Countries of the World/COUNTRYS.BIN/dp/0035/00354.txt

Text File | 1991-06-24 | 33KB | 523 lines

$Unique_ID{COW00354}
$Pretitle{370}
$Title{Belgium
Chapter 3C.   Income Policy}
$Subtitle{}
$Author{Millicent H. Schwenk}
$Affiliation{HQ, Department of the Army}
$Subject{trade
percent
banks
belgium
belgian
system
brussels
countries
export
foreign}
$Date{1984}
$Log{}
Country:     Belgium
Book:        Belgium, A Country Study
Author:      Millicent H. Schwenk
Affiliation: HQ, Department of the Army
Date:        1984

Chapter 3C.   Income Policy

     Through the 1970s, wages, pensions, and social security payments were
largely shielded from the impact of inflation through an automatic indexation
system. Wages and salaries increased far more rapidly than the rise in
consumer prices. This development led to a sharp expansion in private consumer
spending and a marked rise in demand for items associated with a higher
standard of living, particularly consumer durables. Demand for electric
appliances, radios, television sets, and record players, for example,
increased by 10 percent per year on average. There were also significant
increases in expenditures on electricity, health care, financial services,
automobiles, and various pharmaceutical and personal products. By contrast,
expenditure on so-called essential living requirements accounted for only 33.9
percent of GNP in the 1976-80 period, compared to 42.8 percent in the 1961-65
period.

     Wage increases were so significant that national income distribution was
shifted in favor of households, seriously affecting corporate profitability
and investment. The Martens V recovery program therefore sought to contain the
rise in wages and break their link with the price index in order to improve
corporate competitiveness. Initially, the proportional indexation system (see
Glossary), was replaced by a flat-rate system (see Glossary), but the
proportional system was restored in 1984. The government planned, however, to
skip a 2-percent cost of living increase each year between 1984 and 1986 and
to average the consumer price index over four months rather than one month.
The proceeds of the wage restraint were to be used to pay social security
contributions and create employment. If wages increased faster in Belgium than
in its main competitor countries, the government retained the right to
institute further wage cuts. However, after the institution of the recovery
program in early 1982, the wage push was more strongly curbed in Belgium than
in most other industrialized countries, redressing the long period when wages
generally rose faster in Belgium.

     Although wages have been sharply curtailed, investment income has risen
in recent years, recording a real rise of nearly 3.5 percent in 1983. This
rise occurred because of the Belgian's tendency to save, an upward movement
of interest rates, an improvement in dividends, and a growth in incomes from
long-term investments. Overall, the share of individuals in GNP has decreased
only slightly since 1980, although those among the lower and middle classes
without significant investment income have experienced greater reductions in
buying power than the average. It was expected that increased unemployment,
lack of consumer confidence, and continued wage restraint would hold down
domestic demand in the future, changing expenditure patterns somewhat,
compared with the 1970-80 period.

Foreign Economic Relations

     Because of an absence of essential natural resources, Belgium must import
large quantities of oil and raw materials. To pay for these supplies, the
country exports semifinished and manufactured goods inasmuch as the small
domestic market offers limited outlets. During the 1960s and 1970s, foreign
trade expanded much more rapidly than production, so that trade has come to
represent more than 60 percent of GNP. This high degree of trade dependency
has made economic prosperity vulnerable to fluctuations in world economic and
trade activity. Belgium has therefore been a staunch advocate of free trade
and a firm supporter of greater economic integration in Europe.

Trade Organization and Policy

     In 1922 Belgium and Luxembourg entered into an economic union to abolish
the customs border between the two countries. All trade conventions with other
states have since been entered into by the Belgium-Luxembourg Economic Union
(BLEU), and trade and balance of payments statistics have been calculated on a
combined basis. In 1944 the BLEU signed a convention for a separate customs
union with the Netherlands, called Benelux. The benefits of this customs union
were later overshadowed by the EEC, but the Belgian government in 1984
launched a campaign to rejuvenate Benelux, in conjunction with its fortieth
anniversary.

     Underlying the initiative to add a stronger political dimension to
Benelux was the desire to counterbalance the development of greater
Franco-German cooperation and reassert Benelux as a kind of laboratory in the
forefront of EEC developments. In July 1984 the Benelux countries introduced
a single administrative document for their own cross border trade, while the
EEC continued to debate the terms of a similar document. It remained to be
seen whether the French-speaking population in Belgium would go along with the
push for a Benelux revival. In the past they have stalled moves toward greater
cooperation because of fears they would be disadvantaged by closer ties
between Dutch-speaking Flanders and the Netherlands.

     Belgium was a founding member of the EEC. The Spaak Report, written by a
former foreign minister, Paul Henri Spaak, formed the basic document from
which the Treaty of Rome, establishing the community, was written (see
Appendix B). Since the completion of the EEC customs union on July 1, 1968,
customs duties on trade between Belgium and its EEC partners have been
eliminated, and non-agricultural imports from countries outside the EEC have
been subject to the EEC Common External Tariff (CET). Duty rates are moderate;
most raw materials enter duty free or at low rates, and rates on most
manufactured goods fall within a range of 5 to 17 percent.

     The 1979 series of Multilateral Trade Negotiations, the Tokyo Round, held
under the auspices of the General Agreement on Tariffs and Trade, was expected
to reduce the average tariff level on industrial goods imports by
approximately 35 percent by 1987. Under EEC agreements and within the
framework of the United Nations Conference on Trade and Development, Belgium
extends preferential tariff treatment to a large number of developing
countries. Exports are generally free, except for occasional temporary
restrictions instituted by the EEC for internal supply purposes or voluntary
export restraint, particularly in the case of steel pipe and tube exports to
the United States.

     Government involvement in the trade field is basically limited to
administering trade regulations, negotiating trade agreements, and providing
trade information and other services through the Belgian Foreign Trade Office.
The activities of the trade office are financed by the Foreign Trade Fund,
which may provide grants, loans, or guarantees to trade associations and
individual firms to support market research, promotional campaigns, or the
improvement of commercial techniques. To supplement this work, the National
Del Credere Office insures political and commercial export risks, and
Compromex, a public consultative committee, advises on applications for
interest rate subsidies granted through the Foreign Trade Fund. The principal
financing facility for medium-and long-term credit is a semipublic association
called Creditexport, whose members include a number of commercial banks
private savings banks, and public financial institutions. The NBB oversees
export credit extension and to some degree controls it by the right to certify
export loans from these institutions, entitling them to lower rediscount
rates.

     In the 1980s the government moved to improve its support for the export
industry in order to encourage small- and medium-sized firms to export.
Gov