jordan regulates foreign currency transactions
in Jordan and sets the exchange rate. It also restricts money changers'
currency transactions to a specified range of buying and selling rates.
The dinar-dollar fixed rate was instituted on October 23, 1995 at 0.708
(buy) and 0.710 (sell) dinar to the dollar (approximately $1.40 to the
dinar). The dinar fluctuates against other currencies according to
market forces.
In July 1997, the CBJ issued new measures to further liberalize the
foreign exchange system. New regulations are intended to facilitate the
inflow and outflow of all means of payment and gold. Under the new
measures, a licensed bank in the Kingdom may: open non-resident
accounts in dinars and/or in foreign currencies; open foreign currency
accounts for residents without limits; allow resident account holders
to maintain up to one million dollars in foreign currency accounts
(including any accrued interest, provided that any excess is sold to
the banking system or to the CBJ); transfer the value of imports to
foreign beneficiaries without CBJ approval; and transfer foreign
currency to foreign beneficiaries to cover the value of imports based
on valid letters of credits (L/C's), bills for collection, accepted
discounts, or customs declarations.
The new regulations allow residents to take Jordanian dinar-
denominated banknotes and payment instruments in and out of the Kingdom
without restrictions, receive foreign currency transfers in dinars or
foreign currencies, and take out or transfer cash notes in foreign
currencies up to the equivalent of JD 35,000 (approximately USD 50,000)
to cover payments. The CBJ approves amounts of more than JD 35,000 on a
case-by-case basis. Furthermore, banks may now execute foreign currency
transfer transactions to cover payments to residents and bring gold
into the Kingdom. Commercial quantities of gold may be taken out of the
Kingdom upon presentation of evidence that it originally was imported
into the Kingdom. The CBJ clears transfers to cover the value of
investments outside Jordan.
3. Structural Policies
Pricing Policies: The Government continues to subsidize bread
prices for all Jordanian citizens. In August 1996, it removed the
direct price subsidy and introduced a cash subsidy for bread. In
September, 1997 the GOJ stopped issuing food coupons for sugar, rice
and powdered milk and replaced the coupons with a cash subsidy. To be
eligible for the new subsidy, citizens' monthly income must be less
than 500 dinars (approximately 720 dollars) per month. The monthly cash
subsidy per person is 720 fils (USD 1.02) for sugar, rice and powdered
milk and JD 1.280 (USD 1.80) for bread.
Increasingly, market forces set prices in Jordan. The government
may end its role in importing most basic foodstuffs such as cereals,
sugar, milk and frozen meat, by the end of 1997. However, it will
continue to import wheat and some rice at least through 1998. According
to official statements, anti-monopoly legislation will be presented to
the Parliament in March 1998, at which time the Ministry of Supply may
be phased out, and the government will end a 22-year regime of price-
setting and price controls. Jordan's price controls and subsidy regime
did not have a major impact on Jordanian imports of agricultural goods
from the United States.
Tax Policies: Most imports into Jordan are subject to tariffs and
duties. As of April 1997, however, all industrial raw material and
capital equipment imported by licensed industrial concerns are exempt
from import duties. The system of import tariffs has changed in Jordan.
According to the ``Law on Unifying Import Fees and Taxes, No. 7 of
1997,'' effective since March 1, the ceiling on all duties is 40
percent, and all additional customs taxes, fees and duties on most
regular imports have been abolished. However, certain luxury goods and
automobiles carry additional import taxes, fees and duties. The
reduction in the basic tariff on automobiles was offset by imposing
additional sales taxes.
The Kingdom's income tax law, in effect since January 1, 1996,
imposes a 35 percent maximum marginal rate. Taxes on individual incomes
vary between 5 percent (for annual incomes less than $3,000) and 30
percent (for annual incomes exceeding $22,500). Corporate taxes are set
at 35 percent for banks and financial institutions and 25 percent for
companies engaged in brokerage and agency activities. The law exempts
re-invested profits and profits earned on exports from income tax. This
reflects the government's desire to encourage new projects and the re-
capitalization of net returns from existing investments, as well as to
promote export-oriented enterprise. The capital gains tax was abolished
with the passage of Jordan's new Securities Law on June 15, 1997.
Current law imposes an across-the-board 10 percent sales tax.
However, the sales tax may reach 20 percent on certain luxury items,
such as cigarettes and alcohol. The law exempts exports from the sales
tax and empowers the Council of Ministers to impose additional sales
taxes to compensate for revenue losses from reduced customs duties on
goods and services subject to the sales tax. Upon reducing the duties
on all imports, including automobiles, to no more than 40 percent, the
Council of Ministers imposed an additional sales tax on imported
automobiles ranging from 39 to 141 percent. The result is that there
has been no positive change in Jordan's tax regime with regard to U.S.
automobile imports. Almost all types of professional, business and
legal services are also subject to the ten percent sales tax.
Regulatory Policies: Jordan's new Companies Act, which went into
effect on June 15, 1997, resolved a seven-year regulatory conflict
between the Companies Act and the Financial Market Law (now called the
Securities Law). The new customs law has not been passed yet, although
the Lower House of Parliament endorsed 240 of its 280 articles before
recessing. The new Securities Law went into effect on June 15, 1997.
According to government officials, the Council of Ministers intends to
send the new Parliament, which is expected to convene the third week of
November, a number of laws relating to monopolies, the National Product
Protection Law, and intellectual property rights protection. The July
19 amendment to the current investment law introduced significant
changes in Jordan's investment regime, including removal of foreign
investment ceilings on all sectors, except the media, small trade/
commerce, mining and construction. Foreign investment in the latter
three sectors is limited to no more than 50 percent. Regardless,
Jordan's investment promotion legislation does not address cumbersome
procedures delaying registration and approval of projects carried out
by foreign investors.
4. Debt Management Policies
Jordan's outstanding external public debt as of December 1996 was
$6.7 billion, an increase of $286 million over 1995. However, external
debt as a percentage of GDP declined from 95.9 percent of GDP in 1995
to under 92 percent in 1996. These figures do not take into
consideration contracted but undisbursed loans, which stood at $1.28
billion at the end of 1996. With the addition of these undisbursed
loans, the total external debt is $7.9 billion, or 109 percent of GDP
(compared to 118 percent in 1995).
IMF reports indicate that the ratio of debt service to exports of
goods and non-factor services has been decreasing since 1993, dropping
from 35.9 percent in 1993 to 26.3 percent in 1995 and 25.7 percent in
1996. Jordan rescheduled $400 million in debt to Paris Club creditors
in May, 1997, easing repayment pressure. However, Jordan had external
payment arrears of $330 million to non-Paris Club bilateral creditors
at the end of 1996. Jordan's debts to the IMF are a small portion of
its overall debt. According to June 1997 IMF report, Jordan is in a
``strong position to meet its obligations to the Fund.''
According to government records, 93.3 percent of Jordan's
outstanding external debt is in long-term loans, with 65.5 percent of
such debt owed to foreign governments. Total loans contracted in 1996
amounted to 660.4 million dollars. Out of this total, 36 percent
supported the Economic Adjustment Program, while the energy sector
accounted for 32 percent. Also, about 72 million dollars were
contracted to finance imports during 1996.
5. Significant Barriers to U.S. Exports
Import Licenses: According to the Import/Export Regulation No. 1 of
1997, an import license is not required except in certain cases.
Effective April 7, 1997, the Ministry of Industry and Trade waived the
licensing requirement for a large number of imported goods. About 43
items require prior clearance, which is considered to be an import
license. They are: strategic food commodities, telecommunications
products, certain electronics, and medical materials. Moreover, imports
from countries with trade protocols with Jordan continue to require a
license. For other imported goods, the regulation eases the process of
obtaining a license. The business obtains an importer's card, which is
issued by the municipal authority. The municipality will not issue a
card until the importer is registered with the Ministry of Industry and
Trade and local Chamber of Commerce, and has a lease or sales contract.
The ceiling on small imports exempt from licensing was raised to JD
2,000 (approximately USD 2,820). Except where an import license is
required, licensing fees have been abolished completely. Jordan is not
yet a member of the WTO, but has applied for membership and begun
accession negotiations
Services Barriers. Foreign suppliers of services do not receive
Most Favored Nation (MFN) or national treatment. Almost all service
industries are affected by barriers.
Standards, Testing, Labeling, and Certification: All imports to
Jordan are subject to approval by the Standards and Measures
Corporation. Foodstuffs and medicines must undergo laboratory testing
and certification. Jordanian testing standards for consumer and durable
items are becoming increasingly flexible for importers of U.S.
products. However, they often lack transparency. Until the new customs
law with internationally accepted rules of origin is passed, importers
of U.S. products containing parts made outside the United States will
continue to be penalized.
Investment Barriers: The United States and Jordan signed a
Bilateral Investment Treaty (BIT) in July 1997. The current Investment
Promotion Law is designed to promote both local and foreign investment
and to encourage the formation of joint ventures and multinational
enterprises in Jordan. Most important to U.S. business, the law
provides for equal treatment between foreign and Jordanian investors.
Most restrictions on foreign investment were removed in July, but
remain in four sectors: media, construction contracting, trade and
commercial services and mining. The minimum amount of foreign
investment in any sector in Jordan is 71,000 dollars. However, under
the United States-Jordan BIT, the minimum for U.S. investors is only
50,000 dollars. The Investment Promotion Department of the Ministry of
Industry, Trade and Supply is responsible for carrying out procedures
granting foreign investors national treatment under the prevailing
investment law and the BIT.
Government Procurement Practices: With few exceptions, government
purchases are made by the General Supplies Department of the Ministry
of Finance. Foreign bidders are permitted to compete directly with
local counterparts in international tenders financed by the World Bank.
However, local tenders are not directly open to foreign suppliers. By
law, foreign companies must submit bids through agents. While Jordan's
procurement law does not allow non-competitive bidding, it does permit
a government agency to pursue a selective tendering process. The law
gives the tender-issuing department, as well as review committees at
the Central Tenders and General Supplies Departments, the right to
accept or reject any bid while withholding information on its
decisions. Foreign bidders may seek recourse only through the Jordanian
legal system. The Higher Procurement Commission has not yet been
organized, leaving a wide gray area of ad-hoc decision-making in
Jordan's procurement system.
Customs Procedures: Cumbersome customs procedures continue to
undermine Jordan's business and investment climate. Overlapping areas
of authority and difficult clearance procedures remain in place. Actual
appraisal and tariff assessment practices are frequently arbitrary and
may even differ from written regulations. Customs officers often make
discretionary decisions about tariff and tax applications when
regulations and instructions conflict or lack specificity. Delays in
clearing customs are routine.
6. Export Subsidies Policies
The Central Bank runs a low interest financing facility to support
eligible exports, including all agricultural and manufactured exports
with domestic value-added of not less than 25 percent. The facilities
are extended to local banks and financial institutions against bills,
letters of credit and drafts, with interest rates set at one percent
below the prevailing discount rate.
The Jordan Loan Guarantee Corporation offers soft loans to small
scale, export-oriented projects in industry, handicrafts and
agriculture. The corporation's primary objective is to provide
guarantees to cover the risk of credits extended by the Jordanian
banking system to small and medium-scale enterprises. The Export and
Finance Bank, a public share holding corporation, was set up in 1994 to
provide commercial financing and loan guarantees to Jordanian
exporters. The bank offers commercial loans and export advances on a
case by case basis.
7. Protection of U.S. Intellectual Property
Copyrights: A 1992 law provides a framework for protection of
foreign copyrights. The law deals with all aspects relating to
exclusive rights to (1) copy or reproduce works, (2) translate, revise,
or otherwise adapt or prepare program derivatives work, and (3)
distribute or publicly communicate copies of the work. Royalties may be
remitted abroad under licensing agreements approved by the Ministry of
Industry and Trade. However, only works of Jordanian and foreign
authors who formally register their works inside the Kingdom are
protected. The amendment to the Copyrights Law, which reportedly would
bring Jordan into compliance with the Berne Convention, was not passed
by the previous Lower House of Parliament, although its legal committee
has approved and recommended an expedient endorsement of the amendment.
The current law of 1992 does not have strong enforcement provisions;
the amendment is said to improve enforcement. The practice of pirating
audio and video tapes for commercial purposes is widespread, and the
government makes no effort to intervene. Pirated books are sold in
Jordan, though few, if any, are published within the country. However,
unauthorized copying and distribution of textbooks is common. Despite
promises, the government has not taken any significant measures to
improve copyright protection. To date, it has issued only procedural
notes for existing regulations.
Trademarks and Patents Laws: Trademark and patent laws have not
been amended since the early 1960s. The promised amendment to the
Trademark Law is overdue and its status in the legislative process is
unclear. Jordan has no other legislation for protection of domestic or
foreign service marks. The government has not clarified whether it will
amend the Patent Law or introduce a new law. In either case, there has
been no concrete action by the government towards reforming Jordan's
patent protection regime. Protection under the current law is available
only to domestic and foreign patents that are registered in Jordan. A
foreign company may register a patent by sending a power of attorney to
a local patent agent or lawyer. Initial registration may be renewed
once for a total period of protection of 14 years. Jordan's current
patent law does not respect product patents in any fashion. Process
patents must be registered with the Ministry of Industry and Trade to
receive protection. Infringement of a foreign patent, such as a
manufacturing process for a chemical compound, is considered to be a
violation by Jordanian courts only if it is proven to be an exact
duplication. More than 50 U.S. pharmaceutical products are currently
pirated in Jordan, and the Jordanian industry has steadfastly resisted
efforts to strengthen pharmaceutical patent protection in the country.
New Technologies: Computer software piracy is rampant in Jordan's
small but growing computer market. There is no Jordanian legislation
that protects domestic or foreign-developed technologies; nor is there
legislation providing for the registration of imported technology.
Jordan needs to move quickly to improve its copyright, patents and
trademarks laws and protect foreign and domestic intellectual property
rights (IPR). In April 1997, the U.S. Trade Representative placed
Jordan on the ``Special 301 Watch List'' for its failure to provide
adequate and effective protection to IPR. The government has indicated
it may seek to negotiate IPR protection for certain industries first,
such as software and video/audio products, and leave the pharmaceutical
patent issue until later.
8. Worker Rights
a. The Right of Association.--Less than 15 percent of the Jordanian
work force is unionized. Unions represent their membership in dealing
with issues such as wages, working conditions and worker layoffs.
Seventeen unions make up the General Federation of Jordanian Trade
Unions (GFJTU). The GFJTU actively participates in the International
Labor Organization.
b. The Right to Organize and Bargain Collectively.--GJFTU member
unions regularly engage in collective bargaining with employers.
Negotiations cover a wide range of issues, including salaries, safety
standards, working conditions and health and life insurance. If a union
is unable to reach agreement with an employer, the dispute is referred
to the Ministry of Labor for arbitration. If the Ministry fails to act
within two weeks, the union may strike. Arbitration is the usual means
of resolving disputes, and labor actions are generally low-key and do
not lead to strikes.
c. Prohibition of Forced or Compulsory Labor.--Compulsory labor is
forbidden by the Jordanian constitution.
d. Minimum Age for Employment of Children.--Children under age 16
are not permitted to work except in the case of professional
apprentices. Under an apprentice program, students may leave the
standard educational track and begin part-time training (up to 6 hours
a day) at age 13.
e. Acceptable Conditions of Work.--Jordan's workers are protected
by a comprehensive labor code, enforced by 30 full-time Ministry of
Labor inspectors. There is no comprehensive minimum wage in Jordan, but
the new labor law, in effect since June 1996, contains a mandate to
this effect. The government maintains and periodically adjusts a
minimum wage schedule of various trades, based on recommendations of an
advisory panel consisting of representatives of workers, employers and
the government. Maximum working hours are 48 per week, with the
exception of hotel, bar, restaurant and movie theater employees, who
may work up to 54 hours. Working conditions and minimum wage for
foreign workers are stipulated in bilateral treaties but are not
strictly enforced nor consistently adhered to. Jordan also has a
workers' compensation law and a social security system which cover
companies with more than five employees.
Jordan's labor code protects workers from arbitrary or politically
motivated dismissals, establishes a minimum wage mandate, provides for
maternity leave for women, and calls for a new social security system
and law. Though the labor law provides for stronger protection of
worker rights, it does not provide for flexible treatment of skilled or
unskilled foreign workers, unless they are licensed to work by the
Ministry of Labor and permitted to stay in Jordan by the Ministry of
Interior. Jordan is an active member of the ILO and complies with
international protocols and agreements.
A major shortcoming in the Jordanian labor code is Article 20,
which grants employees the right to own the intellectual property
rights of works developed on the job even if their job requires that
they research and develop for their employers. This provision is
inconsistent with conventional international labor laws and treaties
and discourages local and foreign investment in industries such as
software development, audio and video recording and pharmaceutical
development.
f. Rights in Sectors with U.S. Investment.--Worker rights in
sectors with U.S. investment do not differ from those in other sectors
of the Jordanian economy.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 0
Total Manufacturing........................... 0
Food & Kindred Products..................... 0
Chemicals & Allied Products................. 0
Metals, Primary & Fabricated................ 0
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... 0
Wholesale Trade............................... 0
Banking....................................... \1\
Finance/Insurance/Real Estate................. \1\
Services...................................... 0
Other Industries.............................. 0
TOTAL ALL INDUSTRIES.......................... \1\
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
KUWAIT
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\........................... 26.6 31.0 32.0
Real GDP Growth (pct) \3\................. 1.2 4.0 11.0
GDP by Sector:
Manufacturing........................... 1.0 1.1 1.1
Services................................ 3.0 3.2 3.3
Government.............................. 6.4 6.5 6.7
Petroleum (Includes Refining)........... 12.4 15.9 16.4
Per Capita GDP............................ 5,712 17,689 17,667
Labor Force (000s)........................ 1,047 1,100 1,133
Unemployment Rate (pct)................... 1.4 1.4 1.5
Money and prices (annual percentage growth):
Money Supply Growth (M2).................. 9.4 -0.6 3.1
Consumer Price Inflation.................. 0.8 2.5 2.0
Exchange Rate (KD/US$ - annual average)
Official................................ 0.299 0.299 0.304
Balance of Payments and Trade:
Total Exports FOB......................... 12.6 14.7 14.8
Exports to U.S.\4\...................... 1.3 1.8 2.0
Total Imports CIF......................... 7.1 7.8 8.1
Imports from U.S.\4\.................... 1.4 2.0 1.7
Trade Balance............................. 5.5 6.9 7.1
Balance with U.S.\4\.................... -0.1 -.2 +.3
Current Account Surplus/GDP............... 17.2 21.9 21.5
External Public Debt \5\.................. 3.9 0.6 0.3
Debt Service Payments/GDP (pct)........... 8.8 10.6 0.9
Fiscal Deficit/GDP (pct) \6\.............. 7.3 N/A 13.1
Gold and Foreign Exchange Reserves........ 3.9 3.5 3.5
Aid from U.S.............................. 0 0 0
Aid from All Other Sources................ 0 0 0
------------------------------------------------------------------------
\1\ 1997 figures are Embassy projections based on data through September
1997.
\2\ GDP at factor cost
\3\ Percentage changes calculated in local currency
\4\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
FAS, imports customs basis; 1997 figures are estimates based on data
available through November 1997.
\5\ Based on Kuwait government figures as of June 30, 1997
\6\ Kuwait recorded a budget surplus of $1.3 billion in FY 96/97. U.S.
Embassy believes projected FY 97/98 budget deficit of $4.2 billion
will lower by at least half.
1. General Policy Framework
Kuwait is a politically stable state where rule of law prevails.
The press is largely free and commercial advertising is available.
Arabic is the official language but English is widely spoken. Kuwait
has a small and relatively open, oil-rich economy which has created an
affluent citizenry who benefit from a generous welfare state.
Kuwait still faces structural problems in its budget, primarily
excessive dependence on oil revenue, and growing government
expenditures due to the need for continued high defense spending and to
growing social expenditures resulting from high levels of government
employment and provision of heavily subsidized social services and
utilities. Primarily because of stronger oil revenues, Kuwait's budget
achieved a surplus in FY 96/97 and will achieve a near balance or
surplus for the FY 1997/98 if oil prices remain strong. Efforts to
privatize government entities remain stalled due to resistance in
Parliament and the general public because of fears of job loss and
higher prices for currently heavily subsidized public utilities.
Domestic investment is encouraged by provision of low cost land,
subsidized utilities and waivers of duties and fees. These are offset
by lengthy bureaucratic procedures, and for foreigners, high tax rates
and complex procedures to secure work visas. The Kuwait Central Bank
uses interest rates as its primary means to control money supply. This
is accomplished through adjustments to the discount rate and through
market operations of government securities. A lower budget deficit and
repayment of government obligations to domestic banks resulted in a
small reduction of money supply through June 30, 1996, but had grown by
three percent through June 30, 1997 money supply.
2. Exchange Rate Policy
There are no restrictions on current or capital account
transactions in Kuwait, beyond a requirement that all foreign exchange
purchases be made through a bank or licensed foreign exchange dealer.
Equity, loan capital, interest, dividends, profits, royalties, fees and
personal savings can all be transferred in or out of Kuwait without
hindrance.
The Kuwaiti dinar itself is freely convertible at an exchange rate
calculated daily on the basis of a basket of currencies which is
weighted to reflect Kuwait's trade and capital flows. Since the dollar
makes up over half of the basket, the Kuwaiti dinar has closely
followed the exchange rate fluctuations of the U.S. dollar over the
past year.
3. Structural Policies
Kuwait's government plays a dominant role in the local economy,
which may diminish if moves toward privatization and rationalization of
the economy are implemented. Kuwait's economy is heavily regulated,
which restricts participation and competition in a number of sectors
and strictly controls the roles of foreign capital and expatriate
labor. Policies favor Kuwaiti citizens and Kuwaiti-owned companies.
Income taxes, for instance, are only levied on foreign corporations and
foreign interests in Kuwaiti corporations, at maximum rates of 55
percent of taxable income. Individuals are not subject to income taxes,
but the Kuwait government is considering possible changes to its
current income tax structure.
Foreign investment is welcome in Kuwait for minority partnership in
select sectors. Foreign nationals are prohibited from having majority
ownership in virtually every business other than certain small service
oriented businesses and may not own property (excepting some other GCC
citizens). Non-GCC nationals are forbidden to trade in Kuwait stocks on
the Kuwait stock exchange except through the medium of unit trusts
(mutual funds). The government of Kuwait is reviewing current
legislation affecting foreign investment and it is thought the
recommendations from the study will allow increased foreign ownership
in Kuwaiti firms.
Government procurement policies specify local products, when
available, and prescribe a 10 percent price advantage for local
companies on government tenders. There is also a blanket agency
requirement for all foreign companies trading in Kuwait to either
engage a Kuwaiti agent or establish a Kuwaiti company with majority
Kuwaiti ownership and management.
4. Debt Management Policies
Prior to the Gulf War, Kuwait was a significant creditor to the
world economy, having amassed a foreign investment portfolio that was
variously valued at $80 to $100 billion. Current estimates of the value
of Kuwait's foreign assets, concentrated primarily in the Future
Generations Fund, range between $45 and $50 billion. Kuwait made the
final payment on its $5.5 billion jumbo loan in December 1996.
Scheduled debt service payments for 1997 total $282 million owed
primarily to foreign export credit agencies, including the U.S.
Eximbank.
5. Significant Barriers to U.S. Exports
There are no customs duties on food, agricultural items and
essential consumer goods. Imports of some machinery, most spare parts
and all raw materials are exempt from customs duties. Oil companies may
apply for tariff exemptions for drilling equipment and certain other
machinery, including that for new plants. Kuwait is a member of the
WTO.
On July 1, 1992, Kuwait began collecting a four percent tariff on
many imports. This flat rate is applied to the cost, insurance and
freight (CIF) value of imported goods. Where imports compete with
domestic ``infant industries,'' the Ministry of Commerce and Industry
may impose protective tariffs of up to 25 percent. In such cases,
tariff reviews and determinations are done on a case by case basis.
Kuwait, like other GCC member states, maintains restrictive
standards which impede the marketing of U.S. exports. For example,
shelf-life requirements for processed foods are often far shorter than
necessary to preserve freshness and result in U.S. goods being
uncompetitive with products shipped from countries closer to Kuwait.
Standards for many electrical products are based on those of the U.K.,
which restrict access of competitive U.S. products. Standards for
medical, telecommunications and computer equipment tend to lag behind
technological developments, with the result that Kuwait government
tenders often specify the purchase of obsolete, more costly items.
The Kuwait government views its offset program as a major vehicle
for motivating foreign investment in Kuwait. The U.S. government
opposes this type of program and has recommended that the government of
Kuwait carefully weigh all the potential costs to itself of an offset
program. Interested U.S. firms should familiarize themselves with the
terms of this program to ensure that the offset program does not become
an undue obstacle to their business.
In June 1993, Kuwait announced that it would no longer apply the
secondary boycott to firms that do business with Israel and the
tertiary boycott with firms that do business with firms subject to the
secondary boycott, but would continue to apply the primary boycott to
goods and services produced in Israel itself. Kuwait has also taken
steps to revise its commercial documentation to eliminate all direct
references to the boycott of Israel. U.S. firms still occasionally
receive requests for boycott-related information from private Kuwaiti
firms or uninformed Kuwaiti public officials. In such cases, U.S. firms
should advise the Embassy of the request, report the request as
required by law to the U.S. Department of Commerce, and take care to
comply with all other requirements of the U.S. anti boycott laws.
Kuwait, along with many other Middle East countries, has received three
one-year waivers of the 1996 ``Brown Amendment'' requirements. The
current waiver expires in May, 1998. The ``Brown Amendment'' prohibits
defense sales to those countries that have not eliminated all vestiges
of the enforcement of the secondary and tertiary boycott of Israel,
unless waived by the President.
For perishable imports arriving via air, land or sea, customs
clearance is prompt and takes about three hours. To complete clearance,
the importer presents its import license and quality test certificate.
Recurring perishable imports can be cleared and taken to the importer's
premises after a sample has been submitted to the municipality for
quality testing.
Usually, customs assesses duty on imported goods based on
commercial invoices. If the customs officials believe the declared
value unrealistic, they may make their own assessment.
Importers do not need a separate import license for each product or
each shipment. An importer does, however, need an annual import license
issued by the ministry of commerce and industry; to be eligible, the
company must be registered both in the commercial register at the
Ministry of Commerce and Industry, as well as at the Kuwait Chamber of
Commerce and Industry. Kuwaiti share holding in the capital of the
company must be at least 51 percent.
A special import license is required to import certain kinds of
goods, i.e., firearms, explosives, drugs and wild animals. Some drugs
require a special import license from the Ministry of Public Health.
Imports of firearms and explosives require a special import license
form the Ministry of Interior.
6. Export Subsidies Policies
Kuwait does not directly subsidize any of its exports, which
consist almost exclusively of crude oil, refined petroleum products,
fertilizer and other petrochemical products. Almost 98 percent of
Kuwait's food is imported. Small amounts of local vegetables are grown
by farmers receiving government subsidies, and small amounts of these
vegetables are sold to neighboring countries. However, not enough of
these vegetables are grown or sold to make any significant impact on
local or foreign agricultural markets. Periodically, Kuwait cracks down
on the re-export of subsidized imports such as food and medicine.
7. Protection of U.S. Intellectual Property
Kuwait has made progress toward improved Intellectual Property
Rights (IPR) protection; however, the level of protection remains
inadequate by international standards. In 1995, the Ministry of
Information issued ministerial decrees protecting U.S. and British-
origin audio and video products, and the Kuwait Institute for
Scientific Research hosted a regional conference of the World
Intellectual Property Organization (WIPO) on industrial property.
Kuwait's Parliament has approved Kuwaiti membership in WIPO, but
the GOK has yet to deposit its instrument of ratification with WIPO.
Draft legislation for a copyright law, which would extend copyright
terms, ease conditionality for protection and provide stiffer penalties
for violators, is expected to be submitted to Kuwait's Parliament soon.
It is reported to address shortcomings identified in previous versions
of the Draft Law.
Kuwait was ``watch listed'' in 1995 both for lack of progress in
passing copyright legislation and for its lack of patent coverage for
pharmaceuticals. It has not yet established a ``mailbox'' as required
under the WTO TRIPS accord. Currently, Kuwait's Patent Office serves
only as a registration center, with no means of enforcing patent
protection. Discussion has begun on amending Kuwait's existing patent
law, to establish a confirmation-based system to register new patents.
Computer software piracy, in particular, continues to be a problem.
Annual retail losses resulting from software piracy in Kuwait are
estimated by industry sources at $45-50 million.
8. Worker Rights
a. The Right of Association.--Both Kuwaiti and non-Kuwaiti workers
have the right to establish and join unions; latest figures indicate
50,000 workers are union members. The government restricts the free
establishment of trade unions: workers may establish only one union in
any occupational trade, and unions may establish only one federation.
New unions must have at least 100 members, 15 of whom must be Kuwaiti.
Expatriate workers, about 80 percent of the labor force, may join
unions after five years residence, but only as nonvoting members; in
practice, they can join after one year.
b. The Right to Organize and Bargain Collectively.--While unions
are legally independent organizations, 90 percent of their budgets
derive from government subsidies and the government oversees their
financial records. This extends to prescription of internal rules and
constitutions, including prohibition of involvement in domestic
political, religious or sectarian issues; unions nevertheless engage in
a wide range of activities. Unions can be dissolved by court ruling or
Amiri decree, although this has never happened; were this to happen,
union assets would revert to the Ministry of Social Affairs and Labor.
Kuwaiti citizen, but not foreign, union members have the right within
the union to vote and be elected. The law limits the right to strike;
all labor disputes must be referred to compulsory arbitration if labor
and management cannot reach a solution, and strikers are not guaranteed
immunity from state legal or administrative action against them.
Foreign workers, regardless of union status, may submit any grievance
to the Kuwait Trade Union Federation, which is authorized to
investigate their complaints and offer free legal advice. Most
grievances are related to non-payment of wages and/or non-compliance of
the employer with the labor contract.
c. Prohibition of Forced or Compulsory Labor.--The Constitution
prohibits forced labor ``except in the cases specified by law for
national emergencies and with just remuneration.'' Foreign nationals
must obtain a Kuwaiti sponsor to obtain a residence permit, and cannot
change employment without permission of the original sponsors. Domestic
servants, not protected by Kuwait's labor law, are vulnerable to abuses
of this rule. While a draft private sector labor law, currently under
review by the Council of Ministers, does not encompass domestic
workers, it would allow the Minister of Social Affairs and Labor
authority to regulate their conditions. Sponsors frequently hesitate to
grant permission to change employment because of the various expenses
they covered to bring the servants into the country, often ranging from
$700 to $1,000. ``Run away'' maids can be treated as criminals under
law for violations of their work and residence permits, especially if
they attempt to work for someone else without the required permits.
Sponsors often hold their servants' passports, a practice which the
government prohibits but enforcement is inconsistent. Credible reports
continue that foreign nationals employed as domestic servants have been
denied exit visas if they seek them without their employer's consent.
d. Minimum Age for Employment of Children.--Minimum legal age is 18
years for all forms of work, both full and part-time. Employers may
obtain permits from the ministry to employ juveniles between the ages
of 14 and 18 in certain trades, for a maximum of six hours per day, on
condition that they work no more than four consecutive hours followed
by a rest period of at least one hour. Compulsory education laws exist
for children between the ages of 6 and 15. These laws are not fully
observed in the nonindustrial sector, and there have been confirmed
reports of some South Asian and Filipino domestic servants under 18 who
falsified their age in order to enter Kuwait.
e. Acceptable Conditions of Work.--In the public sector, the 1996
minimum monthly wage was approximately $74 for Kuwaiti citizens and $15
for non-Kuwaitis; there is no private sector minimum wage. Labor law
sets general conditions of work for both public and private sectors,
with the oil industry treated separately. Civil Service law, which also
pertains to the public sector, limits the standard work week to 48
hours with one full day of rest per week, and provides for a minimum of
14 workdays of leave per year and a compensation schedule for
industrial accidents. The law also provides for employer-provided
medical care, periodic medical exams to workers exposed to
environmental hazards on the job, and compensation to workers disabled
by injury of disease due to job-related causes. Legal protections exist
for workers who file complaints about dangerous work situations. Laws
establishing work conditions are not always applied uniformly to
foreign workers and foreign laborers frequently face contractual
disputes, poor working conditions and, in some cases, physical abuse.
f. Rights in Sectors with U.S. Investment.--Two significant U.S.
investments in the oil industry, one in the partitioned neutral zone
shared by Kuwait and Saudi Arabia and the other in Kuwait proper,
operate under and in full compliance with the Kuwaiti labor law.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... \1\
Food & Kindred Products..................... 0
Chemicals & Allied Products................. \1\
Metals, Primary & Fabricated................ 0
Machinery, except Electrical................ \1\
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... 0
Wholesale Trade............................... 0
Banking....................................... 0
Finance/Insurance/Real Estate................. -1
Services...................................... \1\
Other Industries.............................. 3
TOTAL ALL INDUSTRIES.......................... 288
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
MOROCCO
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\........................... 32,535 36,929 37,000
Real GDP Growth (pct) \3\................. -7.6 12 -2.5
GDP by Sector:
Agriculture............................. 4,668 7,535 5,530
Manufacturing........................... 6,067 6,258 6,446
Services................................ 6,378 6,928 6,997
Government.............................. 4,393 4,528 4,709
Per Capita GDP (000s)..................... 1,223 1,284 1,280
Labor Force (urban 000s).................. 4,536 4,863 4,905
Unemployment Rate (pct)................... 16.0 16.0 16.0
Money and prices (annual percentage growth):
Money Supply Growth (M2).................... 7 6.6 6.0
Consumer Price Inflation.................... 6.1 3.0 2.5
Exchange Rate (DH/US$ - annual average)
Official................................ 8.51 8.69 9.60
Balance of Payments and Trade:
Total Exports FOB \4\..................... 4,729 4,758 5,599
Exports to U.S.\4\........................ 160 165 180
Total Imports CIF \4\..................... 8,563 8,276 8,773
Imports from U.S.\4\...................... 561 614 580
Trade Balance \4\......................... -3,834 -3,518 -3,174
Balance with U.S.\4\...................... -401 -449 -400
External Public Debt...................... 22,300 21,500 21,000
Fiscal Deficit/GDP (pct).................. 5.3 3.0 1.9
Current Account Deficit/GDP (pct)......... -4.8 -1.8 -2.0
Debt Service Payments/GDP (pct)........... 10.9 8.8 8.5
Gold and Foreign Exchange Reserves........ 4,011 4,179 4,300
Aid from U.S.............................. 43 40 40
Aid from all other sources................ 1,737 1,750 1,750
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available monthly data in
October 1997.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade.
1. General Policy Framework
Morocco boasts the largest phosphate reserves in the world, a
diverse agricultural (including fishing) sector, a large tourist
industry, a growing manufacturing sector (especially clothing), and
considerable inflows of funds from Moroccans working abroad. Most of
Morocco's trade is with Europe, France alone accounts for about a
quarter of Morocco's imports and a third of its exports. Morocco is a
member of the WTO.
The Moroccan government has pursued an economic reform program
since the early 1980s. It has restrained government spending, revised
the tax system, reformed the banking system, pursued appropriate
monetary policies, eased import restrictions, lowered tariffs, launched
a privatization program and liberalized the foreign exchange regime.
These reforms have helped restore macroeconomic equilibria: the current
account deficit, fiscal deficit and inflation rates are well below
their early 1980s levels. Economic growth has been modest, with wide
year-to-year fluctuations due largely to variations in rainfall.
The reform program continues to move forward although slowly and
unevenly. An anti-corruption campaign in early 1996 considerably slowed
customs clearances, and put a damper on some economic activity. The
privatization program has progressed slower than expected, but trading
privatized companies has given a huge boost to the Casablanca stock
exchange. The Moroccan government has embraced private financing,
construction and operation of some highways, a new Atlantic Ocean port
for Tangier and other large infrastructure projects, including a $1.5
billion electric power project awarded to a joint venture between an
American and a European firm.
GDP growth topped twelve percent in 1996 following heavy rains that
nourished a record harvest. Erratic rains in 1997 led to a 25 percent
drop in agriculture GDP. The economy as a whole is expected to contract
by 2.5 percent in 1997. Foreign exchange reserves have bounced back
after falling during the 1994-1995 drought. The government has recently
announced an easing of exchange controls for Moroccan tourists.
Morocco's chronic merchandise trade deficit narrowed slightly in 1996.
This trend has continued into 1997. Receipts from remittances, tourism
and foreign investment recovered in 1996, and have increased sharply in
1997, led by a significant increase in foreign investment.
2. Exchange Rate Policies
The Moroccan dirham is convertible for all current transactions (as
defined by the International Monetary Fund's Article VIII) as well as
for some capital transactions, notably capital repatriation by foreign
investors. Foreign exchange is routinely available through commercial
banks for such transactions on presentation of documents. Moroccan
companies may borrow abroad without prior government approval.
Investment abroad by Moroccan individuals or corporations is subject to
approval by the Foreign Exchange Board. Approval is routinely denied
for projects that do not directly benefit Morocco.
The Central Bank sets the exchange rate for the dirham against a
basket of currencies of its principal trading partners, particularly
the French franc and other European currencies. The rate against the
basket has remained steady since a nine percent devaluation in May
1990, with changes in the rates of individual currencies reflecting
changes in cross rates. The large weight given to European currencies
in the basket results in a greater volatility of the dollar than the
European currencies against the dirham. This increases the foreign
exchange risk of importing from the United States as compared to
importing from Europe.
3. Structural Policies
The 1992 Foreign Trade Law committed Morocco to the principles of
free trade, reversing the legal presumption of import protection. It
replaced quantitative restrictions with tariffs (both ad valorem and
variable) on the importation of politically sensitive items.
Interest rate policy has also changed in recent years. In 1994 the
Government revised the interest rate ceilings on bank loans. The new
ceiling is set as a three to four percent markup over the rate received
on deposits, including the below-market-rates on required deposits. The
effect of the change is to lower the interest rate ceilings, although
real rates remain high.
Morocco has a three-part tax structure consisting of a value added
tax, a corporate income tax, and an individual income tax. The new
investment code passed by the Parliament in October 1995 calls for
reductions in corporate and individual income taxes, and the reduction
of import duties and elimination of the value added tax on certain
capital goods and equipment. A plethora of minor taxes can
significantly raise the cost of certain imported goods.
4. Debt Management Policies
Morocco's foreign debt burden has declined steadily in recent
years. Foreign debt fell from 128 percent of GDP in 1985 to about 58
percent of GDP in 1996. Similarly, debt service payments before
rescheduling, as a share of goods and services exports, fell from over
58 percent in 1985 to about 32 percent in 1996. The Moroccan government
does not foresee the need for further Paris Club rescheduling, although
it is pursuing other forms of debt relief with major official
creditors.
5. Aid
Less than two percent of the aid listed in the economic indicators
section of the report is military assistance.
6. Significant Barriers to U.S. Exports and Investment
Import Licenses: Morocco has eliminated import licensing
requirements on a number of items in recent years. Licensing
requirements remain for motor vehicles, used clothing and explosives.
Tariffs: Tariffs have been gradually reduced in recent years. By
1993 the maximum tariff was 35 percent and the (trade-weighted) average
tariff was about 13 percent. Despite the downward trend, tariffs on
some products have increased as quantitative restrictions were replaced
with higher tariffs. For example, following the elimination of
licensing requirements, tariffs on dairy products, cereals, vegetable
oils and sugar have increased. There is also a 10 to 15 percent surtax
on imports of most goods.
Services Barriers: In November 1989 Parliament abrogated a 1973 law
requiring majority Moroccan ownership of firms in a wide range of
industries, thus eliminating what had been a barrier to U.S. investment
in Morocco. In 1993 the Moroccan government repealed a 1974 decree
limiting foreign ownership in the petroleum refining and distribution
sector, which allowed Mobil Oil to buy back the Moroccan government's
50 percent share of Mobil's Moroccan subsidiary in 1994.
Standards, Testing, Labeling and Certification: Morocco applies
approximately 500 industrial standards based on international norms.
These apply primarily to packaging, metallurgy and construction.
Sanitary regulations apply to virtually all food imports. Meat should
be slaughtered according to Islamic law.
Investment Barriers: The Moroccan government actively encourages
foreign investment. The Parliament passed a new investment code in 1995
which applies equally to foreign and Moroccan investors, except for the
foreign exchange provisions which favor foreign investors. Unlike the
previous sectoral investment codes, the advantages offered under the
new code are to be granted automatically. There are no foreign investor
performance requirements, although the new code provides income tax
breaks for investments in certain regions, and in crafts and export
industries.
Government Procurement Practices: While Moroccan government
procurement regulations allow for preferences for Moroccan bidders, the
effect of the preference on U.S. companies is limited. Virtually all of
the government procurement contracts that interest U.S. companies are
large projects for which the competition is non-Moroccan (mainly
European) companies. Many of these projects are financed by
multilateral development banks which impose their own nondiscriminatory
procurement regulations. U.S. companies sometimes have difficulty with
the requirement that bids for government procurement be in French.
Customs Procedures: In principle, customs procedures are simple and
straightforward, but in practice they are sometimes marked by delays. A
commercial invoice is required, but no special invoice form is
necessary. Certification as to country of origin of the goods is
required.
7. Export Subsidies Policies
There are no direct export subsidies, although the 1995 investment
code provides a five-year corporate income tax holiday for export
industries. Morocco has a temporary admission scheme which allows for
suspension of duties and licensing requirements on imported inputs for
export production. This scheme includes indirect exporters (local
suppliers to exporters). In addition, a ``prior export'' program
exists, whereby exporters can claim a refund on duties paid on imports
which were subsequently transformed and exported. Morocco is not a
signatory of the GATT Subsidies Code.
8. Protection of U.S. Intellectual Property
Morocco is a member of the World Intellectual Property Organization
and is a party to the Bern Copyright, Paris Industrial Property, and
Universal Copyright Conventions, the Brussels Satellite Convention, and
the Madrid, Nice, and the Hague agreements for the protection of
intellectual property.
Copyright: Computer software is not specifically covered by
Morocco's copyright law and violations of software copyrights are
widespread. Moroccan officials have announced the imminent introduction
of legislation to offer protection for computer software.
Patents: Morocco has a relatively complete regulatory and
legislative system for the protection of intellectual property. A quirk
dating from the era of the French and Spanish protectorates requires
patent applications for industrial property to be filed in both
Casablanca and Tangier for complete protection. The proposed 1996
industrial property code will amend this provision and require that
applications be filed only in Casablanca.
Trademarks: Counterfeiting of clothing, luggage, and other consumer
goods is not uncommon; however, anticounterfeiting has been
increasingly enforced. Counterfeiting is primarily for local sales
rather than for export. Trademarks must be filed in both Casablanca and
Tangier, though this too will be amended in the new law.
9. Workers Rights
a. The Right of Association.--Workers are free to form and join
unions throughout the country. The right is exercised widely but not
universally. About ten percent of Morocco's 4.9 million urban workers
is unionized, mostly in the public sector. The selection of union
officers and the carrying out of their duties are subject to government
pressure. More narrowly focused strikes continue to occur, although
strikers have encountered police harassment and arrest. Work stoppages
are normally intended to advertise grievances and last 24-48 hours.
b. The Right to Organize and Bargain Collectively.--While the
protection of the right to organize and bargain collectively exists in
the Constitution and labor law, the government does not always enforce
the protections fully. The laws governing collective bargaining are
inadequate. Collective bargaining has been a long standing tradition in
some parts of the economy, but the practice is not spreading. A 1996
social dialogue between labor, government and management resulted in an
agreement for a 10 percent pay raise, increased money for housing
construction and an understanding to continue such tri-partite
discussions. Some of the provisions of this agreement have yet to be
implemented, and there remains some dissatisfaction among workers.
The multiplicity of trade union federations creates competition to
organize workers. As a result, a single factory may contain several
independent locals. However, this also tends to weaken the unions'
negotiating position with management. Labor laws are observed most
often in the corporate and parastatal sectors of the economy. In the
informal economy, labor regulations are routinely ignored. As a
practical matter, the unions in Morocco have no judicial recourse to
oblige the Government to act when it has not met its obligations under
the law.
c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory
labor is prohibited in Morocco.
d. Minimum Age for Employment of Children.--The law prohibits the
employment or apprenticeship of any child under 12 years of age.
Special regulations cover the employment of children between the ages
of 12 and 16. In practice, however, children are often apprenticed
before age 12, particularly in the handicraft industry. The use of
minors is common in the rug-making, textile, and tanning industries.
Children are also employed informally as domestics and usually receive
little or no wages. Child labor laws are generally well-observed in the
industrialized, unionized sector of the economy.
e. Acceptable Conditions of Work.--The minimum wage is about $165 a
month and is not considered adequate to provide a decent standard of
living for a worker and his or her family. The minimum wage is not
enforced effectively in the informal sector of the economy. It is
enforced fairly effectively throughout the industrialized, unionized
sectors where most workers earn more than the minimum wage. They are
generally paid between 13 and 16 months salary, including bonuses, each
year.
The law provides for a 48-hour maximum work week with not more than
10 hours any single day, premium pay for overtime, paid public and
annual holidays, and minimum conditions for health and safety,
including the prohibition of night work for women and minors. As with
other regulations and laws, these are not universally observed in the
informal sector.
f. Rights in Sections with U.S. Investment.--Worker rights in
sectors with U.S. investment do not differ from those described above,
all of which is in the formal, industrial sector of the Moroccan
economy.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 92
Food & Kindred Products..................... 37
Chemicals & Allied Products................. 22
Metals, Primary & Fabricated................ \1\
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... \1\
Wholesale Trade............................... 0
Banking....................................... \1\
Finance/Insurance/Real Estate................. 0
Services...................................... 0
Other Industries.............................. 0
TOTAL ALL INDUSTRIES.......................... 122
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
OMAN
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \1\............................... 13.8 15.3 16.0
Real GDP Growth (pct)......................... 4.8 4.2 4.7
GDP by Sector:
Agriculture & Fisheries................... 0.4 0.4 0.4
Petroleum................................. 5.2 6.4 6.4
Manufacturing............................. 0.6 0.6 0.3
Services \2\.............................. 7.2 7.6 6.0
Government Services....................... 1.8 1.8 1.9
Per capita GDP (US$)........................ 6,405 6,526 6,477
Labor Force (000s).......................... 747.7 780.5 780.5
Unemployment Rate (pct)..................... N/A N/A N/A
Money and prices (annual percentage growth)::
Money Supply Growth (M2 Jan-Aug).......... 7.7 9.6 18.1
Consumer Price Inflation \3\.............. -1.3 0.2 0.0
Exchange Rate (Omani Rial/US$).............. 2.6 2.6 2.6
Balance of Payments and Trade:
Total Exports (FOB)........................... 6.1 7.3 7.6
Exports to U.S. (US$ mlns) \4\............ 320.7 447.4 251.8
Total Imports (CIF)......................... 4.4 4.6 4.8
Imports from U.S. (US$ mlns) \4\.......... 215.3 201.9 274.6
Trade Balance............................... 1.7 2.7 2.8
Balance with US$ mlns) \4\................ 1,054 245.5 -22.8
External Public Debt........................ 3.1 2.9 3.0
Fiscal Deficit/GDP (pct).................... 9.0 4.5 N/A
Current Account Deficit/GDP (pct)........... 5.1 0.7 N/A
Debt Service Payments/GDP (pct)............. 2.2 2.1 2.0
Gold and Foreign Exchange Reserves \5\...... 1.9 2.0 2.3
Aid from U.S. (US$ mlns) \6\................ 0.1 0.1 0.2
Aid from other sources...................... N/A N/A N/A
------------------------------------------------------------------------
\1\ All 1996 GDP data is provisional. 1997 estimates are annualized
based on Jan.-June data: petroleum activities are doubled for 1997
estimate, other sectors are annualized based on comparable Jan.-June
1996 percentage of annual sector product.; balance of payments and
trade table, public finance, and CPI are annualized based on data
through Sept. 1997.
\2\ Health and Education are included in Services although mostly
government-provided. Government services shown are current (not
capital) expenditures for public administration and defense.
\3\ Muscat Governate CPI.
\4\ 1997 data is through Sept. 30. The trade balance with the U.S. does
not include Omani oil purchased by the U.S. on the spot market. Trade
data does not necessarily include all U.S. exports subsequently
reexported to Oman from Dubai, U.A.E., primary entrance point for most
U.S. goods to the southern Gulf.
\5\ Data represents Central Bank assets. 1997 datum is June 30 balance.
The State General Reserve Fund does not publish its holdings.
\6\ Aid: U.S. military assistance is International Military Education
and Training (IMET) funding. Data is not available on the value of
Japanese technical assistance provided Oman.
Sources: Annual Report 1996, and the June 1997 Quarterly Statistical
Bulletin, Central Bank of Oman; Statistical Year Book, 1996 and
``Monthly Statistical Bulletin'' (Oct. 31, 1997), Ministry of
Development. Bilateral trade date is from U.S. Department of Commerce,
Nov. 1997. N/A indicates not available.
1. General Policy Framework
The Sultanate of Oman is a nation of 2.5 million people (including
as many as 750,000 expatriates) living in the arid mountains and desert
plain of the southeastern Arabian Peninsula. Oman is a small oil
producer. Oman exported an average of 894 thousand barrels of oil
daily--93 percent of its output--in the first three quarters of 1997 at
an average price of $18.81/barrel. Oil revenue accounts up to 78
percent of government revenues. As an artifact of rising oil prices,
Oman's per capita GDP rose from about $6,400 in 1995 to $6,525 in 1996
(including expatriates in the population). A significant proportion of
its rural population lives in poverty. An annual population growth of
no less than 3.7 percent for Omani nationals surpassesgrowth in non-
petroleum domestic production and presents ever greater demand on
infrastructure. The Sultanate seeks to lessen its dependence on oil
export revenues by diversifying, primarily to natural gas-based
industry.
The Omani government links developmental priorities and budgetary
plans in five year planning exercises. Oman's Fifth Five Year Plan,
1996-2000, laid out a program designed to shift economic development
from governmental to private initiative; diversify national economy
from dependence on crude oil revenue, primarily through future natural
gas sales andlight industry; and educate a productive national work
force for private employment. Aiming at a zero deficit by the year
2000, stringent annual budgets were planned on the basis of revenue
from $15 per barrel petroleum. In 1995, the government financed a $1.25
billion fiscal shortfall as usual by drawing down on reserves and
issuing development bonds, which had been first sold in August 1991.
The government trimmed the 1996 deficit to $684.6 million, and showed a
surplus on Sept. 30, 1997. While the Government considered cost
trimming measures, including gradual implementation of user fees and
privatization of certain government utilities, Omanis continued to
enjoy free medical care and free education through post-secondary
school vocational or higher education.
Among major public expenditure categories in 1996, defense and
security accounted for 34 percent of current expenditures (military
capital expenditures are not published), and current and capital
expenditures for Petroleum Development Oman (PDO) accounted for 13.5
percent of current expenditures.
Oman's economy is too small to require a complicated monetary
policy. The Central Bank of Oman directly regulates the flow of
currency into the economy. The most important instruments which the
bank uses are reserve requirements, loan to deposit ratios, treasury
bills, rediscount policies, currency swaps and interest rate ceilings
on deposits and loans. Such tools are used to regulate the commercial
banks, provide foreign exchange and raise revenue, not as a means to
control the money supply. The large amounts of money repatriated from
Oman by foreign workers and by foreign companies in Oman help ease
monetary pressures. Outward workers remittances increased 11 percent in
1996, for 11 percent of GDP.
2. Exchange Rate Policies
The rial has been pegged to the U.S. dollar since 1973. Since a
10.2 percent devaluation in 1986, it has remained steady at about $2.60
to 1 rial.
3. Structural Policies
Oman operates a free market economy, but the government is at
present the most important economic actor, both in terms of employment
and as a purchaser of goods and services. Contracts to provide goods
and services to the government, including the two largest purchasers,
Petroleum Development Oman and the Defense Ministry, are on the basis
of tenders overseen by a Tender Board. Oman promotes private investment
through a variety of soft loans (currently through the Ministry of
Commerce and Industry and, for projects under 250,000 R.O., the Oman
Development Bank, reorganized in 1997), tax incentives, modest
procurement preferences, and subsidies, mostly to industrial and
agricultural ventures. The government grants five year tax holidays to
newly-established industries or expansion projects; a one time renewal
is possible. Oman has fairly rigorous health, safety and environmental
standards, and is attempting to upgrade its enforcement capabilities.
Oman revised its corporate tax structure in October 1996 to
encourage foreign investment in joint ventures. It extended national
treatment to certain joint ventures; i.e., the 7.5 percent maximum rate
of corporate income tax applicable to wholly Omani-owned firms now also
applies to public joint venture companies (SAOG) with no more than 49
percent direct foreign ownership and at least 40 percent of shares
publicly traded on the Muscat Securities Market. A graduated system of
taxes, with a new ceiling reduced to a 30 percent rate, applies to
Omani/foreign joint venture companies with up to 90 percent direct
foreign ownership. The tax rate for foreign petroleum companies is set
in concession agreements. Most import duties are at the five percent
level, none for essentials, higher for some few protected local
products. There are no personal income taxes or property taxes.
Employers pay 7 percent of a foreign workers basic salary to a
vocational training fund for Omanis, and 8 percent of an Omanis basic
salary to a social security fund. The government imposes substantial
fees for labor cards and companies are liable for fines if they do not
reach government-specified levels of `Omanization' by the end of target
deadlines.
With a 90 MW power project near Nizwa, the Sultanate became the
first Gulf Arab nation to turn exclusively to the private sector to
finance, build and operate a utility, with title reverting to the
government after 20 years. Although Sultan Qaboos has proclaimed 1998
to be the ``Year of Private Enterprise,'' the government may back away
from plans for further privatization of electricity and instead opt for
expansion of existing facilities or contracting for new facilities and,
separately, for operations. It pushed back due dates several times on
the rebidding of the redrawn Salalah Power Project, with bids currently
due in March 1998. However, the government delayed approving other
electrical utility projects in 1996 and 1997 as it tried to retool its
approach to privatization to avoid subsidizing rates. The government
has joined with Sea-Land Services (U.S.), Maersk Lines (Denmark), and
Omani investors as partners in readying Salalah's Port Raysut to be the
major container transshipment port for the Indian Ocean Rim area, with
operations commencing in late 1998. Five years after the discovery of
natural gas reserves, a mixed enterprise with majority Government
holding, Oman Liquefied Natural Gas, concluded all agreements allowing
construction start up on a 6.6 million ton/year LNG plant in Sur.
Deliveries on two long-term contracts totaling 4.7 million tons are to
start in 2000; other purchasers are being sought. Financing on the
downstream plant is on a limited recourse basis, with upstream
facilities and a 360 km pipeline financed through the corporate
developers, principally Royal Dutch Shell. A fertilizer plant is among
the spin-off industries expected to cluster around the LNG plant.
Governmental allocation of gas in October 1996 has also advanced
private sector developers' proposals to establish a major aluminum
smelter complex and a $900 million polyethylene plant at Sohar. Oman's
modern, state-owned General Telecommunications Organization (GTO) will
upgrade its fiber-optic backbone expansion to include Salalah. Customer
demand exceeding GTO's expectations greeted its introduction of GSM
service in late 1996 and Internet service in early 1997. GTO may open
itself or various services to mixed ownership. For 1997 and beyond,
Oman is reviewing port and other transportation requirements associated
with industries planned for Sur and Sohar, examining many coastal and
inland sites for potential tourist facilities, undertaking technical
and business management training, studying water and waste water
requirements, and addressing arid land agriculture and fisheries
management. Oman has not tapped major coal deposits inland from Sur.
4. Debt Management Policies
Oman's sovereign debt is estimated at $3 billion. The debt is
easily managed and is owed to a consortium of international banks. Oman
has a reputation for solid credit worthiness. There are no
International Monetary Fund or World Bank adjustment programs. The
Omani government gives little publicity to the occasional modest
foreign aid that it donates. Sultan Qaboos also makes occasional
personal donations to Arab causes, Muslim institutions, or worthy
foreign organizations. Although Oman does not publish figures on the
level of its external debt or its fund to meet future contingencies,
the State General Reserve Fund, it is known that this fund was drawn
down and development bonds issued starting in 1991. Robust crude oil
prices and fiscal restraint late in 1995 through 1997 reduced the
fiscal deficit and enabled some replenishment of the SGRF.
5. Significant Barriers to U.S. Exports
A license is required for all imports. Special licenses are
required to import pharmaceutical, liquor and defense equipment. Some
foreign suppliers have previously complained that exclusive agency
agreements are difficult to break. In September 1996, Oman amended its
agency law to allow non-exclusive representational agreements. Although
currently not a member of the WTO, in 1996 Oman decided to apply for
accession.
Service barriers consist of simple prohibitions on entering the
market. For example, entry by new foreign firms in the areas of
banking, accountancy, law and insurance is not permitted (except as
contracted for specialized services required by the government),
although joint ventures for professional services are encouraged
between Omanis and foreign firms. The Central Bank seeks the
strengthening and further consolidation of existing banks. It has
placed limits on the percentage of the consumer loan portfolio and is
pressing for the BIS 12percent capital adequacy standard. Citibank has
a wholly-owned branch in Muscat. Major U.S. engineering and accounting
firms are well represented. Omani firms appear quite open to an
affiliation with U.S. firms. No major U.S. legal firm has as yet
entered into a partnership with an Omani firm.
Tax policy discourages wholly foreign-owned firms. Oman attempts to
attract foreign firms and investors to participate in joint ventures
with Omani majority ownership. It has a case-by-case approach towards
major projects by wholly or largely foreign owned firms. For very large
strategic projects, Oman may offer foreign investors control
commensurate with their investment and risk. The Oman Centre for
Investment Promotion and Export Development (OCIPED) opened early in
1997 to simplify and expedite investment project realization.
Oman uses a mix of standards and specifications systems. Generally,
GCC standards are adopted and used. However, because of the long
history of trade relations with the U.K., British standards have also
been adopted for many items, including electrical specifications. Oman
is a member of the International Standards Organization and applies
standards recommended by that organization. U.S. exporters sometimes
run afoul of dual language labeling requirements or, because of long
shipping periods, have trouble complying with shelf-life requirements.
U.S. export brokers and Omani trading firms are prone to trade
difficulties when deliveries are not made within demanding government
tender delivery dates.
Despite requirements to ``Omanize'' the work force, the private
sector depends on an increasing number of expatriates for managerial,
technical, and physical labor.
Oman continues to promote ``Buy Oman'' laws; this is a slow process
as very few locally made goods meeting international standards are
available. The Tender Board evaluates the bids of Omani companies for
products and services at 10 percent less than the actual bid price, but
goods and services bid by Omani agents are said to receive the same
national preference. Because of short lead times on open tenders, it is
often difficult to notify U.S. firms of trade and investment
possibilities, and thereafter difficult for those firms to obtain a
local agent and prepare tender documents. Foreign firms seeking to
compete for open and unpublished tenders find it advantageous to
develop relationships with local firms.
Oman's customs procedures are complex. There are complaints of
sudden changes in the enforcement of regulations. Until superior
officers can be contacted, an occasional customs officer can cause
temporary delays and confusion by insisting that documentation or
shipments comply with suspended boycott regulations. As part of
``Omanization,'' as of late 1996 only Omani nationals are permitted to
clear shipments. Processing of shipments at Omani ports and airports
can add significantly to the amount of time that it takes to get goods
to the market or inputs to a project. Overland shipments from the
U.A.E. seldom encounter problems.
In 1995 Oman substantially eased visa requirements by offering two
year multiple entry visas to attract American tourists and business
representatives, and since late 1996 has tried to issue visas
expeditiously. In general, these visas are only issued at Oman's
Washington embassy, and are not offered to U.S. citizen business
applicants residing outside the United States. Visa denials are not
unusual for unaccompanied women tourists and young adult males. In late
1996, the Royal Oman Police reduced non-resident stays from two months
to one month per entry, thereby hampering business visits of longer
duration by U.S. and by non-U.S. citizens employees of U.S. firms.
These visas can only be extended outside Oman, so visitors whose
activities keep them here longer than a month face the added expense of
a trip, usually to Dubai, for a visa renewal.
Finally, despite various rate reductions, the costs of
international calls from the Sultanate remain exceedingly high by world
standards: $2.60 per minute to most non-GCC countries. International
access cards are not allowed.
6. Export Subsidies Policies
Oman's policies on development of light industry, fisheries, and
agriculture aim to make those sectors competitive internationally.
Investors in these three sectors receive a full range of tax
exemptions, utility discounts, soft loans and, in some cases, tariff
protection. The government has also set up an export guarantee program
which both subsidizes the cost of export loans and offers a discounted
factoring service.
7. Protection of U.S. Intellectual Property
Oman has a trademark law it enforces. It does not, however, protect
well-known marks unless they are registered in Oman. Application for
trademark protection also requires a local agent. Oman failed in 1997
to enforce a copyright decree issued in mid-1996. Oman joined the World
Intellectual Property Organization (WIPO), but it has not acceded to
the Paris Convention (on patents and related industrial property), the
Berne Convention (on copyrights) or any of the other substantive
intellectual property conventions administered by WIPO.
There is now express copyright protection for U.S. or other foreign
works in Oman. Audio and video cassette retailers have been selling
pirated copies, mostly imported, alongside some legitimate imports.
Although some government offices and major users--including government
offices, the university, and consumers--acquire pirated software. There
is a similar problem with pirated Cds. While Oman's internal market is
too small to attract major producers of pirated products, Oman risks
attracting pirate producers seeking a back door into U.A.E. markets.
Oman affords little or no patent protection in critical areas such
as pharmaceutical products. Oman has said it would recognize patents
issued by the GCC patent office, but that offer will be of little value
until the GCC patent office is up and running effectively.
8. Worker Rights
Sultan Qaboos issued a Basic Law November 6, 1996 that serves as
Oman's first written basic framework, akin to a constitution but
consistent with Islamic Sharia law. The Sultanate will issue
legislation implementing the Basic Law's provisions within two years of
its issuance. It is unclear whether or how any of the expected
implementing measures will affect worker rights.
a. The Right of Association.--Articles 33 and 34 of the Basic Law
allow the right to assemble and freedom of association when consistent
with legal limitations and objectives. Currently, Omanis and resident
foreigners alike are free to join only the relatively few officially
sanctioned associations.
b. The Right to Organize and Bargain Collectively.--Since 1994, the
Sultanate has indicated that it is reviewing a new labor law drafted by
the Ministry of Social Affairs and Labor. Sultanate officials have
characterized its provisions as consistent with international labor
standards. It will reportedly contain a provision for the establishment
of worker committees in the work place and remove the current
prohibition against strikes. Oman is a member of the International
Labor Organization.
c. Prohibition of Forced or Compulsory Labor.--Compulsory or forced
labor is illegal. That said, foreign workers are typically unaware of
their right to take disputes over contract enforcement to the Labor
Welfare Board or are afraid that questions regarding their employment
status will result in deportation.
d. Minimum Age for Employment of Children.--The Ministry of Social
Affairs and Labor enforces 13 as the minimum employment age. Employers
require the Ministry's approval to engage children between 13 and 16
years of age in overtime, night, weekend or holiday, or strenuous work.
Nonetheless, small family businesses in practice may employ underage
children, particularly in the agricultural and fisheries sectors.
e. Acceptable Conditions of Work.--The minimum wage for
nonprofessional workers is about $156 month, less any charges by Omani
sponsors for the workers' visas, but does not cover domestic workers,
farm hands, government employees, and workers in small businesses.
Omani nationals tend to be well protected. Most employed Omanis work
for the government, with a 35 hour work week and generous leave of from
42-60 days annually plus 9 days emergency leave and Omani holidays.
Skilled foreign workers predominate in private sector employment and
enjoy regionally competitive wages and benefits. Whether covered by the
law or not, many unskilled foreign workers work for less than the
minimum wage and for hours exceeding the 40-45 hour private sector work
week. The temperature during Omans hot summer has never been officially
recorded at the 50 degree C. mark which, adhering to an International
Labor Organization standard, would mandate the stoppage of outside
labor. Non-Moslem workers are expected to respect the Ramadan month of
daytime fasting by not publicly drinking or eating. Foreign workers
find Oman very attractive for its employment opportunities and general
living conditions.
f. Rights in Sectors with U.S. Investment.--To date, U.S. firms
have little direct investment in Oman. The one U.S. petroleum firm with
significant in-country activities in 1997 is favorably known for its
relations with its employees while complying fully with provisions of
Omani law.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 0
Food & Kindred Products..................... 0
Chemicals & Allied Products................. 0
Metals, Primary & Fabricated................ 0
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... 0
Wholesale Trade............................... 0
Banking....................................... \1\
Finance/Insurance/Real Estate................. 4
Services...................................... \1\
Other Industries.............................. 0
TOTAL ALL INDUSTRIES.......................... 191
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
SAUDI ARABIA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\............................. 128.7 136.0 140.0
Real GDP Growth (pct) \3\................... 0.0 2.0 3.0
GDP By Sector:
Agriculture............................... 6.7 N/A N/A
Manufacturing (Incl. Oil)................. N/A N/A N/A
Services.................................. N/A N/A N/A
Government................................ N/A N/A N/A
Per Capita Gdp (US$)........................ 6,700 6,900 7,000
Labor Force (millions)...................... 5.3 5.4 5.6
Unemployment Rate (pct)..................... N/A N/A N/A
Money and Prices (annual percentage growth):
Money Supply Growth (M2).................... 5.6 9.8 N/A
Consumer Price Inflation.................... 5.0 1.5 N/A
Exchange Rate (Sr/US$ - annual average)
Official.................................. 3.75 3.75 3.75
Balance of Payments and Trade:
Total Exports FOB \4\....................... 50.0 56.7 N/A
Exports to U.S.\5\........................ 7.7 8.9 9.4
Total Imports CIF \4\....................... 25.6 25.4 N/A
Imports from U.S.\5\...................... 6.0 6.1 7.3
Trade Balance \5\........................... 24.4 31.3 N/A
Balance with U.S.\5\...................... 1.7 2.0 1.2
Current Account Deficit/GDP (pct)........... 6.2 0 0
External Public Debt........................ 0 0 4.3
Debt Service Payments/GDP (pct)............. N/A N/A N/A
Fiscal Deficit/GDP (pct).................... 3.9 3.3 N/A
Gold And Foreign Exchange Reserves.......... 13.5 11.9 13.7
Aid From U.S................................ 0 0 0
Aid From All Other Sources.................. 0 0 0
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available data in October
1997.
\2\ GDP at factor cost
\3\ Percentage change calculated in local currency
\4\ Merchandise Trade
\5\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
FAS, imports customs basis; 1997 figures are estimates based on data
available through November 1997.
1. General Policy Framework
Saudi Arabia prides itself on being a free market economy.
Government policies tend to encourage commercial enterprise, but a
strict interpretation of Islamic mores limits the range of policy
options as well as that of commercial endeavors. Since about 1970,
Saudi Arabia has published a series of five-year development plans,
focusing on infrastructure and industrialization. Development plans,
however, are presented as planning tools, not as centralized controls,
and the government takes pains to exhort that its development plans
rely on heavy private sector involvement.
The oil and government sectors are the engines of the economy.
Parastatal enterprises (e.g., Saudi Aramco, Saudi Basic Industries
Corporation (SABIC), Saudi Arabian Airlines (SAUDIA)) tend to dominate
the corporate economy, and spending decisions taken by these few large
companies reverberate throughout the economy. Concerned with the
security challenges posed by neighbors such as Iran and Iraq, Saudi
Arabia seeks sufficient military and security resources to protect its
territory and the pilgrims who visit the two Islamic holy cities of
Mecca and Medina. These requirements have made the kingdom a large
buyer of advanced military technology, as manpower resources are
limited.
In 1996, oil sector revenues comprised an estimated 40% of GDP, and
an estimated 75% of budget revenues. Other government revenues,
including items such as customs duties, investment income, and fees for
services, are to a large degree indirectly tied to oil, as capital
available for consumption and investment is generally derived from oil
receipts. In addition, the manufacturing and services sectors are
largely dependent on petroleum and petrochemical activities.
Starting with the oil boom of the early 1970s, Saudi Arabia
maintained annual budget surpluses until 1983, when the decline in oil
prices led to the first budget deficit. These deficits have continued
for the past 14 years. Initially, the deficits were financed by a draw
down of foreign exchange reserves. Starting in 1987, the government
began financing deficits by issuing government bonds, and taking loans
from domestic banks. The government has also accrued substantial
arrearages to the private sector over the past decade, though these
were paid down substantially in 1996 with unanticipated oil revenues.
After this run of budget deficits, Saudi Arabia experienced an
increase in oil revenues in 1996. Spending in 1996 exceeded the budget
by $12 billion, but because of high oil revenues, the government
achieved its deficit target of 4.5 billion. Oil revenues appear higher
than anticipated for 1997 as well.
Money supply is regulated through the Saudi Arabian Monetary Agency
(SAMA), which has statutory authority to set monetary reserve
requirements for Saudi Arabian banks, impose limits on their total loan
portfolio, and regulate the minimum ratio of domestic assets to their
total assets. It also manages the bond market, and can repurchase
development bonds and treasury bills on a modest scale to provide
liquidity. SAMA oversees a financial sector consisting of eleven
commercial banks. The Ministry of Finance oversees five specialized
credit banking institutions.
2. Exchange Rate Policy
The exchange rate for the Saudi Arabian riyal (sr) is sr 3.75 =
$1.00. This rate has been consistent since 1986. Officially, the riyal
is pegged to the IMF's special drawing rights (SDR) at sr 4.28255 = sdr
1. There are no taxes on the purchase or sale of foreign exchange.
Generally speaking, there are few foreign exchange controls for
either residents or nonresidents, in keeping with the government policy
to encourage an open economy of the few restrictions, the most
noteworthy are: Commercial transactions with Israel and Israeli-
registered corporations are prohibited, as are transactions with Iraq;
local banks are prohibited from inviting foreign banks to participate
in riyal-dominated transactions without prior SAMA approval; gold is
freely traded, held, and shipped, except that gold of 14 karats or less
is prohibited.
3. Structural Policies
The government maintains price controls for basic utilities,
energy, and many agricultural products. Water and electricity, for most
consumers, are believed to be subsidized, with consumer prices often
below the cost of production (especially for potable water). Petroleum
products and feed stocks for petrochemical industries are provided at
below world pricing, reflecting discounts for efficiencies in
production and transport. The government maintains that local petroleum
prices that are below world average (e.g., a gallon of gasoline sells
for $.67 at the pump) reflect the low costs of production. Nonetheless,
the effect of these low prices is that petroleum products, including
many petrochemicals, are sold in Saudi Arabia at prices that
effectively eliminate competing imports. Agricultural subsidies were
dramatically curtailed in the early 1990's and have been reduced in the
two most recent budgets, in line with the government's deficit
reduction plans.
The Saudi Arabian Government imposes few taxes, relying on oil
revenues, customs duties, and licensing fees for most government
revenue. Saudi Arabian nationals pay no income tax, but are obliged to
pay ``zakat,'' a 2.5% Islamic assessment based on wealth (not income).
Zakat is designed to support the Islamic community (e.g., to pay for
hospitals, schools, support for the indigent). Foreign companies and
self-employed foreigners pay an income tax, but do not pay zakat.
Business income tax rates range from 25% on profits of less than
$26,667 to a maximum rate of 45% for profits of more than $266,667.
Some foreign investors avoid taxation either in part or totally, by
taking advantage of various investment incentives, such as 10-year tax
holidays for investments in approved projects meeting specified
requirements. Import tariffs range around 12% ad valorem (CIF), with
the exception of products imported from other member states of the Gulf
Cooperation Council, which pay no tariff. Certain specified essential
commodities (e.g., defense purchases) are not subject to custom duties.
Saudi Arabia also levies a maximum 20% tariff on products that compete
with local ``infant'' industries.
4. Debt Management Policies
Saudi Arabia is a net creditor in world financial markets. SAMA
manages a portfolio of foreign investments of over $50 billion in its
issues and banking departments, and an estimated $15 billion for
autonomous government institutions, i.e., the Saudi Pension Fund, the
Saudi Fund for Development, and the General Organization for Social
Insurance. Under SAMA's definitions, about $10-15 billion of the $50
billion investment portfolio is available, with the remainder
designated to guarantee the Saudi riyal or letters of credit. In
addition to overseas assets managed by SAMA, the commercial banking
system has an estimated net foreign asset position of $14.0 billion.
Foreign debt, which stood at a level of $1.8 billion at the
beginning of 1995, was retired in May of that year. The government of
Saudi Arabia borrowed $4.3 billion in December 1997 to finance the
purchase of aircraft. Domestic banks, Saudi Aramco, and other state-
owned enterprises, however, have overseas liabilities.
Government borrowing has a short history in Saudi Arabia. The
government began borrowing to finance budget deficits in 1987, by
selling government development bonds having two-to-five year
maturities. After the massive defense expenditures of the 1991 Gulf
War, the government expanded its borrowing by signing loan syndications
with international and domestic banks, and by introducing treasury
bills. This debt, owed mainly to domestic creditors, such as autonomous
government institutions, commercial banks, and individuals, ballooned
to about $100 billion in early 1997. In addition, the government issued
a series of bonds to farmers and some other private sector creditors
(mainly contractors) for past due amounts. Paying down this debt is now
a focus of government concern.
5. Significant Barriers to U.S. Trade
Saudi Arabia is currently in the process of accession to the World
Trade Organization (WTO). A number of regulations have the potential to
restrict entry of U.S. non-defense exports and investments.
Import licensing requirements protect Saudi Arabian industries or
enhance Saudi Arabian businesses. In most cases, foreign companies must
operate through a Saudi Arabian agent. Contractors for public projects
must purchase equipment and most supplies through Saudi agents. (This
agency requirement does not apply to defense-related imports.) Saudi
Arabia requires licenses to import agricultural products.
The recently implemented preshipment inspection regime, known as
the International Conformity Certification Program (ICCP), is designed
to protect Saudi Arabian consumers from shoddy foreign products. The
ICCP has elements which can be viewed as barriers to free trade--such
as an ad valorem-based fee schedule--and remains controversial. It adds
inspection costs to imported civilian products, may delay shipments to
Saudi Arabia, and can increase exporter overhead.
Restrictions on shelf life standards in Saudi Arabia may make it
difficult for some U.S. food producers to compete in the Saudi market.
Saudi Arabia gives preference to imports from other members of the
Gulf Cooperation Council (GCC) in government purchasing, with a 10%
price preference over non-GCC products for government procurement.
Saudi Arabia requires foreign civilian contractors to subcontract
30% of the value of government non-military contracts, including
support services, to firms having Saudi-majority ownership. Some U.S.
businessmen have complained that this is a barrier to the export of
U.S. engineering and construction services. Other service industries
are restricted to Saudi Arabian Government-owned companies, e.g.,
certain insurance and transportation services.
The ``investment of foreign capital regulation'' establishes the
following conditions for a non-Saudi national to obtain a license for a
business and for investment of foreign capital:
a. foreign capital must be invested in a development project, or in
projects within the framework of the development plan in effect at the
time of the investment. Investments in oil and mineral sectors are
subject to special resolutions of the ministry of petroleum and mineral
resources.
b. foreign capital investment must be accompanied by foreign
technical expertise. In addition, the ``foreign capital investment
committee,'' established by the ``investment of foreign capital
regulation,'' reviews license applications. The committee's screening
of foreign investments is general; the criteria for screening, other
than the two conditions listed above, appear to be limited to:
1. ensuring that an investment does not violate the social or
religious mores of Saudi Arabia.
2. regulating the number of establishments in any one sector, to
the level that the market will sustain.
There is no requirement that a non-Saudi investor have a Saudi
partner. At the same time, businesses having a minimum of 25% Saudi
ownership are eligible for soft government loans, which are generally
unavailable to firms lacking Saudi ownership.
Saudi labor law requires companies to employ Saudi nationals. Small
companies are supposed to be exempt from the requirement, and larger
companies are required to increase their percentage of Saudi employees
by a certain percentage annually or face restrictions. This emphasis on
``Saudiization'' is increasing as the number of unemployed/
underemployed Saudis increases.
6. Export Subsidies Policies
Saudi Arabian planners say that there is no export subsidy program
for industrial projects. Because feed stock prices are relatively low
in Saudi Arabia, industrial production in petroleum and related
downstream products is comparatively attractive. The government argues
that this is simply a reflection of the low cost of domestic oil
production. In October 1997, the Minister of Petroleum and Mineral
Resources announced a 50% across-the-board increase in natural gas
prices from $.50/million btu to $.75/million btu. The government has
reduced subsidies to agriculture, which has resulted in reduced
agricultural production available for export.
7. Protection of U.S. Intellectual Property
The concept of intellectual property protection is relatively new
to Saudi Arabia. The government has enacted adequate regulations and
has joined the universal copyright convention, but efforts to protect
intellectual property rights are uneven. Measures to protect against
audio and video piracy have been the most successful. In particular,
software companies see a need for greater protection of software
products in the Kingdom. As of late 1997, Saudi Arabia remains on the
USTR's ``watch list'', having moved in 1996 from the priority watch
list, under the Special 301 program, in recognition of progress made in
intellectual property rights protection over the previous year.
Saudi Arabia has enacted a patent regulation and established a
patent office. The regulation was patterned along the lines of the U.S.
patent law, but does not reproduce it. The requirements for and scope
of patent protection are generally adequate, but the term of protection
is fifteen years--less than the 20 years from filing international
standard. The regulation permits compulsory licensing if the patent
holder refuses to use the patent, or for other public policy reasons.
Saudi Arabia yet lacks a fully functioning patent office. The office
has received several thousand patent applications, but has completed
action on only about ten. The patent office lacks trained manpower to
process the backlog of applications.
The embassy noted a significant increase in trademark infringements
complaints in 1997, particularly involving consumer products.
Registration is relatively uncomplicated. Although some companies have
complained that registration and search fees are high. although legal
remedies for infringement of a trademark exist, enforcement of
trademark protection is inconsistent.
The embassy has received no verifiable reports of book piracy, and
only one report of the unlicensed use of a published photograph. Piracy
of U.S.-produced audio and video cassettes, once a major problem, has
seen significant reduction due to government enforcement polices.
Estimates of losses to computer software companies due to illegal
copying vary widely, but are generally considered significant. In 1997,
the government permitted the establishment of a branch of the Business
Software Alliance in Saudi Arabia.
8. Worker Rights
a. The right of association.--Saudi regulations prohibit labor
associations.
b. The right to organize and bargain collectively.--Much skilled
and almost all unskilled labor is performed by expatriates. Non-Saudi
workers who seek to organize may be deported.
c. Prohibition of forced or compulsory labor.--Forced labor is
prohibited. However, as most unskilled labor is performed by
expatriates, and as Saudi employees have legal authority over the
movement of their contracted laborers, implicit forced labor may occur,
especially in the case of domestic servants and in remote areas. In
1997, the government expelled those without proper work permits. One
result of this may be to reduce the potential for abuse.
d. Minimum age for employment of children.--The labor law states
that ``a juvenile who has not completed thirteen years of age shall not
be employed.'' The minimum age for employment, therefore, is fourteen
hijri years. This restriction may be waived by application to the
Ministry of Labor with the consent of the juvenile's parent or
guardian. Children under 18 and women may not be employed in hazardous
or unhealthy occupations. Wholly-owned family businesses and family-run
farms are exempt from these rules. Women play a very small role in the
education and health sectors, as long as they are segregated from men.
e. Acceptable conditions of work.--Saudi Arabian authorities
consider that provisions of Islamic law (the Shariah) provide more than
adequate protection for laborers, and therefore additional regulation
is unnecessary. Conditions of labor, while far from perfect, may in
some ways be better than those found in countries from which most
expatriates come. Although Saudi Arabia has no minimum wage, generally
speaking, expatriate laborers come to Saudi Arabia because they can
earn more than they could at home. They receive time-and-one-half for
hours (up to 12) over that limit. The labor law requires employers to
provide health insurance and to protect workers from job-related
hazards and diseases.
f. Rights in sectors with U.S. investment.--Worker rights in
sectors with U.S. investment do not differ from those elsewhere.
Conditions of work at major U.S. firms and joint-venture enterprises
are generally better than elsewhere in the Saudi economy. Workers in
U.S. firms normally work a five to five-and-one-half day week (i.e., 44
hours) with paid overtime. Overall compensation tends to be at levels
that make employment with U.S. firms attractive.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 906
Food & Kindred Products..................... \1\
Chemicals & Allied Products................. \1\
Metals, Primary & Fabricated................ 10
Machinery, except Electrical................ 1
Electric & Electronic Equipment............. 6
Transportation Equipment.................... 1
Other Manufacturing......................... 29
Wholesale Trade............................... 69
Banking....................................... \1\
Finance/Insurance/Real Estate................. \1\
Services...................................... \1\
Other Industries.............................. 212
TOTAL ALL INDUSTRIES.......................... 3098
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
SYRIA
Key Economic Indicators \1\
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997Est
------------------------------------------------------------------------
Income, Production and Employment: \2\
Real GDP (1985 prices).................... 2,802 2,970 3,148
Real GDP growth (pct) \3\................. 10 6 6
GDP (at current prices)................... 12,261 12,997 14,777
By sector:
Agriculture............................ 3,473 3,681 3,902
Manufacturing........................... 1,702 1,804 1,912
Services................................ 239 253 268
Government.............................. 1,258 1,333 1,413
Per capita GDP (US$)...................... 861 884 973
Labor Force (000s)........................ 4,200 4,400 4,500
Unemployment Rate (est.).................. N/A N/A 12
Money and Prices
Money supply Growth (M2).................. N/A N/A N/A
Consumer Price Inflation.................. 10 10 10
Exchange Rate (US$/SP)
Official................................ 11.20 11.20 11.20
Balance of Payments and Trade (USD
million):\4\
Total Exports FOB......................... 3,858 4,298 4,500
Exports to U.S.\5\...................... 65.0 16.2 30
Total Imports CIF......................... 4,001 4,516 5,000
Imports from U.S.\5\.................... 223.3 226.3 190
Trade Balance............................. -143 -218 -500
Balance with U.S.\5\.................... -158.3 -210.1 -160
External Public Debt...................... 20,000 20,000 20,000
Debt Service Payments..................... N/A N/A N/A
Gold and foreign exchange................. N/A N/A N/A
Aid from U.S.............................. 0 0 0
Aid from Other Countries.................. 1,000 1,500 1,100
------------------------------------------------------------------------
\1\ The Syrian government has not published its 1996 statistics as of
the completion of this report. Further, the government's 1995 economic
statistics remain estimates. All figures in the preceding tables are
estimates based on the government's 1995 estimates, other sources in
the public domain, and this Embassy's own calculations.
\2\ Neighboring Country rate is calculated at 45 Syrian Pounds (SP) per
USD.
\3\ Published estimates of Syrian GDP growth vary widely. Embassy
estimates that GDP growth during the past three years has varied
between 4 to 6 percent.
\4\ Official exchange rate of 11.2 SP/USD is used to calculate balance
of payments and trade.
\5\ Source: U.S. Department of Commerce, U.S. Census Bureau, and the
Central Bank of Syria.
1. General Policy Framework
In 997, the Syrian government continued to reduce administrative
barriers to imports. The private sector, responding to these and other
reforms, has increased its imports beyond those of the public sector;
however, increases of U.S. exports to Syria have lagged behind those of
other countries due to continued USG economic sanctions.
Prospects for Syrian private sector investment and imports continue
to improve, spurred by economic reforms. Liberalization actions of the
Syrian government permit private exporters to retain foreign exchange
export earnings to finance permitted imports. Although retaining a
monopoly on some ``strategic'' imports such as wheat and flour, the
government continued to expand the list of permitted imports during
1997, including a wide range of raw materials previously permitted to
manufacturers only.
The United States imposed trade controls in 1979 as a response to
Syria's involvement with terrorism. The U.S. government expanded
sanctions against Syria in 1986, following Syria's implication in the
attempted bombing of an Israeli airliner at London Heathrow Airport.
Among the affected items are aircraft, aircraft parts, and computers of
U.S. origin or containing U.S.-origin components and technology. The
Syrians have sought alternate suppliers of these products. Under the
1986 sanctions, Syria is ineligible for the U.S. AID program, the
Export Enhancement Program (EEP), and the Commodity Credit Corporation
(CCC) program for all agricultural products. The Syrian-U.S. bilateral
aviation agreement expired in 1987 and has not been renewed. Finally,
the EXIM Bank and OPIC suspended their programs in Syria, further
disadvantaging U.S. exporters in meeting competition from other
suppliers.
The Syrian government uses its annual budget as its principle tool
for managing the economy. Through 1992, the Syrian government's ability
to raise official prices on many consumer items (effectively reducing
subsidies), improve tax collections, and increase transfers from state
enterprises, while reducing commitment of Syrian resources to capital
expenditures, enabled it to reduce budget deficits, leading to a
balanced budget in 1992. However, the last five budgets have been in
deficit ($310.8 million in 1994, $294.4 million in 1995, $201 million
in 1996, and $194.2 million in 1997), due to Syria's maintenance of its
large military establishment, both here and in Lebanon, and its
continued heavy (but currently much reduced) subsidization of basic
commodities and social services.
Given Syria's anachronistic and nationalized financial system and
inability to access international capital markets, monetary policy
remains a passive tool used almost exclusively to cover fiscal
deficits. All five of the country's banks are nationalized. Interest
rates are fixed by law. Most rates have not changed in the last several
years. Current real interest rates are negative.
2. Exchange Rate Policies
The Syrian government continues to maintain a multiple exchange
rate system. The official exchange rate remains fixed at 11.20 Syrian
pounds/USD for certain government and public sector transactions, and
for valuations of some customs tariff rates. A second rate, the
``Neighboring Country'' rate, currently pegged at 45 SP/USD, applies to
most state enterprise imports except certain basic commodities and
military/security items. Outside Syria, a thriving offshore market for
Syrian pounds operates in Lebanon, Jordan, and the Arab Gulf countries.
During 1997, the value of the pound fluctuated between 50 SP and 52 SP
to the dollar in these locations. The government plans to devalue the
Neighboring Country rate again by the end of the year in a further step
to unify the exchange rates.
Exchange controls are strict. Syrian currency may not be exported,
although it may be imported. Outward private capital transfers are
prohibited, unless approved by the Prime Minister or transacted under
the investment law noted below. Prior to 1987, Syrian law required
private exporters to surrender 100 percent of foreign exchange earnings
to the Central Bank at the official rate. Now, private exporters may
retain 75 to 100 percent of their export earnings in foreign exchange
to finance imports of inputs and other items designated on a short list
of basic commodities, surrendering the balance to the Commercial Bank
of Syria at the ``Neighboring Country'' rate. Since 1991, the
Commercial Bank of Syria may convert cash, travelers checks, and
personal remittances at the ``Neighboring Country'' rate. Recently,
Syrian citizens were permitted to open bank accounts in foreign
currencies at the Commercial Bank of Syria.
3. Structural Policies
By law, the Ministry of Supply and Internal Trade controls prices
on virtually all products imported or locally produced, although
enforcement in most sectors is spotty. The ministry sets profit margin
ceilings, generally up to 20 percent, on private sector imports. Local
prices are computed at the 45 SP/USD rate. In the agricultural sector,
production of strategic crops (cotton, wheat) is controlled through a
system of procurement prices and subsidies for many inputs, including
seeds, fuel, and electricity. Farmers may retain a portion of
production, but the balance must be sold to the government at official
procurement prices. Since 1989, the government has continued to
increase farm gate prices to encourage production and to enable state
marketing boards to purchase larger quantities of locally-produced
commodities. For the past years, the Syrian government's price of wheat
has been significantly above the world price.
Contracts are awarded through the official tender system. These are
open to international competition with no restrictions, other than
language pertaining to the Arab League boycott of Israel and the
requirement to post a bid bond. Syrian public sector entities will
accept positive statements of origin to deal with the boycott issue.
Syrian tariffs are very high for finished products, exceeding 200
percent for passenger cars. Income taxes are highly progressive.
Marginal rates in upper brackets are 64 percent. Salaried employees
also pay a graduated wage tax, reaching 17 percent. Tax evasion is
widespread.
4. Debt Management Policies
Syrian authorities have been unwilling to provide data on non-
civilian debt, as well as accumulated obligations under bilateral
clearing arrangements. Guaranteed civilian debt is officially estimated
at approximately 3.4 billion U.S. dollars. International financial
institutions estimate Syria's total external public debt at about 20
billion dollars. Very little Syrian commercial debt is held by U.S.
companies, but sovereign debt is about 250 million U.S. dollars. Syria
has been in violation of the Brook Amendment since 1985.
In 1996, Syria reached a bilateral debt arrangement with France and
Switzerland, and is currently negotiating with other EU creditor
nations for bilateral solutions. In June 1997, Syria paid off its
outstanding principal arrears to the World Bank and rescheduled its
remaining debt over 5 years. Debt to the former Soviet Union and Iran
is estimated to be more than 12 billion U.S. dollars. Syria suspended
payments to the Russian Republic in 1992, but is negotiating a
settlement.
5. Significant Barriers to U.S. Exports
Any product legally imported into Syria requires an import license,
which is issued by the Ministry of Economy and Foreign Trade according
to a policy aimed at conserving foreign exchange and promoting local
production. Strict standards on labeling and product specifications are
non-discriminatory and fairly enforced. Customs procedures are
cumbersome and tedious. Syria is not a member of the WTO.
Government procurement procedures pose special problems. Although
foreign exchange constraints have eased, some public sector companies
continue to favor barter arrangements which can be unattractive to U.S.
suppliers.
In government tenders, a temporary bank guarantee should be
submitted and afterwards substituted with a performance bond for the
successful bidder. Current bid bond forms stipulate that the guarantee
becomes null and void if the tender is not awarded upon its expire
date. Some government tenders include a clause allowing the bidder to
cancel his bid at six-month intervals, provided a written notice is
received within a stipulated time frame. If such a clause is not
included in the tender, it can often be negotiated. In addition,
problems remain in the prompt return of performance bonds.
Syria participates in the Arab League boycott of Israel. Many
Syrian government tenders contain language unacceptable under U.S.
anti-boycott law. Public sector agencies accept positive certification
from U.S. companies in response to tender application questions. Once
interested parties obtain tender documents, they would be well advised
to obtain competent advice regarding the anti-boycott regulations
before proceeding. One source of such advice is the U.S. Department of
Commerce, Office of Anti-boycott Compliance (telephone advice line (/
202/ 482-2381).
Given the centralized structure of the economy, specific ``buy
national'' laws do not exist. Some strategic goods, military equipment,
and items not produced locally or in sufficient quantities, are still
procured by public sector importing agencies on the international
market, provided foreign exchange is allocated by the Supreme Economic
Council. The Private sector also contributes significantly to Syrian
imports.
All investment projects are carefully screened by the ``Higher
Council for Investment'' before approval. Joint ventures with
government agencies are encouraged. Petroleum exploration and oil
service companies operating in Syria now are able to convert their
local currency expenditures at the favorable ``Neighboring Country''
rate of 45 SP/USD. Contracts for oil exploration concessions and
service require arduous negotiations. The number and position of
foreign employees in a company are usually negotiated when the contract
or agreement is signed. Land ownership laws are complex. The investment
law of 1991 provides for tax holidays and exemptions on duties, as well
as guarantees for the repatriation of profits. However, the law
requires that repatriated foreign exchange be generated from export
company operations. Despite the new legislation, Syria's poor
infrastructure, the lack of financial services, complex foreign
exchange regulations, Law No. 24 which criminalizes unauthorized
foreign exchange transactions, and fine constraints, continue to pose
serious commercial barriers.
Government monopolies in banking, insurance, telecommunications and
other public sector service industries preclude foreign investment in
those sectors. Motion pictures are distributed by a government agency
and subject to censorship.
6. Export Subsidy Policies
Export financing and subsidies are not available to either the
public or the private sectors. In fact, some exports are subject to
special taxes. Recent government decisions allowing private firms to
transact exports and imports at the ``Neighboring Country'' rate,
instead of the unfavorable official rate, have encouraged private trade
through official channels. Similar concessions to public sector
companies to complete export transactions have enhanced the foreign
exchange position of these companies. The SARG is exporting barley and
wheat at the prevailing international prices. The export prices are
still below the cost to the SARG at the ``Neighboring Country'' rate of
exchange.
7. Protection of U.S. Intellectual Property
Syria's legal system recognizes and facilitates the transfer of
property rights, including intellectual property rights. There is,
however, no copyright protection. Due to the unsophisticated industrial
structure and existing limits on private industry, there are few major
infringement problems. Local courts would likely give plaintiffs fair
hearings, but any financial awards would be in Syrian pounds. Requests
for payment in foreign exchange would probably be delayed indefinitely.
Most books printed in Syria are in Arabic and by Arab authors.
Despite the lack of legal protection, major commercial infringements do
not appear to be a problem. There are, however, individual
entrepreneurs who copy records, cassettes, and videos, and sell them.
In any event, enforcement and the associated litigation would be, if
not impossible, extremely costly compared to any positive benefits that
might result.
The U.S. motion picture industry estimates the home video market in
Syria is 100 percent pirated, and is also concerned with unauthorized
hotel video performances, which are said to be common. However, only a
few hotels have internal video systems.
8. Worker Rights
a. The Right of Association.--The 1973 Constitution provides for
the right of the ``popular sectors'' of society to form trade unions.
Although the General Federation of Trade Unions (GFTU) is purportedly
an independent popular organization, in practice the government uses it
as a framework for controlling nearly all aspects of union activity.
According to GFTU officials, the secretaries general of the eight
professional unions, some of whom are not Ba'th Party members, are each
elected by their respective union's membership.
The Syrian government contends that there is in practice trade
union pluralism. However, workers are not free to form labor unions
independent of the government-prescribed structure. Legislation
granting the right of any trade union to be governed by its own by-laws
without those rules having to correspond to those of the GFTU remains
pending.
Strikes are not prohibited (except in the agricultural sector), but
in practice they are effectively discouraged. There were no reported
strikes in 1996, as was also the case in 1995 and 1994. As with other
organizations dominated by the Ba'th Party, the GFTU is charged with
providing opinions on legislation, devising rules for workers, and
organizing labor. The elected president of the GFTU is a senior member
of the ruling Ba'th Party and a member of the party's highest body, its
regional command. With his deputy, he participates in all meetings of
the cabinet's ministerial committees on economic affairs. While the
unions are used primarily to transmit instructions and information to
the labor force from the Syrian leadership, elected union leaders also
act as a conduit through which workers' dissatisfaction is transmitted
to the leadership. The GFTU is affiliated with the International
Confederation of Arab Trade Unions.
Since the U.S. trade representative suspended Syria's Generalized
System of Preferences (GSP) privileges in June 1992, the Syrian
government has not made sufficient legislative and practical changes
regarding worker rights to prompt a reconsideration of the suspension.
b. The Right to Organize and Bargain Collectively.--In the public
sector, unions do not normally bargain collectively on wage issues, but
union representatives participate with the representatives of the
employers and the respective ministry to establish sectoral minimum
wages according to legally prescribed cost-of-living levels. Workers
serve on the board of directors of public enterprises, and union
representation is always included on the boards. Unions also monitor
and enforce compliance with the labor law.
In the private sector, unions are active in monitoring compliance
with the laws and ensuring workers' health and safety. Under the law,
unions may engage in negotiations for collective contracts with
employers. The International Labor Organization's exports committee
noted Syria's continuing resistance to changing a section of the labor
code which allows the Minister of Labor and Social Affairs to refuse to
approve a collective bargaining agreement and to annul any clause
likely to harm the economic interests of the country. Unions have the
right to litigate contracts with employers and the right to litigate in
defense of their own interests or those of their members (individually
or collectively) in cases involving labor relations. Union
organizations may also claim a right to arbitration. In practice, due
to the relatively small size of Syrian private sector enterprises,
labor disputes are generally settled informally.
Workers are protected by law from anti-union discrimination, and
there were no reports of discrimination against union members (see also
section 6.E).
There is no union representation in Syria's seven free trade zones,
and firms in the zones are exempt from Syrian laws and regulations
governing the hiring and firing of workers, though some provisions
concerning occupational health and safety, work hours, and sick and
annual leave do apply.
c. Prohibition of Forced or Compulsory Labor.--There is no Syrian
law banning forced or compulsory labor. Such practices may be imposed
in punishment, usually in connection with prison sentences for criminal
offenses, under the economic penal code, the penal code, the
agricultural labor code, and the press act. There were no reports of
forced or compulsory labor involving children or foreign or domestic
workers.
d. Minimum Age for Employment of Children.--The minimum age for
workers in the public sector is fifteen, though it is higher in certain
industries. The minimum age varies widely in the private sector
depending on the job. The absolute minimum age is 12, with parental
permission required for children under age 16 to work. Children are
forbidden to work at night. The Ministry of Social Affairs and Labor is
responsible for enforcing minimum age requirements, but the number of
labor investigators is not adequate. Enforcement tends to be less
effective in rural areas and tends not to question minimum age
violations within small family businesses where, for example, sons take
up their fathers' crafts.
e. Acceptable Conditions of Work.--As mandated in the constitution,
the government legislatively establishes minimum and maximum wage
limits in the public sector and sets limits on maximum allowable
overtime for public sector employees. The minimum wage is not
sufficient to allow a worker and his family to survive, so many workers
take additional jobs, open businesses, or rely on extended families for
support. According to the 1959 Labor Act, minimum wage levels in the
private sector are set by the Minister of Social Affairs and Labor. His
decision is based on recommendations from a committee including
government officials, employer representatives, and employee
representatives.
Syrian labor law extensively regulates conditions of work. This
includes rules and regulations which severely limit the ability of an
employer to fire an employee without due cause. One exception to the
heavily regulated labor field relates to day laborers. They are not
subject to minimum wage regulations and receive compensation only for
job-related injuries. They are commonly employed in small private firms
and businesses in order to avoid the costs of permanent employees who
are well protected, even against firing.
The statutory work week consists of six 6-hour days, although in
certain fields in which workers are not continuously busy, a 9-hour day
is permitted. Labor laws also mandate a full 24-hour rest day per week.
Public laws mandate safety standards in all sectors, and managers are
expected to implement them fully. The ILO has also noted that a
provision of the Labor Code allowing workers to be kept at the
workplace for up to 11 hours per day could lead to abuse. In practice,
the public sector is in conformity with the schedule noted above. There
are no reports of private sector employees having to work as many as 11
hours per day. A special department of the Social Security
Establishment works at the provincial level with inspectors at the
ministries of Health and Labor to ensure compliance with safety
standards. In practice, workers have occasionally taken employees to
judicially-empowered labor committees to win improvements in working
conditions that affect their health.
Foreign workers theoretically receive the same benefits but are
often reluctant to press claims because employees' work and residence
permits may be withdrawn at any time. Moreover, many work illegally and
are not covered by the government system. Some foreigners are employed
illegally as domestic servants in Syria. Residence permits are legally
granted only to diplomats who employ servants, but some senior
officials are also able to acquire the necessary permits.
f. Rights in sectors with U.S. Investment.--In addition to direct
U.S. investment in oil exploration and development in Syria, one U.S.
company, Mobil, managed to obtain a license for the establishment of a
lubricant manufacturing plant in Syria in a joint venture project along
with a group of Syrian investors. Mobil's share in this investment is
49%. U.S. firms are required to comply with Syrian labor law.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 0
Food & Kindred Products..................... 0
Chemicals & Allied Products................. 0
Metals, Primary & Fabricated................ 0
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... 0
Wholesale Trade............................... 0
Banking....................................... 0
Finance/Insurance/Real Estate................. \1\
Services...................................... 0
Other Industries.............................. \1\
TOTAL ALL INDUSTRIES.......................... 634
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
SOUTH ASIA
----------
BANGLADESH
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP............................. 29,112 31,814 32,847
Real GDP Growth (percent)............... 4.4 5.3 5.7
GDP by Sector:
Agriculture........................... 8,989 9,535 9,796
Manufacturing......................... 2,804 3,042 3,039
Services.............................. 15,002 16,667 17,353
Government............................ N/A N/A N/A
Per Capita GDP.......................... 242 260 263
Labor Force (000s)...................... 4,800 4,800 5,600
Unemployment Rate (percent) \2\......... 35.9 35.9 36.5
Money and Prices (annual percentage
growth):
Money Supply Growth (M2)................ 16.0 8.2 10.8
Consumer Price Inflation \3\............ 5.2 4.1 3.9
Consumer Price Inflation \4\............ 8.9 6.6 2.6
Exchange Rate (taka/USD - annual
average)
Official.............................. 40.2 40.9 42.7
Balance of Payments and Trade:
Total Exports FOB....................... 3,473 3,882 4,418
Exports to U.S.\5\.................... 1,257 1,343 N/A
Total Imports CIF....................... 5,834 6,881 7,120
Imports from U.S.\5\.................. 325 210 N/A
Trade Balance........................... -2,361 -2,999 -2,702
Balance with U.S.\5\.................. 932 1,133 N/A
External Public Debt.................... 16,370 17,070 N/A
Fiscal Deficit/GDP (percent)............ 6.8 5.7 5.3
Current Account Deficit/GDP (percent)... 3.5 5.1 2.8
Debt Service Payments/GDP (percent)..... 10.0 9.8 8.5
Gold and Foreign Exchange Reserves...... 3,085 2,037 1,719
Aid from U.S.\6\........................ 98.5 65.0 73.6
Aid from All Other Sources \7\.......... 1,605.5 1,378 1,544
------------------------------------------------------------------------
\1\ The Bangladesh fiscal year is July 1-June 30. Data for FY97 is
mostly provisional.
\2\ Includes estimated under-employment (34%).
\3\ Calculated on old CPI, base year 1973-74
\4\ Calculated on new CPI, base year 1985-6
\5\ Figures are for the calendar year
\6\ Figures are for the U.S. fiscal year (October 1-September 30).
\7\ Disbursements.
1. General Policy Framework
Bangladesh is one of the world's poorest, most densely populated,
and least developed countries; its per capita income for 1997 is
estimated at $263. Most of its population of 125 million is tied
directly or indirectly to agriculture, which accounts for 32 percent of
Gross Domestic Product (GDP) and employs nearly three out of four
Bangladeshis. Economic growth in fiscal years (FY) 1996 and 1997 was
above five percent, based in large part on above average agricultural
sector growth. The historical average growth rate over the last ten
years has been closer to 4 to 4.5 percent. This rate, though positive
on a per capita basis, is inadequate to relieve the poverty faced by
over half the population. GDP growth historically has been slowed by a
number of factors: low growth in the agricultural sector (the long-run
trend is about two percent, although the last two years had record
production and the outlook is good for FY98), together with a legacy of
government control of productive resources, political and policy
instability, poor infrastructure, corruption, poverty, special-interest
lobbying, and low domestic savings and investment. The state's presence
in the economy continues to be large, and money-losing state
enterprises have been a chronic drain on the treasury. Nonetheless,
over the past six years Bangladesh has steadily opened its economy to
greater influence of the free market and private sector activity. The
winning party in June 1996 elections, the Awami League, has to a large
degree continued the market based economic policies of its predecessor,
the Bangladesh Nationalist Party. The Awami League government has
placed a high priority on increasing the amount of foreign investment
in the economy by improving the investment climate, and has made some
regulatory and policy changes designed to attract more foreign direct
and portfolio investment. However, implementation of new policy
directives by the bureaucracy outside of the energy, gas and
telecommunications sectors has been slow. Those sectors are being
opened up to private investors, and U.S. firms are making proposals for
many projects being tendered. Bangladesh had a trade surplus with the
U.S. of $1.133 billion in 1996, due mostly to large U.S. imports of
Bangladesh garments.
Real GDP growth for fiscal year 1997 (July 1-June 30) was 5.7
percent, up 0.4 percent from FY96, mainly due to good agricultural
production. Inflation dipped slightly, from 4.1 percent in FY96 to 3.9
percent in FY97, aided by good rice crops (rice has a large weight in
the consumer price index. According to a price index based on 1985/86,
inflation was even lower in FY97, at 2.6 percent; the older, more
established index still more widely quoted, was based on 1973/74).
Foreign exchange reserves have stabilized since mid-1996 at around $1.7
billion, worth about 2.6 months of imports. The fall in foreign
exchange earnings from $3.4 billion in April of 1995 to $1.7 billion in
October 1997 permitted an increase in public and private credit without
increasing the money supply, which grew by 10.8 percent in FY97 after
increasing by 8.2 percent in FY96. Bangladesh has devalued its
currency, the taka, six times in 1997, to support its foreign exchange
reserves and to help the country's export competitiveness. The taka was
devalued by 8.69 percent against the U.S. dollar between June 1996 and
October 1997. However, in view of devaluations in neighboring countries
with whom Bangladesh must compete in export markets, many observers,
especially those in the export sector, believe the extent of the
devaluations to date has not been sufficient. The government's primary
monetary policy tools are the discount rate and the sale of Bangladesh
Bank bills, though central bank influence over bank lending practices
also plays an important role.
Current government expenditures exceeded the budgeted amount by 3.6
percent in FY97 in part due to larger than expected domestic interest
payments and subsidies. However, spending on the annual development
budget did not increase as planned, because of slow foreign aid
disbursements, so that the overall budget deficit for FY97 is estimated
to be about 5.3 percent of GDP, versus a deficit of 5.7 percent in
FY96. Net foreign financing accounted for 3.4 percent, with the
remaining 1.9 percent funded domestically; two-thirds of domestic
financing came from the banking system. Some causes of the FY97 deficit
include increased domestic interest payments and food grain purchases,
defense spending and fertilizer subsidies. Domestic revenues for FY97
fell short of budgeted levels by five percent but exceeded current
expenditures by $890 million, or 2.8 percent of GDP. This surplus
provided the government contribution to the country's development
budget, termed the ``Annual Development Program'' (ADP), estimated at a
total of $2.5 billion in FY 1997. While most funding for the ADP comes
from donors, the Finance Ministry claimed to have maintained
Bangladesh's contribution at about 36 percent in FY97; for FY98 the
percentage of Bangladesh's ADP contribution is forecast to be 47
percent. The domestic portion of government debt is financed through
the sale of government bonds. Tax revenues reached a level of $3.1
billion in FY97, more than double the amount collected in 1991, but
stagnant over the last several years as a percentage of GDP. The
Government in its FY98 budget lowered the maximum tariff by 2.5 percent
and added some services to the VAT system, but also implemented a 2.5
percent import surcharge, designed to support infrastructure
development. The average unweighted tariff actually increased from 21.5
percent in FY97 to 23 percent in FY98.
Although some liberal investment measures were taken by the
government to foster private sector involvement in the energy, power,
and telecommunications sectors, poor infrastructure (power shortages,
port bottlenecks, etc.), bureaucratic inertia, corruption, labor
militancy, a weak financial system which keeps the cost of capital
high, political unrest and a deteriorating law and order situation
continued to discourage some domestic and foreign investors in FY97.
The first half of FY98 has shown mixed results, with some indicators
pointing to increased commercial and manufacturing growth. Investment,
which stagnated at 12 to 13 percent of GDP in the 1985-1992 period,
increased slightly from 17 percent in FY96 to 17.4 percent in FY97. It
is generally held that only an investment/GDP ratio of 20 to 22 percent
and a GDP growth rate over seven percent can begin to alleviate poverty
on a large scale.
2. Exchange Rate Policies
At present, the Bangladesh central bank follows a semi-flexible
exchange rate policy, revaluing the currency on the basis of the real
effective exchange rate, taking account of the nominal exchange rates
and inflation rates of major trading partners. A level of reserves
equal to 2.6 months of imports and a black market rate close to the
official rate suggest the central bank has fixed the exchange rate
close to the equilibrium level in the short term, although the
country's loss of $1.7 billion in foreign exchange reserves between
April 1995 and October 1997 highlights Bangladesh's vulnerable foreign
exchange position. The World Bank and exporters have called for the
taka to be devalued further. Foreign reserves have stabilized at around
$1.7 billion through most of the last half of FY97 and through four
months of FY98. The taka's market value, however, is bolstered by the
large sums of foreign exchange Bangladesh receives every year through
aid transfers and by foreign exchange received as remittances from
overseas workers. The taka is nearly fully convertible on the current
account. The official exchange rate on October 28, 1997 was taka 44.85
to 1 USD.
Most foreign firms are able to repatriate profits, dividends,
royalty payments and technical fees without difficulty, provided the
appropriate documentation is presented to the Bangladesh Bank, the
country's central bank. Outbound foreign investment by Bangladeshi
nationals requires government approval and must be in support of export
activities. Bangladeshi travelers are limited by law to taking no more
than $3,000 out of the country per year. Dollars are bought and sold in
the black market, fueled by the informal economy. U.S. exports do not
appear to have been negatively affected by the taka devaluations in
1997.
3. Structural Policies
In 1993, Bangladesh successfully completed a three-year
International Monetary Fund (IMF) Enhanced Structural Adjustment
Facility (ESAF) program, meeting all fiscal and monetary targets. IMF
teams visited Bangladesh in 1997 to discuss a new ESAF but to date have
not reached an agreement with the Government. Broad money supply growth
has been about 10.8 percent in FY 1997, 8.2 percent in FY 1996, and
16.0 percent in FY95. The value added tax (VAT) collections have
increased steadily in recent years; the Government added some services
under VAT for FY98 to boost revenues but hopes that improved collection
and administration practices will enhance overall tax receipts.
Government current spending was higher in FY97 compared to the planned
level, but was offset by lower than planned development spending. A
combination of food imports, lower foreign aid disbursements and slow
export growth resulted in a fall in foreign exchange reserves from a
peak of $3.4 billion in April 1995 to around $1.7 billion in October
1997.
While Bangladesh has managed to maintain a measure of macroeconomic
stability since 1993, despite political instability in 1995 and early
1996, its macroeconomic position in 1997 has remained vulnerable, with
relatively high fiscal deficits, increased public sector borrowing from
the banking system, and a fall in foreign exchange reserves and
stagnant tax revenues. Progress on other important economic reforms has
been halting, though the new government has instituted reforms of the
capital market and taken some market-friendly decisions to encourage
foreign investment. Overall, however, efforts at reform often are
successfully opposed by vested interest groups, such as the
bureaucracy, public sector labor unions or highly protected domestic
producers in import-competing industries. The public sector still
exercises a dominant influence on industry and the economy; non-
financial state-owned enterprises (SOEs) lost an estimated $364 million
in 1997. Most public sector industries, including textiles, jute
processing, and sugar refining, are perennial money losers, which drain
the treasury. Their militant unions have succeeded in setting high
wages which their private sector counterparts often feel compelled to
meet out of fear of union action. The Government failed to implement
jute sector reforms under a World Bank adjustment credit program in
1997, despite pledges for action; the credit program has been ended.
Privatization of state owned enterprises has been advocated by the
Awami League government, although little concrete action has been taken
as of late 1997.
Private sector productivity is further stunted by the state's poor
management of crucial infrastructure (power, railroads, ports,
telecommunications, and the national airline), most of which is under
government monopolies. Recognizing this shortcoming, and in order to
increase foreign investment in the power sector, the Government
formalized in October 1996 its private power policy, which grants tax
holidays and duty-free imports of plant and equipment for private
sector power producers. In October 1997 the Government signed two
contracts with International Power Producers, and other international
tenders for sizable projects are being evaluated. Private investment is
also being allowed in the telecommunications sector for cellular
communications, and in the hydrocarbons sectors, where international
companies have expressed a high level of interest in a second round of
bidding for remaining exploration rights. Four international companies
are currently preparing for natural gas production in 1998 or are
starting exploration activities. The Government is also trying to
attract foreign portfolio investment in domestic capital markets, but a
stock market crash in late 1996 appears to have kept many international
investors out of the market for most of 1997. Long an easy source of
funds for loss-making government corporations and preferred private
sector borrowers who did not feel obliged to repay loans, the
dysfunctional banking sector continues to be the subject of reform
programs. The banking sector is dominated by four large nationalized
commercial banks (NCBs). The privatization of one of the four NCBs is
still pending as of November 1997. However, entry of foreign and
domestic private banks has been permitted, and several new banks have
entered the market in 1995, 1996 and 1997.
4. Debt Management Policies
Assessed on the basis of disbursed outstanding principal,
Bangladesh's external public debt was $15.8 billion as of December
1996, down 3.1 percent from $16.3 billion in December 1995. Because
virtually all of the debt was provided on highly concessional terms by
bilateral and multilateral donors (i.e. one or two percent interest,
30-year maturity, 20-year grace period), the net present value of the
total outstanding debt is significantly lower than its face value.
Bangladesh as of late 1997 owes approximately $518 million to the
United States government, primarily incurred under the old PL-480 Title
I program. Debt servicing (principal and interest) for 1996 was $670
million. Debt service as a percentage of current receipts has fallen
from 20 percent in FY 1991 to an estimated 8.5 percent in FY 1997. Debt
service as a share of GDP was 2.0 percent in 1997, while the debt
service to export ratio was 15.1 percent. In late 1996 Bangladesh began
talks with the IMF over a possible new Enhanced Structural Adjustment
Program; these talks continued in 1997 but no agreement has been
reached as of late 1997. It maintains good relationships with the World
Bank, Asian Development Bank, the International Monetary Fund and the
donor community. While Bangladesh's total external debt has increased
as a share of GDP in the last decade, its ratio of debt service to
exports has been falling, due to high export growth and the highly
concessional nature of most of its debt.
5. Aid
No military aid is included in the figures in the tables.
6. Significant Barriers to U.S. Exports
Since 1991, the government has made significant progress in
liberalizing what had been one of the most restrictive trade regimes in
Asia, although Bangladesh continues to raise relatively high shares of
its government revenues--nearly 60 percent--from import-based taxes
(custom duties, VAT and supplementary duties on imports). Tariff reform
was accelerated significantly in 1994 and 1995 by the compression of
customs duty rates into a range of 7.5 to 15 percent for most products
and the maximum rate being set at 50 percent (with the exception of
certain luxury goods, for which duties remained in excess of 100
percent). The trade-weighted average import tariff rate was 28 percent
in FY94, compared to 40 percent in FY92. Changes in the FY97 budget
reduced the maximum tariff rate to 45 percent, with duty on some items
falling to 2.5 percent. In FY98 the maximum tariff was reduced to 42.5
percent; this decrease was offset by a 2.5 percent import surcharge
slated to go towards infrastructure development. In addition, some
supplemental duties were also increased in the FY98 budget. Government
estimates indicate that the weighted average tariff rate was brought
down to below 25 percent by the FY97 tariff reductions. The World Bank
estimated the average unweighted tariff increased to 23 percent in FY98
from 21.5 percent in FY97.
In July 1992 the government replaced an import sales tax with a
trade-neutral VAT, leaving only the 2.5 percent ``advance income tax''
to be removed to make customs duty the only protective instrument for
most imports. The number of products subject to an import ban or
restriction was further reduced in 1996 and import procedures have been
streamlined. The formerly cumbersome procedure for opening letters of
credit also has been simplified. Bangladesh is a founding member of the
World Trade Organization (WTO). It is not a signatory to WTO
plurilateral agreements on government procurement or civil aircraft.
Some barriers to U.S. exports or direct investment exist. The
Government monopoly controls basic services and long-distance service
in the telecommunications market, although the Government granted three
licenses to private cellular companies in late 1996 to end a private
company's monopoly. Some lack of national treatment exists in the
pharmaceutical sector, where manufacturing and import controls imposed
by the national drug policy and the Drugs (Control) Ordinance of 1982
discriminate against foreign drug companies. Policy instability, where
policies are altered at the behest of special interests, also creates
difficulties for foreign companies.
Government procurement generally takes place through a tendering
process, which is not always perceived as a transparent process by
foreign companies. Bangladesh has some counter trade arrangements with
countries in Central and Eastern Europe, Central Asia, China and North
Korea.
Customs procedures are lengthy and burdensome, and further
complicated by corruption. The systems of customs valuation has been
supplemented by the acceptance of pre-shipment inspections (PSI)
certificates from four international inspection companies, but customs'
acceptance of these certificates is not yet mandatory and some products
have been removed from PSI eligibility. The Government removed more
items from PSI eligibility in its FY98 budget. Customs duty revenues
are scheduled to be higher in absolute terms in the FY98 budget,
although they have been falling as a share of total revenue over the
last several years. Reform attempts of customs practices are ongoing.
Other drawbacks to investment in Bangladesh include low labor
productivity, poor infrastructure, excessive regulations, and uncertain
law and order. The lack of effective commercial laws makes enforcement
of business contracts difficult. Officially, private industrial
investment, whether domestic or foreign, is completely deregulated, and
the government has significantly streamlined the investment
registration process. However, while registration has been simplified,
domestic and foreign investors typically must obtain a series of
approvals from various government agencies in order to implement their
projects. Bureaucratic red tape, compounded by corruption, slows and
distorts decision-making and procurement. Existing export processing
zones (see below) have successfully facilitated investment but are
still too small to have changed significantly the overall investment
picture in the country.
U.S. investment stock in Bangladesh until recently was very small,
totaling around $25 million, primarily in the assets of service
companies and a few manufacturing operations. This total has now risen
significantly due to investment in natural gas exploration and
production. As work begins in late 1997 or 1998 based on earlier
agreements between the Government and U.S. companies in gas
exploration, lubricants and energy production, the amount of U.S.
investment will rise significantly. Many other opportunities for
significant investment in gas exploration and power generation could
further swell U.S. investment and trade, if U.S. companies do well in
negotiations underway in October 1997.
7. Export Subsidies Policies
The Bangladesh government encourages export growth through measures
such as ensuring duty-free status for some imported inputs, including
capital machinery, and providing easy access to financing for
exporters. Ready-made garments producers are assisted by bonded
warehousing and back-to-back letter of credit facilities for imported
cloth and accessories. The central bank offers a 25 percent rebate to
domestic manufacturers of fabric for ready-made garment exports.
Exporters are allowed to exchange 100 percent of their foreign currency
earnings through any authorized dealer. Government financed interest
rate subsidies to exporters have been reduced in stages over the last
five years. Bangladesh has established export processing zones (EPZs)
in Chittagong and Dhaka, and has plans to open two more. The government
in late 1996 gave the private sector the authority to build and operate
private export processing zones; Korean investors have come forward
with a plan for the first private EPZ.
8. Protection of U.S. Intellectual Property
Bangladesh has outdated intellectual property rights (IPR) laws,
and an unwieldy system of registering and enforcing intellectual
property rights. Intellectual property infringement is common,
particularly of computer software, motion pictures, pharmaceutical
products and audio and video cassettes. Despite the difficulties, U.S.
firms have successfully pursued their IPR rights in Bangladeshi courts.
Bangladesh has been a member of the World Intellectual Property
Organization (WIPO) in Geneva since 1985. The WIPO and the United
Nations Development Program (UNDP) in 1995/6 funded a small project
providing automation and training for the Bangladesh government's
patent office. The Government and WIPO hosted a seminar on IPR issues
in April 1997. Bangladesh has begun reforms to increase the level of
IPR protection in order to meet its obligations under the WTO TRIPS
(Trade-related Aspects of Intellectual Property Rights) Agreement. In
consultation with WIPO, the Bangladesh government began drawing up IPR
reforms laws in 1992 and has hired consultants to review the IPR draft
laws in view of WTO TRIPS provisions. The completion of the review and
subsequent modification and vetting of the drafts are expected to take
at least a year, with parliamentary passage taking further time. As a
result, Bangladesh is unlikely to have effective IPR laws before mid-
1998. Bangladesh is not on either the Special 301 watch list or the
priority watch list.
Piracy, especially of computer software, reduces the number of
legitimate sales of U.S. products. It is difficult to estimate a dollar
value.
9. Worker Rights
a. The Right of Association.--The Bangladesh constitution
guarantees freedom of association, the right to join unions, and, with
government approval, the right to form a union. With the exception of
workers in the railway, postal, telegraph, and telephone sectors,
government civil servants are forbidden to join unions. However, some
workers covered by this ban have formed unregistered unions. The ban
also applies to security-related government employees, such as in the
military and police. Bangladesh civil servants forbidden to join
unions, such as teachers and nurses, have joined associations which
perform functions similar to labor unions.
b. The Right to Organize and Bargain Collectively.--Unions in
Bangladesh are highly politicized. Virtually all the National Trade
Union centers are affiliated with political parties, including one with
the ruling party. Pitched battles between members of rival labor unions
occur regularly. Some unions are militant and engage in intimidation
and vandalism. General strikes were used successfully by the political
opposition in early 1996 to pressure the government to call elections
and step down. Rising political tensions again led to several general
strikes during 1997. General strikes cause economic and social
disruption through lost production and, more significantly,
transportation delays causing missed shipping dates for exports.
Strikes motivated by labor issues increased from 1996. A nationwide
industrial strike was called on July 30 by a confederation of labor
organizations to support demands for a minimum wage and increased
investment in state-owned industries.
The Essential Services Ordinance permits the Government to bar
strikes for three months in any sector deemed ``essential.'' Mechanisms
for conciliation, arbitration and labor court dispute resolution were
established under the Industrial Relations Ordinance of 1969.
There have been numerous complaints of garment workers being
harassed and fired in some factories for trying to organize workers.
Workers in Bangladesh's two export processing zones (EPZs) are
prohibited from forming unions, though some workers have skirted the
ban by setting up associations. The government has not fulfilled
promises that labor law restrictions on freedom of association and
formation of unions in the EPZs will be lifted in 1997.
c. Prohibition of Forced or Compulsory Labor.--The constitution
prohibits forced or compulsory labor. The Factories Act and the Shops
and Establishments Act, both passed in 1965, set up inspection
mechanisms to guard against forced labor, but resources for enforcement
are scarce. Nevertheless, there is believed to be little use of forced
labor, though conditions for some domestic servants resemble servitude,
and some trafficked women and children work as prostitutes.
d. Minimum Age for Employment of Children.--Bangladesh has laws
that prohibit labor by children. The Factories Act bars children under
the age of 14 from working in factories. In reality, enforcement of
these rules is inadequate. According to United Nations estimates, about
one third of Bangladesh's population under the age of 18 is working. In
a society as poor as Bangladesh's, the extra income obtained by
children, however meager, is sought after by many families.
In July 1995, Bangladesh garment exporters signed a memorandum of
understanding that has sharply reduced child labor in the garment
sector. Under the MOU, schools and a stipend program were established
for displaced child workers. By September 1997, more than 300 schools
serving some 8,000 former child workers were in operation. A system of
fines and possible suspension of import/export privileges exists, and a
monitoring system has been set up by the International Labor
Organization.
e. Acceptable Conditions of Work.--Regulations regarding minimum
wages, hours of work and occupational safety and health are not
strictly enforced. The legal minimum wage varies depending on
occupation and industry. It is generally not enforced. The law sets a
standard 48-hour work week with one mandated day off. A 60-hour work
week, inclusive of a maximum 12 hours of overtime, is allowed. Relative
to the average standard of living in Bangladesh, the average monthly
wage could be described as sufficient for minimal, basic needs. The
Factories Act of 1965 nominally sets occupational health and safety
standards. The law is comprehensive but appears to be largely ignored
by many Bangladeshi employers.
f. Rights in Sectors with U.S. Investment.--Manufacturing firms
with U.S. investment have unions and bargain collectively. Worker
layoffs or the threat of reductions-in-force can cause serious
management-labor disputes. As far as can be determined, firms with U.S.
capital investment abide by the labor laws. Similarly, these firms
respect the minimum age for the employment of children. According to
both the Bangladesh government and representatives of the firms,
workers in firms with U.S. capital investment generally earn a much
higher salary than the minimum wage set for each specific industry. In
some cases, workers in these firms enjoy shorter working hours than
those working in comparable indigenous firms.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... \1\
Total Manufacturing........................... 0
Food & Kindred Products..................... 0
Chemicals & Allied Products................. 0
Metals, Primary & Fabricated................ 0
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... 0
Wholesale Trade............................... 0
Banking....................................... \1\
Finance/Insurance/Real Estate................. 1
Services...................................... 0
Other Industries.............................. 0
TOTAL ALL INDUSTRIES.......................... \1\
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
INDIA
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\............................. 396.0 372.0 427.0
Real GDP Growth (pct) \3\................... 7.1 6.8 6.0
GDP by Sector (percent estimated):
Agriculture.............................. 28.8 27.9 N/A
Manufacturing............................. 29.2 29.8 N/A
Services.................................. 41.3 42.3 N/A
Government................................ N/A N/A N/A
Per Capita GDP (US$)........................ 354.0 397.0 449.0
Labor Force (millions)...................... 348.0 378.0 390.0
Unemployment Rate (percent)................. 22.5 22.5 22.5
Money and Prices (annual pct growth):
Money Supply Growth (M2).................... 13.7 15.9 15.7
Consumer Price Inflation.................... 10.1 9.4 9.0
Exchange Rate (rupee/US$ - annual average)
Official.................................. 31.40 33.45 35.80
Balance of Payments and Trade:
Total Exports FOB \4\....................... 31.8 33.1 38.1
Exports to U.S.\5\........................ 5.8 6.2 7.2
Total Imports CIF \4\....................... 36.4 38.5 42.4
Imports from U.S.\5\...................... 3.2 3.4 3.8
Trade Balance \4\........................... -4.6 -5.4 -4.3
Balance with U.S.\5\........................ 2.6 2.8 3.4
Current Account Deficit/GDP (pct)........... 1.8 1.0 1.5
External Public Debt \6\.................... 91.2 90.8 90.0
Debt Service Payments/GDP (pct)............. 3.0 3.9 2.9
Fiscal Deficit/GDP (pct).................... 5.4 5.5 4.5
Gold and Foreign Exchange Reserves.......... 18.0 23.9 30.0
Aid from U.S. (US$ million)................. 190.1 139.0 136.3
Aid from Other Countries.................... 2.7 2.5 N/A
------------------------------------------------------------------------
\1\ Data are for Indian fiscal year (April 1 to March 31) unless
otherwise noted. 1997-98 figures are all embassy estimates based on
data available in October 1997.
\2\ GDP at factor cost
\3\ Percentage changes calculated in local currency
\4\ Merchandise trade
\5\ Source: U.S. Department of Commerce and U.S. Census Bureau; calendar
year, exports FAS, imports customs basis; 1997 figures are estimates
based on data available through November 1997.
\6\ Includes rupee debt of $10 billion to the former USSR
Sources: GOI Economic Survey, GOI budgets, Reserve Bank of India
Bulletins, World Bank, and private research agencies
1. General Policy Framework
Six years after launching a concerted drive to modernize its
economy, India has begun to attract sustained attention from the
international investment community. With an estimated 200-300 million
consumers, a vast pool of labor and a developing financial system,
India possesses the potential to become a rich market and to develop
tremendous productive capacity. The U.S. continues to be the largest
investor in India and its biggest trading partner. While the post-1991
economic reform program has set in motion the process of liberalizing
India's trade and investment regime, momentum has slowed in the last
three years. With the advent of the multiparty United Front government
in June 1996, all major parties have declared their support for the
overall necessity of continued economic reform. Differences remain
however, on the pace and emphasis of that reform.
The Indian economy continues to perform well in most respects and
long-term prospects remain encouraging, despite continuing concern by
overseas investors about inadequate infrastructure, non-transparent
government decisionmaking, large sectors of economic deregulation yet
to be initiated, and chronic large budget deficits. Foreign portfolio
and direct investment has increased dramatically since 1991, albeit
from a small base, and will contribute in FY 1997-98 to industrial
growth of 8 percent and GDP growth of 6 percent, down from the previous
year. The central government deficit has hovered around 5-6 percent of
GDP, with a consolidated public sector deficit (including states)
remaining high level of 9 percent of GDP, of great concern to the World
Bank.
During the first six months of FY 1997-98, money supply (M3) rose
by an estimated 16.3 percent. The Reserve Bank of India (RBI) hopes to
peg M3 growth at 15.0 to 15.5 percent for the year. The credit policy
for the second half of 1997-98, announced by the RBI in October 1997,
aims at both accelerating the flow of credit into industry at lower
cost by enlarging the lendable resources of banks, and also at ensuring
that money supply growth remains within the targeted band. Government
and private forecasters now predict an average inflation rate (as
measured by the Consumer Price Index) of about 9 percent during fiscal
year 1997-98, following inflation of 9.4 percent in the previous year.
2. Exchange Rate Policy
India has used exchange rate policy to improve its export
competitiveness. On March 1, 1993, the exchange rate was unified and
the rupee was made fully convertible on the trade account. On August
20, 1994, the rupee was made fully convertible on the current account.
Controls remain on capital account transactions, with the exception of
non-resident Indians (NRIs) and foreign institutional investors (FIIs),
but their gradual removal is expected as foreign exchange reserves grow
and India's capital markets merge more completely with international
financial markets. In June 1997, the Tarapore Committee on capital
account convertibility recommended a three year (1998-2000) period for
complete capital account convertibility of the rupee. However, private
sector economist's published reports are skptical of the government's
ability to achieve full convertibility by the end of the three year
period.
The RBI intervenes in the foreign exchange market to maintain a
stable rupee. The rupee is tied to a basket of currencies with the U.S.
dollar playing a predominant role. The exchange rate moved in a narrow
range of rupees 35-35.80 per dollar in Indian fiscal year 1996-97. The
Reserve Bank of India intervened in the market to keep the rupee from
appreciating against the dollar, but was not able to check the rupee's
rise against other currencies. Since mid November 1997, the rupee has
fallen moderately against the dollar, and has been trading in the range
of 39 to 40 per dollar.
3. Structural Policies
Pricing policies: Central and state governments still regulate the
prices of most essential products, including food grains, sugar, edible
oils, basic medicines, energy, fertilizers, water, and many industrial
inputs. Agricultural commodity procurement prices have risen
substantially during the past six years, while prices for nitrogenous
fertilizer, rural electricity and irrigation remain well below market
levels. However, acute power shortages are forcing several states to
arrest the financial decline of state electricity boards by raising
tariffs. The federal government has also begun to scrutinize more
carefully the cost of its subsidies. The government recently announced
its plan to reduce subsidy rates on food and fertilizers from 90
percent to 25 percent over the next five years. Many basic food
products are under a dual pricing system: some output is supplied at
fixed prices through government distribution outlets (``fair price
shops''), with the remainder sold by producers on the free market.
Prices in government outlets are usually regulated according to a cost-
plus formula; some formulas have not been adjusted in more than a
decade. Regulation of basic drug prices has been a particular problem
for U.S. pharmaceutical firms operating in India, although changes in
national drug policy sharply reduced the number of price-controlled
formulations in late-1994 from 142 to 76.
Tax policies: Public finances remain highly dependent on indirect
taxes, particularly import tariffs. Between 1990 and 1996, indirect
taxes accounted for about 75 percent of central government tax revenue.
India's direct tax base is very narrow, with only 12 million taxpayers
out of a total population of about 953 million. Marginal corporate
rates are high by international standards, although the FY 1996/97
budget lowered the corporate income tax rate for foreign companies from
55 percent to 48 percent. Tax evasion is widespread, and the government
has stated that future rate cuts will depend on the success of efforts
to improve tax compliance. Over the last five years, the government has
begun streamlining the nation's tax regime along the lines recommended
by a government-appointed committee: increasing the revenue share from
direct taxes, introducing a value-added tax (VAT), and replacing
India's complex tax code with one that is more simple and transparent.
The Indian government also provides tax incentives for specific
sectors, such as a 5-year tax holiday for infrastructural projects.
Akey factor in improving the equity and the efficiency of the tax
system will be the government's ability to establish vol comp system to
tax the income of India's growing middle class.
Regulatory policies: The ``new industrial policy'' announced in
July 1991 considerably relaxed the government's regulatory hold on
investment and production decisions. Under the new policies, industrial
licenses are only required for 6 sectors defined as strategic. Some
restrictions also remain for manufacturing in sectors which are
reserved for the public sector or small-scale industry. Additionally,
the Indian government announced in 1994 and 1995 liberal policies for
the pharmaceutical and telecommunications industries. Nevertheless,
Indian industry remains highly regulated by a powerful bureaucracy
armed with excessive rules and broad discretion. For example, India
recently established a Telecommunication Regulatory Authority which
despite its goal to operate independently of the GOI, still receives
its budget funds from the Ministry of Communications. As economic
reforms take root at the federal level, the focus of liberalization is
gradually shifting to state governments which, under India's federal
system of government, enjoy broad regulatory powers. The speed and
quality of regulatory decisions governing important issues such as
zoning, land-use and environment can vary dramatically from one state
to another. Political opposition has slowed or halted important
regulatory reforms governing areas like labor, bankruptcy, and company
law that would enhance the efficiency of foreign and domestic
investment.
4. Debt Management Policies
External debt management: India's reliance during the 1980's on
debt-financed deficit spending to boost economic growth meant that
commercial debt and non-resident Indian (NRI) deposits provided a
growing share of the financing for India's mounting trade deficit. The
result was a hefty increase in external debt, compounded by rising real
interest rates and a declining term structure that reflected India's
falling credit worthiness. Total external debt rose from $20 billion in
FY 1980-81 to about $84 billion in FY 1990-91. Fueled by rising debt
service payments, foreign exchange reserves fell to $1.1 billion
(excluding gold and SDRs) during the FY 1990-91 balance of payments
crisis, the equivalent of only two weeks of imports. By September 1997,
India's reform program had succeeded in boosting reserves to $26.2
billion (excluding gold and SDRs).
External debt structure: India's total external debt was $90.8
billion in March 1997. Debt service payments of $14.1 billion in 1996/
97 are expected to decline to $12.6 billion in 1997-98. Roughly two-
thirds of the country's foreign currency debt is composed of
multilateral and bilateral debt, much of it on highly-concessional
terms. The share of concessional debt in total debt is about 43
percent. The addition of new debt has slowed substantially, as the
government has maintained a tight rein on foreign commercial borrowing
and defense-related debt and has encouraged foreign equity investment
rather than debt financing. As a result, the ratio of total external
debt to GDP fell from 39.8 percent in fiscal year 1992-93 to 25.4
percent in fiscal year 1996/97.
Relationship with creditors: India has an excellent debt servicing
record. The sharp growth in official reserves over the past three years
and the enthusiastic response of institutional and foreign direct
investors to India's economic reforms are restoring creditor
confidence. However, Standard and Poor's (S&P) recently revised its
outlook on India from positive to stable. S&P continues to rate India's
foreign currency debt at BB+, one notch below investment grade. Citing
its growing foreign exchange reserves and ample food stocks, India
chose not to negotiate an extended financing facility with the IMF when
its standby arrangement expired in May 1993
5. Significant Barriers to U.S. Exports
Import licensing: U.S. exports have benefited from significant
reductions in India's import-licensing requirements. However, barriers
to more than 2700 tariff lines remain an impediment to U.S. exporters.
Since 1992, the government has eliminated licensing requirements for
imports of intermediate and capital goods, and has steadily reduced the
import-weighted tariff from 87 percent to 20.3 percent. However, in
September 1997, in order to contain the fiscal deficit, the Indian
government announced an additional three percent special customs levy
on most non-petroleum imports. This is in addition to the two percent
import levy on most imported products imposed since 1996. U.S. exports
to India rose from $2.0 billion in 1991 to $3.4 billion in 1996,
according to U.S. trade data. Some commodity imports must be channeled
(``canalized'') through government companies, although many
``canalized'' items are now decontrolled. The main canalized items
currently are petroleum products, bulk agricultural products, such as
grains and vegetable oils, and some pharmaceutical products. India
maintains a negative list of items which cannot be imported, covering
roughly one-third of all tariff lines. Tariff levels are still very
high by international standards. India has proposed a six year phase-
out to the WTO for removing quantitative restrictions on imports of
some 2,700 items, including consumer goods, which have been maintained
since the 1950's on balance of payments grounds. Import licenses are
still required for pesticides and insecticides, fruits, vegetables and
processed consumer food products, breeding stock, most pharmaceuticals
and chemicals, and products reserved in India for small-scale industry.
This licensing requirement serves in many cases as an effective ban on
importation.
Services barriers: The Indian government runs many major service
industries but private sector participants are increasingly being
allowed to compete in the market. Entry of foreign banks remains highly
regulated, but approval has been granted for the operation of 25 new
foreign banks or bank branches since June 1993 when the RBI issued
guidelines under which new private banks may be established.
Furthermore, financial authorities have permitted sweeping changes in
non-bank financial services since then. India does not allow foreign
nationals to practice law in its courts, but some foreign law firms
maintain liaison offices in India. Although the Government of India
excluded from its WTO services offer any liberalization of its
insurance sector, the government is now reviewing its monopoly on life
and general insurance with a view to future liberalization and reform
of the industry. Foreign and domestic joint ventures participate in
telecommunications, advertising, accounting, car rentals and a wide
range of consultancy services. There is a growing awareness of India's
potential as a major service exporter and increasing demand for a more
open service market.
Standards, testing, labeling and certification: Indian standards
generally follow international norms and do not constitute a
significant barrier to trade. However, India's food safety laws are
often outdated or more stringent than international norms. Where
differences exist, India is seeking to harmonize national standards
with international norms. No distinctions are made between imported and
domestically-produced goods, except in the case of some bulk grains.
Investment barriers: The new industrial policy introduced in July
1991 achieved a dramatic overhaul of regulations restricting foreign
investment. Government approval for equity investments of up to 51
percent in 35 industries covering the bulk of manufacturing activities
has been entirely eliminated, although the government reserves the
right to deny requests for increased equity stakes. In December 1996,
thirteen industries were added to the 35 already eligible for automatic
approval of FDI up to 51 percent of equity. In addition, automatic
approval up to 74 percent of FDI was introduced for the first time for
nine categories including mining services, electricity generation and
transmission, and construction and maintenance of roads, bridges,
ports, harbors and runways. All sectors of the Indian economy are now
open to foreign investors, except those which raise security concerns
such as defense, railways and atomic energy. As a result, the $32.7
billion in foreign investment approved between January 1991 and April
1997 exceeded the nominal dollar value of all foreign investment
approved during the previous four decades, with U.S. investors taking
the lead. The U.S. and India have not negotiated a bilateral investment
treaty, although an agreement covering the operations of the
Overseas Private Investment Corporation (OPIC) was updated in 1997.
In 1994, India became a member of the Multilateral Investment Guarantee
Agency (MIGA), an agency of the World Bank. The Indian government
ratified the Uruguay Round GATT agreement on January 1, 1995 and is a
member of the WTO.
Government procurement practices: Indian government procurement
practices are not transparent and occasionally discriminate against
foreign suppliers, but they are improving under the influence of fiscal
stringency. Price and quality preferences for local suppliers were
largely abolished in June 1992. Recipients of preferential treatment
are now concentrated in the small-scale industrial and handicrafts
sectors, which represent a very small share of total government
procurement. Defense procurement through agents is not permitted,
forcing U.S. firms to maintain resident representation. When foreign
financing is involved, procurement agencies generally comply with
multilateral development bank requirements for international tenders.
Customs procedures: Liberalization of India's trade regime has
reduced tariff and non-tariff barriers, but it has not eased some of
the worst aspects of customs procedures. Documentation requirements,
including ex-factory bills of sale, are extensive and delays frequent.
However, in 1996 the government switched to the harmonized system of
commodity classification, removing ambiguities and providing more
transparency to the export-import policy.
6. Export Subsidies Policies
The 1991 budget phased out most direct export subsidies, but a
tangle of indirect subsidies remains. Export promotion measures include
exemptions or concessional tariffs on raw materials and capital inputs,
and access to special import licenses (SIL) for restricted inputs.
Concessional income tax provisions apply to exports (export earnings
are tax-exempt). Commercial banks also provide export financing on
concessional terms.
7. Protection of U.S. Intellectual Property
The Indian government has improved protection of intellectual
property rights (IPR), in the area of copyrights. However, it has not
yet brought its laws and enforcement up to international standards in
other areas. Especially troubling for U.s. industry is the lack of
patent protection for pharmaceutical, and agricultural chemical
products.
The Special-301 investigation initiated by USTR in 1991 determined
that Indian IPR practices, particularly inadequate patent protection,
unduly burdened U.S. commerce. In response, the U.S. removed all
Indian-origin chemical and pharmaceutical products from duty-free entry
under the Generalized System of Preferences (GSP) in April 1992.
Under pressure from domestic industry, India strengthened its
copyright law in May 1994, placing it at par with international
practice. The new law, which entered into force in May, 1995, fully
reflects the provisions of the Berne Convention on copyrights, to which
India is a party. Based on its improved copyright protection, India's
designation as a ``priority foreign country'' under Special-301 was
revoked and India was placed on the ``priority watch list.'' Copyright
enforcement is also rapidly improving. Classification of copyright
infringements as ``cognisable offenses'' expands police search and
seizure authority. While the formation of appellate boards under the
new legislation should speed prosecution, local attorneys indicate that
some technical flaws in the laws, which require administrative approval
prior to police action, need to be corrected.
Trademark protection is considered good, and could be raised to
international standards with the passage of a new trademark bill that
codifies existing court decisions on the use and protection of foreign
trademarks, including service marks. The bill was first introduced in
1995 but failed to win parliamentary approval. Passage of the trademark
bill is expected in 1998. Enforcement of trademark owner rights had
been weak in the past, but is steadily improving as the courts and
police respond to domestic concerns about the high cost of piracy to
Indian rights' holders.
India's patent protection is weak and has especially adverse
effects on U.S. pharmaceutical and chemical firms. Estimated annual
losses to the U.S. pharmaceutical industry due to piracy are $450
million. India's patent act prohibits product patents for any invention
intended for use or capable of being used as a food, medicine, or drug
or relating to substances prepared or produced by chemical processes.
Consequently, many U.S.-invented drugs are widely reproduced. Processes
for making drugs are patentable, but the patent term is limited to the
shorter of five years from the grant of patent or seven years from the
filing date of the patent application. Product patents in other areas
are granted for 14 years from the date of filing. However, as a
signatory to the Uruguay Round of GATT, including its provisions on
Trade-Related Intellectual Property Rights (TRIPS), India must
introduce a comprehensive system of product patents no later than 2005.
The Indian government has formed an advisory committee to recommend
changes in the 1970 Indian Patents Act. A temporary ordinance for
patent protection implementing the ``mailbox'' provisions of the WTO
TRIPS agreement and providing for exclusive marketing rights was issued
in December 1994. However, the ordinance lapsed and the parliament has
yet to pass a new patent bill implementing the provisions of the
ordinance. In July 1996, the U.S. initiated WTO dispute settlement
procedures over India's failure to implement its TRIPS obligations. The
final panel report on this case was issued in August 1997, and ruled
that India had failed to meet its obligations under the TRIPS
agreement. Indian officials have pledged to introduce a bill in
parliament in late 1997, that, if passed, will put India in compliance
with its TRIPS obligations.
8. Worker Rights
a. The Right of Association.--India's constitution gives workers
the right of association. Workers may form and join trade unions of
their choice; work actions are protected by law. Unions represent
roughly 2 percent of the total workforce, or about 25 percent of
industrial and service workers in the organized sector.
b. The Right to Organize and Bargain Collectively.--Indian law
recognizes the right to organize and bargain collectively. Procedural
mechanisms exist to adjudicate labor disputes that cannot be resolved
through collective bargaining. State and local authorities occasionally
use their power to declare strikes ``illegal'' and force adjudication.
c. Prohibition of Forced or Compulsory Labor.--Forced labor is
prohibited by the constitution; a 1976 law specifically prohibits the
formerly common practice of ``bonded labor''. Despite implementation of
the 1976 law, bonded labor continues in many rural areas. Efforts to
eradicate the practice are complicated by extreme poverty and
jurisdictional disputes between the central and state governments;
legislation is a central government function, while enforcement is the
responsibility of the states.
d. Minimum Age of Employment for Children.--Poor social and
economic conditions and lack of compulsory education make child labor a
major problem in India. The Government of India's 1991 Census estimated
that 11.3 million Indian children from ages 5 to 15 are working. Non-
governmental organizations estimate that there may be more than 55
million child laborers. A 1986 law bans employment of children under
age 14 in hazardous occupations and strictly regulates child employment
in other fields. Nevertheless, tens of thousands of children are
employed in the glass, pottery, carpet and fireworks industries, among
others. Resource constraints and the sheer magnitude of the problem
limit ability to enforce child-labor legislation.
e. Acceptable Conditions of Work.--India has a maximum eight-hour
work day and 48-hour work week. This maximum is generally observed by
employers in the formal sector. Occupational safety and health measures
vary widely from state to state and among industries, as does the
minimum wage.
f. Rights in Sectors with U.S. Investment.--U.S. investment exists
largely in manufacturing and service sectors where organized labor is
predominant and working conditions are well above the average for
India. U.S. investors generally offer better than prevailing wages,
benefits and work conditions. Intense government and press scrutiny of
all foreign activities ensures that any violation of acceptable
standards under the five worker-rights criteria mentioned above would
receive immediate attention.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
------------------------------------------------------------------------
Petroleum..................................... 51
Total Manufacturing........................... 348
Food & Kindred Products..................... 25
Chemicals & Allied Products................. 119
Metals, Primary & Fabricated................ \1\
Machinery, except Electrical................ 145
Electric & Electronic Equipment............. \1\
Transportation Equipment.................... 28
Other Manufacturing......................... 8
Wholesale Trade............................... \1\
Banking....................................... 516
Finance/Insurance/Real Estate................. 67
Services...................................... 51
Other Industries.............................. \1\
TOTAL ALL INDUSTRIES.......................... 1139
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis
______
PAKISTAN
Key Economic Indicators
[Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
1995 1996 1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:
Nominal GDP \2\............................... 54.7 58.3 57.6
Real GDP Growth (pct) \3\..................... 5.3 4.4 3.2
GDP by sector (pct):
Agriculture............................... 25.9 25.8 25.4
Manufacturing............................. 17.1 16.9 16.9
Service................................... 7.8 8.0 8.1
Government................................ 7.7 8.1 8.2
Real Per Capita GDP (US$)................... 431 441 421
Labor Force (millions)...................... 35.2 36.1 37.2
Unemployment Rate (pct)..................... 3.4 5.4 5.4
Money and Prices (annual percentage growth):
Money Supply Growth (M2) \3\................ 17.4 13.8 12.1
Consumer Price Inflation.................... 16.0 11.1 13.0
Exchange Rate (Rupees/US$)
Official \4\.............................. 31.1 35.1 40.5
Balance of Payments and Trade:
Total Exports FOB \3\....................... 8.1 8.7 8.3
Exports to U.S.\3\........................ 1.3 1.4 1.5
Total Imports CIF \3\....................... 10.4 11.8 11.9
Imports from U.S.\3\...................... 1.0 1.1 1.4
Trade Balance \3\........................... -2.3 -3.1 -3.6
Balance with U.S \3\...................... 0.3 0.3 0.1
External Public Debt........................ 27.1 28.9 30.0
Fiscal Deficit/GDP (pct).................... 5.6 6.3 6.2
Current Account Deficit/GDP (pct)........... -2.2 -4.3 -3.9
Debt Service Payments/GDP \6\(pct).......... 44.6 46.6 48.4
Gold and Foreign Exchange Reserves.......... 4.1 7.1 6.5
Aid from U.S. (millions of US$)............. -0 -10.0 35.0
Aid from All Other Sources.................. 4.0 4.3 3.7
------------------------------------------------------------------------
\1\ Unless otherwise indicated, data are for the corresponding Fiscal
Years ending June 30. Rupee exchange rates used to convert to dollars
were, by period, the following: 30.85 for 1995, 33.57 for 1996, and
39.0 for 1997.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ SBP rate to authorized dealers at June 30.
\5\ Average exchange rate of authorized dealers.
\6\ GDP at market prices.
Source: Various Government of Pakistan, including State Bank of Pakistan
Annual Report 1997/97 and Pakistan Economic Survey, Statistical
Supplement 1996/97.
1. General Policy Framework
A continuing large budget deficit and rapid net domestic asset
expansion during 1996, into early 1997, contributed to a sharp
deterioration of the external current account. This was accompanied by
a large build-up of short-term external liabilities, mainly
nonresidents' foreign currency deposits. The 12-month inflation rate
reached 13.8 percent in February 1997, concurrently with a
deterioration in the external reserve position to the 500-600 million
dollars range (about two weeks of imports), and a premium in the local
foreign exchange market in excess of 10 percent. Real Gross Domestic
Product (GDP) growth weakened to 3.2 percent in the fiscal year ending
June 1997, reflecting a poor cotton crop and a decline in manufacturing
output. The government which assumed office in February 1997 has
emphasized tax and tariff reforms, government and public enterprise
restructuring and down sizing, financial sector reform (including bank
privatization), and exchange market reform.
Economic performance since February 1997 has been mixed. Generally,
the economy has remained sluggish and the outcome of important reforms
remains in doubt. However, the International Monetary Fund (IMF)
replaced a successful Staff Monitored Program with an Enhanced
Structural Adjustment Facility and Extended Fund Facility (ESAF/EFF) in
October 1977. This, along with an expected good crop year has bolstered
hopes for economic recovery.
2. Exchange Rate Policy
The value of the rupee is determined according to a managed float,
with the State Bank of Pakistan (SBP) making adjustments against a
basket of major currencies. The U.S. dollar is used as an intervention
currency to determine other rates. Authorized foreign exchange dealers
are allowed to trade at an open market rate that varies over the
official rate. The SBP seeks to follow a policy that balances exchange
rate stability with the imperatives of competitiveness. Among other
things, it closely watches the currencies of regional and other trade
competitors in managing the rupee's value. In the face of domestic
inflation, declining exports and foreign exchange reserves, and
perceived over valuation vis-a-vis competitors' currencies, authorities
devalued the rupee by 8.7 percent in October 1997.
Over the past few years, foreign exchange controls have been
significantly liberalized, but the Rupee is now fully convertible on
current account. Individuals and firms resident in Pakistan may hold
foreign currency bank accounts and may freely move foreign currency
into and out of the country. Foreign firms investing in Pakistan (other
than banks and insurance companies) may remit profits and capital
without prior SBP approval.
3. Structural Policies
Under the new three year ESAF/EFF of October 1997, Pakistan has
recommitted itself to a program of macroeconomic objectives and
structural adjustment policies. The macroeconomic objectives for the
three-year period 1997 to 2000 are: (a) to reduce the external current
deficit (excluding official transfers) to the range of 4.0 to 4.5
percent of GDP which would provide for a substantial strengthening of
the external reserve position; (b) to raise the annual growth rate of
real GDP to the 5 to 6 percent range; and,--to progressively reduce
annual inflation to about 7 percent. The key intermediate policy target
will be a reduction in the overall budget deficit from 6.1 percent of
GDP in 1997 to five percent of GDP in 1998, and to four percent of GDP
by the third year of the program.
The key structural elements in the fiscal area will be: (a) the
extension of the General Sales Tax (GST) to the retail sector; (b)
strengthening of the recently enacted provincial agricultural income
taxes;--overhaul of the tax collection machinery; (d) return to an
automatic petroleum pricing mechanism; and, (e) restructuring of
government ministries and autonomous bodies. Reduction in defense
spending is significant and front-loaded. The budgetary adjustment is
to be supplemented by major improvements in the operations of the
public enterprises. In the banking sector, the program incorporates:
(a) an enhancement of the central bank's autonomy and of its regulatory
and supervisory role; (b) an improvement of the legal and judiciary
processes for enforcing financial contracts;--privatization of the
state-owned banks and financial institutions; and, (d) loan recovery
efforts. As regards the external sector, customs tariffs will be
lowered and simplified and exchange market reforms will be implemented
with a view to develop private forward cover and enable the central
bank to gradually phase out its forward cover scheme for foreign
currency deposits.
4. Debt Management Policies
Pakistan remains dependent on foreign donors and creditors to meet
its financing needs, and its total external debt has grown in recent
years. Total external debt at June 30, 1997 was $30.0 billion, up to
48.4 percent of GDP at market prices over 46.6 percent in 1996. Debt
service as a share of export earnings had grown had grown to 61.8
percent, up from 52.3 percent in 1996.
Pakistan has a historically excellent record for honoring external
debt obligations, even during periods of strained financial
circumstances. Nonetheless, in November 1996, as a result of a growing
current account deficit, declining reserves and suspension of the IMF's
Standby program, some foreign creditors lowered their rating of
Pakistani exposure. In 1997, the government took steps to reduce
external imbalances and actively and cooperatively to seek support from
the international financial institutions for its policies. The
government has also worked to maintain good relations with foreign
commercial creditors. These efforts paid off in the form of a new ESAF/
EFF program in October 1997, and with significant additional balance of
payments support financing from other international financial
institutions. However, given Pakistan's long difficulties trying to
stabilize its budget and external account, the availability of
continued support financing is more than ever dependent on successful
performance as measured frequently against predetermined benchmarks.
The uncertainty of achieving the performance benchmarks likely will
continue importantly to determine export success for U.S. companies.
5. Aid
The U.S. suspended bilateral assistance to Pakistan in 1989 over
differences regarding nuclear arms proliferation. Few categories of
assistance were exempted. In fiscal years 1997 and 1998, the U.S.
continued food export programs under P.L.-480 Title I at ten million
dollars per year, with a 25 million dollar supplemental program in
fiscal year 1997.
6. Significant Barriers to U.S. Exports
Import licenses: In recent years Pakistan has significantly
reformed its restrictive import regime. Since July 1993, import
licenses, formerly common, have been abolished on all ``freely
importable'' goods, i.e. on all items not on the Negative List which
consists of 68 items banned mostly for religious, health or security
reasons, or in accordance with international agreements.
Services barriers: Several sectors, including banking, insurance,
transportation and telecommunications, are affected by services
barriers. Portions of major service industries are nationalized and run
by the government. Foreign banks are generally restricted to having at
most four branches, are subject to higher withholding taxes than
domestic banks, and face restrictions on doing business with state-
owned corporations. New foreign entrants to the general insurance
market are effectively barred, and those to the life insurance market,
while not barred, face severe obstacles. Meanwhile, those few foreign
insurance companies operating in Pakistan face various tax problems,
long delays in remitting profits, and problems associated with
operating within a cartelized industry. Basic telephony is the monopoly
of the state-owned Pakistan Telecommunications Corporation Ltd. (PTCL)
and may remain a monopoly for some time after PTCL's scheduled
privatization. Competition among private providers is now allowed in
cellular telephony. Foreign brokers are allowed to join one of the
country's three stock exchanges as part of a joint venture with a
Pakistani firm. Motion pictures face high tax rates, especially the
practice of including the royalty value in the dutiable value of films
imported for showing in theaters, which have sharply cut their import
into Pakistan.
Standards, testing, labeling, and certification: Testing facilities
for agricultural goods are inadequate, and standards are inconsistently
applied, resulting in occasional discrimination against American farm
products.
Investment barriers: Pakistan has significantly liberalized its
investment regime and actively encourages inward foreign investment. A
tentative substantial additional liberalization of conditions for
foreign direct investment was announced in December 1997 but had not
been finalized or implemented as of year end. Frequent changes in tax
and duty policy undermine the ability of private sector firms to carry
out planning for long-term investments.
Government procurement: The government, along with its numerous
state-run corporations, is Pakistan's largest importer. Work performed
for government agencies, including purchase of imported equipment and
services, is usually awarded through tenders that are publicly
announced and/or issued to registered suppliers. The government
subscribes to principles of international competitive bidding, but
political influence on procurement decisions is common, and these are
not always made on the basis of price and technical quality alone.
Delays in bureaucratic decision-making are common.
Customs procedures: Investors sometimes complain of a gulf between
incentives advertised at the policy level and on-the-ground
implementation, and these complaints often relate to customs problems.
For example, preferential tariff rates are usually subject to the
proviso that the goods in question are not domestically manufactured.
Disputes sometimes arise over this provision, with investors arguing
that local output, while available, does not meet their specifications.
Investors also cite arbitrary and inconsistent customs valuations and
frequent changes in rates. Delays are also reported in administration
of the ``duty drawback'' scheme, which refunds partial tariff charges
on imported inputs once the final output they were used for is
exported. Charges that customs officers demand bribes are also common.
7. Export Subsidies Policies
Pakistan actively promotes the export of Pakistani goods with
government financing measures, the tariff rebate scheme noted above and
other tariff concessions on imported inputs, tax concessions, and
government sponsored exhibitions. These policies appear to be equally
applied to both foreign and domestic firms producing goods for export.
Pakistan's main exports are cotton textile products, and until 1994 the
government taxed raw cotton exports in order to keep their price low
for domestic manufacturers. Cotton exports are no longer taxed, but
they must be registered with the Export Promotion Bureau, and domestic
textile producers continue to call for reimposition of the tax.
8. Protection of U.S. Intellectual Property
Pakistani enforcement of intellectual property rights is weak,
resulting in widespread piracy, especially of copyrighted materials. As
a result, Pakistan has been on the Special 301 IPR ``Watch List'' since
1989. In 1995, however, the authorities took steps to strengthen
enforcement, including raids on several pirated video rental shops, but
the impact of these efforts has been limited. Pakistan is subject to
the terms of the World Trade Organization's Agreement on Trade Related
Intellectual Property Measures and is a member of the World
Intellectual Property Organization. The U.S. Pakistan Treaty of
Friendship and Commerce guarantees national and most favored nation
treatment for patents, trademarks and industrial property rights.
Pakistan is not a member of the Paris Industrial Property Convention or
the Berne Convention but is a member of the Universal Copyright
Convention.
Patents: Current law protects only process patents, though the
government has stated its commitment to eventually offering product
patents in accordance with WTO obligations.
Trademarks: Since 1994, Pakistan has required that pharmaceutical
firms label the generic name on all products with at least equal
prominence as that of the brand name. This trademark labeling
requirement serves to dilute in the minds of consumers the differences
in quality, efficacy and safety among different products. There also
have been occasional instances of infringement, including of trademarks
for toys and industrial machinery.
Copyrights: The markets for imported computer software and, until
recently, film videos, are nearly 100 percent pirated. Piracy of
copyrighted textile designs is also a serious problem. Some counterfeit
products made in Pakistan are exported to other markets. However, at
least one local firm is now distributing legitimate, copyrighted
videotapes produced by U.S. film studios. And as a result of
strengthened law enforcement, some other pirate outlets are taking
steps to offer legitimate products. Sustained stronger enforcement
needs to be paired with action by the courts to prosecute and sentence
violators.
The impact on U.S. exports of weak IPR protection in Pakistan is
substantial, though difficult to quantify. In the area of copyright
infringement alone, the International Intellectual Property Alliance
estimates that piracy of films, sound recordings, computer programs,
and books resulted in trade losses of $62 million in 1994.
9. Worker Rights
a. The Right of Association.--The Industrial Relations Ordinance of
1969 (IRO) enunciates the right of industrial workers to form trade
unions but is subject to major restrictions in some employment areas.
In practice, labor laws place significant constraints on the formation
of industrial unions and their ability to function effectively. The
Essential Services Maintenance Act of 1952 restricts normal union
activities in sectors associated with ``the administration of the
State,'' e.g., government services and some public utilities, but the
government has reduced its application.
b. The Right to Organize and Bargain Collectively.--The right of
industrial workers to organize and freely elect representatives to act
as collective bargaining agents is established in law. However, the
many restrictions on forming unions preclude collective bargaining by
large sections of the labor force, e.g., agricultural workers, who are
not guaranteed the right to strike, bargain collectively, or make
demands on employers. Legally required conciliation proceedings and
cooling off periods constrain the right to strike, as does the
government's authority to ban any strike that may cause ``serious
hardship to the community.'' Strikes are rare and, when they occur,
usually illegal and short. The government regards as illegal any strike
conducted by workers who are not members of a legally registered union.
The law does not protect leaders of illegal strikes.
c. Prohibition of Forced or Compulsory Labor.--The Constitution and
the law prohibit forced labor. However, illegal bonded labor is
widespread. Bonded labor is common in the brick, glass, and fishing
industries and is found among agricultural and construction workers in
rural areas. Conservative estimates put the figure of bonded workers at
several million. The Bonded Labor System (Abolition) Act, adopted in
1992, outlawed bonded labor, canceled all existing bonded debts, and
forbade lawsuits for the recovery of existing debts. However, the
provincial governments, which are responsible for enforcing the law,
have failed to establish enforcement mechanisms, and the law is largely
ineffective.
d. Minimum Age for Employment of Children.--Child labor is common
and results from a combination of severe poverty, employer greed, and
inadequate enforcement of laws intended to control it. A government
study done with the assistance of the ILO estimates there are some 3.6
million child laborers in Pakistan. While much child labor is in the
traditional framework of family farming or small business, the
employment of children in larger industries is also widespread. Child
labor is widely employed in the carpet industry, much of which is
family run. Children have also been employed in other export
industries, such as textiles, leather tanning, surgical instruments,
and sporting goods, though the extent is unclear. The government has
made some efforts to improve enforcement of laws against child labor
and is cooperating with the ILO on a range of programs with the goal of
eliminating child labor. It has also encouraged the establishment of an
independent Child Welfare Foundation designed to rehabilitate child
laborers and to oversee child labor-free certification programs. But
such programs have yet to be implemented. The United States partially
suspended Pakistan's Generalized System of Preference (GSP) benefits in
1996, due to inadequate worker rights protections involving child
labor. The suspension removed $40 million in GSP benefits from
Pakistani surgical instruments, sporting goods, and handmade rugs.
e. Acceptable Conditions of Work.--The law provides for a monthly
minimum wage of about 42 dollars (1,650 rupees), a maximum work week of
54 hours, rest periods during the workday, and paid annual holidays.
Although this wage provides a meager subsistence living for a small
family, minimum wage benefits and other regulations affect only a small
part of the work force, and most families are large. In general, health
and safety standards are poor.
f. Rights in Sector with U.S. Investment.--Significant investment
by U.S. companies has occurred in the petroleum, food, and chemicals
sectors. U.S. investors in industrial sectors are all large enough to
be subject to the full provisions of Pakistani law for worker
protection and entitlements. In general, multinational employers do
better than most employers in fulfilling their legal obligations,
providing good benefits and conditions, and dealing responsibly with
unions. The only significant area of U.S. investment in which worker
rights are legally restricted is the petroleum sector. The oil and gas
industry is subject to the Essential Services Maintenance Act, which
bans strikes and collective bargaining, limits a worker's right to
change employment, and affords little recourse to a fired worker.
Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
Position Abroad on an Historical Cost Basis--1996
[Millions of U.S. dollars]
------------------------------------------------------------------------
Category Amount
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Petroleum..................................... 73
Total Manufacturing........................... \1\
Food & Kindred Products..................... 6
Chemicals & Allied Products................. 49
Metals, Primary & Fabricated................ -4
Machinery, except Electrical................ 0
Electric & Electronic Equipment............. 0
Transportation Equipment.................... 0
Other Manufacturing......................... \1\
Wholesale Trade............................... \1\
Banking....................................... 149
Finance/Insurance/Real Estate................. \1\
Services...................................... 0
Other Industries.............................. 0
TOTAL ALL INDUSTRIES.......................... 382
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\1\ Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis