<text>U.S. DEPARTMENT OF STATETAIWAN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS TAIWAN Key Economic Indicators (Billions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1991 prices) 176.3 178.6 188.6Real GDP Growth (pct.) 6.5 6.2 6.2GDP (at current prices) 206.6 216.4 234.2By Sector: Agriculture 7.3 7.8 7.9 Energy/Water 5.9 6.0 6.4 Mining/Quarrying 1.1 1.3 0.8 Manufacturing 67.9 68.5 72.5 Construction 10.7 11.9 13.2 Commercial Services 33.7 35.7 15.4 Transport/Communications 13.0 13.9 15.4 Financial Services 39.7 43.3 49.5 Government/Other Services 27.3 28.0 29.4 Net Exports of Goods & Services 5.1 4.0 3.4Real Per Capita GDP (USD - 1986 prices) 8,538 8,568 8,936Labor Force (000s) 8,765 8,864 9,100Unemployment Rate (pct.) 1.5 1.5 1.5Money and Prices: (annual percentage growth)Money Supply (M2) 16.6 15.1 15.0Base Interest Rate 2/ 8.2 7.9 7.6Personal Savings Rate -7.4 -1.6 -2.9Retail Inflation 4.5 2.9 3.8Wholesale Inflation -3.7 2.5 1.9Consumer Price Index (1991 base) 104.47 107.54 111.66Exchange Rate (Dollar/NTD) 3/ Official 0.03946 0.03787 0.03789 Unofficial 0.03964 0.03779 0.03794Balance of Payments and Trade:Total Exports (FOB) 4/ 81.5 85.1 90.5 Exports to U.S. 23.6 23.6 23.9Total Imports (CIF) 4/ 72.0 77.1 83.5 Imports from U.S. 15.8 16.7 18.0Aid from U.S. 5/ 43.0 34.2 26.5Aid from Other Countries 0 0 0External Public Debt 0.5 0.4 0.3Debt Service Payments (paid) 2.1 1.8 1.7Gold and Foreign Exch. Reserves 88.3 89.3 97.0Trade Balance 9.5 8.0 7.0 Trade Balance with U.S. 7.8 6.9 5.91/ 1994 figures are estimates based on data from theDirectorate General of Budget, Accounting and Statistics, orextrapolated from data available as of September 1994.2/ Yearly average of the prime rate listed by the Bank ofTaiwan.3/ Average of figures at the end of the month.4/ Taiwan Ministry of Finance figures for merchandise trade.5/ Outstanding debt owed. AID disbursements stopped in 1968.1. General Policy Framework Over the past four decades, Taiwan has produced one of theworld's major economic success stories, achieving annualeconomic growth averaging nine percent between 1952 and 1993.Real gross national product (GNP) increased six percent in 1993and is expected to expand by another six percent in 1994. Percapita GNP was $10,553 in 1993. Taiwan holds foreign exchangereserves of about $91 billion, more than any country exceptJapan. Prices rose 2.9 percent in 1993 and are expected torise about 3.5 percent in 1994. Taiwan's increasing economic prosperity has beenaccompanied by a major structural transformation. Appreciationof the New Taiwan Dollar (NTD) and rising labor and land costshave led many manufacturers of labor intensive products such astoys, apparel and footwear to move offshore, mainly tosoutheast Asia and mainland China. Industrial growth is nowconcentrated in capital and technology intensive industriessuch as petrochemicals, computers, and electronic components,as well as consumer goods industries such as food processing.Taiwan's economy continues to be export oriented, with exportsaccounting for 44.5 percent of GNP. In the past several years,GNP growth has been driven by increases in domesticconsumption, increased public spending on infrastructure, andprivate investment. Falling official savings and growing public expenditureshave caused public debt to increase steadily. This hascompelled the local authorities to rely more on bonds and bankloans to finance major expenditures. Consequently, outstandingpublic debt has climbed, fast reaching almost 109 percent ofthe total central budget for Taiwan's fiscal year of 1995 (July1, 1994 to June 30, 1995). While defense spending stillaccounts for the largest share of public expenditures, it isfalling in both absolute and relative terms. The greatestpressure on the budget currently comes from growing demands forsocial welfare spending. In the course of multilateral General Agreement on Tariffsand Trade (GATT) negotiations, Taiwan has committed toliberalize its trading regime in many sectors: manufacturedproducts, agricultural products, and services. Taiwan hopes toaccede to the GATT and its successor organization, the WorldTrade Organization (WTO), by early 1995.2. Exchange Rate Policy Taiwan has a floating exchange rate system in which bankersand their customers set rates independently of theauthorities. Taiwan authorities, however, control the largestbanks authorized to deal in foreign exchange. Foreign banksaccount for one-quarter of foreign exchange business, and thenumber of private domestic banks obtaining permits for foreignexchange dealing is increasing steadily. The exchange rate hasbeen fairly stable at about one U.S. dollar equals 25-27 NTdollars since the major appreciation from one U.S. dollarequals 40 NT dollars in 1985. The Central Bank of China (CBC) intervenes in the foreignexchange market when it feels that speculation or "drasticfluctuations" in the exchange rate may impair the normalfunction of the market. Two tools the CBC uses to influencethe foreign exchange market are restrictions on banks'overbought and oversold positions and limits on the foreignliabilities banks can incur. Trade-related funds flow freelyinto and out of Taiwan, although the CBC maintains restrictionson the movement of funds in capital accounts. In the past yearthe local authorities have, however, relaxed a number ofrestrictions on capital account transactions.3. Structural Policies The Taiwan authorities have committed themselves to furtherreducing state direction of the macroeconomy and to pursuing apolicy of privatization. At present, however, large state-runenterprises still account for nearly one-third of the economy.Electricity, water, petroleum products, transportation, sugar,steel, the domestic production of cigarettes and alcoholicbeverages, and banking are all either partly or entirely in thehands of state-owned firms. To meet the goal of accession tothe GATT, the authorities said they will reduce the scope ofstate control by permitting private firms to generate up to20 percent of electricity. A private firm has already begun tobuild a naphtha cracker. Pricing is generally left to the private sector, but isdistorted by high tariffs on some sectors. The authoritieshave set up the Fair Trade Commission to thwart noncompetitivepricing systems, but state-run firms can apply on acase-by-case basis to obtain five-year exemptions. In March 1994, the Taiwan authorities cut tariffs onindustrial products at the behest of the United States, thelatest in a series of tariff cuts Taiwan has implemented inrecent years. The authorities have not, however, reducedtariffs on another 758 items requested by the United States.Taiwan's tariff and pricing structure on agricultural productsin particular pose obstacles for U.S. exports, with tariffs onsome agricultural goods running as high as 40-50 percent, andimports of products such as rice, peanuts, small red beans,sugar, chicken meat, duck parts and some pork products beingbanned. Retail food prices are higher than those that wouldprevail in a more liberalized market due to high import duties,commodity taxes on diluted fruit and vegetable juices,protected agricultural production, and an inefficientdistribution system characterized by layers of high markups.The Taiwan Tobacco and Wine Monopoly Bureau (TTWMB), which hasa monopoly on the domestic production of cigarettes andalcoholic beverages, guarantees artificially high prices fortobacco, rice, grapes, and other products.4. Debt Management Policies Taiwan is virtually free of foreign debt. By the end ofJune 1994, Taiwan's long term outstanding external public debttotaled $389 million, compared to gold and foreign exchangereserves of nearly $96 billion. These international reservessuffice to meet Taiwan's capital requirements for 15 months ofimports. Taiwan's debt service payment in 1993 totaled$1.8 billion, accounting for only 1.9 percent of exports ofgoods and services. With these huge international reserves inhand, Taiwan's central authorities and state-owned enterprisessee little need to incur foreign debt, even with the spendinganticipated for the six-year national development plan andgrowing demands for domestic welfare spending. As of June 30,1994, the outstanding external public debt accounted for lessthan one percent of the central authorities' total outstandingpublic debt. Loans committed by the Taiwan authorities to the worldexceeded $1 billion at the end of 1993. This number includescredit supplied by the Ministry of Foreign Affairs and theInternational Economic Cooperation Development Fund (IECDF) butdoes not include credit from state-owned banks. In 1993 and1994, the IECDF offered low-interest loans to the Philippinesto convert Subic Bay into an industrial zone. Through arelending arrangement, it provided low-interest loans toVietnam to build highways and industrial parks and financesmall business firms' imports from Taiwan. Taiwan has alsomade contributions to the Central American Bank for EconomicIntegration, European Bank for Reconstruction and Development,and Asian Development Bank (ADB). In addition, the ADB hasfloated bonds in Taiwan.5. Significant Barriers to U.S. Exports The persistent U.S. trade deficit with Taiwan has beensteadily shrinking. Taiwan's accession to GATT/WTO will openmarkets for goods and services in which the United States iscompetitive but will also remove area restrictions whichfavored U.S. suppliers by restricting some other nations'imports to Taiwan. Import licenses: On July 1, 1994, Taiwan simplified itsimport procedures for its 8,500 import categories byimplementing a negative list. This list increases thepercentage of import categories exempt from controls from 34percent to 85 percent. There are 765 items that requireapproval documentation from relevant authorities for Customsexamination during customs clearance. Another 474 items areimported under special conditions: 320 items require importpermits from the Board of Foreign Trade (BOFT) and 154 requirepro forma notarization by banks. Imports are banned for 247items, including ammunition, rice, chicken meat and some fruits(bananas, papayas, guavas, pineapples and mangoes). Services Barriers: In the past one and a half years,Taiwan has removed many discriminatory limits on foreignsecurities firms, insurance companies, and banks, includingthose affecting branching, NT dollar deposits, and scope ofbusiness. Remaining services barriers include: Financial: The local authorities limit foreign ownershipof securities investment and trust companies, local brokeragefirms dealing in offshore futures, and local companies listedon the Taiwan Stock Exchange (TAIEX). Foreign individuals areprohibited from trading in shares on the TAIEX. Legal: Foreign law firms that wish to operate in Taiwanmust either set up as a consulting firm or enter into apartnership with a local firm. Insurance: Taiwan prohibits mutual insurance companies.Under current regulations, setting up a branch for a foreignnewcomer can be a lengthy process: the foreign applicant musthave one year of experience in Taiwan as a representativeoffice before applying to become a branch, and it needs fiveyears of experience dealing with Taiwan before it can establisha representative office. Transportation: Taiwan does not permit foreign oceancarriers to truck containers to their ultimate destinations onthe island. Telecommunications: U.S. firms are not allowed to providebasic or "type II" value-added network (VAN) services such asinformation storage and retrieval, information processing,remote transactions, and electronic data interchange. Motion Pictures: Taiwan restricts the import of foreignfilm prints to 24 per title (up from 16 as of October 1,1994). No more than nine theaters in any municipality may showthe same foreign film simultaneously. Standards, Testing, Labeling, and Certification: Taiwanhas committed to join the GATT Code on Technical Barriers toTrade as part of its GATT/WTO accession process. Among theexisting requirements which particularly affect U.S. productsare those pertaining to agriculture. Taiwan's lack of aninternationally accepted set of pesticide tolerance levels forimported fruits and vegetables sometimes impedes trade in theseproducts. For example, stringent microbiological and chemicaltesting of imported food products such as turkey, pork, andgame meat limits imports. Standards on preservatives for softdrinks preclude the import of certain beverages. Importedagricultural goods are routinely tested while localagricultural products usually are not. The authoritiesdetermine the purity of imported fruit juices using an aminonitrogen test, a purity standard that is uniquely stringent. Investment Barriers: Taiwan welcomes foreign investment,which it recognizes contributed to its development. It isreducing remaining investment barriers both as part of itsGATT/WTO accession process and as part of its drive to become aregional operations center. Foreign investment is prohibited,however, in such industries as agriculture, basictelecommunications, broadcasting, cigarette manufacture andliquor distilling. Equity participation is limited in severalother industries, including shipping, mining and securitiestrading. Local content requirements, phased out for mostmanufacturing industries, remain in place for the automobileand motorcycle industries. Foreign administrative personnelare limited to no more than five per company, with the exactnumber allowed dependent on business volume and the size of theinvestment. Foreign individuals are not allowed to purchaseshares on Taiwan's stock market. An institutional investor mayinvest no more than $200 million on the stock market. Aceiling of $7.5 billion exists for all foreign institutionalinvestment. A foreign institutional investor may only remitinvested principal three months after his funds have arrived inTaiwan. Capital gains may only be remitted one year afterfunds have arrived in Taiwan. Procurement Practices: In theory, public procurement whichexceeds NTD 50 million ($1.87 million) should go through thestate-owned Central Trust of China. However, numerousexceptions to this policy have created a situation in whichmost procurement actions (by value) are not done by the CentralTrust of China. In addition, each agency has its own set ofprocurement regulations and practices (often unwritten), makingthe process cumbersome, confusing, and lacking intransparency. Furthermore, Taiwan commissioning agenciesfrequently impose unprofitable contract terms such as lengthywarranties, unlimited potential damages and contingentliabilities, and expensive bond requirements. Short lead timeson major tenders further tend to restrict foreignparticipation. Taiwan's Industrial Cooperation Programs (ICPs)represent a form of offset and are becoming more prevalent.The ICPs require foreign vendors to propose programs thattransfer technology, procure locally, and assist withmarketing. Taiwan has informed GATT members of its desire tonegotiate adherence in the Uruguay Round Agreement onGovernment Procurement. Customs Procedures: Taiwan has agreed to abide by the GATTcustoms valuation code, but still uses reference prices forcertain agricultural imports. In order to simplify customsprocedures, Taiwan's customs authorities have implemented anautomated clearance system for air cargo whereby firms andforwarders can process documents with customs by computerlinkup. The authorities planned to implement a similarautomated system for sea cargo in November 1994. Importers whoopen a deposit with customs can clear merchandise first and paytariffs later.6. Export Subsidies Policies The Taiwan authorities generally refrain from usingsubsidies and tax policies to subsidize exports, but exceptionsdo exist. Exports of rice and sugar enjoy indirect subsidiesthrough guaranteed purchase prices higher than world prices.Producers of some fruit, poultry, and livestock receivefinancial assistance with packaging, storage, and shipping viamarketing cooperatives and farmers associations. Rice exportsare primarily humanitarian aid and the small amount of sugarexports (produced solely by a state-run company) virtually allgo to the United States to maintain the U.S. quota for Taiwan.The TTWMB guarantees prices for products which are used asmaterials for tobacco and alcoholic goods. In addition, Taiwanauthorities offer guaranty prices for a part of rice and othercereal crops produced by farmers.7. Protection of U.S. Intellectual Property Taiwan's protection of intellectual property rights (IPR)has improved substantially in the past few years. A series ofimportant laws have been passed since 1992, including revisedcopyright, patent and trademark laws, a U.S.-Taiwan bilateralcopyright agreement, and a cable television law. Together withnew legislation currently under consideration to protectintegrated circuits and trade secrets, these laws give Taiwanan IPR legal structure consistent with GATT TRIPS textstandards. Improved enforcement efforts, including theestablishment of computerized export monitoring systems forcomputer software and trademark goods, have led to a reductionin computer software, video, laser disc and compact discpiracy. Inconsistent decisions by Taiwan's trademark andpatent examiners highlight the need for better training andmore standardized examination and registration procedures.Taiwan is on the Special 301 watch list. Taiwan is not amember of any major multilateral intellectual propertyconventions. Patents: The revised patent law replaced most criminalpenalties for patent infringement with tougher civilpenalties. U.S. companies are concerned that, in light ofTaiwan's relatively undeveloped civil law system, penalties areinsufficient to deter infringement. Trademarks: Counterfeiting of famous name products hasdecreased, but remains a problem. Taiwan's voluntary exportmonitoring system for trademarked goods should help if enoughU.S. firms choose to participate. Copyrights: The export of counterfeit copyrighted goodshas dropped markedly. The unauthorized copying of computersoftware and manufacture of counterfeit video games remainproblems. New Technologies: Inspection and monitoring efforts by theauthorities have sharply reduced the unauthorized use ofcopyrighted programming on cable television. Taiwan courtshave not yet taken a clear position on the legality of theretransmission of unencoded satellite signals. The International Intellectual Property Alliance estimatedthat the piracy of software, movies, music recordings and booksin Taiwan cost U.S. companies $150 million in 1993.8. Worker Rights a. The Right of Association As a democracy, Taiwan has a large number of independentlabor organizations. Many of these organizations, however,lack a firm legal footing and the right to demand collectivebargaining, because they are not registered under Taiwan'sLabor Union Law (LUL). According to the LUL, all workers(except for civil servants, teachers, and defense industryworkers) can organize trade unions, but only after obtainingthe approval of the authorities. The LUL forbids the emergenceof competing trade unions and confederations. Most of the3,654 officially registered labor unions have close relationswith management and the ruling Kuomintang (KMT) party. b. The Right to Organize and Bargain Collectively The LUL, the Law Governing the Handling of Labor Disputes,and the Collective Agreement Law give workers the right toorganize and bargain collectively. These laws furtherstipulate that employers may not refuse employment to, dismiss,or otherwise unfairly treat workers on the basis of their unionmembership or participation in mediation and arbitration. Inpractice, however, employers have at times ignored these lawswithout suffering any legal action. As of June 1994, 293formal collective agreements were in force, about the samenumber as in 1993. Collective bargaining agreements existmainly in large-scale enterprises, which account for less thanfive percent of the enterprises on Taiwan. c. Prohibition of Forced or Compulsory Labor Under the Labor Standards Law (LSL), forced or compulsorylabor is prohibited. Violation of the law is punishable by amaximum jail sentence of five years. The only reported casesof forced labor involved prostitution. d. Minimum Age of Employment of Children The LSL stipulates that the minimum age for employment is15 years (i.e., after compulsory education ends). Child laboris rare in Taiwan. As of October 1994, the authorities hadapproved the employment of 11,915 minors between 15 and 16years old by manufacturing industries. e. Acceptable Conditions of Work The LSL limits the work week to 48 hours (8 hours per day,6 days per week). The LSL also has provisions for leave,overtime pay, retirement pay and minimum wages. In August of1994, the authorities raised the minimum monthly wage by about5 percent from the equivalent of $510 to $540. The averagemonthly wage in the manufacturing sector averaged theequivalent of $1,110 in 1993. In addition to wages, employerstypically provide additional payments and benefits, includingan 80 percent labor insurance premium, the distribution oflabor welfare funds, and meal and transportation allowances toworkers. f. Rights in Sectors with U.S. Investment U.S firms and joint ventures generally abide by Taiwan'slabor regulations. In terms of wages and other benefits, U.S.firms tend to provide model work conditions. Worker rights donot vary significantly by industrial sector. Workingconditions, however, tend to be relatively better in theinformation and electronics industries and relatively worse inthe footwear and sporting goods industries. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 1,896 Food & Kindred Products 80 Chemicals and Allied Products 802 Metals, Primary & Fabricated (1) Machinery, except Electrical 87 Electric & Electronic Equipment 775 Transportation Equipment (1) Other Manufacturing 72Wholesale Trade 454Banking 401Finance/Insurance/Real Estate 144Services 79Other Industries (1)TOTAL ALL INDUSTRIES 3,096(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis</text>
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<text>U.S. DEPARTMENT OF STATEVENEZUELA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS f. Rights in Sectors with U.S. Investment Labor rights and conditions of work in sectors in whichthere is U.S. investment are provided the same protection asother workers. In many cases, the wages and working conditionsfor those in U.S.-affiliated industries appear to be betterthan average. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 198Total Manufacturing 1,371 Food & Kindred Products 221 Chemicals and Allied Products 255 Metals, Primary & Fabricated (1) Machinery, except Electrical (1) Electric & Electronic Equipment 35 Transportation Equipment 438 Other Manufacturing 316Wholesale Trade 223Banking (1)Finance/Insurance/Real Estate 156Services (1)Other Industries 281TOTAL ALL INDUSTRIES 2,295(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEVENEZUELA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS VENEZUELA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1985 prices) 2/ 72,999 72,297 68,393Real GDP Growth (pct.) 6.8 -1.0 -5.4GDP (at current prices) 2/ 60,414 58,973 57,158By Sector: Agriculture 3,223 3,146 2,857 Energy/Water 11,969 11,684 11,800 Manufacturing 8,786 8,576 7,916 Construction 3,939 3,845 3,480 Rents 3,807 3,716 3,456 Financial Services 1,540 1,503 1,398 Other Services 23,203 22,650 22,668 Government/Health/Education 3,947 3,853 3,583 Net Exports of Goods & Services -1,169 273 1,522Real Per Capita GDP (1985 base) 3,587 3,473 3,212Labor Force (000s) 7,538 7,546 7,622Unemployment Rate (pct.) 7.1 6.3 12.0Money and Prices: (annual percentage growth)Money Supply (M2) 18.4 25.7 62.7Base Interest Rate 3/ 42.1 61.5 56.5Personal Saving Rate 3/ 11.9 8.5 6.1Retail Inflation 31.9 45.9 75.0Wholesale Inflation 26.0 47.3 109.0Consumer Price Index (1984=100) 1,071.6 1,563.5 2,736.1Exchange Rate (USD/Bs) 4/ Official 68.40 91.15 153.4 Parallel 68.40 91.15 161.9Balance of Payments and Trade:Total Exports (FOB) 5/ 13,955 14,222 15,100 Exports to U.S. (CV) 7,564 7,782 8,000Total Imports (FOB) 5/ 12,266 11,013 7,400 Imports from U.S. (FAS) 5,178 4,395 3,800Aid from U.S. 0 0 0Aid from Other Countries N/A N/A N/AExternal Public Debt 27,083 27,297 26,700Debt Service Payments (paid) 2,695 2,989 3,200Gold and Foreign Exch. Reserves 13,001 12,656 11,000Trade Balance 5/ 1,689 3,209 7,700 Trade Balance with U.S. 2,386 3,387 4,200N/A--Not available.1/ U.S. Embassy estimates based on information available inOctober 1994.2/ GDP at factor cost.3/ Figures are actual, average annual interest rates, not ratesof change.4/ Annual averages. Venezuela adopted a fixed single exchangerate of 170 bolivars to the dollar on July 11, 1994. Aparallel exchange market is currently illegal.5/ Merchandise trade.1. General Policy Framework Venezuela's long-term potential as a market for U.S.business remains positive, although 1995 will be difficult.The country has a moderately well-established economicinfrastructure and an impressive potential for economic growthin petroleum, natural gas, hydroelectric power, iron ore, coal,bauxite, and gold. Venezuela is a major oil producer/exporterand a founding member of OPEC. The petroleum sector dominatesthe economy, but the government is encouraging the developmentof nontraditional basic export industries, such aspetrochemicals, aluminum, steel, cement, forestry, manufacturedconsumer products, and mining. The bulk of accumulated foreign investment in Venezuela isfrom the United States. The United States remains Venezuela'schief trading partner, absorbing 55 percent of its exports andsupplying 51 percent of its imports in 1993. In December 1994ratified the G-3 Free Trade Agreement between Venezuela,Colombia and Mexico. Venezuela has also ratified the UruguayRound agreements and became a founding member of the WorldTrade Organization (WTO) on January 1, 1995. After three years of solid economic growth, Venezuela'seconomy went into recession in 1993 with real GDP falling by 1percent. This contributed to a major financial sector collapsein early 1994, followed by an even more severe contraction ofthe economy. GDP is expected to drop by more than 5 percent in1994. The government recorded a fiscal deficit of about 3.6percent of GDP for the consolidated public sector in 1993. Taxrevenues from the petroleum sector as a share of GDP havedeclined substantially in recent years as internationalpetroleum prices in real terms have fallen and non-oil revenueshave increased. As a result, oil revenues are expected toprovide less than 50 percent of total revenues in 1994. As aresult of the federal government bailout of the banking sector,the government's fiscal deficit could climb to 15 percent for1994. Financing of the deficit has been accomplished primarilythrough the issuance of treasury bills ranging in maturity upto two years, but heavily weighted toward the short-term.Substantial financial support to the commercial banking sectorin 1994 has principally been supplied through borrowing fromthe Central Bank. The government has forecast a modest reboundin output and a budget surplus for 1995. Economic and fiscalperformance will depend on several factors, including ongoingapplication of price and exchange controls, continuing problemsin the financial sector, proceeds from the privatizationprocess, and international petroleum prices. The Central Bank operated a tight monetary supply in 1993.In real terms, M2 lost 18.84 percent. However, in 1994government assistance to the financial sector overwhelmedattempts to restrict liquidity. From the end of 1993 throughAugust 1994, although M2 decreased 8 percent in real terms, itexpanded by 33 percent in nominal terms. During 1993 and 1994,the government has relied primarily on 91- and 181-day zerocoupon bonds to soak up excess liquidity. Inflation has beenon the rise the last several years, climbing from 32 percent in1992 to 46 percent in 1993. Prices for items in the CPI basketincreased by about 50 percent for the first eight months of1994. For the year, inflation is expected to reach 60 percent. The Caracas Stock Exchange has fluctuated in recent years.The broad market index decreased 32 percent in 1992, butclimbed 10 points in 1993. Foreign investment in the stockmarket dropped in 1994 with the imposition of exchange controlsin July, but the market index hit a new high in September 1994,bid up by local investors without dollar instrument investmentalternatives.2. Exchange Rate Policy From November 1992 to April 1994, Venezuela's Central Bankimplemented a crawling peg exchange rate regime of dailyminidevaluations. In May, an auction system was introduced tostem capital flight prompted by a lack of confidence in theeconomy following a massive bailout of troubled banks andresignation of the Central Bank President. Central Bankreserves, which stood at $12.7 billion at the end of 1993,dropped to $9.0 billion by the end of June 1994. On July 11,1994 a fixed exchange rate system was established with a singlerate of 170 bolivars to the dollar, compared to an exchangerate of 115 at the beginning of April. In addition to a fixed exchange rate, access to foreigncurrency is strictly controlled under the new regime. Allrequests for foreign currency must be submitted to theTechnical Exchange Management Office (OTAC). An ExchangeControl Board sets general policy. Importers, exporters,private debt holders, and foreign investors must register withOTAC prior to submitting an application for currency.Procedures under the new exchange control regime are stillevolving. Currency transactions conducted outside the officialsystem are illegal and legislation is pending that would imposeheavy penalties for violations. The Venezuelan government hascharacterized the new controls as temporary, but after sixmonths of controls has not yet set a date for their elimination.3. Structural Policies In 1994, the Venezuelan government adopted a mix ofheterodox measures to respond to the economic recession andcollapse of the financial sector. The government suspendedconstitutional economic guarantees, using this mechanism as thebasic framework to implement foreign exchange and pricecontrols on a variety of goods (primarily essential goodssuch as foods) and services (parking, funeral services, laundryand drycleaning, and cinemas). The stringent governmentregulations for obtaining foreign exchange have disrupted linesof credit for the private and public sector. No progress hasbeen made on raising the domestic price of gasoline, which isbelow the marginal cost of production; on reforming theseverence pay system; or in trimming public sectorparticipation in the economy through privatization of stateenterprises. A major income tax reform designed to improve governmenttax collection and increase revenues in the nonpetroleum sectorwas implemented in mid-1994. The maximum rate for individualsand corporations increased from 30 to 34 percent. Venezuelantax law does not differentiate between foreign-owned andVenezuelan-owned companies, with the exception of the petroleumsector. Hydrocarbon revenues of the state petroleum company,PDVSA, are subject to a tax rate of 67.7 percent. However,joint-ventures between PDVSA and private companies in theproduction and processing of off-shore natural gas andextra-heavy crudes and bitumens are taxed at the lower34-percent rate. Venezuela imposes a one percent assets tax,assessed on the gross value of assets (with no deduction forliabilities) after adjustments for depreciation and inflation.It is deductible for income tax purposes. An investment taxcredit of 10 percent is available for the purchase of capitalgoods to be used in manufacturing processes. The government also has implemented a temporary,controversial 0.75 percent financial debit tax on financialtransactions that covers credit card charges, withdrawal offunds and other debits to checking accounts, saving accounts,trust funds, and other money market funds; it may be continuedbeyond the end of 1994. A value added tax, which was appliedat the wholesale level in late 1993, was converted to a"wholesale" tax in August 1994 and applied to all goods andservices, including imports. The wholesale tax rate is to bedefined each year within a range of 5 to 20 percent. The ratethrough the end of 1994 is 10 percent. An additional luxurytax of 10 or 20 percent for certain items was also establishedin mid-1994. The Venezuelan tariff schedule has been substantiallyliberalized, and quantitative restrictions have been almostcompletely removed (prohibitions remain on used vehicles, usedtires and used clothing). With its accession to the GeneralAgreement on Tariffs and Trade (GATT) on September 1, 1990,Venezuela agreed to bind its tariff rate to a 40-percentceiling. Venezuela's present maximum tariff rate is 20percent, with the exception of a 35-percent tariff rate appliedto passenger vehicles as part of the Andean Pact CommonAutomotive Policy. The country's average import tariff on atrade-weighted basis is around 10 percent. Sensitiveagricultural products (milk, meat, rice, wheat, feedgrains,oilseeds, and sugar) are subject to a price band system whichimposes a variable surcharge in addition to the duty when thefutures market for these commodities drops below triggerprices. In addition, the Venezuelan tariff legislation permitsthe duty to be temporarily increased by 60 percent (e.g., from20 percent to 32 percent) should the Economic Cabinet determinethat import of these products pose a particular threat.4. Debt Management Policies As of December 1993, Venezuela's public sector externaldebt totaled $27.3 billion, which included $6.7 billion innonrestructured external debt (including commercial bank debtand military promissory notes). Medium-term private sectordebt totaled an estimated $5.3 billion. External debtrepresents about 54 percent of GDP. In 1993, Venezuela's debtservice payments totaled about $2.7 billion, or 19 percent oftotal exports. Debt service payments for 1994 are estimated toreach $3.2 billion, or 21 percent of total exports. Relations with commercial creditors have deterioratedbecause the high inflation rate has increased the cost ofservicing external debt obligations. In addition, stringentforeign exchange controls have slowed debt payments to officialand commercial creditors. Due to higher US interest rates anddowngrading of Venezuelan debt, the cost of borrowing has alsorisen. In December 1990, the government rescheduled $19.8 billionin commercial bank debt within the context of the Brady Plan.Current government policy does not include an adjustmentprogram with the IMF; The World Bank and Inter-AmericanDevelopment Bank are providing multi-year sectoral loans toassist with economic restructuring and infrastructure programs.5. Significant Barriers to U.S. Exports Import Licenses: Venezuela no longer has an importlicensing regime. Sanitary and phytosanitary certificates fromthe Ministries of Health (Nota 3) and Agriculture (Nota 6),however, are required for most agricultural and pharmaceuticalimports. The nota 6 requirement is used aggressively by theMinistry of Agriculture, in effect banning U.S. poultry andpork imports. Service Barriers: Foreign equity participation inenterprises engaged in television, radio, Spanish languagepress, and professional services subject to licensinglegislation, is limited to 19.9 percent. As of January 1,1994, banks from countries that provide reciprocal access toVenezuelan institutions may establish branches and 100 percentforeign-owned subsidiaries or acquire 100 percent equity inexisting banks. Foreign companies now receive nationaltreatment in the insurance sector. The sector was opened toforeign investment through reforms to the Insurance andReinsurance Law, which were gazetted on December 23, 1994 inthe Extraordinary Gazette Number 4.822. Standards, Testing, Labeling and Certification: TheVenezuelan Commission of Industrial Standards (COVENIN)requires certification from COVENIN-approved laboratories forimports of over 300 agricultural and industrial products. U.S.exporters have experienced difficulties in complying with thedocumentary requirements for issuance of COVENIN certificates. The Consumer Law, which went into effect in May 1992,contains provisions regulating labeling. All goods placed onsale must bear a label indicating price to the public andexpiration date (where appropriate). In the event of futureprice increases, goods in stock with previous price labels mustbe sold at no more than the prior price. Investment Barriers: Pursuant to Executive Decree 2095,published February 13, 1992, foreign equity participation isunlimited in all sectors of the economy, except thosespecifically restricted. Prior government approval is notrequired for investment in those sectors covered by thedecree. Investors must simply register with the Superintendentof Foreign Investment within 60 days following the investment.Decree 2095 also guarantees the right of foreign investors torepatriate profits and permits shares of foreign companies tobe publicly sold. The repatriation of capital has beencomplicated by the imposition of foereign exchange controls inJune 1994. However, the Venezuelan govenment is attempting toresolve these difficulties through the publication of a seriesof specific relolutions by the Foreign Exchange Board. In addition to the sectorial restrictions noted above under"Service Barriers," foreign investment is restricted in thepetroleum sector. The exploration, exploitation, refining,transportation, storage, and foreign and domestic sales ofhydrocarbons are reserved to the Venezuelan government or toits entities. When in the public interest, the government mayenter into agreements with private companies, as long as theagreements guarantee state control of the operation, are oflimited duration, and have the prior authorization of thelegislature meeting in joint session. The Andean Pact Common Automotive Policy, which enteredinto force on January 1, 1994, obligates auto assemblers inVenezuela to satisfy a minimum percentage foreign exchangecontribution, to offset foreign exchange spent on imports, anda minimum precentage regional content. An addendum to thepolicy, which will take effect on January 1, 1995, eliminatesthe Venezuelan foreign exchange balancing requirement andmodifies the formula for calculating regional content. The Organic Labor Law, passed on May 1, 1991, limitsforeign employment in companies with ten or more employees, to10 percent of the payroll. Remuneration for foreign workersmust not exceed 20 percent of total wages paid. Foreigners areprohibited from offering any of the professional servicessubject to licensing legislation (e.g. attorneys, architectureand engineering, medical professions, veterinary practice,economists, business administration/management, and accounting)unless they revalidate their title at a Venezuelan university. Government Procurement Practices: The Law of Tenders,published on August 10, 1990 and subsequently modified thoughDecree 1906 on October 30, 1991, provides for three methods ofprocurement, depending mainly on the value of the goods andservices being procured. For general or selective tenderswhich are within a reasonable range, this law permits, but doesnot require, preference to be given in awarding contracts tooffers based on the extent to which they include nationalcontent, labor, investment, technology transfer, etc. PDVSA isrequired to purchase national materials and supplies; foreignpurchases are permitted only if domestic firms cannot meetquantity, quality, or delivery requirements. Importedmaterials supplied by local representatives of foreignmanufacturers are classified as "domestic purchases." Foreignfirms that supply PDVSA must register with PDVSA's unifiedsuppliers register or with the unified contractors registry.Venezuela is not a signatory of the GATT Government ProcurementCode. Customs Procedures: Customs clearance procedures are timeconsuming, and delays can occur if documents are not in order.Venezuela is not a signatory of the GATT Customs Valuation Code.6. Export Subsidies Policies Venezuela has reduced the number and type of exportincentives, but has retained a duty drawback system whichenables exporters to receive a rebate on duties paid onimported inputs. The current system was established underFinance Ministry resolution 2603, dated June 10, 1994. Underthe program, exporters must submit to Venezuelan customsinformation on the quantity of exports, imported and nationalinputs, and waste. The duty drawback is calculated by means ofa formula which takes into account the exporter's productionefficiency. Maximum rebates, which are expressed as apercentage of the export free-on-board (FOB) price, have beenestablished by productive sector. Rebates are given in theform of Certificados de Reintegro Tributario (CERTs), which aredenominated in local currency. CERTs are negotiable andtransferrable, and can be used to cancel duty payments. TheWholesale and Luxury Tax Law, enacted August 1, 1994, alsoprovides for a rebate of the wholesale tax paid on imports usedin producing goods for export. The rebate is in the form of atax credit, which is negotiable on the secondary market. A joint resolution of the Foreign and Finance Ministries,published June 13, 1991, lists those agricultural products forwhich an export bonus is available. The program provides acredit against an exporters tax liability of one percent forcertain agricultural items whose national value added is from30 to 98 percent. For products whose value added is from 99 to100 percent, exporters are eligible for a credit of 10 percentof the FOB value.7. Protection of U.S. Intellectual Property Venezuela does not yet provide an adequate and effectivelevel of protection of intellectual property rights.Traditionally, Venezuela's intellectual property rights (IPR)regime has tended to protect national industries and firms.Nonetheless, recent changes have taken place which may benefitU.S. and other foreign firms by improving IPR protection.Specifically, on October 1, 1993, a new copyright law enteredinto force which strengthens copyright protection and increasessanctions for violation of the law. Andean Pact Decisions 344and 345, which became effective January 1, 1994, have improvedprotection for patent and trademarks, and plant varieties,respectively. Venezuela is a member of the World Industrial PropertyOrganization (WIPO) and is a signatory to the Bern Conventionfor the Protection of Literary and Artistic Works, the GenevaPhonograms Convention, and the Universal Copyright Convention.The Chamber of Deputies approved legislation for Venezuela'saccession to the Paris Convention for the Protection ofIndustrial Property on December 8, 1994, following Senateapproval of the measure on October 31. President Caldera isexpected to sign the law before the end of the year. Venezualais not yet a signatory to the Patent Cooperation Treaty and theBrussels Convention Relating to the Distribution ofProgram-Carrying Signals Transmitted by Satellite. Venezuelasigned the Uruguay Round TRIPS Agreement and plans to implementit, along with the World Trade Organization, from January 1,1995. The U.S. Trade Representative has placed Venezeula onthe Special 301 "Watch List" as a result of its annualassessment under Section 301 of the 1988 Omnibus Trade andCompetitiveness Act, most recently, in April 1994. Patents: Although Decision 344 extended the patent term to20 years; narrowed compulsory licensing arrangements; andlifted the ban on patentability of pharmaceutical products(except for those included on the World Health Organizationlist of essential medicines), deficiencies remain. Amongthese, the Decision did not grant transitional or pipelineprotection for technologies previously excluded from patenteligibility (particularly pharmaceuticals and agriculturalchemicals), working requirements were retained (althoughimportation can be used to satisfy the requirement), andparallel imports are allowed. Few patents have been enforcedunder past and current law. Trademarks: Decision 344 strengthened protection forwell-known trademarks, prohibits the coexistence of similarmarks, and provides for cancellation of trademark registrationsfor "nonuse" within the Andean Pact for three years or on thebasis of "bad faith." However, problems remain with theregistration process. Application procedures enable localpirates to continue producing and selling counterfeit productsduring lengthy opposition proceedings, often lasting foryears. Trademark piracy is common in the clothing, toy, andsporting goods areas and enforcement remains poor. Copyrights: Venezuela's Copyright Law is modern andcomprehensive (Andean Pact Decision 351, which was adopted inDecember 1993, complements the Venezuelan law). Venezuela'slaw extended copyright protection to all creative works,including computer software. The law is currently in force andis being used aggressively by private concerns to combatpiracy. However, the Venezuelan government has yet to passregulations establishing a National Copyright Office, asmandated under the law. The National Copyright Office is toplay a key role in enforcement efforts. Computer software andvideotape piracy is still rampant and unauthorized interceptionand retransmission of U.S. satellite signals and services iswidespread. A local association of computer program companiesestimates that 72 out of every 100 programs used in the countryis pirated. According to the International IntellectualProperty Alliance (IIPA), some of the largest pirate videotapemanufacturing laboratories in South America are located inVenezuela. Pirate copies are sold on the domestic market aswell as exported to a number of countries in the region,including the United States. New Technologies: Computer software, satellite signals andcable television are covered under Venezuela's Copyright Lawand Decision 351. Decision 344 excludes from patent protectiondiagnostic procedures, animals, genetic material obtained fromhumans, and many natural products. However, Decision 344includes provisions for the protection of industrial secrets. The IIPA estimated that U.S. trade losses due to inadequatecopyright protection in Venezuela were approximately $123million in 1993. Piracy of computer programs accounted for thelargest losses ($51 million), followed by motion pictures ($40million), books ($20 million), and records and music ($12million). Comprehensive estimates for losses due to patent andtrademark infringement were not available. However, at leastone company has estimated its losses due to trademark piracy inVenezuela at $170 million between 1987 and 1993.8. Worker Rights a. The Right of Association Both Venezuela's Constitution and its labor law recognizeand encourage the right of unions to exist. The comprehensivelabor law enacted in 1990 extends to all public sector andprivate sector employees (except members of the armed forces)the right to form and join unions of their choosing. There areno restrictions on this right in practice and no special rulesor laws governing labor relations in export processing zones.One major union confederation, the Venezuelan Confederation ofWorkers (CTV), and three small ones, as well as a number ofindependent unions, operate freely in Venezuela. About 25percent of the national labor force is unionized. b. The Right to Organize and Bargain Collectively Collective bargaining is protected and encouraged by the1990 labor law and is freely practiced throughout Venezuela.According to the law, employers "must negotiate" a collectivecontract with the union that represents the majority of theirworkers. It contains a provision stating wages may be raisedby administrative decree, provided Congress approves thedecree. The law prohibits employers from interfering with theformation of unions or with their activities and fromstipulating as a condition of employment that new workers mustabstain from union activity or must join a specified union. c. Prohibition of Forced or Compulsory Labor There is no forced or compulsory labor in Venezuela. The1990 labor law states that no one may "obligate others to workagainst their will." d. Minimum Age for Employment of Children The 1990 labor law allows children between the ages of 12and 14 to work if given special permission by the NationalInstitute for Minors or the Labor Ministry. Children betweenthe ages of 14 and 16 can work if given permission by theirlegal guardians. Minors may not work in mines, smelters, inoccupations "that risk life or health" or in occupations thatcould damage intellectual or moral development, or in "publicspectacles." For those under 16, the work day may not exceedsix hours or the work week, 30 hours. Minors under 18 can workonly during the hours between 6 a.m. and 7 p.m. e. Acceptable Conditions of Work Venezuela has a national urban minimum wage rate ($90monthly) and a national rural minimum wage rate ($60 monthly).(To this should be added mandatory fringe benefits that varywith the workers' individual circumstances but, in general,would increase wages by about one-third.) Only domesticworkers and concierges are legally excluded from coverage underthe minimum wage decrees. The 1990 labor law reduced thestandard work week to a maximum of 44 hours. Overtime may notexceed two hours daily, ten hours weekly, or 100 hours annuallyand may not be paid at a rate less than time-and-a-half.Sundays are declared to be holidays, and those who must work onSundays are entitled to a full day of rest during the followingweek. The 1990 labor law stated that employers are obligatedto pay specified amounts (up to a maximum of 25 times theminimum monthly salary) to workers for accidents oroccupational sicknesses regardless of who is responsible fornegligence. It also declared work places must maintain"sufficient protection for health and life against sicknessesand accidents," and it imposed fines from one-quarter to twotimes the minimum salary for first infractions.</text>
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<text>U.S. DEPARTMENT OF STATEUZBEKISTAN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS UZBEKISTAN Key Economic Indicators (Millions of U.S. dollars unless otherwise indicated) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1985 prices) N/A N/A N/AReal GDP Growth (pct.) -9.6 -2.4 -2.6GDP (at current prices) 2/ 447.2 4,428.1 N/ABy Sector: Agriculture N/A N/A N/A Energy/Water N/A N/A N/A Manufacturing N/A N/A N/A Construction N/A N/A N/A Rents N/A N/A N/A Financial Services N/A N/A N/A Other Services N/A N/A N/A Government/Health/Education N/A N/A N/ANet Exports of Goods and Services 1,424 2,205 N/AReal Per Capita GDP (1985 base) N/A N/A N/ALabor Force (000s) 10,448 10,631 10,800Unemployment Rate (pct.) N/A N/A N/AMoney and Prices: (annual percentage growth)Money Supply (M2) N/A N/A N/ABase Interest Rate N/A N/A N/APersonal Savings Rate N/A N/A N/ARetail Inflation 787 867 900Wholesale Inflation 2,688 1,033 N/AConsumer Price Index N/A N/A N/AExchange Rate (USD/som) 3/ Official 0.59 0.00095 0.0436 Parallel 0.0044 0.00098 0.0322Balance of Payments and Trade:Total Exports (FOB) 1,424 2,205 N/A Exports to U.S. 38 7 3Total Imports (CIF) 1,659 2,667 N/A Imports from U.S. 21 73 100Aid from U.S. 7.4 8.9 19Aid from Other Countries N/A N/A N/AExternal Public Debt 123 N/A N/ADebt Service Payments (paid) 20 N/A N/AGold and Foreign Exch. Reserves N/A N/A N/ATrade Balance -236 -463 N/A Trade Balance with U.S. 18 -66 -97N/A--Not available.1/ 1994 Figures are estimates based on data available inOctober 1994.2/ Figures for GDP are in billions of current rubles.3/ Exchange rates are averages for 1992 (in rubles), averagesfor the first 10 months of 1993 (i.e., before the introductionof the som-coupon), and actual figures for end October 1994.1. General Policy Framework The Republic of Uzbekistan declared independence in 1991.Since that time, like the other former Soviet republics, it hasbeen engaged in the arduous transition from a planned to amarket economy. Although the Government of Uzbekistanregularly states its determination to complete this process, itjust as steadfastly maintains that the process must be doneslowly, carefully, and in keeping with Uzbekistan's uniqueconditions in order to maintain social stability. The resulthas been slower and more centrally-managed reform than in someother former Soviet republics. Restructuring of the economyand the breakdown of trade links with the other formerrepublics has resulted in a declining GNP. However, thedecline has been less sever than in some of the otherrepublics, and officials say production started to recover inthe second half of 1994. Uzbekistan's economy is primarily based on agriculture andagro-processing, accounting for about half of GNP. Uzbekistanis the world's fourth largest producer (second largest exporterafter the United States) of cotton, and cotton accounts forover 40 percent of agricultural production. Much of theindustrial production is linked to agriculture, includingcotton harvesting equipment, textiles, and chemical fertilizersand pesticides. Uzbekistan also has promising mineral reserves. It is theworld's eighth largest producer of gold and has rich reservesof uranium, silver, copper, lead, zinc, wolfram, and tungsten.It is a net exporter of natural gas. Petroleum and petroleumproducts, at 3-4 mmt per year, currently account for thelargest share of Uzbekistan's imports. However, Uzbekistan'soil production is increasingly rapidly, and the governmenthopes to achieve self-sufficiency in petroleum in 1996. Uzbekistan is slowly shifting its direction of trade awayfrom total reliance on the former Soviet Union (FSU)countries. Trade with the Commonwealth of Independent States(CIS) still accounts for about 50 percent of Uzbekistan's totaltrade (chiefly cotton exports and oil imports, but alsoincluding machinery and other inputs for Uzbekistan'sfactories). Although Uzbekistan is a net exporter of fruitsand vegetables to the FSU, it must import about four milliontons of wheat each year, including from the U.S. Uzbekistanhopes to reach wheat self-sufficiency by increasing yields andmoving land from cotton to wheat cultivation, but it is likelyto remain a net importer for at least the near future.Aside from wheat and petroleum, other major imports includemachinery and consumer goods. Fiscal Policy: With independence, Uzbekistan lost budgetsubsidies from Moscow which accounted for approximately 20percent of the republic's budget. As a result, the governmentbudget deficit increased to 13.8 percent of GDP in 1992, andalmost 16 percent in 1993, before declining to an estimated 3.2percent during the first nine months of 1994. The increase inthe deficit was largely due to the government's decision toheavily subsidize prices of basic consumer goods and services,such as bread, flour, fuel, and public transport.Government-owned banks also supported failing state enterprisesthrough the provision of heavily subsidized credit. Theimprovement in 1994 is credited largely to the government'sdecision to eliminate or sharply reduce most consumersubsidies. The budget deficit has been covered primarily byborrowing from the Central Bank and credits (particularly forfood purchases) from abroad. Monetary Policy: Uzbekistan was a member of the ruble zonefrom independence in September 1991 until November 1993, whenit introduced a transitional currency, the som-coupon. Afterthe introduction of the som-coupon, inflation, chiefly fueledby sharply negative real interest rate credit to stateenterprises, continued at about 20 percent per month during thefirst half of 1994. In July 1994, the government introducedits new currency, the som. Through a combination ofadministrative controls on the value of bills and withdrawalsfrom bank deposits, cutbacks in credit to state enterprises, asharp increase in the discount rate, and reduced governmentborrowing from the Central Bank, the inflation rate fell toabout five percent per month from July through October 1994.At the beginning of October, the government also announced afourfold increase in savings bank interest rates, making realrates positive for the first time since independence.2. Exchange Rate Policy Since August 1994, there has been a two-tier legal exchangerate system in Uzbekistan. The official rate is set by theCentral Bank based on the outcome of a biweekly auction ofdollars to authorized commercial banks by the governmentalRepublican Currency Exchange. The rate is used for governmentimports and exports, as well as non-cash transactions,totalling about 70 percent of Uzbekistan's trade. Thecommercial rate is determined by the Central Bank on the basisof its own unpublished calculations. Authorized commercialbanks have a small degree of latitude to charge differentrates. Although initially far apart, the two exchange ratesconverged in October, and were identical at the start ofNovember. A parallel, or "black" market operates openly andvigorously. At the end of October it carried a premium ofabout 25-30 percent over the legal rate. In August, citizens of Uzbekistan were given the right topurchase up to $250 in foreign exchange through the commercialbanking system; this was later increased to $1,000. Asubstantial portion of commerce in Uzbekistan was conducted inhard currency during 1994, but a government decision in Octobermade the som the only legal tender for domestic salestransactions. Uzbekistan's investment law protects the rightto fully and freely repatriate profits in hard currency.However, the limited supply of foreign exchange availablethrough the commercial banking system has made this difficultin practice. As a result, many foreign businesses rely onbarter or countertrade arrangements to repatriate profits.Local private businessmen rely to a large extent on theparallel market to finance imports of consumer goods.3. Structural Policies Pricing Policies: The government officially decontrolledalmost all prices during 1994. The state order system wasabolished for all agricultural commodities except wheat andcotton, of which the majority must still be sold to thegovernment at set prices. However, the government stillcontrols a major share of industrial production, transportinfrastructure, and the distribution network, and so exercisesa strong influence on pricing and marketing policies. Thegovernment remains the primary exporter and importer ofagricultural commodities (cotton exports and wheat imports) andcapital goods. Tax Policies: Tax policies are confusing and oftenill-administered. Value-added tax (VAT, 26 percent) andenterprise (i.e., corporate, 26.9 percent) taxes accounted forover 50 percent of tax collections in 1993. Excise (14.8percent) and personal income (10.7 percent) taxes play asmaller role. The government has suspended customs dutiesthrough at least January 1995 in an effort to provide cheaperconsumer goods to the population. The current enterprise taxlaw uses the wage base plus profits, rather than simplyprofits, in calculating the tax base. The government currentlyis working on a new draft law that will change this. Incometax laws were changed several times during 1994, and thecurrent top marginal rate of 40 percent takes effect at arelatively low level of income by western standards. Exportscarry a 15 percent hard currency tax and a further 15 percentcash surrender requirement, which together are a major factorimpeding exports. Joint ventures which invest in prioritysectors are eligible for tax holidays ranging from two to fiveyears. Large foreign firms often are able to negotiateindividual tax deals with the government, but this is moredifficult for small and medium-sized firms. Regulatory Policies: Uzbekistan inherited many productionstandards and environmental regulations from the former SovietUnion, but enforcement is spotty. Issuance of regulations byone government body absent coordination with other affectedgovernment organizations has caused problems for some foreignbusiness interests. Although almost all price controlstechnically have been abolished, the state plan system still ispartially in place, and still determines quantities (and,indirectly, prices) for many industrial inputs.4. Debt Management Policies Uzbekistan signed the "zero option" agreement with Russiain 1992, and so assumed no responsibility for any of the formerSoviet Union's external debt. Since independence, it haspursued a very cautious policy on assuming debt, partly of itsown volition and partly because of western creditors'reluctance to deal with an unknown new client. As a result, ithas a very low foreign debt, although the actual amounts (andthus debt/export and other ratios) are not public. Uzbekistanprincipally has relied on short-term commercial debt,collateralized by its gold reserves or cotton. It has alsoreceived trade credits from the United States, Turkey, andEuropean countries, chiefly for purchase of agriculturalcommodities. Thus far, Uzbekistan's repayment record on itslimited debts has been good. It has not rescheduled anyofficial or commercial debts to date. Uzbekistan is a member of the World Bank, IMF(International Monetary Fund), and EBRD (European Bank forReconstruction and Development). It has applied to join theAsian Development Bank, for which it is eligible. The WorldBank thus far has only approved one $21 million loan forUzbekistan, although several others are in the planningstages. The EBRD has made loans totalling $112.2 million toUzbekistan. IMF currently has no adjustment program with theIMF, but an IMF team was in Tashkent in November to finalize a$140 million Structural Transformation Facility (STF) with thegovernment.5. Significant Barriers to U.S. Exports Import Licenses: The Government of Uzbekistan says that noimport licenses are required for any goods. Services Barriers: Foreign company involvement in theservices sector remains limited, and government officials saythey would like to increase it. Under current legislation,foreign banks may be registered by the Central Bank to conductbanking operation and participate in commercial bank jointventures. There is only one foreign joint venture bank inUzbekistan, and it has authority to conduct only limitedcommercial banking operations. The original monopoly of thenational tourist company UZBEKTOURIZM in travel services isgradually being eroded. The national airline UzbekistanAirways still has a virtual monopoly on domestic air travel andticket services. Several foreign accounting firms areoperating in country as foreign aid contractors, and thereappear to be no barriers to them setting up private businesswithout local partners. Foreign insurance companies arelimited to participation in joint ventures, which must beregistered by the state insurance company. A major Americaninsurance company has successfully negotiated two jointventures, and found the process easier than in other CIScountries. Standard, Testing, Labelling, and Certification:Uzbekistan inherited many standards and testing requirementsfrom the Soviet Union, but often they are disregarded.Ministries sometimes issue standards requirements that conflictwith other government commitments. However, in cases where thepolitical will to complete a transaction exists, the problemsare usually overcome. Investment Barriers: Uzbekistan has a very liberalinvestment code which allows for, among other things, free andfull repatriation of profits and tax holidays of from two tofive years, depending upon the type of investment. However, inpractice, negotiating and registering a joint venture is acumbersome process which requires the approval of numerousgovernment agencies and (usually) approval at the highestlevels of the government. The registration process alone cantake 3-6 months, but hundreds of foreign companies havecompleted it. Repatriation of funds is complicated by the lackof foreign exchange in the country. The government has targeted oil and gas, mining, processingof agricultural commodities, textiles, and tourism as priorityareas for foreign investment. It has stated it will allow upto 100 percent foreign ownership in all but "strategic"industries, where it will not allow majority foreignownership. "Strategic" industries include, but are not limitedto, the mining, energy, and cotton processing sectors. TheGovernment of Uzbekistan has indicated that it will seek fewexemptions from national treatment for some sectors of theeconomy in the bilateral investment treaty (BIT) which it iscurrently negotiating with the U.S. government. Government Procurement Practices: Much of Uzbekistan'strade with the states of the former Soviet Union is governed bybilateral agreements that provide for countertrade in essentialcommodities such as petroleum products, food and grain,fertilizers, metals, and cotton fiber, but these have notprevented U.S. firms from being active traders in cotton andgrain. Efforts to forge closer economic cooperation with theCIS and particularly other Central Asian states have not yetproved to be obstacles to U.S. exports in some sectors, evenwhere the government is the customer. Noncompetitive biddingis still common, with trade deals often based on relationshipsbetween government officials and foreign firms. However, thegovernment has begun to make more use of tenders andcompetitive bid processes. Customs Procedures: customs procedures are bureaucratic,often arbitrary and sometimes complicated by corruption.6. Export Subsidies Policies Many goods in Uzbekistan, and particularly those destinedfor export, such as cotton (which provides 70 percent ofUzbekistan's export revenues) are not bought and sold at marketprices, and the government directly or indirectly controls mostexports. However, government policy primarily is directed atimport rather than export subsidies. All exports are subjectto an export tax, and the most important ones require exportlicenses as well. Export goods are also subject to VAT on thecost of their inputs, although not on the final product. Adual exchange rate is in effect, but the two exchange ratescurrently are the same; earlier disparities in the ratesfavored imports rather than exports. There are no specificpromotional export financing programs, but the government doesgive preferential tax treatment to foreign investors inpriority sectors, including production for export. Uzbekistanis currently a GATT observer, and it has applied for full GATTmembership. It is not a member of the GATT subsidies code.7. Protection of U.S. Intellectual Property Uzbekistan is not a party to any international agreementsprotecting international property rights. Copyright andtrademark violations are not uncommon in Uzbekistan,particularly involving western films, music cassettes, computersoftware, and clothing trademarks.8. Workers Rights a. The Right of Association Uzbekistan law specifically proclaims that all workers havethe right to voluntarily create and join unions of theirchoice. It also provides that trade unions themselves canvoluntarily associate territorially or sectorally, and maychoose their own international affiliations. Unions are alsolegally independent of the state's administrative and economicbodies. However, to date the country's de facto centralizedtrade union structure has not changed very much following theshift of power from Moscow to Tashkent. A council of theUzbekistan Federation of Trade Unions provides centralleadership. Although the labor law gives unions oversight forboth individual and collective labor disputes, the law does notmention strikes or the right to strike. b. The Right to Organize and Bargain Collectively Unions are empowered to conclude agreements withenterprises. However, there still is no practice of unionscarrying out adversarial negotiations with private employers.The private sector is growing, but the state still remains themajor employer, and the unions function more like professionalassociations than adversarial groups in dealing with the state. c. Prohibition of Forced or Compulsory Labor Uzbekistan's constitution specifically prohibits forcedlabor. However, the semi-mandatory exodus of students andgovernment workers to rural areas to help with the cottonharvest for low wages is an annual phenomenon. d. Minimum Age of Employment for Children Officially, the minimum working age is 16. 15-year oldscan work with permission, but have a shorter work day.However, much younger children work with their families onfarms or participate in street trade. e. Acceptable Conditions of Work The work weeks is set at 41 hours. Some workers areentitled to overtime pay, but rarely receive it. Occupationalhealth and safety standards are established by the laborMinistry in consultation with the unions. There is a healthand safety inspectorate within the Labor Ministry. However, aswith the other former Soviet republics, enforcement ofstandards is very poor, and working conditions are well belowwestern standards. f. Rights in Sectors with U.S. Investment U.S. investment is too limited at this time to permitcomment on any differences. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 0Total Manufacturing 0 Food & Kindred Products 0 Chemicals and Allied Products 0 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 0Wholesale Trade 0Banking 0Finance/Insurance/Real Estate 0Services 0Other Industries (1)TOTAL ALL INDUSTRIES (1)(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEURUGUAY: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS URUGUAY Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 5/ 1992 1993 1994 1/Income, Production and Employment:Real GDP (1983 prices) 2/ 6,802 6,903 7,042Real GDP Growth (pct) 7.7 1.5 2.0GDP (at current prices) 2/ 11,676.8 13,144.9 15,034.5By Sector: Agriculture 1.164.9 1.159.4 1,341.2 Energy/Water 283.6 336.3 374.7 Manufacturing 2,687.9 2,471.3 2,761.3 Construction 566.6 748.4 887.6 Rents 1,667.6 2,194.4 2,544.4 Financial Services 1,153.0 1,267.5 1,459.6 Other Services 3,056.2 3.525.6 4,008.9 Government/Health/Education 1,097.0 1,442.0 1,656.8 Net Exports of Goods & Services 99.0 -155.4 -161.7Real Per Capita GDP (1983 prices/USD) 2,172,8 2,192.3 2,223.4Labor Force (000s) 1,382 1,395 1,409Unemployment Rate (pct.) 9.0 8.3 9.0Money and Prices: (annual percentage growth)Money Supply (M2) 50.9 49.7 45.3Base Interest Rate 3/ 50.1 42.7 45.6Personal Saving Rate 3/ 24.5 17.2 20.1Retail Inflation 58.9 52.9 41.0Wholesale Inflation 46.9 31.1 35.0Consumer Price Index 58.9 52.9 41.0Exchange Rate (USD/New peso) Interbank Floating Selling Rate 39.9 26.9 34.3Balance of Payments and Trade:Total Exports (FOB) 4/ 1,702.5 1,645.3 1,780.0 Exports to U.S. 177.8 148.8 160.0Total Imports (CIF) 4/ 2,045.1 2,324.4 2,460.0 Imports from U.S. 203.2 222.6 245.0Aid from U.S. 1.2 1.2 1.0Aid from Other Countries N/A N/A N/AExternal Public Debt 4,136 4,291 4,430Debt Service Payments (paid) 620 645 665Gold and FOREX Reserves (net) 946.8 1,201.8 1,290.0Trade Balance 4/ -342.6 -679.1 -680.0 Trade Balance with U.S. -25.4 -73.8 -85.0N/A--Not available.1/ 1994 figures are all estimates based on available monthlydata in October 1994.2/ GDP at producer price.3/ Figures are actual, average annual interest rates, notchanges in them.4/ Merchandise trade.5/ Data in Uruguayan pesos was converted into U.S. dollars atthe average interbank selling exchange rate for each year.1. General Policy Framework Uruguay has a small, relatively open economy. Thehistorical basis of the economy has been agriculture,particularly livestock production. Agriculture remainsimportant both directly (wool and rice) and indirectly forinputs for other sectors (textiles, leather and meat).Industry, which diversified beyond agro-industry into chemicalsand consumer goods for local consumption, has declined in theface of greater competition, and now accounts for 21% of GDP.Services, particularly tourism and financial services, nowdominate the economy, accounting for over 60% of GDP. Bankingbenefits from Uruguay's open financial system. The Government has been relatively successful in reducingits fiscal deficit from 7.4 percent in 1989 to 1.6 percent in1993. Principal sources of the deficit are losses by theCentral Bank on nonperforming loans purchased from privatebanks, foreign debt payments and transfers to the socialsecurity system. Inflation peaked at 129 percent in 1990, andis expected to fall to 41 percent in 1994. Seeking to reverse a long-term economic deterioration andto prepare itself for the formation of the Southern CommonMarket (MERCOSUR) comprising Brazil, Argentina, Uruguay andParaguay, the Government is attempting to implement a programof economic reform. Major elements of the Government programare privatization of state enterprises, financial sector reformand reform of the costly social security system. The progressof reform, however, has been slow. Uruguay is the beneficiary of large inflows of capital,principally from neighboring Brazil and Argentina. TheGovernment has been able to finance a substantial portion ofits deficit through the issuance of dollar-denominated treasurybills. The Central Bank of Uruguay uses the adjustment ofreserve requirements as the main tool to control the moneysupply. However, the lack of instruments to neutralize capitalinflows makes control of the money supply difficult. On April 1994 the IMF approved the Uruguayan governmenteconomic program for 1994 which will be subject to the IMFstaff monitoring procedure. Uruguay has ratified the UruguayRound trade agreements and became a founding member of theWorld Trade Organization (WTO) on January 1, 1995.2. Exchange Rate Policy The Uruguayan government allows the peso to float freelyagainst the dollar within a declining 7 percent band. The bandcurrently declines by 2 percent per month. Up to mid August1994, the Central Bank regularly bought dollars to keep thepeso value from rising above the band. For a periodthereafter, the value of the dollar was floating close to thetop of the band pushed by high liquidity and expectation offormal devaluation. By the end of October, the speculativeburst ended and the Central Bank was again buying dollars. Thelag between devaluation and inflation decreased from about 21percentage points in 1993 to 16 percentage points for thetwelve-month period ended October 1994 continuing to makeUruguayan exports less competitive and imports more attractive. Uruguay has no foreign exchange controls. The peso isfreely convertible into dollars for any transaction and much ofthe economy is dollarized.3. Structural Policies Price controls are limited to a small set of products andservices for public consumption, such as bread, milk, passengertransportation, utilities and fuels. The Government reliesheavily on consumption taxes (value-added and excise) and taxeson foreign trade (export taxes and tariffs) for its generalrevenues. A substantial social security tax, sometimes equalto 50% of the base wage rate, is assessed on workers andemployers. The top tariff rate was lowered from 24 percent to20 percent in January 1 1993. This has a positive effect onU.S. exports. Tariffs for products from Mercosur countrieswill reach zero on January 1, 1995. There are no plans forfurther reductions of tariffs on products from third countriesat this time.4. Debt Management Policies Uruguay is a heavily-indebted middle-income country. As ofMarch 1994, its total external debt was $7.8 billion, almost$300 million over the amount in March 1993. Of this amount,$4.4 billion was public sector debt and $3.4 billionrepresented debts of the private sector. The public sectorexternal debt included 1.6 billion of dollar-denominatedUruguayan government bills and bonds, $269 million of foreigncurrency deposits of nonresidents, $2 billion of long termloans of the nonfinancial public sector and $158 million ofsuppliers credits. The balance, amounting to $373 million,represents liabilities reserves and other credits of theGovernment of Uruguay financial sector. International reservesof the public sector banking system amounted to $2.5 billion,resulting in a net public sector foreign debt of $1.9 billion. The $3.4 billion of the private sector foreign debt wereprimarily made up of $2 billion of foreign currency deposits bynonresidents and $359 million of supplier credits. The balanceamounting to $1 billion represented liability reserves of theprivate banks. International reserves of the private sectorbanks amounted to $3 billion resulting in a net private sectorforeign debt of $452 million. The debt service in 1992 was $750 million, equivalent to45.6 percent of total merchandise exports, 26.7 percent ofcombined merchandise and service exports and 5.7 percent of GDP.5. Significant Barriers to U.S. Exports Certain imports require special licenses or customsdocuments. Among these are drugs, certain medical equipmentand chemicals, firearms, radioactive materials, fertilizers,vegetable materials, frozen embryos, livestock, bull semen,anabolics, sugar, seeds, hormones, meat and vehicles. Toprotect Uruguay's important livestock industry, imports of bullsemen and embryos also face certain numerical limitations andmust comply with animal health requirements, a process whichcan take years. Bureaucratic delays also add to the cost ofimports, although importers report that a "debureaucratization"commission has improved matters. Few significant restrictions exist in services. U.S. bankscontinue to be very active in off-shore banking. There are nosignificant restrictions on professional services such as law,medicine or accounting. Similarly, travel and ticketingservices are unrestricted. A law allowing foreign companies tooffer insurance coverage in Uruguay was passed in October, 1993. There have been significant limitations on foreign equityparticipation in certain sectors of the economy. Investment inareas regarded as strategic require Government authorization.These include electricity, hydrocarbons, banking and finance,railroads, strategic minerals, telecommunications, and thepress. Uruguay has long owned and operated state monopolies inpetroleum, rail freight, telephone service, and portadministration. Passage of port reform legislation in April1992 allowed for privatization of various port services.Recently approved legislation also allows for the privategeneration of electric power and the privatization of thestate-owned gas company. Cellular telecommunications areoperated by both private consortiums and the state-owned phonecompany. Privatization of the telephone company was rejectedin a referendum in 1992. Government procurement practices are well-defined,transparent and closely followed. Tenders are generally opento all bidders, foreign or domestic. In the past year,however, several important government bids appeared to havebeen awarded to non U.S. companies based on other thanobjective criteria such as price and quality. A Governmentdecree also establishes that in conditions of equal quality oradequacy to the function, domestic products will havepreference over foreign ones. Among foreign bidders,preference will be given to those who offer to purchaseUruguayan products. The Government favors local bidders evenif their price is up to 10 percent higher. Uruguay is not asignatory to the GATT government procurement code. Following a recent reduction in the top rate, Uruguay'stariff structure now varies between 0 and 20 percent. Importsfrom MERCOSUR member countries (Brazil, Argentina, andParaguay) enjoy significantly lower rates and will become 0percent on most products as of January 1, 1995. The onlyexemptions to tariff regulations, in the context ofanti-dumping legislation, are reference prices and minimumexport prices, fixed in relation to international levels and inline with commitments assumed under GATT. These are applied toneutralize unfair trade practices which threaten to damagenational production activity or delay the development of suchactivities and are primarily directed at Argentina and Brazil.Minimum export prices are scheduled to be phased out in 1995.6. Export Subsidies Policies The Government has provided a 9 percent subsidy to woolfabric and apparel using funds from a tax on greasy and washedwool exports. This subsidy will be totally eliminated by May1, 1995. Uruguay is a signatory of the GATT subsidies code.7. Protection of U.S. Intellectual Property The Government of Uruguay recognizes intellectual propertyrights in a number of areas, and there is no discriminationagainst foreign companies seeking to register intellectualproperty rights. Uruguay has generally sufficient laws toprotect most intellectual property rights except with regard tonew technology and pharmaceuticals. However, enforcement ofthese laws is weak in certain areas such as software, due inpart to the fact that little of the domestic industry relies onintellectual property protection. Uruguay has been generallysupportive of efforts to strengthen the rules governingintellectual property protection in international fora such asthe World Intellectual Property Organization (WIPO) and theUruguay Round of GATT. The Government does not discriminate between foreign anddomestic patent holders. Owners and assignees of foreignpatents may obtain confirmation of patents in Uruguay, providedapplication is made within 3 years of registration in countryof origin. Confirmed patents are protected for 10 years, lessthe period of protection already enjoyed in the country oforigin. Compulsory licensing is not practiced. Medicines andchemical products are not patentable, although productionprocesses for such products are patentable. Although nofigures are available, the lack of patent protection forpharmaceuticals has had a marked effect on U.S. trade andinvestment in the sector. Foreign trademarks may be registered in Uruguay and receivethe same protection as domestic trademarks. Protection isafforded for 10 years initially, renewable indefinitely. Uruguay affords copyright protection to, inter alia, books,records, videos, and software. Despite the legal protection,enforcement of copyright protection for software is still weakand pirating of software is substantial. Software suppliershave estimated that losses due to pirating could amount to $10million. There is also considerable pirating of videotapes andcassettes. The International Intellectual Property RightsAlliance estimates trade losses from copyright piracy of motionpictures, sound recordings and musical compositions, and booksat $9.9 million.8. Worker Rights a. The Right of Association The Constitution guarantees the right of workers toorganize freely and encourages the formation of unions. Laborunions are independent of government or political party control. b. The Right to Organize and Bargain Collectively Under a policy instituted in March 1992, collectivebargaining 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 inpractice and there is no evidence of its existence. d. Minimum Age for Employment of Children Children as young as 12 may be employed if they have a workpermit. Children under the age of 18 may not performdangerous, fatiguing, or night work, apart from domesticemployment. e. Acceptable Conditions of Work There is a legislated minimum wage. The standard work weekis 48 hours for six days, with overtime compensation for workin excess of 48 hours. Workers are protected by health andsafety 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 areprovided the same protection as other workers. In many cases,the wages and working conditions for those in U.S.-affiliatedindustries appear to be better than average. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 8Total Manufacturing 73 Food & Kindred Products (1) Chemicals and Allied Products -1 Metals, Primary & Fabricated 2 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing (1)Wholesale Trade 111Banking (1)Finance/Insurance/Real Estate 25Services (1)Other Industries 0TOTAL ALL INDUSTRIES 316(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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card_34591.xml
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<text>U.S. DEPARTMENT OF STATEUNITED KINGDON: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS THE UNITED KINGDOM Key Economic Indicators (Billions of U.S. dollars) 1/ 1992 1993 1994 2/Income, Production and Employment:Real GDP (1990 prices) 3/ 825.9 713.9 752.3Real GDP Growth (pct. based on BPS) -0.5 2.0 3.4GDP (at current prices) 3/ 913.3 819.2 876.7By Sector: 4/ Agriculture 16.5 15.6 16.6 Energy/Water 42.5 39.2 41.7 Manufacturing 197.5 177.5 189.4 Construction 52.7 43.8 46.8 Rents 67.3 61.7 64.8 Financial Services 153.1 139.4 148.8 Other Services 261.8 233.9 249.6 Government/Health/Education 163.4 143.6 153.2Net Exports of Goods and Services -15.9 -12.5 -9.1Real Per Capita GDP ($US) 16404.4 14145.0 14916.4Labor Force (millions) 28.4 28.2 28.0Unemployment Rate (pct.) 9.8 10.3 9.4Money and Prices:Money Supply (M2) 920.8 820.2 862.7Base Interest Rate (pct.) 9.6 6.0 5.5Personal Saving Rate (DI) 12.8 12.2 11.0Retail Inflation (CPI in pct.) 3.7 1.6 2.4Wholesale Inflation (pct.) 3.1 3.9 2.5Exchange Rate (USD/BPS) 1.77 1.50 1.54Balance of Payments and Trade:Total Exports (FOB) 5/ 189.9 182.1 200.7 Exports to U.S. 6/ 20.1 21.7 22.8Total Imports (CIF) 5/ 213.1 201.9 217.3 Imports from U.S. 6/ 22.8 26.4 28.8Trade Balance -23.2 -19.8 -16.6 Trade Balance with U.S. -2.7 -4.7 -6.0Foreign Exchange Reserves 41.4 42.9 43.61/ Converted from British pound sterling (BPS) at the averageexchange rate for each year.2/ Data for 1994 are annualized estimates based on availablequarterly data through July 1994.3/ GDP at factor cost.4/ Sectoral total contains adjustment factor of approximatelyBPS 23 billion.5/ Merchandise trade (does not include services)6/ U.S. Department of Commerce figures.Source: U.K. Central Stat. Office: Survey of Current Business1. General Policy Framework The United Kingdom (UK) has a free market economy and anopen financial services environment which encourage opencompetition. Most formerly government-owned industries havebeen privatized. Among the few remaining barriers tointernational trade and investment are preferential treatmentfor UK firms in broadcasting, telecommunications and utilitiesprocurement. The economy is in its second year of recovery. Thegovernment refocused its economic policy after leaving theEuropean Community Exchange Rate Mechanism (ERM) at thebeginning of 1993. Low inflation with sustainable growth isnow the primary goal. Inflation fell dramatically in 1993 andhas remained subdued in 1994. It should average less than 2.5percent for the year. The base interest rate was reduced to5.25 percent at the beginning of 1994, but it was raised to5.75 percent in August to slow the rate of expansion. After declining in 1992, real GDP growth was two percent in1993 and is expected to exceed three percent in 1994. Theunemployment rate continues to fall sharply; it stood at 9.1percent in September 1994 compared to the 1993 average of 10.3percent. (Note that the depreciation of the pound sterlingmeans that the UK's 1993 GDP expressed in dollars appeared tocontract even though real GDP in national currency expanded.) Fiscal Policy: Although the government entered therecession with a fiscal surplus in 1990, the loss of revenueduring the recession substantially increased cyclical spendingon unemployment benefits, and pre-election spending in 1992 ledto a record budget deficit level and Public Sector BorrowingRequirement (PSBR) by 1993. Seized by the need to rein in thespiraling PSBR, the government initiated a series of stringentfiscal measures to take effect over the three fiscal yearsstarting April 1, 1994. Partially due to falling employmentand faster than expected growth, PSBR performance for 1993/94was better than projected by the government. In 1994/95, the current fiscal year, progress in reducingthe PSBR is being maintained, again due to higher than expectedgrowth and falling unemployment. However, fiscal tighteningappears to be slowing consumption expenditure. The Conservative government retains its goal of reducingthe basic personal income tax rate to 20 percent as soon aspossible. Current tax rates are 20, 25 and 40 percent. Fortax purposes, capital gains are adjusted for inflation. Thefirst five thousand pounds in capital gains are tax free, andthe remainder is generally taxed at regular income tax rates.Gains from the sale of a primary home are exempt. Corporatetax rates vary between 25 and 33 percent. Other domestic taxrevenue sources include the value-added tax (VAT, currently setat a rate of 17.5 percent), and excise taxes on alcohol,tobacco, retail motor fuels, and North Sea oil production. Monetary Policy: The UK manages its monetary policythrough open market operations by buying and selling in themarkets for overnight funds and commercial paper. There are noexplicit reserve requirements.2. Exchange Rate Policy The UK withdrew from the ERM in September 1992, and thepound sterling floats freely in the exchange market. The PrimeMinister has publicly disavowed any return to the ERM in theforeseeable future. Sterling's trade-weighted exchange rateindex initially fell from 92 in 1992 to 76 in early 1993 andhovered at around 80 for most of 1994.3. Structural Policies The UK economy is characterized by free markets and opencompetition. Prices for most goods and services areestablished by market forces. Prices are set by the governmentin those few sectors where the government still providesservices directly, such as passenger railway and urbantransportation fares, and government regulatory bodies monitorthe prices charged by electric, natural gas and waterutilities. The UK's participation in the European Union CommonAgricultural Policy significantly affects the prices for rawand processed food items, but prices are not actually fixed forany of these items. Over the past 15 years Conservative governments pursuedgrowth and increased economic efficiency through structuralreform, principally privatization and deregulation. Thefinancial services and transportation industries werederegulated. The government sold its interests in theautomotive, steel, aircraft and air transportation sectors.Electric power and water supply utilities were alsoprivatized. Coal mining, rail transportation and local bustransportation are in the process of being privatized.Subsidies were cut substantially, and capital controls lifted.Employment legislation increased market flexibility,democratized unions, and increased union accountability for theindustrial acts of their members. Although there has been great progress, some challengesremain. Social welfare programs and the business community arestill adjusting to job losses and changes in the businessclimate resulting from deregulation and privatization. Thegovernment has not been able to achieve sustained success inreducing the budget deficit, and consequently has not been ableto lower tax rates as expected. The current UK government strongly supports free trade andopen markets. It has ratified the Uruguay Round agreement andjoined the World Trade Organization (WTO) as a founding member.4. Debt Management Policies The United Kingdom has no meaningful external public debt.London is one of the foremost international financial centersof the world, and British financial institutions are majorintermediaries of credit flows to developing countries. TheBritish government is an active but cautious participant in thedevelopment of a coordinated debt strategy. British banks areprominent members of bank advisory committees on developingcountry debt and debt of former communist countries. Theyrecognize a need in many countries for debt and debt servicerelief, but generally object to mixing new money with debtrelief.5. Significant Barriers to U.S. Exports Although structural reforms have made it easier for U.S.exporters to enter UK markets, some barriers still remain inbroadcasting, telecommunications and utilities procurement.Problem areas and specific regulations resulting in tradebarriers in these areas are profiled below. Broadcasting: The 1990 Broadcasting Act, which implementsthe 1989 European Community Broadcast Directive, requires that"a suitable proportion" of television programs broadcast in theUK be produced locally and that a "proper proportion" be ofEuropean origin. The EC directive itself calls for a majority(50 percent) of EC content "where practicable." Telecommunications: The UK domestic telephony market wasopened for competition in 1991. In the past year, the UKtelecommunications regulatory body has made a number offavorable rulings on issues such as the high cost anddifficulty of negotiating interconnection agreements withBritish Telecom (the former government monopoly, nowprivatized), number portability (ability to keep a specificphone number when changing service provider), and other equalaccess issues. These rulings have significantly reduced themain market barriers with the aim of completely eliminatingsome of the most onerous by 1996. Sufficient progress was madeto allow the FCC to make an initial determination in September1994, that the UK market was "equivalent" to the U.S. market.This was followed up in October by a similar decision on thepart of the UK. This mutual action will pave the way forsignificant increases in competition in trans-Atlantictelecommunications. Some U.S. companies believe, however, thatthe UK still has some distance to go, particularly regardingAccess Deficit Charges as well as refusing to permit newentrants to operate international long distance services usingtheir own facilities in the near term. Utilities Procurement: The UK implemented the EC UtilitiesDirective in 1992 by instituting a series of regulations basedon the Directive. The regulations allow government-owned andprivate utilities to favor EC over foreign suppliers.6. Export Subsidies Policies The Conservative government opposes subsidies as a generalprinciple, and UK trade-financing mechanisms do notsignificantly distort trade. The Export Credits GuaranteeDepartment (ECGD), an institution similar to the Export-ImportBank of the United States, was partially privatized in 1991. Although much of ECGD's business is conducted at marketrates of interest, it does provide some concessional lending incooperation with the Overseas Development Administration (ODA,the British equivalent of our own Agency for InternationalDevelopment) for projects in developing countries.Occasionally the United States objects to financing offered forspecific projects. The UK's development assistance (aid) program also hascertain "tied aid" characteristics. To minimize the distortiveeffects of such programs, particularly when used in conjunctionwith ECGD-type credits through the Aid and Trade Provision(ATP), the United States negotiated the 1987 "Arrangements onOfficially Supported Export Credits" with the UK and otherdeveloped countries. It appears that Britain has adhered tothe Arrangement.7. Protection of U. S. Intellectual Property UK intellectual property laws are strict, comprehensive andrigorously enforced. The UK is a signatory to all relevantinternational conventions, including the ConventionEstablishing the World Intellectual Property Organization(WIPO), the Paris Convention for the Protection of IndustrialProperty, the Berne Convention for the Protection of Literaryand Artistic Works, the Patent Cooperation Treaty, the GenevaPhonograms Convention and the Universal Copyright Convention. New copyright legislation simplified the British processand permitted the UK to join the most recent text of the BerneConvention. The United Kingdom's positions in internationalfora are very similar to the U.S. positions.8. Worker Rights a. Right of Association Unionization of the work force in Britain is prohibitedonly in the armed forces, public sector security services, andpolice force. b. Right to Organize and Bargain Collectively Over 10 million workers, about 38 percent of the workforce, are organized. Employers are not legally required tobargain with union representatives. However, they are legallybarred from discriminating based on union membership (except inthe armed forces, police force, or security services whereunion membership is prohibited). The 1993 Trade Union Reformand Employment Rights Act limited that prohibition undercertain special circumstances in matters short of dismissal. The 1990 Employment Act made unions responsible formembers' industrial actions, including unofficial strikes,unless union officials repudiate the action in writing.Unofficial strikers can be legally dismissed, and voluntarywork stoppage is considered a breach of contract. During the 1980s, Parliament eliminated immunity fromprosecution in secondary strikes and in actions with suspectedpolitical motivations. Actions against subsidiaries ofcompanies engaged in bargaining disputes are banned if thesubsidiary is not the employer of record. Unions encouragingsuch actions are subject to fines and seizure of their assets.Many unions claim that workers are not protected from employersecondary action such as work transfers within the corporatestructure. 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 industrialenterprise only as part of an educational course. Localeducation authorities can limit employment of children under 16years old if working will interfere with a child's education. e. Acceptable Conditions of Work With the exception of wages in agriculture, the setting ofminimum wages in the UK was abolished by the Trade Union Reformand Employment Rights Act of 1993. Daily and weekly workinghours are not limited by law. Hazardous working conditions are banned by the Health andSafety at Work Act of 1974. A health and safety commissionsubmits regulatory proposals, appoints investigatorycommittees, does research and trains workers. The Health andSafety Executive (HSE) enforces health and safety regulationsand may initiate criminal proceedings. This system isefficient and fully involves workers' representatives. f. Rights in Sectors with U.S. Investment All U.S. corporations operating within the UK are obligedto obey legislation relating to worker rights. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 13,802Total Manufacturing 22,855 Food & Kindred Products 2,314 Chemicals and Allied Products 3,722 Metals, Primary & Fabricated 1,591 Machinery, except Electrical 4,265 Electric & Electronic Equipment 2,247 Transportation Equipment 1,906 Other Manufacturing 6,810Wholesale Trade 4,408Banking 4,122Finance/Insurance/Real Estate 44,401Services 4,447Other Industries 2,396TOTAL ALL INDUSTRIES 96,430Source: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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card_34334.xml
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<text>U.S. DEPARTMENT OF STATEUAE: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS UNITED ARAB EMIRATES Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994Income, Production and Employment:Real GDP (1985 prices) 29,523 29,041 N/AReal GDP Growth (pct.) -0.9 -1.6 N/AGDP (at current prices) 35,456 35,865 N/ABy Sector: Agriculture 744 774 N/A Mining Crude Oil 14,470 13,988 N/A Others 95 101 N/A Manufacturing 2,708 2,966 N/A Electricity/Water 782 806 N/A Construction 3,029 3,154 N/A Wholesale/Retail Trade/ Restaurants/Hotels 3,547 3,645 N/A Transport/Storage/Communication 1,953 2,013 N/A Finance/Insurance 1,752 1,814 N/A Real Estate 2,228 2,310 N/A Other Services 798 847 N/A Imputed Bank Service Charges -730 -781 N/A Government Services 3,917 4,053 N/A Household Domestic Services 163 174 N/ANet Exports of Goods & Services 1/ 3,043 183 N/AReal Per Capita GDP (1985 prices/USD 000s) 17.63 17.22 N/ALabor Force (000s) 769.30 794.40 N/AUnemployment Rate (pct.) N/A N/A N/AMoney and Prices: (annual percentage growth)Money Supply 4.4 -1.6 1.6 2/Base Interest Rate N/A N/A N/APersonal Saving Rate 22.8 17.1 N/ARetail Inflation 3.5 4.5 N/AWholesale Inflation N/A N/A N/AConsumer Price Index (1985=100) 120.1 123.5 N/AExchange Rate (USD/dirham) 3.671 3.671 3.671Balance of Payments and Trade:Total Exports 23,944 23,563 N/A Exports to U.S. 871.9 774.5 231.1 3/Total Imports 17,434.0 19,613.0 N/A Imports from U.S. 1,552.4 1,811.4 748.6 3/Aid from U.S. 0 0 0Aid from Other Countries 0 0 0External Public Debt 0 0 0Debt Service Payments (paid) 0 0 0Gold and Foreign Exch. Reserves 5,893.8 6,286.2 6,824.6 4/Trade Balance 6,510.5 3,949.9 N/A Trade Balance with U.S. 680.5 1,036.9 517.5 3/N/A--Not available.1/ Net exports of goods and services is the current accountbalance.2/ 1992 and 1993 December to December; 1994 December to June3/ 1994 figure is January-June.4/ 1992 and 1993 figures are fourth quarter; 1994 figure is forMay.Source: All figures are from UAE Ministry of Planning and UAECentral Bank sources, with the exceptions of those on tradewith the U.S., which are from U.S. Department of Commerce, andgold and foreign exchange reserves, which are from theInternational Monetary Fund (IMF) International FinanceStatistics (IFS).1. General Policy Framework The UAE is a federation of seven emirates. The individualemirates retain considerable power over legal and economicmatters, most significantly over ownership and disposition ofoil resources. The federal budget is largely derived fromtransfers from the individual emirates. Abu Dhabi and Dubai,the most prosperous emirates, contribute the largest shares. Oil production and revenues from the sale of oil constitutethe largest single component of GDP. Consequently, rising ordeclining oil prices have a direct effect on GDP statistics andan indirect impact on government spending but may,nevertheless, be less obvious in terms of overall economicactivity. In 1993, real per capita GDP in Abu Dhabi, theemirate with the most oil, was $20,664. Ajman Emirate's realper capita 1993 GDP of $4,257 was the smallest of the seven.Real per capita GDP fell in every emirate in 1993, for thethird consecutive year. Economic activity in the UAE depends on developments in theoil sector, which accounted in 1993 for 39 percent of GDP, 51percent of export revenue, and 79 percent of governmentrevenues, according to Ministry of Planning and Central Banksources. Government fiscal policies aim to distribute oil wealth toUAE nationals by a variety of means. Support from thewealthier emirates of Abu Dhabi and Dubai to less wealthyemirates is done through the federal budget, largely funded byAbu Dhabi and Dubai, and by direct grants from the governmentsof Abu Dhabi and Dubai. Federal commercial laws promote national ownership ofbusiness throughout the country. Foreign business, exceptthose seeking to sell to the UAE Armed Forces, must have a UAEnational sponsor. Agency and distributorship laws require thata business engaged in importing and distributing a foreign-madeproduct must be 100 percent UAE national-owned. Otherbusinesses must be at least 51 percent owned by nationals. A1994 law extended these requirements to service businesses forthe first time. Within the Emirate of Dubai, companies locating in theJebel Ali Free Zone (JAFZ) are exempted fromagency/distributorship, sponsorship, and national ownershiprequirements. However, if they lack 51 percent nationalownership, they are treated as foreign firms and subjected tothese requirements if they market products in the UAE outsidethe JAFZ. Certain sectors are closed to new private sectorinvestment, including oil and gas operations and relatedindustries, such as petrochemicals, and electricitygeneration/water desalination. The Abu Dhabi and Dubai governments sustain the non-oilsector in part by spending oil revenues on developmentprojects. Foreigners are not permitted to own real estate inAbu Dhabi or Dubai, and in Abu Dhabi 90 percent of residentialand commercial construction is carried out by a governmentagency that builds and manages commercial and residentialrental property on behalf of nominal national landlords. There are no taxes on UAE nationals and no income taxes onthe large expatriate population, although fees for governmentservices, including health care, were increased substantiallyfor expatriates and slightly for nationals in 1994. Mostservices, including utilities, health care, education, and foodremain heavily subsidized by the government, although more sofor nationals than expatriates. Most salaried nationals workin the public sector, where salaries are higher than in theprivate sector and work is less demanding. The authorities attempt to maintain wealth distributionwithout generating inflation or drawing down reservesaccumulated in years of higher oil prices. This is not alwayspossible. The authorities' response to the oil price declineof 1985-86 was to draw down foreign assets and decrease capitalspending. The oil price decline of 1993-94 is comparable tothat of 1985-86. This time, while we believe the authoritiesare drawing down reserves, they are also adopting new andpreviously untried measures to raise revenue and cutexpenditures. These include, as indicated, raising fees, primarily onexpatriates, who make up about 70 percent of the population.Services expatriates will pay more for include visas, residencepermits, water, electricity, and medical care. Expatriates nowpay an annual tax of $1300 for each employed householddomestic. The federal government budget has been frozen at its1993 level through 1995. Abu Dhabi emirate announced inmid-1994 that its budget would be cut by 20 percent fromplanned levels. Emirate authorities announced later that anadditional 20 percent would be cut in 1995. Privatization had not been implemented by October 1994,although there is scope for it and many observers believe thatit will be introduced in the near to medium term. The federaland individual emirate governments own many enterprisesoutright and own shares in others. A likely candidate forearly privatization is government-owned bank shares. TheCentral Bank in 1994 drafted a bill authorizing an officialstock exchange, but as of October the cabinet had taken noaction on it. The principal function of the UAE Central Bank is toregulate commercial banks. Within the past three years, theCentral Bank has increased the degree of its regulatoryactivities, through issuing circulars and then following up onthem with enforcement measures. The Bank's ability to regulateis limited however by the fact that some of the banks are ownedby interests that are more powerful than the Bank and over whomit has little or no authority. The Bank seeks to maintain the dirham/dollar exchange rate,which has not changed since 1980, and to keep interest ratesclose to those in the U.S. Given these goals, the Bank doesnot have the scope to engage in independent monetary policy.Trends in domestic liquidity continue to be primarilyinfluenced by residents' demand for UAE dirhams relative toforeign exchange. Banks convert dirham deposits to foreignassets and back again in search of higher rates of return andin response to fluctuations in lending opportunities in thedomestic market. To a limited extent, domestic liquidity canbe influenced by the Central Bank through its sale and purchaseof foreign exchange, use of its swap facility and transactionsin its certificates of deposit. The provision of government statistics in the UAE islimited. Little information is available on oil and gas outputor pricing, inflation, service and capital transactions in thebalance of payments, or the UAE's foreign assets.2. Exchange Rate Policy Since November 1980, the UAE dirham, has been formallypegged to the IMF's Special Drawing Rights (SDR) at the rate ofone SDR equals 4.76190 dirhams, with a margin of fluctuationset initially at 2.25 percent and widened in August 1987 to7.25 percent. However, the dirham's relationship with the U.S.dollar has been kept at a fixed rate. Since November 1980, thebuying and selling rates for the U.S. dollar have been 3.6690dirhams and 3.6730 dirhams, respectively. Commercial banks are free to enter into foreign exchangetransactions, including forward contracts, at rates of theirown choosing. In practice, these rates have followed closelythe rate quoted by the Central Bank. The UAE maintains aliberal exchange system which is free of restrictions on bothpayments and transfers for current and capital transactions. The weakness of the U.S. dollar in 1994 has given U.S.exports an edge in the UAE market, as the dirham prices ofcompeting products from industrialized Europe and Japan haverisen.3. Structural Policies There have been several notable changes in the regulatoryframework in 1994. New customs rules took effect on August 1,1994. A customs duty of four percent on the CIF value ofimports is to be collected in full on items that are notexempt. This duty does not apply to the higher tariffs ontobacco and alcohol. The list of exempt items is lengthy andincludes items imported by the rulers or the government, itemsimported from Gulf Cooperation Council (GCC) states, religiousmaterials, items imported by airlines, items imported bycharitable institutions, medicines and pharmaceuticals, manydifferent kinds of food, items to be re-exported, farmmachinery, construction materials, and newspapers andperiodicals. Other changes in 1994 include: a ban on issuance oflicenses authorizing the establishment of 42 different kinds ofsmall business; increased fees, particularly for expatriates;a reduction in the number of expatriates permitted to bringfamily members with them to the UAE; and an increase in delaypenalties applicable to contracts with the UAE federalgovernment. The UAE Central Bank in 1994 issued an update of a circularit had issued in 1993 on regulation of large exposures. The1993 circular had restricted exposure to one individual orgroup to seven percent of a bank's capital. The revisedcircular defined exposure as funded exposure. It also exemptsUAE governmental borrowers from the limits and permits largerexposures in interbank lending. Foreign banks, which hadobjected to the 1993 circular, are somewhat more satisfied withthe changes, but will still have to reduce their fundedexposures to the principal customers or move their assetsoffshore. The UAE began issuing ten-year, multiple entry visas toU.S. passport holders in 1994. In addition, the UAE nowpermits certain nationalities of expatriate residents of otherGulf Cooperation Council countries, among them U.S. citizens,to enter the UAE without having first obtained visas. With the exceptions of those levied on foreign banks andoil companies, there are no income taxes levied in the UAE. Prices for most items are determined by market forces.Exceptions include utilities, educational services, medicalcare, and agricultural products, which are subsidized.4. Debt Management Policies The UAE federal government has no official foreign debt.Some individual emirates are believed to have foreigncommercial debts, and there is private external debt. Whilethere are no reliable statistics on either, the amountsinvolved are not large. The foreign assets of Abu Dhabi andDubai governments and their official agencies are believed tobe significantly larger than the reserves of the Central Bank. External assistance is provided by the federal government,individual emirate government agencies, individual rulers, andprivate contributors. No comprehensive figures are available.The largest aid donor within the UAE, the Abu Dhabi Fund forDevelopment (ADFD), currently is providing financing worthalmost DH 2.8 billion (USD 763 million) for 29 developmentalprojects in 13 Arab countries.5. Significant Barriers to U.S. Exports The regulatory and legal framework favors local overforeign business. There is no national treatment for investorsin the UAE. Except for companies located in duty free zones,at least 51 percent of a business establishment must be ownedby a UAE national. A business engaged in importing productsfor distribution within the UAE must be 100 percent owned by aUAE national. Subsidies for manufacturing firms are onlyavailable to those with at least a 51 percent local ownership. By law, foreign companies wishing to do business in the UAEmust have a UAE national sponsor, agent or distributor. Thereis some disagreement between the federal and local authorities,however, over the meaning of "national". The federal Ministryof Economy and Commerce stipulates that a national sponsor is asponsor for the entire country. Local chambers of commerce,however, see "national" as meaning UAE citizen, and often willnot allow a business to operate within their emirate if thesponsor is from another emirate. Once chosen, these sponsors,agents, or distributors have exclusive rights. Sponsors can bereplaced, if the sponsor agrees. This happens, but not often. Foreign companies do not press claims, knowing that to doso would jeopardize future business activity in the UAE.Foreigners cannot own land or buy stocks. Foreign companies donot pay taxes, except for banks, whose profits are taxed at arate of 20 percent, and oil producers, which pay taxes androyalties on their equity barrels. The tendering process is not conducted according togenerally accepted international standards. Retendering is thenorm, often as many as three or four times. To bid on federalprojects, a supplier or contractor must either be a UAEnational or a company in which at least 51 percent of the sharecapital is owned by UAE nationals. Therefore, foreigncompanies wishing to bid for a federal project must enter intoa joint venture or agency arrangement with a UAE national orcompany. Federal tenders are required to be accompanied by abid bond in the form of an unconditional bank guarantee forfive percent of the value of the bid.6. Export Subsidies Policies The UAE Government does not use subsidies to provide director indirect support for exports. The UAE joined the GATT in1994.7. Protection of U.S. Intellectual Property Rights In 1992, the UAE passed three laws pertaining tointellectual property rights (IPR) protection: a copyrightlaw, a trademark law and a patent law. The UAE began enforcingthe copyright law on September 1, 1994. The government beganregistration of trademarks and patents in 1993. Most lossesto U.S. firms in the UAE have been to owners of copyrights, nottrademarks or patents, although there have been occasionalproblems with trademark fraud and in obtaining IPR protectionfor certain products, such as pharmaceuticals. Since UAEpatent law protects processes, not products, some U.S. firmsare concerned that there could be unauthorized manufacture anddistribution of their products. In late 1994 UAE authoritieswere considering revisions to the patent law to addresscoverage of product patents.8. Worker Rights a. The Right of Association UAE law does not grant workers the right to organize unionsor to strike. Similarly, it is a criminal offense for publicsector workers to strike. Foreign workers, who make up thebulk of the workforce, would risk deportation if they attemptedto organize unions or to strike. b. The Right to Organize and Bargain Collectively UAE law does not grant workers the right to engage incollective bargaining, and it is not practiced. Workers in theindustrial and service sectors are normally employed undercontracts that are subject to review by the Ministry of Laborand Social Affairs. The purpose of the review is to ensurethat the pay will satisfy the employee's basic needs and securea means of living. For the resolution of work-relateddisputes, workers must rely on conciliation committeesorganized by the Ministry of Labor and Social Affairs or onspecial labor courts. Domestic servants and agriculturalworkers are not covered by UAE labor laws and thus have greatdifficulty in obtaining any assistance in resolving labordisputes. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is illegal and not practiced.However, foreign workers may be recruited in their owncountries by unscrupulous agents who bring them into the UAEunder conditions approaching indenture. d. Minimum Age for Employment of Children Labor regulations prohibit employment of persons under age15 and have special provisions for employing those aged 15 to18. Laws prohibiting the employment of children are enforcedby the Department of Labor. Labor regulations allow contractsonly for adult foreign workers. e. Acceptable Conditions of Work There is no legislated or administrative minimum wage.Supply and demand determine compensation. However, accordingto the Ministry of Labor and Social Affairs, there is anunofficial, unwritten minimum wage rate which would afford aworker and family a minimal standard of living. As noted inSection 6.B., the Labor and Social Affairs Ministry reviewslabor contracts and does not approve any contract thatstipulates a clearly unacceptable wage. The standard workday and workweek are set at eight hoursper day, six days per week, but these standards are notstrictly enforced. Certain types of workers, notably domesticservants, may be obliged to work longer than the mandatedstandard hours. The law also provides for a minimum of 24 daysper year of annual leave plus 10 national and religiousholidays. In addition, manual workers are not required to dooutdoor work when the temperature exceeds 45 degrees Celsius(112 Fahrenheit). Most foreign workers receive either employer-providedhousing or a housing allowance, medical care, and homewardpassage from their employers. The vast majority of suchworkers, however, do not earn the minimum salary of DH 5000(approximately USD 1370) per month currently required for themto sponsor their families for a UAE residence visa (the UAEincreased the minimum requirement from USD 1000 to USD 1370 inAugust, 1994). Further, employers may petition for a one-yearban from the workforce of any foreign employee who leaves hisjob without fulfilling the terms of his contract. Absentcareful oversight, such an option could be misused to inhibitlegitimate complaints on working conditions or reasonablerequests to change employers. The government sets health and safety standards, which areenforced by the Ministry of Health, the Ministry of Labor andSocial Affairs, municipalities, and civil defense units. Everylarge industrial concern is required to employ an occupationalsafety officer certified by the Ministry of Labor. If anaccident occurs, a worker is entitled to fair compensation.Health standards are not uniformly observed in the housingcamps provided by employers. Workers' jobs are not protectedif they remove themselves from what they consider to be unsafeworking conditions. However, the Ministry of Labor may requireemployers to reinstate workers following an investigation ofthe alleged unsafe working conditions. All workers have theright to complain to the Labor Ministry, whose officials areaccessible to any grievant, and an effort is made toinvestigate all complaints. The Ministry, which overseesworker compensation, is, however, chronically understaffed andunderbudgeted so that complaints and compensation claims arebacklogged. Foreign nationals, especially from India, Pakistan, thePhilippines, Bangladesh, and Sri Lanka, continue to seek workin the UAE in large numbers. There are many complaints thatrecruiters in the country of origin use unscrupulous tactics toentice manual laborers and domestic servants to the UAE,promising unrealistically high salaries, housing and otherbenefits and may even bring them in illegally. Such complaintsmay be appealed to the Labor Ministry and, if this does notresolve the issue, to the courts. However, many laborerschoose not to protest or to engage in such a lengthy processfor fear of reprisals or of deportation. Moreover, sincethe UAE tends to view foreign workers through the prism oftheir various nationalities, the employment policies, likeimmigration and security policies, have, at times, beenconditioned upon national origin. A number of accounts, including some in the local press,continue to call attention to abuses suffered by domesticservants, particularly women, perpetrated by individualemployers. These have included allegations of excessive workhours, extremely low wages, verbal abuse, and, in some cases,physical abuse. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 291Total Manufacturing (2) Food & Kindred Products 0 Chemicals and Allied Products (2) Metals, Primary & Fabricated (2) Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 0Wholesale Trade 142Banking (1)Finance/Insurance/Real Estate (1)Services 23Other Industries 45TOTAL ALL INDUSTRIES 537(1) Suppressed to avoid disclosing data of individual companies(2) Less than $500,000Source: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEUKRAINE: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS UKRAINE Key Economic Indicators (Billions of karbovanets unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP Growth (pct.) 2/ -17.0 -14.2 -34.0Nominal GDP (trillions kbv) 2/ 4.09 153.00 1,055.0 3/Labor Force (millions) 24.4 24.5 N/AUnemployment (000s) 70.5 83.9 125.8Unemployment Rate (pct.) N/A 0.18 0.77Money and Prices: 4/Personal Savings Rate (pct.) 28.5 N/A N/ARetail Inflation (pct.) 2,100 10,300 210Wholesale Inflation (pct.) 4,230 9,770 N/AConsumer Price Index 2,100 10,258 N/AExchange Rate (KBV/USD/end of period) Official 638 12,610 44,000 Parallel N/A 31,970 90,000 5/Balance of Payments and Trade:(USD millions, unless otherwise noted)Total Exports (USD billions) 2/ 11.3 14.9 N/A Exports to U.S. 75 132 295 6/Total Imports (USD billions) 2/ 11.9 16.6 N/A Imports from U.S. 156 272 193 6/Aid from U.S. N/A 330 700Foreign Exchange Reserves N/A 207 7/ N/ATrade Balance N/A 510.6 -123.7 Trade Balance with U.S. -81 -140 102 6/N/A--Not available.1/ 1994 Figures are nine-month data unless otherwise marked.2/ IMF statistics.3/ IMF staff estimate for 12-month period.4/ Ukrainian Ministry of Statistics, 1994.5/ As of October 20, 1994.6/ 1994 Figures are estimates based on January-October data.7/ Ukrainian Ministry of Finance, 1993.1. General Policy Framework Ukraine declared independence on August 24, 1991, and thepopulation overwhelmingly ratified this in a nationalreferendum on December 1, 1991. Ukraine is the second largestnation of the former Soviet Union in terms of population andeconomic power, and the third largest in terms of area.Stretching across 603,700 square kilometers, it has apopulation of 52 million, of which three-quarters are ethnicUkrainians and one-fifth are ethnic Russians. Ukraine'sprincipal resources include fertile "black earth" agriculturalland and significant coal reserves. The nation's broad naturalresource endowment has led to the development of a diversifiedeconomy with a strong agricultural and food processingindustry, large heavy industries, and a substantial capitalgoods sector oriented toward military production. Despite its natural wealth, for the past three yearsUkraine has faced inflation and a declining economy. Thedecline of production in most sectors of the economy continues,though the rate of contraction appears to have slowed in somespheres. In 1992 and 1993 market oriented reforms wereimplemented at a slow and half-hearted pace. Ukrainianofficials appeared determined to move towards an efficienteconomy without creating social upheaval and a decline in thestandard of living, even if it included a reliance on centraladministrative planning. Unfortunately, this policy produced adecrease in industrial production, spiralling inflation, littleprivatization, and overall economic gridlock. In 1993,attempts at stabilizing the economy were overwhelmed by theweight of collapsing production, ruptured trade links withinthe former Soviet Union, and the lack of political will withinall levels of the national government. In 1994 the economic situation in Ukraine remains grim, butthe policy outlook has brightened considerably. Country-wideelections, which produced a new President, Parliament and everygovernor and mayor in the nation, helped provide new thinkingand fresh ideas. Ukraine has now unambiguously signaled itsdetermination to embark on a comprehensive economic reformprogram. President Leonid Kuchma's October 11, 1994 address tothe Ukrainian Parliament registered a welcome and drasticchange in economic policy. Ukraine is committed to unifyingits exchange rates, reforming the tax and banking systems,liberalizing prices, reducing inflation, eliminating subsidies,lifting export and currency controls, attracting more foreigninvestment, speeding up privatization efforts, and cutting thebudget deficit. On October 27, 1994, the InternationalMonetary Fund announced the approval of a $371 million SystemicTransformation Facility loan to help implement the first stageof this radical economic reform program.2. Exchange Rate Policies For the past two years Ukraine has utilized a system ofmulti-use, legal tender coupons as a response to two problems:a complete cut-off in the supply of rubles from the Russiancentral bank and concern over exports of lower priced Ukrainiangoods to other newly independent states. The coupon, orkarbovanets (KBV), became the sole legal unit of currency inUkrainian territory on November 12, 1992, when the Governmenteliminated the ruble from use in all cash and non-cashtransactions. The Ukrainian government considers the coupon atransitional currency, until the new currency, the Ukrainianhryvnia, can be introduced in 1995. On August 23, 1994, President Kuchma issued a decree "OnImprovement of Currency Regulation" under which the officialexchange rate was to be brought closer to its true market valueby year-end 1994 in order to stop the sharp slide of the KBV.This decree also reduced the proportion of hard currencyearnings businesses must sell to the state to thirty percent,down from fifty percent originally mandated. On October 1,1994, the interbank auction market for foreign exchange wasreopened. The official rate for the surrender of foreignexchange was abolished on October 21; in addition, thegovernment tender committee, which previously allocated foreigncurrency, was disbanded. The exchange rate is now unified andthe rate is determined in the inter-bank market. Thegovernment will obtain the foreign exchange it needs in theauction at the unified rate.3. Structural Policies To date the Ukrainian privatization process has proceededunevenly, not so much due to lack of a legislative base but toa lack of political will. For example, in the housing sector,23 percent of all eligible dwellings have been privatized todate. The privatization of small-scale enterprises continuesin several cities including Kharkiv, Zaporizhiya and Luhansk,but most other enterprise privatization has come to a halt dueto a parliamentary review of the privatization process begun inlate summer 1994. However, President Kuchma has outlined anambitious privatization strategy for 1995, including completionof small-scale privatization throughout the country andprivatization of some 8,000 medium and large-scaleenterprises. The Ukrainian government has approved the use ofa privatization certificate, which will be distributed free ofcharge to enable all Ukrainian citizens to take part in massprivatization beginning in 1995. In 1993, Ukraine's tax policies were one of the mostdifficult elements in the business environment. High taxburdens, unclear legislation, and a multitude of differenttaxes caused confusion and increased tax evasion. In responseto heavy criticism from the business sector, both state-ownedand private, the government and parliament have agreed to acomprehensive reform of tax policy to ensure it stimulatesinvestment and productivity rather than suffocates business.Most joint ventures are shielded from income tax by Ukrainianlegislation which offers tax holidays to qualified investments. Until October 1994, the Ukrainian government maintainedprice controls on approximately 17 percent of production.However, in October 1994, the government liberalized prices forall but a few specific items including the output of naturalmonopolies. Prices for certain communal services haveincreased and further increases are expected through 1995.4. Debt Management Policies Ukraine's share of the debt and assets of the former SovietUnion is 16.37 percent, as agreed in an inter-Republic treatydated December 4, 1991. In November 1992, Ukraine and Russiasigned a protocol assigning Russia's management responsibilityfor Ukraine's share of the debt, pending a bilateral agreementto resolve outstanding issues. The protocol was terminated onDecember 31, 1992 and negotiations continue between Russia andUkraine on issues surrounding the division of the externalassets and debt. Since independence, Ukraine has incurred a modest foreigndebt with the west, but an increasingly large debt with Russiaand Turkmenistan for deliveries of oil and gas. According toUkrainian statistics, the officially acknowledged debt is $2.71billion to Russia and $855 million to Turkmenistan. Thegovernment established a hard currency credit committee toconsider all governmental hard currency debt obligations andissuance of state guarantees on credits.5. Significant Barriers to U.S. Trade The single most important barrier to trade and investmentin Ukraine is the country's painful transition from a commandeconomy to one based on market economics. As a result,successful export and investment activity in Ukraine requires along term outlook and strategy, as well as a "frontiermentality." Ukraine's shortage of hard currency earnings,underdeveloped and inefficient banking system, poorcommunications infrastructure, and lack of legal, shipping andother key infrastructure are the most significant impedimentsrestricting U.S. exports to Ukraine. These barriers arefurther worsened by Ukraine's inexperience in trading in anopen market environment and its general unfamiliarity with U.S.suppliers and their products, technology and business practices. Since gaining its independence, Ukraine has asserted itsright to establish and maintain its own system of standards andproduct certification. In fact, Ukraine is currentlydeveloping a wide range of national standards and many of theseare being strongly influenced by European Union standards. Inthe interim, Ukraine's domestic production standards andcertification requirements are based on those of the formerSoviet Union and apply equally to domestically produced andimported products. Product testing and certification generallyrelate to technical, safety and environmental standards as wellas to efficacy standards for pharmaceutical and veterinaryproducts. At a minimum, imports to Ukraine are required tomeet the certification standards of the country of origin. Incases where Ukrainian standards are not established, country oforigin standards may prevail. Imported goods are not considered to have legally enteredUkraine until they have been processed through the port ofentry and been cleared by Ukrainian customs officials. Dutieson goods imported for resale are subject to varying ad valoremrates and import license requirements. Ukrainian law allows for virtually all forms of foreigndirect investment, including wholly-owned subsidiaries. Infact, Ukraine has attempted to encourage foreign investmentthrough a "State Program for Encouraging Foreign Investment,"which extends the length of existing tax holidays and importduty exemptions to qualifying investors in a number of prioritysectors. However, the depressed local market and numerous taxdisincentives weigh heavily on foreign investors. In addition,U.S. companies, under the Foreign Corrupt Practices Act, areoften at a significant disadvantage in the Ukrainian businessenvironment where bribery and corruption can be common tools ofbusiness. It is important to note that the Kuchma government's newexport liberalization policies, attempts at overall financialstabilization and proposed tax policy reforms are welcomechanges that should attract more foreign investors to Ukraine. A broadening of trade and investment relations with Ukraineis a high priority of the U.S. government and a key to economicreform and development in Ukraine. The U.S.-Ukraine TradeAgreement signed in June 1992 provides for reciprocal mostfavored nation (MFN) status and establishes a basic frameworkfor broadening this relationship. Furthermore, this agreementprovides for the establishment of the Joint Commission on Tradeand Investment (JCTI), which held its inaugural session onNovember 23, 1994. The Commission will work to reduce barriersto trade and investment and promote expansion of commercialrelations.6. Export Subsidies Policies For the first nine months of 1994 government subsidies tostate-owned industries were an integral part of Ukraine'seconomy. These subsidies were not designed to provide director indirect support for exports, but rather to maintain fullemployment and production during the transition from acentrally controlled to a market-oriented system. However, inOctober 1994, in order to reform on the macroeconomic level,Ukraine agreed in principle to International Monetary Fundrecommendations to cut these subsidies. As a result of theserecommendations and price liberalization measures, allgovernment subsidies were drastically reduced.7. Protection of U.S. Intellectual Property A new set of laws on intellectual property rightsprotection was adopted by the Ukrainian Parliament in December1993 and came into force in July 1994. They are as follows:the Ukrainian Copyright Law, the Law on Inventions, the Law onTrademarks, the Law on Industrial Patterns, and the Law on TheProtection of the Information in Automated Systems. Accordingto the World Organization of Intellectual Property and theEuropean Patent Organization's experts, the Ukrainianlegislation in terms of industrial property rights protectionis the most market-oriented relative to other former SovietUnion countries. According to the Ukrainian Patent office, there are over300 licensing agreements, most of them concluded between localentities. There are no cases of compulsory licensing to localcompanies of rights held by foreigners in Ukraine. As ofOctober 1994, 6,000 trademarks were registered in Ukraine,including about 1,500 trademarks of U.S. entities. In terms of industrial property, there is no data on theinfringement or counterfeiting of trademarks. According to theUkrainian Copyright Agency, there are also no statistics on theextent of piracy of books, records, videos, or computersoftware. Computer software and sound recordings are legallydetermined as products and shall be copyrighted according toArticle 18 and 19 of the Ukrainian Copyright Law. According toArticle 17 of the Ukrainian Law on Foreign Economic Activities,importing and exporting products in violation of intellectualproperty rights is strictly prohibited. Ukraine is committed legislatively to the protection ofintellectual property, though enforcement remains inadequateand sporadic. Two Ukrainian state agencies are working toensure intellectual property rights: the State UkrainianCopyright Agency (literary and artistic works) and the StatePatent Office of Ukraine (intellectual property). Ukraine is asuccessor state to many of the conventions and agreementssigned by the former Soviet Union, and is a member of the WorldIntellectual Property Organization (WIPO). In fact, ValeriyPetrov, who is the head of the Ukrainian Patent Office, is aDeputy Head of the WIPO General Assembly. Ukraine is a partyto the Paris Convention for Protection of Industrial Property,the Madrid Agreement on the International Registration ofTrademarks and the Agreement on Patent Cooperation. In March1994, Ukraine signed the Universal Copyright Convention.Furthermore, the Ukrainian Parliament is considering ratifyingthe Berne Copyright Convention. In September 1994, Ukrainebecame a party to the Eurasian Patent Convention which includesten of the New Independent States. Adoption of this conventionfacilitates exchanges of new technologies and property rights,reduces customs duties, and provides for a unified patent validin these ten countries. Ukraine has property agreements with25 countries, including the United States, on exchangingrelevant information.8. Worker Rights a. The Right of Association Soviet Law, or pertinent parts of the UkrainianConstitution, continue to regulate the activities of tradeunions. The Law on Citizens' Organizations passed in 1992guarantees non-interference by public authorities in theactivities of citizens' organizations and the right of theseorganizations to establish and join federations, and toaffiliate with international organizations on a voluntarybasis. In negotiating wages with the government, all unionsare permitted to participate. In principle, all workers andcivil servants including members of the armed forces are freeto form unions, but in practice, the government discouragescertain categories of workers (e.g., nuclear power plantemployees) from doing so. A new Ukrainian Constitution and newtrade laws are currently being drafted and debated which willaffect the future status and activities of trade unions. A successor to the former official Soviet trade union knownas the Federation of Trade Unions (FTU), has begun to workindependently of the government and has been vocal in opposingdraft legislation that would restrict the right to strike. TheFTU is considered a partner with management in the running ofstate enterprises. Although the FTU has no official or legalrelationship with any political party, the government providesthis organization with office buildings and resort properties. Many independent unions now provide an alternative to theofficial unions in most sectors of the economy. Some, such asthe Independent Miners' Union of Ukraine (NPGU), emerged out ofthe 1989 strike committees and were instrumental in creatingthe independent miners' unions of the Soviet Union. WhenUkraine became independent, these unions followed suit and alsosplit from the Soviet Union. Independent unions were alsoestablished in the Black Sea Fleet, among the military officersof Ukraine, and among the scientific workers of the Academy ofSciences. In early 1992, the NPGU, pilots, civil airdispatchers, locomotive engineers, and aviation ground crewunions formed the Consultative Council of Free Trade Unions, anentity which acts independently of the FTU. The Law on Labor Conflict Resolution guarantees the rightto strike to all but members of the armed forces, civil andsecurity services, and employees of "continuing process plants"(e.g., metallurgical factories). This Law prohibits strikesthat "may infringe on the basic needs of the population" (e.g.,rail and air transportation). Furthermore, strikes based onpolitical demands are illegal. However, this did not stopminers and transportation workers from making political as wellas economic demands during their September 1993 strikes thatforced the government to hold elections at every level in1994. Although the government has often relied on the courtsto deal with strikes that it feels violate the law, the courtshave not always ruled in the government's favor. There are no official restrictions on the right of unionsto affiliate with international trade union bodies; the NPGU isa member of the international miners' union, and independenttrade unions have not been pressured to limit their contactswith international nongovernmental organizations. The AmericanFederation of Labor - Congress of Industrial Organizations hasa permanent representative in Kiev who interacts freely withthe Consultative Council of Independent Trade Unions. b. The Right to Organize and Bargain Collectively In accordance with the Law on Enterprises, jointworker-management commissions should resolve issues concerningwages, working conditions, and the rights and duties ofmanagement at the enterprise level, but overlapping spheres ofresponsibility often impede the collective bargaining process.Wages in each industrial sector are established by thegovernment in consultation and agreement with the appropriatetrade unions, and all of the trade unions are invited toparticipate in negotiations. In case a labor-managementdispute cannot be resolved at the enterprise level, theNational Mediation and Reconciliation Service, empowered by theLaw on Labor Conflict Resolution, will arbitrate the dispute.The President of Ukraine appoints the head of this service. The Collective Bargaining Law often prejudices thebargaining process against the independent trade unions andfavors the official unions. The Collective Bargaining Lawprovides for dues to be taken from the pay of every worker in acollective and paid to the official union. The social welfarebenefits received by workers, including huge pension benefitfunds, are administered for the enterprise by the unions. Most workers are never informed that they are not obligatedto join the official union, and joining an independent unioncan be bureaucratically onerous as well. Three steps must befollowed to direct one's dues to a independent union. First,the worker must submit a form to the official union statingthat the worker does not wish the official union to representhim. Second, the worker must submit a form to the independentunion declaring the worker's desire to join it. Finally, athird form must be submitted to the enterprise directing thatpayroll deductions be given to the independent union instead ofthe official one. Independent unions are not given resourcesto administer social welfare benefits, and enterprise directorsdiscourage departures from the official union by meeting withworkers to discuss the benefits of an official union membership. The collective bargaining law prohibits anti-uniondiscrimination, and the courts resolve disputes under the law.Unfortunately, there have been cases in which such disputeshave not been resolved in a fair and equitable manner. c. Prohibition of Forced or Compulsory Labor The Constitution prohibits compulsory labor, and it is notknown to exist. d. Minimum Age for Employment of Children The minimum employment age is seventeen. However, incertain nonhazardous industries, enterprises can negotiate withthe government to hire employees between fifteen and seventeenyears of age. Education is compulsory up to age fifteen, andthe Ministry of Education vigorously enforces the Law onEducation. e. Acceptable Conditions of Work In 1992, the Government established a country-wide minimumwage. Prior to the onset of high inflation, the minimum wageand numerous other mandatory subsidies provided a decent incomefor a family. However, during 1994 monthly inflation rosedramatically and seriously eroded incomes. Officially overhalf the Ukrainian population now live below the poverty level,with further declines expected. In theory, the Law on Wages,Pensions, and Social Security provides for mechanisms to indexthe minimum wage to inflation, but in practice, the governmenthas paid most salaries several months late and at pre-inflationrates. The Labor Code provides for a maximum 41 hour work week andat least 15 days of paid vacation per year, but stagnation insome industries (e.g., defense) has significantly reduced thework week for some categories of workers. The Constitution and other laws contain occupational safetyand health standards, but these are frequently ignored inpractice. Lax safety standards enforcement was the principalcause of many serious mine accidents resulting in over 100deaths and injuries in 1993. In theory, workers have the legalright to remove themselves from dangerous work situationswithout jeopardizing their employment; however, in reality,labor experts say that continued employment would be inquestion. The Labor Ministry is currently rewriting the MineSafety Law and the NPGU is demanding that the Governmentimprove worker safety in the mines.(###)</text>
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<text>U.S. DEPARTMENT OF STATETURKMENISTAN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS TURKMENISTAN Key Economic Indicators (Billions of manat unless otherwise noted) 1992 1993 1994 2/Income, Production and Employment:GDP (at current prices) 1/ 302.0 13.2 222.5By Sector: Agriculture 1/ 44.3 1.8 42.4 Industry 1/ 215.4 5.4 84.5 Electrical Energy 1/ 9.0 0.4 7.2 Oil/Gas 1/ 60.0 1.1 49.3 Construction 1/ 25.6 2.0 57.8 Production/Non-Production Services 1/ 16.7 4.0 37.8Per Capita GDP (manat/at current prices) 3/ 71,800 3,065 50,400Labor Force (000s) 1,991.5 2,053.2 2,075.0Unemployment Rate (pct.) N/A N/A N/AMoney and Prices: (annual percentage growth)Money Supply (M2) N/A N/A 12.8Base Interest Rate 4/ 2-15 40-50 150Personal Saving Rate 4/ 10-40 4-50 20-160Retail Inflation 8.1 18.7 15.8Wholesale Inflation 10.9 17.1 5.1Consumer Price Index 8.3 18.6 16.0Exchange Rate: (USD/ruble) Official N/A 2 10 Commercial N/A N/A 75Balance of Payments and Trade:Total Exports (FOB/mil. USD) 5/ 1,870.6 2,600.0 2,300.0 Exports to U.S. (mil. USD) N/A 0.12 20.40Total Imports (CIS/mil. USD) 5/ 1,123 1,600 1,540 Imports from U.S. (mil. USD) N/A 29.1 63.2Aid from U.S. N/A N/A N/AAid from Other Countries N/A N/A N/AExternal Public Debt 6/ N/A 288.2 180.0Debt Service Payment (paid) N/A N/A 4.4FOREX Reserves (bil. USD) N/A N/A N/ATrade Balance (mil. USD) 5/ 747.6 1,000.0 760.0 Balance with U.S. (mil. USD) N/A -28.98 42.80N/A--Not available.1/ 1992 Figure in million rubles.2/ 1994 Figures are all estimates based on available monthlydata in October 1994.3/ 1992 figure in rubles.4/ Figures are actual, average annual interest rates, notchanges in them.5/ Merchandise trade.6/ Foreign credits.Note: On October 1, 1994, attracted foreign credits consistedof $468.2 million for the 1993-94 period.A new currency, the manat, was introduced on November 1, 1993.Since that time, as the following report will reflect, the rateof the manat has fluctuated so greatly as to make theconversion of domestic data to USD almost meaningless. At anyone time there are three exchange rates: an official rate, acommercial rate, and a black market rate. Converting any givendata into USD could reflect incorrect information.1. General Policy Framework Turkmenistan declared independence following a nationalreferendum on October 27, 1991. Saparmurad Niyazov, head ofthe communist party since 1985 and president since the creationof the position in October 1990, was elected president of thenew country in a direct election on June 21, 1992.Unchallenged, he won 99.5 percent of the vote. The 1992constitution declares Turkmenistan to be a secular democracy inthe form of a presidential republic. In practice, it remains aone-party state dominated by a strong president and his closestadvisors within the Cabinet of Ministers. On January 15, 1994,a referendum was held which extended Niyazov's presidentialterm until the year 2002. President Niyazov has declared his intention to develop amarket economy while maintaining the state's role in sectorsinvolving oil and gas, electrical energy, rail and airtransportation, communications, information, education,science, health, and culture. Privatization began with aleasehold program for development of new agricultural lands byprivate farmers, which was approved by the government and putinto effect in early 1993. In practice, undeveloped plots ofland were distributed among those intending to growagricultural products in exchange for forfeiting the right tofreely sell or give away such products. Farmers must sell mostof their crops to the state at fixed prices and do not owntheir land. There are currently 200 such landowners, eachpossessing no less than 50 hectare plots of land. The statehas encouraged them through construction of irrigation systems,favorable tax and credit policies, etc. Niyazov also declareda small business privatization process, which began in December1993, through auctions of state services and, later on,privatization of trade and public catering enterprises. Mostof the enterprises are being bought by labor collectives andindividuals. The government claims that 818 enterprises wereprivatized by October 1, 1994. The Ministry of Economics andFinance is overseeing the privatization process which isexpected to continue through 1996. Turkmenistan's economy is highly dependent on theproduction and processing of energy resources and cotton.Natural gas provides 69 percent or $1,235 million of totalexports. Energy reserves are estimated at 15.5 trillioncubic meters of natural gas and 6.3 billion tons of oil.Turkmenistan possesses large deposits of various minerals andsalts, with indications of commercially exploitable gold,silver and platinum. Despite this abundance of fuel and natural resources,agriculture accounts for nearly one-third of Turkmenistan'sgross national product and more than two-fifths of thecountry's total employment. Cotton is the dominant crop,covering more than 45 percent of arable land and constituting56 percent of total agricultural production. The 1994 targetis to harvest 1.5 million tons through improved technology.Grain production is the second priority. Turkmenistan hopes toharvest one million tons of wheat in 1994. By 1996,Turkmenistan hopes to be self-sufficient in wheat production. Turkmen farmers rely heavily on irrigation. Agriculturalyields are 2-3 times lower than might be expected due to yearsof inefficient water use, salinization, inappropriate landirrigation, and over-development of cotton cultivation. Thegovernment has reduced the area occupied by cotton fields andencourages research into more efficient water usage. Waterdistribution among farmers is limited and strongly controlledby the state. The ration of water usage varies and is free ofcharge; however, extra supplies beyond the ration can be boughtat low state-subsidized prices. Limited water resources do notallow development of the remaining 90 percent of this highlyarid country. Large scale specialization of agriculture creates a heavyreliance on food imports. In 1992, Turkmenistan imported 32percent of its grain, 45 percent of its milk and dairyproducts, 70 percent of its potatoes, and 100 percent of itssugar. To reduce dependence on food imports, the governmentpromotes domestic grain and sugar beet production and isinvesting in dairy and sugar processing plants and equipment. As a member of the Commonwealth of Independent States(CIS), Turkmenistan is affected by the economic decline inneighboring countries. Non-payment from Ukraine and other CIScountries for natural gas deliveries led to reduced stateinvestment activities. In turn, this caused production of GDPto decrease 25 percent compared with 1993. Payment defaults,primarily caused by currency non-convertability and lack ofhard currency in CIS countries, make inter-republican trademuch too complex, non-profitable and, thus, minimal.Turkmenistan continues to focus on clearing payments. Rail androad transport, pipeline routes, and shipping via Russia andother CIS countries remain the major export routes of Turkmengoods. Turkmenistan, Iran, and Turkey have signed a politicalagreement to build a gas pipeline through from Turkmenistan toTurkey via Iran. Financing, however, has not been secured, andmay prove difficult due to political considerations.Turkmenistan and Iran are building a rail link between Serakhsand Meshed, which is scheduled for completion in 1996. TheGovernment of Turkmenistan is also considering building arailroad through Afghanistan to Pakistan, but once againfinancing is a problem. The new international airport inAshgabat is expected to reach full operation by the end of 1994. Turkmenistan's 1994 budget was projected including hardcurrency payments owed for gas shipments by Ukraine and theCaucasus (in accordance with previously concluded agreements).Turkmenistan's tax base is quite small; in 1994 some 70 percentof budget revenue came from exports of natural gas. Paymentdefaults have left the budget in deficit. As a result, thegovernment has had to toughen its financial policy by denyingcredits, reducing numerous construction activities, maintaininghigh percentage rates on foreign exchange surrenderings fromstate-owned enterprises, and strengthening control over budgetexpenditures. Forty percent of budget revenues are proceedsfrom a value added tax on goods and services. Twenty percentof budget revenues also come from a natural resources tax and15 percent from a profit tax on gross profit. About 60 percentof budget expenditures go to support price subsidies and 7.3percent is designated for defense purposes. The governmentalso maintains a foreign exchange fund to control hard currencymovement in and out of the country. With respect to monetary policy, the main instruments ofcredit control include reserve requirements and refinancepolicy. In practice, the level of commercial bank access tocentral bank credit is determined by the Cabinet of Ministers.The government hoped that the establishment of foreign exchangeauctions would introduce a more efficient financial market;however, this attempt failed due to a shortage of hardcurrency. On August 1, 1994, the Commodity and Raw MaterialExchange (CRME) was set up to regulate and control hardcurrency revenue from exports and imports. All CRMEtransactions are in manats; foreign buyers/sellers can exchangemoney through the Central Bank. Only transactions which takeplace through the CRME receive export licenses. Turkmenistan joined the IMF, World Bank, and European Bankfor Reconstruction and Development in 1992. It is a member ofthe Economic Cooperation Organization (ECO), along with othercentral and south Asian countries, Iran, and Turkey.Turkmenistan became an observer to the GATT in June 1992. The Uruguay Round agreements are not currently underdiscussion in Turkmenistan.2. Exchange Rate Policy On November 1, 1993 the government introduced a newnational currency, the manat. The initial exchange rate wasset at an unrealistic two manat = one dollar. The governmentalso established a currency auction to assist in setting theexchange rate for the manat. However, due to limited foreignexchange availability, the last auction was held in May 1994.For purposes of trade with Russia, the manat, the dollar, andthe Russian ruble are equally valid. The official manat/dollarexchange rate is determined by Turkmenistan's Central Bank. OnApril 15, 1994, the official foreign exchange rate was changedto ten manat = one dollar, where it has remained ever since.In an attempt to attract investors, commercial banks introduceda new commercial rate at sixty manat = one dollar. On August15, 1994 the commercial exchange rate was raised to 75 manat toone dollar in connection with the establishment of theCommodity and Raw Material Exchange. The government plans to reintroduce the foreign exchangeauction once sufficient foreign exchange has been collected.The government is depending on the successful operation of theCRME to provide this hard currency to the Central Bank.3. Structural Policies The government is anxious to attract foreign investment todevelop Turkmenistan's substantial energy, mineral, andagricultural resources. Laws concerning foreign investment,banking, taxation, foreign exchange regulation, and propertyownership, which were passed in October 1993, are intended tocreate a legal commercial framework. In 1993, the Khalk Maslakhaty (People's Council) created"economic zones of free entrepreneurship" in seven regionsthrough Turkmenistan. These zones offer favorable taxation andproduction terms for private enterprises. According toTurkmenistan's tax laws, every enterprise is required to pay a25 percent profit tax and a 20 percent value-added tax. Fiftypercent of foreign exchange proceeds from the export of goodsand raw materials, and 60 percent of the proceeds from gasexports, are surrendered to support the government's foreignexchange fund. Foreign investments are exempt from this exporttax. The government continues to regulate salaries. Followingthe introduction of the manat and the subsequent increase ininflation (about 23 percent by October 1994) the presidentannounced a mandatory salary increase effective July 1, 1994.The minimum and average salaries were set at between 250 and1,200 manat per month. Pensions, stipends, and allowances werealso increased slightly. The government also continues to control prices forstaples, medicines, rent, public transportation services, andsome production costs. Price liberalization, which began in1992, is expected to continue. Only 50 to 60 kinds of productswill be subsidized in 1995, at which time the remainder ofprices will be freed.4. Debt Management Policies In the "zero-option" agreement signed with Russia on July31, 1992, Russia assumed all of Turkmenistan's former SovietUnion (FSU) debt obligations, while Turkmenistan surrenderedall claims to FSU assets. Turkmenistan currently faces difficulties collecting hardcurrency payments for gas deliveries to Ukraine and theCaucasus. The overall debt of these countries to Turkmenistanis $1.5 billion. Despite these payment problems, Turkmenistanis forced to continue supplying these countries with gas due topipeline and storage constraints and a lack of other options.Turkmenistan hopes that the IMF agreement with Ukraine, and theexpected economic improvement in Ukraine's economy, will resultin Ukraine resuming hard currency payments to Turkmenistan. Turkmenistan purchased $10 million worth of PL-480 Title Iwheat in FY 1993 and 1994. Turkmenistan also took advantage of$5 and $10 million in GSM-102 credits which were granted in FY93 and 94, respectively. A new FY 95 Title I agreement iscurrently under consideration by the government. Turkmenistanhas also concluded long-term credit deals with American,European and Turkish companies, the European Bank for EconomicDevelopment, and the Iranian government. The World Bank isexploring a proposed $25 million credit extension toTurkmenistan in order to strengthen Turkmen economic potential.5. Significant Barriers to U.S. Exports Turkmenistan's lack of a freely convertible currency,absence of an efficient banking system, rudimentary businessinfrastructure, and centralized decision-making system allpresent obstacles to U.S. exports. With Russia and the otherCIS countries, a clearing arrangement exits. But even withthese neighbors, trade remains based primarily on the bartersystem. To normalize its trade and investment withTurkmenistan, the United States concluded the first of a seriesof bilateral economic agreements in 1993. In October 1993, aBilateral Trade Agreement, which provides reciprocal mostfavored nation status, went into effect. To date, numerousU.S. companies are involved in feasibility studies and contractdiscussions. Approximately eight U.S. firms have permanentrepresentatives resident in Turkmenistan. Discussions on a U.S. - Turkmenistan bilateral investmenttreaty, which would establish a bilateral legal framework tostimulate investment, continued throughout 1993-1994. TheUnited States has also proposed a bilateral tax treaty, whichwould give U.S. businesses relief from double taxation ofincome. An Overseas Private Investment Corporation (OPIC)agreement, which allows OPIC to offer political risk insuranceand other programs to U.S. investors in Turkmenistan, was alsoconcluded in 1992 and is currently in force.6. Export Subsidies Policies The government provides substantial subsidies to stateenterprises, including transportation and communications, whichsupport production and employment. Subsidies also are focusedin the export-oriented energy sector.7. Protection of U.S. Intellectual Property A law on the protection of intellectual property was signedby President Niyazov in September 1992. The law is designed toprovide adequate protection, although enforcement is untested.A copyright law, effective October 1993, was also approved.The U.S. - Turkmenistan trade agreement contains commitments onprotection of intellectual property.8. Worker Rights a. The Right of Association The government restricts the freedom of peaceful assembly.Unregistered organizations, including all political groupscritical of government policy, or any of those with a politicalagenda, are not allowed to hold demonstrations or meetings.Citizens theoretically have the right to associate; however,such action may result in being fired from a job and/or havingone's home and other property confiscated. b. The Right to Organize and Bargain Collectively Turkmen law does not protect the right to organize andbargain collectively. The government continues to prepareguidelines for wages and specifically sets wages in some,though not all, sectors. In other areas, there is someleeway. The predominantly state-controlled economy seriouslylimits the worker's ability to bargain collectively. c. Prohibition of Forced or Compulsory Labor Turkmenistan's constitution forbids forced or compulsorylabor. d. Minimum Age of Employment of Children The minimum age for employment is 16, with the exception ofworking in a few heavy industries, in which case it is 18.While the average work day is eight hours, those between theages of 16 and 18 are not permitted to work more than six hoursper day. Fifteen-year old children may be allowed to work withthe consent of their parents and the trade union. In suchcases, which are rare, they work four to six hours per day.Violations of child labor laws occur in rural areas during thecotton harvest season. e. Acceptable Conditions of Work The national minimum wage is set quarterly and continues tofall far short of the amount required to meet the needs of anaverage family. Turkmenistan inherited an economic system andsub-standard working conditions from the Soviet era, whenproductivity took precedence over the health and safety ofworkers. Industrial and agricultural workers are particularlyexposed to unsafe environments. The government recognizes thatproblems exist, but has not moved effectively to deal with them. f. Rights in Sectors with U.S. Investment U.S. investment in goods-producing industries continues tobe very limited in Turkmenistan. To date, one investor isplanning the construction of two cotton processing facilities.There is no indication that, once in operation, the conditionsof work, or rights, will be different in these facilities thanthose in other industries.(###)</text>
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<text>U.S. DEPARTMENT OF STATETURKEY: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS TURKEY Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1987 prices) 104,440 112,254 107,988Real GDP Growth (pct.) 6.0 7.5 -3.8GDP (current prices) 158,735 174,144 N/ABy Sector: Agriculture 23,784 25,045 N/A Energy/Water 4,152 4,683 N/A Manufacturing 34,346 37,539 N/A Mining/Quarrying 2,170 1,986 N/A Construction 10,817 12,357 N/A Dwelling Ownership 5,984 6,206 N/A Financial Services 6,314 7,145 N/A Other Services 48,939 52,680 N/A Government/Health/Education 16,237 18,562 N/A Net Exports of Goods & Services -4,687 -10,228 N/AReal Per Capita GNP (USD 1987) 1,802 1,896 N/ALabor Force (000s) 21,015 20,196 N/AUnemployment Rate (pct.) 7.9 7.6 8.3Money and Prices: (annual percentage growth)Money Supply (M2/TL trillions at mid-year) 143.3 224.5 469.3Base Interest Rate N/A N/A N/APersonal Saving Rate 21.3 21.3 N/ARetail Inflation N/A N/A N/AWholesale Inflation 62.1 58.4 116.0Consumer Price Index 71.1 66.0 N/AAverage Exchange Rate (TL/USD) 6,888 10,986 31,000Balance of Payments and Trade:Total Exports (FOB) 3/ 14,715 15,349 17,500 Exports to U.S. 865 986 1,450Total Imports (CIF) 3/ 22,871 29,428 24,000 Imports from U.S. 2,601 3,351 2,280Aid from U.S. 528 578 526Aid from Other Countries N/A N/A N/AExternal Debt 55,592 67,360 65,000Debt Service Payments (medium & long-term/paid) 6,494 8,085 6,895Gold and FOREX Reserves (mid-year) 12,355 17,429 15,254Trade Balance 3/ -7,440 -14,079 -6,500 Trade Balance with U.S. -1,736 -2,365 -830N/A--Not available.1/ 1994 figures are all estimates based on available monthlydata in October 1994.2/ GNP at producer's value.3/ Merchandise trade.1. General Policy Framework From the establishment of the Republic in 1923 until 1980,Turkey was an insulated, near autarkic, state-directedeconomy. In 1980, however, the country embarked on a newcourse. Increased reliance on market forces, decentralization,export-led development, lower taxes, foreign investment, andprivatization became the basis for the new economicphilosophy. These reforms have brought Turkey impressivebenefits: in 1993, Turkey's seven percent real gross nationalproduct (GNP) growth rate was the highest of any OECD country. The Turkish government's inability to limit burgeoningfiscal deficits and high transfers to inefficient stateeconomic enterprises, however, led to an economic crisis inearly 1994. From January to April, the Turkish Llradepreciated 135 percent against the dollar and inflation roseto a record 33 percent for the month of April. Interest ratesalso skyrocketed to record levels as the Central Bank of Turkeyattempted to combat exchange rate fluctuations by increasinginterbank rates. The overnight rate briefly exceeded 1000percent at the heart of the crisis. The Turkish government implemented an austerity program onApril 5 and signed a standby agreement with the IMF in July.The government curbed expenditures sharply and reducedinflation in the months immediately following the program'simplementation. Recession followed and real GNP will declineby approximately four percent in 1994. The Turkish governmenthas committed itself to structural reforms in the area ofprivatization, social security and taxation, but had made noprogress in these areas by the end of October 1994. Inflation, Growth: Inflation, fueled by massive publicsector deficits, worsened in 1994. In 1993 consumer prices(CPI) increased by 71 percent, four points higher than in1992. The CPI rose 111 percent in the twelve months endingSeptember 30, 1994, with wholesale prices increasing by 130percent during the same period. The Turkish economy contracted by nearly eleven percent inthe second quarter of 1994 (compared to the second quarter of1993) as the austerity program took effect. The economy hasdemonstrated a remarkable dynamism in the second half of theyear and a surge in exports indicated the economy was beginningto recover. The nine-month balance sheets of Turkey's largecompanies also show high profit margins in apparentcontradiction of the contraction in national economic activity. Fiscal Policy: The Turkish government limited currentexpenditures significantly in the months immediately followingthe implementation of the austerity program. As the end of1994 approached, however, expenditures again outstrippedrevenues and tax receipts. In 1993 the public sector borrowingrequirement (PSBR) reached a record 16 percent of GNP. ThePSBR includes the borrowing requirements of budgetarydepartments, state economic enterprises (SEEs), and off-budgetfunds. The government continues to incur sizable debt to paycurrent expenses, finance major infrastructure projects, and tosupport the SEEs. Both major rating agencies have loweredTurkey's country risk rating to below investment grade, forcingthe government to rely entirely on domestic borrowing andadvances from the Central Bank to finance its deficits. Monetary Policy: Turkey's Central Bank has not published amonetary policy since 1992. In early 1994, the Central Bankfocused on foreign exchange rates, attempting to limit exchangerate volatility through regular interventions in the currencyand open money markets. Since the implementation of the April5 austerity program, the Central Bank has limited itsinterventions in currency markets. The Central Bank does notuse interest rates as a tool against inflation, concedingcontrol of interest rate policy to the Turkish Treasury.2. Exchange Rate Policy The Turkish Lira (TL) is fully convertible and the exchangerate is market-determined. The Central Bank intervenes inmoney markets to dampen short-term exchange rate fluctuationsand to provide liquidity during extraordinary events (e.g. theGulf War and the January - April 1994 financial crisis). The TL appreciated significantly vis-a-vis the dollar inreal terms (adjusted by relative CPI changes) in 1989 and 1990,and depreciated slightly in real terms in 1991 and 1992. In1993, the TL appreciated by about three percent in real terms.The TL declined by 135 percent against the dollar in the firstnine months of 1994. The Government of Turkey expects realdepreciation of the TL in 1994 will be 19 percent.3. Structural Policies Since 1980 Turkey has made substantial progress inimplementing structural reforms and liberalizing its trade andforeign exchange regimes. In contrast, the Turkish governmenthas moved forward marginally in privatizing the SEEs, whichaccount for some 35 percent of manufacturing value added.Government transfers to SEEs constitute a substantial drain onthe economy. SEE inefficiencies in production and productpricing continue to distort the market and contribute to highinflation rates. Policies related to SEEs, however, do nothave a direct effect on U.S. exports. After a liberalization of the import regime in 1989,imports climbed dramatically, rising some 41 percent in 1990.Strong economic growth plus further liberalization of theregime in 1993 resulted in another dramatic increase. TheApril 5 austerity program, accompanied by the sharp devaluationof the lira, dampened import demand in 1994. Turkey's largest source of imports in 1993 was Germany,which accounted for 15 percent of total imports, followed bythe United States, with 13 percent. In the first eight monthsof 1994, total imports declined by 23 percent. The Turkishgovernment estimates that imports will decline to $24 billionin 1994, from $29 billion in 1993, although most analystsanticipate a rebound in 1995 as the economy begins to growagain. Imports from the United States declined by 32 percentduring the same period, resulting in a U.S. trade surplus of$633 million from January to August. By the terms of its Association Agreement with the EuropeanUnion (EU), Turkey is scheduled to form a customs union withthe EU and to adopt the EU's Common External Tariff (CET) byJanuary, 1996. This should result in generally lower tariffsand fees on U.S. imports than those currently in effect.Turkey will reduce its tariff schedule in two stages during thecourse of 1995 in order to eliminate all customs duties for EUcountries and bring it in line with the CET.4. Debt Management Policies At year-end 1993 Turkey's gross outstanding external debtwas $67 billion -- an increase of $12 billion over 1992. Debtservice obligations for 1994 increased from $6.8 billion in1993 to $8.5 billion. Turkey has had no difficulty servicingits foreign debt, and the current account may achieve a surplusof approximately $2 billion in 1994. Turkey's officialexternal debt payments will only increase by about $500 millionin 1995, but total external debt payments will exceed $11billion. The Turkish debt service ratio reached a high in 1988 whenit equaled 35.6 percent of foreign exchange revenues. In 1994,the debt service ratio was 26 percent. The public sector,including state economic enterprises and local governments,remains the major borrower, accounting for about 78 percent oftotal outstanding debt and 96 percent of medium and long-termdebt in 1993. Bilateral official lenders, principally OECDmember countries, accounted for approximately 27 percent ofTurkey's 1993 external debt. World Bank committments to Turkeytotal $3.6 billion, with $100 million in new credit approvedin 1994. The IMF standby agreement signed with Turkey is for$720 million (SDR 509.3 million), which will be allocated infive quarterly tranches.5. Significant Barriers to U.S. Exports Import Licenses: While there is generally no requirementfor government permission or licenses in the importation of newproducts, there is sometimes a problem introducing newfoodstuffs and foodstuff ingredients. The Turkish government,however, does impose requirements for import licenses onagricultural commodities, depending on the domestic supply ofvarious grains and foodstuffs. The Turkish government alsorequires certification that quality standards are met in theimportation of human and veterinary drugs and certainfoodstuffs. Import certificates are necessary for mostproducts which need after-sales service (e.g. photocopiers, EDPequipment, diesel generators). Import Regime: The Turkish government is progressivelyreducing import duties. In 1993 the Import Regime introduced anew tariff system that streamlined a confusing array of duties,taxes, and surcharges. There are now only two tariffs -- onefor EU/EFTA and one for other countries -- and one fund chargeon imports, whereas imports faced eight types of duties and sixtypes of fund charges in the past. The government's 1994Import Regime continued efforts begun in 1993 to reduce importduties and harmonize Turkey's tariff system with that of theEU. Tariff rates are now lower for EU/EFTA-origin goods thanfor goods from the U.S. and third countries. U.S. firmsexporting to Turkey may now find themselves disadvantagedcompared to European competitors. In 1996, as Turkey entersthe Customs Union, tariffs for products from EU and EFTAcountries will disappear altogether; Turkey will lower tariffson third-country products to the EU's Common External Tariff. The Turkish Government has imposed restrictive non-tariffbarriers on agricultural commodities, particularly high valuelivestock and meat products. The representatives of U.S. foodindustry companies which wish to expand their investment inTurkey have expressed concern over this trend. Government Procurement Practices/Countertrade: Turkeynormally follows competitive bids procedures for domestic,international and multilateral development bank-assignedtenders. U.S. companies sometimes become frustrated overlengthy and often complicated bidding/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 somecases, years have passed without the selection of a contractor. The Government of Turkey withholds 15 percent of the totalamount of services (including any work performed in the U.S.)in government contracts for taxes. As no bilateral tax treatybetween the United States and Turkey exists, this cansignificantly add to the cost of U.S. bids, making themnon-competitive. U.S. and Turkish negotiations on a bilateraltax treaty are ongoing and an agreement may be reached in 1995. Investment: The Foreign Investment General Directorate ofthe Undersecretariat for Treasury and Foreign Trade evaluatesall non-petroleum foreign investment projects and canindependently approve foreign capital investments up to a fixedinvestment value of $150 million. Investments in excess of$150 million require the permission of the Council ofMinisters. The United States-Turkey Bilateral InvestmentTreaty entered into force in May 1990. The treaty guaranteesMFN treatment on establishment, and the better of MFN ornational treatment after establishment, for investors of bothcountries; assures the right to transfer freely dividends andother payments related to investments; and provides for anagreed dispute settlement procedure. The Turkish governmentprovides a variety of incentives to investors of allnationalities to encourage investment in certain regions andsectors.6. Export Subsidies Policies Turkey employs a number of incentives to promote exports,including export credits and a variety of tax incentives.Turkish Eximbank provides exporters with credits, guarantees,and insurance programs. Foreign-owned firms, including severalU.S. companies, make use of TurkExim's programs, especially fortrade with the republics of the former Soviet Union. Turkey eliminated its export tax rebate system in 1989 inconjunction with its accession to the General Agreement onTariffs and Trade Subsidies Code. A partial deduction forcorporate tax purposes allows exporters to deduct eight percent(down from 16 percent in 1991) of their industrial exportrevenues above $250,000 from their taxable income. Exportedproducts are not subject to the VAT. In 1994, the government reviewed its subsidy programs forconsistency with the GATT and EU standards. As a result, itwill phase out a number of programs, including one whichdiscriminates against foreign-flag shippers.7. Protection of U.S. Intellectual Property Turkey could strengthen its copyright and patent protectionas well as institute greater penalties and enforcement ofexisting legislation. As a result of inadequate protection forintellectual property, the United States placed Turkey on the"priority watch list" in 1992, 1993 and 1994 under the "Special301" provision of the 1988 Trade Act. The EU has made adequateIPR protection a pre-condition to the Customs Union. Thegovernment has given assurances it will modernize itslegislation, but the process has been painfully slow. Thegovernment has said it will abide by IPR standards agreed to inthe Uruguay Round when the agreement goes into effect in 1995. Copyrights: Turkey's copyright law ("Intellectual andArtistic Works Law") dates back to 1951. Unauthorized copyingand sale of U.S.-origin books, videos, sound recordings, andcomputer programs by local producers is widespread. The 1987Cinema, Video, and Music Works Law provided greater protectionfor these artistic works through a registration system. It hashelped reduce piracy, but enforcement has been problematic andpenalties are not harsh enough to act as a deterrent. In 1991Turkey passed a law prohibiting computer software piracy. TheTurkish government has submitted bills amending both thecopyright and cinema and video laws to parliament, althoughboth contain provisions unsatisfactory to U.S. industry. Patents (Product and Process): Turkey's 1879 Patent Lawdoes not provide protection for human or veterinary drugs orfor the processes for making them. Nor are biologicalinventions, including plant varieties, patentable. Turkey'sSeed Registration, Control, and Certification Law does not banunauthorized propagation of foreign firms' proprietary seed.The patent term in Turkey is only 15 years from the date offiling. The Turkish government presented new draft patentlegislation to parliament in 1993, but as of October 1994 thatbody was still considering it. The draft legislation containsa ten year delay before pharmaceuticals would be covered. Trademarks: Counterfeiting of foreign trademarkedproducts, such as jeans, perfumes, and spare car parts, iswidespread. Trademark lawyers generally believe that therelevant laws are adequate, but that the criminal justicesystem, overwhelmed by more serious crimes, is not willing todevote the effort necessary to prosecute offenders.Counterfeiters are generally small operations rather than largecompanies. It is difficult to assess the amount of U.S. export lossattributable to lack of adequate protection for intellectualproperty. The U.S. motion picture industry estimates a loss of$35 million per year. It claims the home video market is 45percent pirate in large cities and between 60 to 65 percentelsewhere, where enforcement is less strict. The computerindustry claims its losses exceed $100 million annually. U.S.pharmaceutical company representatives hesitate to put a dollarvalue on potential sales lost due to the lack of patentprotection for U.S. pharmaceuticals. They cite loss of marketshare, inability to launch new products, and limits on newinvestments due to the lack of protection. One U.S. firmestimates losses range from $30 to $40 million annually. TheUnited States has worked closely with Turkish officials toprepare new intellectual property rights draft laws.8. Worker Rights a. Right of Association Most workers have the right to associate freely and formrepresentative unions. Teachers, military personnel, policeand civil servants (broadly defined as anyone directly employedby central government ministries) may not organize unions. Except in stipulated industries and services such as publicutilities, the petroleum sector, protection of life andproperty, sanitation services, national defense and education,workers have the right to strike. Turkish law and the laborcourt system require collective bargaining before a strike.The law specifies a series of steps which a union must takebefore it may legally strike, and a similar series of stepsbefore an employer may engage in a lockout. Nonbindingmediation is the last of these steps. Once a strike isdeclared, the employer involved may respond with a lockout. Ifthe firm chooses to remain open, it is prohibited from hiringstrikebreakers or from using administrative personnel toperform jobs normally done by strikers. Solidarity, wildcat,and general strikes are illegal. In 1993, the Turkish Parliament ratified sevenInternational Labor Organization (ILO) Conventions, includingConvention 87 on labor's freedom of association and right toorganize. The Government of Turkey has drafted legislation topermit civil servants to organize. The government haspresented legislation to parliament, where it is still underdiscussion. Permission for civil servants to form trade unionswill require amendments to the constitution. Constitutionalamendments that would grant all categories of employees theright to form unions and would also expand the right to strikewere submitted to parliament for consideration in late 1992. The 1984 law establishing free trade zones forbids strikesfor ten years following their establishment, although unionorganizing and collective bargaining are permitted. The HighArbitration Board settles disputes in all areas where strikesare forbidden. b. Right to Organize and Bargain Collectively Apart from the categories of public employees noted above,Turkish workers have the right to organize and bargaincollectively. The law requires that in order to become abargaining agent a union must represent not only 50 percentplus one of the employees at a given work site, but also 10percent of all workers in that particular branch of industrynationwide. After the Ministry of Labor certifies the union asthe bargaining agent, the employer must enter good faithnegotiations with it. c. Prohibition of Forced or Compulsory Labor The constitution prohibits forced or compulsory labor, andit is not practiced. d. Minimum Age of Employment for Children The constitution prohibits work unsuitable for children,and current legislation forbids full time employment ofchildren under 15. The law also requires that school childrenof age 13 and 14 who work part time must have their workinghours adjusted to accommodate school requirements. Theconstitution also prohibits children from engaging inphysically demanding labor, such as underground mining, andfrom working at night. The laws are effectively enforced onlyin organized industrial and service sectors. Unionizedindustry and services do not employ underaged children. In theinformal 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 Labor Ministry is legally obliged, through a tripartitegovernment-union-industry board, to adjust the minimum wage atleast every two years and has done so annually for the pastseveral years. Labor law provides for a nominal 45-hour workweek and limits the overtime that an employer may request.Most workers in Turkey receive nonwage benefits such astransportation and meal allowances and some also receivehousing or subsidized vacations. In recent years fringebenefits have accounted for as much as two-thirds of totalremuneration in the industrial sector. Occupational safety andhealth regulations and procedures are mandated by law, butlimited resources and lack of safety awareness often result ininadequate 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. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 606 Food & Kindred Products 128 Chemicals and Allied Products 142 Metals, Primary & Fabricated (1) Machinery, except Electrical (1) Electric & Electronic Equipment 7 Transportation Equipment 113 Other Manufacturing 71Wholesale Trade 23Banking 98Finance/Insurance/Real Estate (2)Services (1)Other Industries (1)TOTAL ALL INDUSTRIES 1,023(1) Suppressed to avoid disclosing data of individual companies(2) Less than $500,000Source: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATETUNISIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS TUNISIA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1/ 1994 2/Income, Production and Employment:Real GDP (1990 base) 3/ 14,581 14,960 15,723Real GDP Growth (pct.) 8.1 2.6 5.0GDP (at current prices) 3/ 16,470 15,190 15,965By Sector: Agriculture 2,560 2,003 1,410 Manufacturing 2,474 2,211 2,909 Nonmanufacturing 1,824 1,575 1,752 Tourism 720 676 887 Services 3,964 3,582 4,788Real Per Capita Income 1,742 1,496 1,846Labor Force (millions) 2.50 2.56 2.77Unemployment Rate (pct.) 16.0 16.2 16.4Money and Prices:Money Supply 3,392 2,866 3,101Commercial Interest Rates Max 14 Max 14 Max 14Savings Rate (pct.) Avg 8 Avg 8 Avg 8Consumer Price Index 187.8 196.2 205.4Wholesale Price Index N/A N/A N/AOfficial Exchange Rate (USD/TD) 1.20 1.02 1.02Balance of Payments and Trade:Total Exports (FOB) 4/ 4,283 4,073 4,989 Exports to U.S. 36.7 31.0 27.2Total Imports (CIF) 4/ 6,827 6,366 6,640 Imports from U.S. 338.8 415.2 354.0Aid from U.S. (FY basis) 26.2 14.9 1.1Aid from Other Countries N/A N/A N/AExternal Public Debt 8,220 7,655 9,009Debt Service Payments 1,387 1,391 1,637Gold Reserves 5.2 4.4 4.4Foreign Exchange Reserves 1,080 816 1,133Balance of Payments 60.0 102.0 204.4N/A--Not available.1/ Some 1993 figures are less than 1992 figures when convertedinto USD values due to a devaluation of the Tunisian dinar in1992-93.2/ 1994 Annual figures are estimates based on data availablethrough June, 1994.3/ GDP at factor cost.4/ Merchandise trade.1. General Policy Framework Tunisia has a mixed economy composed principally ofagriculture, tourism, manufacturing, hydrocarbon extraction andphosphate mining. The largest sector is services, comprisingabout 33 percent of GDP. Textiles are now the largest sourceof foreign exchange, earning an estimated USD 1.9 billion in1994. Tourism will bring another USD 887 million of foreignexchange into Tunisia this year. The manufacturing sectorcomprises about 15 percent of GDP, and consists primarily oftextiles and food processing. The nonmanufacturing industrialsector accounts for 12 percent of GDP, and consists principallyof phosphate mining and hydrocarbon extraction. Agriculturecomprises about 15 percent of GDP. A severe drought causedwidespread crop failures in 1994. The cereal harvest was down60 percent from 1993. In addition, the citrus and olive cropswere hurt by adverse weather conditions. In late 1994, the government predicted 5.0 percent GDPgrowth for the year. This decrease from the 6.1 percent growthrate predicted at the start of the year is largely the resultof the poor agricultural harvests. However, exports are up22.5 percent, and inflation is being held to 4.7 percent. Tunisia completed a seven-year structural reform program in1993 which emphasized export-led growth through price andimport liberalization, privatization of publicly heldcompanies, financial sector reform, the attraction of foreigninvestment, and diversification of the economy. In 1994,Tunisia continued to liberalize its economy. The United States and Tunisia have two major bilateraltreaties affecting trade: a double taxation treaty in whicheach country has agreed to avoid double taxation oncorporations or individuals active in both countries; and abilateral investment treaty (BIT) dealing with the treatment ofAmerican companies in Tunisia, expropriation issues, remittanceof profits and international arbitration of disputes. Fiscal Policy: The 1994 Tunisian government budgetprovided for 11.4 percent increase in expenditures and 11.4percent increase in revenues. The deficit was financed throughboth international and domestic borrowing. Government policycalled for an expanding economy to cope with deficit problems,and the trend in recent years is favorable. In 1993, thedeficit was USD 364 million, equal to 2.4 percent of GDP; in1994, it was USD 326 million, 1.9 percent of GDP. Monetary Policy: The principal objective of the CentralBank remains the effective control of inflation. Between 1987and 1991 the inflation rate varied from six to eight percent.In 1993, it was 4.5 percent. In 1994, it was only slightlyhigher at 4.7 percent. This trend is largely the result of theprice and import liberalization policies which have encouragedgreater international and domestic competition.2. Exchange Rate Policy On March 1, Tunisia instituted a foreign currency market,making it possible for individual banks to set currency pricesand trade with other banks. Although the Central Bank ofTunisia (BCT) issues a reference rate each day, the majority ofTunisian banks bypass the BCT, marginalizing the role of theBCT in foreign currency transactions. Earlier this year,industry sources described a smooth transition to an opencurrency market. The principal currencies quoted against theTunisian dinar (TD) are the U.S. dollar, the deutsche mark, andthe French franc. The rate has varied considerably over thepast 13 years from a high in 1979, when the Tunisian dinarequaled USD 2.47, to a low in 1993, when it equaled USD 0.98.In 1994, the rate average was about TD 1 to USD 1.02.3. Structural Policies In the mid-1980s, Tunisia faced rising unemployment,stagnant economic growth, and dwindling foreign exchangereserves. The domestic economy was protected and inefficient,and the government ran unsustainable budgetary deficits. Asevere balance of payments crisis in 1986 finally prompted thegovernment to undertake structural reforms sanctioned by theInternational Monetary Fund (IMF) and the World Bank. To date,those reforms have enjoyed significant success, and theTunisian government plans further reform, especially inprivatizing still numerous state-controlled enterprises. Tax Policies: Import regulations were loosenedconsiderably this year. Fully 90 percent of the products onthe import list can now be imported freely as compared to 23percent in 1986. Customs tariffs on imports of capital goodswere cut considerably. Tunisia decreased the maximum customstariff almost 80 percent by 1991. Total taxes on importedgoods have not decreased at the same rate because a value addedtax (VAT), introduced in 1988, is equally applied to importsand local products. The only taxes significantly effecting U.S. exports toTunisia are import tariffs. Through the structural adjustmentprogram, Tunisia reduced the maximum basic tariff to 43percent. However, when faced with dwindling revenues becauseof the adverse economic impacts of the Gulf War, the governmentimposed a "temporary" five percent surcharge on all merchandiseimports. Although the government planned to end the surchargeDecember 31, 1991, it was extended through 1992. Despiterepeated assurances during 1992 and 1993 that the surchargewould be terminated, it still remained in effect during 1994. In addition, Tunisia imposed a system of custom dutyincreases for the period 1992 through 1994 on certain itemswhich compete with locally produced goods. Prior to thisaction, the maximum basic customs duty was 43 percent. The newpolicy authorized an additional duty of 30 percent in 1992,reduced to 20 percent in 1993, 10 percent in 1994, andeliminated by 1995. By 1995, the average tariff rate isexpected to decline to 25 percent. Tunisia acceded to full GATT membership in 1990. All taxesnow remaining on imports also apply to locally produced goodsand are not considered to be tariff barriers. The onlyadditional minor charge on imports is a very small customs userfee of USD 4.08 per declaration. However, in 1993 Tunisiarevised its list of tariff concessions by modifying the tariffor provisional compensatory duty on nearly 280 items.According to the government, the action was taken to protectthe competitiveness of certain domestic industries, and theTunisian GATT representative expressed willingness to enterinto GATT Article XXVIII and XIX negotiations as appropriateconcerning these changes. Investment Policy: Tunisia's Unified Investment Code,effective since January 1, 1994, replaced five former codes.The Code is intended to simplify investment and direct it intohigh priority industries. The financial services, mining andenergy industries are considered unique, and are covered byexisting legislation. The new code applies to both domestic and foreign investorswith two exceptions. Foreign investors may only leaseagricultural land and any enterprise with foreign ownership ofover 50 percent must receive government approval forinvestment. Under the new code, potential investors do notneed prior government approval. They will receive a taxexemption on 35 percent of reinvested profits and income. Thecustoms duty on imported capital goods is reduced to 10percent. Purchases of capital goods are exempt from the valueadded tax (VAT) and the consumption tax. Finally, investorsmay use an accelerated depreciation schedule for long-termcapital. In addition, businesses producing solely for export havespecial benefits. They may claim a 10 year tax exemption on100 percent of income and profits, reduced to 50 percent ofincome and profits after 10 years. Exporting businesses mayimport all needed materials, and may sell up to 20 percent oftheir production on the domestic market without losing theirstatus as an exporter. Finally, these companies may employfour foreign executives without prior government approval. Regulatory Policies: Production standards are not a majorobstacle for foreign investors. The quality of goodsmanufactured solely for export is often superior to itemsproduced for the local market. The Tunisian Office forCommercial Expansion (OFFITEC) carries out quality controlprocedures on items for export. Imported and exported fooditems are subject to sanitation and health controls.4. Debt Management In 1994, total public debt service increased by 17.7percent. External debt service increased by 19.4 percent whileservice on internal public debt increased by 15.7 percent.This increase stems principally from the devaluation of theTunisian dinar in 1993. Approximately 73 percent of thecountry's foreign debt is in U.S. dollars or dollar-linkedcurrencies and the dinar fell 25 percent against the U.S.dollar between September 1992 and September 1993. TheUSD 1.64 billion dollar debt service payment constitutes27 percent of the government budget. Debt service as apercentage of exports of goods an services is approximately 21percent. The Central Bank closely monitors the level of externaldebt and tries to keep it as low as possible. One indicationof Tunisia's prudent overall debt management policy is thatTunisia has never rescheduled any of its debt. The deficit isfinanced through concessionary lines of credit from its majortrading partners, and loans from official multilateralcreditors such as the World Bank and the African DevelopmentBank. The Central Bank has also moved toward moresophisticated debt portfolio management by aligning debtservice payment dates with anticipated receipts from sectorscharacterized by seasonal variation (e.g., tourism), and byaligning debt service payments with the currencies ofanticipated export receipts.5. Significant Barriers to U.S. Exports There are no significant barriers to U.S. exports inTunisia and the United States enjoys a traditional bilateraltrade surplus. Historical and geographical factors have given Tunisia aspecial relationship with Europe. It has bilateral tradeagreements with all of its major European trading partners,France, Germany and Italy being the largest. Tunisia alsofrequently adopts European product standards, a policy thatworks to the disadvantage of U.S. exporters. The 1992 Helsinki Accord among OECD countries limited theirconcessional aid financing. However, France, Italy and othersmaintain credit facilities to promote exports of theirproducts. In addition, EXIM Bank financing is available forgovernment sales. Exporters to private concerns may be able totake advantage of a new Citibank credit facility. Tunisia's leading supplier in 1993 was France (USD 1.6billion), followed by Italy, (USD 1.15 billion), and Germany(USD 821 million). The United States was in fourth place withUSD 303 million in exports. Agricultural products (much of itfinanced by U.S. aid and export credit programs) accounted forone-third of U.S. exports to Tunisia in 1993. There exist real possibilities for increasing the level ofU.S. exports to Tunisia in areas such as environmentalservices, construction equipment, telecommunications, andpackaging machinery and equipment.6. Export Subsidies Policy Tunisia has a wide range of export subsidy policies,including a special Export Promotion Fund (FOPRODEX). FOPRODEXprovides preferential financing and funding to improve theproductivity and competitiveness of companies producing forexport. Only companies legally incorporated in Tunisia areeligible for these subsidies: these can receive transportsubsidies of 50 percent for air freight and 33 percent for seafreight. There is also a government agency to promote exports,the Export Promotion Center (CEPEX), and a program providinglong-term financing for exports of capital goods and durableconsumer goods.7. Protection of U.S. Intellectual Property Tunisia is a member of the World Intellectual PropertyOrganization (WIPO) and a signatory of the Universal CopyrightConvention, the Paris Convention for the Protection ofIndustrial Property, and the Berne Convention for theProtection of Literary and Artistic Works. The Tunisian National Institute of Standardization andIndustry (INNORPI) processes and grants patents, trademarks andregistration of designs. It also regulates standardization,product quality, weights and measures and the protection ofindustrial property. Foreign patents and trademarks areregistered with INNORPI. There are no active cases of intellectual property rightsdisputes with Tunisia. However, the unauthorized use offoreign trademarks, especially in cheap copies of clothing andsporting goods, continues to be a problem as does theunauthorized duplication of music and video cassettes.8. Worker Rights a. Right of Association The Tunisian constitution and the labor code stipulate theright of workers to form unions. The Central Labor Federation,the Tunisian General Federation of Labor (UGTT), claims about15 percent of the work force as members, including civilservants and employees of state-owned enterprises. The UGTTand its member unions are legally independent of thegovernment, the ruling party and other political forces butoperate under government regulations which have to some extentrestricted their freedom of action. The UGTT's membershipincludes persons associated with all political tendencies,though a campaign against Islamists was effective in removingFundamentalist holding union offices. The current leadershipfollows a policy of cooperation with the government and itsstructural adjustment program. There are credible reports thatthe UGTT receives substantial subsidies from the government tosupplement the modest officially-mandated monthly contributionsfrom UGTT members and funding from the national social securityaccount. Dissolution of a union requires action by the courts.There is no requirement for a single trade union structure; thefact that Tunisia has a single labor organization (the UGTT) isa result of historical circumstances, not government action.However, establishment of a rival labor union would requiregovernment authorization. The government has decreed that UGTTmember federations are the labor negotiators for collectivebargaining agreements that cover 80 percent of the privatesector work force, whether unionized or not. Unions, including those of civil servants, have the rightto strike, provided 10 days' advance notice is given and theUGTT approves. However, these restrictions on strikes arerarely observed in practice. In recent years, the majority ofstrikes were illegal because they were not approved inadvance. In 1993, there were 68 legal strikes and 445 illegalstrikes. The government did not prosecute workers involved inillegal strike activity. Tunisian law prohibits retributionagainst strikers, but some employers punish strikers who arethen forced to pursue costly and time-consuming legal remediesto protect their rights. Labor disputes are settled throughconciliation panels on which labor and management are equallyrepresented. The 1994 labor code reform set up tripartiteregional arbitration commissions, which settle industrialdisputes when conciliation fails, to replace the former singlearbiter system. The 1994 report of the International Labor Organization's(ILO) Committee of Experts (COE) mentioned possible governmentviolations of ILO Convention 29 on forced labor, but noted thestated intention of the President to abolish the penalty of"rehabilitation through work" on state work sites. Unions in Tunisia are free to join federations andinternational bodies. The UGTT is a member of theInternational Confederation of Free Trade Unions (ICFTU) andvarious regional groupings. b. The Right to Organize and Bargain Collectively The right to organize and bargain collectively is protectedby law and practiced throughout the country. Wages and workingconditions in Tunisia are set through negotiation by the UGTTmember federations and employer representatives ofapproximately 47 collective bargaining agreements which setstandards applicable to entire industries in the privatesector. The UGTT is by law the labor negotiator for theseagreements, which cover 80 percent of the private sector workforce, whether unionized or not. The government's role inconcluding these agreements is minimal, consisting mainly oflending its good offices if talks appear to be stalled. Thegovernment must approve the collective bargaining agreements(although it cannot modify them) and publish them in theofficial journal before these agreements acquire legalvalidity. No agreement between a union and an individual firmmay be concluded unless there already exists an agreementapplicable to that firm's economic sector. The UGTT also negotiates with various ministeries and 208state-run enterprises on behalf of public sector employees. By1994, the UGTT had concluded three-year public and privatesector collective bargaining agreements calling for an average5 percent annual wage increase. Anti-union discrimination by employers against unionmembers and organizers is prohibited by law, and there aremechanisms for resolving such disputes. However, the UGTT hascomplained about what it claims are increasingly vigorousanti-union activities by private sector employers, particularlythe firing of union activists and, as a pretext to avoidunionization, employers' use of temporary workers, which incertain factories, especially in the textile sector, accountfor up to 80 percent of the work force. The labor code extendsthe same worker rights protection to temporary workers as topermanent workers, but its enforcement in the case of thetemporary workers is much more difficult. A 1994 labor coderevision called for the creation of a tribunal to hear casesinvolving alleged unjustified firing of workers. Compensationfloor and ceiling levels were set. Two export processing zones, authorized by a 1992 law, havenot yet begun operations. Workers in other export firms havethe same right to organize, bargain collectively, and strike asthose in non-export firms. The unionization rate is about thesame. The state pays the employer contribution to the socialsecurity system if the firm produces primarily for export. c. Prohibition of Forced or Compulsory LaborCompulsory labor is not specifically prohibited by local law,but there have been no reports of its practice in recent years. d. Minimum Age of Employment of Children For manufacturing, the minimum age for employment is 15years; in agriculture it is 13. Tunisian children are requiredto attend school until age 16. Over 2.1 million childrenenrolled in Tunisian schools in fall 1994. Inspectors from theSocial Affairs Ministry check the records of employees toverify that the employer complies with the minimum age law.Despite this law, young children often perform agriculturalwork in rural areas and sell food and other items in urbanareas. UGTT officials report that small enterprises in theinformal sector (street vendors, day laborers, etc.) violatethe concern that child labor - frequently disguised asapprenticeship - still exists, principally in the traditionalcraft sectors such as ceramics and stone carving. Young girlsfrom rural areas are sometimes placed as domestics in urbanhomes by their fathers, with the fathers collecting theirchildren's wages. Workers between the ages of 14 and 18 areprohibited from working from 10 p.m. to 6 a.m. Children over14 may work a maximum of 4.5 hours a day. The combination ofschool and work may not exceed 7 hours. e. Acceptable Conditions of Work The labor code provides for a range of administrativelydetermined minimum wages. An agricultural and industrialminimum wage increase in August kept pace with the rise in thecost of living. When supplemented by transportation and familyallowances, the minimum wage covers essential costs for aworker and his family. Effective August, 1994, the minimummonthly industrial wage is roughly USD 130 (129 TD) for a40-hour work week and USD 147 for a 48-hour week. The minimumagricultural wage was set at nearly USD 4.50 per day. Tunisia's labor code sets a standard 48-hour workweek formost sectors and requires one 24-hour rest period. Theworkweek is 40 hours for those employed in the energy,transportation, petrochemical and metallurgy sectors. Regional labor inspectors are responsible for enforcingstandards. Most firms are inspected about once every twoyears. However, the government often encounters difficulty inenforcing the minimum wage law, particularly in non-unionizedsectors of the economy. Moreover, according to a 1992 UGTTstudy, there are approximately 240,000 workers employed in theinformal sector, which falls outside the purview of laborlegislation. The Social Affairs Ministry has an office withresponsibility for improving health and safety standards in thework place. There are special government regulations coveringmany hazardous jobs - e.g. mining, petroleum engineering, andconstruction. Although the ministry maintains officesthroughout the country, these regulations are enforced morestrictly in Tunis than in other regions, where much work,especially in construction, is performed in the informalsector. Working conditions and standards tend to be better infirms that are export-oriented than in those producing for thedomestic market. Occupational safety improved considerably in1993. Reported work place accidents declined 17 percent to30,645, perhaps due to an intensive public awareness campaignin the media. Workers are free to remove themselves fromdangerous situations without jeopardizing their employment, andthen may take legal action against employers who retaliate forexercising their right.9. Extent of U.S. Investment in Goods Producing Sectors U.S. investment in Tunisia is growing, but an accuratesectoral breakdown is unavailable. Currently, total U.S.investment in Tunisia is an estimated USD 50 million. Themajority is invested in the petroleum sector, but U.S.corporations are increasing investment in other areas includingtelecommunications and pharmaceuticals.(###)</text>
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<text>U.S. DEPARTMENT OF STATETRINIDAD/TOBAGO: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS TRINIDAD AND TOBAGO Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1985 prices) 2/ 3,827.6 3,770.2 3,883.3Real GDP Growth (pct.) -0.6 -1.5 3.0GDP (at current prices) 2/ 4,846.2 4,161.4 4,745.8By Sector: Agriculture 132.66 108.37 102.68 Energy/Water 1,227.79 1,122.26 1,138.53 Manufacturing 484.14 389.65 386.34 Construction 450.71 344.58 344.92 Transport 1,446.73 1,288.33 1,334.10 Rents N/A N/A N/A Financial Services 472.38 393.93 408.31 Other Services 369.88 310.63 304.39 Government/Health/Education 620.33 510.45 513.26 Net Exports of Goods & Services 138.60 39.10 500.00Real Per Capita GDP 3,189.7 3,141.8 3,236.1Labor Force (000s) 505.2 504.6 508.4Unemployment Rate (pct.) 19.6 19.8 18.0Money and Prices: (annual percentage growth)Money Supply (M2) -6.6 5.1 -1.8Base Interest Rate 3/ 15.50 15.50 15.50Personal Saving Rate N/A N/A N/ARetail Inflation 6.5 10.8 9.0Wholesale Inflation 0.8 5.3 3.0Consumer Price Index 247.0 273.6 295.3Exchange Rate (USD/TT) 4.25 5.39 5.83Balance of Payments and Trade:Total Exports (FOB) 4/ 1,868.9 1,632.8 1,933.9 Exports to U.S. 879.0 735.0 874.1Total Imports (CIF) 4/ 1,435.6 1,390.6 996.9 Imports from U.S. 594.4 540.9 470.5Aid from U.S. 0.60 0.15 0.70Aid from Other Countries N/A N/A N/AExternal Public Debt 2,214.7 2,095.8 2,000.0Debt Service Payments 612.1 613.5 594.0Gold and Foreign Exch. Reserves 40.2 207.4 117.6Trade Balance 4/ 433.3 242.2 512.6 Balance with U.S. 284.6 194.1 253.8N/A-Not available.1/ 1994 figures are all estimates based on available monthlydata in October 1994.2/ GDP at factor cost. Figures reflect the exchange ratesapplicable in each year. 1992 exchange rate: US$1.00/TT$4.25.Exchange rate for 1993 is a period average which includes thepost-float devaluation: US$1.00/TT$5.39. Exchange rate for1994 is an average of the period January - September 1994:US$1.00/TT$5.83. Sector indicators: Financial Servicesincludes finance, insurance and real estate; Transport includestransport, storage and communication, and distribution.3/ Figures are actual, average annual interest rates, notchanges in them.4/ Merchandise trade.1. General Policy Framework The dual-island Republic of Trinidad and Tobago is endowedwith rich deposits of oil and natural gas. During the oil boomof the 1970's, Trinidad and Tobago became one of the mostprosperous countries in the Western Hemisphere. Oil revenuesenabled the nation to invest in state-owned andstate-controlled corporations, which became a drain on thenation's resources. The oil wealth also fueled a dramaticincrease in domestic consumption. The collapse of the oil boomin the 1980's and concurrent decrease in Trinidadian oilproduction, caused a severe recession from which Trinidad andTobago is only now beginning to emerge. Prospects forcontinued economic growth, however, remain closely tied to oilprices and oil and gas production in the short term as thegovernment's structural reforms require time to stimulategrowth. Since January 1992, the Government of Trinidad and Tobagohas moved decisively to lay the foundations for private-sectorbased, export-led growth and to reform its state-controlledeconomy to a market-controlled one. On April 13, 1993, thegovernment removed currency controls, floating the TT dollar.In 1992, it undertook a large scale divestment program and hassince divested several previously state-owned companies. Inaddition, the government began dismantling trade barriers in1991 eliminating the import licensing requirement for mostmanufactured goods in July 1992, and for most agriculturalgoods in September 1994. The Government of Trinidad and Tobago has aggressivelycourted foreign investors and on September 26, 1994, signed aBilateral Investment Treaty with the United States, whichprovides national treatment for U.S. investors. New U.S.investment in Trinidad and Tobago increased from US$428 millionin 1993 to about US$660 million in 1994. The Government of Trinidad and Tobago uses a standard arrayof fiscal and monetary policies to influence the economy,including a 15 percent value-added tax (VAT) and relativelyhigh corporate and personal income taxes. Improvements inrevenue collection in 1993 and 1994 have boosted VAT,income-tax and customs duty revenues dramatically.Nevertheless, a public sector budget deficit of approximatelyUS$52 million is projected for 1994 because oflower-than-projected oil prices resulting in less revenue fromthe energy sector. The 1994 budget based oil revenues on aprice of US$19/barrel, but prices hit a five-year low inFebruary and have not sufficiently recovered tobudget-projected levels. To protect the exchange rate, which has several timesneared the TT$6.00 - US$1.00 rate, the Central Bank hasattempted to manage liquidity by keeping aggregate demandconsistant with balances. The Central Bank continues to relyprimarily on reserve requirements to control the money supply,despite its stated goal of moving to open market operations asa more market-oriented means of influencing the money supply.The Central Bank has raised the reserve requirement forcommercial banks twice in 1994, to a current 20 percent. Thetight money supply, combined with a weakening of theinflationary effects of the 1993 float, are keeping inflationlow. The year-on-year rate of inflation was 7.8 percent fromJune 1993 to June 1994 compared with 11.2 percent in the twelvemonths preceding June 1993.2. Exchange Rate Policy On April 13, 1993, the Government of Trinidad and Tobagoremoved exchange controls and floated the TT dollar which hadbeen pegged to the U.S. dollar at the rate of TT$4.25 equalsUS$1.00 since 1988. The average rate of exchange for the firstthree quarters of 1994 is TT$5.83 equals US$1.00. Foreigncurrency for imports, profit remittances, and repatriation ofcapital is freely available. Only a few reporting requirementshave been retained to deter money laundering and tax evasion.3. Structural Policies Pricing Policies: Generally, the free market determinesprices. The government maintains domestic price controls onsugar, schoolbooks, and pharmaceuticals. Controls on rice andcounter flour were lifted in September 1994 and remainingcontrols are expected eventually to be eliminated entirely. Tax Policies: In an effort to curb consumption, thegovernment instituted a 15 percent VAT on January 1, 1990.Corporate tax rates were raised by five percentage points to 45percent in 1992, but a revision in the 1993 budget allowsincremental profits of a company over a given base year to betaxed at 30 percent. The government's 1993 budget includedsubstantial tax breaks for construction activity in 1993 and1994, as well as for export-oriented venture-capitalcompanies. The petroleum tax regime was revised in 1992 toindex tax rates to oil prices, and to make Trinidad and Tobagoa more competitive location for investment. A tax of 0.25percent was imposed on business sales on January 1, 1993.Additional taxes in the 1994 budget hit motorists with a fivepercent gasoline tax for road improvements, a new used-cartransfer tax and an increase in the motor-vehicle tax appliedto new purchases. Regulatory Policies: All imports of food and drugs mustsatisfy prescribed standards. Imports of meat, live animalsand plants, a large percentage of which come from the UnitedStates, are subject to specific regulations. The import offirearms, ammunition and narcotics are rigidly controlled orprohibited.4. Debt Management Policies From 1988 to 1991, the government negotiated InternationalMonetary Fund (IMF) standby agreements, rescheduled Paris Clubdebt and concluded an agreement for a World Bankstructural-adjustment loan. From 1992 to 1994 Trinidad andTobago's high debt-service payments averaged about US$600million per annum. The government has met these payments byrelying on bond issues, proceeds from the divestiture of stateenterprises and the offset effects of substantial loans fromthe Inter-American Development Bank. The country should emergein 1995 with a manageable debt burden of approximately US$450million per annum, and, as of 1996, a debt-service ratio of15.1 percent down from 27.7 percent in 1994. Total foreign debt now stands at approximately US$2billion, or 42 percent of GDP, down from a high of 59 percentin 1989. With the government meeting its debt payments, theelimination of trade barriers and the economy edging towardgrowth, prospects for increased trade with the United States inthe years ahead are excellent.5. Significant Barriers to U.S. Exports Trinidad and Tobago is highly import-dependent. Productsimported cover a broad range of consumer and industrial goodsfrom its major supplier, the United States, and other developedcountries. Only sugar, poultry parts, left-hand drivevehicles, small boats and firearms remain on the "NegativeList" of products requiring import licenses. Current importsurcharges and stamp duties required on most manufactured goodswill be reduced to zero on January 1, 1995, although CaricomCommon External Tariff (CET) rates will continue to apply.Surcharges on agricultural goods removed from the negative listin September 1994, will be phased to zero on January 1, 1998. Liberalizing agricultural trade will eventually open themarket for more U.S. commodity exports into Trinidad andTobago, raising concerns among local farmers that the domesticagricultural sector will suffer from the cheaper foreignproducts making farming unprofitable. However, the governmentfirmly expects the introduction of competition to result in amore efficient agricultural sector. The removal of import-licensing requirements has alsoforced local manufacturers, traditionally accustomed toproducing only for a protected domestic market, to look outwardand become more efficient. The government actively encouragesexport industries and small business development as a means ofemployment generation. In 1994, government officialschampioned the role of the private sector in the generation ofeconomic growth. The government now views its role to be morea facilitator than an engine of growth. Trinidad and Tobago's exports remain concentrated in oiland downstream petrochemical products (chiefly anhydrousammonia, urea and methanol), and processed iron ore and steelwire rod (both produced using local natural gas and gas-derivedelectricity). The float and resultant depreciation of the TTdollar has made local manufactured and agricultural exportsmore competitive and imported goods more costly for localconsumers. As a result, Trinidad and Tobago's overall tradebalance has improved. During the first quarter of 1994,Trinidad and Tobago's merchandise trade surplus was US$256.3million compared with a US$4.5 million deficit in the firstquarter of 1993 before the currency was floated. 1994's firstquarter surplus was Trinidad and Tobago's fourth consecutivequarterly surplus. Trinidad and Tobago signed the Uruguay Round Agreement onApril 15, 1994 in Marrakech, Morocco. Foreign ownership of service companies is permitted.Trinidad and Tobago currently has one 100 percent U.S.-ownedbank, several U.S.-owned air-courier services, and one U.S.majority-owned insurance company. The government has expressedinterest in attracting another U.S. bank. Standards, labelling, testing and certification, to theextent that they are required, do not hinder U.S. exports. TheTrinidad and Tobago Bureau of Standards (TTBS) is responsiblefor all trade standards except those pertaining to food, drugsand cosmetic items, which the Chemistry, Food and Drug Divisionof the Ministry of Health monitors. The TTBS uses the ISO 9000series of standards and is a member of ISONET. Trinidad andTobago is not a party to the GATT Standards Code. Foreign direct investment is actively encouraged by thegovernment. Generally speaking there are no de factorestrictions on investment and the government is activelyremoving all disincentives to investment. On September 26,1994 the Government of Trinidad and Tobago signed a BilateralInvestment Treaty with the U.S., granting national treatment toU.S. investors in Trinidad and Tobago on a reciprocal basis.Foreign investment is screened only for eligibility forgovernment incentives, and assessment of its environmentalimpact. Foreign investors are eligible for tax concessions inthe form of tax holidays and concessions in the manufacturingand hotel industries. Both tax and nontax incentives may benegotiated with the government for investments in themanufacturing, tourism, and energy sectors. The repatriationof capital dividends, interest, and other distributions andgains on investment may be freely transacted. Government procurement practices are generally open andfair, and the government and government-owned companiesgenerally adhere to an open bidding process for procurement ofproducts and services. However, some government entitiesrequest prequalification applications from firms, then notifyprequalified companies in a selective tender invitation.Trinidad and Tobago is not a member of the GATT GovernmentProcurement Code. Customs clearance can consume much time because ofbureaucratic inefficiency and administrative procedures can beburdensome. Local importers often complain that it takesseveral working days to get import documents approved and theirgoods released. In October 1993, the Government of Trinidadand Tobago engaged three full-time U.S. Customs Serviceconsultants for two years to improve efficiency and revenuecollection. The Trinidad and Tobago Customs Service hasimplemented several consultant recommendations.Computerization of the Trinidad and Tobago Customs Serviceimport clearance process is under consideration but no date isset for implementation.6. Export Subsidies Policies There is no evidence of directly subsidized exports to theUnited States. However, the government offers incentives tomanufacturers operating in a Free Zone or Export ProcessingZone (EPZ) to encourage foreign and domestic investors. Suchmanufacturers are exempt from customs duties on capital goods,spare parts and raw materials imported to construct and equiptheir premises. They are also exempt from all corporation andwithholding taxes on profits from manufacturing andinternational trading in products or export services. On January 1, 1993, the government implemented the fivepercent CET on all factors of production. Manufacturers thatexport, however, may reclaim the duty on the re-export of animported product or receive vouchers, equal in value to thetariffs paid, that can be applied against duties owed onfurther imports. Trinidad and Tobago is not a member of theGATT subsidies code.7. Protection of U.S. Intellectual Property Few resources are currently devoted to intellectualproperty rights, a situation that is expected to change duringthe two-year phase-in period for compliance with provisions inthe Intellectual Property Rights (IPR) agreement, signed withthe United States September 26, 1994. The agreement will, inmost instances, provide IPR protection equivalent to that inthe U.S., and is part of the Trinidad and Tobago government'sdrive to attract more U.S. investment to Trinidad and Tobago.Failure in law to provide for minimum statutory damages,recovery of legal costs, and criminal penalities for willfulinfringement undermines the deterrent value of existinglegislation. Trinidad and Tobago is a member of the Universal CopyrightConvention; the Universal Copyright Convention, Revised; andthe Convention for the Protection of Producers of PhonogramsAgainst Unauthorized Duplication. Trinidad and Tobago is alsoa party to the Bern Convention, Paris Act of 1971, the ParisConvention for the Protection of Industrial Property, and theRome Convention for the Protection of Performers, Producers ofPhonograms, and Broadcasting Organizations. As a member of theCaribbean Basin Initiative, the government is committed toprohibiting unauthorized broadcasts of U.S. programs. Current copyright protection is governed by the CopyrightAct of 1985, which complies with the revised Bern and Universalcopyright conventions. A copyright is valid for a period offifty years. Although the Act provides for protection ofliterary, musical and artistic works, computer software, soundrecordings, audio-visual works and broadcasts, it is notenforced. Video rental outlets in Trinidad and Tobago arereplete with pirated videos and operate openly. The existing law on patent protection is the Patents andDesign Act, which establishes a registration system with noform of examination of patentable subject matter, novelty,inventive step, or industrial applicability. Patents arecurrently valid for a period of 14 years and may be extendedbefore expiry for any period not exceeding seven years withoutlimit. Infringement of patents is not a discernible problem inTrinidad and Tobago, but the existing law is outdated. A newpatent law to provide for new technologies is being drafted. Trademarks can currently be registered for a period of 14years, and renewed by application before the expiration of theregistration for an unlimited number of 14 year periods. Thecurrent Trademark Act is also slated for review.Counterfeiting of trademarks is not a widespread problem inTrinidad and Tobago. New Technologies: Larger firms in Trinidad and Tobago arescrupulous about obtaining legal computer software while manysmaller firms are believed to use wholly or partially piratedsoftware. Licensed cable companies are faced with unlicensedcable operators and satellite owners who connect neighborhoodsonto private satellites for a fee. Even licensed cablecompanies are not exempt from piracy since they regularlyprovide customers with U.S. "premium" cable channels for whichthey have not obtained rights. Given the popularity of U.S. movies and music, and thedominance of the United States in the software market, U.S.copyright holders are the most heavily affected by the lack ofcopyright enforcement in Trinidad and Tobago, although themarket is relatively small. By signing the IPR agreement, thegovernment has acknowledged IPR infringement is a deterrent toadditional U.S. investment in Trinidad and Tobago and iscommitted to improving both legislation and enforcement.8. Worker Rights a. The Right of Association The right of association is respected in law and practice.Approximately 26 labor unions were active in Trinidad andTobago in 1994. The unions are independent of government orpolitical party control and freely represent their members'interests. There are no excessive or arbitrary registrationrequirements, nor restrictions on selections of union officersor advisors. Union members are free to choose representatives,publicize their views and determine their own programs andpolicies. All employees except those in "essential services"have the right to strike. b. The Right to Organize and Bargain Collectively The rights of workers to collective bargaining isestablished in the Industrial Relations Act of 1972.Anti-union discrimination is prohibited by law. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is not explicitly prohibited bylaw and is not a problem in EPZs since the same labor lawsapplied in the country at large are also applied in in EPZs.Some prison inmates sentenced to hard labor are involved insubsistance agriculture and dairy farming and fishing. d. Minimum Age for Employment of Children Legislation prohibits the employment of children under theage of 12 years, and children aged 12 to 14 years are permittedto work only in family businesses. General employment ispermitted after 14 years. e. Acceptable Conditions of Work A minimum wage structure is in place for gas stationemployees, domestic assistants, retail-sales personnel andhotel workers. These wage rates are adjusted for cost ofliving increases at regular intervals, every few years. In1994, the parliament considered legislation which would set aminimum wage for security guards. There is no national orgeneral minimum wage. The standard work week in Trinidad andTobago is forty hours with no cap on overtime. The Factoriesand Ordinance Bill of 1948 sets occupational health and safetystandards in certain industries; state inspectors monitorconditions in work places and workers who refuse to performwork because of hazardous conditions are protected fromretribution under the Industrial Relations Act of 1972. 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. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 469Total Manufacturing (1) Food & Kindred Products 7 Chemicals and Allied Products (1) Metals, Primary & Fabricated 0 Machinery, except Electrical (2) Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 4Wholesale Trade 0Banking 5Finance/Insurance/Real Estate (1)Services 1Other Industries 3TOTAL ALL INDUSTRIES 693(1) Suppressed to avoid disclosing data of individual companies(2) Less than $500,000Source: U.S. Department of Commerce, Bureau of Economic Analysis(###)</text>
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<text>U.S. DEPARTMENT OF STATETHAILAND: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS(1) Suppressed to avoid disclosing data of individual companies(2) Less than $500,000Source: U.S. Department of Commerce, Bureau of EconomicAnalysis</text>
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<text>U.S. DEPARTMENT OF STATETHAILAND: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS THAILAND Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1988 prices) 89,934 97,595 104,857Real GDP Growth Rate (pct.) 7.9 8.2 8.0GDP (at current prices) 111,495 124,772 140,321By Sector: Agriculture 13,446 12,472 13,838 Energy/Water 2,579 3,053 N/A Manufacturing 31,233 35,578 38,975 Construction 7,523 8,578 N/A Rents 3,008 3,237 N/A Financial Services 7,079 9,019 N/A Other Services 42,438 48,162 N/A Government/Health/Education 4,189 4,673 N/A Net Exports of Goods & Services -5,533 -6,310 N/APer Capita GDP (current USD) 1,930 2,130 2,351Labor Force (000s) 32,420 33,100 33,800Unemployment Rate (pct.) 3.0 3.2 3.3Money and Prices: (annual percentage growth)Money Supply (M2) 15.6 18.4 12.6 1/Base Interest Rate 11.5 10.25 11.5Personal Savings Rate 4.9 N/A N/ARetail Inflation N/A N/A N/AWholesale Inflation 0.2 -0.4 3.1 5/Consumer Price Index 4.1 3.3 4.9 3/Exchange Rates (B/USD avg.) Official 25.40 25.32 25.22 2/ Parallel -- Not Applicable --Balance of Payments and Trade:Total Exports, (FOB) 32,466 37,159 28,360 2/ Exports to U.S. 7,284 7,287 6,046 2/Total Imports (CIF) 40,679 46,242 34,448 2/ Imports from U.S. 4,772 5,373 3,985 2/Aid from U.S. (FY-DA obligation) 0.7 6.4 5.1Aid from Other Countries (FY) N/A N/A N/AExternal Public Debt (LT) 12,518 14,171 14,973 4/Debt Service Payments (paid) 4,713 5,391 1,658 4/Gold and Foreign Exch. Reserves 21.2 25.4 29.1Trade Balance -8,213 -9,083 -6,088 2/ Trade Balance with U.S. 2,512 2,614 2,061 2/N/A--Not available.1/ Preliminary estimates based on data available, October 1994.2/ January through August (eight months).3/ January through September (nine months).4/ First Quarter 19945/ June 1993-June 1994Sources: Bank of Thailand, Thai Ministry of Commerce, ThaiNational Economic and Social Development Board, U.S. Departmentof Commerce and U.S. Embassy estimates.1. General Policy Framework Thailand's economic development policies are based on acompetitive, export-oriented, free market philosophy. Itseconomy is in transition from an agricultural economy to a moreopen and broadly based one with a large manufacturing sector.Although the majority of the Thai labor force remains engagedin agricultural production, this sector now accounts for only12 percent of GDP. Manufacturing, wholesale and retail tradeand service industries are the most rapidly growing sectors andnow account for almost two-thirds of Thailand's GDP. Real economic growth averaged over 10 percent from 1987 to1991 and has since hovered around eight percent. Economicgrowth and investment have slowed modestly and the politicalevents of May 1992, which culminated in violence, temporarilyundermined domestic and foreign investor confidence. However,the Thai economy remains fundamentally strong and has reboundedin the intervening two years. Recorded flows of foreign directinvestment fell to $1.5 billion in 1993, down from $2 billionin 1992. Exports continued to expand to record levels duringthe first eight months of 1994, to $28 billion. The Thaigovernment estimates that total Thai exports for 1994 willreach almost $48 billion, up 18.5 percent over 1993. Barringfurther domestic or external shocks, Thailand should maintainsolid economic growth in the seven to eight percent range forthe foreseeable future. The Chuan government, which took office following freeelections in September 1992, has maintained the generaldirection of economic liberalization, making modest additionsin some areas. It has also stressed addressing imbalancescreated through rapid industrialization by emphasizing ruraldevelopment and reducing disparities in the distribution ofincome. Rapid growth has had its drawbacks: infrastructurebottlenecks remain a problem and environmental degradation hasworsened considerably in recent years. If unresolved,Thailand's infrastructure bottlenecks and shortages of skilledpersonnel will limit the pace of future growth. MetropolitanBangkok's public works (communications facilities, roads andmass transit) are already overtaxed and will come underincreasing pressure. A drought in northern provinces during 1993 reducedagricultural output dependent on irrigation and reduced watersupplies to the Bangkok metropolitan area in 1994. Abundantrainfall in 1994, however, has largely refilled reservoirs tocapacity. Severe flooding in the north of Thailand duringAugust 1994 destroyed some crops. Added to changes in Thaipolicies which reduced production, this has led to increasedprices for agricultural goods in 1994. The average amount of schooling for the Thai work force isless than six years, the lowest in the Association of SouthestAsian Nations (ASEAN). The level of education of the workforce will have to be raised to maintain Thailand's developmentpace and competitiveness with neighboring countries which havelower wage rates. The Thai government is fully aware of thisproblem and is in the process of expanding mandatory years ofschooling from six to nine. Wage gains continue to outpacesubstantially the growth of the consumer price index. For the past six years Thailand has experienced asubstantial government budget surplus as revenues were fueledby growth and government investment expenditures for majorinfrastructure projects lagged. For 1993 the government'soverall surplus reached $2.7 billion, 2.2 percent of GDP.2. Exchange Rate Policy Since November 1984 the Thai baht has been pegged to abasket of currencies of principal trading partners. Thecomposition of the basket is a closely guarded secret, but theU S. dollar appears to represent well over half of the value ofthe basket. The Exchange Equalization Fund, chaired by aDeputy Governor of the Bank of Thailand, determines theexchange value of the baht each working day. There is noparallel market in Thailand. Global currency realignmentssince 1985, and especially the recent appreciation of theJapanese yen and the Thai baht against the U.S. dollar, havetended to make U.S. exports to Thailand more price competitive. In May 1990 the Thai government announced a series ofmeasures to liberalize significantly the exchange controlregime. It accepted the obligations of the InternationalMonetary Fund's Article VIII which prohibits members fromrestricting current international transactions. Commercialbanks were given permission to process all foreign exchangetransactions and substantial increases were allowed in ceilingson money transfers not requiring Bank of Thailand preapprovaland on spending by Thai tourists and businessmen abroad. InApril 1991 and May 1992 additional rounds of foreign exchangeliberalization substantially simplified foreign exchangereporting requirements and allowed banks to offer foreigncurrency accounts to individuals and businesses. The centralbank also raised limits on Thai capital transfers abroad andallowed free repatriation (net of taxes) of investment funds,dividends, profits and loan repayments. It allowed exports tobe paid for in baht without prior permission and companies totransfer foreign exchange between subsidiaries without havingto change those funds into baht.3. Structural Policies The appointment of the first Anand administration in March1991 set the stage for a flurry of legislative and regulatoryreforms. The Anand government reduced market distortions, madetax policies more transparent and, in general, liberalized thedomestic market. Although the nation's trade and currentaccount deficits are large in relation to total GDP, theoverall balance of payments remains in surplus because oftourism earnings and large inflows of foreign capital. Thispayments surplus and a substantial budgetary surplus haveallowed the Thai government to reduce customs duties andliberalize its import regime. A wider reform of the importregime, reducing the number of tariff rates and eliminatingmost tariffs above 30 percent, is being pursued. Thailandbegan implementing the ASEAN Free Trade Area's (AFTA) tariffreductions in January 1993. Although it began slowly, AFTA haspicked up speed as the six member nations (Brunei, Indonesia,Malaysia, Philippines, Singapore and Thailand) have startedseeing results. At the September 1994 meeting of the ASEANEconomic Ministers in Chiang Mai, the AFTA members agreed toreduce the 15 year implementation schedule to 10 years,gradually to eliminate the exclusion list of protected itemsand generally to expand AFTA from a tariff reduction schemeinto a real free trade area. Thailand has been one of theleading proponents of this effort. Thailand's trade relationshave traditionally been oriented toward distant markets,particularly North America, Europe, and Japan, but thegovernment sees the ASEAN Free Trade Area increasingintra-ASEAN trade as well. Beginning in 1992 the Thai government implemented a majorreform of its taxation system. In 1992 the governmentincreased personal income tax deductions and lowered the topmarginal tax rate to 37 percent and unified the corporateincome tax rate at 30 percent. The government is considering afurther reduction to 25 percent to attract more investment. OnJanuary 1, 1992 Thailand implemented a value added tax (VAT)system, replacing a multi-tiered business tax with a singlerate of seven percent on value added. U.S. transportation andshipping companies in Thailand are at a competitivedisadvantage vis-a-vis firms from third countries which "zerorate" Thai companies under their own VAT systems. Since theUnited States does not have a VAT system, U.S. firms are"exempt" from the Thai system and unable to claim rebates fortaxes paid on inputs. Firms which are "zero rated" are able tooffset VAT paid on inputs in paying their own taxes.4. Debt Management Policies Domestic credit is expanding, helping fuel some of thegrowth in consumption in the economy. Domestic credit expanded18 percent in 1992, 19.6 percent in 1993 and is projected togrow by over 30 percent in 1994; growth for the first ninemonths of 1994 has been greater than in all of 1993. The primerate has declined from 14 percent in 1991 to 12 per cent in1992 and 11 percent in 1993. It will be between 11 and11.5 percent for 1994. Rates for one-year fixed deposits havedeclined from 10.5 percent to seven percent over the sameperiod. With the disparity between relatively high domesticrates and declining international lending rates, Thai privatesector external borrowing has grown rapidly since 1990, whenprivate external debt was almost $14 billion, reaching$25 billion in 1991, $30 billion in 1992 and $36 billion in1993. Net capital inflows, almost completely via the privatesector, rose from $9.8 billion in 1992 to $11 billion in 1993and reached $10.5 billion as of August 1994. Total publicsector debt was about $13 billion in 1992 and $14 billion in1993. The total debt service ratio (including private andshort term debt) was 10.5 percent in 1991, 11.2 percent in 1992and 11.3 percent in 1993. The public sector debt service ratiowas about four percent in 1993.5. Significant Barriers to U.S. Exports Import duties range from zero to 68.5 percent ad valorem,along with other specific taxes of an equivalent or higherrate. These import duties, which have a weighted average ofonly 16.03 percent, were assessed on all imports in 1993,including agricultural imports, especially processed foodproducts, and many manufactured goods, greatly limiting themarket for these goods. The Thai government is pursuing abroad reform of its import regime and customs duties overallwill be significantly lower, but it remains unclear howagricultural products will be affected. Thailand has alsooffered to lower duties on some agricultural products as partof the Uruguay Round. There are presently six classificationsof import duties: zero to five percent on raw materials; onepercent for special items such as medical instruments, shipsand aircraft; up to 10 percent for intermediate products;20 percent for finished products; 30 percent for specialproduction items; and, 68.5 percent for luxury sedans. Arbitrary customs valuation procedures sometimes constitutea serious import barrier. The Thai Customs Department keepsrecords of the highest declared prices of products importedinto Thailand from invoices of previous shipments. Thoseprices can then be used as "check prices" for assessing tariffson subsequent shipments of similar products from the samecountry. Customs may disregard actual invoiced values in favorof the check price for assessment purposes, a practice whichmay particularly affect agricultural products with seasonallyfluctuating prices. For products shipped from other than thecountry of origin, the Customs Department reserves the optionof using the check price of either the country of origin or thecountry of shipment, whichever is higher. These rules areapplied to imports from all nations. The Thai Food and Drug Administration issues importlicenses for food and pharmaceutical imports. This licensingprocess can pose an important barrier because of its cost,duration and demand for proprietary information. Licenses forimporters of food products cost 15,000 baht (about $600).These licenses must be renewed every three years. Licenses forimporters of pharmaceuticals cost 10,000 baht (about $400) andmust be renewed every year. Sample products imported in bulkrequire laboratory analysis at a cost of 1,000 to 3,000 baht(about $40 to $120) per item. Food products imported in sealedcontainers (consumer ready packaged) require laboratoryanalysis at a cost of 5,000 baht (about $200) per item.Registration as "specific controlled food items" is requiredfor 39 food products at an additional cost of 5,000 baht (about$200) per item. Registration of pharmaceutical imports costs2,000 baht (about $80) per item, with the cost of inspection ofeach item an additional 1,000 baht (about $40). Although theThai Food and Drug Administration has made efforts tostreamline the registration process, it usually requires threemonths or more to complete. All controlled items must beaccompanied by a detailed list of ingredients and a descriptionof the manufacturing process. Some U.S. suppliers havedeclined to export to Thailand rather than provide theproprietary information requested. The Thai Ministry of Commerce requires import licenses oncertain raw materials, petroleum, industrial, textile andagricultural products. These licenses can be used to protectuncompetitive local industry, encourage greater domesticproduction, maintain price stability in the domestic market andfor phytosanitary reasons. Import licensing is also used toprotect intellectual property rights and to comply withinternational obligations. Import licensing is required for43 categories of items. In the food products area, licensingrequirements remain for powdered skim milk and fresh milk,potatoes, soy beans and soy bean oil, refined sugar, coffee andothers. Corn for animal feed is among those 10 categorieswhich do not need import licenses but must comply withconcerned agencies requirements for surcharges, fees orcertificates of origin. Largely by restricting foreign bank entry, branching andacquisition of Thai banks, Thai authorities limit all foreignbanks to a very small share of the total Thai banking market.That share comprises around seven percent of total commercialbanking assets at present. Although an existing foreign banklicense was bought in 1994, no new foreign bank licenses havebeen issued since 1978. However, Thai authorities regularlyapprove representative offices of well established foreignbanks. In aggregate, foreigners are limited to a maximum25 percent shareholding in each Thai bank; no person or groupof related persons, whether Thai or foreign, may hold more thanfive percent of the shares of each Thai bank. The Thaigovernment has indicated it is reviewing its regulations onforeign bank activities as part of the extended Uruguay Roundnegotiations on services and may allow new foreign bankbranches during the next three to seven years. Foreign banks do not receive national treatment inThailand. Foreign banks are prohibited from opening branchesand are not permitted to operate off-site automated tellermachines (ATMs). Recently, regulations were changed to permitforeign banks to participate in the local ATM network.However, they have been unable to negotiate agreements toparticipate in the ATM network with domestic banks. Foreignbanks are allowed to participate in the Bangkok InternationalBanking Facility (BIBF), created to develop an offshore bankingindustry in Thailand. Thai officials are considering allowingforeign banks participating in the BIBF additional access tothe Thai banking market. Thai law and regulations limit foreign equity in new localinsurance firms to 25 percent or less. This denies new U.S.property/casualty and life insurers access to the local marketon terms equal to local insurers. A long established U.S.firm, however, controls a major share of the Thai lifeinsurance market. Under Thai law aliens are forbidden to engage in thebrokerage business. A 1979 law limits all foreign ownership ofThai finance and credit foncier companies to 25 percent;however, a maximum of 40 percent participation in firms alreadylicensed when the law was enacted is permitted.6. Export Subsidies The Government of Thailand ratified the Uruguay Roundagreements before the end of 1994, and became a founding memberof the World Trade Organization (WTO). However, it is not asignatory to the GATT subsidies code. It maintains severalprograms which benefit manufactured products or processedagricultural products and may constitute export subsidies.These programs include: subsidized credit on some governmentto government sales of Thai rice; preferential financing forexporters in the form of packing credits; and, tax certificatesfor rebates of taxes and import duties on inputs for productsmade for export. Thailand established an export-import bank inSeptember 1993 which took over some of these functions,particularly the packing credit program. Thai officials saythat Thailand is considering acceding to the GATT subsidiescode.7. Protection of Intellectual Property Improved protection for U.S. copyright, patent andtrademark holders has been one of our most prominent bilateraltrade issues over the past several years. Thailand has madesignificant progress in intellectual property protection overthis period. Most importantly, Thailand passed a revisedcopyright law which addresses most of the U.S. concerns(especially protection for computer software). The law isexpected to go into force in early 1995. This will bring theThai copyright regime into conformity with internationalstandards of the Uruguay Round agreement (TRIPS) and the BerneConvention (Paris Act). In addition, the Thai government hasagreed to provide protection through administrative means forcertain pharmaceutical products not entitled to full patentprotection under Thai law. In recognition of this progress,Thailand was downgraded from the "priority watch list" to the"watch list" in November 1994. The U.S. Trade Representative(USTR) has begun a review of Thailand's status under theGeneralized System of Preferences (GSP) program to determinewhether to restore any of the GSP benefits lost in 1989 due toinadequate intellectual property protection. Efforts on the part of the Thai government to enforceexisting copyright laws have also improved since 1991, whenmost enforcement activities against intellectual propertyinfringement were centralized and relatively ineffective. InDecember 1991 the U.S. formally concluded a Section 301investigation of Thailand's copyright enforcement in responseto a petition filed by three U.S. trade associations. Effortsby both governments to reduce copyright piracy increased inearly 1993, with raids by police expanding to cover computersoftware and into the provinces. U.S. industry associationshave been instrumental in securing more energetic enforcement.While considerable improvements have been made, especiallyduring 1993, copyright piracy of audio and video tapes andcomputer software remains extensive. The government of PrimeMinister Chuan Leekpai has publicly stated its commitment tocontinuing vigorous enforcement. The Ministry of Commerce setup a special Intellectual Property (IPR) Department in 1992which is active in coordinating both the legal structure andenforcement efforts against all forms of violation ofintellectual property. The Prime Minister receives a weeklybriefing on the status of enforcement efforts and has secondedan official to the IPR Department to keep him thoroughlyinformed. Concerns remain that Thailand's legal procedures do notprovide adequate deterrence against copyright infringement.The government has established a special division in the courtsto concentrate on intellectual property matters and hasproposed the creation of an entirely separate intellectualproperty court, with judges trained in intellectual propertymatters. This court, to be known as the Intellectual Propertyand International Trade Court, was proposed to the ThaiParliament in September 1994. Thai officials expect that thesemeasures will speed up consideration of copyright and other IPRcases and improve the efficiency of the legal system in dealingwith them. Legislation extending patent protection to pharmaceuticalproducts and agricultural machinery and increasing the lengthof protection to 20 years became effective September 30, 1992.The United States then formally concluded a Section 301investigation of Thailand's patent protection ofpharmaceuticals, begun in response to a petition filed by theU.S. Pharmaceutical Manufacturers Association. Bothgovernments continue to discuss ways to resolve remaining U.S.concerns over Thailand's patent protection. Chief among theseare finalizing measures to provide the transitional protectionlacking in the law.8. Worker Rights a. The Right of Association The Labor Relations Act of 1975, Thailand's basic laborlaw, guarantees to workers in the private sector mostinternationally recognized worker rights, including freedom ofassociation. Workers have the right to form and join unions oftheir own choosing, to decide on constitutions and rules, andto formulate policies without outside interference. Once aunion is established, the law protects members fromdiscrimination, dissolution, suspension, or termination becauseof union activities. In addition, unions have the right tomaintain relations with international labor organizations. InApril 1991 the government passed the State Enterprise LaborRelations Act (SELRA) which denied state enterprise workersmany of the labor association rights they had enjoyed under the1975 law. The Chuan government, which came to office in 1992,promised to amend the SELRA and restore those rights. The newlegislation was introduced in the fall 1994 session ofParliament. b. The Right to Organize and Bargain Collectively The 1975 Act grants Thai workers the right to organizeunions and employee associations without outside interferenceand to bargain collectively over wages, benefits and workingconditions. There are about 600 private sector unionsregistered in Thailand. Until the SELRA is amended, stateenterprise workers, like civil servants, may not form unions,but are allowed membership in employee associations. The lawcurrently denies the right to strike to civil servants, stateenterprise workers and workers in "essential" services such aseducation, transportation and health care. In the privatesector, collective bargaining usually occurs in individualfirms; industry wide collective bargaining is almost unknown. c. Prohibition of Forced or Compulsory Labor The Thai Constitution prohibits forced or compulsory laborexcept in the case of national emergency, war or martial law. d. Minimum Age for Employment of Children The minimum employment age in Thailand is 13. Thailandrestricts the employment of children between 13 and 15 to"light work" in nonhazardous jobs and requires Department ofLabor permission before they can begin work. Employment ofchildren at night is prohibited. The government has announcedits intent to increase compulsory education from six to nineyears in the next few years; this will make possible furtherraising of the minimum employment age to 15. In the last threeyears, the government has also more than doubled the size ofthe labor inspector corps concerned with child labor law toenhance enforcement of those laws. e. Acceptable Conditions of Work Working conditions vary widely in Thailand. Medium andlarge factories, including those of most multinational firms,generally meet international health and safety standards,although a May 1993 fire in a factory producing toys for exportin which nearly 200 workers were killed demonstratessignificant gaps in enforcement. The government has sought toaddress these gaps by increasing the number of safetyinspectors and by increasing the penalties for violations.Eight hour days are the norm and wages and benefits in exportindustries usually exceed the legal minimum. However, inThailand's large informal sector, wage, health and safetystandards are often ignored. Most industries have a legallymandated 48 hour maximum workweek. The major exception iscommercial establishments, where the maximum is 54 hours.Transportation workers are restricted to no more than 48 hoursper week. f. Rights in Sectors with U.S. Investment U.S. capital investment is substantial in several sectorsof the Thai economy, including petroleum (exploration,production, refining, and marketing), electronic componentsassembly and consumer products. Workers in these sectors,especially those working for U.S. and other western firms,usually enjoy labor conditions superior to those of the averageThai worker: the degree of unionization is greater, wages andbenefits are higher, and health and safety standards arebetter. Child labor is rare or nonexistent among largemultinational firms. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 1,011Total Manufacturing 863 Food & Kindred Products 49 Chemicals and Allied Products 228 Metals, Primary & Fabricated (1) Machinery, except Electrical (1) Electric & Electronic Equipment 221 Transportation Equipment (2) Other Manufacturing 79Wholesale Trade 250Banking 300Finance/Insurance/Real Estate (1)Services 59Other Industries (1)TOTAL ALL INDUSTRIES 2,893</text>
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<text>U.S. DEPARTMENT OF STATETAJIKISTAN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS TAJIKISTAN Key Economic Indicators 1992 1993 1994 1/Income, Production and Employment:Real GDP Growth (pct.) -76.4 -28.0 N/AGDP (at current prices) 2/ 279.2 305.7 251.7By Sector: Agriculture 217.0 116.4 9.4 Energy (bil. KWHs) 16.3 17.7 13.8 Manufacturing 3/ 207.0 378.6 506.7 Construction 16.5 17.8 14.4 Rents N/A N/A N/A Financial Services 13.5 13.6 20.0 Other Services 0.53 0.40 0.20 Government/Health/Education 59.5 43.6 34.8Net Exports of Goods & Services -11.1 -25.0 -28.8Real Per Capita GDP (USD) 267.5 26.6 N/ALabor Force (millions) 1.86 N/A 1.40Unemployment Rate (pct.) 4 N/A N/AMoney and Prices: (annual percentage growth)Money Supply (M2/bil. rubles) 15.3 145.2 130.0Base Interest Rate 4/ N/A N/A N/APersonal Saving Rate 14 14 60Retail Inflation 406.6 555.4 N/AWholesale Inflation N/A N/A N/AConsumer Price Index 823.2 1,065.0 110.8Exchange Rate (USD/ruble) Official 188.0 2,064.3 2,287.0 Parallel 188.0 2,064.3 2,287.0Balance of Payments and Trade:Total Exports (FOB) 5/ 55.9 97.2 241.5 Exports to U.S. N/A 6.8 5.5Total Imports (CIF) 5/ 12.6 122.2 269.7 Imports from U.S. 71.9 3.9 12.9External Public Debt 787.0 1,021.0 1,461.7Debt Service Payments (paid) N/A N/A N/AGold and Foreign Exch. Reserves N/A N/A N/ATrade Balance 5/ -39.4 57.3 -70.1 Trade Balance with U.S. -71.9 2.9 -7.4Note: Reliable income, production and employment, money supplyand balance of trade data are not available in Tajikistan.While a country memorandum was produced by the World Bank inApril 1994, even that document notes the unreliability of datadue to inaccuracies in government accounting methods and poorgovernment information collection. The figures provided, acombination of both government and World Bank data, should beused with caution and primarily as a basis for comparison.N/A--Not available.1/ 1994 figures are all estimates based on available monthlydata in October 1994.2/ GDP at factor cost.3/ Includes the cost of material expenses - net figures notavailable.4/ Figures are actual, average annual interest rates, notchanges in them.5/ Merchandise trade.1. General Policy Framework The severing of trade links with the countries of theformer Soviet Union (FSU) after the breakup of the USSR,continuing uncertainty over Tajikistan's entry into the Russianruble zone and the complete shutdown of all inter-republicanbanking payments have exacerbated a situation already in crisisafter two years of civil conflict and natural disasters. Theeconomy continued to contract sharply throughout 1994,affecting even the industrialized, highly productive region ofLeninabad in the north. Some estimates put 1994 industrialproduction at no more than 30 percent of 1988 levels and insome sectors, such as construction, estimates are even lower.The collapse of domestic production has led to an almost totaldependence upon imports of consumer goods, particularly grain,to the exclusion of capital goods and investments. While the government has taken some steps toward reform,these have been to a large extent legislative exercises, withno active implementation or enforcement. A governmentalpreoccupation with political stability combined with theentrenched bureaucratic opposition to reform made the economy,however dire the situation, a lesser priority. In addition, noresolution could be reached regarding the establishment of aseparate Tajik currency until the political situationstabilized. Approximately 90 percent of the economy remainsgovernment-controlled and that which has been privatized hasgone, in the majority of cases, into the hands of the workcollective of that particular enterprise. The governmentfurther restricted the market in Tajikistan by increasing thestate orders for cotton and aluminum and limiting the issuanceof export licenses. Tajikistan's adoption of the Russian ruble as its officialcurrency without integration into the ruble zone has led to asituation whereby Tajikistan is completely dependent upon thelargesse of the Russian Federation in order to obtain banknotes. This untenable situation has been precariouslymaintained throughout 1994, although there is some hope thatthe government elected in November 1994 may take moreaggressive steps to resolve the current crisis. The money supply has shrunk to the point that the economyhas reverted to a barter system, particularly in rural areas.Salary and pension payments lag months behind and workers arepaid on account as the liquidity of the Tajik economy iscompletely dependent upon the delivery of ruble notes fromRussia. The reliance on imports together with the decline indomestic production have led to the flight of rubles out ofTajikistan almost as soon as they arrive. Agreement has notyet been reached with the Russian Federation on the rate ofexchange for pre-1993 rubles and hence all previously heldcurrency is literally frozen in bank accounts and notconvertible. The government's debt to the population forsalary and pension payments in the first half of 1994 was over220 billion rubles. Tajikistan's massive debt, totaling over $440 million or 31percent of GDP for the first half of 1994, is financed for themost part by credit from the National Bank. Inflation hasremained fairly constant, even dropping over the summer, due tothe extreme shortage of banknotes in circulation. Governmentexpenditures are largely for grain, the supply of fuel and rawmaterials for industry, and expenditures for the military whichis maintained in response to attacks both along theTajik-Afghan border and against pockets of oppositionresistance within Tajikistan. In addition, the governmentstill subsidizes inefficient state enterprises and providessubsidized prices for food, fuel and other consumer items.While the government remains dependent on the RussianFederation for about 80 percent of its trade and 14 percent ofits budget, 1994 saw the successful shift of a large proportionof Tajik exports to Western partners, particularly in cottonand aluminum. In 1994, virtually all of the aid which Tajikistan receivedcontinued to be devoted to humanitarian assistance rather thantechnical or development assistance or concessional financing.The World Bank donor conference scheduled for February waspostponed in September. Uncertainties remain and hencereconstruction loans valued at $20 million which were to havebecome available in 1994 have been put on hold pendingresolution of Tajikistan's fundamental questions of politicalstability and viable currency. In November 1994, however, theEuropean Bank for Reconstruction and Development decided toinitiate a limited technical assistance project in the bankingsector. The bulk of the proposed technical assistanceprojects, however, have yet to find donors.2. Exchange Rate Policy Tajikistan is the only FSU state that still has the Russianruble as its national currency. On January 5, 1994, Tajikistanofficially exchanged all of its old Russian rubles for new 1993rubles. Exchange rates in Tajikistan are tied to the MIREXrate in the Russian Federation and are adjusted bi-weekly. Thegovernment maintains only one official exchange rate. Thistracks fairly closely with the unofficial or black market rate,differing only by 100 to 200 rubles. Delayed entry intomonetary union with the Russian Federation resulted in an acutecash shortage which is becoming increasingly severe with thepassage of time. Unfortunately, with the conversion to newRussian rubles, the Russian Federation and Tajikistan did notagree upon an official exchange rate for the new and old rublesand this issue is still outstanding between the two countries.The Government of Tajikistan has shied away from introducing anational currency; this decision as prolonged the economiccrises and complicated decisionmaking. The introduction of the new Russian ruble withoutTajikistan's entry into the ruble zone has further resulted ina segmentation of the money supply. The scarce cash componentis made up of Russian currency which is internally andexternally convertible into cash or goods. Enterprises arecharging as much as ten times the asking prices for purchasesmade by non-cash transactions. The result of this impasse isthat all "old" money deposited in accounts at the time of theruble changeover has been, in effect, "frozen" and isinaccessible to both enterprises and individuals. Throughout1994, wages routinely lagged six months behind, and often asmuch as eight to ten months. The impact of Tajikistan's exchange rate policies upon U.S.exports is slight for the simple fact that there is littlesubstantial trade between the two countries. Governmentrequirements for the sale of hard currency to the governmenthard currency fund remain. Depending upon the export product,exporters are technically required to sell between 30 and 70percent of their hard currency earnings to the fund. The rateof exchange, however, has been changed to match the market rateand is adjusted bi-weekly to coincide with the official rate.The percentage of profit that must by law be exchanged variesaccording to the percentage of the enterprise owned by theforeign entity.3. Structural Policies 1994 has seen an unfortunate acceleration of thecontinuation of the return to centralized economic planning inTajikistan. The government announced a new foreign traderegime which concentrates virtually all export activity in theMinistry of Foreign Economic Relations. This ministry has theexclusive right to issue export licenses in accordance withquotas issued by the Ministry of Economy for all exportproducts, of which cotton and aluminum are the two mainstrategic resources. The impact of this legislation fallsprimarily upon U.S. joint ventures or producers doing businessin Tajikistan. The new government came to power on a platform whichclearly stated the necessity to restrict imports of hardliquor, tobacco products, and cotton oil. There was also acall for the regulation of all food prices. In November,however, Tajikistan adopted a new constitution which codifies,for the first time, the right of the individual to ownproperty. This could provide for the intensification ofprivatization efforts, particularly in agriculture. Since 1992, Tajikistan has enacted numerous laws aimed atbroadening its economic reform efforts. These laws have notyet been effectively implemented for a number of reasons, chiefof which is the lack of political will among both thegovernment's top leaders and mid-level functionaries. Taxpolicy in Tajikistan was substantially revised in 1994, with anoverhaul of the tax code and an attempt to increase tax revenueby the imposition of several new taxes.4. Debt Management Policies Tajikistan is a signatory to the zero-option accord withthe Russian Federation and is thus not liable for its share ofthe debts of the former Soviet Union. Estimates from the Ministry of the Economy placeTajikistan's budget deficit at over $440 million or 31 percentof GDP. This debt is financed for the most part by theNational Bank, but Tajikistan has also borrowed on unfavorableterms in the world markets. Russia is Tajikistan's primarycreditor, with current debts totaling $127 million. TheRussian Federation supplied Tajikistan with a 120 billion rubleloan in January as well as a second tranche of 30 billionrubles in October. Technical credits valued at 80 billionrubles are promised but have not yet been delivered. Theseloans were guaranteed by Tajik assets in the form of majorindustrial enterprises. As of July 1994, debts to Kazakhstantotaled $22.3 million while debts to Uzbekistan topped $96million. Russia has postponed Tajikistan's repayment of theloans until January 1, 1996, but Tajikistan must repay $10.73million to Uzbekistan and Kazakhstan in 1994. Other debtincludes $27.5 million in P.L. 480 concessional food credits,$50 million in Turkish commercial credits, and $5 million eachin Chinese and Indian commercial credits.5. Significant Barriers to U.S. Exports Tajikistan has several serious barriers to U.S. exports,but these are more related to geography and the generaleconomic crisis than any deliberate targeting of U.S. goods andservices. Tajikistan's geographical isolation, devastatedeconomy and, most importantly, lack of a national currency,severely undermine Tajikistan's ability to trade effectively,even with neighboring CIS states. Interest in U.S. products isprecluded by the lack of banking transfers or cash paymentswith which to purchase them. Yet another contributing factoris a business culture in Tajikistan which emphasizes personalcontacts over competitive bidding. In general, legislationencourages foreign investment but contradictory decrees and anewly expanded tax burden make doing business in Tajikistan acomplex process. The government conducts virtually all trade in Tajikistan.Fine fiber cotton and aluminum are the two main sources ofgovernment hard currency and trade deals are characterized bythe amount of tonnage the government has allocated. Thegovernment trade association "Somonion" is given an annualquota of cotton and aluminum to sell in exchange for grain,medicine and consumer goods. With some effort, foreigninvestors are able to negotiate very favorable deals with thegovernment and can receive benefits such as tax relief,long-term land leases and resource allocations without which itwould be exceedingly difficult to do business in Tajikistan.6. Export Subsidies Policies Tajikistan is not a member of the GATT export subsidiescode. Tajikistan retains to a large extent the Soviet practiceof indirect subsidies through inefficient socialist pricingmechanisms. In the case of aluminum, a major export, concretedata is difficult to obtain, due to the common practice ofdealing through a third party or country. U.S. Department ofCommerce figures, however, claim that Tajikistan accounts forapproximately one percent of aluminum imports to the UnitedStates. Subsidized government rates for energy (both gas andelectricity) and other operating and raw material costs, givealuminum produced in Tajikistan a distinct advantage overaluminum produced in the United States or elsewhere. In general, though, the government of Tajikistan has onlylimited opportunity to use export subsidies as a means ofproviding either direct or indirect support for exports - asituation exacerbated by the economic crisis. Thatnotwithstanding, the government is publicly committed tosupporting export-oriented state enterprises, chiefly by theprovision of scarce financing and government credits. Thesecredits have gone largely to the agriculture, energy, miningand textile sectors.7. Protection of Intellectual Property Protection of intellectual property is not a high priorityof the Government of Tajikistan, but neither is the need forprotection very severe. While many laws designed to protectintellectual property rights already exist, the government haslimited means by which to enforce them. Piracy of video andaudio cassettes which are brought in from neighboring CIScountries is the most common abuse of intellectual property.There is no evidence that Tajikistan exports any locallyproduced pirated goods. The small amount of piracy whichoccurs in Tajikistan has a negligible effect, if any, on U.S.exports. However, Tajikistan is undertaking the appropriate measuresto align itself with international intellectual property rightsstandards. Tajikistan is a signatory to the UniversalCopyright Convention. The copyright agency created by thegovernment has little knowledge as to how best to approach itstask, and as yet its committee is not very active. On February14, 1994 Tajikistan became a member of the World IntellectualProperty Organization (WIPO). In 1993, the government createda national patent information center. This center is chargedwith the preparation of legislation required to enter intointernational covenants. In February 1994, the governmentenacted legislation on the regulations governing inventions,utility models and industrial samples. These regulations coverthe creation, legal protection and use of the above.Tajikistan also maintains a state standards agency, which hasthe main responsibility for trademarks.8. Workers Rights a. The Right of Association All citizens are guaranteed the right of association. Alsoguaranteed is the right to form and join associations withoutprior authorization, to organize territorially, to form andjoin federations and affiliate freely with internationalorganizations, and to participate in international travel. The Confederation of Trade Unions, a holdover from theCommunist era, remains the dominant labor organization,although it has since shed its subordination to the communistparty. The Confederation consists of 20 individual tradeunions and currently claims to have 1,500,000 members -virtually all non-agricultural workers. The separate laborunion of private enterprise workers has registered 3,241 smalland medium-sized enterprises, totaling 60,000 members, some ofwhom have dual membership in the Confederation. Both laborunions are formally consulted by the Council of Ministersduring the drafting of social welfare and worker rightslegislation. b. The Right to Organize and Bargain Collectively The right to organize and bargain collectively is codifiedin the Law on Trade Union Rights and Guarantees, the Law onSocial Partnerships and Collective Contract and the Law onLabor Protection. Although collective bargaining is guaranteedby law, as the economic situation declines, enterprises arefinding it increasingly difficult to engage in effectivecollective bargain. Any anti-union discrimination or the use ofsanctions to dissuade union membership is prohibited. C. Prohibition of Forced or Compulsory Labor Neither the Law on Labor Protection nor the Law onEmployment specifically prohibit forced or compulsory labor.However, these laws do provide that a person has the right tofind work of his or her own choosing. This principle isenforced in the local trade union structure by the laborinspectors. The Soviet practice of compelling students to pickcotton was officially banned in 1989. However, due to the lackof fuel and mechanical harvesting equipment in the fall of1994, students were again sent to the fields to pick cotton asthey were in 1993. d. Minimum Age for the Employment of Children According to labor laws, the minimum age for the employmentof children in Tajikistan is 16, the age at which children maylegally leave school. With the concurrence of the local tradeunion, employment may begin at age of 15. Those less than 18may not work more then six hours a day and 36 hours a week.However, agricultural work, which is classified as "familyassistance," is routinely done by children as young as seven.Trade unions are responsible for reporting any violationsinvolving the employment of minors. e. Acceptable Conditions of Work The legal workweek for adults (over age 18) is 40 hours,with a 48 hour rest period. Overtime payment is mandated bylaw with the first two hours of overtime to be paid at one andone half times the normal rate and the remaining overtime atdouble time. The government has established occupationalhealth and safety standards, but these fall far short ofinternational norms and are not actively enforced. Relative toformer Soviet standards, however, it is virtually certain,given the continuing economic decline, that the one-fifthworking in substandard conditions reported in 1993 greatlyunderreports the number working in substandard conditions in1994 (although reliable new statistics are not available).There are occasional reports of armed militia forcing villagersto perform agricultural work on private plots. There are noknown instances of the use of child labor, other than in thecase of picking cotton. f. Rights in the Sectors with U.S. Investment There is no significant U.S. investment in Tajikistan.(###)</text>
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<text>U.S. DEPARTMENT OF STATESYRIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS Foreign workers theoretically receive the same benefits butare often reluctant to press claims because employees' work andresidence permits may be withdrawn at any time. Moreover, manywork illegally and are not covered by the government system.Some foreigners are employed illegally as domestic servants inSyria. Residence permits are legally granted only to diplomatswho employ servants, but some senior officials are also able toacquire the necessary permits. f. Rights in Sectors with U.S. Investment There is no direct U.S. investment, other than oilexploration and development, in Syria. US firms are requiredto comply with Syrian labor law. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 0 Food & Kindred Products 0 Chemicals and Allied Products 0 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 0Wholesale Trade 0Banking 0Finance/Insurance/Real Estate 0Services 0Other Industries (1)TOTAL ALL INDUSTRIES 355(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATESYRIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS SYRIA Key Economic Indicators 1/ 1992 1993 1994 (est.) (est.)Income Production and Employment: 2/Real GDP (1985 prices) 9,778 10,560 10,982Real GDP Growth (pct.) 10 8 4GDP (at current prices) 33,124 35,774 37,205By Sector: Agriculture 1,870 2,020 2,100 Energy/Water 2,500 2,700 2,808 Manufacturing 3,015 3,256 3,386 Construction 240 259 270 Rents N/A N/A N/A Financial Services 407 440 458 Other Services 143 155 161 Government/Health/Education 1,351 1,459 1,518 Net Exports of Goods & Services 3,100 N/A N/AReal Per Capita GDP (1985 base) 752 782 784Labor Force (000s) 3,600 3,900 4,300Unemployment Rate (est./pct.) 7 7 7Income Production and Employment: 3/Real GDP (1985 prices) 2,607 2,816 2,929Real GDP Growth (pct.) 10 8 4GDP (at current prices) 8,833 9,540 9,921By Sector: Agriculture 499 539 560 Energy/Water 667 720 749 Manufacturing 804 868 903 Construction 64 69 72 Rents N/A N/A N/A Financial Services 108 117 122 Other Services 38 41 43 Government/Health/Education 360 389 405 Net Exports of Goods & Services 3,100 N/A N/AReal Per Capita GDP (1985 base) 201 208 209Labor Force (000s) 3,600 3,900 4,300Unemployment Rate (est.) 7 7 7Money and Prices:Money supply (M2) (million SP) 182,125 191,322 191,322Base Interest Rate 4/ 9 9 9Personal Saving Rate 4.8 4.8 4.8Retail Inflation 12.5 16.0 8.0Wholesale Inflation 9.6 12.0 6.0Consumer Price Index 486 564 609Exchange Rate (USD/SP) Official 11.20 11.20 11.20 Blended 26.60 26.60 26.60 "Neighboring Country Rate" 42 42 42 Offshore market 46-52 47-52 49-52Balance of Payments and Trade: (USD millions)Total Exports (FOB) 3,100 3,400 3,600 Exports to U.S. 45.8 144.7 120.0Total Imports (CIF) 3,498 4,100 4,000 Imports from U.S. 214.0 267.2 300.0Aid from U.S. 0 0 0Aid from Other Countries 1,753.0 1,358.0 701.9External Public Debt 18,000 19,400 N/ADebt Service Payments (paid) 1,399 N/A N/AForeign Exchange Reserves N/A N/A N/AGold Holding (millions of troy ounces) 0.833 0.833 0.833Trade Balance -398.0 -700.0 -400.0 Trade Balance with U.S. -168.2 -122.5 -180.0N/A--Not available.1/ The Syrian Government has not published its 1993 statisticsas of the completion of this report. Further, the government's1992 economic statistics remain estimates. All figures in thepreceding tables are estimates based on the government's 1992estimates, other sources in the public domain, and the U.S.Embassy's own calculations.2/ Millions of U.S. dollars converted at the official rate of11.2 Syrian pounds/ 1 U.S. dollar.3/ Millions of U.S. dollars converted at the "NeighboringCountry" rate of 42 Syrian pounds /1 U.S. dollar.4/ All banks in Syria are nationalized and interest rates areset by law, ranging from two percent for financing of theexport and storage of barley to nine percent for certainprivate sector loans. Savings rates range from two percent onpublic sector "current accounts and sight deposits" to ninepercent on "other investment bonds". Most rates have notchanged in 10 years.1. General Policy Framework In the past year, the Syrian government, except fortightening exchange rate controls, has acted to reduceadministrative barriers to U.S. exports. The private sector,responding to these and other reforms, has increased itsimports beyond those of the public sector; however, increasesof U.S. exports to Syria have lagged behind those of othercountries, probably due to continued U.S. Government foreignpolicy sanctions and remaining Syria administrative and legalbarriers to trade. As a reward for participation in the GulfWar, Arab Gulf states have contributed large, but decliningamounts of aid, to Syria over the past three years. Theseallocations, over USD 1.7 billion in 1992, and USD 1.3 billionin 1993, have gone to rehabilitate Syria's telecommunicationsand electrical power generation sectors. Prospects for Syrian private sector investment and importscontinue to improve, spurred by economic reforms, including aninvestment encouragement law. Recent liberalization actions ofthe Syrian government permit private exporters to retain someforeign exchange export earnings to finance permitted importsfor manufacturing inputs, as well as other listed products.The rate of retention depends on the type of products exported:75 percent of industrial export earnings, 100 percent ofagricultural sales. Although retaining a monopoly on"strategic" imports, such as wheat and flour, the Governmentcontinued to expand the list of permitted imports during 1994,including items, such as sugar and rice, formerly reserved forpublic sector importing agencies. During 1993 the governmentattempted to interdict many of the goods imported for the"unofficial market" and succeeded briefly in reducing supplies.Ultimately it discontinued the activity because of inadequateresources to enforce the interdict and the strong public demandfor such goods. Responding to the demand, the government beganexpanding the list of importable goods. The United States imposed trade controls in 1979 as aresponse to Syria's involvement with terrorism. The U.S.Government expanded sanctions against Syria in 1986, followingSyria's implication in the attempted bombing of an Israeliairliner at London Heathrow Airport. Among the affected itemsare aircraft, aircraft parts, and computers of U.S. origin orcontaining U.S. origin components and technologies. TheSyrians have sought alternate suppliers of these products.Under the 1986 sanctions, Syria is ineligible for the ExportEnhancement Program (EEP) and the Commodity Credit Corporation(CCC) Program in all agricultural products, rendering U.S.wheat uncompetitive in the Syrian market. The Syrian-U.S.Bilateral Aviation Agreement expired in 1987 and has not beenrenewed. Finally, the EXIM Bank and OPIC suspended theirprograms in Syria, further disadvantaging U.S. exporters inmeeting competition from other suppliers. The Syrian government uses its annual budget as itsprinciple tool for managing the economy. Through 1992, theSyrian government's ability to raise official prices on manyconsumer items (effectively reducing subsidies), improve taxcollections, and increase transfers from state enterprises,while reducing commitments of Syrian resources to capitalexpenditures, enabled it to reduce budget deficits, leading toa balanced budget in 1992. However, the last two annualbudgets have been in deficit, due the cost of maintainingSyria's large military establishment (both domestically and inLebanon) and its recently reduced, but still heavy,subsidization of basic commodities and social services. Given Syria's anachronistic and nationalized financialsystem and its inability to access international capitalmarkets, monetary policy remains a passive tool used almostexclusively to cover fiscal deficits. All four of thecountry's commercial banks are nationalized. Interest ratesare fixed by law. Most rates have not changed in the lastseveral years, even though current real interest rates arenegative, which exerts additional inflationary pressures in theeconomy.2. Exchange Rate Policies The Syrian government continues to maintain a multipleexchange rate system. The official exchange rate remainsfixed at Syrian pounds 11.20 to USD 1 for the government,certain public sector transactions and valuations for somecustoms tariff rates. A second exchange rate, called the"Blended Rate", SP 26.6 to USD 1, can be used by the U.N. anddiplomatic missions. A third rate, the "Neighboring Country"rate, SP 42 to USD 1, applies to most state enterprise importsexcept certain basic commodities and military/security items.Recently, a foreign oil company signed an exploration contractallowing it to transact contract-related business at the"Neighboring Country" rate, a first for the oil sector.Outside Syria, a thriving offshore market for Syrian poundsoperates in Lebanon, Jordan, and the Arab Gulf countries.During 1994, the value of the Syrian pound fluctuated betweenSP 49 and 51 to the dollar in these locations. Exchange controls are strict. Syrian currency may not beexported, although it may be imported physically. Almost allexchange transfers must be by letter of credit opened at theCommercial Bank of Syria. Outward private capital transfersare prohibited, unless approved by the Prime Minister ortransacted under the new investment law noted below. Prior to1987, Syrian law required private exporters to surrender100 percent of foreign exchange earnings to the Central Bank atthe official rate. Now, private exporters may retain 75 to 100percent of their export earnings in foreign exchange to financeimports of inputs and other items designated on a short list ofbasic commodities, surrendering the balance to the CommercialBank of Syria, generally, at the "Neighboring Country" rate.Since 1991, the Commercial Bank of Syria may convert cash,travellers checks and personal remittances at the "NeighboringCountry" rate.3. Structural Policies By law, the Ministry of Supply controls prices on virtuallyall products imported or locally produced, although enforcementin most sectors is spotty. The ministry also sets profitmargin ceilings, generally up to 20 percent, on privatesector imports. Local currency prices are computed at theSP 42 to USD 1 rate. In the agricultural sector, productionof strategic crops (cotton, wheat) is controlled through asystem of procurement prices and subsidies for many inputs,including seeds, fuel, and fertilizers. Farmers may retain aportion of production, but the balance must be sold to theGovernment at official procurement prices. Since 1989, theGovernment has increased farm gate prices to encourageproduction and to enable state marketing boards to purchaselarger quantities of locally produced commodities. In 1994,the local price of wheat was 25 percent above the world pricecomputed at the free market rate. With the surge of private industrial investment, especiallyin textile and clothing manufacturing, private sector capitalgoods imports exceeded the public sector's in 1993. However,public sector demand remains significant. Contracts areawarded through the official tender system. These are open tointernational competition with no restrictions, other thanlanguage pertaining to the Arab League boycott of Israel andthe requirement to post a bid bond. Syrian public sectorentities will accept positive statements of origin to deal withthe boycott issue. Syria's tariff system is highly escalated, reaching200 percent for passenger cars. Income taxes are highlyprogressive. Marginal rates in upper brackets are 64percent. 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 onnon-civilian debt, as well as accumulated obligations underbilateral clearing arrangements. Guaranteed civilian debt isofficially estimated at approximately USD 3.4 billion. Thediplomatic community estimates Syria's total external publicdebt at about USD 18 billion dollars. Very little Syriancommercial debt is held by U.S. companies, but sovereign debtis about USD 250 million. In 1992, the government established various committees tonegotiate settlements of supplier credit claims against publicsector importing agencies. However, progress has been slow.Debt to the former Soviet Union and Iran (both clearing accountarrangements) is estimated to be more than USD 12 billion. Thegovernment has had some recent success in settling withbilateral creditors, while refusing to deal with the Paris Clubas a group. Syria suspended payments to the Russian Republicin 1992, but is negotiating a settlement. The governmentremains badly in arrears on payments to official export creditagencies and bilateral donors, including the U.S. Agency forInternational Development. Syria has been in violation of theBrooke Amendment since 1985. Syria resumed payments to theWorld Bank in 1992, and, except for a brief interval in 1993,has been making payments to the World Bank sufficient toprevent increases in its arrears.5. Significant Barriers to U.S. Exports Any product legally imported into Syria requires an importlicense, which is issued by the Ministry of Economy and ForeignTrade according to a policy aimed at conserving foreignexchange and promoting local production. Strict standards onlabeling and product specifications are non-discriminatory andfairly enforced. Customs procedures are cumbersome and tediousbecause of complex regulations. In addition, duty rates areextremely high. Tariff exchange rates depend on the type ofgood. Government procurement procedures pose special problems.Although foreign exchange constraints have eased, many publicsector companies continue to favor barter arrangements whichcan be unattractive to US suppliers. In addition, problemsremain in the prompt return of performance bonds. Current bid bond forms stipulate that the guarantee becomesnull and void if the tender is not awarded upon its expirydate, without need for any other procedure. Some governmenttenders include a clause allowing the bidder to cancel his bidat six-month intervals, provided a written notice is receivedwithin a stipulated time frame. If such a clause is notincluded in the tender, it can often be negotiated. Tendersfor wheat and flour stipulate that bids are invalidated afterone month, if no contract is signed. Syria participates in the Arab League boycott of Israel.Many Syrian government tenders contain language unacceptableunder U.S. anti-boycott laws. Public sector agenciesreportedly accept positive certification from U.S. companies inresponse to tender application questions. Once interestedparties obtain tender documents, they would be well advised toobtain competent advice regarding the anti-boycott regulationsbefore 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. Strategic goods, militaryequipment, wheat, sugar, and items not produced locally or insufficient quantities are procured by public sector importingagencies from the international market, provided foreignexchange is allocated by the Supreme Economic Council. The government requires its approval for all foreigninvestments and theoretically encourages joint-ventures withitself. Concessions and services must be explicitlynegotiated. The number and position of foreign employees in acompany are usually negotiated when the contract or agreementis signed. Land ownership laws are complex. In principle,only Syrians may own land. The right to repatriation ofcapital is legally recognized. The new investment lawprovides for tax holidays and exemptions on duties, as well asguarantees for the remission of profits. However, the lawrequires that repatriated foreign exchange be generated fromexport company operations. Despite the new legislation, poorinfrastructure, lack of financial services, and complex foreignexchange regulations, including Law No. 24, which makes it acriminal act to conduct unauthorized foreign exchangetransactions, continue to pose serious barriers. Government monopolies in banking, insurance,telecommunications, and other public sector service industriespreclude foreign investment. Motion pictures are distributedby a government agency and subject to censorship. Petroleum exploration and oil service companies operatingin Syria are required to convert their local currencyexpenditures at the over-valued official exchange rate with theexception noted in Paragraph 6. (See below.) Despite costrecovery schemes, this requirement has inflated companyoperating costs, exposing them to greater risk and contributedto the departure of two more foreign petroleum explorationcompanies in 1994.6. Export Subsidy Policies Export financing and subsidies are not available to eitherthe public or the private sectors. In fact, some exports aresubject to special taxes. Recent government decisions allowingprivate firms to transact exports and imports at the"Neighboring Country" rate, instead of the unfavorable officialrate, have encouraged private trade through official channels.Similar concessions to public sector companies to completeexport transactions have enhanced the foreign exchange positionof these companies.7. Protection of U.S. Intellectual Property Syria's legal system recognizes and facilitates thetransfer of property rights, including intellectual propertyrights. There is, however, no copyright protection. Syria isa member of the Paris Union for the International Protection ofIndustrial Property. Prior registration of intellectualproperty is required to bring infringement suits. Due to the unsophisticated industrial structure andexisting limits on private industry, there are few majorinfringement problems. Local courts would likely giveplaintiffs fair hearings, but any financial awards would be inSyrian pounds. Requests for payment in foreign exchange wouldprobably be delayed indefinitely. Most books printed in Syria are in Arabic and by Arabauthors. The publishing industry is not well developed.Despite the lack of legal protection, major commercialinfringements 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 theassociated litigation would be, if not impossible, extremelycostly compared to any positive benefits which might result. The U.S. motion picture industry estimates the home videomarket in Syria is 100 percent pirated. The industry is alsoconcerned with unauthorized hotel video performances, which aresaid to be common. However, only a few hotels have internalvideo 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. Althoughthe General Federation of Trade Unions (GFTU) is purportedly anindependent popular organization, in practice the governmentuses it as a framework for controlling nearly all aspects ofunion activity. According to GFTU officials, the secretariesgeneral of the eight professional unions, some of whom are notBa'th Party members, are also each elected by their respectiveunion's membership. The Syrian government contends that there is in practicetrade union pluralism. However, workers are not free to formlabor unions independent of the government-prescribedstructure. Legislation is still pending which would grant theright of any trade union to be governed by its own by-lawswithout requiring that union rules correspond to those of theGFTU. Strikes are not prohibited (except in the agriculturalsector), but in practice they are effectively discouraged.There were no reported strikes in 1994, as was also the case in1993 and 1992. There is at least one person who has been indetention for 13 years for involvement in a strike in 1980. Hewas tried only at the end of 1992. Some members of the SyrianEngineers' Association who were arrested because of the strikeaction in 1980, along with Doctors' Association membersarrested at the same time reportedly remain in detention. 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 electedpresident of the GFTU is a senior member of the ruling Ba'thParty and a member of the party's highest body, its regionalcommand. With his deputy, he participates in all meetings ofthe cabinet's ministerial committees on economic affairs.While the unions are used primarily to transmit instructionsand information to the labor force from the Syrian leadership,elected union leaders also act as a conduit through whichworkers' dissatisfaction is transmitted to the leadership. TheGFTU is affiliated with the International Confederation of ArabTrade Unions. In June 1992, the U.S. Trade Representative suspendedSyria's duty-free privileges under the U.S. Generalized Systemof Preferences (GSP) due to its worker rights practices. TheSyrian government has not made sufficient legislative andpractical changes to prompt a reconsideration of the suspension. b. The Right to Organize and Bargain Collectively In the public sector, unions do not normally bargaincollectively on wage issues, but union representativesparticipate with the representatives of the employers and therespective ministry to establish sectoral minimum wagesaccording to legally prescribed cost-of-living levels. Workersserve on the board of directors of public enterprises, andunion representation is always included on the boards. Unionsalso monitor and enforce compliance with the labor law. In the private sector, unions are active in monitoringcompliance with the laws and ensuring workers' health andsafety. Under the law, unions may engage in negotiations forcollective contracts with employers. The International LaborOrganization's Committee of Experts (COE) noted Syria'scontinuing resistance to revising a section of the labor codewhich allows the Minister of Labor and Social Affairs to refuseto approve a collective bargaining agreement and to annul anyclause likely to harm the economic interests of the country.Unions have the right to litigate contracts with employers andthe right to litigate in defense of their own interests orthose of their members (individually or collectively) in casesinvolving labor relations. Union organizations may also claima right to arbitration. In practice, due to the relativelysmall size of Syrian private sector enterprises, labor disputesare generally settled informally. Social pressure to be seenas fair and generous are powerful factors in determiningowners' treatment of workers. Workers are protected by law from anti-uniondiscrimination, and there were no reports that it waspracticed. (See also Section 6.E). There is no union representation in Syria's seven freetrade zones, and firms in the zones are exempt from Syrian lawsand regulations governing the hiring and firing of workers,although some provisions concerning occupational health andsafety, hours of work 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 inconnection with prison sentences for criminal offences, underthe Economic Penal Code, the Penal Code, the Agricultural LaborCode and the Press Act. There were no reports of forced orcompulsory labor involving children or foreign or domesticworkers. d. Minimum Age for Employment of Children The minimum age in the predominant public sector isfourteen, though it is higher in certain industries. Theminimum age varies more widely in the private sector. Theabsolute minimum age is 12, with parental permission requiredfor children under age 16 to work. Children are forbidden towork at night. The Ministry of Social Affairs and Labor isresponsible for enforcing minimum age requirements, but thenumber of labor investigators is not adequate. e. Acceptable Conditions of Work As mandated in the constitution, the governmentlegislatively establishes minimum and maximum wage limits inthe public sector and sets limits on maximum allowable overtimefor public sector employees. The minimum wage does not enablea worker and his family to survive, and, as a result, manyworkers take additional jobs, open businesses, or rely onextended families for support. There is no single minimum wagein the private sector for permanent employees. According tothe 1959 Labor Law, minimum wage levels in the private sectorare set by sector and are fixed by the Minister of SocialAffairs and Labor. Recommendations are put to him by acommittee, including representatives of both the Ministries ofIndustry and Economy, as well as representatives of theemployers' association and the employees' unions. Followingsubstantial cuts in government subsidies of foodstuffs inApril, the government raised public sector minimum wages to $50per month. Shortly thereafter, the Minister of Labor decreedan average private sector minimum wage of $44 per month. Inpractice, private sector monthly minimums are not less thanthat in the public sector. In both the public and privatesector, the Ministry of Social Affairs and Labor is responsiblefor enforcing minimum wage levels. The Syrian labor law extensively regulates conditions ofwork. There are regulations that severely limit the ability ofan employer to fire an employee without due cause, an issuethat the employer may take to a labor committee. Laborcommittees are composed of representatives of the municipality,the Ministry of Social Affairs and Labor, and the union, aswell as a judge and the employer. In the majority of cases,such labor committees have decided in favor of the employee.Workers, once hired, can not easily be fired. In practice,workers also have exercised their right to contest even planneddismissals in the labor committees. One exception in theheavily regulated labor field relates to day laborers. Theyare not subject to minimum wage regulations and receivecompensation only for job-related injuries. Small privatefirms and businesses commonly employ day laborers in order toavoid the costs of permanent employees who are well protectedeven against firing. The statutory workweek consists of six 6-hour days,although in certain fields in which workers are notcontinuously busy, a 9-hour day is permitted. Labor laws alsomandate a full 24-hour rest day per week. Public laws mandatesafety standards in all sectors, and managers are expected toimplement them fully. A draft legislative decree is pendingwith the president of the council of ministers to providecompensatory rest for those who have to work on the weekly restday, thus bringing the law into conformity with theinternational labor code. The ILO has also noted that aprovision of the labor code allowing workers to be kept at theworkplace for up to 11 hours per day could lead to abuse. Inpractice, the public sector is in conformity with the schedulenoted above. There were no reports of private sector employeeshaving to work as many as 11 hours per day. A specialdepartment of the Social Security Establishment works at theprovincial level with inspectors at the Ministries of Healthand Labor to ensure compliance with safety standards. Inpractice, workers have occasionally taken employers tojudicially-empowered labor committees to win improvements inworking conditions that affect their health.</text>
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<text>U.S. DEPARTMENT OF STATESWITZERLAND: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS SWITZERLAND Key Economic Indicators (Millions of U.S. dollars) 1992 1993 1994Income, Production and Employment:Real GDP (1980 prices) 148,689 140,044 72,988(1)Real GDP Growth (pct.) -0.3 -0.9 1.8(1)GDP (at current prices) 241,354 232,179 123,464(1)Real Per Capita GDP 21,729 20,448 N/ALabor Force (000s) 3,572.8 3,552.1 3,503.1(2) of Which are Foreigners 948.5 935.3 944.8(2)Unemployment Rate (pct.) 2.5 4.5 4.6(2)Money and Prices:Money Supply (M2/pct. gwth.) 0.5 -7.9 -2.8(3)Base Interest Rate (pct.) 6.0 4.0 3.5(2)Personal Saving Rate (pct.) 12.7 12.0 11.7(4)Retail Inflation (pct.) 4.0 .3 1.2(3)Wholesale Inflation (pct.) 0.1 0.2 -0.7(3)Consumer Price Index 133.9 138.3 140.0(3)Exchange Rate (USD/Sfr) 0.712 0.677 0.699(3)Balance of Payments and Trade:Total Exports 61,377 58,653 30,996(1) Exports to U.S. 4,989 5,020 2,693(1)Total Imports 61,798 56,695 30,083(1) Imports from U.S. 3,660 3,247 1,739(1)External Public Debt 91,715 102,159 N/ADebt Service Payments ($Bil.) 7.0 7.4 7.8(4)Gold and Foreign Exch. Reserves 26,691 27,648 30,022(3)Trade Balance -421 1,957 913(1) Trade Balance with U.S. 1,329 1,773 954(1)N/A--Not available.(1) First half of 1994.(2) End of June 1994.(3) Average of first six months of 1994.(4) Estimated.1. General Economic Framework As a country that has only its famous mountains as naturalresources, Switzerland derives its wealth from internationaltrade in goods and services. Swiss exporters of goods mainlyoperate in hi-tech niche markets, where they often have a clearcompetitive advantage over foreign rivals. In services, Swissbanking and other financial services are reputed for theirefficiency, performance and customer privacy. But when Swissvoters decided in December 1992 to reject the European EconomicArea (EEA) treaty, Switzerland found itself in the awkwardposition of being located in the heart of Europe, without beingpart of the EEA, nor being a member of the EU. With over 60percent of its exports going to Europe, the Swiss government ismaking every effort to limit the negative effect on thedomestic economy that may result from the EEA rejection. Inthis respect, the conclusion of the Uruguay Round wasconsidered by experts as a way to avoid possible discriminationagainst Swiss products in EU markets. Parliament will discussthe ratification of the GATT agreement in December 1994, and ifno referendum delays the process of ratification, Switzerlandshould join the WTO by May 1995. In general, Switzerland does not use any fiscal policytools to stimulate the economy. The exception to the rule wasa $400 million investment bonus, launched by the Federalgovernment in 1993, which stimulated construction activity in1994. As a result of economic recession and excessivegovernment spending toward the end of the 1980's, Switzerlandhad combined budget deficits on all three government levels ofover $10 billion, or 4.2 percent of GDP, at the end of 1993.Financed by government bonds, the large budget deficits alsocaused public debt to increase. Federal and cantonalgovernments initiated measures to curb expenditures in order toreduce budget deficits from 1994 on. The main objective of Swiss monetary policy is pricestability. Under the responsibility of the Swiss National Bank(SNB), monetary policy is carried out through open marketoperations. Besides being independent from the government, theSNB keeps its independence from other central banks. However,the small size of the country, and the free movement ofcapital, make Switzerland highly vulnerable to events in Europeand other world financial centers. Lately, the large budgetdeficits and public debt raised concerns over possible negativeinfluences on interest rates.2. Exchange Rate Policies In the mid and long-term, the SNB does not follow anyexchange rate policy, and the Swiss franc is not pegged to anyforeign currency. However, in cases where the Swiss currencywould be likely to appreciate considerably over a short period,the SNB takes measures to prevent further appreciation.3. Structural Policies Because of Switzerland's high level of dependence oninternational trade, few structural policies have a significanteffect on U.S. exports. One exception is the field ofservices, where Swiss telecommunication policy has asignificant impact on demand for U.S. exports. The PTT (apublic corporation within the government) still has a monopolyover voice transmission, and telecommunication equipment has tobe approved by an (independent) Federal office. Agriculture is heavily regulated and supported by theFederal government. Farmers' revenues are pegged to those ofblue collar workers in industry through guaranteed prices ordirect payments. Prices of agricultural imports are raised todomestic levels by variable import duties and by requiringimporters to buy domestic products at high prices as acondition of importing. In parallel to the Uruguay Round, theSwiss government started to reform agricultural policy byswitching from price subsidies to direct payments. As a resultof the Uruguay Round, Switzerland will have to convert allnon-tariff barriers into tariffs and reduce them by an averageof 30 percent within six years. These changes are likely tohave a favorable effect on U.S. agricultural exports. In November 1993, the Swiss electorate voted in favor of achange from a 6.2 percent turnover tax on goods to a 6.5percent value added tax (VAT) on goods and services. Theintroduction of the new tax system at the beginning of 1995 isexpected to add 1.5 percentage points to the consumer priceindex. If the SNB can ward off the beginning of a wage-pricespiral, the one-time impact of the VAT on prices should have noinfluence on the growth of the economy.4. Debt Management Policies As a net international creditor, debt management policiesare not relevant to Switzerland. The country participates inthe Paris Club for Debt Rescheduling and is an active member ofthe OECD. Switzerland joined the International Monetary Fundand the World Bank in 1992 and holds a seat on the ExecutiveBoard.5. Significant Barriers to U.S. Exports Import Licenses: In general, import licenses are requiredfor all imports of goods. They are granted freely and serveprimarily statistical purposes. However, import licenses foragricultural products are subject to quotas and tied to theobligation for importers to take a certain percentage of thedomestic production. The implementation of the Uruguay Roundwill remove some of these restrictions that also affect U.S.agricultural exports (asparagus, wine). Services Barriers: With the exception oftelecommunications, the Swiss services sectors feature nosignificant barriers to U.S. exports. A new banking law,entering into force on January 1995, allows foreign banks toopen up subsidiaries, branches, or representative offices inSwitzerland without approval by the Federal BankingCommission. This liberalization is based upon reciprocity, andthe Government of Switzerland, vis-a-vis countries where itdoes not have extensive contacts already, will require writtenassurance that reciprocal access is provided. In addition, anew Federal law on stock exchanges, which should enter intoforce in mid-1995, will replace the existing system of cantonalregulations. The new law is characterized by a high degree ofself regulation and contains the principle of nationaltreatment. Insurance is subject to an ordinance which requires theplacement of all risks physically situated in Switzerland withcompanies located in the country. Therefore, it is necessaryfor foreign insurers wishing to do business in Switzerland toestablish a subsidiary or a branch here. Governmentregulations do not call for any special restrictions on foreigninsurers established in Switzerland. Attorneys and lawyers, like members of other professionswhich require certification (physicians, pharmacists,therapists, engineers, and architects) must pass a federal, orin some cases a cantonal, examination and obtain appropriatecertification before they may set up a business of their own. The most serious barriers to U.S. exports exist in thedomain of telecommunications. The Swiss PTT controls thepublic network and all services related to voice transmission.Satellite communication requires licensing by the PTT, andtelecommunication equipment has to be approved by the FederalOffice of Telecommunication (separate from the PTT). The SwissPTT has the possibility to take stakes in private companiesoperating in the domain of Value Added Network Services (VANS),which have been liberalized, whereas the private sector has noaccess to markets controlled by the PTT. Standards, Testing, Labeling, and Certification: Asmentioned before, telecommunications equipment has to becertified by the Federal Office of Telecommunication.Household electrical appliances must be tested and approved bythe Swiss electrotechnical association, a semi-official body.Cars, motorcycles and trucks have to comply with Swisstechnical standards. Finally, drugs (prescription andover-the-counter) must be approved and registered by theintercantonal Drug Agency. Other standards and technicalregulations in force in Switzerland are based on internationalnorms. Labels are required to be in German, French and Italian. Investment Barriers: In most cases, foreign investment inSwitzerland is granted national treatment. Some restrictionson foreign investment apply to the following areas: Ownershipof real estate by foreigners; limits on the number of foreignworkers; and restrictions concerning the number of foreigndirectors on the boards of corporations registered inSwitzerland. For reasons of national security, foreignparticipation in the hydro-electric and nuclear power sectors,operation of oil pipelines, transportation of explosivematerials, television and radio broadcasting, operation ofSwiss airlines, and maritime navigation, are restricted by law. According to Article 711 of the Code of Obligations, theBoard of Directors of a joint stock company (with the exceptionof holding companies) must consist of a majority of memberspermanently residing in Switzerland and having Swissnationality. Swiss corporate shares are issued as registeredshares (in the name of the holder) or bearer shares. In thepast, Swiss corporations often imposed restrictions on thetransfer of registered shares to limit foreign ownership. Butnew legislation introduced in July 1992 and the increasedreliance of public companies on the international capitalmarkets forced Swiss companies to open their shares to foreigninvestors. At present, to prevent or hinder a takeover by anoutsider, public corporations must get governmental approval,citing significant reasons relevant to their survival or theconduct and purpose of their business. Public corporations maylimit the number of registered shares that can be held by anyone shareholder to a certain percentage of the issuedregistered stocks. Most corporations limit the number ofshares to between two and five percent of the relevant stock. Strict regulations govern the admission of foreignersseeking to enter the Swiss labor market. Nevertheless, theforeign labor force represents more than a quarter of the totalworkforce. Sectors like construction and tourism rely on apool of unskilled, low-paid seasonal workers. High-tech andresearch-intensive sectors depend on highly skilled andspecialized foreign workers. In the chemistry industry, forinstance, the proportion of foreigners working in researchdepartments exceeds 40 percent. In September 1994, parliament agreed to liberalize to someextent the law governing the purchase of property by foreignnationals or foreign-owned companies. Under the modified law,foreigners would no longer need an authorization from cantonalgovernments to acquire real estate. However, to avoidspeculation, ownership of property by foreigners will belimited to the purpose of 'own use', which means that onlyforeigners working and living in Switzerland, or companieslocated in Switzerland, are allowed to buy property. Thesystem of quotas for the acquisition of secondary residences byforeign nationals was maintained under the new law. Government Procurement Practices: On the federal level,Switzerland fully complies with GATT rules concerning publicprocurement. On the cantonal and local level, however,procurement practices are still subject to certain restrictions. Customs Procedures: Customs procedures in Switzerland arestraightforward and not burdensome. All countries are affordedGATT most-favored-nation treatment.6. Export Subsidies Switzerland's only subsidized exports are in the domain ofagriculture, where exports of dairy products (primarily cheese)and processed food products (chocolate products, grain-basedbakery products, etc.) benefit from state subsidies. Raretemporary surpluses of domestic products, like beef orconcentrated apple juice, are also subsidized. Theimplementation of the Uruguay Round will require a gradualreduction of export subsidies in Switzerland.7. Protection of U.S. Intellectual Property. Switzerland has one of the best regimes in the world forthe protection of intellectual property, and protection isafforded equally to foreign and domestic rightsholders.Switzerland is a member of all major international intellectualproperty rights conventions and was an active supporter of astrong IPR text in the GATT Uruguay Round negotiations. Patent protection is very broad, and Swiss law providesrights to inventors that are comparable to those available inthe United States. Switzerland is a member of both theEuropean Patent Convention and the Patent Cooperation Treaty,making it possible for inventors to file a single patentapplication in the United States (or other PCT country, or anymember of the European Patent Convention, once it enters intoforce) and receive protection in Switzerland. If filed inSwitzerland, a patent application must be made in one of thecountry's three official languages (German, French, Italian)and must be accompanied by detailed specifications and ifnecessary by technical drawings. The duration of a patent is20 years. Renewal fees are payable annually on an ascendingscale. Patents are not renewable beyond the original 20-yearterm. According to the Swiss Patent Law of 1954, as amended, thefollowing items cannot be covered by patent protection:surgical, therapy and diagnostic processes for application onhumans and animals; inventions liable to disturb law and orderand offend "good morals." Nor are patents granted for speciesof plants and animals and biological processes for theirbreeding. In virtually all other areas, coverage is identicalto that in the United States. Trademarks are also well-protected. Switzerland recognizeswell-known trademarks and has established simple procedures toregister and renew all marks. The initial period of protectionis 20 years. Service marks also enjoy full protection.Trademark infringement is very rare in Switzerland -- streetvendors are relatively scarce here, and even they tend to shyaway from illegitimate or gray-market products. A new copyright law in 1993 improved a regime that wasalready strong. The new law explicitly recognizes computersoftware as literary works and establishes a remunerationscheme for private copying of audio and video works whichdistributes proceeds on the basis of national treatment.Owners of television programming are fully protected andremunerated for rebroadcast and satellite retransmission oftheir works, and rights-holders have exclusive rental rights.Collecting societies are well established. Infringement isconsidered a criminal offense. The term of protection is lifeplus 70 years. The Swiss also protect layout designs of semiconductorintegrated circuits, trade secrets, and industrial designs.Protection for integrated circuits and trade secrets is verysimilar to that available in the U.S., and protection fordesigns is somewhat broader.8. Workers Rights a. The Right of Association All workers, including foreign workers, have freedom toassociate freely, to join unions of their choice, and to selecttheir own representatives. The change from an industrial to aservice-based economy, the high standard of living shared by aprosperous workforce, and the Swiss system of direct democracy,which accords citizens a voice on important political, social,and economic issues, are some of the reasons for the limitedinterest in union membership. Unions are free to publicizetheir views and determine their own policies to representmember interests without government interference. The SwissTrade Unions Federation belongs to the InternationalConfederation of Free Trade Unions and the World Confederationof Labor, as well as to the European Trade Union Confederation. The right to strike is legally recognized, but a uniqueinformal agreement between unions and employers--in existencesince the 1930's--has meant fewer than 10 strikes per yearsince 1975. There were no significant strikes in 1994. b. The Right to Organize and Bargain Collectively Swiss law gives workers the right to organize and bargaincollectively and protects them from acts of anti-uniondiscrimination. The government encourages voluntarynegotiations between employer and worker organizations. Thereare no export processing zones. c. Prohibition of Forced or Compulsory Labor There is no forced or compulsory labor, although there isno specific statute or constitutional ban on it. d. Minimum Wage for Employment of Children The minimum age for employment of children is 15 years.Children over 13 may be employed in light duties for not morethan 9 hours a week during the school year and 15 hoursotherwise. Employment between ages 15 and 20 is strictlyregulated. For example, youths may not work at night, onSundays, or under hazardous or dangerous conditions. e. Acceptable Conditions of Work There is no national minimum wage. Employer associationsand unions negotiate industrial wages during the collectivebargaining process. Such wage agreement are also widelyobserved by non-union establishments. The labor actestablished a maximum 45-hour workweek for blue- andwhite-collar workers in industry, services, and retail trades,and a 50-hour workweek for all other workers. Overtime islimited by law to 120 hours annually. The labor act and the Federal Code of Obligations containextensive regulations to protect worker health and safety. Theregulations are rigorously enforced by the Federal Office ofIndustry, Trades, and Labor, providing a high standard ofworker health and safety. The government is in the process ofcompletely revising the labor law dating from 1948. It plansto abolish the ban on night and Sunday work for women inindustry. Instead, it proposes to introduce provisions whichwill ensure adequate working conditions for all workers, maleand female, who are employed on night shifts. These provisionswill include specific measures designed to protect their safetyand health, assist them to meet family and socialresponsibilities, and provide appropriate compensation. Therewere no allegations of workers' rights abuses from domestic orforeign sources. f. Rights in Sectors with U.S. Investments Except for special situations (e.g. employment in dangerousactivities regulated for occupational, health and safety orenvironmental reasons), legislation concerning workers rightsdoes not distinguish among workers by sector, by nationality,by employer, or in any other manner which would result indifferent treatment of workers employed by U.S. firms fromthose employed by Swiss or other foreign firms. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 629Total Manufacturing 1,923 Food & Kindred Products (1) Chemicals and Allied Products 234 Metals, Primary & Fabricated 132 Machinery, except Electrical 303 Electric & Electronic Equipment (1) Transportation Equipment 10 Other Manufacturing 594Wholesale Trade 9,482Banking 1,791Finance/Insurance/Real Estate 17,823Services 1,156Other Industries 98TOTAL ALL INDUSTRIES 32,901(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATESWEDEN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS SWEDEN Key Economic Indicators (Billions of Swedish kronor (SEK) unless otherwise noted) 1992 1993 1994 est.Income, Production and Employment:Real GDP (1985 prices) 943.7 971.9 1,001.5GDP Growth (pct.) -1.7 -1.7 -2.8GDP (at current prices ) 1,438.2 1,436.5 1,431.7GDP by Sector: (value added 1985 prices) Agriculture/Fishing 4.8 13.9 14.9 Forestry 14.1 14.7 14.7 Energy/Water 25.4 25.2 25.2 Mining/Manufacturing 194.3 188.5 190.4 Construction 57.0 52.6 48.4 Bank/Insurance Services 41.8 41.7 39.8 Other Services 327.5 325.3 313.8 Net Exports of Goods & Services -3.5 -0.5 31.1Real Per Capita GDP (SEK) 110,700 108,200 104,700Labor Force (000s) 4,516 4,429 4,305Unemployment Rate (pct.) 2.9 5.3 8.0Money and Prices: (annual percentage growth)Money Supply (M3) 1/ 661.8 682.8 673.65Base Interest Rate (3-month STIBOR) 13.69 11.87 7.95Personal Saving Rate (pct.) 3.4 8.1 9.9Producer Prices 4.5 1.0 2.2Consumer Prices 9.4 2.3 4.6Exchange Rate (SEK/USD1.00) 6.05 5.81 7.75Balance of Payments and Trade:Total Exports (FOB) 332.1 339.9 335.2 Exports to U.S. 2/ 30.9 29.2 30.3Total Imports (CIF) 316.2 323.6 307.1 Imports from U.S. 2/ 25.9 28.0 30.2Aid from U.S. 0 0 0Aid from Other Countries 0 0 0External Public Debt 1/ 59.0 243.5 359.2Debt Service Payments 3/ 22.1 17.5 55.4Gold & Forex Reserves 1/ 99.7 163.6 177.2Balance on Current Account -20.3 -29.0 0.01/ Year-end and 09/30/94.2/ Annualized 1994 figure based on first half-year data.3/ Interest and amortizations on central government externalfunded debt. For 1994, first half year.1. General Policy Framework Sweden is an advanced, industrialized country with a highstandard of living, extensive social services, a moderndistribution system, excellent internal and externalcommunications, and a skilled and educated work force. TheSwedish economy has evolved from a centuries-old resource baseof ore, timber, and hydropower into an economy basedincreasingly on high-technology goods and post-industrialservices. A third of GDP is exported, and Sweden supportsliberal trading practices strongly. Sweden formally appliedfor membership in the European Union (EU) in 1991, completedaccession negotiations early in 1994, and became a member onJanuary 1, 1995. Instruments used to achieve economic policy goals are thetraditional monetary and fiscal ones, including an active labormarket retraining policy. The Swedish Central Bank exercisesconsiderable autonomy in the realm of monetary policy, chieflyby adjusting the overnight lending rate it charges commercialbanks in order to influence levels of liquidity in theeconomy. On the fiscal policy side, a determination to lowertax rates, combined with the maintenance of expensivegovernment social programs, has led to a swelling of thegovernment budget deficit. Some of this is financed by foreignloans, but the bulk is covered by government bonds, treasurynotes, a national savings scheme, and so forth. During 1994 Sweden was slowly but clearly pulling out ofher worst and most protracted recession since the 1930s. (GDPdeclined by some six percent in the three-year period1991-93.) Unemployment in 1994 averaged 13 to 14 percent,generally trending downward during the year. (Swedish practiceis to quote two unemployment figures, open and disguised."Disguised" unemployment, those in training and work programs,accounts for six percent of the total unemployment.) Interestrates rose to very high levels in the wake of general unrest inEuropean financial markets, hastening bankruptcies andhampering investment, and even after falling back have remainedat levels well above those of Germany. This development helpedease the ongoing financial crisis somewhat. After defendingthe krona's fixed exchange rate through several waves ofspeculation in late 1992, Sweden floated the krona onNovember 19, 1992. Though the export sector is strong, the domestic economyremains weak. Structural changes in recent years have preparedthe way for future economic growth. This process was begun bythe former Social Democratic government, which: deregulated thecredit market; began deregulating agriculture; removed foreignexchange controls; introduced a broad tax reform; won consensuson nuclear power policy; abolished foreign investment barriers;applied for EU membership; and pegged the krona to the EuropeanCurrency Unit. The moderate-led coalition government that cameto power in 1991, while moving rapidly down the path ofEuropean integration staked out by the Social Democrats, alsoachieved some tax reduction, began the privatization ofgovernment-owned corporations, stepped up investment ininfrastructure, and increased investment in education andresearch. Budgetary constraints are governing the speed with andextent to which some of the government's programs can beimplemented. Until the economy picks up sufficient momentum,the watchwords of both the former moderate-led coalition andthe new Social Democrat government are fiscal restraint andcontinued public sector austerity.2. Exchange Rate Policies Between 1977 and 1991, the Swedish krona was pegged to atrade-weighted basket of foreign currencies in which the U.S.dollar was accorded double weight. During that period therewere, nonetheless, two devaluations of the krona of 10 and 16percent. As a step on the road to eventual membership in theEU, Sweden unhooked from the dollar-heavy basket and pegged thekrona unilaterally to the European Currency Unit (ECU) inmid-1991. After defending the krona during turbulence on Europeanforeign exchange markets in late 1992, which for a brief periodsent overnight interest rates rocketing into three digits, thegovernment was eventually forced to float the krona. Thecurrency has since depreciated by around 30 percent of itsvalue against the U.S. dollar, the Deutsche mark, and the poundsterling, and by more than 50 percent against the yen. The stated monetary policy of the Central Bank is to seethat the depreciation of the krona does not result in anincrease in the underlying inflation rate (i.e., when theeffects of changes in indirect taxes and the depreciation areexcluded). Inflation is to be held close to 2 percentbeginning after the direct effects of the float and variousindirect tax increases have worked through the system. Sweden applied a battery of foreign exchange controls untilthe international deregulation process, particularly thatoccurring in the EU, forced it to follow suit in the latterhalf of the 1980s. The only remaining restriction of thislegacy comprises routine Central Bank screening for statisticalpurposes of both incoming and outgoing direct investment.3. Structural Policies The Swedish tax burden is the heaviest in the OECD,equivalent to around 50 percent of GDP. Current centralgovernment expenditure during the severe recession ran atalmost 75 percent of GDP, versus an average for OECD Europe ofunder 50 percent. A broad tax reform in 1990-91 reduced themarginal income tax rate on individuals to a maximum of around50 percent. On the corporate side, effective taxes arecomparatively low and depreciation allowances on plant andequipment are generous, though social security contributionsfor the work force add a further one-third or so to employers'gross wage bills. Swedish value-added tax is two-tiered, witha general rate of 25 percent and a lower rate of 21 percent forfood, domestic transport, and many tourist-related services. Trade in industrial products between Sweden, the EU andEFTA partners is not subject to customs duty, nor is asignificant proportion of Sweden's imports from developingcountries. Import duties are among the lowest in the world,averaging less than five percent ad valorem on finished goodsand around three percent on semi-manufactures. (Swedishtariffs, on average, will increase slightly due to EUmembership.) Most raw materials are imported duty free. There is very little regulation of exports apart fromcontrol of arms exports and a law governing the export andre-export of certain high technology products. Sweden implemented a new food and agricultural policy inmid-1991 aimed at deregulating its complicated postwar systemof agricultural price regulation. EU membership, though, willrequire Sweden to adhere to the EU's Common Agricultural Policyand apply its regulations, in effect re-regulating theagriculture production sector.4. Debt Management Policies Sweden's traditional external debt policy, dating back tothe mid-1980s, was to incur no net foreign borrowing by centralgovernment for the purpose of financing budget deficits. Whenthe policy was introduced, central government external debtamounted to roughly one-quarter of the national debt. However,a heavy drain on foreign exchange reserves in conjunction withthe turbulence in European financial markets in the fall of1992 ended the policy. The Central Bank and National DebtOffice have since borrowed heavily in foreign currencies,increasing the central government's external debt fivefoldvirtually overnight to the equivalent of approaching one-thirdof the national debt. The new guidelines for centralgovernment borrowing in foreign currencies state that thelion's share of the national debt should continue to be inSwedish kronor; that the borrowing should be predictable in theshort term yet flexible in the medium term; that the governmentshall direct the extent of the borrowing; and that it shallreport each year on developments to the parliament. Managementof the increased debt level so far poses no problems to thecountry, but interest payments on the burgeoning national debtas a whole are growing rapidly.5. Significant Barriers to U.S. Exports and Investment To help ensure free Swedish access to foreign markets,Sweden has opened its own markets to imports and foreigninvestments, and campaigns vigorously for free trade in GATTand elsewhere. Import licenses are not required in Sweden,except for items such as munitions, hazardous substances,certain agricultural commodities, fiberboard, ferro-alloys,some semi-manufactures of iron and steel, etc. Sweden enjoyslicensing benefits under Section 5(k) of the U.S. ExportAdministration Act. Sweden makes wide use of EU andinternational standards, labeling, and customs documents, inorder to facilitate exports. Having adjusted its laws and regulations to EU practices inpreparation for EU membership, Sweden is now open to virtuallyall foreign investment and allows 100-percent foreign ownershipexcept in areas of air and maritime transportation and themanufacture of war material. In recent years Sweden has doneaway with laws governing foreign acquisitions of domestic firmsand has relinquished all controls over foreign purchases ofreal estate for business purposes. Any shares listed on theStockholm Stock Exchange may now be acquired by Swedes andforeigners alike. Corporate shares in Sweden can still havediffering voting strengths, however. Sweden does not offer special tax or other inducements toattract foreign capital. Foreign-owned companies enjoy thesame access as Swedish-owned enterprises to the country'scredit market and government-sponsored incentives to business. Government procurement is usually open to foreignsuppliers, and the Swedish government has no official policy ofimposing countertrade requirements. Sweden participates in allrelevant GATT codes on government procurement, standards, etc. Public procurement regulations have been harmonized with EUdirectives in light of Swedish obligations under the EEAAgreement. The new regulations, which apply to central andlocal government purchases in excess of ECU 400,000, now coverprocurement by entities in previously excluded sectors, i.e.,the water, transport, energy, and telecom sectors. Under theEEA Agreement, Sweden must publish all government procurementopportunities in the European Community Official Journal.6. Export Subsidies Policies The Swedish Government provides basic export promotionsupport through its financing, jointly with Swedish industry,of the Swedish Trade Council. The Swedish government andSwedish industry also jointly finance the Swedish Export CreditCorporation, which grants medium- and long-term credits tofinance exports of capital goods and large-scale serviceprojects. Working with the Swedish Agency for Technical andEconomic Cooperation, the Export Credit Corporation alsoprovides LDCs with concessionary trade financing. At year-end 1993, Swedish farmers were still receivinggovernment support for exports of surplus grain and meatproduction, although these subsidies are being phased out. Thegovernment recently instituted new export subsidies for someprocessed foods, among them hard cheeses. As a member of theEU, Sweden's agricultural support policies will have to beadjusted to comply with the EU's Common Agricultural Policy,including intervention buying, production quotas, and increasedexport subsidies. In Sweden there are no tax or duty exemptions on importedinputs; no resource discounts to producers; and no preferentialexchange rate schemes. Sweden is a signatory to the GATTSubsidies Code.7. Protection of U.S. Intellectual Property Sweden strongly protects intellectual property rightshaving to do with patents, trademarks, copyrights, and newtechnologies. The laws are adequate and clear, enforcement isgood, and the courts are efficient and honest. Sweden supportsefforts to strengthen international protection of intellectualproperty rights, often sharing U.S. positions on thesequestions. Sweden is a member of the World IntellectualProperty Organization and is a party to the Berne Copyright andUniversal Copyright Conventions and to the Paris Convention forthe Protection of Industrial Property, as well as to the PatentCooperation Treaty. As a signatory to the EEA Agreement,Sweden has undertaken to adhere to a series of othermultilateral conventions dealing with intellectual propertyrights. Swedish intellectual property practices have noadverse impact on U.S. trade.8. Worker Rights a. Right of Association Swedish workers have the right to associate freely and tostrike. Unions conduct their activities with completeindependence from the government and political parties,although the Confederation of Labor Unions (LO), the largestfederation, has always been allied with the Social DemocraticParty. Swedish trade unions are free to affiliateinternationally and are active in a broad range ofinternational trade union organizations. b. Right to Organize and Bargain Collectively Workers are free to organize and bargain collectively.Collective bargaining is carried out in the form of nationalframework agreements between central organizations of workersand employers, followed by industry and plant-level agreementson details. In 1993, after a two-year wage stabilizationagreement expired, a new national agreement with small wageincreases was signed for the manufacturing industry. Asstructured, the settlement represents a step toward thedecentralization of the wage formation process favored bybusiness. Swedish law fully protects workers from anti-uniondiscrimination and provides sophisticated and effectivemechanisms for resolving disputes and complaints. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is prohibited by law and doesnot exist. d. Minimum Age of Employment of Children Compulsory nine-year education ends at age 16, and fullemployment is normally permitted at that age under supervisionof local municipal or community authorities. In effect,however, very few 16-or 17-year-old children are employed,except in summer vacation jobs. Those under age 18 may workonly during daytime and under a foreman's supervision.Violations are few, and enforcement--by police and publicprosecutors, with the assistance of the unions-- is consideredgood. e. Acceptable Conditions of Work There is no national minimum wage law. Wages are set bycollective bargaining contracts, which typically have beenobserved even at nonunion establishments. There is substantialassistance available from social welfare entitlements tosupplement those with low wages. The standard legal work week is 40 hours or less. Theamount of permissible overtime is also regulated, as are restperiods. Since 1991, Sweden's vacation law guarantees allemployees a minimum of 5 weeks of paid annual leave, and manylabor contracts provide more. Occupational health and safety rules, set by thegovernmental National Board of Occupational Health and Safetyin consultation with employer and union representatives, areclosely observed. In companies with 50 or more employees,trained safety stewards monitor observance of regulationsgoverning working conditions. Safety stewards have theauthority to stop life-threatening activity immediately and tocall for a labor inspector. f. Rights in Sectors with U.S. Investment The five worker-right conditions addressed above obtain inall firms, Swedish or foreign, throughout all sectors of theSwedish economy. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 1Total Manufacturing 1,166 Food & Kindred Products 17 Chemicals and Allied Products 66 Metals, Primary & Fabricated 5 Machinery, except Electrical (1) Electric & Electronic Equipment -10 Transportation Equipment (1) Other Manufacturing 95Wholesale Trade 370Banking (1)Finance/Insurance/Real Estate 167Services 70Other Industries (1)TOTAL ALL INDUSTRIES 1,802(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATESPAIN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS SPAIN Key Economic Indicators (Billions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1986 prices) 2/ 393.2 312.0 303.0Real GDP Growth (pct.) 0.8 -1.0 1.7GDP (at current prices) 2/ 576.3 478.4 479.1By Sector: Agriculture 20.3 16.5 17.2 Industry 133.8 108.3 108.3 Construction 49.5 39.2 38.3 Services 334.9 286.7 285.7Net Exports of Goods and Services 101.4 94.6 105.3Real Per Capita GDP (USD:1986) 10,082 7,980 7,728Labor Force (000s) 15,193 15,406 15,550Unemployment Rate (pct.) 20.1 23.9 24.5Money and Prices: (annual percentage growth)Money Supply (M2) 1.5 -15.8 -3.8Base Interest Rate 3/ 13.5 12.6 10.2Personal Saving Rate 19.3 19.4 20.0Retail Inflation 5.9 4.6 4.5Wholesale Inflation 1.4 2.4 4.0Consumer Price Index 100.4 105.0 109.3Exchange Rate (Pta/USD) 102.1 127.4 133.0Balance of Payments and Trade:Total Exports (FOB) 4/ 64.7 59.5 70.0 Exports to U.S. 3.1 2.9 3.0Total Imports (CIF) 4/ 99.9 78.6 85.0 Imports from U.S. 7.4 5.6 5.7External Public Debt 79.8 N/A N/ADebt Service Payments (paid) 21.8 N/A N/AGold and Foreign Exch. Reserves 50.5 45.3 45.0Trade Balance 4/ -35.2 -19.1 -15.0 Trade Balance with U.S. -4.3 -2.7 -2.71/ 1994 Figures are all estimates based on available monthlydata in October 1994.2/ GDP at factor cost.3/ Actual, average annual interest rates, not changes in rates.4/ Merchandise trade.1. General Policy Framework Following the economic boom of 1986-90, the Spanish economyslowed down and, along with the economies of most other westernEuropean countries, fell into recession during the second halfof 1992. Unemployment reached over 24 percent, and is notexpected to decline significantly during 1994. Devaluation ofthe peseta since 1992 and the beginning of economic recovery inSpain's major European markets are contributing to anexport-led economic recovery; real GDP is expected to grow byaround 1.7 percent in 1994. Spain's accession to the European Union (then called theEuropean Communities) in 1986 established the framework for itssubsequent economic performance. EU membership has requiredSpain to open its economy, modernize its industrial base,improve infrastructure, and revise economic legislation toconform to EU guidelines. Furthermore, the 1992 MaastrichtTreaty, calling for eventual Economic and Monetary Union (EMU)among the EU member states, established specific criteria foreconomic performance which now serve as official objectives forthe Spanish government. In particular, those criteria call forreduced government deficits, lower inflation and foreignexchange stability. Foreign investors, principally from otherEU countries, have invested over 60 billion dollars in Spainsince 1986. Inflation continues to be a problem. Despite the recessionand massive unemployment, Spanish inflation declined only to4.5 percent by the end of 1993, and is generally expected tostay close to that level in 1994, some two percentage pointsabove the EU average. In years past, high wage settlementscontributed significantly to inflation. Wage settlements in1994, following modest reforms to the labor market at thebeginning of the year, have been more moderate. Inflationarypressure from the fiscal deficit continues, however, as thepublic sector deficit reached 7.3 perent of GDP in 1993, andwill stay close to seven percent in 1994. Spanish economistsalso note that structural rigidities -- basically a lack ofcompetition in certain service sectors -- also contribute toinflationary pressures.2. Exchange Rate Policy Spain joined the European Monetary System (EMS) inmid-1989. The peseta played a role in the turmoil disruptingthe EMS beginning in September 1992 and resulting in expansionof EMS "bands" to 15 percent around the European Currency Unit(ECU) in August 1993. Since September 1992, the peseta hasdeclined by 18 percent against the ECU and 25 percent againstthe Deutsche mark; the peseta has remained among the weakestcurrencies within the EMS, although it has not tested theboundaries of the 15-percent band. The Government of Spain removed the few remaining capitalcontrols on February 1, 1992. The controls were temporarilyreimposed in the wake of the September 1992 EMS crisis, butwere rescinded shortly thereafter.3. Structural Policies Joining the EU in January 1986 required Spain to open itseconomy. By December 1992, Spanish tariffs were phased out forimports from other EU countries, and lowered to the EU's commonexternal tariff level for imports from non-EU countries. Manynontariff barriers also had to be reduced or eliminated. Whileareas of dispute remain (see section 5) the trend is stronglytoward a more open economy. The EU program to establish asingle market has accelerated Spain's integration into the EU. Spain's membership in the EU also required liberalizationof its foreign investment regulations and the foreign exchangeregime. In July 1989, a securities market reform went intoeffect. The reform has provided for more open and transparentstock markets, as well as for licensing of investment bankingservices. The reform also liberalized conditions for obtaininga stock brokerage license. A new foreign investment law passedin June 1992 removed many of the administrative requirementsfor foreign investments. Investments from EU residentcompanies are free from almost all restrictions, while non-EUresident investors must obtain authorization from theauthorities to invest in broadcasting, gaming, air transport,or defense. Faced with the loss of the Spanish feed grain market as aresult of Spain's membership in the EU, the United Statesnegotiated an Enlargement Agreement with the EU in 1987 whichestablishes a 2.3 million ton annual quota for Spanish importsof corn, specified nongrain feed ingredients and sorghum fromnon-EU countries during a four year period. The agreement wasextended through 1994. The Uruguay Round agreement had theeffect of extending this agreement indefinitely. The UnitedStates remains interested in maintaining access to the Spanishfeed grain market and will continue to press the EU on thisissue. U.S. exports of corn and sorghum, of about $200 millionannually, are an important part of U.S. trade with Spain. Spain was obliged under its EU accession agreement toestablish a formal system of import licenses and quotas toreplace the structure of formal and informal importrestrictions for industrial products existing prior to EUmembership. The United States objected that the new importregime for non-EU products was illegal under GATT. In responseto U.S. concerns, in October 1988, Spain initiated anautomatic, computerized licensing system for Spanish imports ofthe affected U.S. products. Since the system became effective,no U.S. exporters have reported market access impediments totheir products covered under the automatic approval system. EU ratification of the Uruguay Round trade agreement willdeepen trade liberalization and apply it to new sectors. TheGovernment of Spain also ratified the Uruguay Round package andjoined the World Trade Organization (WTO) as a founding member.4. Debt Management Policies Spain's external debt totalled $79.8 billion in December1992 (latest data available). Foreign investors bought heavilyinto Spanish government long-term debt during 1993, profittingas interest rates declined from 12.2 percent in January 1993 toeight percent in February 1994. Foreign investors held about$38 billion of this debt in March 1994, but have since reducedtheir position in this market as interest rates have trendedupwards. The Spanish government has signed standby loanarrangements in foreign currency with consortia of privatebanks, and reached agreement with investment banks to floatbonds in foreign markets, as alternatives to domestic financing. International reserves totalled $4.8 billion in July 1994,equivalent to six months of imports. Moody's rates debt of theKingdom of Spain as AA2.5. Significant Barriers to U.S. Exports Import Restrictions: Under the EU's Common AgriculturalPolicy (CAP), Spanish farm incomes are protected by directpayments and guaranteed farm prices that are higher than worldprices. One of the mechanisms for maintaining this internalsupport are high external tariffs and variable levies (as muchas 200 percent for some commodities) that effectively keeplower priced imports from entering the domestic market tocompete with domestic production. However, the Uruguay Roundagreement established that these variable levies will bereplaced by fixed import duties beginning on July 1, 1995. Inaddition all import duties on agricultural products will bereduced during the five year period from 1995 to 2000. In addition to these mechanisms, the EU employs a varietyof strict animal and plant health standards which act asbarriers to trade. These regulations end up severelyrestricting or prohibiting Spanish imports of certain plant andlivestock products. One of the most glaring examples of thesepolicies is the EU ban on imports of hormone treated beef,imposed with the stated objective of protecting consumerhealth. Despite a growing and widespread use of illegalhormones in Spanish beef production, the EU continues to banU.S. beef originating from feedlots where growth promotantshave been used safely and under strict regulation. One important aspect of Spain's EU membership is howEU-wide phytosanitary regulations, and regulations that governfood ingredients, labeling and packaging, impact on the Spanishmarket for imports of U.S. agricultural products. The majorityof 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 aresubject to the same regulations as in other EU countries. While many restrictions that had been in operation in Spainbefore the transition have now been lifted, for certainproducts the new regulations impose additional importrequirements. For example, Spain now requires any foodstuffthat has been treated with ionizing radiation to carry anadvisory label. In addition, a lot marking is now required forany packaged food items. Spain, in adhering to EU-widestandards, continues to impose strict requirements on productlabeling, composition, and ingredients. Like the rest of theEU, Spain prohibits imports which do not meet a variety ofunusually strict product standards. Food producers mustconform to these standards, and importers of these productsmust register with government health authorities prior toimportation. In 1994, a shipment of squid from the U.S. haddifficulty entering Spain as authorities were concerned that itexceeded maximum levels of copper, which is considered a heavymetal under Spanish food and drug law. Neither the U.S. northe EU impose a standard regarding copper. Telecommunications: Spain's telecommunications policy isin flux, as the Government of Spain simultaneously seeks toassure the continued strength of Telefonica, the statecontrolled public telephone operator, and to liberalize themarket in order to attract foreign investment and comply withEU guidelines. Although regulations liberalizing value-addedservices were issued in 1991, U.S. companies trying toestablish these services, particularly international virtualprivate networks (IVPNs), closed user groups, and real-time faxand voice data service, have encountered obstacles. Recently, progress has been made. In October 1994, theGovernment of Spain began taking bids on its second digitalcellular license. (Under the terms of its 30-year contractwith the government, Telefonica will be awarded the firstdigital cellular license on a non-competitive basis.) TheGovernment of Spain has stated that it hopes to award thepermit by the end of 1994, which would allow the winningcompany to begin operating in mid-1995. Telefonica has alreadybeen offering analog cellular services for over two years, andtherefore begins the battle for the digital market with asubstantial advantage. In its role as public telephone operator, Telefonica hasembarked on an ambitious project to upgrade Spain'scommunications infrastructure. It plans to lay 2,500kilometers of fiber optic line in the next one to two years.The Spanish firm is also a major buyer of U.S. switching andtransmission equipment, and has indicated interest in formingalliances with U.S. companies. Banking Services: Spain's transposition of the EU secondbanking directive in March 1993 placed U.S. banks with branchesin Spain at a potential competitive disadvantage with respectto branches of EU banks in Spain. Spanish regulatoryauthorities temporarily waived the most onerous restrictions,however, and negotiations are underway for a permanent solution. Government Procurement: During the May 1992 GATTGovernment Procurement Code Committee meeting, signatoriesagreed to extend code benefits to Spain by July 22, 1992. Thisrequired Spain to fully implement the corresponding EUdirectives. As a result, American suppliers having contractswith Spanish government entities covered by the GATT Code areprotected with respect to discrimination, transparency, andappeal procedures. Offset requirements are common in defense contracts andsome large nondefense-related and public sector purchases (e.g.commercial aircraft and satellites). Recent large commercialcontracts have contained offset provisions in the 30 to 60percent range. Television Broadcasting Stations: The governmenttransposed the EU broadcast directive in July 1994. It imposesa requirement that 51 percent of broadcast time be reserved forEuropean products. The EU is considering revisions in thisdirective. Should the revisions result in further increases inthe European content reservations, this would, of course,further restrict the Spanish market for U.S. products. Spanishlegislation imposes restrictions on foreign ownership of thethree private TV concessions allowed. These restrictions areaimed at developing the local Spanish program industry andencouraging Spanish language productions. The government plansto introduce legislation to regulate cable T.V. Two operatingconcessions would be granted in each specified geographicalarea. One concession would be reserved for Telefonica, thestate controlled public telephone operator, while one would beassigned to a private firm through competitive bidding. Motion Picture Dubbing Licenses and Screen Quotas: Spainrequires issuance of a license for dubbing non-EU films intoSpanish for distribution in Spain. Dubbed movies arecommercially more successful than subtitled original languagefilms in the Spanish market. To obtain a license, distributorsmust contract to distribute an EU film. Changes in the CinemaLaw, implemented in December 1993, increased the number ofviewers which the EU film must attract for it to confer adubbing license, and imposed requirements for dubbing intominority languages. The law also requires cinemas to show oneday of EU films for every two days of non-EU films. Effortsare underway to seek administrative revisions in the law tolimit its prejudicial effects on non-EU producers anddistributors. Product Standards and Certification Requirements: Whileproduct certification requirements (homologation) have beenliberalized considerably since Spain's entry into the EU,problems remain for U.S. exporters in three areas. First,cumbersome certification requirements remain for sometelecommunications products, terminal equipment, certaincomputer peripherals, and some building materials. Second,there is a lack of transparency and consistency in theapplication of certification requirements. There are nopublished norms for the documentary evidence needed toestablish that an item has met certification requirements ofanother EU government and that a product is in "freecirculation" in an EU market. Third, the local interpretationand application of some EU directives and regulations havecaused disruption in trade with the U.S. For example, U.S.exporters of gas connectors have had difficulty in obtainingpermission for the entry of their products into Spain. Another example of such stringent procedural requirementshas to do with the import of live bivalve mollusks. Since Julyof 1993 a new purification process for the mollusks is requiredalong with an acceptable certification from recognized U.S.authorities. All this can delay the shipment of clams to theSpanish market, increase production cost and adversely affectproduct quality. The Spanish government generally holds that it does not useproduct certification procedures to hinder trade. It has beencooperative in resolving specific trade issues brought to itsattention. The United States has encouraged Spain to simplifyits certification procedures and make them more transparent.In this regard, mutual recognition of product standards andtesting laboratory results is being pursued at the EU level.6. Exports Subsidies Policies Spain aggressively uses "tied aid" credits to promoteexports, especially in Latin America, the Maghreb, and morerecently, China. Such credits reportedly are consistent withthe OECD arrangement on offically supported export credits. As a member of the EU, Spain benefits from EU exportsubsidies which are applied to many agricultural products whenexported to destinations outside the Union. Total EU subsidiesof Spanish agricultural exports amounted to $551 million in1993. Spanish exports of grains, olive oil, other oils,tobacco, wine, sugar, dairy products, beef, sheep and goatmeat, and fruits and vegetables benefitted most from thesesubsidies in 1993.7. Protection of U.S. Intellectual Property Spain adopted new patent, copyright, and trademark laws, asagreed at the time of its EU accession. It enacted a newpatent law in March 1986, a new copyright law in November 1987,and a new trademark law in November 1988. All approximate orexceed EU levels of intellectual property protection. Spain isa party to the Paris, Bern, and Universal copyright conventionsand the Madrid Accord on Trademarks. Spanish governmentofficials have said that their laws reflect genuine concern forthe protection of intellectual property. The patent law greatly increased the protection accordedpatent holders. In October of 1992, Spain's pharmaceuticalprocess patent protection regime expired, and productprotection took effect. Industry sources have advised that theimpact of the new product protection law will not be felt untilearly in the next century when new pharmaceutical productpatents applied for after October 1992 enter the market afterthe 10 to 12 years research and development period normallyassociated with the introduction of a new product into themarket. U.S. makers of chemical and pharmaceutical productshave complained that this provides effective patent protectiononly for approximately eight years. The U.S. pharmaceuticalindustry would like to see some lengthening of the patent term. The copyright law is designed to redress historically weakprotection accorded movies, video cassettes, sound recordingsand software. It includes computer software as intellectualproperty, unlike the prior law. In 1991, judicial sanctionsfor violations increased significantly again. The law providesa clear legal framework for copyright protection. The newcopyright law has been useful in alleviating abuses of authors'rights. For example, the home video industry trade associationreported improved ability to secure court orders after thecopyright law was enacted. Nevertheless, U.S. software producers complain of lossesfrom business software piracy and are taking legal action underthe new intellectual property law to correct this. The Spanishgovernment has responded to concerns over software piracy bysending instructions to prosecutors calling for rigorousenforcement of the law and urging private industry to pursuepirates aggressively through the courts. In December 1993,legislation was enacted which transposed the EU softwaredirective. It includes provisions that allow for unannouncedsearches in civil lawsuits. Some searches have taken placeunder these provisions. Continuing Spanish government enforcement efforts havereduced video and audio cassette piracy although it remains asignificant problem. Operators of small neighborhood cablenetworks, called "Community Video," broadcast video programswithout broadcast rights, but the Spanish government hasprohibited them from running cables across public ways and isattempting to phase them out. This process would be speeded upif, as the government has proposed, a new cable television lawis enacted which grants exclusive franchises over large areas.The copyright law has clearly established that no motionpicture can be publicly exhibited without the authorization ofthe copyright holder and that "Community Video" is to beconsidered as public exhibition. The trademark law is intended to facilitate improvedenforcement. It incorporates by reference the enforcementprocedures of the patent law, defines trademark infringementsas unfair competition, and creates civil and criminal penaltiesfor violations. Aggressive Spanish enforcement efforts haveresulted in numerous civil and criminal actions; however, theinfringement of trademark rights in Spain is still a problem,particularly in the textile and leather goods sector.8. Worker Rights a. The Right of Association All workers except military personnel, judges, magistratesand prosecutors are entitled to form or join unions of theirown choosing without previous authorization. Self-employed,unemployed and retired persons may join but may not form unionsof their own. There are no limitations on the right ofassociation for workers in special economic zones. Under theconstitution, trade unions are free to choose their ownrepresentatives, determine their own policies, represent theirmembers' interests, and strike. They are not restricted orharassed by the government and maintain ties with recognizedinternational organizations. About 11 percent of the Spanishwork force belongs to a trade union. While no official dataare available on the percentage of union affiliation in Spain'sfree trade zones, a trade union official has stated that unionmembership in these zones is higher than the average for thewhole economy. b. The Right to Organize and Bargain Collectively The right to organize and bargain collectively wasestablished by the Workers Statute of 1980. Trade union andcollective bargaining rights were extended to all workers inthe public sector, except the military services, in 1986.Public sector collective bargaining in 1989 was broadened toinclude salaries and employment levels. Collective bargainingis widespread in both the private and public sectors. Sixtypercent of the working population is covered by collectivebargaining agreements although only a minority are actuallyunion members. Labor regulations in free trade zones andexport processing zones are the same as in the rest of thecountry. There are no restrictions on the right to organize oron collective bargaining in such areas. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is outlawed and is notpracticed. Legislation is effectively enforced. d. Minimum Age for Employment of Children The legal minimum age for employment as established by theWorkers Statute is 16. The Ministry of Labor and SocialSecurity is primarily responsible for enforcement. The minimumage is effectively enforced in major industries and in theservice sector. It is more difficult to control on small farmsand in family owned businesses. Legislation prohibiting childlabor is effectively enforced in the special economic zones.The Workers Statute also prohibits the employment of personsunder 18 years of age at night, for overtime work, or for workin sectors considered hazardous by the Ministry of Labor andSocial 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 workersenjoy 12 paid holidays a year and a month's paid vacation. Theemployee receives his annual salary in 14 payments--onepaycheck each month and an "extra" check in June and inDecember. Based on a 1994 average exchange rate of 133 pesetasto the dollar and full days and years of work, the legalminimum wage for workers over 18 is $15.18 per day or $455.41per month. For those 16 to 18 it is $10.03 per day or $300.90per month. The minimum wage is revised every year inaccordance with the consumer price index. Governmentmechanisms exist for enforcing working conditions andoccupational health and safety conditions, but bureaucraticprocedures are cumbersome. Safety and health legislation isbeing revised to conform to EU directives. f. Rights in Sectors with U.S. Investment U.S. capital is invested primarily in the followingsectors: petroleum, automotive, food and related products,chemicals and related products, primary and fabricated metals,non-electrical machinery, electric and electronics equipment,and other manufacturing. Workers in those sectors enjoy allthe rights guaranteed under the Spanish constitution and law,and conditions in these sectors do not differ from those inother sectors of the economy. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 140Total Manufacturing 3,481 Food & Kindred Products 622 Chemicals and Allied Products 549 Metals, Primary & Fabricated 122 Machinery, except Electrical 415 Electric & Electronic Equipment 237 Transportation Equipment 946 Other Manufacturing 590Wholesale Trade 984Banking 1,090Finance/Insurance/Real Estate 160Services 405Other Industries 176TOTAL ALL INDUSTRIES 6,437Source: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATESOUTH AFRICA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS SOUTH AFRICA Key Economic Indicators (Billions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1990 prices) 2/ 83.7 74.1 67.6Real GDP Growth (pct.) -2.1 1.1 1.9Real GDP (at current prices) 2,3/ 111.0 111.8 115.2By Sector: Agriculture 4.5 4.8 4.9 Mining 9.3 9.2 9.2 Energy/Water 4.5 4.3 4.2 Manufacturing 26.1 24.5 23.8 Construction 3.6 3.4 3.3 Wholesale/Retail Trade 17.2 16.9 16.5 Financial Services 17.2 17.2 17.3 Other Services 2.3 2.3 2.5 General Government 16.6 16.1 15.8Net Exports of Goods & Services 1.3 1.7 .08Real Per Capita GDP (1985 rand) 2,412 2,084 N/ALabor Force (millions) 4/ 12.0 12.3 12.6Unemployment Rate (pct.) 4/ 40.0 46.0 46.0Money and Prices: (annual percentage growth)Money Supply (M2) 10.8 3.9 17.4Prime Overdraft Rate (pct./year-end) 20.5 16.9 17.25Personal Savings To Disposable Income (pct.) 3.8 4.7 4.4Producer Price Index (year-end pct. change) 8.3 6.6 7.9Consumer Price Index (year-end pct. change) 13.9 9.7 8.2Exchange Rate ($:rand/year avg.) Commercial Rand .35 .31 .28 Financial Rand .21 .23 .22Balance of Payments and Trade:Total Exports (FOB) 23.5 24.0 6.2 Exports to U.S. 1.7 1.6 0.9Total Imports (FOB) 18.2 18.0 5.0 Imports from U.S. 2.4 2.4 1.0Aid from U.S. (millions/FY) 80.0 80.0 166.0Aid from Other Countries N/A N/A N/AExternal Public Debt 17.3 16.7 N/ADebt Service Payments (paid) 1.6 .8 N/AGold and FOREX Reserves (gross) 11.2 11.1 9.7Balance of Payments on the Current Account 1.4 1.8 .7Trade Balance with U.S. -0.7 -0.1 -0.7N/A--Not available.1/ 1994 figures are all estimates based on monthly data as ofJune 1994.2/ GDP at factor cost.3/ Department of Commerce statistics.4/ Statistics depending on population data are unreliable;official black population and unemployment rates areunderstated. While the Central Statistical Services no longerattempts to quantify black unemployment, most economistsbelieve the rate is in excess of 40 percent. Unemploymentamong other racial groups is lower.1. General Policy Framework South Africa is a middle-income developing country with amodern industrial sector, well-developed infrastructure, andabundant natural resources. Most economists agree that SouthAfrica has the potential to grow at an annual rate above fivepercent; yet annual economic growth over the past decadeaveraged less than one percent in real terms; no new net jobswere created in the manufacturing, mining, or agriculturalsectors; and per capita incomes declined sharply. The rate ofreal GDP growth turned negative in early 1989, and contractedby one-half percent in both 1990 and 1991. The decline in theeconomy became more severe in 1992, as the nation battled thelongest recession in over eighty years. Besides being affectedby the recent worldwide recession and the worst drought of thecentury, the South African economy's poor performance duringthis period could be explained by several structural factors: --Apartheid policies led to inefficient use of humanresources, underinvestment in human capital, labor rigidities,and large budgetary outlays for duplicative layers ofgovernment and facilities; --Consumer inflation persisted at double digit levels(since the early 1970s) until 1993 when it dropped into thesingle digits; --Labor productivity was low and declining, outstripped byhigh average wage increases; --The government intervened extensively in the economy toprotect inefficient industries, provide employment to itsconstituents, and combat foreign economic sanctions; --Foreign and domestic investment was limited by politicaluncertainty, continuing violence, labor unrest, and the concernover the role of the private sector in a post-apartheid SouthAfrica. In 1993, GDP registered positive growth for the first timein four years with 1.1 percent growth. Two principal factors,including a substantial increase (six percent) in the volume ofmerchandise and net gold exports and a significant recovery inagricultural production made a major contribution to thisrevival in economic activity. Although the agriculture sectoraccounted for most of the growth during the early part of 1993,the increase in economic activity spread to other sectors inthe second half resulting in growth in the mining,manufacturing, electricity, gas and water, and commerce andfinance areas. In 1994, the economy got off to a sluggishstart due to uncertainty surrounding the election andtransitional period and a large number of public holidays.Economists estimate that the South African economy willregister 2 - 2.5 percent growth over the full year of 1994. The new South African government has already taken steps toaddress some of the structural problems within the economy.While there is a long way to go in eliminating apartheid'slegacy and meeting the black community's aspirations, someprogress has been made in reducing economic distortions causedby the past's racial policies. Legal restrictions whichprevented black South Africans from owning businesses,obtaining skilled jobs, or living in major urban centers havebeen lifted. Black trade unions have been recognized.Spending on socio-economic development for blacks, includingeducation and health care, has increased in recent years,although it still remains far below spending on whiteservices. Much remains to be done, and the effects of pastpolicies, particularly the legacy of the "bantu" educationsystem, will be felt for many years. Over the last decade, quantitative credit controls andadministrative control of deposit and lending rates largelydisappeared. The South African Reserve Bank now operatessimilarly to Western central banks. It influences interestrates and controls liquidity through its rates on fundsprovided to private sector banks, and to a much smaller degreethrough the placement of government paper. In the past threeyears, restrictive monetary policy -- primarily the maintenanceof a relatively high central bank lending rate -- has sought tocurb domestic spending on imports and to reduce inflation.Nevertheless, high growth in the money supply along with largeincreases in food prices have resulted in higher producer andconsumer inflation which are now approaching double digits. Traditionally, South Africa has adopted conservative fiscalpolicy. In the late 1980's, however, revenues lagged behindspending, leaving large deficits to be financed throughborrowing and putting pressure on private capital markets.After 1990, the government of F.W. de Klerk adopted morerestrictive fiscal policies, and the new Government of NationalUnity (GONU) has continued a fiscally conservative approach.Although the 1993/94 budget ended in a deficit of R31.4 billion(approximately 8.6 percent of GDP as spending outpacedrevenues), estimates for the deficit before borrowing in fiscal1994/95 are somewhat lower reaching R29.3 billion, roughly 6.8percent of GDP. (These figures are based on a GDP growth rateof 3 percent). The GONU says it will resist pressure to usefiscal policy to address socio-economic needs in education,health care and housing for the majority of South Africans. The South African government controls substantial portionsof the economy, including much of the petroleum,transportation, armaments, electric power, communications,aluminum, and chemical sectors. Privatization of some stateassets has gained favor more recently, particularly as a way toreduce the government's high level of indebtedness and to payfor the new government's Reconstruction and Development Program(RDP).2. Exchange Rate Policy Faced with large scale capital outflows in 1985, theReserve Bank reimposed comprehensive exchange controls,including a dual exchange rate. The Bank maintains oneexchange rate (the financial rand) for foreign investment flowsand outflows, and another (the commercial rand) for all othertransactions. This effectively cushions the economy from theeffects of international capital flows. Under South African exchange regulations, the Reserve Bankhas substantial control of foreign currency. The Reserve Bankis the sole marketing agent for gold, which accounts for about30 percent of export earnings. This provides the Bank withwide latitude in influencing short term exchange rates. Exceptfor a period in 1987 when the bank followed an implicit policyof fixing the rand against the dollar, monetary authoritiesnormally allow the rand to adjust periodically with an aim tostabilize the external accounts. The ailing foreign reserve position of the country andsocio-political uncertainties caused the nominal effectiveexchange rate of the commercial rand to depreciate by 4.1percent in the first quarter of 1994 and by a further 8.3percent by the end of July 1994. (The real effective exchangerate of the rand declined by 7.5 percent from December 1993 toJuly 1994). In this period the rand depreciated against all ofthe currencies of South Africa's main trading partners.However, it also depreciated fairly sharply against the U.S.dollar and British pound over this period. Concern overpolitical developments, labor unrest and profit-taking led to asharp depreciation of the financial rand in the beginning of1994 to an all time low of R5.58 per dollar in April 1994.However, when it became apparent that the political transitionwould be achieved peacefully, the finrand appreciated again toR4.55 per dollar in May. The most recent data put the discountof the financial rand to the commercial rand at about 10percent. Pressure and speculation on abolishing the dual currencysystem has been intense. Nevertheless, Bank Governor ChrisStals and other leading economists dispute its eminentabolition.3. Structural Policies Prices are generally market determined with the exceptionof petroleum products. Purchases by government agencies are bycompetitive tender for project or supply contracts. Biddersmust pre-qualify, with some preferences allowed for localcontent. Parastatals and major private buyers, such as mininghouses, follow similar practices, usually inviting onlyapproved suppliers to bid. The primary source of government revenue in South Africa isincome tax. Although the government planned to lower bothindividual and company tax rates over five years, the presentrecession-induced revenue crisis ended the plan after its firstyear. The 1994/5 budget kept the maximum personal income taxrate at 48 percent on incomes above R80,000 for married andR56,000 for single taxpayers. However, it reduced thecorporate primary income tax rate to 35 percent from an earlierrate of 40 percent. Corporations' secondary tax rate ondividends was nevertheless increased by 10 percent. The1994/95 budget also imposed a "once-off" levy of 5 percent onall income (both corporate and individual) over R50,000 to payfor transition cost overruns. In September 1991, the government shifted from a 13 percentgeneral sales tax to a 10 percent value added tax levied onmany additional goods and services that had been exempt fromGST. In April of 1993, the VAT rate increased to 14 percent inan attempt to cover the shortfall in current governmentrevenues and to meet increasing demands for social spending.The government is also negotiating with labor and consumergroups over the taxation of basic foods. South Africa raisesadditional revenue through customs duties, excise taxes, importsurcharges, and through estate, transfer, and stamp duties.There are no export taxes, but import duties as high as 100percent in the case of certain luxury goods protect localindustry and provide substantial revenue.4. Debt Management Policies South Africa's external debt situation has continued toimprove in recent years. At the end of 1993, foreign debtamounted to $16.7 billion, with the private sector accountingfor about 10.7 billion of this total. The ratio of totalforeign debt to GDP in 1993 was 14.2 percent, and interestpayments to total export earnings was 7.1 percent. Debtrepayment obligations in 1994 are estimated to be R4 billion toR5 billion, although increasing access to international capitalmarkets should allow South Africa to refinance at least onehalf of that debt. In 1985, faced with large capital outflows, intensepressure against the rand, and a cutoff of its access toforeign capital, the South African Government declared aunilateral standstill on amortization payments. Interestpayments were continued, and amortization payments due tointernational organizations and foreign governments were notaffected, obviating the need for a Paris Club rescheduling.The debt "standstill" was regularized in an arrangement withprivate creditors in 1986. In 1990, South Africa and itsprivate creditors negotiated a third extension of thatarrangement through the end of 1993. In September of 1993, thegovernment, with the consensus of South Africa's majorpolitical parties, finalized a debt agreement with majorWestern banks on $5 billion worth of mostly private debt caughtinside the "standstill net." South Africa is a member of the World Bank andInternational Monetary Fund (IMF) and continues Article IVconsultations with the latter organization on a regular basis.With the establishment of a democratically elected government,South Africa is now eligible for Bank loans. Moreover, aftersome twenty-seven years of relative economic isolation, SouthAfrica became another IMF borrower country. In December 1993,the IMF approved the government's application for a$850 million drought reserve loan. Gaining access to thedrought facility enabled the government to replenish itsforeign exchange reserves and normalize relations with theinternational financial community.5. Significant Barriers to U.S. Exports Under the terms of the Import and Export Control Act of1963, South Africa's Minister of Trade and Industry may act inthe national interest to prohibit, ration, or otherwiseregulate imports. Current regulations require import permitsfor a wide variety of goods, including foodstuffs, clothing,fabrics, footwear, wood and paper products, refined petroleumproducts and chemicals. Surcharges on imported goods, whichrange as high as 40 percent on some items, are the mostsignificant barriers for U.S. exports. The Department of Tradeand Industry is attempting to simplify its system of tariffs,but some tariffs have been increased in the process, includinghikes of up to 180 percent on certain steel products. Localcontent requirements also apply in certain industries, mostnotably in motor vehicle manufacturing. The lifting of Title III sanctions in the ComprehensiveAntiapartheid Act eased restrictions on the import of certainU.S. products into South Africa and permitted U.S. nationals tomake new investments in South Africa. With the removal of thearms embargo against South Africa in May 1994, U.S. firms maynow export to the South African police and militaryorganizations, excluding Armscor/Denel and any of theirsubsidiaries. The State Department currently maintains adenial policy on these firms pending the satisfactoryresolution of a criminal case involving Armscor. At this time,American firms are prohibited from trading munitions list itemswith these companies. Responsibility for administering controls on dual usenuclear technology rests with the Directorate of SystemCo-ordination with the Department of Trade and Industry.Legislation on the regulation of such technology is howeverstill pending and has only recently been published for publiccomment (October 14, 1994).6. Export Subsidies Policies South African Government incentives to export are dividedinto four categories: compensation for a portion of importduties; a proportion (10 percent) of value added duringmanufacture; financial assistance for activities such as marketresearch and trade promotion; and income tax allowances. Otherdirect and indirect export subsidies are available to localmanufacturers, particularly for factories located in designateddevelopment areas. Subsidies include electricity and transportrebates, export finance and credit guarantees and marketingallowances, although these export policies are presently underreview. Several different programs provide incentives for localexporters. The General Export Incentive Scheme (GEIS)encourages the export of manufactured products with a highvalue-added content. The South African Government recentlyrevised GEIS on October 1, 1994. Under this most recentrevision, subsidies for fully manufactured products will belowered from 25 percent to 14 percent of export value onOctober 1; 12 percent on April 1, 1996 and 10 percent on April1, 1997. The subsidy for partially manufactured goods willdrop from 12.5 percent to 3 percent on October 1; 2 percent onOctober 1, 1996 and zero a year later. The subsidy for rawmaterials will drop from 7.5 percent of export value to 2.5percent on October 1 and below 2 percent on April 1, 1995. Thesubsidy for raw materials will drop from 7.5 percent of exportvalue to 2.5 percent on October 1 and below 2 percent on April1, 1995. Provisions of the Income Tax Act provide tax allowances forcapital goods and property used to add value to base metals andintermediate products for export. Income tax allowances arealso provided for expenses incurred in promoting or maintainingan export market. The Export Marketing Assistance Scheme, alimited program, provides assistance for export market researchand trade fairs and missions. The Structural AdjustmentProgram provides export incentives tailored to specificindustries, most notably motor vehicles and textiles andclothing. Under the Regional Industrial Development Program, anew or relocating business can apply for establishmentincentives or tax breaks under a uniform, five year program bylocating anywhere outside the Johannesburg-Pretoria and Durbanareas.7. Protection of U.S. Intellectual Property Rights South Africa's attendance at meetings of the WorldIntellectual Property Organization (WIPO) was barred in thepast by a resolution of that organization, but it remains amember. As with South Africa's participation in all UNspecialized agencies, its status is currently under review.The country is also party to the Paris and Berne Conventions.South Africa's intellectual property laws and practices aregenerally in conformity with those of the industrializednations, including the United States. There is nodiscrimination between domestic and international holders ofintellectual property rights. The basic objective of SouthAfrican government policy with respect to foreign intellectualproperty rights holders is to secure access to foreigntechnology and information. Copyright legislation in 1992provides further protection for computer software. Nevertheless, software piracy occurs frequently in SouthAfrica. The Business Software Alliance (BSA), a worldwide bodywith active anti-piracy programmes in over 50 countries,estimates that as much as 60 to 70 percent of South Africa'ssoftware is pirated. Its investigations reveal that for everylegal software program in use, between three and four areillegal. In October 1993, the BSA brought the first legalaction against software pirates under the terms of the newcopyright legislation. The U.S. motion picture industry alsoreports that piracy, including unauthorized public performance,video piracy, and "parallel imports" pose a problem for doingbusiness in South Africa. U.S. pharmaceutical firms operatingin South Africa express similar concerns regarding "parallelimports." In addition, trademark concerns are becoming increasinglyevident. Local companies and street vendors often "own" thetrademarks of internationally known concerns. New trademarklegislation was passed in January 1994 and is now awaitingimplementation regulations.8. Worker Rights a. The Right of Association Current South African labor law entitles all workers in theprivate sector to join labor unions of their choosing.However, the patchwork nature of that law effectively inhibitstrade union activity. The result is an uneven and sometimesvolatile labor relations climate, in which trade unions mustrely as much on their own organization and strength as on theirlegal rights to achieve their objectives. The recently-elected government of national unity isdrafting a new Labor Relations Act designed to consolidate andsimplify South African labor law. The new law will conform tothe right of freedom of association declared in the interimconstitution, and promote quick and effective industrialdispute resolution by clarifying the rights andresponsibilities of workers and employers. Historically, public sector employees have been legallyprohibited from striking. The 1993 passage of a Public SectorLabor Relations Act, while clarifying the collective bargainingprocess for public sector employees, still sharply restrictsstrike activity. Until a transparent and fair system ofdispute resolution is in place, the public sector will continueto be a labor relations flashpoint. b. Right to Organize and Bargain Collectively The South African government does not interfere with unionorganizing in the private sector and has generally notintervened in the collective bargaining process. South Africanlaw prohibits discrimination by private sector employersagainst union members and organizers. In spite of recent legislative changes, collectivebargaining still does not apply to farm workers and domesticworkers. Recent passage of the Public Sector Labor RelationsAct (PSLRA) clarifies dispute resolution in the public sector,but has been criticized by the Congress of South African TradeUnions (COSATU) as undermining collective bargaining byunnecessarily restricting public sector strike activity. Thatsaid, the Ministry of Labor's plans to consolidate the PSLRAinto a single labor relations act has been resisted byindependent public sector unions and associations. Private mediation services are available and have beenvoluntarily resorted to by management and black trade unions toresolve industrial disputes. The Labor Relations Actestablishes an industrial court to rule in labor-managementdisputes. The most common complaints filed with the courtconcern dismissals, followed by unfair labor practices. Alabor court of appeals oversees the industrial court and canoverturn its decisions. c. Prohibition of Forced or Compulsory Labor Forced labor is specifically prohibited by the interimconstitution. d. Minimum Age of Employment of Children South African law prohibits the employment of minors underage 15 in most industries, shops and offices. It prohibitsminors under 16 from working underground in mining. There isno minimum age at which a person may work in agriculture. e. Acceptable Conditions of Work There is no national minimum wage in South Africa. TheLabor Relations Act provides a mechanism for negotiationsbetween labor and management to set minimum wage standardsindustry by industry. At present over 100 industries coveringmost non-agricultural workers come under the provisions of theact. The Occupational Safety Act sets minimum standards forwork conditions and employment. f. Rights in Sectors with U.S. Investment The worker rights conditions described above do not differbetween the goods-producing sectors in which U.S. capital isinvested and other sectors of the South African economy. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 544 Food & Kindred Products (1) Chemicals and Allied Products 149 Metals, Primary & Fabricated 41 Machinery, except Electrical 124 Electric & Electronic Equipment (1) Transportation Equipment 22 Other Manufacturing 156Wholesale Trade 76Banking 0Finance/Insurance/Real Estate (1)Services 6Other Industries 32TOTAL ALL INDUSTRIES 925(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis</text>
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<text>U.S. DEPARTMENT OF STATESLOVENIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS SLOVENIA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1985 prices) N/A N/A N/AReal GDP Growth (pct.) -5.4 1.3 6.0GDP (at current prices): 12,365 12,672 13,800By Sector: Agriculture 590 563 570 Energy/Water 289 322 360 Manufacturing 4,095 3,870 3,900 Construction 458 521 510 Rents 1,445 1,421 1,600 Financial Services 409 443 450 Other Services 2,637 2,821 3,400 Government/Health/Education 2,368 2,734 3,000 Net Exports of Goods & Services 92 50 200Real Per Capita GDP (1985 base) N/A N/A N/ALabor Force (000s) 783 760 748Unemployment Rate (pct.) 8.3 9.1 9.0Money and Prices: (annual percentage growth)Money Supply (M2) 2.8 2.5 1.9Base Interest Rate 3/ 25 18 16Personal Saving Rate 48 30 24Retail Inflation 201.3 32.3 20.5Wholesale Inflation 215.7 21.6 18.5Concumer Price Index 201 32 21Exchange Rate (USD/Sit) Official 83 115 125 Parallel 87 117 115Balance of Payments and Trade:Total Exports (FOB) 6,681 6,083 6,500 Exports to U.S. 195 216 233Total Imports (CIF) 6,141 6,501 6,696 Imports from U.S. 167 188 197Aid from U.S. N/A N/A N/AAid from Other Countries N/A N/A N/AExternal Public Debt 1,741 1,873 2,000Debt Service Payments (paid) 388 374 390Gold and Foreign Exch. Reserves 1,163 1,566 2,800Trade Balance 791.1 -154.2 -40 Trade Balance with U.S. 28 28 35N/A--Not available.1/ 1994 figures are all estimates based on available monthlydata in October 1994.1. General Policy Framework In 1991, Slovenia set out on the path of complete politicaland economic transformation. In the first phase, after marketreforms and a stabilization policy were introduced, theimmediate consequences were predominantly lower employment andsomewhat lower standards of living. In the second phase, thepositive effects at the macroeconomic level have appeared stepby step. But Slovenia is still at the beginning with regard tosome crucial elements of its economic transformation, above allwith regard to efficient affirmation of property rights(privatization, sanctioning of contracts) and the developmentof a financial market. The main reason for the economic depression in 1991-1992was a dramatic decrease in aggregate demand (the collapsedtrade flows with other regions of former Yugoslavia, a decreaseof trade with eastern European markets). Likewise the revivalof activity in 1993 was also caused by the increase of demand.The contraction of markets in the former Yugoslavia stopped ata low level, but the growth of exports to other countries washigh. A very restrictive monetary policy was loosened up to amore neutral one. The credibility of the Slovene currency anddomestic institutions significantly increased. After five years of decline, the GDP increased by onepercent in 1993. In the first eight months of 1994, positivegrowth continued, but under conditions of the declining importof consumer goods and the increasing import of semifinishedmaterials, while the current balance of payment shows a largersurplus again. The actual annual growth rate as of August 1994was five percent. The public debt of the Republic of Slovenia, includingpotential obligations stemming from the state successionnegotiations was estimated at 33 percent of GDP at the end of1993. For loan servicing, 0.8 percent of GDP or 1.6 percent oftotal public receipts was spent in 1993. Comparable figuresfor 1994 are 1.1 and 2.3 percent, respectively. Slovenia'spublic debt is still relatively small. The Bank of Slovenia has successfully realized its primarygoals, lowering inflation and supplying the required quantityof stable money. Other goals were the decreasing of interestrates, facilitating liquidity conditions in commercial banks,and a fluctuation of the tolar's exchange rate on the foreignexchange market. The most often used instruments were theliquidity loans given on the basis of papers of value ascollateral. Both M1 and primary money increased in real termsin 1993, while the real growth of money in 1994 is slowingdown. In the structure of primary money, the share of giroaccounts and bank reserves is increasing at the expense ofcurrency in circulation. Financial assets of the population inbanks are increasing very quickly, both in tolar and foreignexchange deposits. Slovenia signed an accession agreement with the GATT onSeptember 27, 1994. Slovenia has also started negotiations tojoin the new World Trade Organization.2. Exchange Rate Policy When creating its currency (launched on October 8, 1991),Slovenia opted for a managed float of the tolar against theDeutsche mark, rather than a straight peg. A peg remains thelong term objective. In real effective terms, the tolar hasappreciated strongly against the mark throughout 1992, by 3.3percent in 1993, and by an additional 6.8 percent in the firsteight months of 1994. This is due to a surplus in the balanceof payment as well as to a high net inflow of foreign exchangein foreign exchange offices in the country. The mentioned dataare valid for the exchange rate for business transactions,which grew at a slightly slower pace than the rate of the Bankof Slovenia ("the official rate"). The latter reflects actualmovements of different money aggregates in the previous monthand is used for administrative purposes only (customs, etc.).3. Structural Policies Slovenia has made significant progress across a broadspectrum of structural reforms. Slovenia is undertaking arehabilitation and reform of the financial sector and aprivatization of "socially-owned capital" to make the economymore market-oriented. Structural reforms in these two areasare interrelated. New prudential regulations (e.g.,provisioning, capital adequacy, large borrower limits) andaccounting standards (e.g., nonaccrual of late interest) wereput in place along with the establishment of Bank of Sloveniasupervision activities. The necessary legal framework waserected with the passage of key implementing legislation forownership transformation; a bankruptcy law; a company law; abanking law; and a securities market and mutual fund law. With regard to bank rehabilitation, the three mostimportant banks were put under the rehabilitation program. Bythe end of September 1994, 625 programs for privatization weresubmitted to the Rehabilitation Agency. These programs coverapproximately 850 "socially owned" companies (out of around2,500). 304 programs were approved (first round ofapprovals). The programs submitted represent about 55 percentof GDP and an equal percentage of employees. In 1993, changes were introduced in the personal incometax, effective January 1, 1994. With regard to the corporateincome tax, tax holidays have been eliminated and thedepreciation schedule has been liberalized. The carry-forwardperiod for losses has been extended to five years from theprevious regulation that allowed carry-forward for only oneyear. A new corporate income tax law has been prepared and isexpected to become effective in the Fall of 1994 with the ratelowered from 40 percent to 25 percent. Overall payroll taxrates were lowered considerably during 1993, from 50.35 percentto 44.60 percent on average, as of the second quarter of 1994. Prices are mainly market driven. Prices for electricity,gas and telecommunications are the only prices still controlledby the government.4. Debt Management Policies Public debt of the Republic of Slovenia, includingpotential obligations stemming from the successionnegotiations, is estimated at 33 percent of the GDP at the endof 1993. For loan servicing, 0.8 percent of GDP or 1.6 percentof total public receipts was channeled in 1993. Comparablefigures for 1994 are 1.1 and 2.3 percent, respectively.Slovenia's public debt is still relatively small. According to the Monthly Bulletin of the Bank of Sloveniafrom August 1994, the latest actual data for foreign debt andforeign exchange reserves are $1,985 million and $2,208million, respectively. The debt servicing ratio was 5.4percent at the end of 1993. From a total debt of $1,985 million, $1,891 millionrepresents long term debt, $84 million accounts for short-termdebt, and $10 million is IMF credit (all data are stipulatedaccording to the World Bank methodology). The debt data applyonly to loans used directly by Slovene beneficiaries. Thedivision of federal (old Yugoslav) debt (approximately $2.6billion - obligations to the IMF already excluded) is thesubject of ongoing negotiations on Yugoslav succession. The Republic of Slovenia became a member of the IMF inJanuary 1993. By the decision of the Executive Board of theIMF in December 1992, Slovenia was declared a successor stateto a percentage share of assets and liabilities of the formerYugoslavia. At the moment of succession, total liabilitieswere SDR 51 million dollars, of which disbursed creditsamounted to SDR 25.5. A breakdown by creditors of the external long-term debtfollows (millions of dollars): 1) multilateral 442 (IBRD 120,EBRD 14, EIB 204, IFC 65, EUROFIMA 39); 2) Paris Club 227; 3)Refinancing: commercial banks 418; 4) Other long-term loans 804. Following the Slovene Government's decision of January 13,1994, payments related to the following obligations are, untilfinal agreement is concluded, made to a fiduciary account ofthe Bank of Slovenia in the Dresdner Bank, Luxembourg SA: 16.39percent of interest due under the "Yugoslav New FinancingAgreement" (NFA) from 1988 for the amounts for which theobligor is the National Bank of Yugoslavia; principal andinterest due under the NFA, for live credits only, where thebeneficiary is a Slovene entity; and amounts on deposit withthe Ljubljanska Banka d.d. under the Trade and Deposit FacilityAgreement from 1988. The balance of this account as of July31, 1994 is $68 million.5. Significant Barriers to U.S. Exports Traditionally, Slovenia had a relatively market orientedeconomic system with liberalized prices and a high degree ofopenness to foreign trade. With the beginning of itstransition to a market oriented economy, Slovenia graduallyloosened the remaining obstacles in its foreign trade regime.However, some statutory barriers to foreign investment remain. In October 1994, Slovenia became a member of the GATT.Slovenia has started negotiations to join the new World TradeOrganization. Slovenia had prepared all the necessary measuresto comply with GATT by the first half of 1994. Foreign Investment: Two major barriers to U.S. investmentexist. First, any company incorporated in Slovenia must have amanaging director of Slovene nationality, or the majority ofthe board of directors must be Slovene. Second, a foreignregistered company or individuals of foreign nationality arenot allowed to buy (own) land in Slovenia. However, anycompany incorporated in Slovenia, regardless of the origin ofits founding capital, may buy real estate in Slovenia. Slovenia's exchange system is free of restrictions on themaking of payments and transfers for current internationaltransactions, following the removal of a restriction limitatingtransferability of tolar balances held by certain nonresidents.6. Export Subsidies Policies Slovenia has no special export subsidies policy. TheSlovene economy has always been export oriented. It is drivenby the exchange rate of domestic currency only. As a fledglingnation, Slovenia lacks different tools to stimulate exports.Slovenia adopted new legislation in 1994 on tax exemptions onimported inputs. This helps domestic companies compete withforeign competition on a more equitable basis.7. Protection of U.S. Intellectual Property Intellectual property is well protected in Slovenia, andthe governments's commitment to such protection is high. Twobills were submitted to the Parliament in 1994. The bills arethe Act on Protection of Topography of Semiconductors Circuits(which is harmonized with the American Patent Office) and theCopyright and Related Rights Act. Slovenia is a member of all major relevant conventions suchas the Bern, Paris, WIPO, Madrid Arrangement of InternationallyRegistered Marks, PCT, and two classification arrangements:Locarno, and Nice. By the end of 1995 Slovenia will fulfillall obligations from the Uruguay Round's Trade Related Aspectsof Intellectual Propertry Rights agreement (TRIPs), includingTrade in Counterfeit Goods. Some years ago, computer software and video piracy waspresent in the country. However, several successful courtcases in the late eighties helped remedy the situation. Thefirst and best known case involved the U.S. company Autodesk.Today Slovenia's position is comparable to that of the West.8. Worker Rights a. The Right of Association The Slovene constitution provides that trade unions, theiroperation, and their membership shall be free. Workers, exceptfor some in the public sector, enjoy the right to strike.Virtually all workers, except for the police and military, areeligible to form and join labor organizations of their ownchoosing. The former Yugoslav government-sponsored and controlledunions disappeared with Slovenia's independence in 1991.Slovenia now has two main labor groupings, with constituentbranches throughout the country. There is a third, muchsmaller, regional labor union on the Adriatic coast. Unionsare independent of government and the political parties. Theconstitution provides that the state shall be responsible for"the creation of opportunities for employment and for work."There are no restrictions on affiliating with like-mindedinternational union organizations. b. The Right to Organize and Bargain Collectively Slovenia's economy is in transition from the commandeconomy of the communist system, which included some privateownership of enterprises along with state and "social"ownership. In the transition to a fully market based economy,the collective bargaining process is changing. Formerly, theYugoslav government had a dominant role in setting the minimumwage and conditions of work. The Slovene government stillexercises this role to an extent, although private businesses,growing steadily in number, set pay scales directly with theiremployees' unions or employee representatives. The U.SSEmbassy has received no reports of anti-union discrimination. c. Prohibition of Forced or Compulsory Labor There is no forced labor in Slovenia. d. Minimum Age for Employment of Children The minimum age for employment is 16 years. Children mustremain in school until age 15. During the harvest on the farmsyounger children do work. In general, urban employers respectthe age limits. The constitution specifically prohibitsexploitation of children. e. Acceptable Conditions of Work Slovenia has a minimum wage of $240 (gross wage) per month,with a 40 hour work week. Slovenia has an active concern foroccupational safety. In general, Slovene enterprises provideacceptable conditions of work equal to standards in force inother European countries. f. Rights in Sectors with U.S. Investment The information given above on the five areas of concernfor worker rights, applies equally in all sectors of theeconomy. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 0Total Manufacturing -4 Food & Kindred Products 0 Chemicals and Allied Products -4 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 0Wholesale Trade 0Banking 0Finance/Insurance/Real Estate 0Services 0Other Industries 0TOTAL ALL INDUSTRIES -4Source: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATESLOVAK REPUBLIC: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS THE SLOVAK REPUBLIC Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1,2/Income, Production and Employment:Real GDP (1984 prices) 3/ 6,295 5,223 5,686Real GDP Growth (pct.) -7.0 -3.2 3.9GDP (at current prices) 3/ 9,554 10,212 12,062By Sector: 4/ Agriculture 541 582 721 Industry 5,354 4,003 4,529 Services 3,659 5,320 7,027 Other N/A 307 -215Real Per Capita GDP (USD) 1,186 982 1,063Labor Force (000s) 2,764 2,347 2,506Unemployment Rate (pct.) 10.4 14.0 14.6Money and Prices:Money Supply (M2: pct. gwth.) 7.91 7.63 8.19Base Interest Rate (pct.) 5/ 13.4 12.0 12.0Personal Saving Rate (pct.) 3.3 3.3 2.7Retail Inflation (pct.) 10.0 23.2 14.2Wholesale Inflation (pct.) 5.3 17.2 9.4Consumer Price Index N/A 23.2 14.2Exchange Rate (SK/USD) Official 28.26 32.97 31.46 Parallel 30.50 N/A N/ABalance of Payments and Trade:Total Exports (FOB) 6/ 3,624 5,086 6,435 Exports to U.S. 47 58 105Total Imports (CIF) 6/ 3,564 5,914 6,385 Imports from U.S. 58 106 168Aid from U.S. 7/ 28.51 N/A N/AAid from Other Countries 7/ N/A N/A N/AExternal Public Debt 2,322 3,600 4,150Debt Service Payment (paid) N/A 110 390Gold and Foreign Exch. Reserves 790 1,400 2,300Trade Balance 6/ 60 -828 50 Trade Balance with U.S. -11 -49 -63N/A--Not available.1/ 1994 figures estimated from latest available monthly data inOctober 1994.2/ Growth rates calculated in SK before converting to dollars.3/ In 1993 ESA replaced MPS method of measuring GDP.4/ Industry includes energy, manufacturing, and construction;services include rents, financial and government services;other is a residual.5/ Discount rate of National Bank of Slovakia.6/ Merchandise trade; figures for 1993 and 1994 include tradewith the Czech Republic.7/ Assistance is substantial but current figures unavailable.1. General Policy Framework On January 1, 1993, the Slovak Republic gainedindependence, following the breakup of the Czech and SlovakFederative Republic (CSFR). The economic structure of the newSlovak state resembles that of the former state in manyrespects, and all former federal laws were adopted in Slovakiain early 1993. A customs union providing for free movement ofgoods and services and prohibiting tariff barriers within theformer CSFR remains in existence. In addition to the ongoingdifficulties of converting a centrally-planned economy to amodern market economy, Slovakia has had to create newgovernment institutions with limited resources. Datacollection and analysis have improved considerably but remainoccasionally insufficient (or incompletely converted tointernational standards). Most of the former CSFR'scompetitive industry, foreign investment and financialexpertise were located in the Czech Republic. Theonce-powerful armaments industry now produces at less than tenpercent of its 1988 level. In consequence, unemployment ismuch higher in Slovakia than in the Czech Republic. After elections in Fall 1994, former Prime MinisterVladimir Meciar's HZDS party won a large plurality and formed anew government in December together with two small coalitionpartners. The new Meciar government replaced the coalitiongovernment led by Jozef Moravcik that had ruled since March1994. The Association of Slovak Workers (ZRS), one of thecoalition partners in the new Meciar government, has voicedconcern about privatization. An official from ZRS is the newPrivatization Minister. Slovakia has expressed formal interest in EU and OECDmembership. Slovakia signed an EU association agreement inOctober 1993, and the attendant trade provisions have beenimplelented. The government adheres to EU standards whereverpossible in modernizing infrastructure and legislation.Slovakia emphasizes its central location, skilled and low-costlabor force, industrial tradition, and familiarity with itseastern neighbors in advertising itself as a bridge betweenEast and West for business. In 1993 the general government fiscal deficit fell to 7.5percent of GDP, above the IMF target but substantially belowthe underlying 13% deficit in 1992 under the Federation. Thedeficit was aggravated by insufficient tax revenues due to thecreation of a new tax system, high levels of social spending inresponse to the dislocations caused by economic transformation,and debt service obligations. The government's deficit targetfor 1994 was 4 percent of GDP; by November it appeared thatthis target would be reached. Certain large items (including$94 million for education and health) remain off-budget. Thegovernment has been trying to reduce the generous levels ofsocial payments. A new insurance system was established inJanuary 1993, intended to become self-financing (andoff-budget) in 1994. The deficit was primarily financed bydomestic banking sources, leading to a severe shortage ofcredit available to private sector borrowers. Borrowing fromthe IMF, World Bank, EBRD, and other international lenders wasalso significant. A restrictive monetary policy has succeeded in increasingforeign exchange resources and limiting inflation. The centralbank (National Bank of Slovakia, or NBS) maintained a tightrefinancing policy. The NBS uses mostly indirect controls aspolicy instruments. Reserve requirements remained stable; openmarket operations and currency swaps are undeveloped and littleused. Banks themselves (28 in Slovakia, of which nine arebranches of foreign banks) tended to purchase low-riskgovernment securities as their liquidity increased, therebyreducing credit available to private borrowers.2. Exchange Rate Policy After the division of Czechoslovakia, an initial monetaryunion dissolved and the two currencies separated in February1993. Czechoslovak banknotes with Slovak stamps have beenreplaced completely by newly-printed Slovak notes. Since July1994 the Slovak crown has been pegged to the Deutsche mark (60percent) and the U.S. dollar (40 percent), under thesupervision of the NBS. The crown was devalued by ten percentin July 1993 but has since remained stable at approximately 32crowns to the dollar. The crown is internally convertible and may move towardfull convertibility by the year 2000. The Moravcik governmentcommitted to Article VIII status with the IMF by January 1996,and by the end of 1995 to define a clear timetable for endingthe Czech-Slovak bilateral payments agreement. Individuals maymaintain hard currency accounts and are entitled to purchase9000 crowns' ($285) worth of hard currency a year, an amountthat has been rising annually. Companies registered inSlovakia may earn hard currency but must deposit it in crownaccounts; they may purchase hard currency for business reasons,subject to some limitations (see section 5). Foreign investorsmay keep their initial investment in hard currency and mayrepatriate 100 percent of their profits in hard currency.3. Structural Policies Restitution: The CSFR passed laws during 1990-92 governingreturn of private property seized by the government afterFebruary 1948. Deadlines for filing claims have expired,except in the case of religious community property, for whichnew legislation took effect in January 1994. The newlegislation includes provisions for restitution claims onJewish community properties seized after November 2, 1938.Laws on agricultural restitution permit claims of up to 250hectares of land (150 hectares for arable land). By the end ofSeptember 1994, 156,702 hectares of land had been returned toroughly 24,000 claimants; an additional 32,379 hectaresrepresenting joint claims were returned to communities.Restrictions on land usage by existing owners have been liftedfor 461,810 hectares of arable and wooded land. Privatization: Both small- and large-scale privatizationbegan in 1991 (prior to the breakup of the CSFR); the former iscomplete. Approximately 9500 small enterprises, including 6500retail shops, have been privatized; privatization of urbanhousing has begun. Large-scale privatization has beenrepeatedly delayed by political and conceptual changes withinthe Slovak government, along with bureaucratic bottlenecks.The Moravcik government pursued a mixed approach toprivatization which included standard methods and renewedemphasis on use of the voucher method. The first wave oflarge-scale privatization ended in September 1993, with 703enterprises valued at $5.3 billion at least partiallyprivatized. The new Meciar government has decided to postponelaunching the second wave of voucher privatization, scheduledto start in December 1994. Government officials stated thatthe second wave would be delayed by only a few months. PrimeMinister Meciar planned to remove energy-producing companiesand certain other firms from the list of firms to beprivatized. Originally, over two billion dollars worth offirms were to be privatized. Almost 3.5 million Slovaks, over80 percent of those eligible, have registered to participate inthe second wave. Overall, the private sector now generatesover 40 percent of GDP versus less than ten percent in 1988. Commercial Code: The Code adopted in Czechoslovakia in1992 remains valid in Slovakia. Key points for U.S. investorsinclude a low level of government screening of foreigninvestment, other than for privatization of certain stateenterprises; equal treatment with Slovak citizens forconducting business; and elimination of most restrictions onforeign investment. The 1992 United States - CzechoslovakiaBilateral Investment Treaty remains in force in Slovakia. Taxes: Slovakia introduced a new tax system in January1993, with later modifications. Taxes are measured by thecalendar year and consist of a Value Added Tax (VAT) of 25percent on most items and 6 percent on basic foodstuffs andessentials; an excise tax; personal income tax of 15 to 47percent and corporate income tax of 45 percent; and taxes onreal estate, auto registration, inheritance, gifts, etc. VATaccounts for about 30 percent of central government revenue;the government is considering a lowering of rates. Measuresare also being taken to improve collection and increasepenalties for evasion. Significant tax incentives exist forcompanies (especially banks) founded in Slovakia after December31, 1992, depending on the location and level of foreigncapital invested. The United States and Slovakia signed adual-taxation treaty in October 1993 which entered into forcein early 1994. Price Liberalization and Subsidies: In July 1994,selective wage controls were implemented in loss-makingenterprises and the energy and finance sectors; most privateenterprises are exempt from these controls. Nearly all (96percent) price controls have been removed; controls on food,fuels, energy, heat, etc. remain but will be phased out byDecember 1995, with periodic price increases during the nexttwo years to bring prices to market levels. Government-grantedmonopoly rights no longer exist. Direct subsidies toenterprises have fallen to about five percent of GDP. In July1994 selective wage controls were implemented in loss-makingenterprises and the energy and finance sectors; privateenterprises are exempt from these controls. Bankruptcy: Slovakia adopted the 1991 federal law onbankruptcy with additional amendments in June 1993. Under thelaw, a board of creditors (maximum of seven) formed upon courtrecommendation may take control of enterprises in bankruptcyproceedings; the board has three months to work out a recoveryprogram before liquidation occurs. The board is elected bydomestic creditors, each of whom has one vote regardless of theshare of debt held; foreign creditors may not participate onthe board. By January 1994 unresolved long-term claims ofSlovak companies totaled $2.3 billion, with short-termunresolved claims at $9.1 billion. Some claims have beensettled by a mandatory clearing system for enterprise debt(focused on companies in "secondary insolvency," i.e. those whocould operate successfully if their debtors paid them). Thishas been an important hindrance to economic reform,complicating efforts of efficient companies to attractinvestment due to their unresolved claims, while inefficientcompanies continue to receive government subsidies.4. Debt Management Policies Slovakia has a low level of foreign debt, 80 percent ofwhich is medium-term and the rest long-term. As of late 1994,gross foreign debt was $4.1 billion (roughly one-third of GDP),down slightly from December 1993. Of this, about 56 percentrepresented debt of the government and the NBS. In Septemberthe NBS estimated that 40 percent of Slovakia's foreignexchange reserves are from foreign loans. Debt service for1994 represents six percent of export earnings, a figure whichwill increase in 1995. Slovakia holds claims of $2.5 billionon various countries around the world; all bilateral repaymentagreements were canceled prior to the dissolution of the CSFR.The former Soviet Union is by far the largest debtor, owing$1.7 billion, half of which is in convertible currency.Payments to and from the Czech Republic are handled through anECU-based clearing system. Bad Debts: In September 1994 the Slovak Finance Ministercharacterized 25 percent ($1.6 billion) of all bank loans asbad. Much of the problem dates back several years to thecommunist era. In 1991 Czechoslovakia established aConsolidation Bank to centralize part of the debts andliabilities of the banking system, and subsequently the federalNational Property Fund issued bonds to aid debt writedowns andbank recapitalization. The government is considering anextensive program to address the related problems of bad debts,inadequate corporate governance, enterprise restructuring, andcommercial law reforms. Foreign investors are concerned thatSlovak legislation does not permit tax deductions for bad debtreserves and has no provision for reclaiming value-added tax onbad debts. Loss carry-forward provisions are also unclear. Loan Guarantees: Slovakia has increased its outlays ongovernment loan guarantees (on both domestic and foreignloans), primarily for infrastructure projects; as a share ofthe budget these rose to 20 percent in 1994. Commercial bankswere slightly more active in providing loan guarantees in 1994,providing about $95 million (up 14 percent from 1993). Adjustment Programs: The IMF approved a credit under theSystemic Transformation Facility (STF) of approximately$89 million for Slovakia in July 1993; an IMF advisor isresident in Bratislava. The STF is designed to facilitateSlovakia's adjustment to the fiscal and external imbalanceresulting largely from the end of fiscal transfers from thefederal government in Prague, and to accelerate structuralreform. In July 1994 the IMF approved $263 million inadditional credits, including $169 million under a 20-monthstandby arrangement and $94 million as a second credit underthe STF. The World Bank approved an Economic Recovery Loan ofabout $80 million in November 1993, with Japanese cofinancingof a like amount; the purpose of the loan is balance ofpayments support and broad economic reform including the socialsafety net. Talks were under way in 1994 with the World Bankfor an Enterprise and Financial Sector Adjustment Loan. Since1992 Slovakia has received over $200 million in technicalassistance and other aid from various donors.5. Significant Barriers to U.S. Exports In December 1993 Slovakia canceled a temporary measure(implemented earlier in 1993) designed to check the flow ofscarce foreign exchange. Payment conditions are now negotiateddirectly between Slovak importers and their foreign suppliers. Import Licenses: Import licenses are governed by the 1991decree of the former Czechoslovak Ministry of Foreign Trade,which remains valid under Slovak law. The decree dividescommodity items into "general" and "specific" categories forthe purpose of licensing. For most of the approximately 100groups of items in the "general" category, obtaining a licenseis a formality. In the remaining ten percent of cases (inwhich a favorable decision of the Ministry of Economy isrequired) obtaining a license may be more difficult, forreasons related to environmental concerns, existing quotas, etc. Items in the "specific" category fall into three groups:pharmaceuticals, weapons, and COCOM items. In these cases afavorable decision from the Ministry of Economy is required.Among its criteria for decision the Ministry includesconsideration of environmental and health factors as well asthe impact on domestic producers. Services: Permission from the NBS is required to offerbanking services. Insurance companies must obtain a licensefrom the Ministry of Finance. Permission from the Ministry ofFinance is required for stock exchange services. Foreignentities are welcome to join existing stock and optionsexchanges, but no provisions exist under the 1992 law forestablishing new exchanges. Lawyers may be licensed either bythe Chamber of Advocates or by the Chamber of CommercialLawyers. Advocates may practice in any field, includingcommercial law. Commercial lawyers may not practice criminallaw. Lawyers may practice as individuals, associations orgeneral partnerships, but not under a limited liability(professional corporation) form. No special permission isrequired to offer travel or ticket services or air courierservices. Standards, Testing, Labelling, and Certification: Slovaklegislation in this area closely follows EU legislation. TheSlovak Office of Standards, Metrology and Testing is theresponsible office for compulsory and voluntary testing of awide range of products at 20 testing centers. Testing iscompulsory for products in the "regulated" sphere (defined asthose which may pose threats to health, life, safety, and theenvironment) which mainly comprise foodstuffs, kitchen devices,medicines, electrical equipment, engineering products,agricultural machinery, plastics, paints, polishes, cosmetics,and sporting goods. Voluntary testing may be done at therequest of the producer or importer wishing to obtain acertificate. Slovakia intends to introduce its own system oflabelling in early 1995, replacing the old federal system. Investment: To date Slovakia has taken a positive stancetoward foreign investment, though in practice some obstaclesexist. Foreign citizens may not own land in Slovakia, but mayform legal entities in Slovakia which in turn are permitted topurchase land. There are no significant barriers toparticipation of foreign equity or personnel; no barrier torepatriation of profits or capital; no restrictions ondownstream services; and no lack of national treatment.Investment incentives do not provide sufficient provision foraccelerated depreciation, in the view of some foreigninvestors. The government has made clear that certain sectors(e.g., telecommunications, energy) will not be privatized inthe short run. It is still uncertain whether considerations ofemployment or development of favored industries will adverselyaffect the interests of foreign investors. Government Procurement Practices: No "buy Slovak" lawexists, but the government is sensitive to the concerns oflocal producers whose existence is threatened by the pace ofeconomic reform and the emergence of efficient competitors.The government has stated that in certain instances, thepotential for local job creation will weigh heavily in judgingbids for newly-privatized enterprises. Customs Procedures: Procedures are not intrinsicallycomplicated or burdensome. The basic form required is the"Unified Customs Declaration" which conforms to EC standards.Occasional problems have arisen in individual cases, usuallydue to the unfamiliarity of one or more parties with the newprocedures. The Slovak Republic succeeded to Czechoslovakia'smembership in GATT, and bases its foreign trade policy on GATTprinciples, including the GATT subsidies code. Slovakia is aparticipant in the following agreements: Multi-FiberArrangement, Technical Trade Barriers Agreement, LicensingProcedures Agreement, and Agreements on GATT Articles VI andVII. Slovakia ratified the Uruguay Round agreement and joinedthe World Trade Organization as a founding member. Tax Concerns: Foreign investors have expressed concernsover several tax issues in Slovakia. Under current law thereis no provision for establishment of purely representative(informational) offices exempt from normal tax and accountingrequirements. Holding companies are subject to a 15 percentwithholding tax on intra-group dividend payments. Sincedividends are paid from after-tax profits, they are doublytaxed. Expatriate employees of Slovak entities are notexempted from (relatively high) social security and healthinsurance payments even when they remain covered under theirhome-country system.6. Export Subsidies Policies Slovakia is a member of the GATT subsidies code. Thetariff schedule is inherited from the Federation; rates are lowand average about six percent. Imports from developingcountries enjoy GSP preference. There are currently no directsubsidies for Slovak exports, though indirect subsidies existin areas such as housing, agriculture, and energy. An importsurcharge of ten percent on consumer goods was implemented inMarch 1994 and is to remain in effect into 1995.7. Protection of U.S. Intellectual Property The Slovak Republic is a signatory to the same conventionsas the former Czechoslovakia, e.g. the Berne, Paris, Stockholm,Madrid, Nice, Lisbon, Locarno, Washington, Strasbourg, andBudapest conventions. Slovak laws and regulations onintellectual property are identical to those of the formerCzechoslovakia. Slovak laws in this area are compatible withwestern European legislation. A new law on administrative feeswas passed in 1993; a law on trademarks is expected in 1995,which will be harmonized with EU legislation. Slovakia is asuccessor to Czechoslovak membership in the World IntellectualProperty Organization (WIPO). The U.S. Embassy is not aware ofdisputes involving U.S. interests in the area of intellectualproperty protection; however, Slovakia's trademark legislationis based on "first to register" rather than "first to use,"which poses potential difficulties for foreign investors.8. Worker Rights a. The Right of Association There are no government restrictions on the constitutionalright of workers to form or join unions in Slovakia, exceptthat the armed forces are excluded from this right. Unions areindependent of the government and political parties; roughly 70percent of the labor force is organized. All workers enjoy theright to strike, except those in sensitive positions such asjudges, prosecutors, members of the armed forces, police, andfirefighters. At present the policy of the Confederation ofTrade Unions regarding collective bargaining excludes strikesas a tactic, and there have been none in 1994. b. The Right to Organize and Bargain Collectively Collective bargaining is protected by law and freelypracticed throughout Slovakia. Wages are set by freenegotiation. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is prohibited by law. There isno evidence that violations have occurred. d. Minimum Age for Employment of Children The labor code forbids employment of children under the ageof 16. Exceptions are made for 15-year-olds who have completedelementary school and for 14-year-olds who have completedcourses at special schools for the disabled. Workers under 16may not work more than 33 hours per week and are covered bylegislation to protect their safety and well-being. e. Acceptable Conditions of Work The Office of Labor Security issues standards on security,and the Office of Hygiene issues standards on health at theworkplace. The minimum monthly wage is SK 2450. The lawmandates a standard workweek of 42.5 hours, which may bemodified by collective bargaining. Caps exist on overtime andworkers are assured of at least 30 minutes' paid rest per workday, and annual leave of three to four weeks per year. f. Rights in Sectors with U.S. Investment Workers' rights in sectors with U.S. investment are thesame as in other enterprises in Slovakia. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 0Total Manufacturing (1) Food & Kindred Products (1) Chemicals and Allied Products 0 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 0Wholesale Trade 0Banking 0Finance/Insurance/Real Estate 0Services 0Other Industries 0TOTAL ALL INDUSTRIES (1)(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATESINGAPORE: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS SINGAPORE Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1985 prices) 2/ 39,761 44,072 51,301Real GDP Growth (pct.) 2/ 6.0 9.9 9.5GDP (at current prices) 2/ 48,547 55,085 66,462By Sector: (1985 prices) Agriculture 100 98 111 Energy/Water 831 898 1,598 Manufacturing 10,981 12,161 14,659 Construction 2,707 2,947 3,510 Rents N/A N/A N/A Commerce 7,218 7,892 9,061 Transport/Communications 5,843 6,453 7,573 Financial/Business Services 10,391 11,849 3,868 Government/Health/Education/ Other Services 4,053 4,315 4,839 Net Exports of Goods & Services 1,164 512 4,104Real Per Capita GDP 12,504 13,519 15,360Labor Force (000s) 1,620 1,634 1,675Unemployment (pct.) 2.7 2.7 2.1Money and Prices: (annual percentage growth)Money Supply (M2) 8.9 8.5 12.0Base Interest Rate 3/ 5.6 5.3 5.9Personal Saving Rate 3/ 1.8 1.6 2.15Retail Inflation 4/ -6.8 -3.8 -3.2Consumer Price Index 2.3 2.4 4.0Exchange Rate (SD/USD) 1.63 1.62 1.52Balance of Payments and Trade:Total Exports (FOB) 5/ 40,723 44,661 58,311 Exports to U.S. 11,234 12,744 14,656Total Imports (CIF) 5/ 49,427 57,881 64,573 Imports from U.S. 8,949 10,655 12,897Aid from U.S. 0 0 0Aid from Other Countries 0 0 0External Public Debt 14.9 7.2 3.0Debt Service Payments 10.6 10.2 3.6Gold and Foreign Exch. Reserves 40,386 48,191 53,145Trade Balance 5/ -5,782 -8,066 -3,820 Trade Balance with U.S. 1,497 1,932 2,332N/A--Not available.1/ Data for 1994 estimated based on first half of 1994 data andcurrent expectations for second half of 1994.2/ Based on market prices, factor cost data not available.Growth is based on local currency to remove exchange rateeffect.3/ Average of rates quoted by 10 leading banks.4/ Based on retail sales.5/ Merchandise trade.1. General Policy Framework Sitting astride one of the major shipping lanes of theworld, Singapore has long adopted export-oriented free-marketeconomic policies that encourage two-way flows of trade andinvestment. These policies have allowed this small country todevelop one of the world's most successful open trading andinvestment regimes. Over the past decade real GDP grew ataverage annual rate of seven percent; 1993's economic growthrate was 9.9 percent. Singapore actively promotes tradeliberalization in the region through its activities in APEC andASEAN. It ratified the Uruguay Round GATT agreement in October1994 to become one of the founding members of the World TradeOrganization. Taking into account a lack of natural resources and a small(3.2 million population) domestic market, Singapore's policieshave created a climate encouraging economic growth, includingan open trade environment, a corruption-free pro-businessregulatory framework, political stability, public investment ininfrastructure, high savings and prudent fiscal management, atrained labor force, and significant tax concessions to foreigninvestors. Singapore's fiscal policies have enhanced exportand investment growth. The government has had a budget surplusfor most years since the 1970's. The country's reserves(US $48.2 billion in 1993) are conservatively invested by theSingapore Government Investment Corporation. The CentralProvident Fund (CPF) compulsory savings program is the basisfor the national savings rate of 47 percent of GDP. The Monetary Authority of Singapore (MAS), the country'scentral bank, engages in limited money-market operations toinfluence interest rates and ensure adequate liquidity in thebanking system. Strict financial discipline is thegovernment's most important tool for controlling inflation.Although inflation is moderate by international standards(2.4 percent last year and 3.5 percent so far this year), anacute labor shortage and rising property values haveintensified inflationary pressures. The MAS maintains a strongcurrency to check inflation, particularly imported inflation,given Singapore's extreme exposure to international trade. Singapore has become a major center for electronics, oilrefining and financial services, acting as a hub for thegrowing southeast Asian market. Singapore's sound economicpolicies which promote private investment have attracted about900 U.S. companies to Singapore, with cumulative investments ofUS $18.9 billion in 1993. The United States is Singapore'slargest trading partner, accounting for 18 percent of totaltrade in 1993. U.S. imports to Singapore in 1993 wereUS $10.7 billion and Singapore's exports to the United Stateswere US $12.7 billion.2. Exchange Rate Policy Singapore has no exchange rate controls. Exchange ratesare determined freely by daily cross rates in the internationalforeign exchange markets. The MAS uses currency swaps anddirect open market operations to keep the Singapore dollarwithin a desired trading range, guarding against theinternationalization of the Singapore dollar so as not to losecontrol over its monetary and economic policies. The Singapore dollar appreciated 17 percent against theU.S. dollar from 1989 to 1993. Since the end of 1993 tomid-October 1994, the Singapore dollar has strengthened another8 percent. This has not adversely affected Singapore's economyas nearly all of its production inputs are imported. Thestrong Singapore dollar has helped to make U.S. products morecompetitive in the Singapore market.3. Structural Policies Singapore's prudent economic policies have allowed forsteady economic growth and the development of a reliablemarket, to the benefit of U.S. exporters. Singapore was theninth largest customer for U.S. products in 1993, up from 11thin 1992. Prices for virtually all products are determined bythe market. The government lets bids by open tender andencourages price competition throughout the economy. Singapore's tax policy is designed to maintain itsinternational competitive position. Foreign firms are taxed onthe same basis as local firms. The corporate tax is currentlyat 27 percent. The government aims to bring the corporate taxdown to 25 percent in the next few years. There are no taxeson capital gains, turnover, or development. The Governmentimplemented a 3 percent value-added Goods and Services Tax(GST) in 1994 but reduced corporate and personal taxes.Tariffs exist for only a few products. Excise duties arelevied on cigarettes, alcohol, petroleum products and motorvehicles primarily to control social behavior and restrictmotor vehicle numbers. There are no nontariff barriers toforeign goods. Many of Singapore's public policy measures are tailored toattract foreign investments and ensure an environment conduciveenough for their efficient business operations andprofitability. Although the government seeks to develop morehigh-tech industries, it does not impose production standards,require purchases from local sources, or specify a percentageof output for export.4. Debt Management Policies Singapore's external public debt was a negligible US $7.2million at the end of 1993, and its debt service ratio is lessthan 0.1 percent. Singapore's budget surpluses and mandatorysavings have allowed the government wide latitude in supportinginfrastructure, education, and other programs contributingsignificantly to national development.5. Significant Barriers to U.S. Exports Singapore has one of the world's most liberal and opentrade regimes. Nearly 99 percent of imports enter duty free.Import licenses are not required, customs procedures areminimal and highly efficient, the standards code is reasonableand the government actively encourages foreign investment. Allmajor government procurement is by international tender. TheGovernment ratified the Uruguay Round GATT accord on October18, 1994. Singapore maintains some market access restrictions in theservices sector. Local retail banking is limited to thoseforeign banks with full or restricted licenses - the MonetaryAuthority of Singapore has issued no new ones to foreign ordomestic banks since 1970, as it considers Singaporeover-banked. Foreign banks hold over half the retaillicenses. Foreign retail banks are not allowed additionalbranches or ATM machines although local banks are allowed toexpand. No new licenses for direct (general) insurers arebeing issued, although re-insurance and captive insurancelicenses are freely available. Foreign companies hold aboutthree-quarters of the 58 direct insurance licenses. Foreignsecurities firms are not permitted to have full membership inthe Stock Exchange of Singapore. The telecommunications sector has been steadily liberalizedsince 1989. There are no restrictions on the sale oftelecommunications consumer goods except that they must meetthe technical standards set by the Telecommunications Authorityof Singapore (TAS). Provision of value-added network services(VANS) have also been liberalized. Newly listed on the stockexchange, Singapore Telecom's monopoly to provide basictelecommunication services will end in 2007.6. Export Subsidies Policies Singapore does not subsidize exports although it doesactively promote them. The government offers significantincentives to attract foreign investment, almost all of whichis in export-oriented industries. It also offers taxincentives to exporters and reimburses firms for certain costsincurred in trade promotion, but it does not employ multipleexchange rates, preferential financing schemes,import-cost-reduction measures or other trade distorting policytools.7. Protection of U.S. Intellectual Property Singapore has taken concrete measures in recent years toimprove its level of intellectual property protection.Singapore recently became a member of the World IntellectualProperty Organization (WIPO), and has already ratified theUruguay Round Accord including the TRIPS provisions. Singaporeis not a party to the Berne Convention or the UniversalCopyright Convention. In 1987, following close consultationwith the U.S. Government, Singapore enacted strict,comprehensive copyright legislation which relaxed the burden ofproof for copyright owners pressing charges, strengthened civiland criminal penalties and made unauthorized possession ofcopyrighted material an offense in certain cases. In January1991, Singapore similarly strengthened its Trademark Law. In1994 Singapore enacted a new Patents Act. Problem Areas Patent Law: Singapore enacted a new Patents Act inOctober 1994 which was designed to introduce local patentregistration (previously patents had to be registered in theUnited Kingdom before being registered in Singapore). U.S.companies dislike several provisions of the new law (chiefly inthe compulsory licensing area) and a number of provisions donot conform to the TRIPS agreement. The Singapore governmenthas pledged not to invoke the new compulsory licenseprovisions, and has promised to bring the patent law into fullcompliance with TRIPS provisions within the next several years. Copyrights: The problem of pirated computer software inSingapore has significantly lessened in the past year as thegovernment has taken a more active stance. In response toconcern expressed by the U.S. government and severalintellectual property protection associations, Singaporemarkedly stepped up enforcement of copyright protection in1994, including government prosecution of one case whichresulted in a felony conviction and jail sentence. As a resultof stepped up enforcement, copyright infringement in thecomputer and software areas has been significantly reduced in1994. In response to motion picture and phonographic industrycomplaints that the Singapore government is not doing enough tostem the importation and transshipment of pirated videos andcompact disks, Singapore's Board of Censors has begun to screenfor pirated materials before issuing censorship seals. Industry associations have estimated losses due tocompulsory licensing provisions of the patent law totalapproximately US $5 million. Software piracy losses have beensignificantly reduced since last year when the industry lossestimate was US $32.2 million. We have no industry estimatesfor this year.8. Worker Rights Article 14 of the Singapore's constitution gives allcitizens the right to form associations, including tradeunions. Parliament may, however, based on security, publicorder, or morality grounds impose restrictions. The right ofassociation is delimited by the Societies Act and, labor andeducation laws and regulations. In practice, communist laborunions are not permitted. Singapore's labor force numbered1.64 million in 1993, with some 236,000 workers organized in85 trade unions. Ninety-nine percent of these workers in80 unions are affiliated with an umbrella organization, theNational Trades Union Congress (NTUC), which has a symbioticrelationship with the government. The NTUC's leadership ismade up mainly of Members of Parliament belonging to the rulingPeople's Action Party (PAP). The Secretary-General of the NTUCis also an elected Minister without Portfolio in the PrimeMinister's Office. The Trades Union Act authorizes the formation of unionswith broad rights. Collective bargaining is a normal part oflabor-management relations in Singapore, particularly in themanufacturing sector. Collective bargaining agreements arerenewed every two to three years, although wage increases arenegotiated annually. Under sections of Singapore's Destitute Persons Act, anyindigent person may be required to reside in a welfare home andengage in suitable work. The Government enforces theEmployment Act which prohibits the employment of children under12 years and restrict children under 16 from certain categoriesof work. The Singapore labor market offers relatively highwage rates and working conditions consistent with internationalstandards. However, Singapore has no minimum wage orunemployment compensation. Because of a continuing laborshortage, wages have generally stayed high. The governmentenforces comprehensive occupational safety and health laws.Enforcement procedures, coupled with the promotion ofeducational and training programs, reduced the frequency ofjob-related accidents by one-third over the past decade. Theaverage severity of occupational accidents has also beenreduced. U.S. firms have substantial investments in several sectorsof the economy, including petroleum, chemicals and relatedproducts, electric and electronic equipment, transportationequipment, and other manufacturing areas. Labor conditions inthese sectors are the same as in other sectors. The growinglabor shortage has forced employers mainly in the electronicsindustry to hire many unskilled foreign workers. Over 360,000foreign workers are employed legally in Singapore, 22 percentof the total work force. The government controls the number offoreign workers through immigration regulation and throughlevies on firms hiring them. Foreign workers face no legaldiscrimination, but, because they are mostly unskilled, theyare general paid less than Singaporeans. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 1,937Total Manufacturing 4,632 Food & Kindred Products 86 Chemicals and Allied Products 525 Metals, Primary & Fabricated 30 Machinery, except Electrical 1,796 Electric & Electronic Equipment 1,873 Transportation Equipment (1) Other Manufacturing (1)Wholesale Trade 1,076Banking 469Finance/Insurance/Real Estate 356Services 187Other Industries 125TOTAL ALL INDUSTRIES 8,782(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis</text>
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<text>U.S. DEPARTMENT OF STATESERBIA/MONTENEGRO: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS SERBIA AND MONTENEGRO Serbia's economy continues to face stringent UN sanctionson trade and financial transfers imposed in May 1992 forsupport of the war in Bosnia-Herzegovina. In October 1994,after Serbia agreed to seal its Bosnian border, the UN liftedrestrictions on international commercial flights andparticipation in sporting and cultural exchanges; the othersanctions remained in place. In January 1994, Dragoslav Avramovic, the new Governor ofthe National Bank of Yugoslavia, introduced an economicstabilization program which dramatically changed Serbia'seconomic condition. The program established a new currency,the "super-dinar," which is formally pegged on a 1:1 basis withthe Deutsche mark. The program also set new curbs on monetaryemissions which, according to the Belgrade Institute ofEconomic Sciences, cut 1993's record hyperinflation to amonthly level of 0.2 percent by September. The National Bankof Yugoslavia reported that between January and Augustindustrial output increased by 26 percent and maintained anaverage monthly growth rate of 3.4 percent per month.According to some reports, wages have reached the level ofearly 1992, and increased by a monthly rate of 17 percent fromJune to September. In the first six months of 1994, foreignexchange reserves increased by over DM 600,000. By April,shops stocked a wide variety of Western goods which weresmuggled in despite the tight international sanctions.Although goods were available, questions remained as to whetheraverage citizens could afford them. Yet the sustained growth of the economy is uncertain;cracks in the stabilization program's facade are becoming moreapparent with time. A black market in foreign currency emergedbriefly in the spring of 1994 and threatened to reduceconfidence in the super-dinar and reignite inflation; similarindications arose in late October 1994. On the labor front,the monthly wage hikes seen in 1994 may also constitute a newinflationary factor. The Belgrade Department of Labor reportsover 100,000 unemployed in Belgrade, and over 40 percent ofgovernment workers placed on leave. Discontent among workershas resulted in several mini-strikes, and threats of majorstrikes. Over two thirds of the 1994 wheat crop could only besold by barter. Holding the line on monetary emissions, thegovernment is running out of money with which to pay itsemployees. In July the Minister of Energy confirmed suspicionsthat funds were low for necessary pre-winter maintainance andrepairs on power plants. After years of economic suffering, the Montenegrinpresident announced in September that for the first time inMontenegrin history there would be a balanced budget.Production in the region was increasing at 0.8 percent amonth. Tourism had returned in full swing, yet high priceskept most of the shops empty.(###)</text>
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<text>U.S. DEPARTMENT OF STATESAUDI ARABIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS SAUDI ARABIA Key Economic Indicators (Billions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/ Income, Production and Employment: Real GDP (1990 prices) 115.8 N/A N/A Real GDP Growth (pct.) 1.0 N/A N/A GDP (at current prices) 2/ 121.4 122.6 119.2 By Sector: Oil 47.1 45.6 44.3 Private Sector 41.7 43.8 45.0 Government 32.6 33.2 30.2 Real Per Capital GDP 3/ 7,175 7,000 6,575 Money and Prices: (annual percentage growth) Money Supply (M2) 4/ 5.5 -0.8 4.8 Base Interest Rate 5/ 3.5 3.5 3.9 Wholesale Inflation 4/ 1.3 0.6 1.4 Consumer Price Index 4/ -0.4 0.8 0.5 Exchange Rate (SR/USD) 3.75 3.75 3.75 Balance of Payments and Trade: Total Exports (FOB) 47.0 44.9 41.1 Exports to U.S. (FAS) 4/ 10.3 7.8 4.0 Total Imports (FOB) 30.2 25.9 23.3 Imports from U.S. (FAS) 4/ 7.0 6.7 3.2 Aid from U.S. 0.0 0.0 0.0 Aid from Other Countries 0.0 0.0 0.0 External Government Debt 4.5 4.5 N/A Debt Service Payments (paid) 0.0 0.0 N/A Gold and FOREX Reserves 4/ 4.8 5.9 5.3 Trade Balance 16.8 19.0 17.8 N/A--Not available. 1/ Embassy estimates. 2/ In purchasers' values. 3/ Based on the official 1992 census data and current GDP. 4/ For 1994, data for the first half of the year. 5/ Average annual rate for 1-month deposits, 1994 average for first half of the year.1. General Policy Framework Saudi Arabia has an open, developing economy with a largegovernment sector. Its regulations favor Saudis and citizens ofthe Gulf Cooperation Council (GCC) states. This bias isreflected in virtually all government policies, including thoseaffecting taxation, credit, investment, procurement, trade, andlabor. But the government's interest in promoting economicdevelopment, defense, and technology transfer helps reducefavoritism toward Saudis and the GCC over foreign investors inthe domestic economy. Oil dominates the Saudi economy, comprising an estimated 37percent of GDP, 75 percent of budget receipts, and 90 percent ofexports in 1993. Much of the non-oil GDP is tied to oil, asconsumption and investment are dependent on oil receipts andservices and supplies are sold to the oil sector. The governmentsector plays a significant role in influencing resourceallocation within the Saudi economy. Non-oil budget revenuesinclude customs duties, investment income, and fees and chargesfor services. The Government of Saudi Arabia has recorded budget deficitsannually for the last decade, with the shortfall for 1993estimated at USD 13 billion--11 percent of GDP. The governmentoriginally financed its fiscal shortfalls by drawing downdeposits in the Saudi Arabian Monetary Agency (SAMA), thecountry's central bank, and began borrowing in 1988 throughgovernment bonds and bills to conserve its remaining assets.Defense and security account for nearly one-third of all budgetedexpenditures, and the government also makes large outlays forsalaries, capital projects, services, and operations andmaintenance programs. The government embarked on a majorausterity program in 1994--reducing planned spending by 19percent over the level planned for 1993--but will likely recordits twelfth consecutive budget deficit for the year. King Fahdopenly endorsed privatization in 1994, and the government hasbegun studying the sale of some state-owned firms. SAMA allows the growth of money supply to be dictated bygovernment fiscal operations and the growth of the economy. SAMAhas the statutory authority to set legal reserve requirements,impose limits on total loans, and regulate the minimum ratio ofdomestic assets to total assets for the banks. It is also ableto conduct open market operations through repurchases of Saudigovernment development bonds and treasury bills. SAMA oversees afinancial sector of 12 commercial banks, five specialized creditbanks, and a variety of nonbank financial institutions.2. Exchange Rate Policy The Saudi Riyal (SR) is officially pegged to the IMF'sSpecial Drawing Right (SDR) at a rate of SR 4.28255 to SDR 1,with margins of 7.25 percent on either side of the parity. SAMAsuspended the margins in 1981 and, in practice, pegs the Riyal tothe Dollar. Saudi Arabia last devalued the Riyal in June 1986when it set the official selling rate at SR 3.75 to USD 1. Thereare no taxes or subsidies on purchases or sales of foreignexchange. Saudi Arabia imposes no foreign exchange controls on capitalreceipts or payments by residents or nonresidents, beyond aprohibition against transactions with Israel. In accordance withUN resolutions, the prohibition has beenexpanded to include transactions with Iraq and Serbia. Sanctionsagainst South Africa ended this year. Local banks are prohibitedfrom inviting foreign banks to participate in Riyal-denominatedtransactions inside or outside Saudi Arabia without priorapproval of SAMA. The monetary authorities and all residents mayfreely and without license buy, hold, sell, import, and exportgold, with the exception of gold of 14 karat or less, which isprohibited.3. Structural Policies The Saudi government has traditionally eschewed pricecontrols, with the exception of those for basic utilities andenergy. Water, electricity, and petroleum products are heavilysubsidized, with prices often substantially below the costs ofproduction in order to share the wealth and spur development. Inagriculture, government procurement prices for wheat (now USD 400and 533.33 per ton to large and small farmers respectively) aresubstantially above world market levels. The government adjustedits pricing policy for wheat in 1993 in an attempt to reducewheat production and encourage crop diversification. Farmersmust now have prior government approval to produce and sell wheatat the support price, and the government is no longer encouragingthe establishment of new wheat farms. Saudi taxes take three major forms: income taxes, fees andlicenses, and customs duties. The income tax is payable only byforeign companies and self-employed expatriates. The income taxrate on business income on foreign companies and expatriateshareholders of Saudi firms ranges from 25 percent on profit ofless than USD 26,667 to a maximum rate of 45 percent for profitsabove USD 266,667. Foreign investors receive tax incentives,including a 10-year tax holiday for approved agricultural andmanufacturing projects with a minimum of 25 percent Saudiparticipation. Saudis and Muslim residents are subject to the"zakat," an Islamic net worth tax levied at the flat rate of 2.5percent. Import tariffs are levied at a general minimum rate on12 percent ad valorem, except for products originating in GulfCooperation Council states and essential commodities. There isalso a maximum 20 percent tariff on products that compete withlocal infant industries.4. Debt Management Policies Saudi Arabia is a net creditor in world financial markets.SAMA manages a foreign portfolio of over USD 50 billion in itsissue and banking departments and an estimated USD 15 billion forthe autonomous government institutions: the pension fund, theSaudi Fund for Development, and the General Organization ofSocial Insurance. Under SAMA's current conservative definitions,only about USD 10 to 15 billion of its more than USD 50 billionportfolio is available. The remainder is earmarked to guaranteethe currency or letters of credit. In addition to the overseasassets managed by SAMA, Saudi Arabia's commercial banking systemhad a net foreign asset position of USD 19.7 billion at the endof 1993. The Saudi government began 1994 with a foreign debt ofUSD 4.5 billion from asyndicated loan signed in 1991. As of November 1994, it had madeprincipal payments of USD 2.7 billion on that debt. The domesticbanks, Saudi Aramco and other state-owned enterprises haveoverseas liabilities. Saudi Arabia has become dependent on borrowing to finance itsbudget deficits after having liquidated much of the government'sdeposits in SAMA. The Saudi government began direct borrowing in1988 through a domestic government development bond program. Thebonds have a two- to five-year maturity. In 1991, following theGulf War, the Saudi government expanded its borrowing when itsigned loan syndications with international and domestic banksand introduced treasury bills. By the end of 1993, total Saudigovernment domestic and foreign debt was an estimated USD 80billion, or 65 percent of GDP. Over 90 percent of this debt isowed to domestic creditors: the autonomous governmentinstitutions, commercial banks, and private Saudis. Totalinterest payments on the debt were estimated at eight percent ofexpenditures in 1993.5. Significant Barriers to U.S. Exports Although the U.S. is the Kingdom's largest supplier andinvestor, trade and investment barriers appear in a variety offorms. The foreign capital investment code requires that foreigninvestment be made in line with the nation's developmentpriorities and include some technology transfer. While there areno legal limitations on percentage of foreign ownership, prior to1994, wholly foreign-owned ventures were unlikely to receivegovernment approval. Foreigners may not invest at all in jointventures engaged solely in advertising, trading, distribution ormarketing. Real estate ownership is restricted to wholly-ownedSaudi entities or citizens of the Gulf Cooperative Council (GCC). Saudi labor law requires companies registered in the Kingdomto give preference to Saudi nationals when hiring. Theexpatriate workforce in the Kingdom is approximately fourmillion. Saudi Arabia announced implementation of a BusinessEntry fee of Saudi riyals 1,000 (USD 267) in 1995 for workinginvolving Saudi and non-Saudi companies. On September 30, 1994, the GCC foreign ministers publiclyannounced that the GCC was no longer enforcing the secondary andtertiary aspects of the Arab League boycott of Israel. SomeSaudi commercial documentation continues to contain references tothe Arab League boycott. U.S. firms often have to seek revisionof these documents before they sign the documentation. Theprimary boycott against products and services from Israel remainsin force. Import licensing requirements designed to protect domesticindustries or restrict importing to nationals are an obstacle tofree trade. Saudi Arabia requires a license to importagricultural products. In addition, contractors of civilianprojects may not import directly and instead must purchaseequipment and machinery from Saudi agents. Restrictive shelf-life standards for food products act as defacto discrimination in favor of European and Asian products,which take less time to ship than products made in the UnitedStates. In 1987, Saudi Arabia enacted regulations favoring GCC-madeproducts in government purchasing. GCC items now receive up to aten percent price preference over non-GCC products. Under a 1983decree, foreign contractors must subcontract 30 percent of thevalue of the contract, including support services, to majoritySaudi-owned firms, a restriction which U.S. businessmen consider aserious barrier to exports of U.S. engineering and constructionservices. Saudi Arabia negotiates offset requirements inconnection with certain military purchases and, recently, forsome major civilian projects. In addition, the government reserves certain services forgovernment-owned companies. Insurance services for governmentagencies and contractors are reserved for the national companyfor cooperative insurance. A "fly-Saudia" (Saudia Airline)policy applies to government-funded air travel. Saudi Arabia applies a "fly-Saudia" policy to foreign Muslimstraveling to the Kingdom to visit the holy city of Mecca duringpilgrimage every year, as well. The government reserves apercentage of foreign pilgrim traffic for Saudia Airline, andenforces this policy by regulating the number of foreign carrierspermitted to land during the pilgrimage period. The governmentalso gives a preference to national shipping companies: up to 40percent of governmental purchases must be shipped in Saudi-ownedvessels. Saudi customs rules require that incoming goods beaccompanied by documentation certified by an approved member ofthe Arab-U.S. Chamber of Commerce and the Saudi Embassy orConsulate in the United States. The latter requirement slowsshipping, adds man-hours and fees, and ultimately increases thecost of the product to Saudi customers.6. Export Subsidies Policies Saudi Arabia has no export subsidy programs specificallytargeted at industrial products, though many of its industrialincentive programs indirectly support exports. Agriculturalexport subsidies are discussed above.7. Protection of U.S. Intellectual Property The United States Trade Representative placed Saudi Arabia onthe Special Section 301 Priority Watch List in 1993 mainlybecause the Kingdom's copyright law does not protect foreignworks. On April 13, 1994, Saudi Arabia acceded to the UniversalCopyright Convention (UCC). It began enforcing reciprocalprotection for UCC signatories July 13, 1994, although piratedproducts may still be commonly found in shops. The Kingdom's copyright law went into effect in 1990. Thelaw provides protection for the life of the author plus fiftyyears in the case of books, and in the case of sound and audiovisual works, for the life of the author plus twenty-five years.Computer programs are also covered, although the lawdoes not specify a period of protection. The law does not applyto Western works, however, Saudi authorities have indicated thatthrough the Kingdom's accession to the Universal CopyrightConvention, they will be able to extend protection to Westernworks. As of November 1994, overt computer piracy has decreased,but many pirated videos and sound recordings are still availablein the marketplace. Saudi Arabia enacted a patent law in 1989. The criteria fordetermining whether an invention is patentable are similar tothose applied in the United States. Saudi law prohibits theunlicensed use, sale or importation of a product made by aprocess subject to patent protection in Saudi Arabia. At thesame time, the law allows the government to declare that certainareas of technology are unpatentable. It also permits compulsorylicensing of patented products and processes, with or withoutcompensation to the patent holder, for non-use of the patent orfor public policy reasons. As of November 1994, the Saudi PatentOffice had not yet acted on any of the 3,000 applications it hadreceived. The Kingdom's trademark laws and regulations conform tointernational norms, but U.S. businesses have complained ofexcessive registration and search fees, as well as problems withenforcement. Counterfeiting in spare auto parts, cologne,pharmaceuticals and other consumer products is widespread.Infringement proceedings are spotty. Some proceedings can takeyears and cost tens of thousands of dollars, while others can beresolved in less than two weeks. Moreover, many Saudi judges aretrained only in religious law and are perceived as unsympatheticto trademark claims brought by foreigners. U.S. industry groups have estimated losses due to lack ofcopyright protection at over USD 110 million in 1992. Whenlosses from trademark counterfeiting and patent infringement areincluded, this figure is substantially higher.8. Worker Rights a. The Right of Association Government decrees prohibit both the formation of laborunions and strike activity. b. The Right to Organize and Bargain Collectively This right is not recognized in Saudi Arabia. c. Prohibition of Forced or Compulsory Labor Forced labor is prohibited in Saudi Arabia. However, sinceemployers have control over the movement of foreigners in theiremploy, forced labor, while illegal, can occur, particularly inthe case of domestic servants and in remote areas where workersare unable to leave their places of employment. d. Minimum Age for Employment of Children The labor law provides for a minimum age of 13, which may bewaived by the Ministry of Labor with the consent of thechild's guardian. Children under 18 and women may not beemployed in hazardous or unhealthy industries such as mining.Wholly-owned family businesses and family-run agriculturalenterprises are exempt from the minimum age rules, however. e. Acceptable Conditions of Work Saudi Arabia has no minimum wage. The labor law establishes a48 hour work week and allows employers to require up to 12additional hours of overtime, paid at time and one-half. It alsorequires employers to protect employees from job-related hazardsand diseases. f. Rights in Sectors with U.S. Investment Major U.S. companies operating in the oil, chemicals, andfinancial services sectors are good corporate citizens and adherestrictly to Saudi labor law. Conditions of work at major U.S.firms are generally as good or better than elsewhere in the Saudieconomy. U.S. firms normally work a five and one-half day week(44 hours) with paid overtime. Overall compensation tends to beat levels that make employment in U.S. firms very attractive.Safety and health standards in major U.S. firms in Saudi Arabiacompare favorably with non-U.S. firms in Saudi Arabia. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993(Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing (1) Food & Kindred Products(1) Chemicals and Allied Products (1) Metals, Primary & Fabricated (1) Machinery, except Electrical 2 Electric & Electronic Equipment 5 Transportation Equipment0 Other Manufacturing 35Wholesale Trade 27Banking (1)Finance/Insurance/Real Estate (1)Services 104Other Industries(1)TOTAL ALL INDUSTRIES 2,567(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of Economic Analysis(###)</text>
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<text>U.S. DEPARTMENT OF STATERUSSIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS b. The Right to Organize and Bargain Collectively Collective bargaining is protected by Russian law but isnot practiced widely in Russia. Many enterprises refuse tonegotiate collective bargaining agreements, and many agreementsare not the product of genuine collective bargaining, given thesubordinate relationship of official unions to enterprisemanagement. Free trade unions have been more aggressive indemanding genuine collective bargaining. Enforcing managementcompliance with contracts remains problematic. In severalsectors of the economy, wages, benefits and general conditionsof work are established by industry-wide tariff agreementsreached in talks between trade unions, management andgovernment. This arrangement reinforces the traditionaltendency of Russian workers to expect the government toestablish wages and other workplace conditions. c. Prohibition of Forced Labor Russian law prohibits compulsory labor, and there were noreports of its occurrence in 1994. d. Minimum Age for Employment of Children The Labor Code does not permit the regular employment ofchildren under the age of 16. In certain cases, children aged14 and 15 may work in intern or apprenticeship programs. TheLabor Code regulates the working conditions of children underthe age of 18, including prohibiting dangerous work andnighttime and overtime work. Government enforcement is largelyineffective, and there is anecdotal evidence to suggest thatthe protections for children under 18 are violated. Theresponsibility for the protection of children at work is sharedby the Labor Ministry and the Ministry for Social Protection. e. Acceptable Conditions of Work The Russian legislature sets the minimum wage, whichapplies to all workers. The minimum wage in Russia rangedbetween $5 and $10 per month during the second half of 1994,but the average salary was about $100. The primary purpose ofthe minimum wage is to serve as a baseline for computingbenefits, pensions and some wages scales. For example, thewage scale for government workers, who are among thelowest-paid in Russia, is based on a multiple of the minimumwage. The labor code provides for a standard workweek of 40hours, which includes at least one 24-hour rest period, premiumpay for overtime or holiday work, and minimum conditions ofworkplace safety and worker health. However, these standardsare widely ignored and government enforcement of safety andhealth regulations is inadequate. Industrial deaths andaccidents continue to rise dramatically in Russia. The LaborMinistry reported that 30 Russian workers die and another 50are injured each day as a result of workplace accidents. f. Rights in Sectors with U.S. Investment In the petroleum, food and telecommunications industrieswhere U.S. investment is significant, observance of workerrights does not differ markedly from other sectors. Thepetroleum and telecommunications sectors are highly unionized,but the official unions predominate. The food sector is lessunionized but working conditions there are no worse thanelsewhere. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 227Total Manufacturing -3 Food & Kindred Products -1 Chemicals and Allied Products 0 Metals, Primary & Fabricated 0 Machinery, except Electrical (D) Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing (D)Wholesale Trade 2Banking 0Finance/Insurance/Real Estate 0Services 3Other Industries (*)TOTAL ALL INDUSTRIES 230(D) Suppressed to avoid disclosing data of individual companies(*) Less than $500,000Source: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATERUSSIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS RUSSIA Key Economic Indicators (Billions of rubles unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1990 prices) 2/ 459 409 344Real GDP Growth (pct.) -12 -11 -16GDP (at current prices) 2/ 18,063 162,301 600,000By Sector: Manufacturing 10,068 88,087 157,888 Services 6,089 64,216 188,898 Agriculture N/A N/A N/AReal Per Capita GDP (1990 prices) 3,095 2,763 2,332Labor Force (000s) 75,600 74,900 74,800Unemployment Rate (pct.) 4.8 5.1 6.0Money and Prices: (annual percentage growth)Money Supply (M2) 743 480 324 3/Central Discount Rate 4/ 80 210 170Personal Savings Rate 4/ 16 26 39Consumer Price Index 2,501 840 104 3/Exchange Rate (USD) 1/ 415 1,247 2,204 5/Balance of Payments and Trade: (millions of U.S. dollars)Total Exports (FOB) 39,972 46,300 48,200 Exports to U.S. 500 1,700 2,800Total Imports (CIF) 34,984 34,300 33,200 Imports from U.S. 2,100 3,000 2,600Aid from U.S. 2,380 1,700 1,625Aid from Other Countries N/A N/A N/AExternal Public Debt 6/ 87,000 83,700 85,000Debt Service Payments (paid) 1,815 2,000 4,700Gold and Foreign Exch. Reserves 3,014 5,875 4,100 5/Merchandise Trade Balance 4,988 12,000 15,000 Trade Balance with U.S. -1,600 -1,300 -200N/A--Not available.1/ Figures are from the State Statistical Committee(Goskomstat) and U.S. Embassy estimates. The rapiddepreciation of the ruble over the past four years makes itmeaningless to delineate this data in dollar terms.2/ GDP at factor cost. 1990 GDP was 644 billion rubles.3/ First eight months, not annualized.4/ Figures are actual, end of period.5/ As of September 1, 1994.6/ Russian officials have recently quoted debt stock as high as$112 million in 1994. However, this figure includes debt toformer Soviet Union countries and is generally not included inRussia's hard currency debt stock.1. General Policy Framework The Russian Federation (Russia) is the largest of therepublics of the former Soviet Union and also the wealthiest,with oil, timber, natural gas, minerals, and fertile soil.After the collapse of the Soviet Union in October 1991,however, Russia was left with serious economic problemsstemming from decades of a planned economy and the disruptionof its traditional commercial and industrial ties. This wascompounded by sharp cutbacks in defense spending and an influxof foreign competition, particularly in consumer goods, at verylow import tariff rates. Real GDP fell by 19 percent in 1991,12 percent in 1992, 11 percent in 1993, and a projected 17percent in 1994, for a cumulative decline of 47percent--greater than that experienced by the United Statesduring the Great Depression. However, Russian statistics failto capture much of the emerging private sector activity, andthus overstate the decline. The "ruble zone" of the states of the former Soviet Unioncollapsed in 1993. Following the July 26, 1993 Central Bankdecision to withdraw old ruble notes from circulation, otherrepublics of the Commonwealth of Independent States (CIS) movedto establish their own currencies. This helped bring the rubleunder control of the Central Bank of Russia (CBR) and reducedinflationary pressures from other republics. Massive government credit emissions in 1992 and 1993produced a surge in inflation, leading the Central Bank toraise the discount rate to 210 percent and tighten issuance ofcredits in 1993, achieving a monthly inflation level of 15percent by the end of that year. In 1994 the discount rate wasgradually lowered to 130 percent as inflation fell to 4 percentmonthly in August, rising sharply to 15 percent in Octoberafter the ruble's crash. The CBR interest rate was increasedto 170 percent in October and then to 180 percent in November.The government aims at a monthly inflation rate of five toseven percent by the end of 1994. Despite falling demand for their products, Russianenterprises continued to borrow money either to maintain thework force or for speculative investments. State subsidies andcheap government credits, massive during 1992 and 1993,declined in 1994 but remain significant for agriculture,defense and the northern territories. Widespread failure ofenterprises and the government to pay for purchases produced achain of inter-enterprise arrears which remained unresolved inDecember 1994. Russia's mass privatization program utilized individualvouchers issued to each citizen in its first phase from October1992 through June 1994. According to the State PropertyCommittee, 70 percent of Russian enterprises are now in thenon-state sector. The majority of enterprises were privatizedunder the so-called "option two," through which enterprisesmanagers and employees purchased 51 percent of the shares.Local state property committees, the central State PropertyCommittee or federal government ministries typically retained asignificant interest (up to 30 percent of the shares). Theremaining shares were auctioned publicly for vouchers (throughJune 1994) or cash, a process in which foreign investors wereable to participate. Under the second phase of theprivatization program, enacted by a July 1994 presidentialdecree, the remaining 30 percent of state enterprises will beprivatized for cash, primarily through auctions and tenderoffers, aimed at attracting foreign investment. The remainingshares in privatized firms still held by the government willalso now be sold. The privatization in this phase will includethe land on which enterprises are located. The right of Russian citizens to own, buy and sell, leaseand mortgage land was established by presidential decree inOctober 1993 and is protected by Russia's constitution,although Russia still lacks a comprehensive law on landownership to implement these rights. Beginning in 1992, thegovernment formally shifted ownership of land and property toworkers and pensioners of state and collective farms. All farmland and other property is now in one of several forms ofprivate ownership. The 1993 presidential decree establishedthe right of farm workers wishing to leave the collective toreceive their share of farm property or monetary compensation.So far about 300,000 individual farms have been established,but Russian agriculture is still dominated by the formercollectives, which own over 90 percent of arable land andproduce over 90 percent of the country's total agriculturaloutput. The 1994 federal budget, which was approved by theparliament in June 1994, called for a budget deficit of 70trillion rubles, or roughly 9.6 percent of projected GDP. Theactual federal deficit reached 11.8 percent of GDP in the firstthree quarters of 1994, and is unlikely to fall below 10percent of GDP by the end of the year. The majority of thedeficit (76 percent) in the first three quarters of 1994 wasfinanced by credits of the Central Bank of Russia atbelow-market rates. The remainder of the deficit was financedequally through government bond offerings and foreign credits.The government's draft federal budget for 1995 calls for zeroCentral Bank monetary financing of the projected deficit of 7.8percent of GDP. The government intends to finance 60 percentof the 1995 deficit through government securities' offeringsand 40 percent through foreign credits. Due to lower than expected inflation and GDP and optimisticrevenue assumptions, budget revenues for 1994 were down 43percent from that projected in the 1994 budget law. Inresponse, the government undertook large scale expendituresequestration in an attempt to keep the budget deficit under 10percent of GDP. Actual revenues for 1994 can be broken downinto tax revenue (70 percent), revenue from foreign trade andforeign operations (10 percent), and non-tax revenue (20percent--mostly income from the sale or use of governmentproperty). Nearly half of Russia's 1994 exports by value wereconcentrated in energy and another quarter in raw materials.Trade with industrialized countries in 1994 comprised over 70percent of total Russian exports and nearly two-thirds of totalRussian imports in nominal terms; each was up about 20 percentfrom 1993 levels. Trade with former Comecon countries,developing countries, and the Baltic states continues to fall,and remains at a fraction of Soviet-era levels. Russia has several trade agreements with CIS statesinvolving barter or guaranteed delivery of specifiedcommodities, and is in the process of creating a customs unionamong CIS states. Russia has agreed to a free trade zone withBelarus. A Partnership and Cooperation Agreement signed withthe European Union in 1994 awaits ratification. Russia hasdeclared its intention to accede to the GATT (General Agreementon Tariffs and Trade), and is a member of the World Bank andthe International Monetary Fund (IMF). The U.S.-Russian TradeAgreement of June 1990 provides mutual most-favored-nation(MFN) status. The U.S.-Russian Bilateral Tax Treaty, effectivefrom January 1994, eliminated double taxation of U.S. citizensand firms. The U.S.-Russian Bilateral Investment Treaty,signed in June 1992, awaits ratification by the Russianparliament.2. Exchange Rate Policy The Central Bank of Russia quotes a daily official unifiedruble exchange rate in dollars and several other hardcurrencies, based on market exchange rates determined in dailyauctions held at the Moscow Interbank Foreign Currency Exchange(MICEX), a private corporation where the bulk of on-exchangehard currency trading occurs. Auction markets are alsoorganized in St. Petersburg, Yekaterinburg, Novosibirsk,Vladivostok, Rostov-on-the-Don and other major cities. TheCentral Bank intervenes on the MICEX and other exchanges, aswell as on the larger interbank market outside the auctions, tosmooth currency rate fluctuations and regional supplydistortions. While relatively little trading actually occurson-exchange, the markets are important in setting officialprices since CBR intervention occurs there. The ruble depreciated against the dollar in nominal termsfrom 1250 to 2200 rubles per dollar but appreciated slightlyagainst the dollar in real terms between January and August1994. It then took several sharp falls in September andOctober and, after recovering with the help of extensiveCentral Bank intervention, declined gradually to 3250 rublesper dollar by the end of November. Central Bank reservesbefore the October crash stood at 4 billion dollars. Exporters are required to convert into rubles 50 percent ofexport earnings at the free market rate. Through a system of"passports" recording all export transactions, the commercialbanking system cooperates with official efforts to monitor therepatriation of export earnings. Purchases of property,transfers of capital abroad, and foreign borrowing of residentjuridical persons require authorization of the Central Bank.Without Central Bank permission it is illegal for Russiancompanies or citizens to maintain bank accounts outside ofRussia for purposes other than operating expenses.Non-residents can open individual ruble accounts and commercialruble accounts for servicing foreign trade operations and forinvestment. Both citizens and non-residents can maintaindomestic hard currency accounts.3. Structural Policies Russia's rudimentary antitrust law was implemented inDecember 1993 by presidential decree. A November 1993presidential decree requires larger companies to establishstock registries to record ownership in the company. Thegovernment is preparing securities and brokerage legislationand a commercial code, part of which is encompassed in therecently adopted civil code. By the end of 1994, prices had been freed on virtually allwholesale and retail goods, and the government planned to freeprices on oil (roughly one quarter of the world market price atthe time) and oil products in 1995. In November 1994 thegovernment preliminarily approved a policy to restrict thenumber of products and services subject to federal controls tonatural gas, utilities, freight and passenger railtransportation, precious metals and diamonds, airport services,and postal, telephone, radio and television communications. A new tax code is in preparation to replace the obsolescentone of December 1991. Taxes are confusing, constantly revisedand inconsistently applied. Currently all major taxes arecollected by a single federal agency and divided between thecenter and regions according to a revenue-sharing formula,although much ad hoc bargaining still occurs. A 23 percentvalue-added tax (VAT) is imposed on Russian and foreign firmsconducting commercial activities in Russia. Corporate profits,taxed at a rate of 32 percent in 1993, were taxed at 13 percenton the federal level and up to 25 percent by the regions in1994. Personal income tax rates in 1994 ranged from 12 percentthrough 30 percent. Wages were subject to social securitytaxes totalling 39 percent. A 38 percent tax is levied on"excess wages" (above the equivalent of $38 per month as ofNovember 1994). Russian-sourced "passive" income earned byforeigners is subject to a 15 percent withholding tax ondividends and interests and a 20 percent tax on royalties andrents. The rate of excise tax on imported goods differedconsiderably from the rate on domestic goods and was assessedon a different basis at the end of 1994, although an April 1994decree requires that the two systems be unified. Import taxeshave risen steadily over the past three years. The latest risein July 1994 doubled duties on average across the board andraised the average weighted tariff to about 15 percent advalorem, with some duties well above 30 percent. These haveaffected U.S. exports including aircraft, automobiles andconfectionery. The tariff law promulgated in July 1993establishes types of duties and provides for establishingpreferential tariffs on a reciprocal basis. All enterprises above 100 million rubles capitalization($80,000 as of December 1993, $30,000 as of December 1994) mustbe registered with the government, which can involve extensivedelays. Noncompetitive bidding is sometimes used to awardcontracts for very large government projects involving naturalresources. Cases exist of tenders awarded to U.S. companiesbeing subsequently revoked by the government in the interestsof domestic competitors. An established and transparent set ofregulations regarding bidding is lacking, but a law onconcessions for development of raw material reserves, as wellas a production-sharing agreement regulating oil export rightsare in preparation. Export taxes, introduced in 1992 because of vastdifferentials between domestic and international prices, weregradually lowered in 1993 and 1994 and are applied to adiminishing list of commodities, primarily oil and oilproducts, natural gas, certain non-ferrous metals, timber andwood products, some fertilizers, rare fish and fish products.Special agreements with certain CIS countries, notably Belarusand Ukraine, further reduce or waive these export taxes. Oilexports by some joint ventures have been exempted from theexport tax. Annual quotas and licensing of exports of "strategicallyimportant" commodities (e.g. gas, oil, metals, fertilizers,timber), which were designed to limit export volumes andsupport prices beginning in 1992, were abolished in July 1994except for oil and oil products (until January 1995) andcommodities subject to international agreements. The right toexport these commodities remains limited to about 500 "specialexporters" certified annually by the Trade Ministry. Since theabolition of quotas and licensing, all export contracts for"strategically important" commodities still requireregistration with the Trade Ministry, which has proposedextending this system to all exports. The Trade Ministry alsois abetting the formation of industry-specific cartels called"unions of exporters," nine of which exist so far, tocollectively maintain export prices of "strategicallyimportant" commodities and prevent antidumping actions.4. Debt Management Policies Russia and the other former republics of the USSR agreed inOctober 1991 to become "jointly and severally" liable for theSoviet foreign debt. Russia's share of the debt was set at 61percent. Russia subsequently reached agreement with the otherrepublics to manage or assume liability for their respectiveshares of the Soviet debt in exchange for their relinquishingtheir respective claims on Soviet assets. Russia has reachedagreement with Ukraine on debt repayment. Russia has succeeded in gaining significant temporaryrelief from its debt burden during the transition to a marketeconomy. An April 1993 agreement with Paris Club creditorsrescheduled virtually all of Russia's official bilateral debtarrears and maturities falling due in 1993. The United Statesand Russia in October 1994 signed a $900 million debtrescheduling agreement, formally putting into effect the ParisClub rescheduling accord reached in June between Paris Clubofficial creditors and Russia. The Paris Club agreed toreschedule $7 billion in official debt owed by Russia in 1994,thus easing the repayment burden. A preliminary agreement withthe London Club of commercial creditors followed in October,but a final agreement was still pending as of the end of 1994. Russia's total external debt to Western creditors isapproximately $85 billion, of which half is owed to governments (Paris Club), a third to commercial banks (London Club), andthe remainder to foreign exporters. Servicing of the debt in1994, after rescheduling, was about $4.7 billion. In order toensure control of contracting for new foreign lending, theRussian government has formed an inter-ministerial committee tolimit the amount of borrowing, and the parliament has imposedthe requirement that it must approve new Russian governmentloans exceeding $100 million. The Russian government claimsthat it is owed $150 billion from Soviet-era deals. Althoughmost of the debt will probably never be paid, Russia has begunto arrange repayment from some countries in the form of goods;approved traders may bid for the right to import these goods atdiscounted prices. Russia became a member of the International Monetary Fundin 1992 and made a first credit tranche drawing of $1 billion.In 1993, based on Russian efforts to limit credit expansion andthe budget deficit, the IMF approved a $1.5 billion drawingunder the new Structural Transformation Facility (STF). Russiadid not meet its 1993 targets, but renewed stabilizationpolicies in the fall of 1993 opened the way for a second $1.5billion STF drawing approved in the spring of 1994. Russia isengaged in negotiations with the IMF for a Standby Agreement ofabout $6 billion.5. Significant Barriers to U.S. Exports The June 1993 Customs Code, which offers 15 alternativeregimes for handling external trade, standardizes Russiancustoms procedures in accordance with international norms.However, customs regulations change frequently, often withoutsufficient prior notice, are implemented unevenly, and aresubject to arbitrary application. There is no journal similarto the Federal Register which comprehensively covers changes instandards and border restrictions. In December 1993 the UnitedStates and Russia implemented a 1990 Customs Mutual AssistanceAgreement (with the Soviet Union) which was replaced inSeptember 1994 by a new U.S.-Russian agreement. Russia's July 1993 Consumer Protection Law stipulatesofficial certification (by Gosstandart) of imported productsfor conformity to Russian technical, safety and qualitystandards. Certification is based on a combination ofinternational (notably European Union) and Russian standards.All food items imported into Russia are subject to food qualityand safety standards and require a certificate for eachshipment. Manufactured items can receive certificates allowingimport of a good over a three-year period. Import licenses arerequired on the normal range of dangerous and harmful materialsand goods. U.S. companies have complained of costly proceduresand arbitrary certification requirements. Russia isestablishing reciprocal standardization with the U.S. and othercountries and acceptance of foreign certification by accreditedinstitutions. A joint Russian-U.S. communique of December 1993pledges cooperation on improving and simplifying certification,testing and quality assurance of U.S. and Russian products ineach other's markets. A February 1994 memorandum ofunderstanding between the U.S. Food and Drug Administration andthe Russian Ministry of Health and Medical Industry establisheda framework for cooperation and exchange of information ondrugs and biological products in order to facilitate theirimportation. Most service industries still require comprehensiveregulatory legislation. Although little of Russia's serviceslegislation is overtly protectionist, the banking, securitiesand insurance industries have secured concessions in the formof presidential decrees. In practice, foreign companies areoften disadvantaged vis-a-vis Russian counterparts in obtainingcontracts, approvals, licenses, registration and certification,and in paying taxes and fees. State procurement plays a limited and declining role fornon-defense industries, although production subsidies andgovernment grain purchases continue in agriculture. A December1993 decree abolished state agricultural purchases at fixedprices. The federal government has earmarked the equivalent of$15 billion for purchase of Russian domestic aircraft to beleased at a discount to domestic airlines. Rail transportationprices have been allowed to rise steadily over the past threeyears but remain indexed to the cost of inputs. The grain andaircraft programs are supported from a government fundequivalent to $5 billion. The few remaining import subsidiesand centralized imports for nongovernment purposes wereeliminated in 1994, and the 1995 draft budget contains noprovisions for subsidized imports. The U.S. BilateralInvestment Treaty with Russia would provide substantialassurances to U.S. investments if the Russian parliamentratifies it.6. Export Subsidies Policies The 1995 budget has no provisions for centralized purchasesfor exports except military technology, coordinated through asingle state organization, Rosvooruzhenie, in accordance withan April 1994 presidential decree. The export of oil, oilproducts and natural gas is still extensively centralized, andprovides a significant portion of federal budget revenue. Thegovernment auctions rights to conduct centralized exports of"strategically important" commodities in return for waivingexport taxes, although such exports "for state needs" havefallen short of targets due to diminishing margins betweendomestic and international market prices. Privatized formerSoviet foreign trade organizations continue to handle a largeshare of exports.7. Protection of U.S. Intellectual Property In 1992-93, Russia enacted laws strengthening theprotection of patents, trademarks and appellations of origins,and copyright of semiconductors, computer programs, literary,artistic and scientific works, and audio/visual recordings. The Patent Law, which accords with the norms of the WorldIntellectual Property Organization, includes a grace period,procedures for deferred examination, protection for chemicaland pharmaceutical products, and national treatment for foreignpatent holders. Inventions are protected for 20 years,industrial designs for ten years, and utility models for fiveyears. One must wait four years before applying for acompulsory license. The Law on Trademarks and Appellation ofOrigins introduces for the first time in Russia protection ofappellation of origins and provides for automatic recognitionof Soviet trademarks upon presentation of the Sovietcertificate of registration. The Law on Copyright and Neighboring Rights, enacted inAugust 1993, protects all forms of artistic creation, includingaudio/visual recordings and computer programs as literary worksfor the lifetime of the author plus 50 years and is compatiblewith the Berne Convention. The September 1992 Law onTopography of Integrated Microcircuits, which also protectscomputer programs, protects semiconductor topographies for tenyears from the date of registration. Russia has acceded to the obligations of the former SovietUnion toward the Universal Copyright Convention, the ParisConvention, the Patent Cooperation Treaty, and the MadridAgreement. In November 1994, the government gave authorizationfor accession to the Berne Convention and the Geneva PhonogramsConvention. Under the U.S.-Russian Bilateral Investment Treaty(not yet ratified by the Russian side) Russia has undertaken toprotect investors' intellectual property rights. The BilateralTrade Agreement obligates protection of the normal range ofliterary, scientific and artistic works through legislation andenforcement. Still ahead are a comprehensive revision, nowunderway, of the Russian Criminal and Civil Codes, includingsections pertaining to intellectual property rights;strengthened penalties; and the establishment of specializedcourts, particularly a Patent Court, with trained andexperienced judges and attorneys, and trained police andcustoms officers. Legal enforcement of property rights hasbeen a low priority of the Russian government, as is evident inthe widespread marketing of pirated U.S. video-cassettes,recordings, books, computer software, clothes and toys.8. Worker Rights a. The Right of Association The right of workers to form or join trade unions isguaranteed by the Russian constitution and the Russian LaborCode, but full exercise of that right is limited in practice.The legacy of centralized economic management and communiststate trade union structure continues to retard the developmentof a workers' movement and independent trade unions in Russia.Independent trade unions began to form in 1989 and continue todevelop slowly, but the official unions, reorganized as theFederation of Independent Trade Unions of Russia (FNPR),continue to predominate and remain subservient to enterprisemanagers. The right to leave an official union and join a newone is guaranteed, but in practice many workers are reluctantto take this step because official unions have retained controlover the social insurance fund, supported by a 5.4 percentpayroll tax and providing short-term disability, maternity,leave, and annual leave benefits. Most Russian workers havelittle understanding of western concepts of worker rights anddo not view trade unions as their advocates. The independentunions have found it difficult to overcome this cynicism and toeducate workers about their rights and the role of unions inprotecting those rights. Russian law guarantees Russian workers the right to strike,but numerous restrictions severely limit the exercise of thatright. The law prohibits strikes which are for politicalreasons, which pose a threat to people's lives or health, orwhich might lead to "severe consequences." This ambiguouslanguage has meant the de facto prohibition of strikes in keysectors of the economy including defense, communications, civilaviation, and railroads. The law also requires a multi-stageprocess of notification and negotiation before striking, whichgives employers ample time to coerce, intimidate or bribeworkers. The Russian government has made little effort toprotect trade union leaders and strikers from retribution. Theambiguity of Russian labor laws provides employers withopportunities to punish trade union members, and there werenumerous cases in 1994 of enterprise managers firing workersfor union activities. However, free trade unions have hadincreasing success obtaining favorable verdicts in laborviolations suits in the Russian courts. With U.S. governmentassistance, the free trade unions have established two laborlaw centers in Russia to help free trade unions defend theirrights.</text>
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<text>U.S. DEPARTMENT OF STATEROMANIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS f. Rights in Sectors with U.S. Investment The U.S. Embassy has no information to suggest thatconditions differ in goods-producing sectors in which U.S.capital is invested with respect to application of the fiveworker rights discussed in A through E above. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 0Total Manufacturing (1) Food & Kindred Products (1) Chemicals and Allied Products (1) Metals, Primary & Fabricated 0 Machinery, except Electrical (2) Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 0Wholesale Trade 0Banking (1)Finance/Insurance/Real Estate 0Services 0Other Industries 0TOTAL ALL INDUSTRIES 25(1) Suppressed to avoid disclosing data of individual companies(2) Less than $500,000Source: U.S. Department of Commerce, Bureau of Economic Analysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEROMANIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS ROMANIA Key Economic Indicators (Million of U.S. dollars unless otherwise noted) 1992 1993 1994Income, Production and Employment:Real GDP (billion 1992 lei) 5,982.3 6,060.0 6,181.2Real GDP Growth (pct.) -13.8 1.0 2.0Nominal GDP (billion current lei) 5,982.3 19,737.2 50,000.0Nominal GDP 18,407.0 25,901.8 30,300.0By Sector: Industry 8,227.3 9,505.9 12,784.0 Agriculture/Forestry 3,477.5 5,568.7 7,990.0 Construction 803.0 2,590.1 1,053.9 Transport/Telecommunication 1,176.9 1,295.1 1,663.4 Trade/Tourism 2,430.7 2,745.5 3,533.2 Other Services 2,291.6 4,196.5 3,275.5Net Exports of Goods & Services -1,588 -1,239 -300Real GDP Per Capita (USD) 807 1,136 1,328Labor Force (millions) 11.4 11.3 11.3Unemployment (pct.) 5.4 9.3 10.2Money and Prices:Lending Interest Rate (pct.) 39.1 56.7 88.7Rate on Deposits (pct.) 29.7 34.3 72.5Retail Inflation 210.9 256.1 70.0Official Exchange Rate (lei/USD) (annual average) 325 762 1,652Balance of Payments and Trade:Total Merchandise Exports 4,363 4,892 5,900 Exports to U.S. 84 39 144Total Merchandise Imports 6,260 6,521 6,600 Imports from U.S. 223 202 220Trade Balance -1,846 -1,631 -700 Trade Balance with U.S. -139 -163 -76Aid from U.S. 20.1 34.7 44.1Aid from Other Countries 156 180 180Debt Service Payments 185.9 369.2 958.1Gold and FOREX Reserves Net (1) 44.0 315.0 951.5(1) Total banking system net foreign assets; end of period.1. General Policy Framework With a population of 22.8 Million, a highly educated laborforce, and substantial exploitable natural wealth, Romaniaoffers a potentially attractive market for U.S. trade andinvestment. For the next several years, however, Romania'seconomic performance -- and thus its demand for imports -- willcontinue to be constrained by the slow pace of privatizationand the decline of its traditional heavy industries. In the years immediately following the December 1989revolution, the Romanian economy was buffeted by the shock ofadjustment to international price levels (especially for energyand raw materials), the elimination of the former centralplanning apparatus, and the collapse of its traditional COMECONmarkets. From 1989 to 1992, Romania's GDP contracted by 29percent; industrial production declined 38 percent; and outputin the transport and telecommunications sector fell 50percent. Exports dropped 60 percent (from $10.5 To $4.3billion), limiting the country's ability to pay for much-neededimports of fuel and capital goods. More than one millionworkers lost their jobs in the state sector and openunemployment -- not seen for decades in Romania -- rose toabout 10 percent of the labor force. Job-holders also sufferedas average monthly wages fell to around $115 per month -- aboutone-half the pre-revolution level. The economy bottomed out in 1993 and may have grown by upto 1.0 percent due to a 14-percent weather-related surge inagricultural output and anemic growth in industry. However,declines continued to be registered in construction activityand especially in services, where the growth of private retailand service establishments failed to offset the continuingdecline in some consumer services and in goods and passengertransport volume. Preliminary estimates for 1994 indicate that the economymay have finally turned the corner, to achieve unambiguousgrowth in most sectors. The consensus is that the nation's GDPwill have grown by about 2.0 percent in 1994 due to ananticipated 5-percent jump in agricultural production, thesmall private sector's growth, a revival of building activity,and a mild export-led recovery in industry. However, the paceof growth is unlikely to be sufficient to prevent a furtherrise in unemployment, to perhaps 11 percent, by the end of 1994. Although Romania is committed to the development of amarket economy, state ownership of most means of productioncontinues five years after the overthrow of communism.Nevertheless, steady -- if slow -- progress towardprivatization is being made. Ninety-six thousand squarekilometers of arable land have been returned to private farmers(benefitting over 5 million individuals in the process), nearly400,000 new private companies have been created, and some 850state enterprises have been privatized through management andemployee buy-outs. In September, 1994, the governmentsubmitted its long-awaited mass privatization legislation tothe parliament, proposing the privatization of an additional3,000 state-owned enterprises via a modified voucher system.This law cleared the Senate in December 1994. If implementedin its entirety, the bill would transfer an estimated 10-12percent of Romania's GDP to private hands by the end of 1995. Progress has been much more visible in the non-statesector, which now makes up an estimated 35 percent of Romania'seconomy. In late 1994, private firms and individuals accountedfor about five percent of industrial output, 25 percent ofconstruction activity, 40 percent of services turnover, and 80percent of farm production. More significantly, the privatesector now employs an estimated 50 percent of Romania'soccupied labor force (5.0 million out of 10.1 million)including 3.0 million farmers, 1.5 million owners and employeesof private firms, and 0.5 million self-employed individuals. The reintegration of Romania into world markets is acentral feature of the government's economic policy. Romaniasigned an association agreement with the European Union inDecember 1992. The European Union is by far Romania's mostimportant trading partner. In 1993, it took 39.3 percent (or$1.924 billion) of Romania's total FOB merchandise exports of$4.892 billion, and provided 42 percent ($2.741 billion) of itstotal CIF merchandise imports of $6.525 billion. In contrast,the United States accounted for only 1.3 percent ($61.9million) of Romania's exports and 4.3 percent ($282.1 million)of its imports in 1993. Despite this difference in relative trade flows, Romaniaplaces special emphasis on improving bilateral economicrelations with the United States. As a result of therestoration of most-favored-nation tariff status with theUnited States in November 1993; U.S. ratification of abilateral investment treaty in December 1993; and the return toRomania of the U.S. Export-Import Bank and the U.S. OverseasPrivate Investment Corporation; prospects for expandedbilateral trade and investment are much improved. For example,in the first nine months of 1994, Romanian exports to theUnited States increased 182 percent, while imports from theUnited States rose 12 percent. Since late 1993, the National Bank of Romania hasimplemented a tough IMF-backed macroeconomic stabilizationpackage that has succeeded in cutting annual inflation fromaround 300 percent in 1993 to less than 70 percent in 1994,restored real positive interest rates in the financial sector,increased domestic bank deposits, and stabilized the leu. Aparallel Government of Romania austerity program is holding thecentral government fiscal deficit to about 3.0 percent of GDP.In the Fall of 1994, the Romanian government implementedpainful budget-driven personnel reductions in the headquartersstaffs of most non-defense-related ministries. For example,the Bucharest staffs of the Ministries of Agriculture and Food,Industry, Transportation, and Commerce were all reduced between40-55 percent.2. Exchange Rate Policy As a part of its macroeconomic stabilization package, theNational Bank of Romania liberalized the foreign exchangeauction system in April 1994. The reform, which replaced theformer administered rate with a market-clearing rate,substantially eliminated the gap between the official rate andthat prevailing in the system of legalized exchange houses.The relative stability of the leu since that time (it has gonefrom lei 1650 to lei 1750/$) has generally restored publicconfidence in the national currency and allowed the NationalBank to implement a second-stage liberalization -- involvingthe creation of an interbank market -- beginning in August 1994. As of November 1994, six commercial banks have beenauthorized to freely trade the Romanian currency. However, anynumber of corporate customers can theoretically buy hardcurrency through these authorized broker/dealers. In late1994, the interbank market appeared to be performing wellwithout any noticeable shortage of dollars. Moreover, thespread between the leu/dollar rate of exchange on the interbankmarket and the exchange house rate was holding stable at around6-8 percent. Despite the substantial liberalization of the foreignexchange regime, the leu is not yet freely convertible. TheNational Bank of Romania maintains a number of restrictionsaimed at preventing capital flight. Thus, the removal of morethan token amounts of lei from Romania remains illegal.Romanians are prohibited from holding foreign bank accounts,though they are permitted to own U.S. dollar-denominated bankaccounts in local banks. Foreign exchange restrictions, thoughsomewhat liberalized, also remain in effect. For example,Romanian citizens are allowed to buy only $1,000 worth of hardcurrency per year on an unrestricted basis. For thosetraveling abroad, the limit is set at $5,000 per person pertrip. Furthermore, commercial companies must obtain an importlicense prior to buying hard currency, though this appears tobe less of a problem in late 1994. In September 1994, theNational Bank issued a directive requiring all domestictransactions between Romanian individuals and/or legal entitiesto be conducted in lei.3. Structural Policies Economic reform has entailed creating new laws in virtuallyevery sphere: finance, commerce, privatization, intellectualproperty, banking, labor, foreign investment, environment, andtaxation. Among the more recent developments are the July 1,1993 introduction of an 18-percent value added tax; the May 24,1994 government ordinance reforming local taxation, the August11, 1994 passage by the parliament of a securities and exchangeact; and the August 31, 1994 promulgation of a new taxordinance on corporate profits. Despite these achievements,several gaps remain in the legal framework. Chief among theseare the absence of a modern bankruptcy code, a modern copyrightlaw which includes protection for software, legislation on therestitution of properties nationalized during the communistera, and the previously-mentioned mass privatization bill.Draft bills on all of these subjects were before the parliamentin late 1994. Since 1989, Romania has gradually liberalized prices andeliminated most direct producer and consumer subsidies. Themain areas of exception are coal production, publictransportation, and household energy and heating. In foodproducts, the principal remaining subsidies by summer 1994 wereon bread and milk. However, in October 1994, the governmentannounced its intention to reimpose "temporary" wholesale pricecontrols on pork, chicken, eggs, cooking oil, and sugar. The major sources of central government revenue in Romaniaare an 18-percent value added tax, a 38-percent tax on mostcorporate profits, and a salaries tax which rises to 60 percentfor the portion of salary in excess of 816,000 lei per month(about $470). Together these three taxes accounted for about83 percent of total central government revenues in the firsthalf of 1994. Romania's generally high customs duties make uponly 6 percent of total central government revenues. Gradualadjustments to the tariff schedule will be required to bringRomania into harmony with the European Union by the end of thedecade. As a result, rate differentials will increasinglyfavor imports from the European Union.4. Debt Management Policies During the 1980's, former dictator Nicolae Ceausescudirected the liquidation of all foreign debt via acceleratedrepayments and forced exports in order to reduce foreigninfluence over Romania. By April 1989, Romania's debt wasvirtually zero and the country was a net external creditor.After December 1989, foreign borrowing was resumed, and by theend of 1994, medium and long-term external debt amounted toabout $4.3 billion (and overall the country was again a netdebtor). Nonetheless, in 1993, debt service payments stillamounted to a mere six percent of Romania's exports of goodsand services. However, debt service is now growing and in 1994is expected to reach about 15 percent of exports of goods andservices. Romania signed a standby agreement with the IMF in May1991, which provided for $500 million in balance of paymentsassistance plus up to an additional $400 million in contingencyand compensatory assistance. This program was terminated inFebruary 1992 by mutual agreement when, as a result of thebuildup of debt among state-owned enterprises (essentially softsupplier credits), it became evident that Romania would not beable to meet the IMF target for monetary growth. Anotherstandby agreement was negotiated in May 1992, providing forassistance totaling $440 million. This program was alsoterminated by mutual agreement before the final tranche ofassistance had been drawn. Negotiations for a third program began in March 1993. InFebruary 1994, the Romanian Parliament approved the draft"memorandum on economic policies" and a preliminary 1994 budgetin line with the proposed program. In May 1994, the IMFapproved Romania's request for a 19-month standby arrangementin the amount of SDR 131.97 million and a first drawing underan SDR 188.5 million systemic transformation facility.5. Significant Barriers to U.S. Exports There are no laws which directly prejudice foreign trade,investment, or business operations in Romania. Traditionallydefined trade barriers are generally not a major problem,though there exist areas of exception. In mid-1994, Romaniaimposed a system of reference prices for imports of chickenparts (about 85 percent of which came from the United States)in order to protect its largely state-owned chicken industry.In fall 1994, Romania also sharply increased import tariffs onnew and used automobiles in order to support its strugglingdomestic manufacturers. The Government of Romania welcomes foreign investment andgenerally makes good faith efforts to assist in resolvingdisputes involving U.S. and Romanian firms. However,impediments to bilateral trade and investment can arise fromcultural differences, the nature of the reform process, orattitudes and practices carried over from the days whenRomania's economy was centrally planned. Formal investment barriers are few in Romania. The foreigninvestment law allows up to 100-percent foreign ownership of aninvestment project (excluding land), and there are no legalrestrictions on the repatriation of profits and equitycapital. Foreigners are permitted to lease land, but under theconstitution are prohibited from owning land. Governmentalapproval of joint ventures is required but has not impeded theformation of such ventures. The Romanian Development Agencyattempts to match foreign investors with Romanian partners. In1994, the Government raised the minimum investment requirementsfor registering foreign investment to $10,000 from $100. Despite the best efforts of the Government of Romania, anumber of problems continue to restrict the level of foreigninvestment to relatively low levels. For example, gainingclear title to property remains problematical and any purchasesare potentially subject to legal challenge by former owners ormanagers. The situation is further complicated by the absenceof bankruptcy legislation and, hence, a means for pressingclaims against debtors. The large amount of red tape which accompanies manytransactions and the need to deal with overlapping localbureaucracies can prove frustrating to foreign investors.Corruption is a major problem and, in certain instances, canpose an actual business risk. The changing legal and regulatory environment has createddifficulties which affect foreign participation in the Romanianeconomy. There are few legal specialists qualified tointerpret the commercial implications of recent Romanian legaldevelopments and there is little experience in Western methodsof negotiating contracts. Once concluded, there is often noeffective means of enforcing agreements. The cost of doing business in Romania can also beunexpectedly high, particularly rents for offices and chargesfor telecommunications and business services. The lack of anefficient modern payments system (checking accounts do not yetexist) further complicates transactions in Romania. Paymentscan only be made in cash. Corporate income is generally taxed at a rate of 38percent. In addition, the government levies a 10 percentdividend withholding tax. The recent revision of the corporateprofits tax eliminates nearly all future investment taxholidays. However, foreign companies investing over$50 million may still qualify for a seven year tax exemption.Romania has no income tax, but instead imposes a steeplyprogressive salary tax which rises to a 60 percent marginal taxrate on all salaries above $470 per month. Since 1990, Romania has registered over 38,000 commercialcompanies with foreign capital participation. The total valueof foreign investment surpassed $940 million in October 1994.The overwhelming majority of the investment is small scale.U.S. company investments range from a few hundred dollars tomany millions and are increasing in value and number steadily.As of October 17, 1994, U.S. investments in Romania were worth$95.7 million, a virtual tie with the value of investments fromGermany, Italy, and France.6. Export Subsidies Policies The Romanian government does not provide export subsidiesbut does attempt to make exporting attractive to Romaniancompanies. For example, the government provides for the totalor partial refund of import duties for goods that are processedfor export or are incorporated into exported products. ASeptember 1994 government decision permits the RomanianExport-Import Bank to engage in trade promotion activities onbehalf of Romanian exporters of goods produced in Romania. There are no general licensing requirements for exportsfrom Romania, but the government does prohibit or control theexport of certain goods and technologies. For example, theGovernment has, on occasion, banned the export of variouscommodities (especially foodstuffs) due to domestic shortages.There are also export controls of imported or indigenouslyproduced goods of proliferation concern. Romania is not a signatory to the GATT subsidies code orgovernment procurement code but has indicated its eventualintention to subscribe to both codes.7. Protection of U.S. Intellectual Property Romania has made significant progress in the area ofintellectual property protection since the end of the communistera. New patent and trademark laws have been enacted. A newrevised copyright law, which will provide protection forsoftware, is expected to be submitted to the parliament shortly. All legislation in this field has been modeled afterinternational standards and norms and has been reviewed byinternational experts. The Government of Romania has expressedits intention to have in place in 1995 a complete set ofintellectual property laws consistent with European Unionnorms. Nonetheless, the lack of copyright protection has causedsome American firms to be reluctant to invest in Romania.Pirated copies of audio and video cassette recordings areopenly marketed and inexpensive. Some are apparently producedlocally, but many appear to be imported from elsewhere in theregion. The U.S. Embassy in Bucharest is not aware of piratedgoods being produced in Romania for export.8. Worker Rights a. The Right to Association Current labor legislation adopted in 1991 guarantees allworkers except government employees, police, and militarypersonnel the right to associate, to engage in collectivebargaining, and to form and join labor unions without previousauthorization. The right to strike is specifically guaranteed,although union members have been frustrated with the courts'propensity to declare illegal the major strikes on which theyhave been asked to rule. Legal limitations on the right tostrike exist only in certain critical industries involving thepublic interest, such as defense, health care, transportation,and telecommunications. Union members have continued to criticize certain aspectsof the 1991 legislation, but no consensus has been reached onhow the laws should be amended. Past studies have indicatedthat the legislation falls short of International LaborOrganization (ILO) standards in several areas, including thefree election of union representatives, binding arbitration,and financial liability of strike organizers. Although thelegislation is supportive of collective bargaining as aninstitution, the contracts that result are not enforceable in aconsistent manner. This situation is caused in part byinadequacies in the law itself and by problems created bycontinued state ownership of most major industries. In 1994,the government and the major labor confederations moved topromote a new tripartite collective bargaining relationshipamong the government, labor, and private sector. Current legislation stipulates that labor unions areindependent bodies, free from government or political partycontrol, with the right to be consulted on labor issues. Noworker can be forced to join or withdraw from a union, andunion officials who resign from elected positions and return tothe regular work force are protected against employerretaliation. In practice, the government does not seem toexert any control or influence over labor union activities. In1994, however, several steps were taken toward politicizationof the Romanian labor movement. In July, Miron Mitrea, theExecutive President of CNSLR-Fratia, Romania's largest laborconfederation, was selected as the president of a dormantpolitical party created by the trade unions. Fearing thatparty might merge with the ruling Party of Social Democracy,Victor Ciorbea, President of CNSLR-Fratia, announced in Augustthat he had formed an alliance with the opposition DemocraticConvention and the National Trade Union Bloc, another majorconfederation. In a declaration signed by the three parties,each pledged to develop joint programs but to maintain"complete independence." In October, Ciorbea set up a newlabor confederation, "The Confederation of Democratic TradeUnions of Romania." The majority of Romanian workers are members of some 18nationwide trade union confederations and smaller independenttrade unions. Virtually all unions concentrate on economicissues to protect their members' standard of living, which hascontinued to decline because of increases in consumer pricesand uncertainty caused by the transition to a market economy. Labor unions may freely form or join federations, andaffiliate with international bodies. The Alfa Cartel andCNSLR-Fratia are affiliated with the World Confederation ofLabor and the International Confederation of Free Trade Unions,respectively. Representatives of foreign and internationalorganizations freely visit and advise Romanian trade unionists. The Committee of Experts at the 1994 ILO Conferenceobserved that the treatment of the Roma and Magyar minoritiescontinued to be the subject of debate in the UN Human RightsCommittee. It noted that the government, which asserted therewere no discriminatory standards against the Roma, had reportedthat some 22 percent of Roma men and 71 percent of Roma womenwere unemployed. The committee noted with interest themeasures taken by the Government to promote better integrationof the Roma in the society and the government's establishmentof the Council for National Minorities, which monitors theproblems of persons belonging to those minorities. Thecommittee urged the Government to supply information about thework of that council, and information about the programs beingtaken to provide education, training, and employment for theethnic Hungarian population. b. The Right to Organize and Bargain Collectively Current legislation permits workers to organize into unionsand to bargain collectively. In January, the Locomotive EngineDrivers Federation lost an appeal in which it tried to overturnan original court decision that had declared its August 1993strike illegal. As a result of that strike, several unionleaders and strikers were summarily fired. The absence ofeffective employer groups, because of continued state controlover most industrial resources, complicates collectivebargaining efforts. c. Prohibition of Forced or Compulsory Labor The constitution prohibits forced or compulsory labor. TheMinistry of Labor and Social Protection (MOLSP) effectivelyenforces this prohibition, and no instances of abuse wererecorded in 1994. d. Minimum Age for Employment of Children The minimum age for employment is 16, but children as youngas 14 may work with the consent of their parents or guardiansbut only "according to their physical development, aptitude,and knowledge." Working children under 16 have the right tocontinue their education, and employers are obliged to assistin this regard. The MOLSP has the authority to impose finesand close sections of factories to enforce compliance with thelaw. No violation of this policy was documented in 1994, andchild labor did not appear to be a problem. e. Acceptable Conditions of Work Most wage scales are established through collectivebargaining. However, they are based on minimum wages for giveneconomic sectors and categories of workers set by thegovernment after negotiations with industry representatives andthe labor confederations. Minimum wage rates are generallyobserved and enforced, although employers' financialdifficulties often result in nonpayment of wages orpostponement of payment. The labor code provides for a work week of 40 hours or fivedays, with overtime to be paid for weekend or holiday work orwork in excess of 40 hours. Paid holidays range from 15 to 24days annually depending mainly on the employee's length ofservice. Employers are required by law to pay additionalbenefits and allowances to workers engaged in particularlydangerous or difficult occupations. Draft legislation regarding occupational health and safetyis still pending in parliament. The MOLSP has establishedsafety standards for most industries and is responsible forenforcing them. Enforcement, however, is not good because theMOLSP lacks sufficient trained personnel, and employersgenerally ignore its recommendations. Some labor organizationshave pressed for healthier, safer working conditions on behalfof their members. Though they have the right to refusedangerous work assignments, workers seldom invoke it inpractice, appearing to value increased pay over a safe andhealthful work environment. Neither the government norindustry, still mostly state owned, has the resources necessaryto improve significantly health and safety conditions in thework place.</text>
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<text>U.S. DEPARTMENT OF STATEPORTUGAL: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS PORTUGAL Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1/ 1994 2/Income, Production and Employment:Real GDP (1989 prices) 3/ 65,178 54,173 54,030Real GDP Growth (pct.) 1.1 -1.0 1.1GDP (at current prices) 96,129 85,107 88,494By Sector: (pct.) Agriculture 5,190 4,340 4,160 Energy/Water 3,749 3,404 3,717 Manufacturing 25,089 21,104 21,687 Construction 5,191 4,595 4,868 Services (net) 56,910 51,664 54,062Net Exports of Goods, Services and Transfers 4/ -20 693 -500Real Per Capita GDP (USD) 6,974 5,794 5,779Labor Force (000s) 4,528 4,504 4,541Unemployment Rate (pct.) 4.1 5.5 6.7Money and Prices: (annual percentage growth)Money Supply (M2) 16.1 7.6 5.0Base Interest Rate 5/ 16.0 11.0 9.0Personal Savings Rate 6/ 10.9 8.1 8.8Retail Inflation 7/ 8.9 6.5 5.3Consumer Price Index 7/ 108.9 116.0 122.1Exchange Rate (USD/PTE) 135.0 160.8 163.0Balance of Payments and Trade:Merchandise Exports (FOB) 4/ 18,275 16,699 18,000 Exports to U.S. 590 679 750Merchandise Imports (CIF) 4/ 27,675 23,663 24,500 Imports from U.S. 916 745 800Aid from Other Countries 4,129 3,851 3,712External Public Debt 19,098 19,721 19,500Debt Service Payments 4,920 5,001 4,500Gold and Foreign Exch. Reserves 24,335 21,005 21,000Trade Balance -9,400 -6,964 -6,500 Trade Balance with U.S. -326 -66 -501/ Estimated.2/ Projected.3/ GDP at market prices.4/ As of 1/1/93 on a cash basis.5/ 91-day Treasury Bills -- primary market.6/ On new national accounts basis (1986 base).7/ New Series: 1991 = 100.1. General Policy Framework The government's economic goal is to modernize Portuguesemarkets, industry, infrastructure, and workforce in order tomatch the productivity and income levels of its more advancedEuropean Union (EU) partners. Portuguese per capita GDP (on apurchasing power parity basis) reached 64.5 percent of the EUaverage by the end of 1993. The government's medium-term objective is to be in thefirst tier of EU countries eligible to join the Economic andMonetary Union (EMU) as early as 1997. To be eligible,Portugal must reduce inflation, budget deficits, public debt,and interest rates in line with convergence criteria set by theEuropean Commission. The current policy mix to meet thesecriteria includes modestly stricter fiscal policy; continuedtight monetary policy in defense of a broadly stable exchangerate; conservative incomes policies to support the disinflationprocess; and privatization and trade policies to increase theefficiency and productivity of the economy. An unexpectedly severe recession, significant fiscalslippage, and turmoil in the EU exchange rate mechanismundermined Portugal's EU convergence strategy in 1993. Facedwith higher unemployment, a markedly weaker government fiscalposition, and dimmer growth prospects than originallyanticipated, financial markets repeatedly tested thegovernment's commitment to disinflation in 1994. In response,the government consistently reaffirmed its commitment toexchange rate stability. As a result, inflation is muchreduced, interest rates have come down, and the economy appearsheaded for recovery of 1.1 percent in 1994 and 3 percent in1995. Prime Minister Cavaco Silva and the Social Democratic Party(PSD) face parliamentary elections in 1995. Some observersbelieve the Prime Minister remains committed to the disciplineof EU convergence despite domestic political pressures to boostthe economy in an election year. They point out that thegovernment has thus far resisted union demands for a 5 percentminimum wage increase as part of a one-year social pact and isletting financial markets set a cautious pace for interest ratereductions even at the cost of slower growth and higherunemployment in the short-term. In addition, they say thegovernment is aware that the European Commission is linkingdisbursement of politically-important EU cohesion funds todemonstrated progress on meeting EU convergence criteria.Other observers believe electoral considerations are alreadyevident. They point out that government is not planning to cutthe FY-1995 budget deficit as much as might be expected and isconceding to pressure groups such as local bankers and smallmerchants. Furthermore, they say accelerated declines ininterest rates and a generous off-cycle salary boost cannot becounted out as electoral concerns build.2. Exchange Rate Policy Portugal participates with Belgium, Denmark, France,Germany, Ireland, Luxembourg, the Netherlands, and Spain in theexchange rate and intervention mechanism (ERM) of the EuropeanMonetary system (EMS). In accordance with this agreement,Portugal maintains the spot exchange rates between thePortuguese escudo and the currencies of the other participantswithin margins of 15 percent above or below the cross ratesbased on the central rates expressed in European Currency Units(ECUs). The wider 15 percent band replaced a 6 percent band inAugust 1993. Portuguese authorities continue to maintain a stableexchange rate to anchor wage and price expectations. Theauthorities have thus far not used the wider 15 percent marginsto ease policy, but rather have reacted to bouts of exchangerate pressure by raising interest rates and intervening in themarket. In particular, since August 1993, the authorities havekept the escudo well within the old 6 percent band against thedeutsche mark, at approximately PTE 102/DM. The governmentbelieves the general upward trend in Portugal's export marketshares in recent years indicates the exchange rate continues tobe consistent with maintaining international competitiveness.3. Structural Policies The Portuguese Government continues to liberalize theeconomy to stimulate growth and convergence with EU standards.EU assistance programs designed to facilitate structuraladjustment in Portuguese agriculture, industry, commerce, andregional development will approach 4 percent of GDP in 1994.EU transfers are expected to increase by 8 percent per yearduring 1994 to 1999. Since the Portuguese government mustprovide significant counterpart funding of EU transfers, thestructure of government spending is expected to shift markedlyaway from current spending to make room for rising publicinvestment. In the labor market, the sharp slowdown in nominal wagesettlements has supported the disinflation effort. Morebroadly, the government is investing in worker trainingprograms to enhance the quality and mobility of the workforceand improve its productivity. The government's privatization program slowed in 1993 afteradvancing rapidly in 1992. The government took in revenues ofonly 400 million dollars in nine privatizations in 1993. Thepace picked up in 1994, however, with six privatizationsyielding over 700 million dollars in revenues through August.By year-end 1994, "denationalization" of the banking andinsurance sector will be virtually complete, and majornon-financial state-owned enterprises (including energy andtelecommunications) will be partially or wholly privatized.The government normally sets maximum foreign ownershippercentages on a case-by-case basis and may retain asubstantial voice in management of selected firms.4. Debt Management Policies Total external debt stood at $19.7 billion at the end of1993, or equal to about 23 percent of GDP. As recently as1989, external debt represented almost 40 percent of GDP.Portugal's debt is well structured and can be comfortablyserviced. Large international reserves, and the ability to tapinternational financial markets on favorable terms, will enablePortugal to manage balance of payments pressures and maintainfinancial stability as the economy recovers and imports forinvestment revive. Portugal is an aid donor nation and closelyfollows development issues in its former African colonies.Portugal's aid as a proportion of GDP exceeds the average forthe OECD Development Assistance Committee.5. Significant Barriers to U.S. Exports As of January 1, 1993, all barriers to trade, capital flowsand labor mobility between Portugal and its EU partners wereeliminated. Most barriers to U.S. exports, therefore, arecommon to all EU member states. Policymakers see foreign investment as a crucial pillar inbuilding a more competitive economy. The government offers avery generous package of incentives to investors, including 100percent foreign-owned subsidiaries. The package of incentivescan range from 25 to 35 percent of the total investment.However, the government restricts or excludes private andforeign participation in some sectors, including sewagetreatment, postal, transportation and water. Portugal follows EU directives for standards, testing,labeling, and certification. The Portuguese Quality Instituteestablishes national standards and implements EU directives.Portugal has already adopted most EU directives into Portugueselaw. The Portuguese Telecommunications Institute setsstandards for telecommunication products, and the NationalLaboratory Civil Engineering sets Construction Standards. Low voltage electrical and electronic equipment must meetthe requirements of EC directive 73/23/EEC. Imported textiles,apparel, and leather goods must carry a label indicatingcountry of origin and composition by percentage of the fabric. Government procurement legislation makes no distinction asto country of origin. In July 1993, the GATT acceptedPortugal's list of entities covered by the GovernmentProcurement Code. Quantitative import restrictions remain for the followingproducts: automobiles, fabrics and nets, fuses, parts offootwear, iron and steel tubes and pipes, and weaving machinesfor certain countries. Textiles are covered by the Multi-FiberArrangement (MFA) and protected by EU-wide quotas that will bephased out under the Uruguay Round over 10 years.6. Export Subsidies Program Portugal has no programs designed to directly subsidize itsexports. However, EU grants to modernize Portuguese industryand agriculture may indirectly subsidize Portuguese exports.Also, government support to public firms, primarily designed tomake them more attractive for eventual privatizations, may beconsidered an indirect subsidy.7. Protection of U.S. Intellectual Property On October 20, 1994, Decree Law 252/94, which transposesthe EU software law, entered into effect in Portugal. This lawexplicitly offers copyright protection for computer programsand stipulates stiff fines for software piracy. The governmenthas undertaken great efforts to improve enforcement, butsmall-scale copying occurs. Business and softwareorganizations have taken a proactive role in the fight againstpiracy. Portugal is a member of the World IntellectualProperty Organization and is party to the Berne and UniversalCopyright Conventions and the Paris Industrial PropertyConvention. Trademarks are granted for 10 years and are renewable.Duration of copyright is life of the author plus 50 years.Computer programs are not explicitly protected undercopyright. Enforcement action against unauthorized copying ofsoftware and audio and video cassettes has become more common. Patents are granted for 15 years and are not renewable.Enforcement is sometimes weak, but enforcement agencies arebeing strengthened. In 1991, Portugal enacted patentprotection for chemical products, pharmaceuticals, and foodproducts. Portugal's patent law also contains compulsorylicense provisions for insufficient use.8. Worker Rights a. The Right of Association Workers in both the private and public sectors have theright to associate freely and to establish committees in theworkplace to defend their interests. Unions may be establishedby profession or industry. Strikes are permitted for anyreason, including political causes. They are common and aregenerally resolved through direct negotiations betweenmanagement and the unions involved. There are two principallabor confederations. The General Confederation of PortugueseWorkers Intersindical (CGTP-IN) is linked to the Communistparty. The CGTP is in the process of joining the EuropeanTrade Union Congress (ETUC); ratification of its membership isnow expected to occur in 1995. The General Union of Workers(UGT) is a pluralist, democratic federation affiliated with theInternational Confederation of Free Trade Unions and the ETUC. b. The Right to Organize and Bargain Collectively Unions are free to organize without government or employerinterference. Collective bargaining is guaranteed by theconstitution and practiced extensively in the public andprivate sectors. When collective bargaining disputes lead toprolonged strike action in key sectors, the government isempowered to order the workers back to work for a specificperiod. Under a modification of the strike law, a "minimallevel of service" must be provided during certain strikes,including in the public health, energy, and transportationsectors. c. Prohibition of Forced or Compulsory Labor Forced labor does not exist. This prohibition is enforcedby the General Labor Inspectorate. d. Minimum Age for Employment of Children The minimum employment age is 15 years. It will be raisedto 16 when the period for 9 years of compulsory schooling takeseffect on January 1, 1997. The UGT and CGTP-IN have chargedthat a number of "clandestine" companies in the textile, shoe,and construction industries in northern Portugal exploit childlabor. Despite improvements in the number of inspectionscarried out by the General Labor Inspectorate, however, thegovernment does not allocate resources sufficient to fullyaddress the problem, which remains unresolved. e. Acceptable Conditions of Work The national monthly minimum wage was last adjusted onJanuary 1, 1993, and is generally enforced but legally does notapply to workers below the age of 18. Current legislationlimits regular hours of work to 8 hours per day and 44 perweek, but the workweek will be reduced to 40 hours by 1995.Overtime is limited to two hours per day, up to 200 hoursannually. Workers are guaranteed 30 days of paid annualleave. Employers are legally responsible for accidents at workand are required to carry accident insurance. Accidentsaverage between 70,000 and 75,000 per quarter. These figureshave focused government attention on improving worker safety inthe construction sector. There is also considerable concernabout the poor environmental controls in the textile industry. f. Application of Worker Rights in Various Sectors Legally, worker rights apply equally to all sectors of theeconomy. As noted above, child labor and worker safety areproblems in the textile and construction sectors. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 340 Food & Kindred Products 160 Chemicals and Allied Products 93 Metals, Primary & Fabricated (1) Machinery, except Electrical 3 Electric & Electronic Equipment 46 Transportation Equipment (1) Other Manufacturing 43Wholesale Trade 266Banking 195Finance/Insurance/Real Estate 127Services 145Other Industries (1)TOTAL ALL INDUSTRIES 1,162(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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card_28067.xml
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<text>U.S. DEPARTMENT OF STATEPOLAND: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS f. Workers Rights in Sectors of U.S. Investment As with the rest of the Polish private sector, it isimpossible to comment authoritatively on workers' rightsbecause of inadequate monitoring. Although there werelabor-management disputes in firms with U.S. investment in1994, there was no consistent pattern and none were protractedor serious. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 0Total Manufacturing 232 Food & Kindred Products 95 Chemicals and Allied Products (1) Metals, Primary & Fabricated 4 Machinery, except Electrical (1) Electric & Electronic Equipment (2) Transportation Equipment 0 Other Manufacturing (1)Wholesale Trade -22Banking (1)Finance/Insurance/Real Estate (1)Services 2Other Industries (1)TOTAL ALL INDUSTRIES 256(1) Suppressed to avoid disclosing data of individual companies(2) Less than $500,000Source: U.S. Department of Commerce, Bureau of Economic Analysis(####)</text>
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card_27666.xml
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<text>U.S. DEPARTMENT OF STATEPOLAND: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS POLAND Key Economic Indicators (Millions of U.S. dollars) 1992 1993 1994Income, Production and Employment:Real GDP (1990 prices) 56,305 58,474 61,105Real GDP Growth (pct.) 2.6 3.8 5.1GDP (at current prices) 84,323 85,759 88,559GDP By Sector: (pct.) 1/ Agriculture 6.8 7.0 6.5 Energy/Water N/A N/A N/A Manufacturing 38.0 32.9 37.6 Construction 8.6 7.0 10 Rents N/A N/A N/A Financial Services N/A N/A N/A Other Services N/A N/A N/A Government/Health/Education N/A N/A N/A Net Exports of Goods & Services N/A N/A N/AReal Per Capita GDP (1990 base) 1,468 1,520 1,585Labor Force (000s) 17,329 17,321 17,320Unemployment Rate (pct.) 2/ 13.6 15.7/16.4 16.7Money and Prices: (annual percentage growth)Money Supply (M2) 56.5 37.0 34.0Base Interest Rate 38 35 31Personal Saving Rate 22.4 20.7 N/AWholesale Inflation 31.5 35.9 21.9Consumer Price Index 44.3 37.6 27.0Exchange Rate (PZL/USD) Official 28.8 33.1 30.1 Parallel 27.2 31.8 28.8Balance of Payments and Trade: (USD millions)Total Exports (FOB) 13,187 13,471 14,280 Exports to U.S. 374.4 410.7 650Total Imports (CIF) 15,913 15,761 16,126 Imports from U.S. 636.6 974.5 960Aid from U.S. 179 96 75Aid from Other Countries 270 370 330External Public Debt 47,044 47,246 41,000Debt Service Payments (paid) 2,393 2,509 2,000Gold and Foreign Exch. Reserves (end of year/USD billions) 4.20 4.28 6.07 3/Trade Balance -2,726 -2,290 -1,846 Trade Balance with U.S. -262.2 -563.8 -310.0N/A--Not available.1/ In some cases the statistical systems and methods applied inPoland differ from those used in U.S. The GDP by sectors ispresented in Polish statistical publications as follows: 1992 1993 1994 Industry 39.6 32.9 37.6 Agriculture 7.3 7.0 6.3 Construction 11.2 11.3 10.0 Transportation/Communications 3.5 3.5 n/a Trade 15.0 15.0 n/a2/ Basis of calculation changed in December 1993.3/ End of August 1994.1. General Policy Framework In 1994 the Polish economy continued its strong recoveryfrom recession. Most of the trends seen in recent yearscontinued. Statistically, industrial output was thefastest-growing sector of GDP, pulling along the rest of theeconomy (most economists believe growth of the services sectorwas also strong, but this is not adequately measured by Polisheconomic statistics). Agriculture remained handicapped by itsstructural problems and its output was depressed by drought forthe second time in three years. Inflation remained high, butonce again was lower than in the previous year. One importantchange was that the trade deficit was substantially less thanin the last two years, largely because of strong growth ofexports, particularly to the former Soviet Union. After a year of government by the post-communist coalitionwhich came to power after the 1993 elections, the main outlinesof economic policy remain unchanged. Despite many pressuresfrom its supporters for increased spending, the government hasheld the line on deficit spending. However, progress onprivatization and other structural reforms has been slow anduncertain. A number of sectors highly attractive to foreigninvestors have so far been held off the market, includingtelecommunications and the tobacco industry. Monetary policy remains in the hands of the National Bankof Poland (NBP), which continues to focus on control ofmonetary aggregates to maintain economic stability and reduceinflation. The main challenge the NBP faced in 1994 was torestrain money-supply growth caused by the rapid build-up offoreign exchange reserves. Poland's main foreign economic policy goal remainsmembership in the European Union. Together with Hungary,Poland filed an application for membership in the EU in April,1994. Poland's association agreement with the EU, signed in1991, was finally ratified by the EU and came into force in1994, although this was largely symbolic, since the tradeprovisions had been provisionally applied since 1992.Relations with the EU warmed considerably, but remainedstrained by the EU's reluctance to speed integration of Polandor to open some of its most protected markets to Polishproducts. The Polish government continued to seek an end toanti-dumping actions by the EU, as well as improved marketaccess for Polish food products, coal, steel, and textiles.Poland's imposition of a variable levy on a number ofagricultural products has been hotly protested by the EU,although the levy seems to have had minimal impact on trade.It is uncertain whether this is because, as the Polish Ministryof Agriculture claims, it covered very little trade, or becausethe mechanism was designed in a way that made it highlyvulnerable to fraud, or if the bulk of covered imports werealways for processing and re-export, and subject to drawback ofthe levy. Poland completed negotiation of a Uruguay Round tariffschedule and signed the Marrakesh Agreement in April, 1994.However, the United States and several other trading partnersused the related process of Poland's re-accession to the GATTto continue negotiations seeking further concessions on a fewitems. The Polish government has indicated it will not seekratification of the Marrakesh Agreement until GATT re-accessionis completed, changing Poland's status from a non-market tomarket economy, and its schedule of concessions fromquantitative import quotas to a bound tariff schedule. A major component of Poland's economic recovery has beenthe sale of goods to non-residents visiting Poland. Estimatesof this trade range as high as over $4 billion a year (aboutfive percent of GDP). Because of the relatively low price ofgasoline in Poland (about $1.75/gallon, versus $3.50/gallon inGermany), there is essentially no cost for Germans living up to300 kilometers from Poland to come shopping in Poland. For thelast three years, Germans have come to Poland by the millionsto buy food, clothing, and gasoline. In 1994, it becameincreasingly evident that Russians were also engaging in thistrade, although they were often importing as well as exporting,and while the Germans came looking for bargains, the Russiansoften were looking for imported luxury goods, such as designerfashions and household appliances. Receipts from this trade,recorded in the Polish balance of payments as short-termcapital flows, are the largest source of the increases inPoland's foreign exchange reserves seen since mid-1993.2. Exchange Rate Policies The zloty has been internally convertible for all currenttransactions since January, 1990. This includes fullrepatriation of profits on foreign investments. Since October,1991 the NBP has managed the exchange rate through a crawlingpeg mechanism. This devalues the zloty by small dailyincrements (currently totalling 1.5 percent per month) tooffset domestic inflation and keep Polish exports competitive.Exporters have long felt that the rate of devaluation was tooslow, although their pressures for faster devaluation have beenweaker this year than in the preceding two years. The exchangerate is set against a basket of reserve currencies, currentlythe dollar (45 percent), the D-mark (35 percent), sterling (10percent), and the French and Swiss francs (five percent each).Zloty rates against individual currencies fluctuate inaccordance with changes in cross rates within the basket. Capital transactions remain controlled. A license from theNBP is required for Poles to receive foreign credits, exceptfor credits up to $1 million to be used to purchase goods orservices abroad.3. Structural Policies Prices: Most subsidies and controls on the prices ofconsumer goods have been eliminated. Subsidies remain on a fewitems, including pesticides and fertilizers. Prices for fuel,public transportation, and rents for publicly owned housing(the bulk of the housing stock) are set administratively.Housing rents are set well below the cost of maintaining thebuildings. There is an anti-monopoly office, responsible forpolicing the competitive practices of Polish enterprises andkeeping them from exploiting their monopoly positions on thedomestic market. Taxes: Although many administrative problems remain,Poland has been highly successful in introducing a modern taxsystem. The largest source of government revenue is thevalue-added tax introduced in 1993, and the second-largest isthe personal income tax introduced in 1992. Customs dutiesremain a significant source of revenue, contributing about ninepercent. Regulatory Policies: Any person or firm registered as abusiness may engage in foreign trade. State-owned tradingcompanies compete with private traders. Many of the statetrading companies have been privatized, and one, Elektrim, isPoland's largest private company. Few restrictions are placed on foreign trade, except onitems in strategic areas. Import licenses are required onlyfor the import of radioactive materials, munitions and militarygoods, internationally-controlled strategic items, fuel,cigarettes, and liquor. Imports of some high-proof spirits,cars over ten years old, and commercial vehicles and farmmachinery over three years old are banned. Export licenses are required for products in the followingareas: --petroleum products: fuels for engines other than aircraft; fuel for self-ignition engines; fuel oil; --metals: non-ferrous scrap; lead, aluminum; --soil products: nitrogenous fertilizers; peat and peat products; phosphatic fertilizers; potassic fertilizers; --plastics: polyethylene; polypropelene; copolymer ethylene; propylene; --polyvinyl chloride; --synthetic rubber and synthetic fiber; --chipboards; wood cellulose; waste paper; --preserved and half-tanned hides; --munitions; --internationally controlled strategic goods.The export of live geese and goose eggs is banned. The lawdoes not distinguish between foreign and domestic investors forpurposes of trade.4. Debt Management Policies In 1994 Poland concluded a debt-reduction deal with itsLondon Club group of commercial banks. This reduced its debtto foreign commercial banks from $14.4 billion to $8 billion,and stretched out repayment to 2024. Poland had previouslyrescheduled its debt to the Paris Club group of Westernofficial creditors. In 1994 the Paris Club executed the second(and last) tranche of its 50 percent reduction of Poland'sofficial debt.5. Significant Barriers to U.S. Exports U.S. exports have been disadvantaged by Poland'sassociation agreement with the EU because of the tariffpreferences given to the EU by the trade provisions of thatagreement. However, the damage was alleviated by a package ofconcessions implemented by the Polish government in 1993.Additional relief is provided in Poland's Uruguay Round tariffschedule and the tariff schedule still being negotiated forPoland's GATT re-accession. Standards of testing, labelling, and certification in somecases have presented barriers to U.S. exports. In some casesthey are more rigid and specific than equivalent regulations inWestern countries. Existing regulations are being revised toreflect Poland's new open trade regime and to conform to EUstandards, but periodically modifications are introduced whichare quirky, hard to understand, and difficult to comply with.Standards enforcement remains in need of improvement. TheMinistry of Health's Central Inspectorate of Sanitation(Sanepid) inspects and tests food and cosmetic imports toensure they meet health standards. Sanepid has beenoverwhelmed by the increase in food imports since 1990, andmuch food enters the Polish market without inspection. U.S.firms have not encountered difficulties getting approval tosell pharmaceuticals in Poland, providing the products havebeen approved for sale in Western countries. Service Barriers: Foreign banks are permitted to establishsubsidiaries in Poland, either wholly-owned or in partnershipwith Polish investors. Out of a feeling that there are alreadytoo many small banks in Poland, the NBP has sought to pressureforeign banks to buy ailing Polish banks instead of opening newsubsidiaries. While the law provides for foreign banks openingbranches in Poland, the NBP dislikes the regulatorycomplications of this form of organization and is unlikely tolicense branches in the near future. Foreign insurance firms are able to enter the Polishmarket. Foreign companies are prominent in the travel andtourism industry, but entry is regulated by the Ministry ofIndustry and Trade. Investment Barriers: The present law on foreign investmentaims at creating a level playing field for foreign investors,and eliminated most of the investment incentives previouslygranted. Requirements for incorporating foreign-owned firmsare now the same as for Polish-owned firms. Foreigners arelimited to investing via corporations, not partnerships or soleproprietorships. One hundred percent foreign ownership is permitted. Noregistration of an investment with the government is required,nor is any screening applied, except in the following cases: --Real Estate: Foreign acquisition of real estate, bypurchase or long-term lease, or foreign acquisition of 49percent or more of a Polish enterprise owning real estate,requires a permit from the Minister of the Interior.Foreigners may lease forests and agricultural land for up to 99years, but may not buy it outright. Reports to parliament showthat several thousand permits are applied for each year. Whilea majority are issued, a substantial number are refused. --Strategic Industries: A permit from the Minister ofPrivatization is required for foreign investment in: -operation of sea- or airports; -real estate agency transactions; -defense industries; -wholesale trade in consumer goods; -performance of legal services.A permit can only be denied when a proposed investment wouldthreaten the economic interests of the state or state security. Present law provides only limited incentives for foreigninvestment. An investor may apply to the Ministry of Financefor a tax holiday if his equity exceeds ECU 2 million and oneof the following conditions is met: --The company will operate in regions of high structural unemployment; --The company will introduce new technologies; --The company will export at least 20 percent of its output.However, the Ministry of Finance takes the position that evenif these conditions are met, granting of a tax holiday is atits discretion. In addition to the tax holidays provided in the foreigninvestment law, the Polish government has used provisions ofthe customs law providing duty free entry for parts andcomponents of goods to be assembled in Poland as an incentivefor foreign investors. This has been especially significant inthe automobile industry, where the government has soughtpartners for its many financially ailing car and truckfactories. Beneficiaries of tariff rate quotas to importautomobile, truck, or bus parts and components have includedFiat, Opel, VW-Skoda, Peugeot, and Volvo. Poland is eligible for political risk investment insuranceand credit guarantees from OPIC, and for EXIM Bank exportcredits and guarantees. Government Procurement Practices: Improvement ofgovernment procurement practices is an important issue for thePolish government. It is preparing a new law governingprocurement. Large procurements are already usually done bysome sort of tender process, but in the absence of a law orregulations there are often questions about the proceduresused. Poland has not signed the GATT Code on GovernmentProcurement because of inconsistencies in its legislation. Itmay sign the code after adoption of the new legislation. Customs Procedures: The Polish Customs Service has been aleading victim of economic reform. The rapid growth of importsover the last four years, as well as the proliferation oftraders, has strained Customs' capabilities. Customs'facilities and personnel are overloaded by the volume of cargothey must process. The competence of personnel is not high.Communications between headquarters and field offices is poor,leading to inconsistent application of the rules. The greatestproblems have occurred at road crossings on the German border,where officials are overwhelmed by the volume of trafficentering Poland, much of it in transit to the former SovietUnion. Poland signed the GATT Customs Valuation Code in 1989.While it has never been ratified, the substance has beenincorporated into Polish customs law.6. Export Subsidies Policies Poland has signed the GATT Subsidies Code, but neverratified it. Present plans are to ratify the new code embodiedin the Uruguay Round. Poland has eliminated its past practicesof tax incentives for exporters, but it still offers some taxholidays to foreign investors who plan to export. A new law onrestructuring the sugar refining industry has the potential forcreating export subsidies for sugar, financed out of highdomestic prices.7. Protection of U.S. Intellectual Property Intellectual property is an area of concern, particularlyin copyright matters. However, the Polish government has mademajor strides in improving protection. The enactment of a newcopyright law in February 1994 gave it a complete set of modernintellectual property laws. Full adherence to the 1971 ParisAct of the Berne Convention in July, 1994 was also an importantstep in guaranteeing protection to foreign authors. There isstill a question whether the new copyright law protects therights of foreign producers and performers of soundrecordings. Ultimately, entry into force of the Uruguay RoundTRIPS agreement will guarantee that protection, but in themeantime there is a question, which the Polish government couldremove by reversing its position and signing the GenevaConvention on Phonograms.8. Worker Rights a. The Right of Association The Polish government has ratified Convention 87 of theInternational Labor Organization (ILO). Laws concerningemployment, trade unions and collective bargaining were revisedin early 1991. Currently, all workers, including the policeand frontier guards, have the legal right to establish and jointrade unions of their own choosing, the right to join laborfederations and confederations, and the right to affiliate withinternational labor organizations. Independent labor leadersreported that these rights were largely observed in practice. Regarding the right to strike, the Trade Union Act of 1991is less restrictive than the 1982 version passed soon afterimposition of martial law, but still prescribes a lengthyprocess before a strike can be launched. When strictlyobserved, the law provides several opportunities for employersto challenge a pending strike, including the threat of legalaction. An employer must start negotiations the moment adispute begins. In August 1994, the government announced thatthis process would be shortened. Under existing law, negotiations end with either anagreement or a protocol describing the differences between theparties. If negotiations fail, a mandatory mediation processensues; the mediator is appointed jointly by the disputingparties or, absent agreement between them, the Ministry ofLabor and Social Policy. If mediation fails, the trade unionmay launch a warning strike for a period of up to 2 hours orseek arbitration of the dispute. Both employers and employeeshave frequently questioned the impartiality of the mediators. A full-fledged strike may not be launched until 14 daysafter the dispute is announced (strikes are prohibited entirelyin the Office of State Protection, in units of the police,firefighters, military forces, prison services and frontierguards). If the strike is organized in accordance with thelaw, workers retain their right to social insurance benefitsbut not pay. If a strike is "organized contrary to theprovisions of the law," workers may lose social benefits andorganizers are liable for damages and may face civil chargesand fines. Laws prohibiting retribution against strikers arenot consistently enforced; the fines imposed as punishment areso minimal that employers can easily afford to pay them. In September 1994, the government announced thatlegislation proposing important changes in existing lawsgoverning trade unions, employers and the resolution of labordisputes would be sent to the Sejm before the end of the year.Senior officials proposed re-defining a "legal" strike toprohibit "occupation," hunger and "political" strikes as wellas raising the threshold necessary for a successful strike voteto a minimum of 50 percent of all enterprise workers. Thegovernment also announced its intention to raise the number ofworkers necessary to form a trade union. These and other proposals grew out of the government's"strategy for Poland," announced in June, 1994, which includeda comprehensive attempt to adapt the many existing, andoutdated, laws governing labor activity to Poland's emergingmarket economy. In August, the government sent a revised laborcode to the Sejm under the "strategy" framework, in effectabandoning the landmark February 1993 "State Enterprise Pact,"which had set forth a detailed framework for dealing withlabor-related issues and to which the unions, employers andgovernment had agreed. In the interim, legal ambiguitiescontinued, leading to some labor tensions. b. The Right to Organize and Bargain Collectively Poland has ratified ILO Convention 98 on the right toorganize and bargain collectively. The 1991 law on tradeunions created a favorable environment to conduct trade unionactivity through provisions for time off with pay, as well asfacilities and technical equipment in the enterprise, providedby the employer. In August, the government announced itsintent to reduce some employer-provided, union-related costs inenterprises which have a large number of unions (somehave as many as 50). Notable weaknesses included weak sanctions for anti-uniondiscriminiation. Polish law also lacked specific provisions toensure that a union has continued rights of representation whena state firm undergoes privatization, commercialization,bankruptcy, or sale. Labor leaders claimed that this ambiguityled to underrepresentation of unions in the large and growingprivate sector. There were also a number of confirmed caseswhere Solidarity activists were dismissed for labor activitypermitted under Polish law, including organizing strikes. Unions, management and workers' councils currently setwages in ad hoc negotiations at the enterprise level.Collective bargaining as a system of industrial relations isexpected to encompass an ever larger percentage of theworkforce. By fall 1994, both unions and employers werepreparing themselves for such a relationship. During 1994, thegovernment repeatedly stated its intention not to be drawn intolabor disputes, as has been the tendency historically. The government continued its ceiling on wages in state andprivate enterprises (except May-August when the Sejm and thePresident disputed the law) by means of a penalty tax, theso-called "neo-popiwek." In an attempt to link wages toincreased productivity and reduce inflationary pressures in thestate sector, the government charged a penalty to any firm(which does not produce for export) that increased its averagewage in excess of a government-set "coefficient." Enforcementof the neo-popiwek effectively discouraged enterprise orsectoral-level collective bargaining on wages. Both Solidarityand OPZZ challenged the tax in the Polish constitutional court. Current government policy aims to liberalize investmentprocedures for both domestic and foreign firms rather thanpromote special incentive programs. Special duty-free zonesexist in or have been contemplated for some 5-20 locationsthroughout Poland but, with the exception of one zone in Poznanand one in Mielec (in south-eastern Poland), have not attractedmuch attention. Thus, traditional export processing zones thatrelax legal guarantees do not, at this time, comprise a threatto workers' rights to organize. However, collective bargainingeither does not exist there or is in its early stages ofdevelopment. c. Prohibition of Forced or Compulsory Labor The Polish government has ratified Conventions 9 and 105 ofthe ILO on forced labor. Compulsory labor does not exist inPoland, although it is not prohibited by law. Drafts of thenew constitution proposed by some political parties containedexplicit prohibitions, but a new constitution is not expectedto be approved until 1995. d. Minimum Age for Employment of Children Poland has ratified ILO Convention 138 on child labor. Thelabor code forbids employment of persons under the age of 14.Persons aged 14-18 may be employed only if they have completedbasic schooling and if the proposed employment constitutesvocational training and is not harmful. The age floor rises to18 if a particular job might pose a health danger. Thegovernment enforces legal protection of minors, but itsinability to monitor the growing private sector, which nowaccounts for some 60 percent of all Polish employment, leavesofficials less certain the problem does not exist. e. Acceptable Conditions of Work A national minimum wage is negotiated every 3 months on atripartite basis by the government, employers and the tradeunions. Minimum wages for state-owned enterprises were roughly$90 (ZL 2,050,000) per month at the October 1 exchange rate,which was insufficient to provide a worker and family a decentliving. Minimum wage has the force of law, but a significantnumber of foreign guest workers received less than the minimumwage, especially in the construction amd agricultural sectors.The average gross monthly wage rose in 1994 to roughly $220.Despite several recent annual increases in GNP, however, realwages declined. The Polish legal code defines minimum conditions for theprotection of workers' health and safety. Enforcement is agrowing problem because the state labor inspectorate is unableto monitor the increasing portion of Polish economic activitywhich is in private hands and where a growing percentage ofaccidents take place. In addition, there is a lack of clarityconcerning which government or legislative body is responsiblefor enforcing the law. In 1993, 655 work-related deaths werereported, representing a slight upward trend over 1992. Thegovernment itself has noted that work conditions in Poland arepoor and sanctions are minimal. Standards for exposure tochemicals, dust, and noise are routinely exceeded.</text>
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<text>U.S. DEPARTMENT OF STATEPHILIPPINES: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS Philippine law requires trademark owners to file anaffidavit of use or justified non-use with the Patents,Trademark and Technology Transfer Board every five years toavoid cancellation of trademark and registration. Non-use of amark must be for reasons totally beyond the control of aregistrant. (Import bans, for example, constitute justifiednon-use.) Current practice provides that internationallywell-known marks should not be denied protection because ofnon-registration or lack of use in the Philippines. Pendinglegislation seeks to incorporate this practice into Philippinelaw. Trademark protection is limited to the manufacturing ormarketing of the specific class of goods applied for, and toproducts with a logical linkage to the protected mark. Copyrights: Philippine law is overly broad in allowing thereproduction, adaptation or translation of published workswithout the authorization of the copyright owner. Apresidential decree permits educational authorities toauthorize the reprint of textbooks or other reference materialswithout the permission of the foreign copyright holder, if thematerial is certified by a school registrar as required by thecurriculum and the foreign list price converts to 250 pesos(about US $10) or above. This decree, especially fortextbooks, is inconsistent with the appendix of the 1971 textof the Berne Convention. However, the Philippine government isexpected, under the terms of the bilateral IPR agreement withthe U.S. reached in April 1993, to correct these deficienciesthrough accession to the Paris Act of the Berne Convention, andthrough amendments to its domestic legislation. Video piracy is a serious problem, but has declined fromabout 80 percent of the market a few years ago to about60 percent now. The government's Videogram Regulatory Board(VRB) is tasked with fighting video piracy. Due to budgetconstraints, the bulk of its efforts are focused in MetroManila. Copyright protection for sound recordings, currently30 years, is shorter than the internationally accepted norm of50 years. The government has committed to submittingamendments to the Philippine Congress to bring the term ofcopyright protection into conformity with international norms.Industry sources estimate that piracy of recorded music--mostlycassettes, although imported pirated CDs from the UAE and Chinaare starting to show up in Metro Manila shops--has fallen to anaverage of about 40 percent. About 98 percent of all computersoftware sold is pirated. Computer shops routinely loadsoftware on machines as a free "bonus" to entice sales. ThePhilippine government is probably the largest user of piratedsoftware, although some agencies are reportedly consideringshifting to legitimate versions. New Technologies: Many shops rent video laser discspurchased at retail stores in the United States without paymentof commercial rental fees. More recent issues involvecopyright infringement complaints against cable televisionstations which re-transmit copyrighted works withoutauthorization from or payment to the copyright owners. Thebilateral IPR agreement of April 1993 commits the government tofully enforce the protections afforded to audio-visual worksunder Philippine laws and regulations.8. Worker Rights a. The Right of Association The right of workers, including public employees, to formand join trade unions is assured by the Constitution andlegislation, and is freely practiced without governmentinterference throughout the country. Trade unions areindependent of the government and generally free of politicalparty control. Unions have the right to form or joinfederations or other labor groupings. Subject to certainprocedural restrictions, strikes in the private sector arelegal. Unions are required to provide strike notice, respectmandatory cooling-off periods, and obtain majority memberapproval before calling a strike. A 1989 law stipulates thatall means of reconciliation must be exhausted, and the strikeissue has to be relevant to the labor contract or the law. b. The Right To Organize and Bargain Collectively The right to organize and bargain collectively isguaranteed by the Philippine constitution. The Labor Codeprotects and promotes this right for employees in the privatesector. The same right is extended to employees ingovernment-owned or controlled corporations. A similar butmore limited right is afforded to employees in most areas ofgovernment service. Dismissal of a union official or workertrying to organize a union is considered an unfair laborpractice. Nevertheless, employers sometimes attempt tointimidate workers by threats of firing or closure. Althoughlabor law and practice are uniform throughout the country,including export processing zones (EPZs), unions have been ableto organize workers in only one of the EPZs. Work stoppagesand total man-days lost to labor strife have been trendingdownward, with 64 work stoppages (involving 390,000 workdays)recorded in the first 8 months of 1994. On an annualizedbasis, this suggests current year totals some 20 to 30 percentlower than those in 1993. c. Prohibition of Forced or Compulsory Labor The Philippines prohibits forced labor. As the world'sforemost "exporter" of both unskilled and trained labor, it issensitive to reports of abuse of Philippine workers overseas. d. Minimum Age for Employment of Children Philippine law prohibits the employment of children belowage 15, except under the direct and sole responsibility ofparents or guardians, or where employment incinema/theater/radio or television is essential. Theparent/guardian or employer is required to ensure the child'shealth, safety, and morals, to provide for the child'seducation or training, and to procure a work permit. The LaborCode allows employment for those between the ages of 15 and 18for such hours and periods of the day as are determined by theSecretary of Labor but forbids employment of persons under18 years in hazardous work. However, a significant number ofchildren are employed in the informal sector of the urbaneconomy or as field laborers in rural areas. e. Acceptable Conditions of Work The Minimum Wage Act of 1989 authorized Tripartite RegionalWage Boards to set minimum wages. Rates were last revised inlate 1993, with the highest in Manila and lowest in ruralregions. The minimum wage for workers in the National CapitalRegion (NCR) was approximately US $5.60 (145 pesos) per day.Wage boards outside the NCR, in addition to establishing lowerminimum levels, also exempted employers according to suchfactors as establishment size, industry sector, involvementwith exports, and level of capitalization. This approachexcludes substantial numbers of workers (especiallyagricultural workers, domestics, laborers, janitors,messengers, and drivers) from coverage under the law. Detectedminimum wage violations surged in the immediate aftermath of1993 rate revisions, when inspectors found one in fouremployers paying less than the minimum. The standard legalwork week before overtime is 48 hours for most categories ofindustrial workers and 40 hours for government workers. Thelaw mandates a full day of rest weekly and overtime for anyhours worked over an eight per day limit. Employees with morethan one year on the job are entitled to five days of paidannual leave. A comprehensive set of occupational safety andhealth standards exists in law. Enforcement statistics suggesta downtrend in "technical safety standard" violations, from20 percent of inspected units in 1992 to 18.2 percent in 1993,and 15.4 percent in the first five months of 1994. Statisticson work-related accidents and illnesses are incomplete, asincidents (especially in regard to agriculture) areunder-reported. f. Rights in Sectors with U.S. Investment American and other established multinational firms applyU.S., European, or Japanese standards of worker safety andhealth to meet the requirements of their home-based insurancecarriers. They also treat their work force according toprofessional employee management principles. Firms in the EPZshave resisted efforts to unionize their workers. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 960 Food & Kindred Products 275 Chemicals and Allied Products 386 Metals, Primary & Fabricated 27 Machinery, except Electrical -2 Electric & Electronic Equipment 161 Transportation Equipment 0 Other Manufacturing 114Wholesale Trade 151Banking 368Finance/Insurance/Real Estate (1)Services -196Other Industries 6TOTAL ALL INDUSTRIES 1,170(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis</text>
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<text>U.S. DEPARTMENT OF STATEPHILIPPINES: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS PHILIPPINES Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1985 prices) 38,632 39,393 41,047Real GDP Growth (pct.) 0.3 2.0 4.2GDP (current prices) 52,982 54,068 62,364By Sector: (current prices) Agriculture 11,561 11,723 13,533 Energy/Water 1,284 1,343 1,497 Manufacturing 12,812 12,891 15,092 Construction 2,664 2,952 3,368 Dwellings/Real Estate 3,380 3,633 4,054 Financial Services 2,084 2,159 2,495 Other Services 18,559 18,755 23,979 Government Services 3,670 3,491 3,804 Health/Education (private) 1,169 1,329 1,534Net Exports of Goods & Services -2,403 -4,612 -5,301Real Per Capita GDP (1985 prices) 595 592 602Labor Force (000s) 26,290 26,884 27,600Unemployment Rate (pct.) 9.8 9.2 9.0Money and Prices: (annual percentage growth)Money Supply (M2) 2/ 11.0 24.5 19.0Weighted Ave. Loan Rate 3/ 19.4 14.6 15.0Weighted Ave. Savings Rate 3/ 0.6 8.3 8.5Retail Price Index (Manila) 5.1 2.0 7.8Wholesale Price Index (Manila) 4.5 -1.2 8.5Consumer Price Index (Phil.) 8.9 7.6 9.9Exchange Rate (Pesos/USD) Official (interbank rate) 25.51 27.12 26.95 Parallel (and buying rate) 25.40 27.07 26.90Balance of Payments and Trade:Merchandise Exports (FOB) 9,824 11,375 13,050 Exports to U.S. (Phil. data) 3,832 4,371 4,950Merchandise Imports (FOB) 14,519 17,597 20,600 Imports from U.S. (Phil. data) 2,620 3,522 4,100Bilateral Aid, U.S. 4/ 322 160 179Bilateral Aid, Others 1,312 1,727 1,530External Public Debt 30,934 34,282 36,300Debt Service Payments (paid) 3,137 3,533 4,270Gold and Foreign Exch. Reserves 5,218 5,801 7,250Trade Balance -4,695 -6,222 -7,550 Trade Balance with U.S. 1,212 849 8501/ 1994 figures are estimates based on partial data availableas of October 1994.2/ Growth rate of year-end M2 levels.3/ Actual ave. annual interest rates, not changes in them.4/ Inflows of bilateral official loans and grants per balanceof payments. Figures for U.S. are net of inflows from the U.S.Veterans Administration (USVA).Sources: National Economic and Development Authority, BangkoSentral ng Pilipinas, Department of Finance.1. General Policy Framework The Philippines is an archipelago of over 7,000 islandswith an estimated population of 68 million. Poverty remains amajor concern, with nearly 40 percent of Filipino familiesestimated to be living below the poverty threshold.Agriculture contributes about 23 percent of Gross DomesticProduct (GDP) -- less than industry (33 percent) and services(44 percent) -- but absorbs the bulk (45 percent) of theemployed. The country also has had to grapple with a boom andbust economic growth pattern, with high growth periodssubsequently slowed by the emergence of macroeconomicimbalances. For the past decade and more, low savings,investments and exports have contrasted with the performance ofAsia's economic dragons. In the past year, however, a moresoundly based economic rebound has begun to emerge. The Ramos Administration, inaugurated in 1992, hascontinued and expanded the reforms initiated by itspredecessor: liberalizing the trade, foreign exchange andinvestment regimes; privatizing parastatals; reducing entrybarriers in vital industries (most recently in banking,telecommunications, and insurance); and encouraging privatesector investments in much needed infrastructure. Real GNP,which grew 5.1 percent during the first half of 1994, reflectsthis rebound from a combination of exogenous shocks, politicaldisturbances, macroeconomic imbalances and crippling powershortages which kept average real GNP expansion at 2.2 percentfrom 1990 to 1993, slower than the rate of population growth.Although some political and social resistance remain, there isa growing realization among government officials, privatesector leaders and legislators that the liberalization processmust continue for the economy to sustain its recent strongrecovery. Many question marks remain, but optimism is growingthat the Philippines may, at last, be embarking on a path ofsustained strong growth. The Philippines is a member of the GATT, participatedactively in the Uruguay Round (UR), and became a foundingmember of the World Trade Organization (WTO) on January 1, 1995. The government is working to achieve fiscal balance anddiscipline as part of an overall program to improve and sustainmacroeconomic stability. The fiscal deficit has been reducedby a combination of new taxes and spending cuts. In 1995, thegovernment hopes to achieve its first fiscal surplus in overtwo decades. Debt service's share of the budget pie hasdeclined in recent years from almost half to under a thirdtoday. The government has had some success with the issuanceof three-year floating rate treasury notes, but short-term debtstill makes up nearly 70 percent of outstanding governmentsecurities. In 1993, the government financially restructured theCentral Bank. Previously, the instruments available formonetary management were severely limited by the Central Bank'smounting financial losses, compelling monetary authorities tokeep reserve requirements at high levels. Now armed with aclean balance sheet and a 220 billion peso portfolio of newtreasury securities, the "new" Central Bank (officially knownas the "Bangko Sentral ng Pilipinas") is in a position toundertake open market operations effectively. Since the 1993restructuring, the Bangko Sentral has lowered bank reserverequirements by six percentage points, from 25 to 19 percent.2. Exchange Rate Policy Except for a few remaining restrictions on foreigninvestments and on foreign debt, most foreign exchangerestrictions were liberalized starting 1992. The foreignexchange rate is now set freely in the interbank market. The new regulations now allow immediate repatriation andremittance privileges without requiring Bangko Sentralapproval. Foreign exchange earners are generally free to buyand sell foreign exchange, maintain foreign currency accountsand transfer foreign exchange out of the country for deposit orinvestment abroad. To further liberalize the foreign exchangesystem and encourage greater competition, the governmentreintroduced off-floor forex trading in April 1992 using acomputerized dealing system. However, the Bangko Sentralimposes ceilings on individual banks' foreign exchangepositions, requiring excess forex holdings to be sold to theBangko Sentral or to other banks. Investment abroad byPhilippine residents using foreign exchange purchased from thebanking system is limited to $3 million per investor per year.3. Structural Policies Prices of goods and services are generally determined byinternal market forces, with the exception of fuel and basicpublic utilities such as transport, water and electricity. Thegovernment grants certain incentives (such as tax holidaysand/or tax and duty-free privileges on inputs and capitalequipment) to investors in government-preferred activities.While there are exceptions, private and government-owned firmsgenerally compete on equal terms. An ongoing privatizationprogram is markedly reducing the government's role in manysectors. The Foreign Investments Act of 1991 allows full foreignownership of companies engaged in activities not covered byinvestment incentives. Previous regulations used to limitforeign ownership in Philippine companies generally to40 percent. A much reduced "negative list" of sectors whereforeign ownership is either banned or limited remains. (SeeSection 5) Trade liberalization and tariff reform programs continue.The major exception is in agriculture, where 70 percent, byvalue, of major production remains protected from importcompetition. Recent reforms have improved access to importantservice industries, most recently in telecommunications,banking and insurance. In May 1994, the government improvedits build-operate-transfer (BOT) law, first launched in 1990,by expanding the number of BOT variations, simplifying rulesand regulations, and allowing more flexibility in pricing. Over the last two years, the government adopted a number oftax measures to beef up revenues. It increased stocktransaction and documentary stamp taxes, restructured cigarettetaxes, imposed a minimum three percent tariff, and increasedvarious government fees and charges. In May 1994, legislationexpanding the value added tax base (VAT) was signed into law,extending the VAT to goods and services such astelecommunications, lease and sale of real property,restaurants/caterers/hotels, books, imported meat and,eventually, to professional and financial services. (Note:The constitutionality of the expanded VAT has been challengedin the courts and implementation remains suspended by a SupremeCourt temporary restraining order.)4. Debt Management Policies The Ramos Administration has continued the firm commitmentto servicing the country's foreign obligations despiteoccasional congressional and other political rhetoric callingfor debt repudiation and/or debt service caps. Between 1990and 1992, the government repurchased $2.5 billion inobligations owed foreign commercial banks and converted$3.2 billion dollars of eligible debt to long term bonds.These efforts enabled the Philippines to re-enter the voluntaryinternational capital markets in 1993 after a decade's absence,issuing about $900 million dollars in Eurobonds. The International Monetary Fund (IMF) approved a three-yearextended arrangement in mid-1994, which the Philippinesenvisions as an exit arrangement. The agreement paved the wayfor the fifth Paris Club debt rescheduling round, which waslimited to debt not previously rescheduled. However, due toupward pressure on the peso caused by a strong inflow offoreign exchange, the Philippines decided not to pursue theParis Club agreement, but to make payments on schedule. ThePhilippines continues to benefit from various sector-specificassistance and structural adjustment programs provided bymultilateral institutions such as the Asian Development Bankand the World Bank Group. The growth of the Philippines' foreign debt has slowedmarkedly since the mid-1980s, and foreign debt servicing is nolonger a severe problem. As of March 1994, the debt was$35.3 billion, or 50 to 55 percent of gross national product.The ratio of debt service to export receipts is now below20 percent, from nearly 40 percent in the early 1980s.5. Significant Barriers to U.S. Exports Tariffs: Independent of the Uruguay Round, in 1991, thePhilippines began programs to reduce, modify and simplifytariffs into four tiers of 3, 10, 20 and 30 percent. With itsscheduled completion in November 1994 of the current tariffreform program (Executive Order 204), the Philippines' nominaltariff will average 20 percent. The government is alreadyactively considering further comprehensive tariff reductionsstretching to the end of the decade. The Philippines alsoagreed to eliminate quantitative restrictions on agriculturalimports but will be implementing compensating tariffs (at anestimated 100 percent level), applicable except for minimumaccess quotas, which will continue to protect much of thatsector. Effective May 1, 1994, a minimum three percent tariff wasestablished for all imports. While only 50 tariff lines hadbeen duty free, 2.5 percent of 1993 imports from the U.S.,worth $88.5 million, were in those categories. Electricalgenerating sets, which made up 67 percent ($59.4 million) ofduty-free imports from the U.S. in 1993, will be subject to a10 percent tariff beginning July 1, 1995. As part of a structural reform program intended to spurinvestments in export industries, Executive Order 189 whichtook effect August 22, 1994, lowered tariffs on capitalequipment, components and parts to a range of 3 to 10 percent.Equipment covered are used in various sectors includinggarments and fashion accessories, electronics, pulp and paper,sporting goods and processed foods. To boost the competitiveness of the domestic textilemilling and garments industry, Executive Order 204 will lowerimport duties on 790 tariff lines including chemical inputs totextile manufacturing, textile material inputs and garments,effective November 17, 1994. About 208 "strategic" products will remain subject to50 percent tariff and in some cases quantitative restrictions.This group, which includes rice, sugar, fruits, coconut oil,and luxury goods such as liquor, tobacco, candy and leathergoods, represents about 3.5 percent of tariff lines. Imports of U.S. agricultural products have also beenconstrained by the "Magna Carta of Small Farmers" which allowedthe Agriculture Department to ban import of goods produced in"sufficient quantity" locally. The government has acknowledgedthis is in conflict with the implementation of the URAgreement/WTO and is making plans for necessary changes. Of particular interest to the U.S. is that the sale ofdomestically produced meat is exempt from the expanded VATwhile imported beef (high-grade or manufacturing grade cut) issubject to the tax. The Finance Secretary has acknowledgedthis too may contravene a GATT provision, and has indicated achange will be made in accordance with the Agreement. Import Licenses: Prior clearance is still required formore than 100 restricted and controlled items (mostlyagricultural and industrial commodities) generally for reasonsof health, safety or national security. The National FoodAuthority remains the sole importer of rice. A Board ofInvestment (BOI) "authority to import" is required forcommercial vehicles and parts covered by its ProgressiveIndustrial Development Program. A Garment and Textile ExportBoard (GTEB) "authority to import" is required for imports ofpre-cut fabrics and accessories for processing into finishedgarments and textile products for export. Commodity imports financed with foreign credits stillrequire prior approval from the Bangko Sentral ng Pilipinas(BSP). The Philippines is a signatory to the GATT ImportLicensing Code. Services Barriers: Banking - A new law, signed in May1994, will relax restrictions in place since 1948. A foreigninvestor can enter either on a wholly owned branch basis or ownup to 60 percent of an existing domestic bank or new locallyincorporated banking subsidiary. However, only six foreignbanks (plus four more with presidential discretion) will beallowed entry on a full service, branch basis. Securities - Membership in the Philippine stock exchange isopen to any company (foreign or Filipino) incorporated in thePhilippines. A foreign investor wishing to purchase shares ofstock is subject to foreign ownership limitations specified bythe constitution and other laws. Foreign ownership insecurities underwriting companies is limited to a minority.Foreign firms are not allowed to underwrite securities for thePhilippine market, except under the provisions of the newBanking Law, (which allows foreign bank branches to operate asuniversal banks). Foreign firms may underwrite Philippineissues for foreign markets. Insurance and Travel Agencies - For at least two yearseffective October 24, 1994, these sectors were opened to fullforeign ownership (See Section 5 - Investment Barriers).However, the implementing rules and regulations have not yetbeen made public, so the conditions on market entry are not yetknown. Legal Services: Specific requirements to practice law inthe Philippines are Philippine citizenship, graduation from aPhilippine Law School, and membership in the Integrated Bar ofthe Philippines. Standards, Testing, Labelling, and Certification: ThePhilippine government, for reasons of public health, safety andnational security, implements regulations that affect U.S.exports of drugs, food, textiles and certain industrial goods.Notable examples follow: (a) The Department of Health's (DOH) renewed campaign forthe full implementation of the "Generic Act" of 1988 focuses onthe vigorous promotion of cheap generic drugs. The genericname must appear above a drug's brand name. (b) Imports of high-grade beef, fresh fruits, vegetablesand seeds are controlled through phytosanitary certificationwhich is often costly. (c) Labeling is mandatory for textile fabrics, ready-madegarments, household and institutional linens and garmentaccessories. (d) Local inspection for standards compliance is requiredfor imports of about 30 specific industrial products, includinglighting fixtures, electrical wires and cables, sanitary waresand household appliances, portland cement and pneumatic tires.For other goods, however, U.S. manufacturers'self-certification of conformance is accepted. The Philippinesis a signatory to the GATT Standards Code. Investment Barriers: A more liberal foreign investment law(the Foreign Investment Act of 1991, or FIA) for activities noteligible or not seeking investment incentives allows foreignequity beyond the 40 percent ceiling imposed by previousinvestment regulations. However, there are importantexceptions, one being that foreigners are not allowed to ownland except in partnership with Filipinos (in which case theforeign investor's share is limited to 40 percent). The FIAalso contains a foreign investment "negative list" with thesecategories: A) List A specifies activities in which foreignparticipation is either excluded or limited by the Constitutionand other statutes. Investments in mass media, the practice oflicensed professions (including legal services), retail trade,cooperatives, small scale mining and private security agenciesare exclusively for Filipinos. Varying foreign ownershipceilings are imposed on companies engaged in, among others,advertising, employee recruitment, construction, financing, andthe exploration and development of natural resources. B) List B limits foreign ownership (generally to40 percent) for reasons of public health, safety and morals,and to protect local small and medium-sized firms. To protectsmall domestic enterprises, non-export firms must becapitalized at a minimum of $500,000 to exceed the 40 percentforeign ownership requirement. C) List C limits foreign ownership in activities"adequately served" by existing Philippine enterprises. Until October 23, 1994, the FIA was guided by a three-year"transitory" foreign investment negative list. The governmentreleased the first "regular" negative list in June 1994, whichtook effect on October 24, 1994. Activities included underlists A and B were unchanged. Effective October 24, List C was"empty", opening activities and services such as insurance,travel agencies, tourist lodging establishments,conference/convention organizers, and import and wholesaleactivities not integrated with production to full foreignownership. An "empty" list C also gives existing foreignlicensors in the Philippine market the option to establishtheir own majority-owned subsidiaries. In 1996, sectors canpetition for inclusion in negative list C under a process whichincludes public hearings. The government imposes a foreign ownership ceiling of40 percent for firms seeking incentives with the Board ofInvestment (BOI) under the government's annual InvestmentPriorities Plan (IPP). While this ceiling may be exceeded incertain cases -- i.e., the activity is defined as "pioneer", orleast 70 percent of production is for export, or the enterpriselocates in an area classified as "less developed" -- divestmentto the 40 percent foreign ownership ceiling is required within30 years. Industry-wide local content requirements are alsoimposed under the government's progressive development programfor automobiles. Current guidelines also specify thatparticipants in the automobile development program generate,via exports, a certain ratio of the foreign exchange needed forimport requirements. Current Philippine regulations restrict domestic borrowingsby foreign firms. The limits are set as maximum debt-to-equityratios (depending on the type of activity) which must bemaintained for the term of the debt. Government Procurement Practices: In general, Philippinegovernment procurement policies do not discriminate againstforeign bidders. However, preferential treatment is given inthe purchase of medicines, rice for government employees, cornfor domestic consumption, and iron and steel products for usein government projects. Petroleum requirements by governmentagencies must be procured from government-owned sources. Awarding of contracts for government procurement of goodsand services have to pass competitive bidding. Forinfrastructure projects which require a public utilityfranchise (e.g. water and power distribution, public telephoneand transportation system), the contractor must be at least60 percent Filipino. For other major contracts, such asbuild-operate-transfer (BOT) projects, where operation may notinclude a public utility franchise, a foreign constructor mustbe duly accredited by its government to undertake constructionwork. To the benefit of U.S. suppliers, areas of interestincluding power generation equipment, communications equipmentand computer hardware do not generally confront significantrestrictions. The Philippines is not a signatory to the GATTGovernment Procurement Code. Customs Procedures: All imports valued at over US $500 arepermitted only with a pre-shipment inspection report called a"Clean Report of Findings" issued by the authorized outportinspector. To fix import duties, the Bureau of Customsutilizes Home Consumption Value (HCV). This permits arbitraryvaluation which in many cases (according to extensive anecdotalevidence) does not reflect the selling price. Valuation isinconsistent from country to country. The government has committed to replace HCV to conform toits GATT obligations. The shift is to be phased in overseveral years, first by a move to a modification of theBrussels definition of value in 1995. Legislation to replacethe HCV system is pending before the Congress, and it isdoubtful that a change will be implemented before the yearend. The Philippines is not a signatory to the GATT CustomsValuation Code.6. Export Subsidies Policies Enterprises (dominated by exporters) which register withthe BOI to obtain incentives are entitled to tax and dutyexemptions under the Philippine Omnibus and Investment Code of1987. These include income tax holidays, tax and dutyexemptions for imported capital equipment, as well as taxcredits for purchases of domestically sourced capital equipmentand raw materials. Export traders are entitled to tax creditsfor imported raw materials required for packaging. Financing is available to all Philippine exporters andthere is no preferential rate for domestic companies. Withoutprior BSP approval, exporters may avail themselves of foreigncurrency deposit unit (FCDU) loans from local commercial banksup to 100 percent of the letter of credit, purchase order orsales contract. To cushion the impact of a strong peso(between January and August 1994 the peso appreciated againstthe US dollar by five percent from 27.724 to 26.313), the BSPfurther eased export financing rules. Recently, FCDU loanswere made available also to indirect exporters who are nowallowed to spend the dollar loan to cover not only their dollarrequirements, but also their peso requirements providedproceeds of the loans will be used for the production of exportgoods. An Export-Import Banking Program of the Development Bank ofthe Philippines, launched primarily to address the needs of theexporting community, reduced interest rates from 13 to11.5 percent between August and September 1994. In particular,export-oriented activities that are labor-intensive and whichwill utilize local raw materials benefit from this program.The Philippines is a signatory to the GATT Subsidies Code.7. Protection of U.S. Intellectual Property While Intellectual Property Rights (IPR) protection isimproving, serious problems remain, and the issue remains abilateral trade concern. Current penalties for infringementand counterfeiting are not real deterrents. Insufficientfunding hampers the effective operation of agencies tasked withIPR enforcement. Joint government-private sector efforts haveimproved administrative enforcement, but when IPR owners mustuse the courts, enforcement is slower and less certain. In February 1993, President Ramos created the Inter-agencyCommittee on Intellectual Property Rights as the body chargedwith recommending and coordinating enforcement oversight andprogram implementation. The Philippine government is a partyto the Paris Convention for the Protection of IndustrialProperty, the Patent Cooperation Treaty, and the BernConvention for the Protection of Literary and Artistic works.It is a member of the World Intellectual Property Organization. The Philippines was moved from the U.S. TradeRepresentative's special 301 "priority watch list" to the"watch list," following a bilateral IPR agreement signed inApril 1993 which commits the Philippine government to improveits legislative protection and to strengthen enforcementsignificantly. The Philippine government has generallycomplied with the agreement, except for legislativeimprovements. Legislation incorporating all legislativecommitments under the bilateral was targeted for submission toCongress before June 1994. The government did not, however,meet the deadline, but remains committed to submitting thelegislation. Patents: The present law recognizes the possibility ofcompulsory licensing two years after registration with thePatent, Trademark and Technology Transfer Board, if thepatented item is not being utilized in the Philippines on acommercial scale, or if domestic demand for the item is notbeing met to an "adequate extent and on reasonable terms."Compulsory licensing is easier for pharmaceutical and foodproducts, because use, inadequate production for domesticdemand, etc. need not be established. In the bilateral IPRagreement of April 1993, the government committed to submit tothe Philippine Congress an amendment to the patent law whichwill allow importation to satisfy "working requirements" forpatented goods. Starting March 15, 1993, rules on royaltypayments were relaxed somewhat, granting automatic approval forroyalty agreements not exceeding five percent of net sales.Royalty rates higher than five percent may be allowed inmeritorious cases. Naturally occurring substances (plants orcells, for example) are not patentable. Trademarks: Trademark counterfeiting is widespread. Manywell-known international trademarks are copied, including denimjeans, designer shirts, and personal beauty and health careproducts. Some US firms--for example Disney--have had successin curbing piracy in cooperation with Philippine enforcementagencies. The National Bureau of Investigation (the Philippineequivalent of the FBI) has been cited by the private sector forits excellent cooperation recently in conducting raids againsttrademark violators. Under the terms of the U.S.-PhilippineIPR agreement, the government will seek amendments to thePhilippine trademark law to provide protection forinternationally well-known marks.</text>
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<text>U.S. DEPARTMENT OF STATEPERU: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS PERU Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 estIncome, Production, Employment:Real GDP (1985 prices) 19,946 21,318 23,637Real GDP Growth (pct.) -2.4 6.5 10.0GDP (at current prices) 1/ 25,587 28,047 31,800By Sector: Agriculture 3,045 3,332 3,865 Fisheries 273 344 447 Mining/Petroleum 2,856 3,175 3,334 Manufacturing 5,696 6,257 7,195 Construction 1,716 2,002 2,500 Government 1,587 1,635 1,650 Others 10,413 11,302 12,809Net Exports of Goods & Services -2,144 -2,216 -2,500Real Per Capita GDP (1985 USD) 888 930 1,011Labor Force (000s) 8,184 8,400 8,500Unemployment Rate (pct./year-end) 9.4 9.9 9.5Money and Prices: (end of year)Money Supply (M2) 2/ 1,435 1,530 2,084Discount Rate (pct.) 3/ 80.3 56.8 33.0Consumer Prices (pct. change) 56.7 39.5 18.0Wholesale Prices (pct. change) 50.5 34.1 15.0Exchange Rate 1.63 2.16 2.25Balance of Payments and Trade:Total Exports (FOB) 3,484 3,464 4,100 Exports to U.S. 739 750 760Total Imports (FOB) 4,051 4,042 5,100 Imports from U.S. 1,002 900 1,050Aid from U.S. 123 146 150External Public Debt 21,409 22,157 22,400Debt Service Paid 4/ 725 886 900Foreign Exchange Reserves 2,001 2,701 6,000Merchandise Trade Balance -566 -578 -1,0001/ Because of recent hyperinflation, the current dollar valueof Peru's GDP is a subject of debate. These figures representofficial Central Bank estimates. They do not equate to nominalGDP in soles converted at the market exchange rate.2/ Figures are for money supply in national currency only. Themajority of financial system liquidity consists of dollars.3/ Annualized rate of interest commercial banks charge eachother on loans denominated in soles. The rates on dollar loansare significantly lower.4/ Does not include lump-sum payments in 1993 connected withParis Club rescheduling.Source: Central Reserve Bank, National Institute ofStatistics, Ministry of Labor and U.S. Embassy estimates.1. General Policy Framework Peru has taken dramatic steps to stabilize and liberalizeits economy since the inauguration of President AlbertoFujimori in July 1990. Bureaucratic procedures have beenstreamlined, price controls terminated, the tax systemsimplified, and labor laws made more flexible. Exchangecontrols have been lifted, and there are no restrictions onremittances of profits, dividends or royalties. By mid-1995,the government expects all remaining state-owned firms to havebeen privatized or liquidated. Import licenses have been abolished for practically allproducts and non-tariff barriers eliminated. The averagetariff rate has been cut to 16 percent, compared with 80percent in 1990. The government plans to move to a flat15-percent tariff in 1995. Currently, 98 percent of importsenter at the 15-percent rate, the rest at 25 percent. Perumaintains import surcharges on five basic agriculturalproducts, which reduces the competitiveness of U.S. farmproducts. But these surcharges are scheduled to be phased outby 1997. The economy is recovering from the deep recession andhyperinflation of the late 80s and early 90s, but it has yet toproduce significant job growth. Real gdp growth could exceed10 percent in 1994, and inflation is likely to fall below 20percent (versus 39 percent in 1993 and 7,650 percent in 1990).In September 1994, consumer prices rose just 0.5 percent -- thelowest monthly inflation rate in 19 years. The Central Bank manages the money supply and affectsinterest and exchange rates through emission, open-marketoperations, rediscounts and reserve requirements on dollar andsol deposits. Dollars still account for more than 60 percentof total liquidity (the legacy of hyperinflation), whichcomplicates the government's efforts to manage monetarypolicy. The central bank does not finance the fiscal deficit.Current government expenditures have been in balance withrevenues since late 1990, and the combined fiscal deficit(resulting fromdebt payment) has been financed by externalsources. Over the last two years, a strong inflow of foreigncapital, primarily from privatizations, has more than offsetthe merchandise trade deficit, and net foreign reserves havegrown to nearly USD 6 billion (they were negative when Fujimoritook office). Peru has ratified the Uruguay Round agreements and becamea founding member of the World Trade Organization (WTO) onJanuary 1, 1995. President Fujimori faces re-election in April1995. His principal opponent is former UN Secretary GeneralJavier Perez de Cuellar, running as an independent.2. Exchange Rate Policy The exchange rate for the Peruvian New Sol is determined bymarket forces, with some intervention by the central bank tostabilize movements. There are no multiple rates. The 1993constitution guarantees free access to and dispositionofforeign currency. There are no restrictions on the purchase,use or remittance of foreign exchange. Exporters conducttransactions freely on the open market and are not required tochannel their foreign exchange transactions through the centralbank. Since the end of 1992, the Sol has declined 27 percentagainst the dollar in nominal terms. However, when differencesin inflation rates are taken into account, the Sol hasappreciated in real terms.3. Structural Policies In the short span of four years, Peru has been convertedfrom an economy dominated by a protectionist andinterventionist state to a liberal economy dominated by theprivate sector and market forces. Several major state-ownedbusinesses have been privatized in the past two years,including the phone company, the national airline (Aeroperu),electrical utilities and a number of mining properties. By themiddle of 1995, the government intends to have sold off allremaining state-owned enterprises, including the petroleumcompany (Petroperu), the remaining electrical utilities, thewater and sewage utilities, the fish-processing operations(Pescaperu), the ports (ENAPU), the airport authority (Corpac),tourist hotels and the remaining mining properties, includingthe largest, Centromin. There is some public sentiment againstprivatization, especially the privatization of Petroperu. Butthe government is determined to go ahead with its plans. Price controls, subsidies and restrictions on foreigninvestment have been eliminated. A major revision of the taxcode was enacted at the end of 1992, and the corrupt andinefficient tax authority (Sunat) was completely revamped, aswas the customs authority. Tax collection has improved from 4percent of gdp in 1990 to between 10 and 12 percent in late1994. Customs collections in 1994 were running at a recordpace, despite the sharp cut in tariff rates. Although incometax collection has increased, the government still reliesprimarily on consumption taxes, including an 18 percentvalue-added tax. There are also surtaxes on certain big-ticketluxury items, such as automobiles. As a result, the total taxlevied on an imported car, including VAT, luxury tax and15-percent tariff, exceeds 40 percent. Regulatory regimes have been streamlined in most sectors.For example, registration of a new company now takes about amonth in most cases, compared with two years under the previousregime. There are exceptions for certain regulated industries,such as casinos, which require approval of the GamingCommission. Under the new automatic registration process,companies may open for business if they do not receive anegative reply to their license applications within 60 days.The 1993 constitution guarantees national treatment for foreigninvestors. However, many U.S. investors continue to haveproblems because of Peru's unpredictable judicial system.4. Debt Management Policies Peru's public external debt at the end of June 1994 totaledUSD 22.4 billion -- roughly two-thirds of gdp. Total servicepayments on the debt in the first half of 1994 totaled USD 460million, or 23 percent of merchandise exports. Peru cleared its arrears with the Interamerican DevelopmentBank in September 1991. In March 1993 it cleared its USD 1.8billion in arrears to the IMF and World Bank and negotiated anextended fund facility with the IMF for 1993-95. The ParisClub rescheduled almost USD 6 billion of Peru's officialbilateral debt in 1991. A second Paris Club rescheduling inMay 1993 lowered payments for the period March 1993 to March1996 from USD 1.1 billion to about USD 400 million. In September 1994, the Peruvian congress voted to recognizethe government's obligation to repay the debt to Chemical Bankand American Express dating to 1983 for the lease of two ships-- the Mantaro and the Pachitea. The settlement of thislongstanding dispute paves the way for Peru to renegotiate itsdebt with the foreign commercial banks -- estimated at betweenUSD 6 billion and USD 9 billion, including arrears andpenalties. Peru hopes to negotiate a Brady Plan agreement withthe commercial banks that will significantly lower itsdebt-service obligations. Preliminary discussions with thebanks were underway in October 1994. The government is alsoaccepting cancelled debt as partial payment in selectedprivatizations. In October 1994, Peruvian debt was trading atabout 60 percent of face value.5. Significant Barriers to U.S. Exports Almost all barriers to U.S. exports and direct investmenthave been eliminated over the past four years. There are noquantitative or qualitative ceilings on imports. Theinvestment law is extremely liberal. Customs procedures havebeen simplified and the customs administration made moreefficient. Import licenses have been abolished for the vast majorityof products. The only remaining products requiring licensesare 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. Import surcharges imposed in May 1991 remain in effect on18 categories of agricultural products, covering five basiccommodities: wheat, rice, corn, sugar and milk products. Thesurcharges on wheat (including wheat flour), rice (milled andpaddy), corn and sugar are variable import levies, based onprice bands determined weekly by the Ministry of Agriculture,tied to world market prices. Whole and skimmed milk powder andmilk fat are subject to per-ton surcharges. The Peruviangovernment defends the surcharges as necessary to protectPeruvian farmers from subsidized international competition andcushion the effect of an overvalued Sol and structuraladjustment. In March 1993, the government agreed to phase outthe surcharges over a three-year period as a condition fordisbursement of an Interamerican Development Bank trade-sectorloan. The surcharge levels were reduced by about 5 percent inApril 1994 and by an equal amount in October 1994. Furthercuts are scheduled to take place in January and July 1995, andevery six months thereafter until the surcharges areeliminated. At present, however, it is difficult for U.S.grain exporters to effectively compete in the Peruvian market.6. Export Subsidies Policies The Peruvian government provides no export subsidies. TheAndean Development Corporation, of which Peru is a member,provides limited financing to exporters at rates lower thanthose available from Peruvian banks (but higher than thoseavailable to U.S. companies). Exporters of non-traditional andmining products can apply certain sales and consumption taxespaid on inputs as a credit against income and asset taxes.Exporters also can receive rebates of the value-added tax ontheir inputs.7. Protection of U.S. Intellectual Property Intellectual property protection in Peru has improved inrecent years but still falls short of international standards.Enforcement mechanisms are in the early stages of developmentand are still unproven for the most part. Peru remains on theSpecial 301 Watch List. Peru is a signatory to the Berne Convention for theProtection of Literary and Artistic Works and to the UniversalCopyright Convention and is a member of the World IntellectualProperty Organization. In October 1994, the Peruvian congressratified the Paris Convention on Industrial Property. Thegovernment plans to implement the GATT TRIPs provisions oncethe Peruvian congress ratifies the Uruguay Round agreement. As of January 1, 1994, Peruvian law provides patentprotection for all classes of inventions, without exception.This exceeds the protection provided under Andean Pact Decision344. Peru does not provide transitional (pipeline)protection. Decision 344, which went into effect on January 1,1994, lengthened the patent protection period to a straight 20years (compared with the 15-plus-5 regime under the old law).It permits member countries to improve patent and trademarkprotections beyond those provided by the pact. Decision 344contains compulsory licensing provisions, but these provisionsare unlikely to be used in Peru because of the numerousrequirements that must first be fulfilled. Counterfeiting of trademarks is prevalent, because there isonly rare, disjointed regulatory enforcement. At times thelocal courts have failed to back enforcement efforts inclear-cut cases. Some U.S. companies have spent years infruitless litigation attempting to secure protection for theirtrademarks in Peru. Copyrights are widely disregarded, but enforcement isimproving, particularly with regard to software, videos, andmusical recordings. Textbooks and books on technical subjectsare rampantly copied, and illegal copies of audio cassettes arewidely available. Pirated copies of motion picture videosconstitute the inventories of nearly all video rental outlets.As soon as a film is in general release in Lima, its bootlegappears in local video stores. Although computer software isnow protected by Peruvian copyright law, pirated software iswidely available. Recently, however, authorities have raidedlarge-scale software users, such as computer schools andeconomic consulting firms, to check for pirated software, andpirated software has been destroyed in well-publicized publicburnings. Peruvian law does not protect semiconductor chip layoutdesigns, but the Embassy is not aware of any infringement ofintegrated circuits or semiconductor chips. Privatefreebooting of broadcast satellite signals may exist, but thecommercialization of the captured signals without a licenseappears to have ended.8. Worker Rights Articles 28 and 42 of the Peruvian constitution recognizethe right of workers to organize, bargain collectively andstrike. Out of an estimated economically active population of8 million, only about 7 percent belong to unions. Roughlytwo-thirds are employed in the informal sector, beyondgovernment regulation and supervision. Strike activityincreased in 1994 as the economy picked up and workers demandedbetter pay and conditions. The beginning of the campaign forthe 1995 presidential election also inspired labor actions. a. Right of Association Peruvian law allows for multiple forms of unions acrosscompany or occupational lines. Workers in probational statusor on short-term contracts are not eligible for unionmembership. Public employees exercising supervisoryresponsibilities are excluded from the right to organize andstrike, as are the police and military. The amount of timeunion officials may devote to union work with pay is limited to30 days per year. Membership or non-membership in a union maynot be required as a condition of employment. Although someunions have been traditionally associated with politicalgroups, unions are prohibited by law from engaging inexplicitly political, religious or profit-making activities. b. Collective Bargaining Bargaining agreements are considered contractualagreements, valid only for the life of the contract.Productivity provisions must be included in any collectivebargaining agreement. Unless there is a pre-existing laborcontract covering an occupation or industry as a whole, unionsmust negotiate with each company individually. The governmenthas set up a system of conciliation and arbitration to resolvedisputes in collective-bargaining impasses. Strikes may becalled only after approval by a majority of all workers (unionand non-union) voting by secret ballot. Unions in essentialpublic services, as determined by the government, must providesufficient workers, as determined by the employer, to maintainoperations during the strike. Companies may unilaterallysuspend collective bargaining agreements for up to 90 days ifrequired by force majeur or economic conditions, with 15 daysnotice to employees. c. Forced or Compulsory Labor Forced or compulsory labor is prohibitted, as isimprisonment for debt. There are periodic reports of forcedlabor in remote mountainous and jungle areas, which thegovernment claims it cannot control. d. Minimum Age of Employment The minimum legal age for employment is 16. Workers aged16-21 may not exceed 15 percent of a company's workforce.However, although education through the primary level is freeand compulsory, many school-aged children must work to supporttheir families, usually in the informal economy withoutgovernment supervision of wages or conditions. e. Acceptable Conditions of Work The 1993 constitution provides for a maximum eight-hourwork day, a 48-hour work week, a weekly day of rest and 30 daysannual paid vacation. The labor code also sets a 45-hour workweek for women. Workers are promised a just and sufficientwage (to be determined by the government in consultation withlabor and business representatives) and adequate protectionagainst arbitrary dismissal. No labor agreement may violateor adversely affect the dignity of the worker. These and otherbenefits are readily sacrificed in exchange for regularemployment, especially in the informal sector. The currentminimum wage is 130 Soles per month (about USD 57 at thecurrent exchange rate). f. Rights in Sectors With U.S. Investment U.S. investment in Peru is concentrated primarily in themining and petroleum sectors. Labor conditions in thosesectors compare favorably with other parts of the Peruvianeconomy. Workers are primarily unionized, and wages far exceedthe legal minimum. Oil and mining workers called a number ofstrikes in 1994 to demand higher pay and to protest governmentprivatization plans. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 20 Food & Kindred Products 5 Chemicals and Allied Products -4 Metals, Primary & Fabricated 9 Machinery, except Electrical 0 Electric & Electronic Equipment 1 Transportation Equipment 0 Other Manufacturing 9Wholesale Trade 51Banking (1)Finance/Insurance/Real Estate 0Services 8Other Industries (1)TOTAL ALL INDUSTRIES 631(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEPARAGUAY: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS PARAGUAY Key Economic Indicators 1992 1993 1994Income, Production and Employment:Real GDP (1982 prices) 2/ 7,113 7,407 7,681Real GDP Growth (pct.) 1.8 4.1 3.6GDP (at current prices)2/ 6,447 6,841 7,000By Sector: Agriculture 26.3 26.6 26.1 Energy/Water 3.8 4.1 4.3 Manufacturing 15.6 15.3 15.1 Construction 5.4 5.3 5.8 Rents N/A N/A N/A Financial Services 26.5 26.5 26.8 Other Services 9.6 9.4 9.5 Government/Health/Education 4.8 4.8 4.9Net Exports of Goods & Services 2/ -821.3 -805.6 N/AReal Per Capita GDP (1982 base) 1,574 1,595 1,640Labor Force (000s) 1,627 1,672 1,725Unemployment Rate (pct.) 9.8 11.0 11.2Money & Prices: (annual percentage growth)Money Supply (M2) 35.1 27.2 19.8Base Interest Rate 3/ 36.3 39.6 39.4Personal Saving Rate/GDP 18.3 19.5 18.9Retail Inflation N/A N/A N/AWholesale Inflation 13.9 14.8 14.2Consumer Price Index 17.8 20.4 18.3Exchange Rate (USD/Gs) 1,509 1,754 1,915Balance of Payments and Trade:2/Total Exports (FOB) 4/ 656.5 725.2 715.5 Exports to U.S. 34.4 50.3 46.5Total Imports (CIF) 4/ 1,237.1 1,477.5 2,853.3 Imports from U.S. 414.9 520.9 580.5Aid from U.S. 2.9 4.4 5.0External Public Debt 1,249 1,217 1,265Debt Service Payments (paid) 628.4 233.0 125.0Gold and Foreign Exch. Reserves 610.7 697.7 983.6Trade Balance 4/ -580.6 -752.3 -2,137.8 Trade Balance with U.S. -380.5 -470.6 -534.0N/A--Not available.1/ 1994 figures are all estimates based on available monthlydata in October 1994.2/ In millions of U.S. dollars.3/ Figures are actual, average annual interest rates, notchanges in them.4/ Merchandise trade. Exports exclude unregistered re-exports.1. General Policy Framework The Paraguayan economy continues to be dependent onagricultural exports and the re-export of goods to Brazil andArgentina. Because of this, it is particularly susceptible toexternal factors, such as bad weather or economic malaise inits neighboring countries. Since 1989, the government hasliberalized and deregulated the economy, eliminating foreignexchange controls and implementing a free floating exchangerate. Paraguayan authorities have also established taxincentives to encourage and attract investment, reduced tarifflevels, launched a stock market, reformed the tax structure,and started a process of financial reform. The Wasmosygovernment has continued these policies, and has takenimportant steps forward in joining the international economythrough the ratification of GATT and acceptance of the ParisConventions on intellectual property. It has alsostrengthened Paraguay's economic base by keeping governmentexpenditures in line with revenues, combating inflation,eliminating restrictions on capital flows, reforming andderegulating the financial sector, keeping customs duties lowand uniform, encouraging production and exports, privatizingstate owned enterprises and condemning official corruption.The government provides national treatment to foreign investorsand business people. Paraguayan imports of U.S. made products have increasedsteadily. According to the U.S. Department of Commerce,exports to Paraguay totaled 520 million dollars in 1993.United States products and services enjoy wide acceptabilityamong the Paraguayan public. Major sectors for U.S. exportsinclude computers and peripherals, machinery, automobiles, autoparts, and consumer goods. Other areas for business are homeentertainment equipment, communications equipment, and officemachines and equipment. A healthy trade surplus is maintainedwith Paraguay. Several large government investment projects could offerinteresting opportunities for U.S. firms in the future.Paraguay and Argentina are considering a hydroelectric projectat Corpus. The two governments plan to establish a concessionto let private sector companies construct and manage theproject. Another ambitious project will be the Hidrovia, along-term river transportation project that aims to improve thenavigation system of the River Plate region, including theParaguay and Parana rivers. The project will be financed withfunds provided by the Interamerican Development Bank. TheHidrovia Project will fund improvements in roads and ports, andmay include some river dredging. A U.S. consulting firm ispreparing a feasibility study for the recuperation of theYpacarai lake basin and the bay of Asuncion funded by a TradeDevelopment Agency grant. The final report will includerecommendations for the installation of wastewater treatmentplants and the construction of dikes to prevent flooding ofland bordering the bay of Asuncion. The scheduled privatization of four state companiesincluding the national steel company, the state merchant fleet,the Paraguayan railroad, and an alcoholic beverage plant couldalso offer attractive investment opportunities to prospectiveU.S. investors. The government has also recently announced itsintention to privatize the state telecommunications, and waterand sewage companies, although the legislature has yet toapprove these plans. Despite high-level support within thegovernment, opposition from many parts of society longaccustomed to a large public sector may stall privatization. Paraguay is a member of the Latin American Association forRegional Integration, the Southern Cone Common Market(MERCOSUR) and the GATT. The Paraguay has ratified theUruguay Round agreements and became a founding member of theWorld Trade Organization (WTO) on January 1, 1995.2. Exchange Rate Policies All foreign exchange transactions, public and private, aresettled at the daily free market rate. The value of theGuarani vis a vis the U.S. dollar and other foreign currenciesis established by market forces, with some minor interventionby the Central Bank. The free market rate on September 30stood at 1,915 guaranies to the dollar. It is legal to holdsavings accounts in foreign currency and in October 1994 theexecutive promulgated a decree legalizing contractualobligations in foreign currencies. At present the majority ofsavings accounts are denominated in dollars.3. Structural Policies Consumer prices are generally determined by supply anddemand, except for public sector utility rates (water,electricity, telephone), petroleum products, pharmaceuticalproducts, and bus fares. As a step to slow down inflation thegovernment implemented in April 1994 a number of economicmeasures, including a stringent monetary policy, foreignexchange market interventions to prevent sharp fluctuations inthe value of the guarani, a voluntary price freeze, and a tightrein on government expenditures that has generated a sizablebudget surplus. Monthly inflation declined from slightly morethan three percent in January to 0.3 percent in September,1994. The Ministry of Finance overseas all tax matters. With theimplementation of the new tax system (Law 125/91), corporateincomes are subject to a 30 percent tax rate. As an incentiveto investment, the income tax rate on reinvestment profits is10 percent. The fiscal incentive package (Law 60/90) includestotal exemption from certain taxes on the establishment ofoperations and reduction of customs duties on imports ofcapital goods. There is a 95 percent corporate income taxexemption for five years. The government expanded the tax basewith the implementation of a value added tax (IVA) in 1992.Compliance has been lower than expected, primarily as a resultof inexperience in its administration.4. Debt Management Policies In 1992 the government reduced external debt with bothofficial and commercial creditors. The full payment of arrearswas accomplished without assistance from the IMF or the ParisClub by drawing down reserves. The Government of Paraguaycurrently has approximately 1.2 billion dollars of debt. Abouthalf of the debt is to multilateral lending institutions, withthe rest to Paris Club members. Since 1992, Paraguay has beenmeeting its obligations with foreign creditors in a timelyfashion.5. Significant Barriers to U.S. Exports U.S. manufactured goods face strong competition from FarEast producers. U.S. companies have been kept out ofgovernment procurement through purchasing practices which granta 15 percent preference to local bidders (bids are let on allpurchases in excess of 60,000 U.S. dollars). Paraguayprohibits the imports of certain foods and agriculturalproducts. Although the list is reviewed every six months, itnormally stays the same. The potential for U.S. computersoftware products is limited by widespread piracy. In general, financing for both imports and exports islimited. High nominal and real interest rates due to inflationpresent a major obstacle to the availability of medium and longterm credit. The banking system also enjoys a wide spread(over 20 percent) on its funds.6. Export Subsidies Policies There are no discriminatory or preferential exportpolicies. Paraguay does not subsidize its exports. In fact,export taxes and duties represent a significant source ofcentral government revenues.7. Protection of U.S. Intellectual Property Despite signing the Paris Conventions in early 1994 and alegal framework which affords protection to intellectualproperty, protection for intellectual property is lax inParaguay. The lack of effective enforcement of existing IPRlaws and the slow pace of the judicial system in issuing timelyand clear decisions has encouraged the development of a sizablebusiness of counterfeiting, particularly sound recordings andvideo movies. The U.S. Government has ongoing discussions withthe Paraguayan Government on issues that must be addressed inorder to establish an adequate intellectual property regime. The outdated patent law of 1925 established an office ofpatents and inventions and the requirements and procedures forobtaining patents. The law does not meet modern standards.The law grants patents for 15 years and may be renewed. The procedure for registering a trademark resembles theU.S. system. The illegal appropriation of well-knowntrademarks presents a serious problem. Anyone may register atrademark and the process is relatively simple andinexpensive. The law grants trademark rights which may berenewed before its expiration. Ownership of a trademark may betransferred by contract or inheritance. In 1991, Paraguay became a signatory to the Bern Conventionfor the protection of literary and artistic works. Althoughthe government has taken measures to fight piracy, widespreadproduction and trade in pirated recordings, computer software,and video cassettes remains a problem.8. Worker Rights A Generalized System of Preferences (GSP) program wasreinstated in February 1991. Paraguay's status as abeneficiary under the U.S. GSP was suspended in 1987 forviolation of labor rights under the Stroessner regime. Therestoration of trade benefits was in recognition ofimprovements in worker rights under the Rodriguez Governmentand the promise that the government would pass a new labor codewith internationally accepted protections for labor. In 1993,the AFL/CIO filed a petition requesting suspension of GSPbenefits for worker rights violations and for failure toapprove a new labor code. On October 28, 1993, the Paraguayanparliament approved a new labor code that met internationallabor organization standards. a. Right of Association The Constitution allows both private and public sectorworkers, excepting the armed forces and police, to form andjoin unions without government interference. It also protectsthe right to strike and bans binding arbitration. Strikers andleaders are protected by the constitution against retribution.Unions are free to maintain contact with regional andinternational labor organizations. b. Right to Organize and Bargain Collectively Collective bargaining is protected by law. When wages arenot set in free negotiations between unions and employers, theyare made a condition of individual employment offered toemployees. Collective contracts are still the exception ratherthan the norm in labor/management relations. c. Prohibition of Forced or Compulsory Labor Forced labor is prohibited by law. Domestics, children,and foreign workers are not forced to remain in situationsamounting to coerced or bonded labor. d. Minimum Age of Employment of Children Minors from 15 to 18 years of age can be employed only withparental authorization and cannot be employed under dangerousor unhealthy conditions. Children between 12 and 15 years oldmay be employed only in family enterprises, apprenticeships, orin agriculture. The labor code prohibits work by childrenunder 12, and all children are required to attend elementaryschool. In practice, however, many thousands of children, manyunder the age of 12, work in urban streets in informalemployment. e. Acceptable Conditions of Work The labor code allows for a standard legal work week of 48hours, 42 hours for night work, with one day of rest. The lawalso provides for an annual bonus of one month's salary and aminimum of six vacation days a year. It also requires overtimepayment for hours in excess of the standard. Conditions ofsafety, hygiene, and comfort are stipulated. f. Rights in Sectors with U.S. Investment Conditions are generally the same as in other sectors ofthe economy. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 9Total Manufacturing 9 Food & Kindred Products (1) Chemicals and Allied Products 0 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 0Services 0Other Industries 0TOTAL ALL INDUSTRIES 64(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of Economic Analysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEPANAMA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS PANAMA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1/ 1994 2/Income, Production and Employment:Real GDP (1985 prices) 5,477 5,801 6,091Real GDP growth (pct.) 8.6 5.9 5.0GDP (at current prices) 6,001 6,562 6,975GDP Share by Sector: (pct.) Agriculture/Forestry/Fisheries 10.6 10.1 9.8 Manufacturing 9.2 9.3 9.1 Utilities 3.2 3.2 3.2 Construction 5.1 6.7 7.7 Commerce/Hotels/Restaurants 11.8 11.9 11.9 Panama Canal 9.2 8.6 8.4 Oil Pipeline 1.7 0.8 0.3 Colon Free Zone 8.1 8.6 9.0 Transport/Communications 7.2 7.4 7.3 Finanace/Insurance/Real Estate 14.6 14.9 15.4 Government Services 11.7 10.8 10.6 Other 7.5 7.4 7.3Real GDP Per Capita (1985 prices) 2041 2167 2256Labor Force (000s) 3/ 921 949 979Unemployment (official rate) 3/ 13.1 12.5 11.9Money and Prices:Money and Quasi-Money (M2) 3,535 4,300 3,916Commercial Interest Rates Fixed deposit (pct.) 5.5 5.0 5.3 Average lending (pct.) 11.0 10.5 10.8Gross Savings (pct. GDP) 17.3 16.0 16.7Gross Investment (pct. GDP) 22.7 20.0 21.4Consumer Prices (pct./annual average CPI) 1.8 0.9 1.4Wholesale Prices (pct./annual average) 2.7 2.5 (2.6)Exchange Rate (balboa:USD) 1:1 1:1 1:1Balance of Payments and Trade:Total Merchandise Exports (FOB) 481 500 520 Exports to U.S. (pct.) 45 45 45Total merchandise imports (CIF) 1,827 2,007 2,205 Imports from U.S. (pct.) 40 40 40Aid from U.S. Government 234 42 21External Public Debt 5,204 5,369 5,539Debt Service Paid 4/ 230 234 238Foreign Assets 504 566 636Balance of Payments Current Account -41 -16 N/A Foreign Investment 1 2 N/AN/A--Not available.1/ Estimated.2/ Projected.3/ Data revised October 31, 1994.4/ Excludes clearance of arrears to International FinancialInstitutions (IFI's) in 1992.1. General Policy Framework Panama's economy is based on a well-developed servicessector that accounts for 70 percent of gross domestic product(GDP). Services include the Panama Canal, banking, insurance,government, the transisthmian oil pipeline, and the Colon FreeZone (CFZ). Manufacturing, mining, utilities, and constructiontogether account for approximately 20 percent of GDP.Agriculture accounts for about 10 percent of GDP. Growth ofPanama's economy continues to slow from the previous four years(the high point was reached in 1991, with a high point of9.6%), with 1994 growth projected at 5.0%, down from 1993's5.9% and 1992's 8.6%. As in preceding years, privateconstruction and capital goods spending plus CFZ activity andcertain services exports have been the main sources of growth.A slight upswing in Panama Canal traffic and revenues has alsoboosted growth. The new government, which took office September 1, 1994 hasannounced its intention to address directly a past failure bypolicy-makers to follow through on key economic policyreforms: reduction of the public sector payroll,liberalization of the trade regime, privatization ofstate-owned enterprises, and encouragement of job-creationthrough labor code reforms. Decisive government action inthese areas will be key to Panama's current application to jointhe GATT and the soon-to-be-formed World Trade Organization,the establishment of increased investor confidence, and theresolution of Panama's large outstanding foreign debt. In theabsence of effective action, growth in all sectors is likely tobe negatively affected, and job creation will begin to lagbehind population growth. Although a comprehensive nationaleconomic plan has been released which incorporates the aboveconcerns, as of the date of this report there had been nospecific implementation of proposed reforms. Medium-termprospects for strong economic growth and job-creation aretherefore uncertain, pending further policy developments. The use of the U.S. dollar as Panama's currency means thatfiscal policy is the government's principal macroeconomicpolicy instrument. Because Panama does not "print" a nationalcurrency, government spending and investment are strictly boundby tax and nontax revenues (including Panama Canal receipts)and the government's ability to borrow.2. Exchange Rate Policies Panama's official currency, the Balboa, is pegged to theU.S. dollar at one Balboa to one U.S. dollar. The fixed paritymeans price and availability of U.S. products in Panama dependon transport costs and tariff and non-tariff barriers toentry. At the same time, the fixed parity means that U.S.exporters have zero risk of foreign exchange loss on sales toPanama.3. Structural Policies The newly elected Government of Panama, which took officeon September 1, 1994, has declared its policy commitment totrade liberalization, and has published an ambitious butdisciplined national economic plan. The plan has as itscenterpiece Panama's accession to GATT/WTO, and the associatedtrade liberalization measures which accession will require.The new government is also emphasizing fiscal discipline,internal savings, partial privatizations of some publicentities and utilities, revision of the inflexible labor code,elimination of price controls and establishment of an antitrustlaw and enforcement authority, and health and housing programsto ease the severe rural and urban poverty and highunemployment which reflect Panama's very uneven distribution ofwealth and income. In the area of trade liberalization, any lowering of tariffand non-tariff barriers would build on the previousgovernment's conversion from specific tariffs to an ad valoremsystem on about 280 tariff line items. Current tariff ratesfor industrial products are set at 40 percent foragroindustrial products. Some 227 product classificationscarry a 50 percent tariff, while a 60 to 90 percent rateapplies to some 60 sensitive agricultural products. Panama is an observer to the General Agreement on Trade andTariffs (GATT), but applied for full GATT membership in May1993. Bilateral and multilateral working party meetings onPanama's application have already been held. Panama enacted a new tax law in December 1991 and aprivatization framework law in July 1992. The tax reform actreduced corporate income tax rates to 30 percent effective asof 1994. The 1991 privatization law resulted in very fewactual privatizations. It is likely that any of theprivatizations being considered by the new government will, ifcarried out, be performed pursuant to fresh legislation.4. Debt Management Policies Panama is current on interest and principal due to the IMF,World Bank, Inter-American Development Bank, and InternationalFund for Agricultural Development. It cleared $645.8 millionin arrears with these institutions during February/March 1992,and took steps in 1993 and 1994 towards normalizing relationswith foreign commercial creditors (bondholders, commercialbanks, and suppliers); Panama's accrued commercial debt,including interest, stands at about 5.3 billion dollars. Panama remains current on interest and principal paymentsto U.S. government creditor agencies. Some 1994 disbursementsfrom International Financial Institutions of previously agreedcredits were suspended, however, due to the previous GOP'sfailure to satisfy all IFI conditions, most prominently afailure to privatize and to reduce the size of the publicsector sufficiently. The GOP remains committed to reaching anagreement with its external commercial creditors. In October1994, shortly following announcement of its national economicplan, the GOP signed an agreement with the Inter-AmericanDevelopment Bank (IBD) whereby IBD will provide up to 750million dollars between 1995-1996 for a variety of socialwelfare and infrastructure improvement projects.5. Significant Barriers to U.S. Exports The new government's economic reform program is stilllargely inchoate, but appears strongly oriented towardexport-led policies designed to attract increased foreigninvestment. At the same time, the Panamanian economy remains,for now, one of the most heavily protected ones in LatinAmerica. The Panamanian agricultural sector is protected bysignificant non-tariff barriers. Agricultural products such asrice, corn, beef, dairy products, soybeans, and wheat arecontrolled by the Ministry of Agriculture and the AgriculturalMarketing Institute (IMA). Import permits are required fromthe Ministry of Agriculture for imports of animal products,animal by-products, and seeds. In 1993, the government passeda law restricting imports of poultry products based onzoosanitary restrictions and trade reciprocity. The newgovernment's agriculture ministry has announced its intentionto enforce strictly the prior approval requirement (Decree 15of May 18, 1967) for all imports of meat products, in additionto phytosanitary requirements. IMA maintains a list of 48 agricultural products underimport quota and 30 products under import permit. The priorgovernment issued several decrees (effective December 1, 1993)eliminating seven products from the list of products underquota and two from the list of products under import permit. Non-agricultural product registration requirements, whichwere previously applied prior to market entry (by customsauthorities) now become effective six months after initialproduct entry. Thus, importers can establish product salespotential prior to an investment of financial and staffresources in the registration process. The Panamanian Government officially promotes foreigninvestment and affords foreign investors national treatment, aswell as actively promoting specific investment opportunities inagriculture, industry, tourism, and an expanded range ofservices. A limitation in Panamanian law on foreign governmentownership of land affects a few U.S. government investmentinsurance programs, but places no legal limitations on foreignprivate investment or ownership. While the Government of Panama does not officially presentany barriers to U.S. suppliers of banking, insurance,travel/ticket, motion picture, and air courier services, someprofessionals can expect certain technical/proceduralimpediments, i.e., architects, engineers, and lawyers have tobe certified by Panamanian boards. Panama does not have an investment screening mechanism, andthe Panama Trade Development Institute works to attractinvestment to priority areas. Under the terms of its BilateralInvestment Treaty with the United States, Panama places norestrictions on the nationality of senior management. Panamadoes restrict foreign nationals to 10 percent of theblue-collar work force, however, and specialized foreign ortechnical workers may number no more than 15 percent of allemployees in a business. Disinvestment may be difficult forforeign (and Panamanian) companies involved in labor-intensiveproduction, because of labor code regulations, which restrictdismissal of employees and require large severance payments.The current government is considering modifications to thelabor code.6. Export Subsidies Policies Export subsidies policies benefit both foreign-owned anddomestic export industries. The tax credit certificate (CAT)is a major export subsidy. CATs are given to firms producingnontraditional exports when the exports' national content andnational value added both meet minimum established levels.Exporters receive CATs equal to an amount that is 20 percent ofthe exports' national value added. The certificates aretransferable and may be used to pay tax obligations to thegovernment. They can also be sold in secondary markets at adiscount. A number of industries that produce exclusively for exportalso are exempted from paying certain types of taxes and importduties. The Panamanian government uses these exemptions as away of attracting investment to the country. Companies thatbenefit from these exemptions are not eligible to receive CATSfor their exports, however.7. Protection of U.S. Intellectual Property Panama recently passed major legislation (Law No. 15 ofAugust 8, 1994) intended to modernize its copyright protectionregime and is also considering legislation to strengthenindustrial property (patents, trademarks, and trade secrets)protection. Panama is a member of the World IntellectualProperty Organization, the Geneva Phonograms Convention, theBrussels Satellite Convention, and the Universal CopyrightConvention, but it is not a member of the Bern Convention forthe protection of Literary and Artistic Works, the ParisConvention for the Protection of Industrial Property, or theCentral American Copyright Convention. Panama signed with other Central American countries adeclaration of intent to join the Paris Convention in October1992. Officially, Panama's adherence to some of the majorinternational conventions governing intellectual propertyrights offers more protection than that which is given todomestic Panamanian interests under Panamanian law. The new copyright law, which takes effect January 1, 1995,strengthens copyright protection, facilitates prosecution ofcopyright violators and makes copyright infringement a felony,punishable by fine and incarceration. The bill also protectscomputer software as a literary work. The next major challengefor Panama in the copyright is establishment and funding of thenew Copyright Directorate called for in Law 15, the draftingand application of detailed implementing regulations, and thecreation of the judicial expertise necessary to enforce the newlaw. The Legislative Assembly's Commerce and IndustriesCommittee during the legislative session ending June 30 hadtaken under consideration an industrial property law, modeledafter the Mexican industrial property rights law. TheAssembly, however, did not take final action on the bill beforeadjourning. The draft law would have established a standard of20 years of protection for all patent holders, in place of thecurrent range of 5 to 20 years for Panamanians and 5 to 15years for foreigners. The bill also would protect processes.The draft law would impose a working requirement on patentholders, although the patent holder can satisfy the workingrequirement by importing the product. Under the draft law, thegovernment would be able to issue compulsory licenses onlyafter notice to and a hearing for the patent holder. Inaddition, a patent holder would still preserve his rights bybeginning manufacture or importation within one year of theinitial notification of the compulsory licensing proceeding.The recipient of a compulsory license would have the capacityto manufacture the product himself in Panama. The draft industrial property law also provides forprotection of trademarks and trade secrets. The bill wouldsimplify trademark registration, and give protection for 10years, renewable for an unlimited number of additional 10-yearperiods. The newly elected Assembly, which was sworn in September 1,has not yet placed the bill on its agenda. The government willlikely re-introduce the bill no later than 1995, since itspassage is an important element of Panama's application to joinGATT. It is possible there will be significant modificationsmade in the draft bill to strengthen its protections before theNational Assembly takes final action. Video piracy is a major concern in Panama. Some firms areillegally reproducing videos and distributing them from theColon Free Zone (CFZ) to Panama, Central America, and elsewherein South America. Recently, some U.S. firms have alsocomplained about trademark infringement by firms in the CFZ andabout use of the CFZ as a transshipment point for piratedproducts. GOP police authorities recently have raided severalCFZ warehouses, in response to concerns about illegaltransshipments and illegal assembly activity.8. Worker Rights a. The Right of Association Panamanian private sector workers have the legal right toform and join unions of their choice, subject to registrationby the government. Unions have criticized, however, governmentrequirements for registration, including the minimum number ofworkers necessary for union formation (currently 51). With alarge percentage of small-scale shops and businesses in Panamahaving less than the required number of employees, many workforces fall below this number. The only option for suchemployees is to affiliate themselves with an existing tradeunion in another company, which is often difficult. Easierregistration requirements are one demand that the unions havebeen making in Panama. Despite being legally allowed, attemptsover the past twenty years to organize in the banking sectorhave not been recognized by the government. No organizingefforts also have been successful in the Colon Free Zoneeither. Unions claim that the government will never alloworganizing efforts to succeed in these important economicsectors. Some economists, on the other hand, argue that thesesectors have flourished in part precisely because the unionshave been excluded. The ILO's Committee of Experts (COE) has criticized theexcessively high numbers of members required to establish aunion along with the requirement that 75 percent of unionmembers be Panamanian nationals, and the automatic removal fromoffice of trade union officials dismissed from their jobs. TheCOE also has noted that Panama's Constitution and the LaborCode require that the executive board of a trade union becomposed exclusively of Panamanians. The ILO feels thatgovernment legislation should be made more flexible to permitorganizations to choose leaders without hindrance and shouldallow foreign workers to hold trade union office. According to Ministry of Labor statistics, approximately 11percent of the total employed labor force is organized. Thereare 289 active unions, grouped under six confederations and 48federations representing approximately 82,000 members in theprivate sector. From January to August, two new unionsregistered with the Government. Some unions formerlyaffiliated with federations and confederations have chosen tofunction independently in recent years. Organized labor, whichreceived various benefits from and was largely coopted by themilitary regime from 1968 to 1989, is no longer identified withnor controlled by the Government or political parties.Although the new Perez Balladares PRD government has closerties with organized labor than did the Endara Administration,union organizations at every level may and do affiliate withinternational bodies. Prior to the passage of Panama's new Civil Service Law (LeyAdministrativa) or Law 9 of June 20, 1994, most governmentworkers were not permitted to organize unions or bargaincollectively. The exception was workers in certain state-ownedcompanies, such as public utilities, which have been allowed toorganize unions--rights they carried over from when theircompanies were private sector entities--and these unions areamong the strongest in Panama. FENASEP (the umbrellaorganization for the public employee associations) wasespecially active in the debate leading up to the passage inJune of the Civil Service Law which established the basis forthe creation of a career civil service for the first time inPanama, formalized the formation of public employeeassociations and federations and established their right torepresent their members in collective bargaining with theirrespective agencies. Most workers have the right to strike. Some key groups,however, do not (i.e., certain government workers in areasvital to public welfare and security such as the police andhealth workers and those employed by the U.S. Military Forcesand the Panama Canal Commission). Unionized employees offormerly private and telephone companies, retain their originalright to strike when certain criteria are met. For example, anotice of intention to strike must be served at least eightcalendar days in advance and strikers must continue working inreduced shifts to prevent public services from being completelyparalyzed. b. Right to Organize and Bargain Collectively As noted above, the Panamanian labor code grantsindividuals the right to organize labor unions and employeeassociations. On January 13, President Endara signed Law 2 of1993 which restored full freedom of association and collectivebargaining rights to workers in the private sector. Earlier,Law 25 of November 1992 amended Law 16 of 1990 by reimposingthe obligation of firms operating in export processing zones toenter into collective bargaining agreements with workers.Panama's labor code prohibits anti-union discrimination byemployers. Disputes or complaints may be brought to aconciliation board in the ministry of labor for resolution.The Labor Code provides a general mechanism for arbitrationonce conciliation procedures have been terminated. c. Prohibition of Forced or Compulsory Labor The Panamanian labor code prohibits forced or compulsorylabor, and there are no reports of either practice. d. Minimum Age for Employment of Children The Panamanian labor code prohibits the employment ofchildren under the age of 14, or under the age of 15 if thechild has not completed primary school. The code alsoprohibits the employment of persons under age 18 in nightwork. Children between the ages of 12 and 14 may perform farmor domestic labor as long as the work is light and does notinterfere with the child's schooling. Enforcement of theseprovisions is triggered by a complaint to the Ministry ofLabor. which can order the termination of illegal employment.Child labor provisions were generally enforced in Panama in1993, although less so in the interior of the country becauseof insufficient resources to monitor any abuses. e. Acceptable Conditions of Work The labor code establishes minimum wage rates for mostcategories of labor and requires substantial bonuses forovertime work. Panama has a substantial informal sector inwhich some workers earn below the minimum wage. In December1992, the government decreed a 20.5 percent nominal increase inthe minimum wage effective January 1, 1993. While the minimumwage varies according to region and type of work, the prevalentminimum wage increased from $.78 per hour to $.94 per hour. The labor code establishes a standard legal workweek of 48hours throughout Panama and provides for at least one 24-hourrest period. The Labor Code also sets numerous health andsafety standards for all places of employment. However, TheMinistry of Labor, which is responsible for insuring thatemployers comply with these regulations, does not have enoughinspectors and resources to enforce these laws effectively. f. Rights in Sectors with U.S. Investment Although Panamanian labor laws differ from sector tosector, within each sector U.S. firms adhere to the prevailinglaws. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 724Total Manufacturing 169 Food & Kindred Products (1) Chemicals and Allied Products (1) Metals, Primary & Fabricated (2) Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 21Wholesale Trade 578Banking (1)Finance/Insurance/Real Estate 10,926Services (1)Other Industries (1)TOTAL ALL INDUSTRIES 12,575(1) Suppressed to avoid disclosing data of individual companies(2) Less than $500,000Source: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEPAKISTAN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS PAKISTAN Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) FY1992 FY1993 FY1994 1/Income, Production and Employment:GDP (current prices) 49,044 51,813 52,877Real GDP Growth (pct.) 7.7 2.3 4.0GDP Share by Sector: (pct.) Agriculture 26.1 24.2 23.9 Power/Gas Distribution 3.5 3.7 3.7 Manufacturing 17.8 18.3 18.6 Construction 4.1 4.2 4.2 Services 2/ 48.0 49.1 49.1 Rents N/A N/A N/A Financial Services N/A N/A N/A Government/Health/Education N/A N/A N/ANet Export of Goods & Services N/A N/A N/AReal GDP Per Capita (USD) 422 428 426Labor Force (millions) 32.97 33.97 34.98Unemployment Rate (pct.) 5.85 5.85 5.85Money and Prices:Money Supply (M2) 4,525 3,345 3,088Commercial Interest Rate (pct.) 3/ 15.5 18.0 16.8Saving Rate (pct. of GDP) 17.1 13.6 15.4Investment Rate (pct. of GDP) 20.1 20.7 20.1Retail Inflation (cpi - annual pct. change) 12 month average basis 9.6 9.3 11.2Wholesale Inflation (wpi - annual pct. change) 12 month average basis 9.3 7.1 15.0Exchange Rate (rupee/USD) Official (FY avg.) 24.7 25.9 29.4 Parallel 25.5 27.9 32.2Balance of Payments and Trade:Total Exports (FOB) 6,762 6,782 6,715 Exports to U.S. 891 948 1,003Total Imports (FOB) 8,998 10,049 8,549 Imports from U.S. 977 942 931Aid from U.S. 4/ 40 20 0Aid from Other Countries 2,471 2,493 2,481External Public Debt 18,384 20,810 22,761Debt Service Payments 5/ 2,199 2,332 2,285Foreign Exch. Reserves (FY end) 952 461 2,305Trade Balance -2,236 -3,267 -1,834 Trade Balance with U.S. -86 6 72N/A--Not available.1/ Pakistan's fiscal year (PFY) is July 1 - June 30. PFY 1994data covers period July 1, 1993-June 30, 1994.2/ Includes banking, insurance, commerce, housing, storage,transportation, communication and other services.3/ Average annual interest rate on commercial bank loans toprivate sector borrowers.4/ Aid from U.S. in 1993 consisted exclusively of PL-480 funds.5/ Excludes interest on short-term loans and IMF charges.Source: Pakistan Economic Survey 1993/94 and State Bank Report1993/94.1. General Policy Framework Pakistan has been on a generally steady course towardmarket liberalization and structural reform for the past fiveyears. These efforts intensified in response to adeteriorating financial situation which developed in 1992/93,and as a result of the efforts of the interim government headedby former Prime Minister Moeen Qureshi (July-October 1993).Qureshi, an apolitical technocrat, pushed forward a number ofeconomically sound but politically difficult initiatives andset a high standard for subsequent political governments. Athree-year agreement concluded by the present government withthe International Monetary Fund (IMF) in early 1994 provides apolicy framework and economic targets that have helped theGovernment of Pakistan (GOP) stay that course.2. Exchange Rate Policy The Pakistan rupee has been on a managed float since 1982;the central bank regularly adjusts the value of the rupeeagainst a basket of major international currencies and uses theU.S. dollar as an intervention currency to determine otherrates. The black market in foreign exchange has largelydisappeared since private foreign exchange transactions are nowlegally sanctioned. There is an informal parallel market forforeign exchange that is not illegal. On this parallel market,there is a modest premium for attractive foreign currencies;the premium, which has decreased over the past year, generallyamounts to approximately an additional .7 to 1.5 rupees perdollar (or roughly two to five percent). In 1993-94, the GOP removed several additional foreignexchange restrictions. Effective July 1, 1994, the rupeebecame fully convertible on current account under IMF rules.Exchange rate reforms instituted in 1991 had essentiallycreated convertibility on the capital account. Exchange ratepolicy under the managed float has contributed to animprovement in Pakistan's trade performance. Following atwo-stage devaluation totaling about nine percent in July 1993,and a tightening of fiscal and monetary policy, the value ofthe rupee has stabilized. In a series of incrementaladjustments between late July 1993 (29.85 rupees to the dollar)and late October 1994 (30.62 rupees), the rupee has depreciatedagainst the dollar by less than three percent.3. Structural Policies A succession of Pakistani governments over the past sixyears has implemented structural reform policies which havemade the economy more free and market-oriented. The twoprincipal political parties agree on the direction of economicpolicy, and shifts in government have, consequently, hadremarkably little impact on the overall liberalizing trend. One principal element of structural reform has been tradeliberalization. The GOP is now engaged in a sweeping tariffreduction program to force domestic firms to improve theircompetitiveness and take advantage of Uruguay Round benefits.From the Pakistani perspective, the key aspect of the UruguayRound is the integration of textile trade into the GATT. TheGOP is aware that, in order to benefit from global tradeliberalization, Pakistan must shift to tariffs in thoseindustrial sectors, especially textiles, which are nowprotected by import bans or quotas. The GOP is also reducingthe maximum "all inclusive" tariff rate from 92 percent in1993-94 to 70 percent at the start of the 1994-95 fiscal year.The maximum tariff rate is scheduled to be further reduced to45 percent at the start of the 1995-96 fiscal year and to 35percent one year later. A second pillar of structural reform has been thedismantling of state control over key sectors of the economythrough privatization. The GOP's role in the economy continuesto shrink. In 1990, the public sector, which includes manyenterprises which were nationalized in the 1970s, accounted forabout 30 percent of value added in manufacturing. As ofOctober 1994, the GOP has sold off nearly 80 of its originallist of 118 public industrial companies and plans to advertisethe remaining units over the next few months. The GOP is also in the process of identifying additionalunits for privatization and encouraging private sectorparticipation in the power generation and distribution, mining,utilities, insurance, banking, and airlines industries. WithWorld Bank technical assistance, the government is setting upregulatory bodies to permit privatization of variousutilities. The GOP is proceeding with a phased divestiture ofPakistan Telecommunications Corporation (PTC) and has alreadysold the first tranche of PTC vouchers. It is also movingforward with plans to sell two thermal power plants and onearea electricity board as the first stage in the privatizationof the Water and Power Development Authority (WAPDA), whichprovides over 80 percent of Pakistan's electricity. Portionsof Pakistan's two natural gas distribution companies are alsoslated for divestiture.4. Debt Management Policies Pakistan's foreign debt continues to increase and thedebt-service ratio is forecast to exceed 30 percent of exportearnings in 1995. High fiscal and current account deficitsover the past several years were financed by a steady increasein external debt, which reached $28 billion in 1993. This debtlevel was 16 percent higher than the previous year and entaileda debt-service ratio of 27.3 percent of export earnings.Pakistan has consistently met its debt service obligations in atimely fashion, even during the foreign exchange crisis of July1993, when foreign exchange reserves dipped to $185 million, orjust over one week's worth of imports.5. Significant Barriers to U.S. Exports Pakistan has traditionally maintained a complex system ofindirect taxes in the trade sector. High basic tariffs,additional surcharges, a variety of excise taxes, and a salestax, with different applicability on domestic and foreigngoods, combined to distort prices in domestic markets. Thesetariffs, established for protectionist reasons and to raiserevenue, had largely become counterproductive. Many tariffrates were so high that they served principally to stimulatesmuggling and corruption. Revenue collections were similarlyundermined by many exemptions and concessions, both formal andinformal. Pakistan has significantly liberalized its restrictiveimport regime by reducing tariffs and somewhat streamliningimport and export rules. However, despite efforts tostreamline the import process, there continue to be complaintsabout complex customs clearance practices, which slow entry ofgoods and provide numerous opportunities for discretionarydecision-making by a variety of relatively low-levelbureaucrats.6. Export Subsidies Policies Pakistan seeks to encourage exports through rebates ofimport duties, sales taxes, and income taxes, as well asthrough concessional export financing. The GOP has an exportprocessing zone (EPZ) scheme, under which industrial unitsproducing value-added items are exempt from payment of customsduties, sales tax, and iqra (an Islamic education tax)surcharge on imports, provided that the industrial unit exports50 percent of the value of its production in the first twoyears and 60 percent in the third year and beyond. One EPZ, inKarachi, is currently in operation. These policies appear toapply equally to both foreign and domestic firms producinggoods for export. For many exports, Pakistan's nationalizedcommercial banks offer financing at concessional rates.7. Protection of U.S. Intellectual Property Pakistan is a member of the World Intellectual PropertyOrganization (WIPO) and a party to two major internationalintellectual property rights conventions: the Berne Conventionand the Universal Copyright Convention. However, it is not aparty to any major conventions on patent protection. While theUnited States has a Treaty of Friendship and Commerce withPakistan which guarantees national and most-favored nation(MFN) treatment for patents, trademarks and industrialproperty, intellectual property rights enforcement in Pakistanremains weak. Infringement on copyrights and trademarks and the lack ofcoverage of product patent protection remain serious U.S.concerns. As such, in accordance with the intellectualproperty rights provisions of the Omnibus Trade andCompetitiveness Act of 1988, Pakistan was placed on the Special301 "watch list" in May 1989. Since that time the UnitedStates has continued to encourage Pakistan to extend lawscovering intellectual property protection and to provideadequate enforcement. Copyrights: U.S. firms have complained that, althoughPakistan is a member of the Universal Copyright Convention,enforcement of its copyright law is ineffective and thepenalties for violation are not severe enough. Videotapepiracy is widespread and of concern to U.S. firms which arecurrent or potential marketers of film videos in Pakistan.Pakistan recently amended its copyright statute to strengthenpenalties for infringement of rights to printed texts, filmworks, sound recordings, and computer software; however, therehas been little evidence of more vigorous enforcement. Patents: Pakistan's patent law protects processes but notproducts. U.S. pharmaceutical companies have complained thatthis regime makes it difficult to pursue infringement cases inlocal courts. The language of the statute permits applicationsfor compulsory licenses, although this seldom happens inpractice. The United States has urged Pakistan to provideproduct patent coverage and to amend its legislation to extendthe patent term and to restrict or abolish the procedure forcompulsory licensing.8. Worker Rights a. The Right of Association The right of industrial workers to form trade unions isenunciated in statute, but in practice there are significantconstraints on the formation of industrial unions and theirability to function effectively. Workers in EPZs areprohibited from forming trade unions. The Essential ServicesMaintenance Act permits workers in government services andstate enterprises (including education, health care, oil andgas production, and transport) to form unions, but restrictssome normal union activities, including the right to strike.There is no provision in Pakistani law granting the right ofassociation to agricultural laborers. Union members make uponly about 13 percent of the industrial labor force and 10percent of the total labor force. b. The Right to Organize and Bargain Collectively The right of industrial workers to organize and freelyelect representatives to act as collective bargaining agents isestablished in law. However, the right to bargain collectivelyis limited to legally constituted unions and is thereforeconstrained by the limitations on union formation describedabove. Collective bargaining occurs at the plant level. TheEssential Services Act restricts collective bargaining andwhere the government determines to bar collective bargaining,individual wage boards (made up of industry, labor, andgovernment members) determine wage levels. c. Prohibition of Forced or Compulsory Labor Forced labor is specifically prohibited by law and thePakistani Constitution. However, bonded labor is reported tobe common in the brick, glass, and fishing industries and to befound in rural construction and agricultural work. The BondedLabor System (Abolition) Act, adopted in March 1992, outlawedthe bonded labor system, cancelled all existing bonded debts,and forbade lawsuits for the recovery of existing bondeddebts. However, the provinces have not yet developed acredible enforcement system to implement this statute. d. Minimum Age of Employment of Children Child labor is common and results from a combination ofsevere poverty, weak laws, and inadequate enforcement. A keyfactor is the absence of compulsory primary education. Childlabor is limited by at least four statutes and Article 11 ofthe Pakistani Constitution. The Employment of Children Act,1991, defines a "child" as "a person who has not completed his14th year of age", prohibits their employment in hazardousindustries, and generally limits the length of their workdays.Although much child labor occurs in the traditional areas offamily farming or small business, it also occurs in largerindustries, such as carpet making. e. Acceptable Conditions of Work Federal statutes govern labor regulations. The currentmonthly minimum wage is approximately $50 (1,500 rupees), butan extensive list of exempted activities limit minimum wageapplicability to a minority of the work force. Statutesprovide for a maximum workweek of 54 hours, rest periods, andpaid annual holidays, but exempt large segments of the laborforce. Enforcement of labor regulations, a responsibility ofthe provincial governments, has generally been ineffective.Enforcement is hampered by limited resources, corruption, andinadequate regulatory structures. In general, worker healthand safety standards are poor, and little is being done toimprove them. f. Rights in Sectors with U.S. Investment Sectors with U.S. investment are characterized by generallybetter conditions and more free exercise of worker rights thanin other sectors. These sectors tend to add greater value toproduction and exclude sectors with particularly poor laborrecords (brick kilns, carpet making, traditional agriculture,and family-run small businesses). Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 71Total Manufacturing 28 Food & Kindred Products 2 Chemicals and Allied Products 29 Metals, Primary & Fabricated -2 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 0Wholesale Trade 3Banking 152Finance/Insurance/Real Estate (1)Services 0Other Industries 0TOTAL ALL INDUSTRIES 254(1) Less than $500,000Source: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEOMAN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS OMAN Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 /1Income, Production and Employment:Real GDP (1988 prices) 8,563.1 N/A N/AReal GDP Growth (pct.) -9.0 N/A N/AGDP (at current prices) 11,496.7 11,491.2 N/ABy Sector: Petroleum 4,733.3 4,193.8 2,082.9 Natural Gas 142.0 157.6 75.7 Mining 16.1 8.8 9.9 Oil Refining 53.3 99.9 43.2 Electricity/Water 175.5 149.2 85.5 Construction 471.4 489.1 182.8 Wholesale/Retail Trade 1,601.3 1,728.4 892.1 Government Services 2,008.5 2,181.1 982.0 Other Sectors 2,418.5 2,625.0 1,536.9 Less-Imputed Bank Charges -247.5 -254.8 -162.8Real Per Capita GDP (1988 base) 6,044.7 5,943.5 N/ALabor Force (000s) 530.0 521.3 N/AUnemployment Rate (pct.) N/A N/A N/AMoney and Prices: (annual percentage growth)Money Supply (M2) 3,312.7 3,420.3 N/AWeighted Average Interest Rate on Deposits 4.2 2.9 N/APersonal Saving Rate N/A N/A N/AConsumer Price Inflation 1.4 1.9 N/AConsumer Price Index (1990 base) 105.6 106.6 N/AExchange Rate 1 rial equals USD 2.60Balance of Payments and Trade:Total Exports (FOB) 5,449.6 5,298.0 2,056.3 4/ Exports to U.S. (non-oil) 26.4 42.1 N/ATotal Imports (CIF) 3,900.0 4,112.9 1,596.7 4/ Imports from U.S. 256.9 331.8 N/AAid from U.S. 30.0 1.6 0.2Aid from Other Countries 72.7 N/A N/AExternal Public Debt N/A N/A N/ADebt Service Payments N/A N/A N/AGold and FOREX Reserves /2 2,334.5 1,813.4 N/ATrade Balance 1,549.6 1,185.1 N/A Trade Balance with U.S. /3 230.5 289.7 N/AN/A--Not available.1/ Unless otherwise indicated, all 1994 figures are for thefirst six months only.2/ Gold and foreign currency are Central Bank reserves. Stategeneral reserve fund figures are not publicly available.3/ The trade balance with the U.S. does not include Omani oilpurchased by the U.S. on the spot market. No oil is purchaseddirectly from Oman by U.S. companies.4/ Figures through May.Sources: Annual Report-1993, Central Bank of Oman; monthlystatistical bulletins-main economic and social indicators,Ministry of Development.1. General Policy Framework The Sultanate of Oman is a small nation of just over 2.0million people (537,000 expatriates) living in the aridmountains and desert plain of the southeastern ArabianPeninsula. Oil production is the foundation of the economy.Oman is a small oil producer and its economy moves in lockstepwith the world price of oil. When the price of oil falls,Oman's oil revenues and government spending swiftly follow.Although Oman has a per capita GDP of just under USD 6,000, asignificant proportion of its population lives in ruralpoverty. Oman and the United States have had diplomaticrelations for 150 years and commercial relations for evenlonger. Sources of government income are relatively few in Oman. Acorporate income tax has long been collected from companieswhich are not 100 percent Omani-owned. There is a corporateincome tax applicable to Omani-owned firms which has not beenimplemented. In 1993, however, the government proposed agraduated system of taxes which applies to Omani-ownedcompanies. There is no personal income tax nor are thereproperty taxes. The most significant sources of income besidesoil revenues are the 5 to 20 percent tariffs levied on imports,revenues from utilities, and revenues from the 100 percenttariff on tobacco, liquor and pork. Recently, the governmentimposed substantial increases in the fees for labor cards andfines were proposed for companies which do not reach specifiedlevels of "Omanization" by the end of 1996. There is also atax on companies which employ expatriates which is used forvocational training for Omanis. The 1993 budget deficit stood at 28 percent of netgovernment revenues due to weak oil prices and resultingslowdown in revenues combined with only a 1.0 percent cut inspending. The government financed the shortfall by drawingdown reserves and issuing development bonds, which were firstsold in August 1991. At least 34 percent of Oman's budget isspent on defense and security, 35 percent on the activities ofthe civil ministries and 22 percent on capital spendingprojects. Oman promotes private investment through a variety of softloans (through three specialized development banks) andsubsidies, mostly to industrial and agricultural ventures. The government also grants five year tax holidays tonewly-established industries, with the possibility of anadditional five year holiday. Incentive programs focus oncreating Omani investments. Access by foreigners to the Omanieconomy is generally through Omani agents or partners, althoughrestrictions on asset ownership are decreasing. Fellownationals of the Gulf Cooperation Council (GCC) states can nowinvest in Oman. Oman and Bahrain are exchanging listings ontheir respective stock exchanges. In addition, a newinvestment mutual fund has been established allowing non-GCCnationals to buy Omani shares, at least indirectly through themutual fund. Oman's economy is too small to require a complicatedmonetary policy. The Central Bank of Oman directly regulatesthe flow of currency into the economy. The most importantinstruments which the bank uses are reserve requirements, loanto deposit ratios, treasury bills, rediscount policies,currency swaps and interest rate ceilings on deposits andloans. Such tools are used to regulate the commercial banks,provide foreign exchange and raise revenue, not as a means tocontrol the money supply. Oman has no legal provision forusing government bonds to regulate the money supply. The largeamount of money sent home by expatriate workers in the countryand by foreign companies in Oman helps ease monetary pressures.2. Exchange Rate Policies The rial is pegged to the U.S. dollar at a value of onerial to USD 2.60. Oman last devalued the rial in 1986.3. Structural Policies Oman operates a free-market economy, but the government isthe most important economic actor, both in terms of employmentand as a purchaser of goods and services. Contracts to providegoods and services to the government, including the two largestpurchasers, the National Oil Company and the Defense Ministry,are on the basis of open tenders overseen by a tender board.Private sector purchases of goods and services are made freefrom government involvement, although for most private firms,the government is the main client. Oman has fairly rigidhealth and safety and environmental standards (mostly Britishorigin), but these are enforced inconsistently. Wholly Omani-owned companies now face taxes on profits, butat a low rate, giving them a clear advantage over companieswith substantial foreign ownership. Firms which are 100percent foreign-owned (international banks or other services)are taxed at the highest rates. For firms which are less than51 percent Omani-owned, the tax schedule is higher than forfirms with 51 percent or more Omani ownership. A recent development in Oman is an increasing reliance onprivatization. Companies currently owned by the government arebeing privatized partially or completely. In addition, newmajor projects are being designed with a significant privatesector component.4. Debt Management Policies Oman's sovereign debt is estimated at USD 2.9 billion. Sofar, the debt is easily managed and is owed to a consortium ofinternational banks. The consortium has no difficulty infinding buyers of this debt. There are no InternationalMonetary Fund or World Bank adjustment programs and there is norescheduling of official or commercial government debt. Omangives little publicity to the foreign aid that it donates. In1993, modest aid packages went to Bosnia and Somalia.5. Significant Barriers to U.S. Exports A license is required for all imports to Oman. Speciallicenses are required to import pharmaceuticals, liquor anddefense equipment. The licenses for general merchandise areissued to the sole agents of individual products in order toprotect the exclusivity of the relationship. Once enteredinto, the agency agreements are difficult to break. This maycause problems for exporters who enter into agency agreementswithout fully judging the qualifications of the agent. Forinstance, some local agents will not have strengths in all themarkets that a U.S. firm may want to tap. Because theagreements are hard to break, a firm dissatisfied with itsagent may be forced to endure a prolonged dissolution of theagency relationship or withdraw from the market completely. There has, however, been one recent change affecting agencyagreements. Individuals are now allowed to bring in goodsthrough the ports or airports without paying the agent'scommission. This, however, is a policy more designed topromote activity at the ports and airports than an attempt tochange fundamentally the agency requirements. Service barriers consist of simple prohibitions on enteringthe market. For example, entry by new firms in the areas ofbanking, accountancy, law and insurance is not permitted. 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 GreatBritain, British standards have also been adopted for manyitems. Oman is a member of the International StandardsOrganization and applies standards recommended by thatorganization. U.S. firms sometimes have trouble meetingdual-language labelling requirements or, because of longshipping periods, complying with shelf-life requirements. With few exceptions, companies in Oman must be majorityOmani-owned, and foreign investment is allowed only throughjoint stock companies or joint ventures. In order to obtain awaiver for more than 49 percent foreign ownership, a companymust petition the Minister of Commerce and Industry. Even whenthis privilege is granted, most foreign companies in Oman findthat their ownership is limited to 65 percent. For foreignerswilling to invest in high-priority industries, such as foodprocessing, the government will provide subsidies and willwaive or reduce the usual requirements for majority Omaniownership. Use of foreign labor is permitted, but thegovernment demands that companies "Omanize" their work forcesas quickly as possible. The government has recently setminimum "Omanization" levels for many sectors of the economywhich must be achieved by the end of 1996. Those companiesfailing to meet those levels will have to pay a fine equal tohalf the amount of the salaries being paid to the expatriateswho exceed the numbers permitted. Oman continues to promote "buy Oman" laws. This is a slowprocess as very few locally made goods meeting internationalstandards are available. The tender board evaluates the bidsof Omani companies for products and services at 10 percent lessthan the actual bid price. In addition, the extremely shortlead times make it difficult to notify U.S. firms of trade andinvestment possibilities which, in turn, makes it difficult forthose firms to obtain a local agent and prepare tenderdocuments in the alloted time. Oman's customs procedures are complex, and there arecomplaints of unequal enforcement and sudden changes in theenforcement of regulations. Processing of shipments in and outof the port can add significantly to the amount of time that ittakes to get goods to the market or inputs to a project.6. Export Subsidies Policies Oman's policies on development of light industry,fisheries, and agriculture are geared to making those sectorscompetitive internationally. As noted above, investors inthose areas receive a full range of tax exemptions, utilitydiscounts, soft loans and, in some cases, tariff protection.The government has also set up an export guarantee programwhich both subsidizes the cost of export loans and guaranteesOmani exporters payment for exported products. Oman is not yeta member of the General Agreement on Tariffs and Trade (GATT)but is considering joining.7. Protection of U.S. Intellectual Property Oman has a trademark law which the government enforcesactively. Official registration of trademarks appear in mostissues of the Official Gazette. Such application for trademarkprotection, however, depends on whether the company has a localagent. There is no patent or copyright protection, althoughdraft laws on each are circulating through the Omanigovernment. Oman is not a member of any major internationalintellectual property protection conventions. However, Omanhas shown an interest in other views and concerns onintellectual property rights (IPR) issues. A U.S. intellectualproperty rights (IPR) delegation visited Oman in May 1992 and,in early 1994, a World Intellectual Property Organization(WIPO) team advised the Oman on its draft Copyright Law. In the past, there have been one or two cases of U.S. firmsrefusing to do business with Omani companies because of thelack of IPR protection. The local audio and video cassettemarkets are comprised almost exclusively of pirated copies.Pirated versions of computer software are also available.Nevertheless, local agents of foreign companies seek to limitpirating when it cuts into their business marketing legitimateproducts. In terms of computer software, major companies andgovernment agencies buy only legitimate products.8. Worker Rights a. The Right of Association Omani labor law does not presently address the formation oflabor unions. Although Oman's labor law does not expresslygrant workers the right to strike, in practice, a few strikeshave occurred. In 1994 Oman joined the International LaborOrganization and received a visiting ILO delegation in the fallof 1994. Legislation amending the labor law is currently underreview by the government which may liberalize regulations withrespect to the right of association which includes the right tostrike. b. The Right to Organize and Bargain Collectively There are no provisions for collective bargaining for wagesand working conditions in Oman. The 1973 labor law (asamended) imposes a statutory obligation on employers with over50 employees to propose the creation of a representative bodyof worker and management representatives and to relay to theMinistry of Social Affairs and Labor the proposed constitutionfor the body. Wages are set by employers within guidelines setby the Ministry. The labor law is a comprehensive documentdefining conditions of employment for both Omanis and foreignworkers, who constitute 50 percent of the work force. Workrules must be approved by the Ministry and posted conspicuouslyin the workplace. Any employee, Omani or expatriate, may filea grievance with the Labor Welfare Board. The Board operatesimpartially and generally gives workers the benefit of thedoubt in grievance hearings. Disputes that the Board cannotresolve go to the Minister of Social Affairs and Labor fordecision. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is prohibited by law. d. Minimum Age of Employment of Children Under the law, children, defined as those under the age of13, are prohibited from working. Juveniles, defined as thoseover 13 years and under 16 years of age, are prohibited fromperforming evening or night work or strenuous labor. Juvenilesare also forbidden to work overtime or on weekends or holidayswithout Ministry permission. Education is not compulsory, butthe government encourages school attendance. More than 90percent of eligible school age children enter primary school. e. Acceptable Conditions of Work The labor law allows the government to set minimum wageguidelines. These guidelines do not cover domestic servants,farmers, government employees, or workers in small businesses,categories with many foreign workers. The minimum wage issufficient to provide an Omani worker in the capital area witha decent living with something left over for rural relatives.The same applies to expatriate manual laborers or clerks who,likewise, send money home. The private sector workweek is40 to 45 hours (less for Muslims during Ramadan). Theworkweek is five days in the public sector and generallyfive and one-half days in the private sector. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 0 Food & Kindred Products 0 Chemicals and Allied Products 0 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 0Wholesale Trade 0Banking (1)Finance/Insurance/Real Estate 3Services 4Other Industries 0TOTAL ALL INDUSTRIES 123(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATENORWAY: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS NORWAY Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1991 prices) 109,542 112,074 117,229Real GDP Growth (pct.) 3.4 2.3 4.6GDP (at current prices) 113,197 103,478 109,300By Sector: (1991 prices) 2/ Agriculture/Forestry/Fishing 3,066 3,113 3,439 Energy/Shipping 25,069 25,948 27,994 Manufacturing/Mining 14,815 15,057 15,358 Construction 3,812 3,695 3,880 Dwellings 5,243 5,295 5,417 Financial Services 4,216 4,233 4,403 Other Services 35,430 36,185 37,484 Government/Health/Education 17,890 18,383 19,141Net Exports of Goods and Services 8,233 7,024 6,629Real Per Capita GDP ($, 1991 base) 25,535 25,961 26,986Labor Force (000s) 2,130 2,131 2,145Unemployment Rate (pct.) 5.9 6.0 5.5Money and Prices:Money Supply (M2) (pct. ch.) 7.3 0.5 5.0Base Interest Rate /3 (pct.) 12.6 6.8 7.0Personal Savings Rate (pct.) 5.2 5.3 4.3Producer Prices (pct. ch.) -0.4 -1.0 1.6Prices (pct. ch.) 2.3 2.3 1.3Exchange Rate (NOK/USD) 6.21 7.09 7.00Balance of Payments and Trade:Total Exports (FOB) 35,376 32,136 33,971 Exports to U.S. 4/ 1,782 1,901 2,243Total Imports (CIF) 26,793 24,930 27,800 Imports from U.S. 4/ 2,225 1,889 2,286Aid from U.S. 0 0 0Aid from Other Countries 0 0 0External Public Debt 8,552 9,789 12,335Debt Service Payments (paid) 5/ 454 448 437Gold and Foreign Exch. Reserves 13,606 21,813 20,000Trade Balance 8,583 7,206 6,171 Balance with U.S. 4/ -443 12 -431/ 1994 Figures are all estimates based on monthly data inOctober 1994.2/ Only available at constant 1991 prices.3/ Central Bank overnight lending rate; not annual pct. growth.4/ Norwegian foreign trade statistics. Exports excludeNorwegian oil shipped to the U.S. from U.K. terminals.5/ Principal payments.1. General Policy Framework Oil, gas, and hydroelectric energy dominate Norway'sresource base, with no major changes expected in the next twodecades. On the Norwegian continental shelf, the country hascrude oil reserves sufficient to last over 20 years and enoughnatural gas to last nearly 100 years. On the mainland, theavailability of abundant hydropower supports energy-intensiveindustries such as metals and fertilizers. Norway has less than 5 million inhabitants. A highlycentralized collective bargaining process and a restrictiveimmigration policy limit its flexibility in increasingindustrial competitiveness. The petroleum sector and associated service industries willlikely remain the engine of economic growth for the nextseveral decades. Energy-intensive manufacturing industries will also remainprominent. Several inefficient sectors, including agriculture,survive largely through generous subsidies and protection frominternational competition. These will likely experience apainful period of adjustment in the years ahead as thegovernment adapts to provisions of the Uruguay Round tradeagreement and to the emerging EU single market. Norway and the other EFTA countries have concluded a freetrade agreement with the EU - the European Economic Area (EEA)Accord - which came into effect on January 1, 1994. Norwayconcluded an EU accession accord on March 16, 1994, but in areferendum held on November 28, Norway rejected EU membership. State intervention in the economy is significant. The twodominant industrial groups--Statoil and Norsk Hydro--are statecontrolled, and the state retains majority stakes in Norway'stop three commercial banks. Moreover, restrictions remain onforeign ownership of Norwegian industry, including financialinstitutions. However, the EEA accord requires Norway to putin place new foreign investment legislation granting nationaltreatment to EEA member states by January 1, 1995 at thelatest. Policies vis-a-vis countries outside the EEA willlikely continue to be governed by reciprocity and by bilateralor multilateral agreement. On budgetary matters, the government's dependence onpetroleum revenue has increased substantially over the pastdecade. On the budget's expenditure side, the most significantdevelopment has been a rise in subsidies and social programs,financed by petroleum revenues. In 1986 budgetary pressuresincreased because of slumping oil prices, and the subsequentrecession prompted stimulatory fiscal policy. Despite therebound in world oil prices, the budget deficit increasedsignificantly between 1986 and 1993. The budget deficit isexpected to narrow through 1994 and 1995 because of the impactof economic growth and spending restraint. No general tax incentives exist to promote investment,although tax credits and government grants are offered toencourage investment in northern Norway. Several specializedstate banks (e.g., the state agriculture and fisheries banks)provide subsidized loans to industry. Accelerated depreciationallowances and subsidized power are also available to industry. The Government of Norway controls the growth of the moneysupply through reserve requirements imposed on banks, openmarket operations, and variations in the Central Bank overnightlending rate. Since the government strives to maintain astable exchange rate, its ability to use the money supply as anindependent policy instrument is weakened.2. Exchange Rate Policy On December 10, 1992, Norway unpegged the krone from theECU and let the Norwegian currency float. Since then, thekrone has weakened over 10 percent vis-a-vis the U.S. dollar.Norway plans to return to a "fixed" exchange rate regime at afuture date yet to be decided. As noted, Norway strives to maintain a stable exchangerate. Norway is not a member of the European Monetary System,but in 1990 the Norwegian krone (NOK) was pegged to theEuropean Currency Unit (ECU). Prior to this move, the NOK waspegged to a trade-weighted basket of currencies in which theweight of the U.S. dollar accounted for 11 percent. The ECUpeg broke the direct link between the NOK and the U.S. dollar.Under the ECU peg, Norwegian interest rates and inflationtended to move toward EU levels. Norway dismantled most remaining foreign exchange controlsin 1990. U.S. companies operating here have never reportedproblems to the U.S. Embassy in remitting payments.3. Structural Policies Norway remains highly dependent on its offshore oil and gassector. Many parts of the mainland economy are protected andinefficient, although some structural reforms have beenimplemented in the past five years. Quantitative restrictionson credit flows from private financial institutions wereabolished in 1987 and 1988 and, as noted above, most foreignexchange controls were dismantled in 1990. A revised legal framework for the functioning of thefinancial system was adopted in 1988, strengthening competitiveforces in the market and bringing capital adequacy ratios morein line with those abroad. Further reform occurred when Norwayaccepted the EU's banking directives as part of its membershipin the EEA. The Norwegian banking industry continues tostruggle with bad loan portfolios and overstaffing, althoughthey have returned to profitability in 1994. Over the past five years, limited income tax reform haslowered personal income tax rates but broadened the tax base.Although modest progress has been made in reducing subsidies toNorwegian industry, Norway's farm sector remains the mostheavily subsidized in the OECD. Norwegian subsidies andnontariff barriers (e.g., quotas; the Norwegian alcohol andgrain monopolies) adversely affect U.S. farm exports. Norway has taken some steps to deregulate the servicesector. However, large parts of the transportation andtelecommunications markets remain subject to restrictiveregulations, including statutory barriers to entry. Lookingahead, the GON remains committed to an ambitious structuralreform program which may gradually improve U.S. market access,but progress will likely be slow for political reasons.4. Debt Management Policies Norway has embraced a cautious foreign debt policy to limitthe state's exposure in foreign markets. At the end of 1993,the government's gross external debt (foreign liabilities)stood at about $10 billion, but its external debt will likelyfall significantly through 1994 and 1995 because of reducedgovernment budget deficits. Norway's total net foreign debt(foreign liabilities less foreign assets), which was $6.5billion in June 1994, is expected to evaporate in the 1994-96period because of continuing balance of payments surpluses andfalling government budget deficits. Since 1990, the government has allowed the private sectorincreased access to long-term foreign capital markets tofacilitate improvements in the term structure of its foreigndebt. Following the floating of the NOK, foreign capitalinflows contributed to falling Norwegian interest rates.5. Significant Barriers to U.S. Exports Norway supports the principles of free trade and is quickto condemn protectionist measures of other countries. Ingeneral, U.S. exporters experience few problems doing businessin Norway but some areas of tension exist. While Norway is inthe process of reforming its agricultural support regime,quantitative import restrictions and producer subsidiesadversely affect U.S. farm exports, as noted earlier. WithNorway's approval of the Uruguay Round trade agreement, theseagricultural restrictions will be tarrified and graduallyreduced. Due to the substantial GON ownership of majorNorwegian companies and the GON organization of businessgroups, American companies that have a Norwegian subsidiary oragent/distributor are able to operate in this market much moreeffectively. The U.S. has in the past won two GATT panel determinationsshowing that Norway had acted in a manner inconsistent with itsGATT obligations in the area of public procurement when itdiscriminated against U.S. companies in the procurement ofelectronic toll ring systems around Oslo and Trondheim. OnNovember 27, 1992, Norway adopted new public procurementlegislation which made rules more transparent. Nonetheless,the directives governing the so-called excluded sectors (e.g.,energy; transportation and communication) raise competitionissues. On July 1, 1994, Norway adopted new regulations forpublic procurement of services in order to comply with theEEA accord. According to these regulations, all servicesprocurements exceeding NOK 1.6 million (USD 235,000) are nowsubject to international bidding and the granting of contractsis to be based on nondiscriminatory criteria. The U.S. would like Norway to liberalize its procedures forregulating telecommunications terminal equipment. TheNorwegian Telecommunications Regulatory Authority (a separateregulatory body under the auspices of the Ministry ofTransportation and Communications) has said it has improved thespeed and efficiency with which it approves telecommunicationsdevices used in Norway. American companies without Europeanproduction facilities, however, report that it still takes upto six months and significant fees to a Norwegian agent tocertify telecommunications equipment not used in large-scaleGON purchases. The Government of Norway is in the process of liberalizingits telecommunications industry, although the country isalready relatively open to purchasing U.S. telecommunicationsequipment and services. GON control of this field, however, isstill maintained by majority Norwegian ownership as noted above. Recent deregulation of financial markets appears to haveeliminated many of the barriers facing U.S. financialinstitutions which seek to operate in the Norwegian market.U.S. financial firms can establish subsidiaries in Norway, butcannot establish branches. Norway maintains reservations to the OECD Code ofLiberalization of Capital Movements with regard to inwarddirect investment. Foreign ownership in Norwegian corporationsremains restricted, and proposed acquisitions are reviewed on acase-by-case basis. Norway can expect to gradually liberalizethese regulations as it brings its national laws intocompliance with the EEA.6. Export Subsidy Policies As a general rule the Government of Norway does notsubsidize exports, although some heavily subsidized productsmay be exported. Dairy products fall into this category.Indirectly, the government supports the export of chemicals andmetals by subsidizing the electricity costs of manufacturers.In addition, the government provides funds to Norwegiancompanies for export promotion purposes.7. Protection of U.S. Intellectual Property The impact of Norwegian intellectual property (IPR)practices on U.S. trade is negligible. Norway is a signatory ofthe main IPR accords, including the Bern and UniversalCopyright Conventions, the Paris Convention for the Protectionof Industrial Property, and the Patent Cooperation Treaty. Norwegian officials believe that counterfeiting and piracyare the most important aspects of intellectual property rightsprotection. They complain of the unauthorized reproduction offurniture and appliance designs and the sale of the resultantgoods in other countries, with no compensation to the Norwegianinnovator. Product patents for pharmaceuticals became available inNorway in January 1992. Previously, only process patentprotection was provided to pharmaceuticals.8. Worker Rights a. The Right of Association Workers have the right to associate freely and to strike.The government can invoke compulsory arbitration under certaincircumstances with the approval of parliament. b. The Right to Organize and Bargain Collectively All workers, including government employees and themilitary, have the right to organize and to bargaincollectively. Labor legislation and practice is uniformthroughout 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 age15. 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 forthose over 60). There is no minimum wage in Norway, but wagesnormally fall within a national wage scale negotiated by labor,employers, and the government. The Workers' Protection andWorking Environment Act of 1977 assures all workers safe andphysically acceptable working conditions. f. Rights in Sectors with U.S. Investment Norway has a tradition of protecting worker rights in allindustries, and sectors where there is heavy U.S. investmentare no exception. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 3,136Total Manufacturing 584 Food & Kindred Products (1) Chemicals and Allied Products (1) Metals, Primary & Fabricated 2 Machinery, except Electrical 10 Electric & Electronic Equipment -2 Transportation Equipment 0 Other Manufacturing 53Wholesale Trade 200Banking 85Finance/Insurance/Real Estate 141Services 29Other Industries 179TOTAL ALL INDUSTRIES 4,353(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of Economic Analysis(###)</text>
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<text>U.S. DEPARTMENT OF STATENIGERIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS NIGERIA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1/ 1992 1993 1994 2/Income, Production and Employment:Real GDP (1984 prices) 5,632 4,542 N/AReal GDP Growth (pct.) 3/ -0.41 -0.19 N/AGDP (at current prices) 31,793 37,023 N/ABy Sector: (1984 prices) Agriculture 2,131 1,730 N/A Energy/Water 775 588 N/A Manufacturing 475 385 N/A Construction 107 85 N/A Rents 145 115 N/A Financial Services 490 396 N/A Other Services 956 772 N/A Government/Health/Education 553 470 N/A Net Exports of Goods & Services N/A N/A N/AReal Per Capita GDP ($US) 3/ 618.9 488.4 N/ALabor Force (millions) 42.8 N/A N/AUnemployment Rate (pct.) 4/ 3.2 3.4 N/AMoney and Prices:Money Supply (M2) 7,386 8,843 9,534Base Interest Rate (pct.) 25.7 27.0 21.0Personal Savings Rate (pct.) 15.5 16.4 12.0Retail Inflation (pct.) 46.0 57.2 N/AWholesale Inflation (pct.) N/A N/A N/AConsumer Price Index 478.4 751.9 985.9Exchange Rate (USD/Naira): Official (annual average) 0.06 0.04 0.05 Parallel 0.05 0.02 0.02Balance of Payments and Trade:Total Exports (FOB) 5/ 11,886 9,923 N/A Exports to U.S. 5,074 5,301 3,970Total Imports (CIF) 5/ 7,204 6,665 N/A Imports from U.S. 1,001 891 524Aid from U.S. 17 23 N/AAid from Other Countries N/A N/A N/AExternal Public Debt 27,500 28,700 N/ADebt Service Payments 2,700 1,600 N/AGold and Foreign Exch. Reserves 799 806 N/ATrade Balance 5/ 4,682 3,258 N/A Trade Balance with U.S. 4,073 4,410 3,446N/A--Not available1/ All dollar figures are based on official exchange rates andin some places reflect exchange rate fluctuations and notinternationally recognized development assessments.2/ 1994 figures are estimates based on January-June data.3/ In constant 1984 Naira, GDP grew 3.6 and 2.9 percent in 1992and 1993, while GDP per capita in current dollars was $349 and$398 for those years.4/ CBN figure; Embassy estimates 28 percent unemployment.5/ Merchandise trade.1. General Policy Framework Nigeria is Africa's most populous nation and the UnitedStates' fifth largest oil supplier. It offers investors alow-cost labor pool, abundant natural resources, and the secondlargest market in sub-Saharan Africa. Nigeria's crucialpetroleum sector provides the government with over 95 percentof all foreign exchange earnings and about 75 percent ofbudgetary revenue. Agriculture, which accounts for nearly 40percent of GDP and employs about two-thirds of the labor force,is dominated by small-scale subsistence farming. After a period of relative fiscal austerity in the late1980's, the Nigerian government has run budget deficitsexceeding seven percent of GDP since 1990. Proposals to reducethe deficit include reducing large government fuel pricesubsidies (the official price of gasoline was equivalent toabout 55 U.S. cents per gallon in October 1994), shelving anumber of government projects which are of doubtful economicvalue, and reducing leakages from government income due tocorruption. Over the last several years, monetary policy has beendriven by the need to accommodate the government's budgetdeficit and a desire to reduce the inflationary impact of thebudget deficit on the economy. Deficits at the federal levelhave been financed primarily by borrowing from the Central Bankof Nigeria (CBN), which held 83 percent of the government'sdomestic debt at the end of 1992. Since the Central Bankmonetizes much of the deficit, budgetary shortfalls have adirect impact on the money supply and on price levels, whichhave risen rapidly in recent years. In conjunction with his 1994 budget announcement, head ofstate General Sani Abacha announced the abandonment of most1986 Structural Adjustment Program reforms, and institutedtight government control over key economic variables. The newmeasures include: fixing the value of the naira at 21.99 perdollar; instituting strict and comprehensive foreign exchangeand import controls; eliminating the legal parallel foreignexchange market; and setting caps on interest rates chargeableon loans and deposits/savings accounts. The new economic policy regime created by these measureshas already had far reaching and damaging effects on theNigerian economy. Not only have these measures discouragedinvestment in Nigeria, but companies already present find itincreasingly difficult to operate profitably, while officialstatistics show nonoil exports down sharply.2. Exchange Rate Policy In the first quarter of 1994, Nigeria changed its foreignexchange regime back to the highly controlled system in forceprior to the structural adjustment reforms in the late 1980's.The legal parallel foreign exchange market, which operatedthrough licensed exchange bureaus, was abolished, and theofficial interbank foreign exchange market (IFEM), operated bythe Central Bank, became the only authorized source of foreigncurrency in Nigeria for companies and individuals. At themid-year budget review, bureaux de change were reauthorised toconduct limited foreign exchange transactions at the officialrate plus ten percent. The official exchange rate has beenheld at 21.99 naira/dollar since April 1993, but the parallelrate had climbed to over 70 naira to the dollar by October 1994. While there are no restrictions on imports of hard currencyinto Nigeria, foreigners are obliged to declare such holdingsupon arrival, and must maintain records of naira purchases fromauthorized banks in Nigeria in order to take their remainingforeign currency out of the country. The 1994 regime forallocating hard currency at the IFEM is sharply limitingofficial remittances. Only 250 million dollars was allocatedin the 1994 budget to the so called invisibles account(including remittances for services and other nonmerchandisetransfers). This amount can largely be absorbed in meetingremittance needs of the international airlines alone. Theresult has been a de facto clampdown on the repatriation ofcorporate profits.3. Structural Policies As stated in the December 1989 circular, "Industrial Policyof Nigeria," the government maintains a system of taxincentives to foster the development of particular industries,to encourage firms to locate in economically disadvantagedareas, to promote research and development in Nigeria, and tofavor the use of domestic labor and raw materials. TheIndustrial Development (Income Tax Relief) Act of 1971 providesincentives to "pioneer" industries, that is, industries deemedbeneficial to Nigeria's economic development. Companies given"pioneer" status may enjoy a nonrenewable tax holiday of fiveyears, or seven years if the pioneer industry is located in aneconomically disadvantaged area. In December 1989 the government liberalized the NigerianEnterprises Promotion Decree to allow 100 percent foreignequity ownership of Nigerian businesses in certain cases. Therule applies to new investments only and is not retroactive.The government also allowed foreign firms to invest in the 40lines of business normally reserved for 100 percent Nigerianownership if they invest a minimum of 20 million naira (about$900,000 at the current official exchange rate). Reservedsectors include: advertising and public relations, commercialtransportation, travel services, and most of the wholesale andretail trade. The list of reserved sectors is one factor thathas prevented the conclusion of a bilateral investment treatybetween Nigeria and the United States. Banking, insurance,petroleum prospecting, and mining continue in almost all casesto require 60 percent Nigerian ownership.4. Debt Management Policies Nigeria's foreiqn debt ballooned from $13 billion in 1981to $24 billion in 1986, when sharply lower oil revenues andcontinued high import levels created large balance of paymentsdeficits. By the end of 1993, total external debt (notincluding arrears) had reached $28.7 billion, more thanNigeria's entire GDP. Debt service due is projected to be fourto five billion dollars annually for the next several years. In January 1992, in an effort to reduce its external stockof debt, the Nigerian government concluded an agreement withthe London Club which gave commercial banks a menu of optionsfrom which to choose in reducing Nigeria's commercial debt.The menu included debt buy-backs (at 40 cents on the dollar),new money bonds, and collateralized par bonds. As a result ofthe agreement, Nigeria was able to reduce its external debt by$3.9 billion, but the accumulation of arrears on other debtsince that time has brought external debt back to previouslevels. Including arrears, official foreign obligationsexceeded $30 billion as of October 1994. During the period 1986 to early 1992, Nigeria reached threestandby agreements with the IMF. The most recent agreement wasapproved in January 1991 and expired in April 1992. Talks withthe IMF since then have failed to result in a new agreement. Nigeria's most recent rescheduling agreement with the ParisClub expired at the same time as its standby agreement with theIMF, and debt repayment obligations have grown significantly.Nigeria's record on debt repayment, meanwhile, has alsodeteriorated. In 1992, Nigeria made debt service payments of$2.7 billion, against interest and principal paymentobligations of $5 billion. Faced with similar obligations in1993, external debt service payments were only $1.6 billion andthe budgeted debt service payments for 1994 are $1.8 billion.5. Significant Barriers to U.S. Exports Nigeria abolished all import licensing requirements and cutits list of banned imports in 1986. As of October 1994, theimportation of approximately 20 different items is banned,principally agricultural items and textiles. These bans wereinitially implemented to restore Nigeria's agricultural sectorand to conserve foreign exchange. Although the bans arecompromised by widespread smuggling, the reduced availabilityof grains has raised prices for both banned commodities andlocally produced substitutes. U.S. products are also hampered by high tariffs asfollows: sorghum, 100 percent; cigarettes, 200 percent;cotton, 60 percent; wheat, previously banned and now taxed at10 percent; and passenger vehicles, from 30 to 100 percent.Other import restrictions apply to aircraft and ocean-goingvessels. Guidelines mandate that all imported aircraft andocean-going vessels shall be inspected by a governmentauthorized inspection agent. In addition, performance bonds andoffshore guarantees must be arranged before down payments orsubsequent payments are authorized by the Ministry of Finance. Nigeria requires that an international inspection servicecertify the price, quantity and quality before shipment for allprivate sector imports. All containerized shipmentsirrespective of value and all goods exported to Nigeria with acost, insurance, and freight (CIF) value greater than $1,000are subject to preshipment inspection. An expatriate quota system is in place, and governmentapproval is required for residency permits for expatriatesoccupying positions in local companies. The number ofexpatriate positions approved is dependent on the level ofcapital investment, with additional expatriate positionsconsidered on a case by case basis. In the past, this systemhas caused relatively few problems, but in 1994 U.S. firmsreported increasing difficulties in securing and renewing thenecessary permits. Nigeria generally uses an open tender system for awardinggovernment contracts, and foreign companies incorporated inNigeria receive national treatment. Approximately five percentof all government procurement contracts are awarded to U.S.companies. Nigeria is not a signatory to the General Agreementon Tariffs and Trade (GATT) Government Procurement Code.6. Export Subsidy Policies In 1976, the government established the Nigerian ExportPromotion Council (NEPC) to encourage development of nonoilexports from Nigeria. The council administers variousincentive programs including a duty drawback program, theExport Development Fund, tax relief and capital assetsdepreciation allowances, and a foreign currency retentionprogram. The duty drawback or manufacturing-in-bond program isdesigned to allow the duty free importation of raw materials toproduce goods for export, contingent on the issuance of abank-guaranteed bond. The performance bond is discharged uponevidence of exportation and repatriation of foreign exchange.Though meant to promote industry and exportation, these schemeshave been burdened by inefficient administration, confusion,and corruption, causing difficulty and, in some cases, lossesto those manufacturers and exporters who opted to use them. The NEPC also administers the Export Expansion Program, afund which provides grants to exporters of manufactured andsemi-manufactured products. Grants are awarded on the basis ofthe value of goods exported, and the only requirement forparticipation is that the export proceeds be repatriated toNigeria. Though the grant amounts are small, ranging from twoto five percent of total export value, they appear to besubsidies as designated by GATT, and may violate GATT rules.7. Protection of U.S. Intellectual Property Nigeria is a signatory to the Universal CopyrightConvention (UCC) and the Paris Convention. In 1993, Nigeriabecame a member of the World Intellectual Property Organization(WIPO). Cases involving infringement of non-Nigeriancopyrights have been successfully prosecuted in Nigeria,but enforcement of existing laws remains weak, particularly inthe patent and trademark areas. Despite active participationin international conventions and the apparent interest of thegovernment in intellectual property rights issues, little hasbeen done to stop the widespread production and sale of piratedtapes, videos, computer software and books in Nigeria. The Patents and Design Decree of 1970 governs theregistration of patents. Once conferred, a patent gives thepatentee the exclusive right to make, import, sell, or use theproducts or apply the process. The Trade Marks Act of 1965governs the registration of trademarks. Registering atrademark gives its holder the exclusive right to use theregistered mark for a particular good or class of goods. The Copyright Decree of 1988, based on WIPO standards andU.S. copyright law, currently makes counterfeiting, exporting,importing, reproducing, exhibiting, performing, or selling anywork without the permission of the copyright owner a criminaloffense. Progress on enforcing the 1988 law has been slow. Theexpense and length of time necessary to pursue a copyrightinfringement case to its conclusion are detriments to theprosecution of such cases. In the past, few companies have bothered to securetrademark or patent protection in Nigeria because it isgenerally considered ineffective. Losses from poorintellectual property rights protection are substantial,although the exact cost is difficult to estimate. The majorityof the sound recordings sold in Nigeria are pirated copies andthe entire video industry is based on the sale and rental ofpirated tapes. Satellite signal piracy is also common.8. Worker Rights a. The Right of Association Nigerian workers, except members of the armed forces andemployees designated essential by the government, may jointrade unions. Essential employees include, firefighters,police, employees of the Central Bank, the security printers(printers of currency, passports, and government forms) andcustoms and excise staff. However, unlike many other countrieswith Essential Services Acts, utilities, the national airline,public sector enterprises and the post office are notconsidered essential services, are unionized, and may strike.In May 1993 the government promulgated the Teaching EssentialServices Decree, declaring education an essential service andcalling for the dismissal of teachers who participate in astrike longer than one week in duration. Attempts to enforcethe decree proved unworkable, and it was subsequentlywithdrawn. Under Nigerian labor law, any nonagriculturalenterprise which has more than 50 employees is obliged torecognize trade unions and must pay dues or deduct a checkofffor employees who are members. The government has decreed a single central labor body, theNational Labor Congress (NLC), and deregistered other unions.On August 24, 1994 the government dismissed the executives ofthe NLC, and the two leading petroleum sector unions andappointed "administrators" to run them. It has attempted toprevent withholding dues from oil industry union members'paychecks. b. The Right to Organize and Bargain Collectively The labor laws of Nigeria permit the right to organize andthe right to bargain collectively between management and tradeunions. Collective bargaining is, in fact, common in manysectors of the economy. Nigerian labor law further protectsworkers against retaliation by employers for labor activitythrough an independent arm of the judiciary, the NigerianIndustrial Court, which handles complaints of antiuniondiscrimination. The NLC has complained, however, that thejudicial system's slow handling of labor cases constitutes adenial of redress to those with legitimate complaints. Thegovernment retains broad authority over labor matters, and canintervene forcefully in labor disputes which it feelscontravene its essential political or economic programs. c. Prohibition of Forced or Compulsory Labor Nigeria's 1989 Constitution prohibits forced or compulsorylabor, and this prohibition is generally observed. However, onAugust 24, 1994 the government promulgated the State Security(Detention of Persons Amendment) Decree, number 11. Thissupercedes an earlier decree which allowed persons to bedetained for successive periods of six weeks without charge andnow allows for persons to be detained for periods of up tothree months without charge. The International LaborOrganization (ILO) has noted that with the 1989 Constitutionsuspended and Decree 11 in effect, Nigeria may not be able toenforce the ILO convention against forced labor in the absenceof constitutional guarantees. d. Minimum Age of Employment of Children Nigeria's 1974 Labor Decree prohibits employment ofchildren under 15 years of age in commerce and industry andrestricts other child labor to home-based agricultural ordomestic work. The law further stipulates that no person underthe age of 16 may be required to work for longer than fourconsecutive hours or permitted to work for more than eighthours in one day. The Labor Decree allows the apprenticeshipof youths age 13 to 15 under specific conditions.Apprenticeship exists in a wide range of crafts, trades, andstate enterprises. Service of apprentices over the age of 15is not specifically regulated by the government. Primaryeducation is compulsory in Nigeria though the law is onlysporadically enforced, particularly in rural areas where mostNigerians reside. e. Acceptable Conditions of Work Nigeria's 1974 Labor Decree established a 40-hour workweek,prescribed two to four weeks of annual leave, and set a minimumwage. The last government review of the minimum wage,undertaken in 1991, raised the monthly minimum wage from 250naira ($11.36) to 450 naira ($20.45). Nigerian labor lawstipulates that workers are to be paid extra for hours workedover the legal limit. The code also states that workers whowork on Sundays and statutory public holidays must be paid afull day's pay in addition to their normal wages. There is nolaw prohibiting excessive compulsory overtime. A 1974 labordecree contains general health and safety provisions.Employers must compensate injured workers and dependentsurvivors of those killed in industrial accidents. f. Rights in Sectors with U.S. Investment Worker rights in petroleum, chemicals and related products,primary and fabricated metals, machinery, electric andelectronic equipment, transportation equipment, and othermanufacturing sectors are not significantly different fromthose in other major sectors of the economy. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 50 Food & Kindred Products (1) Chemicals and Allied Products 15 Metals, Primary & Fabricated 2 Machinery, except Electrical 0 Electric & Electronic Equipment 2 Transportation Equipment (1) Other Manufacturing 1Wholesale Trade (1)Banking (1)Finance and Insurance 2Services 5Other Industries 0TOTAL ALL INDUSTRIES 527(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of Economic Analysis</text>
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<text>U.S. DEPARTMENT OF STATENICARAGUA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS NICARAGUA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1991 dollars) 1,781.2 1,765.2 1,800.5Real GDP Growth (pct.) 0.4 -0.9 2.0GDP by Sector: Agriculture 2/ 434.6 437.8 448.3 Energy/Water 55.2 56.5 57.6 Manufacturing 399.0 391.9 397.9 Construction 53.4 54.7 55.8 Rents 74.8 74.1 75.6 Financial Services 57.0 56.5 59.4 Other Services 78.4 79.4 81.0 Government/Health/Education 199.5 195.9 198.0Net Exports of Goods & Services 3/ -567.0 -430.0 -426.1Real Per Capita GDP (USD) 430.4 414.4 410.1Labor Force (000s) 4/ 1,445.4 1,489.5 1,543.7Unemployment Rate (pct.) 17.8 21.8 23.5Money and Prices: (annual percentage growth unless otherwise noted)Money Supply (M2) 21.1 8.0 16.5Rediscount Rate (pct.) 5/ 13.0 13.0 10.5Personal Saving Rate (pct. of GDP) 6/ -15.2 -14.6 -13.3Retail Inflation N/A N/A N/AWholesale Inflation N/A N/A N/AConsumer Price Index 3.5 19.5 13.5Exchange Rate (cordobas:USD) Official 5.00 6.32 7.08 Parallel 5.34 6.42 7.43Balance of Payments and Trade:Total Exports (FOB) 223.1 226.9 328.9 Exports to U.S. (FOB) 52.0 125.9 121.1Total Imports (CIF) 855.0 727.7 786.0 Imports from U.S. (CIF) 220.0 149.8 164.5AID from U.S. 7/ 114.7 80.5 80.9AID from Other Countries 8/ 644.8 306.2 482.1External Public Debt 10,808.2 10,987.0 11,553.0Debt Service Payment (paid) 194.0 178.0 272.0Gold and FOREX Reserves (gross) 179.1 87.7 109.1Trade Balance 9/ -551.2 -390.0 -389.1 Trade Balance with U.S. 9/ -147.2 -23.2 -28.6N/A--Not available.1/ Figures are all annual projections based upon 8-9 months ofdata.2/ Agriculture does not include livestock and fisheries.3/ Does not include interest payments or debt service.4/ Defined as working age population as reported by theNicaraguan Ministry of Labor.5/ Central Bank rediscount rate.6/ Based upon IMF figures.7/ Includes all non-military aid granted.8/ Includes total grants and credits received minus U.S. aid.9/ Trade balance is calculated on FOB basis.Sources: International Monetary Fund (IMF), the World Bank,and the Central Bank of Nicaragua unless otherwise noted.1. General Policy Framework Over the period 1990-93, the Government of Nicaraguafocused on making the transition from a centralized to amarket-oriented economy, and on reversing the severemismanagement of the economy during the Sandinista era, whichhad resulted in a 25 percent drop in real GDP and 50 percentdrop in GDP per capita during the 1980's. During the first four years of the Chamorro Administration,the currency was stabilized and inflation brought undercontrol. The cordoba is presently devalued against the dollaron a crawling-peg basis of 12 percent per annum, and inflationhas fallen from 13,490 percent in 1990 to an estimated 13.5percent in 1994. The executive implemented various structuraladjustment measures, including the successful privatization ofmore than 300 of the 350 non-financial public sector companiesit inherited from the previous government. A Superintendencywas created to supervise the banking sector, which now includesnine private banks and three state-owned institutions. TheGovernment of Nicaragua has also reduced tariffs, eliminatedmost non-tariff trade barriers, and greatly relaxed foreignexchange controls. All of these measures were designed to pave the way foreconomic expansion. To date, however, the anticipated growthhas failed to materialize, as real GDP growth has remainedstagnant, registering rates of 0.4 percent in 1992 and -0.9percent in 1993. Estimated growth of 4 percent in 1994 hasbeen revised downward to 2 percent due to a drought whichdamaged the first agricultural planting cycle and anaccompanying energy shortage which has resulted in mid-1994 inpower cutoffs of 4 hours per day. The lack of credit to theproductive sector continues to be a major stumbling block togrowth, and private investment flows remain limited as concernsover property rights and political stability persist. In June 1994, the Government came to agreement with the IMFon an Enhanced Structural Adjustment Facility (ESAF) -- a3-year program designed to maintain stability and generategrowth. Consequently, the stage has been set for continuedlending from international financial institutions and otherbilateral donors, including an Economic Recovery Credit fromthe World Bank. These credit sources represent criticalelements for the nation@s economic stability, as Nicaraguacontinues to suffer from a chronic balance-of-payments gapestimated at 1.1 billion dollars for 1994.2. Exchange Rate Policy In January 1993, the Government of Nicaragua modified itsfixed official exchange rate system which since September 1991had pegged the cordoba to the dollar at 5:1. With itsdevaluation, the Government set the cordoba at 6:1, with acrawling-peg schedule adjusted daily, at an annual rate of 5percent. This schedule was accelerated in November 1993 to anannual rate of 12 percent. A parallel exchange market,legalized in September 1991, continues to operate, supplyingforeign currency for virtually all types of exchangetransactions. The spread between the official and parallelmarkets has been generally maintained at 2-4 percent. Foreign exchange generated from the export of mosttraditional products (e.g., beef, coffee, sugar, cotton) mustbe surrendered to the Central Bank, although private banks canaccept the dollars as agents of the Central Bank. Remittanceof profits generated through foreign investments, as well asoriginal capital 3 years following investment, is guaranteedthrough the Central Bank at the official exchange rate forthose investments registered under the Foreign Investment Law.Investors who do not register their capital may still makeremittances through the parallel market, although thesetransactions are not guaranteed by law. Embassy is aware of noinvestor who has encountered remittance difficulties since theinception of the Foreign Investment Law in 1991.3. Structural Policies Pricing Policies: Since taking office in April 1990, theChamorro Administration has lifted price controls with theexception of those imposed upon "fiscal" goods (e.g., tobacco,soft drinks, alcoholic beverages), pharmaceuticals and medicalgoods, petroleum products, and public utility charges.However, the Central Government (i.e., the Ministry of Economyand Development) commonly negotiates with domestic producers ofimportant consumer goods to establish voluntary pricerestraints and, on several occasions, has purchased emergencystores of important basic foods (sugar, beans, basic grains,etc.) during periods of shortages to maintain domestic suppliesand moderate prices. Tax Policies: Nicaragua maintains a maximum tariff level(DAI) on virtually all imports of 20 percent of CIF value. Anadditional Temporary Protection Tariff (ATP) of 5-15 percent ofCIF value is levied on some 900 imported items, largely goodsalso produced in Nicaragua. Some 750 other products (whetherimported or locally produced) are assessed a SpecificConsumption Tax (IEC), generally limited to 15 percent of CIFvalue. A stamp tax of 5 percent (ITF) is levied on allimports. The country@s 15 percent sales tax (IGV) is charged(in a cascading fashion) on entry of all imported goods thatare not categorized as basic food basket items. Overall importtaxation levels on "fiscal" goods are particularly high. The highest income tax rate is 30 percent (for taxpayersearning more than 180,000 cordobas yearly -- or about 25,000dollars at the official exchange rate. Individuals earningbetween 100,000 and 180,000 cordobas are taxed at a rate of 26percent; between 60,000 and 100,000 -- 20 percent; between40,000 and 60,000 - 12 percent; and between 25,000 and 40,000-- 7 percent. Individuals earning less than 25,000 cordobasyearly are exempt from income tax. Corporations are leviedtaxes at a flat rate of 30 percent. In addition, businesincome is subject to a series of municipal and special taxes,such as the 2 percent tax on sales charged by the Municipalityof Managua.4. Debt Management Policies Although it inherited an enormous foreign debt burden fromthe previous government, the Chamorro Administration succeededin clearing its total arrears to the World Bank and IDB in 1991with the assistance of grant contributions from theinternational community. This made Nicaragua eligible toreceive new credits from the multilateral development banks,and the country began to renegotiate its bilateral debt.Nicaragua entered into agreements with Mexico, the UnitedStates, Venezuela, Colombia, and Argentina for rescheduling,debt swaps, and/or debt forgiveness. Over the past 2 years,Nicaragua has held discussions with Russia over the large debtowed to the former Soviet Union. Similarly, Nicaraguacontinues to seek renegotiation of its debt of roughly 1.7billion dollars to private foreign banks, via a buy-backmechanism. However, Nicaragua's foreign debt still totals morethan six times its GDP and more than 35 times its annualmerchandise exports. In December 1991, the Paris Club creditors agreed to grantNicaragua the most favorable rescheduling terms offered by theclub to date. In April 1993, Paris Club members made newpledges of 46.8 million dollars, which, although significant,still left Nicaragua with a substantial financing gap. Thatgap was closed by additional sources of assistance, newausterity measures, and the suspension, beginning September1993, of pre-cutoff day (October 31, 1988) Paris Clubobligations. In August 1994, Germany and Nicaragua reached agreement foran overall 70 percent forgiveness of the 180 million dollarssubject to the 1991 Paris Club agreement. This set the stagefor a second round of Paris Club talks to beheld in early 1995to deal with the remaining bilateral debt, the majority ofwhich (approximately 500 million dollars) consisting of debtsto the former German Democratic Republic (East Germany). It isanticipated that Nicaragua will seek even more favorabletreatment ("enhanced Toronto Terms") at the talks, requestingup to two-thirds forgiveness of its remaining debt.5. Significant Barriers to U.S. Exports Import Licenses: In most cases the issuance of importlicenses is a formality, or at worst an inconvenience. U.S.pharmaceutical importers, however, continue to complain thatlicensing procedures, continually under review due to a processof regional harmonization of such regulations, can continue todelay the entry of some U.S. pharmaceutical products. Service Barriers: 1991 legislation allowed theestablishment of the first private banks in Nicaragua in adecade. Nine private banks are now in operation in acompetitive financial market. Although current banking lawdoes allow foreign banks to open and operate branches inNicaragua, no U.S. bank has initiated the necessary paperwork.Insurance activities are currently in the hands of a statemonopoly. However, legislation is pending in the NationalAssembly that would allow private sector participation in theinsurance sector. Investment Barriers: An investment law, passed in June1991, allows 100 percent foreign ownership in virtually allsectors of the economy, guaranteed repatriation of profits, andrepatriation of original capital 3 years after the initialinvestment. However, to benefit from this law, investmentsmust be approved by the Foreign Investment Committee whichanalyzes the proposal based upon various criteria. The fishingindustry remains protected by requirements involving thenationality and composition of vessel crews and a requirementfor repatriation of 100 percent of the catch (i.e., domesticprocessing for eventual export). In early 1993, the Governmentof Nicaragua lifted its moratorium on lumbering in stateforests (representing over 50 percent of the country@s forestarea); but authorities painstakingly review all projectproposals in this sector. The Government continues to move forward with privatizingstate-owned companies in government-dominated sectors. In themining sector, a private worker-owned consortium is active, andseveral foreign companies have initiated operations. InOctober 1993, the Government began the pre-qualification bidprocess for privatization of the national telecommunicationscompany, which was scheduled to be finalized by October 1994.However, the privatization still awaits National Assemblyapproval and at this writing it is unclear when such approvalwill be granted. The Government also is in the process ofdrafting legislation which would allow for the liberalizationof petroleum imports, establish an oil exploration regime, andexplicitly grant the private sector the right to generateelectrical power. At this time, the legislation is still underexecutive review. Definition of property rights continues to remain anobstacle to both domestic and foreign investment. Claims forthousands of homes and businesses, as well as large tracts ofland, confiscated without compensation by the Sandinistagovernment of Nicaragua have yet to be resolved. In early1993, the Chamorro government's administrative property claimresolution mechanism began to process claims for some16,000-18,000 individual pieces of property. A small number ofproperties have been returned to original owners; other caseshave been settled through the issuance of long-termcompensation bonds. The current market value of these bonds remains a matter ofconcern. Trades of the securities on the stock market haveranged from 17-28 percent of face value. As of November 1994,informal trading on the secondary market has settled at 19-21percent of face value. The bond compensation program remainscontroversial, as the majority of U.S. citizen and Nicaraguanclaims have not been resolved, and most claimants believe theirproperties should be more fully compensated. Customs Procedures: Importers commonly complain of steep"secondary" customs costs including custom declaration formcharges and consular fees. In addition, importers are requiredto utilize the services of licensed custom agents, adding yetanother layer of costs. Legitimate importers also complainthat "black market" firms are able to bring in the same goodsat greatly reduced tariff rates and then offer theseunder-priced goods on the open market.6. Export Subsidies Policies An export promotion decree, signed in August 1991,established a package of fiscal exonerations and incentives forexporters of non-traditional goods (for this purpose, goodsother than coffee, cotton, sugar, wood, beer, lobster, andsea-harvested shrimp). Export operations for such productsreceive exemption on payment of 80 to 60 percent of income taxliabilities on a sliding scale from 1991 to 1996, after whichthe benefit will be eliminated. In addition, exporters of bothtraditional and non-traditional goods are allowed to importinputs (used to produce exports goods) duty-free and are exemptfrom paying the current 15 percent value-added tax on thismerchandise. The decree also allows for preferential access toforeign exchange at the official rate for exporters ofnon-traditional goods. One of the more attractive benefits of the export promotionlaw is the right to a Tax Benefit Certificate equivalent to 15percent of the FOB value of exported non-traditional goods.(The percent of FOB value eligible decreases to 5 percent in1996.) In May 1993, the first group of Nicaraguan exportersreceived the certificates, valid for payment of tax and duties,or payable 24 months from the date of issue.7. Protection of U.S. Intellectual Property In 1990, the Nicaraguan government committed itself to"provide adequate and effective protection for the right tointellectual properties of foreign nationals" in the context ofrequesting designation as a beneficiary of the Caribbean BasinInitiative Recovery Act. Current levels of protection,however, still do not meet modern international standards. Although unfortunately unable to dedicate extensiveresources to the protection of intellectual property rights,the Government of Nicaragua is in the process of evaluating andmodernizing its intellectual property rights regime. Drafts ofa new patent law and a new copyright law are under review. Thetrademark law in Nicaragua, codified in the Central AmericanConvention for the Protection of Industrial Property, iscurrently undergoing revision by the four signatory countries(Nicaragua, Costa Rica, Guatemala, and El Salvador). The Government has publicly committed itself to accede tothe Paris Convention for the Protection of Industrial Property,and to the Bern Convention on Copyrights. As of this writing,the Government has acceded to neither convention. However,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: Notorious trademarks represent a problem areafor Nicaragua. Current Nicaraguan procedures allow individualsto register a trademark without restriction, at a low fee, fora period of 15 years. Copyrights/New Technology: Pirated videos are readilyavailable in nation-wide video rental stores, as are piratedaudio cassettes. In addition, cable television operators areknown to intercept and retransmit U.S. satellite signals -- apractice which continues despite a limited trend of negotiatingcontracts with U.S. sports and news satellite programmers. Oneof Managua's private television stations similarly transmits(often from video cassettes) pirated U.S. films. A reportprepared in September 1992 by the International IntellectualProperty Alliance estimated that losses in Nicaragua due tocopyright infringements involving books and the motion pictureindustry cost U.S. firms 1.3 million dollars annually.8. Worker Rights a. The Right of Association Legally, all public and private sector workers, with theexception of the military and the police, are entitled to formand join unions of their own choosing; they exercise this rightextensively. New unions must register with the Ministry ofLabor and be granted legal status before they may engage incollective bargaining with management. Some labor groupsreport occasional delays in obtaining legal status. Nearlyhalf of Nicaragua's workforce, including agricultural workers,is unionized. Unions may freely form or join federations orconfederations and affiliate with, and participate in,international bodies. b. The Right to Organize and Bargain Collectively The Constitution provides for the right to bargaincollectively, and, despite unfamiliarity with the practicefollowing 10 years of central planning under the Sandinistaregime, collective bargaining is becoming more common in theprivate sector. The International Labor Organization@sCommittee of Experts on the Application of Conventions andRecommendations issued a report in 1992 asserting that theNicaraguan law which requires collective agreements to beapproved by the Ministry of Labor before they come into forceviolates the Convention on the Right to Organize and BargainCollectively, ratified by Nicaraguan in 1967. No action hasbeen taken to modify this provision, although the Labor Code iscurrently being revised by the National Assembly. c. Prohibition of Forced or Compulsory Labor The Constitution prohibits forced or compulsory labor, andthere is no evidence that it is practiced. d. Minimum Age for Employment of Children The Constitution prohibits child labor that can affectnormal childhood development or interfere with the obligatoryschool year. Education is compulsory to age 12, and childrenunder the age of 14 are legally not permitted to work.Nevertheless, because of the prevailing economic difficultiesin Nicaragua, reportedly more than 100,000 children are membersof the workforce, particularly in the agricultural and informalcommercial sectors of the economy. The child labor law is,however, generally observed in the modern, formal segment ofthe economy. e. Acceptable Conditions of Work The standard legal work week is a maximum of 48 hours withone day of rest. Health and safety standards are extensive,but not strictly enforced due to an insufficient number ofinspectors. Sectoral minimum wages were set in mid-1991, but,according to a study by the Government's National Commission onthe Standard of Living, the minimum wage does not provide afamily of four with the income to meet its basic needs.Minimum wage levels were not adjusted following the 20 percentdevaluation of the cordoba in January 1993. However, Ministryof Labor surveys indicate that some 86 percent of urban areaworkers earn more than the minimum wage. f. Rights in Sectors with U.S. Investments The above rights are observed in sectors with U.S.investment and overall working conditions do not differadversely from the general description above. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing (1) Food & Kindred Products (1) Chemicals and Allied Products 0 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other ManufacturingWholesale Trade 2Banking 0Finance/Insurance/Real Estate 0Services 3Other Industries 0TOTAL ALL INDUSTRIES (1)(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATENEW ZEALAND: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS NEW ZEALAND Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994Income, Production and Employment: 1/Real GDP (1983 prices) 19,883 19,256 21,078Real GDP Growth Rate (pct.) -1.3 2.9 5.3GDP (at current prices) 41,290 40,742 45,157By Sector: Agriculture 2,524 2,525 2,668 Fishing/Hunting/Forestry/Mining 1,712 1,763 2,708 Manufacturing 7,426 7,878 8,919 Electricity/Gas/Water 1,204 1,074 1,315 Construction 1,212 1,166 1,580 Trade/Restaurants/Hotels 5,977 6,182 6,617 Owner-Occupied Dwellings 3,297 3,170 3,419 Transport/Storage 2,072 1,891 1,785 Finance/Insurance/Business Svcs 5,895 6,032 6,399 Communications/Other Services 3,481 3,482 3,762 General Government Services 4,978 4,565 4,804Net Exports of Goods and Services 1,312 1,059 1,339Real Per Capita GDP (USD) 5,821 5,578 6,038Labor Force, June (000s) 1,634 1,648 1,685Unemployment Rate, June (pct.) 10.1 9.9 8.4Money and Prices: (annual percentage growth) 1/Money Supply (M2 July/July) -1.7 -0.9 12.7Base Lending Rate (actual Sept) 11.0 9.8 10.1Personal Saving Ratio 2/ 6.2 7.0 7.7Consumer Price Index 0.8 1.0 1.3Producer Price Index (June-June) 1.9 2.5 1.5Exchange Rate (USD/NZD) 0.5660 0.5324 0.5532Balance of Payments and Trade: 3/Total Exports (FOB) 4/ 9,899 10,103 11,162 Exports to U.S. 1,272 1,202 1,256Total Imports (CIF) 4/ 8,591 9,230 10,407 Imports from U.S. 1,558 1,704 1,872Aid Receipts 0 0 0External Public Debt 15,163 14,202 16,022Debt Service Ratio (March yr.) 5/ 57.4 47.0 43.4Gold and Foreign Exch. Reserves 2,983 3,337 4,011Trade Balance 1,308 873 755 Trade Balance with U.S. -286 -502 -6161/ National income accounts reporting years ending March 31.2/ Estimates by N.Z. Institute of Economic Research.3/ Fiscal year ending June 30. 1994 data is provisional.4/ Merchandise Trade.5/ Principal payments on medium and long term debt plusinterest payments on total debt, as a percent of exports ofgoods and services and investment income.1. General Policy Framework New Zealand is a modern developed economy, with a heavyreliance on foreign trade. Its manufacturing and exportsectors are still significantly based on a large and efficientagricultural sector. Tourism has become the single mostimportant foreign exchange earner, surpassing meat exports.Since agricultural and processed agricultural product exportsare so important to the economy, New Zealand ratified the GATTUruguay Round agreements and became a founding member of theWorld Trade Organization (WTO) on January 1, 1995. Afterseveral years of economic restructuring, the New Zealandeconomy is now largely market driven. Most formerlygovernment-owned industries have been privatized, with electricpower generation and transmission the primary remaininggovernment-owned industries. In late 1994 economic growth wasstrong, inflation was under control, unemployment was falling,and the government was running budget surpluses for the firsttime in seventeen years. While the New Zealand government is no longer runningdeficits, it refinances its maturing debt (includingsubstitution of domestic for foreign debt) and manages its cashflow through periodic issuance of government stock and treasurybills, which are held by both domestic and foreign investors.The government obtains most of its income from direct taxes(about US $11.8 billion) on company profits and personalincomes. The maximum personal income tax rate is 33 percent.The second largest revenue earner is a "goods and services"(GST) tax of 12.5 percent on all sales of goods and services.This appears as a sales tax to the consumer. The Reserve Bank of New Zealand Act of 1989 instructs theReserve Bank to direct monetary policy towards achieving andmaintaining price stability. The Act requires the Reserve BankGovernor and the Minister of Finance to agree on policytargets. The current agreement, reached in December 1992, seta goal of maintaining a zero to two percent annual rise in theconsumer price index (CPI), with certain factors from this"headline" inflation removed to arrive at "underlying"inflation. These factors include interest rate rises,government taxes and charges, and one-off external shocks, suchas large oil price increases. While the CPI increase hasremained below two percent per annum since late 1991, it isexpected to exceed that level by late 1994, and peak at aboutthree percent in early 1995. Underlying inflation is expectedto remain below the two percent target. The Reserve Bank usesone day loans to banks of government receipts, daily openmarket operations, and twice weekly Reserve Bank bill tendersto implement its monetary policy.2. Exchange Rate Policy The New Zealand dollar has floated since March 1985 as partof a broad based deregulation of financial markets. TheReserve Bank has not intervened in the foreign exchange marketsince the float. In mid-October 1994, the New Zealand dollar,at about 61 U.S. cents, had reached its highest point againstthe U.S. dollar since late 1990, having appreciated by almost20 percent against the U.S. dollar since late 1992. At theselevels, U.S. goods and services remain competitively priced inthe New Zealand market. In pursuing the objective of price stability, the ReserveBank uses the following check list of indicators: exchangerates; level and structure of interest rates; growth of moneyand credit; inflation expectations; and trends in the realeconomy. The interest rate yield gap and the trade weightedexchange rate are seen as the principal indicators. While notattempting to run a fixed exchange rate band, the Reserve Bankdoes seek "comparative exchange rate stability." The ReserveBank's control of primary liquidity influences the exchangerate indirectly through its impact on short-term interest rates.3. Structural Policies Certain New Zealand manufacturers, primarily motor vehicleassemblers and car tire, textile, carpet, footwear and apparelmanufacturers, retain high but decreasing effective rates oftariff protection. In March 1991, a program was announced tocut most tariffs by one-third from 1993 to 1996.Liberalization beyond 1996 will be determined by a review heldin 1994. Most observers expect further gradual reduction intariff protection for these industries, in spite of stiffopposition from those directly affected. In December 1990, the new National Party governmentintroduced industrial relations reform legislation, resultingin the Employment Contracts Act, which came into effect onMay 15, 1991. This law abolished compulsory unions and thepractice of nationwide occupational awards. The removal ofthese restrictive practices has generated more flexibleworkplace arrangements with consequent improvements inproductivity. The National Party government also implemented reductionsin expenditures for social benefits through better targeting,and a broad review of the social assistance structure. Thisprocess was extended in the July 1991 budget package throughthe introduction of partial user charges for health andeducation and rationalization of housing assistance. InAugust 1993, despite strong public resistance, the three majorpolitical parties agreed to changes to the universal retirementsystem to bring its costs to the government under control.4. Debt Management Policies Gross public debt grew from 45 percent of GDP in 1973 to apeak of 77 percent of GDP in 1987. In June 1994, total publicdebt was US $27.2 billion, equivalent to 57 percent of GDP.This improvement is largely due to the use of proceeds fromprivatization to repay external debt, and to the improvingeconomy. In the fiscal year ending March 1988, debt service onthe public debt reached US $3.3 billion, or 8.4 percent of GDPand 20 percent of government expenditure. Public debt servicedropped to US $1.97 billion in FY1994, or 4.4 percent of GDPand 12.1 percent of expenditures. External debt accounted for 59 percent of the total inmid-1994. Interest on external debt in 1994 equaled 12.4percent of exports of goods and services, and investment income.5. Significant Barriers to U.S. Exports New Zealand embarked on a unilateral tariff liberalizationprogram in 1985 with the announcement that tariffs on goods notproduced in New Zealand would be reduced to zero. In 1988, thegovernment reported that 93 percent of imports entered dutyfree. In December 1987, a general tariff reduction plan wasannounced for goods not covered by industry plans. (Fivecategories of goods were covered by industry plans: footwear;carpet; textiles; apparel; and motor vehicles.) Tariffs onother goods were reduced in four stages between July 1988 andJuly 1992 from a range of 30 to 40 percent to a range ofbetween 16 to 19 percent. In 1991 it was announced that tariffreductions would be continued between 1993 and 1996. Under separate treatment for goods covered by the formerindustry plans, present relatively high tariffs for apparel,textiles, curtains, carpets, footwear, motor vehicles and cartires will be reduced in stages to July 1996 by about onequarter to one third of the existing tariffs. However, evenafter July 1996, passenger vehicles and original equipmenttires will still face a tariff of 25 percent; replacementtires, 15 percent; and apparel, 30 percent. A review for thepost-1996 period was conducted in 1994. Most observers expectfurther gradual reduction in tariff protection for theseindustries, despite stiff opposition from some domesticproducers. One example of a protected industry is the car assemblysector, where tariff protection will drop from the present30 to 25 percent on July l, 1996. The assemblers maintain thatfurther tariff reductions will jeopardize their ability tomaintain an employment level of 2,500, and kill a potentialexport market to Australia. Their opponents (importers of usedcars, mostly from Japan) counter that the present duties makecars an average of US $3000 more expensive for every NewZealand motorist. Thus, despite extensive reform, tariffs on goods competingwith domestic products remain relatively high. With the entryinto force of the GATT Uruguay Round Agreement in 1995, tariffson only two categories of imports, used motor cars and usedclothing, will be unbound. Items of particular export interestto the United States subject to high tariffs include printedmatter for commercial use, aluminum products and wine.Reductions in tariff levels in accordance with theaforementioned plan should result in expanded commercialopportunities for U.S. exporters. New Zealand has completed the dismantling of a highlyrestrictive import licensing regime. The remaining importlicense controls for goods under the former industry plans wereeliminated in 1992. This liberalization has benefitted U.S.exporters. The New Zealand Apple and Pear Marketing Board, a producerorganization, had a monopoly right to import apples and pears,except from Australia. This monopoly was abolished effectiveJanuary 1, 1994. New Zealand welcomes and encourages foreign investmentwithout discrimination. Approval by the Overseas InvestmentCommission (OIC) is required for foreign investments overNZD ten million or investments of any size in specificsectors. The review of investments above NZD ten millionapplies to both acquisitions and greenfield investments.Specified sectors are commercial fishing and rural land.Foreign investment in commercial fishing is limited to a24.9 percent holding, unless an exemption is granted by theMinistry of Agriculture and Fisheries. While the level ofownership is not restricted for rural land, foreign purchasersare required to demonstrate that the purchase is beneficial toNew Zealand. In practice, the OIC approves virtually allinvestment applications, and its approval requirements have notbeen an obstacle for U.S. investors. For example, the entirenational railroad system, including the only regular passengerand rail ferry service connecting the two main islands, wassold to a majority U.S. owned consortium in 1993. In 1991, theformer government telecommunications monopoly was sold to twoU.S. telecommunications companies. No performance requirementsare attached to foreign direct investment. Full remittance ofprofits and capital is permitted through normal bankingchannels. The U.S. Government recognized the generally liberaltrading environment in New Zealand by signing a bilateral Tradeand Investment Framework Agreement (TIFA) in October 1992. TheTIFA provides for periodic government to governmentconsultations on bilateral and multilateral trade andinvestment issues and concerns. The first TIFA meeting washeld in Washington in April 1993.6. Export Subsidies Policies New Zealand acceded to the GATT subsidies code in 1981. Atthat time, New Zealand undertook to eliminate seven exportsubsidy programs that were inconsistent with the code byMarch 1985. While five of the programs were eliminated onschedule, two programs were extended through March 1987,leading the United States to deny New Zealand imports use ofthe injury test in countervailing duty cases. One of theseprograms, the export market development taxation incentive, wasextended a second time, but expired in 1990. The United Statesreinstated the injury test for New Zealand once tax rebatesunder this last inconsistent program were complete.7. Protection of U.S. Intellectual Property New Zealand is a member of the World Intellectual PropertyOrganization, the Paris Convention for the Protection ofIndustrial Property, and the Berne Copyright and UniversalCopyright Conventions. New Zealand has generally supportedmeasures to enhance intellectual property protection atmultilateral organization meetings. The Government of New Zealand strongly endorses theprotection of intellectual property and enforces effectivelyits laws which offer such protection. This is done to protectNew Zealand innovators both at home and abroad, and toencourage technology transfer. The government recognizes thatNew Zealand is heavily dependent on imported technology andthat the country derives considerable benefit in providingintellectual property protection. In 1992 New Zealand repealed Section 51 of the Patents Act,1953, which contained permissive rules for compulsory licensingof pharmaceutical products. While no licenses had ever beenissued under these provisions, in 1990 a number of applicationswere filed with the Commissioner of Patents, generating a greatdeal of concern among international pharmaceutical companies.The repeal of Section 51 brought New Zealand's patent act intoconformity with the intellectual property legislation in otherindustrialized countries. The government is engaged in a full review of itsintellectual property rights regime. It is expected that majornew copyright legislation, including provisions on parallelimporting, will be enacted in 1994, as well as new legislationon layout designs. In addition, some amendments to patent andtrademark laws, as required by the Uruguay Round's TradeRelated Aspects of Intellectual Property (TRIPS) Agreement,were before the parliament in late 1994, as well as a newregime for the protection of geographical indications, expectedto be enacted in 1994. Draft legislation will also protectcertain data which are supplied to New Zealand regulatoryauthorities who give marketing approvals for pharmaceuticalsand agrochemicals. These reforms are mainly aimed at bringingNew Zealand's intellectual property rights law into conformitywith the TRIPS Agreement. It is expected that further reformlegislation will be introduced in 1995 on trademarks, patents,designs and plant variety rights.8. Worker Rights a. The Right of Association New Zealand workers have unrestricted rights to establishand join organizations of their own choosing and to affiliatethese organizations with other unions and internationalorganizations. The principal labor organization, the NewZealand Council of Trade Unions (NZCTU), is affiliated with theInternational Confederation of Free Trade Unions (ICFTU). Asecond, smaller national labor federation, the New ZealandTrade Union Federation (TUF), was established in 1993. TUF isnot affiliated with any global international, although some ofits affiliates retain longstanding ties with the ICFTU'sinternational trade secretariats. There are also a number ofindependent labor unions. Unions are protected by law fromgovernmental interference, suspension, and dissolution. Unions have and freely exercise the right to strike.Strikes designed to force an employer to become party to amulti-company contract are prohibited. Moreover, policeofficers are barred from striking or taking any form ofindustrial action. Police, however, do have freedom ofassociation and the right to organize and to bargaincollectively. b. The Right to Organize and Bargain Collectively The right of workers to organize and bargain collectivelyis provided by law and observed in practice. Unions activelyrecruit members and engage in collective bargaining. Onlyuniformed members of the armed forces are not permitted toorganize unions or to bargain collectively. Labor market deregulation intended to make New Zealand morecompetitive internationally was initiated with the EmploymentContracts Act (ECA) of 1991, which marked a sharp break withalmost a century of pro-union industrial legislation. Underthe ECA, unions lost their special legal status and have noinherent right to represent any particular group of workers.Compulsory unions and the closed shop were abolished. Monopolyunion coverage was dropped and workers may not be forced tojoin a particular union. The ECA ended a previous system of national "awards" underwhich a wage agreement would apply to all employers andemployees in an industry whether or not they had been involvedin the award negotiations. Under the ECA, employmentrelationships are based on contracts. Individual employees andemployers may choose to conduct negotiations for employmentcontracts on their own behalf or may authorize any other personor organization to do so as their representative. Mediationand arbitration procedures are conducted independently ofgovernment control. The Employment Court hears cases arisingfrom disputes over the interpretation of labor laws. A lessformal body, the Employment Tribunal, is available to handlewage disputes and assist in maintaining effective laborrelations. There are no export processing zones. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is prohibited. Inspection andlegal penalties ensure respect for these provisions. d. Minimum Age for Employment of Children Department of Labour inspectors effectively enforce a banon the employment of children under age 15 in manufacturing,mining, and forestry. Children under the age of 16 may notwork between the hours of 10 P.M. and 6 A.M. In addition toexplicit restrictions on the employment of children, NewZealand's system of compulsory education ensures that childrenunder the minimum age for leaving school (now 16) are notemployed during school hours. e. Acceptable Conditions of Work New Zealand law provides for a 40-hour workweek, with aminimum of three weeks' annual paid vacation and eleven paidpublic holidays. Under the Employment Contracts Act, however,employers and employees may agree to longer hours than the40-hour per week standard. The government-mandated minimumwage of approximately US $3.75 an hour, applies to workers20 years of age and older. Effective April 1, 1994, a minimumwage for younger workers was introduced at 60 percent of theadult minimum. A majority of the work force earns more thanthe minimum wage. New Zealand has an extensive body of law and regulationsgoverning health and safety issues, notably the Health andSafety in Employment Act of 1992. Under this legislation,employers are obliged to provide a safe and healthy workenvironment and employees are responsible for their own safetyand health as well as ensuring that their actions do not harmothers. Under the Employment Contracts Act, workers have thelegal right to strike over health and safety issues. Unionsand members of the general public may file safety complaints onbehalf of workers. Safety and health rules are enforced byDepartment of Labour inspectors who have the power to shut downequipment if necessary. f. Rights in Sectors with U.S. Investment The conditions in sectors with U.S. investment do notdiffer from conditions in other sectors of the economy. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 339Total Manufacturing 778 Food & Kindred Products (1) Chemicals and Allied Products 110 Metals, Primary & Fabricated 7 Machinery, except Electrical 3 Electric & Electronic Equipment 38 Transportation Equipment (1) Other Manufacturing 317Wholesale Trade 108Banking (1)Finance/Insurance/Real Estate 198Services (1)Other Industries 1,587TOTAL ALL INDUSTRIES 3,037(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of Economic Analysis</text>
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<text>U.S. DEPARTMENT OF STATENETHERLANDS: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS THE NETHERLANDS Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994Income, Production and Employment:Real GDP (1990 prices) 2/ 287,371 288,520 294,290Real GDP Growth Rate (pct.) 1.4 0.4 2.0GDP (current prices) 2/ 302,806 308,779 320,564By Sector: 3/ Agriculture 10,753 10,054 10,215 Energy/Water 4,839 5,000 5,107 Manufacturing 110,054 107,204 109,677 Construction 16,183 16,667 17,204 Rents 26,389 28,655 30,295 Financial Services 13,871 14,677 15,054 Other Services 82,742 87,796 89,785 Government/Health/Education 29,731 30,645 31,183 Net Exports of Goods & Services 13,521 15,467 16,667Real Per Capita GDP (USD) 18,995 18,900 19,153Labor Force (000s) 6,158 6,233 6,306Unemployment Rate (pct.) 6.7 7.7 8.8Money and Prices: (annual percentage growth)Money Supply (M2) 6.6 8.5 6.0Base Interest Rate 4/ 8.7 8.1 6.4Personal Savings Rate 9.1 8.7 9.0Retail Inflation 2.0 1.3 1.1Wholesale Inflation -1.2 -1.9 0.0Consumer Price Index 106.4 109.2 112.2Exchange Rate (guilders/USD) Official 1.76 1.86 1.85Balance of Payments and Trade:Total Exports (FOB) 5/ 128,736 126,290 133,790 Exports to U.S. 5,287 5,451 6,000Total Imports (CIF) 5/ 122,269 117,500 124,516 Imports from U.S. 13,746 12,839 14,000Aid from U.S. 0 0 0Aid from Other Countries 0 0 0External Public Debt 0 0 0Debt Service Payments (paid) 14,689 15,791 18,509Gold and Foreign Exch. Reserves (end of period) 35,086 40,449 40,806Trade Balance 5/ 6,467 8,790 9,274 Trade Balance with U.S. -8,459 -7,388 -8,0001/ Estimates based on available monthly data in October 1994.2/ GDP at market prices.3/ GDP at factor costs.4/ Figures are actual, average annual interest rate.5/ Merchandise trade.6/ All of dollar figures have been converted to the exchangerate of $1 = 1.86 guilders for 1993.Sources: Central Bureau of Statistics (CBS), NetherlandsCentral Bank (NB), Central Planning Bureau (CPB)1. General Policy Framework The Netherlands is a prosperous and open economy, anddepends heavily on foreign trade. It is noted for: stableindustrial relations fostered through consultations amongemployers, unions, and government; a large current accountsurplus from trade and overseas investments; natural gasexports making Holland a net exporter of a popular fuel; ageographic location as a European transportation hub with theworld's largest port (Rotterdam), one of its top airports(Amsterdam-Schipol), and an excellent road and rail system,making it a prime production and distribution center forforeign firms seeking access to Europe. Dutch trade and investment policy is among the most open inthe world. The government has reduced its role in the economysince the 1980s, and privatization continues with little debateor opposition. Nevertheless, the state dominates the energysector and plays a large role in transport, chemicals,aviation, telecommunications, and steel. Elections in May 1994 produced a new, three-party,left-right coalition government. The government inherits aneconomy that moved out of shallow recession in 1993 (GDP grew0.4 percent) and that has begun sustained, export-led growth.Growth is expected to be at least 2 percent in 1994, and near2.8 percent in 1995. The consensus forecast is for annualaverage growth of 2.2 percent over the next four years(although the Finance Minister has warned of a possibledownturn in the international business cycle after 1996).Inflation is low and falling; 1994 CPI inflation is expectedto be 2.8 percent, slowing to 2.7 percent in 1995.Nonetheless, the government must grapple with a number ofstructural economic problems if the Dutch economy is to fullylive up to its potential. A key government goal is to stimulate the creation of350,000 new jobs over the next four years. A cut in the"collective burden" of taxes and social security contributionsis seen as key to boosting employment and improvingcompetitiveness, but Dutch industry is not convinced thegovernment is doing enough on this score. The government alsoplans to continue (and perhaps speed up) the process ofderegulation and antitrust reform begun under the previousgovernment. With much "fat" in spending already pared away, budget cutsare getting into areas which were regarded as untouchable:development aid, social security, defense, education. The 1995budget cut spending by 4.6 billion guilders ($2.5 billion).Total planned cuts are 18.2 billion guilders ($10 billion) bythe end of 1998. A combination of budget austerity andeconomic growth will reduce the budget deficit from thecurrent 3.75 percent of GDP to 3.3 percent of GDP in 1995.Public debt will rise from 79.4 percent of GDP at the end of1994 to 79.9 percent in 1995. The deficit is largely funded by government bonds. SinceJanuary 1, 1994, financing has also been covered by issuingDutch Treasury Certificates (DTC). DTCs replace a standingcredit facility for short-term deficit financing with thecentral bank which, under the Maastricht Treaty, was abolishedin 1994.2. Exchange Rate Policies Since the European Monetary System (EMS) was introduced in1979, the Netherlands Central Bank (NB) has maintained a stableexchange rate between the guilder and the German mark usinginterest rate policy. The guilder is one of the strongestcurrencies in Europe. When the EMS fluctuation bands widenedto 15 percentage points in August 1993, the Dutch and Germansagreed to keep the guilder in the original 2.25 pointfluctuation band. Because Germany is the Netherlands' maintrading partner, the link with the mark is expected to stayintact. A strong guilder should encourage Dutch imports fromthe United States and reduce exchange rate risks to U.S.investors in the Netherlands. There are no multiple exchangerate mechanisms. The NB exerts control over money market rates by adjustingshort-term rates and by varying the terms of banks' access toNB financing. The NB's open market policy gives the bank atool to signal the market the way it wants it to develop. Forthis purpose the NB uses a three billion guilder portfolio ofTreasury issues from which it buys or sells. There are no exchange controls, although Netherlandsresidents must obtain an exchange license for certain largeinternational financial transactions.3. Structural Policies Limited, targeted investment incentives have been awell-publicized tool of Dutch economic policy to facilitateeconomic restructuring, and to promote energy conservation,regional development, environmental protection, research anddevelopment, and other national goals. Subsidies andincentives are available to foreign and domestic firms alikeand are spelled out in detailed regulations. Subsidies gearedto the previous objectives are in the form of tax credits whichare usually disbursed through corporate tax rebates, or directcash payments in the event of no tax liability. The Investment Premium Regulation (IPR), the only majorstrictly investment incentive currently available, aims toencourage investment in areas with high unemployment withsubsidies for new investments (industrial buildings and fixedassets). The IPR applies to investments of which at least 25percent is the investor's own capital. Grants range from 10 to20 percent of the investment in buildings and equipment, andsometimes land. A 20 percent grant is available for new branchand restructuring projects, and 15 percent for expansionprojects. Local subsidies are also available from regionaldevelopment companies. To combat relatively low spending on research anddevelopment by Dutch firms, the government set up "Senter", anindependent agency to encourage and financially assist firms ininnovative research and development projects in targetedfields. Senter's programs are open to firms without regard tonationality of ownership that have Dutch-based research anddevelopment operations. There are few restrictions on size andother elements of participating firms, and selection forfunding is competitive. Senter emphasizes technology transfer, and many programsare geared to linking firms from diverse sectors. Senter has a700 million guilder (over $376 million) annual budget. Asimilar agency, "Novem", has a 300 million guilder ($161million) budget for energy and environment-related programs. In another effort to attract investment, in 1993 thegovernment established an office to give binding tax rulings toforeign companies in advance of investment. While normal taxesare not relaxed, companies can clarify, often favorably, taxsituations that may be open to interpretation. In November 1993 the previous government set up a 900million guilder (about $484 million) industrial fund to financerestructuring projects by medium and large Dutch enterprises.The money came from the government, commercial banks, insurancecompanies, pension funds, and the National Investment Bank.Financing for new projects is available up to a ceiling of 50million guilders per project. The fund was intended to improvethe structure and competitiveness of the economy, but has sofar been used by just one company.4. Debt Management Policies With a current account surplus of three percent of GDP in1993 and no external debt (all public debt is denominated inguilders), the Netherlands is a major creditor nation.Nonetheless, since the early eighties, the gross public debt ofthe public sector (EMU criterion) has grown sharply, to 79.4percent of GDP in 1994. If current policies are followed, mostobservers predict little decrease in the debt as a percentageof GDP in the next four years. Debt servicing and rolloverhave risen to nearly ten percent of GDP. All of thegovernment's financing needs (budget deficit and debtservicing) are covered on the Dutch domestic capital market.There are no difficulties in tapping the domestic capitalmarket for loans. Government bond issues are usuallyover-subscribed, and public financing requirements haverecently been met long before the end of each fiscal year.Since the late eighties, the Dutch have significantly improvedtheir fiscal balance. The Netherlands is a participant in andstrong supporter of the IMF, IBRD, and other internationalfinancial institutions.5. Significant Barriers to U.S. Exports The Dutch economy is an open one. Dutch merchandise andservices exports represent more than 50 percent of GDP, makingthe Dutch economy one of the most internationally-oriented inthe world. The Netherlands is the ninth largest U.S. exportmarket, as well as being a country with which the United Stateshas one of its largest bilateral trade surpluses: $7.4 billionin 1993. Total U.S. exports to the Netherlands in 1993 weredown seven percent over 1992. However, a nine percent increaseis forecast for 1994. In 1993, imports from the U.S. accountedfor nearly 11 percent of total Dutch imports. The Netherlandsis among the top three direct investors in the United States,along with the United Kingdom and Japan; Dutch accumulatedinvestment in the United States in 1993 grew to 68.5 billiondollars. The U.S. is the largest investor in the Netherlands:U.S. direct investment fell slightly, to about 19.9 billiondollars in 1993. Most trade barriers that do exist result from common EUpolicies. The following are areas of potential concern forU.S. exporters to the Netherlands: Agricultural Trade Barriers: Agricultural trade bariersare generally driven by the Comaon Agricultural Policy (CAP),and common external tariffs that serve to severely limitimports of U.S. agricultural products. Bilateral importbarriers are confined to the restrictive acceptable limits ofAflatoxin in peanut imports. These limits are independent ofEU directives and at times, serve to restrict U.S. peanutimports. Offsets for Defense Sector Contracts: The defense ministryrequires all foreign contractors to provide at least 100percent offset/compensation for defense procurements over fivemillion Dutch guilders (about $2.7 million). The seller mustarrange for the purchase of Dutch goods or permit theNetherlands to domestically produce components or sub-systemsof the weapons systems it is buying. Broadcasting and Media Legislation: Liberalizingamendments to the Dutch Media Act admitting local and foreigncommercial broadcasters into the Dutch cable network tookeffect in 1992. Dutch compliance with the EU BroadcastingDirective and its 50-percent-EU-content-where-practicablerequirement is not primarily a bilateral issue, but one betweenthe United States and the EU. U.S. television programs arepopular and readily available in the Netherlands. Cartels: Although the export sector of the Dutch economyis open and free of competition restraints, cartels exist inthe domestic sector of the economy. Cartels have been legal inthe Netherlands if accepted for registration by thegovernment. Cartel arrangements include restrictions againstmarket entry, restrictions on sales territories, and salesquotas. Cartels are not necessarily limited to Dutchcompanies. In order to comply with EU requirements to curtailcartels, the government in 1993 and 1994 introduced legislationto break up the cartel system. The new government is expectedto proceed quickly with the anticartel bill. For the timebeing, cartels are a potential threat to foreign firms seekingto do business in the Netherlands. However, the U.S. Embassyknows of only two complaints by U.S. firms of having beendisadvantaged by cartels in the Netherlands, and these did notinvolve exports. Public Procurement: Central government procurement isgenerally open and transparent and complies with the EUprocurement directive and the GATT government procurementcode. However, independent studies show that transparency andenforcement in this area can be deficient, especially at thelocal authority level, and with offset or local contentrequirements. In this regard, the EU utilities directive may have apositive effect. It requires more public notification andending the virtual monopoly of two Dutch companies in publicutility construction for local authorities. However, the U.S.Embassy has received no complaints from U.S. firms since 1992.Because U.S. firms operate primarily in the export-orientedsector of the economy and at the central government level ofprocurement, they appear to have experienced littlediscrimination in public procurement sector since 1992.6. Export Subsidies Policies The EU is a signatory to the GATT subsidies code, makingthe Netherlands subject to the provisions of this code. Under the Export Matching Facility, the Dutch governmentprovides interest subsidies for Dutch export contractscompeting with government-subsidized export transactions inthird countries. These subsidies under the "matching fund"seek to bridge the interest cost gap between a Dutch andforeign export contract which has benefited from foreigninterest subsidies. Under the Dutch scheme, the governmentprovides up to 10 million guilders (about $5.4 million) ofinterest subsidies per export contract up to a maximum of 35percent per export transaction. To qualify, the exporttransaction must have a Dutch content of at least 60 percent.For defense, aircraft, and construction transactions, theminimum Dutch content is one-third of the export portion of acontract. The Dutch have a local content requirement of 70 percentfor exporters seeking to insure their export transactionsthrough the Netherlands Export Insurance Company (NCM). In the aerospace industry, the Dutch government hasindirectly supported Fokker, the Dutch aircraft manufacturer,with loans and loan guarantees as well as with direct supportfor development programs. With the purchase of a majorityinterest in Fokker by Deutsche Aerospace (DASA), it is expectedthat the Dutch government (which had owned 31.8 percent of thecompany) will reduce support of Fokker. There are some subsidies for shipping. Under strictconditions, Dutch shipowners ordering new vessels or buyingexisting vessels not older than five years may be eligible fora premium of 10 percent of the contract price distributed overfive years. Subsidies for shipbuilding have been graduallyreduced since 1980. The present guideline is the seventh EUdirective which allows a maximum aid level of nine percent forshipbuilding after consideration of tax allowances. Inconformity with the OECD understanding, the government grantsinterest rate subsidies (maximum two percent) to Dutchshipbuilders up to 80 percent of a vessel's cost with a maximumrepayment period of 8.5 years. This subsidy is only availablewhen it will be "matching" similar offers by non-EU shipyards.The government may also guarantee loans to Dutch shippingcompanies for investment purposes.7. Protection of U.S. Intellectual Property The Netherlands has a generally good record on IPRproblems, with the exception of the enforcement of antipiracylaws (see below). It belongs to the World IntellectualProperty Organization (WIPO), is a signatory of the ParisConvention for the Protection of Industrial Property, andconforms to accepted international practice for protection oftechnology and trademarks. Patents for foreign investors aregranted retroactively to the date of original filing in thehome country, provided the application is made through a Dutchpatent lawyer within one year of the original filing date.Patents are valid for 20 years. Legal procedures exist forcompulsory licensing if the patent is determined to beinadequately used after a period of three years, but theseprocedures have rarely been invoked. Since the Netherlands andthe United States are both parties to the Patent CooperationTreaty (PCT) of 1970, patent rights in the Netherlands may beobtained if PCT application is used. The Netherlands is a signatory of the European PatentConvention, which provides for a centralized Europe-wide patentprotection system. This convention has simplified the processfor obtaining patent protection in the member states.Infringement proceedings remain within the jurisdiction of thenational courts. The enforcement of antipiracy laws remains aconcern to U.S. producers of software, audio and video tapes,and textbooks. The Dutch government has recognized theproblems in protecting intellectual property. Legislation wasenacted in early 1994 to explicitly include computer softwareas intellectual property under the copyright statutes.8. Worker Rights a. The Right of Association The right of Dutch workers to associate freely is wellestablished. One quarter of the employed labor force belongsto unions. Unions are entirely free of government andpolitical party control and participate in political life.They also maintain relations with recognized internationalbodies and form domestic federations. The Dutch unions areactive in promoting workers' rights internationally. All unionmembers, except most civil servants, have the legal right tostrike. Even Dutch military personnel are free to joinunions. Measures are pending which would grant the right tostrike to civil servants not involved in "life-essential"activities; meanwhile, disputes involving this sector aresubject to arbitration. b. The Right to Organize and Bargain Collectively The right to organize and bargain collectively isrecognized and well-established. There are no union shoprequirements. Discrimination against union membership does notexist. Dutch society has developed a social partnership amonggovernment, private employers, and trade unions. Thistripartite system involves all three participants innegotiating guidelines for collective bargaining agreementswhich, once reached in a sector, are extended by law to coverthe entire sector. Such agreements cover about 75 percent ofDutch workers. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is prohibited by theconstitution and does not exist. d. Minimum Age for Employment of Children Child labor laws exist and are enforced. The minimum agefor employment of young people is 16. Even at that age, youthsmay work full time only if they have completed the mandatory 10years of schooling and only after obtaining a work permit(except for newspaper delivery). Those still in school at age16 may not work more than eight hours per week. Laws prohibityouths under the age of 18 from working at night, overtime, orin areas which could be dangerous to their physical or mentaldevelopment. In order to promote the employment of youngpeople, the Netherlands has a reduced minimum wage foremployees between ages 16 and 23. e. Acceptable Conditions of Work Dutch law and practice adequately protect the safety andhealth of workers. There is no legally-mandated work week; itis set by collective bargaining. The average workweek foradults is 38 hours. The legally-mandated minimum wage issubject to semi-annual cost of living adjustments. f. Rights in Sectors with U.S. Investments The worker rights described above hold equally for sectorsin which U.S. capital is invested. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 1,055Total Manufacturing 7,775 Food & Kindred Products 955 Chemicals and Allied Products 3,406 Metals, Primary & Fabricated 494 Machinery, except Electrical 991 Electric & Electronic Equipment 468 Transportation Equipment 80 Other Manufacturing 1,382Wholesale Trade 3,090Banking 131Finance/Insurance/Real Estate 5,199Services 1,845Other Industries 791TOTAL ALL INDUSTRIES 19,887Source: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEMOROCCO: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS MOROCCO Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 5/Income, Production and Employment:Real GDP (billions, in 1980 DHs) 110.3 109.1 117.8Real GDP Growth (pct.) -4.4 -1.1 8.0GDP (at current prices) 28,253 26,636 30,419By Sector: Agriculture/Fishing 4,220 3,809 5,333 Mining 592 524 576 Energy/Water 2,084 2,043 2,369 Manufacturing 5,118 4,800 5,184 Construction 1,410 1,252 1,327 Commerce 6,010 5,555 6,111 Other Services 3,411 3,370 3,707 Transport/Communications 1,779 1,788 1,966 Government 3,628 3,496 3,845Per Capita GDP (USD) 1,112 1,021 1,142Labor Force (millions) 1/ 4.1 4.3 4.6Unemployment (pct.) 1/ 16.0 16.0 16.0Money and Prices: (annual percentage growth)Money Supply (M2) 9.3 8.7 12.7Maximum Lending Rate 2/ 15.6 14.0 12.0Private Savings Rate (pct. GDP) 4.9 6.1 8.0Retail Inflation 5.7 5.2 5.4Wholesale Inflation 2.8 4.5 2.7Exchange Rate (year-end, DH/USD) 8.5 9.3 9.3Balance of Payments and Trade:Total Exports (FOB) 3,977 3,685 4,138 Exports to U.S. 149 126 N/ATotal Imports (CAF) 7,356 6,646 7,503 Imports from U.S. 435 672 N/AAid from U.S. 3/ 126 112 51External Public Debt 20,422 20,246 20,525Debt Service Ratio 4/ 37.3 38.1 34.7Foreign Exchange Reserves 3,948 4,105 4,100Trade Balance -3,379 -2,961 -3,365 Trade Balance with U.S. -286 -546 N/AN/A--Not available.1/ Urban.2/ Year-end rate, not change.3/ Fiscal year.4/ As a percent of goods, nonfactor services and privatetransfers.5/ Projections based on data available October 1994.1. General Policy Framework Morocco boasts the largest phosphate reserves in the world,a diverse agricultural sector (including fishing), a largetourist industry, a growing manufacturing sector (especiallyclothing), and considerable inflows of funds from Moroccanexpatriate workers. Most of Morocco's trade is with Europe,with France alone accounting for about a quarter of Morocco'simports and a third of its exports. The Moroccan Government has pursued an economic reformprogram supported by the International Monetary Fund (IMF) andthe World Bank since the early 1980s. It has restrainedgovernment spending, revised the tax system, reformed thebanking system, followed appropriate monetary policies, easedimport restrictions, lowered tariffs and liberalized theforeign exchange regime. Further reforms are still needed insome areas, notably trade and agriculture. The government eased slightly both monetary and fiscalpolicy over the last year. In late 1993 the Central Bankreduced the reserve requirement from 25 to 10 percent, butrequired the value of additional reserves made available by themeasure to be placed in interest-bearing treasury bonds. Thegrowth in deposits after October 1993 is only subject to the 10percent reserve requirement, and not to the treasury bondrequirement. This led to an increase in the growth of themoney supply (M2) from 8.7 percent in 1993 to an annualizedrate of over 12 percent by late 1994. The government's budget deficit is running above initialprojections in 1994 due to unfulfilled expectations containedin the budget, unfavorable exogenous developments and newspending initiatives not included in the budget. Thegovernment took measures to reduce spending during the secondhalf of 1994 year in order to stem the growing deficit. Thegovernment also relies increasingly on the sale of assets underits privatization program to offset higher spending. Thedeficit is financed largely through the domestic sale ofgovernment paper. Overall, reforms have contributed to lower inflation,narrower fiscal and current account deficits, and modest growthin per capita income during the last decade. While the overalltrend has been positive, there have been wide year-to-yearfluctuations due to exogenous factors such as rainfall andconditions in Morocco's export markets. The economy reboundedsharply in 1994, with real GDP expected to grow by over eightpercent. Virtually all of the growth is due to a recordcereals harvest following drought-depressed harvests in 1992and 1993. Nonagricultural GDP is only expected to grow by twoto three percent in real terms.2. Exchange Rate Policies The Moroccan dirham is convertible for all currenttransactions (as defined by the IMF's Article VIII) as well asfor some capital transactions, notably capital repatriation byforeign investors. Foreign exchange is routinely availablethrough commercial banks for such transactions on presentationof documents. Moroccan companies may borrow abroad withoutprior government permission. The Central Bank sets the exchange rate for the dirhamagainst a basket of currencies of its principal tradingpartners, particularly the French franc and other Europeancurrencies. The rate against the basket has been steady sincea nine percent devaluation in May 1990, with changes in therates of individual currencies reflecting changes in crossrates. The large weight given to European currencies in thebasket means that the fluctuation of the dollar against thosecurrencies results in a greater volatility of the dollar thanthe European currencies against the dirham. This increases theforeign exchange risk of importing from the United States ascompared to importing from Europe.3. Structural Policies Morocco's trade regime is in a flux. A new foreign tradeact passed in 1992 reverses a legal presumption of importprotection, spelling out permissible grounds for exceptions tothe general principle of free trade and providing a legal basisfor antidumping and countervailing duties. It replacesquantitative restrictions with tariffs (both ad valorem andvariable) on the importation of politically sensitive items.However, the new law has not been fully implemented as of late1994 and nontariff barriers (i.e. licensing requirements)remain on a number of goods, notably agricultural products andcrude oil. Many of these requirements are scheduled to beeliminated by January 1995 under the Uruguay Round agreement. Interest rate policy has also changed in recent years. Inearly 1994 the government revised the interest rate ceilings onbank loans. The ceiling had previously been set as a 2.5percentage point markup over the average rate banks receive ondeposits, excluding the below-market-rates for some requiredholdings. The new ceiling is set as a three to four percentmarkup over the rate received on deposits, including thebelow-market-rates on required deposits. The effect of thechange is to lower the interest rate ceilings, although realrates remain high. Morocco has a three-part tax structure consisting of avalue added tax (VAT), a corporate profits tax, and anindividual income tax. The investment code provides exemptionsfrom some taxes based on the type and location of investment.In 1993 the government lowered the maximum personal andcorporate income taxes and reduced the tax on stock dividends.4. Debt Management Policies Morocco's foreign debt burden has declined steadily inrecent years. Foreign debt fell from 128 percent of GDP in1985 to about 67 percent of GDP in 1994. Similarly, debtservice payments before rescheduling, as a share of goods andservices exports, fell from over 58 percent in 1985 to about 35percent in 1994, which is roughly what actual rescheduled debtservice payments averaged in recent years. The MoroccanGovernment therefore does not foresee the need for furtherParis Club rescheduling.5. Significant Barriers to U.S. Exports and Investment Import licenses: Morocco has eliminated import licensingrequirements on a number of items in recent years. Importlicensing requirements for several items, including sugar,cereals and edible oils, are slated to be eliminated in early1995. That will leave mainly motor vehicles, used clothing andexplosives covered by import licensing requirements. Tariffs: Tariffs have been gradually reduced in recentyears. By 1993 the maximum tariff was 35 percent and the(trade-weighted) average tariff was about 13 percent. Thattrend is now being reversed as Morocco replaces quantitativerestrictions with higher tariffs on a number of products. Inparticular, tariffs of up to 300 percent were imposed in late1993 on dairy and meat products in conjunction with theelimination of licensing requirements on those items. Tariffsof between 73 and 311 percent may be imposed on cereals, edibleoils and sugar following the elimination of licensingrequirements and reference price systems on those goods earlynext year. There is also a 10 to 15 percent surtax on imports. Services barriers: In November 1989 Parliament abrogated a1973 law requiring majority Moroccan ownership of firms in awide range of industries, thus eliminating what had been abarrier to U.S. investment in Morocco. In 1993 the MoroccanGovernment repealed the 1974 decree limiting foreign ownershipin the petroleum refining and distribution sector, whichallowed Mobil Oil to buy back the Moroccan Government's 50percent share of Mobil's Moroccan subsidiary in 1994. Standards, testing, labeling and certification: Moroccoapplies approximately 500 industrial standards based oninternational norms. These apply primarily to packaging,metallurgy and construction. Sanitary regulations apply tovirtually all food imports. Meat must be slaughtered accordingto Islamic law. Investment barriers: The Moroccan Government activelyencourages foreign investment. The investment law containsseparate sectoral codes covering industry, tourism, housing,maritime, mining, petroleum exploitation and exports. Thesecodes generally provide incentives equally to both Moroccan andforeign investors. There are no foreign investor performancerequirements, although investors receive incentives such as taxbreaks under the various sectoral codes depending on the size,sector, and location of the investment. Investment screeningprocedures, applicable to both domestic and foreign investors,are implemented only when an investor requests benefits underthe applicable sector code. Government procurement practices: While Moroccangovernment procurement regulations allow for preferences forMoroccan bidders, the effect of the preference on U.S.companies is limited. Virtually all of the governmentprocurement contracts that interests U.S. companies are largeprojects for which the competition is non-Moroccan (mainlyEuropean) companies. Many of these projects are financed bymultilateral development banks which impose their ownnondiscriminatory procurement regulations. U.S. companiessometimes have difficulties with the requirement that bids forgovernment procurement be in French. Customs procedures: In principle customs procedures aresimple and straightforward, but in practice they are sometimesmarked by delays. A commercial invoice is required, but nospecial invoice form is necessary. Certification as to countryof origin of the goods is required.6. Export Subsidies Policies There are no direct export subsidies. The centerpiece ofexport promotion policy is a temporary admission scheme whichallows for suspension of duties and licensing requirements onimported inputs for export production. This scheme has beenextended to include indirect exporters (local suppliers toexporters). In addition, a "prior export" program exists,whereby exporters can claim a refund on duties paid on importswhich were subsequently transformed and exported. The government maintains an export industry investment codewhich provides up to five years' tax holiday on 50 percent ofprofits for qualified Moroccan and foreign investors. Moroccois not a signatory of the GATT subsidies code.7. Protection of U.S. Intellectual Property Morocco is a member of the World Intellectual PropertyOrganization (WIPO) and is a party to several internationalagreements including: (a) the Berne Convention for theProtection of Literary and Artistic Works, (b) the ParisConvention for the Protection of Industrial Property, (c) theUniversal Copyright Convention, (d) the Brussels ConventionRelating to the Distribution of Programme-Carrying SignalsTransmitted by Satellite Convention, (e) the Madrid AgreementConcerning the International Registration of Marks, (f) theNice Agreement Concerning the International Classification ofGoods and Services for the Purposes of the Registration ofMarks and (g) the Hague Agreement Concerning the InternationalDeposit of Industrial Designs. Copyright: Computer software is not specifically coveredby Morocco's copyright law and software piracy is a widespreadproblem. Patents: Morocco has a relatively complete regulatory andlegislative system for the protection of intellectualproperty. A quirk dating from the era of the French andSpanish protectorates requires patent applications forindustrial property to be filed in both Casablanca and Tangierfor complete protection. Trademarks: Counterfeiting of clothing, luggage, and otherconsumer goods is not uncommon, however, anti-counterfeitingmeasures have been increasingly enforced. Counterfeiting isprimarily for local sales rather than for export. Trademarksmust also be filed in both Casablanca and Tangier.8. Workers Rights a. The Right of Association Workers are free to form and join unions throughout thecountry. The right is exercised widely but not universally.Probably ten percent of Morocco's 4.6 million urban workers areunionized, mostly in the public sector. The selection of unionofficers and the carrying out of their duties are sometimessubject to government pressure. The constitutional right tostrike was called into question in 1994 when the governmentsought to ban a general strike proposed by one union. Thegovernment contended that the right to strike requiresimplementing legislation, which has never been adopted. Unionsand human rights groups rejected the governmentinterpretation. The strike call was finally rescinded by theunion. More narrowly focused strikes continue to occur,although strikers often encounter police harassment andarrest. Many work stoppages are intended to advertisegrievances and last 24 hours or less. b. The Right to Organize and Bargain Collectively While the protection of the right to organize and bargaincollectively exists in the constitution and labor law, thegovernment does not always enforce the protections fully. Lawsprotecting collective bargaining are not highly developed,although an implied right is exercised. The multiplicity oftrade union federations creates competition to organizeworkers. A single factory may contain several independentlocals. Labor laws are observed most often in the corporateand parastatal sectors of the economy. In the informaleconomy, labor regulations are routinely ignored. As apractical matter, the unions in Morocco have no judicialrecourse to oblige the government to act when it has not metits obligations under the law. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is not practiced in Morocco. d. Minimum Age for Employment of Children Children may not be legally employed or apprenticed beforeage 12. Special regulations govern the employment of childrenbetween the ages of 12 and 16. In practice, children are oftenapprenticed before age 12, particularly in handicraft work.The use of minors is common in the rug-making and tanningindustries. Children are also employed informally as domesticsand usually receive little or no wages. Child labor laws aregenerally well-observed in the industrialized, unionized sectorof the economy. e. Acceptable Conditions of Work The minimum wage was raised ten percent on July 1, 1994, toabout $168 a month. This was the first raise in the minimumwage in two years. The minimum wage is not enforcedeffectively in the informal sector of the economy. It isenforced fairly effectively throughout the industrialized,unionized sector where most workers, except for thoseemployedin garment assembly, earn more than minimum wage. Moreover,workers are customarily paid between 13 and 16 months' salaryfor every 12-month year. The law provides a 48-hour maximumwork week, with not more than 10 hours for any single day,premium pay for overtime, paid public and annual holidays, andminimum conditions for health and safety, including theprohibition of night work for women and minors. As with otherregulations and laws, these are observed unevenly, if at all,in the informal sector. f. Rights in Sectors with U.S. Investment Worker rights in sectors with U.S. investment do not differfrom those described above in the formal, industrial sector ofthe Moroccan economy. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 71 Food & Kindred Products 27 Chemicals and Allied Products 8 Metals, Primary & Fabricated (1) Machinery, except Electrical (1) Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing (1)Wholesale Trade 0Banking (1)Finance/Insurance/Real Estate 0Services 0Other Industries 0TOTAL ALL INDUSTRIES 94(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEMOLDOVA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS MOLDOVA Key Economic Indicators (Millions of U.S. dollars unless otherwise indicated) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1991 prices) 3,940 6,000 N/AReal GDP Growth (pct.) -27 -14 -3GDP (at current prices) 53,750 583,610 2,138Gross Output by Sector: Agriculture 25,900 269,530 N/A Energy/Water N/A N/A N/A Manufacturing 57,570 772,630 N/A Construction 6,950 63,170 N/A Rents N/A N/A N/A Financial Services N/A N/A N/A Other Services 144 1,540 N/A Government/Health/Education N/A N/A N/ANet Exports of Goods & Services N/A N/A N/AReal Per Capita GDP N/A N/A N/ALabor Force (000s) 2,460 2,448 2,479Unemployment Rate (pct.) 16.7 15.5 30Money and Prices:Money Supply 87,155 376,303 160,650Base Interest Rate N/A 12 25 2/Personal Saving Rate N/A N/A N/ARetail Inflation (pct.) 1,500 2,000 100Wholesale Inflation N/A N/A N/AConsumer Price Index N/A N/A 256 3/Exchange Rate (USD/MDL) 401 364 403.96 4/Balance of Payments and Trade:Total Exports (FOB) 18.06 360 600 Exports to U.S. 5/ 0 0 2.4Total Imports (CIF) 25.81 513 759 Imports from U.S. 5/ 2 31 26.4Aid from U.S. N/A N/A N/AAid from Other Countries N/A N/A N/AExternal Public Debt N/A 38 29Debt Service N/A N/A N/AGold and Foreign Exch. Reserves N/A 76 68Trade Balance -37 -162 -255 Trade Balance with U.S. 5/ -2 -31 -24N/A--Not available.1/ 1994 Figures are estimated based on available eight-monthdata.2/ 1994 Interest rate is estimated based on five-month data.3/ Consumer price index is reported in Mondovan lei (MDL).4/ 1994 Exchange rate is estimated based on availableeleven-month data.5/ 1994 figures are estimates based on January-October data.1. General Policy Framework Moldova is a small landlocked country located in theextreme southwest region of the former Soviet Union (FSU). Theeconomic life of Moldova was highly integrated with that of theFSU, and disintegration of the FSU seriously affected Moldova'seconomy. The agriculture and industrial sectors each accountfor about 42 percent of total economic output. Moldovanindustry previously was organized to supply markets in the FSU,with production concentrated in consumer goods anddefense-related products. In accordance with a presidential decree dated January 17,1994, the National Bank of Moldova (NBM) was charged withregulating the money supply. The National Bank of Moldovaallocates about 80 percent its available credit through creditauctions. The volume of credit offered is determined by amonetary-credit program. Introduction of credit auctions hashelped reduce inflation and the cost of financing. The National Bank of Moldova has implemented faithfully theprogram agreed to by the government and the InternationalMonetary Fund (IMF) to restrict growth of the money supply. Asa consequence, the stability of the lei has improvedsignificantly in the first half of 1994.2. Exchange Rate Policy Moldova no longer has a policy of multiple exchange rates.Since the introduction of the national currency the NationalBank of Moldova has moved to liberalize its currency market.An interbank foreign stock exchange was established in August1993. Auctions are held three times a week for U.S. dollars,Russian rubles, Romanian lei, and German marks.3. Structural Policies Moldova officially liberalized prices of most consumergoods in January 1992, though some products continue to remainsubject to controls. Imported goods were exempted fromregulation at the wholesale level, but can be subject tocontrols at the retail level. Tax rates in Moldova are as follows: income tax forenterprises - 30 percent; value-added tax - 20 percent; importtax, excise tax on wine and tobacco production, natural gas,and luxury items - from 10 to 80 percent; agriculturalenterprises. Farmers pay a land tax calculated on the basis ofthe total land area and its quality. The government has developed much of the legal frameworkneeded to support a market economy. The Moldovan parliamenthas adopted laws covering private ownership of property,foreign investments, bankruptcy, leasing, privatization ofstate enterprises, as well as formation of joint-stockcompanies.4. Debt Management Policies Moldova is a member of several international financialorganizations, including the IMF, the International Bank forReconstruction and Development (IBRD), and the European Bankfor Reconstruction and Development (EBRD).5. Significant Barriers to U.S. Exports Moldova has taken steps to simplify policies surroundingits trade regime. With the exception of unprocessed leather,energy products, cereals and cereal products, all export quotaswere removed in June 1994. Export licensing was eliminated,except for national security, medical and cultural products.except for national security, medical and cultural products.</text>
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<text>U.S. DEPARTMENT OF STATEMEXICO: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS Although raids by federal authorities led to theconfiscation and destruction of several million pirated audioand video cassettes between 1992 and the end of 1994, musicindustry sources estimate that two out of every three audiotapes sold in Mexico still are pirated products (an annual lossof about USD 240 million). These raids have affected streetvendors and have closed some pirate cassette fabricationoperations. However, the ease in which pirate tapes may befabricated and the continued growth of the informal sectoreconomy create a major challenge for the Mexican Government.In an effort to put teeth into its IPR laws, the MexicanGovernment formed a commission in October 1993 to cut throughthe bureaucratic obstacles hindering effective action. Muchwork remains to be done in combatting piracy in Mexico, but theMexican authorities have demonstrated their interest in makingsubstantial progress in intellectual property enforcement.8. Worker Rights For an introduction to the Mexican labor law, see "A Primeron Mexican Labor Law" (USDOL) and "A Comparison of Labor Law inthe United States and Mexico an Overview" (USDOL 1992). Ingeneral, worker benefits mandated by law include paidvacations, maternity leave, end-of-year bonuses, generousseverance packages, mandatory profit sharing and socialsecurity coverage, including comprehensive medical care, plusmandatory individual savings and retirement accounts to whichemployees and employers must contribute. a. The Right of Association The Mexican Federal Labor Law (FLL) gives workers the rightto form and join trade unions of their own choosing. Mexicantrade unionism is well developed with thousands of unions and anumber of labor centrals. Once formed, unions must registerwith the labor secretariat or equivalent state governmentauthorities to acquire legal status to function. In theory,registration requirements are not onerous, involving thesubmission of basic information about the union. However,there are allegations that the federal or state laborauthorities use this administrative procedure improperly towithhold registration from groups considered disruptive togovernment policies, employers, or unions. Unions and laborcentrals are free to join or affiliate with international tradeunion organizations and do so. b. The Right to Organize and Bargain Collectively The FLL strongly upholds the right to organize and bargaincollectively. On the basis of only a small showing of interestby employees, or a strike notice by a union, an employer mustrecognize the union concerned and make arrangements for a unionrecognition election or to negotiate a collective bargainingagreement. The degree of private sector organization varieswidely by states; while most traditional industrial areas areheavily organized, states with a small industrial base usuallyhave few unions. Workers are protected by law from anti-uniondiscrimination. Collective bargaining had beeninstitutionalized in many sectors in the "Contrato Ley,"industry or sector-wide agreements that carry the weight of lawand apply to all firms in the sector whether unionized or not,but this is less-and-less common. c. Prohibition of Forced or Compulsory Labor The constitution prohibits forced labor. There have beenno credible reports for many years of forced labor in Mexico. d. Minimum Age for Employment of Children The FLL sets 14 as the minimum age for employment bychildren. Children age 14 to 15 may work a maximum of sixhours, may not work overtime or at night, and may not beemployed in jobs deemed hazardous. In the formal sector,enforcement is reasonably good at large and medium-sizedcompanies; less pervasive at small companies. As with employeesafety and health, the worst enforcement problem lies withsmall companies and the informal sector. Eighty-five percentof all registered Mexican companies have fifteen or lessemployees, indicating the vast scope of the enforcementchallenge just within the formal economy. In 1992, the MexicanGovernment increased from six to nine the minimum number ofyears that children must attend school and made parents legallyliable for their children's non-attendance. In 1991, the Secretariat of Labor and Social Welfare (STPS)and the U.S. Department of Labor undertook joint studies ofboth the child labor problems and the nature of the informaleconomies in Mexico and the United States. The studies werepublished in late 1992 and are serving as a basis forcooperative efforts to discourage child labor in both ourcountries. In 1993, the International Labor Organization (ILO)was developing a national action plan against child labor withthe Mexican Government's Social Development Secretariat(SEDESOL). There were also Mexican government andnon-governmental organization media campaigns to convinceparents to keep their children in school. e. Acceptable Work Conditions The Constitution and the FLL provides for a minimum wagefor workers, set by the Tripartite National Minimum WageCommission (government/labor/employers). In December 1987,this commission agreed on an accord to limit wage and priceincreases, which has since been renewed annually. Generally inthe private sector in the past few years, wages set bycollective bargaining agreements have kept pace with inflationeven though the minimum wage did not. In January 1994, theminimum wage was increased. The FLL sets 48 hours as the legal workweek and providesthat workers who are asked to exceed three hours of overtimeper day or work any overtime in three consecutive days be paidtriple the normal wage. For most industrial workers,especially unionized ones, the real workweek has declined toabout 42 hours. Mexico's legislation and rules regardingemployee health and safety are relatively advanced. Allemployers are bound by law to observe the "General Regulationson Safety and Health in the Work place" issued jointly by STPSand Mexico's Institute of Social Security. The focal point ofstandard setting and enforcement in the work place is inFLL-mandated bipartite (management and labor) safety and healthcommittees in the plants and offices of every company. Thesemeet at least monthly to consider work place safety and healthneeds and file copies of their minutes with federal or statelabor inspectors. Government labor inspectors schedule theirown activities largely in response to the findings of thesework place committees. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 10,802 Food & Kindred Products 2,334 Chemicals and Allied Products 2,392 Metals, Primary & Fabricated (1) Machinery, except Electrical (1) Electric & Electronic Equipment 605 Transportation Equipment 2,218 Other Manufacturing 2,438Wholesale Trade 823Banking (1)Finance/Insurance/Real Estate 912Services 316Other Industries 2,258TOTAL ALL INDUSTRIES 15,413(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEMEXICO: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS MEXICO Key Economic Indicators (Billions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:GDP (current) 329.3 360.5 368.0Per Capita GDP (current USD) 3897.3 4186.6 4116.6Real GDP Growth Rate (pct. over previous year) 2.8 0.4 2.8By Sector: (current) Agriculture/Forestry/Fishing 24.7 26.8 26.5 Mining/Oil/Gas 11.3 12.5 12.5 Manufacturing 75.0 80.6 82.1 Construction 17.3 19.5 19.0 Electricity 4.9 5.5 5.5 Commerce/Restaurants/Hotels 85.8 92.4 94.5 Transport/Storage/Communications 23.1 25.8 26.3 Financial Services/Insurance/ Real Estate 35.9 41.0 41.3 Social Services 56.7 62.5 66.7Labor Force (millions) 27.4 28.0 28.6Open Unemployment Rate (pct.) (year-end) 3.0 3.7 3.7Money and Prices: (annual percentage growth)Money Supply (M2) 20.4 14.4 16.0Banks' Average Cost of Funds 18.8 18.6 15.3Financial Savings Rate (M4 as pct. of GDP) 45.6 52.7 57.4Consumer Price Inflation (Dec-Dec pct. change) 11.8 8.0 6.8Wholesale Price Inflation 10.6 4.6 6.4Exchange Rate (year-end Interbank rate)(new pesos. 1NP=1,000 old pesos) 3.115 3.106 3.40Balance of Payments and Trade:Merchandise Exports (FOB) 46.2 51.9 57.2 Exports to U.S.(U.S. Customs Data)35.2 39.6 47.0Total Imports (FOB) 62.1 65.4 74.7 Imports from U.S.(FAS) 40.6 41.4 49.0Aid from U.S. N/A N/A N/AAid from Other Countries N/A N/A N/AExternal Public Debt 75.8 78.7 81.4External Debt Service Payments (public sector amort. & interest) 18.4 13.9 16.0Gold and Foreign Exch. Reserves 18.6 24.5 19.5Trade Balance -15.9 -13.5 -17.5 Trade Balance with U.S. -5.4 -1.8 -2.0N/A--Not available.1/ Estimated.1. General Policy Framework The new Zedillo Government's decision in mid-December todevalue and subsequently to float the peso provoked a deepfinancial crisis in Mexico and highlighted the vulnerabilitiesof the Mexican economy. Principal among these were theovervalued peso, excessive trade and current account deficits,and undue reliance on short-term capital to finance thegovernment and current account deficits. The December crisishas led the Zedillo Government to reinforce its policycommitment to economic reform and adjustment and to enter intodiscussions with the International Monetary Fund (IMF) on a newmacroeconomic stabilization program supported by an IMFstand-by arrangement. The government has also promised greaterforeign access in key sectors such as ports, railroads,satellites, telecommunications and financial services as partof its renewed commitment to economic reform and market opening. In doing so, the Zedillo Government continues to rely on ageneral understanding with key labor and private sector groupsto underpin its economic policy approach. Economic goals havebeen set and implemented since December 1987 through a seriesof 14 government/labor/private sector agreements known aseconomic pacts. Heretofore, the pacts combined dramaticincreases in government revenues and reductions in governmentexpenditures, tight monetary policies, and a managed exchangerate policy with voluntary price and wage controls. As aresult, 12-month inflation fell from 159 percent in 1987 to arate of 6.7 percent as of October 1994. At the same time, theaverage annual rate of economic growth between 1988 and 1994 isexpected to be 2.6 percent. Responding to the December crisis, the signatories of thepact agreed on January 3, 1995 to a new set of austeritymeasures. Key goals: to temper the inflationary impact of thepeso devaluation by tough measures and limiting annual wageincreases to seven percent, with additional increases possiblefor productivity and a negative tax for the lowest paidworkers. To reduce Mexico's reliance on foreign financing, thegovernment's new economic program aims to halve the USD 30billion 1994 current account deficit and to boost domesticsavings. Moreover, the program calls for continuing structuralreforms within the economy, including a cut in governmentspending equal to 1.3 percent of GDP and a further wave ofprivatizations in key sectors. Monetary policy is expected tobe tight. Mexico joined the General Agreement on Tariffs and Trade(GATT) in August 1986 and unilaterally lowered its averagetariff level from 100 percent ad valorem to a structure with atop rate of 20 percent. At the same time it reduced oreliminated many non-tariff barriers such as import licenses andquotas. Between 1986 and 1992, Mexico's merchandise importsincreased at an average annual rate of 25 percent, while itsexports increased at an average annual rate of only 13.5percent. Consequently, Mexico began to run trade deficits in1990. The trade deficit is expected to reach USD 17.5 billionin 1994. U.S. companies have been the primary beneficiaries ofMexico's trade liberalization since about 70 percent of allMexican imports come from the United States. In 1994, with theimplementation of the North American Free Trade Agreement(NAFTA), U.S. exports to Mexico will be about USD 50 billion,an increase of about 21.7 percent compared to 1993. Mexico hasratified the Uruguay Round agreements and became a foundingmember of the World Trade Organization (WTO) on January 1,1995.2. Exchange Rate Policies Prior to the mid-December decision to widen the exchangerate band and subsequently to allow the free flat of the peso,Mexico had relied since November 1991 on a regime by which thepeso was allowed to float within a designated band. The rateat which large foreign exchange transactions were conductedfluctuated within a band that was defined by the rates at whichbanks would buy and sell U.S. dollars on a cash basis. Withinthe band, the actual exchange rate was determined by marketforces with some government intervention. In the run-up to theDecember devaluation, Mexico's Central Bank reserves declinedsubstantially. At the time of the decision to allow a 13percent devaluation of the peso, the dollar sold in theinterbank market for 3.4647 new pesos. In the final days ofDecember, the peso traded as low as six to the dollar. Itclosed the year at 5.505 to the dollar. The value of the peso in U.S. dollars changed little innominal terms between November 1991 and early 1994. At thesame time, Mexican inflation was higher than that in the UnitedStates. As a result, during 1992 and 1993 the Mexican pesoappreciated in real terms by almost 10.5 percent against thedollar. This appreciation gave Mexican importers an incentiveto buy U.S. exports which gained a slight competitive advantageover domestic goods, whose prices were rising more rapidly.Due to political uncertainty in 1994, steady capital outflowscaused the peso to lose value against the U.S. dollar. BetweenJanuary and July 1994, the peso depreciated by about eightpercent in real terms. Despite the depreciating peso, U.S.exports to Mexico grew at a faster pace during 1994 than in1993. Between January and July, Mexican purchases of U.S.goods rose by 18.5 percent compared to a 2.3 percent growthrate in the same period of 1993. Sales of Mexican goods tothe United States rose by 19.2 percent in the first sevenmonths of 1994 versus 12.6 percent growth in the comparableperiod of 1993.3. Structural Policies Prior to the financial crisis of the Zedillo Government'searly weeks, the Salinas Government sought during its six-yeartenure to modernize and increase efficiency of the Mexicaneconomy by promoting greater external and internalcompetition. The North American Free Trade Agreement (NAFTA)implemented in January 1994, with its side accords for laborand the environment, and a new dispute resolution mechanism,represents the cornerstone of future Mexican trade policy.Mexico also signed free trade agreements (FTA) with Chile,Costa Rica, Bolivia and a trilateral (G-3) agreement withVenezuela and Colombia. Mexico is negotiating an FTA with the"Northern Triangle" nations of Central America: Guatemala,Honduras, and El Salvador. Mexico's other FTA's (except forChile, which was negotiated before NAFTA) track, with somevariation, the basic objectives of NAFTA.NAFTA's key features include:-- Progressive elimination of tariffs, non-tariff barriers andquantitative restrictions on traded merchandise.-- Phased and market-share limited opening of Mexico's serviceindustries, including financial services, to U.S. and Canadianfirms wishing to invest or provide cross-border services.-- Gradual opening of Mexico's central government purchasingand construction contracts to bidding by U.S. and Canadianfirms.-- Establishment of clear dispute resolution and internationalarbitration procedures to provide proper protection to U.S. andCanadian investors in Mexico.-- Commitment from all parties to afford effective protectionfor intellectual property rights. The disincorporation (privatization or elimination) ofabout 900 state-owned companies since 1986 stands as a majorachievement and testimony to the government's belief in thebenefits of private enterprise. The process of privatizationof state-owned companies has generated USD 22 billion ingovernment revenues and shrunk the number of state-owned firmsto under 200 today. During President Salinas' administration,important privatization sales included all 18 government-ownedcommercial banks, the telephone company, a television network,airlines, film theaters, several sugar and food processingplants, large copper mines, and steel production facilities.The privatization drive also opened the door for privateinvestment in Mexico's surface transportation infrastructuresuch as the modernization of air and maritime ports. In itsearly response to the December financial crisis, the ZedilloGovernment has clearly signaled that it will continue to relyon privatization as a key element of its structural reformpolicy. Regulation of the Mexican economy has decreasedsignificantly since 1990. In 1993, the government introducedlegislation to promote greater competition, limit monopolisticbehavior and prohibit practices to restrain trade. A newforeign trade law, adopted in July 1993, eliminated mostnon-tariff trade restrictions and established procedures forremedying unfair trade practices such as export subsidies anddumping. The number of unfair trade investigations has grownsteadily over the past five years, yet they are, with someexceptions, considered to be conducted in an equitable andtransparent manner. Most new regulations affecting U.S. tradehave been formulated in anticipation of increased trade underNAFTA. At times, however, these regulations have disruptedtrade as a result of poor drafting and/or lack of coordinationbetween various government agencies responsible for theirimplementation. The Mexican customs service has beenmodernized and automated, and a program to professionalizepersonnel and weed out corrupt practices is ongoing.4. Debt Management Policies Prior to the December financial crisis, Mexico had madeconsiderable strides in regaining access to internationalfinancial markets. During 1993, Mexico reaped the benefits ofa sound macroeconomic program and the successful renegotiationof its external debt, concluded in February 1990. Greaterconfidence among investors and creditors has resulted in largeinvestment capital inflows in late 1993 and early 1994 andincreased access to international credit markets atprogressively more favorable terms. During 1993, public andprivate sector Mexican companies made 77 issues oninternational debt markets valued at USD 9.8 billion, or 138percent above the 1992 level. This situation was largelyreversed following the assassination of Luis Donaldo Colosio,the ruling Institutional Revolutionary Party's presidentialcandidate in March, 1994. The fear and political uncertaintygenerated by this event resulted in massive capital outflowswhich were hastened again nine months later by the devaluationcrisis. International borrowing slowed over the course of 1994because political conditions in Mexico and interest rate trendsinternationally made the environment less hospitable to newissues. Debt flows became increasingly short-term. Mexico's external debt increased by USD 12.6 billion during1993 to USD 130.2 billion, or 36 percent of GDP. Most of theincrease was on the part of private companies and commercialbanks. Public sector debt has been declining as a proportionof total debt. At year-end 1993, public sector debt was 83.5billion, an increase of USD 3 billion for the year, but USD 2.3billion below 1988 levels and only 64 percent of all externaldebt. The ratio of debt service to exports fell to 24.9 in1993 from 34.0 in 1992.5. Significant Barriers to U.S. Exports Import Licenses: Mexico eliminated its universal regime ofimport license requirements in 1985 and has committed, underGATT and the NAFTA, to eventually eliminate all importlicensing requirements. The Mexican Government still requiresimport licenses for slightly under 200 product categories, manyof which are in the agricultural sector. For U.S. and Canadianexporters to Mexico, NAFTA replaced agricultural importlicenses with tariff rate quotas and, it may be argued, in somecases with phytosanitary and zoosanitary requirements. Theagricultural sector of the NAFTA negotiations was one of themost difficult, with the result that many products will beslowly liberalized over a fifteen-year span. Readers who wishmore information in this area should contact the U.S.Department of Agriculture to obtain specialized information. Automobiles: Investment and trade in the automobile sectorare subject to the restrictions of the Mexican Auto Decree,including such performance requirements as local content,foreign exchange balancing, and quantitative importrestrictions. Foreign ownership in most auto partsmanufacturing companies is limited to 49 percent, rising to 100percent in January 1999. The Automotive chapter of NAFTA hascreated new opportunities for U.S. automobile manufacturers andparts suppliers in Mexico. One of the eye-catching commercialstories in Mexico in 1994 was the success of new importedautomobile models in the Mexican market. Mexican automobileimports jumped from 3,278 units in 1993 to 25,729 units in thefirst six months of 1994, capturing 13 percent of the domesticretail market. Insurance: Foreign ownership of Mexican insurancecompanies is limited by law to 49 percent. Under NAFTA, U.S.insurers will be allowed to increase their equity participationin new joint ventures to 51 percent by 1998 and 100 percent bythe year 2000, with no limitations on market share. U.S.insurers will also be permitted to establish wholly-ownedsubsidiaries in Mexico, subject to aggregate market sharelimits which will be eliminated in 2000. U.S. insurers thathave ownership in existing joint-ventures may increase theirequity participation to 100 percent by 1996. Telecommunications: The main restriction in thetelecommunications sector is a limitation on foreign investmentin telephone and value-added services to a 49 percent equityposition. In addition, under the Mexican constitution,satellite services and the operations of earth stations withinternational links are reserved for the Mexican Government.In early 1995, the government announced it would open satelliteservices to foreign participation. Long distance telephoneservice is reserved for Telmex until 1997 by a concession thegovernment announced in January 1995. Numerous Americancompanies have shown interest in participating in this marketwhen it opens. Financial Services: Mexico's Foreign Investment Lawpermits foreign investors to own minority interests in mostMexican financial services companies (banks, brokerages,insurance companies, etc.) while they may not invest in foreignexchange houses and credit unions. The NAFTA provides anexception for U.S. and Canadian companies which can establishwholly-owned subsidiaries in most financial sectors, subject toinitial market share limits that will be eliminated in the year2000. U.S. and Canadian companies submitted 102 applicationsto establish Mexican subsidiaries, and by late October 1994, 52of these had been approved, including 18 requests to establishbanks. Foreign banks and brokerage houses may also set uprepresentative offices in Mexico. The government indicated inearly 1995 that it intends to accelerate the timetable forforeign participation in financial services but full detailswere not available as of the end of January. Motor Carriers: As a result of bilateral consultations andthe Mexican Government's deregulation of truck and busoperations, U.S. truckers and charter bus operators now havesubstantial access to Mexico. Although full trucking authorityfor U.S. carriers is still limited to the border commercialzone, U.S. freight carriers have open access for trailer entryinto Mexico and may thus deliver door-to-door. Mexicantractors and drivers are required by law to haul all trailersbound for interior points, but this has not been considered amajor obstacle by U.S. transportation companies. Thispractice, however, does increase risks for shippers of goods.U.S. charter tour buses now have full access to all points inMexico; regularly scheduled bus operations are restrictedreciprocally to the border zones. Mexican authorities areimplementing new safety, weight and dimension regulations tomeet U.S. standards, and the two countries are preparing forthe standardization and reciprocal recognition of commercialdrivers' licenses. A schedule for full liberalization has beennegotiated under NAFTA. In December 1995, U.S. trucks will beallowed access to all of Mexico's border states for thedelivery and haul-back of cargo. By January 2000, this accesswill be extended to all of Mexico's territory. Standards, Testing, Labeling and Certification: TheGovernment of Mexico has traditionally been the primary actorin determining product standards, labeling and certificationpolicy, with some input from the private sector and less fromconsumers. But the 1992 Law on Metrology and Standardsincluded a provision for the establishment of privatestandardization and certification bodies, as well as forprivate sector certification services to regulatory bodies. AU.S. Government officer will be stationed at the U.S. Embassypermanently starting in January 1995 to cooperate in standards'development. The 1992 law also provides for greater transparency andaccess by the public and interested parties to the regulationformulation process. This exercise has resulted in a reductionof obligatory product standards to just above three hundred. Under the NAFTA, Mexico has reaffirmed its GATT obligationsto base its obligatory norms on international standards.Mexico is working to make its standards compatible with U.S.standards in a number of sectors, and to recognize U.S.standards-certifying entities beginning on the fourth yearafter NAFTA's entry into force. Toward the end of 1994, Mexicorevised its testing and certification procedures to requiremore frequent re-testing of products or, in its stead,certification of importers' quality control procedures toensure that tested products are representative of productionmodels. Investment Barriers: The National Foreign InvestmentCommission, chaired by the Secretary of Commerce and IndustrialDevelopment, decides questions of foreign investment inMexico. The country's constitution and new Foreign InvestmentLaw of December 1993 reserve certain sectors to the state (suchas oil and gas extraction and the transmission of electricalpower) and a wide range of activities to Mexican nationals (forexample, forestry exploitation, domestic air and maritimetransportation, and gas distribution). Despite theserestrictions, the Foreign Investment Law greatly liberalizesthe investment process and eliminates the requirement forgovernment approval in around 95 percent of foreign investmentapplications. Provisions contained in NAFTA will open Mexico to greaterU.S. and Canadian investment by assuring U.S. and Canadiancompanies' national treatment, the right to internationalarbitration and the right to transfer funds withoutrestrictions. NAFTA will also eliminate some barriers toinvestment in Mexico such as trade balancing and domesticcontent requirements. Mexico has already implemented itscommitment under NAFTA to allow, since June 1993, the privateownership and operation of electric generating plants forself-generation, co-generation, and independent powerproduction. The NAFTA will also lift Mexican investmentrestrictions in the chemical sector on all but eight basicpetrochemicals reserved to the state. Investment restrictions exist prohibiting foreigners fromacquiring title to residential real estate within 50 kilometersof the nation's coasts and 100 kilometers of the borders. Thenew Foreign Investment Law eliminated these restrictions forall non-residential property. Foreigners may acquire theeffective use of residential property in the restricted zonesvia a trust through a Mexican bank. In addition, bothforeigners and Mexican citizens may encounter problems withenforcement of property rights. Only Mexican nationals may owngasoline stations, whose gasoline is supplied by Pemex, thestate-owned petroleum monopoly. These gasoline stations onlycarry Pemex lubricants although other lubricants aremanufactured and sold in Mexico. Government Procurement: There is no central governmentprocurement office in Mexico. Government agencies and publicenterprises use their own purchasing offices to buy fromqualified domestic or foreign suppliers, subject to guidelinesissued by the Finance Ministry. Suppliers from all countries,whether GATT members or not, may bid on government tenders, andrequirements for participation are the same for foreign anddomestic suppliers. In 1991, Mexico abandoned the rule thatstate-owned enterprises give preference in procurement tonational suppliers. But Mexico's new procurement law, enactedin 1994, distinguishes between procurement contests open tonational versus international suppliers. The law vaguelyacknowledges Mexico's procurement obligations under NAFTA andother international trade agreements. Still, Mexican nationalsenjoy preferential treatment, both official and unofficial, inbidding for government orders. A specific preferentialtreatment in public procurement is granted to domestic drugsuppliers (which includes foreign companies established inMexico). NAFTA will increase U.S. suppliers' access to theMexican Government procurement market, including thestate-owned oil company, PEMEX, and the Federal ElectricityCommission, CFE, which are the two largest purchasing entitiesin the Mexican Government. Under NAFTA Mexico immediatelyopened 50 percent of PEMEX and CFE procurement to U.S.suppliers and this percentage will increase in steps until allPEMEX and CFE procurement is open by the tenth year. Customs Procedures: The Mexican Government introduced in1993 a system to combat under-invoicing of certain imports forcustoms purposes. The system, ostensibly aimed at Mexico'slarge informal sector, established a "reference price" on whichduty would be charged, absent evidence that the lower declaredprice was a valid arms-length commercial transaction. Finetuning of this directive has allowed large, frequent importersto be exempted from its bond-posting requirements. In September 1994, the Mexican Government began to requirecertificates of origin for all goods subject to Mexican unfairtrading orders, and imposed more stringent proff of originrequirements for textiles, apparel and footwear produced incertain South and East Asian countries. The directive hasdisrupted some U.S. retailers' inventory and logistics systems,precluding them from exporting such third-country goods tostores in Mexico. The Mexican Government is expected to cometo an understanding to exempt certain large volume U.S.exporters from the directive's most burdensome requirements. Traders and Mexican customs brokers (by law, imports intoMexico must be handled by Mexican customs brokers) agree thatMexican customs procedures have improved in recent years.Remaining complaints center on vaguely worded regulations thatprescribe excessively strict penalties, and a general increasein customs' assessment of minor infractions and fines.6. Export Subsidies Policies The Mexican Government has no export subsidy program andhas informed the U.S. Government that it is in full compliancewith a 1986 bilateral understanding on export subsidies. TheU.S. International Trade Commission found in April 1990 thatpast Mexican export subsidy programs have either ended or thesubsidy element has diminished. Provisions for promotingexports in Mexico's new foreign trade law are limited totraining and assistance in finding foreign sales leads, projectfinancing (at market rates) for export oriented businessventures, and special tax treatment for companies that havesignificant export sales. There is no provision for exportsubsidies.7. Protection of U.S. Intellectual Property Mexico is a member of the major international organizationsregulating the protection of intellectual property rights (IPR)-- the World Intellectual Property Organization, the BerneConvention for the Protection of Literary and Artistic Works,the Paris Convention for the Protection of Industrial Property,the Universal Copyright Convention, the Geneva PhonogramsConvention and the Brussels Satellite Convention. The Mexican Government strengthened its domestic legalframework for protecting intellectual property by amending its1991 industrial property law (patents and trademarks),effective October 1, 1994, to create the Mexican Institute forIndustrial Property (IMPI) and give this agency enhanced powersto implement and enforce Mexico's IPR laws. The amended lawclarifies the protections afforded inventions related to livingmaterials by excluding specific processes from patentprotection. It also incorporates Mexico's IPR obligationsunder NAFTA. These NAFTA provisions will further strengthenIPR protection by providing for nondiscriminatory nationaltreatment of IPR matters, establishing certain minimumstandards for protection of sound recordings, computer programsand proprietary data, and by providing express protection fortrade secrets and proprietary information. Product patentprotection was extended to all processes and products,including chemicals, alloys, pharmaceuticals, biotechnology andplant varieties. The term of patent protection was extendedfrom 14 to 20 years from the date of filing. Trademarks noware granted for 10-year renewable periods. One of the newfeatures of the amended law is that it is sufficient for acompany to have its mark recognized among the U.S. industry tobe protected in Mexico. At the same time, Mexico has requested and received over600 pages of private sector comments on amending its copyrightlaw of August 1991 to bring it into accord with the mostup-to-date international practices. The amended copyright lawshould be promulgated in early 1995. The 1991 copyright lawprovides protection for computer programs against unauthorizedreproduction for a period of 50 years. Sanctions and penaltiesagainst infringements were increased and damages now can beclaimed regardless of the application of sanctions.</text>
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<text>U.S. DEPARTMENT OF STATEMALAYSIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis</text>
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<text>U.S. DEPARTMENT OF STATEMALAYSIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS MALAYSIA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1978 prices) 36,498 39,237 41,744Real GDP Growth (pct.) 7.8 8.3 8.5 2/By Sector: Agriculture 6,052 6,241 6,235 Manufacturing 10,533 11,814 13,089 Mining/Petroleum 3,172 3,102 3,108 Utilities 757 849 942 Construction 1,418 1,569 1,723 Whole and Retail Trade 4,378 4,788 5,172 Financial Services 3,767 4,188 4,541 Government Services 3,712 3,869 3,967 Other Services 2,709 2,860 2,971Net Exports of Goods & Services -1,709 136 503Real Per Cap GDP (1978 base) 1,962 2,065 2,197Labor Force (000s) 7,370 7,627 7,846Unemployment Rate (pct.) 3.7 3.0 2.9Money and Prices:Money Supply (M2/pct.) 19.1 22.1 21.9 3/Base Interest Rate (pct.) 9.5 8.5 7.84Gross Nat. Savings/GNP (pct.) 33.3 32.7 32.3Inflation (CPI) (pct.) 4.7 3.6 3.8Exchange Rate (avg USD/RM) 2.55 2.57 2.62Balance of Payments and Trade:Merchandise Exports 39,573 46,057 55,194 5/ Exports to U.S. (FAS) 8,293 10,568 11,413Merchandise Imports 36,200 42,869 52,950 5/ Imports from U.S. (CV) 4,396 6,061 6,550Aid from U.S. 1.5 0.3 0.3Aid from Other Countries N/A N/A N/AExternal Debt 16,784 20,121 24,431 Public Sector 12,667 14,163 16,995 Private Sector 4,117 5,959 7,436Debt Service Payments (paid) 4/ 1,995 2,184 N/AOfficial Net Reserves 5/ 18,068 29,741 31,184Merchandise Trade Balance 3,373 3,188 2,244 5/ Trade Balance With U.S. 3,897 4,507 4,863N/A--Not available.1/ Malaysian Government estimates.2/ Calculated in ringgit to avoid exchange rate changes.3/ U.S. Embassy estimates.4/ Excluding prepayments.5/ 1994 data to August only.1. General Policy Framework Malaysia has a relatively open, market-oriented economy andreal GDP growth ranged between 6 percent and 8 percent from1964-1984. Since independence in 1957, the Malaysian economyhas shown sustained growth and has diversified away from thetwin pillars of the colonial economy: tin and rubber. In1985-1986, the collapse of commodity prices led to Malaysia'sworst recession since independence, with real GDP growth anegative 1 percent and nominal GNP falling 11 percent. Sincethen, the economy has rebounded, led by strong growth in bothforeign and domestic investment and exports of manufactureswith real GDP growing at an average rate of over 8 percent. In1994, real GDP growth is expected to reach 8.5 percent.Malaysia's 1995 Federal budget, tabled in Parliament October28, 1994, introduced 2,600 tariff cuts and additional fiscalpolicy changes. While the government plays a diminishing role as a producerof goods and services, it continues to hold equity stakes(generally minority shares) in a wide range of domesticcompanies. These entities are rarely monopolies; instead, theyare one (generally the largest) player among severalcompetitors in a given sector. However, government-ownedentities are major players in some sectors, particularlyplantations and financial institutions. Since 1986, thegovernment has been privatizing many entities, includingtelecommunications, the national electricity company, thenational airline and the government shipping firm. Thegovernment sold off its remaining shares in Malaysia AirlinesSystems (MAS) in August 1994 and MAS is being reorganized toimprove profitability. Seaports and government hospitals andpharmaceutical supply centers are in various stages ofprivatization. Malaysia supports global trade liberalization measures andencourages direct foreign investment, particularly inexport-oriented manufacturing and high technology products. Ithas been very active in the Uruguay Round negotiations andratified the agreement on September 6, 1994. Multinationalcorporations control a substantial share of the manufacturingsector. U.S. and Japanese firms dominate the production ofelectronic components (Malaysia is the world's third largestproducer of integrated circuits), consumer electronics, andelectrical goods. Foreign investors also play an importantrole in petroleum, textiles, vehicle assembly, steel, cement,rubber products, and electrical machinery. Fiscal Policy: The government follows a prudent andconservative fiscal policy, with a surplus in its operatingaccount. With the intention of improving the investmentclimate, the government reduced the corporate income tax rateby two percentage points from 34 to 32 percent in the 1994budget and reduced it by another two percentage points, to 30percent, in the 1995 budget. Monetary Policy: Malaysian monetary policy is aimed atcontrolling inflation while providing adequate liquidity tostimulate economic growth. Monetary aggregates are controlledby the central bank through its influence over interest ratesin the banking sector, open market operations and,occasionally, changes in reserve requirements.2. Exchange Rate Policy While the value of the Malaysian currency, the ringgit(RM), is considered to be market determined, the Malaysiangovernment has intervened to offset significant upward pressureon the currency when such pressure was perceived as a sign ofexcessive foreign exchange speculation. In late 1993, following a prolonged period of strongcapital inflows (and upward pressure on the ringgit which wasresisted), the government of Malaysia intervened aggressivelyin the market, bringing the value of the ringgit down nearlysix percent against the U.S. dollar in just a few weeks. By mid-January 1994, the policy of aggressive interventionwas abandoned and the set of controls were soon abandoned aswell, and the currency was allowed to gradually return to itsearly December 1993 value against the U.S. dollar. The currentmonetary authorities believe the controls introduceddistortions that were not desirable in the longer term. Payments, including repatriation of capital and remittanceof profits, are freely permitted. Payments to countriesoutside Malaysia may be made in any foreign currency other thanthe currency of Israel. No permission is required for paymentsin foreign currency up to RM10,000 (approximately $3,818).Individual foreign exchange transactions above RM10,000required an exchange control license. For transactions up toRM10 million ($3.8 million), a license is issued by anycommercial bank upon request without reference to thecontroller of foreign exchange (part of Bank Negara). Anindividual transaction in excess of RM10 million requiresapproval of the controller. Individuals and companies may nowhold foreign currency accounts in resident commercial banks,but only the first tier banks can offer such accounts.3. Structural Policies Pricing Policies: Most prices in Malaysia's economy aremarket-determined but the government controls prices of somekey goods, notably fuel, public utilities, motor vehicles,rice, flour, sugar and tobacco. Citing concerns aboutinflation, it added 25 items temporarily to the price controllist on October 16, 1994. Those price controls are slated tobe lifted as of June 10, 1995. Overall tariffs average about10 percent on a trade-weighted basis and import licenses arerequired for a small range of goods, e.g., poultry, tobacco andplastic resins. In the 1993 budget, the federal governmentlowered or eliminated tariffs on over 600 items in an attemptto defuse domestic inflation, and took similar action for thesame reason on over 500 items in the 1994 budget. On October28, 1994 the government announced it would reduce importtariffs on another 2,600 items in the 1995 budget, largely tomeet its commitments in the Uruguay Round and the Associationof South East Asian Nations (ASEAN) Free Trade Agreement (AFTA). The agricultural sector, however, does contain somerestrictive tariffs and nontariff barriers which distorttrade. For example, the government fixes farm-gate prices forrice and tobacco at levels above world prices to encouragedomestic production and to boost depressed rural incomes. Italso sets the selling price for rice below the farm-gate price,but still above market levels. Despite this price incentive,local rice production does not meet demand and the governmentimports large quantities of rice. It uses profits from salesof cheaper imported rice to offset the subsidies for riceproducers. In the case of tobacco, the government pressescigarette manufacturers to use a high proportion of locallygrown tobacco. Imports of tobacco are restrained by highimport duties and controlled through import licenses. Tax Policies: Income taxes, both corporate and individual,are the largest single source of revenue for the government,accounting for about 40 percent of government revenue.Indirect taxes, comprising export and import duties, excisetaxes, sales taxes, service taxes and other taxes account forabout 35 percent of government revenue. The remainder ofgovernment revenue comes largely from profits of state-ownedenterprises and petroleum taxes. In 1994, the governmentreduced the income tax rate on petroleum companies from 45 to40 percent, and lowered the export tax on crude oil from 25 to20 percent. Sales taxes on imported food products areuniformly collected at the port of entry while competingdomestic goods can escape the equivalent tax rates. However,the government has stepped up efforts to fine domesticmanufacturers that evade sales taxes. Regulatory Policies: The Government encourages foreign andlocal private investment. Currently, a foreign investor canhold 100 percent of the equity in a Malaysian subsidiary if itexports at least half of its output, has at least 50 percentvalue-added domestically (or, failing that, has RM50 million --about $19 million -- in foreign-funded assets), and does notproduce items that compete with those now being made for thelocal market. For companies exporting less than 50 percent of output,foreign equity is generally limited to a 51 percent share.Since the mid-1980s foreign investors have been able to buy amaximum of 30 percent equity in firms in the insurance andbanking sectors. However, some existing firms have beenallowed to retain their equity positions, including 100 percentforeign ownership.4. Debt Management Policies Malaysia has strong credit ratings in internationalfinancial markets and its public and private companies have nodifficulty accessing funds. Malaysia's medium and long-termforeign debt is expected to stand at $24.0 billion at the endof 1994, about 20 percent of GDP. Malaysia's debt serviceratio declined from a peak of 18.9 percent of gross exportearnings in 1986 to 5.7 percent in 1993.5. Significant Barriers To U.S. Exports Import Tariffs on Tobacco: To encourage greater use oflocal tobacco in cigarettes and to maintain high domestic leafprices, the government levies heavy import tariffs. Thepresent import duty for unmanufactured tobacco is RM50 ($20)per kilogram, plus five percent ad valorem. While this policyreduces leaf imports, the greatest impact appears to affect thecheaper, lower quality leaf from suppliers other than theUnited States. Since the duty on imported leaf tobacco doesnot vary by quality, it is more economical to import high-gradeU.S. leaf to blend with domestic tobacco. In 1992, thegovernment first proposed an import quota for flue-curedtobacco. Although, Malaysia manages the quota ratherliberally, cigarette manufacturers are forced to buy up all thelocally produced tobacco which is generally considered to bevery low quality. Cigarettes are taxed at a rate of RM162($64.8) per kilogram. Duties On High Value Food Products: Duties for processedand high value products, such as canned fruit, snack-foods, andmany other processed foods, range between 20 and 30 percent.In the 1994 budget, import duties on most fresh fruit and fooditems were reduced to between 10 and 30 percent. The abolitionor reduction in duties for numerous other food productsannounced in the 1995 budget should have a positive impact onimports of items such as tree nuts, citrus fruit, dairy,livestock and poultry products. Plastic Resins: In December 1993, tariffs were increasedfor a five year period from 2 to 30 percent (for non-ASEANcountries) and from 1 to 15 percent (for ASEAN countries) onplastic resins. In 1994, when tariff protection alone did notprovide the amount of protection desired, the governmentinstituted a licensing system for plastic resins to giveprotection to the domestic industry for a five year period.U.S. firms utilizing resins in their manufacturing process havecomplained the system limits their ability to source theproducts they want and has resulted in significant pricehikes. U.S. manufacturers of resins say their ability to sellto Malaysia has been sharply curbed. The government says ithas implemented a transparent form of protection for a specificperiod of time and will review the situation regularly. Protective Tariffs for Kraftpaper: In April 1994 thegovernment raised tariffs on imported kraftpaper (used inmaking cardboard boxes) to between 20 and 30 percent, dependingon the category. These tariff increases are to be phased outover a maximum of five years and are subject to review everytwo years. Following this action local manufacturers haveraised prices three times, affecting U.S. firms using cardboardboxes for packing their export products. U.S. suppliers ofkraftpaper to Malaysia have complained that they are losingsales. High Import Duties On Alcoholic Beverages: For the firsttime in many years the tariffs on all alcoholic beveragesremain unchanged in both the 1994 and 1995 budgets. Duties ofwine and beer remain at RM228 ($91.2) per decaliter and RM74 ($29.6) per decaliter respectively. Ban on Imports of Chicken Parts: In 1983, the governmenteffectively closed Peninsular Malaysia to imports of chickenparts by ceasing to issue veterinary import permits. The banwas implemented because the European Economic Communityallegedly was dumping chicken parts into the Malaysian market.Until January of 1991, the East Malaysian states of Sabah andSarawak maintained separate import regimes for poultry productswhich permitted the import of U.S. chicken. Now, however,similar bans have been implemented in those states as well.Since the implementation of the ban, a significant domesticpoultry industry has developed and Malaysia now exportsrelatively large quantities of live poultry and poultry meat tocountries such as Singapore and Japan. Although importlicenses are still required, import duties for poultry andpoultry products were abolished in the 1995 budget and Malaysiahas committed to opening its market to a modest import quotaunder the Uruguay Round of the GATT. Rice Import Policy: Because subsidized local productionsatisfies only part of domestic demand, the National RiceAuthority (Lembaga Padi Negara or LPN), as the sole legalimporter, brings in substantial quantities of rice. Purchasesgenerally are made on a government-to-government basis, whichplaces private U.S. suppliers at a considerable disadvantage.A proposal to "corporatize" LPN is still being considered afteryears of debate. Import Licenses: Malaysia makes limited use of importlicensing. In the few sectors subject to licenses, i.e.,requiring approved permits, U.S. exports have not beensignificantly impaired. Some technical licenses (e.g., forelectrical products and telephone equipment) exist, but theyare administered fairly and do not appear to constitutenontariff barriers. Service Barriers: Malaysia protects most service sectors.Foreign lawyers, architects, etc., are generally not allowed topractice in Malaysia. Television advertisements must belargely produced in Malaysia with Malaysian performers unlessan exception is obtained. Wholly-owned U.S. travel agencies,air courier services, motion picture and record distributioncompanies are permitted. Financial Services: Banking, insurance and stockbrokingare all subject to government regulation which limits foreignparticipation. No new banking licenses are being granted foreither local or foreign corporations in the onshore market.Foreign-controlled companies are required to obtain 60 percentof their local credit from local banks. Under the terms of the1987 Banking and Finance Act, all foreign-controlled banks wererequired to convert their Malaysian branch offices to locallyincorporated subsidiaries by September 31, 1994. Foreignshareholdings in insurance companies are limited to 30 percentwithout government approval. However, there are ten insurancecompanies which are 100 percent foreign owned (one U.S.) andanother eight have foreign equity in excess of 50 percent.Foreigners may hold in aggregate up to 49 percent of the equityin a stockbroking firm. Currently there are 11 stockbrokingfirms which have foreign ownership and 20 representativeoffices of foreign brokerage firms. Standards: Malaysia has extensive standards and labelingrequirements, but these appear to be implemented in anobjective, nondiscriminatory fashion. Food product labels mustprovide ingredients, expiry dates and, if imported, the name ofthe importer. Electrical equipment must be approved by theMinistry of International Trade and Industry,telecommunications equipment must be "type approved" by theDepartment of Telecommunications and aviation equipment must beapproved by the Department of Civil Aviation. Pharmaceuticalsmust be registered with the Ministry of Health. In addition,the Standards and Industrial Research Institute of Malaysia(SIRIM) provides quality and other standards approvals. Government Procurement: Malaysian government policyrequires countertrade provisions on government tenders aboveRM1 million. Below RM1 million, countertrade is welcomed andeven encouraged, but not required. (Most government tendersrequire that countertrade be offered as an alternative.)Incentives exist for local procurement. Many smaller civilconstruction projects (RM50 million or less) are restricted tolocal firms.6. Export Subsidy Policies Malaysia offers several export allowances. The mostimportant is the Export Credit Refinancing (ECR) schemeoperated by the Central Bank. Under the ECR, commercial banksand other lenders provide financing to exporters at an interestrate of seven percent for both post-shipment and pre-shipmentcredit. 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 office overseas; export market research.7. Protection of U.S. Intellectual Property Malaysia is a member of the World Intellectual PropertyOrganization (WIPO) and, as of October 1, 1990, the BerneConvention for the protection of literary and artistic works,and the Paris Convention. The Trade Description Act of 1976, the Patent Act of 1983,the Copyright Act of 1987, and the Copyright (Amendment) Act of1990 have greatly strengthened protection for intellectualproperty in Malaysia. Under the Copyright (Amendment) Act of1990, and the accompanying accession to the Berne Convention,Malaysia now provides copyright protection to all works (interalia video tapes, audio material, and computer software)published in countries that are members of the Berne Conventionregardless of when the works are first published in Malaysia.Police and legal authorities have been responsive to requestsfrom U.S. firms for investigation and prosecution of copyrightinfringement cases, though illegal videotapes continue to bewidely available. Patents registered in Malaysia generally have a duration of15 years but may have a longer duration under certaincircumstances. A person who has neither his domicile norresidence in Malaysia may not appear before the patentregistration office or institute a suit except through a localpatent agent. With regard to trademarks, "where any person hasregistered or applied for protection of any trademark in anyforeign state designated by the Malaysian Government, suchperson shall be entitled to registration of this trademark inMalaysia provided that application for registration is madewithin six months from the date of registration in the foreignstate concerned." Trademark infringement has not been aproblem in Malaysia for U.S. companies. Patent protection isalso good.8. Worker Rights a. The Right to Organize and Bargain Collectively Unions may organize workplaces, bargain collectively withan employer, form federations, and join internationalorganizations. There were 519 unions registered in Malaysia asof June 30, 1994, of which 60 percent are enterprise-levelunions, and twelve percent of the work force are members oftrade unions. The Trade Unions Act's definition of a tradeunion restricts it to representing workers in a "particulartrade, occupation, or industry or within any similar trades,occupations, or industries." A trade union for whichregistration has been refused, withdrawn or cancelled isconsidered an unlawful association. Strikes are legal andrelatively few (18 strikes in 1993). Government policy limitsthe formation of unions in the electronics sector to in-houseunions. Collective bargaining is the norm in Malaysian industrieswhere workers are organized. Malaysia's system of conciliationand arbitration seeks to promote negotiation and settlement ofissues without industrial action. Malaysian law, especiallythe Industrial Relations Act, effectively restricts collectivebargaining rights through compulsory arbitration. There are1,600 collective bargaining agreements and 90 percent ofapproximately 550 trade disputes referred to the IndustrialCourt are settled annually. Through legislative amendment, thegovernment is eliminating an exemption for firms granted"pioneer" status which protected them from union demands forterms of employment exceeding those specified in the EmploymentAct of 1955. b. Prohibition of Forced or Compulsory Labor There is no evidence that forced or compulsory labor occursin Malaysia, for either Malaysian or foreign workers. Intheory, certain Malaysian laws, which date to pre-independence,allow the use of imprisonment with compulsory labor as apunishment for persons expressing views opposed to theestablished order or who participate in strikes. Thegovernment maintains that the constitutional prohibition onforced or compulsory labor renders these laws without effect. c. Minimum Age of Employment of Children Employment of children is covered by the Children and YoungPersons (Employment) Act of 1966, which stipulates that nochild under the age of 14 may be engaged in any employmentexcept light work in a family enterprise or in publicentertainment, work performed by the government in a school ortraining institution, or employment as an approved apprentice.The Ministry of Human Resources maintains a staff to enforceregulations prohibiting children from working more than 6 hoursper day, more than 6 days per week, or at night. However,according to non-governmental organizations, there may be asmany as 75,000 children between the ages of 10-14 workingfull-time, mostly on plantations. d. Acceptable Conditions of Work The Employment Act of 1955 sets working conditions, most ofwhich are at least on a par with standards in industrializedcountries. The new Occupational Safety and Health Act waspromulgated in February 1994 and covers all sectors of theeconomy except the maritime sector and the military. Otherlaws provide for retirement programs and disability andworkman's compensation benefits. No comprehensive nationalminimum wage legislation exists, but certain classes of workersare covered by minimum wage laws. Plantation and constructionwork is increasingly being done by contract foreign workers.Working conditions for contract workers often are significantlybelow those of direct hire workers. In addition, many of theimmigrant workers, particularly illegal ones, may not haveaccess to Malaysia's system of labor adjudication. Thegovernment has implemented programs to provide plantations withlegal foreign workers, largely to prevent the exploitation ofillegal workers. e. Rights in Sectors with U.S. Investment The largest U.S. investment in Malaysia is in the petroleumsector. One U.S. company has two subsidiaries operating inMalaysia. One subsidiary, which is 100 percent owned by itsU.S. parent, handles offshore oil and gas production. Theother subsidiary, which is 65 percent owned by the U.S. parentand 35 percent by a range of Malaysian individuals andinstitutions, refines and markets oil products in Malaysia.Employees at both companies are represented by the NationalUnion of Petroleum and Chemical Industry Workers (NUPCIW),which has negotiated collective agreements with management.Some employees, however, have broken away from the NUPCIW andformed a separate in-house union. Pay and benefits at bothcompanies are considered excellent. The second largest concentration of U.S. investment inMalaysia is in the electronics sector, especially themanufacture of components, such as semiconductor chips andvarious discrete devices. (Electronic components areMalaysia's largest single manufactured export.) Wages andbenefits are among the best in Malaysian manufacturing. TwentyU.S. electronic components manufacturers operate 25 plants inMalaysia, employing more than 52,000 Malaysian workers. Although there is no legal prohibition against organizingunions in the electronics industry, government policyeffectively discouraged any unionization in this sector until1988. The Director General of Trade Unions ruled in the 1970sthat the Electrical Industry Workers Union (EIWU) could notorganize workers in the electronics sector, as the twoindustries are different. Other attempts to organize anational union for the electronics industry failed on similargrounds during the 1980s. The Government registered severalcompany (or enterprise-level) unions in the electronics sectorduring the late 1980s and early 1990s. At present, workers atseven electronics companies are represented by enterprise-levelunions. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 303Total Manufacturing 1,079 Food & Kindred Products (1) Chemicals and Allied Products 49 Metals, Primary & Fabricated 8 Machinery, except Electrical (1) Electric & Electronic Equipment 858 Transportation Equipment 0 Other Manufacturing 149Wholesale Trade 92Banking 96Finance/Insurance/Real Estate 332Services 2Other Industries 25TOTAL ALL INDUSTRIES 1,928</text>
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<text>U.S. DEPARTMENT OF STATEFYRO MACEDONIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS FORMER YUGOSLAV REPUBLIC OF MACEDONIA (FYROM) War in nearby Bosnia has severely hurt the FYROM economyand complicated efforts at economic reform. The FYROM hassuffered a breakdown of trade and capital flows, and lacks theresources to shore up a weakened, inadequate infrastructure,let alone to finance new east-west links that will be neededfor long-term development. The Greek embargo, imposed inFebruary 1994, compounded the country's economic woes bycutting access to the region's main port of Thessaloniki.There has been limited success in efforts to reroute tradealong existing east-west routes; nevertheless, significantbottlenecks remain at the border crossings with Bulgaria. TheGreek embargo, in particular, has hurt industrialcompetitiveness by raising input costs, as overcrowdedalternate transport routes are far more costly than shippingthrough Thessaloniki. Despite a harsh economic climate, the FYROM government putinto place a modest economic stabilization program in thespring of 1992. This program has received much praise from IMFofficials. Inflation recently dropped to 2 percent per month.The average monthly salary was $126 by the end of 1993 -- lessthan the cost of food for the average family, but stillconsiderably more than the average monthly salary in Serbia. The U.S. contributed $5 million to a multilateral effort toclear the FYROM's arrears with the World Bank in early 1994,which in turn unlocked the country's first Economic RecoveryLoan from the Bank. The June 1994 World Bank ConsultativeGroup meeting only partially succeeded in filling the projected1994-1995 balance of payments gap of $110 million. Progress onthis count is needed to enable the IMF and IBRD to move aheadwith their planned programs in 1995.(###)</text>
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<text>U.S. DEPARTMENT OF STATELITHUANIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS LITHUANIA Key Economic Indicators (Millions of U.S.dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1985 prices) N/A N/A N/AReal GDP Growth (pct.) -37.7 -17.1 -13.0GDP (at current prices) 2/ 6,191.5 2,725.0 909.5By Sector: Agriculture 229.0 305.2 266.3 Energy/Gas 154 158 N/A Manufacturing 228 733 275 Construction 340.9 215.2 48.6 Rents N/A 19.1 N/A Financial Services 52.9 98.1 771.7 Other Services 102.0 449.6 N/A Government/Health/Education N/A 262.2 N/ANet Exports of Goods & Services 852.3 1,242.2 N/AReal Per Capita GDP (1985 base) 470.5 684.0 682.0Labor Force (000s) 1,879.0 1,859.3 N/AUnemployment Rate (pct.) 1.2 3.6 3.2Money and Prices: (annual percentage growth)Money Supply (M2) 3/ N/A 680.2 771.7Base Interest Rate 4/ 120 95 95Personal Saving Rate N/A N/A N/ARetail Inflation 1,163 270 180Wholesale Inflation Consumer Price Index N/A 72.2 80.4Exchange Rate (USD/LT) Official 3.79 4.50 4.00 Parallel 3.79 4.50 4.00Balance of Payments and Trade:Total Exports (FOB) 269.3 1,334.0 161.5 Exports to U.S. 4.0 4.8 9.0Total Imports (CIF) 5/ 192.9 1,402.2 230.0 Imports from U.S. N/A 26.4 26.0Aid from U.S. 10 25 25Aid from Other Countries 129.9 216.9 408.0Debt Service Payments (paid) 5 25 N/AGold and Foreign Exch. Reserves 232 253 309Trade Balance 76.5 -68.2 68.5 Trade Balance with U.S. N/A -21.6 -17.0N/A--Not available.1/ 1994 figures are all estimates based on available monthlydata in October 1994.2/ GDP at factor cost.3/ In broad money as defined by the IMF.4/ Figures are actual, average interest rates, not changes inthem.5/ Merchandise trade.1. General Policy Framework Since declaring independence in 1990, Lithuania hasimplemented reforms aimed at eliminating the vestiges of theformer socialist system. In 1992, with the help of the IMF andother international institutions, Lithuania adopted a programto restrain inflation, reduce price controls, lower the budgetdeficit and privatize the economy. Lithuania has undertaken aseries of price liberalizations, and most price controls havebeen abolished. Most businesses have been privatized andprivate citizens are allowed to own land. The government iseager to encourage foreign investments and open new trade tieswith the West. Trade ties with Russia and other former Sovietrepublics are expected to continue, but at a reduced rate.Lithuania is seeking to further liberalize its foreigninvestment laws. The Lithuanian government is following acautious, but Western-oriented program of economic reform inbanking and monetary policies, price structure, tax laws, landownership laws, fiscal policy and foreign trade legislation. Inflation subsided during 1994 as a result of tightmonetary policies. Wage restraint, partly through the pursuitof a tight incomes policy, and significantly reduced subsidiesto state agricultural and industrial enterprises have reducedthe budget deficit. Tax reform, including the introduction inmid-1994 of excise taxes and a value added tax, has increasedgovernment revenues. Social programs and subsidies consume thebulk of budgetary expenditures. In April 1994, Lithuania adopted a currency boardarrangement under which central bank reserve money andliabilities denominated in the local currency are fully backedby foreign exchange at a fixed rate. Growth in the moneysupply is tied to growth in foreign exchange reserves.2. Exchange Rate Policy On June 20, 1993, Lithuania introduced its own nationalcurrency, the litas. In April 1994 the Lithuanian currencyboard fixed the rate of exchange at four litas to one U.S.dollar.3. Structural Policies Price Reform: The Lithuanian government has dismantledmost of the centralized price controls formerly imposed byMoscow. Prices on most foodstuffs and manufactured goods havebeen liberalized. However, due to market monopolies andoligopolies in several sectors, the Lithuanian government hasimposed measures to control anti-competition price fixing. Tax Policies: Lithuania has begun to reform its entire taxsystem. In May 1994, Lithuania introduced an 18 percent valueadded tax. The value added tax is applied to most imports.Taxes are levied on wages through the personal income tax andthrough employees' and employers' contributions to the SocialInsurance Fund. Enterprise profits are taxed at rates ofbetween 20 and 30 percent. Reduced rates apply foragricultural enterprises, small-scale enterprises, andreinvested profits. Joint ventures with foreign capital areexempt from the profits tax for up to three years. Profittaxes of joint ventures are determined by the amount of foreigninvestment in the authorized capital and the type of activity(industrial or commercial). Dividends to foreign investorsreceived in Lithuania are exempt from taxes. Income receivedlegally by foreign investors and upon which a profit tax hasbeen paid may be repatriated without additional tax. Regulatory Policies: There are no performance requirementsimposed by law as a condition for foreign investment. However,in tendering bids for purchasing privatized companies orforming joint ventures with state companies, foreign companiesare often required to offer employment guarantees ortechnology. Lithuanian law gives foreign investors the rightto lease land for 99 years, but bars foreigners from owningland.4. Debt Management Policies Lithuania has acknowledged only that portion of the Sovietdebt incurred by Lithuanian entities for use in Lithuania.Negotiations on this matter are in progress. Lithuania hasreceived balance of payments support from the European Unionand the G-24 countries. The IMF has provided a stand-byarrangement and a systematic transformation facility. TheWorld Bank and the European Bank for Reconstruction andDevelopment have contributed infrastructure and importrehabilitation loans.5. Significant Barriers to U.S. Exports There are no direct barriers to U.S. exports. However,U.S. exports are adversely affected by the absence of anestablished infrastructure for trade, such as intelecommunications and banking facilities. U.S. exporters arealso hampered by the lack of import financing and other creditfacilities. Customs procedures at border crossings aretime-consuming and burdensome owing to the lack of trainedpersonnel and inconsistent application of customs regulations. The May 1991 law on prohibited and limited spheres forforeign investment determines the areas of economic activitywhere foreign investment is prohibited or limited. Foreigninvestment is prohibited in areas of defense and security.Foreign investment is also prohibited in state enterprisesholding a monopoly in the Lithuanian market. These are definedas enterprises producing more than 50 percent of their goods inthe Lithuanian market. Enterprises which exploit existingcommunications, electricity delivery, gas, oil and watersupply, heating and sewage systems are also considered to bemonopolistic.6. Export Subsidies Policies The government exercises controls on exports of certainscarce commodities. There are no export subsidies.7. Protection of Intellectual Property Upon regaining its independence, Lithuania declined toassume formally any binding legal obligations undertaken by theformer Soviet Union. In the area of intellectual property,Lithuanian policy has been to observe international standardsand to consider subscribing to international conventions beyondthose accepted by the independent Lithuanian governments beforeWorld War Two. In 1990 Lithuania joined the World IntellectualProperty Organization (WIPO) and it plans to sign the ParisConvention for the Protection of Industrial Property. In April1994 Lithuania signed an agreement with the U.S. for theprotection of intellectual property. The Lithuanian parliamentis considering laws for copyright enforcement, includingamendments to the criminal and civil codes.8. Worker Rights a. The Right of Association The 1991 Law on Trade Unions and the Constitution recognizethe right of workers and employees to form and join tradeunions and, with certain limitations, to strike. There are norestrictions on unions affiliating with international tradeunions. b. The Right to Organize and Bargain CollectivelyThe Lithuanian Collective Agreements Law confirms the right toorganize and bargain collectively. Lithuanian trade unionsengage in direct collective bargaining at the workplace as wagedecisions are increasingly being made at the enterprise level.The government issues periodic decrees that serve as guidelinesfor state enterprise management in setting wage scales. c. Prohibition of Forced or Compulsory Labor The constitution prohibits forced labor, and thisprohibition is observed in practice. d. Minimum Age of Employment for Children The minimum age for employment of children is 16. Twelveyears of schooling are compulsory. These requirements areenforced through a system of inspections. e. Acceptable Conditions of Work By law, white collar workers have a 40 hour workweek. Bluecollar staff have a 48 hour workweek with premium pay forovertime. There are minimum legal health and safety standardsfor the workplace. However, worker complaints indicate thatthese standards are sometimes ignored. The minimum wage isadjusted periodically by the parliament, but enforcement of theminimum wage is almost nonexistent. f. Rights in Sectors with U.S. Investments There is only a minimal level of U.S. investment in any onesector. Worker rights are applied uniformly throughout theeconomy and there are no known exceptions.(###)</text>
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<text>U.S. DEPARTMENT OF STATELATVIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS LATVIA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994Income, Production and Employment: 1/Real GDP (1993 prices) 2/ 2550.5 2171.2 2171.2Real GDP Growth (pct.) -33.8 -15.0 0.0GDP (at current prices) 1125.2 2171.2 3457.0 3/By Sector: Agriculture/Forestry 181.05 230.16 345.70 Energy/Water 15.45 148.30 155.57 Manufacturing 296.56 454.49 594.60 Construction 52.99 83.77 183.22 Rents 27.64 73.77 79.52 Financial Services 44.14 80.73 117.53 Other Services 67.54 360.41 1169.50 Government/Health/Education 69.66 205.84 380.27 Net Export of Goods & Services 34.94 53.90 -34.67Real Per Capita GDP (USD) 2/ 976 846 855Labor Force (000s) 1,502 1,458 1,450Unemployment Rate (pct.) 2.3 5.6 8.4 4/Money and Prices: (annual percentage growth)Money Supply (M2) 1/ 169.2 684.4 1054.9 5/Base Interest Rate 120 27 27Personal Savings Rate N/A N/A N/ARetail Inflation 959 35 23Wholesale Inflation N/A 36.3 24.0Consumer Price Index N/A N/A N/AExchange Rate (USD/Lat) Official --- --- --- Market (average) 0.892 6/ 0.676 0.568Balance of Payments and Trade: 1/Total Exports (FOB) 641.4 7/ 999.9 7/ 2005.0 3/ Exports to U.S. 2.4 22.6 52.8Total Imports (CIF) 606.5 946.0 2039.7 3/ Imports from U.S. 15.8 89.5 100.0Aid from U.S. 6.0 9.0 10.6Aid from Other Countries 41 27 48External Public Debt 67.2 236.4 387.2Debt Service Payments (paid) 1.8 11.6 18.1Gold and FOREX Reserves ?/ 86.8 564.3 688.7 5/Trade Balance 34.9 53.9 -34.7 3/ Trade Balance with U.S. -13.4 -66.9 -47.2N/A--Not available.1/ Average exchange rate used (except for Real GDP):1992 -USD 1 equals 0.893 Lat; 1993 - USD 1 equals 0.676 Lat; 1994 -USD 1 equals 0.568 Lat.2/ Real GDP for 1992-1994 at 1993 prices converted at average1993 exchange rate.3/ Ministry of Finance estimate. Sector estimates based on1994 nine months data (January-September, 1994).4/ National Employment Service estimate.5/ As of September 31, 1994.6/ Latvia's currency, the Lat, was not put into circulationuntil March 1993. The 1992 exchange rate is expressed in Latsconverted from Latvian rubles at the official 200/1ruble-to-lat rate.7/ Data has not been corrected to reflect fuel imported byLatvia for re-export.1. General Policy Framework When Latvia re-established independence in 1991, it alsoabandoned the Soviet command economic system. Though still intransition, the Latvian economy to a great extent operates onfree-market principles. The private sector accounts for overfifty percent of GDP. Privatization has so far been mostsuccessful in the agriculture and agribusiness sphere, followedby very small scale manufacturing and retail trade previouslyunder the direction of local governments. The government haspursued monetary and fiscal policies in compliance with IMFguidelines. Consequently, the currency (the Lat), which isfully convertible, is very stable. The government's budgetdeficit this year is projected to be within two percent ofGDP. The decline in GDP, which saw production levels fall tohalf of the pre-independence level, ended this year. Flatgrowth is expected in 1994; three to five percent growth in thenext several years. Inflation has been brought down from nearlyone thousand percent in the first year of independence tothirty five percent in 1993 followed by a gradual decline toabout 25 percent in 1994. Trade policy: A GATT observer since 1992, Latvia submitteda Foreign Memorandum in June 1994 in preparation for accessionto the GATT. Latvia follows a liberal trading regime, thoughits recently promulgated customs tariff law is more protectiveof the domestic agricultural market. However, the new tarifflevels probably do not negatively affect potential U.S.agricultural exports. Latvia signed a free trade agreementwith the European Union, which reduces tariffs on mostindustrial products to zero and sets out a schedule of tariffreductions over the course of three years for certainagricultural products. Latvia has already concluded free tradeagreements with the Nordic countries, Switzerland andLiechtenstein. In April, 1994, a free trade agreement onindustrial goods with its Baltic neighbors came into force. Afurther agreement on agriculture is expected shortly, as arenegotiations on a customs union. MFN status with Russia wasgranted as the result of an exchange of official lettersearlier this year. However, as it is not governed by treaty,the arrangement may not be binding. Latvian fiscal policy is prudent and financial management,in light of the difficulties of adjusting to independent,western-style accounting, is sound. The Finance Ministry is inthe process of implementing the general budget law which waspassed in April 1994. According to that law, the budget forthe next fiscal year is to be presented to the Parliament byOctober 1. However, submission has been delayed by thegovernment crisis in the summer, which was not resolved untilSeptember. In 1994 the government expects a 75 million dollardeficit, about four percent of the total budget, or two percentof GDP. The deficit is caused by increases in pensions andgovernment salaries, and defaults on government backed loans.It is financed primarily by the sale of treasury bills tocommercial banks. Difficulties in tax collection and a low taxbase constrain revenue development. The independent central bank also pursues a veryconservative policy, with its chief aims being stability ofprices and currency. Earlier this year, an inflow of foreignexchange, which the central bank purchased to keep the currencyfrom appreciating (and thereby further eroding exportpotential) helped to swell the money supply. However, for anumber of reasons the flow has stabilized. The bank's mainmonetary instruments, which are still being developed, aretreasury bill sales and cash reserves auctions. Oneconsequence of the tight monetary policy has been thepersistence of very high interest rates, which are animpediment to new business activity. Though the rates havefallen over the past year, the average rate for three to sixmonth credit is around fifty percent.2. Exchange Rate Policy Though the Bank of Latvia has loosely pegged the currencyto the SDR at the rate of 0.7997 Lats to the SDR in order tomaintain stability, the exchange rate is largely determined bymarket forces. The Lat is fully convertible and there are norestrictions on the import, export, exchange or use of foreigncurrencies inside the country.3. Structural Policies The Latvian government has made great strides, but is stillin the process of developing the laws and institutions andregulatory framework to support a market economy. While Latviapassed bankruptcy legislation in 1991, administrativemechanisms and procedures are not yet functioning well in thatthe law does not establish criteria for initiating bankruptcyprocedures or provide a mechanism for rehabilitatingenterprises on the brink of bankruptcy. Price Policies: The Latvian government almost completelydecontrolled farm procurement and retail food prices inDecember 1991 and removed restrictions on the pricing ofindustrial goods in January 1992. To safeguard producers,indicative prices were set for the procurement of cereals,sugarbeets, flax, meat, milk, and poultry. However, themechanism has not been effective as farmgate prices have tendedto exceed support prices. Moreover, the government has neitherthe mechanisms to enforce indicative prices nor theresources to compensate farmers for lower prices. Less thaneight percent of goods and services remained subject tocontrol, including energy, telecommunications, rents and otherpublic services. Tax Policies: Latvia is in the process of implementing amodern tax structure, which will include a value-added tax(VAT), a profit tax, a graduated personal income tax, exciseand property taxes, customs duties, land and natural resourcetaxes, and a social security tax. Under the draft law, whichis expected to be passed shortly, the variable profit tax of 25to 45 percent will be replaced by a corporate income tax of 25percent. Until a true VAT is implemented, the government iscollecting an 18 percent turnover tax on most goods andservices. The existing law on foreign investment provides fortax reductions for up to five years for qualifying foreigninvestments, but the new law may repeal these tax breaks. Thesocial security tax is collected on all wages, fees, royaltiesand rewards for work; the general social security tax rate is37 percent for employers and one percent for employees. Theagricultural sector is exempt from many of these taxes, ortaxed at a reduced rate. According to the new law on customstariffs, import duties on some agricultural products are ashigh as 55 percent (for countries without MFN status).However, duties on industrial products are minimal or zero forcountries in a free trade agreement. Latvia collects an exportduty on timber, metals, leather, paper and a few other products. Regulatory Policies: Latvia is only beginning to create amodern system to regulate economic activity. The Bank ofLatvia is responsible for regulating the banking industry andhas created a supervisory structure. An antimonopoly committeesupervises monopolies and examines the tariffs set by publicutilities. It can recommend the break-up of large enterpriseswith high market power and can investigate claims of unfaircompetition and false advertising. A regulatory body has beenset up to oversee the activities of the energy sector andprovide rate arbitration for district heating services,electricity and natural gas, which are still provided bymonopolies. Privatization: Privatization of large state enterprises,which has lagged behind other reform measures, has begun toaccelerate with the creation of the Latvian PrivatizationAgency in April 1994. This entity assumed responsibility forall privatization procedures, previously disbursed amongvarious ministries. In early 1995, the first wave ofenterprises will be offered for "mass" privatization, i.e.,auctioning of shares for privatization certificates(vouchers). This event will also kick-off full operation ofthe Riga Stock Exchange.4. Debt Management Policies As of October 15, 1994, the Government of Latvia's externaldebt was 329 million dollars, and could increase to 387 millionby the end of 1994. G-24 credits constitute 55 milliondollars. Latvia has concluded a second standby agreement withthe IMF (SDR 22.9 million) and two structural transformationfacility agreements (SDR 45.7 million). Latvian compliancewith IMF programs has been strong, though a minor problem withbudget financing led to temporary suspension of disbursement ofthe second tranche of standby credits. On September 30, 1994,Latvia's official foreign exchange and gold reserves werevalued at 688.7 million dollars, covering nearly six months ofexports. The ratio of debt service to exports is a very modest1.50 percent.5. Significant Barriers to U.S. Exports The main barriers to U.S. exports to Latvia arestructural. While considerable improvement has occurred overthe last year, Latvia's business, banking and legalinfrastructures have not yet attained Western standards. Under the 1991 Investment Law, the laws of the Republic ofLatvia apply equally to domestic and foreign investors.However, there are some restrictions on foreign investment.Acquisition of controlling shares in a Latvian enterprise withassets exceeding one million dollars must be approved by theCabinet of Ministers. Foreign investors may engage in, but notobtain control over enterprises engaged in activities relatedto national defense; the manufacture and sale of narcotics,weapons and explosives, securities, banknotes, coins andstamps; the mass media; national education; acquisition ofrenewable and nonrenewable national resources; internalfisheries; hunting; and port management. Latvia does notrestrict the repatriation of profits. The Bank of Latvia mustapprove the establishment of a foreign bank branch. TheUnited States and Latvia signed a bilateral investment treatyin January 1995. Latvia requires a license for the import of grain and sugarto protect domestic production. In the case of grain, theimporter is required to demonstrate purchases from domesticproducers. The sugar licensing restrictions poses problems forforeign (or domestic) producers of high quality food productswhich use sugar, as the domestic product is considered to be ofinferior quality. A special permit granted by the Cabinet isrequired for the import or transit of weapons, explosives orpornographic materials. Latvia is still formulating food safety standards.Meat imports are subject to inspection by the state veterinarydepartment for infectious diseases. As of June 1, 1994,imported food products are required to have conformitycertificates to guarantee quality and wholesomeness of foodproducts.6. Export Subsidies Policies The Latvian government does not currently provide exportsubsidies. However, the Ministry of Agriculture intends to usestate funds allocated for improvement in animal husbandry tosubsidize the export of butter, cheese and rye. (Exportsubsidies for rye is intended to be a temporary measure to getrid of excess stocks.)7. Protection of U.S. Intellectual Property The Government of Latvia is committed to attaining a levelof protection for intellectual property rights comparable tothat provided under international conventions. Pursuant tothat commitment, the Latvian Parliament in 1993 passedlegislation to protect copyrights, trademarks and patents.While the legal basis for intellectual property rights has beenestablished, Latvian law has not defined penalties forviolation of these rights nor established a judicial oradministrative mechanism through which foreign owners may seekeffective redress for violation of their intellectual propertyrights. In July 1994, President Clinton signed an Agreement onTrade Relations and Intellectual Property Rights Protectionwith Latvia. Latvia has been a member of the WorldIntellectual Property Organization since January 1993 andsigned the Paris Convention in September 1993. Latvia willaccede to the Madrid, Nice and Budapest Conventions in December1994. Latvia also intends to become party to the BernConvention not later than December 31, 1995. Unauthorized reproductions of copyrighted video recordingsimported from Russia are widely distributed in Latvia. To haltthe use of pirated films imported from Russia by privateLatvian television stations, the Latvian Radio and TelevisionBoard on October 27, 1992, adopted a ruling under which thelicense of any domestic television company would be revoked ifit is unable to show that it has legally acquired the rights tothe films it broadcasts. The board does not apply this rulingto signals from the Russian television stations that arerebroadcast directly by Latvian television. Latvia's intellectual property practices have not had anserious impact on U.S. trade outside the film and videoindustry.8. Worker Rights a. The Right of Association Latvia's law on trade unions mandate that workers, exceptfor uniformed military, have the right to form and join laborunions of their own choosing. About 50 percent of the workforce belongs to unions; union membership is falling as workersleave soviet-era unions that include management or are laid offas soviet-style factories fail. The Free Trade UnionsFederation of Latvia, the only significant labor unionconfederation in Latvia, is non-partisan, although some leadersran as candidates for various smaller parties that failed toenter Parliament in the 1993 elections. Unions are free toaffiliate internationally and are developing contacts withEuropean labor unions and international labor unionorganizations. The law does not limit the right to strike, but few strikeswere actually held in 1994. On September 2, 1994, the majorityof Latvia's teachers participated in a one-day strike toprotest low wages. Although many state-owned factories are onthe verge of bankruptcy and seriously behind in wage payments,workers fear dismissal if they strike and non-citizens fearstriking may affect their residency status. While the law banssuch dismissals, the government's ability to enforce these lawsis marginal. b. The Right to Organize and Bargain Collectively Large unions have the right to bargain collectively and arelargely free of government interference in their negotiationswith employers. The law prohibits discrimination against unionmembers and organizers. Some emerging private sectorbusinesses, however, threatened to fire union members; thesebusinesses usually paid higher salaries and greater benefitsthan were available elsewhere. No export processing zones exist in Latvia. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is banned and is not practiced. d. Minimum Age for Employment of Children The statutory minimum age for employment of children is 15,though 13-year-olds can work in certain jobs outside schoolhours. Children are required to attend school for nine years.Child labor and school attendance laws are enforced by stateauthorities through inspections. The law restricts employmentof those under 18, such as by banning night shift or overtimework. e. Acceptable Conditions of Work The labor code provides for a mandatory 40-hour maximumwork week with at least one 24-hour period of rest, four weeksof annual vacation, and a program of assistance to workingmothers with small children. In October 1994, the minimummonthly wage was set at about 50 dollars (28 Lats). Latvianlaws establish minimum occupational health and safety standardsfor the workplace, but these standards seem to be frequentlyignored. f. Rights in Sectors with U.S. Investment The only significant U.S. investment is in the manufactureof food and related products. Conditions do not differ fromthose in other sectors of the economy.(###)</text>
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<text>U.S. DEPARTMENT OF STATEKYRGYZ REPUBLIC: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS KYRGYZ REPUBLIC Key Economic Indicators 1/ (Millions of soms unless otherwise noted) 1992 1993 1994 2/Income, Production and Employment:Real GDP (1990 prices) 7,100 5,800 4,205Real GDP Rates (pct.) -19.0 -18.7 -27.5GDP (at current prices) 772 5,720 7,388By Sector: Agriculture N/A 1,739 2,009 Energy/Water/Manufacturing N/A 2,963 1,899 Construction N/A 232 750 Services/Other N/A 785 2,730Net Exports of Goods & Services 8.3 460.3 671.6Real Per Capita GDP N/A N/A N/ALabor Force (000s) 1,525 1,500 1,450Unemployment Rate (pct.) 0.17 0.29 0.70Money and Prices:Money Supply (M1) N/A N/A N/ABase Interest Rate 3/ 6 N/A N/APersonal Saving Rate 4.7 -11.5 N/ARetail Inflation (pct.) 1,391.0 1,464.0 153.7Wholesale Inflation (pct.) 1,754.0 1,106.0 516.8Consumer Price Index 1,079.0 1,495.0 166.7Exchange Rate (USD/som) Official --- 7.65 10.60 Parallel --- 8.85 10.90Balance of Payments and Trade: (USD millions) 4/Total Exports (FOB) 131.9 77.6 63.6 Exports to U.S. N/A 0.0 0.4Total Imports (CIF) 176.4 26.4 28.7 Imports from U.S. 8.9 15.7 2.1Aid from U.S. 18.8 83.6 83.6 5/Aid from Other Countries 75.0 N/A 28.0External Public Debt 43.0 45.6 79.3Debt Service Payments (paid) 0.0 2.2 24.1Gold and Foreign Exch. Reserves N/A N/A 60Trade Balance -44.5 51.2 34.9 Balance with U.S. N/A -15.7 -0.7N/A--Not available.1/ All figures used are from Kyrgyz government sources.2/ Nine-month data in millions of Kyrgyz soms unless otherwisenoted.3/ Average annual interest rate for 1994 was not available.The base interest rate on October 15, 1994 was 185 percent.4/ Six-month data for 1994.5/ Fiscal year 1994.1. General Policy Framework After the disintegration of the former Soviet Union (FSU)and the achievement of independence in 1991, the KyrgyzRepublic (Kyrgyzstan) inherited an economy which had beenhighly dependent on the Soviet economy and on budget subsidiesfrom Moscow. Kyrgyzstan is one of the poorest of the FSUrepublics both in terms of output and resource base. As aresult, there was a sharp deterioration of economic activity in1994. GDP for the first nine months of the year dropped 27.5percent over the same period of 1993, though it is expectedthat 1994 GDP will reach the projected figure of 9.38 billionsoms (about $900 million) for the entire year. During 1992 and 1993 the Kyrgyz government took some majorsteps in transforming the economy from one dominated by centralplanning to a market oriented economy. A number of progressivechanges were made to the legal system, including the adoptionof laws on privatization, joint ventures, foreign concessionsand investment, and free economic zones. Most prices wereliberalized in January 1992, although bread prices were notfreed up until February 1994. In May 1993 an independent national currency, the som, wasintroduced. At the same time, a stabilization and structuraladjustment program was initiated with support and assistancefrom the IMF, and the World Bank, the United States and otherdonor countries. Tightened monetary policy, beginning at theend of 1993, resulted in a steady decline in monthly inflationrates (from 33 percent in October 1993 to 0.2 percent inSeptember 1994). However, the government was unable to meet IMF inflationtargets and other performance goals for the end of 1993. TheIMF stand-by facility was therefore replaced with an ESAF(Enhanced Structural Adjustment Facility) in July 1994. TheESAF runs three years and its loans are at concessional rates. The system of government procurement at fixed prices (theso called "state order") was abolished in early 1994 and wasreplaced by a system where government procurement of a limitedrange of goods will be accomplished through freely negotiatedcontracts with suppliers. Kyrgyzstan's ESAF program requires the government tofinance the budget deficit primarily through foreign loans, notthe central bank. The budget deficit was 8.2% of GDP inSeptember 1994. The deficit arises from social programs (52.5percent of all budget expenditures) and financing of stateowned enterprises (15 percent). To increase revenues, theKyrgyz government is restructuring the entire tax system. In1994, the Ministry of Finance was empowered to exercise controlover all revenue raising agencies, such as the State TaxInspectorate and State Customs Administration, both of whichare now structural units of the Ministry of Finance. The TaxPolice Department, also established in 1994, reports directlyto the government. It is expected that a new treasury systemwill cover all budget transactions nationwide by December 1994.2. Exchange Rate Policy Interbank foreign exchange auctions were held twice a week,with the exchange rate of the som depreciating from 8.03 somsto the dollar in January to 10.6 soms in October. The highestpoint of depreciation was observed in May when the dollar wastraded for 12.45 soms. Since early 1994 all foreign exchange bureaus along withthe commercial banks have been permitted to buy hard currencywithout any restrictions. This resulted in a sharp narrowingto about three percent of the margin between the officialauction rate and those of the commercial banks, exchangebureaus and the black market. At the end of October the latterranged from 10.6 to 10.9. The NBK intends to eventually replace foreign exchangeauctions by direct sales and purchases in the fledglinginterbank market.3. Structural Policy In 1994 Kyrgyzstan continued its privatization program. Todate, 4,800 small and medium size enterprises, constitutingabout fifty percent of all state enterprises, have beenprivatized. The rate of privatization is highest in theservice sector (99 percent), followed by trade and publiccatering (93 percent), and then industry (46.5 percent).Privatized enterprises make up 38.1 and 34.5 percent of theconstruction and agricultural sectors, respectively, and a muchsmaller percentage in the transportation and wholesale sectors. Pricing Policies: Price liberalization continued in 1994.The list of goods and services whose prices continued to beregulated was further reduced. Prices for electricity weredoubled both for residential and industrial consumers inSeptember 1994, whereas natural gas prices were raisedfivefold. However, prices for electricity, natural gas, andheat remain partially subsidized. The government will adjustthem in stages with the objective of full coverage of the costof energy by the end of 1995. Liberalization of bread priceson February 17, 1994 caused prices to double; by September theyhad risen another 50 percent. State subsidies for bread arescheduled to be eliminated by mid-1995 when state-ownedbakeries are privatized. Tax Policies: Kyrgyzstan's major source of governmentrevenue is the value-added tax (VAT - 20 percent) andenterprise profit taxes (35 percent). In order to reverse therapid decline in tax revenues, the government intends tobroaden the base of the VAT, impose a higher excise tax onimported luxury goods, and introduce other taxes and fees. Asa temporary emergency measure, in September 1994, thegovernment introduced a five percent sales tax on retailtransactions. Imported raw materials and components labeledfor foreign investment production are exempt from customsduties. Foreign Investment: Under Kyrgyzstan's foreign investmentlaw, "the legal status and conditions of foreign investmentwill never be less favorable than the status and conditions ofinvestment by juridical persons and citizens of the KyrgyzRepublic." In May 1993, Kyrgyzstan's parliament adoptedseveral amendments to the law on foreign investment of February1992. The new version of the law extends tax exempt status toforeign investors in all sectors with the following graceperiods: five years in manufacturing and construction; threeyears in mining, agriculture, transportation andcommunications; and, two years in trade, tourism, banking, andinsurance. After expiration of the initial tax-free period,the taxes imposed on profits will be reduced, as follows: by 50percent on profits reinvested in Kyrgyzstan; by 25 percent ifno less than 50 percent of the enterprise's products andservices are exported; by 25 percent if not less than 50percent of production is derived from imported raw materialsand components; and by 25 percent if no less than 20 percent ofthe profit is spent on professional training. The law alsoguarantees the right of foreign investors to repatriate theirprofits. In 1993, a special commission on foreign investmentwas created under the government (Goskominvest) withresponsibility for registering and assisting foreign investors. In September 1994 a presidential decree was issued amendingthe Foreign Investment Law and providing further investmentincentives. In particular, foreign investors are exempt from afive percent tax imposed on exported profits.4. Debt Management Policies In a July 1992 bilateral agreement, the Russian Federationtook over responsibility for Kyrgyzstan's share of the formerSoviet Union's external debt in return for Kyrgyzstan's shareof the former Soviet Union's external assets. Loans from foreign countries and international financialorganizations amounted to $197.5 million, of which 24.1 million(interest payments) were to be paid in 1994. Thus as apercentage of GDP, the external debt is expected to increasefrom 17.9 percent in 1993 to 19.3 percent in 1994.5. Significant Barriers to U.S. Exports Kyrgyzstan lacks hard currency and, despite liberalizedforeign exchange laws, repatriation of earnings is difficult.Kyrgyzstan's ability to import goods and technologies whichrequire payment in hard currency is therefore severelylimited. In addition, inadequate telecommunications andbanking facilities as well as extremely high transportationcosts add further practical barriers to exporters. To normalize its trade and investment relations with theKyrgyz Republic, the United States has proposed a new networkof bilateral economic agreements. The U.S.-Kyrgyz tradeagreement, which provides reciprocal most-favored-nation (MFN)status, was concluded and entered into force in August 1992. The same year, the trade agreement was followed by theconclusion of an Overseas Private Investment Corporation (OPIC)incentive agreement offering political risk insurance and otherprograms to U.S. companies interested in investing inKyrgyzstan. In January 1993, a U.S.-Kyrgyz bilateralinvestment treaty (BIT) was signed establishing a bilaterallegal framework to stimulate investment in each other'scountry. The Treaty came into effect in December 1993.Further discussions are needed on the bilateral tax treaty,which would provide businesses relief from double taxation. 6. Export Subsidies Policies Kyrgyzstan inherited the Soviet legacy of subsidization ofstate enterprises but these subsidies are aimed at maintainingemployment and production, and not specifically at makingexports more competitive. In 1992, the U.S. Department of Commerce made a preliminaryfinding that uranium from Kyrgyzstan was being dumped in theUnited States. In October 1992, Commerce signed an agreementwith Kyrgyzstan to suspend the dumping investigation. 7. Protection of U.S. Intellectual Property A package of laws intended to protect intellectual propertyrights was introduced in Kyrgyzstan's parliament. However, theextraconstitutional dissolution of the parliament by thepresident in September 1994 prevented the parliament fromcompleting action on the measure. A newly structuredparliament is to be chosen in February 1995 and is expected toreview this proposed legislation. The U.S.-Kyrgyz tradeagreement includes commitments on protection of intellectualproperty.8. Worker Rights a. The Right of Association In February 1992 the government adopted a comprehensive lawwhich included provisions protecting the rights of all workersto form and belong to trade unions. The law requires a minimumof five workers to form a union. There is no evidence thatgovernment policy sought to obstruct the formation ofindependent unions. Unions are legally permitted to form andjoin federations and to affiliate with international tradeunion bodies. b. The Right to Organize and Bargain Collectively The law recognizes the right of unions to negotiate forbetter wages and conditions. While the right to strike is notcodified, strikes are not prohibited. In most sectors of theeconomy, wage levels continued to be set by government decree.Union members are protected by the law from antiuniondiscrimination. c. Prohibition of Forced and Compulsory Labor Forced or compulsory labor is forbidden except ingovernment prisons. d. Minimum Age for Employment of Children The minimum age of employment is 18. Students are allowedto work up to six hours per day in the summer or at part timejobs from the age of 16. The law has been largely observed.However, rapidly deteriorating economic conditions in thecountry have resulted in a growing number of children workingto help support the family. e. Acceptable Conditions of Work The standard workweek is 41 hours, usually within afive-day week. An April 1992 law established occupationalhealth and safety standards as well as enforcement procedures.Nonetheless, safety and health conditions in factories are farbehind Western standards. f. Rights in Sectors with U.S. Investment Rights and conditions in sectors with U.S. investment donot differ substantially from other sectors. However, workplaces or enterprises with U.S. investment have much betterconditions of work than the norm. U.S. companies have alreadyimproved conditions at some job sites.(###)</text>
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<text>U.S. DEPARTMENT OF STATEKUWAIT: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS KUWAIT Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1985 prices) N/A N/A N/AReal GDP Growth (pct.) 76.3 22.6 5.0GDP (at current prices) 2/ 18,762 23,000 12,076By Sector: Agriculture 46.0 71.0 39 Energy/Water - 340.0 323.7 178 Manufacturing 723.8 761.3 418 Construction 703.4 738.4 355 Rents N/A N/A N/A Financial Services 755.0 796.0 438 Other Services N/A N/A N/A Government/Health/Education 5,743.0 5,858.0 3,222Net Exports of Goods & Services -2,723 1,720 946Real Per Capita GDP (USD) 13,420 15,674 17,500Labor Force (OOOs) 600 735 745Unemployment Rate (pct.) 0.5 0.5 0.5Money and Prices: (annual percentage growth)Money Supply (M2) -0.58 5.7 2.19Base Interest Rate (pct.) 7.5 6.65 6.17Personal Savings Rate N/A N/A N/ARetail Inflation 5.0 5.0 3.0Wholesale Inflation N/A N/A N/AConsumer Price Index 3/ 110 110 110Exchange Rate (USD/KD) 3.40 3.32 3.40Balance of Payments and Trade:Total Exports (FOB) 6,693 10,554 5,400 Exports to U.S. 310 2,003 822Total Imports (CIF) 7,239 7,052 3,500 Imports from U.S. 1,327 1,009 498Aid from U.S. 0 0 0Aid from Other Countries 0 0 0External Public Debt 5,500 5,500 6,216Debt Service Payments (paid) N/A N/A 60Gold and Foreign Exch. Reserves 3,104 4,034 3,847Trade Balance -546 3,502 968 Trade Balance with U.S. -1,017 994 324N/A--Not available.1/ 1994 figures are for the first and second quartersonly.2/ For first half of year, annual rate would be USD 24,152.These statistics are based on the Central Bank of Kuwait's "TheEconomic Report 1990-1992" and "The Economic Report 1993."These reports reflects a number of post-liberation revisionsand additions in statistics. Hence, previous statisticalseries should be revised to reflect current data. Theestimates for the first two quarters of 1994 are U.S. Embassyestimates based on Central Bank of Kuwait data and generaltrends in the economy. The publications cited are availablefrom the Central Bank of Kuwait.3/ May 1990 equals 100 - actually the CBK domestic price index.1. General Policy Framework Kuwait is a politically stable emirate where rule of lawprevails. The press is free and commercial advertising isavailable. Arabic is the official language but English iswidely spoken. Kuwait has a small and relatively open,oil-rich economy which has created an affluent citizenry whobenefit from a generous welfare state. In 1989, Kuwait'spopulation was 2.3 million. Its current population is1,752,000, of whom approximately 669,000 are Kuwaiti citizens.Kuwait's proven crude oil reserves amount to approximately 94billion barrels (i.e., ten percent of total world reserves)making Kuwait, potentially, a very rich nation well into thenext century. The Kuwaiti economy has been subject to several severeshocks over the past two decades. These include a massiveincrease in government intervention and control of thecommercial economy during the late 1970's and early 1980's; thecollapse of the Souk al Manakh--an unregulated curbsidesecurities market--in 1982; the collapse of world oil pricesduring the mid-1980's; the Iraqi invasion of 1990 and themassive rebuilding effort undertaken after the liberation in1991. The Kuwaiti budget for FY 94/95 will be in deficit byover 1.7 billion Kuwaiti Dinars (USD 5.8 billion). Revenueswill be KD 2,637.2 billion, virtually all from oil. FY 94/95revenues will be 6.5 percent less than FY 93/94 projectionswhile expenditures will be 11 percent higher than FY/94. Thedeficit increase is caused in part by the inclusion in thebudget of almost KD 450 million (USD 1.5 billion) of armspurchases that were included in supplemental budgets ratherthan the regular budget. A World Bank report summary, published in the local Englishpress in the summer of 1993, advocates an economic program thatwill reduce the deficit, privatize many government-ownedcompanies and services, reduce subsidies and promote employmentof Kuwaiti citizens in the private sector. Most officialsagree with the overall conclusions of the report. That said,little has been done to date to move toward specificimplementation of the report's recommendations. A "difficult debts" law passed the National Assembly in1993. The Government of Kuwait purchased the commercial debtsof the banking system with USD 20 billion worth of governmentbonds. The debtors were given the option of a twelve-yearinterest-free rescheduling of their debt or an "immediatepayment" of approximately 45 percent of the balance of thedebt. Local banks are administering the program for theGovernment of Kuwait. The law contains a September 1995"immediate payment" deadline which has led to a moreconservative investment posture on the part of the privatesector. There may be revisions in the regulations governingthe law.2. Exchange Rate Policies There are no restrictions on current or capital accounttransactions in Kuwait, beyond a requirement that all foreignexchange purchases be made through a bank or licensed foreignexchange dealer. Equity, loan capital, interest, dividends,profits, royalties, fees and personal savings can all betransferred in or out of Kuwait without hindrance. The CentralBank maintained this policy during the uncertainties of October1994 when Iraq mounted a serious threat on Kuwait's border.The Kuwaiti Dinar itself is freely convertible at an exchangerate calculated daily on the basis of a basket of currencieswhich reflects Kuwait's trade and capital flows. In practice,the Kuwaiti Dinar has closely followed the exchange ratefluctuations of the U.S. Dollar over the past year, as theDollar makes up over half of the basket.3. Structural Policies As a member of the Gulf Cooperation Council (GCC), Kuwaitplays a part in GCC efforts to promote economic integrationamong its member states. In practice, this means duty freeimports from other GCC states and adoption of some GCC productstandards. There are three basic points worth noting about thegovernment's structural policies in Kuwait. First, policies asa body tend to strongly favor Kuwaiti citizens andKuwaiti-owned companies. Income taxes, for instance, are onlylevied on foreign corporations and foreign interests in Kuwaiticorporations, at rates that may range as high as 55 percent ofall net income. Individuals are not subject to income taxes,which eliminates one government tool used in other countries toinstitute social or investment policies. Foreign investment,similarly, is welcome in Kuwait, but only in select sectors asminority partners and only on terms compatible with continuedKuwaiti control of all basic economic activities. Moreover,some sectors of the economy--including oil, banking, insuranceand real estate--have traditionally been closed to foreigninvestment. There are proposals to allow foreign equity participationin the banking sector (up to 40 percent) and in the upstreamoil sector (terms still to be determined). Foreigners (withthe exception of nationals from some GCC states) are forbiddento trade in Kuwaiti stocks on the Kuwaiti Stock Exchange exceptthrough the medium of unit trusts. Foreign nationals, who represent a majority of thepopulation, are prohibited from having majority ownership invirtually every business other than certain smallservice-oriented businesses and may not own property (there aresome exceptions for citizens of other GCC states). In pastyears, as part of its deliberate demographic policy to reducethe number of expatriates in the country, the government alsomade it difficult for foreign workers to sponsor their familiesfor residency by installing high minimum wage requirements forthe individual workers wishing to apply for family visas.Currently, third-country nationals employed in the privatesector must earn approximately $2,000 a month, while publicsector employees must earn $1,400 a month in order to sponsortheir families in Kuwait. This is currently under review andthe income levels may be reduced to permit more families tocome to Kuwait. Families may elect to stay in their country oforigin, however, since the cost of living is comparativelyhigher in Kuwait than in other Arab or South Asian countries.Finally, in labor markets, resident foreign nationals aresubject to stringent visa requirements, special taxes and feesthat are intended to both discourage their employ and limittheir tenure in Kuwait. Biases are also in place in regard to trade. Governmentprocurement policies, for instance, generally specify localproducts, when available, and prescribe a 10 percent priceadvantage for local companies on government tenders. There isalso a blanket agency requirement, which requires all foreigncompanies trading in Kuwait to either engage a Kuwaiti agent orestablish a Kuwaiti company with majority Kuwaiti ownership andmanagement. Secondly, price signals are only partially operational inKuwait. In many ways, Kuwait is still a welfare state in whichmany basic products and services are heavily subsidized.Water, electricity and motor gasoline are relativelyinexpensive. Basic foods are subsidized. Local telephonecalls are free (after payment of an annual subscription fee),as is public education and medical care. In most cases, thesesubsidies are available to all residents of Kuwait; in somecases, however, the so-called "first line commodities" (such asmedical care overseas, free or cheap building lots andsubsidized home mortgages) the subsidies are reserved forcitizens of Kuwait. Finally, and perhaps most importantly of all, some majoraspects of this system of preference and privilege may be underscrutiny. The budget deficit and Kuwait's share of theadditional expenses of the October 1994 "Vigilant Warrior"exercise undertaken in response to Iraqi provocations hashighlighted the need for Kuwait to contemplate the World Bankrecommendations, particularly reduced subsidies, increased feesand possible taxes on Kuwaitis and expatriates. A proposal fora short-term, emergency wage tax was quickly killed andreplaced with a system of voluntary donations for the nationaldefense.4. Debt Management Policy Prior to the Gulf War, Kuwait was a significant creditor tothe world economy, having amassed a foreign investmentportfolio, under the auspices of the Kuwait InvestmentAuthority, that variously have been valued at between USD 80billion and USD 100 billion. A current reasonable estimate ofthe value of Kuwait's performing assets in the FutureGenerations Fund would be in the range of USD 35 to 39 billion. Kuwait owes a USD 5.5 billion jumbo loan to foreign banksand other amounts to official export credit agencies (ECA).According to Government of Kuwait officials, these obligationswill be paid on schedule and according to terms. In 1995,Kuwait is scheduled to pay USD 2.486 billion which willincrease to USD 3.298 billion in 1996.5. Significant Barriers to U.S. Exports There are few significant barriers to U.S. exports inKuwait. Tariffs are low (currently, no higher than fourpercent on any product), although there are proposals to raisesome tariffs on January 1, 1995, as part of a GCC"harmonization upward," which contradicts efforts in most othercountries to lower tariffs. There are also revenue reasons forconsidering tariff increases. Kuwait is a Muslim country and does not permit the importof alcohol or pork from any country. It continues toparticipate in the Arab League primary boycott of Israel.Kuwait has renounced the secondary and tertiary boycotts ofIsrael. Boycott questions involving U.S. firms should bereferred to the U.S. Embassy in Kuwait or to responsible U.S.Government agencies in the U.S. Finally, Kuwait has a newoffset program which will establish significant investmentand/or countertrade obligations for all foreign suppliers inthe case of all government contracts in excess of KD 1.0million (USD 3.40 million).6. Export Subsidies Policies Kuwait does not directly subsidize any of its exports,which consist almost exclusively of crude oil, petroleumproducts and fertilizer. Almost 98 percent of Kuwait's food isimported. Small amounts of local vegetables are grown byfarmers receiving government subsidies, and small amounts ofthese vegetables are sold to neighboring countries. However,not enough of these vegetables are grown or sold to make anysignificant impact on local or foreign agricultural markets.Periodically, Kuwait cracks down on the re-export of subsidizedimports such as food and medicine.7. Protection of U.S. Intellectual Property Kuwait is a founding member of the new World TradeOrganization. In keeping with related obligations under theUruguay Round/ Trade Related Intellectual Property Agreement(TRIPS) it will have to begin to implement laws and practicesconsistent with international conventions on intellectualproperty protection (notably the Berne Convention for theProtection of Literary and Artistic Works and the ParisConvention for the Protection of Industrial Property.)Currently, intellectual property rights protection is extremelyminimal in Kuwait. Kuwait is not party to any worldwideconventions for the protection of intellectual propertyrights. Kuwait's laws do not address important areas ofintellectual property and those areas which are addressed inlaw do not provide adequate deterrents to piracy. Kuwait has no copyright law, with the result that there isnow a large, overt market for pirated software, cassettes andvideotapes, as well as unauthorized Arabic translations offoreign language books. A draft copyright law being preparedby the Government of Kuwait was still not complete by the endof 1994. There is concern that the content of the draft maystill not include adequate protection for foreign works, soundrecordings or compilations of facts and data. The adequacy ofterms of protection for various types of works and the need fordeterrent penalties for infringement are also concerns the U.S.has raised with officials in the Kuwaiti government. Kuwait has had patent and trademark laws since 1962, butthe penalties under both are so low (a maximum fine of USD2,100) as to be effectively irrelevant in deterring illegalactivities. The patent law excludes certain products such aschemical inventions involving foods, pharmaceuticals and othermedicines, from protection. Among patentable products andprocesses it offers a term of protection of only 15 rather thanthe more conventional 20 years. It also contains extraordinaryprovisions for compulsory licensing whenever a patent isinsufficiently used in Kuwait or is of "great importance tonational industry."8. Worker Rights a. The Right of Association Kuwait is a member of the International Labor Organization(ILO) and has ratified the 1948 ILO Convention 87 on Freedom ofAssociation. Both Kuwaiti and non-Kuwaiti workers have the right toestablish and join unions but the government restricts theright of association by limiting the number of unions which maybe established. There are certain additional restrictions onnon-Kuwaiti workers. In 1994, 28,400 workers in Kuwait wereorganized as union members; non-Kuwaitis constituted 33 percentof unionized workers. New unions must have at least 100 members, 15 of whom mustbe Kuwaiti. Expatriate workers, who comprise about 80 percentof the labor force in Kuwait, are allowed to join unions afterfive years residence, but only as nonvoting members. Inpractice, foreign workers can join unions after one year. One law requires that workers may establish only one unionin any occupational trade, and that the unions may establishonly one federation. Both the ILO and InternationalConfederation of Free Trade Unions (ICFTU) have criticized thisrequirement since it discourages unions in sectors employingfew Kuwaiti citizens (e.g. in construction). b. The Right to Organize and Bargain Collectively Although legally unions are independent organizations, infact, the government maintains a large oversight role withregard to their financial records: 90 percent of union budgetsare in the form of government subsidies. Unions must alsofollow a standard format for internal rules andconstitutions,which includes prohibitions of any involvement in domesticpolitical, religious, or sectarian issues. In practice, theselimitations have not prevented unions from engaging in a widerange of activities. A court (under certain circumstances) orthe Amir may dissolve a union. In practice, no union has beendissolved in either manner. Kuwaiti citizen union members havethe right to elect representatives of their own choosing,provided the candidates are also Kuwaitis and can demonstratethat they have no criminal record. All but two unions, the Bank Workers Union and the KuwaitAirways Workers Union, are affiliated with the Kuwait TradeUnion Federation (KTUF). The KTUF consists of nine civilservice unions and three oil sector unions, but the oil unionshave equal representation (36 members) in the 72-member KTUFAssembly. The KTUF belongs to the International Confederationof Arab Trade Unions and the formerly Soviet-controlled WorldFederation of Trade Unions. The KTUF opened an "Expatriate Labor Office," responsiblefor resolving problems between foreign workers and theiremployers in the private sector. The office is not connectedwith the government. It provides assistance to all foreignlaborers, regardless of whether or not they are union members. The right to strike is recognized, but limited by Kuwait'slabor law, which stipulates compulsory negotiation, followed byarbitration if a settlement cannot be reached between labor andmanagement. There are no specific legal provisos to prohibitretribution against strikers and strike leaders. Despitelimitations, strikes do occur. In 1994, one strike was calledby cleaning personnel in Kuwaiti schools for a pay raise; thesecond, by security guards at the Social Welfare Home overunpaid wages. The majority of these workers were expatriates. The ILO has critized: Kuwait's prohibition on more than onetrade union for a given field; the requirement that a new unionmust have at least 100 workers; the five-year residencerequirement for foreign workers to join a trade union; thedenial to foreign trade unionists voting rights and the rightto be elected to union positions; the prohibition against tradeunions engaging in any political or religious activity; and thereversion of trade union assets to the Ministry of SocialAffairs and Labor in the event of dissolution.c. Prohibition of Forced or Compulsory Labor The Kuwaiti Constitution prohibits forced labor "except inthe cases specified by law for national emergencies and withjust remuneration." Nonetheless, there continue to be crediblereports that foreign nationals employed as domestic servantshave been denied exit visas absent their employers' consent.Kuwaiti sponsorship is necessary in order to obtain a residencepermit and foreign workers cannot change their employmentwithout permission from their original sponsors. Domesticservants are particularly vulnerable to abuses from thispractice because they are not protected by Kuwaiti labor law.In addition, domestic servants who run away from theiremployers can be treated as criminals under Kuwaiti law forviolations of their work and residence permits, especially ifthey attempt to work for a new employer without permits. Sponsors frequently hesitate to grant their servantspermission to change jobs because of the financial investment(travel, medical examinations and visas) made before they evenarrive in Kuwait (often USD 700-1,000). In many cases,employers can exercise control over servants by holding theirpassports. The practice is prohibited, however, and thegovernment has acted to retrieve passports of maids involved inwork disputes. There are some reports employers illegallywithheld wages from domestic servants to cover the costsinvolved in bringing them to Kuwait. The government has donelittle, if anything, to protect domestics in such cases. d. Minimum Age for Employment of Children Under Kuwaiti law, the minimum employment age is 18 yearsfor all forms of work, both full- and part-time. Compulsoryeducation laws exist for children between the ages of 6 and15. The Minister of Social Affairs and Labor is charged withenforcing minimum age regulations. The laws are not fullyobserved in the nonindustrial sector, although no instancesinvolving Kuwaiti children have been alleged. Children may beemployed part-time in small family businesses. There have beenunconfirmed reports of some South Asian domestics under 18 whofalsified their age to enter Kuwait. Employers may obtain Ministry permits to employ juveniles(14-18 years old) in certain trades. Juveniles may work amaximum of six hours daily, provided they work no more thanfour consecutive hours followed by at least an hour of rest.e. Acceptable Conditions of Work The Ministry of Social Affairs and Labor is responsible forenforcing all labor laws. A two-tiered labor market ensureshigh wages for Kuwaiti employees while foreign workers,particularly unskilled laborers, receive substantially lowerwages. In 1993, the minimum wage in the public sector, set bythe government, was appropriately USD 630 a month (180 KuwaitiDinars) for Kuwaitis and approximately USD 315 a month (90Kuwaiti Dinars) for non-Kuwaitis. There is no legal minimumwage in the private sector although occasionally it has beensuggested. The labor law establishes general conditions of work forboth the public and the private sectors, with the oil industrytreated separately. Women are permitted to work throughout theoil industry, except in hazardous areas and activities, withequal pay for equal work. The civil service law prescribesadditional conditions for the public sector. It limits thestandard workweek to 48 hours with one full day of rest perweek, provides for a minimum of 14 days of leave annually, andestablishes a compensation schedule for industrial accidents. Foreign laborers frequently face contractual disputes, poorworking conditions and, in some cases, physical abuse.Domestic servants, excluded from the purview of Kuwait's laborlaws, frequently work hours greatly in excess of 48 hours.Recourse is uneven. Domestic servants from Asian countrieshave complained in some cases of the lack of assistance fromtheir embassies. In other cases, embassies have foundedshelters for abused domestics and worked with the Kuwaitigovernment to repatriate workers who wished to return home. The ILO has urged Kuwait to guarantee the weekly24-consecutive-hour rest period to temporary workers employedfor a period of less than six months and workers in enterprisesemploying fewer than five persons. In November 1994, thegovernment received an ILO Expert Delegation for consultationson possible labor reform. Laws and regulations do exist on health and safety, medicalcare and compensation. However, compliance and enforcementappear poor, especially regarding unskilled foreign laborers.While Kuwaiti employers have been known to exploit workers'willingness to accept substandard conditions, workers canremove themselves from hazardous work situations withoutjeopardizing their jobs, and legal protections exist forworkers who file complaints. The government periodicallyinspects installations to raise awareness among workers andemployers and ensure that they abide by the rules.f. Rights in Sectors With U.S. Investment The only significant U.S. investment in Kuwait is in thedivided zone between Kuwait and Saudi Arabia, where one U.S.oil company, working under a Saudi concession, operates underand in full compliance with the Kuwaiti labor law that appliesto the oil sector. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 0 Food & Kindred Products 0 Chemicals and Allied Products 0 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 0Wholesale Trade 0Banking 0Finance/Insurance/Real Estate (2)Services (1)Other Industries 8TOTAL ALL INDUSTRIES (1)(1) Suppressed to avoid disclosing data of individual companies(2) Less than $500,000Source: U.S. Department of Commerce, Bureau of Economic Analysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEKOREA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS Since July 1991, South Korea has been suspended from U.S.Overseas Private Investment Corporation (OPIC) insuranceprograms because of the limits placed on the freedom ofassociation and other worker rights. b. Right To Organize and Bargain Collectively The Constitution and the Trade Union Law guarantee theautonomous right of workers to enjoy collective bargaining andcollective action. Although the Trade Union Law is ambiguous,the authorities, backed up by the courts, have ruled that unionmembers cannot reject collective bargaining agreements (CBAS)signed by management and labor negotiators. Nonetheless, unionmembers continue to reject CBAS agreed to by labor andmanagement negotiators. Extensive collective bargaining ispracticed. Korea's labor laws do not extend the right tobargain collectively to government employees, includingemployees of state or publicly run enterprises and defenseindustries. Korea has no independent system of labor courts. TheCentral and Local Labor Commissions form a semiautonomousagency of the Ministry of Labor that adjudicates disputes inaccordance with the Labor Dispute Adjustment Law. The Lawauthorizes labor commissions to start conciliation andmediation of labor disputes after, not before, negotiationsbreakdown and the two sides are locked into their positions.Labor-management antagonism remains a serious problem, and somemajor 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 toinvoluntary labor, except as provided by law and through lawfulprocedures. Forced or compulsory labor is not condoned by thegovernment. d. Minimum Age for Employment of Children The Labor Standards Law prohibits the employment of personsunder the age of 13 without a special employment certificatefrom the Ministry of Labor. Because education is compulsoryuntil the age of 13, few special employment certificates areissued for full-time employment. Some children are allowed todo part-time jobs such as selling newspapers. In order to gainemployment, children under 18 must have written approval fromtheir parents or guardians. Employers may require minors towork only a reduced number of overtime hours and are prohibitedfrom employing them at night without special permission fromthe Ministry of Labor. e. Acceptable Conditions of Work Korea implemented a minimum wage law in 1988. The minimumwage level is reviewed annually. Companies with fewer than tenemployees are exempt from this law, but, due to tight labormarkets, most firms pay wages well above the minimum levels.The Labor Standards and Industrial Safety and Health Lawsprovide for a maximum 56-hour workweek, and a 24-hour restperiod each week. Amendments to the Labor Standards Law passedin March 1989 brought the maximum regular workweek down to 44hours, but such rules are sometimes ignored, especially bysmall firms. The government sets health and safety standards, but SouthKorea suffers from unusually high accident rates. The Ministryof Labor employs few inspectors, and its standards are noteffectively enforced. 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 to a lesser degree, electric and electronicmanufacturing. Workers in these industrial sectors enjoy thesame legal rights of association and collective bargaining asworkers in other industries. Manpower shortages are forcinglabor-intensive industries to improve wages and workingconditions, or move offshore. Working conditions at U.S.-ownedplants are for the most part better than at Korean plants. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 74Total Manufacturing 1,236 Food & Kindred Products 268 Chemicals and Allied Products 212 Metals, Primary & Fabricated 50 Machinery, except Electrical 39 Electric & Electronic Equipment 186 Transportation Equipment 59 Other Manufacturing 422Wholesale Trade 245Banking 1,231Finance/Insurance/Real Estate 169Services 24Other Industries 23TOTAL ALL INDUSTRIES 3,001Source: U.S. Department of Commerce, Bureau of EconomicAnalysis</text>
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<text>U.S. DEPARTMENT OF STATEKOREA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS SOUTH KOREA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 /1Income, Production and Employment:Real GDP Growth (pct.) 5.1 5.5 7.6GDP (at current prices) /2 307,919 330,819 371,600By Sector: Agriculture/Forestry/Fisheries 22,807 23,402 26,012 Manufacturing 85,449 89,647 100,698 Electricity/Gas/Water 6,770 7,575 8,509 Construction 42,104 45,133 50,696 Financial Services 51,137 56,439 63,396 Other Services 57,887 62,431 70,127 Government/Health/Education 60,048 65,662 73,756 Net Exports of Goods & Services -3,083 1,318 -1,900Per Capita GDP (USD) 7,046 7,501 8,350Labor Force (000's) 19,426 19,803 20,800Unemployment Rate (pct.) 2.4 2.8 2.6Money and Prices: (annual percentage rate)Money Supply (M2) 18.4 18.6 15.0Yield on Corp. Bonds (pct.) /3 16.2 12.6 12.5Personal Saving Rate /3 27.1 26.4 27.0Retail Inflation 6.2 4.8 6.3Wholesale Inflation 2.2 1.5 2.5Consumer Price Index (1990 base) 116.1 121.7 129.4Average Exchange Rate (US$/1,000 won) 1.281 1.246 1.245Balance of Payments and Trade:Total Exports (FOB) /4 76,632 82,234 92,500 Exports to U.S. 18,090 18,138 19,590Total Imports (CIF) /4 81,775 83,800 97,208 Imports from U.S. 18,287 17,928 20,384Aid from U.S. 0 0 0Aid from Other Countries 0 0 0External Debt /5 42,819 43,870 46,000Debt Service Payments 5,478 5,500 6,000Gold and Foreign Exch. Reserves 17,154 20,262 23,500Trade Balance /4 (cost. basis) -5,143 -1,566 -4,708 Balance with U.S. (cost. basis) -197 210 -7941/ 1994 figures are all estimates based on available monthlydata as of October 1994.2/ GDP at factor cost.3/ Figures are actual, average annual interest rates, notchanges in them.4/ Merchandise trade.5/ Includes non-guaranteed private debt.1. General Policy Framework The South Korean Government's economic policies havetraditionally emphasized rapid export-led development and theprotection of domestic industries. Government intervention inthe economy to promote these objectives has been pervasivethroughout the post-Korean war era. Restrictions on foreignparticipation in the economy through trade and investment havebeen common. In the latter part of the 1980s, removal ofexplicit import prohibitions and steadily increasing domesticdemand began to push Korea toward a more mature stage ofeconomic development. Some Korean policy makers recognize theneed to deregulate and modernize, but are still influenced bythe dirigism of past governments. The Korean economy is on the rebound. Growth has beenaccelerating since mid-1993, and real GDP in the first half of1994 rose 8.5 percent over year-earlier levels. Industrialproduction may climb about 10 percent in 1994, and the capacityutilization rate in factories exceeds 80 percent. Theexpansion is investment-led, as the large conglomeratesimplement ambitious plans to modernize and expand facilities.Exports, aided by the strength of the yen, remain brisk in1994, although imports are even more buoyant. Imports from theUnited States are growing at double-digit rates. Consumptionspending, which accounts for over half of total GDP, is risingalong with optimism about the economy. Real GDP growth, whichaveraged 5.5 percent in 1993, will exceed 7 percent in 1994. Despite faster growth, the economy displays few signs ofoverheating. Consumer prices jumped 3.3 percent betweenDecember 1993 and March 1994 due to food product shortages andpublic service tariff hikes, but inflation has sincemoderated. To forestall serious inflation, the Bank of Koreaintends to hold money supply growth toward the bottom of its14 to 17 percent target range in the latter half of 1994. ROKG macroeconomic policy was lauded in a 1994 OECD reviewof the Korean economy. Government spending and taxes as ashare of GNP, as well as the fiscal deficit, are low byinternational standards. Moreover, the quality of publicexpenditure is high, with an emphasis on education and publicworks rather than transfer payments. The national savings ratehas climbed dramatically since the ROKG made inflation controla priority in the early 1980s, and now roughly equals the grossinvestment ratio at about one third of GNP. At the microeconomic level, however, governmentintervention is extensive and costly in terms of economicefficiency. The prices of many products are de factocontrolled. The ROKG allocates credit according to firm sizeand must approve all bond and stock issuances. Most overseascapital transactions are tightly controlled. Investment andproduct safety regulations inhibit domestic competition anddiscriminate against foreigners. ROKG task forces have beencommissioned to rid the economy of obstructive and redundantregulations, but thus far progress has been marginal.2. Exchange Rate Policies The won has appreciated against the dollar by about onepercent between January and October 1994. On the other hand, asharp fall in the external value of the won against the yen hasgiven Korean heavy industries price advantages over theirJapanese rivals. The U.S. Treasury has reported to the U.S. Congress that itfinds no evidence of direct exchange rate manipulation by theKorean authorities to gain competitive advantage. However,Treasury noted that stringent foreign exchange and capitalcontrols distort trade and investment flows and frustrate theemergence of a truly market-determined exchange rate.3. Structural Policies South Korea's economy is based on private ownership of themeans of production and distribution. The government, however,has actively intervened in the South Korean economy through lowinterest "policy loans," and discretionary enforcement ofregulatory policies. This has resulted in a high degree ofconcentration of capital and industrial output in a smallnumber of large business conglomerates, or "chaebols." Themost recent Korean government estimates indicate that the30 largest chaebols account for 45 percent of the total capitalof the domestic financial sector, and 28 percent of totalmanufacturing capacity. The Korean government uses tax auditsand a tight grip on the financial sector to maintain effectivecontrol over Korean industry. Historically, the import regime in Korea was structured toallow easy entry of raw materials and capital equipment neededby competitive export industries while consumer imports wereseverely restricted. Since the mid-1980s the Republic of Koreahas eliminated most explicit import prohibitions outside of theagricultural area. Many of the problems U.S. exporters nowexperience in South Korea are rooted in the maze of regulationswhich make up complicated licensing requirements, rules forinspection and approval of imported goods, country of originmarking requirements, and other standards often inconsistentwith international norms. January 1992 marked the beginning of the Presidents'Economic Initiative (PEI), a bilateral cooperative effort toeliminate generic barriers in the areas of standards andrule-making, customs and import clearance, technology, andinvestment. The PEI lists of recommendations in these threecritical areas built on the results of the 1989 Super 301Agreements and addressed key doing-business concerns of U.S.firms. After more than a year of discussions, the PEI workinggroups issued reports on implementation in June 1993.Significant progress was made by Korea in carrying out therecommendations in all areas except investment, but both sidesrecognized the need for additional work on generic issues ingeneral and on investment in particular. Also, both partiesagreed that the cooperative format had been a success andwanted to continue talking. In June 1993, the undersecretary-level Economic Subcabinetlaunched the Dialogue for Economic Cooperation (DEC), ayear-long intensive effort to address systemic issues ofderegulation and economic cooperation. The DEC was endorsed byPresidents Clinton and Kim during their July 1993 meetings inSeoul. The DEC established counterpart groups to examinespecific problems in the areas of taxation, administrativeprocedures, import clearance, and competition policy, while theplenary sessions dealt with foreign direct investment issues.At the June 1994 Economic Subcabinet meeting, the U.S. sideassessed the DEC as moderately successful. Both sides agreedto use the following year to implement the results of the DEC,including continued meetings of the counterpart groups.4. Debt Management Policies Foreign debt management is no longer a critical issue forthe ROKG. Korea's gross foreign debt will total an estimated$46 billion by the end of 1994, while debt service as a shareof goods and service exports is around six percent. Netforeign debt, taking into account Korea's numerous overseasassets, is approximately $10 billion. In 1995 the Republic of Korea will graduate from its statusas a World Bank loan recipient. In September 1991 thegovernment formally filed a graduation plan which included afour-year phaseout period agreed upon with World Bank officials.5. Significant Barriers to U.S. Exports Formal barriers to imports have fallen, although Korea hasraised new, more subtle, secondary barriers that effectivelyprevent the widespread liberalization envisioned under themajor trade initiatives of the late 1980s. A five-year tariffreduction plan ended in 1994, when Korean tariff rates averaged7.9 percent. As part of the Uruguay Round settlement, thegovernment will continue to reduce tariffs. However, the"tariffication" of some agricultural items formerly subject toquotas may keep the average tariff rate high by internationalcomparison. Korea ratified the Uruguay Round agreements andbecame a founding member of the World Trade Organization (WTO)on January 1, 1995. Korean safeguard regulations permit the government toimpose special "emergency tariffs" of up to 100 percent onimported goods to protect domestic industry. Seoul also uses"adjustment tariffs" to cushion the impact of liberalization ofimport restrictions. In 1993 Korea removed canned pork fromthe list of U.S. products affected by emergency tariffs.Batteries and glass products remain on the list. One of the most pervasive remaining formal barriers to U.S.exports to Korea is the restriction on the ability to import oncredit. Use of limited deferred payment terms (generally 60-90days) is restricted to items with a tariff of ten percent orless, which are generally raw materials. Use of deferredpayment terms for other goods requires a license from theForeign Exchange Bank and permission from the Governor of theBank of Korea; permission is rarely granted. U.S. firmsestimate that they could increase exports by up to one third ifKorean firms were allowed to buy on credit. Licenses are required for all imports to Korea, but theyare usually granted automatically, except for prohibited orregulated goods. These goods now include around 150 mostlyagricultural products. Under Korea's agreement to phase outits GATT balance of payments (BOP) restrictions, the governmentis committed progressively to eliminate most of these importrestrictions by 1997. In April 1994, the governmentreconfirmed this commitment and added a number of key items aspart of the Uruguay Round agreements; some of the items willnot be liberalized until the year 2000. Korea agreed in the Uruguay Round to eliminate balance ofpayments restrictions on beef by December 31, 2000. A July1993 U.S.- Korea bilateral beef agreement outlines minimummarket access levels for 1993 through 1995. Under thisagreement, operation of the current"simultaneous-buy-sell-system" (SBS) portion of the market willbe greatly improved by the prohibition of the activeinvolvement of the Korean government. The number of SBSparticipants will also increase during the course of theagreement to include non-tourist hotels, meat processors, andmany supermarkets, as well as the tourist hotels and others whocurrently have access to the system. Standards, licensing, registration, and certificationrequirements effectively limit U.S. exporters' access to theKorean market. Unreasonably tough and arbitrarily-enforcedstandards and labelling requirements have adversely affectedU.S. exports of a wide variety of consumer products, includingappliances and electronic equipment. Registration requirementsfor products such as chemicals and cosmetics hamper entry intothe market and often require U.S. firms to release detailedproprietary information on the composition of their products. Effective January 1, 1993, a Prime Ministerial Decreeoutlined improved procedures for standards and rules-making,including a requirement for public notice, minimum commentperiods, and an adjustment period prior to implementation.However, the decree does not have the force of law. Thegovernment plans to introduce a full-fledged AdministrativeProcedures Act in 1995. Administrative procedures were one ofthe principal topics of discussion in the DEC. The UnitedStates hopes to influence the plans for the AdministrativeProcedures Act and has commented on intermediate regulations. The Korean government has begun to implement a five-yearprogram of financial sector reforms, announced in May 1993, toreduce controls on banks and other financial institutions.Measures taken to date include the lifting of many controls oninterest rates, removing documentation requirements on mostforward foreign exchange contracts, and easing slightly foreignbanks' access to won currency funding. However, under thetimetable for reform some critical measures, such as full wonconvertibility and freedom of capital movements, are notscheduled to be achieved until 1997. Moreover, in a number ofareas government restrictions continue to deny nationaltreatment to foreign banks and securities firms. For example,foreign banks face significant impediments in the form of avariety of funding and lending limits tied to local branch (asopposed to global) capital, difficulties in obtaining approvalfor new financial products, and requirements to capitalize eachsub-branch separately. Foreign securities firms must meetextremely high capital requirements and may not place ordersfor foreign securities on behalf of Korean clients. Changes in regulations announced in June 1994 resulted in astreamlining of foreign investment applications procedures andthe easing of a number of barriers to direct foreigninvestment. At the same time the government announcedaccelerated opening of several sectors that had previously beenclosed to foreign investors. Earlier changes to laws andregulations governing foreign purchases of land made it easierfor foreign-invested companies to purchase land for staffhousing and business purposes. Despite these improvements, U.S. investment in Koreacontinue to face a number of significant barriers.Restrictions on access to offshore funding, including offshoreborrowing, intracompany transfers, and intercompany loans areparticularly burdensome for foreign-invested companies.Foreign equity participation requirements remain in somesectors, and licensing requirements, economic needs tests, andother regulatory restrictions limit foreign investment insectors that are nominally open to foreign investors.Investment in most professional services remains restricted forforeign firms. Downstream services by foreign firms remainrestricted. Retail distribution by foreign-invested firms, forexample, is subject to limits on the number of outlets andfloor spaces. These restrictions will not be lifted until 1996. The government has done little to educate a publicaccustomed to a closed domestic market on the benefits ofimports, particularly to consumers. Most Koreans have beentaught that imports are, by definition, luxury goods. Thegovernment has encouraged regular "frugality campaigns" against"over-consumption" that hit consumer imports particularlyhard. Domestic industry often puts pressure on the governmentto use its authority against foreign companies. In 1993, forexample, foreign firms in the recently-liberalized cosmeticssector simultaneously underwent customs valuation audits andinvestigation of their import procedures. Numerous pressarticles negatively highlighted the increase in sales offoreign cosmetics and the amount of floor space devoted totheir display by department stores. Such reports continue toappear sporadically in the press, along with news that taxoffices will audit individuals who travel excessively abroad orspend too much on "luxury goods," such as imported automobiles. The streamlining of Korea's complex import clearanceprocedures is an important U.S. policy objective. Korea is nowimplementing PEI and DEC recommendations for improvement ofcustoms and import clearance procedures. A new customssubgroup has been established to deal with the long-termimplementation of improvements in the Korean import clearancesystem. Korea has agreed to join the new GATT GovernmentProcurement Code. For Korea, the Code will be effectiveJanuary 1, 1997.6. Export Subsidies Policies: Since the early 1960s, Korea has eliminated severalindirect export subsidies, including the special depreciationallowance for large exporting firms and overseas constructionfirms. In 1988, Korea terminated the provision of export loansto large firms not affiliated with business conglomerates.However, in response to Korea's growing trade deficits, thegovernment resumed the provision of short-term export loans tolarge exporting firms in April 1992. This measure was added to existing programs of support forKorea's export industries, including customs duty rebates forraw material imports used in the production of exports; shortterm export loans for small and medium sized firms; rebates onthe value-added tax (VAT) and a special consumption tax forexport products; corporate income tax benefits for costsrelated to the promotion of overseas markets; unit exportfinancial loans; and special depreciation allowances for smalland medium exporters. Korea also maintains a special loanprogram for small and medium business to facilitate exports toJapan as a measure to curb its bilateral trade deficit withthat country. Export subsidies to the shipbuilding industryare within OECD guidelines. Korea is a signatory to the GATTcode on subsidies and countervailing duties.7. Protection of U.S. Intellectual Property: In February 1993, Korea launched a new comprehensive planto strengthen intellectual property rights (IPR) protection andthe enforcement of IPR laws. The so-called special enforcementprogram was originally scheduled to run three months, but waslater extended to ten months. It included the establishment ofan information network on cases and twice-weekly raids onmarkets where counterfeit goods were prevalent. Key troubleareas, such as the electronics markets in Seoul and Pusan, weretargeted more often. Korean authorities gave high priority tothe prosecution of IPR-related cases. For the first time, IPRoffenders routinely spent time in jail and paid fines. Thegovernment also announced plans to increase the penalties forcopyright infringement and to amend the customs law tostrengthen IPR enforcement for imports and exports of copyrightand trademark goods. The government has continued thiscampaign into late 1994, dedicating extra budgetary resourcesand sponsoring public awareness seminars. As a result of this concentrated push, the U.S. government,in its 1993 and 1994 special 301 reviews, elected not toupgrade Korea to "priority foreign country" status, but kept iton the "priority watch list" with the possibility of further"out-of-cycle" reviews. The American business community,encouraged by the new signs of a serious approach to IPR by theKorean government, supported the U.S. government's decision. Patents: Patents are one area that the new campaign hasnot affected. While Korea's patent laws are satisfactory, theactual extent of patent protection in Korea depends on judicialinterpretation. Problems include a lack of discoveryprocedures, limits on the use of the "doctrine of equivalents,"and a determination that "improvement patents" (whetherpatentable or not) do not infringe on the pioneer patent.Existing laws on compulsory licensing pose problems for someU.S. firms because they specify that a patent can be subject tocompulsory licensing if the patent is not worked. Trademarks: Trademark violations typically have been themost visible area of infringement and were the prime target ofthe 1993 crackdown, particularly since Korean law allowsprosecutors or police to investigate trademark infringementcases without the filing of a formal complaint. Problemsremain with the definition of "famous marks" in Korea. Reviewsby the Korean authorities charged with deciding whether atrademark has famous mark status have resulted in inconsistentdecisions. Three dimensional characters still have noprotection at all. Copyrights: Korea and the United States establishedcopyright relations when Korea joined the Universal CopyrightConvention in 1987. Korean government administrative measuresoutlined in the 1986 United States-Korea IPR agreement wereintended to provide retroactive protection for bookscopyrighted from 1977 to 1987, software copyrighted from 1962to 1985, and all pre-1987 sound and video recordings. Following the 1986 agreement, Korea had some immediatesuccess in curbing pirating activities, particularly in thearea of printed materials, through the use of tax and trademarkinfringement laws. However, until the advent of the 1993special enforcement campaign, relatively little attention wasgiven to the problem of piracy in the area of soundrecordings. One of the chief successes of the new IPR regimehas been the establishment of a mechanism for reviewingregistration applications that tracks the ownership of bothpre- and post-1987 works. The continued effective managementof the registration system for these works -- and follow up inorder to destroy illegally-produced or imported copies -- willbe key concerns in future evaluations of Korea's IPR regime. Software piracy continues to be widespread. The Koreanauthorities have conducted raids on retailers and wholesalers,but have given relatively low priority to large end-users. Thefew raids that have been conducted on training schools andother end-users have sparked significant purchase orders tolegitimate vendors. In 1994, the government sponsored a seriesof public seminars on the importance of copyright protectionfor software, and the number of raids and arrests continued torise. Korea agreed in 1993 to extend copyright protection totextile designs. Korean officials began to work with localtextile manufacturers to develop mechanisms for tracking rightsownership and protecting Korean producers from liability. A key complaint of U.S. firms is that Korean law does notpermit the prosecutor or the police to undertake aninvestigation of alleged copyright infringement unless a formalcomplaint has been filed. U.S. firms maintain that thisrequirement causes delays which allow the alleged violator toremove evidence from the premises before the authoritiesarrive. U.S. companies have welcomed the proposal tosignificantly increase the penalties for copyrightinfringement. The Korean government currently has no plans tochange its complaint requirement. New technologies: In November 1992, the National Assemblypassed legislation to extend IPR protection to semiconductormask works. If the Korean law becomes compatible with U.S.law, Korea could seek reciprocal protection for its chips underU.S. law, provided it demonstrates that no "unauthorizedduplication" is occurring. The Korean government has been veryresponsive to U.S. government suggestions on how the law andits implementing regulations should be changed to make itscompulsory licensing provisions acceptable to U.S. industry. Legislation to protect trade secrets took effect inDecember 1992. A Prime Ministerial decree effective January 1,1993 mandates the handling of trade secrets, including businessconfidential information, in such a manner that legitimatecommercial interests are protected. In 1992, the Koreangovernment enacted new legislation to regulate cabletelevision. The U.S. government views the legislation withconcern because certain provisions may inhibit market accessfor U.S. firms. Korea is a party to the Paris Convention for the Protectionof Industrial Property, the Patent Cooperation Treaty, theUniversal Copyright Convention, the Geneva PhonogramsConvention, and is a member of the World Intellectual PropertyOrganization. In November 1992, the National Assembly ratifiedthe United States - Korea Patent Secrecy Agreement signed inJanuary 1992.8. Worker Rights a. Right of Association The Constitution gives workers, with the exception of mostpublic service employees and teachers, the right to freeassociation. There are, however, blue collar public sectorunions in railways, telecommunications, the postal system, andthe national medical center. The trade union law specifiesthat only one union is permitted at each place of work, and allunions are required to notify the authorities when formed ordissolved. In the past the government did not formally recognize laborfederations which were not part of, nor affiliated with, thecountry's legally recognized labor confederation -- theFederation of Korean Trade Unions (FKTU). In 1993, however,the Labor Ministry officially recognized independent whitecollar federations representing hospital workers, journalists,financial workers, and white collar employees in constructioncompanies and government research institutes. In practice,labor federations not formally recognized by the Labor Ministryexisted and worked without government interference, except ifthe authorities considered their involvement in labor disputesharmful to the nation.No minimum number of members is required to form a union,and unions may be formed without a vote of the full,prospective membership. Korea's election and labor laws forbidunions from donating money to political parties orparticipating in election campaigns. However, trade unionistshave circumvented the ban by temporarily resigning their unionposts and running for office on the ticket of a political partyor as an independent. Strikes are prohibited in government agencies, state-runenterprises, and defense industries. By law, enterprises inpublic interest sectors such as public transportation,utilities, public health, banking, broadcasting, andcommunications must submit to government-ordered arbitration inlieu of striking. The Labor Dispute Adjustment Act requiresunions to notify the Ministry of Labor of their intention tostrike and mandates a ten day cooling-off period before astrike may legally begin. Overall membership in Korean laborunions has been declining over the last several years largelybecause the explosion in labor organizing in 1987-89 left themovement divided but well compensated, and worker rightssignificantly improved.</text>
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<text>U.S. DEPARTMENT OF STATEKENYA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 28Total Manufacturing 32 Food & Kindred Products 3 Chemicals and Allied Products 13 Metals, Primary & Fabricated (1) Machinery, except Electrical 0 Electric & Electronic Equipment 3 Transportation Equipment (1) Other Manufacturing 1Wholesale Trade 1Banking (1)Finance/Insurance/Real Estate (1)Services (1)Other Industries 0TOTAL ALL INDUSTRIES 104(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of Economic Analysis</text>
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<text>U.S. DEPARTMENT OF STATEKENYA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS KENYA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1982 prices) 2/ 2,773 1,475 1,672Real GDP Growth (pct.) 0.4 0.1 3.0GDP (at current prices) 2/ 8,562 4,627 6,257By Sector: Agriculture 2,226 1,219 1,648 Energy/Water 86 40 54 Manufacturing 1,164 626 653 Construction 265 142 381 Rents N/A N/A N/A Financial Services 745 401 580 Other Services 942 506 883 Government/Health/Education 856 460 844 Net Exports of Goods & Services -256 -131 -94Real Per Capita GDP (1982 base) 123 55 72Labor Force (000s) 11,100 11,800 12,300Unemployment Rate (pct.) 3/ N/A N/A N/AMoney and Prices:Money Supply (M2) 34.6 28.1 15.0Base Interest Rate (pct.) 25 27 19Personal Saving Rate (pct.) 15.5 20.0 16.0Retail Inflation N/A N/A N/AConsumer Price Index 27.5 41.0 13.0Exchange Rate (USD/KSh) 32 65 45Balance of Payments and Trade:Total Exports (FOB) 4/ 1,033 633 1,458 Exports to U.S. 58 53 58Total Imports (CIF) 4/ 2,011 1,208 2,078 Imports from U.S. 116 104 141Aid from U.S. 30.8 20.1 18.2Aid from Other Countries N/A N/A N/AExternal Public Debt 5,600 6,300 6,700Debt Service Payments (paid) 265 436 450Gold & Foreign Exch. Reserves 255 150 800Trade Balance 4/ -978 -575 -620Balance with U.S. -58 -51 -117N/A--Not available.1/ 1994 figures are estimates based on January - June data.2/ GDP at factor cost.3/ The Kenyan Government does not publish unemployment figuresbut the 1994 is estimated at 35 - 40 percent.4/ Merchandise trade.1. General Policy Framework Kenya's economy is basically agricultural, with a smallindustrial base. Agriculture contributes 26 percent to GDP,provides 75 percent of total employment and 55 percent ofexport earnings. The main foreign exchange earners are coffee,tea, horticulture and tourism. The industrial sector, whichaccounts for 14 percent of GDP, is dominated by importsubstitution-oriented industries, many of which are agro-basedand highly dependent on the domestic market and neighboringcountries. The public sector is still large in Kenya,absorbing over 45 percent of all modern sector wage employeesand 40 percent of total investment. Kenya's current policy framework emphasizes the role of thefree market. Features of the economy include the use ofmarket-based pricing incentives, a liberal investment code, anda newly liberalized foreign exchange system. Non-traditionalareas which have the most potential to augment incomes andemployment include horticulture, non-agricultural exports andsmall-scale enterprises. Under a World Bank/IMF supported structural adjustmentprogram in 1993-94, the government made substantial progressremoving impediments to the development of a free market.Price controls were abolished, import licensing requirementsremoved, the foreign exchange system liberalized, and marketswere opened up to competition. As a result of the economicreforms undertaken in the last two years, the economy is on theroad to recovery. GDP is expected to grow by over 3 percent in1994, after two years of stagnation (0.4 percent in 1992 and0.1 percent in 1993). The government brought down the annual inflation rate(month-to-month) from 101 percent in July 1993 to 13 percent inOctober 1994. The Central Bank of Kenya (CBK) acted swiftly in1993 to mop up excess liquidity and improve management of thefinancial sector. Starting in March 1993, the CBK offeredweekly sales of $125 million worth of Treasury Bills withinterest rates rising as high as 50 to 70 percent. Thecommercial bank cash ratio was raised steadily to reach 20percent by the second half of 1994. A number of weak banks andnon-bank financial institutions were either closed or broughtunder statutory management. These policy measures worked. Money supply, which grew by28 percent in 1993 decreased substantially to an estimated 15percent growth in the last quarter of 1994. Commercial bankinterest rates followed the trends in T-Bill interest; risingas high as 35 percent in July and then declining to below 20percent in October, 1994. In one year, the Kenya shillingappreciated from KSh 68/USD in October 1993 to KSh 35/USD inOctober 1994. The government continues to rely on traditionalmonetary policy instruments such as the cash ratio, discountrates and open market operations. Under a tax modernization program, the government widenedthe tax base, lowered income taxes and introduced the use ofpersonal identification numbers for tax-related transactions.The government increased the range of goods and servicessubject to the Value Added Tax (VAT), which accounted for over50 percent of domestic revenue in 1994. Most goods andservices are subject to an 18 percent VAT. The government willlower the maximum personal income tax rate from the current 40percent to 35 percent effective January 1995. It also reducedcorporate tax from 37.5 percent to 32.5 percent in 1994. Still in process are major government programs to privatizeparastatals and reduce the size of the civil service. Fraughtwith difficulties and political disagreements, parastataldivestiture has been slow -- only 28 out of a possible 200 havebeen privatized since 1991. The big parastatals, identified asstrategic, are earmarked for restructuring ("commercializing")in order to make them more cost effective and efficient. Athree year program to lay off 48,000 civil service workers wasstarted in July 1993. The program is roughly on target; 16,000workers accepted golden handshakes and left by June 1994.2. Foreign Exchange Policy From 1981-1993 the Kenya shilling was pegged to the SDR.In February 1993, the government suspended the Foreign ExchangeControl Act paving the way for a market determined exchangerate. Exporters may now use hard currency earnings directly tomeet import requirements and remit dividends. By October 1994,foreign exchange reserves at the Central Bank had risen to arecord high. The officially acknowledged figure is over$800 million, or enough to cover six months of importrequirements; but analysts estimate current reserves areactually closer to $1.2 billion. Borrowing restrictions on foreign and local firms from bothdomestic and off-shore sources have been eliminated.Expatriates are permitted to operate foreign currency accountsin Kenyan banks. Investors may repatriate new investmentearnings without Central Bank (CBK) approval. Travelers arefree to settle their bills, obtain air tickets and pay airporttaxes in either Kenya shillings or foreign currency. The onlyremaining restrictions, limitations on foreign direct equityinvestment and the need for approval of capital gainsrepatriations, may be withdrawn in the near future.3. Structural Policies After many years of delay, the government took bold stepsand implemented economic reform measures in the 1993-94 periodunder a World Bank/IMF-sponsored structural adjustmentprogram. The key goals of this program are to reduce thebudget deficit and inflation, provide market-based incentivesfor private sector growth, and encourage investment andexports. An immediate benchmark of accomplishment is toachieve a GDP growth rate of at least five percent. To helpbring the budget deficit down to 3.0 percent of GDP from the6.5 percent level of FY 93/94 (July 1 - June 30), thegovernment committed itself to adhere strictly to budgetceilings. To improve its performance on revenue collection,the government introduced a pre-shipment import inspectionprogram geared toward apprehending tax evaders. Inflation hascome down to 13 percent. These measures have helped to improve the country's generalinvestment climate. Nevertheless, there are a number ofbroad-based problem areas which must be ameliorated to ensurethat investor confidence is restored and the declininginvestment trend reversed. These include: rehabilitation ofthe deteriorating physical infrastructure, jump starting theprodigious privatization and parastatal reform process,streamlining the civil service and making it more "userfriendly," continuing to curb corruption, and augmentingpolitical stability. In the beginning stages of the current StructuralAdjustment Program (SAP), January 1993 - April 1994, thegovernment went through a turbulent economic period marked bysharp increases in prices and interest rates, and depreciationof the Kenya shilling. The positive impacts of economic reformkicked in during the second half of 1994. Competition is nowworking to lower prices. Bazaars, once a rare event, havebecome far more common. Producers no longer require largeinventories of raw materials. With no import licensing, firmscan program production and forecast sales more accurately.Shortages of inputs and basic consumer items have become athing of the past. The market for U.S. exports hassubstantially improved. Despite these significant advances, numerous specificproblems remain for businessmen in Kenya. Customs rules aredetailed and rigidly implemented. This has complicatedmanufacturing-under-bond schemes. A strict constructionistattitude among customs officials often leads to serious delaysin clearing both imports and exports. Foreign firms areexcluded from some government tenders. Kenyan importers mustuse local insurance companies to insure imports. Insurancecompanies must reinsure part of their business with the localparastatal reinsurance company. All commodities imported intoKenya are subject to pre-shipment inspection, including pricecomparison, by a government appointed inspection firm. Tradebarriers on certain products are maintained by high importduties and value-added taxes. Procurement decisions can bedictated by donor-tied aid, or influenced by corruption. Although substantive economic reforms have been undertaken,not all bilateral donors are reassured about Kenya's progresstowards political reform including progress toward general goodgovernance, democratization, protection of human rights andelimination of corruption. Persistent ethnic violencecomplicates the political landscape.4. Debt Management Policies For the first time in its history, at the end of 1993,Kenya had accumulated debt arrears of $715 million. Thisprompted the government to seek a rescheduling of outstandingofficial debt at the Paris club in January 1994. Amultilateral agreement was concluded under non-concessionalterms which rescheduled arrears accumulated from December1991-1993. Repayment is scheduled over seven years, startingwith a grace year in 1994 and ballooning to 25 percent in thelater years of the period. Specific bilateral agreements havebeen considered and granted throughout 1994. This reschedulingwill help improve Kenya's capital account and has added toKenya's international credibility. It is notable that Kenyaneither asked for, nor was granted, concessional terms. Kenyadid not seek a London Club rescheduling. Private arrearsaccumulated during the 1991-93 period (approximately $70million) were sufficiently small they could be repaiddirectly. Kenya could use some of its large stock of foreignexchange reserves ($800 million - $1.2 billion) to pre-payinternational debt. Kenya's stock of international debt was $6.7 billion in1994 and annual debt payments are in the $400-500 millionrange. Under current conditions of an appreciating currencyand large reserves, this debt is manageable. Earlier exchangecontrols, which provided incentives for Kenyans to keep theirhard currency out of the official system, made debt managementmore problematical. Kenya's adherence to the IMF Article VIII,which became effective in 1994, forbids Kenya from returning toexchange controls.5. Significant Barriers to U.S. Exports The liberalization of import controls and foreign exchangerates are major positive steps towards removal of tradebarriers. As a part of these reforms, in 1994 the governmentinstituted pre-shipment inspection for quality, quantity andprice for all imports with F.O.B. value of more than $1,613.Inspection is done by a government appointed inspection firmwhich has offices at major trading points such as New York,Baltimore, Chicago, New Orleans and Houston. Goods arriving inMombasa without pre-inspection documentation are subject toinspection at the Port, for an additional fee. Thisrequirement has contributed to major back-ups in portoperations during 1994. Importation of animals, plants, andseeds is subject to quarantine regulations. Special labellingis required for condensed milk, paints, varnishes, andvegetable/butter ghee. In addition, imports of prepackedpaints and allied products must be sold by metric weight ormetric fluid measure. Commercial banks are required to ensure that importers havesubmitted Import Declaration forms, invoices, a Clean Report ofFindings, and a copy of the customs entry form before releasingforeign exchange. Prior exchange approval must be obtained forimports of machinery and equipment which are regarded as partof equity capital or are purchased with borrowed funds. TheClean Report of Findings is also required by authorized banksbefore a shipping guarantee can be issued. All goods purchasedby importers in Kenya must be insured with companies licensedto conduct insurance business in Kenya. There are barriers to trade in services, in video tapes,movies and cassettes, construction, engineering, architecture,legal representation, insurance, leasing and shipping. Filmsare licensed, censored and sold by a government company, theKenya Film Corporation. Foreign companies offering services inconstruction, engineering and architecture may facediscrimination when bidding for public projects. Kenya's draftshipping law has been the subject of official protests by theUnited States and the European Community for discriminationagainst foreign shippers. Government procurement for ordinary supplies as well asmaterials and equipment for public development programs is asignificant factor in Kenya's total trade. The hand ofgovernment is particularly evident in programs designed toensure citizen control of local commerce. Because Kenya is aformer British Colony, U.K. firms dominate in the procurementof government imports. Many of these are purchased throughCrown Agents, a British quasi-governmental entity. Sales ofmajor import items are frequently tied to the source countryproviding official development finance. Government procurement is done through tender boards. Themain boards are the Central Tender Board, Ministerial TenderBoards, the Department of Defence Tender Board, and DistrictTender Boards. The Kenyan government supplies manualsoutlining procurement practices. Goods worth over $4,000 mustbe purchased through open tender. Adjudication of thequotations must be made by three or more responsible officers. In principle, the procurement regulations apply, withoutdiscrimination, to all potential bidders, regardless ofnationality of supplier or origin of the product/service.Nevertheless, preferential treatment for domesticsuppliers/products/services is included. Up to 10 percentpreferential bias is allowed for all firms participating inKenyan government tenders whose share capital is at least 51percent owned by indigenous Kenyans. The government providespreference to domestic suppliers for small procurements andcontracts. Practice often differs from government regulations.Tenders have not infrequently been awarded to uncompetitivefirms in which government officials have a significantinterest. Medical tenders are a frequent case in point. Theincidence of corruption, particularly at lower levels, hasincreased in the last year to compensate for the closure of key"political banks" which were previously the major conduits forill-gotten gains. This trend affects the allocation ofgovernment tenders for construction and procurement.Prosecution of corrupt officials above the lowest level hasbeen rare, but may be on the increase. Recent charges leviedagainst the Goldenberg/Exchange Bank operation are a sign ofprogress. Corruption involving contract awards is a particularproblem for U.S. companies who are disadvantaged when competingwith non-U.S. firms less constricted in their ability toprovide "incentives" prohibited under U.S. laws. Kenyan law does not permit manufacturers to distributetheir own products. Additionally they are required to submitdata and information about their distributors. The Monopolies,Prices and Trade Restriction Practices Act sets a legalframework for dealing with restrictive and predatory practiceswhich might inhibit competitive markets, and controls mergers,takeovers of enterprises, and monopolies. This Act was mostrecently cited by the government as a warning to oil companiesagainst collusion in the newly liberalized petroleum market.6. Export Subsidy and Tax Policies In April 1993, the Kenyan government scrapped an exportcompensation scheme which officially paid up to 20 percent ofvalue to manufacturers whose products had less than 70 percentimport content. This scheme was a major tool used by theGoldenberg gold/diamond company (now under investigation) toextract even higher payments of 35 percent from the governmentfor questionable, if documented, exports. At the same time,another controversial Pre-Export Financing scheme waseliminated. In their place, the government enacted aduty/value added tax remission facility which allows exportersto purchase tax-free inputs locally. This facility is designedto be less "corruptible" but is also less lucrative forexporters. The government grants a one-time 85 percent investmentallowance tax deduction for the cost of industrial buildings,fixed plant, and machinery for investments outside Nairobi andMombasa. Thirty-five percent deduction is allowed forinvestments within these cities. This provision reduces incometaxes due during the start-up phase of a project. Exporters to the Preferential Trade Area (PTA) regionalmarket (19 countries of eastern and southern Africa) receivetax advantages and have the option to trade in localcurrencies. The market has a total population of 190 millionand a GDP of $50 billion. The aim of the PTA is to eventuallyestablish a common market with no barriers across membercountries' borders. Kenya is also a signatory of majorinternational trade agreements such as the United NationsConference on Trade and Development (UNCTAD), the LomeConvention and the GATT (soon to be the World TradeOrganization). As such, Kenya is subject to variousrequirements agreed to under these umbrellas. The government has two major export institutions -- theExport Processing Zones Authority and the Export PromotionPrograms Office -- which coordinate export promotionactivities. There is one private Export Processing Zone (EPZ)which caters to over eleven companies. This zone, the SameerIndustrial Park, is a subsidiary of Firestone East Africa. Twogovernment sponsored EPZs, one in Mombasa and another nearNairobi, are nearing completion. The government has progressively reduced the corporate taxrate from 45 percent in the 1980s to the current 35 percent.Withholding tax (ranging from 12.5 percent to 30 percent) isimposed on royalties, interest, dividends, and managementfees. Kenya's tax treaties normally follow the Organizationfor Economic Cooperation and Development (OECD) model for theprevention of double taxation. There is no tax treaty with theUnited States.7. Protection of U.S. Intellectual Property Kenya is a member of the Paris Union InternationalConvention for the Protection of Industrial Property (Patentsand Trademarks), together with the United States and 80 othercountries. Businesses and individuals from signatory statesare entitled to protection under this convention, includingnational treatment and "property rights" recognition ofpatents. Although a unified system for the registration oftrade marks and patents for Anglophone Africa was signed in1976, implementation has been stagnant due to the lack ofcooperation among the signatory states. Another mechanism toprotect patents, trademarks, and copyrights is embodied in theAfrican Intellectual Property Organization. Its enforcementand cooperation procedures remain untested. Kenya also is a member of the African Regional IndustrialProperty Organization. The government of Kenya accepts bindinginternational arbitration of investment disputes betweenforeign investors and the state. In 1990, the Kenyan government established an IndustrialProperty Office (KIPO) for granting industrial property rights,screening technology transfer agreements and licenses, andproviding patenting information to the public. Models forpatents and utilities and industrial design certificates areavailable through this office. It also acts as a receivingoffice for international applications. An independent nationalpatent law to replace pre-independence British procedures wasalso enacted in 1990. In March 1994, KIPO issued the first patent certificateunder the Kenya Industrial Property Act to three Kenyanscientists for their work in the development of a tickresistance vaccine, Novel Tick Resistance Antigenic Indicators(TRAI). In its fourth year of operation, KIPO has received 127patent applications and 38 industrial designs which are beingprocessed. Ninety-three of the patent applications are foreignand 34 are local. Fifteen of the 38 industrial designapplications are local. Protection of copyrights is not particularly extensive orefficient in Kenya. The Copyright Act of 1989 provides forprotection from audio copyright infringement. Video copyrightinfringements are not covered by the law, and are widespread. Trademark protection is available from the Kenyangovernment for a period of seven years from the date ofapplication. The first applicant for trademark protection isentitled to registration.8. Worker Rights a. The Right of Association Other than central government civil servants and universityacademic staff, all workers are free to join unions of theirown choosing. At least 33 unions in Kenya representapproximately 350,000 workers, or about 20 percent of Kenya'sindustrialized work force. Except for the 150,000 teachers whobelong to the Kenya National Union of Teachers (KNUT) and fourother smaller unions registered by the government, all otherunions belong to one central body, the Central Organization ofTrade Unions (COTU). Until early 1993, Kenyan labor enjoyed harmonious relationswith the central government. In April 1993 this changed, asworkers experienced a large rise in the cost of living.Blaming the government, COTU's leaders called for anacross-the-board 100 percent wage increase and dismissal ofKenyan Vice President George Saitoti. The call culminated in aLabor Day (May 1) ceremonies walkout by the Minister for Labor,the arrest of the COTU secretary-general and his seniorassociates, a two-day national strike (which was observed inkey sectors nationwide, even after the Minister had declared itillegal) and finally, a government-sponsored coup within COTU. Without waiting the normal seven-day period to verify theso-called elections, and disregarding a legal challenge by theexisting COTU officers, the Registrar of Trade Unionsimmediately registered the new COTU officers. These officerswere allowed to occupy COTU headquarters. The issues of boththe coup's legality and the act of the registrar were still incourt as of November 1994, but no international group hasrecognized the new leadership. In theory, the Trade Disputes Act permits workers to strikeprovided that 21 days have elapsed following the submission tothe Minister of Labor of a written report detailing the natureof the dispute. In 1993, however, the Minister of Labordeclared several strikes illegal. A case in point was the KNUTstrike in July 1993, for which the required notice had beengiven. It was averted at the last minute. Others included thenational two-day strike after Labor Day, a one-day strikecalled by the Islamic Party of Kenya in Mombasa, and an airtraffic controllers' slowdown in November, 1993. The military,police, prison guards and members of the National Youth Serviceare precluded by law from striking. Kenyan labor legislationis silent on the issue of national strikes. Internationally, COTU is affiliated with both the continentwide Organization of African Trade Union Unity and theInternational Confederation of Free Trade Unions (ICFTU). COTUaffiliates are free to establish linkages to internationaltrade secretariats of their choice. b. The Right to Organize and Bargain Collectively The 1962 Industrial Relations Charter, executed by thegovernment, COTU and the Federation of Kenya Employers, givesworkers the right to engage in legitimate trade unionorganizational activities. This charter does not have theforce of law. Both the Trade Disputes Act and the Charter authorizecollective bargaining between unions and employers. Wages andconditions of employment are established by negotiationsbetween unions and management. In 1994, government wage policyguidelines which limited salary increments were relaxed as wasthe employers' authority to declare workers redundant.Collective bargaining agreements must be registered with theIndustrial Court. The Export Promotion Zone Authority hasdetermined that local labor laws, including the right toorganize and bargain collectively, will apply in EPZs. Inpractice, exemptions and conditions have been granted withinthe Zones, giving rise to public criticism in 1994. c. Prohibition of Forced or Compulsory Labor The Constitution proscribes slavery, servitude, and forcedlabor. Under the Chiefs' Authority provisions, people may berequired to perform community service in an emergency but thereare no known recent instances of this practice. People soemployed must be paid the prevailing wage. The InternationalLabor Organization's (ILO) committee of experts has found thisprovision of Kenyan law in contravention of ILO conventions 29and 105 on forced labor. d. Minimum Age for Employment of Children The Employment Act of 1976 proscribes the employment ofchildren under the age of 16 in any industrial undertaking.The law does not apply to the agricultural sector, where about70 percent of the labor force is employed, or to childrenserving as apprentices under the terms of the IndustrialTraining Act. Ministry of Labor officers are authorized toenforce the minimum age statute. Given the high levels ofadult unemployment and underemployment, the employment ofchildren in the formal wage sector is not a significant problem. e. Acceptable Conditions of Employment In 1994, minimum unskilled worker salaries averaged lessthan thirty dollars per month. The normal work week, by law,is limited to 52 hours, except for nighttime employees (60hours) and agricultural workers (excluded). Non-agriculturalemployees receive a minimum of one rest day in a week, onemonth's annual leave, and sick leave. By law, total hoursworked (i.e., regular time plus overtime), in any two-weekperiod for night workers cannot exceed 144 hours; the limit is120 hours for other workers. The Ministry of Labor is taskedwith enforcing these regulations, but reported violations arefew. The Factories Act of 1951 which sets forth detailedhealth and safety standards, was amended in 1990 to encompassthe agriculture, service and government sectors. Inspection ofwork sites continued to improve, although "whistle blowers" arenot protected. Kenya's worker compensation regulations do notyet comply with the provisions of ILO Convention No. 17.</text>
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<text>U.S. DEPARTMENT OF STATEKAZAKHSTAN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS KAZAKHSTAN Key Economic Indicators 1/ (1992 in millions of rubles) (1993-94 in millions of U.S. dollars unless otherwise noted) 1992 1993 1994 2/Income, Production and Employment:Real GDP (1985 prices) N/A N/A N/AReal GDP Growth (pct.) -14.0 -15.6 -26.9GDP (at current prices) 1,213,616 3,924.7 97.5By Sector: Agriculture 159,688 988.1 N/A Energy/Water N/A N/A N/A Manufacturing 771,568 1,994.9 N/A Construction 75,531 442.5 N/A Transport/Communication 80,716 321.6 N/A Housing 14,899 N/A N/A Financial Services 9,032 N/A N/A Trade/Other Branches 150,607 226.1 N/A Other Services 25,177 N/A N/A Government/Health/Education 53,575 N/A N/A Net Exports of Goods & Services 1,399 3.4 0.1Per Capita GDP 71,541 231.0 5.8Labor Force (000s) 7,356 7,561 7,597Unemployment Rate (pct.) 0.46 0.50 0.66Money and Prices: (annual percentage growth)Money Supply (M2) 3/ 5,438 1,333.9 671.5Base Interest Rate 4/ N/A 240 300Personal Savings Rate N/A N/A N/ARetail Inflation 938.6 1,296.8 N/AWholesale Inflation 5/ Agricultural Products 1,032 776 1,817 Industrial Products 2,469 1,442 2,985 Consumer Goods 1,344 1,386 2,716Consumer Price Index 6/ 3,061 2,265 534Exchange Rate (USD/tenge) Official N/A 5.7 49.5 Parallel N/A 7.5 56.0Balance of Payments and Trade: (USD millions)Total Exports (FOB) 1,398.4 1,270.6 440.6 Exports to U.S. 94.0 135.5 37.1Total Imports (CIF) 468.8 358.3 242.5 Imports from U.S. 6.0 24.2 15.6Aid from U.S. 7/ 49.1 42.4 144.2Aid from Other Countries N/A 115.5 12.5External Public Debt 8/ N/A N/A 2,055Debt Service Payments (paid) N/A N/A N/AGold and Foreign Exch. Reserves N/A 722.9 1,004Trade Balance 929.6 912.3 198.1 Trade Balance with U.S. 88.0 111.3 21.5N/A--Not available.1/ Source: Kazakhstan State Committee for Statistics(GOSKOMSTAT), unless otherwise indicated. Actual whenavailable, otherwise estimates. Due to limited amount of 1992information available (exchange rate), figures are in millionsof rubles. 1993 and 1994 figures are converted from tenge atthe official exchange rates as indicated above.2/ First six months of 1994 only, unless otherwise indicated.3/ Source: International Monetary Fund (IMF) and GOSKOMSTAT.1994 money supply is for nine months.4/ Average weighted interest rate for six-month National Bankof Kazakhstan credits. Figures represent rates for December1993 and June 1994.5/ In percent to corresponding period of previous year. 1994agricultural wholesale inflation for first three months only.6/ December of previous year=100.7/ Source: U.S. Agency for International Development (U.S.AID) and U.S. interagency estimates. 1994 figure representsall U.S. government and private aid as of June 30, 1994.8/ October 1994 estimate from the Ministry of Finance.1. General Policy Framework Kazakhstan continues to suffer through a severe economiccrisis. Momentum for economic reform, however, isaccelerating. Throughout 1993 and the first half of 1994,industrial output declined, gross domestic product (GDP)dropped, agricultural production decreased, and inflationincreased rapidly. Cost of living increases outpaced thesalary rise of the average Kazakhstani worker during 1993 andthe first half of 1994. In addition, the government'sfinancial crisis has resulted in cutbacks to many public andsocial services. To stabilize and reverse the economicsituation, the government has taken a number of steps,including tightening monetary and fiscal policy after aninflationary surge in early 1994. On October 11, 1994, President Nazarbayev accepted theresignation of the entire Kazakhstan Cabinet of Ministers.Many of the older and more conservative ministers were replacedby younger, reform-minded individuals. In general, thegovernment shake-up is viewed as a positive step towardsaccelerating the pace and scope of economic reform inKazakhstan. This action was preceded by the July 15 issuanceof a third (and largely inconsequential) anti-crisis program bythe government in the last two years, and by public statementsby Nazarbayev advocating the acceleration of market andgovernment reform and public acceptance of economic "shocktherapy." It remains to be seen whether, especially in theabsence of further political reform, the new government canimplement economic reform quickly enough to meet publicexpectations. Fiscal Policy: The 1994 budget deficit was approximately4.6 percent of GDP in 1994. The 1994 deficit was fundedprimarily by foreign loans and National Bank of Kazakhstan(NBK) credit resources. The proposed 1995 budget, released onSeptember 2, 1994, projects the deficit to be approximately19.3 percent of GDP. Only 12 percent of the projected 1995budget deficit is planned to be financed through foreign loansand NBK credit resources. The remaining 88 percent currentlyremains "without definite resources." The InternationalMonetary Fund (IMF) is reportedly targeting the 1995 budgetdeficit at 3.5 percent of GDP. The 1995 budget proposes a nominal 296.6 percent increasein spending over 1994; revenues are projected to increasenominally by 89.2 percent during 1995. New legislationaddressing tax reform and relief are also planned. Ifapproved, this new legislation would streamline the current taxsystem and reduce overall tax rates. Monetary Policy: During the first five months of 1994, themoney supply increased 270 percent; inflation increased duringthe same period by 370 percent. The NBK has attempted toreduce inflation by regulating the distribution of directgovernment credits, beginning in May 1994. To date, the NBKefforts appear to have been successful. Monthly inflationrates in August and September were 13.3 percent and 9.7,respectively. The inflation index for the first nine months of1994 is 832 percent (December 1993 = 100). The sale of three-month and six-month government bondsbegan on January 12, 1994. As of October 31, 1994, over 45auctions have been held by the NBK.2. Exchange Rate Policy When introduced in November 1993, the Kazakhstan nationalcurrency, the tenge, was not initially traded and its exchangerate against the dollar was artificially maintained by thegovernment. However, upon advice from U.S. officials andinternational observers, the government permitted the tenge tobe freely traded. On September 17 the governments of Kazakhstan andKyrgyzstan lifted restrictions on bilateral currencytransactions. The agreement permits both currencies, the tengeand the som, to be used as legal tender in investments(securities) in either country and in interbank and tradingtransactions. Currently, the government of Kazakhstan does not appear toenforce any major foreign exchange controls, except thatenterprises earning foreign exchange are required to sell 50percent of the total earnings on the local market.3. Structural Policies Pricing Policies: Although the government continues toexert price controls and provide subsidies for certain consumercommodities, there appears to be little, if any, impact on U.S.exports to Kazakhstan. In general, consumer goods prices aredetermined by market sources. Tax Policies: According to the proposed 1995 budget,government revenues will be derived primarily from corporateincome taxes, a value-added tax (VAT), and export duties. Atthe end of 1993 the government announced a series of taxincreases and enforcement upgrades with apparently littlevisible success in either. In February 1994 a tax decreeraised individual rates to 60 percent. However, this was laterlowered to 40 percent. The July 15 anti-crisis program callsfor the overhaul and simplification of the current tax system,reduction of overall rates, and improved revenue collection.The government has indicated that the maximum tax rate forindividuals and "legal entities" will not exceed 40 percent and35-40 percent, respectively. On October 23, 1993 Kazakhstan signed a double taxationtreaty with the United States. To date, the treaty remainsunratified by either the Kazakhstan Supreme Soviet or the U.S.Senate. However, the Kazakhstan government has indicated thatit will submit the treaty for parliamentary approval before theend of 1994. Regulatory Policies: Government regulation policies areextensive and complex. Implementation of these regulationsremains capricious (often varying between ministries) and amajor source of corruption. U.S. and western businessrepresentatives often complain about the lack of standardlicensing procedures.4. Debt Management Policies Kazakhstan has accepted liability for all Former SovietUnion (FSU) debt. Accordingly, Kazakhstan was assigned a 3.86percent share of the FSU's total debt, or approximately $2.5billion. While acknowledging its formal obligations,Kazakhstan negotiated a "zero option" agreement with theRussian Federation. Under this agreement, Russia accepted fullresponsibility for FSU debt, in return for all foreign assetsof the FSU. Kazakhstan has initially agreed, but since theagreement must be accepted by all successor states, it has notyet entered into force. To date, Kazakhstan has not paid-off its 1992, 1993, and1994 debt obligations. Kazakhstan has paid short-termobligations, but commercial creditors have experienced somerepayment delays. Currently, Kazakhstan has incurred over $1.5billion in external debt, primarily to the Russian Federationfor gas and fuel payment arrears. In the future, the $115million Russian lease payment for Baykonur Cosmodrome is to beapplied directly to Kazakhstan's debt to Russia. It appearsthis arrangement will continue in 1995. Barter also appears tobe growing as an alternative to hard currency payments. Excluding the United States, Kazakhstan has receivedcredits from a number of countries including Germany, Austria,France, Japan, Hungary, and Turkey. The U.S. Export-ImportBank (EXIMBANK), the Overseas Private Investment Corporation(OPIC), the Central Asian Enterprise Fund (CAEF), and theDefense Enterprise Fund have indicated their willingness toprovide funding for U.S.-Kazakhstan commercial projects.Funding for defense conversion projects is provided separatelyunder the Nunn-Lugar legislation. In addition, internationalfinancial organizations such as the International Monetary Fund(IMF), World Bank, and the European Bank for Reconstruction andDevelopment (EBRD) have also indicated a willingness to supportcommercial projects in Kazakhstan.5. Significant Barriers to U.S. Exports There appear to be no significant legal barriers to U.S.merchandise exports to Kazakhstan. The government appears tohave adopted a strategy of relatively low import barriers toencourage international exports to Kazakhstan. U.S. exports toKazakhstan are limited more by the logistical capabilities ofprivate firms to service the Kazakhstan market and theunavailability of credit. Structural barriers include a weak system of commerciallaw, including the absence of effective bankruptcy procedures,a shortage of domestic capital to pay for U.S. goods, the lackof an effective judicial process for breach-of-contractresolution, and huge government bureaucracy. Import Licenses: As of October 1994, U.S. companies werenot required to obtain import licenses. Despite indications inlate 1993 that the government would limit imports and introducean import licensing system, no such action has yet occurred.In addition, the government has also proposed restrictions onthe import of non-essential goods by means of protectivetariffs, duties, and quotas, beginning January 1994. To date,only duties for alcoholic beverages and cigarettes have beenincreased under this policy. Service Barriers: Certain restrictions on the import ofservices exist. In April 1993 the government banned foreigninsurance companies from providing foreign investmentinsurance. Excluding the single western reinsurance firmdesignated by the government, no U.S. or western firms arepermitted to offer foreign investment insurance services inKazakhstan. A number of U.S. firms offering accounting andlegal services, however, are currently operating in Kazakhstan,and U.S. and foreign airlines are welcome. Standards, Testing, Labelling, and Certification:Government observance of old Soviet standards, testing,labeling and certification requirements are extensive in someareas, non-existent in others. Such requirements constitute abarrier when these requirements differ significantly from U.S.and western standards. Investment Barriers: One of the most significantinvestment barriers to U.S. firms in Kazakhstan is the severelack of domestic capital to service loans and to meet equitypercentages in joint ventures. In addition, U.S. firms cannotcurrently purchase land in Kazakhstan since this sector has notyet been privatized. U.S. firms, however, can obtain leaserights for 99 years through a domestic partner. Further,government and local authorities have, at times, insisted thatU.S. firms support and invest in social programs for localcommunities. Finally, phased privatization of state industries mayinitially limit the foreign investment "share" in suchindustries. However, complete privatization, should it occur,will have no such barriers. Government Procurement Practices: Government procurementpractices are not limited by formal "Buy Kazakhstan"regulations. Western goods, particularly U.S. goods, arefavored by the Kazakhstani consumer. Customs Procedures: Currently, Kazakhstan has a customsagreement with Russia, amounting to a de facto customs union.Kazakhstan still uses customs procedures from the old SovietUnion, which can be cumbersome and frustrating. Most importedgoods transit through other newly independent states, unlessthey arrive by air or via China. Foreign firms can importitems for their own use duty free.6. Export Subsidies Policy Rather than providing export subsidies to domesticenterprises, the government currently levies an export tax.The precise amount of the export tax varies according to theproduct and can range up to 30 percent. Kazakhstan hasprotested antidumping restrictions on its exports (mostlymetals) imposed by the United States and the European Union(EU). In 1992, the U.S. Department of Commerce reached aconsent decree with Kazakhstan limiting uranium exports andimposing a 104 percent antidumping duty on ferrosilicon. In1994, the uranium agreement was modified to permit some salesof uranium into the U.S. market. The Commerce Departmentinvestigated Kazakhstani exports of titanium sponge and foundno direct impact on the U.S. market. Virtually all ofKazakhstan's exports went to Russia. In 1993, the government moved to further increase controlson exports. Beginning January 1, 1994 domestic enterprises arenot permitted to export goods directly and are required tochannel exports of 18 critical products through approximately10 state trading organizations controlled by the government.The critical products include oil and gas, coal and coke, oreand concentrates, ferrous and non-ferrous metals, alumina,precious metals and stones, organic and non-organic chemicalproducts, radioactive chemical elements, grain, cotton, andcaviar. These goods are also subject to an export quota. Theregulations include a 100 percent surrender requirement forexport proceeds, although this may be reduced to 50 percent.7. Protection of U.S. Intellectual Property In principle, Kazakhstan's civil code protects U.S.intellectual property. However, the absence of criminalsanctions and lax enforcement have meant that U.S. and westernintellectual property rights are often unprotected. In 1992Kazakhstan acceded to the Geneva Convention on the Protectionof Intellectual Property and joined the World IntellectualProperty Organization. In addition, the U.S.-KazakhstanBilateral Trade Agreement, which came into force on January 12,1994, requires Kazakhstan to protect U.S. intellectual property. Patents and Trademarks: Current patent legislationguarantees the right of inventors to the "name" of theirproduct, but financial rights of patent holders do not appearto be protected. A national patent department which registersand regulates patents and trademarks was established in 1992.In addition, old Soviet patents are apparently being convertedto Kazakhstani patents. The registration or trademarks began in July 1992.Trademark violation is a crime and courts are empowered toarbitrate trademark infringement cases. However, enforcementappears to be rare and arbitrary. Copyrights: In 1992 Kazakhstan established a nationalcopyright agency with jurisdiction over copyrights in the arts,music, science, and software. In late 1993 the governmentsubmitted to the Supreme Soviet a draft copyright law. Todate, the copyright law has not been passed. If passed, legalsanctions against copyright violators could be implemented andKazakhstan would accede to the Berne Convention. New Technologies: Pirated U.S. and western moviesroutinely appear on every television station in Kazakhstan, butare not apparently mass produced in Kazakhstan. Sales ofpirated counterfeit goods including video and audio recordingsand clothing result in some loss to U.S. industry, but arerelatively insignificant. Pirated computer software isavailable but use is not yet widespread. However, the use ofpirated desktop software, i.e., MicroSoft Windows, WordPerfect,etc., does appear to be widespread and increasing rapidly.Illegal software development and manufacture does not occur inKazakhstan due to limited local availability of advancedproducts. This appears to apply to other advanced technologiesas well. In addition, pirated satellite broadcasts are common andavailability and use appears to be generally widespread. Manytelevision stations routinely broadcast U.S. and westernprograms and news reports pirated via satellite dish. Despite lax enforcement of current laws and delays inapproving new legislation, overall intellectual property lossesto U.S. firms currently appear to be small. However,counterfeiting and pirating of U.S. and western goods isincreasing. Without more rigorous enforcement of intellectualproperty laws and new legislation, future losses to U.S.industry could be significant and potential export andinvestment opportunities could be lost.8. Worker Rights a. The Right of Association The new labor code, along with the Kazakhstan constitution,guarantees basic workers' rights, including the right toorganize and the right to strike. The law does not, however,provide mechanisms to protect workers who join independentunions from threats and harassment from enterprise managementor from the state-run unions. Kazakhstan joined theInternational Labor Organization (ILO) in 1993, but the SupremeSoviet has not yet ratified the ILO conventions. b. The Right to Organize and Bargain Collectively There are significant limits on the right to organize andbargain collectively. Most industry remained state-owned in1994 and was subject to the state's production orders.Although collective bargaining rights are not spelled out inthe law, in some instances unions have successfully negotiatedagreements with management. If a union's demands are notacceptable to management, they may be presented to anarbitration commission comprised of management, unionofficials, and independent technical experts. There is nolegal protection against anti-union discrimination. c. Prohibition of Forced or Compulsory Labor Forced labor is prohibited by law. In some places,however, compulsory labor is used. Some persons were requiredto provide labor or the use of privately owned equipment withno, or very low, compensation to help gather the annual grainharvest. d. Minimum Age of Employment of Children The minimum age for employment is 16. A child under age 16may work only with the permission of the local administrationand the trade union in the enterprise at which the child wouldwork. Such permission is rarely granted. Abuse of child laboris generally not a problem, except that child labor isreportedly used during the harvest, especially the cottonharvest in the south. e. Acceptable Conditions of Work As of October 1, 1994 the official minimum wage is 200tenge (slightly less than four dollars) per month. The legalmaximum work week is 48 hours, although most enterprisesmaintain a 40-hour work week with at least a 24-hour restperiod. Worker and safety conditions in Kazakhstan'sindustries are substandard. Safety consciousness is low. Theregulations concerning occupational health and safety,enforceable by the Ministry of Labor and the state-sponsoredunions, are largely ignored by management. f. Rights in Sectors with U.S. Investment Rights and conditions in sectors with U.S. investment donot differ substantially from other sectors. However,workplaces or enterprises with U.S. investment havesignificantly improved working conditions. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 0 Food & Kindred Products 0 Chemicals and Allied Products 0 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 0Wholesale Trade 0Banking (1)Finance/Insurance/Real Estate 0Services 0Other Industries 0TOTAL ALL INDUSTRIES (1)(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEJORDAN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS JORDAN Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1985 prices) 2/ 3,236.1 3,194.5 3,370.2Real GDP Growth (pct.) 11.2 5.8 5.5GDP (at current prices) 2/ 4,851.3 5,034.0 5,523.0By Sector: Agriculture 330.6 342.9 N/A Energy/Water 106.4 105.4 N/A Manufacturing 610.1 632.0 N/A Construction 231.0 252.3 N/A Rents 11.1 11.2 N/A Financial Services 770.3 819.6 N/A Other Services 141.9 144.8 N/A Government/Health/Education 832.5 901.3 N/A Net Exports of Goods & Services -1,732.2 -1,648.2 -1,960.0Real Per Capita GDP (1985 base) 807.0 770.0 802.2Labor Force (000s) 706 712 760Unemployment Rate (pct.) 14 13 11Money and Prices: (annual percentage growth)Money Supply (M2) 12.8 9.3 6.0Base Interest Rate 3/ 8.5 8.5 8.5Personal Saving Rate 7.0 8.0 8.0Retail Inflation 8.2 4.0 4.0Wholesale Inflation 4.8 0.7 2.0Consumer Price Index 100.0 103.3 107.3Exchange Rate (USD/JD) Official 4/ 1.5 1.4 1.4Balance of Payments and Trade:Total Exports (FOB) 5/ 950.6 967.8 1,100.0 Exports to U.S. 6.3 10.2 11.3Total Imports (CIF) 5/ 3,321.0 3,435.1 3,550.0 Imports from U.S. 369.3 436.1 470.0Aid from U.S. 50.0 90.0 120.0Aid from Other Countries 206.1 198.8 347.0External Public Debt 7,804.7 7,750.1 6,500.0Debt Service Payments (paid) 490.2 612.6 400.0Gold and Foreign Exch. Reserves 1,501.7 1,337.3 2,155.7Trade Balance -2,280.4 -2,485.3 -2,450.0 Trade Balance with U.S. -363.0 -425.9 -458.7N/A--Not available.1/ 1994 figures are estimates based on IMF targets.2/ GDP at producers' prices.3/ Average rediscount rate.4/ Actual exchange rate.5/ Merchandise trade.1. General Policy Framework The Jordanian economy experienced sustained growth indomestic output in 1993-94. GDP increased by 5.8 percent in1993, with the rate of investment to GDP stabilizing at 30percent. For 1994, the IMF forecasted GDP growth at 5.5percent. The construction sector has continued to dominateeconomic activity, while the financial, manufacturing,agricultural and trading sectors have also expanded. Overall,the Jordanian economy responded positively to the structuraladjustment program formulated by the Government of Jordan andthe IMF in 1992. The government is beginning to adjust its economic policiesin response to recent progress in the peace process. It is inthe second year of implementation of a five-year Economic andSocial Development Plan for 1993-97, but is now consideringamendments to account for Jordan's peace treaty with Israel andplans for cooperation on economic issues with the PalestinianAuthority. In May 1994, the government entered into a three-yearExtended Fund Facility with the IMF that requires a variety ofsectoral policy reforms. Under this program, the governmentprojects annual GDP growth will reach 5.5 percent, the annualinflation rate will fall below five percent, the currentaccount deficit will decline to 9.7 percent of GDP and CentralBank reserves will rise to the equivalent of 2.4 months ofimports, or 665 million dollars. To sustain development andreach these targets, the government has announced thatincreased public and private sector savings and sustainedinvestment levels are key priorities. In January 1994, the government announced its intention toadopt an agenda of economic reforms affecting the legalenvironment of doing business in Jordan. The government plansto introduce a new investment law, amend the customs and incometax laws, harmonize the General Sales Tax with customs dutiesand simplify tariff schedules. In addition to reforming thecivil service system, the government also plans to limit thegrowth of the public sector by freezing hiring during 1995. As for monetary policy, the Central Bank of Jordanannounced in July that it would begin exercising indirectcontrol over the banking system through the use ofdinar-denominated certificates of deposit. It also hasencouraged holdings in dollar-denominated CD's by offeringinterest at two points above the London Interbank Offered Rate(LIBOR), a move intended to enhance reserves and discouragecapital flight. The Central Bank also plans to streamline itshandling of deposit facilities and credits. By early 1995, itwill eliminate commercial bank deposit requirements and nolonger compel local banks to adhere to credit/deposit ratios.The Central Bank has not fully eliminated the double reserverequirement on interbank deposits, but has announced itsintention to simplify its oversight of this market.2. Exchange Rate Policies The Central Bank regulates foreign currency transactions inJordan and sets the banking system exchange rate. It alsorestricts moneychangers to dealing within a specified range ofbuying and selling rates. On October 12, 1994, the averageexchange rate was one dinar equals USD 1.43, one cent lowerthan the average rate in 1993. The Central Bank has announcedthat it will not float the dinar despite its application to theIMF for assistance in implementing a system for partial dinarconvertibility. In negotiations between the Jordaniangovernment and the Palestinian Authority, the Central Bank hassought to assure West Bank residents holding dinars of thecurrency's continued stability.3. Structural Policies Pricing Policies: In general, market forces set prices.However, the government imports and subsidizes the prices ofbasic foodstuffs such as cereals, sugar, milk and frozen meat.It also controls the prices of other non-strategic commoditiessuch as automobile spare parts, construction materials,household cleaning materials and food and beverage served inrestaurants. The Ministry of Supply may intervene and set amaximum price ceiling on any consumer commodity. It operates aration card system for consumer purchases of sugar, rice andmilk for citizens whose monthly income is less than 715dollars. Subsidized prices and controls have no impact onJordanian imports of U.S. food staples. The Ministry of Supplyhas submitted a proposal to the Cabinet to eliminate pricecontrols on non-subsidized, non-strategic commodities andlimiting food subsidies to employees in the civil service andthe military. Tax Policies: The government remains dependent on customsduties and import taxes as its primary source of domesticrevenue, which it collects on all imports. To stimulate exportproduction, import tariffs are low for many raw materials,machinery and semi-finished goods. Although high tariff ratesare imposed on many consumer and luxury goods, tariff reducingmeasures have recently been taken. In November, for instance,the government announced a duty reduction on automobiles,previously ranging from 110 to 310 percent, to 44 to 200percent. Also announced were tariff reductions to 50 percenton numerous consumer products. In recent years, customs collections have yielded a lowerpercentage of total government revenues as other taxes haveassumed greater importance. In June, 1994 the governmentenacted a general sales tax to replace a previously-imposedconsumption tax. The sales tax applies to all durable andconsumer goods except food staples and health care andeducation-related products. An income tax is levied at amaximum marginal rate of 40 percent for all businesses. Themarginal tax rate on individual income is capped at 55 percent,with high personal, educational and medical deductionspermitted. Interest, dividend and capital gains earnings areexempt from taxation, except for income earned by financialinstitutions. In addition, income derived from agriculture isexempt. The government plans to submit changes to the incometax law to parliament in November, 1994 that will extend itscoverage to capital gains in property and stock markettransactions and limit total liability to 35 - 40 percent ofincome. Regulatory Policies: Jordanian regulations pertaining tothe licensing and operations of regional offices of foreignfirms are fairly clear. However, local American businessmencomplain of difficulties with customs authorities regardingtariff exemptions and licensing. Potential investors note thatcumbersome and time consuming procedures delay registration andgovernment approval of their projects. In August 1994, KingHussein announced the formation of a Royal Development andModernization Commission under the leadership of Crown PrinceHassan. One of the Commission's stated goals is thefacilitation of foreign investment through the elimination ofmajor regulatory and bureaucratic impediments anddisincentives. In one of its first recommendations, theCommission has proposed the establishment of a centralizedoffice for foreign investment applications.4. Debt Management Policies Jordan's external debt as of December 1, 1993 stood at 6.8billion dollars, about 130 percent of GDP. A week later, thegovernment reached agreement in rescheduling its $895 millioncommercial debt under terms finalized with the London Club.Commercial creditors agreed to sell up to 35 percent ofprincipal with a discount of 35 percent, on which Jordan wouldpay 50 percent of outstanding interest. The rest of theprincipal (at least 65 percent) was converted into 30-yearpar-value bonds guaranteed by U.S. zero interest coupon bonds.Under this option, Jordan agreed to immediately pay ten percentof outstanding interest while converting the remainder into12-year dollar bonds payable in 19 semi-annual installmentsafter a three-year grace period. The London Club agreementhelped Jordan reduce 60 percent of its debt to the Club, or 12percent of its total external debt. Following successful negotiations in June 1994, Jordan andits bilateral creditors in the Paris Club reached a $1.2billion debt rescheduling agreement covering principal andinterest payments falling due between 1994 and 1997 in additionto arrearages from the first half of 1994. Despite its success at rescheduling its foreign debt, theJordanian government continued to pressure its bilateralcreditors for debt forgiveness. After the WashingtonDeclaration of King Hussein and Prime Minister Rabin of Israelin July 1994, the United States agreed to write off $705million of Jordanian debt over a three-year period. Anagreement was signed in September 1994 to forgive the firsttranche of $220 million. Other bilateral creditors havefollowed the United States' example. The United Kingdom,Germany and France agreed to write off $90 million, $53 millionand $4.5 million, respectively. Even with these commitments,Jordan's total foreign debt remains above five billion dollars,one of the highest in the world on a per capita basis.5. Significant Barriers to U.S. Exports Import Licenses: The 1993 Import and Export Law abolishedimport licensing requirement. But due to the lack ofimplementing regulations, the Jordanian Customs Departmentcontinues to require licenses on all imports except for certainexemptions for agricultural commodities and imports by theroyal family and government agencies. The continued need forimport licenses, which are tied to the issuance of foreignexchange permits controlled by the Central Bank of Jordan(CBJ), hampers the free flow of trade between the United Statesand Jordan. Standards, Testing, Labeling, and Certification: Allimports to Jordan are subject to the approval of the Standardsand Measures Department. Foodstuffs and medicines must undergolaboratory testing and certification. Local traders whoregularly import from the United States complain that Jordaniantesting standards for consumer and durable items are not fullytransparent. They also complain that they are routinely finedfor importing U.S. products that contain parts and componentsmade outside the U.S. Investment Barriers: There are no restrictions on thedegree of foreign ownership in manufacturing enterprises.However, foreigners may not own more than 49 percent of hotels,restaurants, banks and businesses engaged in trading andtransport. Although the government officially encouragesforeign investment, an application requires prior approval bythe Council of Ministers, which is often a lengthy process. Tofacilitate foreign investment, the Jordan Investment PromotionDepartment was separated from the Ministry of Industry andTrade and made an independent agency in January 1994. TheJordan Investment Corporation, a government agency that managesthe pension fund of civil service employees, encourages foreignparticipation in projects that it promotes. Government Procurement Practices: All governmentpurchases, with a few exceptions, are made by the GeneralSupplies Department of the Ministry of Finance. Foreignbidders are permitted to compete directly with localcounterparts in international tenders financed by the WorldBank. However, local tenders are not directly open to foreignsuppliers. By law, foreign companies must submit bids throughtheir agents. While Jordan's procurement law does not permitnon-competitive bidding, the law does not prohibit a governmentagency from pursuing a selective tendering process. Inaddition to the review committees at the Central Tenders andthe General Supplies Departments, the law gives the tenderissuing department the right to accept or reject any bid whilewithholding information on its decisions. Foreign bidders mayseek recourse only through the Jordanian legal system. Inresponse to a recommendation of the Royal Development andModernization Commission, a higher procurement commission wascreated in October 1994 to monitor the procedures of theSupplies Department. Customs Procedures: Businessmen often comment that customsprocedures are the greatest impediment to doing business inJordan. While the government has often promised to reform itscustoms regime, overlapping areas of authority and numeroussignature clearance requirements remain in place. Actualcommodity appraisal and tariff assessment practices commonlydiffer from written regulations. Customs officers often makediscretionary decisions about tariff and tax applications whenregulations and instructions are conflicting. To secure tariffexemptions, businessmen must document that imported rawmaterials will be used in export production, and that the finalproduct will have at least a 40 percent Jordanian value-addedcontent. The Director General of Customs may grant temporaryadmission status to certain goods such as heavy machinery andequipment used for executing government or government-approvedprojects. Foreign construction companies operating alone orwith Jordanian partners may apply for this temporary admissionstatus. The government plans to present amendments to thecustoms law to Parliament in November 1994. These willdelegate greater authority from the Minister of Finance to theCustoms Department director, giving him increased discretionarypowers to investigate violations and order confiscations.6. Export Subsidies Policies Under Central Bank regulations, 70 percent of profitsearned from exports is exempted from corporate income tax, witha maximum exemption of 30 percent of a company's total income.Excluded are exports under bilateral trade protocols andphosphate, potash and fertilizer exports. The Central Bank hasalso implemented other export financing measures, such asreducing interest rates on advances from eleven to six percent,reducing the value-added requirement for financing from 40percent to 25 percent, excluding export advances fromoutstanding lines of credit, offering long-term exportfinancing for up to five years, and permitting the IndustrialDevelopment Bank to offer export financing loans on machineryimports for up to five years at no more than 8.5 percentinterest.7. Protection of U.S. Intellectual Property Jordan is a member of the World Intellectual PropertyOrganization (WIPO) and a party to the Paris Convention forProtection of Industrial Property. Domestically, Jordan'scopyright law, passed by Parliament in 1992, is the country'sonly recent effort to extend legal protection to foreignintellectual property. The Trademark and Patents and DesignsLaws have not been amended since the early 1960's. TheCopyright law deals with all aspects relating to the exclusiverights to 1) copy or reproduce works, 2) translate, revise, orotherwise adapt or prepare program derivatives work, and 3)distribute or publicly communicate copies of the work.Royalties may be remitted abroad under licensing agreementsapproved by the Ministry of Industry and Trade. However, onlythe intellectual property of Jordanian and foreign authors whoregister their works inside the kingdom are protected by Law.Infringement of U.S. intellectual property rights is notsubject to any penalties. The government has not yet begun to enforce its copyrightlaw. The pirating of audio and video tapes for commercialpurposes is a widespread practice, over which the governmentexercises no control. Pirated books are also sold in Jordan,although few, if any, are published within the country.Although the government announced that it would issue strictmeasures on copyright protection in January 1994, it has issuedonly procedural notes for existing regulations thusfar. Patents (product and process) must be registered at theMinistry of Industry and Trade to receive protection. Aforeign company may register a patent by sending a power ofattorney to a local patent agent or lawyer. Registration maybe renewed once for a period of 14 years. Protection under thelaw is only available to domestic and foreign patents that areregistered in Jordan. Infringement of a foreign patent, suchas a manufacturing process for a chemical compound, isconsidered to be a violation by Jordanian courts only if it isproved to be an exact duplication. New Technologies: Computer software piracy is rampant inJordan's small, but growing, computer market. The Governmentof Jordan has announced that it will give priority toprotecting computer software copyrights, but has not yet takenany action or issued clear policy directives. There is no agreement between the United States and Jordanconcerning the protection of U.S. exports of intellectualproperty. Although the impact of this lack of protection maynot have been severe enough to cause losses to U.S. firms, ithas created lost opportunities.8. Worker Rights a. The Right of Association While Jordanians are free to join labor unions, only about10 percent of the work force is unionized. Unions representtheir membership in dealing with issues such as wages, workingconditions and worker layoffs. Seventeen unions make up theGeneral Federation of Jordanian Trade Unions (GFJTU). TheGFJTU actively participates in the International LaborOrganization. b. The Right to Organize and Bargain Collectively GFJTU member unions regularly engage in collectivebargaining with employers. Negotiations cover a wide range ofissues, including salaries, safety standards, workingconditions and health and life insurance. If a union is unableto reach agreement with an employer, the dispute is referred tothe Ministry of Labor for arbitration. If the Ministry failsto act within two weeks, the union may strike. Arbitration isthe usual means of resolving disputes, and labor actions aregenerally low-key and do not lead to strikes. c. Prohibition of Forced Compulsory Labor Compulsory labor is forbidden by the Jordanian constitution. d. Minimum Age of Employment of Children Children under age 16 are not permitted to work except inthe case of professional apprentices, who may leave thestandard educational track and begin part-time (up to 6 hours aday) training at age 13. e. Acceptable Conditions of Work Jordan's workers are protected by a comprehensive laborcode, enforced by 30 full-time Ministry of Labor inspectors.There is no comprehensive minimum wage in Jordan. Thegovernment maintains and periodically adjusts a minimum wageschedule of various trades, based on recommendations of anadvisory panel consisting of representatives of workers,employers and the government. Maximum working hours are 48 perweek, with the exception of hotel, bar, restaurant and movietheater employees, who can work up to 54 hours. Workingconditions and minimum wage for foreign workers are stipulatedin bilateral treaties, but are not strictly enforced orconsistently adhered to. Jordan also has a workers'compensation law and a social security system which covercompanies with more than five employees. A new draft labor lawis under consideration, but does not appear to be a highpriority. f. Rights in Sectors with U.S. Investment Workers' rights in sectors with U.S. investment do notdiffer from those in other sectors of the Jordanian economy. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing (2) Food & Kindred Products 0 Chemicals and Allied Products 0 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing (2)Wholesale Trade 0Banking (1)Finance/Insurance/Real Estate (1)Services 0Other Industries 0TOTAL ALL INDUSTRIES 16(1) Suppressed to avoid disclosing data of individual companies(2) Less than $500,000Source: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEJAPAN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS c. Prohibition of Forced or Compulsory Labor The Labor Standards Law prohibits the use of forced labor,and the law is vigorously enforced. d. Minimum Age of Employment of Children Under the Revised Labor Standards Law of 1987, minors under15 years of age may not be employed as workers, and those underthe age of 18 may not be employed in dangerous or harmfulwork. Child labor laws are rigorously enforced by the LaborInspection Division of the Ministry of Labor. e. Acceptable Conditions of Work Minimum wages are set regionally, not nationally. TheMinistry of Labor effectively administers various laws andregulations governing occupational health and safety, principalamong which is the Industrial Safety and Health law of 1972. f. Rights in Sectors with U.S. Investment Internationally recognized worker rights standards, asdefined by the ILO, are protected under Japanese law and coverall workers in Japan. U.S. capital is invested in all majorsectors of the Japanese economy, including petroleum, food andrelated products, primary and fabricated metals, machinery,electric and electronic equipment, other manufacturing andwholesale trade. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 5,429Total Manufacturing 13,610 Food & Kindred Products 806 Chemicals and Allied Products 3,189 Metals, Primary & Fabricated 260 Machinery, except Electrical 3,800 Electric & Electronic Equipment 1,614 Transportation Equipment 1,824 Other Manufacturing 2,118Wholesale Trade 5,859Banking 309Finance/Insurance/Real Estate 4,780Services 740Other Industries 666TOTAL ALL INDUSTRIES 31,393Source: U.S. Department of Commerce, Bureau of Economic Analysis</text>
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<text>U.S. DEPARTMENT OF STATEJAPAN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS JAPAN Key Economic Indicators (Billions of U.S. dollars unless otherwise noted) 1992 1993 1994Income, Production and Employment:Real GDP 3,322.6 3,786.7 4,110.0 1/Real GDP Growth (pct.) 1.1 -0.2 1.0 2/Nominal GDP 3,662.5 4,214.1 4,595.3 1/Real GDP by Sector: Agriculture/Fisheries 77.6 N/A N/A Mining 8.5 N/A N/A Manufacturing 1,034.3 N/A N/A Construction 291.9 N/A N/A Electricity/Gas 110.2 N/A N/A Wholesale/Retail 465.7 N/A N/A Finance/Insurance 192.3 N/A N/A Real Estate 327.6 N/A N/A Transportation 207.7 N/A N/A Services 470.0 N/A N/APer Capita Income (USD) 22,861 N/A N/ALabor Force (millions) 65.8 66.1 66.4 3/Unemployment Rate (pct.) 2.2 2.9 2.8 3/Money and Prices: (annual percentage growth)Money Supply (M2+CD annual avg./pct.) 0.6 1.1 1.8 3/Commercial Interest Rates (10-yr govt bonds/yr-end) 4.52 3.02 4.56 4/Savings Rate (pct.) 5/ 14.3 N/A N/AInvestment Rate (pct.) 6/ 26.3 25.3 24.1 1/CPI (1990=100) 105.0 106.4 107.1 3/WPI (1985=100) 97.8 95.0 93.2 7/Exchange Rate (Yen/USD) 126.65 111.20 102.66 7/Balance of Trade:Total Exports (FOB) 339.6 360.9 288.7 8/ Exports to U.S. (FAS) 97.2 107.3 86.2 8/Total Imports (CIF) 233.0 240.7 198.4 8/ Imports from U.S. (CIF) 47.8 48.0 46.7 8/Trade Balance with U.S. 49.6 59.3 39.5 8/Balance of Payments:Current Account 117.6 131.4 89.2 9/Trade Account 132.3 141.5 98.1 9/Services/Transfers -14.8 -10.1 -9.0 9/Long-Term Capital -28.5 -78.3 -24.4 10/Basic Balance 89.1 53.1 61.9 10/Short-Term Capital -7.0 -14.4 -6.3 10/Gold & FOREX Reserves (yr-end) 68.7 95.6 117.5 4/N/A--Not available.1/ Jan-June, S.A.A.R.2/ Jan-June, year-over-year. Estimated 1994 figure.3/ Jan-August, average S.A.4/ End of September.5/ Savings as percent of personal disposable income.6/ Public and private domestic fixed capital formationand inventory investment/nominal GNP.7/ Jan-August average, N.S.A.8/ Jan-September cumulative, N.S.A.9/ Jan-August cumulative, S.A.10/ Jan-August cumulative, N.S.A.1. General Policy Framework In 1993, the Japanese economy, the world's second largestat more than $4 trillion, posted its lowest calendar year GDPgrowth since 1974, negative 0.2 percent for the year. Outputdeclined slightly in 1994, the first time since the early 1970s. Japan is now recovering from the second longest economicslowdown in Japan's postwar history. Prior to the slowdownthat began in 1991 and lasted through 1993, Japan had neverexperienced two consecutive years of less than 3 percent realgrowth. The surge in asset prices and high rates of capitalinvestment and hiring in the late 1980's gave way, by 1991, tosharply slower growth, corporate restructuring, and balancesheet adjustment by businesses and consumers. Very low levelsof utilization for existing capacity suggest that businessinvestment will be a lagging factor in the current recovery. Japan's 1993 external accounts posted record global tradeand current account surpluses of $141 billion (BOP basis) and$131 billion, respectively. Sluggish domestic demand slowedgrowth in import volume, while exports, especially to otherAsian markets, continued to grow steadily. Yen appreciationhelped swell dollar-denominated surpluses in the short runthrough the so-called "J-curve effect." Over the longer run,yen appreciation since 1990, plus eventual recovery in domesticdemand, is widely expected to contribute some downwardadjustment in Japan's external imbalance. In recent years, the Japanese government has used publicspending to counter the overall negative contribution ofprivate demand to domestic demand growth. Four fiscal stimuluspackages between August 1992 and February 1994 injected asubstantial amount of public works spending into the economy,some of which is still being disbursed in 1994. In 1994 the Diet passed tax reform legislation that willextend FY 1994 income tax cuts totalling yen 5.5 trillion($55 billion) through FY 1995. A "permanent" portion of theincome tax cut (yen 3.5 trillion/$35 billion) will continuethereafter. The remaining "temporary" portion (yen 2trillion/$20 billion) of the tax cut is currently scheduled tobe dropped after 1996, but may be dropped at the end of 1995.To offset the tax cut, beginning in April 1997, the consumptiontax (a value-added tax) is to be raised from the current rateof three percent to five percent. In addition, the governmentannounced a new public works investment program totaling yen630 trillion ($6.3 trillion) that will run from FY 1995 throughFY 2004. In order to ease credit conditions, the Bank of Japanlowered the Official Discount Rate (ODR) seven times betweenmid-1991 and September 1993, from 6.0 percent/year to 1.75percent, a record low. Nominal interest rates set new recordlows during 1994; yet demand for funds, particularly forinvestment purposes, remained relatively weak, as shown byyear-on-year declines in bank lending from mid-1994. The Bankof Japan continues to focus on the ODR as its primary policyadjustment tool, and, through its daily operations, onprovision of funds in the money market for "fine tuning."2. Exchange Rate Policy The yen has appreciated against the dollar over the pastyear, moving above the 100/1 dollar level for the first time inthe summer of 1994. On paper, Japan ended most foreignexchange controls in 1980. In practice, numerous controlsremain on foreign exchange-related transactions and impede theprovision of financial services by competitive foreign firms.3. Structural Policies The Japanese economy remains in transition. Structuralchange has been a market-driven response to domestic economicconditions and the changing global competitive environment. Inthe past decade, efforts at economic deregulation alsocontributed to change. The Japanese government, which formerly directedconsiderable public and private resources to priority areas,has been gradually moving away from such industrial policymeasures, partly in response to criticism of export-orientedpolicies. The government still has a direct role in promotingand organizing cooperation among Japanese high technologyfirms, using off-budget resources and small amounts ofappropriated funds to contribute to investment projects andgovernment-private sector efforts. From 1989 to 1992, United States-Japan structural economicissues were handled under the Structural Impediments Initiative(SII). SII targeted structural problems in both countries thatimpeded reduction of foreign payments imbalances. Under SIIJapan agreed to liberalize elements of its distribution system,liberalize its foreign direct investment regime, improvedisclosure rules governing transactions among related companies(in order to help make business practices more transparent),and strengthen anti-monopoly enforcement. Moreover, under SII,the U.S. and Japan conducted two joint price surveys todemonstrate that Japan's structural impediments contribute tounusually high price differentials between Japan and otheroverseas markets. The issues taken up in SII talks are nowaddressed as appropriate under U.S.-Japan Framework discussions. Japan's economy remains heavily regulated, which reinforcesbusiness practices that restrict competition and keep priceshigh. Price controls remain on certain agricultural products.Bureaucratic obstacles to new firms' entry into businesses suchas trucking, retail sales and telecommunications slowstructural adjustment. The Government of Japan has madederegulation a key theme, issuing its "Policy for PromotingDeregulation" on June 28, 1994. In this connection, the PrimeMinister's Office is leading a government-wide effort to drafta five-year deregulation action plan that is expected to setthe policy tone and scope of deregulation in Japan until 2000.Implementation of the action plan will begin April 1, 1995. In 1993, the Clinton Administration announced theU.S.-Japan Framework for a New Economic Partnership. A goal ofthe Framework is to make our economic ties with Japan morebalanced and mutually beneficial, as well as to promote globalgrowth, open markets, and a vital world trading system. TheFramework addresses the wide range of U.S.-Japan economic andtrade issues through negotiations on macroeconomic, structuraland sectoral matters. The structural and sectoral issues aredivided into five "baskets" for discussion: governmentprocurement, regulatory reform and competitiveness, economicharmonization, implementation of existing agreements and othermajor sectors (including autos and auto parts). Structural negotiations are ongoing under Framework areassuch as deregulation and competition policy, foreign directinvestment, buyer-supplier relationships, and access totechnology. In the deregulation and competition policydiscussions, the U.S. has provided detailed suggestions, onareas ranging from telecommunications to retail policy, forreforms to be included in Japan's five-year deregulation plan.The goal of the Framework's foreign direct investment andbuyer-supplier talks is to increase the market presence inJapan of U.S. and other foreign firms by encouraging a moreopen and flexible investment regime. The United States hasmade many specific recommendations to the Japanese government.4. Debt Management Policies Japan is the world's largest net creditor. It is an activeparticipant together with the United States in internationaldiscussions of the developing country indebtedness issue in avariety of fora.5. Significant Barriers to U.S. Exports The Japanese government has removed many formal barriers toimports of goods and services. Import licenses, stilltechnically required for all goods, are granted on a pro formabasis, with limited exceptions (fish, leather goods and someagricultural products). Japan's average industrial tariff rate(about two percent) is one of the lowest in the world, andJapan has agreed to further tariff reductions in the UruguayRound. The Uruguay Round Agreement will reduce but noteliminate trade barriers in agriculture, manufactured goods,and services. Traditional trade policy measures, however, are not thegreatest obstacles to penetrating Japanese markets. Instead oftariffs and official discrimination against imports, U.S.exporters must deal with numerous factors that raise costs andinhibit access in areas ranging from glass to auto parts.These obstacles include archaic and multi-tiered distributionsystems, "keiretsu" (networks between manufacturers anddistributors linked by long-time business relationships andoften by cross-holding of shares) relationships, excessivegovernment regulation and the use of administrative guidance,public procurement practices, and the high cost of land (whichinhibits new market entrants). In October 1994, the United States and Japan signedimportant market-opening agreements under the Framework;agreements were signed in insurance and government procurementof medical technology and telecommunications goods and services(including procurement by Japan's massive phone company, NipponTelegraph and Telephone (NTT)). In December 1994, the UnitedStates and Japan finalized an agreement to open Japan's flatglass sector to foreign suppliers. In addition, U.S. andJapanese negotiators reached agreements in 1994 in a number ofother areas, including opening Japan's huge public worksconstruction sector to foreign firms; improving access toJapan's cellular telephone market; eliminating barriers toimports of apples; and streamlining and improving intellectualproperty procedures. In the last few years, Japan also agreed to relax rules onvalue-added telecommunications services, to strengthencopyright protection for U.S. music recordings, and to resolvea dispute involving amorphous metals, for which market entryhas been facilitated. The United States continues to closelymonitor U.S.-Japan agreements including those in the areas ofcommercial satellites, government procurement ofsupercomputers, semiconductors, construction, wood products,paper, medical products and pharmaceuticals, and computerprocurement. In 1994, the United States announced thatimpediments to U.S. market access for paper and wood productsin Japan may warrant future identification of these sectors foraction under the "Super 301" Executive Order. In 1994, theUnited States also initiated a Section 301 investigation ofregulatory barriers in Japan's market for replacement (aftermarket) auto parts. Framework negotiations on autos and autoparts continue. The governments of the United States and Japan announced onJanuary 10, 1995, a comprehensive financial services agreementunder the U.S.-Japan Framework Agreement that will further openJapan's financial markets to foreign competition. Theagreement will ensure that U.S. financial institutions have theopportunity to compete more effectively in the Japanesefinancial market. Inter alia, the agreement opens the$1 trillion Japanese pension market to effective participationby foreign fund managers. The agreement also creates greateropportunities for foreign financial firms to participate in the$500 billion Japanese corporate securities market by permittinggreater scope for the introduction of new financialinstruments. Finally, the agreement will promote furtherintegration of Japan's capital market with the global capitalmarkets, and will create significant opportunities forcompetitive financial institutions to help Japanese investabroad and Japanese firms to offer securities in offshoremarkets. The ability of foreign architectural and construction firmsto access Japan's public works market continues to be closelyscrutinized by the U.S. government. For many years, Japan hasengaged in exclusionary practices which have prevented foreignfirms from competing successfully on contracts for majorJapanese construction projects. To remedy this situation, theU.S. government negotiated the 1988 Major Projects Arrangements(revised in 1991) which gave foreign firms improved access tothirty-four major construction projects with the understandingthat experience gained on these would assist foreign firms inwinning contracts on other construction projects. Despitethese agreements, U.S. architectural, engineering, andconstruction firms continued to face difficulties in doingbusiness in Japan. As a result, Japan was designated underTitle VII of the 1988 Omnibus Trade and Competitiveness Act fordiscriminatory procurement practices. Following months ofintensive negotiations with the United States, in January 1994Japan adopted a new Action Plan to overhaul its current publicworks procurement system. The Action Plan replaces thedesignated bidding system (under which only specified companiescould offer bids) with an open and competitive system, allowsforeign firms' international experiences to be considered whendetermining a firm's qualifications, and applies to allprocurement above a certain threshold, not just the thirty-fourmajor projects. A formal review of the implementation of thisAction Plan will occur during the spring of 1995. In addition to progress in the public works area, Frameworkagreements in October 1994 improved access for foreign firms togovernment procurement of medical technology andtelecommunications goods and services. The United Statescontinues to monitor Japanese government procurement practicesto assure that U.S. firms are given an opportunity to competefairly and openly. Legal services remain on the U.S./Japan trade agenda.Despite partial liberalization in 1987 which allowed U.S. lawfirms to open offices in Japan, the Government of Japancontinues to maintain severe restrictions on the way in whichforeign firms can provide legal services. For example, foreignfirms are prohibited from employing or entering intopartnership with Japanese attorneys, and lawyers who are notqualified Japanese lawyers may not advise clients on points ofJapanese law. In December 1993, U.S. negotiators included legal servicesin the U.S. package submitted to the GATT. This decisioneffectively froze the current practice regarding legal servicesperformed by foreign lawyers in GATT signatory countries whichhad agreed to include legal services in the final agreement. Although the Japanese government has simplified, harmonizedand, in some cases, eliminated restrictive product standards tofollow international practices in a number of areas, manyproblems remain. The 1985-1987 Market-Oriented SectorSelective (MOSS) Talks resolved many standards problems and setin motion a continuing dialogue through MOSS follow-up meetingsof experts. In general, advances in technology make some currentJapanese standards outdated and restrictive. In addition,Japanese industry supports unique safety standards that limitcompetition. Lastly, bureaucratic inertia inhibits furtherstandards simplification. Standards problems continue tohamper market access in Japan. Japan's Office of the Trade Ombudsman (OTO) traditionallyonly responded when an aggrieved party, such as a foreigncompany or domestic importer, complained about Japanesestandards, certifications, and testing procedures. Since 1993,the OTO has brought its own cases to the attention of theJapanese government bureaucracy. Although the U.S. governmenthad hoped the new process would lead to greater pressure on thebureaucrats to change, thus far, the OTO has accomplished verylittle. Of the twenty-one requests brought before the OTO in1993, regulations in only seven areas were revisedsatisfactorily (only two of which involved issues raised by theUnited States). The OTO seems to have made the most progressin technical areas where the complainant made a good case andwhere Japanese government bureaucratic resistance to changeswas light. The OTO process has not been useful in pursuingpolicy issues or politicized market access problems, e.g.removal of the tariff on feedgrains. In February 1994, the OTOwas upgraded when it was moved to the Office of the PrimeMinister, but it was still not granted any enforcementauthority. While Government of Japan effort to strengthen theOTO may have boosted the office's profile, it is unlikely tosignificantly improve the OTO's effectiveness. Foreign investment into Japan in most sectors is nowsubject to only ex post notification to the Ministry of Finance(MOF), thanks to MOF commitments made under SII. Previously,all foreign investors were required to notify the MOF of theirintent to invest 30 days before any investment occurred. Japanstill requires prior approval in certain sectors: air andmaritime transport, space development, atomic energy, oil andgas production and distribution, agriculture, fisheries,forestry, leather and leather products manufacturing, andtobacco manufacturing. Foreign investment in the banking and securities industriesis subject to a reciprocity requirement. Japan gives foreigninvestors national treatment after entry, with the Organizationfor Economic Cooperation and Development (OECD) notified oflimited exceptions. The Japanese government does not employlocal equity requirements, export performance requirements orlocal content requirements. The Japanese government has notforced foreign individuals or companies to divest themselves ofinvestments. Japanese law allows foreign landholding, andforeign investors may repatriate capital and profits readily. At the same time, inward foreign direct investment in Japanis much lower than that in its major G-7 trading partners.There are a number of factors underlying the low level ofinward investment, including the legacy of many years of activeJapanese government discouragement of foreign investment. Amajor problem today, however, is the high cost of doingbusiness in Japan, particularly for new market entrants, thatmakes the rate of return on investments far lower than otheralternatives. In addition, foreign acquisition of existingJapanese companies is difficult, due in part to crossholding ofshares among allied companies, leading to the limitedavailability of publicly traded common stock. This practicecomplicates efforts of foreign firms to acquire existingdistribution/service networks through mergers andacquisitions. The Japanese government has taken some initialsteps to provide incentives to foreign investors. This issueis under discussion in Foreign Direct Investment sub-basket ofthe Framework.6. Export Subsidies Policies Japan is a signatory to the OECD Export Credit Arrangement,including the agreement on the use of tied-aid credit. TheJapanese government subsidizes exports as permitted by theArrangement, which allows softer terms for export financing todeveloping nations. Of the $11.5 billion of officialdevelopment assistance that Japan disbursed in 1993, slightlyless than half of the bilateral assistance portion (excludingCentral Europe assistance) was in the form of concessionalloans. In this area, Japan has virtually eliminated itstied-aid credits and now extends over 95 percent of its newloan aid under untied terms. But U.S. exporters continue toface difficulties in competing due to the use of (1) LessDeveloped Country (LDC) untied aid, where bidding is only opento Japanese and LDC firms, and (2) tied or partially tiedfeasibility studies (provided by grant aid) for untied (loanaid) projects which result in project specifications moresuited to Japanese than U.S. bidders. These programs are thesubject of continued discussions within the OECD. Japanexempts exports from the three percent VAT-like consumption taxinitiated in April 1989. This provision does not appear tohave any significant impact on a manufacturer's decision tosell domestically or export.7. Protection of U.S. Intellectual Property Rights Japan is a party to the Berne, Paris and UniversalCopyright conventions and the Patent Cooperation Treaty.Japan's Intellectual Property Rights (IPR) regime affordsnational treatment to U.S. entities. The United States andJapan agree that uniform IPR standards and better enforcementare needed. To that end, U.S., Japanese, and Europeannegotiators are engaged in trilateral patent harmonizationtalks. Discussions, including the protection of semiconductormask works, are also taking place in the World IntellectualProperty Organization and the GATT. Many Japanese firms use the patent filing system as a toolof corporate strategy, filing many applications to cover slightvariations in technology. Public access to applications andcompulsory licensing provisions for dependent patentsfacilitate this practice. The rights of U.S. filers in Japanare often circumscribed by prior filings of applications forsimilar inventions or processes. The need to respondindividually to multiple oppositions slows the process andmakes it more costly. Japanese patent examiners and courtsinterpret patent applications narrowly and adjudicate casesslowly. Japanese patent law lacks a doctrine of equivalenceand civil procedure lacks a discovery procedure to seekevidence of infringement. Average patent pendency in Japan is one of the longestamong developed countries, averaging over five years fromapplication to grant. The long pendency period, coupled with apractice of opening all applications to public inspection18 months after filing, exposes patent applications to lengthypublic scrutiny without effective legal protection. Bilateraltalks on Japan's slow patent processing led to a reduction inthe average patent examination portion of the pendency period,from about 37 months to 30 months. Efforts to reduce thisperiod continue. A United States-Japan IPR agreement, signed in August 1994under the Framework, will provide some relief to problems posedby the lengthy pendency period and the practice of multipleopposition filing. The Japan Patent Office will introducelegislation to revise the current system by April 1, 1995. Theagreement is to be fully operational by January 1, 1996. Therevised system will allow opposition filings only after apatent is granted. Multiple opposition filings will beconsolidated and addressed in a single proceeding, minimizingtime and costs. There will also be a revised, acceleratedexamination system, the major elements of which are: (a)patents already filed with accredited foreign patentauthorities will be eligible for accelerated examination inJapan; (b) accelerated examination applications will be grantedor abandoned within 36 months of the request date; and (c)there are limits on accelerated examination fees. Trademark applications are also processed slowly, averagingtwo years and three months and sometimes taking three to fouryears. Infringement carries no penalty until an application isapproved. In April 1992, Japan amended the trademark law toprotect service marks explicitly. Japanese copyright protection for programming languages andalgorithms is ambiguous. Pirated video sales remain a problem,although the Japanese police cooperate with the Motion PictureAssociation of America in targeting video pirates, under 1988Japanese IPR legislation that facilitates prosecution. Japanhas committed to enforce vigorously national treatment rights.A revised copyright law, which was passed in 1991 and tookeffect in January 1992, extends copyright protection to 30years. Pre-1978 foreign recordings are now protected back to1969; foreign recordings are provided with exclusive rights bycabinet order. Discussions by an advisory panel to theJapanese government on a proposal to relax legal restrictionsagainst reverse engineering of software and decompilation ofcomputer programs took place in 1994, but the panel ultimatelytook no action on the matter and instead recommended furtherstudy. The U.S. government and U.S. software companiesregistered their strong objection to any change. Although Japan's 1990 Trade Protection Law is animprovement over protection by ordinary contract, it is stillvery difficult to get an injunction against a third partytransferee of purloined trade secrets.8. Worker Rights a. The Right of Association This right as defined by the International LaborOrganization (ILO) is protected in Japan. b. The Right to Organize, Bargain and Act Collectively This right is assured by the Japanese constitution.Approximately 25 percent of the active work force belongs tolabor unions. Unions are free of government control andinfluence. The right to strike is implicitly assumed by theconstitution, and it is exercised frequently. Publicemployees, however, do not have the right to strike, althoughthey do have recourse to mediation and arbitration in order toresolve disputes. In exchange for a ban on their right tostrike, government employee pay raises are determined by thegovernment, based on a recommendation by the IndependentNational Personnel Authority.</text>
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<text>U.S. DEPARTMENT OF STATEJAMAICA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS JAMAICA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1986 base year) 768.7 712.5 546.4Real GDP Growth Rate 2/ 1.4 1.2 2.0GDP (at current prices)By Sector: Agriculture/Forestry/Fishing 251.2 320.3 N/A Mining/Quarrying 297.6 277.2 N/A Manufacturing 619.1 703.6 N/A Construction/Installation 407.9 491.5 N/A Retail Trade 745.1 904.3 N/A Transportation/Storage/ Communication 242.7 303.9 N/A Real Estate/Business Services 392 429 N/A Government Services 191.6 360.9 N/A Other 6.7 23.9 N/A Total 3153.9 3814.6 N/AReal GDP Per Capita ($, 1986 base) 314.0 288.2 221.2Labor Force (000s) 1074.9 1083.0 N/AUnemployment Rate (pct.) 15.7 16.3 N/AMoney and Prices:Money Supply (M2) 1209.5 1549.9 1372.8 3/Commercial Interest Rate 46.4 61.3 65.0Personal Savings Rate 15-28.8 15-25.0 15-30Retail Inflation 40.2 30.0 39.0Wholesale Price Index N/A N/A N/AConsumer Price Index 419.6 546.0 758.9 4/Exchange Rate (JD/USD) 23.00 25.11 33.40Balance of Payments and Trade:Total Exports (FOB) 1053.6 1044.5 1200 Exports to U.S. 386.3 379.9 397Total Imports (CIF) 1775.4 2165.2 2230 Imports from U.S. 943.6 1074.3 1128AID from U.S. (FY 93, 94, 95) 5/ 50.4 34.6 22.5AID from Other Countries 6/ 170.1 429.0 N/AExternal Public Debt 3678.0 3647.2 3608.0 7/Debt Service Payments (actual) 637.9 542.1 539.9Net Official Reserves (Dec.) -50.7 70.8 194.8 8/Trade Balance -721.8 -1120.7 -1030.0 Trade Balance with U.S. -557.3 -694.4 -731.2N/A--Not available1/ Projected.2/ Growth rate is based on Jamaican dollars whereas real GDP isshown in U.S. dollars.3/ Figure is based on January-June data.4/ Fiscal year ending December.5/ FY '95 does not include military assistance.6/ Commitments from Jamaica's cooperation partners.7/ Figure is based on January-May data.8/ Figure is based on January-June data.1. General Policy Framework Economic Structure: Jamaica is an import-oriented economywith imports of goods and services accounting for two-thirds ofGDP. Tourism and the bauxite/alumina industry are the twomajor pillars sustaining the economy. In 1993 these twoindustries accounted for about 77 percent (USD 1535.9 million)of the country's foreign exchange earnings. Hence, both GDPand foreign exchange inflows are extremely sensitive toexternal economic factors. Agriculture employs 24 percent ofthe workforce, and contributes about eight percent of GDP. Therelatively small size of the Jamaican economy, and relativelyhigh costs of production (e.g., interest rates) has reduced thecontribution of the manufacturing sector over the last severalyears to about 18 percent in 1993. However, the Government ofJamaica has made some progress in promoting investment incertain nontraditional export-oriented manufacturingenterprises (especially the garment industry) in the last fewyears. About 56 percent of Jamaica's work force is employed inthe services sector, contributing 59 percent of GDP. Economic Policies: The Jamaican economy grew by 1.2percent in 1993, following a growth of 1.4 percent in 1992.The pace of economic growth thus far in 1994 has been modestdue to tight monetary and fiscal policies. However, continuedhigh inflation (arising from wage increases, high interestrates, and drought during the latter part of the year, amongother factors) has led to declining real incomes for themajority of the population. The government has reduced publicsector operations through privatization of certain publicentities. To date, about 29 entities have been divested andthe government is seeking to divest some 78 entities in thenext few years to increase economic efficiency. Under theCommon External Tariff, the tariff rate is to be phased downfrom the current 5-30 percent to 5-20 percent by 1998. Fiscal Policy: The Jamaican fiscal year (JFY) 1994/95budget calls for Jamaican dollars (JD) 55.2 billion in outlays,an increase of 27.2 percent over the previous fiscal year'sbudget, but will be about 10 percent lower in real terms giventhe 37.1 percent inflation rate in JFY 93/94. The presentbudget reflects a tight budgetary situation with only 38percent of the outlay directed to meet the economic developmentand social needs of the country. The other 62 percent will beused for debt servicing costs (49 percent), Bank of Jamaicalosses (3.5 percent), and government employee compensation (8.5percent). The government hopes to finance the budget through anexpected total revenue of JD 39.9 billion through recurrent,capital revenue, and the capital development fund. The balanceis proposed to be financed from external debt (44.7 percent oftotal deficit) and internal debt (55.3 percent). Furthermore,in order to ease the pressure for foreign exchange and toreduce inflation to the target of one percent per month for FY94/95, the government has increased the issue of localregistered stocks, treasury bills and certificates of deposit(offering high interest rates) to mop up excess liquidity. Inthe past, the Bank of Jamaica's open market operations were ameans by which the Government of Jamaica funded its fiscaldeficit. The current budget, however, is a departure from therecent practice of reliance on massive central bank assistance. Monetary Policy: The Bank of Jamaica (BOJ) continued toreduce spending demand by issuing long term securities (LocalRegistered Stock, short-term certificates of deposit (CDs), andT-bills) at very high interest rates (varying from 52 percentin January 1994 to 37.5 percent in October 1994). Theseincreases in deposit yields were transmitted through thefinancial system and had the effect of raising commercial banklending rates as high as 65 percent in September 1994.Interest payments on the maturing securities have served toincrease liquidity, necessitating additional securityofferings. Funds acquired by the BOJ through issuance of CDswere generally borrowed by the government and used to financecurrent expenditures. It is contemplated that the BOJ willreduce its reliance on CDs as an instrument for mopping upexcess liquidity in the future. The BOJ has increased theceiling on treasury bills recently from JD 7.5 billion to JD 12billion. Other instruments used by the government to controlaggregate demand and stabilize the exchange rate include thereserve requirements of financial institutions (50 percent),and issuing a USD 12.5 million bond (the first such issuancewas in September 1993 for USD 20 million). The Bank of Jamaicaachieved a positive stock of net international reserves (NIR)by the end of 1993 for the first time since the mid 1970's.The NIR has remained positive through 1994 and has reached thelevel of USD 316.4 million as of July 1994.2. Exchange Rate Policy On September 26, 1991, exchange controls were eliminated toallow for free competition on the foreign exchange market. Theprincipal remaining restriction is that foreign exchangetransactions must be effected through an authorized dealer.Licenses are regulated. Any company or person required to makepayments to the government by agreement or law (such as thelevy and royalty due on bauxite) will continue to make suchpayments directly to the BOJ. There is also a requirement that20 percent of foreign exchange purchases by authorized dealersmust be paid directly to the BOJ. This represents asignificant reduction from the earlier requirement, lifted inJuly 1994, for 28 percent of foreign exchange purchases to goto the BOJ. A requirement that 25 percent of foreign exchangepurchases go to Petrojam (the government monopoly for importsof petroleum) is still in effect but is not fully utilizedgiven the availability of foreign exchange in the system. WhenPetrojam is privatized, this requirement will, of course, beterminated completely. With the increased use of foreign currency by importers andother earners of foreign exchange, together with the decline inofficial inflows, the Jamaican dollar lost ground by 47 percentin December 1993 over December 1992. In an effort to increasethe official inflows of foreign exchange, the governmentintroduced and increased the number of cambios as authorizeddealers in April 1994. To date, 116 licenses have been issued,although only 46 are in operation. This increase in authorizeddealers, along with high interest rates offered on thegovernment securities, has had a positive impact on the inflowsof foreign exchange. For the period January-September 1994,foreign exchange inflow into the official trading marketincreased remarkably by 93.5 percent over the correspondingperiod in 1993 to USD 996.6 million. The weighted averageselling rate of one U.S. dollar was JD 33.45 in September1994. If this positive trend continues, U.S. exports toJamaica are likely to increase.3. Structural Policies Pricing Policies: Prices are generally determined by freemarket forces. However, prices of certain items such asdomestic kerosene and bus fares are subject to price controls.Prices of these items can only be changed by ministerialapproval. In addition, the margins of motor vehicle dealers isrestricted to 12.5 percent of CIF plus customs duty on motorvehicles, and between 12.5 to 20 percent on motor vehicleparts. The Fair Competition Act was introduced in 1993 tocreate an environment of free and fair competition and toprovide consumer protection. Tax Policies: Taxation accounts for 90 percent of totalrecurrent and capital revenue. Tax revenue includes: personalincome tax (38 percent of tax revenue), value-added tax (29percent), and import duties (12 percent). Although no newtaxes have been imposed so far during FY 94/95, the governmentproposes to raise additional revenue of about JD 723 millionthrough increases in the ad valorem tax on petroleum products,the departure tax, and the general consumption tax on purchasesof motor vehicles. Given the increase in the national minimumwage from JD 300 to JD 500 per 40 hour workweek effective July1994, the income tax threshold was raised from JD 18,408 toJD 22,464 effective January 1994 and will be increased toJD 35,568 effective January 1995. Jamaica implemented theCaribbean Economic Community (Caricom) Common External Tariff(CET) on February 15, 1991 in order to enhance the region'sinternational competitiveness. Under the CET, goods producedin Caricom states are not subject to import duty.Third-country imports are presently subject to import dutiesranging between 5 percent and 30 percent, with higher ratesapplicable to certain agricultural items, "non-basic" andfinished goods. The tariff rate is to be phased down to 5 to20 percent by 1998. The Government of Jamaica offersincentives to approved foreign investors, including income-taxholidays and duty-free importation of capital goods and rawmaterials. The United States and Jamaica signed a bilateralinvestment treaty in early 1994. Regulatory Policies: All monopoly rights of the stateJamaica Commodity Trading Company (JCTC) ceased December 31,1991, but it retains responsibility for concessionary salessuch as PL-480. The U.S. Embassy is unaware of any governmentregulatory policy that would have a significant discriminatoryor adverse impact on U.S. exports.4. Debt Management Policies Jamaica's stock of external debt fell to JD 3.65 billion in1993, the lowest since 1986. The average annual decline overthe past three years has been 4.2 percent. Cancellation byofficial bilateral creditors, conversions on commercial bankdebt, debt servicing, and reduction in contracting new loanscontributed to this debt reduction. Half of the public debt isowed to bilateral donors (the United States is the largestbilateral creditor), 35 percent to multilateral institutions, 9percent to commercial banks, and 6 percent to other entities. Actual debt servicing during 1993 accounted for 22.6percent (USD 637.9 million), of which 8.42 percent representsinterest payments. The debt service burden in 1993 was lowerthan for any year since 1984. The ratio of total outstandingdebt to exports of goods and services declined from 156.3percent in 1992 to 150.59 percent in 1993 due mainly to debtreduction and improvement in exports. Although the debt percapita improved by 14.6 percent to USD 1,475 over the last fouryears, debt servicing continues to be a major burden on thegovernment budget (49 percent). Jamaica passed the June IMFtest for its Structural Adjustment Program. The current IMFagreement is expected to be Jamaica's last. Jamaica negotiateda new Multi-Year Rescheduling Arrangement (MYRA) with the ParisClub of OECD creditor countries and agencies in 1992. The MYRAprovides for rescheduling of USD 281.2 million of principal andinterest for the period October 1992 to September 1995. Under the debt conversion program (reducing foreigncommercial debt), about 30 percent or USD 119.4 million ofoutstanding commercial debt has been converted over the lastfive years.5. Significant Barriers to U.S. Exports Government Procurement Practices: Government procurementis generally effected through open tenders. U.S. firms areeligible to bid. The range of manufactured goods producedlocally is relatively small, so instances of foreign goodscompeting with domestic manufacturers are very few. Customs Procedures: Due to the efforts of the Governmentof Jamaica, customs procedures are being improved andstreamlined. In order to facilitate the movement of goods, thegovernment has simplified the documentation and clearancerequirements for exporters. Computerization of the entiresystem is underway.6. Export Subsidies Policies The Export Industry Encouragement Act allows approvedexport manufacturers access to duty-free imported raw materialsand capital goods for a maximum of ten years. Other benefitsare available from the Jamaican Government's EX-IM Bank,including access to preferential financing through the ExportDevelopment Fund, lines of credit, and export creditinsurance. Jamaica does not adhere to the GATT subsidies code.7. Protection of U.S. Intellectual Property Jamaica is a member of the World Intellectual PropertyOrganization (WIPO) and respects intellectual property rights.The Jamaican Constitution guarantees property rights and hasenacted legislation to protect and facilitate acquisition anddisposition of all property rights, including intellectualproperty. Jamaica is a member of the Bern Convention(copyright) and intends to adhere to the Paris Convention forthe Protection of Industrial Property (i.e., patents andtrademarks). The Government of Jamaica and the Government ofthe United States signed a bilateral Intellectual PropertyRights Agreement in March, 1994. The U.S. Embassy is not awareof any complaint concerning the protection of intellectualproperty in Jamaica. Patents: There are plans to modernize the patents,trademarks, and designs legislation. Under the presentregulations, patent rights in Jamaica are granted for a periodof 14 years with the provision of extension for another sevenyears. The "novelty test" contained in the Jamaican patentlaw, however, limits the definition of "novelty of invention"to that which is novel in Jamaica, without reference to thenovelty of the invention abroad. Further, patents granted inJamaica shall not continue in force after the expiration of thepatent granted elsewhere. The periods of examination are long;it can take years for a patent to be issued. Copyrights: The Jamaican Senate passed the Copyright Actin February 1993 which entered into force September 1, 1993.The Act adheres to the principles of the Bern Convention andcovers a wide range of works, including books, music,broadcasts, computer programs and databases. New Technologies: There is no statute with regard to newtechnologies. Jamaica follows common law principles asestablished in England. Breaches of such laws can result ineither injunction or suit for damages. Impact on U.S. Trade: Piracy of broadcasts andpre-recorded video cassettes for distribution in the domesticand regional market is widespread. Video stores import a largenumber of copyrighted motion pictures and television programseach year. However, a draft policy paper on cable televisionwas tabled in parliament in February 1994 which identified 100unauthorized cable systems involving investment in Jamaicavalued at between JD 20-40 million. The government ispresently examining submissions from the public before itdecides on the final licensing regime for the legal operationof cable television.8. Worker Rights a. The Right of Association The Jamaican Constitution guarantees the rights of assemblyand association, freedom of speech, and protection of privateproperty. These rights are widely observed. b. The Right to Organize and Bargain Collectively Article 23 of the Jamaican Constitution guarantees theright to form, join and belong to trade unions. This right isfreely exercised. Collective bargaining is widely used as ameans of settling disputes. The Labor Relations and IndustrialDisputes Act (LRIDA) codifies regulations on worker rights.About 15 percent of the work force is unionized, and unionsplay an important economic and political role in Jamaicanaffairs. In the Kingston Free Zone, none of the 18 factoriesare unionized. Jamaica's largest unions, including theNational Workers' Union, have been unable to organize workersin the Free Zone. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is not practiced. Jamaica is aparty to the relevant ILO conventions. d. Minimum Age for Employment of Children The Juvenile Act prohibits child labor, defined as theemployment of children under the age of twelve, except byparents or guardians in domestic, agricultural, orhorticultural work. While children are observed peddling goodsand services, the practice of child labor is not widespread. e. Acceptable Conditions of Work A 40-hour week with 8-hour days is standard, with overtimeand holiday pay at time-and-a-half and double time,respectively. Jamaican law requires all factories to beregistered, inspected and approved by the Ministry of Labor.Inspections, however, are limited by scarce resources and anarrow legal definition of "factory." f. Rights in Sectors With U.S. Investment: U.S. investment in Jamaica is concentrated in thebauxite/alumina industry, petroleum products marketing, foodand related products, light manufacturing (mainly in-bondapparel assembly), banking, tourism, data processing, andoffice machine sales and distribution. Worker rights arerespected in these sectors, and most of the firms involved areunionized with the important exception of the garment assemblyfirms. No garment assembly firms in the free zones areunionized and only one firm outside the free zones isunionized. There have been no reports of U.S.-related firmsabridging standards of acceptable working conditions. Wages inU.S.-owned companies generally exceed the industry average. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 168 Food & Kindred Products 0 Chemicals and Allied Products 157 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 11Wholesale Trade (1)Banking (1)Finance/Insurance/Real Estate 8Services 20Other Industries (1)TOTAL ALL INDUSTRIES 1,077(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEITALY: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRSthis study most children who work do so not out of need, butbecause of family cultural reasons, i.e. early access to workis considered a normal activity and is even appreciated by thechildren. However, in less prosperous parts of the country(primarily in the south), child labor is more prevalent andoften involves evasion of compulsory school obligations. Alegislative decree approved by the government in August 1994provided for more severe fines for child labor violations bythe employers, but at the same time removed some minorviolations from the criminal code. e. Acceptable Conditions of Work Minimum work and safety standards are established by lawand buttressed and extended in collective labor contracts. TheBasic Law of 1923 provides for a maximum workweek of 48 hours-- no more than 6 days per week and 8 hours per day. The8-hour day may be exceeded for some special categories. Mostcollective labor agreements provide for a 36- to 38-hour week.Overtime may not exceed 2 hours per day or an average of 12hours per week. There is no minimum wage set under Italian law; basic wagesand salaries are set forth in collective bargainingagreements. National collective bargaining agreements containminimum standards to which individual employment agreementsmust conform. In the absence of agreement between the parties,the courts may step in to determine fair wages on the basis ofpractice in related activities or related collective bargainingagreements. Basic health and safety standards and guidelines forcompensation for on-the-job injury are set forth in anextensive body of law and regulations. In most cases thesestandards are exceeded in collective bargaining agreements. Alegislative decree was approved by the government in September1994 incorporating into Italian law eight EU directives onhealth and safety, which had not yet been applied in Italy.Among other things, the decree stipulates employers'obligations in matters of workplace adjustments for disabledemployees, establishes safety rules in workplaces andguidelines in the use of computers. Enforcement of health andsafety regulations is entrusted to labor inspectors, who areemployees of local health units and have the same status asjudicial police officers. Inspectors make periodic visits tocompanies to ensure observance of safety regulations.Violators may be fined or even imprisoned. Trade unions alsoplay an important role in reporting safety violations toinspectors. In 1993 the number of work-related deaths inindustry decreased by more than 450 compared to 1993 (1,277compared to 1,729 the year before). In agriculture there were306 deaths, (131 less than in 1993). These declines were dueto the effects of the recession (reduction in working hours andemployment) as much as to improved safety measures and theproblem of an inadequate number of inspectors continues. Dueto high unemployment, there is also pressure on workers toaccept unsafe conditions as a necessary evil if they needjobs. There are many substandard workplaces in Italy,especially in the south. A special body which was expected tobe set up to monitor industrial accidents is not yetoperating. However, appropriate legislation was revised in1994 providing guidelines in case of dangerous productionprocesses. f. Rights in Sectors with U.S. Investment Conditions do not differ from those in other sectors of theeconomy. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 352Total Manufacturing 8,745 Food & Kindred Products 432 Chemicals and Allied Products 2,607 Metals, Primary & Fabricated 215 Machinery, except Electrical 3,127 Electric & Electronic Equipment 577 Transportation Equipment 163 Other Manufacturing 1,625Wholesale Trade 2,086Banking 182Finance/Insurance/Real Estate 1,816Services 513Other Industries 227TOTAL ALL INDUSTRIES 13,920Source: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEITALY: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS ITALY Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1985 prices) 505,520 499,186 508,214Real GDP Growth (pct.) 0.7 -0.7 1.8GDP (at current prices) (billions USD) 1,220 992 1,026By Sector: Agriculture 42,778 32,992 N/A Industry 349,468 269,830 N/A Energy 32,094 26,507 N/A Construction 71,151 55,088 N/A Services 610,418 497,125 N/A Non-Market Services 169,185 137,363 N/A Government 157,127 116,718 N/ANet Exports of Goods and Services -3,564 27,803 35,694Real GDP Per Capita (USD) (1985 prices) 13,667 10,612 10,615Labor Force (000s) N/A 22,743 22,453 2/Unemployment Rate (pct.) N/A 10.4 11.3 2/Money and Prices:Money Supply (M2) 583,371 543,393 595,791 3/ (annual pct. growth) 4.6 7.9 4.5 3/Base Interest Rates 15.8 12.0 11.2 3/Personal Savings Rate 17.2 18.0 18.9Retail Inflation (COL) 5.4 4.2 3.9Wholesale Inflation (PPI) 1.9 3.7 3.4Exchange Rate (lire/USD aver.) 1,233 1,572 1,600Balance of Payments and Trade:Total Exports (FOB) 177,969 168,630 89,243 4/ Exports to U.S. 12,393 13,034 7,071 4/Total Imports (CIF) 188,249 147,772 79,978 4/ Imports from U.S. 9,847 7,855 3,913 4/External Public Debt (USD billions) (year end) 44.0 42.9 48.5 2/Debt Service Payments (billion USD?) 4.1 4.3 2.7 2/Gold and Foreign Exch. Reserves (end-period) 45,219 49,221 58,116 3/Trade Balance -10,780 20,858 265 4/ Trade Balance with U.S. 2,547 2,741 4,543 4/N/A--Not available.1/ 1994 data are estimates by Italian Government or U.S.Embassy except where data are followed by a footnote,indicating actual data through that period.2/ Figure based on January-July data.3/ Figure based on January-August data.4/ Figure based on January-June data.1. General Policy Framework The Italian economy is the industrialized world's fifthlargest, having undergone a dramatic transformation into anindustrial power in the last 50 years. A member of the Groupof Seven (G-7), the OECD, the GATT, the IMF, and the EuropeanUnion (EU), Italy maintains a relatively open economy.Economic activity in Italy is centered predominantly in theNorth, resulting in a divergence of wealth between North andSouth that remains one of Italy's most difficult economic andsocial problems. The state plays an active role in the economy, not only inthe formulation of macroeconomic policy and regulations, butalso through state ownership of a number of large industrialand financial concerns. Recent governments, however, havebegun a process of privatization that, if continued, shouldlead to a significant reduction in state ownership. To date,several large financial institutions and a few industrialconcerns have been privatized. Key state monopolies inelectricity and telecommunications are slated for privatizationin 1995. Foreign firms, including U.S. firms, have been activeboth as purchasers of privatizing companies as well asprivatization advisors. There is also a large and dynamicprivate sector. While a few major conglomerates with extensiveoverseas operations exist, the private sector is characterizedprimarily by a large number of small and medium-sized firmswhich produce for domestic and export markets. Italy's large public sector deficit and growing public debtconstitute its most pressing economic problems. The stock ofdebt is currently estimated to be 123 percent of GDP. Thebudget deficit is expected to be about 9.6 percent of GDP in1994. Since 1992, successive governments have implementeddeficit reduction policies designed to alter the underlyingdeficit trend. The 1994 deficit was reduced by about 26trillion lire ($16 billion). The government budget for 1995,with spending cuts and increased revenues of approximately 47trillion lire ($29 billion), aims to reduce the deficit to 8percent of GDP. Deficit reduction in 1995 will be attainedprimarily by means of spending cuts on pensions and healthcare, combined with additional revenues from expeditioussettlement of outstanding tax disputes and a pardon on buildingviolations. Given Italy's fiscal imbalances, the primary objective ofmonetary policy is to support financing the budget deficit inthe least inflationary manner. The monetary policy objectiveis to hold the increase in both M-2 (currency plus all bankdeposits) and credit to the non-state sector to the expectedlevel of increase of nominal GDP growth. The Bank of Italy hasmoved away from direct monetary controls in favor of indirectinstruments, an essential shift in light of the integration ofEuropean capital markets. Its principal policy tool is openmarket operations exercised through repurchase agreements withcommercial banks. The central bank discount window is seldomused, although changes in the discount rate are used to signalpolicy shifts. In late 1994 the Italian Parliament completed legislationimplementing the Uruguay Round Final Act. Italy became afounding member of the World Trade Organization on January 1,1995.2. Exchange Rate Policy Italy has a freely floating exchange rate and no exchangecontrols. Prior to September, 1992, Italy participated in theExchange Rate Mechanism (ERM) of the European Monetary System,which obligated Italy to maintain fluctuations of the liraagainst other ERM currencies within a narrow band. InSeptember 1992, due to severe pressures in foreign exchangemarkets, the Italian Government devalued the lira by sevenpercent against the other ERM currencies. When this failed torelieve pressure on the lira, Italy withdrew from the ERM. TheBank of Italy continues to monitor exchange rates and to seeklira stability against other EU currencies (especially thedeutschemark) in order to avoid tensions with other EUcountries regarding the question of competitive devaluations.The Bank of Italy does not intervene in the markets to defendthe lira except in exceptional circumstances. The lira devaluation has made Italian exports morecompetitive and resulted in a substantial trade surplus(estimated at 4 percent of GDP for 1994). Italy's share ofglobal exports increased from 3.5 percent at end-1992 to 3.7percent at end-1993, and exports are expected to grow by 9percent in 1994. The lower lira, combined with the recessionin 1992-93, has resulted in stagnation in Italian imports, notonly from the U.S., but from other suppliers as well.3. Structural Policies Structural rigidities have hindered Italy's economicgrowth. Rigid hiring and firing rules, downward wage stiffnessand high unemployment benefits for redundant industrial workershave distorted the labor market and have had a negative impacton job creation. On the positive side, two labor costagreements in the last several years have reduced the cost oflabor to less than annual increases in inflation, which hasresulted in increased Italian competitiveness in internationalmarkets. As part of its effort to create jobs, the Berlusconigovernment passed tax legislation in July 1994 aimed atencouraging the formation of small businesses (Italy's majoremployers) and providing incentives to young entrepreneurs. Another major area of structural rigidity in Italy isfinancial markets, particularly the banking sector, which havebeen heavily regulated and slow to respond to market needs. The Italian stock market, relatively undeveloped comparedto its European counterparts, has undergone a significanttransition over the last few years. A 1991 law, designed tomake the Italian stock market more modern, efficient, andtransparent, established a new type of brokerage company, theSecurity Intermediation Company, known by its Italian acronym,SIM. SIMs have replaced individual stockbrokers as the primarystock market intermediaries. While supporting reform of theItalian market, U.S. and other foreign firms have objected to aprovision of the law requiring all securities firms wishing todo business in Italy or with Italian clients to establish a SIMin Italy. Due to the costs of establishing a SIM, the lawdisadvantages U.S. and other foreign firms. The SIMs lawviolates the basic tenets of the OECD Code of Liberalizationand has been challenged by the EU Commission because it alsoviolates the Treaty of Rome. It will likely requiremodification to conform to European Union directives which comeinto effect in 1996. Government procurement practices are not completely guidedby free market principles. Government procurement in someareas (e.g. heavy electrical equipment, telecommunications, andmilitary hardware) is heavily directed toward Italy-basedsuppliers. Moreover, procurement procedures are not fullytransparent. Except for agricultural products, taxes andcustoms duties do not present serious obstacles to U.S.exports. While Italy remains relatively open to foreigninvestment, direct foreign investment can become a politicalissue. The 1990 anti-trust law gives the government theauthority to block mergers over a certain size involvingforeign companies under certain conditions. Thus far, however,the anti-trust authority has not acted against foreigninvestment, concentrating instead on promoting increasedcompetition in Italian markets. There are no impediments toforeign investment participation in the privatization process. Legislation to bring Italy into conformity with EuropeanUnion regulations has begun to eliminate some of thesestructural barriers. The elimination of foreign exchangecontrols is one example. Legislation to reform the bankingsystem, which took effect on January 1, 1994, is another.Similar legislation for the securities market is expected in1995. The degree to which these policies affect demand forU.S. exports will to a large extent be determined by theorientation of the unified EU market. Despite its seriousfinancial problems, Italy is committed to participating ineconomic and monetary union. As a founding member of the EU,Italy wants to move forward with the first group of countriesin economic and monetary union. Nonetheless, due to the highcosts associated with the convergence measures, there is strongpolitical opposition to the economic policies necessary forItaly to achieve economic convergence with other members of theEU.4. Debt Management Policy Although Italy has not had external debt or serious balanceof payments difficulties since the mid-1970's, its domesticpublic debt is extremely large. It is financed principallythrough domestic capital markets, with various securitiesranging in maturity from three months to thirty years. Italyalso has a large external debt, though very little of thisrepresents obligations of the Republic of Italy. Italy'sforeign assets, primarily in portfolio form, are substantial.Italy's banking system had claims on the so-called debtorcountries of 15.1 billion dollars at end-September 1993, morethan half of which were accounted for by Russia and EasternEurope. Italy's banking system is considerably less exposed tothe debtor countries than those in other G-7 countries. U.S. and other foreign banks have complained about thehandling of the liquidation of EFIM, a large state holdingcompany. Two years after the liquidation was announced in July1992, some foreign banks and creditors still have not been paid.5. Significant Barriers to U.S. Exports In Italy highly-fragmented, non-transparent governmentprocurement practices and significant problems with corruptionhave created obstacles for U.S. firms' seeking to win Italiangovernment procurement contracts. A widening investigation ofabuses in this area has created pressure for reform. OnJanuary 13, 1994, the Italian Parliament enacted legislation(Merloni law) which should provide more transparent procurementprocedures, including establishment of a central body tomonitor implementation. However, the reforms envisaged in thelegislation will not be fully implemented until 1996 and areunder review by the Berlusconi Government. U.S. agricultural exports to Italy compete with productscovered under the EU's Common Agricultural Policy (CAP). Forthis reason, U.S. products such as meat and sugar continue tobe subject to quantitative restrictions which are enforcedthrough licenses. Agricultural imports also face sanitary andphytosanitary barriers that result in the exclusion orrestriction of certain U.S. products including beef, some seedsfor planting, and citrus fruit (other than grapefruit).Additionally, there are restrictions on U.S. bull semen importsinto Italy. Telecommunications services are still tightly regulated bythe state, which maintains a monopoly on voice telephony andthe telecommunications infrastructure, including allswitching. Enhanced services must be offered over the publicswitched network or through dedicated leased circuits. Resaleof leased line capacity remains difficult until Italyimplements EU directives on telecommunications services.Multi-user networks are officially outlawed, but sometimestolerated where need is demonstrated. Mobile phone servicesare no longer the monopoly of the state-owned telephoneutility, SIP. On March 28, 1994, a second cellular operatinglicense was awarded to the Omnitel consortium (40 percent U.S.participation). In keeping with the 1989 EU Broadcast Directive, Italy's1990 Broadcast Law requires that upon conclusion of three yearsfrom concession of a national broadcast license, a majority ofTV broadcast time for feature films be reserved for EU-originfilms. The Italian law also requires that half of the Europeanquota be dedicated to Italian films. The Italian law is morenarrowly focused than the Broadcast Directive, since itencompasses only films produced for cinema performance, andexcludes TV films and series and other programming. The filmsector decree-law enacted on January 18, 1994, calls forapplication of the Italian broadcast quotas proportionatelyduring evening viewing hours, but its language is strictlyhortatory. A separate but related issue concerns films shown inItalian theaters. The film sector law approved by Parliamenton February 23, 1994 eliminated obligatory screen quotas forItalian films (heretofore 25 days per quarter subject toclosing of the theater, under a 1965 law), and in their placesubstituted discretionary rebates on Italy's box office tax fortheaters that show Italian films. The rebates and eligibilitythresholds (percentages of screenings required to qualify) varyaccording to the category of film. The United States continuesits efforts both to obtain elimination of discriminatory lawsand regulations in the audiovisual sector and to limit theirimpact in the interim. In the areas of standards and standards setting, Italy hasbeen slow in accepting test data from foreign sources, but isexpected to adopt EU standards in this area. In sectors suchas pollution control, the uniformity in application ofstandards may vary according to region, thus complicatingcertification requirements for U.S. business. Some professional categories (e.g. engineers, architects,lawyers, accountants) face restrictions that limit theirability to practice in Italy without either possessing Italiannationality or having received an Italian university degree. Rulings by individual local customs authorities can bearbitrary or incorrect, resulting in denial or delays of entryof U.S. exports into the country. Considerable progress hasbeen made in correcting these deficiencies, but problems doarise on a case-by-case basis. Since 1990, the United States/Italy civil aviationrelationship has undergone some liberalization, including theentry of new U.S. carriers in 1991 and 1992. However, U.S.carriers have expressed concern over a range of doing-businessissues, a number of which relate to the services monopolies atinternational airports. While official Italian policy is to encourage foreigninvestment, industrial projects require a multitude ofapprovals and permits from the many-layered Italianbureaucracy, and foreign investments often receive closescrutiny. These lengthy procedures can present extensivedifficulties for the uninitiated foreign investor. There areseveral industry sectors which are either closely regulated orprohibited outright to foreign investors, including domesticair transport, aircraft manufacturing, and the state monopolies(e.g., railways, tobacco manufacturing and electrical power). Until 1992, meaningful privatization of Italian governmentparastatals was thought to be unlikely. However, on August 7,1992 legislation was enacted which began the process ofconverting major groups such as IRI (the industrial stateholding company) and ENI (the state energy company) intojoint-stock companies. As of October 1994, several majorfinancial institutions and a few industrial concerns had beenprivatized. U.S. firms served as advisors in several of theseprivatizations. The government has announced plans toprivatize the electricity and telecommunications sectors in1995. Foreign firms, including U.S. firms, have expressedinterest in upcoming privatizations. The expansion of modern distribution units, such as chainstores, department stores, supermarkets, hypermarkets, andfranchises, is severely restricted by local practice andnational legislation which subjects applications for largeretail units above a certain merchandising surface to a lengthyand cumbersome authorization process. Italy provides a numberof investment incentives consisting of tax breaks and othermeasures to attract industrial investment to depressed areas,especially in the south of Italy. In September, 1990 the Italian Parliament approved an anti-trust law. The law gives the government the right to reviewmergers and acquisitions over a certain threshold. Thegovernment has the authority to block mergers involving foreignfirms for "reasons essential in the national economy" if thehome government of the foreign firm does not have a similaranti-trust law or applies discriminatory measures againstItalian firms. A similar provision in the law applies topurchases by foreign entities of five or more percent of anItalian credit institution's equity.6. Export Subsidies Policies Italy subscribes to EU directives and Organization forEconomic Cooperation and Development agreements on exportsubsidies. Through the EU, it is a member of the GATTSubsidies Code. Italy also provides extensive export refundsunder the Common Agricultural Policy (CAP), which are beingscrutinized under CAP reform.. Italy has an extensive array ofexport promotion programs. Grants range from funding of travelfor trade fair participation to funding of export consortia andmarket penetration programs. Many programs are aimed atsmall-to-medium size firms. Italy provides direct assistanceto industry and business firms to improve their internationalcompetitiveness. This assistance includes export insurancethrough SACE, the state export credit insurance body, as wellas direct export credits. While subsidies to the steel andshipbuilding industries were legally terminated in July 1992,some U.S. industries have expressed concern that theseexport-promoting subsidies continue.7. Protection of U.S. Intellectual Property The Italian Government is a member of the WorldIntellectual Property Organization, and a party to the Berneand Universal Copyright conventions, the Paris IndustrialProperty and Brussels Satellites conventions, the PatentCooperation Treaty, and the Madrid Agreement on InternationalRegistration of Trademarks. Italy since 1989 has been on the intellectual propertyrights "watch list" under the Special 301 provision of the 1988trade act, reflecting problems with protection of copyrightsfor computer software and film videos. Enactment in December1992 of the EU software directive making software copyrightviolations a criminal offense was a major step forward.Simultaneously, the GOI substantially increased enforcementactions against both video and software pirates and created anInterministerial Anti-Piracy Committee. Other activity hasincluded specialized training courses for Italy's three lawenforcement agencies, and creation by the Judiciary ofspecialized "pools" of prosecutors to press the fight againstpiracy in several major municipal centers. U.S. consultationswith Italy have contributed to improved enforcement action andare continuing to seek a stronger legal framework. Application of the new software law appears to be making asignificant dent in Italy's software piracy problem. Followingenactment of the law, Italy's Guardia di Finanza initiated alarge number of investigations, seizing 94,000 illegal programsand pressing criminal charges against 60 resellers in 1993. AsItalian companies moved to legalize software holdings, U.S.industry reported that the rate of software piracy in Italydeclined from an estimated 86 percent in 1992 to 50 percent in1993 (less than the European average). As a result, theBusiness Software Alliance reports that sales of packagedpersonal computer software increased by 331 percent compared to1992 sales. Film video piracy remains a serious problem. U.S. motionpicture distributors estimate that some 40 percent of the videomarket consists of pirated material. According to U.S.distributors, the television piracy rate ranges from 6-8percent and unauthorized film screenings account for 15-20percent of all showings. U.S. industry has noted a significantincrease in raids and confiscation of illegal cassettes andequipment. Italian plans to enact by June 1995 the EUCopyright Duration Directive, which would extend the generalcopyright term to 70 years, should help address a longstandingissue about protection for older classics.8. Worker Rights a. The Right of Association The Workers' Statute of 1970 provides for the right toestablish a trade union, to join a union and to carry out unionactivities in the workplace. Trade unions are not governmentcontrolled, and the Constitution fully protects their right tostrike, which is frequently exercised. In the past, the threemajor labor confederations had strong historical ties to thethree major political parties, but now are autonomous of allpolitical parties and continue to administer certain socialwelfare services for the Government, which compensates themaccordingly. Moreover, the Workers' Statute favors the threeconfederations to the extent that it is difficult for smallunions, including the so-called "base committees" (COBAS), toobtain recognition. The election of the new UnionRepresentation Units (RSU) in the workplaces, as stipulated inthe July 1993 agreement, has begun. So far, less thanone-third of all workplaces have held elections. The threemajor labor confederations have won most of the elections todate. These unions suffered some loss of active workermembership due to the recession in 1993. Small autonomousunions refuse to participate in the RSU elections, and oftentry to maintain their local union representation structure. In June 1994, a period of light collective bargainingactivity, 170,000 hours were lost due to strikes, one tenth ofthe total lost in June 1993 (1.7 million hours). In the periodJanuary-June 1994, 2.4 million hours were lost because ofstrikes, almost 80 percent below the time lost in thecorresponding period in 1993 (11.6 million hours). The totaltime lost in 1993 (23.8 million hours), was the highestrecorded since the 1990 strike law was enacted. Most of thestrikes were motivated by layoffs and downsizing in industry. b. The Right to Organize and Bargain Collectively The right of workers to organize and bargain collectivelyis protected by the Constitution and is freely practicedthroughout the country. Labor-management relations aregoverned by legislation, custom, collective bargainingagreements, and labor contracts. A new system of collectivebargaining was negotiated in July 1993. It provides for wageincreases to be limited to programmed inflation in the firsttwo years of four year contracts with a reopener clause afterthe second year to adjust wages in accordance with actualinflation. It also permits plant level bargaining to takeplace according to schedules established in national sectoralcontracts. The renewal of the major national labor contractsstarted in early 1994 and is expected to continue into early1995. More than 10 million workers are covered by theseagreements, of which those covering 7 million workers are stillpending renewal. Company-level agreements have also beensigned in some large and medium-sized enterprises, providingfor wage increases tied to productivity and profitability ofthe firm, introducing more flexibility in the use of theworkforce and, in some cases, establishing private pensionfunds jointly financed by management and labor. National collective bargaining agreements in fact apply toall workers regardless of union membership. The July 1993accord calls for this to be guaranteed by law. Collectivebargaining at the national level (involving the threeconfederations, the public and private employers' organizationsand, where appropriate, the Government) occurs irregularly anddeals with issues of universal concern. The EU has recentlyapproved a directive on Work councils in multinationalcompanies which is aimed at permitting unions and workers toestablish European-level representation structures. Thedirective establishes a two year period for the implementationof European Work Councils. Some multinationals operating inItaly have already established such bodies in anticipation ofthis directive. Italy enacted legislation in 1992 to bring it intocompliance with the EU Directive on transfer of ownership. Thelaw provides that the unions of both the former owner and thenew owner's respective companies must be consulted in advanceof the sale and that no worker's benefits will be lost as aresult of the transfer of ownership. Unions have the right tobargain with the employers in case of restructuring processesand workers who are laid off are entitled to receive theirwages from the earnings compensation fund (financed byemployers and the state). There are no areas of the country, such as exportprocessing zones, where union organizations and collectivebargaining are impeded or discouraged. The law prohibits anti-union discrimination by employers against union members andorganizers. A 1990 law encourages workers in small enterprises(i.e., fewer than 16 employees) to join unions and requires"just cause" for dismissals from employment. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor, which is prohibited by law,does not exist in practice. d. Minimum Age for Employment of Children Under current legislation, no child under 15 years of agemay be employed (with some specified exceptions). The Ministryof Labor may, as an exception, authorize the employment onspecific jobs of children under 15 years of age, for example inartistic presentations or film making, which are not dangerousor harmful to the child's morality and health and do not takeplace after midnight. The child must have at least 14consecutive hours of rest between performances. The minimumage is 16 for youth employed in dangerous, fatiguing, andunsanitary work, and 18 for youth employed in a number ofoccupations including mines, tunnels without mechanicalvehicles, and sulfur ovens in Sicily. No worker under 18 yearsmay be employed in driving and pulling trucks and carriages, orin jobs involving explosives. Minimum age and compulsoryeducation laws (currently through age 14, but due to be raisedto age 16) are effectively enforced in most areas. Accordingto a research study conducted by sociologists among childrenattending elementary school, the number of children below 15years of age who work is estimated at 400,000. According to</text>
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<text>U.S. DEPARTMENT OF STATEISRAEL: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS ISRAEL Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1990 prices) 2/ 58,872 60,878 75,190Real GDP Growth (pct.) 6.7 3.4 5.0GDP (at current prices) 2/ 63,962 73,544 85,716By Sector: Agriculture/Forestry/Fishing 1,791 1,765 1,714 Construction/Electricity/Water 6,460 6,619 7,029 Industry 13,490 15,812 18,686 Ownership of Dwellings 4,478 5,369 6,429 Finance/Business Services 17,001 13,679 16,286 Government/Health/Education 14,391 16,621 19,286 Net Exports of Goods & Services 20,779 22,143 25,000Real Per Capita GDP (USD) 11,993 13,820 15,727Labor Force (000s) 1,860 1,960 2,020Unemployment Rate (pct.) 11.2 10.0 7.8Money and Prices: (annual percentage growth)Money Supply (M2) 26 47 N/ABase Interest Rate 3/ 11.3 11.9 N/APersonal Savings Rate 19.6 17.7 N/AWholesale Price Index 9.1 7.2 9Consumer Price Index 9.4 11.2 14.0Exchange Rate (USD/shekel) 2.5 2.8 2.98Balance of Payments and Trade: (billions USD)Total Exports (FOB) 4/ 12.48 14.08 16.20 Exports to U.S. 4.0 4.6 5.2Total Imports (CIF) 4/ 18.56 20.24 22.50 Imports from U.S. 3.2 3.6 4.2Aid from U.S. 3.0 3.0 3.0Aid from Other Countries N/A N/A N/AExternal Public Debt 3/ 24.31 22.97 25.89Debt Service Payments (paid) 1.36 1.40 1.6Gold and Forex Reserves 4/ 6.3 5.6 6.5Trade Balance 4/ -5.09 -5.05 -6.3 Trade Balance with U.S. 0.8 1.0 1.0N/A--Not available.1/ 1994 Figures are all estimates based on available monthlydata in October 1994.2/ GDP at factor cost.3/ Figures are actual, average annual rates.4/ Merchandise trade.Sources: Bank of Israel; Central Bureau of Statistics;Ministry of Finance.1. General Policy Framework Israel is in the midst of a four year economic expansion,with five to six percent growth projected to continuethroughout the decade. Economists estimate that Israel'seconomy will grow by over 5% in 1994. Inflation, likely toreach 14 percent on an annualized basis, has replacedunemployment as the biggest cause for concern in the economy.Increased inflation is driven by soaring housing costs, higherthan anticipated private consumption, and costly public sectorwage agreements. The best economic news is unquestionablyIsrael's success in reducing the unemployment rate from over 11percent in 1992 to approximately 7.5 percent in the thirdquarter of 1994. Given changes in the composition of the laborforce due to the recent wave of immigration, the rate ofunemployment may be approaching what some economists believe isIsrael's normal unemployment rate. An increase in imports relative to exports has caused thebalance of payments deficit to widen in the first half of1994. Increases in imports continue to outstrip export growth,despite 10 percent growth in exports in 1994. The import bulgeconsists of industrial inputs (which may lead to increasedproduction), fuel, diamond and ship and airplane imports, andcontinued increases in Israeli tourism abroad. This trend ofincreased imports moderated in the third quarter. The tradedeficit increased by 28% during the first nine months of 1994,in comparison to the same period in 1993. The Government ofIsrael estimates that the balance of payments deficit for 1994will exceed 2 billion dollars. The United States continues to be Israel's single largesttrading partner. Although the U.S. consistently runs a tradedeficit with Israel, U.S. sales of goods and services to Israelare expanding. In 1993, exports of U.S. goods and services toIsrael went up by 12 percent, and this trend continued in thefirst nine months of 1994. Total bilateral trade is estimatedto approach 10 billion dollars in 1994, with Israel accruing atrade surplus with the United States of nearly 1 billiondollars. The U.S.-Israel Free Trade Area Agreement will becompletely phased-in as of January 1, 1995, with all tariffsdropping to zero. Israel retains non-tariff barriers forsensitive areas like agriculture and processed food products. Israel's 1993 budget deficit equaled 2.5 percent of GDP.Israel finances its deficit through sale of government bonds,sale of government-owned companies, tax revenues, unilateraltransfers from abroad, and borrowing on the internationalmarket. Under balanced-budget legislation passed in 1991, thedeficit ceiling was reduced by a set percentage every year. In1993, the government revised the legislation to replacemandated reductions in future years with a general requirementthat each year's planned budget deficit target be less thanthat of the previous year. In 1994, the budget deficit isexpected to reach 3% of GDP. Total government debt is increasing, due primarily toborrowing under the U.S. Loan Guarantee Program. While Israellowered several purchase taxes, corporate income tax and incometax rates for the middle class, in 1994 the tax burden roseslightly to 41% due to bracket creep, increased privateconsumption, and revenues from purchase taxes on sales ofhomes, whose prices continue to rise ahead of inflation.Government policies such as continued capital market reformsand shifting national priorities from housing construction androads in the Occupied Territories to investment ininfrastructure and human capital within Israel have laid thegroundwork for continued growth. Foreign investment is likely to increase as the peaceprocess advances and the Arab League Boycott weakens. In thecourse of 1994, Jordan, Morocco, Tunisia and other Arab statesextended new ties to Israel. The Gulf Cooperation Council(GCC) announced the discontinuance by its members of thesecondary and tertiary aspects of the Arab League Boycott.2. Exchange Rate Policy Framework Under the "diagonal" exchange rate mechanism introduced inDecember 1991, the shekel floats within a band, five percentabove or below an established midpoint tied to a basket offoreign currencies. The midpoint is shifted gradually againstthe basket on a daily basis, while the actual exchange rateresponds to the demand for foreign currency. Since itsintroduction, the diagonal mechanism has successfullyforestalled large speculative currency movements and attendantswings in reserves and interest rates.3. Structural Policies Prime Minister Rabin's government, up for reelection in1996, has made some limited progress on reducing governmentintervention in the economy. The Rabin government hasachieved more in the areas of capital market reforms andtaxation, but has barely made a dent in the privatization oflarge government-owned companies. Privatization efforts stalled in 1994. In 1993, thegovernment of Israel raised USD 1.24 billion throughprivatization. In the first nine months of 1994, bycomparison, the government generated only 50 million dollarsthrough privatization. Even if scheduled sales are concludedof limited shares in the government-owned Shekem retail chainand Israel Chemicals Limited (ICL), and sale of the Housing andDevelopment Corporation and the Mizrachi Bank are completed bythe end of 1994, revenues will still fall far short of the 1993levels (USD 1.24 billion) and the Government of Israel's owngoals for 1994. However, Israeli officials are gearing up for1995, to lay the groundwork for USD 1.5 billion worth of sales. Ten government-owned firms account for 90 percent ofearnings of government-owned companies: El Al, Bezek (thenational telecommunications firm), Israel Oil Refineries,Israel Aircraft Industries, Israel Military Industries, IsraelElectric Corporation, Israel Shipyards, Zim (the nationalshipping company), and the Housing and DevelopmentCorporation. Bezek, ZIM, Israel Shipyards and El Al are alltargets for partial or substantial sale in the next twelve tofifteen months. Capital market reform and liberalization of foreignexchange movements initiated in 1987 have continued, sharplyreducing government involvement in the allocation of capitaland integrating the Israeli banking system more closely withinternational financial markets. Recent liberalizationsinclude: elimination of constraints on private sectorinvestment in real assets abroad, allowing private sectorinvestment in foreign financial assets as well as long termsavings funds to invest in securities overseas, loosening offoreign currency restrictions on Israeli citizens travelingabroad, and opening the Israeli capital market to foreigncorporations. The overall tax burden for Israelis has increased over thelast few years, largely due to bracket creep. The governmentannounced reductions in indirect taxes and income taxes in1994, but initiated a new capital gains tax on stock exchangeearnings effective January 1, 1995. In addition, new taxes topay for health and pension fund reforms may be implemented in1995. Tax levels are higher than rates in Japan or the U.S.,but roughly comparable to European standards. A U.S.-Israeldouble taxation treaty went into effect January 1, 1995.4. Debt Management Policies Israel's net external debt increased in 1994 (8.9% in firsthalf of the year), due to increased borrowing under the LoanGuarantee Program and increased deposits by foreigners inIsraeli banks. The government's foreign debt reached $21.4billion dollars or 79 percent of total external debt. Israel'sdebt to GDP ratio rose to 27 percent, up from 26 percent in1993.5. Significant Barriers to U.S. Exports All duties on products from the United States wereeliminated under the 1985 United States-Israel Free Trade Area(FTAA) Agreement as of January 1, 1995. The FTAA liberalizedand expanded the trade of goods between the United States andIsrael, and spurred discussions on freer trade in tourism,telecommunications and insurance services. Non-tariff barriers, such as purchase taxes, variablelevies, quotas, uplifts, standards and quantitativerestrictions, continue to impede U.S. exports, especially insensitive sectors like agriculture and processed food products. Although Israel has liberalized imports of all bulkagricultural commodities except beef, extensive importrestrictions remain, including variable levies on such U.S.exports as prunes, raisins, almonds, and baked goods.Quantitative restrictions, and in some cases, outrightprohibitions, affect primarily U.S. beef, plywood, poultry, anddairy products. In addition to these restrictions, the Government of Israelhas two unique forms of protection for locally produced goods.The first is Harama, or uplift, applied at the pre-duty stageof import, and the second is TAMA, a Hebrew acronym standingfor additional quota percentage, which applied after impositionof duty but before any assessment of purchase taxes. Harama is a pre-duty uplift applied to the CIF value ofgoods to bring the value of the products to an acceptable levelfor customs valuation. Israel calculates import valueaccording to the Brussels Definition of Value (BDV), a methodwhich tolerates uplifts of invoice prices. For purposes ofcalculating duty and other taxes, the Israeli Customs Servicearbitrarily uplifts by two to five percent the value of mostproducts which exclusive agents import, and by 10 percent ormore the value of other products. Israel has agreed to useonly actual wholesale price for large importers after 1995.Israel is not a signatory to the GATT Valuation Code. TAMA is a post-duty uplift designed to convert the CIFvalue plus duty to an equivalent wholesale price for purposesof imposing purchase tax. Coefficients for calculation of theTAMA vary from industry to industry and from product to product. In addition, purchase taxes that range from 25 to 95percent are applied on goods ranging from automobiles to someagriculture and food items. The Government of Israeleliminated or reduced purchase taxes on many products in 1994,including consumer electronics, building inputs, and officeequipment. Where still remaining, purchase taxes apply to bothlocal and foreign products. However, when there is no localproduction, the purchase tax becomes a duty equivalent charge. Israel has reduced the burden of some discriminatorymeasures against imports. Israel agreed in late 1990 toharmonize standards treatment, either dropping health andsafety standards applied only to imports or making themmandatory for all products. Implementation of this promise hasbeen slow. Enforcement of mandatory standards on domesticproducers can be spotty and in some cases (e.g. refrigerators,carpets, and packaging/labeling for food items) standards arewritten so that domestic goods meet requirements more easilythan imports. The Government of Israel is still reviewing theissue of package size standards to facilitate entry of somestandard U.S. units. Israel has agreed to notify the UnitedStates of proposed new, mandatory standards to be recordedunder the GATT. The Standards Institution of Israel is proposing abilateral Mutual Recognition Agreement of LaboratoryAccreditation with the United States that could result in theacceptance of U.S. developed test data in Israel. The proposedprogram would eliminate the need for redundant testing of U.S.products in Israel to ensure compliance with mandatory productrequirements. The Israeli government actively solicits foreign privateinvestment, including joint ventures, especially in industriesbased on exports, tourism, and high technology. Foreign firmsare accorded national treatment in terms of taxation and laborrelations, and are eligible for incentives for designated"approved" investments in priority development zones. Thereare generally no ownership restrictions, but the foreign entitymust be registered in Israel. Profits, dividends, and rentscan generally be repatriated without difficulty through alicensed bank. About 100 major U.S. companies havesubsidiaries in the Israel and some 170 Israeli companies havesubsidiaries in the United States. Investment in regulatedsectors, including banking, insurance, and defense industries,requires prior government approval. Israel has one free trade zone, the Red Sea port city ofEilat. In addition to the Eilat Free Trade Zone, there arethree free ports: Haifa (including Kishon), Ashdod, andEilat. Enterprises in these areas may qualify for special taxbenefits, and are exempt from indirect taxation. Israel is a signatory to the Uruguay Round ProcurementCode, which provides wide coverage of Israeli governmententities to enable more open and transparent internationaltendering procedures. Legislation establishing the loanguarantee program envisions a substantial increase of U.S.exports of investment goods to Israel, as Israel makes use ofthe loan guarantee funds. To this end, the Israeli governmentprovides information to the USG on existing and proposedtenders issued by government entities valued at over $50,000. The Government of Israel frequently seeks offsets(subcontracts to Israeli firms) of up to 35 percent of totalcontract value for purchases by ministries, state-ownedenterprises and municipal authorities. Failure to enter orfulfill such industrial cooperation agreements (investment,codevelopment, coproduction, subcontracting, purchase fromIsraeli industry) may disadvantage a foreign company ingovernment awards. Although Israel pledged to relax offsetrequests on civilian purchases under the FTAA, U.S. firms maystill encounter requests to enter into offset arrangements.Israeli government agencies and state-owned corporations notcovered by the Uruguay Round Government Procurement Code followthis "Buy Israel" policy to promote national manufacturers. Recent legislation codified and strengthened a 15 percentcost preference accorded domestic suppliers in many Israelipublic procurement purchases, although the legislationexplicitly recognizes the primacy of Israel's bilateral andmultilateral procurement commitments. This preference canreach as high as 30 percent for domestic suppliers located inpriority development areas. In addition to its GATT multilateral trade commitments andits FTAA with the U.S., Israel also has FTAs with the EuropeanUnion (EU) and European Free Trade Area (EFTA) states. Withrespect to all other countries, Israel substituted steeptariffs for non-tariff barriers previously applied to trade,and has gradually reduced these tariffs. The seven-yearphase-in of Israel's import liberalization program has diluted,to some extent, U.S. advantages under the U.S.-Israel FTAA. AsEFTA countries accede to the European Union, Israel's EFTA FTAAwill be superceded by the E.U.-Israel Agreement, currentlybeing renegotiated in an attempt to broaden and deepen the 1975accord. Israel has also begun negotiations of FTAAs or othertrade agreements with Canada, Turkey, Jordan, Egypt, andindividual Central and Eastern European states.6. Export Subsidies Policies The U.S.-Israeli FTAA included agreement to phase out thesubsidy element of export enhancement programs and not toinstitute new export subsidies. Israel has already eliminatedgrants, and in 1993 eliminated the major remaining exportsubsidy, an exchange-rate, risk-insurance scheme which paidexporters five percent on the FOB value of merchandise. Israelstill 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.anti-dumping/countervailing duty cases. In 1994 the UnitedStates Government cited Israeli subsidy of butt-weld pipefittings in an anti-dumping/countervailing duty investigation.Israel has been a member of the GATT Subsidies Code since 1985. The Israeli Parliament passed legislation in May 1994authorizing creation of free processing zones (FPZs).Qualifying companies operating in the (still undetermined) FPZswill be exempt from direct taxation for a twenty-year period,and imported inputs will not be subject to import duties ortariff or most health and safety regulations generally ineffect throughout Israel. Companies will also be exempt fromcollective bargaining and minimum-wage requirements, althoughsubject to other labor requirements. The legislation wasoriginally intended to promote investment in export-relatedindustries, but the wording of the legislation as passed doesnot limit applicant companies to exporters or providers ofservices to overseas clients. Accordingly, the FPZs will notviolate the U.S.-Israeli FTAA export subsidies commitment.7. Protection of U.S. Intellectual Property Standards of Intellectual Property Rights (IPR) protectionare adequate, but enforcement in some areas is weak. U.S.industry has complained that Israeli companies violateintellectual property rights by illegal duplication of videocassettes. Unauthorized showings of films and televisionprograms by unregulated cable television systems has beenreduced to some extent as legal cable services become availablethroughout the country. Legislation is currently being draftedto improve copyright protection in cable televisionbroadcasts. This law provides for binding arbitration as theappropriate remedy for disputes over broadcast rights. Israelis a member of the International Center for the Settlement ofInvestment Disputes (ICSID) and the New York Convention of 1958on the recognition and enforcement of foreign arbitral awards. Protection for software has been upgraded, and the twomajor movie distribution chains generally comply with copyrightrequirements. The Government of Israel hopes to pass a generaloverhaul of the copyright law in early 1995 to correctweaknesses in status quo protection of IPR. Israeli patent lawcontains overly broad licensing provisions concerningcompulsory issuance for dependent and nonworking patents.Israel is a member of the Paris Convention for the Protectionof Industrial Property, the Universal Copyright Convention, andthe Berne Convention for the Protection of Literary andArtistic Works. Further, as a signatory of the GATT UruguayRound and World Trade Organization (WTO) agreements, includingthe Agreement on Trade Related Aspects of Intellectual PropertyRights (TRIPS), Israel is in the process of making all legaland regulatory revisions necessary to meet all GATT TRIPSrequirements.8. Worker Rights a. The Right of Association Israeli workers may join freely established organizationsof their choosing. Most unions belong to the GeneralFederation of Labor in Israel (Histadrut) and are independentof the government. In 1994 about 70 percent of the workforce,including Israeli Arabs, are members of Histadrut trade unions,and still more are covered by Histadrut's social and insuranceprograms and collective bargaining agreements. Non-Israeliworkers, including the approximately 57,000 nonresidentPalestinians from the West Bank and Gaza currently workinglegally in Israel, may not be members of Israeli trade unions,but are entitled to some protections in organized workplaces.The right to strike is exercised regularly. Unions freelyexercise their right to form federations and affiliateinternationally. b. The Right to Organize and Bargain Collectively Israelis fully exercise their legal right to organize andbargain collectively. While there is no law specificallyprohibiting anti-union discrimination, the Basic Law againstdiscrimination could be cited to contest discrimination basedon union membership. There are currently no export processingzones, although the Knesset has passed legislation authorizingcreation of free processing zones, as discussed in section 6. c. Prohibition of Forced or Compulsory Labor The law prohibits forced or compulsory labor, and neitherIsraeli citizens nor nonresident Palestinians working in Israelare subject to such practices. d. Minimum Age for Employment of Children By law, children under the age of 15 may not be employed.Employment of those aged 16 to 18 is restricted to ensure timefor rest and education. Israeli labor exchanges do not processwork applications for West Bank or Gaza Palestinians under age17. Ministry of Labor inspectors enforce these laws, butadvocates of children's rights charge that enforcement isinadequate, especially in smaller, unorganized workplaces. e. Acceptable Conditions of Work Legislation in 1987 established a minimum wage at 45percent of the average wage, calculated periodically andadjusted for cost of living increases. Union officials haveexpressed concern over enforcement of minimum wage regulations,particularly with respect to employers of illegal nonresidentworkers. Along with union representatives, the LaborInspectionService enforces labor, health, and safety standards in theworkplace. By law, maximum hours of work at regular pay are 47hours per week (8 hours per day and 7 hours the day before theweekly rest). The weekly rest must be at least 36 consecutivehours and include the Sabbath. Palestinians working in Israelare technically covered by the laws and collective bargainingagreements that cover Israeli workers. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing (1) Food & Kindred Products (1) Chemicals and Allied Products (1) Metals, Primary & Fabricated (1) Machinery, except Electrical 17 Electric & Electronic Equipment 834 Transportation Equipment 3 Other Manufacturing (1)Wholesale Trade 25Banking 0Finance/Insurance/Real Estate 202Services 133Other Industries (1)TOTAL ALL INDUSTRIES 1,660(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEIRELAND: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEIRELAND: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS IRELAND Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP 2/ 45,339 42,482 43,296Real GDP Growth Rate (pct.) 4.9 -0.7 1.5GDP (at current prices) 2/By Sector: Agriculture/Forestry/Fishing 4,286 3,752 N/A Industry 17,109 15,809 N/A Distribution/Transport/ Communication 7,572 7,280 N/A Public Administration/Defense 2,676 2,502 N/A Other Domestic 15,633 14,777 N/A Adjustment for Financial Services -1,936 -1,638 N/A GDP at Factor Cost 45,339 42,482 N/A Plus Taxes on Expenditure 8,128 7,158 N/A Less Subsidies -2,487 -2,497 N/A GDP at Market Prices 50,978 47,143 53,607 Exports of Goods and Services 31,744 29,828 33,877Real Per Capita GDP 21,712 18,207 18,555Labor Force (000's) 3/ 1,364 1,378 1,391Unemployment Rate (standardized) 15.5 15.75 15.25Money and Prices: (annual percentage growth)Money Supply (M3) (year-end) 9.0 22.3 8.4(year-to-year pct. change) (Aug)Associated Banks' PrimeLending Rate (avg.) 19.00 7.19 5.81 (Sept)Commercial Interest Rates Over 1 Year-Up to 3 Years (avg) 15.25 10.25 8.90 (July)Savings Interest Rate 6.50- 0.75- 0.50- Investment Share Accounts 10.75 4.00 3.00 (July)Investment Rate: 1-Year to Maturity 13.13 5.74 6.16 (July) 10-Year to Maturity 10.12 6.26 8.44 (July)Consumer Price Index 108.2 109.8 117.1 (base 1985 as 100) (2nd qtr)Retail Sales Index 106.2 109.4 116.2 (base 1990 Aa 100) (2nd qtr) Wholesale Price Index 106.4 N/A N/A (base 1985 as 100)Exchange Rate ($/IP) 1.70 1.46 1.53 (3rd qtr)Balance of Payments and Trade:Total Exports (FOB) 4/ 27,853 28,378 32,240 Exports to U.S. 5/ 2,260 2,500 N/ATotal Imports (CIF) 4/ 22,137 21,348 24,156 Imports from U.S. 5/ 2,860 2,700 N/AAid from the E.U. (000s) 6/ 19,465 17,520 18,360Aid from the U.S. (000s) 15,590 19,211 19,600Gross Public Sector Foreign Debt 18,455 17,922 18,918 (external government debt)Debt Service Payments (paid) 4,004 3,489 N/AGold and Foreign Exch. Reserves 5,535 6,246 6,850 (official external reserves) (June)Trade Balance 5,716 7,030 8,084 Trade Balance with U.S. 600 200 N/AN/A--Not available.1/ Forecasts.2/ GDP at factor cost.3/ Annual averages.4/ Merchandise trade.5/ U.S. Department of Commerce figures.6/ Aid from the European Union for the years 1995 through 1997will be increased to USD 24 million per year following theceasefires in Northern Ireland.Sources: Central Bank of Ireland (CBI); Central StatisticsOffice (CSO); Economic and Social Research Institute (ESRI);Irish Trade Board (ITB); Department of Enterprise andEmployment (DEE).1. General Policy Framework Ireland has a small open economy which is very dependent ontrade. Exports of goods and services in 1993 were equivalentto 77 percent of GNP, while imports were equivalent to 61percent of GNP. Government policies are generally formulatedto facilitate trade and inward direct investment. Ireland hasa market economy, which is based primarily on privateownership. Government ownership and control of companiesgenerally occurs in those sectors which are considered by thegovernment to be natural monopolies, those in which the statehas stepped in to assist failing firms, or those of specialimportance to the economy. In the majority of cases,government owned firms are operated on a commercial basis, andmay be in competition with privately owned firms in the samesector. In recent years the government has reduced its shareholding in a number of companies which are considered viable.Government policy is heavily influenced by sustained highunemployment, 15 percent seasonally adjusted in September1994. A young and growing work force will continue to putpressure on the labor market in Ireland through the end of thecentury and emigration will likely continue at a significantscale. Fiscal Policy: In 1993, Ireland's government debt wasapproximately IP 30 billion, of which about IP 12 billion wasdenominated in foreign currencies. The debt has generally beenfinanced by the sale of government securities. The vastmajority of the debt was accumulated in the 1970's and early1980's, partly as a result of oil price shocks, but moregenerally as a result of expanding social welfare programs andgovernment employment. The debt grew rapidly in the late1970's and early 1980's due to increased interest rates andlarge government deficits. However, successive governmentshave made considerable progress during the past seven years inreducing budget deficits and containing the growth of totaldebt. Ireland ratified the Uruguay Round agreement and is afounding member of the World Trade Organization. In recent years, most collective bargaining in Ireland hastaken place in the context of a national economic program. Anew program, the Program for Competitiveness and Work (PCW) wasagreed to by representatives of government, unions, employersand farmers in February 1994 and was a major element of thegovernment's success in fostering economic growth. The PCW isIreland's third centralized pay agreement and replaces theProgram for Economic and Social Progress (PESP) which expiredin December 1993. These programs are credited with providing afavorable economic climate for strong growth in Irish GNP since1987. The PCW contains similar provisions to the previousprograms for moderate wage increases and improvements ingovernment finances. Government budget deficits felldramatically while exports, investment and consumer spendingshowed strong growth. Unemployment has begun to decline, but,the expanding Irish economy is unlikely to make a significantimpact on Ireland's high unemployment rate. The Irishlabor-economic environment is remarkably open. With over ahalf-million Irish working outside Ireland, particularly in theU.K., the robust economy usually attracts home many emigresoffsetting any temporary reduction in unemployment due toemigration. Projections for 1994 indicate that governmentborrowing will be about 2.7 percent of GNP. Irish tax policies have a major effect on personalconsumption and demand for imported goods. Personal income taxrates are high in Ireland. Over the last few years, inconjunction with the massive reduction in public borrowingwhich was achieved, the government made substantial progress inreducing the standard and higher income tax rates by sixpoints. Income tax rates did not change in the 1994 budget,however, and remain at 27 and 48 percent. Approximately 62percent of Irish tax payers are in the 27 percent standard ratebracket. The controversial one percent income levy which wasintroduced in the 1993 budget was abolished in 1994. Irishvalue added tax (VAT) rates are among the highest in theEuropean Union (EU) and were streamlined in the 1993 budget,and remain unchanged. The standard corporate income tax ratein Ireland is 40 percent. Manufacturing firms and manyexporting firms pay only 10 percent on corporate income underspecial arrangements designed to boost industrial development. Monetary Policy: Ireland's monetary policies are aimedprimarily at maintaining exchange rate stability within theEuropean Monetary System (EMS), which Ireland joined in 1979.Interest rates are the predominate tool used by the CentralBank to affect monetary variables.2. Exchange Rate Policies Until 1979, the Irish pound was pegged to the poundsterling. In March 1979, Ireland joined the Exchange RateMechanism (ERM) of the EMS and broke its link to the Britishcurrency. It has, however, endeavored to maintain a stablecompetitive exchange rate against sterling due to the largeamount of trade between Ireland and the U.K. Following changesto the ERM in August, 1993, membership in the ERM now involvesa commitment to maintain the Irish currency within a 15 percentband against other ERM currencies. The Irish pound has beenadjusted downward three times since Ireland joined the EMS.Adjustments were 3.5 percent in 1983, 8.0 percent in 1986 and10 percent in 1993. As part of the Common Agricultural Policy(CAP) of the EU, Ireland has maintained multiple exchange rates(known as green currency exchange rates) on agricultural goodssubject to the CAP. Devaluation of these rates usually mirrorthose of the Irish currency. In accordance with Ireland's EU obligations the removal ofall remaining existing exchange controls took place in December1992, bringing to an end the Irish Exchange Controls Act of1954-1990. New legislation was introduced in order to ensure,among other things, that the government can continue to imposefinancial sanctions (i.e. on Iraq and the former Yuguslavia)under its international obligations. Ireland is a signatory to Article VIII of the InternationalMonetary Fund Agreement, regarding freedom of current payments(including payments for goods and services imported) betweenresidents and non-residents. In addition, Ireland subscribesto the Code of Liberalization of Capital Movements and the Codeof Liberalization of Current Invisible Operations of the OECD.3. Structural Policies In October 1991, the Irish Government adopted a newCompetition Act. The legislation marks a shift from theprevious system of restrictive practices orders andadministrative control, to a system which allows claims ofanticompetitive behavior to be pursued in the courts. As aresult, the government has revoked price controls on petroleumproducts and all other restrictive practice orders. Controlson below cost selling of grocery and food items do exist. Tax Policies: The Irish tax system for corporations favorsmanufacturing and exporting companies. Those companies payincome tax of only 10 percent, compared to the normal rate of40 percent. This gap encourages the development of export andmanufacturing industries, and discourages growth in otherindustries. The 10 percent corporate tax rate (manufacturingcompanies) has been extended by the government to the year2010. Personal income tax rates are relatively high,encouraging tax avoidance at all income levels, which has ledto the creation of a "black economy" estimated at between IP1.5 and 3 billion, or between five and ten percent of GNP. In the 1994 budget, the standard rate tax band was extendedfrom USD 23,486 to USD 25,092 for a married couple and fromUSD 11,743 to USD 12,546 for a single person. Together withimprovements in personal allowances, this resulted in thethreshold for the higher tax rate, in the case of mostemployees, being increased to USD 33,945 if married, andUSD 17,803 if single. While these measures help some lowerpaid workers, the middle income class still bears a heavy taxburden. Many pay an additional 7.75 percent of their earningsfor a variety of social security programs. Value-added tax(VAT) rates are among the highest in the European Union (EU)and were streamlined in the 1994 budget. The national standardrate of VAT remains at 21 percent. The lowest VAT rate of 12.5percent is to be maintained for labor intensive services,including the construction sector. A zero or 2.5 percent rate,however, will apply to certain items. VAT rates and manyexcise taxes are the subject of harmonization in the EU. Thecompletion of the Single Market has eased the movement ofproducts between EU member states and has, since January 1,1993, eliminated many customs controls in Ireland for items ofEU origin. Regulatory Policies: Government investment incentives areweighted in favor of high technology, export orientedcompanies. Capital grants by the Irish Industrial DevelopmentAuthority (IDA) reportedly have tended to favor capitalintensive investments over labor intensive ones.4. Debt Management Policies Ireland's total exchequer debt amounted to about IP 30billion, or about 102 percent of estimated 1993 GNP, from 99.6percent at end-1992. The increase is attributable to theadjustment of the Irish pound within the exchange ratemechanism (ERM). The downward trend in the debt/GNP ratio inevidence each year, from 125 percent in 1987, is expected toresume in 1994 and is now on line to achieve the 60 percenttarget set by the Maastricht Treaty. While the debt hascontinued to grow in nominal terms, it has fallen significantlyas a percentage of GNP since 1987. The foreign portion of thedebt is IP 12.2 billion. As of June 1994, 15.6 percent offoreign debt was dollar denominated, 25.6 percent was indeutsch marks, 16.9 percent in Swiss francs, 11.2 percent inJapanese yen, 10.3 percent was in Sterling, 8.7 percent inEuropean currency units (ECU), and lesser amounts in Dutchguilders, French francs, and Austrian schillings. Debt servicecosts in 1993 were USD 3.5 billion, about 10.9 percent ofestimated Irish exports of goods and services and about 8.4percent of GNP. In 1991 the government created an independentagency to manage the debt, the National Treasury ManagementAgency (NTMA).5. Significant Barriers to U.S. Exports Ireland maintains a limited number of barriers to U.S.services trade. Airlines serving Ireland may provide their ownground handling services, but are prohibited from providingground handling services to other airlines. The Irish banking and insurance sectors are slowly becomingderegulated. Full deregulation in insurance will not occuruntil 1998. An immediate opportunity for U.S. companies existsin the Dublin International Financial Services Center (IFSC).This center offers interested U.S. companies the opportunity toestablish an EU financial base. The IFSC is attractinginternational financial services such as asset financing,captive insurance, fund and investment management, andcorporate treasury measurement. Qualified financial servicescompanies have a maximum tax of 10 percent, guaranteed by thegovernment through the year 2005. The deadline for grantingIFSC licences is December 31, 1994. The special corporationtax rate of 10 percent applies in the IFSC until the end of2005, but the EU deadline means only companies obtaininglicences before December 31, 1994 will qualify for the specialtax rate. The United States has the second largestrepresentation at the IFSC with approximately 45 projects. Exchange controls on foreign travel by Irish citizens havebeen eliminated. Although they have been liberalized in recentyears, Ireland still maintains some of the strictest animal andplant health import restrictions in the EU. These, togetherwith EU import duties, effectively exclude many meat basedfoods, fresh vegetables and other agricultural products. The EU directive on broadcasting activities was adopted onOctober 3, 1989. The primary purpose of the directive is topromote the free flow of broadcasting services across nationalboundaries. Separately, the Council of Europe agreed to aconvention on transfrontier broadcasting which is largely thesame as the EU directive. The main components of the directiveare (a) general provisions which require member states toensure freedom of reception of broadcasts from other memberstates; (b) provisions for the promotion of distribution andproduction of television programs; (c) provisions foradvertising, sponsorship, the protection of minors, and rightof reply. Many of the provisions of the directive have beentransposed into law under the Broadcasting Act, 1990. Two setsof statutory regulations were used to transpose the remainingprovisions, as follows. (1) The EU Communities (TelevisionBroadcasting) Regulations, 1991 Directive requires broadcastersto reserve a majority of broadcast time for productions of EUorigin and to reserve at least 10 percent of transmission timeor budget for independently produced European programs. (2)The Wireless Telegraphy (Television Program Retransmission andRelay) Regulations 1991 amends the regulations under whichcable and multichannel microwave distribution systems (MMDS)licenses are issued. In short, MMDS operators will no longerrequire approval in advance of relaying a service. The Irishgovernment is concerned about minority languages and cultures,but has not been a major player on this issue.6. Export Subsidies Policies Export sales relief (ESR) was discontinued in April 1990 inline with Ireland's EU obligations. Companies manufacturinggoods in Ireland benefit from a reduced rate of corporation taxof 10 percent on their profits. Stockholders of companieseligible for this program paid income tax of only 10 percent ondividends received from the company, rather than the normal taxrate (27-48 percent). This program will expire at the end ofthe year 2010. There are no tax or duty exemptions on importedinputs except for those companies located in the Shannon DutyFree processing zone and Ringaskiddy Port. Ringaskiddy isIreland's major deep water port located in the Cork harborcomplex. The Shannon Duty Free processing zone benefits fromthe reduced rate of corporation tax of 10 percent, whileRingaskiddy does not. No duties are levied at Shannon FreeZone on goods destined for non-EU countries. The Irish Trade Board (Bord Trachtala), provides a single,integrated range of marketing support services for companiesselling in Ireland and developing export sales. As ofJanuary 1, 1992, the government provides export creditinsurance for political risk and medium-term commercial risk inaccordance with OECD guidelines. Export credit insurance forshort-term commercial risk is available from the privateinsurance sector. As a participant in the Common AgriculturalPolicy (CAP) of the EU, the Irish Department of AgricultureFood & Forestry administers CAP export refund and exchange rateprograms on behalf of the EU Commission.7. Protection of U.S. Intellectual Property Ireland supports strong protection for intellectualproperty rights. The government encourages foreign investment,especially in high tech industries. Consequently, protectionof intellectual property rights has been an important part ofthe government's business policy. Protection is generally on apar with other developed countries in Europe, and thegovernment is responsive to problems which arise. Patents: Following the enactment in February, 1992 of thePatents Act, 1992, Ireland ratified the European PatentConvention and the Patent Cooperation Treaty. The Conventionand the Treaty entered into force, as did the 1992 Patents Act,on August 1, 1992. The Act updates national law in a number ofimportant respects and the substantive law is in line with thatof other European countries that have harmonized their laws onthe basis of the European Patent Convention. The newlegislation will also facilitate speedier processing of patentapplications; it provides for a patent term of 20 years andcontains provision for the grant of short-term patents (halfthe duration of the normal patent) in the interest ofsmall/medium innovators. Legislation extending the term ofprotection of products covered by medicinal patents came intoforce on January 2, 1993, S.I. 125 of 1993. The amendment ofthe Constitution approved by the referendum held in June 1992has cleared the way for Ireland's ratification of the agreementrelating to EU patents. Trademarks: Existing trademark legislation in Ireland doesnot specifically cover service industry trademarks, althoughsome court cases have extended protection to trademarks inservice industries. Copyrights: Copyright protection in Ireland is generallyconsidered to be good. However, industry sources haveindicated that penalties for infringement of copyrights onvideo tapes are not sufficiently severe to curb pirating. Theentire copyright system is under review and new copyrightlegislation will be introduced in 1995. EU directives will beincluded in the new legislation.8. Worker Rights a. The Right of Association Irish Workers have the right to associate freely and tostrike. The right to join a union is guaranteed by law, as isthe right to refrain from joining. The Industrial RelationsAct of 1990 provides members and officials of unions immunitiesfor industrial actions taken with regard to terms or conditionsof employment. The Act contains some limitations onpicketing. A code of practice, drawn up by the Labor RelationsCommission, was introduced by the government in June, 1993. Itlays down guidelines of duties and responsibilities of employeerepresentatives and the protection and facilities to be grantedto them by employers. About 48 percent of all private sector workers and 52percent of all public sector workers are trade union members.Police and military personnel are prohibited from joiningunions or striking, but they may form associations to representthem in matters of pay, working conditions, and generalwelfare.The right to strike is freely exercised in both thepublic and private sectors. The Irish Congress of Trade Unions (ICTU), which representsunions in both the Republic and Northern Ireland, has 68 memberunions with 681,138 members. Mergers have steadily reduced thenumber of unions affiliated to the ICTU in recent years, butunion membership numbers are up by 20,000 since 1987. Both theICTU and the unaffiliated unions are independent of thegovernment and of the political parties. The ICTU isaffiliated with the European Trade Union Confederation. b. The Right to Organize and Bargain Collectively Labor unions have full freedom to organize and to engage infree collective bargaining. Legislation prohibits antiuniondiscrimination. In recent years, most terms and conditions ofemployment in Ireland are determined through collectivebargaining in the context of a national economic program.Representatives of government, unions, employers and farmersagreed to a new program, the Program for Competitiveness andWork (PCW) in February 1994. It was a major element of thegovernment's success in fostering economic growth. The PCW isIreland's third centralized pay agreement in recent years andreplaces the PESP which expired in 1993. These programs arecredited with providing a favorable economic climate for thestrong growth in Irish GNP since 1987. The declared aim of thenew program, which provides for pay raises amounting to eightpercent over three years to employees in the public and privatesectors, is to help create a substantial number of new jobs.Pay increases in the private sector will be calculated on thebasis of 2 percent of basic pay for the first 12 months of theAgreement; 2.5 percent for the second 12 months; 2.5 percentfor the first six months of the third year; and 1 percent forthe second six months of the third year. In the public sector,pay increases will be calculated on the basis of 2 percent ofbasic pay for 12 months starting five months after the expirydate of the PESP pay agreement; 2 percent for the next twelvemonths; 1.5 percent for the next four months; 1.5 percent forthe next three months; and 1 percent for the remaining sixmonths of the Agreement. The government expects the plan tohelp increase employment by 60,000 over the next three years.It also plans to create 100,000 jobs for the unemployed incommunity work schemes. Of critical importance to unions andemployers are the moderate pay elements of the PCW and thepromise of industrial peace. The PCW has been ratified by allthe negotiating bodies. The Industrial Relations Act of 1990 established the LaborRelations Commission which provides advice and conciliationservices in industrial disputes. The Commission may referunresolved disputes to the Labor Court. The Labor Court,consisting of an employer representative, a trade unionrepresentative, and an independent chairman, may investigatetrade union disputes, recommend the terms of settlement, engagein conciliation and arbitration, and set up joint committees toregulate conditions of employment and minimum rates of pay forworkers in a given trade or industry. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is prohibited by law and doesnot exist in Ireland. However, portions of the 1894 MerchantShipping Act are considered by the International LaborOrganization (ILO) to be inconsistent with the prohibition onforced or compulsory labor. d. Minimum Age of Employment of Children Under Irish legislation, the minimum age for employment ofchildren is 15 years. Children over 14 years are permitted tocarry out light, non-industrial work during school holidayswith the written permission of the parents. Irish laws limitthe working hours in any week for young persons aged between 15and 16 years to eight hours per day up to a maximum of 40 hoursin any week. The normal working hours are 37.5 hours a week.Young persons aged between 16 and 18 years may work a normalday of eight hours and a maximum of nine hours in any day. Thenormal work week is 40 hours, with a maximum of 45 hours.These provisions are effectively enforced by the Minister forEnterprise and Employment. The EU is adopting a new directiveon the protection of young people at work. e. Acceptable Conditions of Work There is no general minimum wage legislation. However,some workers are covered by minimum wage laws applicable tospecific industrial sectors, mainly those in which wages tendto be below the average. A government submission to an ECCommission white paper on "Growth, Competitiveness andEmployment" suggested that a minimum wage policy could hinderjob creation and recommended that the EC assess the potentialeffects on employment, of any such proposal to regulate thelabor market. In 1993 the average weekly wage was USD 371 (in1993 IRP 1 was equivalent to USD 1.46) for production andtransport workers. Working hours in the industrial sector arelimited to 9 hours per day and 48 hours per week. Overtime islimited to 2 hours per day, 12 hours per week, and 240 hours ina year. As part of the new national economic pact adopted in1993, the standard work week is being gradually reduced to 39hours. The Department of Enterprise and Employment enforcesfour basic laws dealing with occupational safety that provideadequate and comprehensive coverage. f. Rights in Sectors with U.S. Investment Worker rights described above are applicable in all sectorsof the economy, including those with significant U.S.investment. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 5,122 Food & Kindred Products 363 Chemicals and Allied Products 2,340 Metals, Primary & Fabricated 198 Machinery, except Electrical -14 Electric & Electronic Equipment 762 Transportation Equipment 52 Other Manufacturing 1,420Wholesale Trade 159Banking (1)Finance/Insurance/Real Estate 3,389Services 684Other Industries 52TOTAL ALL INDUSTRIES 9,575</text>
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<text>U.S. DEPARTMENT OF STATEIRAQ: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS IRAQ In response to the Iraqi invasion of Kuwait on August 2,1990, the President, acting under authority of theInternational Emergency Economic Powers Act, issued ExecutiveOrders 12722 and 12724 which, respectively, froze Iraqigovernment assets within the United States or in the possessionor control of U.S. persons, and barred virtually all unlicensedtransactions between U.S. persons and Iraq. This embargoremains in effect unaltered. U.S. sanctions against Iraq incorporate all the measurescontained in the numerous United Nations Security CouncilResolutions passed and still in effect since the invasion.These resolutions forbid member states, companies andindividuals from undertaking any economic intercourse with theIraqi government or with private Iraqi firms, except in regardto goods deemed by the U.N. Sanctions Committee to be of ahumanitarian nature. Between January and August of this year, the UN SanctionsCommittee was notified of $2 billion worth of food planned forshipment to Iraq, and $175 million worth of medicine. Duringthe same period, the Committee approved shipments of $2 billionworth of other items deemed to be for essential civilian needs. Iraq's Ba'athist regime engages in extensive centralplanning and management of industrial production. Small-scaleindustry and services and most agriculture are in privatehands. While the country has extensive arable land, it ishistorically a net food importer. The economy is dominated byoil, which traditionally provided 95 percent of foreignexchange earnings. The economy, already battered by the impact of three yearsof sanctions, apparently took a drastic turn for the worseduring 1994. Reliable statistics are not available, butanecdotal evidence points to an increasingly desperate economicsituation. The standard of living has been reduced to at leasthalf of its pre-war level. In late September, the government announced a 40 percentcut in government-provided rations of basic foodstuffs such ascooking oil, flour, and sugar. These rations no longer provideminimum daily caloric requirements. Rampant inflation has made it difficult for the averageIraqi to turn to the open market to find the products nowrestricted under rationing. Again, reliable statistics are notavailable, but it is reported that the cost of basic food itemshas far outstripped salaries. Government troop movements tothe Kuwaiti border in October led to a temporary doubling offood prices. Trade unions independent of the government do not exist inIraq. Workers in private and mixed enterprises -- but notpublic employees -- have the right to join local unioncommittees, which are part of larger trade union federations.At the top of this pyramid is the Iraqi General Federation ofTrade Unions, linked to the ruling Ba'ath party and utilized topromote party principles and policies. The right to strike isheavily circumscribed by the Labor Law of 1987, and no strikehas been reported over the past two decades. The value of the Iraqi dinar has plunged against the dollarin the past year. In late 1993, the dinar traded on the blackmarket at a rate of approximately 100 dinar to the dollar. Inlate 1994 the official rate was approximately 500 dinar to thedollar, and on the black market it traded as low as 650-750dinar to the dollar after the October troop movements. Manyconsumer goods and basic necessities, including medicine, areavailable on the black market at highly inflated prices. The seriousness of the economic situation is illustrated bythe increasing number and severity of punishments for economiccrimes. Apparent hoarding of crops has led the government towithhold seeds and fertilizer from farmers who fail to bringtheir crop to market. Farmers who fail to cultivate their landaltogether have their land confiscated. Capital punishment hasbeen decreed for those smuggling cars and trucks from thecountry and harsh penalties have been levied on currencytraders and "profiteers." Merchants have been executed forhoarding and fixing prices. Since the end of Desert Storm, it appears Iraq has beenable to rebuild most of its infrastructure intelecommunications, transportation, and power, as well as oilproduction. This reconstruction has been concentrated in areaswhich support the government and which are visible tooutsiders. The depth and permanence of much of thisreconstruction is difficult to estimate, since it reliedheavily on cannibalization and the drawdown of spare parts.Shortages of inputs and spare parts have shut down much of thecountry's industry. United Nations Security Council Resolutions 706 and 712(1991) authorized the export of $1.6 billion of Iraqi petroleumduring a six-month period. Proceeds of the sale would go to aUnited Nations escrow account, which would be used to purchasehumanitarian supplies for the Iraqi population, as well as fundother programs mandated by the U.N. The government of Iraq hasrefused to implement these resolutions. In summary: 1. UN resolutions preclude trade with Iraqexcept approved exports to Iraq of humanitarian-related goods.2. Treasury Department regulations and licensing requirementsenforce U.S. compliance with the UN embargo. 3. Iraqiimplementation of UNSCR 706 and 712 would open the possibilityof a limited resumption of international oil trade forhumanitarian supplies. 4. Reliable economic statistics areunavailable, and those produced by the Government of Iraqcannot be considered accurate.(###)</text>
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<text>U.S. DEPARTMENT OF STATEIRAN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS IRAN Key Economic Indicators (Millions of Iranian rials (IR) unless otherwise noted)Years ending March 20 1991-92 1992-93 1993-94Income, Production and Employment:Population (millions) 55.8 57.0 62.0Real GDP /1 (billion 1985 rials) 16,871 17,647 18,176 (million USD) 59,800 65,000 66,950Per Capita GDP USD 1,071 1,140 1,140Real GDP Growth (pct.) /1 8.6 4.6 3.0GDP by Sector: (pct. of GDP) Manufacturing 21.2 21.0 21.0 Agriculture 23.3 23.3 23.0 Petroleum 21.2 21.0 21.0 Services 35.5 36.0 36.0Money and Prices:Money Supply (M1/billion rials) 14,300 17,000 N/AInterest Rate on Short-term Deposits (pct.) 6.5 7.0 N/AWholesale Price Index (1985 = 100) End-Year 417.1 547.6 712Consumer Price Index (1985 = 100) End-Year 346.6 411.0 534Exchange Rate (IR per USD) Basic Rate 67.4 67.1 1,740 Floating Rate 1,440 1,540 2,200Balance of Payments and Trade: (millions of U.S dollars)Total Exports (FOB) /1 18,415 19,280 15,400 Exports to U.S. /2 0.8 0.2 0.5 /3Total Imports (FOB) /1 24,975 24,000 17,800 Imports from U.S. /2 749 616 169 /3Trade Balance -6,560 -5,720 -2,400Current Account /1 -10,300 -5,000 -5,000N/A-- Not available.1/ Estimate.2/ Year ending December 31.3/ January-August, 1994.1. General Policy Framework In 1994, Iranian President Rafsanjani's political opponentsblocked and even rolled back several important elements of hiseconomic reform program. Military spending continued to burdenthe economy. Reschedulings of $10 billion of Iran's officialdebt brought temporary relief, but the country is finding itdifficult to obtain significant new credits and may face a newdebt crisis. Economic uncertainty and parliamentary opposition toeconomic liberalization resulted in the postponement of theregime's second Five-Year Plan (FYP), which was originally tohave gone into effect in March, 1994. The government nowstates that it will have the FYP in place by March, 1995. Inlate 1994, senior government and parliamentary figures werehighlighting features of the new FYP which emphasizes socialjustice concerns over economic liberalization. Rafsanjani's administration had to retreat from one of itshardest-fought victories of 1993 -- the unification of exchangerates -- when the Iranian rial plunged from an open marketvalue of about 1,400 to the dollar in March 1993 to over 2,500to the dollar in the spring of 1994. The large influx of imports which came with postwarreconstruction after 1989 abated due to the 1993 creditcrunch. The government's efforts to improve its creditposition have led to a significant import compression. There are no diplomatic relations between the United Statesand Iran. The current state of political relations has actedgenerally to discourage a U.S. business presence in Iran.Moreover, U.S. trade restrictions and the Iranian foreignexchange shortage are major deterrents to reviving significanteconomic ties with the United States. Despite these problems,there is a modest trade relationship; U.S. exports to Iranpeaked at $749 million in 1992. However, because of itseconomic problems, Iran's purchases of U.S. products have beensteadily declining since then.2. Exchange Rate Policies Iran moved from its former three-tiered system of legalexchange rates to a unified exchange rate of on March 20,1993. However, because of public outcry at the declininginternational purchasing power of the rial, the governmentintervened throughout the summer of 1993 in an effort to holdthe exchange rate at about 1,700 rials to the dollar, using upbillions of dollars in scarce foreign exchange. When, in thespring of 1994, the rial dropped as low as 2,800 to the dollar,the government reimposed complicated import controls whichamount to foreign exchange rationing for most transactions.There has also been a return to government-subsidizedpreferential exchange rates for the import of selected consumergoods, another drain on scarce foreign exchange resources.3. Structural Policies The banking, petroleum, transportation, utilities, andmining sectors are nationalized. The government has announcedits intent to begin limited privatization in banking andfinance, but so far has not been able to implement its plans.At the time of the revolution, radicals were put in charge ofbonyads (foundations) which inherited much wealth confiscatedfrom the former elite. They retain control of many largeindustrial and trading enterprises, and are politicallypowerful opponents of privatization. The petroleum sector is the economy's traditionalmainstay. Iran's current maximum sustainable capacity isaround four million barrels per day (mbd), according to thegovernment. Iran's OPEC quota is 3.6 mbd. Capacity isconstrained by the natural decline in the productivity of majoronshore fields, delays in implementing necessary gasre-injection projects, and a shortage of experiencedpersonnel. Without large infusions of capital, the oil sectormay have difficulty maintaining current production, much lessachieving the government's publicly-stated goal of five millionbarrels per day (mbd) of sustainable capacity. . The government did not meet its projected petroleumrevenues in 1994 due to soft oil prices. The government sellspetroleum products domestically at about 10 percent of theworld price, thus cutting exports and encouragingover-consumption.4. Debt Management Policies During the eight-year war with Iraq, Iran contracted almostno external debt. From 1988 through 1992, Iran borrowed largeamounts, primarily in the form of short-term trade credits(often covered by creditor government guarantees), in order toincrease domestic living standards, rebuild its petroleum andindustrial sectors, and modernize its armed forces. The credit crunch of 1993-94 crippled Iran's trade. Aseries of bilateral reschedulings with official creditors in1994 did not include significant new credits. Several exportcredit guarantee agencies, including those of Japan, France,Germany, and Italy, have either suspended coverage for Iran orare considering new loans only on a case-by-case basis.5. Significant Barriers to U.S. Exports The U.S. prohibits the export of items on the U.S.Munitions List, crime control and detection devices, chemicalweapons precursors, nuclear and missile technology, andequipment used to manufacture military equipment. As a resultof the Iran-Iraq Nonproliferation Act, passed by Congress andsigned by the President on October 23, 1992 all goods exportedto Iran which require a validated export license are subject,upon application, to a policy of denial. This affects all dualuse commodities. Iranian exports to the United States wereprohibited by order of the President on October 29, 1987.Exceptions to the embargo of imports of Iranian oil are allowedin connection with payments to U.S. claimants awarded by theU.S.-Iran Claims Tribunal at The Hague. U.S. sanctions havehad a deleterious effect on U.S. exports to Iran. However,Iran's current financial problems can be considered the mostsignificant barrier to the export of U.S. goods and services toIran.6. Export Subsidies Policies In a countervailing duty investigation on Iranianpistachios, the U.S. pistachio industry alleged that a foreignexchange subsidy was available to exporters in Iran. Althoughcountervailing duties were imposed, the U.S. Department ofCommerce was never able to verify the existence of this programbecause of a lack of cooperation from the Iranian authoritiesand a paucity of information from the growers.7. Protection of U.S. Intellectual Property Iran is not a member of the World Intellectual PropertyOrganization, but is a signatory to the Paris Convention forthe Protection of Industrial Property. Patent protection isbelow the level of protection in the United States. Iran hasnot adhered to any of the international copyright conventions.8. Worker Rights a. Right of Association Article 131 of Iran's Labor Code grants workers andemployers alike the right to form and join their ownorganizations. In practice, however, there are no real laborunions. A national organization known as the "Worker's House,"founded in 1982 as the labor wing of the now-defunct IslamicRepublican Party, is the only authorized national labororganization with nominal claims to represent all Iranianworkers. It works closely with the work place Islamic councilsthat exist in many Iranian enterprises. The Workers' House islargely a conduit of government influence and control, not atrade union founded by workers to represent their interests. The officially sanctioned Islamic labor councils also areinstruments of government influence and not bodies created andcontrolled by workers to advance their own interests, althoughthey have frequently been able to block layoffs or the firingof workers. There is also a network of guild unions, which operates ona regional basis. These guild unions issue vocationallicenses, fund financial cooperatives to assist members, andhelp workers to find jobs. The guild unions operate with thebacking of the government. No information is available on the right of workers in Iranto strike. However, it is unlikely that the government wouldtolerate any strike deemed to be at odds with its economic andlabor policies. b. Right to Organize and Bargain Collectively In practice, the right of workers to organize independentlyand bargain collectively cannot be documented. It is not knownwhether labor legislation and practice in the export processingzones differ in any significant respect from the law andpractice in the rest of the country. No information isavailable on the mechanism used to set wages. c. Prohibition of Forced or Compulsory Labor Section 273 of the Iranian Penal Code provides that anyperson who does not have definite means of subsistence and who,through laziness or negligence, does not look for work may beobliged by the government to take suitable employment. Thisprovision has been frequently criticized by the Committee ofExperts (COE) of the International Labor Organization (ILO) ascontravening ILO Convention 29 on forced labor. In its 1990report, the COE noted an indication by the government in itslatest report to the Committee that Section 273 had beenabolished and replaced for a trial period by a new provisionapproved by the Parliament. The Iraqi government, according tothe COE, stated that the new provision was not incompatiblewith Convention 29, and promised to provide a copy after theprovision was translated. The COE noted that the Government ofIraq had indicated in its 1977 report that similar regulationsconcerning unemployed persons and vagrants had been repealed,but had not yet complied with the Committee's request for acopy of the repealing legislation. d. Minimum Age for Employment of Children Iranian labor law, which exempts agriculture, domesticservice, family businesses, and, to some extent, other smallbusinesses, forbids employment of minors under 15 years(compulsory education extends through age 11) and placesspecial restrictions on the employment of minors under 18. Inaddition, women and minors may not be used for hard labor or,in general, for night work. The extent to which theseregulations are enforced by the Labor Inspection Department ofthe Ministry of Labor and Social Affairs and the localauthorities is not known. e. Acceptable Conditions of Work The Labor Code empowers the Supreme Labor Council to setminimum wage levels each year determined by industrial sectorand region. It is not known if minimum wage levels are in factissued annually or if the Labor Ministry's inspectors enforcetheir application. The Labor Code stipulates that the minimumwage should be sufficient to meet the living expenses of afamily and should take into account the announced rate ofinflation. It is not known what share of the workingpopulation is covered by the minimum wage legislation. The labor law establishes a six-day workweek of 48 hoursmaximum (except for overtime at premium rates), with one day ofrest (normally Friday) per week as well as at least 12 days peryear of leave with pay and a number of paid public holidays. According to the Labor Code, a Supreme Safety Council,chaired by the Labor Minister or his representative, isresponsible for promoting work place safety and health andissuing occupational safety and health regulations and codes ofpractice. The Council has reportedly issued 28 safetydirectives. The Supreme Safety Council is also supposed tooversee the activities of the safety committees that havereportedly been established in about 3,000 enterprisesemploying more than 10 persons. It is not known how well theLabor Ministry's inspectors enforce the safety and healthlegislation and regulations nor whether industrial accidentrates are compiled and show positive trends (Iran does notfurnish this data to the ILO for publication in its Year Bookof Labour Statistics). Given the large segments of the economy exempted from thelabor law, the effects of the war with Iraq, and the generallack of effective labor unions, it is unclear to what extentthe provisions of Iran's labor law affect most of the laborforce. f. Rights in Sectors with U.S. Investment The U.S. investment which remains in post-revolutionaryIran, as reported to the U.S. Department of Commerce (see tablebelow), is residual investment in the petroleum sector. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 0 Food & Kindred Products 0 Chemicals and Allied Products 0 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 0Wholesale Trade 0Banking 0Finance/Insurance/Real Estate 0Services 0Other Industries 0TOTAL ALL INDUSTRIES (1)(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEINDONESIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS INDONESIA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994Income, Production and Employment:Real GDP (1983 prices) 64,623 66,942 69,013Real GDP Growth (pct.) 6.9 6.5 6.7GDP (at current prices) 128,022 144,713 157,230By Sector: Agriculture 24,992 26,711 29,021 Mining 14,733 14,734 16,008 Manufacturing 27,853 32,315 35,110 Electricity/Gas/Water 1,058 1,301 1,413 Construction 7,540 8,692 9,444 Retail Trade and Hotels 21,050 23,857 25,920 Transportation/Comm. 8,423 9,932 10,791 Banking/Finance 6,157 7,310 7,943 Real Estate 3,249 3,647 3,962 Government 8,527 10,761 11,692 Other Services 4,440 5,455 5,927Real Per Capita GDP 691 768 821Labor Force (millions) 79 81 83Unemployment Rate (pct.) 3.2 3.4 3.4Underemployment Rate (pct.) 36.6 36.8 37.0Money and Prices: (annual percentage growth)Money Supply (pct. rise) 20.0 26.5 15.0Interest Rate 1/ 11.3 7.0 10.6National Savings (pct. GDP) 25.0 25.0 25.0CPI (pct. change) 5.0 10.2 10.0WPI (pct. change) 5.3 3.6 7.4Exchange Rate (Rp/USD) 2/ 2,030 2,087 2,160Balance of Payments and Trade:Total Exports 33,966 37,459 41,311 Exports to U.S. 4,332 5,439 5,999Total Imports 27,279 28,587 31,446 Imports from U.S. 2,777 2,770 3,254Aid from U.S. 155 94 90Aid from All Sources 4,948 5,110 5,202Foreign Debt (official/private) 72,927 85,837 89,858Debt Service Ratio 32.1 30.0 31.2Foreign Exchange Reserves 11,161 12,352 13,140Trade Balance 6,687 8,872 9,865 Trade Balance with U.S. 1,555 2,669 2,745N/A--Not Available1/ Interbank fund rates.2/ Period average.1. General Policy Framework Indonesia is an economic success story. In 1967, whenPresident Soeharto took power, it was one of the world'spoorest countries, with per capita GNP of $70 per person, halfthat of India and Bangladesh. In 1993, Indonesia's per capitaGNP passed $700, triple that of Bangladesh and more than doubleIndia's. Life expectancy has risen dramatically -- from 41 in1967 to 63 in 1993 -- while infant mortality and illiteracyrates have plummeted. Real GDP growth has averaged 6.7 percent per year over thelast five years. Through a restrictive monetary policy and aconservative fiscal stance, the government has held inflationto the 5-10 percent range. With strong export performance andmanageable import growth, the current account deficit droppedfrom $4.4 billion in 1991 to $1.9 billion in 1993. Prospects for continued growth are good. Government andprivate sector projects are alleviating infrastructureshortages, particularly in telecommunications, electric power,and roads. The banking industry continues to adjust to themore stringent prudential regulations introduced in 1991 andmodified in 1993; credit constraints began to ease in late 1993. In 1994 Indonesia continued to take steps to open theeconomy. Indonesia ratified the Uruguay Round agreements andbecame a founding member of the World Trade Orgainization onJanuary 1, 1995. Indonesia was the 1994 chairman of APEC (AsiaPacific Economic Cooperation); on November 15 PresidentSoeharto hosted leaders of the APEC economies at a meeting inwhich they declared the goal of reaching free trade in theregion by the year 2020. In June 1994, the government issued another deregulationpackage aimed at improving the investment climate. This set ofmeasures opened up several previously closed sectors to foreigninvestment and eliminated barriers to 100 percent foreign-ownedinvestment in most, but not all, sectors. Further progress isneeded, however, to eliminate remaining barriers to foreign anddomestic trade, to replace the outdated commercial code, and toestablish clear and transparent accounting and auditingstandards. Indonesia's development is good news for U.S. business.U.S. exports to the country have doubled since 1988, totaling2.8 billion dollars in 1993. The best prospects for U.S.exporters stem from the government's efforts to improveinfrastructure; they include equipment for power generation,telecommunications, roads, harbors, and airports. U.S.exporters can also provide inputs for Indonesia's rapidlyexpanding manufacturing sector. For example, the United Statesalready supplies about half of the textile industry'srequirements for cotton.2. Exchange Rate Policies The government has maintained the convertibility of therupiah since the 1960s. There have been no foreign exchangecontrols since 1972. The government follows a managed floatbased on a basket of major trading currencies, including theU.S. dollar. Current policy is to maintain the competitivenessof the rupiah through a gradual depreciation against thedollar, at a rate of about five percent a year. The exchangerate at the end of October 1994 was 2,170 rupiah per dollar.3. Structural Policies In general, the government allows the market to determineprice levels. The government enforces a system of floor andceiling prices for certain "strategic" food products such asrice. In some cases, business associations, with governmentsupport, establish prices for their products. Directgovernment subsidies are confined to a few goods such asfertilizers. Individuals and businesses are subject to income taxes.The maximum rate is 35 percent of annual earnings in excess ofrupiah 50 million (about $25,000), but the government hasintroduced legislation that would reduce the maximum rate to30 percent. In 1985, a value-added tax (VAT) was introduced.Import duties are another important source of governmentrevenue. Companies can apply for an exemption from or a rebateof import duties and VAT paid on inputs used to produceexports. A few products remain subject to export taxes,usually with the goal of job creation. For example, in October1989 export taxes on sawn lumber were raised to prohibitivelevels; and in May 1992 a previous export ban on logs wasreplaced by high export taxes. According to governmentofficials, total tax compliance in Indonesia is about 55percent.4. Debt Management Policies Indonesia's medium and long term foreign debt totals about$95 billion, with $60 billion owed by the state sector and$35 billion by the private sector. In 1994 Indonesia will payapproximately 31 percent of total export earnings in principaland interest payments on its foreign debt. The government isfully committed to meeting its debt service obligations and hasno plans to seek a debt rescheduling. The cabinet-level team set up by the government inSeptember 1991 to oversee foreign borrowing has had ameasurable effect on controlling public offshore debt. Theteam is charged with reviewing applications for foreigncommercial credits to finance projects in which the governmentor a state-owned enterprise is involved. Financing for purelyprivate projects is not directly affected. The team is alsocharged with prioritizing by project the use of offshore fundsand with establishing borrowing ceilings. In October 1991 theteam announced ceilings on public sector foreign commercialborrowing and guidelines for private sector borrowing throughFY 1995/96 ranging from $5.5 to $6.5 billion total per year.5. Significant Barriers to U.S. Exports Import Licenses: Since 1986, import licensing requirementshave been relaxed in a series of deregulation packages. Itemsstill subject to import licensing include some agriculturalcommodities (rice, wheat, sorghum, sugar), alcoholic beverages,and some iron and steel products. Remaining import licensingrequirements may be waived for companies importing goods to beincorporated into subsequent exports. In June 1993, thegovernment lifted the previous ban on most types of completelybuilt-up passenger vehicles, although the ban was replaced withhigh import duties and surcharges, totalling as much as300 percent in many cases. Automotive imports have followedprevious patterns, in which nontariff barriers such as bans andlicensing requirements have been replaced with tariffs andsurcharges. Services Barriers: Services barriers abound, althoughthere has been some loosening of restrictions, particularly inthe financial sector. Foreign banks, securities firms, andlife and property insurance companies are permitted to formjoint ventures with local companies although they are notallowed to establish 100 percent foreign-owned subsidiaries orbranches. In all cases, capitalization requirements forforeign joint venture firms are higher than for domesticfirms. Foreigners may purchase up to 49 percent of a company'sshares listed on the stock exchange. Foreign attorneys may serve as consultants and technicaladvisors. However, attorneys are admitted to the bar only ifthey have graduated from an Indonesian legal facility or froman institution recognized by the government as equivalent.Foreign accountants may serve as consultants and technicaladvisors to local accounting firms. Air express companies arenot permitted to own equity in firms providing courierservices, although they may arrange with local firms to provideservices in their name and second expatriate staff to the localfirms. Indonesia imposes a quota on the number of foreign filmswhich may be imported in a given year. Films may be importedand distributed only by fully Indonesian-owned companies. InNovember 1994 the government issued the final set ofregulations necessary to allow U.S. video companies to workwith Indonesian distributors to provide legal video and laserdisc rentals and sales. Standards, Testing, Labelling, and Certification: In May1990 the Government of Indonesia issued a decree which statedthat the Department of Health must decide within one year ofreceipt of a complete application for registration of newforeign pharmaceutical products. Under the national drugpolicy of 1983, a foreign firm may register prescriptionpharmaceuticals only if they both incorporate high technologyand are products of the registering company's own research.Foreign pharmaceutical firms have complained that copiedproducts sometimes become available on the local market beforetheir products are registered. Investment Barriers: By enacting a new deregulationpackage in June 1994, the government took a large step forwardin improving Indonesia's investment climate. The package,known as PP 20, dropped initial foreign equity requirements andsharply reduced divestiture requirements. Indonesian law nowprovides for both 100 percent direct foreign investmentprojects and joint ventures with a minimum Indonesian equity of5 percent. In addition, PP 20 opened several previouslyrestricted sectors to foreign investment, including harbors,electricity generation, telecommunications, shipping, airlines,railways, roads and water supply. Some sectors, however,remain restricted or closed to foreign investment. Forexample, foreign investors may not invest in retailoperations. They may, however, distribute their products atthe wholesale level. Most foreign investment proposals must be approved by theCapital Investment Coordinating Board (BKPM). Investments inthe oil and gas, mining, banking and insurance industries arehandled by the relevant technical ministries. While BKPM seeksto function as a one-stop investor service, most investors willalso need to work closely with various technical governmentdepartments and with regional and local authorities. There arelimited provisions under which foreign nationals may exploit oroccupy real property in Indonesia, but ownership is limited toIndonesian citizens. There are numerous restrictions on theemployment of foreign nationals, and obtaining expatriate workpermits can be difficult. Government Procurement Practices: In March 1994 PresidentSoeharto signed a decree which regulates government procurementpractices and strengthens the procurement oversight process.Most large government contracts are financed by bilateral ormultilateral donors who specify procurement procedures. Forlarge projects funded by the government, internationalcompetitive bidding practices are to be followed. Under a 1984Presidential Instruction ("Inpres-8") on government-financedprojects, the government seeks concessional financing whichmeets the following criteria: 3.5 percent interest and a25 year repayment period which includes 7 years grace. Someprojects proceed, however, on less concessional terms. Foreignfirms bidding on certain government-sponsored construction orprocurement projects may be asked to purchase and export theequivalent in selected Indonesian products. Governmentdepartments and institutes and state and regional governmentcorporations are expected to utilize domestic goods andservices to the maximum extent feasible. (This is notmandatory for foreign aid-financed goods and servicesprocurement.) An October 1990 government regulation exemptsstate-owned enterprises which have offered shares to the publicthrough the stock exchange from government procurementregulations; as of November 1994 only two such enterprises hadmade a public offering.6. Export Subsidies Policies Indonesia joined the GATT Subsidies Code and eliminatedexport loan interest subsidies as of April 1, 1990. As part ofits drive to increase non-oil and gas exports, the governmentpermits restitution of VAT paid by a producing exporter onpurchases of materials for use in manufacturing exportproducts. Exemptions from or drawbacks of import duties areavailable for goods incorporated into exports.7. Protection of U.S. Intellectual Property Indonesia is a member of the World Intellectual PropertyOrganization and is a party to certain sections of the ParisConvention for the Protection of Intellectual Property. Itwithdrew from the Berne Convention for the Protection ofLiterary and Artistic Works in 1959. Indonesia has madeprogress in intellectual property protection, but it remains onthe U.S. Trade Representative's Special 301 "Watch List" underthe provisions of the 1988 Omnibus Trade and CompetitivenessAct. Patents: Indonesia's first patent law came into effect onAugust 1, 1991. Implementing regulations clarified severalareas of concern, but others remain, including compulsorylicensing provisions, a relatively short term of protection,and a provision which allows importation of 50 pharmaceuticalproducts by non-patent holders. The patent law andaccompanying regulations include product and process protectionfor both pharmaceuticals and chemicals. Trademarks: A new Trademark Act took effect on April 1,1993. Under the new law, trademark rights will be determinedby registration rather than first use. After registration, themark must actually be used in commerce. Well-known marks areprotected. However, there are some remaining problems withmarks filed prior to 1991. Cancellation actions must be lodgedwithin five years of the trademark registration date. Copyrights: On August 1, 1989 a bilateral copyrightagreement with the United States went into effect extendingnational treatment to each other's copyrighted works.Enforcement of the ban on pirated audio and video cassettes andtextbooks has been vigorous, although software producers remainconcerned about piracy of their products. The government hasdemonstrated that it wants to stop copyright piracy and that itis willing to work with copyright holders toward this end.Enforcement to date has significantly reduced losses frompirating, but leakages still exist. New Technologies: Biotechnology and integrated circuitsare not protected under Indonesian intellectual property laws.Indonesia has, however, participated in a World IntellectualProperty Organization conference on the protection ofintegrated circuits and is considering introducing legislation. Impact: It is not possible to estimate the extent oflosses to U.S. industries due to inadequate intellectualproperty protection, but U.S. industry has placed considerableimportance on improvement of Indonesia's intellectual propertyregime.8. Worker Rights a. The Right of Association Private sector workers, including those in exportprocessing zones, are free to form or join unions without priorauthorization. However, in order to bargain on behalf ofemployees, a union must register as a mass organization withthe Department of Home Affairs and meet the requirements forrecognition by the Department of Manpower. (In January 1994, anew government regulation authorized non-affiliated "PlantLevel Unions" to be set up in individual plants and tonegotiate binding collective signing agreements.) While thereare no formal constraints on the establishment of unions, therecognition requirements are a substantial barrier torecognition and the right to engage in collective bargaining.The one union recognized by the Department of Manpower is theAll Indonesia Workers Union (Serikat Pekerja Seluruh Indonesia,SPSI). Its membership is approximately 994,500, or about 1.4percent of the total work force. However, if agriculturalworkers and others in categories such as self-employed andfamily workers who are not normally union members are factoredout, the percentage of union members rises to approximately sixpercent. Civil servants are not permitted to join unions and mustbelong to KORPRI, a nonunion association whose centraldevelopment council is chaired by the Minister of HomeAffairs. Teachers must belong to the Teachers' Association.Though technically possessing the same rights as a union, thePGRI has not engaged in collective bargaining. All organized workers, with the exception of civilservants, have the right to strike. In practice, stateenterprise employees and teachers rarely exercise this right.Before a strike can occur in the private sector, the lawrequires intensive mediation by the Department of Manpower andprior notice of the intent to strike. However, no approval isrequired. b. The Right to Organize and Bargain Collectively Collective bargaining is provided for by law, but onlyrecognized trade unions and "plant level unions" may engage init. Once notified that 25 employees have joined a registeredunion, an employer is obligated to bargain with them. Before acompany can register or renew its company regulations it mustdemonstrate that it consulted with the union or in its absencea committee consisting of employer and employee representatives. Labor law applies equally in export processing zones.Regulations forbid employers from discriminating or harassingemployees because of union membership, but in practiceretribution against union organizers occurs. c. Prohibition of Forced or Compulsory Labor Forced labor is forbidden by law. Indonesia has ratifiedILO convention No. 29 concerning forced labor. d. Minimum Age for Employment of Children Child labor exists in both industrial and rural areas. TheDepartment of Manpower acknowledges that there is a class ofchildren under the age of 14 who, for socioeconomic reasons,must work and legalizes their employment provided they haveparental consent and do not engage in dangerous or difficultwork. The workday is limited to four hours. Employers arealso required to report in detail on every child employed, andthe Department of Manpower carries out periodic inspections.Critics, however, charge that the inspection system is weak andthat employers do not report when they employ children. e. Acceptable Conditions of Work The law establishes 7 hour workdays and 40 hour workweeks,with one 30 minute rest period for each 4 hours of work. Inthe absence of a national minimum wage, minimum wages areestablished for regions by area wage councils working under thesupervision of the National Wage Council. Ministerialregulations provide workers with a variety of other benefits,such as social security, and workers in more modern facilitiesoften receive health benefits and free meals. However,enforcement of labor regulations is limited and a number ofemployers do not pay the minimum wage or provide other requiredbenefits. The failure to implement government regulations hasbeen a significant cause of strikes. f. Rights in Sectors with U.S. Investment Working conditions in firms with U.S. ownership are widelyrecognized as better than the norm for Indonesia. Applicationof legislation and practice governing worker rights is largelydependent upon whether a particular business or investment ischaracterized as private or public. U.S. investment inIndonesia is concentrated in the petroleum and relatedindustries, primary and fabricated metals (mining), andpharmaceuticals sectors. Foreign participation in the petroleum sector is largely inthe form of production sharing contracts between the foreigncompanies and the state oil and gas company, Pertamina, whichretains control over all activity. All employees of foreigncompanies under this arrangement are considered state employeesand thus all legislation and practice regarding state employeesgenerally applies to them. Employees of foreign companiesoperating in the petroleum sector are organized in KORPRI.Employees of these state enterprises enjoy most of theprotection of Indonesian labor laws but, with some exceptions,they do not have the right to strike, join labor organizations,or negotiate collective agreements. Some companies operatingunder other contractual arrangements, such as contracts of workand, in the case of the mining sector, cooperative coalcontracts, do have unions and collective bargaining agreements. Regulations pertaining to child labor and child welfare areapplicable to employers in all sectors. Employment of childrenand concerns regarding child welfare are not considered majorproblem areas in the petroleum and fabricated metals sectors. Legislation regarding minimum wages, hours of work,overtime, fringe benefits, health and safety, etc. applies toall sectors. The best industrial and safety record inIndonesia is found in the oil and gas sector. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 4,552Total Manufacturing 160 Food & Kindred Products (1) Chemicals and Allied Products 61 Metals, Primary & Fabricated 6 Machinery, except Electrical (1) Electric & Electronic Equipment (1) Transportation Equipment -1 Other Manufacturing (1)Wholesale Trade -25Banking 95Finance/Insurance/Real Estate (1)Services (1)Other Industries 222TOTAL ALL INDUSTRIES 5,031(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis</text>
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<text>U.S. DEPARTMENT OF STATEINDIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS INDIA Key Economic Indicators (Billions of U.S. dollars unless otherwise noted) (Indian fiscal year is April 1 to March 31) 1992/93 1993/94 1994/95 1/Income, Production and Employment:Real GDP (1981 prices) 2/ 87.0 83.5 88.1Real GDP Growth (pct.) 4.6 4.0 5.5GDP (at current prices) 2/ 243.6 252.8 289.5GDP Share by Sector: (pct.) Agriculture 30.3 30.0 30.1 Energy/Water 2.5 2.5 2.5 Manufacturing 22.0 22.2 22.4 Construction 4.4 4.5 4.5 Rents 5.1 5.1 5.1 Financial Services 5.9 5.9 6.0 Other Services/Government/ Health/Education 29.8 29.8 29.4Real Per Capita GDP (1981 prices/USD) 99.8 93.9 97.1Labor Force (millions) 330 338 346Unemployment Rate (pct.) 22.0 22.5 22.5Money and Prices: (annual percentage growth)Money Supply (M3) 15.7 18.2 17.5Base Interest Rate 19.0 19.0 14.5Personal Saving Rate 17.4 17.5 18.0Retail Inflation 9.6 7.5 8.0Wholesale Inflation (pct.) 10.1 8.4 9.0Consumer Price Index (1982=100) 240 258 279Exchange Rate (USD/rupee) Official 28.96 31.37 31.37 Parallel 31.0 33.0 32.5Balance of Payments and Trade:Total Exports (FOB) 3/ 18.4 22.2 25.0 Exports to U.S. 3.5 4.0 4.7Total Imports (CIF) 3/ 21.7 23.2 26.7 Imports from U.S. 2.2 2.7 3.4Trade Balance 4/ -3.3 -1.0 -1.7 Trade Balance with U.S. 1.3 1.3 1.3Aid from U.S. (mil. USD) 4/ 141 142 148Aid from Other Countries/ Institutions 3.5 3.3 3.5External Public Debt 5/ 79.2 81.4 82.0Debt Service Payments 7.0 7.6 9.4Gold and Foreign Exch. Reserves 9.8 19.3 25.01/ 1994 figures are all estimates based on data available inOctober 1994.2/ GDP at market prices.3/ Merchandise trade.4/ Figures refer to Indian fiscal years: April 1-March 31.5/ Excludes rupee debt of $10 billion to the former USSR.Sources: Government of India (GOI) Economic Survey, GOIbudgets, Reserve Bank of India bulletins, and the World Bank.1. General Policy Framework By mid-1994, India's economic reform program had achievedremarkable macroeconomic stability and substantiallyliberalized its trade, investment and financial sectors.India's decision in 1991 to move away from a "mixed" economy,marked by slow growth, a highly protected market and statecontrol of the economy's "commanding heights," has potentiallyimportant ramifications for the international economy. TheIndian economy is already the sixth largest in terms ofpurchasing power, and is home to roughly 15 percent of theworld's population. India's middle-class is estimated to bebetween 150 - 250 million. A sustained period of rapideconomic growth would sharply reduce poverty in India andprovide major opportunities for international trade andinvestment. Progress toward reducing the government's unsustainablyhigh fiscal deficit, which helped trigger India's 1990-91economic crisis, has been mixed. After reaching nine percentof GDP in FY 1990/91, the fiscal deficit fell to 5.7 percent ofGDP in FY 1992/93 before rebounding to 7.3 percent of GDP thefollowing year. Buoyant receipts and better expenditurecontrols imply a fiscal deficit of about six percent of GDP forFY 1994/95; little progress is expected in the run-up to the1996 national elections. However, the Finance Minister andReserve Bank of India (RBI) Governor reached agreement to placea Rs. 60 billion ($1.9 billion) cap on the issuance of ad hocTreasury bills during 1994, the principal source ofinflationary money creation. The issuance of ad hoc Treasurybills is to be abolished by FY 1997/98. During the first six months of FY 1994/95, M3 rose by anestimated 17.5 percent. The RBI hopes to contain M3 growth at16 percent for the year, a rate it considers consistent with afour percentage point decline in inflation and GDP growth of5.5 percent. Government and private forecasters now predict anaverage retail inflation rate of about eight percent duringFY 1994-95, following inflation of 7.5 percent in the previousyear. The rate of increase in RBI credit to the governmentdeclined by about 50 percent during the first half ofFY 1994/95. This permitted the government to reduce theStatutory Liquidity Ratio (SLR) from 33.75 in September 1993 to31.5 percent in October 1994. Further cuts are planned as thegovernment seeks to avoid crowding out private borrowers. Other economic indicators underscore India's sharp breakwith its socialist past. Foreign investment inflows and steadyexport growth expanded foreign exchange reserves from $1.1billion in June 1991 to $19.0 billion in October 1994. Reformhas made India one of the most sought-after emerging marketsfor institutional investors. After stagnating for severalyears, private investment is expected to fuel industrial growthin FY 1994-95 of about 8.0 percent, and GDP growth in excess of5.0 percent. Most importantly, India's liberalization programhas received solid backing from the middle- and upper-classesthat have been its early beneficiaries.2. Exchange Rate Policy India has utilized exchange rate policy to improve itsexport competitiveness. On March 1, 1993, the exchange ratewas unified and made fully convertible on the trade account.On August 20, 1994, the current account was fully liberalized.Controls remain on capital account transactions, but theirgradual removal is expected as foreign exchange reserves growand India's capital markets merge more completely withinternational financial markets. The RBI has intervened in theforeign exchange market to rebuild reserves and defend therupee's stability. However, foreign investment inflows havebeen an equally important factor in maintaining the rupee atroughly Rs. 31.5 per dollar since March 1993. As a result, thereal effective exchange rate has appreciated by over 10 percentsince 1992.3. Structural Policies Price Policies: Central and state governments stillregulate the prices of most essential products, including foodgrains, sugar, edible oils, basic medicines, energy,fertilizers, water and many industrial inputs. Agriculturalcommodity procurement prices have risen substantially duringthe past three years, while nitrogenous fertilizer, ruralelectricity and irrigation costs remain well below marketlevels. However, acute power shortages are forcing severalstates to arrest the financial decline of state electricityboards by raising tariffs. The federal government has alsobegun to scrutinize more carefully the cost of its subsidies.Many basic food products are under a dual pricing system: someoutput is supplied at fixed prices through governmentdistribution outlets ("fair price shops"), with the remaindersold by producers on the free market. Prices are usuallyregulated according to a cost-plus formula; some formulas havenot been adjusted in more than a decade. Regulation of basicdrug prices has been a particular problem for U.S.pharmaceutical firms operating in India, although changes innational drug policy will sharply reduce the number ofprice-controlled formulations by late-1994. Tax Policies: India's tax policies suffer from severalproblems common to developing countries. Public financesremain highly dependent on indirect taxes, particularly importtariffs. Between 1990 and 1993, indirect taxes accounted for75 percent of central government tax revenue. India's directtax base is excessively narrow, with only eight milliontaxpayers out of a total population of about 900 million.Marginal rates are high by international standards, althoughthe FY 1994/95 budget lowered the corporate income tax rate forforeign companies from 65 percent to 55 percent. Tax evasionis widespread, and the government has stated that future taxrate cuts will depend upon its efforts to improve compliance.The government has begun streamlining the nation's tax regimealong the lines recommended by a government-appointedcommittee: increasing the revenue share from direct taxes,introducing a value-added tax (VAT), and replacing India'scomplex tax code with one that is simple and transparent. TheIndian government is also experimenting with tax incentives forspecific targeted areas, such as a five-year tax holiday forpower projects. Regulatory Policies: The "New Industrial Policy" announcedin July 1991 relaxed considerably government's regulatory holdon investment and production decisions. The new policieswithdrew industrial licensing from all but 16 specifiedindustries and removed most of the strictures on plantlocation. These reforms have been followed by more recentadjustments, including the announcement in mid-1994 of moreliberal policies for the pharmaceutical and telecommunicationsindustries. Local sourcing requirements have also beenabolished. Nevertheless, Indian industry remains highlyregulated by a powerful bureaucracy armed with excessive rulesand broad discretion. As many as 92 approvals are stillrequired to establish an industrial plant; the speed andquality of regulatory decisions governing important issues suchas zoning, land-use and environment can vary dramatically fromone state to another. Political opposition has slowed orhalted important regulatory reforms governing areas like labor,bankruptcy, and company law that would enhance the efficiencyof foreign and domestic investment. However, internationalcompetition for capital is gradually forcing India's federaland state governments to implement more investor-friendlyregulatory policies.4. Debt Management Policies External Debt Management: India's reliance during the1980's on debt-financed deficit spending to boost economicgrowth meant that commercial debt and Non-Resident Indian (NRI)deposits provided a growing share of the financing for India'smounting trade deficit. The result was a hefty increase inexternal debt, compounded by rising real interest rates and adeclining term structure that reflected India's fallingcreditworthiness. Total external debt rose from $20 billion inFY 1980/81 to about $84 billion in FY 1990/91. Fueled byrising debt service payments, foreign exchange reserves fell to$1.1 billion during the FY 1990/91 balance of payments crisis,the equivalent of only two weeks of imports. By October 1994,India's reform program had succeeded in boosting reserves to$19.0 billion. This remarkable surge in reserves has obviatedthe need to renew its Standby Arrangement with theInternational Monetary Fund (IMF), and allowed India to prepay$1.1 billion in credits to the IMF during 1994. External Debt Structure: India's total external debt(including ruble and defense-related debt) reached $91.4billion by mid-1994, making India one of the world's majorborrowers. India's debt-service payments exceeded $8.0 billionin each of the last four years (FY 1990/91 - FY 1993/94).However, roughly two-thirds of the country's foreign currencydebt is composed of multilateral and bilateral debt, much of iton highly-concessional terms. The stock of short-term debtconstituted only $4.6 billion during FY 1993/94. The additionof new debt has slowed substantially, as the governmentmaintained a tight rein on commercial borrowing anddefense-related debt and encouraged foreign equity investmentrather than debt financing. As a result, the ratio of totalexternal debt to GDP fell from 39.8 percent in FY 1992/93 toabout 36 percent in FY 1993/94. Relationship with Creditors: India has an excellent debtservicing record. U.S. and Japanese rating agencies downgradedIndian paper in 1990, as India encountered balance of paymentdifficulties exacerbated by the Persian Gulf conflict and asharp downturn in trade with the former Soviet Union. Thesharp growth in official reserves and the enthusiastic responseof institutional and foreign direct investors to India'seconomic reforms are restoring creditor confidence. Japaneseagencies recently upgraded India's rating, and in late-1994Moody's began reviewing India's foreign currency debt rating.(India is currently rated BA2/BB plus by Moody's.) Citing itsgrowing foreign exchange reserves and ample food stocks, Indiachose not to negotiate an Extended Financing Facility with theIMF when its Standby Arrangement expired in May 1993.5. Significant Barriers to U.S. Exports Import Licensing: U.S. exports have benefited fromsignificant reductions in India's import-licensingrequirements. Until 1992, India's extraordinarily compleximport regime featured 26 commodity lists with numerousapproval and licensing procedures. Since that time, thegovernment has eliminated the licensing system for imports ofintermediates and capital goods, and steadily reduced theimport-weighted tariff from 87 percent to 33 percent atpresent. U.S. exports to India rose from $2.0 billion in 1991to $2.8 billion in 1993, according to U.S. Department ofCommerce trade data. Imports of phosphate fertilizer, keroseneand liquid propane gas were opened to the private sector in1993. A few commodity imports (mostly bulk agriculturalcommodities) are still "canalized" through state tradingcompanies, but their number is steadily declining.Notwithstanding this progress, U.S. exporters face a negativelist of import items affecting roughly one-third of all tarifflines, and tariff protection that is still very high byinternational standards. Import licenses are still requiredfor most consumer durables, certain electronics, pesticides andinsecticides, fruits, vegetables and processed food products,breeding stock, most pharmaceuticals and chemicals, andproducts reserved for small-scale industry. This licensingrequirement serves in many cases as an effective ban onimportation. Services Barriers: The Indian government runs many majorservice industries either partially or entirely, but thecontrols are loosening. The banking sector remains highlyregulated, with only five licenses per year to be given for newforeign bank branches and/or expansion of existing operations.(Only 12 new foreign banks or bank branches were grantedoperating approval between June 1993 and September 1994.)India does not allow foreign nationals to practice law in itscourts. The Indian government is now reviewing its monopoly oflife and general insurance services, and is expected to approvedomestic and foreign private sector competition during 1995.Foreign and domestic private firms dominate advertising,accounting, car rental and a wide range of consultancyservices. Furthermore, policy reforms introduced in late 1994offer foreign firms a major role in modernizing India'stelecommunications sector. Standards, Testing, Labelling and Certification: Indianstandards generally follow international norms and do notconstitute a significant barrier to trade. However, India'sfood safety laws are often outdated or more stringent thaninternational norms. Where differences exist, India is seekingto harmonize national standards with international norms. Nodistinctions are made between imported anddomestically-produced goods, except in the case of some bulkgrains. Investment Barriers: The industrial policy introduced inJuly 1991 achieved a dramatic overhaul of regulationsrestricting foreign investment. Government approval for equityinvestments of up to 51 percent in 35 industries covering thebulk of manufacturing activities has been entirely eliminated.The government has rarely denied requests to increase equitystakes up to 100 percent, although it reserves this right. Allsectors of the Indian economy are now open to foreigninvestors, except those with security concerns such as defense,railways and atomic energy. Industrial licensing applies tomanufacturing activities in only 15 industries considered to beof strategic, social or environmental importance. As a result,the $5.1 billion in foreign investment approved between January1991 and July 1994 exceeded the nominal dollar value of allforeign investment approved during the previous four decades.The United States and India have not negotiated a bilateralinvestment treaty, although an agreement with the OverseasPrivate Investment Corporation (OPIC) remains in force toprotect U.S. investors. In 1992, India became the 113thcountry to announce it would join the Multilateral InvestmentGuarantee Agency (MIGA). India ratified the Uruguay Roundagreements and became a founding member of the World TradeOrganization (WTO) on January 1, 1995. Government Procurement Practices: Indian governmentprocurement practices occasionally discriminate against foreignsuppliers, but they are improving under the influence of fiscalstringency. Price and quality preferences for local supplierswere largely abolished in June 1992. Recipients ofpreferential treatment are now concentrated in the small-scaleindustrial and handicrafts sectors, which represent a verysmall share of total government procurement. Defenseprocurement through agents is not permitted, forcing U.S. firmsto maintain resident representation. When foreign financing isinvolved, procurement agencies generally comply withmultilateral development bank requirements for internationaltenders. Customs Procedures: Liberalization of India's trade regimehas reduced tariff and non-tariff barriers, but it has noteased some of the worst aspects of customs procedures.Documentation requirements, including ex-factory bills of sale,are extensive and delays are frequent. Interpretationsrendered by customs officials are frequently arbitrary.6. Export Subsidies Policies The 1991 budget phased out most direct export subsidies,but a tangle of indirect subsidies remains. Exports are exemptfrom income and trade taxes, and a variety of tariff incentivesand promotional import licensing schemes, some of which carryexport quotas, still remain.7. Protection of U.S. Intellectual Property The Indian government is slowly, but steadily, revising itstreatment of intellectual property rights (IPR), bringing itslaws and enforcement in line with international practice. Thegovernment has traditionally contended that IPR protectionshould balance the interests of rights holders with those ofconsumers and broader "social" interests. The Special-301investigation initiated by the United States TradeRepresentative in 1991 determined that Indian IPR practices --particularly inadequate patent protection -- unduly burdenedU.S. commerce. In response, the United States removed allIndian-origin chemical and pharmaceutical products fromduty-free entry under the Generalized System of Preferences(GSP) in April 1992. Under pressure from domestic industry, India strengthenedits copyright law in May 1994, placing it on a par withinternational practice. The new law entered into force inlate-1994. Subsequently, India's designation as a "priorityforeign country" under Special-301 was revoked and India wasplaced on the Priority Watch list. Copyright and trademarkenforcement is also rapidly improving. Classification ofcopyright and trademark infringements as "cognisable offenses"has expanded police search and seizure authority, while theformation of appellate boards has speeded prosecution.Parliamentary approval is expected in late 1994 or early 1995for strict revisions in India's Trademark Bill. Indian patent law, which was revised in 1970 to shortenpatent life and end product patents for pharmaceuticals,chemicals and food products, remains a major concern for U.S.investors and exporters. Widespread patent piracy has resultedin a pronounced shortage of investment in high-tech areas, suchas pharmaceutical and bioengineering research and development,where India enjoys a comparative advantage. Nonetheless, theconvergence of India's economic interests with those of hermajor trade and investment partners may accelerate productpatent introduction. The Indian government has announced thatit will fully conform to the IPR-related requirements of theUruguay Round, including the introduction of full productpatent protection by the Year 2005 and TRIPs-relatedimplementing legislation by January 1, 1995.8. Worker Rights a. The Right of Association India's constitution gives workers the right ofassociation. Workers may form and join trade unions of theirchoice; work actions are protected by law. Unions representroughly two percent of the total workforce, or about 25 percentof industrial and service workers in the organized sector. b. The Right to Organize and Bargain Collectively Indian law recognizes the right to organize and bargaincollectively. Procedural mechanisms exist to adjudicate labordisputes that cannot be resolved through collectivebargaining. State and local authorities occasionally use theirpower to declare strikes "illegal" and force adjudication. c. Prohibition of Forced or Compulsory Labor Forced labor is prohibited by India's constitution; a 1976law specifically prohibits the practice of "bonded labor."Despite implementation of the 1976 law, bonded labor continuesin many rural areas. Efforts to eradicate the practice arecomplicated by extreme poverty and jurisdictional disputesbetween the central and state governments; legislation is acentral government function, while enforcement is theresponsibility of the states. d. Minimum Age of Employment for Children Poor social and economic conditions and lack of compulsoryeducation make child labor a major problem in India. TheGovernment of India estimates that 17 million Indian childrenfrom ages 5 to 15 work. Non-governmental organizationsestimate that there may be more than 50 million childlaborers. A 1986 law bans employment of children under age 14in hazardous occupations and strictly regulates childemployment in other fields. Nevertheless, tens of thousands ofchildren are employed in the glass, pottery, carpet andfireworks industries, among others. Resource constraints andthe sheer magnitude of the problem limit ability to enforcechild-labor legislation. e. Acceptable Conditions of Work India has a maximum eight-hour work day and 48-hour workweek. This maximum is generally observed by employers in theformal sector. Occupational safety and health measures varywidely from state to state and among industries, as does theminimum wage. f. Rights in Sectors with U.S. Investment U.S. investment exists largely in manufacturing and servicesectors where organized labor is predominant and workingconditions are well above the average for India. U.S.investors generally offer better than prevailing wages,benefits and work conditions. Intense government and pressscrutiny of all foreign activities ensures that any violationof acceptable standards under the five worker rights criteriamentioned above would receive immediate attention. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 395 Food & Kindred Products 1 Chemicals and Allied Products 143 Metals, Primary & Fabricated 11 Machinery, except Electrical 68 Electric & Electronic Equipment 4 Transportation Equipment 5 Other Manufacturing 164Wholesale Trade 23Banking 316Finance/Insurance/Real Estate (1)Services 18Other Industries (2)TOTAL ALL INDUSTRIES 759(1) Suppressed to avoid disclosing data of individual companies(2) Less than $500,000Source: U.S. Department of Commerce, Bureau of Economic Analysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEHUNGARY: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS HUNGARY Key Economic Indicators 1/ (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 2/ (est.)Income, Production and Employment:Real GDP (Index: 1985=100) 3/ 85.6 84.5 N/AReal GDP Growth (pct.) -4.3 -2.3 2.0GDP (at current prices) 3/ 36,500 36,055 41,777By Sector: Agriculture 2,394.46 2,133.76 2,486.00 Energy/Water 1,291.13 1,150.59 1,220.00 Manufacturing 7,397.74 7,301.17 8,463.00 Construction 1,940.50 2,021.94 2,600.00 Rents 3,934.20 4,423.90 5,376.00 Financial Services 2,198.73 2,064.31 2,160.00 Other Services 7,103.80 7,589.10 10,185.00 Government/Health/Education 4,893.67 5,180.35 7,098.00Net Exports of Goods & Services 4/ 10,131 7,990 N/AGDP Per Capita (USD) 3,441 3,700 4,056Labor Force (000s) 45,049 45,522 44,407Unemployment Rate (pct.) 12.3 12.1 11.8Money and Prices: (annual percentage growth)Money Supply (M2) 4/ 27.0 16.6 N/ABase Interest Rate 4/ 22 21 25Personal Saving Rate 4/ 10.9 6.5 N/ARetail Inflation 25.0 25.5 22.0Wholesale Inflation 11.5 10.3 N/AConsumer Price Index 23.0 22.5 20.0Exchange Rate Official 79.00 92.04 103.00 Parallel 90 100 110Balance of Payments and Trade: 5/Total Exports (FOB) 10,678.5 8,912.0 9,625.7 Exports to U.S. 294.6 375.9 350.0Total Imports (CIF) 11,120.3 12,635.9 13,383.4 Imports from U.S. 278.5 493.3 392Aid from U.S. 5/ 116 155 193Aid from Other Countries 5/ 618.6 813.6 978.9External Public Debt 21,438 24,560 26,556Debt Sevice Payments (paid) 4/ 4,653 4,806 5,232Gold and Foreign Exch. Reserves 4/ 4,381 6,763 7,000Trade Balance 441.8 -3,723.9 -3,757.7 Trade Balance with U.S. 16.9 -117.3 -42.01/ Source: Central Statistical Office, unless stated otherwise;provided in HUF and converted at the official exchange rates,indicated in this table.2/ Source: Ministry of Finance, except data on trade.3/ At factor cost.4/ Source: National Bank of Hungary.5/ Source: Ministry of Industry and Trade; all 1994 data areestimates.1. General Policy Framework Hungary is well along in its efforts to establish a fullmarket economy. It has liberalized its trade regimeextensively during the last five years. Ninety percent ofimported products no longer require prior government approval.Foreign direct investment has flowed rapidly into Hungary since1990, bringing with it a greater familiarity with foreign,including U.S., products. Since the May 1994 elections, thenew coalition government has been formulating its economicpolicy. In response to the need to reduce government spendingand the current account deficit some GATT-consistent measuresare expected. Two of the key tenets of the program arepromoting exports and investment. The government ratified theUruguay Round Agreement at the end of 1994. As a result,quotas on agricultural products are being replaced by tariffs.Therefore, the only remaining vestige of protectionism afterratification of the GATT will be consumer goods quotas onmanufacturing products. The population of Hungary is saddled with the highest percapita foreign debt in Europe. Interest payments on the debtare expected to balloon in 1995 and 1996. In addition, Hungaryhas very large balance of payment and current account deficits,the former of which was caused primarily by spending on socialprograms and a rate of domestic consumption that surpasseddomestic production by almost 10 percent. The government hasfinanced the deficit primarily through issuing governmentbonds, both domestically and abroad. At the same time, a tightbudget program is planned for 1995, projecting a $1.6 billionprimary budget surplus. The government, describing the economic situation as acrisis, is seeking to stabilize the economy by calling for zerogrowth in net debt, keeping a tight lid on inflation, andholding growth in real wages to four to five percent below therate of inflation. The parliament is currently debating thesemeasures, as is the Interest Reconciliation Council (atripartite group on which government, employers, and employeesare all represented). The final results of these discussions,intended to be a three-year Social Pact, will not be knownuntil the end of the year at the earliest. Promotion of foreign direct investment continues to be agovernment priority. The government has introduced regionaldevelopment programs that will provide tax preference toinvestments in certain regions. Tax preference for investmentswill be normative and the threshold for equity will bedecreased. Incentives are also provided for domestic privateinvestment. Tax preferences are being proposed for enterprisesthat reinvest their income and a less burdensome tax process isbeing proposed for small entrepreneurs. In addition, Hungarianlaw provides for the establishment of companies in customs-freezones. The companies established there are exempt from customsand foreign-exchange requirements as well as from indirecttaxation tied to the turnover of goods. With respect to directtaxes, these companies enjoy transitory preferences. EffectiveJanuary 1994, the Corporate Tax Act allowed for a discretionarytax reduction for companies meeting the prerequisites. Thisprovision, however, has come under some criticism and the newgovernment is expected to legislate a number of investmentincentives which will not discriminate between domestic andforeign investment. It has also stated that it will eliminatethe minimum two percent turnover tax. The National Bank of Hungary (known by its Hungarianacronym, MNB) is the primary monetary policy actor. In orderto control the money supply, the MNB uses open marketoperations to a large extent. It controls the rate of intereston government T-bills as well as the rate applied to repurchaseagreements. Under conditions identical with the repurchaserates, commercial banks can conclude foreign exchange swaptransactions with the MNB. In addition to controlling themoney supply through open market operations, the governmentalso carried out a fairly active exchange rate policy in 1994.2. Exchange Rate Policy The Hungarian forint is almost fully convertible forcurrent account transactions, but not for capital accountmovements. It should be noted, however, that while thegovernment is currently reviewing its Foreign Exchange Law withan eye toward liberalizing both current and capital accounts inan effort to meet OECD membership requirements, significantchanges in capital account restrictions are not expected forseveral years. Currently, the forint is pegged to a currencybasket consisting of the U.S. dollar (30 percent) and theEuropean Currency Unit (70 percent). Inflation-ledappreciation of the forint has resulted in periodicdevaluations. Exporters have been critical of the government'sexchange rate policy, claiming that the overvaluation of theforint has priced them out of the foreign markets. Theworsening current account fueled anticipation that a sizeabledevaluation would occur to correct the situation. In August1994, the government devalued the forint by eight percent --the largest devaluation since 1991. That was followed by a 1.1percent devaluation in early October. Although the forint continues to be a managed currency, itis in essence fully convertible for business purposes.Foreigners may freely repatriate profits and dividends in hardcurrency. Foreign exchange controls have been liberalizedsteadily. Foreigners are now permitted to maintain forintaccounts which can be used to purchase goods domestically.3. Structural Policies There are no centrally-determined prices for consumerproducts in Hungary. However, the prices for the state-ownedgas, electricity, and water utilities (the first two of whichmay soon be partially privatized) are determined by the state.As privatization of these companies proceeds, prices will bebrought more in line with market prices. The government offersa wholesale floor price for unprocessed agricultural products,but producers are not obliged to sell their products to statecompanies at this price. As a floor support price, this policyhas no impact on U.S. agricultural exports to Hungary. Hungary overhauled its tax system in the late 1980's,instituting a western-style system. It is now in the processof reforming the entire budget system, including some taxes.The most important taxes for a foreign investor are: companytax (36 percent of corporate profits); the general turnover tax(a value-added tax attached to the value of goods and servicessupplied domestically, imported, or exported; current rates are0, 10, and 25 percent, but the new government proposes raisingthe 10 percent rate to 12 percent); and personal income tax(current rates range from 0 to 44 percent, but a proposalbefore the Parliament would add a 50 percent bracket for thosewhose annual earnings exceed one million forints, about$10,000). In addition to taxes, employers must also paycontributions to the Social Security and Solidarity(unemployment) funds (44 and 7 percent respectively.) As mentioned above, the new government is now debating itseconomic policy for 1995 and subsequent years. Tax laws arelikely to change as a result of these discussions. Thegovernment has indicated that promoting investment is one ofits primary goals. According to tax proposals beforeParliament, tax on profits will be 18 percent if they arereinvested and 36 percent if they are remitted as dividends toshareholders. In 1992, the Act on Separate State Fundsestablished an Investment Promotion Fund to encourage foreigninvestment in infrastructure, new technology, and publicutilities. To qualify for subsidies from this fund, a companymust have at least 30 percent foreign participation, a minimumof $500,000 in capital, and the foreign contribution must be inconvertible currency and not less than 50 percent of theforeign partner's share. Companies that meet the first two ofthese requirements and invest in manufacturing that generatesmore than half of their gross revenues may qualify for a 60percent tax exemption for the first five years and a 40 percentexemption for the next five. If they invest in one of 15designated sectors, they could receive a 100 percent taxexemption for the first 5 years and a 60 percent exemption forthe second five. Act LXXXVI of 1990 on the Prohibition of Unfair MarketPractices (the "Competition Act") is actually a comprehensivelaw intended to foster the establishment and maintenance of acompetitive market. The Competition Act addresses consumerfraud, the restriction of competition, abuse of a dominantmarket position, and unfair competition. The Competition Actcreated the Economic Competition Office. This office isresponsible for investigating and stopping any unfair marketpractices.4. Debt Management. As mentioned earlier, Hungary has the highest per capitaforeign debt in Europe. Despite this, it has never sought debtforgiveness or debt rescheduling. As a result, Hungary has agenerally good relationship with commercial creditors, the IMF,and the World Bank. It fell far short of IMF target figuresfor debt as a percentage of GDP and for the budget deficit in1993. Currently, the Government of Hungary and the IMF arenegotiating a new agreement to replace the 18 month agreementthat expired in December 1994 (an agreement that has beendormant for much of its term). Although the government isseeking a three-year agreement to facilitate economicrestructuring, it is more likely that it will reach agreementon a one-year credit in the short run, with prospects for alonger-term agreement linked to an acceptable three-yeareconomic program. Hungary's foreign debt totals approximately$27 billion, with interest payments on the debt ballooning in1995 and 1996. The government is counting on an improvingcurrent account balance and increased foreign investment tolessen this burden.5. Significant Barriers to U.S. Exports. Hungary has liberalized its market substantially in recentyears. While Hungary's average tariff rates are decreasing,peak rates are exceptionally high (on coffee, for example).Hungary imposes a $750 million global quota on imports ofconsumer goods. American companies have complained about aninsufficient quota to properly supply the market.Additionally, by the terms of the Association Agreement,Hungary has reserved quota allotments for imports from theEuropean Union. As a result of the Uruguay Round, quotas onagricultural products and processed foods will be replaced bytariffs. On November 1, prior to ratification of the GATTAgreement, the government increased tariffs on agriculturalproducts that are not bound by GATT; during the first half of1995, a further increase will take place in accordance with theUruguay Round Agreement's requirement that non-tariff barriersbe replaced by tariffs. Foreign companies complain that the implementation of newregulations with no advance notice disrupts trade. Forexample, in October 1993 the Government passed new regulationsmandating that quality control certificates were required forconsumer goods imports to be customs-cleared. There was noadvance notice of the implementation of the new regulations.Consequently, neither the importers nor thetesting/certification agencies were prepared for the regulatorychange. Similarly, the government gave only a 5 day advancenotice of tariff increases on agricultural imports (mentionedabove). While the investment market in Hungary is substantiallyliberalized, there are still some potential barriers. Act XVIof 1991 on Concessions authorizes the state to provideinvestors with concessions in return for their investment ininfrastructure and certain other sectors. In general, though,100 percent foreign ownership is permitted in sectors open toprivate investment. Exceptions include restrictions on foreigninvestment in defense-related industries, in the media, and onforeigners' acquisition of land. While screening of foreigninvestments does not normally occur, Hungary does screeninvestments in financial institutions and insurance. However,a number of foreign banks and financial institutions currentlyoperate in Hungary despite this screening process; the Embassyhas received no reports of established U.S. banks or otherfinancial institutions being denied permission to operate inHungary. Foreign investors are nearly always accorded nationaltreatment under law. Nevertheless, a few instances ofdiscrimination do exist. For example, foreign investors mayonly exercise shareholder rights if they have purchasedregistered shares (although if they buy unregistered shares,they may petition to have those shares converted to registeredshares). The Investment Act guarantees foreigners the right torepatriate "in the currency of the investment" any dividends,after-tax profits, royalties, fees, or other income derivingfrom the operation or sale of the investment. The Act alsogrants foreign employees of foreign investors the right totransfer abroad fifty percent of their after-tax salaries.Foreign investors are also allowed to keep any cashcontributions made in a convertible currency in a foreignexchange account. All companies registered in Hungary,including those with foreign participation, are required tosell foreign exchange receipts from exports to the NationalBank within eight days of receipt unless an exemption has beengranted by the MNB. One notable exception allows a company tomaintain a foreign currency account to pay for foreign travel,advertising, and related expenses. All companies must obtainpermission from the National Bank before taking out a hardcurrency loan (although this requirement will reportedly bedropped as part of the governments rewrite of the ForeignExchange Law). Hungary is not a signatory to the GATT Agreement onGovernment Procurement. Increasingly, foreign businessescriticize the tendering processes, citing non-transparency andirregularities. The government is likely to promulgate newgovernment procurement guidelines that may address some ofthese issues, but could, at the same time, establish localcontent requirements. All importers and exporters must file a VAM 91 documentwhich can be obtained from the Hungarian Customs. Essentially,this document serves as a declaration for the type and numberof goods being imported or exported. This document mustcontain the Product Code Number which identifies theclassification of the goods. The Product Code Number can beobtained from the Central Statistical Office. Upon the importation of goods, the importer must presentcertification documents from the Commercial Quality ControlInstitute (KERMI); goods cannot be customs-cleared without theKERMI permits. In certain instances, the KERMI permit may besubstituted by documentation from other testing andcertification agencies such as the National Institute for Drugsand the Quality Control Office of the Building Industry. Allfood products must be labelled in Hungarian and must give thefollowing information: net quantity, name/address of producer(or importer), consumption expiration date, recommended storagetemperature, listing of ingredients/additives, energy content,and approval symbols from the National Institute of FoodHygiene and Nutrition (OETI) and KERMI. There are alsospecific marking and labelling requirements for cosmetics aswell as human and animal pharmaceuticals. The Hungarian Standardization Office (MEI) oversees thestandards system. There are currently two types of standards:national and sectoral. National standards are issued by theMDI. These standards are binding and supersede sectoralstandards. Sectoral standards are issued by individualministries and other central government agencies. Nationalstandards conform to international norms. Hungary is asignatory to the GATT Agreement on Technical Barriers to Trade(Standards Code). Hungary also participates in theInternational Organization for Standardization (ISO) and theInternational Electro-technical Commission (IEC). New consumer goods are subject to an approval processimplemented by KERMI. The Hungarian Electro-technical ControlInstitute (MEEI) controls electronic/technical goods; approvalis based on compliance with Hungary's standards on protectionagainst electric shock. In order to import or market thesehighlighted products, they must be tested and certified bythese control institutes.6. Export Subsidies Policies There are no subsidies on exports of industrial products.Various agricultural product groups, however, receive a certainpercentage subsidy from the state. The general level ofagricultural subsidy, however, is relatively low. Twoinstitutions were established in 1994 to support exports: theExport Import Bank and the Export Credit Guarantee Ltd. Thetwo institutions will provide credit or credit insurance forabout 8 to 10 percent of total exports. Upon ratification ofthe Uruguay Round Agreement, Hungary will become an automaticsignatory to the GATT Subsidies Code.7. Protection of U.S. Intellectual Property The Hungarian legal system protects and facilitates theacquisition and disposition of property rights. The basiclegislation providing protection for inventions is Act II of1969 (as amended) on the Patent Protection of Inventions. ThePatent Act provides twenty years of protection from the date offiling at the National Office of Inventions, as opposed to theAmerican system which extends protection from the date ofinvention. Licenses may be granted. Compulsory licensing to aHungarian enterprise may be ordered in certain circumstanceswhen a patent has not been used within four years of the dateof application or three years from the date of issue. Act III of 1969 (as amended) on Copyrights is intended toprotect literary, scientific, and artistic creations."Computer programs and the related documentation" (software)are expressly included in the list of protected works.According to the law, "the consent of the author shall berequired for any use of his work" or of the title of the work."Use" is defined as "the process in the course of which thework or a part thereof is communicated to the public" andpertains to "alterations, adaptations, and translations." Thelaw includes under communication "posters, newspapers,programs, films, radio, television, etc." relating to thework. There have been numerous complaints that Hungarianenforcement of the Copyrights Act has not been sufficientlyvigorous and that significant quantities of pirated andcounterfeit software, sound recordings, etc., are marketed inHungary. The registration and protection of trademarks is governedby Act IX of 1969 on Trade Marks and related decrees. Theapplication process can take from six months to a year.Foreigners are required to appoint a Hungarian attorney torepresent them. Decisions by the National Office of Inventionsto deny an application or cancel a registration may be appealedto the Supreme Court. Registrations are valid for ten yearsand can be renewed. Licensing of trademarks is permitted. Thelaw protects well-known marks, stating that "the existence of awell-known mark (whether registered or unregistered) is a barto registration of an identical or confusingly similar mark,regardless of the goods concerned." While there are nostatutory use requirements, "failure to use a mark over afive-year period renders the registration open to cancellation." Trade secrets are protected by Act LXXXVI of 1990 on theProhibition of Unfair Market Practices. The law expresslyforbids obtaining or using business secrets "in an unethicalway" and disclosing them to unauthorized persons or making thempublic. Business secrets are defined as "every such fact,information, solution, or data related to economic activitythat it is in the entitled person's interest to have remainsecret." Two new laws protecting intellectual property entered intoforce in January of 1992. Act XXXVIII of 1991 protects utilitymodels, and Act XXXIX of 1991 protects the topography (layoutdesign) of semiconductor chips. In 1993, the United States and Hungary signed acomprehensive Intellectual Property Rights Treaty. Law NumberVII (1994) on the Amendment to Industrial Property andCopyright Legislation was adopted by Parliament and implementedon July 1, 1994. This law amends several existing laws andserves to extend patent protection for pharmaceutical andchemical products (previously, Hungary issued only processprotection for products in these categories); addresses whocontrols the rights of works; extends and unifies the terms ofprotection; expands protection for the original layout designsincorporated in semiconductor chips; provides the legal meansto prevent proprietary information from being disclosed oracquired without the consent of the trade secret owner by otherthan "honest commercial practices"; and ensures enforcementprocedures are available under civil, criminal, oradministrative law to permit effective action against IPRinfringement. Hungary is a member of the World Intellectual PropertyOrganization and a signatory of important agreements on thisissue, such as the Paris Convention for the Protection ofIndustrial Property, the Nice Agreement on the Classificationand Registration of Trademarks, the Madrid Agreement concerningthe Registration and Classification of Trademarks, the PatentCooperation Treaty, the Universal Copyright Convention, and theBern Convention for the Protection of Literary and ArtisticWorks.8. Worker Rights a. The Right of Association The labor code passed in 1992 recognizes the right of theunions to organize and bargain collectively and permits tradeunion pluralism. Workers have the right to associate freely,choose representatives, publish journals, and openly promotemembers' interests and views. With the exception of militarypersonnel and the police, they also have the right to go onstrike. b. The Right to Organize and Bargain Collectively The 1992 labor code permits collective bargaining at theenterprise and industry level and it is practiced. Minimumwage levels are set by the Interest Reconcilation Council(known by its Hungarian acronym, ET), a forum for tripartiteconsultation among representatives from the employers,employees, and the government, and higher levels (but not lowerones) may be negotiated at the plant level between individualtrade unions and management. By agreement, the legal minimumwage is centrally negotiated at the ET in order to controlinflation. The Ministry of labor is responsible for draftinglabor-related legislation, while special labor courts enforcelabor laws. The decisions of these courts may be appealed tothe civil court system. Under the new legislation, employersare prohibited from discriminating against unions and theirorganizers. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is prohibited by law, which isenforced by the Ministry of Labor. d. Minimum Age of Employment of Children Labor courts enforce the minimum age of 16 years, withexceptions for apprentice programs, which may begin at 15.There does not appear to be any significant abuse of thisstatute. e. Acceptable Conditions of Work The legal minimum wage is established by the ET andsubsequently implemented by Ministry of Labor Decree. The 1992labor code specifies various conditions of employment,including termination procedures, severance pay, maternityleave, trade union consultation rights in some managementdecisions, annual and sick leave entitlements, and laborconflict resolution procedures. f. Rights in Sectors with U.S. Investment Conditions in specific goods-producing sectors in whichU.S. capital is invested do not differ from those in othersectors of the economy. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 0Total Manufacturing 315 Food & Kindred Products (1) Chemicals and Allied Products -24 Metals, Primary & Fabricated (1) Machinery, except Electrical (2) Electric & Electronic Equipment (1) Transportation Equipment 3 Other Manufacturing (1)Wholesale Trade 66Banking (1)Finance/Insurance/Real Estate (1)Services (2)Other Industries (1)TOTAL ALL INDUSTRIES 1,001(1) Suppressed to avoid disclosing data of individual companies(2) Less than $500,000Source: U.S. Department of Commerce, Bureau of EconomicAnalysis</text>
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<text>U.S. DEPARTMENT OF STATEHONG KONG: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis</text>
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<text>U.S. DEPARTMENT OF STATEHONG KONG: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS HONG KONG Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1990 prices) 83,805 88,807 93,991Real GDP Growth (pct.) 6.0 5.9 5.7GDP (at current prices) 100,622 14,738 131,086GDP by Sector: (pct.) Agriculture 0.2 N/A N/A Energy/Water 2.2 N/A N/A Manufacturing 13.7 N/A N/A Construction 5.1 N/A N/A Rents 3.2 N/A N/A Finance 2/ 24.5 N/A N/A Other Services 3/ 35.9 N/A N/A Government/Health/Education 15.2 N/A N/ANet Exports of Goods & Services (at current prices) 5,840 9,152 5,050Real Per Capita GDP (1990 prices) 14,419 15,004 15,619Labor Force (000s) 2,820 2,929 2,977Unemployment Rate (pct.) 2.0 2.0 2.2Money and Prices: (annual percentage growth)Money Supply (M2) 10.8 16.0 11.8Base Interest Rate (pct.) Prime Rate 6.5 6.5 8.5Personal Savings Rate (pct.) 1.5 1.5 3.75Retail Inflation 4/ N/A N/A N/AWholesale Inflation 4/ N/A N/A N/AConsumer Price Index 5/ 125.2 135.9 151.1Official Exchange Rate (HKD/USD) 7.741 7.736 7.726Balance of Payments and Trade:Total Exports (FOB) 119,487 135,244 150,857 Exports to U.S. (FOB) 27,259 31,107 35,196Total Imports (CIF) 123,816 139,052 159,909 Imports from U.S. (CIF) 9,119 10,266 11,300Aid from U.S. 0 0 0Aid from Other Countries 0 0 0External Public Debt 0 0 0Annual Debt Service 0 0 0Foreign Exch. Reserves 6/ 35,250 43,003 N/ATrade Balance -4,329 -3,808 -9,052 Trade Balance with U.S. 18,410 20,841 23,896N/A--Not available.1/ 1994 projections are by the Consulate and are based on firstthree quarters statistics. 1994 exchange rates were based onHKD 7.726 to US $1.00; 1992 and 1993 exchange rates as listed.2/ Includes financing, insurance, real estate and businessservices.3/ Includes wholesale, retail, import/export trades,restaurants, hotels, transport, storage and communications.4/ Hong Kong government provides only the consumer price index(CPI).5/ Oct 1989-Sept 1990 equals 100; CPI(A) covers urbanhouseholds with monthly expenditure of US $325-1300(approximately 50 percent of households).6/ Foreign currency assets of exchange fund (US dollars).Statistical Note: the Census and Statistics Department hasrecently completed a non-routine revision of GDP, to base realGDP at 1990 prices and to include certain offshore serviceactivities.1. General Policy Framework The Hong Kong government pursues economic policies ofnoninterference in commercial decisions, low and predictabletaxation, government spending increases within the bounds ofreal economic growth, and competition subject to transparentlaws (albeit without anti-trust legislation) and consistentapplication of the rule of law. Market forces determine wagesand prices in Hong Kong, with price controls limited only tocertain government-sanctioned monopolies in the servicesector. There are no restrictions on foreign capital orinvestment, except for some limitations in the media sector,nor are there export performance or local contentrequirements. Profits may be freely repatriated. There aresome barriers to entry in certain service sectors, inparticular medicine, law, and aviation. Hong Kong reverts toPeople's Republic of China (PRC) sovereignty in 1997, but Chinahas committed to leaving Hong Kong's economic system intact for50 years. Hong Kong's free market, generally non-interventionistpolicies have spurred high rates of real growth, lowunemployment, rising wages, and one of the highest per-capitaGDP levels in the world. The growing economy has producedadditional tax revenues despite modest increases in excise,real estate and business profits taxes. The corporate profitstax is 16.5 percent, and personal income is taxed at a maximumrate of 15 percent. Property is taxed; interest, royalties,dividends, capital gains and sales are not. In spite of thegrowth of government spending from approximately 14 percent ofGDP in the mid 1980s to about 19 percent by the early 1990s,the Hong Kong Government annually runs budget surpluses and hasamassed large fiscal reserves. Asset price inflation, a dominant feature of Hong Kong'seconomy during 1993, has shown signs of moderating during thesecond half of 1994 as interest rates have increased.Skyrocketing property prices have fallen some 10-15 percentsince June 1994, when the government introduced a package ofmeasures designed to curb property speculation, release moreland for building, and accelerate major housing projects. HongKong's Hang Seng index of blue chip stocks, which increased by116 percent in 1993, was down by 1.7 percent year-on-year as ofNovember 15, 1994. Hong Kong is a duty-free port. It levies consumption taxeson certain goods, including tobacco, alcoholic beverages,methyl alcohol and some fuels, but otherwise goods tradefreely. Hong Kong is also an entrepot for Chinese and regionaltrade. In 1993, Hong Kong reexported US $106 billion worth ofgoods made elsewhere, more than three times as much as itproduced domestically for export (US $29 billion). One thirdof all of China's exports flow through Hong Kong on their wayelsewhere, and 25 percent of China's imports come via HongKong. The opening of China, and especially the development ofGuangdong province as a low-cost manufacturing base, hasencouraged Hong Kong to shift from a manufacturing to aservices-based economy; over 75 percent of Hong Kong's GDP nowderives from the service sector, much of it connected in oneway or another with China. The Hong Kong dollar is linked to the U.S. dollar at anexchange rate of HKD 7.8 = US $1.00. The link was establishedin 1983 to encourage stability and investor confidence in therun-up to Hong Kong's reversion to Chinese sovereignty in1997. The linked exchange rate requires that Hong Konginterest rates generally track U.S. interest rates. Despiteseveral interest rate increases during 1994, Hong Kong'sprevailing 8 percent inflation rate has meant that savers havecontinued to face negative real interest rates. On July 1, 1997, Hong Kong will revert to PRC sovereignty.As guaranteed by the 1984 Sino-United Kingdom (UK) "JointDeclaration" and the 1990 PRC "Basic Law" -- the latter passedby China's National People's Congress -- Hong Kong will becomeon July 1, 1997, a "Special Administrative Region" (SAR) of thePRC. China will take over responsibility for Hong Kong'sforeign affairs and defense. However, under China's "onecountry, two systems" doctrine, Hong Kong has been guaranteed"a high degree of autonomy" in managing its economic, social,legal, budget and other internal policies for fifty years.Hong Kong will remain a separate customs territory with all ofits current border arrangements, and it will retain itsindependent membership in economic organizations such as theGATT. Sino-British consultations on transition concerns takeplace chiefly in the Joint Liaison Group (JLG). The JLG (orother joint bodies) must approve Hong Kong's laws, economicagreements with third countries, and economic decisions thatwill stretch beyond July 1, 1997. This includes majorinfrastructure contracts and franchises, such as the newairport and port projects. Cooperation on transition issues inthe JLG has been uneven because of China's opposition toGovernor Patten's electoral reforms, which were implemented in1994. Hong Kong ratified the Uruguay Round agreements and becamea founding member of the World Trade Organization (WTO) onJanuary 1, 1995. Hong Kong strongly supports an openmultilateral trading system and is a member, in its own right,of a number of other multilateral organizations, including theAsia Pacific Economic Cooperation (APEC) forum and the AsiaDevelopment Bank, notwithstanding its status as a colony of theUnited Kingdom. In other international economic fora, such asthe International Telecommunications Union or the InternationalLabor Organization, Hong Kong participates as part of the UKdelegation.2. Exchange Rate Policies The Hong Kong government remains firmly committed toensuring currency stability through the linked exchange rate tothe U.S. dollar. Authority for maintaining the exchange valueof the Hong Kong dollar as well as the stability and integrityof the financial and monetary systems rests with the Hong KongMonetary Authority, which was established in April 1993 throughthe consolidation of the Office of the Exchange Fund and theCommissioner of Banking. There are no multiple exchange ratesand no foreign exchange controls of any sort. Under the linked exchange rate, the overall exchange valueof the Hong Kong dollar is influenced predominantly by themovement of the U.S. dollar against other major currencies.The price competitiveness of U.S. exports is affected in partby the value of the U.S. dollar in relation to third countrycurrencies. While the proportion of Hong Kong's imports fromthe United States. has declined slightly as a percentage of itstotal imports in recent years, Hong Kong still consumes moreU.S. goods per capita than almost any other economy. U.S.firms have increased exports to Hong Kong by well overUS $1 billion each year in the 1990s.3. Structural Policies Hong Kong's generally non-interventionist policies havebrought rising prosperity and low unemployment to the colonyand have created an attractive barrier-free market for U.S.goods exporters and most services providers. There arevirtually no controls on trade and industry other than to meetstandard obligations associated with health, safety andsecurity. Procurement is conducted on an open basis, althoughHong Kong elected this year to remove itself from the GATTGovernment Procurement Code. While in the past British firmsseemed to enjoy an advantage in bidding for major contracts,U.S. firms have more recently been quite successful in both thedesign and supply stages of major projects. Other factorsoften cited for Hong Kong's dynamic economic success include asimple, low-rate tax structure, a well-educated and industriouswork force, and an extremely efficient transportation andcommunications infrastructure. Hong Kong takes justified pride in the efficiency of itsport, the world's largest in container throughput, and theairport, the fourth-largest in terms of passenger traffic. Butthese facilities are under severe strain given robust economicgrowth in the region and projections for continued stronggrowth well into the future. Major new infrastructure,including the replacement Chek Lap Kok (CLK) airport andContainer Terminal No. 9 (CT-9) are badly needed to easecongestion and ensure Hong Kong's continued competitiveness asa center for trade. In November, the UK and China reached agreement on afinancing package for CLK that sets the overall level of debtand equity in the Provisional Airport Authority (PAA) and MassTransit Railway Corporation (MTRC). The two sides must stillreach accord on separate financial support agreements beforethe PAA and MTRC will be able to borrow on internationalmarkets. Once these are resolved, and Sino-British agreementis reached on the draft airport corporation bill, the PAA willbe able to complete tendering for airport services franchises,such as catering, cargo handling, fuel supply and aircraftmaintenance.4. Debt Management Policies The Hong Kong government has minuscule public debt.Repeated budget surpluses have meant that Hong Knog has not hadto borrow. To promote the development of Hong Kong's debtmarket, in March 1990the government launched an exchange fundbills program with the issuance of 91-day bills. Maturitieshave gradually been extended, and, in October 1993, the HongKong Monetary Authority issued five-year notes, with maturitiesthat extend beyond Hong Kong's reversion to Chinesesovereignty. Under the Sino-British Agreed Minute on financingthe new airport and related railway, total borrowings for theseprojects cannot exceed US $2.95 billion, and such borrowings"will not need to be guaranteed or repaid by the government."Liability for repayment will rest with the PAA and MTRC.5. Significant Barriers to U.S. Exports As noted above, Hong Kong is a duty-free port with noquotas, anti-dumping laws, or other barriers to the import ofU.S. goods. Phytosanitary standards are generally compatiblewith U.S. exports of agricultural products. In fact, accordingto Commerce Department data, Hong Kong was the 11th largestmarket for U.S. goods in the world last year, recognizing thata significant portion of those exports are actually reexportedto China. Market domination by several firms: Hong Kong does nothave anti-trust laws. Certain sectors of its economy aredominated by monopolies or cartels, some but not all of whichare regulated by the government. These companies do notnecessarily discriminate against U.S. products. However, manyof them actively campaign against foreign competitors, forexample in the aviation sector. The government's policy is to discourage unfair tradepractices -- see, for example, the Governor's 1992 and 1994policy addresses. While there are no agencies with anti-trustpowers, the Consumer Council is tasked, inter alia, withreporting on anti-competitive behavior in the market. Itsreports can spur government action. For example, thegovernment decided to remove the interest cap for time depositsafter reviewing the Council's report on banking, although thegovernment chose not to dismantle the interest rate bank cartelitself. The Hong Kong government has promised to work more closelywith the Consumer Council on its publications of other sectorspecific study reports on supermarkets (just completed),broadcasting, telecommunications, gas supply and theresidential property market. The government has committed toprovide funds for the Council to establish a trade practicesdivision with a view to improving competition. And in July1994, the government ended the prohibition on the Council frominvestigating several specific entities, including the aircargo handling monopoly, the international basic telecommonopoly, and the hospital authority. Telecommunications/Basic Voice: Value-added telecomservices in Hong Kong are open to competition, as are mobilecommunications. However, basic public voice services areprovided under exclusive franchise. Hong Kong TelecomInternational (HKTI) has the exclusive license until September30, 2006, to provide a range of international telephoneservices. This has constrained at least one U.S. company fromoffering its full range of services in Hong Kong; however, thatcompany plans to submit an application to Hong Kong regulatoryauthorities arguing that its services should rightly beconsidered "value-added", and hence not restricted. Professional Services: Physician services -- UK-trainedphysicians may practice in Hong Kong with pro formacertification, and some Commonwealth nationals receiveexpedited certification, but other foreign doctors areforbidden from practicing without going through a lengthytesting and retraining program. The special privilegesafforded to British and Commonwealth doctors will likely beabolished. There is no indication that other foreign doctorswill be any better treated, however. Lawyers/Law Firms: Foreign law firms have been barred fromhiring local lawyers to advise clients on local law -- eventhough Hong Kong firms can hire foreign lawyers to adviseclients on foreign law. In amendments passed earlier thisyear, foreign law firms may now become "local law firms" andhire Hong Kong attorneys, but they must do so on a strict1:1 ratio with foreign lawyers. In addition, there arerestrictions on use of firm names for foreign firms. Forforeign firms already in Hong Kong, the situation hasimproved. However, for new-to-market firms, the playing fieldis still not level. With respect to qualifying to practiceHong Kong law, the Law Society has been working on a revisedexam that should facilitate U.S. attorneys' ability to sit andpass the Hong Kong bar exam. Airport Aviation Services: At Hong Kong's present airport,Kai Tak, maintenance, cargo handling, catering and otheraviation services are provided by one of two UK-affiliatedcompanies. This has prevented U.S. service providers fromcompeting and has denied U.S. airlines adequate competitivechoice and prices. The Provisional Airport Authority,overseeing construction of the new airport, has committed tohaving multiple service providers. The United States hasstrongly urged Hong Kong economic policy-makers to followthrough on the commitment to expand competition in these areas,notwithstanding the pleas by the duopolists for an extension oftheir privileged positions. Civil Aviation Agreement: The U.S.-Hong Kong civilaviation market is ruled by the restrictive provisions of theU.S.-UK Bermuda II agreement. Since this agreement will becomeinvalid when sovereignty over Hong Kong shifts from the UK tothe PRC in 1997, U.S. and Hong Kong negotiators met twice in1994 to seek an independent bilateral agreement. The U.S. ispressing for a substantially more open civair market, including"fifth freedoms" for cargo and more fifth freedoms andadditional gateways for passenger carriers. High Alcohol Taxes: In 1994 Hong Kong amended its alcoholtaxation system, moving to a 90/100 percent ad valorem tax ongrape wines and spirits respectively. This is an improvementover the prior system from the perspective of most U.S.alcoholic beverage exporters. However, the high tax rate is animpediment to expanding U.S. sales.6. Export Subsidies Policies The government neither protects nor directly subsidizesmanufacturers, despite calls from some local legislators to doso. However, a number of quasi-governmental organizations doprovide substantial indirect support to industry. The Hong Kong Trade Development Council (HKTDC) engages inexport and import promotion activities with a total revenue ofUS $148 million and a total expenditure of US $106 million.About half of HKTDC's budget comes from a tax on exports(0.05 percent) and imports (0.035 percent), and the other halffrom internal operations (trade shows, magazines). In August 1994, the U.S. Trade Representative's (USTR)office, acting on a Section 308 petition filed by a Hong Kongpublishing company with U.S. financial interests, soughtinformation from the HKTDC with respect to its tradepublications. Specifically, the petitioner stated that theHKTDC subsidized its trade magazines, permitting HKTDC'smagazines, which are direct competitors with the privatesector, to charge advertising rates up to 50 percent belowmarket price. On November 4, the Hong Kong government suppliedinformation to the USTR's questions. In the meantime, HongKong also submitted a page of questions of its own to the USTRabout similar U.S. promotional activities. In answer to one of the USTR's questions, the HKTDCacknowledged that it had, in one case, provided US $300,000 inlegal defense funds to Hong Kong sweater makers facing dumpingduties in the United States. The HKTDC pointed out that U.S.courts subsequently rejected the U.S. government's findings ofdumping, thus justifying HKTDC's support of Hong Kong'smanufacturers. Another statutory body, the Hong Kong Industry TechnologyCenter Corporation (HKITCC), established in June 1993, promotestechnological innovation and application of new technologies inHong Kong industry. The government has allocated US $26million to the center, together with a loan of US $24 millionfor research and design activities. The loan is interestbearing at seven percent per year. The main programs areincubation, technology transfer and research and design supportservices. There are now six pilot projects. These companiesenjoy a 70 percent discount on the market rental of the techcenter offices, and 45 percent and 25 percent in subsequentyears. Any Hong Kong registered company is eligible to apply,provided it is less than three years old and has fewer than 20employees. The Hong Kong Productivity Council (HKPC) is financed byannual government allocations and by fees earned from itsservices. With 500 staff members, HKPC provides a variety oftraining programs, industrial and management consultancies, andtechnical support services. HKPC invites local companies tojoin consortia to share the design and development cost of newproducts. The Hong Kong Export Credit and Insurance Corporation(ECIC), a statutory body set up in 1966, provides insuranceprotection to exporters.7. Protection of U.S. Intellectual Property Hong Kong's intellectual property laws and theirenforcement are among the best in the world. However, with amassive increase in pirate production in China over the lasttwelve months, especially in music and software compact discs,the Hong Kong market has suffered. Hong Kong has acceded to the Paris Convention for theProtection of Industrial Property, the Bern InternationalCopyright Convention, and the Geneva and Paris UniversalCopyright Conventions. Hong Kong has enacted laws coveringtrademarks, copyright for trade descriptions (includingcounterfeiting), industrial designs, maskworks, and patents. Inasmuch as Hong Kong's intellectual property statutes arebased chiefly on laws of the United Kingdom, they will have tobe "localized" for post-1997 application. Drafts of the lawsindicate that, if anything, the process of localization will beused by the Hong Kong government to strengthen existing laws. Enforcement: The Customs and Excise Department isresponsible for enforcing the criminal aspects of intellectualproperty rights. The department has a special IPR unit withover 100 employees; in addition to conducting raids on localestablishments and street vendors, this unit works closely withthe anti-smuggling task force to combat suspected smugglingoperations. In the first eight months of 1993, there were 298seizures of copyright infringing products with a total value ofUS $2.5 million and 614 seizures of goods violating trademarksand trade descriptions with a total value of US $50 million. Most of the pirate manufacturers have been driven out ofHong Kong in the last several years. However, many haveestablished operations across the border in south China. OneU.S. music company has seen its sales in Hong Kong fall 40percent in the last six months. Hong Kong judges have handeddown penalties that seemed at times too light to be adeterrent, although recent cases indicate sentences may begetting tougher. However, attacking pirate production at itssource will be the most effective remedy for Hong Kong's market.8. Worker Rights Protection afforded under Hong Kong ordinances extends toboth local and foreign workers in all sectors. Injuries andoccupational diseases qualifying for compensation, whilenormally not specified by industry, cover injuries resultingfrom use of industrial machinery as well as disease caused byexposure to physical, biological or chemical agents. a. The Right of Association The right of association and the right of workers toestablish and join organizations of their own choosing areprovided for under local law. Unions are defined as corporatebodies and enjoy immunity from civil suits arising frombreaking of contingent contracts or interference with trade bywork stoppages on the part of their members. The Hong Konggovernment does not discourage or impede union formation ordiscriminate against union members. Workers who allegeanti-union discrimination have the right to have their casesheard by a government labor relations body. b. The Right to Organize and Bargain Collectively The right to organize and bargain collectively isguaranteed under local law. However, the latter is not widelypracticed and there are no mechanisms to specifically encourageit. Instead, a dispute settlement system administered by thegovernment is generally resorted to in the case ofdisagreements. In the case of a labor dispute, should initialconciliation efforts prove unsuccessful, the matter may bereferred to arbitration with the consent of the parties or aboard of inquiry may be established to investigate and makesuitable recommendations. c. Prohibition of Forced or Compulsory Labor Compulsory labor is prohibited under existing legislation. d. Minimum Age of Employment of Children Under regulations governing the minimum age for employmentof children, minors are allowed to do limited part-time workbeginning at age 13 and to engage in full-time work at age 15.Employment of females under age 18 in establishments subject toliquor regulations is prohibited. The Labor Inspectorateconducts work place inspections to ensure that theseregulations are being honored. e. Acceptable Conditions of Work Wage rates are determined by supply and demand. There isno legislated minimum wage. Hours and conditions of work forwomen and young persons aged 15 to 17 in industry areregulated. There are no legal restrictions on hours of workfor men. Overtime is restricted in the case of women andprohibited for all persons under age 18 in industrialestablishments. In extending basic protection to its workforce, the Hong Kong government has enacted industrial safetyand compensation legislation. The Hong Kong Labor Departmentcarries out inspections to enforce legislated standards andalso carries out environmental testing and conducts medicalexaminations for complaints related to occupational hazards. f. Rights in Sectors with U.S. Investment U.S. direct investment in manufacturing is concentrated inthe electronics and electrical products industries. Aside fromhazards common to such operations, working conditions do notdiffer materially from those in other sectors of the economy.Labor market tightness and high job turnover in themanufacturing sector have spurred continuing improvements inworking conditions as employers compete for available workers. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 496Total Manufacturing 2,660 Food & Kindred Products -1 Chemicals and Allied Products 149 Metals, Primary & Fabricated (1) Machinery, except Electrical 302 Electric & Electronic Equipment 1,559 Transportation Equipment (1) Other Manufacturing 531Wholesale Trade 3,624Banking 1,079Finance/Insurance/Real Estate 1,562Services 443Other Industries 594TOTAL ALL INDUSTRIES 10,457</text>
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<text>U.S. DEPARTMENT OF STATEHONDURAS: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS HONDURAS Key Economic Indicators (Millions of U.S. dollars 1/) 1992 1993 1994 2/Income, Production and Employment:Real GDP (1978 Prices) 3/ 2,791 2,889 2,830Real GDP Growth (pct.) 5.6 3.7 -2.0GDP (at current prices) 3/ 3,221 3,092 2,950By Sector: Agriculture 607 754 N/A Mining 67 50 N/A Energy/Water 91 83 N/A Manufacturing 474 489 N/A Construction 181 195 N/A Rents 180 197 N/A Financial Services 216 288 N/A Other Services 991 735 N/A Government/Health/Education 205 192 N/A Net Exports of Goods & Services -70 -57 N/AReal Per Capita GDP (1978 prices) 500 503 493Labor Force (000s) 1,477 1,521 1,770Unemployment Rate (pct.) 15.5 15.8 16.0Money and Prices: (annual percentage growth)Money Supply (M2) 24.7 12.3 0.5Base Interest Rate 4/ 23.4 26.4 35.0Personal Saving Rate 19.3 18.8 N/ARetail Inflation 6.5 13.0 33.0Wholesale Inflation 10.1 14.6 N/AConsumer Price Index 6.5 13.0 33.0Exchange Rate (USD/LP): Official 5.8 7.8 8.8 Parallel 5.8 7.8 8.8Balance of Payments and Trade:Total Exports (FOB) 5/ 833.1 846.0 904.0 Exports to U.S. 431.9 433.4 440.0Total Imports (CIF) 5/ 990.2 1,079.5 1,217.0 Imports from U.S. 539.3 563.0 615.0Aid from U.S. 95.7 57.0 45.0Aid from Other Countries 520.8 490.0 N/AExternal Public Debt 3,403 3,607 3,612Debt Service Payments (Paid) 332 296 300Gold and Foreign Exch. Reserves 544.4 434.5 -81.1Trade Balance 5/ -157.1 -233.5 -313.0 Trade Balance with U.S. -107.8 -129.6 -175.0N/A--Not available.1/ Exchange rates used are the average official rate for eachyear cited: 5.75 (1992), 6.82 (1993), 8.8 (1994).2/ 1994 figures are all estimates based on available monthlydata in October 1994.3/ GDP at factor cost.4/ Figures are actual, average annual interest rates, notchanges in them.5/ Merchandise trade.1. General Policy Framework Despite abundant natural resources and substantial U.S.economic assistance, Honduras remains one of the poorestcountries in the hemisphere. In the 1980's, the Honduraneconomy was buffeted by declining world prices for itstraditional exports of bananas and coffee. The unfavorableterms of trade, high external debt levels, and flawed economicpolicies doomed Honduras to a decade of low growth rates anddeclining living standards. From 1990 until 1993, the Government of President Callejasembarked on an ambitious economic reform program, includingdismantling price controls, lowering import tariff duties andremoving many nontariff barriers to trade. The Government ofHonduras adopted a free market exchange rate regime andlegalized/licensed foreign exchange trading houses. Interestrate ceilings were removed. Modern national investmentlegislation was enacted which mandated generous,nondiscriminatory incentives for local and foreign investment.To confront the chronic fiscal deficit, the Callejas governmenttook measures to increase revenues and slash credit andexchange rate subsidies. Unfortunately, in 1992 and 1993, asharp rise in public sector investment spending reversed theprogress on the fiscal front and raised the deficit to 11.2percent of GDP for 1993. External grant inflows financed partof the fiscal gap, but the monetized fiscal deficit resulted ina resurgence in domestic inflation. President Carlos Roberto Reina, inaugurated in January1994, has taken a series of measures to deal with the fiscaldeficit. Reina ordered a 10 percent cut in current spendingand negotiated with the IMF a series of economic measuresdesigned to cut the fiscal deficit by four percent. UnderPresident Reina, the restrictive (anti-inflationary) monetaryand fiscal policies of the Central Bank have been furthertightened. Absolute limits have been imposed on public sectorborrowing. The reserve requirement (currently 42 percent)remains the favored policy tool to control money supply growthand inflation. Honduras became a member of the General Agreement on Tradeand Tariffs (GATT) in April 1994, and the accession wasratified by the Honduran Congress that same month. Hondurasratified the Uruguay Round in May 1994 in Marrakesh. Hondurashas ratified the Uruguay Round agreements and became a foundingmember of the World Trade Organization (WTO) on January 1, 1995.2. Exchange Rate Policy Beginning in 1990, the Honduran government abandoned thefixed exchange rate system and gradually moved to a flexibleexchange rate mechanism. These phased policy measures allowedfor a smooth transition to a floating exchange rate regime inJune 1992. To provide a more transparent and efficient foreignexchange market, the Honduran Central Bank legalized andlicensed the operations of foreign exchange trading houses(cases de cambio). As of June 1992, the Central Bankauthorized commercial banks to buy and sell foreign exchange atfreely-determined rates. These foreign exchange reformsimproved Honduras' export competitiveness in a wide range ofindustries. In June 1994, the Central Bank changed to a morerestrictive foreign exchange regime. A foreign exchangeauction system was introduced by which all foreign exchange inthe formal financial system was auctioned daily by the CentralBank. The auction rate then became the legal exchange rate forforeign exchange transactions. This rate is revised with everyauction, but is permitted to rise by not more than one percentevery three weeks. Commercial banks and exchange houses are nolonger allowed to retain foreign exchange purchased from thepublic, but are required to sell this foreign exchange to theCentral Bank within 24 hours. In January 1990, thelempira-per-dollar exchange rate had been two to one for manydecades. Since January 1994, the lempira-per-dollar exchangerate has moved from 7.3 to the current rate of 9.2 lempiras perdollar, a 26 percent depreciation.3. Structural Policies Trade Policy: A critical component of the structuraladjustment reforms has been to end the debilitating effects ofdecades long import-substitution policies. These remedialpolicies were designed to open up the economy to globalcompetition, force local entrepreneurs to reduce costs,increase productivity, and provide incentives forexport-oriented business activity. An important byproduct oftrade liberalization is the promotion of technology transfer.Among other measures taken was the reduction of tariff barriersto trade, by gradually cutting import duties from a past rangeof 5 to 20 percent. The Government also removed manyprotectionist/cumbersome import licensing and prior importdeposit requirements. Pricing Policy: In an effort to boost productionincentives, the Government lifted price controls on severalhundred consumer and industrial products in 1990 and suspendedthe operations of the State Marketing Board. In the period1990-92, price hikes were adopted on gasoline, electricity,water and telephone services. In December 1992, the Governmentmoved to a flexible petroleum pricing system reflecting changesin world market prices. As of September 1994, the onlyexisting government controlled prices were for utilities,public transport, fertilizer, cement, ground roasted coffee andair fares. In October 1994, the Honduran Congress enactedlegislation mandating price controls on 26 basic market basketitems through the end of 1994. Tax Policies: Honduras has long maintained a highcorporate tax rate. This rate has been generally considered amajor disincentive to direct foreign investments not covered bythe tax exemptions for export-oriented firms operating in freetrade zones and industrial parks. Early in his term, PresidentReina lowered the top marginal corporate tax rate from above 40percent to 35 percent. The most important sources ofgovernment revenue are the seven percent sales tax and variousconsumption taxes.4. Debt Management Policies Since early 1990, the Honduran government has been workingto restore the country's creditworthiness, reschedule its 3.3billion dollar external debt and regain support from themultilateral development banks. In early 1990, negotiationsbegan with the World Bank (IBRD), Inter-American DevelopmentBank (IDB) and International Monetary Fund (IMF) to pay offarrears and reestablish pipeline disbursements being withheldby these institutions. The payments of 245.7 million dollarsin arrears were made possible by a bridge loan from the U.S.Treasury Department. This bridge loan was complemented byadditional financing from Venezuela, Mexico and Japan. In July 1990, the IMF approved a 12-month standbyarrangement, later extended for seven additional months. Thestandby provided Honduras with 30 million dollars in balance ofpayments support funds. In the second half of 1990, the IDBand IBRD renewed pipeline disbursements. The IMF program, andrepayment of international financial institution (IFI) arrears,paved the way for favorable debt rescheduling terms for 350million dollars of debt. The Paris Club accord strengthenedHonduras' capacity to service its debt with a number of othercreditors, including Venezuela, Mexico and OPEC. In 1991, theU.S. government also provided 430 million dollars in debtforgiveness for Honduras. The Honduran government reduced itsdebt obligations with international commercial banks from 245million dollars in 1982 to 45 million dollars in 1992. Aseries of privatizations and conversion mechanisms was used tosettle these obligations. In 1992, Honduras was classified as an IDA-only country.This opened the door to concessional loans from the IBRD's softloan window. In June 1992, the IMF approved a three-year(1992-95) enhanced structural adjustment facility (ESAF),allowing Honduras to obtain a second favorable Paris ClubAgreement in October 1992. In 1993 the Callejas governmenttook on substantial new commercial debt obligations for publicinvestment projects and began to fail to make scheduled debtservice payments to the United States and other Paris Clubcreditors. The Paris Club agreement was technically suspendedin August 1993, pending agreement with the IMF on an economicprogram and payment of all Paris Club arrears. The Reinagovernment is currently negotiating with the IFIs and the ParisClub. In 1994, Honduras' total external debt obligations total3.6 billion dollars, well in excess of the country's annualgross domestic product (GDP).5. Significant Barriers to U.S. Exports Import Policy: While reforms have gone far to open upHonduras to U.S. exports and investment, a number ofprotectionist policies remain in place. For example, althoughall import licensing requirements have been eliminated,Honduras has resorted to an onerous phyto-sanitary system thateffectively denies market access to U.S. chicken parts.Similar phyto-sanitary requirements are used to limit U.S. cornexports to Honduras. Labeling and Registration of Processed Foods: Honduran lawrequires that all processed food products be labelled inSpanish and registered with the Ministry of Health. The lawsare indifferently enforced at present. However, theserequirements may discourage some suppliers. Services Barriers: Under Honduran law, special governmentauthorization must be obtained to invest in the tourism, hoteland banking service sectors. Foreigners are not permittedmajority ownership of foreign exchange trading companies.Foreigners cannot hold a seat in Honduras' two stock exchanges,or provide direct brokerage services in these exchanges. Investment Barriers: Several restrictions exist on foreigninvestment in Honduras despite the 1992 Investment Law. Forexample, special government authorization is required forforeign investment in sectors including forestry,telecommunications, air transport and aquaculture. The lawalso requires Honduran majority ownership in certain types ofinvestment, including beneficiaries of the National AgrarianReform Law, commercial fishing and direct exploitation offorest resources, and local transportation. Honduran law also prohibits foreigners from establishingbusinesses capitalized at under 150,000 lempiras. In all casesof investments, at least 90 percent of a company's labor forcemust be national, and at least 80 percent of the payroll mustbe paid to Hondurans. Finally, while a one-stop investmentwindow has been instituted to facilitate investment, thisoffice does not provide complete information or assistance tothe foreign investor. Government Procurement Practices: The GovernmentProcurement Law (Decree No. 148.5) governs the contractual andpurchasing relations of Honduran state agencies. Under thislaw, foreign firms are given national treatment for public bidsand contractual arrangements with state agencies. In practice,U.S. firms frequently complain about the mismanagement and lackof transparency of Honduran government bid processes. Thesedeficiencies are particularly evident in telecommunications,pharmaceuticals and energy public tenders. Customs Procedures: Honduras' customs administrativeprocedures are burdensome. There are extensive documentaryrequirements and red tape involving the payment of numerousimport duties, customs surcharges, selective consumption taxes,consular fees and warehouse levies.6. Export Subsidies Policies With the exception of free trade zones and industrialparks, almost all export subsidies have been eliminated. TheTemporary Import Law (RIT), passed in 1984, allows exporters tobring raw materials and capital equipment into Honduranterritory exempt from customs duties and consular fees if theproduct is to be exported outside Central America. This lawalso provides a 10 year tax holiday on profits from theseexports under certain conditions. The export processing zones (ZIPs) exempt the payment ofimport duties on goods and capital equipment, charges,surcharges and internal consumption, and sales taxes. Inaddition, the production and sale of goods within the ZIPs areexempt from state and municipal taxes. Firms operating in ZIPsare exempt from income taxes for 20 years and municipal taxesfor 10 years.7. Protection of U.S. Intellectual Property Until recently, Honduran legislation on intellectualproperty rights (IPR) dated back to the early 1900s, andprovided inadequate protection. In August 1992, a UnitedStates government decision to review Honduras' status under theGeneralized System of Preferences (GSP), as a result ofwidespread piracy of U.S. satellite signals by local cable TVcompanies, forced the Honduran government to move seriously tomodernize its IPR regime. On August 31 - September 1, 1993,the Honduran congress approved comprehensive, world classcopyright, trademark, and patent laws. Honduras is a signatoryto the Berne Copyright Convention and, in May 1993, became amember of the Paris Industrial Property Convention. As part ofits application for membership in the GATT, Honduras hascommitted to the "TRIPS" standard established under the UruguayRound negotiations. Honduras' recent enactment of modern IPRlegislation and its active support of international IPRconventions and agreements pave the way for substantiveprogress in this area. As part of the GSP review, however,Honduras will have to demonstrate a serious commitment toenforcing IPR protection. Patents: The Patent Law enacted in September 1993 providesfull and effective patent protection for up to 20 years. Theexception is patent protection for pharmaceuticals, which areprotected for 17 years from the date of patent application.The Patent Law also contains stiff fines and jail sentences forviolators. Trademarks: The registration of notorious trademarks iswidespread in Honduras. Several local firms have profitedgreatly from the loophole in the old law excluding notorioustrademarks. The new law has strict regulations on theregistration and use of notorious trademarks, and providesstrong penalties against violators. Copyrights: The piracy of books, music cassettes, records,video tapes, compact discs, cable TV and computer software iswidespread in Honduras. The new Copyright Law provides strongprotection for copyright owners, however. The Hondurangovernment has committed itself to legalizing the activities ofits cable TV companies and video store operators. There are noreliable data on the cost of local piracy to U.S. industry.Before the Honduran cable industry legalized most of itsoperations, the Motion Pictures Exporters Association ofAmerica (MPEAA) estimated the annual loss of revenues fromlocal cable piracy at 2.5 million dollars.8. Worker Rights a. The Right of Association Workers have the legal right to form and join labor unionsand, with few exceptions, the unions are independent of thegovernment and political parties. Although only about 20percent of the work force is organized, trade unions exertconsiderable political and economic influence. The right tostrike, along with a wide range of other basic labor rights, isprovided for by the constitution and honored in practice. TheCivil Service Code, however, stipulates that public workers donot have the right to strike. A number of private firms have instituted "solidarity"associations, which are essentially aimed at providing creditand other services to workers and management who are members ofthe association. Organized labor strongly opposes theseassociations. b. The Right to Organize and Bargain Collectively The right to organize and bargain collectively is protectedby law, and collective bargaining agreements are the norm forcompanies in which the workers are organized. In practice,management often discourages workers from attempting toorganize. Workers in both unionized and nonunionized companiesare under the protection of the labor code, which gives themthe right to seek redress from the Ministry of Labor.Depending upon the decision of the labor or civil court,employers can be required to rehire employees fired for unionactivity. Such decisions are uncommon. Generally, however,agreements between management and their union contain a clauseprohibiting retaliation against any worker who participated ina strike or union activity. c. Prohibition of Forced or Compulsory Labor There is no forced or compulsory labor in Honduras. Suchpractices are prohibited by law and the constitution. d. Minimum Age for Employment of Children The constitution and the labor code prohibit the employmentof children under the age of 16, but the Ministry of Laborlacks resources to exercise its responsibility to ensureenforcement. Children between the ages of 14 and 16 canlegally work with the permission of the parent and the Ministryof Labor. Violations of the labor code occur frequently inrural areas and in small companies. High adult unemploymentand underemployment have resulted in many children working insmall family farms, as street vendors, or in small workshops tosupplement the family income. According to the Ministry ofLabor, human rights groups and organizations for the protectionof children, there were no significant child labor problems inHonduras in 1994. e. Acceptable Conditions of Work The constitution and the labor code require that all laborbe fairly paid. Minimum wages, working hours, vacations, andoccupational safety are all regulated, but the Ministry ofLabor lacks the staff and other resources for effectiveenforcement. The law prescribes an eight-hour day and a 44-hourworkweek. There is a requirement for at least one 24-hour restperiod every eight days, a paid vacation of 10 workdays afterone year and 20 workdays after four years. The regulations arefrequently ignored in practice as a result of the high level ofunemployment and underemployment. f. Rights in Sectors with U.S. Investment The same labor regulations apply in export processing zones(EPZs) as in the rest of private industry. U.S. firmsemploying garment workers are active in several EPZs. Workingconditions and wages in the EPZs are generally consideredsuperior to those prevailing in the rest of the country.Unions are active in the government-owned Puerto Cortes FreeTrade Zone, but factory owners have resisted efforts toorganize the new privately-owned industrial parks. While progress has been made in some maquiladoras towardsunionization, a hard line in other, mostly Korean-owned,maquilas has led to plant seizures and blockage of publichighways. Blacklisting is clearly prohibited by the labor code, butnevertheless occurs in the privately owned industrial parks.Some companies in the industrial parks have dismissed unionorganizers before union recognition was granted. There are still as many as 50 deaths per year resultingfrom serious health and safety hazards facing Miskito indianscuba divers employed in lobster and conch harvesting off theCaribbean coast of Honduras. The seafood is destined primarilyto the U.S. market. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 144 Food & Kindred Products (1) Chemicals and Allied Products 3 Metals, Primary & Fabricated 3 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing (1)Wholesale Trade 15Banking 5Finance/Insurance/Real Estate 23Services 0Other Industries (1)TOTAL ALL INDUSTRIES 223(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEGUATEMALA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS GUATEMALA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994Income, Production and Employment:Real GDP (1985 prices) 7,264 8,262 9,089Real GDP Growth (pct.) 4.8 3.9 4.0GDP (at current prices) 7,741 11,260 12,527By Sector: (pct.) Agriculture 25.3 24.9 24.8 Energy/Water 2.7 2.9 2.9 Manufacturing 14.6 14.5 14.5 Construction 2.3 2.2 2.2 Rents 4.9 4.8 4.8 Financial Services 4.3 4.5 4.5 Other Services 6.0 5.9 5.8 Government/Health/Education 7.1 7.5 7.5 Transportation 8.4 8.4 8.5 Commerce 24.1 24.1 24.1 Mining 0.3 0.3 0.4Real Per Capita GDP (1985 base) 745 824 881Labor Force (000s) 2,803 2,897 3,213Unemployment Rate (pct.) 2/ 6.1 5.5 4.9Money and Prices: (annual percentage growth)Money Supply (M2) 2,234 2,451 2,584 M2 Annual Percentage Change 19.5 8.9 8.0Base Interest Rate 3/ Commercial Banks (deposits) 16.0 14.0 15.0 Commercial Banks (loans) 25.0 27.0 25.0Consumer Price Index 13.7 11.6 12.0Exchange Rate (quetzal/dollar) 5.70 5.66 5.80Balance of Payments and Trade: 4/Total Exports (FOB) 1,284 1,356 1,383 Exports to U.S. 453 501 417Total Imports (CIF) 2,328 2,381 2,566 Imports from U.S. 1,081 1,172 1,120Aid From U.S. 70 55 54External Public Debt 2,252 2,071 2,034 5/Debt Service Payments (paid) 720 556 N/ANet Gold and FOREX Reserves 473 608 608Total Trade Balance -1,044 -1,025 -1,183 Merchandise Balance with U.S. -628 -671 -703N/A--Not available.1/ 1994 figures are U.S. Embassy estimates.2/ Unemployment figures provided by the Guatemalan Governmentdo not reflect serious underemployment, estimated as high as 50percent.3/ Interest rates are average maximum levels.4/ Based on Guatemalan customs data.5/ As of June 30, 1994.1. General Policy Framework With a GDP of roughly 12.5 billion dollars, Guatemala isthe largest economy in Central America, as well as the biggestimporter of U.S. products. The 1993 merchandise trade deficitof 671 million dollars with the U.S. was more than double thefigure recorded two years earlier. Guatemala's economy is dominated by a strong privatesector, with the government sector accounting for only about 12percent of GDP. Agriculture accounts for a quarter of alloutput, two thirds of all exports, and over half of allemployment. Half of all exports come from just fivetraditional agricultural products: coffee, sugar, bananas,cardamom, and meat. After several years of depressed worldprices, export receipts from these traditional products haverebounded significantly in the last several years. Coffeeexport earnings, for example, are running 60 percent higher in1994 than in 1993. The other main productive activities arecommerce and manufacturing, which contribute 24 percent and 15percent, respectively, of total GDP. Nontraditional exportssuch as drawback textile manufacturing and high valueagricultural products now account for about 40 percent ofexport earnings, up from 17 percent six years ago. Tourismreceipts accounted for $256 million in exchange earnings in1993, but are running 10 percent below that level in 1994. The administration of Ramiro de Leon Carpio has adhered tothe sound fiscal and monetary policies that have been in placesince 1991. As a result, real GDP growth for 1993 was about3.9 percent, down somewhat from the 4.8 growth of 1992. Growthis expected to be about 4.0 percent in 1994. The Bank ofGuatemala has adhered to a number of fairly tight monetarymeasures and kept prices in check. Beginning in 1991,Guatemala implemented a policy of zero net credit to theCentral Government, which halted the prior tendency to monetizethe deficit. Since then, the Central Government deficit hasbeen financed primarily by various bonds issued by the FinanceMinistry. From a rate of 60 percent in 1990, inflation fell toan average of around 12 percent in subsequent years. By drastically curtailing expenditures in 1991, thegovernment successfully reduced the consolidated public sectordeficit from 4.7 percent of GDP in 1990 to just 1.6 percent in1991. With the 1992 fiscal reform, the overall deficit fellfurther to just 0.6 percent. However, due to declining taxcollections in real terms, the combined public sector deficitrose to 2.7 percent of GDP in 1993 and could reach as high as3.3 percent in 1994. Late in 1993, Guatemala began a shadow program with theInternational Monetary Fund, which the government hopes toconvert to a formal standby agreement in 1995. In accordancewith that agreement, the government has eliminated subsidiesfor municipal wages and, in March of 1994, liberalized gasolineprices. The government also concluded a Financial SectorModernization Loan agreement with the Inter-AmericanDevelopment Bank. Under this program, Guatemala is moving toliberalize and better supervise its financial system. TheGovernment has yet to present legislation to implement theUruguay Round to the Guatemalan Congress, although it hasexpressed its intent to do so.2. Exchange Rate Policy Guatemala maintains an open, relatively undistortedexchange regime. There are no legal constraints on thequantity of remittances or other capital flows. In early 1994,the government ended the requirement that local private bankssell all their foreign exchange to the Bank of Guatemala everyday and eliminated the daily auction system for foreignexchange. Although the Bank still intervenes occasionally todampen speculation, there are no longer any delays in acquiringforeign exchange. The government sets only one reference rate,which it applies only to its own transactions and which isbased on the market determined commercial exchange rate.Remittances can take the form of dollar denominated governmentbonds, although the supply of these is limited. A number ofbanks also offer "pay through" dollar denominated accounts.Under this plan, the depositor makes deposits and withdrawalsat a local bank, but the account is actually maintained in aU.S. bank on behalf of the depositor. The holding of dollaraccounts in local banks is still prohibited. The quetzal depreciated 10 percent in nominal terms during1993. Thus, the quetzal more or less maintained its real valuevis-a-vis the dollar last year, after having appreciated about7 percent in real terms during each of the two prior years. Sofar in 1994, the nominal value of the quetzal, currently about5.7 to the dollar, has not changed significantly.3. Structural Policies In mid-1992, the government instituted a sweeping taxreform. The income tax was simplified. Individuals now face athree tier income tax structure with a top rate of 25 percent;corporations pay a simple 25 percent flat rate. Mostexemptions for value added taxes and most stamp taxes wereeliminated. As a result of these reforms, the bases for boththe income and value added taxes were broadened considerably.Tariffs on most imports from outside Central America werelowered first to a 5-30 percent band in 1992 and then to a 5-20percent band in 1993. The main exceptions are on imports ofrice, poultry and petroleum products, where tariffs ranging upto 45 percent remain in effect. In addition, the 3 percentsurcharge on imports was eliminated in 1992. As a result ofthis reform, tax revenues increased from 7.4 percent of GDP in1991 to 8.4 percent in 1992. Since then, however, tax revenuesfell to 7.9 percent of GDP in 1993 and are expected to declinefurther to approximately 7 percent of GDP in 1994. Thegovernment's goal is to increase the tax burden to 8.5 percentin 1995, by increasing taxes and by increasing penalties fortax evasion. Wheat, flour and sugar are virtually the only products onwhich Guatemala maintains price controls. Direct governmentcontrol of production is small and decreasing, with growingprivate participation in key areas such as electricitygeneration. Even in sectors controlled by the government(telecommunications, for example), foreign companies aregenerally allowed to compete for contracts on an equal basiswith domestic producers. Guatemala has also taken steps to streamline the regulatoryprocess. For instance, all government processing of exportshas been centralized in a "one stop shop." Virtually allexport restrictions have been eliminated. The government is inthe process of establishing a "one stop shop" for investors, aswell. Nonetheless, the bureaucracy often presents a difficulthurdle for both domestic and foreign companies, subjecting themto requirements that are both ambiguous and inconsistentlyapplied. It is not unusual for regulations to contain fewexplicit criteria for the government decision maker, thusgenerating significant uncertainty and latitude. Moreover,there is no consistent pattern or judicial review ofadministrative regulations.4. Debt Management Policies Guatemala's modest foreign debt has been declining forseveral years. The drop has been most marked in relation toGDP. From 35 percent of GDP in 1990, foreign debt fell to 22percent by the end of 1992 and to 19 percent by the end of1993. Public sector foreign debt has declined faster thantotal external debt, reflecting an increasing reliance onprivate, rather than public, investment. From 32 percent ofGDP in 1990, the external debt of the public sector declined tojust 18.3 percent at the end of 1993. During the same timeperiod, debt service increased steadily, reaching 16.3 percentof exports in 1992, as Guatemala cleared its foreign arrears,before falling back to 14.4 percent in 1993. Following itsfirst Paris Club agreement in 1993, the Government reachedbilateral agreements to reschedule about a quarter of itsapproximately 450 million dollars in arrears on officialbilateral debt. As of late October, 1994, however, Guatemalawas still negotiating the rescheduling of its official arrearswith Spain. In December, 1992, Guatemala signed a 120 million dollarEconomic Modernization Loan (EML) with the World Bank.Although Guatemala could have borrowed approximately 70 milliondollars under the standby agreement with the InternationalMonetary Fund (IMF), the government decided to treat theagreement as precautionary and never requested anydisbursements. Guatemala received the first EML disbursementof 48 million dollars in December, 1992. The second tranchedisbursement under the EML, scheduled for June 1993, finallyoccurred in the beginning of 1994 after the loan wasrestructured and the government entered into a new, "shadowagreement" with the IMF (following the successful,constitutional resolution of the auto-golpe of May, 1993 andthe resultant economic dislocations). The third tranche,rescheduled for June, 1994 has yet to occur, since Guatemalahad failed to meet several conditions for disbursement,particularly tax reforms and raising electricity rates. Inearly 1993, the World Bank provided another 20 million dollarloan for Guatemala's Social Investment Fund. Guatemala isclose to meeting the conditions for disbursement of the secondtranche of a 130 million dollar financial sector modernizationloan from the Inter-American Development Bank.5. Significant Barriers to U.S. Exports Exporters to Guatemala enjoy a generally open traderegime. For the most part, imports are not subject tonontariff trade barriers, although arbitrary customs valuationand excessive bureaucracy can sometimes create delays andcomplications. The vast majority of tariffs has been reducedto a band of 5-20 percent. Restrictions remain on foreign investment in very fewsectors. The Constitution provides the state telephonecompany, Guatel, with a monopoly on most telecommunicationsservices. The Constitution also designates all subsurfaceminerals, petroleum and other resources as property of thestate. Concessions are typically granted in the form ofproduction sharing contracts. However, the solicitation andcontracting process for energy concessions tends to beprotracted and nontransparent. Some foreign oil companies alsocomplain that the Guatemalan royalty scale is not competitivewith that of other countries. Also, only Guatemalan citizensor corporations which are at least 75 percent owned byGuatemalans can operate radio or television stations.Foreigners can own no more than 30 percent of "small mining" orforestry companies. Ground transportation is limited tocompanies with at least 60 percent Guatemalan ownership.Licensing requirements for fishing operations are enforcedinsuch a way as to ensure at least minority Guatemalanparticipation. Only airlines with at least 51 percentGuatemalan ownership can provide domestic service. Foreign firms are barred from directly selling insurance orrendering licensed professional services, such as legal oraccounting services, in Guatemala. Foreign firms are stillable to operate, however, through correspondents or locallyincorporated subsidiaries. Most "Big Six" U.S. accountingfirms are represented in Guatemala. Restrictions on housingconstruction are so onerous that they virtually exclude foreignparticipation. Sanitary licenses are required for all imports of animalorigin. During the past year, the impact of this requirementon U.S. exporters has been negligible. However, recent reportsindicate that Guatemala may begin using these licenserequirements as nontariff barriers to protect domesticproducers. Licenses are also required to import apples andwheat flour. In addition, all processed foods are required to haveSpanish language labels attached. In the past this rule hasnot been enforced. However, on October 25, 1994, theGovernment began a to crack down on violators, a move whichcould significantly impact the 26 million dollars per year inU.S. exports of processed foods to Guatemala, a figure whichhad been growing rapidly.6. Export Subsidies Policies Significant tax exemptions are granted to both foreign anddomestic enterprises producing for export. With the rise incoffee prices, there has been no effort to repeat the coffeesector's 1993 bond program which provided a 15 dollar perhundred weight subsidy to exporters (to be repaid with highercoffee prices). The country is not a member of the GATTSubsidies Code.7. Protection of U.S. Intellectual Property The level of protection provided intellectual propertyremains inadequate. In general, the Criminal Code containsineffective penalties for infringement of intellectual propertyrights and a poorly trained judiciary is slow to provideinjunctive relief. However, there have been significant recentimprovements. The 1991 GSP petition against Guatemala filed bythe Motion Picture Export Association of America was dropped in1994 after Guatemala passed an antipiracy law and local cableoperators generally ceased illegal retransmission of signals.In addition, the current legislature is considering laws toafford more effective protection of intellectual propertyrights. The government has also announced its intention toaccede to the Paris Convention for the Protection of IndustrialProperty and to the Berne Convention for the Protection ofLiterary and Artistic Works. Guatemala is named on the Special301 "Watch List." Copyrights: While the right to copy, publish anddistribute is clearly protected, control over leasing orrenting of protected works is not clear under Guatemalan law.Despite membership in the Rome and Geneva Conventions,Guatemalan law does not generally protect sound recordings.Legislation was enacted in 1992 to prohibit pirating forcommercial use of satellite television transmissions. As aresult, unauthorized retransmission of signals has droppedsignificantly. However, video piracy remains a problem.Pirated videos are both locally produced (but not for export)and brought in via parallel imports. At the urging of alegitimate distributor, the Government has begun to crack downon video clubs that rent pirated copies. The distributor alsoplans to work with these clubs to develop a plan for voluntarycompliance. In addition, a new copyright law has been draftedfor consideration by the Guatemalan Congress early in 1995.This law would impose greater sanctions for noncompliance, aswell as protect sound recordings, computer programs, videos andfilms and the transmission of these works. Patents: Guatemala's patent law is old and does notprotect mathematical methods, living organisms, commercialplans, surgical, therapeutic or diagnostic methods, or chemicalcompounds or compositions. Protection is circumscribed byshort patent terms (15 years, except for the production offood, beverages, medicines and agrochemical products, whichlast only 10 years), compulsory licensing provisions and localexploitation requirements. Patent rights do not extend to anyaction executed in the pursuit of education, research,experiments or investigation. Patent rights do not prevent theimportation of counterfeits, unless the product is beingproduced in Guatemala. Protection lapses six years from thedate of the patent if the product is not being producedlocally. To address these issues and bring Guatemalan law inline with international standards, the government is currentlydrafting new patent legislation for submission to Congress inearly 1995. Trademarks: The Central American Convention for theProtection of Industrial Property (CACPIP) forms the legalbasis for the protection of trademarks in Guatemala.Guatemalan law does not provide sufficient protection againstcounterfeiters, nor does it afford adequate protection forinternationally famous trademarks. The right to exclusive useof a trademark, for instance, is granted to whoever files firstto register the mark. There is no requirement for use, nor anycancellation process for nonuse. As a result, foreign firmswhose trademark has been registered by another party inGuatemala have often had to pay royalties to that party, or buyhim out. The Central American countries are currently revisingthe Convention to bring it more in line with emerginginternational standards and to simplify the registrationprocess. It is expected that the Government will approve thechanges to the Convention in November and submit the Conventionto Congress for ratification. New Technologies: Guatemala makes no specific provisionfor the protection of trade secrets or semiconductor chipdesign, although it has signed the Washington Treaty onIntellectual Property in Respect of Integrated Circuits.Guatemalan copyrights do not currently extend to databases,audiovisual works, or software. The International Intellectual Property Alliance estimatesthat in 1993 trade losses due to piracy of motion pictures,records and music, computer programs and books in Guatemalawere 2.7 million dollars.8. Worker Rights a. The Right of Association Approximately five percent of the Guatemalan work force isunionized in approximately 900 unions. Bureaucratic proceduresnecessary to obtain legal authorization to form a union weresignificantly eased in late 1992, as part of a successfuleffort to amend the Labor Code. Regulations to implement thesechanges remain under discussion with trade union leaders, in aneffort to make the procedure as quick and as transparent aspossible. Even though the regulations have yet to be adopted,the time and steps required to register a union have beensignificantly reduced since the labor code amendments. Unionleaders continue to charge, however, that it is more difficultto register a trade union than it is to register a business.They also claim that management often encourages competingunions and/or "solidarity" associations to form whennegotiating contracts and that these groups make "no strike"agreements. In 1992, petitions filed by the International Labor RightsEducation and Research Fund (ILRERF) and the AFL-CIO to removeGSP benefits from Guatemala for failure to protectinternationally recognized worker rights were accepted forreview by the US Government. The review was extended throughthe end of the 1993-1994 review cycle. b. The Right to Organize and Bargain Collectively The Labor Code allows collective bargaining, but emphasizesthe protection of individual worker rights. Antiunionpractices are forbidden, but enforcement requires court actionand this is generally subject to inordinate delay. The laborcourt system is badly overloaded. One new labor court wasadded in 1993 and a second new court was established in 1994.The greatest obstacles to union organizing and collectivebargaining are not the law, but the inability of the legalsystem to enforce the law adequately, the weakness of the labormovement and a continuing enormous excess of labor. A seriesof tripartite discussions took place in 1993 to address theseproblems, signaling a major change in attitude by bothmanagement and labor. c. Prohibition of Forced or Compulsory Labor The Guatemalan Constitution prohibits forced labor andspecifically states that service in civil defense partols isvoluntary. Human rights groups claim, with some justificationin conflictive zones, that coercion is used to recruit somepeople for these patrols. d. Minimum Age for Employment of Children The Constitution provides a minimum age of 14 for theemployment of children and, then, only in certain types ofjobs. Government statistics indicate that 50,000 childrenunder this age are employed in the formal sector, includingagriculture, with only 10 percent having legal permission towork. An unknown number are employed in the informal sector asstreet vendors, beggars and menial laborers. Enforcement oflabor regulations has been given greater emphasis by the deLeon administration; the Labor Ministry has started a programdesigned to educate parents about the rights of children in thework force. e. Acceptable Working Conditions The Constitution provides for a 44 hour work week. Whileoccupational safety and health regulations exist, they have notbeen effectively enforced. The corps of labor inspectors wasexpanded in 1993, to provide greater coverage to all aspects ofthe Labor Code. As noted above, however, the major problemremains an overcrowded and lethargic labor court system. Theselection of all new judges on the supreme court and appellatecourts in mid-1994, based on new selection procedures designedto protect against incompetent, corrupt, or politically biasedjudges is expected to make a major difference, over time, inthe honesty and efficiency of the court system. A minimumwage applies to most workers; although the the minimum wagesremain low, they were increased for all sectors of the privateeconomy in late 1994 by an average of 35 percent. Surveyscarried out by the Labor Ministry indicate, however, that manyworkers do not receive the minimum wage. f. Rights in Sectors With U.S. Investment Guatemala does not register foreign investment, so accuraterecords of U.S. investment are not available. Union officialssay that, in general, international corporations in Guatemalahave been respectful of worker rights. The high profileexception continues to be some, mostly Asian-owned firms in themaquila sector, which assemble garments primarily for the U.S.market. U.S. companies operating in Guatemala are more likelyto have unions than their Guatemalan competitors and are alsogenerally credited with providing better wages and workingconditions. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 28Total Manufacturing 102 Food & Kindred Products 51 Chemicals and Allied Products 23 Metals, Primary & Fabricated -4 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 32Wholesale Trade -6Banking 1Finance/Insurance/Real Estate 7Services 3Other Industries 3TOTAL ALL INDUSTRIES 138Source: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEGREECE: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS GREECE Key Economic Indicators (Billions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1988 prices) 2/ 62.6 62.2 62.9Real GDP Growth (pct.) 0.8 -0.5 1.1GDP (at current prices) 2/ 84.6 80.6 N/ABy Sector: Agriculture 9.2 8.2 N/A Energy/Water 2.2 2.0 N/A Mining 0.7 0.6 N/A Manufacturing 11.5 10.0 N/A Construction 6.5 6.1 N/A Rents 12.3 12.7 N/A Financial Services 16.0 15.5 N/A Other Services 11.0 10.8 N/A Government/Health/Education 14.0 13.9 N/A Statistical Discrepancies 1.2 0.8 N/A Net Exports of Goods & Services -9.6 -9.0 -9.7Real Per Capita GDP (1988 prices/USD) 6,087.0 6,005.0 6,041.0Labor Force (000s) 4,034.3 4,118.4 4,143.1Unemployment Rate (pct.) 8.7 9.7 10.0Money and Prices: (annual percentage growth)Money Supply (M3/end period) 3/ 14.4 15.0 10.0Base Interest Rate 4/ 29.0 26.0 26.0Personal Saving Rate 18-19 17.0 16-17Retail Inflation 15.8 14.4 11.1Wholesale Inflation 11.3 11.9 8.5Consumer Price Index 15.8 14.5 11.1Exchange Rate (USD/DRS) Official 190.7 229.3 243.0 Parallel N/A N/A N/ABalance of Payments and Trade: (millions of USD)Total Exports (FOB) 5/ 6,008.8 5,034.3 5,000.0 Exports to U.S. 6/ 382.6 377.1 86.2Total Imports CIF 5/ 19,902.0 17,615.5 18,500.0 Imports from U.S. 6/ 848.9 820.5 190.6Aid from U.S. N/A N/A N/AAid from Other Countries N/A N/A N/AExternal Public Debt 22,954.5 26,857.0 28,800.0Debt Service Payments (paid) 7,974.8 6,987.4 7,000.0Gold and Foreign Exch. Reserves 5,588.0 8,693.6 13,000.0Trade Balance 5/ -13,893.5 -12,581.2 -13,500.0 Trade Balance with U.S. 6/ -466.3 -443.4 -104.4N/A--Not available.1/ 1994 figures are all estimates based on available monthlydata in October 1994.2/ GDP at factor cost.3/ M2 not available in Greece.4/ Figures are actual average annual interest rates, notchanges in them.5/ Merchandise trade, Bank of Greece data, transaction basis.6/ Customs data (National Statistical Service of Greece). 1994figures cover January-March period.1. General Policy Framework Greece has been a member of the European Union (EU) since1981 and enjoys a relatively open, free-market economy. It hasa population of 10.4 million and a work force of about fourmillion. The moderate level of development of Greece's basicinfrastructure -- road, rail, telecommunications -- reflectsits middle-income status. The public sector constitutes 50 to60 percent of Gross Domestic Product (GDP), a substantialportion of the total official economy. Despite the recentrevision on national accounts, which boosted GDP by 20 percent,some 15 percent of economic activity still remains unrecorded(parallel economy). With about 66 percent of GDP deriving fromservices (including government services), 23 percent fromindustry (13 percent from manufacturing) and 11 percent fromagriculture, Greece imports more than it exports. In 1993,Greece had a trade deficit of 12.6 billion dollars on a totaltwo-way trade of 22.6 billion dollars. Greece exportsprimarily light manufactures and agricultural products, andimports more sophisticated manufactured goods. Tourismreceipts, emigrant remittances, shipping, and, increasingly,transfers from the EU form the core of invisibles earnings.Substantial funds from the EU (about 20 billion dollars) areallocated for major infrastructure projects (road and trainnetwork, ports, airports, bridges etc.) over the next fiveyears (1994-99). The Uruguay Round Agreements were ratified inlate 1994. The government has expressed the intention to meet thetargets of the Maastricht Treaty for EU Economic and MonetaryUnion (EMU). The new government which took office on October13, 1993 has pledged that it will continue efforts to lowerinflation and to reduce net borrowing as a percent of GDP fromthe present 12.5 percent to 7 percent in 1996 and 0.9 percentin 1999. The government is concentrating its efforts on endingtax evasion and an incomes policy aimed at protecting the realincome of workers. It also intends to sell minority shareholdings of certain state enterprises and organizations.However, international financial organizations believe that newmeasures are required to reduce the budget deficit if Greece isto meet its convergence targets. Greece's huge government deficit stems from past debts anda bloated public sector which has many more civil servants thanan economy the size of Greece's can support. Greece's socialsecurity program has also been a major drain on publicspending. Finally, the state owns a number of loss-generatingcompanies. The government passed in September 1992 a new billon social security with the eventual goal of balancingexpenditures with receipts. Deficits are financed primarilythrough treasury bills. The government passed a new tax reform package into law inApril 1994. The new law makes changes in the income tax systemmainly through the introduction of objective income criteriafor determining the income of small businesses and some 1,300professions. A new investment incentives law, introduced in1994, makes modifications to the incentives regime. Theemphasis of the new legislation is on the assistance for largerprojects and on the development of new products. Foreigninvestments offering new know-how will get preferentialtreatment. Greek investments throughout the Balkans will besubsidized. Monetary policy is implemented by the Bank of Greece. TheBank uses the discount and other interest rates in itstransactions with commercial banks as tools to control themoney supply. The State continues to retain privileged accessto credit via state-controlled banks and via the tax-freestatus accorded to government debt obligations (which includesthe right of Greek residents to purchase government debtobligations without having to declare their source of income tothe tax authorities). Treasury bills are issued by theMinistry of Finance but they are expected to fall within themonetary program prepared by the Bank of Greece. The Bank'spolicy includes a more active intervention in the secondarymoney market.2. Exchange Rate Policy Greece has followed a relatively "strong drachma" policyduring 1994 as a means of holding down inflation. The Bank ofGreece maintains a "crowling-peg" system and allows on alimited depreciation of the drachma against the Deutche Mark.In the past year, the drachma has appreciated slightly againstthe U.S. Dollar. The Greek drachma does not yet belong to theEU's Exchange Rate Mechanism. Foreign exchange controls have been progressively relaxedsince 1985. Medium- and long-term capital movements for EU andnon-EU countries have been fully liberalized. Remainingrestrictions on short-term capital movements were lifted as ofMay 16, 1994. This move brings Greece in line with EU rules onfree movement of capital. Some bureaucratic obstacles stillremain, but they are expected to be phased out.3. Structural Policies Greece's structural policies are largely dictated by theneed to comply with the provisions of the EU Single Market andthe Maastricht Treaty on Economic and Monetary Union. Pricing Policies. The only remaining price controls are onpharmaceuticals and rents; some rents have been freed.However, about one quarter of the goods and services includedin the consumer price index are produced by state-controlledcompanies, and the government retains considerable indirectcontrol. Government-set prices and subsidies, e.g., publictransport prices, distort the economy, but they are notbarriers to U.S. exports. Tax policies. New tax legislation passed in April 1993:-- Increased the corporate tax rate from 35 to 40 percent forall non-public corporations-- Increased the top personal income tax rate to 45 percentfrom 40 percent for amounts exceeding 62,000 dollars annually.-- Imposed presumptive taxation on a large number ofprofessionals on the basis of a number of factors, i.e. thelocation and type of business, the number of years inoperation, the imputed rent of the property. The new law did not change the value added tax (VAT)rates: the lower rate of eight percent is applicable to basiccommodities (mainly food products) and certain services; thehigher rate of 18 percent is applicable to items not includedin the lower rate. A four percent VAT applies to periodicalsand books. Tax laws do not discriminate against foreign or U.S.products.4. External Debt Management Policies Greece's public sector debt is forecasted at 113 percent ofGDP in 1994. A change in national accounts statisticalmethodology has recently led to a 23 percent statisticalincrease in GDP. Before such adjustment government debt was ashigh as 135.8 percent of reported GDP in 1993. If one includesthe debt of other public entities, total Greek public sectordebt was measured at 150 to 160 percent of GDP, using the oldsystem of national accounts. Foreign debt does not affectGreece's ability to import U.S. products. Servicing of external debt in 1993 (interest andamortization) was equal to 138.9 percent of exports and 7.8percent of GDP. With no new net borrowing, Greece's externaldebt service will be around 7.2 billion dollars in 1994. Abouttwo-thirds of the external debt is denominated in currenciesother than the dollar. Greece has regularly serviced its debts and has generallygood relations with commercial banks and internationalfinancial institutions. It has not had an adjustment programwith the IMF or any program with the World Bank. In 1985, andagain in 1991, Greece borrowed from the EU.5. Significant Barriers to U.S. Exports Greece does not have merchandise trade barriers other thanthose imposed by the EU. It maintains, however, specificbarriers on trade in services such as law, accounting,aviation, tourism and motion pictures:-- Greece maintains nationality restrictions on a number ofprofessional and business services, including legal advice andaccounting. Except for accounting, these restrictions do notapply to EU citizens. The U.S. companies can generallycircumvent these barriers by employing EU citizens, the mostprominent example being in auditing. However, the governmentrecently passed a law which imposes burdensome qualificationson non-Greek accountants, virtually excluding non-Greeks frommost accounting activities. The government has pledged towithdraw this restriction.-- Foreign air carriers may not sell ground services foraircraft to other airlines. The Greek flag carrier, Olympic,has a partial monopoly to provide ground services to otherairlines.-- Greek residents are limited on the amount of foreignexchange they may spend on personal travel to 2,000 ECUs pertrip (2,300 dollars).-- Greek film production is subsidized by a 12 percentadmissions tax on all motion pictures. Moreover, Greek lawsand practices are currently ineffective in protectingintellectual property rights, including film, software, musicand books (see below). Investment Barriers:-- Both local content and export performance are elements whichare seriously taken into consideration by Greek authorities inevaluating applications for tax and investment incentives.However, they are not legally mandatory prerequisites forapproving investments.-- U.S. and other non-EU investors receive less advantageoustreatment than domestic or other EU investors in (1) themineral sector, where restrictions continue to apply to non-EUinvestors, (2) banking, where only 40 percent of the shares ofGreek state banks is open to non-EU residents and (3) landpurchases in border regions. U.S. banks have been able toovercome this provision by operating on branches of EUoperations. Greek laws and regulations concerning governmentprocurement ostensibly guarantee nondiscriminatory treatmentfor foreign suppliers. In fact, the Greek Governmentprocurement favors Greek companies, or in some cases EUcorporations. Officially, Greece adheres to the EU procurementpolicy, and Greece has also recently joined the GATTprocurement code. Greek willingness to adhere to GATTgovernment procurement procedures is a positive step. Many problems, however, still exist. Included areoccasional sole sourcing (explained as extensions of previouscontracts), loosely written specifications which are subject tovarying interpretations, and allegiance of tender evaluators totechnologies offered by longtime, traditional suppliers. Thereal impact of Greece's "buy national" policy is felt in thegovernment's offset policy (mostly for purchases of defenseitems) where local content, joint ventures, and othertechnology transfers are stressed. Occasionally transfer oftechnology is required in telecommunications projects.6. Export Subsidies Policies The Greek government allows exporters to pay tax deductiblecommissions and expenses to support exports. Some agriculturalproducts receive subsidies from the EU. Greece, as an EUmember, is also a member of the GATT Subsidies Code.7. Protection of U.S. Intellectual Property Greece is a member of the Paris Convention for theProtection of Industrial Property, the European PatentOrganization, the World Intellectual Property Organization, andthe Berne Copyright Convention. As a member of the EU, thegovernment intends to harmonize fully its laws with EUstandards. Current Greek law extends equal protection forpatents and trademarks to foreign and Greek nationals. While intellectual property appears to be adequatelyprotected in the field of patents and trademarks, the same isnot true for copyrights. Piracy of copyrighted products iscurrently widespread in Greece. Industry estimates are that 30to 50 percent of video cassette rental transactions involvepirated product. Over 100 unlicensed television stationsfrequently broadcast American movies and television programswithout authorization or payment of royalties. Greece took a step toward addressing this problem byenacting a new copyright law in February 1993. This law offersa high standard of protection for all copyrighted works. Itsgreatly increased penalties may eventually serve as adeterrent, if properly enforced. The new law relies heavilyupon a new intellectual property office (OPI) to superviseimplementation. The legal procedures for the establishment ofthis new office were completed in October 1994, but the officehas not started operating yet. How effective the law is willdepend directly upon how well OPI functions. Due to the piracysituation, Greece was placed on the USTR: "Priority Watch List"under the "Special 301" provision of the 1988 Trade Act, inNovember 1994.8. Worker Rights a. The Right of Association The right of association is set out in the constitution andin specific legislation passed in 1987 and amended in 1992.All Greek workers except the military and police may form orjoin unions of their choosing. In 1993, approximately 30percent of Greek workers were organized in unions. Over 4,000unions are grouped into regional and sectoral Federations andtwo umbrella confederations, one for civil servants and one forprivate sector employees. Unions are highly politicized, andthere are party-affiliated factions within the laborconfederations, but they are not controlled by politicalparties or the government in their day to day operations.Greek unions maintain a variety of international affiliationsand are free to join international federations andconfederations. Greek labor law prohibits firms from layingoff more than two percent of total personnel per month. Thisrestricts the flexibility of firms and the mobility of Greeklabor. Labor law mandates skeleton staffs during strikesaffecting public services such as electricity, transportation,communications and banking. The courts have the power todeclare strikes illegal, although such decisions are seldomenforced. Employers do not have the right to lock out workers. b. The Right to Organize and Bargain Collectively The right to organize and bargain collectively wasguaranteed in legislation passed in 1955 and amended inFebruary 1990 to provide for mediation and reconciliationservices prior to compulsory arbitration. Antiuniondiscrimination is prohibited, and complaints of discriminationagainst union members or organizers may be referred to theLabor Inspectorate or to the courts. However, litigation islengthy and expensive, and penalties are seldom severe. Thereare no restrictions on collective bargaining for privateworkers. Social security benefits are legislated by parliamentand are not won through bargaining. Although civil servantshave no formal system of collective bargaining, they negotiatetheir demands with the Ministry to the Prime Minister. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is strictly prohibited by theGreek constitution and is not practiced. However, thegovernment may declare "civil mobilization" of workers in caseof danger to national security or to social and economic lifeof the country. d. Minimum Age of Employment of Children The minimum age for work in industry is 15 with higherlimits for certain activities. e. Acceptable Conditions of Work Minimum standards of occupational health and safety areprovided for by legislation. Although the Greek GeneralConfederation of Labor (GSEE) has characterized health andsafety legislation as satisfactory, it has also charged thatenforcement of the legislation is inadequate, citing statisticsindicating a relatively high number of job-related accidents inGreece. Inadequate inspection, outdated industrial plants andequipment, and poor safety training of employees contribute tothe accident rate. f. Rights in Sectors with U.S. Investment Although labor management relations and overall workingconditions within foreign business enterprises may be among themore progressive in Greece, worker rights do not vary accordingto the nationality of the company or the sector of the economy. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 125 Food & Kindred Products (1) Chemicals and Allied Products 50 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment (1) Transportation Equipment 0 Other Manufacturing 29Wholesale Trade 60Banking (1)Finance/Insurance/Real Estate 34Services (1)Other Industries 0TOTAL ALL INDUSTRIES 424(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of Economic Analysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEGHANA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS GHANA Key Economic Indicators (Millions of cedis unless otherwise noted) 1992 1993 1994 est.Income, Production and Employment:Real GDP (1985 prices) 1/ 474,600 498,300 523,200Real GDP Growth (pct.) 3.9 5.0 5.0GDP (at current prices) 1/ 3,008,800 3,949,000 5,030,000By Sector: Agriculture 1,461,005 1,887,633 N/A Energy/Water 63,130 71,082 N/A Manufacturing 261,538 359,361 N/A Construction 105,216 126,369 N/A Rents N/A N/A N/A Financial Services 108,227 150,063 N/A Other Services 941,036 1,259,739 N/A Government/Health/Education N/A N/A N/ANet Exports of Goods & Services 481,408 775,852 1,056,300Real Per Capita GDP (1975 base) 491 501 511Labor Force (000s) N/A N/A 5,900Money and Prices:Money Supply (M2) 360,690 461,347 N/ABase Interest Rate (pct.) 30.0 35.0 35.0Personal Saving Rate N/A N/A N/ARetail Inflation (pct.) 13.3 27.7 22.5Wholesale Inflation N/A N/A N/AConsumer Price Index (1985=100) 510.8 645.6 790.9Exchange Rate (USD/Cedi) Official 1/520 1/780 1/1060 Parallel 1/545 N/A N/ABalance of Payments and Trade: (USD millions) 3/Total Exports (FOB) 2/ 986.3 1051.0 490.9 Exports to U.S. 96.4 208.6 117.9Total Imports (CIF) 2/ 1457 1728 622 Imports from U.S. 123.8 214.5 253.0Aid from U.S. 43.0 63.7 50.0Aid from Other Countries 570 760 N/AExternal Public Debt 4104.0 4603.3 N/ADebt Service Payments (paid) 282.6 332.0 N/AGold and Foreign Exch. Reserves 388.2 420.4 N/ATrade Balance 2/ -470.7 -677.0 -131.1 Trade Balance with U.S. -27.4 -5.9 -135.1N/A--Not available.1/ GDP at factor cost.2/ Merchandise trade.3/ 1994 data is for six months.1. General Policy Framework Ghana operates in a free market environment under acivilian government headed by elected President, Jerry JohnRawlings. Rawlings headed a "provisional" regime from the endof 1981 until January 1993 when democratic government, under awritten constitution, was restored. A popularly-electedparliament -- absent opposition parties which boycottedparliamentary elections because of a belief that thepresidential vote was fraudulent -- took office in January1993. The executive branch takes the lead in promulgatinglegislation which requires parliamentary approval beforeenactment. The judiciary, in particular the Supreme Court,acts as the final arbiter of Ghanaian laws. As an indicationof its independence, the Supreme Court rendered severaldecisions in 1993 in favor of parties bringing suit against thegovernment's executive branch. The government has, on balance, maintained the reformmeasures and budgetary stringencies of a structural adjustmentprogram (SAP) adopted in 1983 by the previous militarygovernment. During the period between 1983 - 1992 impressiveprogress was made in reducing the fiscal deficit and bringingdown inflation and interest rates. In 1992, with electionsapproaching, fiscal discipline was relaxed and public sectorexpenditures rose, resulting again in an increased fiscaldeficit. A large wage increase was granted to civil servantsin an effort to maintain a stable political atmosphere duringthe preparations for multiparty elections. In addition,performance in the fiscal sector was further undermined by ashortfall in cocoa production and a sharp decline in worldcocoa prices. Since 1993, renewed efforts have been made toreduce public sector expenditures. In general, the SAP has been characterized by an emphasison development of Ghana's private sector, which historicallyhas been weak and more keenly involved in trading activitiesrather than domestic production of goods and services. Ghanais seeking to privatize a large number of enterprises whichcurrently operate under government control or outrightownership. During the past year the privatization effort hasintensified, resulting in 15 firms being sold by thegovernment. The prospects for 1995 are promising, with anestimated 30 additional firms likely to be privatized. Severalstate-owned banks, Ghana Airways, Ghana Posts andTelecommunications and the State Shipping Corporation are alsobeing prepared for sale. Other reforms adopted under the SAP include the eliminationof exchange rate controls on the cedi and the lifting ofvirtually all restrictions on imports, as well as theliberalization of access to foreign exchange. The tariffstructure in place is designed to discourage importation of alimited number of luxury items deemed non-essential to thegrowth needs of the economy. A largely dysfunctional dutydrawback scheme has been totally revamped into a more"user-friendly" duty relief instrument. Whereas prior to 1994no exports benefitted from the scheme, during the first sixmonths of 1994 the cedi equivalent of $325,000 has been paid toexporters. Further, the elimination of virtually all localdirect production subsidies characterizes the overall greaterreliance on market conditions to determine the value of goodsand services introduced into channels of commerce. Ghana relies heavily on donor assistance and receivedpledges amounting to $2.1 billion from the donor community forthe two-year period beginning January 1, 1994. The World Bankis the largest donor, offering assistance at an annual level ofapproximately $300 million in the form of sectoral andstructural adjustment credits. However, some of the assistanceis currently blocked pending further progress onprivatization. Ghana succeeded in eliminating its remainingdebt arrears by mid-1991 and has not rescheduled official orcommercial bank credits in the meantime. Ghana graduated fromits IMF enhanced structural adjustment facility in December1991; current support from the IMF takes the form of asurveillance regime monitoring developments in Ghana'smacroeconomy.2. Exchange Rate Policy Ghana's current exchange rate policy is aimed at achievingmacroeconomic stability and market-determined exchange rates.As imports have increased in recent years, the government --with the encouragement of the World Bank and the IMF -- hasallowed the cedi to depreciate. In March 1992, the foreignexchange auction procedure was abandoned and the exchange rateof the cedi is now determined freely in the context of anextended interbank market. The Bank of Ghana retains all hard currency earnings on thesale of cocoa and a sliding scale percentage of earnings ongold exports. Foreign exchange is made available to importersthrough the commercial and merchant banks as well asindependently-operated foreign exchange bureaus. A chronicshortage of forex supplied to banks by the Bank of Ghana hascaused frequent delays for importers settling their overseasaccounts. Foreign currency accounts may be held in local bankswith interest (except on export earnings) exempt from Ghanaiantax. Transfers abroad are free from foreign exchange controlrestrictions. Taken in its entirety, the exchange rate regimein Ghana is seen to have no particular impact on thecompetitiveness of U.S. exports.3. Structural Policies Ghana is a member of the WTO; however its adherence to theagreement's liberal trading principles has been compromised bythe need to stem the outflow of hard currency to overcomeexternal payments difficulties. During the course of Ghana'sstructural adjustment program, it progressively reduced importquotas and surcharges. Tariff structures are being adjusted inharmony with the ECOWAS trade liberalization program and U.S.companies are well-advised to make inquiries on a case-by-casebasis. With the elimination of import licensing in 1989,importers now are merely required to sign a declaration thatthey will comply with Ghanaian tax and other laws. The Government of Ghana is committed to principles of freetrade, upon which support from the Bretton Woods institutionsis predicated. However, the government is also committed tothe development of competitive domestic industries withexporting capabilities. The government is expected to continueto support promising domestic private enterprise withincentives and financial support. Beyond this, Ghanaianmanufacturers clamor for stronger measures and voicedispleasure that Ghana's tariff structure places localproducers at a competitive disadvantage vis-a-vis imports fromcountries enjoying greater production and marketing economiesof scale. High costs of local production frequently boost theprice of locally manufactured items above the landed cost ofgoods imported from Asia and elsewhere. Reductions in tariffshave increased competition for local producers andmanufacturers while reducing the cost of imported raw materials. Under the structural adjustment program, in addition toreducing tariffs, the Government of Ghana has enacted variousforms of personal and corporate tax relief. In 1993 thegovernment eliminated the experimental "super sales tax" onluxury vehicles and consumer goods and maintained lower taxrates on annual personal income below the equivalent of$17,500. The top corporate tax rate for producer industries is35 percent. Income earned by bank and other financialinstitutions is taxed at the same rate. The new investmentcode provides that income earned from investment in exportindustries will be taxed at 20 percent (this rate takes effectin early 1995). This should be a significant incentive forincreased investment, especially in the export sector.4. Debt Management Policies At year-end 1993 total outstanding public andgovernment-guaranteed external debt totalled $4.6 billion , orapproximately 116 percent of GDP at the current rate ofexchange. External debt increased from 26 percent of totalexports of goods and services in 1992 to 37 percent in 1993.Domestic debt rose from 7.5 percent of GDP in 1992 to 12percent in 1993. However, nominal interest and principalpayments have declined significantly since 1988 and Ghana'sexternal debt indicators show significant improvement,reflecting a change in the composition of new borrowing infavor of financing with generous grant elements. In 1990,Ghana succeeded in clearing all external debt arrears and hasmaintained this position ever since.5. Significant Barriers to U.S. Exports Import Licenses: Ghana eliminated the last vestiges of itsimport licensing system in 1989. Tariffs, which in some casesare very high, have replaced the import bans which untilrecently were applied to certain goods. Services: Foreign investors are permitted to participatein all economic sectors save four reserved for Ghanaians in thecurrent investment code. These activities are petty trading,the operation of taxi services, lotteries (excluding footballpools) and the operation of beauty salons and barber shops. Standards, Testing, Labelling and Certification: Ghana haspromulgated its own standards for food and drugs. The GhanaStandards Board, the testing authority, subscribes to acceptedinternational practices for the testing of imports for purityand efficacy. Under Ghanaian law, imports must bear markingsidentifying in English the type of product being imported, thecountry of origin, the ingredients or components, and theexpiration date, if any. The thrust of this law is to setreasonable standards for imported food and drugs. Locallymanufactured goods are subject to comparable testing,labelling, and certification requirements. Investment: The new investment code eliminates the needfor prior project approval from the Ghana Investment PromotionCenter (GIPC). Registration, which is for statisticalpurposes, is normally accomplished within five working days.Investment incentives are no longer subject to discretionaryjudgments -- they have been made automatic by incorporatingthem into the corporate tax and customs codes. Incentivesinclude zero-rating import tariffs for plant and generous taxincentives. Immigrant quotas for businesses, though relaxed,remain in effect. In anticipation of the new and liberalizedforeign investment regime, a marked increase in registration ofinvestments has been recorded by the GIPC, from 211 in 1991, to250 in 1992, to 438 in 1993, and over 600 so far in 1994. Government Procurement Practices: Government purchases ofequipment and supplies are usually handled by the Ghana SupplyCommission (the official purchasing agency), throughinternational bidding, and, at times, through directnegotiations. Former government import monopolies have been abolished.However, parastatal entities continue to import somecommodities. The parastatals no longer receive governmentsubsidies to finance imports.6. Export Policies The Government of Ghana does not directly subsidizeexports. Exporters are entitled to a 100 percent drawback ofduty paid on imported inputs used in the processing of exportedgoods. As noted earlier, this system, while moribund in thepast, has been restructured and exporters are now able toreceive this rebate. Furthermore, over the past year fourbonded warehouses have been established which allow importersto avoid duties on imported inputs used to produce merchandisefor export. It is expected that investors taking advantage ofthis duty relief arrangement will increase inward investmentflows substantially over the next 2-3 years.7. Protection of U.S. Intellectual Property After independence, Ghana instituted separate legislationfor copyright (1961) and trademark (1965) protection based onBritish law. In 1985 and 1992, the government passed newcopyright and patent legislation respectively. Prior to 1992,the patent laws of the United Kingdom applied in Ghana. Ghanais a member of the Universal Copyright Organization, theIntellectual Property Organization and the English-speakingAfrican Regional Intellectual Property Organization. IPRholders have access to local courts for redress of grievances.Few infringement cases have been filed in Ghana in recent years. Patents (product and process): Patent registration inGhana presents no serious problems for foreign rights holders.Fees for registration by local and foreign applicants varyaccording to the nature of the patent. Normal minimums are $50and $150 for local and foreign applicants respectively. Trademarks: Ghana has not yet become a popular locationfor imitation designer apparel and watches. In cases wheretrademarks have been misappropriated, the price and qualitydisparity between the counterfeit and the genuine would triggerwarning signals to alert a potential buyer. Copyrights: Local enforcement of foreign copyrights hasimproved recently. The current copyright law provided for theestablishment of a copyright office, an autonomous body. Inaddition, the establishment of the Copyright Society of Ghana(COSGA) to protect the interests of local and foreign copyrightholders has improved copyrights administration in Ghana. Ghana is a signatory to the Universal Copyright Conventionand the Bern Convention. Moreover, COSGA has signedrepresentation agreements with similar organizations in othercountries, including the United States. The current copyright statute provides for the protectionof computer software, satellite programming and cabletelevision distribution. The duration of protection ispresently lifetime plus 50 years.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 isrepresented by the Trades Union Congress (TUC), which wasestablished in 1958. The IRA confers power on government torefuse to register a trade union; however this right has notbeen exercised by the current government or the previousmilitary government. No union leaders have been detained inrecent years nor have workers' rights to associate freely beenotherwise circumscribed. b. The Right to Organize and Bargain Collectively The IRA provides a framework for collective bargaining andprotection against anti-union discrimination. Civil servantsare prohibited by law from joining or organizing a tradeunion. However, in December 1992 the government passed a lawwhich allows each branch of the civil service to establish anegotiating committee to engage in collective bargaining forwages and benefits in the same fashion that trade unionsfunction in the private sector. While the right to strike isrecognized in law and in practice, the government has onoccasion taken strong action to end strikes, especially incases involving vital government interests or publictranquility. The IRA provides a mechanism for conciliation andthen arbitration before unions can resort to job actions orstrikes. "Wildcat" strikes do, however, occur occasionally. c. Prohibition of Forced or Compulsory Labor Ghanaian law prohibits forced labor, and it is not known tobe practiced. The International Labor Organization (ILO)continues to urge the government to revise various legalprovisions that permit imprisonment with an obligation toperform labor for offenses that are not countenanced under ILOConvention 105, ratified by Ghana in 1958. d. Minimum Age of Employment of Children Labor legislation in Ghana sets a minimum employment age of16 and prohibits night work and certain types of hazardouslabor for those under 18. The violation of child labor laws isprevalent and young children of school age can often be foundduring the day performing menial tasks in the agriculturalsector or in the markets. Observance of minimum age laws iseroded by local custom and economic circumstances thatencourage people to become wage earners at an early age.Inspectors from the Ministry of Labor and Social Welfare areresponsible for enforcement of child labor laws. Violators oflaws prohibiting heavy labor and night work by children areoccasionally punished. e. Acceptable Conditions of Work A tripartite committee of representatives from government,organized labor, and employers established a minimum wage of780 cedis (less than one dollar) per day. In real terms, theminimum wage is less than in 1980. The standard work week is40 hours. Occupational safety and health regulations are ineffect and sanctions are occasionally applied through the labordepartment of the Ministry of Health and Social Welfare.Safety inspectors are few in number and inadequately trained.Inspectors will take action if matters are brought to theirattention but lack the resources to seek out violations. f. Rights in Sectors with U.S. Investment U.S. investment in Ghana is dominated by a firm in theprimary and fabricated metals sector. There is alsosignificant U.S. investment in the petroleum, seafood, mining,telecommunications, chemicals and related products, as well aswholesale trade sectors. Labor conditions in these sectors ofthe economy do not differ from the norm described above. U.S.firms in Ghana are obliged to adhere to Ghanaian labor laws andno instances of noncompliance are known. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing (1) Food & Kindred Products 2 Chemicals and Allied Products 0 Metals, Primary & Fabricated (1) Machinery, except Electrical 0 Electric & Electronic Equipment (1) Transportation Equipment 0 Other Manufacturing 0Wholesale Trade 0Banking 0Finance/Insurance/Real Estate 0Services 0Other Industries (1)TOTAL ALL INDUSTRIES 117(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of Economic Analysis</text>
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<text>U.S. DEPARTMENT OF STATEGERMANY: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS GERMANY Key Economic Indicators (Billions of U.S. dollars unless otherwise noted) 1992* 1993* 1994* /1Income, Production and Employment:Real GDP (1991 prices) 1,870.1 1,743.0 1,824.5Real GDP Growth Rate 2.2 -1.1 2.5GDP by Sector: (1991 prices) Agriculture/Forestry/Fishing 25.6 21.7 N/A Manufacturing/Mining/ Construction 717.9 656.6 N/A Trade/Transportation 281.9 268.6 N/A Services 614.9 634.0 N/A General Government/Households 271.9 267.7 N/A Net Exports of Goods & Services -16.5 -14.7 -7.3Real GDP Per Capita (USD) 23,203 21,471 22,316Civilian Labor Force (millions) 38.9 38.7 38.5Unemployment Rate /2 (annual average) 7.7 8.8 9.8Money and Prices: (annual percentage growth)Money Supply (M3) /3,4 9.6 7.5 7.9Commercial Interest Rate /3 12.03 10.16 9.43Personal Savings Rate /5,6 13.9 13.3 12.5Retail Inflation /6 2.5 2.1 1.2Wholesale Inflation /6 0.1 -1.1 1.5Consumer Price Inflation /6 4.0 4.2 3.0Exchange Rate (annual average) (deutschmarks/USD) 1.5595 1.6544 1.62Balance of Payments and Trade:Total Exports (FOB) 430.4 379.9 413.6 Total Exports to U.S. 7/ 28.8 28.6 30.6Total Imports (CIF) 408.8 343.1 364.2 Total Imports from U.S. 7/ 21.2 18.9 18.5Gold and Foreign Exch. Reserves /3 3.8 45.6 50.0Trade Balance 21.6 36.9 49.4 Trade Balance with U.S. 7/ 7.6 9.6 12.1N/A--Not available.* All Germany.1/ Estimates based on latest available data.2/ Percent of civilian labor force.3/ 1994: latest available data.4/ Change 4th qtr./4th qtr.; for 1994, seasonally adjustedannual rate, through September 1994 over 4th qtr. 1993.5/ Bundesbank definition.6/ Western Germany only; all German GDP data are incomplete.7/ Official U.S. figures. 1994 based on first three quarters.1. General Policy Framework The German economy is the world's third largest andattained a GDP equivalent to USD 1.9 trillion (in nominalterms) in 1993. That same year was marked by a recession inwhich the German economy contracted by 1.1 percent. In late1994, the economy is back on a growth path, and the consensusforecast is for 2.5 percent real growth this year and next.The German "social market" economy is organized on free marketprinciples and affords its citizenry a greater degree ofunemployment, health and educational benefits than most otherindustrialized countries. One of the world's foremost tradingnations, Germany since reunification in 1990 has experienced asubstantial decline in its foreign trade surplus due to thedemands of integrating the economy of the erstwhile GDR. TheGerman parliament has ratified the Uruguay Round agreement. German fiscal policy also has been driven by the financialexigencies of reunification. The government extended thecountry's generous social welfare system to eastern Germany andcommitted itself to quickly raise eastern German productionpotential via public investment and generous subsidies toattract private investment. The budgetary cost of thesepolicies was increased by the decision to rapidly raise easternGerman wages to western German levels. This resulted in heavyjob losses and greatly increased the government's unemploymentcompensation costs, as well as wage costs in government-ownedfirms being prepared for privatization. As a result, westernGermany has had to transfer vast sums to eastern Germany on themagnitude of DM 150 billion annually, or 5.0 percent ofall-German gdp. These transfers accounted for the dramaticballooning of public sector deficits and borrowing. Therecession of 1992/93 further contributed to a widening fiscaldeficit as tax revenues weakened and anticyclical expendituresrose. Despite the recession and the fiscal demands ofreunification, the German government has sought to narrow thefederal budget deficit through a variety of tax and feeincreases, public spending restraint and cuts in certain socialbenefits. Nonetheless, the overall public sector borrowingrequirement (broadly measured to include all levels ofgovernment as well as hitherto "off-budget" funds and agencies)will be some DM 180 billion in 1994 and is expected to be onlyslightly smaller in 1995. In recent years, relatively high rates of inflation (theCPI rose an average 4.1 percent in 1992 and 1993) and moneygrowth, as well as concern over wage developments and fiscaldeficits, have preoccupied the German central bank(Bundesbank). The Bundesbank places overriding importance onprice stability and thus responded to the rising inflation in1991/92 by hiking short term interest rates, which peaked inJuly 1992 at post-war highs. Since then, the central bankdiscount rate has declined by 4.25 percentage points, with themost recent cut occurring in May 1994. In 1993-94, wagesettlements were moderate and inflation has declined to aboutthree percent. However, the Bundesbank has continued to beconcerned about rapid monetary growth. The government's public sector deficits are financedprimarily through sales of government bonds, the maximummaturity of which normally is ten years (for the first time inover a decade, the government issued a 30-year bond in January1994). The Bundesbank's primary monetary policy tool isshort-term liquidity provided to the banking system primarilyvia repurchase operations. It also provides financing to thebanking system via discount and Lombard facilities, and it setsminimum reserve requirements for the banks. The discount rateas of October 31, 1994 was 4.5 percent.2. Exchange Rate Policies The Deutsche mark is a freely convertible currency, and thegovernment does not maintain exchange controls. Germanyparticipates in the exchange rate mechanism of the EuropeanMonetary System. The Bundesbank intervenes in the foreignexchange markets infrequently, usually in cooperation withother central banks in order to counter disorderly marketconditions.3. Structural Policies Since the end of the second world war, German economicpolicy has been based on a "social-market" model which has beencharacterized by a higher level of direct governmentparticipation in the production and services sector than in theUnited States. In addition, an extensive regulatory framework,which covers most facets of retail trade, service licensing andemployment conditions has worked to limit market entry by notonly foreign firms but also by German entrepreneurs. Althoughthe continuation of the "social market" model remains the goalof all mainstream political parties, changes resulting from theintegration of the German economy with those of its EUpartners, the shock of German unification and a perceiveddecline in competitiveness in its traditional manufacturingindustries, has forced a rethink of the German post-wareconomic consensus in the so-called Standort Debate. As a result of this debate, numerous structural impedimentsto the continued growth and diversification of the Germaneconomy have been identified. These can be broadly grouped asfollows: --An excessively rigid labor market --A regulatory system which discourages new entrantsespecially in the services sector --High taxes and social charges --Lack of risk and venture capital for start-up firms In recognition of these problems, the government has beenpursuing a program of reforms since the mid-1980's focusing ontax reform, privatization and deregulation. Within the lastyear, the reorganization of the German Federal Railroad, andthe operating entities of the German Federal Post into stockcompanies was completed. The federal government also reducedits majority holdings in Lufthansa to less than 36 percent withthe objective of selling the entire stake by the end of 1995.U.S. firms are likely to benefit from these developments aspurchasing decisions are driven more by commercial criteriathan in the past. It is also expected that the introduction ofcompetition in some of these formerly protected sectors willeventually result in lower costs for the users. Despite the progress in recent years, lack of competitionin several protected sectors continues to drive up businesscosts in Germany. The service sectors which continue to besubject to excessive regulation and market access restrictionsinclude communications, energy, retail distribution andinsurance. A government proposal to modify or eliminate theso-called "rebate and premium" laws which limit firms' pricingand marketing flexibility failed to pass the German parliamentin the summer of 1994. The government has indicated it mayreintroduce legislation to reform these laws in the nextsession. Opposition from small shop owners also derailed anattempt to revise Germany's highly restrictive regulations onstore hours. Irrespective of short-term German governmentreform priorities, the EU is expected to continue to pressureits member states to reduce barriers to trade in serviceswithin the Community. U.S. firms, especially with operationsin other EU states, will likely benefit from EU marketintegration efforts over the long term.4. Debt Management Policies Germany has recorded current account deficits since 1991due to a dramatic drop in the country's traditionally strongtrade surplus, related in part to strong eastern German demand,and exacerbation of Germany's services account deficit becauseof the substantial foreign borrowing undertaken to finance thecosts of unification. Nonetheless, due to large currentaccount surpluses from the 1970's through 1990, Germany remainsthe world's second largest creditor, with net foreign assetsestimated at some USD 275 billion at the end of 1993. Thecurrent export-led recovery is widely projected to improve boththe trade surplus and the current account balance.5. Significant Barriers to U.S. Exports Germany is one of the most important trade partnersworldwide for the U.S. The country's strong economy posesvirtually no formal barriers to U.S. trade or investmentinterests. It is possible to identify some pitfalls,especially for the newcomer to the German market, but on thewhole the Federal Republic is an excellent place for U.S.companies to do business. Import Licenses: The FRG demands virtually no importlicenses, having abolished almost all national import quotas.Germany is subject, however, to the import-license requirementsimposed on some products by the European Union. (An example isthe recent imposition of a quota for "dollar" bananas under theEU's banana import regime.) Services Barriers: Conditions of access vary considerablybut the Embassy has received very few complaints. Someprogress has been made in participation of foreign companies inbanking and other financial services. The insurance market isstill a tough one to crack. Telecommunications services arebeing increasingly deregulated. Standards, Testing, Labeling, and Certification: Germany'sregulations and bureaucratic procedures can prove a bafflingmaze, blunting the enthusiasm of U.S. exporters. While not"protectionist" in the classic sense, government regulationdoes offer a degree of protection to German suppliers. Safetystandards, not normally discriminatory but sometimes zealouslyapplied, and exemplified by, for example, the testing andlicensing procedures of the Technischer Ueberwachungsvereine.V. (TUV, or technical inspection association), complicateaccess to the market for many U.S. products. Government Procurement Practices: German governmentprocurement is non-discriminatory and appears to comply withthe General Agreement on Tariffs and Trade (GATT) as well asthe terms of the U.S.-FRG Treaty of Friendship, Commerce andNavigation. That said, it is undeniably difficult to competehead to head with major German suppliers who have long-termties to German government purchasing entities. Those areaswhich fall outside of GATT agreement coverage, such as militaryprocurement or procurement of services, have been the mostsusceptible to these problems. With the implementation,January 1, 1995, of the Uruguay round agreement under theauspices of the WTO, GATT coverage will commence for some ofthese areas. Germany recently implemented the EU Utilities Directive andits related Remedies Directive. With the recent conclusion ofa US-EU memorandum of understanding on utilities procurement ofheavy electrical equipment, U.S. firms now can claim rightsequivalent to European firms under the Utilities Directive inthis sector. Under the terms of the U.S.-German FCN, Germanyis also to provide U.S. firms with nondiscriminatory treatmentin the telecommunications sector. Investment Barriers: The German investment climate isgenerally very open, but some of the concerns mentioned above,such as access to services markets and standards andprocurement questions, may also be seen as obstructing anincrease in investments. Customs Procedures: Customs procedures at Germanports-of-entry are relatively streamlined and efficient.6. Export Subsidy Policy Germany does not directly subsidize exports outside the EUframework of export subsidies for agricultural goods.Government or quasi-government entities do provide exportfinancing, but Germany subscribes to the OECD guidelines thatrestrict the terms and conditions of export finance. Anearlier policy that provided exchange rate guarantees to theGerman Airbus partner has been terminated, largely as a resultof U.S. pressure and a GATT finding against this program.7. Protection of U.S. Intellectual Property Germany is a member of the World Intellectual PropertyOrganization and party to the Bern Convention for theProtection of Literary and Artistic Works, the Paris Conventionfor the Protection of Industrial Property, the UniversalCopyright Convention, the Geneva Phonograms Convention, thePatent Cooperation Treaty, the Brussels Satellite Convention,and the Treaty of Rome on neighboring rights. Intellectual property is generally well protected inGermany. The German Patent Bureau, Verwertungsgesellschaft(which handles printed material), and GEMA (the Germanrough-equivalent to the American Society of Composers, Authorsand Publishers) are the agencies responsible for intellectualproperty protection. U.S. citizens and firms are entitled tonational treatment in Germany. Legislation to transpose the EC software copyrightdirective into national law was passed in June 1993. This newlaw met U.S. concerns about IPR protection for computersoftware by lowering the standards of originality which hadundermined the level of protection for many businessapplication programs. But American software firms are stillconcerned with the perceived level of software piracy bybusinesses in Germany. These concerns will be addressed whenGermany implements provisions required by the TRIPs portion ofthe Uruguay Round, most likely before the end of 19958. Workers' Rights a. Right of Association The constitution guarantees full freedom of association(Article 9). The workers' rights to strike and the lock-outare also legally protected activities. These rights have beendeveloped further by jurisdiction. b. Right to Organize and Bargain Collectively The German industrial relations system consists of a seriesof statutory mechanisms for sharing power over certainactivities within firms, coupled and overlapping with anautonomous private collective bargaining system developedbetween the unions and employers organizations. The system ofcodetermination and worker participation (Mitbestimmung) isregulated at different levels by various laws enacted between1951 and 1989. They cover two basic spheres: day-to-daysocial, personnel, and economic matters, which are handled byelected works councils; and basic business decisions at theenterprise level, made by supervisory or management boards,which include members elected by the workers. Wages, salariesand working conditions are determined either by collectivebargaining agreements or individual contracts. Collectivebargaining agreements are legally binding and can be enforcedthrough the courts. Under certain circumstances, a collectivebargaining agreement can be declared "generally binding" by theGovernment which means that all employers in the industrycovered by the agreement must abide by its provisions,regardless of whether or not they are members of theassociation that signed the agreement. c. Prohibition of Forced or Compulsory Labor The German constitution guarantees every German the rightto choose his own occupation and prohibits forced laboralthough some prisoners are required to work. d. Minimum Age for Employment of Children German legislation in general bars child labor under age15. There are limited exemptions for children employed infamily farms, delivering newspapers or magazines, or involvedin theater or sporting events. e. Acceptable Conditions of Work German labor and social legislation is comprehensive and,in general, imposes strict occupational safety and healthstandards. The legislation and regulations may be supplementedby collective agreements which cover entire industries orregions. The resulting standards are widely considered to beamong the very highest in the European Union, and thus theWorld. European Union legislation is becoming more and moreimportant in this area. There is also a mandatory occupationalaccident and health insurance system for all employed persons. f. Rights in Sectors with U.S. Investment The enforcement of German labor and social legislation isstrict, and applies to all firms and activities, includingthose in which U.S. capital is invested. Employers arerequired to contribute to the various mandatory socialinsurance programs and belong to and support Chambers ofIndustry and Commerce which organize the dual (school/work)system of vocational education. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 2,468Total Manufacturing 22,283 Food & Kindred Products 2,054 Chemicals and Allied Products 3,812 Metals, Primary & Fabricated 1,194 Machinery, except Electrical 5,368 Electric & Electronic Equipment 877 Transportation Equipment 5,293 Other Manufacturing 3,686Wholesale Trade 2,945Banking 2,229Finance/Insurance/Real Estate 5,107Services 862Other Industries 1,630TOTAL ALL INDUSTRIES 37,524Source: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEGEORGIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS GEORGIA Key Economic Indicators 1992 1993 1994Income, Production and Employment:GDP (1990 prices/bil. rubles) 9.87 5.92 N/AGDP Growth (pct.) -50.1 -40.0 N/AGDP (current prices/bil. rubles) 149.2 1,522.9 N/ABy Sector: Agriculture 77.7 N/A N/A Industry/Manufacturing 26.1 N/A N/A Energy/Construction 9.3 N/A N/A Rents N/A N/A N/A Financial Services (crediting) 6.8 N/A N/A Other Services N/A N/A N/A Government/Health/Social Security/Education/Defense 48.3 N/A N/A Net Export of Goods & Services N/A N/A N/APer Capita GDP (current prices/rubles) 27,300 280,800 N/ALabor Force (000s) 3,138 3,100 N/AUnemployment Rate (pct.) 6.1 8.4 N/AMoney and Prices: (annual percentage growth)Money Supply (M2/bil. coupons) 72 1,834 N/ABase Interest Rate (pct.) 0 40 700Personal Saving Rate N/A N/A N/AWholesale Inflation N/A N/A N/AConsumer Price Index 846 11,372 40,601Exchange Rate Official (rubles/USD) 193.2 0 0 (coupons/USD) 0 12,280 824,928Balance of Payments and Trade:(Millions of U.S. dollars unless otherwise noted)Total Exports (FOB 1/ 86.80 466 465 Exports to U.S. 2/ 7 0 0Total Imports (CIF) 1/ 183.20 795 739 Imports from U.S. 2/ 15 37 87.6Aid from U.S. 0 159 0Aid from Other Countries 0 0 0External Public Debt N/A 860 N/ADebt Service Payments (paid) N/A N/A N/AGold and Foreign Exch. Reserves N/A N/A N/ATrade Balance 1/ -96.40 -329 -274 Trade Balance with U.S. 2/ -8 -37 -87.6N/A--Not available.1/ Figures for 1993 and 1994 are U.S. Treasury Departmentestimates.2/ 1994 Figures are estimates based on January-October data.1. General Policy Framework The economic reforms being carried out by the Government ofGeorgia aim to reduce inflation to single digits by the end of1994, arrest the decline in output by accelerating systematicreforms, promote private sector activities, improve the grossexternal reserve position of the National Bank, and providesocial assistance to society's most vulnerable groups. The IMFgranted Georgia a $40 million Structural TransformationFacility loan in December 1994 to support its reform program. However, in 1994 economic decline continued in Georgia. InJuly, only 80 percent of 1,362 registered industrialenterprises reported to the government. Total industrialproduction fell by 49.5 percent compared to the same periodlast year. Production of paper, manganese, wool yarn, milk,and soap increased, while production of the 70 remainingGeorgian products decreased. Production declined due tointerruptions in energy supplies from Russia, Azerbaijan andTurkmenistan. In October 1994, Turkmenistan cut the deliveryof gas on a credit basis because of unpaid Georgian bills.According to most estimates, the underground economy is greaterin size than the official economy. The crisis-in-payment system in Georgia and between Georgiaand other NIS countries made it very difficult to maintaintrade links with other countries of the former Soviet Union.At the same time, a chronic fiscal deficit and the NationalBank's subsidizing monetary policy led to hyperinflation withprices increasing roughly 60 percent a month from mid-1993through mid-1994. About 80 percent of the deficit was causedby spending on electricity, natural gas and bread. Spending oneducation, science, and administration did not exceed threepercent of GDP. Under the IMF program, the cash budget deficitwas to be reduced to 3.8 percent of GDP, bringing the deficitfor the year down to 9.1 percent of GDP, still quite high butabout a quarter the 1993 figure. Since September the value of the coupon has fluctuatedsignificantly, but has maintained an upward trend, rising from2.5 million coupons = 1 USD to 1.5 million coupons = 1 USD.High inflation was responsible for the currency's collapse invalue during the first three quarters of 1994, which increasedthe use of rubles and U.S. dollars in Georgia. Improvedfinancial policies seem to have begun to reverse this trend, asreflected in the improved exchange rate, and may increase thepublic's willingness to use the national currency.2. Exchange Rate Policy In July 1993 the National Bank of Georgia modified itsfixed official exchange rate system after the Central Bank ofRussia withdrew Soviet rubles from circulation and moved to afloating exchange rate regime. The official exchange rate ofthe interim currency, the coupon, against other majorcurrencies is determined by the Interbank Currency Exchange.This is the only currently operating exchange market,established in April 1993 as a counterbalance to the CaucasianExchange, where the actual exchange rate was defined. Thebanknote rate is defined at the currency exchange kiosks, whichneed to have special permission to do so. The banknote rateexceeds the cash rate usually by 15-18 percent. In October 1993 the coupon traded at 21,000 = 1 USD, and inOctober 1994 the rate was 2.4 million coupons = 1 USD. TheInterbank Exchange operates twice a week. Gross volume ofcoupon-dollar trading increased from 50,000 USD to 250-300,000USD a week. There is a requirement to surrender 35 percent offoreign exchange earnings at the exchange rate determined bythe Interbank market auction. Nonresidents may hold bothforeign exchange and local currency accounts and may freelytransfer these balances offshore. However, individual Georgianbanks may have difficulty transferring large amounts due to aforeign exchange shortage. As a rule, the National Bank of Georgia is the only sellerof hard currency on the exchange market. However, trends sinceSeptember 1994 show that since Interbank Currency Exchange isthe only operating currency market, banks are more willing toparticipate as sellers. Neither the foreign exchange system in Georgia nor exchangecontrols have any impact on the price competitiveness of U.S.exports.3. Structural Policies Pricing Policies: The government freed most prices inFebruary 1992. In response to IMF and World Bank requirements,the Cabinet of Ministers of Georgia increased prices ofelectricity and natural gas to world market levels, and breadprices are scheduled to be raised to reflect full market costby the end of December. Tax Policies: The parliament adopted a new tax system inDecember 1993 which is composed mainly of four taxes: a 14percent value-added tax (VAT); a corporate profit (income) taxwith a 20 percent rate for enterprises, a 10 percent rate forconstruction enterprises, and a 35 percent rate for banks;excise taxes of up to 90 percent on the price of goods; and apersonal income tax, progressive in nature but not strictlyenforced. Other important sources of government income arecustoms duties, a two percent import tax, an eight percentexport tax rate, a 20 percent tax for bartered goods, and afixed tax levied on the currency exchange kiosks. Thegovernment plans to increase VAT up to 20 percent, import taxup to 12 percent, and to eliminate export tax. Tax collection is severely undermined because of inflation,decline of government authority and corruption. In the firstquarter of 1994, VAT and excise taxes constituted only 2.3percent of GDP. In 1994 the government ruled without anadopted budget, with a 46 percent of GDP deficit in the firsthalf of the year, basically financed by borrowing from theNational Bank. In response to the demands of the IMF and theWorld Bank, the Government of Georgia presented a zero deficitbudget for the fourth quarter of 1994. However, about 50percent of income is contributed by grants and from borrowingabroad. Government investments are still high, contributing67 percent of total investments, though reliable information onprivate investments is not available. New investmentregulations remain in draft form. In March 1994 the BilateralInvestment Treaty was signed with the United States. Thetreaty is pending ratification by both countries. Only 25.8 percent of the enterprises approved forprivatization by the State Property Control Ministry wereprivatized by May 1994. A total of 1,152 enterprises, mostlyin the trade or service sectors, sold for 11 billion coupons(roughly $40,000). In order to accelerate the privatization process, a newdecree by the head of state on privatization allows employeesto directly purchase 51 percent of company shares (except instrategically important industries). About 380 largeenterprises were privatized by November 1994. The government regulates the export of strategiccommodities produced in Georgia by a system of quotas andlicenses, which limit or prohibit export of certain types ofgoods.4. Debt Management Policies Official statistics on the national debt do not exist.Some officials have set the amount of debt at $870 million,including $380 million owed to Turkmenistan, $71 million owedto Russia, $141 million owed to the EU, $86 million owed toAustria, $40 million owed to Turkey, $24 million owed toKazakhstan, $11 million owed to Armenia, $8 million owed toAzerbaijan, and $1 million owed to the Netherlands.5. Significant Barriers to U.S. Exports Georgia's policy of encouraging imports has meant fewestablished barriers to U.S. products. Georgia maintainsimport licenses on a number of goods: medical equipment,medicines and raw materials for medicines, vegetationprotection chemicals, industrial scrap materials, drugs, andweapons and ammunition. According to an executive decree, all commodities importedto Georgia must have an insurance certificate from the Georgianinsurance company Aldagi. This decree contradicts anothergovernment decree on the limitation of monopolistic activityand development of a competitive environment, and is expectedto be opposed by the Prosecutor General's office. Import Licenses must be obtained through the Committee onForeign Economic Relations on the basis of a preliminarydecision by the proper branch ministry. Once ratified, theU.S.-Georgia bilateral investment treaty will providesubstantial assurances to U.S. investments. The exporting company must also submit to the customsoffice at the border and to the customs district office at thecargo's destination the following: pro forma invoice or billof lading for sea transport or bill of board for air transport,export packing list, and a contract for exporting goods. Thedocumentation from cargo origin country, certificate of qualityand sanitary certificates for food products may also berequired at the customs office. In addition, according to thenew decree, persons taking abroad more than $500 must submit acertificate from a bank. Importers pay a two percent customs duty and a 0.2 percentprocessing fee, as well as applicable VAT and excise taxes ongoods from outside the Commonwealth of Independent States (CIS). The Georgian Customs Department has submitted to theparliament newly proposed customs tariffs and draft laws oncustoms duties and on transit taxes, and a customs code. Theimport tax is expected to be increased from 2 to 12 percent. The effect of barriers to U.S. trade and investment inGeorgia is minimal. The current law on foreign investment doesnot specifically hinder U.S. investment. The only barrier toforeign investments is lack of appropriate legislation andabsence of a law regarding owning land. Currently land cannotbe purchased by a foreign investor. A new law on investmentsis planned for passage by the parliament by the end of 1994. AU.S.-Georgia trade agreement providing for reciprocalmost-favored-nation status was signed and entered into force inlate 1993. Outmoded and inadequate infrastructure and theabsence of first-class bank guarantees create barriers to tradeand investment in Georgia.6. Export Subsidies Policies Georgia is not a member of the GATT Subsidies Code. Thegovernment does not provide any type of significant exportsubsidy. On the contrary, it discourages exports throughlicensing requirements and quotas on a number of products. Theexport of some types of goods is prohibited.7. Protection of U.S. Intellectual Property Laws protecting patents and trademarks are adequate, butcopyright protection is nonexistent. In accordance withdecrees issued in March 1992, a patent office under theCommittee of Science and New Technologies administers andapproves patents and trademarks, utilizing the classic systemof patent inspection. Georgia is a member of the PatentCooperation Treaty and the Madrid Agreement of 1929 onTrademarks. There is currently no copyright protection law ineffect, and the Georgian government, while working on one, doesnot expect to issue it by the end of 1994. Georgia is notlisted on any special 301 watch lists, nor is it identified asa priority foreign country. In January 1994 Georgia became a party to the ParisConvention for the Protection of Industrial Property, a memberof the World Intellectual Property Organization, and a party tothe Patent Cooperation Treaty. The new adjusted laws have notbeen completed. Patent and trademark protection do not appear to posesubstantial problems in Georgia. Systematic cases of patentinfringement do not exist, although brand counterfeiting isknown to have taken place, though not on a large scale. Patentterms are for the standard twenty years, although after fouryears there is compulsory licensing to domestic firms of rightsheld by foreigners. No important sector is excluded from theavailability of a patent. Registering a trademark costs $520and this can be renewed every five years. There are noprocedural barriers to obtaining a trademark, although Georgiaoperates on the first-come first-serve system, where the firstto register the trademark obtains the right, unless thetrademark is internationally known, or registered under theMadrid Agreement. The absence of any legal protection on copyrights hasallowed for some pirating of U.S. motion pictures, although noton a large scale. Because of the very low levels of U.S. tradeand investment with Georgia, the impact of any of Georgia'sintellectual property practices on U.S. trade and investment isminimal.8. Worker Rights Georgia relies on old Soviet legislation which guaranteesmost major labor rights, although efforts to refine these lawsbegan in late 1993. Resources devoted to investigation ofcomplaints and enforcement of rights, centered in the LaborMinistry, are slim. In 1993 there was little interest in laboractivity, and in 1994 there were few worker strikes demandingsalary increases. a. The Right of Association The labor code allows workers to form unions andassociations freely. These associations must be registeredwith the Ministry of Justice. In late 1993, the Georgiangovernment had planned to implement specific legislation thatwould allow for strikes and prohibit management retributionagainst striking workers. A single confederation of tradeunions, made up of about 30 sector organizations, is active inGeorgia, but steadily lost membership throughout 1993 and 1994. b. The Right To Organize and Bargain Collectively The labor code also grants workers the right to organizeand bargain collectively. This right is freely practiced inthe Georgia. Anti-union discrimination is prohibited. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is prohibited under the laborcode. Instances of this practice are rare. d. Minimum Age for Employment of Children According to the labor code, the minimum age for employmentof children is 14. Children between 14 and 16 years areallowed to work a maximum of 30 hours a week. The minimum ageis widely respected, and Georgian officials know of no sectorswhere the rule is violated. e. Acceptable Conditions of Work Acceptable conditions of work generally follow the oldSoviet pattern. A nationally mandated minimum wage applies tothe government sector. In November 1994, it was revised toone million coupons a month. The labor week is 40 hours,although the government adopted 35 hour weeks for the winterperiod from November 15 to February 15. The labor code permitshigher wages for hazardous work and allows a worker to refuseto perform if the work could become a danger to his life, butotherwise, there are insufficient safeguards for workerwell-being. f. Rights in Sectors with U.S. Investment Conditions in sectors where there is U.S. investment do notdiffer from those in other sectors of the economy.(###)</text>
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card_14132.xml
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<text>U.S. DEPARTMENT OF STATEGABON: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS GABON Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1989 prices) 2/ 4,212 4,316 4,293Real GDP Growth (pct.) -1.5 2.5 -0.5GDP (at current prices) 2/ 5,021 4,824 3,654By Sector: Agriculture 466.7 450.5 326.6 Industry 2,378.4 2,443.1 2,150.7 Oil 1,720.3 1,626.1 1,558.4 Non-Oil 652.4 629.3 456.2 Construction 194.3 187.6 36.0 Services 2,631.6 2,571.3 1,484.9Real Per Capita GDP ($:1989 base) 4,254 4,272 4,127Labor Force (000s) 89.3 89.5 N/AUnemployment Rate (pct.) N/A N/A N/AMoney and Prices: (annual percentage growth)Money Supply (M2) -11.23 -4.66 19.46Base Interest Rate (pct.) 3/ 12.0 11.5 12.0Personal Saving Rate (pct.) 23 22 N/ARetail Inflation (pct.) -4.6 1.3 48.2Wholesale Inflation (pct.) N/A N/A N/AConsumer Price Index (100=75) 283.0 286.7 400.8Exchange Rate (USD/CFA) Official 265 283 530 Parallel N/A N/A N/ABalance of Payments and Trade:Total Exports (FOB) 4/ 2,259.1 2,113.7 1,883.0 Exports to U.S. 927.9 940.6 543.2 5/Total Imports (FOB) 4/ 886.2 835.2 741.1 Imports from U.S. 54.7 48.2 20.0 5/Aid from U.S. (000's) 168 168 N/AAid from Other Countries 125 12 N/AExternal Public Debt 3,350.9 3,358.4 3,442.0Debt Service Payments (paid) 351.7 119.0 463.7Gold and Foreign Exch. Reserves 75.3 5.0 N/ATrade Balance 4/ 1,372.4 1,278.5 1,141.8 Trade Balance with U.S. 873.2 892.4 543.2 5/N/A--Not available.1/ 1994 figures are all estimates based on available monthlydata in October 1994.2/ GDP at factor cost.3/ Figures are actual, average annual interest rates, notchanges in them.4/ Merchandise trade.5/ Figure is based on January-June data.1. General Policy Framework The Gabonese economy is dominated by petroleum and miningproduction, which together contribute nearly 40 percent ofgross domestic product (GDP). Oil is the key variable, as thepetroleum industry generates 80 percent of Gabon's exportearnings and nearly half of government revenues. Although mostfinished goods are imported, there is some manufacturing inGabon including a brewery, an oil refinery, and factories whichproduce plywood, plastics and cigarettes. The remainingmanufacturing is concentrated in the initial transformation ofGabon's raw materials (e.g., a uranium "yellowcake" plantlocated adjacent to the uranium mine at Mounana in southeasternGabon, and a petroleum refinery located at Port Gentil). Thecivil service accounts for over 10 percent of GDP by itself. Awide range of tertiary activities ranging from banking to legaland accounting services and business consulting also figureprominently in the economy. Since oil prices weakened sharply in 1986, the Gabonesegovernment has been in fiscal crisis. Large deficits have ledGabon to turn to foreign creditors for financing. Followingyears of arrears accumulation and the January 1994 devaluationof the CFA (African Financial Community) franc, Gabon reachedan agreement with the IMF in March 1994 on a stand-byarrangement and a compensatory and contingency financingfacility. This was followed by Gabon's sixth Paris Club debtrescheduling, a ten-year agreement with the London Club ofprivate creditors, a World Bank economic recovery credit, and acredit from the African Development Bank for general budgetsupport. Despite these arrangements, government revenueremains depressed and expenditures have not been significantlyreduced. Monetary policy is tight, exercised through adjustments inthe Central Bank discount rate, ceilings on net lending, andadjustments in bank reserve requirements. Given thearrangements of the Franc Zone, monetary policy is not used asa tool for sectoral policies and is largely neutral in itseffect on the competitiveness of U.S. exports.2. Exchange Rate Policy As a member of the CFA Franc Zone, Gabon has no flexibilityin monetary and exchange policies. The value of the CFA francis currently set at 100 CFAF per French franc. While thismechanism assures exporters and importers of the convertibilityof the currency, it ensures a fixed exchange rate vis-a-vis theFrench franc only. Thus, it discriminates in practice againstimports from outside France in that prices for French goods canbe more readily anticipated and transactions with France aresimpler than those with other countries. Although the CFA franc is fully convertible, the CentralBank exercises administrative control over foreign exchangetransactions. Outflows of foreign exchange must be justifiedwith an invoice or other contractual document, which must beaccepted by the the Central Bank before the commercial bank maycomplete the transaction. Generally, these controls appear tobe little more than an administrative formality, and there areno known instances where exchange controls have been used toimpede the operations of U.S. firms.3. Structural Policies The Gabonese government levies a personal income tax, acorporate income tax, a value-added tax and customs duties onimports. The government draws a major component of itsrevenues from oil royalties. Newly founded small- andmedium-sized businesses (SMBs) routinely receive tax holidaysfor up to five years, and the government uses similarincentives without discrimination by nationality to attract oilexploration companies. The personal income tax is widelyevaded. Customs duties have recently been lowered, but heretoo, collection is inefficient. In the past, some observersestimated the annual loss in revenues due to fraud andsmuggling to be as high as $100 million. The effects of the devaluation of the CFA franc in January1994 and the implementation of the newly enacted budget lawhave yet to be fully determined. Inflation surges prompted thegovernment to impose price controls on certain staples at theretail level at the beginning of 1994.4. Debt Management Policies Gabon has experienced a sharp increase in its indebtednesssince the international oil price drop of 1986. External debtrose from about $1 billion in 1985 to $3.5 billion in 1993, or96 percent of projected 1994 GDP. The country was in the gripsof stagflation and the internal arrears of the governmentthreatened to paralyze the domestic financial system. Gabonrescheduled its private debts with the London Club in 1987 andin 1994. It has been to the Paris Club six times, mostrecently in April 1994. Faced with recurrent domestic political crises since late1989, the government considered itself unable to implementnecessary fiscal reforms. It suspended debt repayments on mostforeign obligations in early 1990. Its history with the Parisand London Clubs is checkered, sometimes difficult. TheGabonese government was unable to meet obligations under theSeptember 1991 Paris Club, and the agreement was "pulled back"a year later. Negotiations with the IMF have often been protracted, withkey issues being the government's lack of fiscal discipline,the need for parastatal reforms, and questions surrounding theaccounting for the country's oil revenues. The January 1994decision of the CFA countries to devalue the CFA franc was abasis for an IMF stand-by arrangement. Official creditors tooka relatively firm stand at the Paris Club, reschedulingprincipal but requiring payment of previously deferred ParisClub arrears over 12 months. As of October 1994, thegovernment had paid its first tranche of 30 percent of deferredParis Club arrears. The London Club rescheduled loans for tenyears with a two-year grace period.5. Significant Barriers to U.S. Exports Decrees, pursuant to the IMF standby, have liftedprohibitions against importing mineral water, household soap,cooking oil, cement and sugar. The prices paid for wheat andrice are subject to government approval. The wheat market isunder the control of a French firm, SETUCAF, which is principalshareholder in Gabon's only flour mill and which has anexclusive right to import wheat. The rice market is more open,with several Asian brands available. U.S. rice has beenimported successfully, but faces a price disadvantage whichexcludes it from the mass market. Technical and otherstandards tend to be drawn directly from the relevant Frenchstandards. Telecommunications equipment, for example, has inthe past been restricted to French brands due to a perceptionin the Telecommunications Ministry that only French equipmentcould be used in Gabon. Perceptions such as these can besucessfully challenged, although factors such as language,distance, culture, and historical ties to France remain aspractical barriers to U.S. trade. The Gabonese government has not imposed intrusive ordiscriminatory measures on the investments of foreign firms,which are the mainstay of the petroleum industry. Gabon signedthe MIGA convention on April 15, 1994. The Gabonese government does not always adhere tocompetitive bidding practices, and French technical advisersare well placed to steer contracts to French firms. In thepetroleum sector, the government has organized seven biddingrounds for exploration leases since the the mid-1980's, but itcontinues to sign contracts outside the rounds. Off-rounddeals are not reserved for French firms, however, and U.S.firms have struck off-round exploration deals as well. Customs procedures are slow and cumbersome, particularlysince the introduction of a new computer system. The burden,however, affects all suppliers equally, regardless ofnationality. The Gabonese government passed a revised budget law in Juneof 1994 which incorporates many new standards and practicesrelating to the country's financial activities, but theimplementation and effects of the new law have yet to bedetermined.6. Export Subsidies Policies Gabon's exports are almost exclusively raw materials,subject to export taxes rather than benefiting from subsidies.The 50 percent devaluation of the CFA franc, which occurred onJanuary 12, 1994 was in part a measure designed to make exportsmore competitive.7. Protection of U.S. Intellectual Property Gabon is a member of the World Intellectual PropertyOrganization (WIPO) and several international intellectualproperty rights conventions including the Berne Convention forProtection of Literary and Artistic Works, the Paris Conventionfor the Protection of Industrial Property and the PatentCooperation Treaty. However, the Gabonese governmemt is notactive in the GATT or in other international trade fora and hasnot taken a position on the intellectual property aspects ofthe Uruguay Round. Largely for lack of enforcement capability,the government turns a blind eye on trademark violations. Forexample, U.S. ethnic cosmetic brands are sought after in Gabon,but many of those available are in fact "remanufactured" (i.e.,diluted) versions which transit Nigeria en route to Gabon.8. Worker Rights a. The Right of Association Since 1990 reforms ended the single party political systemin Gabon, the Gabonese Union Confederation (COSYGA) no longerhas an exclusive right to represent workers. Unions throughoutthe economy have proliferated; in some cases two or more unionscompete for members in the same industry. In addition, asecond trade union confederation, the Gabonese Confederation ofFree Unions (CGSL) now competes with COSYGA and has madesignificant inroads as a collective bargainer for industrialemployees. b. The Right to Organize and Bargain Collectively With the promulgation of the Constitution of 1991 the rightof collective bargaining was confirmed. Before its formalpassage, Gabonese workers had begun to bargain with managementoutside the COSYGA framework as early as mid-1990. c. Prohibition of Forced or Compulsory Labor The Constitution of 1991 guarantees the right toemployment. The Labor Code of 1978 forbids forced labor.However, credible sources report cases of prisioners, mostlyAfrican expatriates, being forced to provide unpaid labor. d. Minimum Age of Employment of Children The Labor Code of 1978 sets a minimum age of sixteen yearsfor employment. UNICEF and other organizations have reportedinstances of abuse of children as domestic or agriculturalhelp. Non-Gabonese children are most at risk. e. Acceptable Conditions of Work Conditions of work in much of the formal sector in Gabonare reasonably good. Health and safety standards are in place,but not always observed; it is not uncommon to see workerswithout hardhats or protective footwear in some industrialplants. Most of the firms operating production facilities inGabon are subsidiaries of, or are otherwise associated with,European or U.S. companies and tend to follow European or U.S.standards. Conditions in the informal sector and in GaboneseSMBs are less uniform and less favorable for the workers. TheGabonese authorities do not exercise effective monitoring ofworking conditions, primarily for lack of enforcementcapability. f. Rights in Sectors with U.S. Investment U.S. investment is almost exclusively in the petroleumsector. Worker rights, working conditions, and adherence tosafety standards are generally better in U.S. firms thanelsewhere in the economy. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 177Total Manufacturing 3 Food & Kindred Products 0 Chemicals and Allied Products 3 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 0Wholesale Trade -1Banking 5Finance/Insurance/Real Estate 0Services 0Other Industries 0TOTAL ALL INDUSTRIES 184Source: U.S. Department of Commerce, Bureau of EconomicAnalysis</text>
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card_13989.xml
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<text>U.S. DEPARTMENT OF STATEFRANCE: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS FRANCE Key Economic Indicators (Billions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1980 prices) 683 632 657Real GDP growth (pct.) 1.2 -1 1.8GDP (at current prices) 1,322 1,253 1,325GDP by Sector: 2/ 1,222 1,159 N/A Agriculture 37 29 N/A Processed Food 37 38 N/A Energy/Water 53 53 N/A Manufacturing 217 194 N/A Construction 69 64 N/A Rents 115 116 N/A Financial Services 57 56 N/A Retail Trade/Other Non-Financial Services 471 446 N/A Government/Non-Profit Services 216 213 N/A Statistical Adjustment -51 -50 N/ANet Exports of Goods & Services 18 27 39Real Per Capita GDP (1980 prices) 11,920 10,978 11,344Labor Force (avg/000s) 25,097 25,159 25,234Unemployment Rate (avg/pct.) 10.3 11.6 12.3Money and Prices: (annual percentage growth) 3/Money Supply (M3) 6.0 -0.9 -3.5Base Bank Lending Rate (yr-end) 10.0 8.1 7.7Personal Savings Rate (avg) 13.9 14.1 13.0Retail Inflation (avg) 1.9 2.1 1.7Intermediate Good Prices (avg) -1.7 -2.8 0.9Consumer Price Index (1990=100/avg)105.7 107.9 109.7Exchange Rate (USD/FF) 4/ 5.3 5.7 5.6Balance of Payments and Trade:Total Exports (FOB) 5/ 236.0 210.0 234.0 Exports to U.S. 4,6/ 15.0 15.0 17.0Total Imports (CIF) 5/ 240.0 203.0 221.0 Imports from U.S. 4,6/ 20.0 18.0 19.0Trade Balance (CIF/FOB) 5/ -4.0 7.0 13.0 Balance with U.S. 4,6/ -5.0 -3.0 -2.0Gold and Foreign Exch. Reserves 56.0 51.0 57.0N/A--Not available.1/ OECD forecasts unless otherwise indicated.2/ Excludes value added and other taxes.3/ June 1994 data.4/ 1994 estimate based on first nine months average andassumption of fourth quarter equal to September average.5/ Merchandise trade - 1994 data are for first seven months.6/ Department of Commerce figures.1. General Policy Framework France is the fourth largest industrial economy in theworld, with an economy about one-fifth the size of that of theUnited States'. The service sector, including government andfinancial services, accounted for 54 percent of output in1993. Industry and agriculture provided 38 percent and 3percent, respectively. Economic growth slowed considerably between 1991 and 1993,after a period of healthy expansion between 1988 and 1990.Growth began to pick up significantly beginning in 1994, withreal gross domestic product (GDP) expanding 0.7 percent and 1.0percent during the first and second quarters, respectively.Imports have increased as well, with real imports of goods andservices increasing 3.2 percent and 2.8 percent during thefirst and second quarters, respectively. Nominal merchandiseimports from the United States grew over five percent duringthe first quarter of 1994 and remained steady during the secondquarter, after falling by seven percent each year in 1992 and1993. Real GDP is likely to grow about two percent in 1994 andthree percent in 1995; the Organization for EconomicCooperation and Development (OECD) forecast in June 1994 thatreal imports of goods and services would increase close tothree percent in 1994 and six percent in 1995. Unemployment,on the other hand, is expected to remain high, hovering around12.5 percent for 1994. Inflationary pressures remain well contained. The annualinflation rate for consumer prices fell from 3.6 percent in1989 to 1.6 percent by September 1994, the lowest rate inFrance in 37 years. Continued wage restraint due to highunemployment is likely to keep inflation from increasing,despite stronger growth. Low inflation has given French producers a price advantagein overseas and domestic markets. Due in part to thisphenomenon, France's merchandise trade balance (cif/fob basis)changed from a deficit of FF 20 billion in 1992 to a recordFF42 billion surplus in 1993, according to French customsstatistics. Trade in manufactured goods registered the largestincrease, from a surplus of FF7 billion to FF54 billion.France's surplus with other European Union (EU) countriesincreased from FF17 billion to FF32 billion. With non-EU OECDcountries, France reduced its deficit from FF60 billion to FF31billion, primarily due to a decrease in its deficit with theUnited States, which fell to FF16 billion from FF26 billion in1992 because of strong U.S. growth. Much of the overall tradesurplus can be attributed to weak domestic demand, and inparticular, to persistently weak corporate investment inimported capital goods. France is likely to run another largemerchandise trade surplus in 1994, although slightly lower thanthe 1993 figure. Due primarily to the merchandise trade surplus, France rana current account surplus of FF59 billion in 1993. The surplusin tourism receipts was a record FF60 billion. In contrast,the deficit on net investment income increased to FF45 billionin 1993 from FF41 billion in 1992, due to the continued inflowof foreign portfolio investment and higher interest ratesrelative to rates in other industrialized countries. Due to alower merchandise trade balance and lower interest payments toforeigners (resulting from a large outflow of foreign portfolioinvestment at the beginning of 1994), the current accountsurplus is likely to fall in 1994. Since France is a member of the EU, its imports are subjectto a common external tariff and to the restrictions of theCommon Agricultural Policy. As the EU continues to implementits "single market" program to remove all barriers to the freeinternal circulation of goods, services, capital and labor,jurisdiction over a growing number of economic areas, includingcertain aspects of tax and investment policy, will betransferred to Brussels from Paris. Since 1991, the sharp drop in economic activity has led toa dramatic decline in government revenues. This, coupled withincreased spending on unemployment, retirement, health care,and interest payments, has resulted in soaring budgetdeficits. The central government budget deficit as apercentage of GDP rose from 1.9 percent in 1991 to 4.5 percentin 1993, and is expected to be close to four percent in 1994.The general government budget deficit, which includes federal,local, and social security budgets, rose from 2.2 percent ofGDP in 1991 to 5.8 percent in 1993, and is expected to be 5.6percent in 1994. Like its G-7 counterparts, the Bank of France conducts itsmonetary policy primarily by adjusting official rates andthrough open market operations. During most of 1993, Frenchmoney supply (M3) grew far less than the Bank of France'starget growth rate of 4-6.5 percent, and fell almost onepercent between the fourth quarters of 1992 and 1993. TheBank of France estimated that had it not been for the largetransfer of assets from money market funds (which are includedin M3) to stocks and long-term bonds, in response to taxincentives and declining interest rates, M3 would haveincreased 1.5-2 percent during this time, still far below itstarget.2. Exchange Rate Policies Within the established limits of the European Exchange RateMechanism (ERM), whose bands were significantly widened inAugust 1993, the value of the French franc is set by marketforces. It is also influenced by macroeconomic policy actionsor central bank interventions. These actions are usuallycoordinated with those of other governments, both within theERM and as part of broader international economic policy aseries of exchange rate crises to maintain high short terminterest rates to keep the franc within its ERM bands. Evenafter the bands were widened in August 1993, the Bankmaintained high rates while it replenished the foreign exchangereserves it spent in July to defend the franc. BeginningFebruary 1994, the Bank followed the German Bundesbank ingradually lowering official rates. It is expected to continuecoordination efforts among industrialized countries, includingthe United States. Throughout much of 1992 and the first half of 1993, theBank of France was forced by high German interest rates andtomaintain a 20-40 basis point spread between French and Germanofficial rates to prevent further serious pressures on thefranc. The interest rate on three-month interbank loans hasfallen from 12.1 percent to 5.6 percent between February 1993and August 1994. However, the average interest rate onlong-term government bonds, after declining from 10.6 percentin September 1990 to less than 5.8 percent in October 1993, isexpected to rise to 8.3 percent by October 1994, due in part torising U.S. interest rates. The Balladur government has continued the "franc fort"(strong franc) policy of its predecessors. The government'sobjective is to lower the cost of imports and keep inflationand wage increases low, thereby improving Frenchcompetitiveness. It is also seen as a way to build France'sreputation for sound economic policies, and to ensure furtherprogress toward European Monetary Union (EMU). The Francappreciated 3.0 percent in nominal terms against other OECDcurrencies between September 1993 and September 1994. However,factoring in France's low inflation rate, the Franc onlyappreciated 1.7 percent in real terms. Compared to the U.S.dollar, the franc appreciated by 5.2 percent in real termsduring this period.3. Structural Policies Since it submitted its first budget in mid-1993, theBalladur government's fiscal strategy has been to reduce thebudget deficit in the long term (primarily by raising taxes andcontrolling spending), but offset the immediate restrictiveeffects through temporary stimulus measures. In addition, manyof the French government's fiscal policy proposals in 1993 and1994 were designed to offset, through state aid, effects ofhigh real interest rates in sectors such as real estate andautomobiles where consumption is dampened strongly by highrates. During 1993, the Balladur government's assortment ofsupplemental budgets cut corporate taxes by approximately FF50billion for 1993-94, while increasing taxes on households forthese two years by FF100 billion. The government's prioritywas to limit spiraling unemployment by stopping the hemorrhageof bankruptcies, particularly among labor-intensive smallbusinesses. The government decided to change course in 1994,and to try to boost short-term economic growth by stimulatinghousehold consumption. In its 1994 budget, the governmentreduced personal income taxes by FF19 billion a year. Thegovernment also offered several incentives to induce householdsto withdraw funds from savings accounts, in the hopes ofreducing savings and boosting consumption. However, thedecrease in income taxes only partially offset the 1993increases in excise taxes and in the general socialcontribution (CSG), a supplemental tax on all earned andunearned income. As a result, the government expects totaltaxes as a percentage of GDP will increase from 43.6 percent in1993 to 44.5 percent in 1994, before falling to 44.2 percent in1995. This remains one of the highest ratios amongindustrialized countries. In March 1993, the French government began a massiveprivatization program, and has already sold some of the largestand best known government-owned corporations. A seven-membercommission decides the minimum price for the shares to be soldand chooses the core of stable investors for eachprivatization; and the Economics Ministry decides thepercentage of shares to be sold, the proportion to be sold inforeign financial markets, and the size of "core" shareholdings. To meet deficit reduction targets in its 1994 and 1995central government budgets, the government has essentiallyfrozen non-interest spending, and is counting on receipts ofover FF100 billion in privatization revenues. Fiscal policy,or at least central government spending, is likely to remaintight for many years to come, as the government seeks to meetcommon macroeconomic criteria agreed among EU members in theMaastricht Treaty: general government budget deficits of nogreater than three percent of GDP, and a debt to GDP ratio ofno more than sixty percent. In 1993, the government submitted,for the first time, a multi-year deficit reduction plan. Inthe revised 5-year plan in its 1995 budget, the governmentmaintains the real freeze on government spending, and extendsit to 1998. Real non-interest spending would be cut by 0.6percent in 1996 and 1997, and by 0.4 percent in 1998, thelongest and largest sustained reduction in non-interest Frenchgovernment spending since the end of World War II.4. Debt Management Policies The budget deficit is financed through the sale ofgovernment bonds at weekly and monthly auctions. As a memberof the G-10 group of leading financial nations, Franceparticipates actively in the International Monetary Fund, theWorld Bank and the Paris Club. France is a leading donornation and is actively involved in development issues,particularly with its former colonies in North and West Africa.5. Significant Barriers to U.S. Exports U.S. companies sometimes complain of complex technicalstandards and of unduly long testing procedures. Requirementsfor testing (which must usually be done in France) andstandards sometimes appear to exceed levels reasonable toassure proper performance and safety. Most of the complaintshave involved electronics, telecommunications equipment,medical/veterinary equipment/products and agriculturalphytosanitary standards. An area where French trade policy is clearly discriminatoryis in audiovisual trade. The 1989 EU Broadcast Directiverequiring a "majority proportion" of programming to be ofEuropean (i.e. EU or Central European) origin was incorporatedinto French legislation on January 21, 1992. France, however,goes beyond this rule, specifying a percentage of Europeanprogramming (60 percent) and French programming (40 percent).These broadcast quotas were approved by the EU Commission andbecame effective on July 1, 1992. They are less stringent thanFrance's previous quota provisions, which required that 60percent of all broadcasts be of European origin and that 50percent be originally produced in French. The new 60 percentEuropean/40 percent French quotas are applicable both during a24-hour day, and during prime time slots. The prime time rulesgo beyond the requirements of the EU Broadcast Directive andlimit the access of U.S. programs to the French market. The French government has recently revised its legalservices system. Non-EU lawyers may no longer practice aslegal consultants and are required to qualify as "avocats," onthe basis of full-fledged membership in the French bar. Underimplementing legislation which went into effect on January 29,1993, this means that non-EU lawyers will have to pass either a"short-form" exam or the full French bar exam. Non-EU lawyersqualify for a "short-form" exam provided they are able to provethat the foreign state or territory in which they practiceallows French lawyers to practice law "under the sameconditions." Failing that, they must take the full French barexam. Due to EU regulations, France is required to recognizelaw degrees for EU nationals but not third country nationals.Nevertheless, non-French EU lawyers, who are also required toqualify as "avocats," may do so via exams less stringent thanthose for non-EU lawyers. Meaningful access will hinge on howimplementing regulations are administered, including theinterpretation of what is meant by granting access on a"reciprocal basis" and the nature of the exam imposed on non-EUlawyers. Since September 1988, foreign investors establishing newbusinesses in France are no longer subject to advance noticeand approval requirements. However, there are still severaladministrative procedures related to acquisition of Frenchfirms that burden foreign investors. Unless firms arecontrolled by French nationals or "established" EU investors,they must receive prior approval from the Ministry of Economicsin order to purchase existing French businesses valued at morethan FF50 million or having more than FF500 million in sales.To qualify as an "established" EU-controlled firm, a businessmust have annual sales of more than FF1 billion and have beenin business for at least 3 years. EU-controlled firms notqualifying as "established" and non-EU controlled firmspurchasing smaller French entities are required to notify theMinistry in advance. The Ministry can block large acquisitionsdeemed not to be in the national interest, as well as anyacquisition, irrespective of size or nationality of theinvestors, which the Minister sees as a threat to publichealth, public order or national security. There are several restrictions on foreign holdings inFrench firms that are privatized. A December 1993privatization law prevents the government from selling morethan twenty percent of a firm's capital to non-EU investors atthe time shares are first sold. The law does not prohibitprivate EU-investors from selling their shares to non-EUinvestors thereafter, and shares held by non-EU investorsbefore the law went into effect are not affected by the 20percent limit. The Balladur government also gave theprivatization commission the option of waiving the 20-percentlimit if the purchase is part of an industrial, commercial, orfinancial cooperation agreement. This option has not yet beenexercised in privatizations to date. Through "golden shares" in key companies being privatized,the government retains the following rights: to block the saleof any assets "essential to the national interest;" to preventcertain investors from purchasing additional shares; and toexert significant control over company management, even afterprivatization is completed. Finally, any investor seeking toown more than five percent of outstanding shares of aprivatized company in the health, security or defense sectorswill be required to seek the approval of the EconomicsMinistry. The French government has notified the OECD that it treatsforeign investors differently than domestic investors and maynot provide national treatment in the following sectors:agriculture, aircraft production, air transport, atomic energy,audiovisual, accounting and financial services, defense,insurance, maritime transport, road transport, publishing,telecommunications, and tourism. France is a party to all the relevant GATT codes, includingthose on government procurement and standards.6. Export Subsidy Policies France is a party to the OECD guidelines on the arrangementfor export credits, which includes provisions regarding theconcessionality of foreign aid. The government has begunexamining ways to concentrate the benefits of its exportpromotion efforts more on small and medium-sized businesses. There are virtually no direct French government subsidiesto agricultural production. Direct subsidies come primarilyfrom the budget of the European Union. The French governmentdoes offer indirect assistance to French farmers in many forms,such as easy terms for loans, start-up funds, and retirementfunds.7. Protection of U.S. Intellectual Property France is a strong defender of intellectual property rightsworldwide. Under the French intellectual property rightsregime, industrial property is protected by patents andtrademarks, while literary/artistic property is protected bycopyrights. France is a party to the Bern Convention onCopyright, the Paris Convention on Patents, the UniversalCopyright Convention, the Patent Cooperation Treaty, and theMadrid Convention on Trademarks. By virtue of the ParisConvention and the Washington Treaty Regarding IndustrialProperty, U.S. nationals have a "priority period" after filingan application for a U.S. patent or trademark, in which to filea corresponding application in France.8. Worker Rights The French constitution guarantees the right of workers toform unions. Although union membership has declined to tenpercent of the workforce, the institutional role of organizedlabor is far greater than its numerical strength mightindicate. The French government regularly consults laborleaders on economic and social issues, and joint works councilsplay an important role even in industries that are onlymarginally unionized. The principle of free collectivebargaining was reestablished after World War II, and subsequentamendments in labor laws encourage collective bargaining at thenational, regional, local, and plant levels. French lawprohibits anti-union discrimination and forced or compulsorylabor. With a few minor exceptions for those enrolled inrecognized apprenticeship programs, children under the age of16 may not be employed. France has a minimum wage ofapproximately $6.50 per hour. The legal work week is 39 hourslong, and overtime is restricted to 9 hours per week. Ingeneral terms, French labor legislation and practice, includingthat pertaining to occupational safety and health, are fullycomparable to those in other industrialized market economies.France has three small export processing zones, where regularFrench labor legislation and wage scales apply. Labor law andpractice are uniform throughout all industries of the privatesector. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 973Total Manufacturing 13,257 Food & Kindred Products 1,267 Chemicals and Allied Products 4,536 Metals, Primary & Fabricated 488 Machinery, except Electrical 2,237 Electric & Electronic Equipment 359 Transportation Equipment 700 Other Manufacturing 3,672Wholesale Trade 4,733Banking 364Finance/Insurance/Real Estate 2,374Services 996Other Industries 868TOTAL ALL INDUSTRIES 23,565Source: U.S. Department of Commerce, Bureau of Economic Analysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEFINLAND: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS FINLAND Key Economic Indicators (Billions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1990 prices) 102.9 79.1 85.0Real GDP Growth (pct.) -3.6 -2.0 3.5GDP (at current prices) 2/ 92.7 73.0 81.2By Sector: Agriculture 2.43 2.01 2.2 Other Primary Production 2.71 2.02 2.6 Energy/Water 2.45 1.93 3.3 Manufacturing 20.62 17.83 21.3 Construction 5.81 3.46 3.6 Rents 3/ 13.94 11.44 12.2 Financial Services 2.90 3.07 3.4 Other Services 23.91 18.81 19.8 Public Sector 20.25 14.94 15.3 Bank Service Charge 3/ -2.35 -2.50 -2.5Net Exports of Goods & Services +1.43 +4.62 +7.5Per Capita GDP (1990 prices) 20,364 15,572 16,700Labor Force (000s) 2,502 2,484 2,485Unemployment Rate (pct.) 13.1 17.9 18.5Money and Prices:Money Supply (M2) (annual percentage growth) -0.4 2.0 4.5Base Interest Rate 4/ 9.2 6.9 5.3Personal Saving Rate 10.4 9.5 6.5Retail Inflation -7.3 -1.4 3.0Wholesale Inflation -9.9 -0.8 4.5Consumer Price Index (1990=100) 107.4 109.7 110.8Exchange Rate (USD 1.00/FIM) 4.48 5.72 5.5Balance of Payments and Trade:Total Exports (FOB) 24.0 23.5 28.0 Exports to U.S. 1.4 1.8 2.1Total Imports (CIF) 21.2 18.0 20.0 Imports from U.S. 1.3 1.3 1.5Aid from U.S. 0 0 0Aid from Other Countries 0 0 0External Public Debt (central government) (in foreign currency) 23.7 27.2 34.5Foreign Net Interest Payments 4.4 4.1 3.7 (of which by central government) 0.9 1.6 2.0Gold and Foreign Exchange Reserves (year-end) 6.6 5.9 9.1Trade Balance +2.8 +5.4 +8.0 Trade Balance with U.S. +0.1 +0.5 +0.51/ 1994 figures are all estimates based on available monthlydata in October 1994, or predictions by the Ministry of Finance.2/ GDP at factor cost.3/ "Real estate, renting and business activities" sectoraldivision is based on UN SIC-95 classification.4/ Bank of Finland's base rate.1. General Policy Framework The Finnish economy is slowly and unevenly emerging fromits 3-year recession, during which GDP has declined by acumulative 13 percent. An economic recovery led by strongexports has been underway since the first quarter of 1994. GDPlooks set to grow at least 5 percent in 1994. The recessionhas resulted in a significant shakeout of the Finnish economy,including corporate downsizing, increased competition andcutbacks in government services. Also spurring structuralchange is membership in the the European Union (EU), scheduledfor January 1, 1995. The economic recovery so far has been largely jobless, withunemployment remaining in the high teens amid stagnant domesticdemand. These factors, coupled with low levels of businessinvestment, have resulted in declining government revenues andincreases in countercyclical spending, producing large budgetdeficits. Also contributing is continuing governmentassistance to the banking sector, particularly to the savingsbank system. In 1994, the deficit will be about a third oftotal spending, the same level as 1993. The deficit isfinanced by foreign and domestic borrowing through the issuanceof bonds; the balance has been roughly evenly divided betweenthe two. The large deficits have brought about rapid increasesin overall debt levels. Finnish government debt will increasefrom 35 percent of GDP at the end of 1992 to an estimated 64percent at the end of 1994 and debt service will account forsome 11 percent of government expenditures. Cuts in governmentsocial programs and aid to municipalities are helping to keepthe debt from rising still faster. Also contributing arehigher income tax rates and increases in indirect taxation.Finland's tax ratio will rise to an estimated 48 percent in1994, a record. Despite the high level of foreign debt servicing, Finlandis experiencing a sharp improvement in its balance of payments;the current account should move into strong surplus in 1994after years of deficits. The main contributing factor is asharp increase in export sales, spurred on by a depreciatedfinnmark and declining real wages. Finnish internationalcompetitiveness has increased by about 30 percent as comparedto its long-term average in the past several years. Inflationhas so far stayed at a low level as wholesalers and retailersremain reluctant to pass along increased import prices in theface of depressed domestic demand. However, the money supply(M1) is showing rapid growth due to capital inflows, causingconcern among some analysts that inflation could take off inearly 1995. Domestic credit is tight as banks seek to regainprofitability; as inflation fears mount, the Bank of Finland isthreatening to raise interest rates further. Banks remainconservative in their lending practices, particularly to newbusinesses. Finnish economic policy is based to a large extent on itsforthcoming membership in the EU. The requirements of the EU,for example, have resulted in new competition legislation thatis helping to reduce the cartelized nature of many Finnishindustries. Legislation which took effect at the beginning of1993 liberalizing foreign investment restrictions has helpedspur a sharp increase in foreign portfolio investment and hencehas contributed to the internationalization of large Finnishcompanies. The rise in stock market activity is also due tolower domestic interest rates and a tax law, also new in 1993,which sets a uniform rate of 25 percent on capital incometaxation. Foreign direct investment has been slower tomaterialize, although Finland is hoping to capitalize on itslocation and expertise to serve as a "gateway" for foreigninvestors in the former Soviet Union. In October 1994 Finland's citizens voted in favor of EUmembership. Membership will occur in January 1995. ECmembership and budgetary constraints have brought about somereform in Finland's highly protected agricultural sector.Finland will convert to the EU agricultural regime in 1995,although in the membership negotiations Finland has strived(with some success) to establish special support mechanismswhich provide levels of support higher than the EC average.However, the support mechanisms will not be adequate to preventmajor structural changes in the agricultural sector. Over thelonger term, some of these changes will include a reduction inthe number of farmers and consolidation of surviving farms intolarger, more efficient units.2. Exchange Rate Policy The finnmark has been floating since the government andcentral bank broke its fixed link with the European CurrencyUnit (ecu) in September 1992 in the midst of a currencycrisis. Shortly after the float was initiated, the parliamentpassed new legislation allowing the float to continueindefinitely. It is unlikely that the government will attemptto establish a new currency linkage anytime soon. The finnmark has declined by about 35 percent in relationto the dollar and over 15 percent in relation to the ecu sincethe float was initiated, but in recent months the finnmark hasagain been gaining strength against both of these currencies.Devaluation has strongly boosted Finland's internationalcompetitiveness and has dampened demand for imports from allsources, including the United States. Conversely, exports haveboomed. The government has not regularly intervened infinancial markets to influence the value of the finnmark. Thegovernment has encouraged lower interest rates to boostdomestic demand, but rates (particularly long term rates)remain high. Many analysts expect that in the medium term thefinnmark's value may stabilize near present levels. Theslightly strengthened finnmark has eased Finland's externaldebt burden and has partially offset the inflationary impact ofhigher commodities prices, but has not had a measurable impacton export competitiveness.3. Structural Policies Finland replaced its turnover tax with a value added tax inJune 1994. While the change is expected to have little effecton overall revenues, several areas not now taxed or taxed at alower rate, including many corporate and consumer services andconstruction, are now subject to the new VAT in conformity withEU practice. The government decided to keep the basic VAT rateat the same rate as the turnover tax, 22 percent. Some goodsand services, including transportation services,accommodations, films, pharmaceuticals and books, will be taxedat a 12 percent rate and other services, including health care,education, insurance, and rentals are not subject to the VAT.Agricultural and forestry products will continue to be subjectto different forms of taxation outside the VAT. At thebeginning of 1993, a uniform tax rate of 25 percent on capitalincome took effect, including dividends, capital gains, rentalincome, insurance, savings, forestry income, and corporateprofits. The sole exception was bank interest, where the taxrate was increased from 20 to 25 percent at the beginning of1994. The change in capital taxation, along with a sharp declinein interest rates and liberalization of foreign investmentlegislation, has resulted in a strong revival of the Finnishstock market and greater corporate use of equity rather thandebt financing. It has also substantially increased theforeign ownership share of many of Finland's leading companies,and may become the vehicle for the privatization or partialprivatization of state-owned or dominated companies. Thegovernment has moved slowly on privatization, but has beenreducing the government stake in several state-dominatedcompanies. Currently, four of Finland's 10 largest companiesare majority state-owned, and the government is heavilyinvolved in several key industrial sectors, including energy,forestry products, mining and chemicals. The volume of government subsidies provided to Finnishindustry has increased markedly as the Finnish economy hasdeteriorated. In real terms, industrial subsidies haveincreased by about 80 percent since 1988 and now constituteabout 1.2 percent of GDP. The government has begun to reducesubsidies in line with falling government revenue and therequirements of EU membership. The government has set the goalof reducing direct subsidies and replacing them with moregeneral measures to improve the business climate.4. Debt Management Policies Finland has rapidly accumulated external debt in order tofinance recession-induced budget deficits. Gross public debt(EMU definition) continues to rise, and is projected in the1995 budget at 78.5 percent (in 1990 gross public sector debtstood at only 27 percent of GDP). Finnish corporations,formerly heavy users of foreign capital, are now reducing theirforeign obligations. However, financing requirements of thecentral government have not diminished. In response to therapid increase in foreign borrowing, Moody's lowered its ratingon Finnish long-term government bonds from its second to itsfourth highest category (AA-) in March 1993. Finnish debtissues continue to sell easily (albeit at slightly higher riskpremiums) in international financial markets, however. Finland is an active participant in the Paris Club, theGroup of 24 countries providing assistance to East and CentralEurope, and in efforts to assist the former Soviet Union. Inresponse to budgetary problems, Finland has reduced foreignassistance from approximately 0.7 to 0.4 percent of GDP in thepast three years.5. Significant Barriers to U.S. Exports In most cases, effective January 1, 1995 Finland will adoptthe EU's overall trade regime, including the EU tariffschedule. The agricultural sector will remain the most heavilyprotected area of the Finnish economy. In 1993 Finland changedits basic system of protection from an import licensing systemto a system of variable levies similar to the EU. The neteffect is essentially the same, which is to protect domesticproduction from cheaper foreign imports. Surpluses ofagricultural products are usually disposed of on world marketsthrough government and producer-financed export subsidies. Thegovernment will end direct government financing of exportsubsidies as part of its EU accession terms. Import licensesare no longer required for any products, although some textileimports from Far Eastern suppliers are covered by quotas.Finland will phase in EU textiles tariffs over a 3-year periodstarting in January 1995. Finland's adoption of the EU tariff schedule will result inincreased barriers to U.S. exporters in several key categoriesincluding agriculture, chemicals, and electronics. Preliminaryanalysis indicates that semiconductors will be the U.S. exportcategory most adversely affected. Tariffs for several keysemiconductor types will increase from the present 0 percent to14 percent under the EU tariff schedule. In late 1994 the U.S.Government entered into negotiations with the EU under Article24:6 of the GATT, seeking compensation for lost exports as aconsequence of Finland's EU accession. The Finnish service sector is undergoing considerableliberalization in connection with EU membership. Legislationimplementing EU insurance directives has gone into effect.Finland will have exceptions in insurance covering medical anddrug malpractice and nuclear power supply. Restrictions placedon statutory labor pension funds, which are administered byinsurance companies, will in effect require that companiesestablish an office in Finland. It is unclear whether suchrestrictions will cover workers' compensation as well. Autoinsurance companies will not be required to establish arepresentative office in Finland, but will have to have aclaims representative there. In 1994 the government opened uplong distance telephone service within Finland to competition.The government requires that the Finnish Broadcasting Companydevote a "sufficient" amount of broadcasting time to domesticproduction, although in practical terms this has not resultedin discrimination against foreign productions. Upon accessionto the EU, Finland will adopt the EU broadcast directive, whichhas a 50 percent European programming target for non-news andsports programming. Finland does not intend to impose specificquotas and has indicated its opposition to quotas to the EU. Finland is a GATT Standards Code signatory and has largelycompleted the process of harmonizing its technical standards toEU norms. Finland removed most restrictions on foreign investment andownership through a law which took effect at the beginning of1993. The new law abolishes various restrictions placed oncompanies with foreign ownership and eliminates distinctionsbetween foreign and domestic shareholders. A large increase inforeign portfolio investment has occurred since the law tookeffect. The new law provides for a screening mechanism forproposed foreign acquisitions involving a third or more of thestock of approximately 100 large companies. The provision willbe in effect until the end of 1995, but the government haspledged that only in extreme circumstances would a foreigntakeover of a Finnish company be prevented. New investmentsare not affected by the monitoring procedure. After 1995, onlyproposed investments involving the manufacturing of defenseequipment will be monitored. A requirement to obtain thepermission of local governments in order to purchase a vacationhome in Finland will also remain. EU membership will eliminatemost sectoral investment restrictions. Foreign investorsinstead will have to meet the obligations required of Finnishinvestors. Finland is a signatory to the GATT Agreement on GovernmentProcurement (Procurement Code) and has a good record inenforcing Code requirements in letter and spirit. In theexcluded sectors, particularly defense, countertrade isactively practiced. Finland is purchasing fighter aircraft andassociated equipment valued at $3 billion from U.S. suppliers.One hundred percent offsets are required as a condition ofsale. In connection with the EEA agreement, Finland isimplementing all EU procurement-related directives. Finland has a streamlined customs procedure, reflecting theimportance of foreign trade to its economy.6. Export Subsidies Policy The only significant Finnish direct export subsidies arefor agricultural products, including grain, meat, butter,cheese, and eggs as well as for some processed agriculturalproducts. Finland does not provide subsidies to promoteshipbuilding exports, although a mechanism exists on paper todo so. Finland has advocated worldwide elimination ofshipbuilding subsidies through the OECD's Working Party 6. Finland is a member of the GATT Subsidies Code.7. Protection of U.S. Intellectual Property Finland has a good record in passing effective laws toprotect intellectual property. With the exception of software,where unauthorized copying is widespread, enforcement is verygood. Finland and the Nordic group of countries have taken aconstructive position on intellectual property in the GATTUruguay Round negotiations and in other internationaldiscussions. Finland is a member of all principal multilateralintellectual property organizations. Finland's copyright legislation has recently been modifiedto conform with EU practice, as required by the EEA agreement.The EU directive dealing with reselling videocassettes has beenimplemented, as has the EU software directive. The directivehas made it easier to prosecute cases of unauthorized softwarecopying. While piracy of audio and video recordings is only asmall problem in Finland, industry representatives estimatethat over 50 percent of software installed for business use hasbeen illegally copied. Finland will start granting productpatent protection for pharmaceuticals at the beginning of 1995;currently process patent protection is applied.8. Worker Rights a. The Right of Association The Finnish constitution contains specific guarantees forthe right of workers to form trade unions and assemblepeacefully. The right to strike is guaranteed by law. Theserights are honored in practice; trade unions are among the mostpowerful political forces in Finland. About 85 percent of thework force is unionized. Unions are free, independent,democratic and associate in three federations as well asinternationally. b. The Right to Organize and Bargain Collectively The right to organize and bargain collectively is protectedboth in law and in practice. Collective bargainingtraditionally has been conducted according to nationalguidelines agreed among employers, the three central tradeunion organizations, and the government, but in the past twoyears wage negotiations have been more decentralized. Workersare effectively protected against antiunion discriminationwhich is prohibited by law. c. Forced or Compulsory Labor Forced or compulsory labor is prohibited by theconstitution and is not practiced. d. Minimum Age for Employment of Children Sixteen is the minimum age for full-time employment (eighthours per day). Children that are fifteen years old may workup to six hours per day under certain restricted conditions.Finland has compulsory education laws. Child labor laws areeffectively enforced. e. Acceptable Conditions of Work Finland has no legislated minimum wage, but non-unionemployers are required to meet the minimum wages established bycollective bargaining for unionized workers in each sector.The maximum standard legal work week is 40 hours; in practicemost contracts call for standard work weeks of 37-38 hours.Finland's health and safety laws are among the strictest in theworld. They are enforced effectively by government inspectorsand actively monitored by the unions. f. Rights in Sectors with U.S. Investment There is no difference in the application of worker rightsbetween sectors with U.S. investment and those without. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 127 Food & Kindred Products 1 Chemicals and Allied Products 52 Metals, Primary & Fabricated 4 Machinery, except Electrical (1) Electric & Electronic Equipment 2 Transportation Equipment 0 Other Manufacturing (1)Wholesale Trade 141Banking (1)Finance/Insurance/Real Estate 1Services 7Other Industries (1)TOTAL ALL INDUSTRIES 336(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEESTONIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS ESTONIA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1/ 1992 1993 1994Income, Production and Employment:Real GDP (1985 prices) N/A N/A N/AReal GDP growth (pct.) -14.8 2.0 6.0 2/GDP (at current prices) 1,105.0 1,769.9 1,379.2 3/By Sector: (pct.) Agriculture 13 11 7 Energy/Water 5 4 3 Manufacturing 33 27 18 Construction 5 6 5 Rents 3 4 6 Financial Services 2 3 3 Other Services 34 34 45 Government/Health/Education 6 10 8Net Exports of Goods & Services N/A N/A N/AReal Per Capita GDP (1985 base) N/A N/A N/ALabor Force (000s) 873.0 853.9 840.8 4/Unemployment Rate (pct.) 1.7 2.2 1.5 4/Money and Prices:Money Supply (M2) 209.0 439.3 493.8Base Interest Rate N/A N/A N/APersonal Saving Rate 15.5 14.8 11.0Retail Inflation N/A N/A N/AWholesale Inflation N/A N/A N/AConsumer Price Index N/A 35.6 26.8 3/Exchange Rate (official) 12.9 13.2 12.2Balance of Payments and Trade:Total Exports (FOB) 430.1 806.2 967.9 5/ Exports to U.S. 8.1 15.2 16.0 5/Total Imports CIF 397.5 897.6 1,214.9 5/ Imports from U.S. 9.4 24.5 22.3 5/Aid from U.S. N/A 0.9 1.1 5/Aid from Other Countries N/A 28.5 16.3 5/External Public Debt 29 108 327 5/Debt Service Payment (paid) N/A N/A 2.1 4/Gold and Foreign Exch. Reserves 194.0 406.4 444.5 4/Trade Balance 32.6 91.4 -247.0 5/ Trade Balance with U.S. -1.3 -9.4 -6.3 5/N/A--Not available.1/ Exchange rate used is 12.2 Estonian kroons to one dollar.2/ Annualized estimated rate.3/ Six month data.4/ Eight month data.5/ Nine month data.1. General Policy Framework Estonia is well on the road to economic recovery after itseconomy bottomed out from post Soviet shocks in the secondquarter of 1993. First quarter 1994 data indicate that GNPgrowth may be as high as six percent on an annualized basis.Estonia's currency, the Kroon, remains stable and fixed to theGerman Mark at an six to one exchange rate; no devaluations orrevaluations are anticipated. Trade continued to expand in1994, although Estonia fell into a deficit position withimports outpacing exports by approximately 10 percent. Inflation remained higher than expected, but began to taperoff as the year progressed; inflation for 1994 is anticipatedto be approximately 40 percent. Estonia's privatizationprogram made commendable progress in 1994, with approximately50 percent of larger state enterprises now in private hands.Small and medium scale privatization is virtually complete.Housing privatization is just beginning and is movingrelatively slowly. Estonia also made some headway inintroducing vouchers into its privatization scheme and increating mutual funds markets for voucher holders. TheGovernment continued to report a balanced budget and due tohigher than expected accruals of tax revenues, twosupplementary budgets have been adopted. This permitted somemodest increases to state pensions and salaries.2. Exchange Rate Policies Estonia introduced its own currency, the Kroon, in June of1992. The monetary reform gave a major boost to Estonia'ssovereignty and economic progress. The Kroon is frequentlycited as the most important factor in creating fertileconditions for economic restructuring and recovery. Estonia'shard currency reserves have close to quadrupled since theintroduction of the Kroon, although the money supply hascontracted to a modest extent during the latter half of 1994. Estonia eliminated the last of its capital controls in1994; there are no restrictions in opening foreign bankaccounts either in Estonia or abroad. There are norestrictions in exchanging Kroons for hard currency andrepatriating funds from Estonia. The exchange rate policy ofEstonia is anticipated to remain unchanged. There are noperceived pressures on the Kroon for a reevaluation (ordevaluation). Current policies should continue to exertdownward pressure on inflation which is expected to besignificantly lower in 1995.3. Structural Policies Pricing Policies: In January of 1992, the prices of 90percent of goods became free, and the Government of Estonia hasliberalized even further since then. The only prices stillcontrolled directly by the Government are electricity,precious stones and metals and energy inputs such asoil shale. Some goods and services (telecommunications,passenger transport) are subject to price regulation. Tax Policies: Most elements of a modern tax system -- suchas corporate income tax, personal income tax, and value-addedtax (VAT) are now in place. Property taxes were introduced in1993. New tax laws became effective as of January 1, 1994,which established a 26 percent across the board tax for bothpersonal and corporate income. Tax holidays for foreigninvestors were phased out as they were viewed as distorting anddiscriminating against local enterprises; companies alreadyreceiving tax holidays were grandfathered, however. An18 percent VAT is levied on most goods and services. VAT iscollected on imports as they enter Estonia; the importer getsVAT reimbursed when the goods are sold in Estonia orreexported. The general trend with Estonian tax legislationhas been to decrease taxes associated with production of goodsand increase taxes associated with consumption. Regulatory Policy: Estonia's import and export regime isamongst the most liberal in the world. Import duties exist forfur and goods made of fur (16 percent), cars, bicycles,launches, yachts (10 percent). The only export duties arelevied on rapeseed oil (100 percent), values of culture (e.g.cars from before 1950)(100 percent), and metals (ferrous andnonferrous waste and scrap) (5 to 25 percent). There are somefields of economic activity, which are subject to licensing,such as the trading of metals and precious metals, trading ofalcohol and tobacco products. Any legal entity registered inEstonia can apply for an operational license.4. Debt Management Policies With respect to external debts, Estonia has signed loanagreements with foreign lenders of which 12 have entered intoforce. The total commitments of foreign loans as of November1, 1994 was 251.65 million dollars. An additional75.16 million dollars is in the form of government creditguarantees. On the basis of current projections, the ratio of totalexternal public debt to GDP is envisaged to increase to a peakof about 18.5 percent in 1995-1996 before declining to some 12percent in the year 2000. Debt service as a proportion ofexports to non-FSU countries is projected to remain in therange of about 5 to 8 percent during the period 1995 to 1999before rising to just over 10 percent in the year 2000.5. Significant Barriers to U.S. Exports Import Licenses: With the elimination of import licenseson all products except alcohol, tobacco, pharmaceuticals andweapons, Estonia is a very receptive market to U.S. exports.Estonia has no major domestic impediments to imports, but minorimpediments involving infrastructure deficiencies and financialinstitutions exist. Infrastructure Deficiencies: While the Estonian telephonesystem has improved considerably since the formation of a jointventure with Finland and Sweden, telephone service is stilluneven; telephone service in areas outside the capital isgreatly inferior. This has been a major factor for the minimalamount of foreign investment that has gone to regions furtherfrom the capital, and since foreign investment is a major spurto trade, trade performance in these same regions has suffered. Financial Institutions: Performance of Estonian banks isuneven, but several larger banks are offering services roughlycomparable to western banks. Trade financing is difficult toobtain (particularly for new enterprises without a trackrecord) and high interest rates present some obstacles. Somebanks have very limited experience with trade financingoptions, such as letters of credit. Investment Barriers: According to the law on foreigninvestment, foreign investors have the same rights andobligations as domestic individuals or companies. However, insome sectors (mining, power engineering, telecommunications,gas and water supply, transport, telecommunications, banking)foreign investors require a license. All property brought intoEstonia by foreign investors as an initial capital investmentis exempt from customs duties, but is subject to VAT. Aforeign investor has the right to repatriate profits afterpaying income tax on proceeds which it has received after theliquidation of the enterprise.6. Export Subsidies Policies The Government provides no subsidies to Estonian exports.7. Protection of U.S. Intellectual Property The Estonian Government has passed several important piecesof legislation designed to bring its intellectual propertyregime up to modern standards. As of February 5, 1994, Estoniais a member of the World Intellectual Property Organization(WIPO). Patents: Estonia has taken several significant steps toimprove patent regulation. The patent law, which has been inforce since May 23, 1994, regulates the legal protection ofpatentable inventions in the Republic of Estonia. At the sametime, the Utility Model Law came into force. On August 24,1994, Estonia became a party to the Paris Industrial PropertyConvention and the 1970 Washington Patent Cooperation Treaty.The number of objects exempt from protection has not beendetermined. Trademarks: Counterfeiting is not a significant problem atthis time. The Trademark Law, passed in Parliament onOctober 12, 1992, stipulates what is protected by law and setsout judicial proceedings: There have been 15,258 applicationsfor trademark registration since 1992, about 60 percent of themare from foreign companies, including 3,032 U.S. companies. Upto the present, about 7,200 applications have receivedcertificates proving trademark registration; this numberincludes 61 companies from the United States. The fee for atrademark registration is approximately $250.00 Copyrights: The Copyright Law became effective onDecember 12, 1992. This law provides for protection ofsoftware, cable television publications, records, videobroadcast, satellite signals, etc. The Copyright Law appliesto works "which require protection in the Republic of Estoniaby virtue of international treaties to which the Republic ofEstonia is a party." On October 26, 1994, Estonia acceded tothe Berne Convention for the Protection of Literary andArtistic Works.8. Worker Rights a. The Right of Association The Constitution guarantees the right to form and joinfreely a union or employee association. The CentralOrganization of Estonian Trade Unions (EAKL) came into being asa wholly voluntary and purely Estonian organization in 1990 toreplace the Estonian branch of the official Soviet LaborConfederation, the all-Union Central Council of Trade Unions(AUCCTU). Workers were given a choice as to whether or notthey wanted to join the EAKL. While in 1990 the AUCCTU claimedto represent 800,000 members in Estonia, in 1992 the AUCCTUclaimed to represent 800,000 members in Estonia, in 1992 theEAKL claimed to represent about 500,000 members, organized in30 unions. In 1993 EAKL's membership dropped to some 330,000organized in 27 unions and in 1994 dropped further to about200,000 organized into 25 unions. The EAKL explains the dropin membership by the breakup of large government-ownedenterprises and privatization. EAKL officials estimate thatsome 40 percent of an approximately 600,000 strong workforce isorganized. The right to strike is legal and unions are independent ofthe Government and political parties. There were no strikes in1994. There are constitutional and statutory prohibitionsagainst retribution against strikers. Unions may joinfederations freely and affiliate internationally. TheInternational Labor Organization has not cited the Governmentfor failure to observe pertinent ILO conventions and standards. b. The Right to Organize and Bargain Collectively While Estonian workers now have the legally acquired rightto bargain collectively, collective bargaining is still in itsinfancy. The Government remains by far the biggest employer.According to EAKL leaders, few collective bargaining agreementshave been concluded between the management and workers of aspecific enterprise. The EAKL has, however, concludedframework agreements with producer associations. The EAKL wasalso involved with developing Estonia's new labor code coveringemployment contracts, vacations and occupational safety. TheLabor Code prohibits anti-union discrimination, and employeeshave the right to go to court to enforce their rights. In1993, a collective bargaining law, a collective disputeresolution law, and a shop steward law were adopted. EAKLofficials reported that the courts re-instated a union officialwho alleged dismissal because of union activity. No Export Processing Zones have been established. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is prohibited by theConstitution and is not known to occur. It is effectivelyenforced by the Labor Inspections Office. d. Minimum Age for Employment of Children According to the Labor Law, the statutory minimum age foremployment is 16. Minors aged 13 through 15 may work withwritten permission of a parent or guardian and the local laborinspector, if working is not dangerous to the minor's health,considered immoral, or interferes with studies, and providedthat the type of work is included on a list the Government hasprepared. State authorities effectively enforce Minimum AgeLaws through inspections. e. Acceptable Conditions of Work The Government, after consultations with the EAKL and theCentral Producers Union, sets the minimum wage and reviews itmonthly. In September, the minimum wage was raised from 300 to450 Kroons per month (36 U.S. dollars). The minimum wage isnot sufficient to provide a worker and family a decent standardof living. About three percent of the work force receive theminimum wage. The average wage is about four times the minimum. The standard workweek was reduced from 41 to 40 hours in1993. There is a mandatory 24-hour rest period in the workweek. According to EAKL sources, legal occupational health andsafety standards are satisfactory, but they are extremelydifficult to achieve in practice. They are supposed to beenforced by the National Labor Inspection Board, theeffectiveness of which may improve with experience. Inaddition, the Labor Unions have occupational health and safetyexperts who assist workers in bringing employers in compliancewith the legal standards. The overriding concern of workers during the period oftransition to a market economy is to hold on to their jobs andreceive adequate pay. Workers have the right to removethemselves from dangerous work situations without jeopardy tocontinued employment.(###)</text>
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<text>U.S. DEPARTMENT OF STATEEL SALVADOR: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS EL SALVADOR Key Economic Indicators (Millions of current U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (millions of 1962 colones) 2/ 3,563.0 3,761.7 3,978.2Real GDP Growth (pct.) 4.8 5.1 5.8GDP (at current prices) 6,543.1 7,600.9 8,784.4By Sector: Agriculture 606.9 651.8 797.2 Energy/Water 153.4 198.7 230.7 Manufacturing 1,236.3 1,447.8 1,669.8 Construction 186.0 237.5 279.8 Rents 367.7 400.9 450.9 Financial Services 172.7 213.5 247.7 Other Services 682.2 779.4 894.2 Public Administration 461.2 495.9 550.3 Net Exports of Goods & Services -1,028.5 -1,077.2 -1,228.9Nominal Per Capita GDP 1,201.0 1,495.0 1,632.0Urban Labor Force (000s) 3/ 893 965 1,041Unemployment Rate (pct.) 3/ 7.9 7.8 7.5Money and Prices:Money Supply (M2 annual pct. growth) 31.4 35.7 21.4Base Interest Rate 4/ 16-18 16-19 16-19Personal Saving Rate (on deposits) 12-14 11-15 11-14GDP Deflator (pct. change) 8.9 14.9 8.8Consumer Price Index 19.9 12.0 10.0Exchange Rate (colon/USD) 8.37 8.73 8.75Balance of Payments and Trade:Total Exports (FOB) 597 731 823 Exports to U.S. 257.3 219.0 173.0Total Imports (CIF) 1,698.5 1,912.0 2,142.0 Imports from U.S. 650 844 910Aid from U.S. 5/ 270 161 215Aid from Other Countries 20.0 44.3 30.0External Debt 2,337.5 1,924.0 2,051.0Debt Service Payments (paid) 346 290 365Gold and Foreign Exch. Reserves 554.2 645.0 780.0Trade Balance -1,101.5 -1,181.0 -1,319.0 Trade Balance with U.S. -392.7 -625.0 -737.01/ 1994 figures are July Central Bank estimates.2/ GDP at market cost; 1962 base currently being revised byCentral Bank to 1988; no dollar figures available.3/ Ministry of Planning household survey.4/ Loan rate.5/ Excludes military aid.1. General Policy Framework The Salvadoran economy continues to reap the benefits ofsound economic programs, a commitment to a free economy, andcareful fiscal management. Real GDP growth in 1994 reached anestimated 5.8 percent, led by a strong performance in theservice and construction sectors, while inflation was held to10 percent. Exports, particularly to the reconstituted CentralAmerican Common market, expanded notably during the year. Thenew president, Armando Calderon Sol, who took office in June1994, has stated clearly his intention to pursue the tradeliberalization and economic reform programs begun by hispredecessor. However, the post-war economic recovery isfragile, heavily dependent on a favorable balance of paymentsposition maintained by large amounts of remittances fromSalvadorans abroad. El Salvador turned decisively toward market-orientedeconomics in the four years under President Alfredo Cristiani(1989-1994). The Cristiani government rejected theimport-substitution model and pursued trade liberalization andexport-led growth. From a structure with tariffs as high as240 percent, the government established a system in which mostduties fall in a range of 5-20 percent. Nontariff barriers andimport licensing were almost totally abolished. The CentralAmerican Common Market has been reactivated, with most commerceduty-free. Government agricultural monopolies were dismantled,as were internal price controls on 240 consumer goods. Tradehas grown 12 percent (higher than real economic growth) from1993 to 1994; although the absolute value of merchandiseexports is still less than half the value of imports. The government's drive to liberalize trade has been matchedby reforms in the financial markets. Parallel exchange rateswere abolished, and the foreign exchange market was opened toboth banks and dealers. The colon, currently valued at about8.7 to the dollar, has traded in a narrow range for the pasttwo years, maintained to a certain extent by modestinterventions on the part of the Central Bank and remittances.The banking system has been reprivatized. Controls on interestrates have been removed, allowing rates to return to realpositive levels. A generally disciplined monetary policy hasreduced inflation from 12 percent in 1993 to an estimated 10percent in 1994. Fiscal policy has been the biggest challenge for theSalvadoran government. The peace accords signed between thegovernment and the Faribundo Marti Liberation Movement (FMLN)in December 1991 committed the government to heavy expendituresfor transition programs and social services. International aidhas not been as generous as expected. The government hasfocussed on improving the collection of its current revenues,relying more on its own resources than on foreign aid.Government revenues, half of them generated by the new ValueAdded Tax (IVA), have increased substantially during 1993 and1994. The share of domestic taxes in GDP is expected to growfrom 9.4 percent in 1993, to 10.6 in 1994. Efforts now areunderway to improve tax collection. Government plannersestimate that the IVA is presently contributing only 60 percentof its potential revenue. Overall, enhanced revenues --including IVA and income tax and improved collection of importduties -- and some expenditure reduction are expected tosharply reduce the need for domestic financing of the deficit. The government completed implementation of an IntegratedAccounting System in the public sector in June 1994. It hasalso taken steps to improve its financial control over publicenterprises and is pursuing privatization of key institutions-- the National Telecommunications Enterprise (ANTEL), parts ofthe Hydroelectric Production Agency (CEL), and the SocialSecurity Institute (ISSS). Other important fiscal reformsinclude the repeal of the wealth tax in April 1994, approval ofa new Customs Law in May 1994, and elimination of all importduty exemptions in July 1994, including exemptions to publicenterprises.2. Exchange Rate Policy A multiple exchange rate regime that had been used toconserve foreign exchange was phased out during 1990 andreplaced by a free-floating rate. The colon depreciated fromfive to the dollar in 1989 to eight in 1991 but has remainedrelatively stable since. Large inflows of dollars in the formof family remittances from Salvadorans working in the U.S.offset a substantial trade deficit. The monthly average ofremittances reported by the Central Bank is slightly less than$80 million, representing more than $900 million for 1994. Inaddition, the Central Bank intervenes periodically in theexchange market to moderate speculative pressures and smoothout rate fluctuations.3. Structural Policies U.S. exports to El Salvador have increased over 60 percentsince 1991, accounting for some 40 percent of El Salvador'stotal imports. The key policy change driving this trend wasthe government's decision to radically lower tariff barriers.El Salvador's open trade policies are not likely to bereversed. Although the country has run up huge trade deficitsin recent years, they have been more than offset byremittances, short-term capital inflows, official transfers andloans. In fact, El Salvador's net international reserves areestimated at $780 million as of December 1994, up 20 percentover 1993. Also contributing to the surge in imports is therobust rate of economic growth and a post-war constructionboom. Over 73 percent of imports in 1994 were in thecategories of capital and intermediate goods. Prices, with the exception of bus fares and utility rates,are set by the market. The 10 percent value-added tax isapplied equally to all goods and services, imported anddomestic, with a few limited exceptions (dairy products, freshfruits and vegetables, and medicines). It has not proven to bean impediment to import sales. In October 1994, the governmentsuspended a price band mechanism, introduced in 1990 toregulate tariffs on basic grains, and imposed a fixed tariff of20 percent ad valorem. However, Salvadoran officials haveindicated that they plan to reinstitute price bands sometime in1995, probably on a regional basis.4. Debt Management Policies El Salvador's external debt decreased sharply in 1993,chiefly as a result of an agreement under which the UnitedStates forgave about $461 million of official debt. As aresult, total debt service decreased by 16 percent over 1992.In 1994, El Salvador received $265 million in external aid,from multilateral institutions, bilateral sources, and privatesources. External debt crept up from $1.924 billion in 1993 to$2.142 billion in 1994 and debt service rose correspondingly to$365 million. However, El Salvador has eliminated all paymentarrears, and its debt burden is considered moderate. The government of El Salvador has been successful inobtaining significant new credits from the internationalfinancial institutions. Among the most recent loans are asecond structural adjustment loan from the World Bank, for$52.5 million, another World Bank loan of $40 million foragricultural reform, a $20 million loan from the CentralAmerican Bank for Economic Integration to be used to repairroads and a $60 million Interamerican Development Bank loan forpoverty alleviation projects.5. Significant Barriers to U.S. Exports There are no legal barriers to U.S. exports of manufacturedgoods or bulk, non-agricultural commodities to El Salvador.Virtually all import licenses and prohibitive tariffs wereremoved by the Cristiani administration. U.S. goods facetariffs from 5 to 20 percent with higher duties only applied toautomobiles, alcoholic beverages, textiles and some luxuryitems. As of January 1, 1995 the tariff on textiles willdecrease from 35 to 25 percent. Generally, standards have not been a barrier to theimportation of U.S. consumer-ready food products. The Ministryof Health requires a Certificate of Free Sale showing that theproduct has been approved by U.S. health authorities for publicsale. Importers also may be required to deliver samples forlaboratory testing, but this requirement has not beenenforced. All fresh foods, agricultural commodities and liveanimals must be accompanied by a sanitary certificate. Basicgrains and dairy products also must have import licenses.Authorities also have not enforced the Spanish labelingrequirement. Restrictions on foreign banks entering El Salvador havebeen removed. Foreign banks now face the same requirements asSalvadoran banks and can offer a full range of services. El Salvador officially promotes foreign investment in mostsectors of the economy. The foreign investment law allowsunlimited remittance of net profits for most types ofcompanies, and up to 50 percent for commercial or servicecompanies. Both electricity generation and distribution andtelecommunications remain in the hands of governmentmonopolies. The government is privatizing some services inthese industries, improving the prospects of U.S. exports inthese sectors. One U.S. power company has already invested ina local generating station. It is possible that the governmentwill choose to accelerate this trend. El Salvador is a member of the GATT and expects to become amember of the World Trade Organization. The government isdrafted legislation to implement the full range of its UruguayRound commitments.6. Export Subsidies Policies El Salvador does not employ direct export subsidies. Itdoes offer a six percent rebate to exporters of non-traditional goods based on the FOB value of the export, butexporters have found it very difficult to collect. Inaddition, exporters benefit from an exemption from the tax onnet worth. Free zone operations are not eligible for therebate but enjoy a 10-year exemption from income tax as well asduty-free import privileges. In October 1994, the Salvadoran Central Bank announced thatit would write off $5.7 million in credits granted to some10,000 small businesses that sustained losses during the armedconflict. El Salvador is a not member of the GATT subsidiescode.7. Protection of U.S. Intellectual Property El Salvador's new law protecting intellectual propertyrights took effect in October 1994. Implementing regulationshave not yet been promulgated, but the law is being enforced.Local representatives of U.S. companies report a significantdrop in violations, particularly in the areas of sound andvideo recordings. However the government has been hampered byresource limitations and a burgeoning crime rate that hasforced it to give priority to crime-related issues. ElSalvador remains on the Special 301 watch list pending U.S.government evaluation of the law's implementation. The new law addresses several key areas of weakness.Patent terms are lengthened to 20 years (15 forpharmaceuticals), and the definition of patentability isbroad. Compulsory licensing applies only in cases of nationalemergency. Computer software is also protected, as are tradesecrets. Trademarks, however, are still regulated by theCentral American Convention for the Protection of IndustrialProperty. It is an occasional practice to license a famoustrademark and then seek to profit by selling it when thelegitimate owner wants to do business in El Salvador. Thegovernment is working on consensual amendments to theconvention to eliminate this problem. El Salvador is a signatory to the Geneva phonograms andRome copyright conventions. The government has signed theBerne convention on the protection of artistic and literaryworks. The National Assembly ratified the Paris Convention onthe protection of industrial property in January 1994.8. Worker Rights a. The Right of Association Approximately 150 unions, public employee associations, andpeasant organizations represent over 300,000 Salvadorans, about20 percent of the total work force. Private sector workers canform unions and strike, while public sector workers can formemployee associations, but may not strike. (Despite therestriction, there have been many strikes in the publicsector.) Major reforms to the labor code were passed in April1994, streamlining the process required to form a union;extending union rights to agricultural, independent, andsmall-business workers; and extending the right to strike tounion federations. b. The Right to Organize and Bargain Collectively Only private sector unions and unions at autonomous publicagencies have the right to collective bargaining, though inpractice government workers do so as well. The employment ofunion officials is protected by law until one year after theend of their term. This measure is generally respected, butsome organizers have been dismissed before receiving unioncredentials. The labor code reforms attempt to address thisproblem. c. Prohibition of Forced or Compulsory Labor The Constitution prohibits forced or compulsory laborexcept in the case of calamity and other instances specified bylaw. This prohibition is followed in practice. d. Minimum Age of Employment in Children The Constitution prohibits the employment of children underthe age of 14. Exceptions may be made only where suchemployment is absolutely indispensable to the sustenance of theminor and his family, most often the case for children ofpeasant families, who traditionally work with their familiesduring planting and harvesting seasons. Children alsofrequently work in small businesses as laborers or vendors,despite the legal requirement that they complete schoolingthrough the ninth grade. Child labor is not found in theindustrial sector. e. Acceptable Conditions of Work In July the government raised the minimum wages forcommercial, industrial, service, and agro-industrial employeesby 13 percent. The new rate for industrial and service workerswas 35 colones per day (about $4); agro-industrial employeesmust be paid 26 colones (about $3), including a food allowance,per day. Despite these increases, approximately 40 percent ofthe population lives below the poverty level. The law limitsthe workday to eight hours and the work week to 44 hours,requiring premium pay for additional hours. Occupationalsafety remains a problem because of outdated regulations,limited enforcement resources, and a reluctance to strictlyenforce regulations. f. Rights in Sectors with U.S. Investment U.S. investment in El Salvador is distributed fairly evenlyinside and outside the so-called "maquilas" or free zones. Thelabor laws apply equally to all sectors, including the freezones. However, in practice businesses in the free zonesdiscourage union activity; those trying to form unions havebeen fired. The Ministry of Labor lacks the resources andsupport from the legal system to adequately monitor theactivities of the companies in the free zones. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 44Total Manufacturing (1) Food & Kindred Products (1) Chemicals and Allied Products (1) Metals, Primary & Fabricated 7 Machinery, except Electrical 0 Electric & Electronic Equipment -1 Transportation Equipment 0 Other Manufacturing (1)Wholesale Trade 2Banking (1)Finance/Insurance/Real Estate 4Services (1)Other Industries (1)TOTAL ALL INDUSTRIES 104(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEEGYPT: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS e. Acceptable Conditions of Work For government and public sector employees, the minimumwage is approximately USD 20 a month for a six-day, 48-hourwork week. Base pay is supplemented by a complex system offringe benefits and bonuses that may double or triple aworker's take-home pay. It is doubtful that the average familycould 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 requirementand pay bonuses as well. Smaller firms do not always pay theminimum wage or bonuses. The Ministry of Manpower sets workerhealth and safety standards, which also apply in the free tradezones, but enforcement and inspection are uneven. f. Rights in Sectors with U.S. Investment There are U.S. investments in the following industries(inter alia): petroleum, food and related products, metal,non-electric machinery, electric and electronic equipment, andtransportation equipment. Rights available to workers asdescribed in the foregoing sections also apply to workers inthese industries. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 1,087Total Manufacturing 81 Food & Kindred Products (1) Chemicals and Allied Products 6 Metals, Primary & Fabricated 7 Machinery, except Electrical 5 Electric & Electronic Equipment 5 Transportation Equipment (1) Other Manufacturing 0Wholesale Trade 41Banking (1)Finance/Insurance/Real Estate (1)Services 36Other Industries (1)TOTAL ALL INDUSTRIES 1,374(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEEGYPT: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS EGYPT Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1991/92 1992/93 1993/94Income, Production and Employment:Real GDP (1991/92 prices) /1 3,947 40,341 41,177Real GDP Growth (pct.) N/A 2.5 3.6Current GDP by Sector: Agriculture 6,530 6,673 6,797 Industry/Mining 6,545 6,715 6,886 Petroleum/Related Products 3,918 3,967 4,051 Electricity 668 689 707 Construction 2,028 2,042 2,103 Transportation 2,623 2,721 2,781 Suez Canal 1,845 1,742 1,806 Trade 6,545 6,712 6,878 Finance 1,369 1,405 1,447 Insurance 23 24 24 Tourism 729 758 608 Housing 708 736 775 Public Utilities 121 128 134 Social Insurance 26 28 28 Government Services 2,814 2,925 2,995 Personal Services 2,980 3,076 3,154Per Capita GDP (1991/92 prices) 715 715 714Labor Force (000s) 15,141 15,571 16,013Unemployment Rate (pct.) 9.2 10.1 9.8Money and Prices:Money Supply (M2) 31,511 36,576 N/ABanks Lending Rate (pct.) /2 20.6 19.1 17.5Banks Saving Rate (pct.) /2 16.2 15.1 12.1Consumer Price Index (pct.) 9.7 15.0 N/AWholesale Price Index (pct.) 14.0 10.2 N/AExchange Rate (USD/LE) Free Market Rate 0.332 0.333 0.338Balance of Payments and Trade:Total Exports (FOB) /3 1,094 1,026 N/A Exports from U.S. (CY/USD) /4 3,037 2,762 1,579Total Imports (CIF) /3 3,028 3,222 N/A Imports to U.S. (CY/USD) /4 434 613 324Trade Balance -1,933 -2,196 N/A Trade Balance with U.S. (CY) -2,603 -2,149 -1,255Aid from U.S. (USFY/obligations) 2,342 2,097 1,892External Public Debt /5 5,300 3,430 3,400Debt Service Payments (paid) N/A N/A N/AGold and FOREX Reserves /6 9,900 1,480 1,600N/A--Not available.The Egyptian fiscal year is July 1 to June 30; Unless otherwiseindicated, all figures above are for this period./1 Real GDP are factor cost figures based on the 1991/92 prices./2 Lending and deposit rates are average estimates./3 Total imports (CIF) and total exports (FOB) are drawn fromthe Central Bank of Egypt's annual report and are based on theEgyptian fiscal year./4 U.S./Egypt trade figures are based on CY. The 1994 figurescover the period January 1994 through end July 1994./5 Ministry of Finance and Central Bank preliminary estimates./6 Central Bank preliminary figures, excluding gold.1. General Policy Framework Egypt is instituting reforms to reduce the role of thestate and increase reliance on market mechanisms. In 1991,Egypt lifted most foreign-exchange controls, unified theexchange rate, instituted a sales tax, reduced the budgetdeficit, freed interest rates and began financing the deficitthrough treasury bill auctions. In the last three years, astable Egyptian pound (LE) against the dollar and high interestrates have prompted a preference for the use of pounds in favorof dollars by the economy and fed a steady growth in the moneysupply. While the macroeconomic stabilization program hasproved highly successful, the Government has proceeded morecautiously in key areas such as trade policy andprivatization. Three years into the economic reform, theinternational financial institutions and donors are concernedthat the Government's timid approach to structural reform iscondemning the economy to prolonged stagnation. Follow-on IMF and World Bank programs focus on supportingthe private sector. The Government has taken tentative stepstoward privatization of the public sector, which representsapproximately 70 percent of industrial production. In 1993,the 314 public sector enterprises were organized into 17holding companies, which are permitted to sell, lease orliquidate company assets, and sell Government-owned shares.The Government claims to have sold approximately LE 4.5 billion(USD 1.3 billion) in assets to date. Despite these claims,delays in the procedure, disagreements over the valuationprocess, and a general reluctance to follow through on bidshave slowed the process to a crawl. Outright sales have beenfew and share flotation, a method now favored by theGovernment, have been hampered by the weakness of thelong-dormant stock exchange. Further, many important publicsector companies are not candidates for privatization,including the national airline (Egypt Air), telecommunications(Arento), and electricity utilities (EEA). Trade reform hasbeen significant; but domestic industry remains protected byrelatively high tariff rates and non-tariff import barriers.In 1993, import bans on most commodities were eliminated, andin 1994 the maximum tariff rate was reduced from 80 percent to70 percent (with a few exceptions). As reforms proceed and the private sector gains morestrength, exporters of U.S. products (which are popular inEgypt) may find improved market opportunities in Egypt. Thiswill depend on the Government's ability to spur privateinvestment, which remains dormant outside of the tourismsector. Potential investors await progress in privatizationand the elimination of bureaucratic barriers before proceedingwith new projects. The United States is Egypt's largest supplier of imports.U.S. exports to Egypt in 1993 totaled USD 2.8 billion.Annually over USD 200 million worth of exports are financedthrough USAID's Commodity Import Program, over USD 400 millionthrough various USAID projects and about USD 165 million underDepartment of Agriculture programs (GSM/102). A substantialportion of the USD 1.3 billion in U.S. military assistancefinances U.S. exports to Egypt.2. Exchange Rate Policy Egypt, in November 1991, adopted a free-market exchangesystem subject only to Central Bank buying and sellingintervention. The exchange rate is essentially free ofrestrictions now and non-bank dealers are allowed. Highinterest rates and stable exchange rates have stimulated largecapital inflows and a change in preference favoring the use ofpounds instead of U.S. dollars by the economy. Central Bankforeign exchange reserves stand at USD 17 billion. New inflowsare concentrated in short-term deposits and Treasury bills. Anew foreign currency law was passed in April 1994, eliminatingall restrictions on repatriation of tourism and export proceeds. Exchange rate stability and the sharp increase in theavailability of hard currencies, now readily accessible in themarket, should increase opportunities for U.S. exports to Egyptwhen demand conditions become more favorable and with expectedfuture reductions in trade restrictions. Egypt's exportcompetitiveness, however, has eroded significantly due to theexchange rate which has not been depreciating to compensate forannual inflation rates of 10-13 percent.3. Structural Policies Egypt is committed to eliminating most domestic pricecontrols. The Government freed all industrial prices with theexception of pharmaceuticals, cigarettes, rationed sugar andrationed edible oil. The Government still subsidizesmass-consumption bread, which stimulates demand for U.S.wheat. The Government has shown no sign of relaxing pricecontrols on pharmaceutical products, which are administeredinflexibly and are financially harmful to U.S. and otherforeign pharmaceutical companies. While energy,transportation, and water prices are expected to remainadministered, price increases have brought domestic petroleumproduct prices to about 88 percent of international prices(June 1993) and electricity prices to about 77 percent oflong-run marginal costs (the exact figure is in dispute betweenthe World Bank and the Government). The Government is committedto raising energy prices further. Additionally, the Governmentis in the process of deregulating the cotton sector andreactivating the cotton exchange. Despite much progress, domestic industry is still protectedby high tariff rates. In March 1994, the maximum tariff ratewas cut to 70 percent and tariffs between 70 and 30 percentwere reduced by ten percentage points. The lower rate wasmaintained at five percent. The Government is committed toreduce further the maximum custom tariff to 60 percent byend-1994 and 50 percent by mid-1995. Several commoditiesincluding passenger cars, tobacco products, and alcoholicbeverages are exempt from the tariff ceiling. In February1994, the Government imposed "service fee" surcharges of threeand six percent (depending on the custom duty of the importeditem), which undid much of the benefit of the customs ratereduction. After the World Bank cried foul, the Governmentundertook to abolish this surcharge by July 1995. In additionto the custom tariff, a sales tax ranging between five and 25percent is added to the final customs value of the importeditem. Assembly industries may benefit from lower custom rateson imported goods if they meet a local content requirement of40 percent. Continued liberalization of the import regime andfree-market pricing of domestically-produced commodities shouldhelp U.S. goods competing in the Egyptian market. The Government instituted a General Sales Tax (GST), atfirst applicable at the import and manufacturing level, in May1991. The GST is to develop in stages into a full value addedtax by 1995. Taxes on certain consumer goods (alcoholic andsoft drinks, tobacco and petroleum products) not integrated inthe GST were raised and progressively converted to ad valoremtaxes. A Unified Income Tax has been passed which reducesmarginal tax rates, simplifies the tax rate structure, and aimsto improve administration of tax policy. Both the GST and theincome tax are designed to broaden the tax base and compensatefor the loss of customs revenues caused by tariff reductions.4. Debt Management Policies In early 1991, official creditors in the Paris Club agreedto reduce by 50 percent the net present value of Egypt'sofficial debt, phased in three tranches of 15, 15 and 20percent. Release of the three tranches was conditioned onsuccessful review of Egypt's reform program by the IMF. Atabout the same time, the U.S. Government forgave 6.8 billiondollars of high-interest military debt. As a result, Egypt'stotal outstanding medium- and long-term debt has declined toabout USD 34 billion, and the debt service ratio has beenreduced from 46 percent to around 17 percent. Egypt hascleared-up its arrearages to Paris Club creditor countries andis committed to remaining current on its Paris Club payments.The reduction in Egypt's debt service bill has helped it reducedramatically the budget deficit, create macroeconomic stabilityand build a high level of reserves (approximately USD 17billion). In September 1993, the IMF announced an extendedfund facility of Special Drawing Rights (SDR) 400 million(USD 556 million), covering the period June 1993 to June 1996.The World Bank is working in parallel with the IMF on aStructural Adjustment Monitoring Program (SAMP). In July 1994,the Paris Club postponed implementation of the final tranche ofdebt relief, due to a lack of satisfactory IMF review, asrequired by the agreed minute.5. Significant Barriers to U.S. Exports Import Barriers: Egypt does not require import licenses.In July 1993, the Government canceled the list of itemsrequiring prior approval before importation. The import banlist, which included 210 products in 1990, was significantlyreduced in July 1993 and it now includes three commoditygroups: poultry, fabrics and apparel, which representapproximately four percent of total production. The Governmenthas pledged to remove the ban on poultry in 1994 and review theban on textile products in conjunction with GATT negotiationson the Multifiber Arrangement. For food and non-food importsthat have a shelf-life, the Government mandates that theyshould not exceed half the shelf-life at time of entry intoEgypt. Services Barriers: In March 1993, the Bank Law was amendedto allow existing foreign bank branches to conduct localcurrency dealings, and two U.S. bank branches have receivedlicenses to do so. The domestic insurance market is closed toforeign companies, but they may operate in free trade zones asminority partners. Four public sector insurance companies (oneof which is a reinsurance company) dominate the market,although three private sector Egyptian companies exist. Twojoint ventures, each with 49 percent ownership, operate in thefree zones. Other services barriers include the following: ascreen quota exists for foreign motion pictures; only Egyptiannationals may become certified accountants; there is no lawregulating leasing activities in Egypt; and there is regularcensorship of films and printed materials. Standards, Testing, Labeling and Certification: Egypt isparty to the GATT Standards Code. The Egyptian Governmentpledged that it would not introduce any new non-tariff barriersas it reduced tariff rates and eliminated import bans. Whenthe import ban list was reduced in August 1992 and July 1993,however, many items that came off that list were added to thelist of commodities requiring inspection for quality control.In August 1994, five more items were added to the list, whichnow consists of 131 items, including food stuffs, spare parts,construction products, electronic devices, appliances, and manyconsumer goods. Although Egyptian authorities stress thatstandards applied to imports are the same as those applied todomestically-produced goods, importers report that testingprocedures for imports differ, and tests are carried out withfaulty equipment by testers who often make arbitraryjudgments. Moreover, importers face the problems ofill-defined or unwritten product standards, and backlogsresulting from authorities having limited staff or too fewinspection machines. All imported goods should be marked and labeled. Thefollowing information must be written on each package in clearArabic letters in a non-erasable manner: the name of theproduct, type and brand; country of origin; date of productionand expiry date; any special data on transportation andhandling of the product. An Arabic-language catalog shouldaccompany imported tools, machines and equipment. Investment Barriers: In early 1991, Egypt replaced itsinvestment licensing regime with a system for automaticapproval of investments in sectors not on a "Negative List".The list now includes: all military products and relatedindustries; tobacco and tobacco products; and investments inthe Sinai (except oil, gas, and mineral exploration). Foreigninvestors seeking incentives (primarily tax holidays) underInvestment Law 230 must obtain project approval from theGeneral Authority of Investment (GAFI), which may causedelays. Industrial establishments may also be formed underCompanies Law 159, but they will not receive incentives orprotections offered by Law 230. The U.S.-Egypt BilateralInvestment Treaty (BIT) was implemented in June 1992. Whileits safeguard provisions are generally no more liberal thanthose in Law 230, it provides a further measure of protectionto American investors. The BIT has not yet resulted insignificant new U.S. investments which would stimulate Egyptiandemand for U.S. machinery, spare parts, and technical services. Government Procurement Practices: Egypt has not signed theGATT Government Procurement Code. Although Egypt does notemploy systematic or discriminatory policies which adverselyaffect U.S. businesses, the Government buys from public sectorfirms whenever possible. Egypt's tender regulations arewritten by the Government, for the Government's benefit. Acontractor/supplier's safeguard must be negotiated beforecontract signing, particularly in defining force majeure,"final acceptance", and dispute resolution. Egyptian bidders(public and/or private sector) receive a 15 percent pricepreference. Government tenders should be awarded to the bestqualified, lowest bidder; however, it is typical for Governmentnegotiators to bargain with several bidders. There is nopenalty for Government delays in making an award decision or inreturning bid or performance bonds. Egypt does not observe theArab League boycott of Israel. Egypt has moved away fromgovernment-to-government barter agreements and toward privatesector initiatives. Customs Procedures: Egyptian customs procedures arecomplicated and rigid in areas such as duty rates. Customsprocedures are subjective when it comes to identifying whethera commodity fits in one tariff category or another. InFebruary 1994, Egypt implemented the Harmonized System (HS)which replaces the previously used CCCN (Customs CommodityClassification Nomenclature). This should help eliminate thearbitrariness because it identifies items by a ten-digit codewhich allows simpler and more accurate classification ofcommodities. Tariff valuation is based on the so-called"Egyptian selling price" based on the commercial invoice thataccompanies a product the first time it is imported from anysource, although some allowance is given on an ad hoc basis fordifferent sources of supply (such as expensive versuscheap-labor source countries). Customs authorities retaininformation from the original commercial invoice and expectsubsequent imports of the same product to have a value no lowerthan that noted on the invoice from the first shipment. As aresult of that expectation, and the belief that under-invoicingis widely practiced, customs officials routinely increaseinvoice values from 10 to 30 percent. The government does not abide by tariff rates outlined inthe GATT, and in late 1991, importers began to experiencedifficulties with customs officials who refused to apply thelower rates that Egypt had offered in GATT for imports fromGATT member countries. Subsequent to customs authorityactions, the Government submitted to GATT a request for awaiver of its obligation to provide these lower rates. Thewaiver was approved with the Government pledging to negotiatenew rates with its GATT partners.6. Export Subsidies Policies Direct export subsidies do not exist in Egypt. Exportingindustries, including Investment Law 230 projects, may benefitfrom duty exemptions on imported inputs (if released under thetemporary release system). Alternatively, these industries mayreceive rebates on duties paid on imported inputs at the timeof export of the final product (if released under the drawbacksystem). Under its commitments to the World Bank, the EgyptianGovernment has increased energy and cotton procurement prices,and has abolished privileges enjoyed by public sectorenterprises (subsidized inputs, credit facilities, reducedenergy prices and preferential custom rates), thus reducing theindirect subsidization of exports.7. Protection of U.S. Intellectual Property Egypt, as a party to the Berne Convention for theProtection of Literary and Artistic Works and the ParisConvention for the Protection of Industrial Property (interalia), has undertaken to protect U.S. intellectual property.Egyptian law provides protection for most forms of intellectualproperty rights (IPR). However, IPR enforcement, althoughimproving, is still ineffective. The Egyptian governmentpassed an improved copyright law in 1992 and added softwareprotection in early 1994. A new patent law is currently underconsideration. Due to Egypt's progress on copyrightprotection, the U.S. Trade Representative lowered Egypt fromthe "Priority Watch List" to the "Watch List" in April 1994.The U.S. Government is working closely with Egypt to improveintellectual property rights protection. Patents (product and process): Egypt's 1949 Patent Lawexcludes certain categories of products and containsoverly-broad compulsory licensing provisions. Industrialdesigns also receive protection under the patent law throughregistration with the Bureau of Industrial Designs in theMinistry of Supply. Pharmaceuticals and food products areamong those excluded from patent protection under Egyptianlaw. In addition, for patentable products or processes, theterm of patent protection is limited to 15 years from theapplication filing date. A five-year renewal of a patentmay be obtained, but only if the invention is of specialimportance and has not been worked adequately to compensatepatent holders for their efforts and expenses. Compulsorylicenses, which limit the effectiveness of patent protection,are granted if a patent is not worked in Egypt within threeyears or if the patent is worked inadequately. In 1994 U.S.officials conferred with Egyptian officials as they consideredrevisions to the existing patent law. At the end of the year,the GOE had made substantial progress toward a draft law.However, the U.S. government continues to express its concernthat the new law include adequate patent protection forproducts not currently covered (including pharmaceuticals, foodproducts and agricultural chemicals) and that the new law beconsistent with international conventions to which Egypt is aparty, particularly the Paris Convention. Trademarks: Trademark protection is provided by Law 57 of1939. Egypt is a member of the Paris Convention for Protectionof Industrial Property of 1883, the Madrid Convention of 1954,and the Nice Convention for the Classification of Goods andServices. Instances of trademark infringement have been citedby U.S. and other foreign firms operating in Egypt. TheTrademark Law is not enforced strenuously and the courts haveonly limited experience in adjudicating infringement cases.Fines amount to less than USD 100 per seizure, not perinfringement, although criminal penalties are theoreticallyavailable. Copyrights: In response to calls for improved legalprotection for copyrighted works, the Government passed Law 38of 1992, amending the 1954 Copyright Law. The amendments didnot resolve all areas of U.S. concern, however. The BerneConvention, to which Egypt acceded in 1977, is self-executingaccording to Egypt's Constitution. Thus, in cases where thecoverage of the Egyptian copyright law may be vague ornon-existent, such as protection for satellite or cabletransmissions and data banks, and on the question ofretroactivity, U.S. copyright holders may be able to relydirectly on Berne Convention provisions in the Egyptiancourts. As a result of U.S. lobbying, in March 1994, theEgyptian government passed Law 29 which amended some provisionsof Law 38 to ensure that computer software was affordedprotection as a literary work (allowing it a 50-year term ofprotection). In addition, in April 1994, the Government issueda ministerial decree which clarifies rental and publicperformance rights, protection for sound recordings, and thedefinition of personal use. Copyright piracy is stillwidespread and affects all categories of works. Althoughmotion picture piracy (in video cassette format) has declinedover the past year, holders of copyrights on sound recordings,printed matter (notably medical textbooks), and computersoftware continue to suffer harm. Most piracy seems to be forthe local market, with some imports of pirated works fromLebanon and the Gulf States. New Technologies: There is no separate legislationprotecting semiconductor chip layout design, although Egyptsigned the Washington Semiconductor Convention. Further, plantand animal varieties do not receive protection under currentlaw. Estimated 1993 trade losses due to piracy of U.S.intellectual property were USD 84 million of whichapproximately USD 11 million were due to video piracy (asignificant drop from the 1992 level of USD 37 million prior tothe passage of Copyright Law 38/92), and USD 52 million inlosses due to computer software piracy. U.S. officialscontinue to stress the need for better enforcement efforts byEgyptian authorities and to underscore the importance offollowing police activity with court decisions and prosecutions.8. Worker Rights a. The Right of Association Egyptian workers may, but are not required to, join tradeunions. A union local, or worker's committee, can be formed if50 employees express a desire to organize. Most members, about25 percent of the labor force, are employed by State-ownedenterprises. The law stipulates that "high administrativeofficials" in Government and the public sector may not joinunions. There are 23 industrial unions, all required to belongto the Egyptian Trade Union Federation (ETUF), the sole legallyrecognized labor federation. However, the International LaborOrganization (ILO) has long noted that a law requiring allunions to belong to a single federation infringes on a worker'sfreedom of association. The Government has shown no sign thatit intends to accept more than one federation and ETUFleadership asserts that it actively promotes worker interestsand that there is no need for another federation. ETUFleadership has close relations with the ruling NationalDemocratic Party: some ETUF leaders are members of thelegislature. While ETUF leaders speak vigorously on behalf ofworkers' concerns, public confrontations between ETUF and thegovernment are rare. Disputes are often resolved by consensusbehind closed doors. b. The Right to Organize and Bargain Collectively The Government has drafted a new labor law which is underdiscussion in committee in the People's Assembly. The proposedlaw provides statutory authorization for collectivebargaining. Under the current law, unions may negotiate workcontracts with public sector enterprises if the latter agreesto such negotiations, but unions otherwise lack collectivebargaining power in the public sector. Under currentcircumstances, collective bargaining does not exist in anymeaningful sense because the government sets wages, benefits,and job classifications by law. Larger firms in the privatesector generally adhere to such government-mandated standards.Labor law and practice are the same in the export processingzones as in the rest of the country. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is illegal and not practiced. d. Minimum Age of Employment of Children The minimum age for employment is 12. Education iscompulsory until age 15. An employee must be at least 15 tojoin a labor union. The Labor Law of 1981 states that children12 to 15 may work six hours a day, but not after seven p.m.,and not in dangerous activities or activities requiring heavywork. Child workers must obtain medical certificates and workpermits before they are employed. A 1988 survey found that1.4 million children between the ages of 6 and 14 work inEgypt. A 1989 study estimated that two-thirds of child labor,perhaps 720,000 children, work on farms. However, childrenalso work as apprentices in repair and craft shops, in heavierindustries such as brick making and textiles, and as workers inleather factories and carpet-making, which largely supply theexport market. While local trade unions report that labor lawsare well-enforced in state-owned enterprises, enforcement bythe Ministry of Labor in the private sector, especially infamily-owned enterprises, appears quite lax.</text>
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<text>U.S. DEPARTMENT OF STATEECUADOR: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS ECUADOR Key Economic Indicators (Millions of current U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1985 factor cost) 10,694 10,908 11,279Real GDP Growth (pct.) 3.6 2.0 3.4GDP (at current prices) 12,233 14,311 16,590By Sector: Agriculture/Fishing 1,554 1,733 2,010 Petroleum/Mining 1,537 1,534 1,780 Manufacturing 2,697 3,112 3,610 Electricity/Gas/Water 14 40 40 Construction 556 699 810 Transport/Communications 949 1,277 1,480 Commerce/Hotels 2,627 2,894 3,350 Finance/Business Services 568 718 830 Government/Other Services 1,132 1,531 1,780 Sales Tax/Other 599 775 900Net Exports of Goods & Services (110) (490) (890)Real Per Capita GDP (1985 USD) 996 993 1,005Labor Force (000s/estimated) 3,455 3,503 3,590Open Urban Unemployment (pct.) 8.9 9.4 N/AMoney and Prices: (percentage)Money Supply (M2 growth) 55.5 54.0 67.0Base Interest Rate 2/ 47.4 33.8 34.0Consumer Price Inflation 60.2 31.0 25.0Exchange Rate (Sucres/USD) 3/ 1,587 1,918 2,200Balance of Payments:Merchandise Exports (FOB) 3,008 2,904 2,850 Exports to U.S. 1,408 1,327 1,311Merchandise Imports (CIF) 2,430 2,562 2,820 Imports from U.S. 813 824 902Aid from U.S. (fiscal year) 32.1 23.7 16.9Aid from Other Countries 88 106 113External Public Debt 12,122 12,806 13,248 4/Debt Service Payments 4/ 1,532 1,299 -Foreign Exchange Reserves 782 1,254 1,583 5/Merchandise Trade Balance 960 578 310N/A--Not available.1/ 1994 estimates are based on data available in October 1994.GDP sector figures are based on sector shares of 1993 GDP.2/ Average annual interest rate for 90-day bank deposits.3/ Average annual free market exchange rate.4/ 1994 debt stock, excluding interest on interest, as of June30. Debt service includes public and private scheduledpayments, including arrears, but not refinanced payments.5/ Reserves as of September 30, 1994.1. General Policy Framework The Ecuadorian economy is based on petroleum production,along with exports of agricultural commodities (chieflybananas) and seafood (particularly shrimp). Industry islargely oriented to servicing the domestic market, but isbecoming more export-oriented. During the oil boom of the1970's, the Ecuadorian government borrowed heavily from abroad,increased subsidies to consumers and producers, and expandedthe state's role in economic production. In the 1980's, suchpolicies became less financially sustainable, leading tochronic macroeconomic instability. The resulting fiscaldeficits were financed by accumulation of arrears to suppliersand foreign banks, along with monetary emissions by the CentralBank. Nevertheless, a functioning democracy and partial reformmeasures kept Ecuador's economic problems within manageablelimits. In 1992 the electorate turned away social democraticand populist presidential candidates to choose a conservativeadvocate of economic liberalization. President Sixto DuranBallen took office in August 1992 promising to stabilize theeconomy, modernize the state, and expand the role of the freemarket. While the macroeconomic program has been successful,the fundamental structural reforms required to improve theinvestment climate and prospects for long-term growth hasproven more difficult to achieve. Two rounds of economic stabilization measures in 1992 and1994, including large fuel and public utility price hikes, allbut eliminated the public sector budget deficit, reducedchronic inflation, slowed the depreciation of the currency, andbuilt up Ecuador's foreign currency reserves. The 1992 budgetreform law should help unify the central government budget,curtail the earmarking of revenues for unrelated expenditures,and give the Ministry of Finance greater control over spendingby public agencies. The elimination of the Central Bank's rolein subsidizing credit earlier in 1992 has also helped curb thedeficit. Since February 1994, the government has set domesticgasoline prices according to world market factors, therebystabilizing an important source of government revenue.Finally, the tax reform of December 1993 and the March 1994customs law, if fully implemented, should increase thegovernment's non-oil revenues. After failing to close an agreement with the IMF inmid-1993, the government concluded a two-year stand-byarrangement in March 1994 and has applied strict fiscaldiscipline to date. Deferral of capital projects has helpedkeep the 1994 consolidated public sector deficit to below 0.5percent of GDP. Government revenue from oil exports anddomestic sales of fuel will account for about 7.5 percent ofGDP in 1994, while sales and income taxes will only contribute6.2 percent of GDP. Public sector expenditures (including thestate enterprises, but excluding the military's capital budgetfunded by a direct allocation of oil revenues) will account forabout 26 percent of GDP in 1994. Debt service is the largestarea of government spending, followed by education anddefense. For 1995, the government plans to increase realspending on debt service, road building, public health, and themilitary, and cut spending on housing, welfare, agriculture,and general administration. As a result of the stabilization program and weaker demandfor Ecuadorian exports, economic growth slowed to 2 percent in1993, down from 3.6 percent in 1992. Greater oil and bananaproduction volumes in 1994 may result in GDP growth of over 3percent in 1994. The government hopes that reform measureswill finally produce a general economic recovery and 4 percentgrowth in 1995. Gross domestic product for 1994 should reachabout $16.6 billion, producing a GDP per capita of$1,479. In 1993, Ecuador ran a $578 million merchandise tradesurplus and a current account deficit of $360 million due to aservices deficit of $1,068 million. Ecuador's trade surpluswill fall further to around $300 million in 1994, with oil andbanana prices remaining below the levels of previous years. After experiencing general price rises of 60 percent in1992 and 31 percent in 1993, Ecuador's inflation rate isslowing to about 25 percent for 1994. The government hopes toreduce inflation to 15 percent in 1995 and single digits in1996. Driven by capital inflows, the money supply (M2 or bankliquidity) increased by 54 percent in 1993 and as of the end ofSeptember 1994 was up 70 percent over the previous 12 months.M2 has risen to 21 percent of GDP. Since late 1992 the CentralBank has tried to smooth out fluctuations in liquidity throughweekly bond auctions and interventions in the secondarymarket. The government has attempted to compensate for theinflationary effect of the foreign exchange influx byincreasing its sucre deposits at the Central Bank. In July1994, the Central Bank abandoned the use of reserverequirements as a monetary policy tool when it unified therequirement for checking and savings deposits, then lowered itto 10 percent. From late 1992 to early 1994, free market sucreinterest rates swung sharply in response to alternating periodsof declining inflationary expectations and renewed uncertaintyover the direction of government economic policy. Decliningliquidity produced a slower climb in rates from April to July1994 to peak at 41 percent for 90-day CD's. During the secondhalf of 1994, 90-day CD rates eased to about 35 percent. Thespread between savings and lending rates has narrowed from anaverage of 11 points in 1993 to 8 points for 1994.2. Exchange Rate Policy In September 1992, the government devalued the currency by35 percent, set an intervention rate of 2,000 sucres to thedollar and embarked on a controlled float. Since December 1992exporters have no longer had to surrender their foreignexchange earnings to the Central Bank. The intervention ratewas abandoned in September 1993. Foreign currency is readilyavailable on the free market, trading at about 2,275 sucres tothe dollar in October 1994, a 12 percent nominal depreciationsince the beginning of the year. There are no restrictions onthe movement of foreign currencies into or out of Ecuador. Apartially-controlled exchange rate structure remains in effectfor the public sector. The state oil company and other publicentities currently receive about 11 percent less for dollarsearned from exports than the free market rate for buyingdollars. The spread, which the government plans to eliminate,serves to finance the Central Bank and force savings by thepublic sector enterprises. A high interest rate differential between Ecuador and theUnited States has attracted net capital inflows of around $700million since late 1992, slowing the nominal depreciation ofthe sucre. Relative exchange rate stability contributed to areal inflation-adjusted appreciation of the sucre of 16.7percent in 1993, a pattern that has continued in 1994. Theovervalued currency and earlier trade liberalization measureshave made imports more competitive and served as a partialanchor against inflation, but Ecuadorian exporters areincreasingly caught between rising sucre costs and stagnantsucre earnings. The Central Bank has intervened in theexchange market on occasion to keep the currency fromappreciating by selling sucres, leading to an increase inforeign reserves, but creating upward pressure on the moneysupply. By the end of September 1994, foreign exchangereserves had risen to $1.58 billion, enough to cover importsfor about 6 months. During 1995, increased inflows ofmultilateral development resources should be offset by reneweddebt service payments.3. Structural Policies The Duran Ballen administration has had only partialsuccess with its structural reform program designed to promoteinvestment and economic growth. In the administration's firstyear, progress was made on budget reform and promoting thedevelopment of capital markets. The government's staffinglevel, particularly for contractors, was significantlyreduced. Many unnecessary and market-distorting regulationswere eliminated. With a few exceptions for pharmaceuticals andsome foodstuffs, all prices are now set by the free market.During the second year, the state development banks beganselling their equity shares in commercial enterprises to theprivate sector, although there have been no sales of sharesowned by the military. The government hopes to move forwardduring its final two years with the partial privatization ofsome of the major state enterprises, while continuing theeffort to implement earlier government modernizationlegislation and combat corruption. The version of the state modernization law finally passedby Congress in late 1993 allows private sector participation in"strategic sectors" of the economy, including petroleum,electricity, and telecommunications, but only on a concessionbasis. Legislation to promote private sector involvement intelephone service and electricity generation may be enacted in1995. Meanwhile, the government is proceeding with the sale ofEcuatoriana, the bankrupt state airline. Since April 1994, newleaders at the National Modernization Council (CONAM) havegiven direction and purpose to the government's structuralreform program. In addition to the plans for the major stateenterprises, CONAM is developing concession programs for publicworks, the civil registry, airports, and ports and customsadministration. Postal and railroad services will be left moreto the private sector. Efforts will also be made to modernizehigher education and the social security system's troubledpension and health systems. The Ministry of Education isintroducing a modern curriculum in the public schools designedto emphasize reasoning over memorization. The May 1993 capital markets law provided a mechanism forprivatizing state enterprises by establishing the legal basisfor turning the Quito and Guayaquil stock exchanges into trueequity markets. During the first year of operations under thenew law, monthly trading volume of equity shares grew frompractically nothing to $53 million in July 1994. The marketsshould expand further in the wake of social security pensionreform, privatizations of state firms, and greater privatesector interest in the markets' capital-raising potential.Meanwhile, Congress enacted a new financial institutions law inMay 1994 that substantially deregulates the financial sector,while providing greater safeguards against bank failures. Investment liberalization measures in 1991 and 1993provided foreign investors with full national treatment andeliminating prior authorization requirements for investment inmost industries, including finance and the media. Specificrestrictions, most applicable to Ecuadorian as well as foreigninvestors, remain for petroleum, mining, electricity,telecommunications, and fishing investments. A bilateralinvestment treaty that provides free transfers and a bindingarbitration dispute settlement procedure was signed with theUnited States in August 1993 and ratified by Ecuador's Congressin September 1994. The capital markets law equalized incometax rates on foreign and domestic companies at 25 percent. Avalue-added tax of 10 percent applies to sales of imports ofgoods and services in the formal sector. Utilizing the moreinvestor-friendly procedures of the November 1993 hydrocarbonslaw, the goverment generated considerable foreign interest inthe 1994 seventh petroleum exploration licensing round and aproject to construct and manage a second oil pipeline acrossthe Andes. In July 1994, Congress approved an agrariandevelopment law that will improve the security of agriculturalland tenure for both peasants and agrobusiness.4. Debt Management Policies At the end of the first half of 1994, Ecuador's externaldebt, including past-due interest, exceeded $13.3 billion.Over half of the debt, about $4.5 billion in principal and $2.8billion in interest arrears, was owed to foreign commercialbanks and secondary market investors in bank paper.Total debt service owed in 1993 amounted to 36 percent of goodsand services exports and 9 percent of GDP. Ecuador stoppedpaying debt service to the commercial banks in 1987, resumedpaying 30 percent of interest due in June 1989, then haltedpartial interest payments in September 1992. Settlement of thedebt issue has been a major priority for the Duran Ballenadministration. Resolution of the debt problem should improveEcuador's creditworthiness and attractiveness to investors. In May 1994, Ecuador and its commercial creditors agreed ona comprehensive restructuring of its external commercial bankdebt. Under the agreement, creditors can exchange existinginstruments for new bonds carrying a 45 percent discount or forpar bonds with fixed interest rates varying from 3 to 5percent. Given the mix of instruments chosen by the creditorsunder the agreement signed in October 1994, Ecuador received anet reduction of 26 percent in principal owed, while 57 percentof the remaining debt stock of $3.32 billion will carry a fixedinterest rate of no more than 5 percent. The government willhave to spend about $540 million to purchase collateral fordebt principal and interest. Multilateral bank financing, madepossible by the 1994 agreement with the IMF, will help Ecuadormeet the upfront costs of the debt settlement. Service on thecommercial debt should average some $275 million over the next6 years and rise thereafter unless the government takes stepsto retire some of its debt stock. In June 1994 Ecuador reached an agreement with the ParisClub to reschedule $304 million in official bilateral debtservice on pre-1983 obligations that fell due in 1993 and1994. Ecuador is currently negotiating a bilateralrescheduling agreement with the United States. The Ecuadoriangovernment is also negotiating a major structural adjustmentloan with the World Bank.5. Significant Barriers to U.S. Exports In the early 1990's, the Borja administration initiated amajor trade liberalization program, reducing tariffs and tariffdispersion, eliminating most non-tariff surcharges, andenacting an in-bond processing industry (maquila) law. As partof the Andean Pact integration effort, the Duran Ballenadministration concluded bilateral free trade agreements withits Andean Pact partners Colombia, Bolivia, Peru, andVenezuela. Ecuador applied to join GATT in September 1992 andis currently engaged in negotiations with GATT contractingparties over the terms of its accession to both GATT and theWTO. As part of its accession, Ecuador will commit to ensureits trade regime is GATT-consistent. Ecuador's tariff schedule is based on the GATT's HarmonizedSystem of Nomenclature. In 1991, the Borja administrationoverhauled a highly protectionist tariff system, reducingduties and fees for most imports to the 5 to 20 percent range.Ecuador is in the process of establishing a common externaltariff system with other members of the Andean Pact. InSeptember 1993, Ecuador reached an agreement with Colombia andVenezuela to introduce a common tariff of 35 percent for carsand light trucks. Customs procedures can be difficult, and have occasionallybeen used to discriminate against U.S. products. Thegovernment is implementing a new customs reform law to reducecorruption and improve efficiency in the customs service,thereby eliminating a major constraint on trade. Sanitaryrequirements for imported foods, as well as some otherconsumption goods have had the effect of blocking the entry ofsome imports from the United States. The government is phasingout its policy of setting minimum prices for assessing customsduties on textiles and some other imports. Import bans are ineffect for used clothing, cars, and tires. Price bands haveresulted in high effective tariffs for a variety ofagricultural products. All importers must obtain a prior import license from theCentral Bank. Licenses are usually made available for allgoods, although importers sometime encounter bureaucraticdelays. A 1976 law prevents U.S. and other foreign suppliersfrom terminating existing exclusive distributorshiparrangements without paying compensation. Foreigners mayinvest in most sectors, other than public services, withoutprior government approval. There are no controls or limits ontransfers of profits or capital and foreign exchange is readilyavailable. Government procurement practices do not usuallydiscriminate against U.S. or other foreign suppliers. However,bidding for government contracts can be cumbersome andtime-consuming. Many bidders object to the requirement for abank-issued guarantee to ensure execution of the contract.6. Export Subsidies Policies Ecuador does not have any export subsidy programs.7. Protection of U.S. Intellectual Property Ecuador's protection of patent and trademark rights isbased on Andean Pact Decisions 344 and 345, while copyrightsare covered by Decision 351. The new decisions provide 20-yearpatent terms (except for some pharmaceuticals), protection forplant varieties. Ecuador's implementing regulations providepipeline protection for patents, and control of parallelimports. In a major breakthrough, Ecuador and the U.S. signed abilateral Intellectual Property Rights Agreement in October1993 that guarantees full protection for copyrights,trademarks, patents, satellite signals, computer software,integrated circuit layout designs, and trade secrets. Whilethe government implemented some provisions by executive orderand legislation, the Ecuadorian Congress has not yet ratifiedthe agreement; nor has the government introduced legislation toharmonize local law with the agreement's requirements. Ecuadoris committed to adopting legislation implementing theTrade-Related Intellectual Property (TRIPS) Agreement of theUruguay Round, as part of its GATT/WTO accession. Enforcement of intellectual property rights remains aproblem for Ecuador. Copyright infringement occurs and thereis some local trade in pirated audio and video recordings, aswell as computer software. Local registration of unauthorizedcopies of well-known trademarks is a problem since thegovernment lacks the resources to monitor and control suchregistrations. Some local pharmaceutical companies produce orimport patented drugs without licenses.8. Worker Rights a. Right of Association Under the Ecuadorian constitution and labor code, mostworkers in the private and parastatal sectors enjoy the rightto form trade unions. The revised labor code of November 1991raised the number of workers required for an establishment tobe unionized to 30. Less than 10 percent of the labor force,mostly skilled workers in parastatal or medium to large sizedindustries, is organized. Except for public servants andworkers in some parastatals, workers by law have the right tostrike. Sitdown strikes are allowed, but restrictions onsolidarity strikes were imposed in 1991. Ecuador does not havea high level of labor unrest. Most strike activity involvespublic sector employees. b. Right to Organize and Bargain Collectively Private employers with more than 30 workers belonging to aunion are required to engage in collective bargaining whenrequested by the union. The labor code prohibitsdiscrimination against unions and requires that employersprovide space for union activities. The labor code providesfor resolution of conflicts through a tripartite arbitrationand conciliation board process. Employers are not permitted todismiss permanent workers without the express permission of theMinistry of Labor. The in-bond (maquila) law permits thehiring of temporary workers in maquila industries, effectivelylimiting unionization in the sector. Despite reforms in 1991,employers consider the labor code to be highly unfavorable totheir interests and a disincentive to hiring union members andto employment in general. c. Prohibition of Forced or Compulsory Labor Compulsory labor is prohibited by both the constitution andthe labor code and is not practiced. d. Minimum Age of Employment of Children Persons less than 14 years old are prohibited by law fromworking except in special circumstances such asapprenticeships. Those between the ages of 14 and 18 arerequired to have the permission of their parent or guardian towork. In practice, many rural children begin working as farmlaborers at about 10 years of age, while poor urban childrenunder age 14 often work for their families in the informalsector. e. Acceptable Conditions of Work The labor code provides for a 40 hour work week, a 15 dayannual 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 sixmonths and can be adjusted by Congress. Mandated bonuses bringtotal monthly compensation to about $123. The Ministry ofLabor also sets specific minimum wages by job and industry sothat the vast majority of organized workers in state industriesand large private enterprises earn substantially more than thegeneral minimum wage. The Duran Ballen administration hasproposed a simplification of the complex wage and bonussystem. The labor code also provides for general protection ofworkers' health and safety on the job. Occupational health andsafety is not a major problem in the formal sector. There areno enforced safety rules in the agriculture sector and informalmining. f. Worker Rights in Sectors with U.S. Investment The economic sectors with U.S. investment includepetroleum, chemicals and related products, and food and relatedproducts. U.S. investors in these sectors are primarily large,multinational companies which abide by the generous Ecuadorianlabor code. In 1994 there were no strikes or serious laborproblems in any U.S. subsidiary. U.S. companies are subject tothe same rules and regulations on labor and employmentpractices governing basic worker rights as Ecuadorian companies. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 355Total Manufacturing 97 Food & Kindred Products 33 Chemicals and Allied Products -3 Metals, Primary & Fabricated 18 Machinery, except Electrical 0 Electric & Electronic Equipment (1) Transportation Equipment (1) Other Manufacturing 31Wholesale Trade 38Banking (1)Finance/Insurance/Real Estate 0Services 0Other Industries (1)TOTAL ALL INDUSTRIES 511(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEDOMINICAN REPUBLIC: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS DOMINICAN REPUBLIC Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1970 prices) 4,104.9 4,228.7 4,333.75Real GDP Growth (pct.) 7.8 3.0 2.5GDP (current prices) 7,828 8,689 9,172By Sector: Agriculture 1,174 1,304 1,376 Energy/Water 157 174 183 Manufacturing 1,252 1,390 1,467 Construction 548 608 642 New Housing Investment 548 608 642 Financial Services 470 521 550 Other Services 783 869 917 Government/Health/Education 783 869 917 Others 2,113 2,346 2,476 Net Exports of Goods & Services -824.0 -749.5 N/AReal Per Capita GDP (1985 prices in DR pesos) 2/ 2,202 2,209 2,211Labor Force (000s) 3/ 3,240 3,370 N/AUnemployment Rate (pct.) 4/ 30 30 30Money and Prices: (annual percentage growth)Money Supply (M2) 32 28 8Base Interest Rate 5/ 30 29 27Personal Saving Rate N/A N/A N/ARetail Inflation 7 8 12Wholesale Inflation N/A N/A N/AConsumer Price Index 6/ 779 800 896Exchange Rate (DR peso/U.S dollar) Official 12.75 12.75 12.87 Parallel 12.74 12.60 14.00Balance of Payments and Trade:National Exports (FOB) 7/ 561.9 530.4 530.9 Trade Zone Exports (value added) 287.4 368.5 N/A Exports to U.S. 8/ 2,095.0 2,349.5 2,584.5National Imports (CIF) 7/ 2,178.1 2,118.4 2,224.3Imports from U.S. 8/ 2,098.1 2,671.5 2,938.7Aid from U.S. 9/ 22.5 24.6 N/AAid from Other Countries N/A N/A N/AExternal Public Debt 4,582.3 4,685.4 3,900.0Debt Service Payments (paid) 480.9 N/A N/AGold and FOREX Reserves 10/ 580.8 714.2 250.0Trade Balance (National) 7/ -1,616.2 -1,588.0 -1,693.4 Trade Balance with U.S. 8/ -3.1 -322.0 -354.2N/A--Not available.1/ U.S. Embassy projections for 1994 calendar year.2/ Source: The Dominican National Statistic Office is thesource of population figures used to calculate per capita GDP.3/ Source: Dominican National Planning Office.4/ Source: U.S. Embassy Economic Section estimates.5/ The 1994 figure is as of July 1994. Short term (90 day)credit costs (prime rate).6/ May 1976-April 1977 equals 100.7/ "National exports" means all exports other than from freetrade zones. "National imports" means all imports other thanthose bound for free trade zones.8/ Source: U.S. Department of Commerce. This data includesall items exported to or imported from the Dominican Republicby the United States, including Dominican free trade zoneactivity.9/ Calculation based on U.S. Government fiscal year.10/ Embassy estimate for December 1994.Source: Economic Studies Department, Central Bank ofthe Dominican Republic, unless otherwise indicated.1. General Policy Framework During 1994, the Dominican Republic began to show signs ofmacroeconomic instability. While inflation had stayed in thesingle digit range during 1991-1993, by the end of 1994 theconsumer price index is expected to register a jump of some 12percent (over December 1993). Similarly, exchange ratestability began to deteriorate; during early October 1994 thebuy rate for U.S. Dollars in Santo Domingo's informal foreignexchange market reached 14.70 pesos per dollar - a 15 percentdecline from the peso's October 1993 value. Because of theDominican Republic's very high propensity to import, changes inthe exchange rate inevitably have a significant impact onconsumer prices. The reasons for this deviation from macroeconomic stabilityare clear: national elections were held on May 16, 1994 andgovernment spending increased during the period prior to theelections. Much of the increased spending was - in essence -financed via money creation. By July 1994, cash in the handsof the public (m0) had increased by 24 percent over its July1993 level. This increase in the money supply caused a bigincrease in aggregate demand for goods and services, puttingpressure on both the exchange rate and the consumer price index. Significant reductions in the Dominican Central Bank'sdollar reserves left the government with a greatly reducedcapacity to intervene in the foreign exchange market: beginningthe year with dollar reserves of some 736 million dollars bylate August reserves were down to approximately 150 milliondollars. The reserves were diminished as a result of CentralBank efforts to bolster the peso in the face ofelection-related nervousness. The Central Bank also used asignificant portion of its reserves to settle the Dominicangovernment's long-standing commercial debt problem (see below). Starting in early September 1994, the Dominican governmentinitiated efforts to recover macroeconomic stability. Aseasoned finance professional was given the position of CentralBank Governor and steps were immediately announced to reign inthe monetary expansion mentioned above. President Balaguerpledged his support for the Central Bank's stabilizationprogram. As of late October 1994, it appears that thegovernment was having some success in these efforts.2. Exchange Rate Policy In effect there are three different sets of exchange ratesin the Dominican Republic: the official Central Bank rates, therates used by the commercial banking system and the rates usedby the semi-legal "informal" foreign exchange market. Somesectors of the Dominican economy are still required by law tobuy and sell foreign exchange at the Central Bank, but mostbusinesses and individuals are free to carry out foreignexchange transactions through the commercial bank system. Inpractice the Central Bank works to prevent the commercial bankrates from deviating too widely from the official rates, butwhen dollars are in short supply the informal market exchangerate will begin to rise and dominicans seeking to buy or selldollars will make increasing use of this market. In its attempts to influence the exchange rate, the CentralBank buys or sells dollars and attempts to influence overalldemand for dollars by manipulating the reserve requirements ofthe commercial banks. To a limited extent the Central Bank alsoeng short-term notes). While the peso price of U.S. Dollars has increased, as ofOctober 1994 there was no indication that business activity wasbeing seriously affected by any shortage of foreign exchange.Businesses here do, however, worry that the government mightrespond with exchange rate controls should the value of thepeso continue to decline.3. Structural Policies Starting in 1990, the government began to eliminate many ofthe distorting price control and subsidy programs that hadcontributed to the crisis of the late 1980's. Today, the vastmajority of prices are determined by market forces. Of particular interest to U.S. exporters are reforms in thecustoms and tariffs area. In September, 1990 the Dominicangovernment enacted a major tariff reform by presidentialdecree. The decree reduced and simplified the tariff scheduleto six categories with seven tariff rates ranging from 3 to 35percent. It also replaced some quantitative import restrictionswith tariffs and transformed all tariffs to ad valorem rates. While it marked an improvement over the previous tariffregime, the 1990 decree still left the Dominican Republic withtrade barriers significantly higher than many similar countriesin the region. In August 1993, the Dominican president signedinto law a bill that was essentially a codification of the 1990decree (with some modifications designed to increase rates ofeffective protection for Dominican firms.) This new tariff lawwas bitterly opposed by free trade advocates - it leaves theDominican Republic with a maximum tariff of 35 percent whilemany other countries in the region are moving toward much lowermaximum tariffs. (There are additional taxes on imports - seebelow.) The Dominican government has also implemented changes inits tax system aimed at increasing revenues. The concept oftaxable income has been enlarged, marginal tax rates onindividuals and companies were reduced and capital gains are nolonger considered exempted income. In May, 1992 a new labor code was promulgated. Provisionsof this new code increase a variety of employee benefits andmay result in increased labor costs. The banking and finance system is also in need of reform.The goal is a healthier, more competitive and transparentfinance system with closer compliance to clearly understood"rules of the game." Unfortunately a new financial monetarycode that was expected to be enacted in late 1992 has not beenput into effect. Some bank reforms are being carried out bydecree, but bank supervision remains very weak and there isuneasiness about the health of the banking system. Government policy prohibits new foreign investment in anumber of areas including public utilities, communications andmedia, national defense production, forest exploitation anddomestic air, surface and water transportation. It is widelyrecognized that there is a pressing need for investment climatereform. A draft foreign investment law is currently in thehands of the Congress, but progress in this area has been veryslow.4. Debt Management Policies The total external debt of the Dominican government is nowapproximately 3.9 billion dollars. A significant portion of theofficial debt was rescheduled under the terms of a Paris Clubnegotiation concluded in November, 1991. In August 1994 theDominican government successfully concluded debt settlementnegotiations with its commercial bank creditors. The dealinvolved a combination of buy-back schemes and U.S. Treasurybacked rescheduling. The Dominican Republic's debt burden is fairly typical fora lower middle income country. Total external debt as apercentage of GNP is approximately 48 percent.5. Significant Barriers to U.S. Exports Trade Barriers: Tariffs on most products fall within a 5to 35 percent range. In addition, the government of theDominican Republic imposes a 5 to 80 percent selectiveconsumption tax on "non-essential" imports such as homeappliances, alcohol, perfumes, jewelry, automobiles and autoparts. Due to the way in which this selective consumption taxwas assessed, U.S. made automobiles were prohibitivelyexpensive in the Dominican market. In response to inquiriesfrom the U.S. Embassy, the Dominican government corrected thissituation and the number of U.S. made automobiles increasedsignificantly. The Dominican Republic continues to require a consularinvoice and "legalization" of documents, which must beperformed by a Dominican consulate in the United States.Moreover, importers are frequently queried to obtain licensesfrom the Dominican customs service. There are food and drug testing and certificationrequirements, but these are not burdensome. Customs Procedures: Many businesspersons have complainedthat bringing goods through Dominican customs is a slow andarduous process, but there are indications that this situationimproved during 1994. Customs department interpretation ofexonerated materials being brought into the country stillprovokes many complaints and businessmen here must spendconsiderable time and money to get items through customs. Arbitrary customs clearance procedures sometimes causeproblems for businessmen. The use of "negotiated fee" practicesto gain faster customs clearance continues to put some U.S.Firms at a competitive disadvantage in the Dominican market.U.S. firms must comply with the provisions of the U.S. ForeignCorrupt Practices Act. Government Procurement Practices: The government of theDominican Republic has a centralized government procurementoffice, but the procurement activities of this office arebasically limited to expendable supply items for thegovernment's general office work. In practice, each publicsector entity has its own procurement office, both fortransactions in the domestic market and for imports. Provisionsof the U.S. Foreign Corrupt Practices Act often put U.S.bidders on government contracts at a serious disadvantage. Prohibitions on Land Ownership: For foreigners, ownershipof more than approximately one-half acre (2,000 square meters)needs presidential approval. Investment Barriers: As indicated above, legislationdesigned to improve the investment climate is being discussed,but as of October 1994, no significant changes in theinvestment climate had been put into effect. Foreign investment must receive approval from the foreigninvestment directorate of the Central Bank in order to qualifyfor repatriation of profits. The granting of such approvalsometimes is time-consuming and the procedures are unclear,making approval sometimes difficult. As per Law 861, Article16, of July, 1978 companies registered under the foreigninvestment law are limited in remitting profits or dividendsabroad to 25 percent of registered capital per year.Unregistered investment has no right to transfer profits. Capital gains have the right to be remitted only up to twopercent annually and, cumulatively, to 20 percent of theoriginal investment. Invested (and registered) capital may beremitted, but only upon the sale or liquidation of theenterprise. Royalties (payments made for technology transfers,licensing contracts and for use of patents and trademarks) mayonly be paid based on a percentage of sales. Further, eachsuch contract must be individually approved by the foreigninvestment directorate. Reinvestment of profits is highly restricted. Theenterprise must be in the agribusiness or tourism sectors, mustexport at least 80 percent of its sales, and must remain atleast 70 percent domestically owned. All contracts with foreigners for the use of trademarks, orfor the use of specialized technical knowledge, must besubmitted to the foreign investment directorate forregistration. The directorate is permitted to delay or even todisapprove them. Financial institutions doing business in the DominicanRepublic must be at least 50 percent Dominican owned, as perLaw 861, Article 23 of July, 1978. Exceptions to this law areCitibank and the Bank of Nova Scotia, which were grandfatheredin because they were here prior to passage of this law. A newfinance and monetary code (and the foreign investment lawmentioned above) could bring changes to this local ownershiprequirement. Foreign companies cannot obtain internal credit for aperiod greater than one year without prior approval from theCentral Bank, as per Law 861, Article 28 of July, 1978. Sectors reserved by other provisions of Law 861 forDomestic Investment are: Public utilities, communications andmedia, national defense production, forest exploitation, anddomestic air, surface and water transport. (Some foreignbusinesses operate in these sectors because they have been"grandfathered in.") Foreign investors can participate injoint ventures (defined as having 51 to 70 percent Dominicancapital and management control) in fishing, insurance, farming,animal husbandry, and commercial and investment banking. The electricity sector continues to be a weak link in theDominican economy. Businesses operating in the DR cannotdepend on the power utility to be a reliable source ofelectricity. While the government has been exploring theprivatization of portions of the electric power system, littleprogress has been made. Foreign employees may not exceed 20 percent of a firm'swork force. This is not applicable when foreign employees onlyperform managerial or administrative functions. Dominican expropriation standards (e.g., in the "publicinterest") do not appear to be consistent with internationallaw standards; several investors have outstanding disputesconcerning expropriated property. The Dominican Republic has not recognized the general rightof investors to binding international arbitration. All mineral resources belong to the state, which controlsall rights to explore or exploit them. Although privateinvestment has been permitted in selected sites, the process ofchoosing and contracting such areas has not been clear ortransparent. Investors operating in the Dominican Republic's free tradezones experience far fewer problems than do investors workingoutside the zones. For example, materials coming into or beingshipped out of the zones are reported to move very quickly,without the kinds of bureaucratic difficulties mentioned aboveand the onerous restrictions on profit remittances do not applyto free trade zone businesses.6. Export Subsidies Policies The Dominican Republic has two sets of legislation forexport 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 percentexemption on all taxes, duties, and charges affecting theproductive and trade operations at free trade zones. Theseincentives are provided to specific beneficiaries for up to 20years, depending on the location of the zone. This legislationis managed jointly by the foreign trade zone national counciland by the Dominican customs service. The export incentive law provides for tax and duty freetreatment of inputs from overseas that are to be processed andre-exported as final products. This legislation is managed bythe Dominican export promotion center and the Dominican customsservice. In practice, use of the export incentive law toimport raw materials for process and re-export is cumbersomeand delays in clearing customs can take anywhere from 20-60days. This customs clearance process has made completion ofproduction contracts with specific deadlines very difficult.As a result, non-free trade zone exporters rarely takeadvantage of the export incentive law. Most prefer to importraw materials using the normal customs procedures which,although more costly, are more rapid and predictable. There is no preferential financing for local exporters noris there a government fund for export promotion.7. Protection of U.S. Intellectual Property In general, copyright laws are adequate, but enforcementis weak, resulting in widespread piracy. Although theDominican Republic is a signatory to the Paris Convention andthe Universal Copyright Convention, and in 1991 became a memberof the World Intellectual Property Organization, the lack of astrong regulatory environment results in inadequate protectionof intellectual property rights. In 1992, the DominicanRepublic was the subject of a petition by the Motion PictureExport Association of America (MPEAA) before the United StatesTrade Representative, alleging piracy of satellite televisionsignals and unauthorized use of videos in Dominican theaters.In response to this complaint, the Dominican government tookeffective action against cable television pirates and most ofthe television piracy was halted. Patents (product and process): In a local pharmaceuticalmarket of approximately 110 million dollars a year, Dominicanmanufacturers supply about 70 percent of the total. Of that,about seven per cent is believed to be counterfeit. Trademarks and Copyrights: Many apparel brands arecounterfeited and sold in the local market. In addition to theMPEAA complaint, problems have arisen with illegally copiedvideos, software and books. Impact of IPR Policies on U.S. Trade: Non- protection ofintellectual property rights is so widespread that it isvirtually impossible to quantify its impact on U.S.-DominicanRepublic trade. The U.S. Motion Picture Exporters' Associationhad estimated that losses to its members due to theft ofsatellite-carried programming were more than one milliondollars per year. Losses due to other counterfeiting cost U.S.companies millions more.8. Worker Rights a. The Right of Association The constitution provides for the freedom to organize laborunions and also for the rights of workers to strike and for theprivate sector to lock out. All workers, except military andpolice, are free to organize, and strikes are legal except insectors which are considered essential services. Organizedlabor in the Dominican Republic represents about 10-15 percentof the work force and is divided among three largeconfederations, three minor confederations, and a number ofindependent unions. Labor unions can and do freely affiliateregionally and internationally. b. The Right to Organize and Bargain Collectively Collective bargaining is permitted and can take place infirms in which a union has gained the support of an absolutemajority of the workers of a firm. According to law workerscannot be dismissed because of union activities or membership.There has been a history of labor conflict in the free tradezones, with companies firing workers for engaging in unionorganizing activities. The 1992 Labor Code protects fromlayoffs up to 20 members of a union in formation and between 5to 10 members of a union executive council, depending on thesize of the work force. The 1990 firings of unionized workersby the Dominican Electric Corporation led to management/labordisputes which have yet to be fully resolved. The free tradezones have also been the scene of some management/labor disputes (see Section 8.F.). c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is prohibited by law. TheDominican government has been criticized for its treatment ofHaitian workers employed by the State Sugar Council (CEA).Alleged abuses have included forced recruitment, compulsorylabor, and restrictions on freedom of movement. Instances offorced labor and restrictions on movement occurred in onlyisolated instances on CEA plantations in 1993. Forced laborhas not been a problem in other areas. d. Minimum Age for Employment of Children The labor code prohibits employment of youths under 14years of age and places various restrictions on the employmentof youths under the age of 16. In practice, there are largenumbers of minors working illegally, primarily in the informalsector. The high level of unemployment and the lack of asocial safety net create pressures on families to allowchildren to generate supplemental income. Instances of childlabor in CEA sugar plantations have diminished greatly and mostobservers note that such practice is no longer a seriousproblem. e. Acceptable Conditions of Work The Labor Code establishes a standard work period of eighthours per day and 44 hours per week, with an uninterrupted restperiod of 36 hours each week. In practice, a typical workweekis Monday through Friday plus half day on Saturday, but longerhours are not unusual, especially for agricultural and informalsector workers. Workers are entitled to a 35 percent wagedifferential when working between 44 and 68 hours per week anda 100 percent differential for any hours above 68 per week.The vast majority of workers receive only the minimum wage(which varies by law in accordance with the type of activityand the size of the company). Safety and health conditions atplaces of work do not always meet legal standards. Theexisting social security system does not apply to all workersand is under funded. f. Rights in Sectors with U.S. Investments U.S.-based multinationals active in the free trade zonesrepresent one of the principal sources of U.S. investment inthe Dominican Republic. The free trade zone sector'scompliance with the right to organize and bargain collectivelyhas been a matter of controversy, but during 1994 some progresswas made. Some companies in the free trade zones adhere tosignificantly higher worker safety and health standards than donon-free trade zone companies. In other categories of workerrights, conditions in sectors with U.S. investment do notdiffer significantly from conditions in sectors lacking U.S.investment. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 237 Food & Kindred Products 4Chemicals and Allied Products (1) Metals, Primary & Fabricated (1) Machinery, except Electrical 0 Electric & Electronic Equipment 5 Transportation Equipment 0 Other Manufacturing 210Wholesale Trade 5Banking (1)Finance/Insurance/Real Estate 3Services (1)Other Industries (1)TOTAL ALL INDUSTRIES 1,020(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEDENMARK: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS(1) Suppressed to avoid disclosing data of individual companies(2) Less than $500,000Source: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEDENMARK: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS DENMARK Key Economic Indicators (Millions of U.S. dollars unless otherwise noted 1/) 1992 1993 1994 2/Income, Production and Employment:Real GDP (1985 prices) 3/ 97,004 91,292 96,700Real GDP Growth (pct.) 1.7 1.0 4.3GDP (at current prices) 3/ 122,364 117,658 127,000By Sector: Agriculture 4,353 4,410 4,700 Energy/Water/Heat 2,043 2,337 2,550 Manufacturing 23,561 22,258 24,000 Building/Construction 6,536 6,123 6,600 Raw Materials/Mining 1,231 977 1,000 Rents 12,587 11,556 12,450 Financial Services 2,105 2,439 2,700 Other Services 44,151 42,705 46,100 Government Services 28,360 27,531 29,700 Overlap Corrections -2,562 -2,679 -2,800Net Exports of Goods & Services 11,269 10,905 9,000Real Per Capita GDP 3/ (USD/1985 prices) 18,762 17,592 18,578Labor Force (000s) 2,835 2,851 2,852Unemployment Rate (pct.) 11.3 12.4 12.4Money and Prices: (annual percentage growth)Money Supply -1.2 11.2 4.8Base Interest Rate (pct.) 4/ 11.6 10.5 8.3Personal Saving Rate (pct.) 5.7 5.2 4.4Retail Inflation Consumer Price Index 2.1 1.3 2.0Wholesale Inflation -1.1 -0.6 0.8Exchange Rate (USD/DKK) 0.1656 0.1543 0.1567Balance of Payments and Trade:Total Exports (FOB) 5/ 38,908 37,196 40,300 Exports to U.S. 1,724 1,898 2,250Total Imports (CIF) 5/ 30,578 30,549 35,500 Imports from U.S. 1,788 1,418 1,800Aid from U.S. N/A N/A N/AAid from Other Countries N/A N/A N/AExternal Debt 50,000 42,130 38,900External Debt Service Net Interest Payments 5,583 4,722 4,200Gold and Foreign Exch. Reserves 7,444 11,539 10,000Trade Balance 5/ 8,330 6,647 4,800 Trade Balance with U.S. -64 480 450N/A--Not available.1/ Danish Krone/Dollar exchange rates used:1992: DKK 6.04=$1.00; 1993: DKK 6.48=$1.00; 1994: DKK 6.38=$1.002/ 1994 figures are all estimates based on available data inOctober 1994.3/ GDP at factor cost.4/ Figures are actual, average annual bank lending interestrates, not changes in them.5/ Merchandise trade, excludes EU Agricultural Export Subsidies.Note: All dollar figures shown in the text have been convertedfrom Danish Kroner figures using the average DKK/USD exchangerate in the relevant year.1. General Policy Framework Denmark is a small, highly industrialized "value-added"country with a long tradition of foreign trade, free capitalmovements, political stability, an efficient and well-educatedlabor force, and a modern infrastructure effectively linkingDenmark to the rest of Europe. Denmark's natural resources areconcentrated in oil and gas fields in the North Sea, which makeDenmark more than self-sufficient in oil and gas. As Denmarkremains dependent on imported raw materials andsemi-manufactures for its industry and on coal for itselectrical power production, ensuring adequate supplies hasalways been a major goal of Danish trade and industrypolicies. Denmark's active liberal trade policy in the EU,OECD, and GATT often coincides with U.S. interests. Denmarkratified the Uruguay Rounds agreements in 1994. EU and EFTAcountries account for more than three-quarters of Denmark'stotal trade. The United States, Denmark's largest non-Europeantrading partner, accounted in 1993 for about five percent oftotal Danish merchandise trade. On May 18, 1993, Danish votersreversed their earlier rejection of the far-reaching EuropeanUnion (The Maastricht Treaty) and reinforced Denmark'scommitment to continued EU cooperation and integration.However, Denmark reserved its participation in the third phaseof the Economic and Monetary Union (EMU). Denmark benefitsfrom the EU Single Market, which started January 1, 1993, andhas taken the initiative to increase the EU Commission's andmember countries' focus on new nontariff trade barriers beingcreated while other barriers are dismantled. Despite increasing unemployment and low economic growth inthe late 1980's and early 1990's, the underlying Danish economyhas been strong due to increasing balance of payments surplusesand falling inflation. This resulted from the former minoritycenter-right coalition government's tight fiscal policies ofminimum increases in public expenditures and monetary andexchange rate policies similar to Germany's. The SocialDemocratic Party (SDP)-led majority coalition government, whichtook power in January 1993, relaxed fiscal policy, andintroduced a limited income tax reform to kick-start theeconomy. The government also introduced a series of measuresto combat unemployment, which have included government-fundedleave programs and government-subsidized job creationmeasures. An SDP-led minority government has continued inoffice following the September 21, 1994 election. Despite strong economic growth starting in the second halfof 1993, unemployment has been slow to react due to largeproductivity increases and extraordinarily large new inflows oflabor. Although there is broad political agreement on puttinga lid on the public sector's size and costs, increasedunemployment benefit costs and other transfer income costs, aswell as the introduction of recession response measures, haveled to growing budget deficits. The public sector budgetdeficit almost doubled in 1993 to 4.4 percent of GDP and isonly being marginally reduced in 1994. Foreign investmenteconomic incentives consist of lenient income taxation ofhigh-paid foreigners working in Denmark (a flat 30 percent taxon gross income). Since 1989, the government has spent theequivalent of about $10 million promoting direct investment inDenmark by U.S. and Japanese high-tech companies, which hasassisted some U.S. acquisitions of Danish high-tech companies.U.S. and Japanese greenfield investments, on the other hand,have been limited. Danish fiscal policy meets the conditions of the EMU. Forexample, Denmark complies with the prohibition againstmonetization of its central government deficits. Deficits arefinanced through the sale of government bonds and treasurybills on market terms. The Danish fixed exchange rate policy (see section 2),pursued since the early 1980's, requires a monetary policywhich gives high priority to price stability. This togetherwith fully liberalized capital movements means there is limitedroom for Denmark to adopt independent interest rate andliquidity policies. Official Danish interest rates are linkedclosely to those of Germany. In order to tighten management ofmoney-market rates (without adjusting official rates), theCentral Bank, which has monetary policy authority, introducedin April 1992 a liquidity management system via weeklyissuances of two-week deposit certificates and by providingliquidity to commercial banks via re-purchases of both treasurybills and deposit certificates. During 1993, the Central Banksuccessfully used discount rate adjustments to controlliquidity and to protect the krone. The discount rate wasadjusted 17 times, twice upwards by two percent during theFebruary and July currency crises. The 15 downward changeswere generally within 0.25 to 0.5 percentage point range.Starting at 9.5 percent at the beginning of 1993, the discountrate was reduced to 6.25 percent by the end of the year. BySeptember 1994, the discount rate was five percent (lastreduction was in May). However, the low inflation (two percentin 1994), together with monetary and the exchange ratepolicies, maintains high real market interest rates whichimpede investment.2. Exchange Rate Policy Denmark is a member of the European Monetary System (EMS)and its Exchange Rate Mechanism (ERM). It supports theobjectives of the EMU, but has the right not to participate inits third phase (establishment of a single EU currency andrelinquishment of national sovereignty over monetary policy).Since 1982, the government has successfully resisted solvingDenmark's economic problems through exchange rate adjustments,and this policy continues. In August 1994, the trade-weightedvalue of the krone was more than five percent higher than inAugust 1993, due mostly to volatile developments in the ERM inJuly and August 1993, when the ERM fluctuation bands werewidened to plus or minus 15 percent. Intervention by theDanish Central Bank (and German Bundesbank) protected thekrone's position in the ERM, but drained foreign exchangereserves, which in turn required new large government borrowingabroad. As foreign exchange markets stabilized, Denmark'sforeign exchange reserves returned to normal levels. The value of the krone against the dollar in September 1994(DKK 6.11 to $1.00) was almost nine percent higher than inSeptember 1993. In late October, the dollar had fallen furtherto DKK 5.87, a 13 percent decline since late October 1993. Theconsequent improvement in U.S. price competitiveness shouldassist increased U.S. exports to Denmark.3. Structural Policies Danish pricing policies are based on market forces.Entities with the ability to fix prices because of theirdominance in the market are regulated by a Competition Council. In spite of the income tax reform introduced in 1994, Danesgenerally concede that the tax system needs further overhaul toimprove incentives for work and investment and to reduce the"underground" economy, which today may equal as much as 10percent of GDP. For example, the highest marginal tax rate ismore than 60 percent and applies to all income above that of afully employed skilled worker. With the introduction in 1994of a five percent tax on gross income (increasing to eightpercent by 1997), the Danish income tax system was broughtcloser to those of other EU countries. Uniquely among EUcountries, Danish employers pay virtually no nonwagecompensation. Most of employers' costs of sick leave andunemployment insurance are paid by the government. Employeespay their part of unemployment insurance out of wages. Anotherconcern is the high Danish Value Added Tax (VAT), which, at 25percent, is the highest in the EU. However, as VAT revenuesconstitute more than one-quarter of total central governmentrevenues, a reduction would have severe budgetaryconsequences. The government has no plans to reduce the VAT,and hopes for VAT rate harmonization through increases in theVAT rates of other EU countries, particularly those ofGermany. The corporation tax is 34 percent which, combinedwith favorable depreciation rules and other deductions, isamong the lowest in the EU. Despite Denmark's success in resolving many of its formerstructural problems, unemployment remains a major problem.Despite high unemployment, labor mobility, both geographicallyand sectorally, is low in Denmark due to leniently appliedrequirements to qualify for unemployment benefits andstructural rigidity which prevents crossing craft lines. Thegovernment is considering enforcing present rules morevigorously to tighten eligibility for benefits and increasemobility in general. At present, about two-thirds of the costsof unemployment benefits are paid from general revenues.Rather than consider extensive labor market reform, the SDPgovernment's efforts have so far concentrated on job rotation(leave programs) and on job creation through subsidization ofrepair and maintenance of buildings and subsidization of homeservices work, the latter without any notable success.4. Debt Management Policies Since 1963, large, recurring balance of payments (BOP)deficits produced a foreign debt which in 1988 peaked at $44billion (DKK 6.73 to the dollar), or 40 percent of GDP.However, since 1990, the BOP has moved into a surplus whichreached $5.6 billion in 1993. Consequently, foreign debt isgradually being reduced and by the end of 1993 equaled 31percent of GDP. Despite BOP surpluses, net interest paymentson the debt continue to be a burden, accounting for some 10percent of goods and services export earnings. Standard andPoor's and Moody's Investors Service rate Denmark AA+ and AA1,respectively, reflecting the strong economy and the large BOPsurplus. Denmark's public sector is a net external debtor,while the private sector, including banks, is a net creditor.At the end of 1993, the public sector's net foreign debt,including foreign exchange reserves, was the equivalent of $59billion, of which krone-denominated government bonds accountedfor more than 70 percent. The central government's debt denominated in foreigncurrencies rose almost 60 percent to the equivalent of $34.6billion at the end of 1993 due to the large borrowing inconnection with the July/August currency crisis. Dollardenominated debt accounted for 31 percent of this debt,followed by German mark debt accounting for 29 percent. Closeto one-half of the debt is in short term obligations withvariable interest rates. The total debt has an average term oftwo years (3.5 years for the fixed interest rate debt alone). Danish development assistance is large by internationalstandards, accounting for one percent of Gross National Product(GNP), or $1.3 billion in 1993. It is almost equallydistributed between bilateral and multilateral assistance.Bilateral assistance is concentrated on 18 "program" countries,of which four were added in 1993: Burkina Faso, Eritrea,Nicaragua, and Vietnam. African countries account for some 60percent of total bilateral assistance. Denmark also supportsthe new democracies in Central Europe, the Baltics and theformer Soviet Union and in 1994 will spend about $330 millionfor assistance (0.25 percent of GNP). Finally, Denmark willspend in 1994 about $750 million for multinationalenvironmental and disaster programs, including "pre-asylum"refugee costs in Denmark and U.N. peace keeping efforts.Denmark actively participates in the IMF, the EBRD, the WorldBank, and the Paris Club.5. Significant Barriers to U.S. Exports Heavily dependent on foreign trade, Denmark maintains fewrestrictions on imports of goods and services and oninvestment. Denmark adheres to all GATT codes and, as a memberof the EU, also to all EU legislation which impacts on tradeand investment. There are no special Danish importrestrictions or licenses which pose problems for U.S.industrial products exporters. Agricultural goods must competewith domestic production, protected under the EU's CommonAgricultural Policy. Denmark also has stringent phyto-sanitaryrequirements. With the implementation of the EU Single Market on January1, 1993, most industrial standards, testing, labeling and otherrequirements are being harmonized within the EU. However, asharmonization takes place, new trade barriers have surfaced inindividual EU member countries. Denmark has taken the lead incombatting the problem and, together with the EU Commission,hosted a successful nontariff barrier conference in Copenhagenin September 1994. With respect to services, the Danish Credit Card Act,adopted in 1987, prevents credit card companies from operatingin Denmark on standard international terms. This law prohibitscredit card companies from charging vendors for costs relatedto the use of cards held by Danes. As a consequence, AmericanExpress stopped issuing credit cards to Danes for use inDenmark. However, other credit card companies have continuedoperations under the new requirements. Denmark, like most other countries, requires an exam orexperience in local law in order to practice law. The Danishgoverment requires the managing directors of foreign-ownedstockbroker companies to have at least three years ofexperience in securities trade. However, experience in a U.S.stock exchange alone will probably not meet this requirement. Denmark provides national, and in most instancesnondiscriminatory, treatment to all foreign investment.Ownership restrictions are only applied in a few sectors:hydrocarbon exploration (which in general requires limitedgovernment participation, but as of the end of 1994, no longeron a carried interest basis); arms production (a maximum of 40percent of equity and 20 percent of voting rights may be heldby foreigners); aircraft (third-country citizens or airlinesmay not directly own or exercise control over aircraftregistered in Denmark); and ships registered in the DanishInternational Ships Register (a Danish legal entity or physicalperson must own a significant share and exercise a significantcontrol -- about 20 percent -- over such ships). Danish lawprovides for a reciprocity test to foreign direct investment inthe financial sector, which, however, has not been an obstacleto U.S. investment. For example, the U.S. Republic NationalBank of New York opened a representative office in Copenhagenon July 1. Once established, an entity receives nationaltreatment. The Danish telecommunications network will be agovernment controlled monopoly until 1998 when networks becomeliberalized within the EU, but is open to minority portfolioinvestment. A second private cellular mobile telephone network(General Systeme Mobile-GSM) with the U.S. BellSouthparticipating, competes with the government controlled TeleDanmark's GSM operation. Danish government procurement practices meet therequirements of the GATT public procurement code and of EUpublic procurement legislation. Denmark implemented the EUPublic Procurement Directive 93/36/EEC on June 24, 1994 and thenew EU "Utilities" Directive 93/38/EEC (public procurement ofgoods, building and construction, and services within thewater, energy, transport, and telecommunication sectors) onJuly 1, 1994. Regarding the latter, indications are that thevoluntary "50 percent EU Origin requirement" will beinterpreted liberally by the Danish government and that themandatory three percent price differential requirement willonly have minor importance in procurement decisions.Countertrade, or rather offset trade, is used by the Danishgovernment only in connection with military purchases which arenot covered by the GATT code and EU legislation. Denmark hasno "Buy Danish" laws. There is no record of U.S. companies complaining aboutburdensome customs procedures. Denmark has an effective andmodern customs administration which has reduced processing timeto a minimum. U.S. companies residing in Denmark as a general rulereceive national treatment regarding access to Danish R&Dprograms. In some programs, however, Denmark requirescooperation with a Danish company (ies). The Embassy has norecord of complaints by U.S. companies in this area.6. Export Subsidies Policies EU agricultural export restitutions (subsidies) in 1993 of$880 million were equivalent to more than 10 percent of thevalue of total Danish agricultural exports. Government supportfor agricultural export promotion programs is insignificant.Denmark has no direct subsidies for its nonagricultural exportsexcept for shipbuilding. Also, the government does notsubsidize exports by small and medium size companies.Indirectly, however, Denmark has programs to assist exportpromotion, establishment of export networks for small andmedium sized companies, research and development, regionaldevelopment, and a limited number of preferential financingschemes aimed, inter alia, at increasing exports. In 1989,Denmark restructured its development assistance and abolishedthe distinction between untied and tied bilateral assistance.However, the principle of using at least 50 percent of allbilateral assistance for purchases of Danish goods and servicesis maintained (it was 51 percent in 1993). All these programs,however, apply equally to foreign companies producing in andexporting from Denmark. Denmark has one of the lowest rates of state aids toindustry (about two percent of GDP) among EU countries.Shipbuilding support, where Danish subsidization is within theceiling set in the EU Shipbuilding Directive (nine percent ofthe contract value), accounts for about one-third of totalDanish state aids to industry. Denmark, as an ally of theUnited States, strongly welcomed the 1994 OECD agreement tophase out shipbuilding subsidies internationally, but EUratification of the agreement is pending.7. Protection of U.S. Intellectual Property Denmark is a party to, and effectively enforces, a largenumber of international conventions and treaties concerningprotection of intellectual property rights. Patents: Denmark is a member of the World IntellectualProperty Organization (WIPO). It adheres to the ParisConvention for the protection of Industrial Property, thePatent Cooperation Treaty (PCT), the Strasbourg convention andthe Budapest convention. Denmark has ratified the EuropeanPatent Convention and the EU Patent Convention. Trademarks: Denmark is a party to the 1957 NiceArrangement and to this arrangement's 1967 revision. A newDanish trademark act entered into force January 1, 1992 whichalso implements the EU trademark directive harmonizing EUmember countries' trademark legislation. Denmark stronglysupports efforts to establish an EU-wide trademark system. Inaddition, Denmark has legislation implementing EU regulationsfor the protection of the topography of semiconductor productswhich also extends protection to legal U.S. persons. Copyrights: Denmark is a party to the 1886 BerneConvention and its subsequent revisions, the 1952 UniversalCopyright Conventions and its 1971 revision, the 1961International Convention for the Protection of Performers,etc., and the 1971 Convention for the Producers of Phonograms,etc. There is little piracy in Denmark of records orvideocassettes. However, software piracy in Denmark isestimated at more than $100 million annually. Piracy is on thedecline due to sharply reduced prices, improved protection ofprograms, and efforts to combat such piracy by the BusinessSoftware Alliance. Piracy of other items, including books,appears very limited. There are no indications that piratedproducts are being imported to or exported from Denmark. Onepossible copyright problem involves the imposition on January1, 1993 of a Danish levy on blank analog and digital audio andvideo tapes for home use. Pending implementation of "materialreciprocity" provisions, U.S. artists as of October 1994receive national treatment. If these provisions areimplemented, a large share of revenues from the levy will bepassed on to Danish artists and artists from countries having acomparable levy. Since the United States imposes a comparablelevy only on digital tapes, U.S. artists, who account for sometwo-thirds of works being copied in Danish homes, would notbenefit from the levy collected on analog tapes. The U.S. Embassy has no record of other complaints by U.S.organizations, exporters or subsidiaries in Denmark regardinginfringement of intellectual property rights and/or unfairDanish practices in this field. Thus the impact on U.S. tradewith Denmark appears limited. Denmark is not named on the Special 301 Watch List orPriority Watch List, nor is it identified as a Priority ForeignCountry.8. Worker Rights a. Right of Association Workers in Denmark have the right to associate freely, andall (except those in essential services and civil servants)have the right to strike. Approximately 80 percent of Danishwage earners belong to unions. Trade unions operate free ofgovernment interference. They are an essential factor inpolitical life and represent their members effectively. In1993, 113,700 workdays were lost due to labor conflicts (upfrom 62,800 in 1992). Greenland and the Faroe Islands have thesame respect for worker rights, including full freedom ofassociation, as Denmark. b. Right to Organize and Bargain Collectively Workers and employers acknowledge each others' right toorganize. Collective bargaining is widespread. The lawprohibits antiunion discrimination by employers against unionmembers, and there are mechanisms to resolve disputes.Salaries, benefits, and working conditions are agreed inbiennial negotiations between the various employers'associations and their union counterparts. If negotiationsfail, a national conciliation board mediates, and its proposalis voted on by both management and labor. If the proposal isturned down, the government may force a legislated solution(usually based upon the mediator's proposal). In case of adisagreement during the life of a contract, the issue may bereferred to the Labor Court. The decisions of the court arebinding. The labor contracts which result from collectivebargaining, as a general rule, are also used as guidelines inthe nonunion sector. Labor relations in non-EU parts of the Danish Realm,Greenland (a beneficiary of the U.S. Generalized system ofPreferences) and the Faroe Islands, are generally conducted inthe same manner as in Denmark proper. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is prohibited and does not existin the Danish Realm. d. Minimum Age for Employment of Children The minimum age for full-time employment is 15 years. Thelaw prescribes limitations on the employment of those between15 and 18 years of age, and it is enforced by the DanishWorking Environment Service, an autonomous arm of the Ministryof Labor. There are no export industries in which child laboris significant. e. Acceptable Conditions of Work There is no legally mandated workweek nor national minimumwage. However, the workweek set by labor contracts is 37hours. The lowest hourly wage in any national labor agreementis sufficient for an adequate standard of living for a worker.Danish law provides for five weeks of paid vacation. Danishlaw also prescribes conditions of work, including safety andhealth; duties of employers, supervisors, and employees; workperformance; rest periods and days off; medical examinations;and maternity leave. The Danish Working Environment Serviceensures compliance with work place legislation. In addition,Danish law provides for government-funded temporary withdrawalfrom the labor market through parental, educational orsabbatical leave programs. Similar conditions of work, except leave programs, arefound in Greenland and the Faroe Islands, but the workweek is40 hours. Unemployment benefits in Greenland are eithercontained in labor contract agreements or come from the generalsocial security system. A general unemployment insurancesystem in the Faroe Islands was established in August 1992,replacing former unemployment compensation covered by thesocial security system. Sick pay and maternity pay, as inDenmark, fall under the social security system. f. Rights in Sectors with U.S. Investment Worker rights in those goods-producing sectors in whichU.S. capital is invested do not differ from the conditions inthose other sectors where no U.S. investment is found. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 206 Food & Kindred Products (1) Chemicals and Allied Products (1) Metals, Primary & Fabricated (1) Machinery, except Electrical (1) Electric & Electronic Equipment 15 Transportation Equipment (2) Other Manufacturing 78Wholesale Trade 572Banking (1)Finance/Insurance/Real Estate 363Services 113Other Industries 20TOTAL ALL INDUSTRIES 1,797</text>
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<text>U.S. DEPARTMENT OF STATECZECH REPUBLIC: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS THE CZECH REPUBLIC Key Economic Indicators (Billions of U.S. dollars at the exchange rate indicated) 1992 1/ 1993 1994 (est)Income, Production and Employment:Real GDP (1985 Prices) 2/ 14.2 13.8 14.4Real GDP Growth (pct.) -7.1 -0.3 2.5GDP (current prices) 2/ 28.4 31.7 35.7By Sector: 3/ Agriculture/Husbandry/ Forestry/Fisheries 0.8 0.8 Mining of Raw Materials 0.6 0.5 Energy/Water/Gas 1.0 1.0 Manufacturing 3.9 4.7 Construction 0.5 0.3 Retail/Vehicle Reparis/ Consumer Goods 1.3 1.6 Transports/Storage/Communications 0.8 1.0 Private Health/Education 2.0 2.6 Goverment Health/Education 2.2 2.5Real Per Capita GDP 1,375 1,335 1,384Labor Force (000s) 4,766 4,777 4,777Unemployment (pct.) 2.6 3.5 3.5Money and Prices: (annual percentage growth)Money Supply (M2) 594.4 722.0 769.6Base Interest Rate (average) 13.38 14.00 12.80Personal Saving Rate 7.5 9.3 9.9Retail Inflation 11.1 20.8 11.0Producer Price Index 9.9 13.1 7.0Exchange Rate (KC/USD) Official 28.29 29.15 28.17 Parallel (Vienna market) 32.28 29.85 30.00Balance of Payments and Trade: (Billions of U.S. dollars)Total Exports (FOB) 5/ 8.23 12.93 6.59 Exports to U.S. 0.153 0.235 0.191 6/Total Imports (CIF) 5/ 8.89 12.84 6.40 Imports from U.S. 0.525 0.386 0.306 6/Aid from U.S. (million USD) 32 33 30Aid from Other Countries 1.47 1.20 0.80External Public Debt 7.5 8.5 9.0Debt Service Payment (paid) 1.3 1.4 1.1Gold and Foreign Exch. Reserves Official 0.8 3.0 5.2 Gross 3.6 6.2 7.7Trade Balance 5/ -0.66 0.09 0.19 Trade Balance with U.S. -0.372 -0.151 -0.1151/ Figures are data from CNB and Czech Statistical Office.2/ GDP at factor cost.3/ Figures compare first half year of 1993 to that of 1994.4/ Figures are average annual interest rates.5/ Merchandise trade.6/ January to August.1. General Policy Framework The Czech government has continued the tight, IMF-endorsed,economic and fiscal policies begun by the former Czechoslovakgovernment in 1991, and which were devised and initiated bymany of the current policymakers in the Czech Republic.Similarly, it has maintained the former government's program ofbroad privatization and wholesale legal reform in order topermit the continued operation of a viable market economy. Theeconomy is likely to experience growth this year. Thegovernment's estimate for this year is 2.5 percent growth, andfor the next year is 3.3 percent. The Czech government, having largely adjusted to theeconomic consequences of the split with Slovakia, is continuingdown the road towards European economic integration. Despitenotable problems, such as restructuring newly privatized firms,dealing with a shortage of domestic capital, and coping with agenerally weak financial sector, statistics suggest that theCzech economy as a whole appears to have bottomed out in late1992 and remained stable through 1993. The economy is likelyto experience growth in 1994, as suggested by the latest dataon GDP. Though 3.3 percent growth in the first quarter of 1994can be ascribed to significant decline in the first quarter of1993 due to the country's split, 2.2 percent growth over thewhole first half of 1994 indicates a real growth trend. The government completed the first wave of privatization inearly 1993, during which approximately 1,500 formerlystate-owned large enterprises were transferred to the privatesector. This was accomplished through the process of "couponprivatization" whereby citizens over the age of 18 were allowedto acquire shares of enterprises through the purchase ofvouchers. Approximately 80 percent of Czechs (and Slovaks,under the former Czechoslovakia) eligible to participate in thevoucher program did so, giving this country's populationperhaps the highest percentage of stockholders in the world.In addition, approximately 20,000 small businesses weretransferred through direct sale. The second wave ofprivatization is currently underway and is scheduled forcompletion by the end of 1994. When it is complete, some 80percent of production will be in private hands. The privatesector contribution to GDP is estimated at around 56 percent inthe first half of 1994. The government is likely to meet its target of a balancedbudget for 1994 with the contribution of funds acquired throughthe sale of state enterprises and with restricted expenditurescounterbalancing lower than forecast tax revenues. As ofAugust 1994, there was a budget surplus of 19.8 billioncrowns. In 1993, the budget had a surplus of 1.1 billioncrowns. The 1992 budget for Czechoslovakia was in deficit byapproximately $550 million, roughly 2 percent of GDP. This canbe attributed chiefly to an overestimation of the turnover taxrevenues, an undercalculation of entitlement programs, andoff-budget expenditures needed to cover government loanguarantees. The central bank, or Czech National Bank, is an independentmonetary authority which has proven itself capable ofwithstanding political pressure. Monetary policy in theRepublic has stabilized. As the inflow of foreign capital wasstronger than expected this year, the central bank, as ananti-inflation measure, increased reserve requirements from 9to 12 percent as of July 1994, and the discount and lombardrates by 0.5 percent (as of October 24 they were 8.5. and 11percent respectively). The Czech National Bank also has beenstrengthening its supervision over commercial banks.2. Exchange Rate Policy The Czech government has followed a "hard crown" policywhich has kept the crown stable since January 1991. Theofficial exchange rate has remained at the level of 28-30crowns per U.S. dollar throughout 1993 and only in October 1994did it fall below 28 crowns, following the USD-DM exchangerate. The composition of the currency basket was changed inMay 1993 from a mixture of five currencies to a new basket ofGerman marks (65 percent) and U.S. dollars (35 percent). Thecrown is fully convertible for trade purposes. Full currentaccount convertibility is expected in 1995 and full capitalaccount convertibility in 1996-1997. Under the Foreign Exchange Act of 1990, both domestic andforeign companies in the Czech Republic are guaranteed theright to freely exchange crowns for hard currency inbusiness-related, current account transactions. Currentaccount transactions include the import of goods and services,royalties, interest payments and dividend remittances.Repatriation of earnings from U.S. investments is alsoguaranteed by the U.S.-Czechoslovak Bilateral Investment Treatywhich went into effect in December 1992. However, there iscurrently a 25 percent tax on repatriation of profits from theCzech Republic, and capital account transactions still requirea foreign exchange license. In the past, companies wereobligated to exchange any foreign convertible currency earnedfor crowns, except for cases when the bank granted permissionto maintain a foreign-exchange account. As of March 1, 1994,the Czech National Bank has routinely granted permission toestablish foreign currency accounts. Private persons do notneed permission to have a foreign-exchange account.Additionally, if requested, banks must sell to foreigninvestors for Czech crowns foreign currency equal to revenuefrom investment. In this instance, "revenue from investment"is defined as income from business profits, interest, capitalprofits, securities, or intellectual property.3. Structural Policies The continued shift away from a centrally-planned economytowards the free market continues to require adjustmentsthroughout the legal, financial, and political structure. Someof the major changes are outlined below. Taxes: The new tax system of January 1993 provides uniformrates and is better aligned with EU tax policies. Thecorporate income tax or "profit tax" of 43 percent in 1993 waslowered to 42 percent in 1994 and, if approved by theParliament, should drop to 41 percent in 1995. In addition, in1993 the government implemented a 5 percent value added tax(VAT) on staple goods and a 23 percent VAT on other goods, aswell as a personal income tax. The 23 percent VAT is to belowered by 1 percent as of 1995. The government plans to lowertax rates to EU levels over time. A bilateral tax treatybetween the United States and the Czech Republic was signed inSeptember 1993 and went into force retroactively as of January1, 1993. Prices: Over 95 percent of price controls were eliminatedin 1991. As of late 1994, only the price of utilities, rents,gasoline, fuel oil, and various municipal services continue tobe regulated. Remaining price controls are being easedgradually over time. Wages: Following repeated warnings against wage inflation,the government reimposed punitive levies on excessive wagegrowth at the end of June 1993. For wage growth between 15 and30 percent, companies unable to demonstrate productivity gainsare taxed at 100 percent of the excess in wages. For wageincreases of more than 30 percent, the tax equals 200 percentof the excess increase not justified by productivity growth.However, the government has announced it will abolish wageregulation in the second half of 1995. Privatization: The Czech government completed its firstwave of privatization in August 1993. Under this program, themajority of stock under large-scale privatization was soldthrough the voucher program, whereby citizens over the age of18 were allowed to acquire shares of enterprises through thepurchase of vouchers. Approximately 80 percent of Czechs (andSlovaks, as the program started under the Federation) eligibleto participate in this program did so. The second wave ofprivatization started on April 11, 1994 and is expected to becomplete by early 1995. The government plans to sell 861companies with property value of 155 billion crowns during thesecond wave.4. Debt Management Policies The Czech Republic maintains one of the lowest foreigndebts in central and eastern Europe. As of September 1994, thegross foreign debt was approximately 9.0 billion dollars.Government debt represents approximately 17 percent of GDP, andcurrent government plans call for the level of debt to drop to10 percent by the year 2000. The government believes it canreach this level by payment of interest combined with generalexpansion of the economy. The current level of indebtedness iswell within the limits specified by the Republic's agreementwith the IMF. The Czech Republic repaid its debt to the IMFahead of schedule, the first post-communist country to do so. Due mainly to the lending policies of the former communistregime, the current government is owed approximately 4.5billion dollars by various (mainly formerly communist bloc)countries. Among them are Russia (owing approximately 3billion dollars) and Syria (owing approximately 750 milliondollars). Although the Russian debt was restructured in 1994and some payments on this debt have been made, collection onother debts is uncertain.5. Significant Barriers to U.S. Exports The government of the Czech Republic is determined tocreate and maintain a free market, and has made the eliminationof artificial trade barriers an important element of itsoverall economic policy. Thus, there are currently nosignificant barriers for U.S. exports to this country. TheCzech Republic adopted a GATT tariff code which has an averagetariff of 5-6 percent. Some provisions of the 1993 Czech tax code have beencriticized as inhibiting investment. In particular, concernhas been expressed over bad debt write-off and the tax statusof group and offshore companies. Czech legislation denies(generally until bankruptcy proceedings are initiated)corporate tax deductibility of bad debt reserves and thepossibility of reclaiming VAT on bad debts. In addition, Czechlegislation effectively penalizes use of holding companystructures by leveling both corporate tax and dividendwithholding tax on profit flows between group companies, thuscreating double taxation on such profits. Czech law also doesnot permit intra-group use of losses (i.e., offsetting lossesin one group entity against profits in another) and imposescorporate tax on dividends received from foreign holdingswithout allowing use of a foreign tax credit for the underlyingtax suffered in the subsidiary's home jurisdiction. Offshorecompanies are taxable in the Czech Republic if they engage in asignificantly lower level of domestic activity than theguidelines recommended by the Organization of EconomicCooperation and Development (OECD) or standards applied inother countries. With a few limited exceptions, such as defense-relatedindustries, all sectors of the Czech economy are fully open toU.S. investment. The official monopolies in tobacco and filmdistribution were both abolished in 1993. In late 1991, Czechoslovakia signed a Bilateral InvestmentTreaty (BIT) and an agreement with the U.S. Overseas PrivateInvestment Corporation (OPIC). The BIT was ratified by theU.S. in August 1992 and ratification by the Czechoslovakparliament occurred in late 1992. A bilateral tax treaty was signed with the Czech Republicin September 1993 and entered into force in January 1994. TheUnited States granted most favored nation (MFN) status toCzechoslovakia in 1992 and to the Czech Republic as a successorstate in January 1993. The Czech Republic has signed theUruguay Round document in GATT to lower tariff rates over thenext ten years.6. Export Subsidies Policy A legal framework is being drafted to enable the Czechexport bank, a subsidiary of the Export Guarantee and InsuranceCompany, to provide export guarantees and credits to Czechexporters. It is expected to begin operating in mid-1995.Additionally, the government maintains a fund (the Fund forMarket Regulation) through which it purchases domesticagricultural surpluses for resale on international markets.For some commodities, pricing is established at a level whichincludes a subsidy to local producers.7. Protection of U.S. Intellectual Property The Czech government has agreed to be bound by theobligations undertaken by the former Czechoslovak governmentunder the Bern, Paris, and Universal Copyright Conventions andis working to ensure that laws for the protection ofintellectual property conform to those of western Europe.However, enforcement of existing regulations is still uneven. Enforcement of video piracy laws is an ongoing concern forU.S. video and motion picture exporters. While awareness ofthe problem by Czech officials is increasing, economic lossescontinue to threaten the viability of these exports. In 1993the Czech Antipiracy Union (CPU) stated that 40 to 50 percentof the local market for video cassettes was lost to videoproducts either illegally produced or imported. The CPU filed450 video piracy court cases in 1992 and 468 in 1993, butenforcement remains lax and fines are low. In 1993, theactivity in Prague's so-called "video exchanges" stabilized.Inspections in video-lending shops, carried out by CPU incooperation with the police, has improved enforcement.Copyright violations also represent a problem, especiallycopies from German originals and piracy of both foreign andCzech originals. There have been similar concerns about software piracy.Recently, two cases of software piracy were disclosed by themedia and are under investigation by the police. The US-basedBusiness Software Alliance has opened an affiliate office inPrague and is working to raise the level of awareness on thisand similar issues.8. Worker Rights Workers in the Czech Republic have the legal right to formand join unions without prior authorization. Currently,two-thirds of workers are members of some labor organization,although the overall number of union members has declinedslightly since 1991. Under the law, all workers are guaranteedthe right to strike when mediation efforts have been exhausted;exceptions are those workers in sensitive positions (nuclearpower plant operators, military, police, etc.) who areforbidden to strike. Workers also have the right to organize and bargaincollectively. Wages are set by free negotiation. Forced or compulsory labor was expressly prohibited by thefederal government's 1991 Declaration on Basic Rights andFreedoms, and the Czech Republic has adopted the sameguarantee. There is no evidence or indication that suchpractices have occurred since the 1989 Revolution. The basic minimum age for employment is 16. Exceptions aremade for 15 year-olds who have already finished elementaryschool and for 14 year-olds who have completed courses atspecial schools for the disabled. The Ministry of Labor and Social Affairs has set minimumwage standards to guarantee an adequate standard of living fora worker and, with special allowances, for his family as well.A standard workweek of 42.5 hours was mandated by law, butcollective bargaining has brought the actual number of hoursworked closer to 40. Additionally, caps exist for overtime andworkers are assured at least 30 minutes of paid rest per workday and annual leave of three to four weeks per year. As far as the Embassy is aware, all workers' rights areapplied to firms with U.S. investment and do not differ fromthose in place in other sectors of the economy. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 0Total Manufacturing 62 Food & Kindred Products (1) Chemicals and Allied Products (1) Metals, Primary & Fabricated 0 Machinery, except Electrical (2) Electric & Electronic Equipment 1 Transportation Equipment 0 Other Manufacturing -1Wholesale Trade (1)Banking (1)Finance/Insurance/Real Estate 0Services (2)Other Industries (1)TOTAL ALL INDUSTRIES 127(1) Suppressed to avoid disclosing data of individual companies(2) Less than $500,000Source: U.S. Department of Commerce, Bureau of EconomicAnalysis</text>
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card_11030.xml
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<text>U.S. DEPARTMENT OF STATECROATIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS CROATIA In 1994 Croatia's economy showed tentative signs ofrecovery from the disruption it suffered after the breakup ofthe former Yugoslavia. But the scars of war remain highlyvisible as Serb forces still occupy one-fourth of Croatianterritory. With 25-30 percent of its agricultural capacitydestroyed, Croatia's 1993 GDP remained around half of its 1990level. Due largely to the war and the collapse ofintra-Yugoslav trade, industrial production remained at 30-40percent of Croatia's 1991 production level. Despite thesefigures, a bold economic stabilization program initiated by thegovernment in October 1993 has shown promising results. The ongoing occupation of Croatian territory by KrajinaSerbs continues to retard Croatia's recovery. The KrajinaSerbs continue to cut a key railroad link to the coast as wellas the Adria pipeline. Energy production suffers while oilfields in Slavonia remain occupied. The war crippled Croatia'sprofitable tourist industry, which in the summer of 1994operated at only one third of the pre-war level. Nonethelesstourist activity improved, especially in the Istrian peninsula;in October 1994 Hina reported a 55% increase in touristactivity over the previous year's level. Intermittenthostilities and U.N. sanctions restrict trade with Serbia, amajor pre-war market. A tentative step towards reconciliationwith the Serbian population of Croatia occurred in December1994, with the signing of an agreement on economicconfidence-building measures. The three-phase stabilization program which the governmentadopted in October 1993 has improved Croatia's economicsituation. The unemployment rate continued its three-yeardecline, yet at 15 percent remains well above the pre-war levelof nine percent. Inflation dramatically fell by the summer of1994 to a monthly rate of 1-2 percent, one of the lowest in theregion. Croatia had increased its hard currency reserves to$1.68 billion by July 1994. With the signing of the Washington Accords in March 1994,Croatia won key support for multilateral assistance. The WorldBank approved a $128 million Economic Recovery Loan in June.Another $100 million for agricultural support and privatefamily support are in the pipeline for approval. The IMFrecently approved a Standby Arrangement and SystemicTransformation Facility totalling $192 million. The EBRD willact upon two additional infrastructure project proposals inlate 1994, $46.7 million for electricity network reconstructionand $76.3 million for roads and bridges. Croatia's economy supports over 400,000 refugees anddisplaced persons from Bosnia and occupied Croatianterritories. An estimated 80 percent of refugees have foundshelter with families in Croatia; this situation is untenablein the long term. Refugees continue to occupy hotels and fillrefugee centers. In September 1994, refugees continued pouringinto Croatia at a rate of nearly 500 per week. While theinternational community has provided the bulk of the foodneeded for the refugees, the Croatian government pays formedical care and utilities at an estimated daily cost of $1.2million. Even with such expense, the conditions in manyrefugee camps are inadequate with a lack of warm water, healthcare, schools, and other basic necessities.</text>
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card_10834.xml
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<text>U.S. DEPARTMENT OF STATECOSTA RICA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS Costa Rican law restricts the right of public sector workersto strike, but two articles of the Penal Code that mandated toughpunishment for striking government workers were repealed in 1993.There are no restrictions on the rights of private workers tostrike, but the Labor Code contains clauses that employers haveused to fire employees who try to organize or strike. Very fewprivate sector workers are union members. b. The Right to Organize and Bargain Collectively The right to organize is protected by the Constitution.Specific provisions of the 1993 Labor Code reforms provideprotection from dismissal for union organizers and members duringthe period of union formation. Previously, employers used aclause in the Labor Code, permitting employees to be discharged"at the will of the employer" provided the employee receivedseverance benefits. The payment of severance benefits todismissed workers has often been circumvented in practice.Public sector workers cannot engage in collective bargainingbecause the Public Administration Act of 1978 makes labor lawsinapplicable in relations between the Government and itsemployees. Collective bargaining is allowed in the privatesector but, due to the dearth of unions, is not a widespreadpractice. c. Prohibition of Forced or Compulsory Labor The Constitution prohibits forced or compulsory labor, andthere are no known instances of either. d. Minimum Age of Employment of Children The Constitution provides special employment protection forwomen and minors and establishes the minimum working age at 12years, with special regulations in force for workers under 15. Achild welfare agency, in cooperation with the Labor Ministry, isresponsible for enforcement. Enforcement in the formal sector isreasonably effective. Nonetheless, child labor appears to be anintegral part of the large informal economy, although data onthis is lacking. e. Acceptable Conditions of Work The Constitution provides the right to a minimum wage. ANational Wage Board sets minimum wage and salary levels for allsectors. The monthly minimum wage ranges from USD 115 fordomestic servants to USD 557 for certain professionals. Publicsector negotiations normally follow the settlement of privatesector negotiations. In addition, the Constitution sets theworkday hours, remuneration for overtime, days of rest, andannual vacation rights. Maximum work hours are eight during theday and six at night, up to weekly totals of 48 and 36 hours,respectively. Ten-hour days are permitted for work notconsidered unhealthful or dangerous, but weekly totals may notexceed 48 hours. Nonagricultural workers receive an overtimepremium of 50 percent of regular wages for work in excess of thedaily work shift. Agricultural workers are not paid overtime,however, if they work beyond their normal hours voluntarily. A1967 law governs health and safety at the workplace, but thereare too few labor inspectors, especially outside of the San Josemetropolitan area, to ensure that minimum conditions of safetyand sanitation are maintained. f. Rights in Sectors with U.S. Investment Generally, in industries with significant U.S. investment(primarily food and related products and other manufacturing),respect for worker rights is good. This holds for those plantsand operations under U.S. management and capital and does notnecessarily hold for the industry as a whole. Outside of theseU.S. companies, working conditions and respect for worker rightsvary enormously, often to the detriment of workers seeking toorganize trade unions. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 2Total Manufacturing 339 Food & Kindred Products 134 Chemicals and Allied Products 97 Metals, Primary & Fabricated 21 Machinery, except Electrical 0 Electric & Electronic Equipment 35 Transportation Equipment 0 Other Manufacturing 53Wholesale Trade 67Banking 0Finance/Insurance/Real Estate 0Services 6Other Industries -30TOTAL ALL INDUSTRIES 385Source: U.S. Department of Commerce, Bureau of Economic Analysis(###)</text>
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card_10751.xml
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<text>U.S. DEPARTMENT OF STATECOSTA RICA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS COSTA RICA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 Income, Production and Employment: Real GDP (in current USD) 6,737.3 7,563.1 8,325.1 Growth Rate (pct.) (1966 colones) 7.7 6.1 4.7 By Sector: Agriculture 3.9 2.2 0.0 Industry 10.3 6.5 5.5 Electricity/Water 6 7 6 Construction 2.6 4.7 7.5 Commerce 12.5 8.2 4.0 Transportation/Communications 14.0 11.3 8.7 Financial/Insurance 10.8 12.4 10.7 General Government 1.0 2.0 2.5 Other Personal Services 4.2 4.5 5.5 Real GDP Per Capita 1966 Colones 4,302 4,464 4,590 Current U.S. Dollars 2,292 2,317 2,543 Labor Force (OOOs) 1,087 1,109 1,131 Unemployment (pct.) 4.1 4.1 4.1 Money and Prices: Money Supply (M1, daily avg.) (millions current col.) 90,390 107,022 126,714 Interest Rate (lending pct.) 28 37 38 Interest Rate (deposit pct.) 20 25 27 Gross Domestic Investment (pct. of GDP) 23.4 25.9 26.0 Consumer Price Index (pct. change Dec to Dec) 17 9 19 Colon to USD Rate (avg. balance of payments) 134.3 142.4 155.0 Colon to USD Exchange Rate (December, parallel market) 138 152 168 Balance of Payments and Trade: Total Exports (FOB) 1,814.3 2,044.6 2,300.0 Exports to U.S. (FOB) 789.8 850.0 915.0 Total Imports (CIF) 2,455.8 2,900.7 3,400.0 Imports from U.S. (CIF) 1,148.5 1,300.0 1,470.0 Assistance from U.S. 17.4 1/ 20.5 3.317 Assistance from Other Countries N/A N/A N/A Foreign Public Debt 3,263.8 3,158.4 3,192.8 Annual Debt Service Paid 496.6 481.6 181.5 Gold Reserves 9 9 13 Net International Reserves 1,096.0 1,076.7 900.0 IMF Methodology 354.0 457.5 277.5 Current Account Balance -357 -470 -6001/ Included ESF obligated but never disbursed.Source: Central Bank of Costa Rica, for table and text.1. General Policy Framework The Government of Costa Rica continues trade and economicpolicies in favor of open markets, international competition andfreer trade. These policies are supported through active IMF andWorld Bank programs. Significant setbacks to this general policyhave resulted from European Community restrictions on bananaexports, domestic pressure to restrict foreign competition,constitutional protection of state-owned monopoly enterprises,disagreements with major trade partners within the GATTframework, and domestic political pressures resulting from uneveneconomic growth. Many reforms are lacking permanent legalbacking or are still too new to gauge their efficacy, and somerecent reforms have become political issues. The reforms have contributed to an improving economy. Theeconomy of Costa Rica showed significant growth during 1993, butslightly less than in 1992. Gross Domestic Product (GDP)increased 6.1 percent in 1993 (7.7 percent growth in 1992).Financial intermediation continued to be the fastest growingactivity in Costa Rica, growing 12.4 percent in 1993, followed bycommunications, transportation and storage which grew 11.3percent in 1993, and electricity and water which grew 7.0 percentin 1993, largely the consequence of price increases instate-supplied services. Industry grew 6.5 percent, andagriculture 2.2 percent, in 1993. Commerce, restaurants andhotels grew 8.2 percent in 1993. The general price level, asmeasured by the Consumer Price Index (CPI), increased 9 percentin 1993, a significant improvement after an increase of 17percent in 1992. However, the CPI had increased 10.5 percent bythe end of August 1994, and is expected to be close to 20 percentby the end of 1994. 1993's lower price levels were the result oftight money controls by the Central Bank and continuing decreasesin tariff rates. These reduced tariffs also causedrecord-breaking increases in imports of cheaper goods. Whileincreased taxation and public sector revenue reduced disposableincome in 1992 and 1993, the relative stability of the exchangerate, plus the gradual reduction of tariffs, contributed to arecord 40 percent increase in imports from the United States in1993. The Central Government's fiscal deficit reached USD 145.7million in 1993, vs. USD 129.8 in 1992 and USD 173.9 million in1991. Despite the increase in nominal terms, the CentralGovernment deficit in 1993 remained equivalent to 1.9 percent ofGDP, the same share as in 1992, and much lower than the 3.1percent of GDP share in 1991. According to Central Bank data,the consolidated Public Sector fiscal deficit totalled USD 66.5million in 1993, equivalent to 0.9 percent of GDP, an improvementover 1992 when the deficit was 1.1 percent of GDP. While taxincome increased 15.8 percent in 1993, governmentbond sales (USD 686.2 million in 1993) increased 92.2 percent,becoming a critical source of financing. Monetary measures takenby the Central Bank in the second half of 1993 and risinginterest and exchange rates made the cost of borrowing higher forthe GOCR. On the revenue side, decreased tariff revenues (causedby lower tariff rates) and reduced export tax revenues (due inlarge part to low world coffee prices) resulted in lower taxrevenues. In 1993 the Central Bank continued to use a range of tools tocontrol the growth of the money supply, including open marketoperations, restriction of public sector credit, and increases inthe reserve requirements to commercial banks. Starting August 1,1993, the Central Bank raised by 2 percent per month the reserverequirement for local currency demand deposits. By the end of1993, the rate was 36 percent. The reserve requirement for timedeposits in local currency (less than 180 days) increased from 14percent at the end of 1992, to 17 percent at year-end 1993.Reserve requirements for foreign currency deposits were madeequal to those applied to deposits in local currency. Thismeasure consisted of a 13 percentage points increase in reserverequirements for dollar deposits of less than 30 days, and 5percentage points for dollar deposits of more than 30 days butless than 180 days. The rate of interest paid by the CentralBank for its bonds was increased gradually by 18 percentagepoints from June to September 1993, in an effort to captureexcess liquidity. On October 31, 1994, the Central Bankannounced forthcoming increased reserve requirements for on-sightdeposits from 36 percent to 43 percent, and from 17 percent to 30percent for time deposit less than 6 months, effective at the endof November 1994. The reasons given for the increases were theneed to capture excess liquidity, and for the Central Bank tocover some of the losses resulting from the closing of BancoAnglo. Also for reasons of excess liquidity, limits were put bythe Central Bank on amounts that could be used by publicinstitutions from donations previously made by USAID anddeposited in the form of bonds with the Central Bank.2. Exchange Rate Policy The exchange rate policy in 1993 continued practices set inMarch 1992 by the Central Bank, aimed at primarily allowing themarket to determine the exchange rate. The single exchange rateis set indirectly every morning by the Central Bank through itssale or purchase of foreign currency. Exporters are allowed tokeep 60 percent of incoming dollars, but must sell the remaining40 percent to a commercial bank, which in turn must sell 25percent to the Central Bank, facilitating the Central Bank'sacquisition of reserves. Additionally, all foreign transactionsby state institutions are channeled through the Central Bank.Commercial banks are free to negotiate foreign exchange prices.However, the difference between the sell and buy rates cannotexceed 1 percent, and from that limited spread, 0.39 colon perdollar is a tax, and 0.68 colon is a fee paid to the CentralBank. Commercial banks must liquidate their foreign exchangepositions daily. This exchange policy resulted in an essentially unchangedexchange rate during 1993, as freely traded dollars from tourismand capital investment continued to flow into Costa Rica. Thefree and sufficient supply of foreign currency continued to bethe most significant factor in increasing imports during 1993,particularly from the United States, aided by the relativedevaluation of the U.S. dollar vs. other major currencies.Between June and August of 1993, high demand for dollars forcedthe Central Bank to depreciate the exchange rate. By the end of1993, the exchange rate had depreciated 9 percent with respect tothe end of 1992, resulting in an increase of 13.52 colones perdollar.3. Structural Policies While consumer protection laws in Costa Rica fix prices,regulate profit margins, and prohibit price speculation, mostprice controls and all margin controls are currently suspended byexecutive decree. Pending legislation would remove most priceand all profit margin controls, impose antitrust rules andprotect consumers against product misrepresentation and pricefixing. This change in pricing laws is a requirement for theWorld Bank's Third Structural Adjustment Loan (SAL III), whichwas signed by the Government of Costa Rica in 1993, but which hasnot been ratified by the Legislative Assembly. Other laws and regulations affecting U.S. exports to CostaRica include the exclusive use of metric units, detailed labelingrequirements, including the required use of Spanish, and strengthrequirements for car bumpers. Phytosanitary and zoosanitaryrestrictions on the import of fresh produce, as well as importpermit requirements for many agricultural products limit or actas a de facto ban on U.S. exports of these products.Pharmaceuticals, veterinary drugs and chemicals, includingchemicals that are component parts, must be registered andapproved by the Ministry of Health before the chemicals orfinished products can be imported. Chemicals and pesticidesexported to Costa Rica must be legally available in the exportingcountry. Government purchasing and contracting are highly regulatedand often frustrating due to protracted appeals of contractawards, and bid and performance bond requirements. Despite this,no special requirements apply to foreign suppliers and U.S.companies regularly win public contracts. Competition is fierceamong international suppliers and frequently the winner mustpropose comprehensive packages that include performanceguarantees and financing. All exporters must have a legallyresponsible representative in Costa Rica in order to sell goodsor services in Costa Rica.4. Debt Management Policies Costa Rica had a net foreign reserve decrease of USD 19.3million during 1993. This was the result of a record USD 856.1million deficit in the trade balance, resulting from an 18.1percent increase in imports and a 12.7 percent increase inexports. The trade deficit was offset by net foreign investmentsof USD 275.0 million (USD 222.0 million in 1992) and services andtransfers mostly due to tourism of USD 486.1 million in 1993 (USD384.5 million in 1992). Costa Rica imported USD 1,300 millionfrom the United States in 1993, a 13.2 percent increase from1992. In 1993 Costa Rica exported USD 850 million to the UnitedStates, resulting in a trade surplus for the United States of USD450 million. While the pending (since 1992) SAL III funds, forUSD 350 million, are a potential source of foreign exchange, itis unlikely to be disbursed in the near future, if at all, due tothe unwillingness of the Legislative Assembly to approve loansand pass quickly the laws that are conditions for itsdisbursement. Consequently, Costa Rica will continue toexperience pressure on its balance of payments, especially itstrade account, and will need to attract more foreign investmentand tourism, in order to avoid an eventual foreign exchangeshortage. Costa Rica paid USD 481.6 million in 1993 (USD 497 million in1992) to service its official foreign debt, equivalent to 24percent of exports. The debt is now USD 3,158.4 million (Dec.31, 1993), equivalent to 42 percent of GDP. During 1993, theGovernment of Costa Rica managed to renegotiate USD 56.7 millionof bilateral debts with the members of the Paris Club. Debtservice payments decreased 3 percent in 1993, after an increaseof 42.9 percent in 1992 when a concerted effort to reduce thecountry's debt was made in order to qualify for an eventualpartial debt forgiveness by the United States. Servicing thevery large internal debt continues to be a more serious immediateproblem. Almost a third of the government's budget is spent inservicing its domestic debt, more than the amount spent in payingpublic employees, leaving precious little for making capitalimprovements and for importing U.S. goods and services. TheCentral Bank's anti-inflation policy of keeping interest rateshigh keeps debt service costs extremely high for the FinanceMinistry.5. Significant Barriers to U.S. Exports Costa Rica requires import permits for dairy products, porkand poultry meat, rice, beans, potatoes, onions, wheat, andsorghum. Some of these permit requirements can act as de factobans on U.S. exports. That the requirements can be met isevidenced by U.S. exports of wheat, which is not produced inCosta Rica, and is almost exclusively imported from the U.S.However, it is expected that on November 24, 1994, in compliancewith GATT requirements, import permits will be replaced bytariffs. Solvents and precursor chemicals are carefullyregulated to prevent illegal use. Surgical and dentalinstruments and machinery can be sold only to licensed importersand health professionals. All food products, medicines, toxicsubstances, chemicals, insecticides, pesticides and agriculturalinputs must be registered and certified by the Ministry of Healthprior to any sale. The Central Bank no longer licenses imports. All imports andexports are registered for statistical purposes only.Foreign companies and persons may legally own equity in CostaRican companies, including real estate. However, severalactivities are reserved to the state, including public utilities,insurance, bank demand deposits, the production and distributionof electricity, hydrocarbon and radioactive minerals extractionand refining, and the operation of ports and airports. (Note:Electricity can be produced, in plants up to 20 KVA capacity, byprivate entities for sale to the state electricity grid, andlegislation is under discussion to increase the percentage offoreign ownership allowed). However, recognizing theimpossibility of public financing of large scale infrastructureprojects, the legislature recently passed a law, which, once itsimplementing regulations are approved, would allow privateconstruction and operation of public projects on a concessionbasis. Such facilities would revert to the state after an agreedupon period. Many service industries are so rigorously controlled thatforeign participation is practically impossible. Medicalpractitioners, lawyers, certified public accountants, engineers,architects, teachers and other professionals must be members oflocal guilds which stipulate residency, and examination andapprenticeship requirements that can only be met by long-timeresidents of Costa Rica. Investment in such private sectoractivities as customs brokerage firms is limited to Costa Ricancitizens. In October 1994, the law limiting ownership ofnewspapers and radio and TV stations to Costa Rican citizens wasrepealed by the Constitutional Court. The law, which had beenenacted in 1974 to prevent fugitive American financier RobertVesco from owning a newspaper, was deemed discriminatory andtherefore unconstitutional by the Constitutional Court of CostaRica. While the Government encourages the development ofnontraditional exports and tourism, and may provide incentivesfor U.S. investment, it does not restrict foreign equityparticipation. The share of foreign workers in an enterprise islimited by law, but the Ministry of Labor generally grantspermission for foreigners to work. Permits for foreignparticipation in management have always been granted. Norequirement exists for foreign owners to work in their owncompanies. There are no restrictions on the repatriation ofprofits and capital. The government and other state institutions make procurementsthrough open public bidding, but the law allows private tendersand direct contracting of goods and services in limitedquantities or in case of emergency, with the consent of theContraloria (General Accounting Office). Public bidding iscomplicated and foreign bidders are frequently disqualified forfailure to comply with the detailed procedures. The lengthy andcostly appeal process often causes losses due to interim pricechanges while bidders cannot alter their bids. Customs procedures are legendary for their cost andcomplexity. Most large enterprises are forced to have customsspecialists on the payroll, in addition to buying the services ofcustoms brokers. Customs brokers must be bonded Costa Ricancompanies and enjoy a monopoly on the handling of imports. Allimporters and exporters, including U.S. companies, suffer fromdefective customs procedures, poor administration, theft, graftand inadequate facilities. The Government of Costa Rica, withUSAID and U.S. Customs Service assistance, is implementing aprofound reform of the system to automate and streamline tolessen the possibility of corruption and improve efficiency.This project is expected to be completed by December 1995. Inaddition, the Government of Costa Rica, again with USAIDfinancial assistance, is setting up a one-stop window to speed upthe pre-import permit process. The government's expropriation policy is a disincentive toU.S. investment in Costa Rica. The government has expropriatedlarge amounts of land for national parks, biologic and indigenousreserves, and squatters, and in a number of cases has yet toprovide adequate compensation. Some unpaid U.S. expropriationclaims date back over 25 years. While it is theoreticallypossible to obtain compensation through the court system, thetime, cost and frustration of litigating against the governmentgreatly diminish the value of such efforts. The government hasmade some efforts to resolve expropriation cases. However,several U.S. citizens with long-standing claims have not yetreceived prompt, adequate or effective compensation. The U.S.government, through extraordinary means, has been able toencourage progress in some individual cases. In theory,claimants also have had recourse to international arbitrationthrough the International Center for the Settlement of InvestmentDisputes since early 1993, although the Government of Costa Ricahas thus far not submitted any case to ICSID. Local arbitrationhas been employed since 1991. Landowners in Costa Rica also runthe risk of losing their property to squatters, who are oftenorganized and increasingly violent. Costa Rican land tenure lawsfavor squatters, and police protection of landowners in ruralareas is poor to non-existent.6. Export Subsidy Policies The Government of Costa Rica has attempted to diversify itsexport production and markets. Until mid-1992, all goods otherthan coffee, bananas, beef, sugar and cacao exported outside ofCentral America and Panama qualified for export subsidies throughthe issuance of negotiable tax rebate certificates (CATS). Thesesubsidies proved costly and violated the requirements for CostaRica's GATT membership. However, existing export contracts callfor the issuance of CATS until 1996. Costa Rica is a member ofGATT but not the GATT subsidies code. There are nodiscriminatory import policies. However under the terms of theCentral American Common Market Treaty of 1960, industrialproducts produced in any of the five countries enter duty-freeinto the other member countries. Costa Rica did not sign the services agreement or thesubsidies code under GATT. Costa Rica has ratified the UruguayRound agreements and became a founding member of the World TradeOrganization (WTO) on January 1, 1995. Export companies wishing to locate in duty free productionzones can benefit from exemption from import duties on rawmaterials and products, from all export, sales and consumertaxes, from taxes on remittance abroad, and from taxes onprofits for a period of six years from the beginning of theoperations, and a 50 percent exemption for the following fouryears.7. The Protection of U.S. Intellectual Property Costa Rica is a signatory to most major intellectual propertyrights (IPR) conventions and agreements, and is a member of theWorld Intellectual Property Rights Organization. However,significant weaknesses exist in the country's IPR system,particularly in enforcement and in patent protection. Pendinglegislation would ratify the Paris Convention on IndustrialProperty and create a Trade Secrets law. However, prospects forpassage of such legislation in 1994 are problematic. The UruguayRound TRIPS agreement should improve the Costa Rican IPR regime. Copyrights: Costa Rica is a signatory to the followingcopyright conventions: Title 17 USC (October 19, 1899 and April9, 1910); Mexico City Convention on Literary and Artisticcopyrights (1902); Rio de Janeiro Convention on Patents,Industrial Designs, Trademarks and Literary and Artistic Property(1906); Buenos Aires Convention on Literary and ArtisticCopyrights (1910), and as revised at Havana (1928);Inter-American Convention on the Rights of the Author (1946);Universal Copyright Convention (Paris 1971); Rome Convention forthe Protection of Performers, Producers of Phonograms andBroadcasting Organizations (1961); Berne Convention for theProtection of Literary and Artistic Works (Paris Act 1971);Convention for the Protection of Producers of Phonograms (Geneva1971); and Central American Convention (1982). Costa Rica's copyright laws are generally adequate. Themajor problem for copyright holders is enforcement. On May 10,1994, the copyright law (No. 6683 of 1 October 1982), wasmodified to extend protection to all forms of intellectualcreations, including music scores, paintings, software programs,books, etc. The modifications also increase protection bydirecting the police to prevent non-authorized presentations ofprotected works. On May 24, 1994, the Government of Costa Ricaissued regulations to Law No. 6683 that provide better protectionand mandate police participation. The cable television industrynow operates almost entirely under quitclaim agreements withforeign producers. However, a number of hotels are piratingtransmission signals. Pirate videocassettes are widelyavailable. According to industry sources and their legalrepresentatives, no authorized distributor of videocassettes iscurrently operating in Costa Rica. The new copyright law hasbeen challenged before the Constitutional Court by videooperators. The Court has not yet decided whether it will hearthe challenge. Patents: Costa Rica is a signatory to the following patentconventions: Convention of Paris (1883); and Rio de JaneiroConvention on Patents, Industrial Design, Trademarks and Literaryand Artistic Property (1906). Costa Rican patent laws are deficient in several key areas.The patent protection term is far too short. Patents are grantedfor non-extendable 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 withtherapeutic applications, chemical and agricultural fertilizers,agrochemicals and all beverage and food products. No patent protection is available for plant or animalvarieties, any biological or microbiological process or products,although the government is working on a legislative proposal thatwould protect such products. Costa Rica also has broadcompulsory licensing requirements that force patent owners tolicense inventions that are not produced locally. The limitedpatent protection available cannot be enforced until localproduction has begun. Costa Rican law also provides forcompulsory dependent patent licensing and for expropriation ofpatents. Trademarks: Costa Rica is a signatory to the followingtrademark conventions: Paris Convention (1883); Rio de JaneiroConvention on Patents, Industrial Designs, Trademarks andLiterary and Artistic Property (1906); and Central AmericanTreaty on Industrial Property (1970). Trademarks, service marks, trade names and slogans can beregistered in Costa Rica. There is no actual use requirement.Registration is for renewable ten-year periods from the date ofregistration. Counterfeit goods are widely available in CostaRica and compete with goods manufactured under trademarkauthorization. Another problem is registration of famous marksby speculators, who demand to be bought out if and when thelegitimate rights holders come to Costa Rica. Litigation toremove such speculative registrations can be lengthy andexpensive. Trade Secrets are protected by existing laws, and Article 24of the Constitution protects the confidentiality ofcommunications. The penal code stipulates prison sentences fordivulging trade, employment or other secrets, and doubles thepunishment for public servants. Some existing laws alsostipulate criminal and civil penalities for divulging tradesecrets. The burden of enforcement is on the affected party.8. Worker Rights a. The Right of Association Workers are nominally free to join unions of their choosingwithout prior authorization, although barriers exist in practice.Unions are independent of government control and are generallyfree to form federations and confederations, and to affiliateinternationally. Various trade union organizations contend thattrade unionism's right of association has been hurt by CostaRica's "solidarismo" (solidarity) movement. This movementespouses cooperation between employers and workers, offering suchservices as credit unions and savings plans in return for theirrenunciation of the right to strike andbargain collectively. However, in practice, solidarityassociations have been accused of acting as collective bargainingagents. In 1993, the Government of Costa Rica approved a packageof reforms that, in part, addressed the International LaborOrganization's (ILO) concerns about the effect of solidarityorganizations on workers' right to association. Prominent amongthese reforms was a provision explicitly prohibiting solidarityassociations from participating in collective bargaining ordirect agreements affecting labor conditions. In June 1994, theILO's Committee of Experts ruled that, with the 1993 changes tothe Labor Code and the promise of further reforms made by theGovernment of Costa Rica, progress has been made in assuringworker rights.</text>
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<text>U.S. DEPARTMENT OF STATECOLOMBIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 758Total Manufacturing 769 Food & Kindred Products 220 Chemicals and Allied Products 284 Metals, Primary & Fabricated 34 Machinery, except Electrical 0 Electric & Electronic Equipment 26 Transportation Equipment 1 Other Manufacturing 204Wholesale Trade 117Banking (1)Finance/Insurance/Real Estate 335Services 13Other Industries (1)TOTAL ALL INDUSTRIES 2,542(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATECOLOMBIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS COLOMBIA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1/ 1994 /2Income, Production and Employment:Real GDP 23,626 24,872 26,115Real GDP Growth (pct.) 3.8 5.3 5.0GDP (at current prices) 45,358 49,396 54,443By Sector: Agriculture 7,111 6,933 7,501 Energy/Water 1,210 1,580 1,741 Manufacturing 8,814 9,127 9,941 Construction 2,577 2,985 3,342 Rents 3,214 2,976 3,392 Financial Services 5,195 5,799 6,386 Other Sectors 17,238 19,996 22,140Real Per Capita GDP (at current prices) 1,307 1,431 1,562Labor Force (000s) 11,300 11,500 11,700Unemployment Rate (pct.) 10.3 7.9 10.0Money and Prices annual percentage growthMoney Supply (M2: an. pct. gwth.) 39.4 31.7 28.0Base Interest Rate (pct.) 37.2 35.8 38.0Personal Savings Rate (pct.) 7.5 7.0 6.5Retail Inflation (pct.) 25.1 22.6 22.0Wholesale Inflation (pct.) 17.9 13.2 18.0Consumer Price Index 268.1 325.7 397.7Exchange Rate (USD/Peso) Official 811.8 917.3 988.0 Market Rate 738.0 802.7 865.0Balance of Payments and Trade:Total Exports (FOB) 6,909 7,111 8,333 Exports to U.S. 2,466 2,641 3,833Total Imports (CIF) 6,513 9,841 10,609 Imports from U.S. 2,434 3,469 3,712Aid from U.S. 48.5 16 1Aid from Other Countries N/A N/A N/AExternal Public Debt 13,601 13,206 12,600Debt Service Payments (paid) 3,451 3,141 3,667Gold and Foreign Exch. Reserves 7,728 7,932 8,381Trade Balance 396 -2,730 -2,275 Trade Balance with U.S. 32 -828 -879N/A--Not available.1/ Preliminary.2/ Data for 1994 are estimates based on latest reports fromColombian Government sources.3/ U.S. aid is for fiscal years 1992, 1993 and 1994.1. General Policy Framework The Administration of President Ernesto Samper took officein August 1994, following the four-year term of President CesarGaviria. The Gaviria Administration was responsible for aprofound economic liberalization program known as "apertura."That program made great strides in opening the Colombianeconomy to international trade and investment by reformingforeign exchange and tax legislation, the labor code and theforeign investment regime. In addition to slashing tariffsfrom an average of 42 percent in 1990 to 12 percent in 1992 andeliminating many nontariff barriers, apertura also led to greatstrides in the privatization of state enterprises such as portsand railroads. Although President Samper has said he will takeno backward step in the apertura process, he will try to reducesome of the economic dislocations, especially in agriculture,caused by the rapid economic policy changes. Colombia hasratified the Uruguay Round agreements and became a foundingmember of the World Trade Organization (WTO) on January 1,1995. Concurrent with the economic reform program, the Colombiangovernment has continued its policy of gradually reducinginflation. Inflation, as measured by the CPI, was brought downto 22.6 percent in 1993; it was 32.4 percent in 1990.Government economists forecast that the inflation rate will bebetween 21 and 22 percent in 1994. The CPI has not droppedmore quickly in recent years primarily because of inflationarypressures stemming from the strong inflows of foreign capital,the policy of indexing the wages of Colombian workers, and thedesire of the government to avoid the adverse impact on theeconomy a shock treatment would have. In 1990 and 1991 the government resorted to restrictivemonetary and fiscal policies to cope with inflation. In late1991 monetary policy was directed at overcoming the effect oflarge inflows of foreign capital while maintaining thestability of the peso. Monetary policy in the period between1990 and 1992 was impacted by developments in the foreignexchange sector. The high domestic interest rates caused byrestrictive monetary policies boosted the expected yield fromColombian assets. The large capital inflows that followedwould have caused the money supply to increase, complicatingmonetary policy, if the Central Bank had not taken action.That action came in the form of a June 1991 decree mandatingthat foreign exchange receipts would be redeemed for exchangecertificates, denominated in U.S. dollars. Governmentauthorities also increased the tax on unilateral transfers offoreign exchange to residents of Colombia from abroad to 10percent in mid-1992. The exchange certificate system was discontinued in January1994. In March 1994 the Central Bank announced regulations tolimit internal and external credit availability to privateColombians. The measures were aimed at reducing inflationarypressures. Monetary policy in the Samper government will be aimed atthe further gradual reduction of inflation while avoidingabrupt movements in the exchange rate of the peso. The Samperadministration is sympathetic to complaints by Colombianexporters that the strong peso has adversely affected the pricecompetitiveness of Colombia's exports, especiallynontraditional exports. Days after President Samper tookoffice the Central bank amended regulations to discourage thepublic and private sectors from incurring more short-term debtin foreign currencies. Colombia's fiscal policy over the last four years has beendesigned to achieve four principal objectives: (1) theestablishment of a macroeconomic foundation for sustainablegrowth, (2) the direction of public resources to those sectorsof the economy which can best support the social developmentand competitiveness of the nation, (3) the restructuring ofthe budgetary system to increase constitutionally-mandatedtransfers to states and municipalities, and (4) the decreasein reliance on import tariffs as a source of revenue.2. Exchange Rate Policy In January 1994 the Central Bank moved to free marketexchange rates for Colombia's peso. Since that time the dailyquotation is set by the Banking Superintendency, and is basedon quotations from certain commercial banks and financialcorporations. Colombia's exchange rate policy underwent significantreforms following the introduction of the apertura program in1990. In 1991 Colombian residents were permitted to holdforeign currency and maintain foreign bank accounts.Furthermore, the Central Bank relaxed the total control overthe foreign exchange regime it had exercised; the primary aimwas the development of a foreign exchange system governed bymarket forces. Also, the crawling peg system, introduced in1967, was replaced by a floating rate system under the controlof the Central Bank. In September 1993 the foreign exchange system was furtherliberalized by the introduction of streamlined administrativeprocedures and the reduction of the number of transactions thathad to be done through commercial banks or other sanctionedintermediaries. In January 1994 the Central Bank moved to thefree market exchange system in which the peso may move within aband 7.5 percent above or below the daily quotation. TheCentral Bank may intervene by buying or selling its instrumentsin order to keep the currency within the band. The strength ofthe peso in recent years has improved price competitiveness ofU.S. exports to Colombia and has resulted in a significantshift in the balance of bilateral trade.3. Structural Policies Taxes: Part of the apertura program consisted of thereform of Colombia's tax system. Tax reform legislation passedin 1990 and 1992 reduced the dependence of the centralgovernment on import tariffs as a source of revenue. As aresult, import tariffs fell from 42 percent in 1990 to 12percent in 1992 while the VAT increased from 10 percent to 14percent in the same period. The Colombian government imposes a"war tax" on producers of crude oil and minerals, two sectorswith heavy foreign participation. Tax collection showedimprovement in recent years because of better enforcement andadministrative changes (i.e., introduction of simpler forms andpermitting taxpayers to make payment at local bank branches). Privatization: The Colombian government initiated anambitious privatization plan beginning in 1991. Since thattime the nation's ports, its railroad system, cellulartelephone service and domestic long-distance service, fivebanks, eight chemical firms, three shipbuilding companies, sixagroindustry enterprises, a fishing company, and a retailgasoline chain, among others, have been sold to privateowners. In early 1994 a court decision made it mandatory thatall shares of firms being privatized thereafter must be offeredfirst to the employees of those firms and to such institutionsas pension funds, cooperatives, and unemployment funds. Regulatory Policy: Performance requirements exist in theautomotive assembly sector in the form of local contentrequirements, as outlined in Decree 2642 of December 23, 1993.This decree requires the following local content: passengervehicles carrying up to 16 persons and cargo vehicles up to10,000 pounds, 30 percent; all other vehicles, 15 percent. Government Procurement: Government procurement is subjectto the norms established by Law 80 of October 1993. Certainarticles contained in the legislation have been problematic topotential foreign investors, including some U.S. companies.Article 20 of Law 80 requires that foreign firms without anactive local headquarters document that Colombian companiesenjoy reciprocity in similar bids under the foreign firms'countries' procurement legislation. The law suggests thatreciprocity be confirmed through bilateral or multilateraltreaties or accords, or that it be certified by an "authorized"government entity. The American Embassy has been in contactwith the Colombian government to attempt to find a mutuallysatisfactory resolution to these issues. However, noresolution had been reached as of late December 1994.4. Debt Management The Colombian Government continues to pursue ambitiousstructural economic reforms to stimulate real growth,strengthen its external sector, and enhance the country'saccess to new sources of credit. The debt management strategyis aimed at accessing new sources of credit in the external anddomestic capital markets and on improving the debt profile ofthe country generally. The government used the proceeds ofexternal bond sales in 1992, 1993 and the first nine months of1994 to prepay approximately $1.8 billion of debt. At the endof 1993 Colombia's long term and medium term public and privatedebt was $17 billion, equivalent to 34 percent of GDP. The Samper administration has announced that it willcontinue the orthodox management of Colombia's foreign debtpursued by the previous government. The administration's maindebt-related objectives include obtaining a better rating forColombian securities and increasing exposure with multilateralbanks. The latter objective is being sought to providepriority financing for social programs and infrastructureimprovements that are key elements of Samper's developmentprogram. The government also intends to continue to reduce theburden of external debt service by keeping the growth ofindebtedness below GDP growth. The government will alsocontinue to broaden its access to funds in money markets inEurope, Japan, and the United States. In September 1994 theColombian government placed $175 million in five-year "YankeeBonds" in the United States market (at 1.6 points over Libor).That made $425 million placed in the United States during thefirst nine months of 1994. Colombian financial authoritieswill continue to seek funds under the most favorable terms inthe world's largest markets.5. Significant Barriers to U.S. Exports Import Licenses: Colombia's prior import licensingrequirement was formerly the country's most onerous importrestriction. In 1991 the government abolished nearly all priorimport requirements. Some 98 percent of tariff categories cannow be imported freely, requiring only prior registration withthe Colombian Trade Institute (Incomex). The remaining twopercent of product categories still subject to prior importlicensing include chemicals which could be used to manufacturecocaine, arms, and munitions. Imports by government entities,donations, and nonreimbursable imports also require priorlicenses. The impact of import licensing requirements on U.S.exports is minimal. Banking and Securities: Law 9 and Resolution 49 of 1991opened up Colombia's financial sector to foreign investment.This legislation permits foreign investors to own up to 100percent of financial institutions. There were two wholly-ownedU.S. banking subsidiaries operating in Colombia in October1994. A third is expected to commence operations before theend of 1994. U.S. companies in the Colombian banking andsecurity sectors receive full national treatment. Legal: The provision of legal services is limited to thoselicensed under Colombian law. Foreign law firms are notpermitted a commercial presence in Colombia. Insurance: A commercial presence (i.e., a registered placeof business, a branch or an agent) is required in order to sellpolicies other than those for international travel orreinsurance. Colombia permits 100 percent foreign ownership ofsubsidiaries, but the establishment of branch offices offoreign insurance companies is not allowed. Accounting and Auditing: Some restrictions exist becausethe firms which control 80 percent of the market aresubsidiaries of multinationals. Providers of these servicesmust be licensed in Colombia. However, services offered by taxand administrative consulting firms or individuals are notrestricted. Mining and Hydrocarbons: Petroleum and mining companieshave expressed concern about restrictions on the use of localversus expatriate personnel, especially during the start upphase of a project. Colombian law requires that, unless anexemption is granted, at least 80 percent of employees beColombian nationals. Information Processing: Commercial presence is required toprovide this service. Advertising: At least 50 percent of programmed advertisingmust have local content. However, this applies only to publicbroadcast network programming. Audiovisual Services: Public network programming limitsforeign air time to 40 percent of the total. Standards, Labeling, and Marking Requirements: TheColombian Foreign Trade Institute (INCOMEX) does not requirespecific technical standards for any products. However,specifications established by the Colombian Institute ofTechnical Standards (ICONTEC) apply to Colombian governmentimports made pursuant to international bids. The ColombianImport Code states a preference, but not a requirement, thatimports be described in metric system terms. Specific marks or labels are required only forpharmaceutical and food products. Labels on food products mustindicate the specific name of the product, ingredients in orderof content, the name and address of the manufacturer, and thetotal contents. No label or illustration may be inaccurate ormisleading in any way. Pharmaceutical products must bear alabel, in Spanish, stating "for sale under medical, dental orveterinary prescription," the generic and brand names of theproduct, the net weight or volume of the package, the weight orquantity of active ingredients, the product's license number,and the lot control number. Products with limited shelf lifemust indicate the product's expiration date. Investment Barriers: Foreign direct investment policies inColombia are guided by two principles: (1) equality, in thesense that foreign and national investors receive the samelegal and administrative treatment; and (2) openness, meaningthat few restrictions will be imposed on the value of foreigndirect investment or its destination. Law 9 of 1991, Resolutions 51, 52, and 53 of the Council ofEconomic and Social Policy (CONPES) and Resolution 21 of theBoard of Directors of the Central Bank are the principalregulations which govern foreign direct investment. Theseresolutions grant national treatment for foreign directinvestors and permit 100 percent foreign ownership in virtuallyall sectors of the Colombian economy. The few exceptionsinclude ownership of real estate, activities related to thenational security, and the disposal of hazardous waste. Investment Screening: Investment screening has beenlargely eliminated, and those procedures still in place aregenerally routine and nondiscriminatory. Prior approval by theNational Planning Department for foreign direct investment isrequired only if the investor is providing a public service(energy, water, communications, etc.), requesting coverage byinternational insurance or risk protection (i.e., OPIC) orinvesting more than $100 million in activities related tomining, smelting, refining, transportation, or distribution.The Ministry of Communications must approve foreign directinvestment in that sector and the Ministry of Mines and Energymust approve all investment dealing with hydrocarbons. Allforeign direct investment must be registered with the CentralBank's foreign exchange office within three months of start upin order to obtain permission to repatriate earnings. Finally,all foreign direct investment must obtain an operating licensefrom the Superintendent of Companies and must be registeredwith the local Chamber of Commerce. Customs Valuation: Establishing the value of importedmerchandise, previously performed only by customs officials, isnow done in many cases directly by the importer. The importerdeclares the value of the import and pays the correspondingtariff and other taxes at a commercial bank. Customsclearance, which frequently took months under the formersystem, can now be completed in a few hours. Customs officers inspect merchandise on a random basis toverify that description and classification conform to theimporter's declaration. A program is also being implementedfor major customs brokers which provides them with a computerterminal linked to the computer network operated by the Bureauof Customs. Brokers with these terminals can complete mostclearance procedures in their offices before picking up themerchandise at the port of entry.6. Export Subsidies Policies The Colombian Government has sharply reduced exportsubsidies. At present there are three types of exportincentives: (1) indirect tax rebate certificates of 2.5percent, 4 percent and 5 percent, (2) import duty exemptions onthe import of capital goods and raw materials used tomanufacture goods that are subsequently exported, and (3)export credits provided by the Colombian Bank of ForeignTrade. The overall effect of these programs has diminishedconsiderably following Colombia's accession to the GATTSubsidies Code.7. Protection of U.S. Intellectual Property Colombia continues to improve protection of intellectualproperty rights through Andean Pact Decisions. Colombiaremained on the Special 301 Watch List in 1994 due tocontinuing concerns over deficiencies in the patent regime andcopyright enforcement efforts. Enforcement concerns arise notonly at the police level, but also in the juridical system.Several private attorneys have commented on the lack of respectfor preservation of evidence and frequent instances ofperjury. Colombia is a member of the Convention establishingthe World Intellectual Property Organization. Patents: Andean Pact Decision 313 of 1991 provides patentprotection for most products, including pharmaceuticals,biotechnology, and plant varieties. (Only pharmaceuticals onthe World Health Organization list of "essential medicines" areexcluded.) In 1993 the Andean pact adopted Decision 344, whichrepresented a significant improvement over previous standardsused for the protection of industrial property. For example,it provided for a 20-year patent protection term beginning withthe filing date. However, the decision still falls short ofU.S. goals in several respects, and is inconsistent withseveral provisions of the recently concluded agreement on TradeRelated Aspects of Intellectual Property (TRIPs) in the UruguayRound and the Paris Convention for the Protection of IndustrialProperty. For example, the compulsory licensing authority isinconsistent with TRIPs and no pipeline protection exists.Colombia also adopted Andean Pact Decision 345, which providesprotection to certain plant varieties. Colombia has not joined the major international conventionson patent protection. However, the government has stated itsintention to sign the Paris Convention for the Protection ofIndustrial Property, the Patent Cooperation Treaty and the UPOVConvention. In April 1994, the UPOV determined that Colombiamet the requirements for admission to the UPOV Convention, andauthorized it to deposit accession documents. Copyrights: In 1994, Colombia adopted Andean Pact Decision351, which harmonizes, integrates and modernizes the laws ofthe five Andean countries. It also expressly protectssoftware. In general, however, Decision 351 does notsignificantly alter copyright protection in Colombia. Colombia's copyright law is based on Law 23 of 1982 and Law44 of 1993, which increase criminal penalties. Colombian lawprovides copyright protection for the life of the author plus80 years. If the holder of the rights to the work is a legalentity, the term of protection drops to 30 years from the dateof first publication. Computer software was protected underLaw 44. Colombian copyright law is unclear as to whether itmust honor foreign satellite signals. Although Colombia has a modern copyright law, weakenforcement remains a serious problem. Video cassette andsatellite signal piracy continue to be widespread. Amendmentsto the copyright law made in 1993 have significantly increasedpenalties for infringement. The police administrative agenciesnow can seize pirated material and close an establishment, andeither suspend or cancel the operating license of anyestablishment open to the public where copyright infringementhas occurred. Nevertheless, enforcement efforts have beensporadic. Colombia belongs to the Berne (1987) and Universal (1976)Copyright Conventions, the Buenos Aires and WashingtonConventions, the Rome Convention on Copyrights (1976) and theGeneva convention for Phonograms (1994). It is not a member ofthe Brussels Convention on Satellite Signals. Trademarks: Colombia's trademark protection requiresregistration and use of a trademark in Colombia. Trademarkregistrations have a ten-year duration and may be renewed forsuccessive ten-year periods. Priority rights are granted tothe first application for trademark in another Andean Pactcountry or in any country which grants reciprocal rights.Trademark owners do not have a cause of action againstimportation of products from other Andean Pact countries thatbear their trademarks without authorization, though certainlabeling requirements concerning country-of-origin apply.Colombia is a member of the Interamerican Convention forTrademark and Commercial Protection. Enforcement of trademarklegislation in Colombia is weak. Trade Secrets: Andean Pact Decision 344 protectsindustrial secrets. Protected property includes that which issecret (not generally known or easily accessible to those whousually handle such information) or has an effective commercialvalue or a potential commercial value as a secret, when theperson possessing the secret has taken reasonable steps toensure secrecy. Semiconductors: Semiconductor design layouts are notprotected under Colombian law. However, the ColombianCopyright Office has expressed its willingness to discuss theissue.8. Worker Rights a. The Right of Association The right of workers to organize unions, engage incollective bargaining and strike is recognized by theConstitution and the law. The Colombian labor code wascompletely revised in December 1990 by Law 50, which authorizesautomatic legal recognition of unions which have obtainedinternally 25 signatures from a work place. It alsostrengthens penalties for interfering with workers' freedom ofassociation. The new Labor Law also authorizes theindependence of labor organizations in determining internalrules and electing officers. In addition, the law forbids thedissolution of trade unions by administrative decree.Colombian workers are organized into 2,265 unions, 101federations and three confederations. Unions may establishinternational affiliations without governmental restrictions.The Constitution extends the right to strike to nonessentialpublic employees, but the definition of "essential" has yet tobe determined by law. Before carrying out a legal strike,unions must negotiate directly with management and, in theabsence of an agreement, engage in conciliation procedures. Bylaw, public employees must go to binding arbitration ifconciliation talks fail. In practice, public service unionsdecide by membership vote whether or not to seek arbitration. b. The Right to Organize and Bargain Collectively Colombian unions have been moderately successful inorganizing larger firms and public services, but their memberscomprise less than eight percent of Colombia's economicallyactive population. Weak union organizations have limitedworkers' bargaining power in the private sector. Antiuniondiscrimination or the obstruction of union association isillegal and is enforced by administrative labor inspections.The use of strikebreakers is prohibited by the labor code.Colombian labor law is applied in the country's free tradezones (FTZs). There is no restriction against unionorganization or collective bargaining agreements in the FTZs. c. Forced or Compulsory Labor Forced or compulsory labor is prohibited by theConstitution, which specifically forbids slavery or anytreatment of human beings in servitude. This prohibition isrespected in practice. d. Minimum Employment Age The Constitution prohibits the employment of youngsters inmost jobs under the age of 14. The labor code prohibits thoseunder age 18 from receiving government work permits. Whilethis provision is generally respected by larger privatecompanies, the extensive informal economy as well as specificareas such as cut flowers, coal mining, and leather tanning areeffectively outside governmental control. e. Acceptable Conditions of Work The Colombian Government annually sets a national minimumwage which serves as an important benchmark for wagenegotiations. However, an estimated one-quarter of the laborforce, mainly in the informal sector, earns less than theminimum wage. The labor code also establishes a standard workday of eight hours and a forty-eight hour work week.Enforcement of these laws is the responsibility of the Ministryof Labor and the court system. f. Rights in Sectors with U.S. Investment All foreign investors are subject to Colombian lawsprotecting worker rights. U.S. investment is found principallyin the petroleum, coal mining, chemicals, and manufacturingindustries. Worker rights conditions in those sectors inpractice are superior to those prevailing elsewhere in theeconomy due to the large size and high degree of organizationof the enterprises. Examples include shorter than averageworking hours, payment of the highest wages and salaries inColombia and maintenance of occupational health and safetystandards well above the national average.</text>
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<text>U.S. DEPARTMENT OF STATECHINA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS China's trademark regime is generally consistent withinternational practice. Revisions providing for increasedcriminal penalties for infringement have significantlystrengthened the law's efficacy. However, pirating oftrademarks is still widespread and actions taken againstinfringers generally must be initiated by the injured party.8. Worker Rights a. The Right of Association China's 1982 Constitution provides for "freedom ofassociation," but this right is subject to the interest of theState and the leadership of the Chinese Communist Party. Thecountry's sole officially-recognized workers' organization, theAll-China Federation of Trade Unions (ACFTU), is controlled bythe Communist Party. Independent trade unions are illegal.The 1993 revised Trade Union Law required that theestablishment of unions at any level be submitted to a higherlevel trade union organization for approval. The ACFTU, thehighest level organization, has not approved the establishmentof independent unions. Workers in companies with foreigninvestors are guaranteed the right to form unions, which thenmust affiliate with the ACFTU. Fourteen coastal provinces havepassed regulations requiring all foreign-invested enterprisesto establish unions before the end of 1994. b. The Right to Organize and Bargain Collectively The long-awaited National Labor Law, passed by the ChineseNational People's Congress Standing Committee on July 5, 1994,permits workers in all types of enterprises in China to bargaincollectively. The law, which will take effect January 1, 1995,supersedes a 1988 law that allowed collective bargaining onlyby workers in private enterprises. Some high profileexperiments in collective bargaining have been carried out atstate enterprises. In the past, the ACFTU has limited its roleto consulting with management over wages and regulationsaffecting working conditions and serving as a conduit forcommunicating workers' complaints to management or municipallabor bureaus. Worker congresses have mandated authority toreview plans for wage reform, though these bodies serveprimarily as rubber stamp organizations. c. 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 where inmates are sentenced through non-judicialprocedures. Inmates of reeducation through labor facilitiesare generally required to work. Reports from internationalhuman rights organizations and foreign press indicate that atleast some persons in pretrial detention are also required towork. Justice officials have stated that in reeducationthrough labor facilities there is a much heavier emphasis oneducation than on labor. Most reports conclude that workconditions in the penal system's light manufacturing factoriesare similar to those in ordinary factories, but conditions onfarms and in mines can be harsh. d. Minimum Age of Employment of Children China's new National Labor Law forbids employers to hireworkers under 16 years of age and specifies administrativereview, fines and revocation of business licenses of thosebusinesses that hire minors. In the interim, regulationspromulgated in 1987 prohibiting the employment of school-ageminors who have not completed the compulsory nine years ofeducation continued in force. In poorer isolated areas, childlabor in agriculture is widespread. Most independent observersagree with Chinese officials that, given its vast surplus ofadult labor, China's urban child labor problem is relativelyminor. No specific Chinese industry is identifiable as asignificant violator of child labor regulations. e. Acceptable Conditions of Work The Labor Law adopted in July codified many of the generalprinciples of China's labor reform, setting out provisions onemployment, labor contracts, working hours, wages, skilldevelopment and training, social insurance, dispute resolution,legal responsibility, supervision and inspection. Inanticipation of the law's minimum wage requirements, many localgovernments already enforce regulations on minimum wages.Unemployment insurance schemes now cover a majority of urbanworkers (primarily state sector workers). In February 1994,the State Council reduced the national standard work week from48 hours to 44 hours, excluding overtime, with a mandatory24-hour rest period. A system of alternating weeks of six andfive-day work weeks began in March 1994, with a six-month graceperiod for implementation. The same regulations specified thatcumulative monthly overtime could not exceed 48 hours. Every work unit must designate a health and safetyofficer. Moreover, while the right to strike is not providedfor in the 1982 Constitution, the Trade Union Law explicitlyrecognizes the right of unions to "suggest that staff andworkers withdraw from sites of danger" and to participate inaccident investigations. Labor officials reported that suchwithdrawals did occur in some instances during 1994.Nonetheless, pressures for increased output, lack of financialresources to maintain equipment, lack of concern by management,and a traditionally poor understanding of safety issues byworkers have contributed to a continuing high rate ofaccidents. Partial year statistics provided by the ACFTUindicate that 11,600 workers were killed in industrialaccidents from January to August of 1993, up 12.9 percent overthe same period of 1992. f. Rights in Sectors with U.S. Investment Worker rights practices do not appear to vary substantiallyamong sectors. In general, safety standards are higher inU.S.-invested companies. There are no confirmed reports ofchild labor in the Special Economic Zones or foreign-investedsectors. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 223Total Manufacturing 461 Food & Kindred Products 66 Chemicals and Allied Products 67 Metals, Primary & Fabricated (1) Machinery, except Electrical 16 Electric & Electronic Equipment (1) Transportation Equipment (1) Other Manufacturing 53Wholesale Trade 144Banking (1)Finance/Insurance/Real Estate -2Services (1)Other Industries (1)TOTAL ALL INDUSTRIES 877(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of Economic Analysis</text>
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<text>U.S. DEPARTMENT OF STATECHINA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS PEOPLE'S REPUBLIC OF CHINA Key Economic Indicators (Billions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (RMB bn/1980 base) 2/ 1,272 1,440 1,606Real GDP Growth (pct.) 9.5 13.4 11.5GDP (at current prices) 315.4 309.5 417.6GDP by Sector: Agriculture 85.2 N/A N/A Energy/Water N/A N/A N/A Manufacturing 140.9 N/A N/A Construction 21.7 N/A N/A Rents N/A N/A N/A Financial Services N/A N/A N/A Other Services 117.9 N/A N/A Government/Health/Education N/A N/A N/A Net Exports of Goods & Services 6.3 N/A N/AReal Per Capita GDP (RMB) 2/ 1,828 2,013 2,214Labor Force (millions) 568 571 575Official Unemployment (pct.) 2.5 2.3 2.5Money and Prices: (annual percentage growth)Money Supply (M2) 31.3 25.0 35.0Base Interest Rate N/A N/A N/APersonal Saving Rate 3/ 40.0 40.0 40.0Retail Inflation 5.4 14.0 21.0Wholesale Inflation N/A N/A N/AConsumer Price Index 8.6 16.0 23.0Exchange Rate (RMB/USD;year-end) Official 4/ 5.8 5.8 N/A Parallel 4/ 6.8 8.8 8.5Balance of Payments and Trade:Total Exports (FOB) 5/ 84.9 91.8 118.0 Exports to U.S. (CV) 5/ 25.7 31.5 38.5Total Imports (CIF) 5/ 80.6 104.0 117.0 Imports from U.S. (FAS) 5/ 7.5 8.8 10.3Aid from U.S. 0.0 0.0 0.0Aid from Other Countries N/A N/A N/AExternal Public Debt 61.0 66.0 80.0Debt Service Payments (paid) 8.8 9.3 10.5Gold and Foreign Exch. Reserves 20.7 21.2 40.0Trade (Merchandise) Balance 5/ 4.4 -12.2 1.0 Trade Balance with U.S. 5/ 18.2 22.8 28.2N/A--Not available.1/ 1994 figures are all estimates based on monthly dataavailable in October 1994. Sources: State Statistical BureauYearbook, PRC General Administration of Customs Statistics,International Monetary Fund and World Bank reports, U.S.Department of Commerce trade data and U.S. Embassy estimates.2/ Real GDP and real per capita GDP are given in renminbi (RMB)using 1980 prices. All other income and production figures areconverted into dollars at the parallel rate.3/ Personal Saving Rate is as estimated by the IMF in May 1992.4/ Prior to 1994 China maintained a dual exchange rate systemwith an official rate and a parallel "swap market" rate. InJanuary 1994 these two rates were unified.5/ Source: U.S. Department of Commerce (U.S.-China bilateraltrade data); PRC Customs (Chinese global trade data).1. General Policy Framework Since the beginning of economic reforms in 1979, theChinese economy has grown at an average rate of nine percentper year, and in 1992 and 1993 growth accelerated to over 13percent per year. This striking evidence of the dynamism ofthe Chinese economy has transformed foreign views of thepotential of the Chinese economy and encouraged large inflowsof foreign direct investment over the past three years. Withappropriate economic reforms, China should be able to sustainhigh growth rates into the next century. But the next phase ofreform will require China to tackle problems such as enterprisereform that were largely bypassed in the first phase of reform,and to build new legal and political structures moreappropriate to a market economy. During the first nine months of 1994, real GDP growthreached 11.4 percent, down only slightly from the torrid paceset last year. But despite the introduction of stabilizationmeasures in mid-1993, rapid growth in 1994 has been accompaniedby a steady increase in inflation. The national cost of livingindex was up 24 percent in 1994, as inflation reached itshighest level since 1988-89. Chinese authorities blame most ofthe 1994 inflation on price reform and developments in theagricultural sector. But the more fundamental cause appears tobe the accommodating monetary and fiscal policies that Chinahas maintained, except for a few brief interludes, since thecurrent boom began in 1991-92. China's economic reform program in 1994 has been guided bythe landmark "decision" approved at the Third Plenum of theChinese Communist Party, held in November 1993. This"decision" established a broad framework for China's transitionto a "socialist market economy," including ambitious plans forfiscal, financial, and enterprise reforms to be implemented bythe end of the decade. In keeping with the spirit of the ThirdPlenum "decision," the Chinese government introduced majorreforms of China's foreign exchange and taxation systems at thebeginning of 1994, and it announced plans for a series ofimportant economic laws, including commercial and centralbanking laws, a foreign trade law, and a securities law. Someof these reforms have been taken with an eye to China'sstanding application to join the World Trade Organization (WTO)which remains under consideration by WTO members. During 1994, however, concern over inflation and domesticstability have slowed the pace of some reforms while othershave met with mixed success. The unification of China'sforeign exchange rates has gone relatively smoothly, with therenminbi actually appreciating slightly against the U.S. dollarsince January 1994. Tax reform has led to a more simplifiedcode and has reduced the gap in tax rates for state-owned andother enterprises. The new structure of tax-sharing betweencentral and provincial governments also marks a significantimprovement over the old tax-contracting system. But the newtax system has yet to increase real government revenues or theshare of government revenues in GDP, two of its keyobjectives. During 1994 many foreign corporations in Chinaexpressed concerns about possibly discriminatory application oftaxes to their operations there. Concern over the social costs of cutting subsidies to stateenterprises has slowed enterprise reform, and little progresshas been made in reforming China's backward financial system.The Draft Securities Law and the Central and Commercial BankingLaws now appear unlikely to be passed by the National People'sCongress before the first quarter of 1995, and despite theestablishment of three new state development banks, China'slarge state banks remain only in the preliminary stages oftheir transformation into true commercial banks. Chinese authorities have announced that enterprise reformwill be the centerpiece of their reform efforts in 1995. Someloss-making state enterprises will reportedly be forced intobankruptcy, and there has been continued discussion of possiblemeasures to establish a new social insurance system that couldbuffer the costs of restructuring the state sector. But thesuccess of reform in 1995 will depend heavily on China'sability to limit high inflation and by continued concern aboutthe possible impact of rising urban unemployment on socialstability. While the government hopes to reduce inflation to 15percent or less in 1995, it has avoided implementing toughausterity measures of the type that have been effective in thepast but that might slow economic growth and increase urbanunemployment. Unfortunately, the government's tentativestabilization program has proven ineffective, and there is asignificant risk of inflation worsening still further unlessthe government takes more decisive steps to cut lending to thestate sector and control China's rapidly increasing moneysupply.2. Exchange Rate Policies China unified its dual exchange rate system on January 1,1994 and began phasing out the use of Foreign ExchangeCertificates, a convertible form of the renminbi (RMB) formerlyreserved for use by foreigners within China. Chineseauthorities describe the current exchange rate as a "managedfloating rate." During each day's trading the exchange rate ispermitted to fluctuate in a narrow band around a central rateannounced by the People's Bank of China. Since January 1994,the RMB/USD exchange rate has appreciated slightly from about8.7 to 8.5. Under new foreign exchange guidelines, the RMB isconditionally convertible for certain trade and current accounttransactions. Most Chinese enterprises are now required tosell their foreign exchange earnings to Chinese banks at thenew unified rate. A Chinese importer with a valid importcontract and any required import licenses or quota permits can,in principle, purchase foreign exchange through a designatedforeign exchange bank at the unified rate, without receivingprior approval from the State Administration for ExchangeControl (SAEC). The Chinese authorities have maintained separate foreignexchange rules for foreign-invested enterprises (FIEs), whichcan maintain foreign currency deposits and keep their foreignexchange earnings. FIEs are formally excluded from the"interbank" foreign exchange market and required to buy andsell foreign exchange from each other in a modified version ofthe old swap center. In practice, however, most FIEs now buyand sell foreign exchange using designated foreign-exchangebanks, including branches of foreign banks, as their agents.These transactions are completed over the same trading systemused by Chinese banks for their domestic customers. While FIEs have generally enjoyed improved access toforeign exchange this year, the current system has severalserious shortcomings. FIEs still need to obtain SAEC approvalbefore they can purchase foreign exchange, and they remainsubject to foreign exchange balancing requirements. While theSAEC did not enforce these requirements strictly in 1994, theycould be used to control FIE purchases of foreign exchange forimports or the repatriation of profits if conditions in theforeign exchange market should change.3. Structural Policies China's structural policies remain caught between plan andmarket. The "decision" of the Party's Third Plenum in the fallof 1993 detailed plans to establish by the end of the decadethe foundation for a "socialist market economy," in which freemarket principles would guide nearly all economic activity butpublic or socialist ownership would still predominate. Thegovernment claims that prices have been freed for about 95percent of consumer goods and 85 percent of industrial inputs.Nevertheless, as part of the fight against inflation, thegovernment has over the past year intervened extensively inpricing for daily necessities, basic urban services, and keycommodities, including petroleum imports. In addition, under the guise of "macroeconomic management,"the government has begun to formulate sectoral industrialpolicies that will affect U.S. investment in, and exports to,China. The Automotive Industrial Policy, issued in July 1994,contains a number of measures to protect infant industry,including import controls, local content and other performancerequirements for foreign investors, and temporary pricecontrols for sedans. In the "Framework Industrial Policy forthe 1990s," the government announced plans to issue industrialpolicies for the following other sectors: telecommunicationsand transportation, machinery and electronics, construction,foreign trade, investment and, possibly, textiles.4. Debt Management Policies China's current external debt burden remains withinacceptable limits. At the end of 1993, China's external debtstood at about $80 billion, or 87.2 percent of exports,according to official Chinese estimates. China's 1993 debtservice to export ratio was about 12-13 percent. The AsianDevelopment Bank, the World Bank, and Japan are China's majorcreditors, providing approximately 60 percent of all China'sgovernmental and commercial loans. In September 1994, China'sofficial foreign exchange reserves were $39.8 billion, up $18.6billion from the beginning of the year; foreign exchangereserves continued to climb later in the year with the People'sBank of China alone holding $48.9 billion in November 1994.5. Significant Barriers to U.S. Exports China continues to impose barriers to U.S. exports, despiteits stated goal of reforming and liberalizing its traderegime. In addition to prohibitively high tariffs in manysectors, China relies on multiple, overlapping nontariffbarriers, administered at the national and provincial levels byvarious bureaus or ministries, to limit imports. Thesebarriers include absence of transparency in the trade regime;import licensing requirements; import quotas, restrictions andcontrols; standards and certification requirements; andscientifically unjustified sanitary and phytosanitary (SPS)measures. Strict controls over Chinese enterprises' tradingrights are also a major market access barrier. On October 10, 1992, the United States and China signed aMemorandum of Understanding (MOU) on Market Access that commitsChina to dismantle most of these barriers and gradually openits markets to U.S. exports. The actions China has committedto take are among those being considered by members of theGATT/World Trade Organization (WTO) in examining China'spending application for membership. Until the signing of theMOU, many of China's trade laws and regulations were considered"internal" documents not available to foreigners. As agreed inthe MOU, China has taken certain steps to make its trade regimemore transparent, including: 1) publishing trade laws andregulations in a newly established central register and makingavailable some information of commercial interest to U.S.companies; 2) publishing a State Council notice, intended tohalt the use of restricted internal directives, stating thatonly trade laws that are published can be enforced; and 3)identifying agencies involved in the import approval process.To date, however, China has not fulfilled its MOU commitment topublish import quotas or to deal with SPS restrictions. High and unpredictable tariffs make importing into theChinese market difficult. Tariffs on discouraged imports, suchas automobiles, can run in excess of 100 percent. In addition,tariffs may vary for the same product, depending on whether theproduct is eligible for an exemption from the publishedtariff. Under commitments made in the market access MOU, theChinese government lowered tariffs on 3,371 items in December1992 and on an additional 2,898 items in December 1993. Amongimports with lowered tariffs are edible fruits and nuts,vegetable oils, photographic/cinematographic goods, games,miscellaneous chemical products, iron/steel articles,machinery/mechanical appliances, electrical machinery andparts, and perfumery, cosmetic and toiletry preparations. China currently retains nontariff measures (quotas,licenses or tenders) for 784 tariff line items. Undercommitments made in the market access MOU to progressivelyphase out import barriers, China eliminated such measures for283 items on December 31, 1993, and an additional 208 items onJune 1, 1994, including a number ahead of, or in addition to,the schedule set in the MOU. Time frames for liberalizationvary from product to product. Under the market access MOUliberalization time table, China agreed to eliminateapproximately 75 percent of all import licensing requirements,quotas, controls and restrictions by the end of 1994, and 90percent will be removed by the end of 1997. Export sectorsaffected by the MOU which are of interest to U.S. firmsinclude: autos and parts, medical equipment, computers,photocopiers, telecommunications, electrical appliances,chemicals, agrichemicals, pharmaceuticals, film and instantprint film, instant cameras, beer, wine, alcoholic beverages,mineral waters, wood products, steel, and a wide range ofmachinery products. Despite its commitments in the market access agreement,China has not stopped using unscientifically-based standardsand certification as barriers to trade. China's phytosanitaryand sanitary measures for imports of plants and animals areoften overly strict, unevenly applied and not backed by modernscientific practices. In the market access MOU, Chinacommitted to resolve questions about scientifically unjustifiedphytosanitary restrictions on citrus fruits, stone fruits,apples, grapes, wheat, and tobacco, and to negotiate aveterinary protocol regarding the import of animal breedingstock. As of October 1994, U.S. concerns have been partlyresolved with regard to apples and bovine semen. Formanufactured goods, China has required quality licenses beforegranting import approval, with testing based on standards andspecifications often unknown or unavailable to foreigners andnot applied equally to domestic products. In the MOU, Chinacommitted to applying the same standards and testingrequirements to nonagricultural products, whether foreign ordomestic. A fundamental philosophy of import substitution stoodbehind these various policies. In the market access MOU, Chinahas agreed to eliminate the use of import substitution policiesand measures, and has promised that it will not subject anyimported products to such measures in the future, nor will itdeny approval to imports because an equivalent product isproduced in China. Import substitution lists have beenpublicly disavowed. Nonetheless, the Chinese government hascontinued to place local content requirements on foreigninvestments in China, most recently in the industrial policygoverning the automotive industry. In the past few years, China undertook a number of reformsto improve its trade regime. The National People's Congress(NPC) adopted an Unfair Competition Law, effective December 1,1993, which deals with protection of trademarks and commercialsecrets, unfair practices by state monopolies and governmentdepartments, bribery, false or misleading advertising,predatory pricing, collusion, and other unfair practices.China's first comprehensive Foreign Trade Law also went intoeffect on July 1, 1994. The law aspires to be consistent withrequirements of the GATT, but it serves mainly as a frameworkcodifying the existing system or setting goals for futurereforms. A key concern is that the Foreign Trade Law does notestablish a legal standing for foreign individuals orforeign-owned firms engaged in trade in China. Implementingregulations have in many cases not yet been drafted. While implementation of the market access MOU will reduceor eliminate many of the most serious barriers to trade ingoods, China has only recently begun to reform its servicessector. China has permitted "experiments" in foreigninvestment in service sectors by authorizing a limited numberof foreign firms to establish joint ventures in insurance,legal services, tourist resorts and department stores. Ingeneral, Chinese restrictions on certain foreign serviceactivities (including construction, banking, accounting, travelservices, audio visual services, and data processing services)prevent U.S. firms from enjoying a reciprocal level ofparticipation in China's service sector. U.S. and otherforeign banks cannot engage in local currency business in Chinaor deal with Chinese clients, while the Bank of China branch inNew York has conducted all forms of branch banking activitiessince 1980. Numerous non-transparent approval procedureshamper foreign banks' dealings with other foreign-investedenterprises. Except for one "experimental firm," U.S.insurance firms are not allowed to participate in the directinsurance market in China. U.S. lawyers and accountants mustlargely limit their activities to servicing foreign firms thatdo business in China. Foreign firms cannot establishwholesaling operations and can only engage in a very narrowrange of retailing: restaurants, "experimental" departmentstores and retail outlets selling only products made at aforeign investor's own factory in China. Many joint ventures are highly dependent on China'sstate-owned sector for downstream services. Some investorshave been permitted to set up their own marketing and serviceorganizations, but many have no choice but to rely on PRCchannels for support. Imports of audio and video recordingsare hampered by quotas, restrictions on foreign exchangeavailability, and lax enforcement of intellectual propertylaws. China does not permit foreign investment services firmsto establish profit-making operations or gain membership on itsstock exchanges. Foreigners are limited to holding "B" shares,a small volume of outstanding equities. Representative officesof foreign companies must hire their local employees through alabor services company. There are also significant barriers to investment whichwarrant further reform. FIE's continue to be treateddifferently for tax purposes. Foreign firms established priorto January 1, 1994, pay a 17 percent value-added tax ondomestic materials in exports from which Chinese firms areexempt. Foreign investors may not own land in China. Chineseauthorities are, however, approving long term land use dealsfor investors, some lasting up to 70 years. Chineseregulations and policies place strong pressure on most foreigninvestors to export and to localize production through greateruse of Chinese components rather than imports. China alsoencourages the development of favored industries through taxincentives and tariff exemptions. Depending on the locality,investments above $30-50 million require national as well aslocal approval. The law permits repatriation of profits, solong as the venture has earned sufficient foreign exchange tocover the remitted amount. Foreign equity participation isrestricted in some industries but not in others, althoughsolely-owned foreign ventures are still rare. In at least onerecent case, a U.S. company has tried unsuccessfully to file aninternational arbitration award with a Chinese court, despitethe court's obligation to accept the case under China's law andinternational treaty obligations. Although open competitive bidding procedures areincreasingly used for both domestic and foreign-fundedprojects, the great majority of government procurementcontracts in China are handled through domestic tenders ordirect negotiation with selected suppliers. Projects incertain fields require government approval, usually fromseveral different organizations and levels. Procedures areopaque and foreign suppliers are routinely discriminatedagainst in areas where domestic suppliers exist. Customs procedures are not applied uniformly throughoutChina. Importers frequently report being charged differentrates for the same product. Some products, including foods andchemicals, are subject to different inspection or registrationprocedures than domestic products (violations of the GATTprinciple of national treatment).6. Export Subsidies Policies China abolished direct subsidies for exports on January 1,1991. Nonetheless, many of China's manufactured exportsreceive indirect subsidies through guaranteed provision ofenergy, raw materials or labor supplies. Other indirectsubsidies are also available such as bank loans that need notbe repaid or enjoy lengthy or preferential terms.Import/export companies also cross-subsidize unprofitableexports with earnings from more lucrative products. Taxrebates are available for exporters, as are duty exemptions onimported inputs for export production. Although China does notcurrently provide extensive agricultural subsidies, it hassought in GATT/WTO accession negotiations to retain the rightto offer very large subsidies should it see fit in the future.7. Protection of U.S. Intellectual Property China has made significant progress in recent years in theenactment of laws and regulations to protect intellectualproperty, but enforcement of these measures has been extremelypoor. A copyright law, passed in 1990, went into effect inJune 1991, and a trade secrets law was passed and went intoeffect in October 1993. China has joined the WorldIntellectual Property Organization and has acceded to a numberof intellectual property conventions, including the ParisConvention on the Protection of Industrial Property, the BerneCopyright Convention, and the Madrid Agreement Concerning theInternational Registration of Trademarks. Although not now amember of the GATT/WORLD TRADE ORGANIZATION (WTO), China haspublicly declared its support of the Uruguay Round text ontrade-related aspects of intellectual property protection(TRIPS). Much of this progress followed the U.S. decision in April1991 to identify China as a "priority foreign country" underthe Special 301 provisions of the Trade Act for its failure toprovide adequate and effective protection of U.S. intellectualproperty. Subsequent negotiations under the Special 301investigation resulted in the signing of a bilateral Memorandumof Understanding (MOU) on the Protection of IntellectualProperty on January 17, 1992. China met most of itscommitments under the MOU, which included amending its patentlaw, joining the Berne Convention, and enacting trade secretslegislation. Enforcement of laws, however, remained lax.Consequently, China was again named as a "priority foreigncountry" and a Special 301 investigation was initiated in June1994 seeking improved enforcement of intellectual property lawsand better market access for U.S. products. In 1994 China has taken some additional steps to strengthenits enforcement regime. The government recently passedlegislation adding criminal penalties for copyrightinfringement. It empowered the Customs Administration toprovide border enforcement for intellectual property and theCopyright Office to enforce software copyrights. The StateCouncil established an intellectual property enforcement officewhose mandate includes coordinating enforcement effortscountrywide. However, these recent steps have yet to alter theenvironment of rampant infringement of products relying onintellectual property. Factories producing massive quantitiesof pirated sound and video recordings, long identified to Chinaas IPR infringers, continued to produce IPR infringing works atthe end of 1994. Lack of market access for licit audiovisualproducts also remains an impediment to effective enforcement.Recent regulations outlining agency responsibilities in thisarea have not clarified access procedures for foreign exportersand manufacturers. Among the most serious issues facing U.S. right holders isthe pervasiveness of copyright infringement. For instance,U.S. industry associations estimate that pirating of U.S.copyrighted works cost U.S. rights holders nearly $1 billion inChina in 1994. Competing bureaucratic interests and the lackof a reliable legal system for resolving commercial disputeshave hampered the establishment of effective enforcementmechanisms. Chinese authorities also face great challenges ineducating the public on the value and importance of protectingintellectual property, a concept hitherto foreign to the vastmajority of Chinese. The 1992 intellectual property rights MOU committed Chinato make important improvements in the protection of patentedproducts. An amendment to China's patent law, which tookeffect on January 1, 1993, extended patent protection tochemical, pharmaceutical and food products, materials whichheretofore were excluded from eligibility. The amendment alsoextended the term of patent protection from 15 to 20 years fromthe date of filing and gave the patent holder rights overimportation. The MOU additionally provided for administrativeprotection of certain U.S. pharmaceutical and agriculturalchemicals as of January 1, 1993. China agreed to provide theequivalent of full product patent protection for these productsif they were patented in the U.S. between 1986 and 1993 but notyet marketed in China. The Ministry of Chemical Industries isadministering the regime, and the U.S. government is currentlymonitoring the Ministry's procedures.</text>
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<text>U.S. DEPARTMENT OF STATECHILE: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS CHILE Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994Income, Production and Employment:Real GDP (1993 exchange rate) 41,100 43,700 45,400GDP (at current prices) 40,800 43,700 48,500Real GDP Growth (peso terms) 11.0 6.3 4.0Real GDP by Sector: Agriculture 2,930 2,970 3,050 Utilities 1,180 1,240 1,280 Manufacturing 7,260 7,550 7,970 Construction 2,200 2,520 2,580 Fishing 460 470 550 Mining 3,350 3,390 3,400 Trade 6,400 6,980 7,150 Transport/Communications 3,100 3,350 3,650 Other (includes services) 14,220 15,230 15,770Real Per Capita GDP (USD) 3,030 3,170 3,250Labor Force (000s) 4,844 5,095 5,200Unemployment Rate (pct.) 4.9 4.6 5.6Money and Prices: (annual percentage growth)Money Supply (M1A) 40.3 19.1 17.0Interest Rate 2/ 8.1 9.2 9.2Wholesale Inflation (12-month) 8.9 6.7 9.0Consumer Price Inflation (12-month) 12.7 12.2 10.5Average Exchange Rate: (pesos/USD) Interbank Rate (actual) 363 404 423 Mid-Point of Crawling Peg 390 430 460Balance of Payments and Trade:Total Exports (FOB) 9,986 9,202 10,700 Exports to U.S. (FOB) 1,649 1,655 1,800Total Imports (FOB) 9,237 10,181 10,800 Imports from U.S. (CIF) 1,985 2,477 2,500Aid from U.S. 3/ 4 4 4Public Foreign Debt (yearend) 9,623 9,035 8,800Public Foreign Debt Service 4/ 1,400 1,300 1,400Gold and Foreign Exch. Reserves 9,009 9,759 10,700Trade Balance 749 -979 -100 Trade Balance with U.S. -336 -822 -7001/ 1994 figures are estimates based on data through August.2/ Real (i.e., in addition to inflation) annualized rate for90-365 day loans.3/ Fiscal years, including all of FY-1994. All grants.4/ Estimate. Includes non central government debts (e.g.,Central Bank, public corporations) and private debts withpublic guarantees.1. General Policy Framework Chile's economic expansion is now into its twelfth year.The most notable developments over the last several years havebeen the diversification of the export base and the renewedability of Chilean firms to obtain capital from internationalmarkets. Although copper remains the country's largest exportearner and foreign investment pours into the mining sector,exports of fish, forestry products, and fresh fruit areimportant as well. Chile's credit rating is the highest inLatin America; since Chile received an investment-grade ratingin 1992, Chilean firms have financed investment with foreigncapital by borrowing, issuing bonds, and selling stock abroad.Domestically financed investment is also significant andgrowing, and many Chilean firms are expanding abroad. The democratic governments of Patricio Aylwin (1990-1994)and Eduardo Frei (1994-present) have emphasized the need tomaintain macroeconomic stability and the economy's exportorientation. The government has generated fiscal surpluses ineach of the years 1990-1993, and it is projected to do so in1994. In the last few years, the government and theindependent Central Bank have privatized some firms andgradually loosened foreign exchange restrictions, although theyremain concerned about the potential effects on the exchangerate of rapid foreign currency inflows. In 1994, new lawsliberalized capital markets, fixed a framework forenvironmental regulation, and made money laundering a crime. Abill pending in Congress would allow banks to enter newbusinesses. Chile has ratified the Uruguay Round agreementsand became a founding member of the World Trade Organization(WTO) on January 1, 1995. The Central Bank's monetary policy targets real interestrates. It has resisted calls to lower interest rates as growthrates fell in 1993 and 1994, emphasizing the need to preventlong-term domestic spending growth from outpacing that of theeconomy as a whole. The authorities have sought to maintain anexchange rate which provides incentives to invest in exportindustries, although rapid capital inflows since 1991 havecomplicated their task by contributing to peso appreciation. Indicators for 1994 suggest that growth will be around fourpercent as a result of decelerating domestic spending. Growthis being led by exports, with domestic trade and construction(which boomed in 1993) facing difficulties. Inflation will benear the government's target range of 9-11 percent, whileunemployment will average between five and six percent.Because of an unexpected increase in the price of copper, thetrade balance will be very close to even, and the currentaccount deficit will be around 2.5 percent of GDP. For 1995,preliminary Central Bank projections envision growth of overfive percent, inflation of nine percent, a slightly positivetrade balance, and a current account deficit of three percentof GDP. Keeping inflation on a downward path remains a highpriority, but the authorities have cautioned that theindexation of the economy makes rapid gains unlikely in theshort-term.2. Exchange Rate Policy The Central Bank pegs the peso to a basket composed of theU.S. dollar, the mark and the yen (weighted 50 percent, 30percent and 20 percent, respectively). The peg is adjusted toreflect inflation differentials between Chile and its majortrading partners. Although the path for the crawling peg isdetermined a month in advance, the individual cross rates aredetermined daily, depending on market rates for the dollar,mark and yen. The official interbank rate is allowed to movewithin a 20 percent band around the crawling peg. Exporters must remit most (75 percent or all but $15million, which ever is greater) of their foreign currencyearnings through the interbank market. The Central Bankintervenes in the interbank market on different occasions toreduce short-term fluctuations. A legal parallel marketoperates, with rates typically within one percent of theinterbank rate. The peso appreciated against the currencies ofChile's trading partners by around 20 percent in real termsbetween 1991 and 1993. The appreciation was in large part dueto the strong capital inflows prompted by high Chilean interestrates and the perception abroad of reduced country risk. Inthe first half of 1994, the peso appreciated by another threepercent as a result of the dollar's weakness in internationalmarkets.3. Structural Policies Pricing Policies: The government rarely sets specificprices. Exceptions are urban public transport and some publicutility prices and port charges. State enterprises purchase atthe lowest possible price, regardless of the source of thematerial. U.S. exports enter Chile and compete freely withother imports and Chilean products. Import decisions aretypically related to price competitiveness and productavailability. (Certain agricultural products are an exception.See section five.) Tax Policies: An 18 percent value-added tax (VAT) appliesto all sales transactions and accounts for 43 percent of totaltax revenue. There is an 11 percent tariff on most imports.There are duty-free zones in Iquique and Punta Arenas and alimited duty-free zone in Arica; less than three percent ofChilean imports pass through these zones. Personal income taxrates will fall modestly in 1995; the top marginal rate willfall from 48 to 45 percent on annual income over approximately$75,000. Profits are taxed at flat rates of 15 percent forretained earnings and 35 percent for distributed profits, withincentives for business donations to educational institutions.Tax evasion is not a serious problem. Regulatory Policies: Regulation of the Chilean economy islimited. The most heavily regulated areas are utilities, thebanking sector, the securities markets, and pension funds.There are no government regulations that explicitly limit themarket for U.S. exports to Chile (although other governmentprograms, like the price band system for some agriculturalcommodities described below, displace U.S. exports). In recentyears, the government has for the first time begun to allowprivate firms to invest in and operate public infrastructureprojects. Most Chilean ports are administered by a state-ownedfirm, although stevedoring services are typically provided bythe private sector.4. Debt Management Policies Chile's vigorous economic growth and careful debtmanagement over the last decade have meant that foreign debt isno longer a major problem. The government restructured 1991-94foreign debt maturities at market interest rates with itscreditor banks in September 1990. As of mid-1994, Chile'spublic and private foreign debt stock stood at $19.9 billion.In every year since 1987, public sector debt has declined andprivate sector debt has risen, the latter a result of firmsborrowing abroad to finance investment. Public sector debt isnow less than private sector debt, and in the last few yearsthe overall debt level as a percentage of GDP has remainedrelatively stable at around 40 percent. (In 1985, thedebt-to-GDP ratio was 125 percent.)5. Significant Barriers to U.S. Exports Chile has few barriers to U.S. exports. Nevertheless,treatment in some areas, especially agricultural commodities,diverges from this norm. Chile agreed in the GATT UruguayRound not to raise its tariff rates above 25 percent (exceptfor a few agricultural products, for which the rate is 31percent). The uniform Chilean tariff rate is currently 11percent. Chile has free trade agreements providing forduty-free trade in most products by the late 1990s with Mexico,Venezuela, and Colombia, and it was expected to completeanother such agreement with Ecuador in late 1994. In 1994,Chile also began negotiations on a trade-liberalizing agreementwith the Mercosur nations (Argentina, Brazil, Paraguay, andUruguay). Tariffs also are lower than 11 percent for certainproducts from member countries of the Latin American Free TradeAssociation and products imported by diplomats and the Chileanmilitary. A 50 percent surcharge, in addition to the 11percent import tariff, is applied to all imports of used goods. The 18 percent VAT is applied to the CIF value of importedproducts plus the 11 percent import duty. This compounding addsan effective two percent to the duty charged on the importedgood. Duties may be deferred for a period of seven years forcapital goods imports purchased as inputs for products to beexported. (See section 2.) Automobiles are subject to additional taxes based on valueand engine size. The engine tax applies to vehicles withengines of over 1,500 cc., while the value tax is 85 percent ofthe CIF value over a certain level (around $9,700 in 1994).These taxes discourage sales of larger and more expensivevehicles, including most U.S.-made automobiles. Despite thesetaxes, sales of U.S.-made vehicles are growing. Another tax that has the effect of discouraging U.S.exports is the 70 percent tax on whiskey, which is produced inonly small volumes domestically and which competes with otherdomestically produced liquors taxed at lower rates. Import Licenses: According to legislation governing theCentral Bank since 1990, there are no legal restrictions onlicensing. Import licenses are granted as a routineprocedure. Imports of used automobiles are prohibited. Investment Barriers: Chile's foreign investment statute,Decree Law 600, sets a standard of treatment of foreigninvestors in the same manner as Chilean investors. Foreigninvestors using D.L. 600 sign a contract with the government'sForeign Investment Committee guaranteeing the terms of theirinvestments. These terms include the rights to repatriateprofits immediately and capital after one year, to exchangecurrency at the official interbank exchange rate, and to choosebetween either national tax treatment or a guaranteed rate forthe first ten years of an investment. Approval by the ForeignInvestment Committee is routine. Since 1991, investors havebeen required to deposit some (currently 30 percent) of thecapital obtained from foreign loans in a non-interest bearingCentral Bank account (known as the "encaje") for one year.There is no tax treaty between Chile and the United States, soprofits of U.S. companies operating in Chile are taxed by bothgovernments, although U.S. firms generally can claim creditsfor taxes paid in Chile. Firms may invest without using D.L. 600 or registering withthe Foreign Investment Committee by bringing capital in throughforeign exchange dealers or private banks. Few firms use thismeans of investment, as it lacks the guarantees provided by thecontract with the Foreign Investment Committee. There are some deviations, both positive and negative, fromthe nondiscrimination standard. Foreign investors receivebetter than national treatment on taxation, as they have theoption of fixing the tax rate they will pay at 42 percent forten years or paying the prevailing domestic rate, which is atpresent lower. Unlike domestic firms, foreign investors mayalso keep all of their export earnings abroad. There are also examples of less than national treatment.In an emergency, D.L. 600 allows the Central Bank to restrictthe access of foreign investors to domestic borrowing in orderto prevent distortion of local financial markets. The CentralBank has never exercised this power. Other examples of less than national treatment are therestrictions on foreign investment in some sectors. With fewexceptions, fishing in the country's 200-mile exclusiveeconomic zone is reserved for Chilean-flag vessels withmajority Chilean ownership. Such vessels also are the onlyones allowed to transport by river or sea between two points inChile ("cabotage") cargo shipments of less than 900 tons orpassengers. Full foreign ownership of radio and television stations isallowed, but the principal officers of the firm must be Chilean. A freeze in force for the last decade on the issuance ofnew bank licenses means that would-be foreign (or domestic)entrants must acquire existing banks. The automobile and light truck industry is the subject oftrade-related investment measures, although U.S. firms areamong those helped as well as those harmed. Manufacturers fromthe United States (GM) and France (Peugeot/Renault) receiveimport protection in the form of the taxes noted above, whichprotect their Chilean production. The manufacturers alsoreceive tax benefits for the use of local inputs and forexporting auto components. Despite these measures, importsmake up around 85 percent of the market. Oil and gas deposits are reserved for the state. Privateinvestors are allowed concessions, however, and foreign anddomestic nationals are accorded equal treatment. Principal Nontariff Barriers: The main trade remediesavailable to the Chilean Government are surcharges, minimumcustoms values, countervailing duties, antidumping duties, andimport price bands. Chile's most significant nontariff barrieris the import price band system for certain agriculturalcommodities, which currently applies to wheat, wheat flour,vegetable oils, and sugar. Surtaxes are levied on imports ofthese commodities on top of the across-the-board 11 percenttariff in order to bring import prices up to an average ofinternational prices over previous years. The Chilean Government may apply country-specific duties onproducts that it determines to have received subsidies fromexporting countries and on products that it determines to havebeen dumped at below-market prices. As of late 1994, onlyimports of certain textiles and garments from selected Asiancountries and imports of one industrial chemical are subject tothese duties. Low world prices have led Chile to establishminimum customs values for milk, spun cotton, and wheat flour. Animal Health and Phytosanitary Requirements: Chileoccasionally uses animal health and phytosanitary requirementsin a nontransparent manner that has the effect of impedingimports. No public comment process or announcement of proposedrule changes precedes the promulgation of these requirements.U.S. exporters have expressed concern about the application ofphytosanitary requirements to poultry. Chilean authoritieshave in some instances eliminated or liberalized specificrequirements when presented scientific evidence by U.S. animalhealth or phytosanitary officials. Government Procurement Practices: The government has a"buy Chile" policy only when conditions of sale of locallyproduced goods (price, delivery times, etc.) are equal to orbetter than those of equivalent imports. In practice, giventhat many categories of products are not manufactured in Chile,purchasing decisions by most state-owned companies are madeamong competing imports. Requests for public and private bidsare published in the local newspapers. Government officialshave on occasion urged some government agencies to buy Chileancoal on a preferential basis.6. Export Subsidies With minor exceptions, the Chilean Government does notprovide exporters with direct or indirect support such aspreferential financing or export promotion funds. The ChileanGovernment does, however, offer a few nonmarket incentives toexporters. For example, paperwork requirements are simplifiedfor nontraditional exporters. Small nontraditional exportersalso qualify for the government's simplified duty drawbacksystem. Through this mechanism, the government returns toproducers an amount equivalent to three to ten percent of theirexports' value. This figure represents an estimate of theduties actually paid for imported components in the exportedmerchandise. Alternatively, qualifying exporters can apply forthe return of all paid duties. The government also providesexporters with quicker returns of VAT paid on inputs than otherproducers receive. All Chilean exporters may also defer tariff payments oncapital imports for a period of seven years. If the capitalgoods are used to produce exported products, deferred dutiescan be reduced by the ratio of export sales to total sales. Ifall production is exported, the exporter pays no tariff oncapital imports. In order to encourage forestation of land that would be ofmarginal agricultural use, the government subsidizesapproximately 75 percent of planting costs as well as certainmanagement costs for the first generation of trees, which inpractice are almost always nonnative species. The value of thesubsidy is adjusted for inflation and treated as taxable incomewhen the trees are harvested. Forestry industryrepresentatives say the subsidy, when allocated over the lifeof plantations, amounts to about five percent of total costs.Both foreign investors and Chileans are eligible for thesubsidy. The law which established the subsidy in 1974 (D.L.701) expires in March of 1995, and discussions are ongoingabout its possible renewal or revision.7. Protection of U.S. Intellectual Property Chile's intellectual property regime is basicallycompatible with international norms, and industryrepresentatives have welcomed government enforcement efforts.Continuing deficiencies in patent protection, however, havekept Chile on the USTR Special 301 watch list since 1989.Efforts to enforce intellectual property rights in Chileancourts have been successful. Chile does not have an explicitstatute for protecting the design of semiconductors nor does ithave comprehensive trade secret protection. Chile belongs tothe World Intellectual Property Organization. Contracts mayset fees and royalties only as a percentage of sales, andpayments for the use of trade secrets and proprietary processesare usually limited to three percent. Patents: The Industrial Property Law promulgated inSeptember 1991 substantially improved Chile's protection ofindustrial patents, but it falls short of internationalstandards. The law provides a patent term of 15 years from thedate of grant. (The term in the United States is 17 years.)The law also does not consider plant and animal varieties orsurgical methods to be patentable. Most importantly, the lawdoes not provide pipeline protection for pharmaceutical patentsfiled abroad before the law's promulgation. Because of thelack of pipeline protection and the long lead times involved inthe marketing of new pharmaceutical products, the law will notprevent local companies from pirating foreign pharmaceuticalpatents of products introduced into the market for several moreyears. In addition, the registration procedures required bythe health ministry to market new drugs are more onerous forfirst-to-file firms, which tend to be foreign firms. Paymentsfor the use of patents may not exceed five percent of sales. Copyrights: Piracy of video and audio tapes has beensubject to criminal penalties since 1985. Chilean authoritieshave taken aggressive enforcement measures against video, videogame, audio, and computer software pirates in recent years, andpiracy 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 at around 70 percent. The decline isin part the result of a campaign by the industry, with thecooperation of the courts and the government, to suppress theuse of pirated software. Improved access to authorized dealersand service has also helped to reduce the rate of piracy.Industry sources say that penalties remain low relative to thepotential earnings from piracy and that stiffer penalties wouldhelp to deter potential pirates. In 1992, the Chilean Congressapproved legislation that extended the term of copyrightprotection from 30 years to 50 years. U.S. recording industryofficials have said that the copyright law grants producersless favorable treatment vis-a-vis authors than is theinternational norm. Trademarks: Chilean law provides for the protection ofregistered trademarks and prioritizes trademark rightsaccording to filing date. Local use of the mark is notrequired for registration. Payments for use of trademarks maynot exceed one percent of sales. Impact of Chile's Intellectual Property Practices on U.S.Trade: Although it is difficult to accurately estimatedamages, most observers believe that the U.S. pharmaceuticalindustry has suffered most from the infringement of itsintellectual property (in this case, patent) rights in Chile.U.S. software industry sources have estimated that some $65million worth of pirated software was used in 1993, althoughonly a fraction of this amount would go directly to U.S.exporters if piracy were eliminated.8. Worker Rights a. The Right of Association Most workers have a right to join unions or to form unionswithout prior authorization, and around 11 percent of the workforce belongs to unions. Government employee associationsoperate like unions in some ways, but they do not have the samelegal protection as unions. Legislation has been introduced togive them the same rights as unions. Reforms to the labor code in 1990 removed significantrestrictions on the right to strike. Those reforms requirethat a labor inspector or notary be present when union membersvote for a strike. Employers are required to show causewhenever they fire workers, but "needs of the enterprise" is apermissible cause. Observers believe that some employersinvoke this cause to fire employees for trying to form unions. b. The Right to Organize and Bargain Collectively The climate for collective bargaining has improved, and thenumber of contract negotiations has grown steadily, but only 17percent of eligible workers had collective bargainingagreements as of the end of 1992. The process for negotiatinga formal labor contract is heavily regulated, a vestige of thestatist labor policies of the 1960's. However, the law permits(and the Aylwin and Frei governments have encouraged) informalunion-management discussions to reach collective agreementsoutside the regulated bargaining process. These agreementshave the same force as formal contracts. Temporary workers -- defined in the labor code asagricultural, construction, and port workers as well asentertainers -- may form unions, but their right to collectivebargaining is restricted. Some 700,000 workers, including mostagricultural workers, are limited to informal negotiations. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is prohibited in theconstitution and the labor code, and there is no evidence thatit is currently practiced. d. Minimum Age for Employment of Children Child labor is regulated by law. Children as young as 14may legally be employed with permission of parents or guardiansand in restricted types of labor. Economic factors have forcedmany children to seek employment in the informal economy, whichis more difficult to regulate. A UNICEF study concluded that107,000 minors (seven percent of their age group) held jobs,mostly in the countryside, and that many of them worked withtheir parents. e. Acceptable Conditions of Work Minimum wages, hours of work, and occupational safety andhealth standards are regulated by law. The legal workweek is48 hours. The minimum wage, currently around $125 per month,is set by government, management, and labor representatives, orby the government if the three groups cannot reach agreement.Lower-paid workers also receive a family subsidy. Povertyrates have declined dramatically in recent years, and realwages have risen, although not as rapidly as the overall GDPhas grown. f. Rights in Sectors with U.S. Investment Labor rights in sectors with U.S. investment are the sameas those specified above. U.S. companies are involved invirtually every sector of the Chilean economy and are subjectto the same laws that apply to their counterparts from Chileand other countries. There are no export processing zones orother special districts where different laws apply. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 229 Food & Kindred Products 30 Chemicals and Allied Products 119 Metals, Primary & Fabricated -181 Machinery, except Electrical 1 Electric & Electronic Equipment (1) Transportation Equipment (1) Other Manufacturing 169Wholesale Trade 204Banking 374Finance and Insurance 1,185Services (1)Other Industries 628TOTAL ALL INDUSTRIES 2,869(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of Economic Analysis(###)</text>
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<text>U.S. DEPARTMENT OF STATECANADA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS CANADA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994Income, Production and Employment:Real GDP (billions of 1986 USD) 462.0 442.3 435.2 1/GDP Growth Rate (pct.) 0.6 2.2 3.9 2/Real GDP by Industry: (millions of 1986 USD) Manufacturing 72,077 70,889 70,561 1/ Finance/Insurance/Real Estate: 67,142 64,577 62,589 1/ Trade 49,390 48,371 49,088 1/ Community/Business/ Personal Services 49,785 47,686 45,965 1/ Transportation/Communications 33,185 32,010 31,998 1/ Construction 22,624 20,184 19,892 1/ Mining 16,795 16,817 16,875 1/ Agriculture 8,221 8,231 8,037 1/ Utilities 13,144 12,541 12,416 1/ Logging/Forestry 2,158 2,182 2,159 1/Per Capita Personal Disposable Income 13,843 13,149 12,618 1/Personal Savings Rate (pct.) 9.6 9.1 8.9 1/Labor Force (000s) 13,797 13,946 14,133 3/Unemployment Rate (pct.) 11.3 11.2 10.2 3/Money, Interest Rates and Prices: (end of period)Money Supply (M2) 282,323 273,333 262,426 4/Bank of Canada Rate (pct.) 7.36 4.11 5.54 5/Chartered Banks' Prime Rate (pct.) 7.25 5.50 7.00 5/90-Day Commercial Paper (pct.) 7.46 4.03 5.40 5/Consumer Price Index (1986 = 100) 128.1 130.4 130.8 E/Annual Percent Change 1.5 1.8 0.3 E/Industrial Product Price Index (1986 = 100) 109.1 112.7 118.8 E/Annual Percent Change 0.5 3.3 5.4 E/Exchange Rate (one C$ = US cents) (average annual noon rate) 82.76 77.53 74.58 5/Balance of Payments and Trade:Merchandise Exports 128,935 140,594 147,492 6/ Exports to U.S. 99,724 112,734 124,782 6/Merchandise Imports 123,396 133,217 141,285 6/ Imports to U.S. 87,564 97,495 108,183 6/Merchandise Trade Balance 5,539 9,377 6,208 6/ Trade Balance with U.S. 12,160 15,240 16,599 6/Current Account Balance -21,917 -23,805 -21,971 6/ Balance with U.S. - 1,849 - 1,671 - 410 6/Gold Holdings (millions USD) 478.0 287.0 210.0 5/Official Int'l Reserves (millions USD) 11,909 12,776 15,790 5/Total Federal Debt: Accumulated Deficits (billions USD) 386.0 396.2 405.0 Federal Deficit FY91-92: FY92-93: FY93-94: (billions USD) 33.5 32.6 29.2 7/Note: Converting the data from C$ to US$ distorts actualgrowth and trend lines.E/ Embassy projection.1/ Second quarter (IIQ) 1994 (actual data), seasonally adjustedat an annual rate.2/ Percent change between IIQ 1994 and IIQ 1993.3/ Third quarter average.4/ M1 + chartered banks non-personal notice deposits + personalsavings deposits, as of 8/31/94.5/ Third quarter end of period.6/ First half of 1994 annualized.7/ Federal Govt. projection for FY1994-95. Canada's fiscalyear covers the period April 1 to March 31.1. General Policy Framework Canada is the world's seventh-largest market economy.Production and services are predominantly privately owned andoperated. However, the federal and provincial governments aresignificantly involved in the economy. They provide a broadregulatory framework and redistribute wealth from high incomeindividuals and regions to lower income persons and provinces.While the government has made progress on privatization,government-owned Crown Corporations such as the CanadianBroadcasting Corporation, the Canadian National Railway, theCanadian Wheat Board, and provincial electric utilities stillplay an important role in the economy. Canada is the most important trading partner of the UnitedStates. Although natural resources and related products remainimportant components of the Canadian economy, the economy isnow fully industrialized and produces highly sophisticatedconsumer goods and capital equipment. As of August 1994,Canada's annualized merchandise exports to the United Stateswere US$140.5 billion, and annualized merchandise imports fromthe United States were US$118.2 billion. Motor vehicles andparts account for approximately 20 percent of U.S. merchandiseexports to Canada, followed by exports of machinery andequipment and industrial equipment. The stock of total foreigndirect investment in Canada in 1993 was US$113 billion, ofwhich US$70 billion or 62 percent was U.S. foreign directinvestment. Roughly 40 percent of the assets of Canadianmanufacturing companies are foreign-owned; of this total, about75 percent belong to U.S. firms. Federal government economic policies since late 1984 haveemphasized reduction of public sector interference in theeconomy and promotion of private sector initiative andcompetition. Both federal and provincial governments alsoundertook privatization of selected Crown Corporations. The deficit and related expansion of government debt arethe most pressing problems facing fiscal policymakers at thefederal and provincial levels. Net public debt in FY1993-94exceeded 74 percent of Gross Domestic Product. Governmentoptions to reduce deficits are constrained by high levels ofnon-discretionary spending. Statutory social transfers toindividuals and to provincial governments account for over 40percent of the federal budget, and public debt service paymentsaccount for about an additional 25 percent of spending.Further reductions of subsidies for regional development andother remaining discretionary programs such as defense,agriculture and foreign aid would require the government tomake difficult political decisions. Nevertheless, thegovernment has stated firmly that it intends to reduce thedeficit to three percent of GDP by the April 1996-March 1997fiscal year. The Bank of Canada is Canada's central bank. The governorof the Bank is responsible for conducting monetary policy. TheBank's main monetary policy tool is management of cash balanceswith the chartered banks. Other tools used to control themoney supply include open market operations, such as purchaseand resale agreements with money market participants, and thebank rate (the interest charge on central bank advances), whichis set 25 basis points above the average yield on 90-dayTreasury bills at the weekly auction conducted by the Bank.The Bank may participate in the auction to influence itsoutcome.2. Exchange Rate Policy The Canadian dollar is a fully convertible currency, andexchange rates are determined by supply and demand conditionsin the exchange market. There are no exchange controlrequirements imposed on export receipts, capital receipts, orpayments by residents or non-residents. The Bank of Canadaoperates in the exchange market on almost a daily basis tomaintain orderly trading conditions and smooth rate movements.3. Structural Policies Prices for most goods and services are established by themarket without government involvement. The most importantexceptions to market pricing are government services, servicesprovided by regulated public service monopolies, most medicalservices, and supply-managed agricultural products (eggs,poultry and dairy products). The principal sources of federal tax revenue are corporateand personal income taxes and the goods and services tax (GST),a multi-stage seven percent value-added tax on consumption.Federal personal and corporate income tax rates are comparableto U.S. rates. Federal government regulatory regimes affect foreigninvestment (see section 5 below) and also U.S. firms in thefinancial services sector. Although foreign-owned banksubsidiaries are subject to federal restraints on theiroperations and growth, U.S. banks have been exempted from mostof these restrictions under the U.S.-Canada Free TradeAgreement (FTA). This continues under NAFTA. However, thefederal government still prohibits the entry of direct branchesof foreign banks. In mid-1992 Canada implemented furtherfinancial sector reforms, which largely eliminated remainingbarriers among banks, trust companies and insurance companies. Transportation policies: The pro-competitive NationalTransportation Act and its companion legislation, the MotorVehicle Transport Act, entered into force in 1988. Whileunderscoring the continuing need to maintain high safetystandards, this legislation introduced a greater degree ofderegulation in the Canadian transportation industry. Aviation is not included in the NAFTA. Based on a mutualdesire for a liberalized North American market, in October 1990the U.S. and Canada announced a joint initiative to negotiate anew "open skies" agreement covering transborder air services.The last round of negotiations was held in December 1992. OnSeptember 27, 1994 U.S. Transportation Secretary Pena andCanadian Transport Minister Young appointed personalrepresentatives to explore the possibilities of reopeningnegotiations. Formal negotiations were subsequently scheduledfor January of 1995 with the objective of rapid marketliberalization. Telecommunications Policies: Canada's long-awaitedTelecommunications Act was proclaimed in force on October 25,1993. Among its provisions, the legislation allows the federalregulator, the Canadian Radio-television and TelecommunicationsCommission, to forbear from regulating competitive segments ofthe industry, exempts resellers from regulation, and limitsforeign ownership of telecommunications firms to 20 percent.Carriers which operated in Canada prior to 1987, but which donot meet the Canadian ownership requirements, are grandfatheredunder Section 16 of the legislation.4. Debt Management Policies Canada's net public and private external indebtedness rosefrom US$89 billion (26 percent of GDP) in 1984 to US$243billion (44 percent of GDP) in 1993, a relatively high figurefor an industrialized country. While foreigners have beenreceptive to holding Canadian securities and such purchasescontribute to the strength of the Canadian dollar, the sharprise in external indebtedness has made the Canadian dollar andeconomy increasingly vulnerable to shifts in internationalinvestor confidence.5. Significant Barriers to U.S. Exports On January 1, 1989, Canada and the United States began toimplement a free trade agreement to eliminate, over a ten yearperiod, virtually all tariff and non-tariff barriers to tradebetween the two countries. The Canada FTA was suspended onJanuary 1, 1994, with the entry into force of the North AmericaFree Trade Agreement (NAFTA), which expands the free trade areato include Mexico. The NAFTA provisions go beyond the CFTA inthe areas of services, investment and government procurement.Canada passed implementing legislation for the Uruguay Roundagreement under the General Agreement on Tariffs and Trade, andjoined the World Trade Organization as a founding member. Nevertheless, a number of Canadian practices remain whichconstitute barriers to U.S. exports to Canada. Canada applies various restrictions to imports ofsupply-managed products (dairy, eggs, and poultry), fresh fruitand vegetables, potatoes, processed horticultural products andlive swine. The US continues to pursue these issuesbilaterally. Regarding the supply managed commodities,bilateral talks will be necessary to resolve contradictionsbetween Canada's Uruguay Round implementation and itsobligations under NAFTA. Provincial legislation and Liquor Board policies regulateCanadian importation and retail distribution of alcoholicbeverages. The Canada FTA addressed a number of these policies(listing, distribution, and pricing) and provided disputesettlement procedures. Provincial beer distribution practiceshad been grandfathered under the FTA but were challenged by theU.S. under the GATT. The U.S. and Canada concluded aMemorandum of Understanding in August 1993 which significantlyimproved access to the Canadian market for U.S. beer. However,U.S. exporters have remained unhappy about provincial minimumimport price requirements and cost-of-service issues hinder theimportation of U.S. wine. Although some progress has occurred, problems remain in thearea of standards and labeling. The FTA chapter on technicalstandards provides for the accreditation of U.S. certificationorganizations and testing laboratories in Canada. The Canadianaccreditation agency, the Standards Council of Canada, has beenslow in effecting the necessary regulatory changes and inreviewing U.S. applications, but in 1992 it accredited twomajor U.S. testing and certification bodies, UnderwritersLaboratories and the American Plywood Association. Since then,three additional test laboratories -- Architectural TestingInc., ETL Testing Laboratories, and Dash, Straus & GoodhueInc., have been accredited. To date, several accreditationapplications by U.S. certification and testing organizationsremain under review by the Standards Council. Under its Processed Product Regulations, Canada allowsimports of processed fruit and vegetables to be sold only incertain limited-size packages (i.e. consumer sizes) forproducts where Canadian standard sizes are prescribed.Following three years of formal U.S. government representation,which prompted Canadian regulatory change in November 1993,U.S. exporters have improved access to Canada's hotel,institutional, and food service trade for a wide range ofproducts such as ketchup, french fries, pickles, etc. in sizeslarger than those stipulated in the regulations. However,trade remains hindered by strict packaging and labeling rules,from which Canadian manufacturers received a temporary(two-year) exemption, and plant certification requirements.For example, U.S. frozen french fry manufacturers remain unableto capture a share of the Canadian food service marketestimated to be worth at least $40 million. Canadian customs regulations limit the temporary entry ofspecialized equipment needed to perform short-term servicecontracts. Certain types of equipment are granted duty-free orreduced-duty entry into Canada only if they are unavailablefrom Canadian sources. Although NAFTA has broadened the rangeof professional equipment permitted entry, it has not providedunrestricted access. Canada restricts the direct export of Pacific salmon byrequiring that a portion of the Canadian catch be landed inCanada before being exported. An interim agreement reachedfollowing FTA dispute settlement permits direct export (i.e.sale at sea) of a portion of the catch by Canadian licensees.The level of direct exports, however, has been disappointing.Following a mid-term review in February, technical changes weremade in the requirements for licensees. A Canadian ban onreexporting unprocessed herring, aimed at Japan, also preventsCanadian processors from using U.S. refrigeration facilities.The U.S. government will continue to monitor developments. Canadian industries have used Canada's Special ImportMeasures Act (SIMA) to restrict access to the Canadian marketby U.S. companies. Dumping margins in successful casesconstitute a significant barrier to U.S. exports. Canada denies Canadian enterprises tax deductions for thecost of advertising in foreign broadcast media and publicationswhen the advertising is directed primarily at Canadians.Various restrictions on advertising aimed specifically at theCanadian market restrict U.S. access to the Canadian market forpublications and print media advertising. Under the Investment Canada Act, the Broadcast Act, andpolicies in the energy, publishing, telecommunications andtransportation, broadcasting and cable television sectors,Canada maintains laws and policies which interfere with new orexpanded foreign investment. As well, foreign investment inthe banking and financial services sectors is restricted underthe Bank Act and related statutes. The Investment Canada Act (as amended by the FTA and NAFTA)requires the federal government to review and approve foreigninvestment to ensure "net benefit to Canada." The Act exemptsfrom prior government approval foreign investments in all new("greenfield") businesses, and acquisitions worth less than C$5million (C$150 million for U.S. investors -- 1992 dollars).The exemption excludes "culturally sensitive sectors" such asbook publishing and distribution, film and video, audio musicrecordings and music in print or machine readable form. Alsoexcluded as "culturally sensitive" are foreign investments toestablish new businesses or acquire existing ones for thepublication of magazines (including "split-run" editions),periodicals or newspapers. Foreign investment in these sectorsis potentially subject to review regardless of size or whetherthe investment is new or through direct or indirectacquisition. Further to the legal position on culture embodied in theInvestment Canada Act, Investment Canada enforces a federalbook publishing policy known as the "Baie Comeau Policy."Canada prohibits the majority acquisition of Canadian bookpublishing and distributing companies, and requires thatforeign-owned subsidiaries in Canada be divested to Canadianswithin two years if the ownership of the parent changes hands.Exceptions to the policy permit direct acquisition if theCanadian firm is in financial distress and no Canadian buyercan be found. Also, a foreign owner indirectly acquiring aCanadian firm might not be forced to divest it if a transactionof "net benefit" to Canada can be negotiated. InvestmentCanada also has specific policies regarding foreign investmentin the film distribution sector. In the banking sector, the Bank Act of 1980 made charteringof foreign-owned banking subsidiaries possible for the firsttime. However, foreign banks are still not permitted to enterCanada as direct branches. Foreign banks are also unable toacquire a domestic Canadian bank, since no single entity(person or corporation) can hold more than 10 percent of aCanadian bank's capital. The FTA eliminated otherdiscriminatory restrictions on U.S. bank subsidiaries inCanada. In the trust and loan, and insurance sectors, which areregulated by both the federal and provincial governments,foreign investors wishing to establish in either of these twoareas may do so, but acquisitions of provincial firms aresubject to restrictions preventing foreign control. Where GATT Government Procurement Code or NAFTArequirements do not apply, Canadian government entities followpreferential sourcing policies favoring Canadian-based firmsover foreign-based firms. In addition, Government ServicesCanada, the major federal procurement agency, maintains asupplier development fund to promote new Canadian sources ofsupply. Canada's Federal and Provincial crown(government-owned) corporations also follow strong "buynational" or "buy provincial" policies. Products affectedinclude telecommunications, heavy electrical andtransportation-related products. Canada pursues an "industrial benefits policy" which isadministered through a procurement review mechanism. Thepolicy is intended to insure that major government procurementprojects provide long-term benefits for "the economic or socialdevelopment of Canada" beyond the immediate impact of theprocurement expenditures. Frequently resulting in "offsets,"this policy arouses considerable U.S. concern.6. Export Subsidies Policies Under the Western Grains Transportation Act (WGTA), theCanadian government subsidizes rail transportation of westerngrown wheat, barley, oats and many other agriculturalcommodities intended for export. The Free Trade Agreementeliminated subsidies on agricultural products shipped to theUnited States through West Coast ports, but not on thoseshipped directly by rail or through Great Lakes ports. Underthe terms of the FTA, Canada will terminate all export-basedduty remission schemes by 1998. In the interim, Canada hasexcluded exports to the U.S. in calculating the duty waived.In June, 1994, the GOC announced a proposal to phase out WGTApayments over a five-year period. Instead, the government willmake direct income support payments to farmers. Canada's production-based duty remission program providesfor the rebate of customs duties to qualifying foreignautomobile firms on their imports of automobiles and originalequipment automotive parts into Canada. Under the program,duty remissions are granted in proportion to the amount of"Canadian value-added" generated by these firms in Canada.Under the provisions of the FTA, Canada has agreed to terminatethe program by 1996 and to limit application of the program tothe four companies with which agreements were already inplace. NAFTA will not change these provisions.7. Protection of U.S. Intellectual Property The Canadian government has long-standing legislation toprotect intellectual property rights, and these laws areeffectively enforced. 1987 amendments to the Canadian Patent Act significantlyimproved protection for patented drugs and was a positive stepin resolving some of the complaints voiced by the U.S.pharmaceutical industry concerning alleged Canadian bias infavor of generic drugs. In February 1993 the Canadiangovernment amended the Patent Act to eliminate compulsorylicensing for pharmaceuticals, thereby extending patentprotection to the standard 20 years. 1989 amendments to the Canadian Copyright Act grantedexplicit copyright protection for computer programs, andprovided a right of payment for retransmission of broadcastprogramming as required by the FTA. In 1993 Canada proclaimed the Integrated Circuit TopographyAct, a law protecting semiconductor chip design. In January 1994, the Copyright Act was amended to reflectthe changes required by NAFTA, e.g., rental rights for computerprograms and sound recordings; protection for data bases andother compilations; and increased measures against allcategories of pirated works.8. Worker Rights a. The Right of Association Except for members of the armed forces, workers in both thepublic and private sectors have the right to associate freely.These rights, protected by both the federal labor code andprovincial labor legislation, are freely exercised. b. The Right to Organize and Bargain Collectively Workers in both the public and private sectors freelyexercise their rights to organize and bargain collectively.Some essential public sector employees have limited collectivebargaining rights which vary from province to province. 37.5percent of Canada's non-agricultural workforce is unionized. c. Prohibition of Forced or Compulsory Labor There is no forced or compulsory labor practiced in Canada. d. Minimum Age for Employment of Children Generally, workers must be 17 years of age to work in anindustry under federal jurisdiction. Provincial standards(covering over 90 percent of the national workforce) vary, butgenerally require parental consent for workers under 15 or 16and prohibit young workers in dangerous or nighttime work. Inall jurisdictions, a person under 16 cannot be employed in adesignated trade, or, in other words, become an apprenticebefore that age. e. Acceptable Conditions of Work Federal and provincial labor codes establish laborstandards governing maximum hours, minimum wages and safetystandards. Those standards are respected in practice. f. Rights in Sectors with U.S. Investments Worker rights are the same in all sectors, including thosewith U.S. investment. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 8,840Total Manufacturing 34,062 Food & Kindred Products 3,645 Chemicals and Allied Products 5,032 Metals, Primary & Fabricated 2,745 Machinery, except Electrical 2,240 Electric & Electronic Equipment 1,623 Transportation Equipment 8,720 Other Manufacturing 10,059Wholesale Trade 6,653Banking 823Finance/Insurance/Real Estate 12,242Services 2,425Other Industries 5,349TOTAL ALL INDUSTRIES 70,395Source: U.S. Department of Commerce, Bureau of EconomicAnalysis</text>
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<text>U.S. DEPARTMENT OF STATEBULGARIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS BULGARIA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1993 prices) G,E/ 10,773 10,557 10,409GDP (at current prices) I,E/ 8,478 10,557 20,859Real GDP Growth Rate (pct.) C/ -5.6 -4.2 -1.4Real GDP by Sector: G,E,I/ Industry 5,063 3,647 3,539 Agriculture 1,120 804 1,145 Trade/Services 4,632 4,164 5,724Per Capita Income (USD) G,E,2/ 1,209 1,195 1,181Labor Force (000s) G,E/ 3,796 3,787 3,827Unemployment Rate (pct.) G,E/ 15.0 15.8 15.5Money and Prices:Money Supply (M1:bil. lev) G/ 37.8 36.9 55.0Commercial Interest Rate (pct.)G/ 61.1 58.2 77.9 3/Gross Domestic Savings Rate I,E/ 2.1 2.1 N/A (pct.)Gross Domestic Investment 1,739 1,669 N/AConsumer Price Index I,E/ 100 164 342 (Dec. 1992 equals 100)Inflation (pct.) (end-of-period/Dec-Dec) 4/ 79.4 63.9 110.0Producer Price Index N/A N/A N/AExchange Rate (year-end: leva/$) Official 5/ 24.5 32.7 80.0 Parallel 25.5 34.0 83.0Balance of Trade and Payments: ($millions, current) G,E,I,5/Total Exports (FOB) 5,090 3,640 3,160 Exports to U.S. 85.3 115.3 163.0Total Imports (FOB) 4,610 4,330 2,820 Imports from U.S. 78.9 158.7 106.0Trade Balance 480 -690 340 Trade Balance with U.S. 6.4 -43.4 57.0Aid from U.S. (fiscal yr.) 40 46 35Aid from Other Countries 6/ 600 154 1,097External Public Debt ($ bil.) 11.9 12.5 8.7Annual Debt Service Scheduled 2,918 2,211 850 Paid 193 88.8 850 7/Gold and Foreign Exchange Reserves ($ bil.) 1.7 1.5 1.2N/A-- Not available.E/ U.S. Embassy estimate.G/ Government of Bulgaria.I/ International financial institutions.C/ U.S. Department of Commerce.1/ 1994 figures are estimates for year-end.2/ Per capita incomes are calculated at following exchangerates: 1992 24.5 leva:dollar 1993 32.7 leva:dollar 1994 80 leva:dollar3/ BNB basic (lombard) refinancing rate (period average).4/ U.S. Department of Commerce figures.5/ Rate depreciated from 32.7:1 to 65:1 from January toNovember 1993.6/ Includes international financial institutions.7/ 1994 estimate based on first six months data.1. General Policy Framework Bulgaria's transition to a market economy continued slowlyduring 1994. The nonparty cabinet of centrist economist LyubenBerov successfully concluded Bulgaria's drawn-out negotiationswith commercial creditors and the IMF. Structural reformsremained stymied and inflation accelerated, in spite ofcontinued restrictive fiscal and monetary policies. This,along with the collapse of Bulgaria's COMECON trade (80 percentof the pre-1989 total), the global recession, and UnitedNations sanctions against Iraq and Serbia resulted in aprolonged economic downturn, which finally may have bottomedout in 1994. After several years of decline, national outputachieved zero growth and production in several sectorsincreased. Unemployment also declined during the year. PrimeMinister Berov's resignation in September opened the way forpre-term parliamentary elections on December 18. The BulgarianSocialist Party won a narrow majority in those elections.Pending the elections, a caretaker government was appointed byPresident Zhelev on October 17. The Central Bank (BNB) sought to bring inflation down froma 3.9 percent to a three percent monthly rate by year end 1994,using a normal range of policy instruments. However, inflationaccelerated from 63.7 percent in 1993 to a projected 110percent in 1994. The rapid depreciation of the Bulgarian levin foreign exchange markets early in 1994 significantly boostedthe lev value of foreign-currency accounts, thereby increasingthe money supply. To control the fall of the lev, the BNBsignificantly raised interest rates. Later in the year therewas concern that the money supply was being dangerouslyincreased by BNB credit for several troubled state banks.Despite stagnation in the standard of living over1994, exports of U.S. consumer goods to Bulgaria have risengiven the relative weakness of the dollar versus europeanconvertible currencies. During most of 1994, the government kept its budget deficitwithin the 6.5 percent of GDP target agreed to with the IMF.It achieved this success through stringent restrictions onstate expenditures and increased revenues from the new VAT(implemented on April 1) and excise taxes. U.S. TreasuryDepartment estimates the deficit will reach about 7 percent ofGDP by year-end 1994, due to increased social security outlays,expenditures on the elections, and interest on domestic debt.The Government of Bulgaria financed the deficit through acombination of central bank borrowing and treasury bill sales. In April, Bulgaria rescheduled its 1993 and 1994 maturitieswith the Paris Club (official creditors). In June, itrestructured 8.1 billion dollars in commercial (London Club)debt, resulting in a 47 percent reduction. The government andthe IMF agreed on a Standby Agreement/Systemic TransformationFacility for approximately 300 million Special Drawing Rights(about 410 million dollars). The World Bank released thesecond 100 million tranche of its 1991 Structural AdjustmentLoan. Talks with the Bank stalled on a Financial andEnterprise Structural Adjustment Loan. The transition to a market-oriented economy continued,albeit slowly and against political and social resistance.Structural reforms necessary to underpin macroeconomicstabilization were not pursued vigorously. Restitution ofurban shops and houses put capital into the hands of manyordinary Bulgarians, helping to fuel the rapidly growingservice and consumer goods sectors. However, legalprivatization of state-owned industry moved slowly, as did thebreakup of state-organized collective farms. Bulgaria's association agreement with the European Union(EU) finally took effect January 1, 1994. An analogousagreement with the European Free Trade Association(EFTA) entered into force in 1993. With the conclusion of itsEU and EFTA negotiations, Bulgaria returned its attention tonegotiating its GATT accession. The Bilateral InvestmentTreaty with the United States was ratified by the U.S. Senateand took effect in June.2. Exchange Rate Policy After several years of remarkable stability, and evensignificant real appreciation given inflation, in August 1993the Bulgarian lev began to fall in foreign exchange markets.By March 1994, the lev had fallen 42 percent (from BGL 22.1 to53:U.S. dollar) and a run on the lev briefly threatened beforeit stabilized temporarily at around BGL 51:U.S. dollar. Thelev continued to depreciate gradually during the rest of theyear. BNB intervention in the currency market reduced thecountry's convertible currency reserves from more than onebillion to around 600 million dollars in February. Reservesincreased significantly thereafter with the infusion of balanceof payments support from the IMF, the IBRD, and the G-24nations. The BNB sets an indicative daily U.S. dollar rate forstatistical and customs purposes, but commercial banks andothers licensed to trade on the interbank market are free toset their own rates. A parallel market operates openlyoffering about a four percent premium. Only some of the commercial banks are licensed to effectcurrency operations abroad. Companies may freely buy foreignexchange for imports from the interbank market. IndividualBulgarian citizens may legally buy only 10,000 leva worth ofhard currency per year without specific cause. Companies arerequired to repatriate, but no longer to surrender, earnedforeign exchange to the central bank. Bulgarian citizens andforeign persons may also open foreign currency accounts withcommercial banks. Foreign investors may repatriate 100 percentof profits and other earnings. Capital gains transfers appearto be protected under the revised Foreign Investment Law; freeand prompt transfers of capital gains are guaranteed in theBilateral Investment Treaty. A permit is required for hardcurrency payments to foreign persons for direct and indirectinvestments and free transfers unconnected with import of goodsor services.3. Structural Policies Bulgaria's new market-oriented legal structure does notinhibit U.S. exports, which are more affected by thegovernment's tight monetary policy and Bulgaria's isolationfrom trade financing. The enactment of an up-to-dateBankruptcy Law in 1994 was a significant step in bringingBulgaria's Commercial Code up to international standards.Further revisions in the Code (regarding commercial activity)and security and exchange laws are under parliamentaryconsideration. Implementation of reforms is hindered by slowdecision making and bureaucratic red tape. Although Prime Minister Berov entered office pledging hiswould be the "privatization government," privatization advancedonly marginally in 1994, primarily in small-scale and municipalprojects. It is estimated that only five percent of stateenterprises have been privatized so far. After prolongedwrangling, Berov announced in June a mass privatization planclosely patterned on the voucher system employed in the formerCzechoslovakia. Parliament approved the "demand side" program,but had not yet approved the "supplyside" (including the listof 360 firms to be privatized in the first wave) when it wasdissolved on October 17. Implementation of the massprivatization program now must await the formation of a newgovernment after the December elections, probably in early1995. Meanwhile, caretaker Prime Minister Indjova took stepsto speed up small-scale and municipal privatization. Untilprivatization is well rooted, one can expect a certainunpredictability in commercial dealings. With the implementation of the new 18 percent unified-rateVAT on April 1, Bulgaria took a significant step in reformingits tax system. However, the revised Income and Profits Taxlaws still have not been submitted for consideration toParliament. While average tax rates are relatively lowaccording to the IMF, U.S. experts believe that marginal taxrates are too high to stimulate the economy. There is noexport tax.4. Debt Management Policies Bulgaria's former Communist regime more than doubled thecountry's external debt from 1985 to 1990. With more than 10billion dollars outstanding, the government declared a debtservice moratorium in March 1990. Bulgaria continued toservice three small convertible-currency bond issues. Bulgariaresumed partial servicing of its debt in late 1992. OfBulgaria's current 13 billion dollar debt, more than 80 percentis owed to foreign commercial creditors; almost half of thecommercial debt is trade financing. The cutoff of tradefinancing by the western banks because of the moratorium hasbeen the main barrier to imports from the U.S. and elsewhere. In April 1994, Bulgaria rescheduled its official ("ParisClub") debt for 1993 and 1994. In June, it concluded a Bradyplan-type agreement to reschedule 8.1 billion dollars of itsdebt to commercial creditors ("London Club"). This agreementreduced Bulgaria's commercial debt by 47 percent. Even withthis debt reduction, however, Bulgaria will be challenged tomeet its total debt service requirements in the next fewyears. Debt to GDP ratio is 84 percent. After protracted negotiations, the IMF approved a one-yearstandby agreement/structural transformation facility ofapproximately 410 million dollars for Bulgaria in February1994. To support the IMF stabilization program, the G-24countries pledged 330 million dollars in balance of paymentssupport for 1994. Bulgaria also complied with the finalconditions of its World Bank structural adjustment loan,permitting the release of the 100 million dollar second trancheand 100 million dollars in Japanese matching funds. Anadditional 250 million dollars was loaned jointly by the IMFand World Bank to help finance the initial payment ofBulgaria's London Club rescheduling.5. Significant Barriers to U.S. Exports Import licenses are required for a specific, limited listof goods. Among others, the list includes radioactiveelements, rare and precious metals and stones, readypharmaceutical products, and pesticides. Armaments andmilitary-production technology and components also figure onthe list. (Prior to the dissolution of COCOM, Bulgaria wasgranted "favorable consideration status," which means apresumption of approval for COCOM applications and a shorterapproval period. Bulgaria has expressed its interest inmembership in the "COCOM successor" regime currently undernegotiation.) The Bulgarian government has declared that itgrants licenses within three days of application, without fees,and in a non-discriminatory manner. The U.S. Embassy has nocomplaints on record from U.S. exporters that theimport-license regime has affected U.S. exports. The Bulgarian government states that its system ofstandardization is in line with internationally acceptedprinciples and practices. Imported goods must conform tominimal Bulgarian standards, but in testing and proceduresimported goods are accorded treatment no less favorable thanthat for domestic products. Bulgaria accepts test results,certificates or marks of conformity issued by the relevantauthorities of countries signatories to international andbilateral agreements to which Bulgaria is a party. All productimports of plant or animal origin are subject to veterinary andphytosanitary control, and relevant certificates shouldaccompany such goods. Under the January 1992 Foreign Investment Law, Bulgariagrants national treatment unless otherwise provided for by lawor international agreement. Foreign investors may hold up to100 percent of an investment. Foreigners may not ownagricultural land, real estate, or natural resources, but maylease for up to 70 years. Foreign persons may freelyrepatriate earnings and other income from their investments atthe market rate of exchange. Although capital gains are lessclearly covered in the law, Bulgaria committed itself to theirfree repatriation in the U.S.-Bulgarian Bilateral InvestmentTreaty signed in September 1992. Since the 1993 repeal ofspecial tax incentives, foreign investors have been subject tothe same 40 percent Profits Tax as Bulgarian enterprises. Foreign investors are required to obtain a license to ownor have controlling interest in banking or insurance; in firmsmanufacturing arms, ammunition, or military equipment; inso-far unspecified geographic areas; and in research,development and extraction of natural resources. A U.S.tobacco company complained of the lack of transparency in theissuing of cigarette manufacturing licenses and privatizationin the tobacco sector. There are no specific local content or export-performancerequirements nor specific restrictions on hiring of expatriatepersonnel. Bulgaria committed itself in the U.S.-BulgarianBilateral Investment Treaty to international arbitration in theevent of expropriation, disinvestment, or compensation disputes. U.S. firms complain that the inflexible or rigidenforcement of tax and other regulations inhibits investmentplans. U.S. tobacco companies complain that the arbitraryclassification of cigarette brands for excise-tax purposesseriously limits the incentives to invest. A major U.S.company complained that the inflexibility of the Bulgarianbureaucracy delayed the startup and increased the cost of amajor investment project. There is no legal requirement for the Bulgarian governmentto procure only local goods and services. Governmentprocurement works mostly by competitively-bid internationaltenders. There have been problems of lack of clarity in manytendering procedures (e.g. the extension of the E-80superhighway from Plovdiv to the Turkish border). U.S.investors also are finding that, in general, neither remainingstate enterprises nor private firms are accustomed tocompetitive bidding procedures for supplying goods and services. Bulgaria's new harmonized tariff schedule increased averagetariffs, although a 15 percent import tax was eliminated. (Theimport tax remains on 10 agricultural commodities.) The newschedule did reduce the overall range of tariff rates andeliminated spikes. Customs duties are paid ad valoremaccording to the tariff schedule. A one-half percent customsclearance fee is assessed on all imports and exports. Bulgariaapplies the single administrative document used by EuropeanCommunity members. Imports from the United States are assessed at the most-favored-nation (MFN) rate. Bulgaria's Association Agreementsignificantly lowered tariffs and modified quantitativerestrictions on goods orignating in the EU. Just over 25percent of U.S. exports to Bulgaria for January-June 1993 wereput at some price disadvantage by these changes. The UnitedStates is seeking significant reductions in Bulgarian tariffson U.S. goods as part of Bulgaria's accession to the GATT.6. Export Subsidies Policies The Bulgarian government does not subsidize exports.7. Protection of U.S. Intellectual Property The adoption in 1993 of new Patent and Copyright Lawsbrought the Bulgarian IPR system up to international standardsgenerally, but enforcement is seriously deficient. The mostserious problem with current IPR legislation is the lack ofretroactive copyright protection for sound recordings, whichare protected internationally by the Rome and GenevaConventions, to which Bulgaria is not a signatory. UntilBulgaria does sign, sound recordings copyrighted prior toAugust 1, 1993 are not protected. Bulgaria's third major pieceof IPR legislation, the Trade Mark and Industrial Design Law,is in need of updating but considered adequate overall.Production and trade secrets are nominally protected under Art.14 of the "Protection of Competition Act." Enforcement of IPR laws is problematic. Authorities havenot established a record of vigorous enforcement to make thelaws credible. Video and computer program piracy arewidespread. One major U.S. company estimates that it is losing15-20 percent of its sales volume due to trademarkinfringement. This firm does not regard the fines or thepublicity given in several successful prosecutions of piracy assufficient to deter future infringement. The U.S. Embassy isnot aware of any cases of patent violation. For 1992, theInternational Intellectual Property Alliance estimated totaltrade losses for the U.S. of 47 million dollars due to piracyin Bulgaria.8. Worker Rights a. The Right of Association The 1991 Constitution guarantees the right of all workersto form or join trade unions of their own choice. This rightappears to have been freely exercised in 1994. Estimates ofthe unionized share of the workforce range from 30 to 50percent. Bulgaria has two large trade union confederations,the Confederation of Independent Trade Unions of Bulgaria(CITUB), and Podkrepa. CITUB is the successor to the tradeunion controlled by the former Communist regime, but nowappears to operate as an independent entity. Podkrepa, theindependent confederation created in 1989, was one of theearliest opposition forces, but is no longer a member of theUnion of Democratic Forces (UDF). The two confederationscooperate on some tactical issues, particularly in thecountry's tri-partite body, the National Social Council, whichincludes employers and government. The Labor Code passed inDecember 1992 recognizes the right to strike when other meansof conflict resolution have been exhausted, but "politicalstrikes" are forbidden. Military, police, energy productionand supply, and health sectors are defined as essentialservices, and workers in these sectors are restricted fromstriking. There were two major national strikes in 1994, bystudents and miners; both ended without major concessions bythe government. b. The Right to Organize and Bargain Collectively The Labor Code institutes collective bargaining, which ispracticed both nationally and on a local level. Only Podkrepaand CITUB are authorized to bargain collectively. This led tocomplaints by smaller unions, which may in individualworkplaces have more members than either of of the two largerconfederations. Smaller unions also complained that they areexcluded from the National Social Council. c. Prohibition of Forced or Compulsory Labor Many observers agreed that the practice of shuntingminority and conscientious-objector military draftees into workunits which often carry out commercial construction andmaintenance projects is a form of forced labor. d. Minimum Age of Employment of Children The Labor Code sets the minimum age for employment ofchildren is 16, and 18 for dangerous work. Employers and theMinistry of Labor and Social Welfare are responsible forenforcing these provisions. Underage employment occurs in theinformal and agricultural sectors, but does not seem to beeither widespread or systematic. e. Acceptable Conditions of Work The national monthly minimum wage was adjusted twice in1994, and at year's end stood at approximately 33 dollars(1,814 leva). Inflation in 1994 dramatically increased thecost of living. The minimum wage was not enough for a singlewage earner to provide a decent standard of living for afamily. The Constitution stipulates the right to socialsecurity and welfare aid and assistance for the temporarilyunemployed. The Labor Code provides for a standard workweek of40 hours, with at least one 24-hour rest period per week.Bulgaria has a national labor safety program with standardsestablished by the Labor Code. Conditions in many cases areworsening owing to budget stringencies and a growing privatesector over which labor inspectors have not yet achievedeffective supervision. f. Rights in Sectors with U.S. Investment Overall U.S. investment is relatively small as of late1994. Of the nine sectors covered in the Trade Act Report,only the "Food and Related Products," "Electric and ElectronicEquipment," and "Other Manufacturing" sectors have an activeU.S. presence as of late 1994. Conditions do not significantlydiffer in these sectors from the rest of the economy.</text>
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<text>U.S. DEPARTMENT OF STATEBRAZIL: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS c. Prohibition of Forced or Compulsory Labor Although the Constitution prohibits forced labor, therehave been credible citations of cases of forced labor inBrazil. The federal government asserts that it is taking stepsto halt the practice and prosecute perpetrators, but admitsthat existing enforcement resources are inadequate. Thelargest number of reports of forced labor originate in ruralareas. A provision in the agricultural reform law passed in1993 provides for the confiscation of property in cases offorced labor. The law by itself is unlikely to havesignificant impact without extensive improvements inenforcement activity. d. Minimum Age of Employment of Children The minimum working age under the Constitution is 14,except for apprentices, and legal restrictions are also set inthe Constitution to protect working minors under age 18. Thereare credible reports indicating problems with enforcement.Further, judges can authorize employment for children under 14when they believe it appropriate. (The ILO noted in 1992 thatthe constitutional provision for apprenticeships under age 14is not in accordance with ILO Convention No. 5 on minimum agein industry.) By law, the permission of the parents orguardians is required for minors to work, and provision must bemade for them to attend school through the primary grades. Allminors are barred from night work and from work thatconstitutes a physical strain. Minors are also prohibited fromemployment in unhealthful, dangerous, or morally harmfulconditions. Despite these legal restrictions, however, official figuresindicate that nearly three million children 10 to 14 years ofage are employed. Of these, 46 percent work eight hours ormore per day, with most earning no more than one minimum salary($70 to $100 per month). e. Acceptable Conditions of Work Unsafe working conditions are prevalent throughout Brazil.Enforcement of the occupational health and safety standardsestablished by the Ministry of Labor is weak due toinsufficient resources for inspection. There are credibleallegations of corruption within the enforcement system.Workers, or their union, can file a claim with the regionallabor court if a workplace safety or health problem is notresolved directly with the employer, although in practice thisis frequently a cumbersome, protracted process. f. Rights in Sectors with U.S. Investment U.S. investment is concentrated heavily in thetransportation equipment, food, chemicals, petroleumdistribution and electric/electronic equipment industries.Labor conditions in industries owned by foreign investorsgenerally meet or exceed the minimum legal standardsestablished under Brazil's Labor Code. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 738Total Manufacturing 12,574 Food & Kindred Products 1,596 Chemicals and Allied Products 2,144 Metals, Primary & Fabricated 673 Machinery, except Electrical 1,668 Electric & Electronic Equipment 715 Transportation Equipment 2,265 Other Manufacturing 3,514Wholesale Trade 96Banking 1,139Finance/Insurance/Real Estate 1,946Services 80Other Industries 334TOTAL ALL INDUSTRIES 16,908Source: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEBRAZIL: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS BRAZIL Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1985 prices) 2/ 332,000 349,000 352,000Real GDP Growth (pct.) -0.8 4.1 4.0GDP (at current prices) 2/ 425,000 456,000 474,000By Sector: (pct.) Agriculture 11.1 12.5 N/A Industry 35.4 38.2 N/A Mining 1.6 1.8 N/A Manufacturing 22.9 24.9 N/A Construction 7.3 7.4 N/A Public Utilities 3.6 4.2 N/A Services 62.4 59.4 N/A Commerce 6.8 7.6 N/A Transport 4.2 4.5 N/A Communications 1.5 1.7 N/A Financial Services 9.0 9.7 N/A Government 10.2 11.0 N/A Rents 16.5 6.9 N/A Other Services 14.3 18.0 N/ASubtotal 108.9 110.1 N/ALess: Financial Intermediation 8.9 10.1 N/AGDP at Factor Cost 100.0 100.0 N/AReal Per Capita GDP (USD in 1985 prices) 2,226 2,993 2,273Labor Force (000s) 64,400 65,600 66,900Unemployment Rate (pct.) 4.5 4.4 5.5Money and Prices: (annual percentage growth)Money Supply (M2) 1,721 2,596 20.9Interest Rate for Financing Working Capital 3/ 30.7 41.2 3.9Personal Saving Rate 3/ 24.6 38.2 2.9Retail Inflation 1,149 2,489 23Wholesale Inflation 1,154 2,639 24.5Exchange Rate 4/ Official/Commercial 12.39 326.11 0.839 Parallel 14.60 325.00 0.870Balance of Payments and Trade:Total Exports (FOB) 5/ 35,793 38,783 41,400 Exports to U.S. (FOB) 5/ 7,120 8,028 8,300Total Imports (FOB) 5/ 20,554 25,711 28,400 Imports from U.S. (FOB) 5/ 4,949 6,028 6,800Aid from U.S. 14.6 24.9 14.6Aid from Other Countries N/A N/A N/AExternal Public Debt 6/ 95,555 94,018 91,197Debt Service Payments (paid annually) 7,253 8,453 9,975Gold and Foreign Exch. Reserves (International Liquidity Concept)23,754 32,211 48,000Trade Balance 14,844 13,072 13,000 Trade Balance with U.S. 2,171 2,000 1,500N/A--Not available.1/ 1994 figures are estimates based on available monthly datain October 1994.2/ GDP at market prices.3/ Figures are actual monthly nominal rates, not changes inthem.4/ Cruzeiro reals/usd, end of year, for 1992, 1993; reals/usd,as of October 10 for 1994.5/ Total trade. Figures for merchandise trade only notavailable. CIF prices for imports are not available.6/ Nonfinancial public sector. Excludes Petrobras and Vale doRio Doce (CVRD).1. General Policy Framework On July 1, 1994, Brazil introduced a new national currency,the "real" (the fifth in seven years), replacing the "cruzeiroreal" at the rate of 2,750 cruzeiro reals to 1.00 real. Thenew currency is the centerpiece of the government's economicstabilization plan, the "Plano Real," designed to curb chronic,rampant inflation, which had reached an annual level of nearly5,000 percent by the end of 1993. Other key elements of thestabilization plan include balancing the federal governmentbudget, privatization of state-run industries, and strictmonetary controls. Following the introduction of the newcurrency, nominal monthly rates of inflation fell from 50percent in June (measured in the old currency) to 1.5 percentin September (measured in the new currency). The real rate ofinflation (as measured by the IPC-r, the Plano Real's index, inreals) is higher than in 1993: 15.87 percent for the firstnine months of 1994 vs. 13.38 percent for all of 1993. The stabilization plan under which the real was introducedestablished quantitative targets on the expansion of themonetary base. Monetary policy is also constrained by the needto maintain positive real interest rates in order to roll overthe domestic government debt and to prevent capital outflow.High interest rates, however, aggravate the fiscal deficit.Brazil has suffered structural deficits for many years.Provisions of the 1988 Constitution which mandate substantialrevenue transfers to states and municipalities, as well asmandatory federal expenditures, leave the government withdiscretionary control of only about 10 percent of revenuescollected. Long-term stabilization will require structural reforms andrevision of Brazil's 1988 Constitution. The constitutionalreview process which began in late 1993 expired in May 1994with virtually no reforms adopted. Among the reformsconsidered by the Constitutional Review Congress were fiscalreforms, including a redistribution of federal, state andmunicipal government responsibilities, simplification of thetax system, privatization of the state-owned telecommunicationsand petroleum monopolies, elimination of the distinctionbetween foreign and national capital, and permitting foreigninvestment in mining. Broad consensus exists on the need forconstitutional reform to rectify the economic distortions ofthe current constitution, but there are significant differencesregarding the specific reforms needed. Now that theconstitutional review process is over, approval ofconstitutional reforms will require two votes each by the upperand lower chambers of the Brazilian Congress; a 60 percentmajority is required for all four votes. The process of economic and trade liberalization begun in1990 slowed during 1993 and 1994, but has nevertheless producedsignificant changes in Brazil's trade regime, resulting in amore open and competitive economy. Imports are increasing inresponse to lower tariffs and reduced non-tariff barriers, aswell as the strength of the real relative to the dollar, andare now composed of a wide-range of industrial, agriculturaland consumer goods. Access to Brazilian markets in mostsectors is generally good, and most markets are characterizedby competition and participation by foreign firms throughimports, local production and joint ventures. Some sectors ofthe economy, such as the telecommunications, petroleum andelectrical energy sectors, are still dominated by thegovernment, and opportunities for trade and investment areseverely limited. Brazil and its Southern Common Market (Mercosul) partnersArgentina, Uruguay and Paraguay concluded negotiations inAugust 1994 for a common external tariff (CET) which went intoeffect on January 1, 1995. The CET levels for most productsrange between zero and 20 percent. The Brazilian governmentunilaterally lowered tariffs on some 6,000 items to the CETlevels in September of 1994, as part of its anti-inflationaryeffort. With the exception of tariffs on informatics productsand some capital goods, the maximum Brazilian tariff level isnow 20 percent; the most commonly applied tariff is 14percent. When the CET enters into force in the four Mercosulcountries in January 1995, all revisions to the tariff schedulewill have to be negotiated among the four partners. The Government of Brazil ratified the Uruguay RoundAgreements in 1994 and became a founding member of the WorldTrade Organization on January 1, 1995.2. Exchange Rate Policy Brazil has three exchange rates: a commercial rate, atourist rate and a semi-official parallel rate. The commercialrate is used for import-export transactions registered at theCentral Bank and financial transactions linked to externaldebt. The tourist, or floating rate, is used for individualtransactions such as unilateral transfers, travel, tourism, andtransactions involving education and training abroad. Theparallel rate is also used for individual transactions, butthey are not recorded. All three rates fluctuate; the spreadbetween them has diminished since the introduction of the newcurrency. The measure introducing the real established parity withthe dollar. However, a surplus of dollars, caused by financialactivities of exporters and foreign investors, resulted in thesteady appreciation of the real relative to the dollar. TheCentral Bank did not intervene until September, when the realreached 0.85 to one dollar. Subsequent Central Bankinterventions indicate that this level is the Bank's floor.3. Structural Policies Although some administrative improvements have been made inrecent years, the Brazilian legal and regulatory system is farfrom transparent. The government has historically exercisedconsiderable control over private business through extensiveand frequently changing regulations. To implement economicpolicies rapidly, the government has resorted to issuingdecrees rather than securing congressional approval oflegislation. These decrees are frequently challenged in thecourts and a number have been declared unconstitutional. Theregulatory instability makes planning difficult. In June 1994a new antitrust law was passed to prevent "abusive pricing."The law will likely face a legal challenge. The tax system in Brazil is extremely complex, with a widerange of income and consumption taxes levied at the federal,state and municipal levels. Both payment and collection oftaxes is burdensome. An effort to streamline the tax systemwas begun in 1991; considerable progress has been made toimprove collections. Significant further reforms will requireconstitutional revision. The privatization program initiated in 1990 to reduce thesize of the government and improve fiscal performance slowed toa near halt during 1994. The planned privatization of part ofthe electricity sector was abandoned entirely, while a numberof planned auctions of financially troubled or non-competitivestate-owned companies were delayed in response to lukewarminvestor interest and low price offers. The pace ofprivatizations is expected to increase significantly during1995, under the administration of President-elect FernandoHenrique Cardoso, who took office on January 1, 1995.4. Debt Management Policies Brazil's external debt totaled approximately $146 billionat the end of 1993. Of this total, about $34 billion ismedium-term commercial bank debt owed by the government.Foreign private bank debt is $63 billion, of which the U.S.share is $24 billion. In 1993, Brazil's debt service paymentsrepresented 4 percent of its gross domestic product, and 42percent of its export earnings. In April 1994, the government concluded a debtrenegotiation agreement with foreign commercial banks. Theagreement included exchanging $35 billion in medium-termcommercial bank debt for new instruments. The agreement alsoincluded rescheduling outstanding arrears. Unlike past BradyPlan debt exchanges, the Brazilian deal was closed without thesupport of the official international financial community sincethe Brazilian government was unable to reach an agreement withthe IMF for a standby program. Brazil did not reach an agreement with the Paris Clubduring 1994 to reschedule official debt. Under Brazil's 1992agreement with the Paris Club, further debt rescheduling iscontingent upon the government concluding a standby agreementwith the IMF.5. Significant Barriers to U.S. Exports Import Licenses: Although Brazil requires import licensesfor virtually all products, import licensing generally does notpose a barrier to U.S. exports. Import licenses, which until1990 were a significant barrier to imports, are now usedprimarily for statistical purposes and generally are issuedautomatically within five days. However, obtaining an importlicense can occasionally still be difficult. For example, theBrazilian government has refused to grant an import license forlithium for nearly two years. In January 1992, a standardimport license fee of approximately $100 was instituted,replacing a 1.8 percent ad valorem fee. The Secretariat of Foreign Trade's computerized tradedocumentation system (SISCOMEX), scheduled to be fullyoperational in January 1995, will further streamline filing andprocessing of import documentation. Services Barriers: Restrictive investment laws, lack ofadministrative transparency, legal and administrativerestrictions on remittances, and arbitrary application ofregulations and laws limit U.S. service exports to Brazil. Insome areas, such as construction engineering, foreign companiesare prevented from providing technical services unlessBrazilian firms are unable to perform them. Many service trade possibilities are restricted bylimitations on foreign capital under the 1988 Constitution. Inparticular, services in the telecommunications, oil field, andmining industries are severely restricted. Foreign financialinstitutions are restricted from entering Brazil or expandingpre-1988 operations. Restrictions exist on the use offoreign-produced advertising materials. Foreign legal, accounting, tax preparation, managementconsulting, architectural, engineering, and constructionindustries are hindered by various barriers. These includeforced local partnerships, limits on foreign directorships andnon-transparent registration procedures. Foreign participation in the insurance industry is impededby limitations on foreign investment, market reserves forBrazilian firms in areas such as import insurance, and therequirement that parastatals purchase insurance only fromBrazilian-owned firms. Further, the lucrative reinsurancemarket is reserved for the state monopoly, the ReinsuranceInstitute of Brazil (IRB). Other legal and administrative obstacles to foreignservices suppliers are being eased. In January 1992, thegovernment announced rules which allow foreign remittances oftrademark license fees and technology transfer payments coveredby franchising agreements. The change effectively ended a20-year ban on international franchising in Brazil. Investment Barriers: In addition to the restrictions onthe services-related investments mentioned above, foreigninvestment faces various prohibitions in petroleum productionand refining, internal transportation, public utilities, media,real estate, shipping, and various other "strategicindustries." In other sectors, such as the auto industry,Brazil limits foreign equity participation and imposeslocal-content requirements. Foreign ownership of land in ruralareas and adjacent to international borders is prohibited. Foreign investors are denied national treatment pursuant tothe constitutional distinction between national and foreigncapital. Informatics: Under the 1991 Informatics Law, prohibitionsor requirements for government prior review for imports,investment, or manufacturing by foreign firms in Brazil wereeliminated. However, import duties remain high (up to 35percent) on informatics products, and Brazilian firms receivepreferential treatment in government procurement and haveaccess to certain fiscal benefits, including tax reductions.For a foreign-owned firm to gain access to most of theseincentives, it must commit to invest in local research anddevelopment and meet export and local training requirements.Rules governing computer software are contained in Law 7646(the software law) of December 1987. The software law requiresthat all software be "catalogued" by the InformaticsSecretariat of the Ministry of Science and Technology prior toits commercialization in Brazil, and that in many casessoftware must be distributed through a Brazilian firm. The lawcontains provisions to deny cataloguing of foreign software ifthe Secretariat determines there is a similar program ofBrazilian origin. However, this provision is no longerapplied. A draft law has been introduced into Brazil'sCongress to eliminate the requirement for cataloguing, the testof similarities, and the requirement that software to be run onBrazilian-origin hardware must be distributed by a Brazilianfirm. Government Procurement: Given the significant influence ofthe state-controlled sector due to its large size,discriminatory government procurement policies are, in relativeterms in Brazil's market, an important barrier to U.S.exports. For example, discriminatory government procurementpractices in the computer, computer software and digitalelectronics sector may have significant adverse market accessimplications for U.S. firms, particularly firms not establishedin Brazil. Article 171 of the 1988 Constitution provides forgovernment discrimination in favor of "Brazilian companies withnational capital." On June 21, 1993, Brazil adoptedprocurement legislation, Law Number 8666, requiring open bidsbased upon the lowest price. However, in late 1993 thegovernment introduced new regulations which allow considerationof non-price factors and give preferences totelecommunications, computer, and digital electronics goodsproduced in Brazil, and stipulate local content requirementsfor eligibility for fiscal benefits. In March 1994, thegovernment issued Decree 1070 regulating the procurement ofinformatics and telecommunications goods and services. Theregulations require federal agencies and parastatal entities togive preference to locally produced computer products based ona complicated and non-transparent price/technology matrix. Itis not possible to estimate the economic impact of theserestrictions upon U.S. exports. However, free competitioncould provide significant market opportunities for U.S. firms. Brazil is not a signatory to the GATT GovernmentProcurement Code.6. Export Subsidies Policies In general, the Brazilian Government does not providedirect subsidies to exporters, but does offer a variety of taxand tariff incentives to encourage export production and toencourage the use of Brazilian inputs in exported products.Several of these programs have been found to be countervailableunder U.S. countervailing duty provisions in the context ofspecific subsidy/countervailing duty cases. Incentives includetax and tariff exemptions for equipment and materials importedfor the production of goods for export, excise and sales taxexemptions on exported products, and excise tax rebates onmaterials used in the manufacture of export products.Exporters also enjoy exemption from withholding tax forremittances overseas for loan payments and marketing, and fromthe financial operations tax for deposit receipts on exportproducts. In October 1994, the Brazilian government issuedDecree Law 674, granting exporters a rebate on socialcontribution taxes paid on locally acquired production inputs. An export credit program, known as PROEX, was establishedin 1991. PROEX is intended to eliminate the distortions inforeign currency-linked lending caused by Brazil's high ratesof inflation and currency depreciation. Under the program, thegovernment provides interest rate guarantees to commercialbanks which finance export sales, thus ensuring Brazilianexporters access to financing at rates equivalent to thoseavailable internationally. Capital goods, automobiles and autoparts, and consumer goods are eligible for financing under thePROEX program.7. Protection of U.S. Intellectual Property Brazil's regime for the protection of intellectual propertyrights is inadequate. Serious gaps exist in current statuteswith regard to patent protection for pharmaceuticals,chemicals, and biotechnological inventions; trademarks andtrade secrets; and copyrights. Legislation has been pendingbefore the Brazilian Congress for several years to address manyof these areas. The Brazilian government has made a commitmentto bring its intellectual property regime up to theinternational standards specified in the Uruguay Round TradeRelated Aspects of Intellectual Property (TRIPs) Agreement. Asa result of this commitment, the U.S. government terminated theSpecial 301 investigation initiated in May of 1993, and revokedBrazil's designation as a "priority foreign country." Brazilremains under Section 306 monitoring. Brazil is a signatory to the GATT Uruguay Round Accords,including the TRIPs Agreement. Brazil is a member of the WorldIntellectual Property Organization and a signatory to the BerneConvention on Artistic Property, the Universal CopyrightConvention, the Washington Patent Cooperation Treaty, and theParis Convention on Protection of Intellectual Property. Patents: Brazil does not provide either product or processpatent protection for pharmaceutical substances, processedfoods, metallurgical alloys, chemicals, or biotechnologicalinventions. The Industrial Property Bill passed in 1993 by theChamber of Deputies and currently pending before the Senatewould recognize the first four of these categories and extendthe term for product patents from 15 to 20 years. TheBrazilian government announced in early 1994 that it wouldsupport amendments to the bill which would bring its provisionsinto conformity with TRIPs provisions, including those oncompulsory licensing, domestic working requirements andparallel imports. Trade Secrets: Brazil lacks explicit legal protection fortrade secrets, although a criminal statute against unfair tradepractices can, in theory, be applied to prosecute thedisclosure of privileged trade information. The IndustrialProperty Bill pending in Congress includes civil penalties andinjunctive relief for trade secret infringement. Trademarks: All trademarks, as well as licensing andtechnical assistance agreements (including franchising), mustbe registered with the National Institute of IndustrialProperty (INPI). Without such registration, a trademark issubject to cancellation for non-use. The pending IndustrialProperty Bill includes significant trademark revisions whichwill improve trademark protection. Copyrights: While Brazil's copyright law generallyconforms to international standards, the 25-year term ofprotection for computer software falls considerably short ofthe Berne Convention standard of the life of the author plus 50years. Enforcement of copyright laws has been lax. Currentfines do not constitute an adequate deterrent to infringement.The U.S. private sector estimates that piracy of videocassettes, sound recordings and musical compositions, books andcomputer software continues at substantial levels. In the lasttwo years, enforcement of laws against video and softwarepiracy has improved, and foreign firms have had some success inusing the Brazilian legal system to protect their copyrights.The government has also initiated action to reduce theimportation of pirated sound recordings and videocassettes. Semiconductor Chip Lay-out Design: A bill introduced in1992, and still pending before the Congress, will protect thelay-out designs of integrated circuits. Amendments to thedraft law are expected to bring its provisions into conformitywith the TRIPs text. Impact on U.S. Trade: In early 1994, the U.S.pharmaceuticals industry estimated losses of $500 million dueto inadequate intellectual property protection. The U.S.software industry claims losses of $268 million, and estimatesthat less than 50 percent of the software in use in Brazil waslegally obtained. The Motion Picture Export Association ofAmerica estimates its annual losses due to motion picturepiracy in Brazil at $39 million.8. Worker Rights a. The Right of Association Brazil's Labor Code provides for union representation ofall Brazilian workers (excepting military, military police andfiremen), but imposes a hierarchical, unitary system, funded bya mandatory "union tax" on workers and employers. Under arestriction known as "unicidade" (one per city), the codeprohibits multiple unions of the same professional category ina given geographical area. It also stipulates that no union'sgeographic base can be smaller than a municipality. The 1988Constitution retains many provisions of the 1943 Labor Code.The retention of "unicidade" and of the union tax continues todraw criticism both from elements of Brazil's labor movementand from the International Confederation of Free Trade Unions(ICFTU). In practice, however, "unicidade" has proven lessrestrictive in recent years, as more liberal interpretations ofits restrictions have permitted new unions to form and, in manycases, compete with unions and federations that had alreadyenjoyed official recognition. The sole bureaucraticrequirement for new unions is to register with the Ministry ofLabor which, by judicial decision, is bound to receive andrecord their registration. The primary source of continuingrestriction is the system of labor courts, which retain theright to review the registration of new unions, and adjudicateconflicts over their formation. Otherwise, unions areindependent of the government and of political parties.Approximately 20 to 30 percent of the Brazilian workforce isorganized, with just over half of this number affiliated withan independent labor central. (Mandatory labor organizationunder the Labor Code encompasses a larger percentage of theworkforce. However, many workers are believed to have minimalif any contact with these unions.) Intimidation of rural labororganizers by landowners and their agents continues to be aproblem. The Constitution provides for the right to strike(excepting, again, military, police and firemen, but includingother civil servants). Enabling legislation passed in 1989stipulates that essential services remain in operation during astrike and that workers notify employers at least 48 hoursbefore beginning a walkout. The Constitution prohibitsgovernment interference in labor unions but provides that"abuse" of the right to strike (such as not maintainingessential services, or failure to end a strike after a laborcourt decision) is punishable by law. b. The Right to Organize and Bargain Collectively The right to organize is provided by the Constitution, andunions are legally mandated to represent workers. With somegovernment assistance, businesses and unions are working toexpand and improve mechanisms of collective bargaining. Undercurrent Brazilian law, however, the scope of issues subject tocollective bargaining is narrow and the labor court systemexercises normative powers with regard to the settlement oflabor disputes, thereby discouraging direct negotiation.Existing law charges these same courts, as well as the LaborMinistry, with mediation responsibility in the preliminarystages of dispute settlement. Wages are set by freenegotiation in many cases, and in others by labor courtdecision. There is a movement for extensive revisions in theLabor Code which would broaden the scope of collectivebargaining and restrict the role of the labor courts, but suchchanges appear unlikely in the near future. The Constitution incorporates a provision from the LaborCode which prohibits the dismissal of employees who arecandidates for or holders of union leadership positions.Nonetheless, dismissals take place, with those dismissedrequired to resort to a usually lengthy court process forrelief. In general, enforcement of laws protecting unionmembers from discrimination lacks effectiveness. Labor law applies uniformly throughout Brazil, includingthe free trade zones. However, unions in the Manaus free tradezone, rural unions and many unions in smaller cities arerelatively weaker vis-a-vis industry compared to unions in themajor industrial cities of the southeast.</text>
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<name>Brazil </name>
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card_7964.xml
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<text>U.S. DEPARTMENT OF STATEBOSNIA-HERZEGOVINA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS BOSNIA-HERZEGOVINA Bosnia-Herzegovina remains a war zone with very littleeconomic activity beyond smuggling and distribution ofhumanitarian supplies. U.S. Embassy estimates place theremaining industrial activity, which primarily supports the wareffort, at five percent of the 1991 level. In a region whichonce boasted world-class resorts, there are now destroyedfactories and burnt-out villages. The Bosnian Serbs, who arecontinuing their policy of "ethnic cleansing," have displacedor killed hundreds of thousands of residents. Bosnia-Herzegovina receives its natural gas by pipelinefrom Russia via Hungary and Serbia. Adequate gas supplies wererestored to Sarajevo in February 1994. The situation remainsunstable, however, due to maintenance problems, war damage, andBosnian Serb control of areas through which the pipelinepasses. Electric energy supplies for greater Sarajevo fellfrom a pre-war level of 250 MW to about 50 MW in 1993. Withinternational assistance, the daily electric energy supply inSarajevo averaged 68 MW by mid-1994. Bad weather, fighting, and Bosnian Serb blockades oftenblock supply lines into Bosnia-Herzegovina, Sarajevo, and theeastern enclaves of Gorazde, Zepa, and Srebrenica. Sarajevoand the eastern enclaves remain under siege and are currentlyexperiencing shortages of food, water, electricity, fuel, andmany other basic neccesities. Humanitarian aid has beenintermittent and insufficient to meet full requirements.Bosnian Serb sniper activity regularly halts use of theSarajevo airport. In the winter months, when the need isgreatest, land supply routes become impassable and airportsoften close. The economic outlook for Bosnia-Herzegovina remains bleak.Even if hostilities ended at once, the infrastructure isheavily damaged and a large part of the most productive segmentof society has been dislocated or eliminated. No financialreserves exist with which reconstruction could begin. In March1994, the U.S. and United Kingdom launched a joint initiativeto restore essential public services to Sarajevo. While thishas resulted in some success, it will take many years forBosnia-Herzegovina to recover from the current crisis, andmassive donor support will be needed to continue the process.(####)</text>
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<name>Bosnia and Herzegovina </name>
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card_7744.xml
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<text>U.S. DEPARTMENT OF STATEBOLIVIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS BOLIVIA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 a/Income, Production and Employment: c/Real GDP (pct. change) 2.69 3.18 4.0 j/GDP Per Capita Income (USD) 958 1,017 1,065 j/ Percent Change 5.56 6.16 4.72 j/Nominal GDP 6,527 7,059 7,100 j/Sectoral GDP (pct.) 100.0 100.0 100.0 Agriculture 19.83 20.36 N/A Manufacturing 13.90 13.57 N/A Trade/Services 28.52 28.41 N/A Public Administration 9.02 8.86 N/A Mining 8.51 8.73 N/A Transportation/Communications 9.00 9.05 N/A Oil Industry 6.17 6.00 N/A Others 5.05 5.02 N/AUnemployment Rate (pct.) f/ 5.4 7.4 7.9Money and Prices: c/Money Supply (M1) 503.9 591.3 643.2 h/Fiscal Deficit (pct. GDP) k/ 4.6 6.0 6.3 j/Inflation (12 months) 10.5 9.3 7.5Commercial Bank Deposits g/ 1,118.4 1,856.0 2,362.7 h/Interest Rates (USD) Loans (avg. pct.) 7.6 17.4 14.9 h/ Deposits (avg. pct.) 11.7 10.1 9.9 h/ CD Time Deposits (avg. pct.) 7.5 6.6 6.5 h/Exchange Rate (Bs/USD) c/ Year-end 4.10 4.48 4.70 Average 3.89 4.26 4.55Trade and Balance of Payments: c/Total Exports (FOB) 637.6 709.7 910.0 Exports to U.S. d/ 161.2 191.0 106.6 e/ Natural Gas 122.8 90.2 75.8 h/ Tin (CIF) 107.4 83.4 83.3 h/ Other Mineral Exports (CIF) 272.5 278.6 281.5 h/Total Imports (CIF frontier) 1,090.3 1,205.9 1,220.0 Imports from U.S. d/ 221.8 215.9 76.9 e/Current Account Balance -587.0 -224.0 -542.0 m/Capital Account Balance 317.0 211.2 1,316.3 m/Central Bank Gross Reserves (year-end) 416.9 494.8 635.1 h/Central Bank Net Reserves (yr. end) 40.0 370.3 504.5 h/Public Foreign Debt i/ Total 3,784.5 3,795.6 4,080.0 Loan Disbursements 384.5 319.2 183.2 h/ Capital Payments 106.9 119.5 89.4 h/ Interest Payments 99.5 120.6 93.8 h/N/A--Not available.Sources:a/ Estimated data (Central Bank of Bolivia and UDAPE) and/ortargets set by the GOB and the IMF.b/ National Institute of Statistics (based on 1992 census).c/ Central Bank of Bolivia.d/ U.S. Department of Commerce.e/ U.S. Department of Commerce as of June 1994.f/ Based on surveys of urban areas. Data does not considerunder-employment.g/ Superintendency of Banks.h/ Central Bank of Bolivia as of September 1994.i/ Foreign debt of the Central Bank of Bolivia.j/ U.S. Embassy estimate based on 1980 figures.k/ IMF data. N.B. The IMF estimate of GDP is much lower thanthat reported by the Central Bank.m/ Central Bank of Bolivia estimate as of September 30, 1994.1. General Policy Framework Following a prolonged period of economic instability theGovernment of Bolivia initiated a series of economic reforms in1985 intended to arrest hyperinflation and open the economy.The currency was allowed to float, commercial banks wereallowed to set their own interest rates, import and investmentpermit requirements were eliminated, economic activities whichhad been reserved for government corporations were opened toprivate investment, and the government entered into an IMFstandby program. For four years, the Paz ZamoraAdministration, which took office in 1989, institutionalizedand advanced these market-oriented economic reforms but limitedeconomic growth was achieved. The Sanchez de LozadaAdministration, which took office in August 1993, is pushingthese market-oriented reforms further with several structuralreforms of which the "capitalization" (privatization) programof six of the larger state-owned corporations is thecornerstone. In addition, the Sanchez de Lozada administrationhas implemented changes in the nation's Constitution and otherreforms in the areas of education, popular participation, andin the administration of the executive branch. Other reformsthat are under consideration include reforms in the judicialsystem, taxation system, political parties structures, andnational pension funds. The results of the economic reforms have been a dramaticdrop in inflation (to less than 15 percent each year since1986), steady economic growth (between 2.5 and 4.1 percentannually starting in 1987) and growing amounts of privateinvestment and savings. During the next twelve to sixteen months, the Bolivianeconomy will run into uncertainties as adjustments will have tobe made to keep pace with the economic demands and costs thatthe structural reforms will require. In spite of all this, thegovernment expects that the economy will grow by about 4.0percent in 1994 and 4.5 percent in 1995 with inflation around7.5 percent in 1994 and 6.5 percent in 1995. Commercial bank deposits have more than doubled since 1992to over 2.3 billion dollars. Trade surpluses and large inflowsof foreign aid have resulted in growing foreign exchangereserves. There has been a drastic increase of net reserves inthe Central Bank, reaching, since 1980, a record figure of504.5 million dollars by September 1994, or about six monthsworth of imports. Exports are expected to increase by 30percent in 1994 compared to the previous year. Positive growthsince 1986 has more than offset the decline of the economyduring the early eighties. In compliance with IMF programs, the government has reducedthe budget deficit of the non-financial public sector (whichincludes central, regional and municipal governments along withthe parastatal corporations) to 6.5 percent of the GDP in 1993(as estimated by the IMF) and 6.3 percent in 1994 (as estimatedby the American Embassy). Estimated fiscal deficit for 1995 is3.3 percent and 4.4 percent for 1996. Central Government taxrevenues came to about 13.5 percent of GDP in 1993. Taxrevenues have risen sharply due to better administration andincreasing tax rates. The government also receives transfersfrom public enterprises and from foreign grants (about 1.5percent of GDP). Budget deficits have been covered by foreignloans and the sale of certificates of deposit by the CentralBank. The IMF has requested that the fiscal deficit in 1994and beyond should be covered by concessional loans only. Withthe budget deficit shrinking, the number of certificates ofdeposit in circulation has decreased to only 90 million dollarsworth in 1993 and the interest rate offered on the certificateshas declined from 16.2 percent in 1989 to an average of 7.8percent in 1993. The money supply, both M1 and M2, has grown slowly since1985 with M1 averaging around 5 percent of GDP. However, thepublished figure for money in circulation (643 million dollarsworth of Bolivianos) is misleading since there are alsomillions of U.S. dollars in circulation and dollars are a legalmeans of exchange. Banks are allowed to keep dollar accountsand make dollar loans. Over 85 percent of the 2.3 billiondollars worth of deposits in Bolivia's 16 commercial banks arepresently in dollars. The new investment law allows contracts to be written indollars. Interest rates have fallen over the last three yearsas growing confidence in Bolivia's financial stability led toexcessive liquidity in the banks and as government borrowinghas decreased. By September 1994 the average rate of dollardeposits had fallen to 9.9 percent and the average rate ondollar loans was down to 14.9 percent from 10.1 and 17.4percent respectively in 1993.2. Exchange Rate Policy Since 1985, the official exchange rate continues to be setdaily by the government's exchange house, the BOLSIN, which isunder the supervision of the Bolivian Central Bank. The BOLSINholds daily auctions of dollars. The Directors of the BOLSINmeet every day to decide the minimum rate and the number ofdollars to offer for sale. The average amount of dollarsoffered each day is five million. Sealed bids are thencollected and opened with dollars going to those bidding at orabove the minimum rate. With this mechanism the Central Bankhas slowly devalued the Boliviano in line with domesticinflation and inflation in Bolivia's major trading partners.The rates set by the BOLSIN cannot ignore market forces becausecurrency exchanges in banks, hotels, exchange houses and on thestreet corners are legal and active. The parallel marketexchange rates are always less than one percent different fromthe official rates.3. Structural Policies In 1990, the government reduced tariffs from 16 to 10percent for all imports except for capital goods for which thetariff is five percent. In addition, the government charges a13 percent value-added tax and a two percent transaction tax onall goods, whether imported or produced domestically, when theyare sold. There are excise taxes on some consumer productsincluding cars. No import permits are required. The centralgovernment sets the prices of finished fuels while themunicipal governments try to control the price of a bread rollcommonly consumed by the poorer members of society. In late 1990 and early 1991, the Bolivian congress approvedthree laws that the executive branch had pushed hard in orderto promote private investment. The investment law establishesmany guarantees, such as remission of profits, freedom to setprices, convertibility of currency, etc., that had beenpreviously authorized by Presidential decree. That lawessentially guarantees national treatment for foreign investorsand authorizes international arbitration except fornon-technical disputes in the oil industry. The hydrocarbonslaw authorized YPFB, the government-owned oil company, to enterinto joint ventures with private firms and to contractcompanies to take over YPFB fields and operations, includingrefining and transportation. The mining law created a tax onprofits, which is creditable in the United States, and openedup the border areas to foreign investors as long as theirBolivian partners hold the mining concession. Both laws areunder revision to comply with the capitalization program. In 1992 the Bolivian congress approved a privatization lawthat allows the government to sell state owned companies andassets. In 1993 the congress passed a new banking law thatestablishes clear rules for the commercial banks and authorizesthem to maintain foreign currency accounts. (Thatauthorization had been in effect since 1985 from a presidentialdecree but a law passed by congress is much more permanent.)All government purchases over 100,000 Bolivianos (about$23,000) are, by law, handled by one of three privatepurchasing agents. The purchasing agents sell the bidspecifications, evaluate the bids and rank order the offers forthe government office or corporation making the purchase. For 1994 and beyond, the cornerstone of President Sanchezde Lozada's economic program is the capitalization(privatization) program of the six largest state-ownedcompanies (YPFB - oil, ENDE - electricity, ENTEL -telecommunications, LAB - airline, ENFE - railroad, and ENAF -tin/antimony smelter). The capitalization program was approvedby Congress in April 1994. Capitalization involves giving a(presumably) foreign partner 50 percent ownership in return fordirect investment in the company. For example, if ENTEL, thetelecommunication company, is determined to be worth $200million, the GOB hopes a foreign investor would agree to make a$200 million investment over a certain period of time. Theforeign investor would then own half of an enterprise worth$400 million (the Bolivian Government original assets worth$200 million, plus the investor's new investment of $200million) and would be granted a long-term management contractand control all assets. The remaining 50 percent would beturned over to all adult Bolivians in the form of stock to beplaced in individual pension accounts. The Sanchez de Lozadaadministration hopes capitalization will boost investment,increase output and efficiency, reduce corruption, increasefiscal revenues, and create as many as 500,000 new jobs4. Debt Management Policies The Bolivian government owes over $4.08 billion to foreigncreditors. About 55.6 percent of that is owed to internationalfinancial institutions, mainly the Inter-American DevelopmentBank, the World Bank and the Andean Development Corporation.About 42.8 percent is owed to foreign governments and 1.6percent to private banks and suppliers. 85.5 percent of theforeign debt is owed by the non-financing public sector ofwhich 65.7 percent is owed by the Central Government and localgovernment. The external public debt owed by the state-ownedcorporations amounts to 19.8 percent of the total foreigndebt. The public sector financing institution's foreign debtadds to 14.5 percent of Bolivia's foreign debt. The bilateral debt payments have been rescheduled fourtimes now by the Paris Club, the last time for an 18-monthperiod. A fifth rescheduling is sought for the end of 1994.Furthermore, several foreign governments have forgivensubstantial amounts of the bilateral debt. In September 1990,the U.S. Government forgave $372 million owed by the Boliviangovernment including all of the old A.I.D. loans and $31million of the old PL-480 loans. (All U.S. assistance toBolivia has been on a grant basis since the late 1980's.) The Bolivian government has reduced the debt it owes tocommercial banks from over $700 million in 1985 to $8.8 millionby the end of 1993. The government bought back many of thedebt claims at 11 cents on the dollar and has exchanged otherdebt claims for investment bonds which will mature with thefull face value of the debt claim in 25 years. Most of theinvestment bonds have already been redeemed for privateinvestment projects in Bolivia. The government has nowcontracted to exchange the remaining commercial debt at 16cents on the dollar.5. Significant Barriers to U.S. Exports There are no significant barriers to U.S. exports toBolivia and the minor barriers to U.S. direct investment applyto all foreign investors, not just U.S. investors. Therequirement to obtain import licenses, previously required forsugar, wheat and cement, was eliminated in September 1990 withthe passage of the Investment Law. Article 8 of that lawstates, "Freedom to import and export goods and services isguaranteed, with the exception of those products that affectpublic health and/or the security of the state." The ExportLaw of April 1993 also prohibited the import of products whichaffect the preservation of flora and fauna, particularlynuclear waste. Again, none of these restrictions discriminateagainst U.S. exporters. In October, 1992, as part of the Andean Pact integrationeffort, the Bolivian Government eliminated the tariffs on allbut 11 products coming from three members of the Andean Pact(Venezuela, Colombia, and Ecuador) which means that similarproducts coming from the United States could be at a slightprice disadvantage. However, less than five percent ofBolivia's current level of trade is with those Andeancountries. The Andean Pact is committed to adopting a commonexternal tariff but Bolivia will be allowed to keep its tariffrates at five and ten percent. Bolivia became a member of GATT in August 1990 but has onlysigned the GATT codes on customs valuation and import licensingprocedures so far. The Government is currently studying theUruguay Round Agreement, but ratification is not likely until1995. There are no limitations on foreign equity participationand dozens of Bolivian companies are wholly owned by U.S.investors. The new investment law essentially guaranteesnational treatment for foreign investors. The only restrictionon foreign investment is that foreigners may not obtain miningor oil concessions within 50 kilometers of the borders.However, Bolivians with mining concessions near the borders mayhave foreign partners as long as they are not from the countryadjacent to that portion of the border. In the case of the oilindustry, an operational contract is signed with YPFB, thestate-owned oil company, avoiding this constitutionalrestriction.6. Export Subsidies Policies In early 1991 the government eliminated a certificaterebate program under which the exporters of "non-traditional"goods received certificates equal to six percent of the valueof the export. The certificates were to offset the ten percentvalue-added tax charged on all purchases in Bolivia. Thecertificate program was replaced with a "drawback" scheme whichrebated either two or four percent of the value of most"non-traditional" exports. An Export Law, approved by congressin April 1993, replaced the drawback program with one wherebythe government grants rebates of all the domestic taxes paid onthe production of items later exported. The only indirectsubsidy on exports comes from the government-owned railroadwhich charges a lower shipping rate per ton on exportedcommodities than on imported goods.7. Protection of U.S. Intellectual Property The Bolivian government promulgated two intellectualproperty rights laws during 1992. The Film Law, passed byBolivia's congress in December 1991, will provide protection tofilms and videos as soon as the implementing regulations arepublished. The law requires all films and videos shown ordistributed in Bolivia to be registered with the newly createdNational Movie Council. Films not registered and not carryinga seal by the Council may be confiscated. The Copyright Law(Ley de Derecho de Author) passed in April 1992 will provideIPR protection to literary, artistic and scientific works forthe lifetime of the author plus 50 years. The law will protectthe rights of Bolivian authors, of foreign authors domiciled inBolivia, and of foreign authors published for the first time inBolivia. These protections will extend to authors of computerprograms once the implementing regulations have beenpromulgated. The Bolivian Congress has ratified four treatiesin order to join the World Intellectual Property Organization(WIPO) and the Bern, Rome, and Paris conventions. Patent protection remains inadequate but there iswidespread agreement in the Bolivian Government that the 90year-old patent law needs to be updated to conform tointernational standards. The executive branch is drafting abill for congressional consideration that would raise thesestandards by law. U.S. copyright industries note problems with book andsoftware piracy, and with the pirating of satellite signals fortelevision broadcasting, estimating 1993 losses at $13-14million. Pirated films are also widely available, with most ofthem apparently coming from other countries.8. Worker Rights a. The Right of Association Workers may form and join organizations of their choosing.The labor code requires prior authorization to establish aunion, limits unions to one per enterprise, and allows thegovernment to dissolve unions, but the government has notenforced these provisions in recent years. While the codedenies civil servants the right to organize and bans strikes inpublic services, including banks and public markets, nearly allcivilian government workers are unionized. In theory,virtually the entire work force is represented by the BolivianLabor Federation (COB); approximately one-half the workers inthe formal economy belong to labor unions. Some members of theinformal economy participate in organizations. Workers in theprivate sector frequently exercise the right to strike.Solidarity strikes are illegal, but the government does notprosecute those responsible nor impose penalties. Significant strikes in 1994 centered around annualnegotiations over salaries and benefits for public employees.When the government refused to accede to union demands,strikers marched, set up roadblocks, and cut access to certainareas of the Chapare. Additional talks produced a settlementacceptable to the workers and the strikes ended. Unions arenot independent of government and political parties. Mostparties have labor committees that try to influence unionactivity, causing fierce political battles within unions. Thelaw places no restrictions on a union's joining internationallabor organizations. The COB became an affiliate of thecommunist-dominated World Federation of Trade Unions (WFTU) in1988. COB leadership, apparently unable to free itself fromarchaic, increasingly inefficient Marxist rhetoric andpractices, is being strongly challenged by the more dynamicleaders of the Confederation of Rural Workers Unions (CSUTCB),an organization dominated by coca growers of the Chapare region. b. The Right to Organize and Bargain Collectively Workers may organize and bargain collectively. Inpractice, collective bargaining, defined as voluntary directnegotiations between unions and employers without participationof the government, is limited. Consultations betweengovernment representatives and labor leaders are common butthere are no collective bargaining agreements as definedabove. In state industries, the union issues a list of demandsand the government concedes some points. Private employersoften use public sector settlements as guidelines for their ownadjustments, and some private employers exceed what thegovernment grants. The government, conscious of internationalmonetary fund guidelines, rarely grants wage increasesexceeding inflation. The law prohibits discrimination against union members andorganizers. Complaints go to the National Labor Court, whichcan take a year or more to rule. Union leaders say problemsare often moot by the time the court rules. Labor law andpractice are the same in the seven special duty-free zones asin the rest of Bolivia. c. Prohibition of Forced or Compulsory Labor The law bars forced or compulsory labor; no cases werereported. d. Minimum Age for Employment of Children The law prohibits the employment of persons under 18 yearsof age in dangerous, unhealthy, or immoral work. Bolivia's50-year old labor code is ambiguous on the conditions ofemployment for minors from 14 through 17 years of age.However, even the existing legal provisions concerningemployment of children are not enforced. For example, childlabor under 14 years of age is common. Young children can befound on the streets selling lottery tickets and cocaine lacedcigarettes, shining shoes and assisting bus drivers. They arenot generally employed in factories or businesses. e. Acceptable Conditions of Work In urban areas, only half the labor force enjoys aneight-hour workday and a workweek of five or five and one-halfdays. Like many other labor laws, the maximum legal workweekof 44 hours is not enforced. Responsibility for the protectionof workers' health and safety lies with the Labor Ministry'sBureau of Occupational Safety. Labor laws that provide for theprotection of workers' health and safety are not adequatelyenforced. Although the state-owned mining corporation,COMIBOL, has a special office in charge of mine safety, themines, often old and operated with antiquated equipment, areparticularly dangerous and unhealthy. Miners work long days,they are often underground for 24-72 hours straight. They workwith no personal safety gear, in areas where respirators areneeded for protection against toxic gases. Wages do notreflect the nature of working conditions that miners endure;cooperative mines pay less than $3.00 per 12-hour day. Minersare told by industry officials that the chewing of coca leafserves as a substitute for food, water, and rest. The cocaleaf, with a catalyst, releases alkaloids and cocaine. Minerswork in these terrible conditions under the belief that thechewing of coca leaf makes them strong, and protects them fromtoxic gases and silicosis. There are no scheduled restperiods, and employers supply no food or water in the mines;miners often resort to drinking their own urine, which theyalso use to fuel their carbide lanterns. These workingconditions that fall far below international labor and humanrights standards are perpetuated by employers, politicians, theCOB, and persons having a financial stake in the manufactureand sale of cocaine. f. Rights in Sectors with U.S. Investment Probably 70 percent of U.S. investment in Bolivia is in thepetroleum industry. Petroleum industry worker rights arelegally the same as in other sectors. However, conditions andsalaries for workers in the petroleum industry are generallybetter than in other industries because of strong labor unionsin that industry. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 0 Food & Kindred Products 0 Chemicals and Allied Products 0 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 0Wholesale Trade (1)Banking 1Finance/Insurance/Real Estate 0Services 0Other Industries (1)TOTAL ALL INDUSTRIES 196(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEBELGIUM: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS U.S. capital is invested in many sectors in Belgium.Worker rights in these sectors do not differ from those inother aeas. Worker rights are practiced and observed uniformlythroughout the country. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 249Total Manufacturing 5,557 Food & Kindred Products 411 Chemicals and Allied Products 3,415 Metals, Primary & Fabricated 240 Machinery, except Electrical 56 Electric & Electronic Equipment 215 Transportation Equipment (1) Other Manufacturing (1)Wholesale Trade 2,056Banking 97Finance/Insurance/Real Estate 2,794Services 708Other Industries 91TOTAL ALL INDUSTRIES 11,552(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis</text>
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card_7422.xml
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<text>U.S. DEPARTMENT OF STATEBELGIUM: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS BELGIUM Key Ecomomic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1985 prices) 2/ 176.9 162.1 172.9Real GDP Growth (pct.) 1.4 -1.3 1.8GDP (at current prices) 2/ 219.0 206.4 226.3By Sector: Agriculture 3.7 N/A N/A Energy/Water 9.6 N/A N/A Manufacturing 44.5 N/A N/A Construction 12.7 N/A N/A Services 119.1 N/A N/A Government/Health/Education 29.3 N/A N/AReal Per Capita GDP (1985 prices) 17,711 16,210 17,170Labor Force (000s) 4,237 4,261 4,279Unemployment Rate (pct.) 9.4 10.5 10.9Money and Prices:Money Supply (M1) 40.4 40.7 N/ABase Interest Rate 3/ 8.7 7.2 6.4Personal Saving Rate 19.5 20.6 20.2Retail Inflation 2.1 2.6 1.8Wholesale Inflation -1.8 0.2 1.5Consumer Price Index 2.4 2.7 2.5Exchange Rate (BF/USD) 32.1 34.6 32.8Balance of Payments and Trade:Total Exports (FOB) 123.5 111.3 115.6 Exports to U.S. 4.41 4.90 N/ATotal Imports (CIF) 4/ 125.2 114.7 117.5 Imports from U.S. 5.47 5.21 N/AExternal Public Debt 31.5 43.9 44.65Gold and Foreign Exch. Reserves 11.4 13.9 18.1Trade Balance 4/ -1.7 -3.4 -1.9 Trade Balance with U.S. -1.06 -0.3 N/AN/A--Not available.1/ 1994 figures are all estimates based on available monthlydata in October 1994.2/ GDP at factor cost.3/ Figures are actual, average annual interest rates.4/ Merchandise trade.1. General Policy Framework Belgium, a highly developed market economy, belongs to theOECD group of leading industrialized democracies. With exportsand imports each equivalent to about 60 percent of GDP, thecountry depends heavily on world trade. About 75 percent ofits trade takes place with other European Union (EU) members.Belgium ranked as the ninth-largest trading country in theworld in 1993. The country's service sector generates morethan 70 percent of GDP, compared with 25 percent for industryand two percent for agriculture. Belgium imports many basic orintermediate goods, adds value, and then exports final products. Belgium exports twice as much per capita as Germany andfive times as much as Japan. The country derives tradeadvantages from its central geographic location, and a highlyskilled, multilingual and industrious workforce. Over the past30 years, Belgium has enjoyed the second-highest average annualgrowth in productivity for all OECD countries after Japan. Globally, Belgium ranks as the United States' 10th-largestexport market worldwide and the fifth-largest in WesternEurope. Belgium is the 13th largest target for U.S. investmentin the world. U.S. trade and investment prospects arepositive, and many opportunities exist for U.S. exporters andinvestors. The Belgian government recently undertook steps toimprove the foreign investment climate even more. Of all European Union members, Belgium's 1993 economicrecession was the worst after Germany's. Part of the 1993recession came about because the government instituted avariety of budget cuts and revenue measures totalling about 6.6percent of GDP in 1992 and 1993 to try to meet economicperformance targets under the EU's proposed Economic andMonetary Union (EMU). Due to the highest net public sectordebt load among OECD countries (127 percent of GDP), Belgiumfaces tight fiscal policy for many years to come. Belgium, with its small open economy, is very vulnerable todeclines in economic activity in Germany, France and theNetherlands, which together account for more than half ofBelgium's exports. Belgian unemployment currently stands atmore than 10 percent of the workforce (by EU and OECDstandardized definitions), an increase of more than 15 percentin one year. The country's competitiveness also deterioratedin 1993. Per capita wage costs increased by 4.2 percent,against 3.6 percent for the country's seven most importanttrading partners. For 1994, the extent of economic recovery in Belgiumdepends in large part on economic development results inneighboring countries, as well as the degree of Belgianmonetary and fiscal tightness. Most recent GDP growthforecasts are in the neighborhood of 2.3 percent in 1994 and2.8 percent in 1995. Belgium completed domestic ratification of the UruguayRound agreement and became a founding member of the WTO onJanuary 1, 1995. When the present coalition government under Prime MinisterDehaene came to power in March 1992, it set three budgetarytargets. First, federal expenditures net of debt paymentsshould not grow faster than the inflation rate. Second, thegrowth rate of fiscal revenues should at least match the growthrate of nominal GDP. Third, the deficit in the social securitybudget should be eliminated. The Government has managed tomeet the two first criteria, but has not yet balanced thesocial security budget, mainly due to substantial cost overrunsin health insurance and unemployment benefits. In 1993, theGovernment of Belgium's (GOB) public sector budget deficitequaled 7.2 percent of GDP, up 0.3 percentage points from the1992 level. According to the Government's own convergence planfor possible membership in the European Economic and MonetaryUnion (EMU), the 1993 target was 5.8 percent. For 1994, it is4.8 percent. Despite weak fiscal results to date, the BelgianGovernment since March 1992 has implemented budgetary austeritymeasures worth more than $ 16.2 billion, or about 6.6 percentof GDP. Even though 75 percent of these measures were revenueincreases rather than expenditure cuts, they had the advantageof being mostly structural in nature, as opposed to one-timemeasures. As a consequence, the Government still expects tomeet the three percent of GDP annual budget deficit target in1996, one of the Maastricht Treaty requirements for possiblefull EMU membership. Since Belgium has virtually no chance ofreaching in this decade the 60 percent of GDP public debttarget under the Maastricht Treaty, the Belgian public sectormust come close to the annual deficit target to obtain aderogation on the debt target.2. Exchange Rate Policy Belgian monetary policy basically shadows German interestrates as closely as possible in order to keep the Belgian Franc(BF) close to a central parity with the Deutsche Mark (DM). InJune 1990, the National Bank of Belgium (NBB) decided to keepthe BF within a plus or minus 0.3 percent band around thecentral parity of the DM, a much narrower band than what theEuropean Exchange Rate Mechanism (ERM) required. That policyproved successful during the next three years; Belgianinflation ranked among the lowest in the EU, and renewedcredibility of the BF allowed the Government to finance itsdebt at good rates. As part of the near collapse of the entireERM on July 30, 1993, this "strong franc" policy came underserious attack both before and after the widening of the ERMfluctuation bands on August 2, 1993. Despite the NBB'sintention to bring the BF back within the narrow ERM band assoon as possible, markets began to focus more on Belgium'simbalances (mainly the widening budget deficit gap, the hugepublic debt and the depth of the recession). Serious pressuresdeveloped against the BF in the summer and fall of 1993.Consequently, the NBB and Government used high short-terminterest rates, jawboning and currency market interventions tosupport the BF. After the franc slipped by about seven percent against thecentral parity rate with the Mark, several factors came to itsrescue, apart from high interest rates and currency marketintervention. The German Bundesbank lowered its key interestrates at the end of October 1993, relieving the pressure in theERM. The ensuing appreciation of the dollar against the DMfurther eased the pressure on the BF. Subsequently, the NBBlowered its interest rates by more than 100 basis points withintwo weeks. Through the combination of the above factors, theBF by the end of 1993 had returned close to the central paritywith the DM, and has stayed there since then, despite gradualshort-term interest rate cuts.3. Structural Policies In practice, freedom of trade in Belgium does notdiscriminate between foreign and domestic investors. There arebasically no legal measures in force to protect local industryagainst foreign competitors, except in the agricultural sectorwhere the EU's external tariffs and the quota structure of theCommon Agricultural Policy (CAP) apply. Nevertheless,unwritten rules have favored national suppliers for publicprocurement contracts and there have been occasional instanceswhere individual private sector projects have met resistancefrom established economic interests. Subsidies: On July 20, 1993, Belgium completed its processof constitutional change and became a federal state. In thisnew system, the three regional governments of Flanders,Brussels, and Wallonia will assume responsibility for moststate aid programs under the guidance of the federal governmentand EU regulation. State aids are mainly based on two federallaws: (1) the Economic Expansion Act of August 4, 1978 (forsmall companies), and (2) the Economic Expansion Act ofDecember 30, 1970 (for large companies). Both laws providefinancial and fiscal incentives for investments in land,buildings, and tangible and intangible assets. Belgian stateaid programs at all levels of government seem likely to shrinkin the next several years as pressures to limit them from theEU Commission and from declining national and regional budgetsintensify. The EU Commission believes that state aids distortthe single market, impair structural change, and threaten EUconvergence and social and economic cohesion. Belgium hashistorically been near the top of the EU in providing stateaids, well above the community average. In recent years aboutfive percent of total Belgian public sector spending has goneto state aids, about 64 percent of which went to particularindustries, e.g. the railroads and coal mines. In the future,the remaining state aid programs will emphasize general macroobjectives such as promoting innovation, research anddevelopment, energy saving, exports, and most of all,employment. Investment: Belgium maintains an excellent investmentclimate for U.S. companies. U.S. investment in Belgium - almost$11 billion - ranks 13th in the world. No restrictions inBelgium apply specifically to foreign investors. Specificrestrictions that apply to all investors in Belgium, foreignand domestic, include the need to obtain special permission toopen department stores, provide transportation, produce andsell certain food items, cut and polished diamonds, and sellfirearms and ammunition. During 1993, the American Chamber ofCommerce in Belgium complained publicly on behalf of some ofits members about a deterioriation in certain aspects of thepreviously excellent foreign investment climate in Belgium.The American Chamber specifically criticized the absence of aunified government policy on foreign investment within Belgiumresulting in firms finding themselves welcomed and turned awayat the same time by different government agencies. Inaddition, the Chamber complained of an inconsistent approach toenvironmentally sensitive investment projects, contradictorytax treatment of expatriate cost remuneration, uncertaintiesconcerning the legal status of certain kinds of investments,and hardships for the families of expatriates occasioned byBelgian tax, visa, and immigration policies. Since then, thegovernment has responded positively to these points andpromised to take the necessary measures to remedy theseproblems. Tax structure: Belgium's tax structure was substantiallyrevised in 1989. The top marginal rate on personal income isstill 55 percent. Corporations are taxed on income at astandard rate of 39 percent and a reduced rate ranging from 29percent to 37 percent. Branches of foreign offices are taxedon total profits at a rate of 43 percent, or at a lower rate inaccordance with the provisions contained in the double taxationtreaty. Under the bilateral treaty between Belgium and theUnited States, that rate is 39 percent. Despite the reforms of the past five years, the Belgian taxsystem is still characterized by relatively high marginal ratesand a fairly narrow base resulting from numerous fiscalloopholes. While indirect taxes are lower than the EU average,both in relation to GDP and as a share of total revenues,personal income taxation and social security contributions areparticularly heavy. The United States-Belgium bilateral income tax treaty datesfrom 1970. A protocol to the 1970 treaty was concluded inDecember 1987 and approved by the Belgian Parliament in April1989. The instruments of ratification were exchanged by theU.S. and Belgian governments in July 1989, and the protocolwent into effect retroactive to January 1, 1988. The protocolamends the existing treaty by providing for a reciprocalreduction of the withholding rate on corporate dividends from15 to 5 percent (a feature which was actively sought by theAmerican business community).4. Debt Management Policies Belgium's public sector is a net external debtor, but thenet foreign assets of the private sector push the country intoa net creditor position. Only about 15 percent of the Belgiangovernment's overall debt is owed to foreign creditors.Moody's top Aa1 rating of the country's bond issues in foreigncurrency fully reflects Belgium's integrated position in theEU, its significant improvements in fiscal and externalbalances over the past few years, its economic union with thefinancial powerhouse of Luxembourg, as well as the slowdown inexternal debt growth. The Belgian government does notexperience any major problems in obtaining new loans on thelocal credit market. Because of the reform of monetary policyin January 1991, as well as greater independence granted in1993 to the National Bank of Belgium (NBB), direct financing inBelgian francs by the Treasury through the central bank hasbecome impossible. The Treasury retains only a $ 500 millioncredit facility with the NBB for day-to-day cash managementpurposes. The contracting of foreign currency loans by theBelgian government has also been restricted. Such borrowing ispossible only in consultation with the NBB, which ensures thatthese loans do not compromise the effectiveness of the exchangerate policy. As a member of the G-10 group of leading financial nations,Belgium participates actively in the IMF, the World Bank, theEBRD and the Paris Club. Belgium is a significant donornation, and it closely follows development and debt issues,particularly with respect to Zaire (where development aid flowsare frozen) and some other African nations.5. Significant Barriers to U.S. Exports With the beginning of the EU's single market, Belgium hasimplemented most, but not all, of the trade and investmentrules necessary to harmonize with the rules of the other EUmember countries. Thus, the potential for U.S. exporters totake advantage of the vastly expanded EU market throughinvestments or sales in Belgium has grown significantly. Some barriers to services and commodity trade still exist,however, including: Telecommunications: The Belgian telecommunications market,with its state monopoly of the basic telephone network, hasshown recently a greater degree of openness than in the past.A second cellular license will be issued before the end of1994, the yellow pages have been opened up to competition(albeit both under EU pressure) and the search is on for astrategic partner for Belgacom, the public telephone operator.However, foreign suppliers of equipment still complain thatthey face an unequal battle with the 'national champions'. Ecotaxes: The Belgian government has passed a series ofecotaxes, in order to redirect consumer buying patterns awayfrom environmentally damaging materials (as defined by thegreen parties, which supported the government coalition'sefforts to revise the constitution and create a federalstate). These taxes will possibly raise costs for U.S.exporters, since U.S. companies selling into the Belgian marketmust adapt to the phased-in implementation of these taxes,which may add more costs to U.S. producers forced to adaptworldwide products to varying EU environmental standards. Belgian Subsidies to Airbus Participants: Since theinception of the Airbus project in Europe, Belgian companieshave participated as subcontractors to the main German andFrench producers of the aircraft. In the past, Belgian publicproduction supports for Airbus contractors have includedsubsidies for both recurring and non-recurring costs. Cashadvances were halted in 1991, though support continues today inthe form of a guaranteed exchange rate designed to compensateBelgian contractors for the decline in the BF/dollar rate. Theprecise level of the subsidy depends on the equipment beingsupplied, the Airbus aircraft type, and the degree of Belgianfederal and regional government participation. Between 1978and 1991, Belgian federal and regional authorities contributedan estimated $167 million to Belgian Airbus componentmanufacturers participating in the Belairbus consortium. In theperiod 1992-1998, Belgian governments have pledged $392 millionin total support. While federal supports are scheduled to end,regional government subsidies are likely to continue and evenrise in the future, despite federal government commitments tocontrol them. This, of course, depends on Belgian industryreceiving continued work from the Airbus consortium. Regionalization: The devolution of various centralgovernment powers to the three regions of Belgium isaccelerating. The regions already have considerable influenceover educational and environmental matters and control most ofthe subsidies and investment incentives given to both domesticand foreign business. At some point, it is likely that theregions will press for taxing authority to raise revenues, inorder to meet their added responsibilities. There isinconsistent enforcement of environment regulations among theregions, which may lead to a less favorable investment climatefor U.S. business in some parts of the country. The regionshave promised to take steps to avoid nontransparency andconflicting jurisdictions. Opening the Retail Service Sector to U.S. Firms: During1993 and 1994, the large U.S. retail chain, Toys R Us, hasexperienced considerable difficulty in obtaining permits toopen three outlets in Belgium. Current legislation is designedto protect the small shopkeeper in Belgium and has a decidedlynontransparent and protectionist bent. While Belgian retailersalso suffer from the same restrictions, their existing sitesgive them strong market share and power in local markets. ToysR Us officials want to continue to open outlets in Belgium andare concerned that strict enforcement of the retail law willprevent them from doing so. Military Offset Programs: Belgian military investmentprograms frequently contain offset clauses, whereby a certainamount of the contract needs to be performed in Belgium, eitherdirectly (i.e. direct compensation on the sale) or indirectly(i.e. by giving Belgian subcontractors a share of unrelatedcontracts). The offset programs are complicated because of therequired regional breakdowns: 53 percent must go to Flanders,38 percent to Wallonia and 9 percent to Brussels. The numberof military contracts is dwindling, however, as Belgianmilitary spending declines. Broadcasting and Motion Pictures: Belgium voted againstthe EU broadcasting directive (which required high percentagesof European programs) because its provisions were not, in thecountry's view, strong enough to protect the fledgling filmindustry in Flanders. The Flemish (Dutch-speaking) region andWalloon (French-speaking) community of Belgium have localcontent broadcasting requirements for private televisionstations operating in those areas. The EU has taken theWalloon and Flemish communities to the European Court ofJustice concerning these requirements. In 1993 the Francophonecommunity led an effort to exclude the U.S. TNT cartoon channelfrom cable systems in all three regions. A Brussels courtsubsequently required the broadcasting of TNT in the Brusselsregion. Similar difficulties await NBC and Viacom, when theytry to enter the Flemish market in early 1995 with their TV4channel.6. Export Subsidies Policies There are no direct export subsidies offered by theGovernment of Belgium to industrial and commercial entities inthe country, but the Government does conduct an active programof trade promotion. This trade promotion activity (subsidiesfor participation in foreign fairs and the compilation ofmarket research reports), together with a social expenditurebreak (a reduction of social security contributions byemployers, and generous rules for cyclical layoffs) are offeredto both domestic and foreign companies in export sectors, andthey may come close to the definition of a subsidy in the caseof a company engaged in exporting.7. Protection of U.S. Intellectual Property Belgium is party to the major intellectual propertyagreements, including the Paris, Berne and Universal CopyrightConventions, and the Patent Cooperation Treaty. Nevertheless,an estimated 25 percent of Belgium's video cassette and compactdisc markets are composed of pirated cassettes. On June 30, 1994, the Belgian Senate gave its finalapproval of the revised Belgian copyright law. The old lawdated from 1886. National treatment standards were introducedin the blank tape levy provisions of the new law, replacingreciprocity standards. Problems regarding first fixation andnon-assignability were also resolved. The final law statesthat authors will receive national treatment, and allows forsufficient manoeuvrability in neighbouring rights. It isestimated that U.S. authors and producers will receive some $7million annually from the proceeds of the blank tape levy inBelgium. Patents: A Belgian patent can be obtained for a maximumperiod of twenty years and is issued only after the performanceof a novelty examination. Trademarks: The Benelux Convention on Trademarks, signedin Brussels in 1962, established a joint process for theregistration of trademarks for Belgium, Luxembourg, and theNetherlands. Product trademarks are available from the BeneluxTrademark Office in The Hague. This trademark protection isvalid for ten years, renewable for successive ten-yearperiods. The Benelux Office of Designs and Models will grantregistration of industrial designs for 50 years of protection.International deposit of industrial designs under the auspicesof World Intellectual Property Organization (WIPO) is alsoavailable.8. Worker Rights a. The Right Of Association Belgium has a long tradition of democratic trade unions.Workers have the right to associate freely, hold free electionsand strike. Unions striking or protesting government policiesor actions are free from harassment and persecution.Anti-union actions before a union is legally registered areeffectively prohibited. Labor unions are independent of thegovernment but have important informal links with and influenceon several major political parties. Belgian unions are free toaffiliate with and are affiliated with the major internationallabor bodies. In the provision of essential public services,public employees' right to strike is implicitly recognized.Public employees may and often do strike. Laws andregulations, effectively enforced, prohibit retribution againststrikers and union leaders. b. The Right To Organize and Bargain Collectively The right to organize and bargain collectively isrecognized and exercised freely. Management and unionsnegotiate a nationwide collective bargaining agreement, whichestablishes the framework for negotiations at plant and branchlevels. The right to due process and judicial review areguaranteed for all protected union activity. Belgian lawprohibits discrimination against union members and organizersand provides special protection against termination ofcontracts of shop stewards and members of workers' councils andof health and safety committees. Employers found guilty ofsuch discrimination are required to reinstate workers.Effective mechanisms exist for adjudicating disputes betweenlabor and management. Belgium maintains a system of labortribunals and regular courts which hear disputes arising fromlabor contracts, collective bargaining agreements, and otherlabor matters. Belgium has no export processing zones. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is illegal and does not occur. d. Minimum Age for Employment of Children The minimum age for employment of children is 15, butschooling is compulsory until the age of 18. Youth between theages of 15 and 18 can participate in part-time work/part-timestudy programs. Students can also sign summer labor contractsof up to 30 days. During that period, they can work the samenumber of hours as adults. The labor courts effectivelymonitor compliance with nationals laws and standards. e. Acceptable Conditions of Work The current monthly national minimum wage rate for workersage 22 and over is 42,469 Belgian francs, effective as of June1994. Based on the exchange rate of October 19, 1994, this isequivalent to $ 1,374. Workers between 18 and 21 can be paidless than minimum wage. 18-year-olds can be paid 82 percent ofthe national minimum wage, 19-year-olds 88 percent, and20-year-olds 94 percent. Minimum wage rates in the privatesector are established by nation-wide labor/managementnegotiations. In the public sector, the minimum wage isdetermined in negotiations between the government and thepublic service unions. Regular cost of living adjustments aremade during the course of each year to the basic minimum wagerate. The Ministry of Labor effectively enforces minimum-wagelaws. A maximum 40-hour workweek which provides at least one24-hour rest period is mandated by law, although manycollective bargaining agreements have set shorter work weeks.The law requires overtime payment for hours worked in excess ofa regular workweek. Excessive compulsory overtime isprohibited. These laws are enforced effectively.Comprehensive health and safety legislation is supplemented bycollective bargaining agreements on safety issues. Workershave the right to remove themselves from situations whichendanger their health or safety without jeopardy to theircontinued employment, and Belgian law protects workers who filecomplaints about such situations. The Labor Ministryimplements health and safety legislation through a team ofinspectors and determines whether workers qualify fordisability and medical benefits. Health and safety committeesare mandated by law in companies with more than 50 employeesand by works councils in companies with more than 100employees. The Ministry of Labor effectively monitorscompliance with national health and safety laws and standards. f. Rights in Sectors with U.S. Investment</text>
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<text>U.S. DEPARTMENT OF STATEBELARUS: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS BELARUS Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP Growth 2/ -10 -9 -24Labor Force (000s) 4,887.4 4,823.7 4,608.0Unemployment (pct.) 0.5 1.4 2.0Money and Prices: (annual percentage growth)Money Supply (bil. rubles) N/A 3,748 3,470Base Interest Rate N/A 310 310Retail Inflation 693.5 517.1 283.7Wholesale Inflation 1,627.5 936.8 327.9Exchange Rate 341 3,160 2,241 /3Trade and Balance of Payments: (USD millions)Total Exports (FOB) N/A 2,941.0 2,556.0 Exports to U.S. 43.0 39.1 37.5Total Imports (CIF) /4 N/A 3,216.0 3,193.0 Imports from U.S. 91.9 87.3 37.8Trade Balance N/A -275.0 -636.0 Trade Balance with U.S. -48.6 -48.2 -0.26Aid from U.S. 38.6 60.0 N/AExternal Public Debt /5 N/A 890 1,652Debt Service Payments (paid) N/A 2 108N/A--Not available.1/ January-September 1994.2/ National Bank base rate for loans to commercial banks.3/ Average exchange rate through September 1, taking intoaccount the August 20 denomination. Exchange rate onDecember 1 was 9,100 Belarusian rubles:$1.00.3/ Merchandise only - does not include energy imports.4/ Does not include over $450 million debt to Russia for energy.1. General Policy Framework Belarus formally declared independence on July 27, 1991.With Russia and Ukraine, Belarus was a founding member of theCommonwealth of Independent States (CIS) in December 1991. InMarch 1994, the parliament passed Belarus' first post-Sovietconstitution, building the framework for a government with astrong executive branch. In July 1994, Alexander Lukashenkowas elected president of Belarus. Economic policy is directedby the president's administration through the Cabinet ofMinisters, led by Prime Minister Chigir. Belarus has declared its intention to create a"socially-oriented market economy," but the pace of reform inBelarus has been slow. The delay in implementing acomprehensive program of economic reforms has been blamed onthe government's fear of possible social unrest caused bydecreased living standards and unemployment. In October, theparliament approved the president's "plan of urgent measures"for the Belarusian economy. Like the plan for 1993 and prioryears, October's plan calls for increased reliance on marketmechanisms, but maintains central control over key marketsectors, including agriculture. The plan has produced someencouraging results thus far, including removal of energysubsidies to state-owned enterprises, and cutting offelectricity and gas supplies to enterprises which have not paidtheir share of Belarus' arrears to Russia for energy, which nowtotal over $450 million. The Government of Belarus recentlycame to agreement with the IMF on a standby arrangement, to befinanced with a second Structural Transformation Facility (STF)loan and an upper credit tranche. Prior actions for thisprogram included significant food price liberalization.Unfortunately, the government delayed the price liberalizationand damaged the credibility of its new reform drive. Apledging session for the program did not yield sufficient donorcountry support and IMF Board consideration of the program wasdelayed from the end of December into January 1995 while theIMF tries to adjust the program and seek additional donorsupport to close the balance of payments gap. Belarus has a diversified economy, which during theSoviet-era gave Belarus one of the highest standards of livingin the former Soviet Union. Belarus can meet most of its ownbasic food needs, with the exception of feed grains, sugar andvegetable oil. The agricultural sector accounts for anestimated 26 percent of net material product (NMP) and reliesheavily on livestock, which contributes about 60 percent of thesector's NMP. The industrial sector is biased toward heavyindustry, with concentration in machine building, electronics,chemicals, defense-related production, and constructionmaterials. Virtually all enterprises are state-owned. The industrial sector continues to experience major supply,demand, and price shocks as it relies on other CIS countries tosupply about 70 percent of its raw materials and to absorb morethan 40 percent of Belarus' output. As prices for rawmaterials approach world market levels, thus causing demand toslacken, Belarus' industrial production continues to fall.Despite past reform efforts, the military complex is in need ofvast restructuring which will require investment as well aschanges in operations and ownership. The economy is energy-intensive due to traditionally lowenergy prices. More than 90 percent of primary energyconsumption is met by imports. Belarus' arrears for energysupplies from Russia, its primary supplier, now exceed $450million. Belarus also faces a number of environmental problemsrelated to the Chernobyl accident and its heavy industrialbase. The Government of Belarus claims that over 20 percent ofits budget goes to Chernobyl-related activities. Agriculturalactivity is still restricted in many areas damaged by Chernobyl. Fiscal and Monetary Policies: The Government of Belarusallowed itself a budget deficit of no more than six percent ofgovernment expenditures. The Central Bank is authorized by lawto issue credits up to four percent of gross domestic product.The minimum wage was raised three times in the first threequarters of 1994. Since all other government wages, pensionsand taxes are pegged to the minimum wage, slight changes havefar-reaching impact. The National Bank of Belarus (NBB) is a weak financialinstitution hampered by a lack of technical and financialexpertise, as well as by political interference. However,National Bank Chairman Bogdankevich, though not immune topolitical influence, is considered to be a positive voice forreform in Belarus. The main instruments of monetary control inBelarus are the volume and cost of NBB lending to banks,reserve requirements, and restrictions on interest rates.Establishing monetary control is hindered by the practice ofmonetizing the fiscal deficit and the past practice ofcancelling outright the outstanding debts to stateenterprises. The refinance rate of the NBB serves as anindirect subsidy to state enterprises, as the rate is lowerthan commercial credit or the inflation rate. Minimal regulation of the banking industry in thiscredit-starved republic has led to a small bank boom.Forty-four commercial banks currently exist in Belarus, onewith as many as 20 branch offices. New regulations have beenintroduced that are intended to institute new minimum reserverequirements and encourage saving. Although the National Bankno longer cancels outright loans to state enterprises, it stillmonetizes the government deficit, thwarting efforts at monetarycontrol. Belarus joined the International Monetary Fund (IMF), WorldBank and the European Bank for Reconstruction and Development(EBRD) in 1992. In late 1994, Belarus reached agreement withthe IMF on a program of market reforms, making the countryeligible for a stabilization loan of $100 million, as well as astand-by credit of $180 million. The agreement calls for astrict timetable for moving toward a market economy. The U.S.government and the EBRD have capitalized investment funds atnearly $200 million targeted at small and medium-sizedbusinesses. Belarus was granted GATT observer status in 1992.2. Exchange Rate Policy In October of 1992, Belarus created the "Belarusian rubel"to supplement increasingly scarce cash Soviet rubles incirculation. When Russia withdrew Soviet rubles in July 1993,the "rubel" became the de facto national currency. Aftercontinued attempts at forming a monetary union with Russiafailed to produce acceptable terms, Belarus gave up on theeffort and declared the rubel the national currency. Allgovernment obligations must now, by law, be paid in thenational currency. Belarus has announced that, beginningJanuary 1, 1995, all retail trade must be conducted inBelarusian rubels. Licenses for continued trade in hardcurrency are to be strictly controlled. In August, after losing over 90 percent of its valueagainst the Russian ruble in the two years since itsintroduction, the Government of Belarus revalued the rubel toone-tenth of its former value, reducing all denominations ofbank notes, non-cash deposits and prices by one zero. However,in the four months following this "currency reform," inflationremains high and the rubel has again lost over two-thirds ofits value.3. Structural Policies The government has stated that it is anxious to attractforeign investment and has introduced a series of reforms toimprove the investment climate. The Supreme Soviet has passedlegislation regulating bankruptcy, leasing, and enterprises,but implementation remains problematic. The process of privatization continues to move slowlyforward in Belarus. The Minister of Privatization claims thatof all state-owned enterprises eligible for privatization, tenpercent are now in private hands. A presidential decree onprivatization is expected to be issued by the end of 1994.4. Significant Barriers to U.S. Exports The tax code for foreign-owned businesses has not changedsignificantly in the last three years. Despite more thantwenty separate taxes on foreign-owned businesses, theGovernment of Belarus has instituted legislation to attractforeign investment. Joint ventures with more than30 percent foreign ownership are entitled to export productswithout a license and pay no tax on profits for three yearsafter the company earns its first profits, if products aremanufactured by joint ventures in Belarus. If the companysells foods or services of third parties -- so-called"middleman activity" -- the tax holiday on profits does notapply. Hard currency earnings from the export of a 30 percentforeign-owned joint venture can be disposed of by theenterprise after payment of appropriate taxes. These taxes include: a) individual income tax; b)value-added tax (20 percent); c) excise tax, if the companyproduces specified goods, e.g. cigarettes and alcohol; d) realestate and land taxes; e) tax on the use of natural resourcesdepending on the volume of natural resources extracted and onpolluting substances emitted or disposed of into theenvironment; and f) fuel tax. Belarusian law forbids 100 percent ownership by foreignersof property in Belarus. To attract some foreign investors,however, Belarus allows foreigners to obtain property inBelarus under a 99-year lease. The government has alsoindicated that the president might make special exception toallow foreigners 100 percent ownership. To date, there is no law on currency regulation in Belarus,although a new law on the use of hard currency is due to gointo force in January 1995. Belarus is still operating under adecree issued by the Supreme Soviet at the end of 1992 entitled"Temporary Rules for Hard Currency Regulation and theConducting of Operations with Hard Currency on the Territory ofthe Republic of Belarus." Under this decree, hard currencyearnings from the export of products made by an enterprise withat least 30 percent foreign investment remain at the disposalof the enterprise. All other enterprises must sell 20 percentof their hard currency earnings to the Government of Belarusand pay a 10 percent hard currency revenue tax. The United States is working on several levels to increasetrade and investment in Belarus. In the spring of 1993, theU.S.-Belarus trade agreement, providing reciprocalmost-favored-nation status, went into force. President Clintonsigned the Bilateral Investment Treaty during his visit toBelarus in January 1994. This treaty, when ratified by theUnited States (Belarus has already ratified it), will provide alegal framework to stimulate investment. A bilateral taxtreaty intended to provide relief to businesses from doubletaxation is also being developed. An Overseas PrivateInvestment Corporation (OPIC) incentive agreement, which allowsOPIC to offer political risk insurance and other programs toU.S. investors in Belarus, has also been concluded and is inforce. The U.S. Export-Import Bank also has active programs inBelarus. Once ratified, the U.S.-Belarus bilateral investmenttreaty will provide substantial assurances to U.S. investments.5. Export Subsidies Policies One of the legacies of a centrally-planned economy isgovernment subsidization of state-owned enterprises. InBelarus these subsidies are aimed at maintaining production andemployment rather than being specifically targeted atsupporting exports.6. Protection of U.S. Intellectual Property After the breakup of the Soviet Union, Belarus acceded tothe World Intellectual Property Organization (WIPO). Piracy ofprinted material, video and sound recordings, while prohibitedby law, continues. The U.S.-Belarus trade agreement includessome provisions on the protection of intellectual property.7. Worker Rights The independent trade union movement is developing veryslowly. The largest trade union in Belarus, the Federation ofTrade Unions of Belarus, consisting of five million members, isnot considered an independent organization because it stillfollows government directives. However, as Belarus progressestoward a market economy, unions are becoming more vocal indemanding social protections formally provided under the Sovietsystem. a. The Right of Association The new Belarusian constitution, passed in March 1994,allows the formation of independent trade unions. However,workers are often automatically inducted into thegovernment-affiliated Federation of Trade Unions. TheFederation's active role in controlling social programs, suchas pension funds, will impede the growth of truly independenttrade unions. b. The Right to Organize and Bargain Collectively The Belarusian constitution provides the right to organizeand bargain collectively, and bars discrimination against tradeunion organizers. In practice, however, there have beenreported cases of dismissals and threats of loss of employmentagainst independent trade union members. c. Prohibition of Forced or Compulsory Labor The Belarusian constitution explicitly prohibits forced orcompulsory labor. Belarus has ratified one of theInternational Labour Organization's forced labor conventions.However, penal production of manufactured goods exists. d. Minimum Age for Employment of Children Existing law establishes 16 to be the minimum age foremployment. Exceptions are allowed in cases where a family'sprimary wage earner is incapacitated. e. Acceptable Conditions of Work The Supreme Soviet, along with the Cabinet of Ministers,has the responsibility to set a minimum wage which is increasedperiodically in response to inflation. The labor code limitsthe work week to 40 hours, with a required 24 hour restperiod. Many workers, however, find themselves under-employedand are forced to take unpaid leave due to lack of demand forfactory production. The law establishes minimum conditions forwork place safety and employee health. Enforcement of thesestandards is lax. f. Rights in Sectors with U.S. Investment There is no significant U.S. investment in Belarus.</text>
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<text>U.S. DEPARTMENT OF STATEBARBADOS: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRSPetroleum 95Total Manufacturing 7 Food & Kindred Products 3 Chemicals and Allied Products 0 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 2 Transportation Equipment 0 Other Manufacturing 1Wholesale Trade 379Banking (1)Finance/Insurance/Real Estate 88Services (1)Other Industries 0TOTAL ALL INDUSTRIES 644(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEBARBADOS: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS BARBADOS Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994Income, Production and Employment:Real GDP (1985 prices) 422.2 396.0 401.1Nominal GDP (current prices) 1,696.7 1,585.7 1,640.3Real GDP Growth Rate (pct.) -4.0 -5.8 0.8Sectoral Growth Rates: (pct.) Agriculture/Fishing -4.6 -9.2 -7.1 Tourism -9.0 -2.0 3.2 Manufacturing -5.6 -9.3 -0.3 Energy/Gas/Water 3.0 1.3 0.3 Mining/Quarrying 3.1 -9.7 4.2 Construction -7.5 -8.1 2.1 Wholesale/Retail Trade -6.3 -7.9 2.4 Business/General Services -2.4 -5.3 0.9 Transport/Storage/Communication 7.5 -3.5 1.2 Government Services -2.2 -5.0 0.0Population (000s) 262.5 263.1 263.9Nominal Per Cap. GDP (official/$) 5,600 5,150 5,250Nominal Per Cap. GDP (GDP/pop/$) 6,464 6,027 6,216Labor Force (000s) 122.5 124.8 126.3Unemployment Rate (pct.) 17.1 23.0 24.5Money and Prices:Growth in Money Supply (M2/pct.) -4.3 8.2 1.7Prime Lending Rate (pct.) 1/ 14.50 10.75 8.75Retail Price Index (pct. change) 6.3 6.1 1.1Average Annual Exchange Rate (USD/BDs) Official 0.50 0.50 0.50 Parallel 0.50 0.50 0.50Balance of Payments and Trade:Total Exports (FOB) 411.6 382.5 364.0 Exports to U.S. 53.4 62.3 N/ATotal Imports (CIF) 1,394.0 1,048.5 1,153.9 Imports from U.S. 494.1 377.3 N/ATrade Balance -982.5 -665.9 -789.9Current Account Balance -29.9 -137.9 58.7Aid from U.S. 0.7 1.1 N/AAid from Other Countries N/A N/A N/AExternal Central Government Debt 393.8 346.3 330.6Domestic Central Government Debt 556.8 618.3 808.5Total Debt Service Payments (paid) 393.8 346.4 330.6N/A--Not available.1/ End of period.1. General Policy Framework Barbados is a British-style parliamentary democracy. As aresult of the September 1994 general elections, the politicalparty comprising the government is the Barbados Labour Party,headed by Prime Minister Owen Arthur. The official oppositionis the Democratic Labour Party. Seated in Parliament also is amember of the National Democratic Party, as well as a fewindependent Members of Parliament. As a country with a relatively narrow resource base andlimited production structure, Barbados imports much of what itneeds to survive, including energy, food, and most types ofconsumer products. Previous governments have pursued policies-- including high tariffs, restrictions on entry into certainsectors of business activity (such as telecommunications andbroadcasting), and laws which restrict the entry ofsubsidiaries or branches of foreign retail establishments --whose purpose was to protect local businesses from externalcompetition. Those policies have had the unintended effects ofmaking both manufacturing and many services sectorsuncompetitive in terms of price (because inputs are soexpensive) and contributing to the generally high-cost wageenvironment in Barbados. Early indications are, however, thatin its efforts to reduce the high unemployment rate, the newBarbados Labor Party government will act to lower the costs ofdoing business here. In October 1994, the new governmentannounced that businesses in the manufacturing, agricultural,and fishing sectors will be able to import all inputs free ofall duties and taxes. The policy change should result inhigher levels of goods imports, a development U.S. exporterswell may be able to take advantage of. In general, Barbados' trade policy seeks to stimulateexports of goods and services (tourism and offshore financialservices), encourage domestic light manufacturing, maintain thegovernment's revenue base through direct taxation, and activelymanage foreign exchange reserves. In 1993, the United Stateswas the leading source of imports into Barbados, followed byCARICOM, the United Kingdom, and Canada. Barbadian attitudestoward the United States and toward U.S. business are alsogenerally favorable, as evidenced by the approximately 26percent of the import market commanded by goods from the UnitedStates. According to U.S. Department of Commerce figures, U.S.exports to Barbados grew about 13.9 percent in 1993, to U.S.$145.5 million. Barbados ratified the Uruguay Round Agreements and became afounding member of the World Trade Organization (WTO) onJanuary 1, 1995.2. Exchange Rate Policy Since 1975, the Barbadian dollar has been pegged to theUnited States dollar at a fixed rate of Bds. $2.00 to U.S.$1.00. Despite intermittent problems in maintaining adequatelevels of international reserves, both of the major politicalparties have formed governments committed to avoiding adevaluation of the currency. Any impact of this policy on U.S.exports is probably positive, at least in the short term, sinceBarbadians can buy more United States goods and services thanthey would be able to if the currency were devalued. Someeconomists hypothesize, however, that the Barbadian currency isovervalued, which contributes to making Barbadian manufacturesuncompetitive in terms of price (and perhaps quality) inmarkets outside Barbados and restricts the long-term potentialoutput of the economy -- which could have implications forimport volumes in the long term. The Ministry of Finance makes foreign exchange controlpolicy, which is then administered by the Central Bank ofBarbados (CBB) through its Exchange Control Division.Individuals may convert the hard-currency equivalent of U.S.$2,500 per year without special permission, if they aretraveling outside Barbados, by applying to a commercial bank.Amounts in excess of U.S. $2,500 may be obtained uponapplication to the CBB. Profits and capital from foreigndirect investment usually may be repatriated if the investmentwas registered with the bank at the time the investment wasmade. The CBB may limit or delay conversions of fundsdepending on the level of international reserves under itscontrol.3. Structural Policies Although the Barbadian economy is generally freemarket-oriented, the government controls a relatively largepublic sector, including a number of "parastatal" entities.Pricing of goods is generally left to the market, although theprices of certain food staples, as well as utility and publictransportation rates, are set by the government. Thegovernment subsidizes losses incurred by the entities -- suchas the monopoly dairy and the public bus system -- which itpartially or wholly owns, but the effect of those subsidies onU.S. exports is probably minimal. For example, milk importsface high tariffs, as they do in most countries. However, evenif imports were liberalized, U.S. exporters likely would facestrong competition from many other countries with milksurpluses, such as from those in the European Union. Bulkusers of utilities -- such as industry -- are eligible forresource discounts, but the trade effect of the subsidy isprobably negligible on international markets, because of thegenerally higher costs of production Barbadian industry faces. The 1992 and 1993 reform of the direct tax system broadenedthe tax base while lowering maximum rates -- a change whichresulted in an overall lower level of government revenues inthe first half of 1994 (see section four). The previousgovernment announced in April 1994 that a value-added tax (VAT)would be initiated in April 1995, which, among other things,would replace many of the indirect taxes -- such as consumptiontaxes and stamp duties on imports -- which now exist. The newgovernment has not yet announced whether the VAT will beimplemented according to the previous government's plan. In October 1994, the new government announced thatbusinesses in the manufacturing, agricultural, and fishingsectors will be able to import all inputs free of all dutiesand taxes. The policy change should result in higher levels ofgoods imports, a development U.S. exporters may be able to takeadvantage of. In regard to purchases of consumer household durables, thegovernment has not yet announced its policy on the amount ofdown payment needed, if any, to purchases these big-ticketitems, many of which are imported from the United States. Atone point, the previous government sought to constrain importsby making consumers put hefty down payments on installmentpurchases of durables. Currently, no down payment requirementis in place.4. Debt Management Policies The overall deficit on central government operationswidened slightly during the first half of 1994, from about onepercent at the end of 1993 to between one and two percent ofGross Domestic Product (GDP) at the end of June 1994. Theincreased deficit was due to a decline in revenues -- a resultof the 1993 tax reform which reduced direct levies -- and notto increased expenditures. The decline in government revenuestook place even as real GDP rose 3.8 percent on an annual basisin the first six months of the 1994 (from 0.8 percent in1993). The Barbadian government has continued its concertedeffort to repay foreign debt, the levels of which have declinedsteadily for over three years. As in the recent past, anincreasing share of debt is being financed locally. As aresult of high liquidity in the banking system, commercialbanks and other local buyers were the main source of new creditto the government to finance the deficit during the first halfof 1994. Previously, the deficit had been financed primarilythrough purchases by the National Insurance Scheme (akin to theSocial Security System) of Treasury bonds. As a result of thegovernment's repayments of its external debt, net foreignfinancing in the January - June 1994 period was negligible. With the September 1994 election of a new (Barbados LabourParty) government, it seems unlikely that Barbados willwillingly participate in a formal International Monetary Fund(IMF) program in order to obtain funds for structuraladjustment in the near- to mid-term. The new Prime Ministerhas repeatedly said that he will not run his country accordingto IMF dictates. In the autumn of 1991 (under the formerDemocratic Labour Party government), Barbados was compelled toask the IMF for funds to handle a severe shortfall ofinternational reserves. In exchange, the IMF required Barbadosto institute economic austerity measures to reduce governmentspending in ways that were politically unpopular, includingcutting spending on public sector wages. Government officialshave expressed their desire to continue to work with theInter-American Development Bank and the Caribbean DevelopmentBank on essential infrastructure projects, and relationsbetween the Government of Barbados and those institutionsappear cordial.5. Significant Barriers to U.S. Exports The introduction of the CARICOM Common External Tariffseveral years ago will continue to disadvantage imports fromcountries which are not CARICOM (Caribbean Community) memberstates -- including exports from the United States. InFebruary 1994, Barbados eliminated its "negative list" of goodswhich could not be imported or for which an import license wasnecessary, and replaced it with a higher duty. The benefit ofa duty replacing an import license is that the trade barrier istransparent; previously, there was no way to foretell whetherthe responsible Minister would approve a particular importlicense application. There is no provision of Barbadian lawthat discriminates against U.S. exports in or of itself. U.S. standards are generally acceptable in Barbados; theAmerican Embassy is not aware of any cases in which Barbadianstandards have acted as a trade barrier to U.S. goods exports.Barbados is a member of the GATT/Tokyo Round Agreement onStandards (Standards Code). Barbados permits full ownership by foreigners ofinvestments and property, although certain sectors are reservedfor citizens of Barbados. There are no maximum equity positionrestrictions on foreign ownership of a local enterprise orparticipation in a joint venture. Non-residents needpermission from the Central Bank to purchase real property orstock which is traded on the Securities Exchange of Barbados,but permission is usually granted. A property transfer tax islevied on real property or stock transactions conducted byforeigners. The Barbadian government must approve a license in orderfor foreigners to invest in utilities, broadcasting, banking,and insurance enterprises. Previous governments denied allrequests by investors, both domestic and foreign, to open atelevision station to compete with the government-ownedmonopoly, but the current government has indicated that atleast one new television venture will be licensed. Inaddition, the government has licensed only one firm to providebasic (local) telephone service and another to providelong-distance telephone service. Banking and insuranceservices are open to foreign direct investment provided therequired level of capital is invested and prior governmentapproval is obtained. Stock exchange membership (for traders)is closed to non-Barbadians, and only firms long-established inBarbados may be traded on the local securities exchange. Thissituation may change as the new government assesses ways tobroaden the possibilities for attracting foreign directinvestment to Barbados. Other services (such as travel) aregenerally open to foreign investment, although the ministriesresponsible for trade and for labor matters must, by law,determine if the competition of another service provider wouldbe detrimental to the financial health of currently-establishedBarbadian businesses. The government requires a Barbadian citizen to apply formany of the requisite licenses that allow enterprises tooperate. Thus, a foreign-owned firm might have to hire aBarbadian. Work permits for foreigners usually are grantedonly when no Barbadian is qualified to perform. Administrativeproceedings involving Customs clearances are sometimesburdensome. While no special documents are required,occasional capricious or dilatory judgments by officials canslow the importation of essential inputs. Government procurement is not handled in a transparentmanner; both sole-source and competitive contracts are tenderedand the government is not obliged to accept the lowest, or any,bid for public works projects or for critical procurements.The government must "Buy Barbados" where it can, but theEmbassy has received no complaints by U.S. businesses ofdiscrimination against U.S. goods by Barbadian goods. Neitheroffsets nor countertrade is used in making procurements.6. Export Subsidies Policies Barbados gives priority to investments which intend tomanufacture, especially for export. Incentives formanufacturing are available under the Fiscal Incentives Act(1974), which does not discriminate between foreign andnational ownership. Any manufacturer may qualify for a maximum10-year tax holiday by satisfying a value-added criterion or asa so-called "enclave" (international business company, or IBC)under Barbadian law, which, by definition, exports 100 percentof its output. IBCs enjoy the most advantageous tax treatment,because the higher the level of gains and profits, the lowerthe tax rate. IBC tax rates range from a high of three percentto a low of one percent of net profits. However, under theIncome Tax Act, any manufacturing company in Barbados --whether locally- or foreign-owned -- may enjoy tax reductionswhich vary according to the percentage of its profits derivedfrom export income. If a manufacturer derives more than 80percent of its profits from exports, its effective tax rate canbe reduced from a maximum of 26 percent to 2.8 percent. Commercial and development bank financing is restricted toBarbadian citizens, but because interest rates in Barbados aregenerally higher than those in the United States, the subsidyelement likely is nil. The Barbados Investment and DevelopmentCorporation generally limits its export promotion efforts tofirms owned by Barbadians, although it may make exceptions forfirms which employ Barbadian citizens regardless of ownership.In addition, the government offers export guarantee schemesoffering letters of credit and credit insurance for Barbadianexporters. Also (as mentioned previously), the new Barbadosgovernment has announced that businesses in the manufacturing,agricultural, and fishing sectors will be able to import allinputs free of all duties and taxes, a measure designed tostimulate the productive sectors in Barbados.7. Protection of U.S. Intellectual Property The Government of Barbados has made efforts in recent yearsto improve the legal regime to protect, as well as to acquireand dispose of, all property rights, including intellectualproperty rights (IPR). Barbados is a signatory of the ParisConvention of Intellectual Property Rights and the Madridaccords, and is a member of the World Intellectual PropertyOrganization (WIPO). The law of Barbados does not promotedomestic industries at the expense of foreign industrial andintellectual property rights holders. However, Barbados hasonly limited experience with IPR matters and very fewindustrial designs or patents have been registered here. Therehave been no recent court challenges or settlements for patent,trademark, or copyright infringements although infringement iscommonplace in certain sub-sectors of the economy (e.g.,rentals and sales of films on videocassettes, tee-shirtproduction of unlicensed copyrighted images, unlicensed use oftrademarks as store names, software piracy, satellite signalpiracy). Enforcement has not been an active priority ofgovernment, although the Government may initiate somechallenges in court in late 1994 or the first half of 1995.Private parties may also initiate court challenges in that timeframe. Separate statutes govern and regulate IPR protection. TheIndustrial Designs Act provides for registration of industrialdesigns for exclusive use by the registrant for five years,which may be renewed for two additional consecutive five yearperiods. The Patents Act of 1981 allows for protection ofpatents for 14 years. The Trademarks Act of 1981 protectsmarks initially for ten years with renewals possible for tenyear periods. The Copyright Act protects copyrights during thelife of the author and for seven years thereafter. There is nospecific statutory reference to trade secrets or semiconductorchip layout designs. In 1990, a WIPO consultant maderecommendations for changes in Barbados' IPR statutes andadministrative and enforcement procedures which are still beingconsidered. Embassy cannot estimate lost U.S. importopportunities related to local IPR protection standards.8. Worker Rights a. The Right of Association Barbados boasts one of the most advanced trade unionenvironments in the hemisphere. Workers have the right to formand belong to trade unions and to strike, and they freelyexercise these rights. There are two major unions and severalsmaller ones, representing various sectors of labor. The CivilService Union, called the National Union of Public Workers(NUPW), is completely independent of any political party or thegovernment. The General Secretary of the NUPW was a candidateof the National Democratic party, while the former Director ofEducation was a candidate for the Democratic Labor Party and aCabinet Minister. The largest union, The Barbados Workers'Union (BWU), was historically closely associated with thegoverning Democratic Labor Party. However, in February 1994,Leroy Trotman, BWU General Secretary and President of theCaribbean Congress of Labor, resigned from the DLP whileremaining in Parliament as an independent representative.Trotman resigned because the public and especially unionmembers perceived a conflict between his role as union leaderand his role as parliamentarian. The latter required him tosupport the government's economic stabilization and austeritymeasures which were viewed as setting back union achievementsand harming workers. Nevertheless, one of Trotman's deputiesin the BWU remained a government backbencher in parliamentuntil he was voted out of office in September, 1994. Trade unionists' personal and property rights are givenfull protection under law. Under a long-standing law, strikesare prohibited in the water, gas and electricity sectors,.However, there have been several cases of work stoppages in theelectricity sector. All other private and public sectoremployees are permitted to strike. There were fewer industrial actions in 1993 than 1992,despite severe cutbacks in personnel in the private sector. Inthe public sector, wage cuts, layoffs, and efforts to privatizestate-run enterprises continued. Public, private, and unionsector leaders in the summer of 1993 signed a tripartite wagepolicy accord that established a two- year wage freeze. Anyincrease in wages will be tied to productivity increases byparticular workers or by particular enterprises. Criticsargued that the wage policy undermined the right of unions tobargain collectively because it forestalled any newcompany-wide or industry-wide negotiations for wage and benefitincreases. Supporters of the tripartite pact hailed it as acooperative solution to the recession which prevailed at thetime. Trade Unions are free to form federations and are in factaffiliated with a variety of regional and international labororganizations. Leroy Trotman head of the Barbados Workers'Union, is also President of the ICFTU and President of theCaribbean Congress of Labor. The CCL is the main regionallabor organization; its headquarters are in Bridgetown and itconducts many of its seminars and other programs in Barbados. b. The Right to Organize and Bargain Collectively The right to organize and bargain collectively is providedby law and respected in practice. In 1993, over 25 percent ofthe working population was organized, but a major loss of jobsin the economy has resulted in a reduction in unionmembership. The BWU reported that it alone lost about 2,000members in 1993 in the private and public sectors as a resultof adverse economic conditions. Normally, wages and workingconditions are negotiated through the collective bargainingprocess, but this was influenced by the tripartite wage accorddescribed in Section 8(A). Employers have no legal obligation to recognize unionsunder the Trade Union Act of 1964. But most do so when amajority of their employees signify a desire to be representedby a registered union. The act expressly prohibits employersfrom discriminating against employees for engaging in tradeunion activities. However, there is no law that expressly setsout unfair labor practices by either employers or tradeunions. The courts commonly award monetary compensation butrarely order re-employment. There are no manufacturing or special areas wherecollective bargaining rights are legally or administrativelyimpaired. Barbados has no specially designated exportprocessing zones. c. Prohibition of Forced or Compulsory Labor Force or compulsory labor is prohibited by the constitutionand does not exist. d. Minimum Age for Employment of Children The legal minimum working age of 16 is generally observed.Minimum age limitations are reinforced by compulsory primaryand secondary education policies, which require schoolattendance until age 16. Occasionally, especially amongmigrant worker families, children assist in agriculturalproduction during peak season. The Labor Ministry has a smallcadre of labor inspectors who conduct spot investigations ofenterprises and check records to verify compliance with thelaw. These inspectors are authorized to take legal actionagainst an employer who is found to have underage workers. e. Acceptable Conditions of Work Minimum wages for specified categories of workers areadministratively established and enforce by law. Only twocategories of workers have a formally regulated minimum wage --household domestic workers and shop assistants (entry levelcommercial workers). Household domestics receive a minimumwage of about U.S.$32.50 per week, although in actual labormarket conditions the prevailing wage is almost double thatamount. There are two age-related minimum wage categories forshop assistants. The adult minimum hourly wage for shopassistants is U.S. $ 1.87 per hour; the juvenile minimum wagefor shop assistants is U.S. $1.625 per hour. Agriculturalworkers (i.e., sugar plantation workers) receive a minimum wageas a matter of practice, but such compensation is not found inlegislation. The minimum wage for shop assistants is marginallysufficient to meet minimum living standards; most employeesearn more. In 1992 an International Labor Organization (ILO)Committee of Experts (COE) cited Barbados for not adhering tothe ILO Convention On Equal Remuneration in its wagedifferentials in the sugar industry. The COE admonished thegovernment to ensure the application of the principle of equalremuneration for work of equal value to male and female workersin the sugar industry or to provide further information on jobdescriptions which might justify such wage distinction. Thiscase was not resolved at years' end. The standard legal work week is forty hours in five days,and the law requires overtime payment for hours worked inexcess of that. Barbados accepts ILO conventions, standards,and other sectoral conventions regarding maximum hours ofwork. However, there is no general legislation that covers alloccupations. Workers are guaranteed a minimum of three weeksannual leave., All workers are covered by unemploymentbenefits legislation and by national insurance (SocialSecurity). A comprehensive government-sponsored health programoffers subsidized treatment and medication. Under the Factories Act of 1993, which sets out theofficially recognized occupational safety and health standards,the labor ministry enforces health and safety standards andfollows up to ensure that problems cited are corrected bymanagement. Workers have a limited right to remove themselvesfrom dangerous or hazardous job situations without jeopardizingtheir continued employment. The Factories Act requires that incertain sectors firms employing more than fifty workers set upa safety committee. That committee can challenge the decisionsof management concerning the occupational safety and healthenvironment. Recently, however, trade unions called on thegovernment to increase the number of factory inspectors inorder to enforce existing and proposed safety and healthlegislation more effectively, and to follow up to ensure thatproblems cited are corrected by management. Government-operated corporations in particular were accused of doing a"poor job" in health inspections of government-run corporationsand manufacturing plants as a priority. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category Amount</text>
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<text>U.S. DEPARTMENT OF STATEBANGLADESH: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS BANGLADESH Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1985 prices) 14,054 14,307 14,688Real GDP Growth (pct.) 4.23 4.46 4.90GDP (at current prices) 23.760 24,746 25,983By Sector: 2/ Agriculture 8,209 8,580 9,068 Energy/Water 363 379 N/A Manufacturing 2,140 2,236 2,858 Construction 1,385 1,446 N/A Financial Services 461 482 N/A Other Services 10,850 11,341 N/ANet Exports of Goods & Services -1,403 -1,526 N/AReal Per Capita GDP (1985 prices/USD) 118 119 119Labor Force (000s) 54,300 N/A N/AUnemployment Rate (pct.) N/A N/A N/AMoney and Prices: (annual percentage growth)Money Supply (M2/bil. Taka) 285.3 315.4 351.3Base Interest Rate 9.00 7.00 6.00Personal Saving Rate 3.80 3.80 3.80Retail Inflation 3/ 5.09 1.33 1.67Wholesale Inflation N/A N/A N/AConsumer Price Index 3/ 724.40 734.30 746.2Exchange Rate (USD/Taka) Official 38.15 39.15 40.00 Parallel N/A N/A N/ABalance of Payments and Trade:Total Exports (FOB) 1,901 2,138 2,347 Exports to U.S. 832 732 784 4/Total Imports (CIF) 3,457 3,983 3,905 Imports from U.S. 189 129 100Aid from U.S. 5/ 135 73.5 95.1Aid from Other Countries 1,611 1,675 1,559External Public Debt 12,605 13,178 14,027Debt Service Payments 535.5 505.6 512.4Gold and Foreign Exch. Reserves 1,612 2,125 2,822Trade Balance -1,556 -1,845 -1,558 Trade Balance with U.S. 643 603 604 4/N/A--Not available.1/ Information for Bangladesh fiscal year, July 1-June 30.Data for FY94 is mostly provisional.2/ FY94 sectoral data is estimated on the basis of sectoral GDPcontribution of FY93.3/ Inflation figures are based on Consumer Price Index.4/ Figures are based on Bangladesh Bank calculation on totalamount of commercial bank letter of credit value.5/ Figures are for the October 1-September 30 fiscal year.1. General Policy Framework Bangladesh is one of the world's poorest, most denselypopulated, and least developed nations. With 123 millionpeople and a GDP of $26 billion in Bangladeshi fiscal year 1994(FY94), per capita income (current basis) was $211. However, alow cost of living gives Bangladesh an estimated purchasingpower parity per capita GDP of $1,230. Many factors haveinhibited the growth of Bangladesh's overwhelminglyagricultural economy. These include frequent cyclones andfloods, government interference with the economy, a rapidlygrowing labor force which cannot be absorbed by agriculture, alow level of industrialization, underdeveloped energyresources, and inefficient power supplies. A major policyobjective, feeding the rapidly growing population, is supportedby self-sufficiency in rice production and supplemented bysignificant U.S. wheat exports to Bangladesh under both PL-480programs and commercial sales. Despite political unrest and opposition to some elements ofits economic reforms from those who benefit from the statusquo, Bangladesh's democratically elected government continuedits macroeconomic stabilization program throughout FY94. As aresult, the overall economic condition of the country remainedstable. The GDP growth rate registered 4.9 percent, anincrease over FY93's growth rate of 4.4 percent. Further ratereductions in Bangladesh's tax and tariff regimes and theliberalization of the foreign exchange regime (including fullconvertibility of the taka on the current account) mark majorprogress in the government's drive toward a more open, modern,liberal economy. Inflation remained low during FY94, at 1.7percent. Foreign currency reserves are put at approximately$2.8 billion, sufficient to cover over eight months of imports. Government expenditures, composed of current expendituresand the annual development budget, stayed under tight controlduring FY94. Domestic revenues, buoyed by improved tax revenueperformance, exceeded current expenditure by 31 billion taka(equivalent to $775 million). This surplus provides thegovernment contribution to the country's development budget,termed the "Annual Development Program" (ADP). While mostfunding for the ADP comes from donors, the Finance Ministryclaimed to have maintained Bangladesh's contribution at about33 percent in FY94. Tax revenues reached a record high of 99billion taka ($2,475 million), almost double the amount of FY89. However, the impact of government stabilization and tradeliberalization programs has cooled the ardor for reform amongmany local businessmen. Leaders of major business associationsrepresenting small and medium-sized firms claim that reforms(which increased the competition they face) have hit theirpocketbooks, accounting for a 30 percent drop in sales revenuesince 1991, the year the government initiated the stabilizationprogram. These businessmen argue that current economic reformshave opened Bangladesh to a surge of imports, principally fromIndia, and that reciprocal trade has not occurred. The localmedia have highlighted an apparent increase in smuggling ofIndian salt, sugar, textiles, fruit, leather, livestock,automotive spares, and cement. Rather than evaluateBangladesh's terms of trade or exchange rate policy vis-a-visits neighbors, these trade organizations demand greater tariffprotection for local industries. Using India as an example,they favor the classic protectionist "infant industry" path ofindustrial development, ignoring the urgent need to enhanceproductivity of domestic industries. Given this kind ofthinking on the part of business, combined with a fractiouspolitical environment, progress on the remaining structuralreforms is likely to stall. The microeconomic picture stands in contrast toBangladesh's record of achievement in attaining macroeconomicstability. State presence in the economy continues to be largeand, despite rhetoric to the contrary, privatization has slowedto a virtual standstill. The level of investment from bothprivate and public sources is among the lowest in Asia. Although some liberal investment measures were taken by thegovernment to foster private sector involvement in the energyand telecommunication sectors, the investment climate continuesto be generally poor. Bureaucratic bottlenecks, poorinfrastructure, corruption, labor unrest and a deterioratinglaw and order situation continued to discourage domestic andforeign investors. Investment, stuck at 12 to 13 percent ofGDP in the FY85-FY92 period, increased slowly to over 13percent in FY93 and is expected to reach 14 percent in FY94.It is generally held that only an investment-to-GDP ratio of 17to 18 percent and a GDP growth rate of 6 to 8 percent can beginto make a real difference in lifting Bangladesh out ofpoverty. Bangladesh's current GDP growth rate of 4.9 percent,while good by historical standards, is not high enough to makea real difference to the poorest level of the economy.2. Exchange Rate Policy The Bangladesh Bank follows a semi-flexible exchange ratepolicy, revaluing the currency on the basis of a weightedbasket of economic indicators. The high and rising level offoreign exchange reserves suggests the taka is undervalued.The black market rate is quite close to the official rate andhas been stable. The taka's effective market value isbolstered by the large sum of foreign exchange Bangladeshreceives every year through aid transfers, and by continuedhigh levels of tariff protection and other restrictions onimports. Foreign exchange received as remittances fromoverseas workers (manpower exports) further strengthens thetaka. Noting that the real exchange rate for the taka hasrisen vis-a-vis the exchange rates for the currencies of exportcompetitors such as India and China, some economists andexporters are arguing for more rapid trade liberalization andfurther devaluation. The government has declared the taka tobe fully convertible for current account transactions, and isconsidering full convertibility for capital accounttransactions by December 1994. U.S. products and services have become generally more pricecompetitive in the Bangladesh market to the extent that thevalue of the U.S. dollar has declined against competitornations' currencies. Inbound and outbound foreign investmentflows are too small to affect the exchange rate. Most foreignfirms are able to repatriate profits, dividends, royaltypayments and technical fees without difficulty, provided theappropriate documentation is presented to the Bangladesh Bank.Outbound foreign investment by Bangladeshi nationals requiresgovernment approval and must be in support of exportactivities. Bangladeshi travellers are limited by law totaking no more than $2,500 out of the country per year.3. Structural Policies In 1993, Bangladesh successfully completed theInternational Monetary Fund's three-year Enhanced StructuralAdmustment Facility (ESAF) program, meeting all fiscal andmonetary targets. Money supply growth has been about 10percent in FY93 and FY94. The value added tax (VAT) continuedto generate higher than anticipated revenues for thegovernment, with collections up eight percent in real terms.Government spending has also been curbed through controllingthe level of subsidies provided to several money-losingparastatals, and attempting to shift more central governmentresources towards capital or development expenditures.According to the Central Bank, over the first quarter of FY94Bangladesh actually experienced a bout of deflation. Continuedfiscal discipline coupled with low money supply growth andincreasing banking liquidity kept FY94 inflation at 1.67percent. While Bangladesh met ESAF monetary and fiscal targets,progress on sectoral reforms, backed by multilateraldevelopment banks and bilateral donors, has been halting. Longan easy source of funds for preferred borrowers who did notfeel obliged to repay, the banking sector in Bangladesh isundergoing a wholesale reform effort under the Financial SectorReform Project (FSRP), supported by the U.S. Agency forInternational Development and the World Bank. The FSRP faces adaunting challenge in attempting to convert a bureaucraticallyrun, economically unresponsive network of nationalized banksinto a useful source of capital for entrepreneurs. Insulationfrom market forces permitted the banks to maintain administeredinterest rates and to ignore the bottom line in providing andpricing banking services. The FSRP continued to makeconsiderable progress in repricing banking services andliberalizing interest rates during FY94. Efforts at reform often run afoul of vested interestgroups, such as public sector labor unions or domesticproducers in import-competing industries. The public sectoraccounts for only one-fourth of Bangladesh's industrial output,but it exercises a dominant influence on industry and theeconomy. Most public sector industries, including textiles,jute processing, and sugar processing, are perennial moneylosers, draining the treasury and setting high wages that theirprivate sector counterparts often feel compelled to meet out offear of union action. Moreover, the fact that crucialinfrastructure (power, telecommunications, railroads, and thenational airline) is in the public sector tends to limitprivate sector productivity.4. Debt Management Policies Assessed on the basis of outstanding principal,Bangladesh's external public debt was $14 billion as of June1994, up six percent from the previous year's level of $13.18billion. Given the fact that virtually all of the debt wasprovided on highly concessional terms by bilateral andmultilateral donors, the net present value of the totaloutstanding debt is significantly lower than its face value.Bangladesh currently owes approximately $1,314 million to theUnited States, primarily incurred under the old PL-480 Title Iand III food program. Total medium and long term debtservicing for FY94 was $512 million, an increase over the $506million paid out in FY93.5. Significant Barriers to U.S. Exports Officially, private industrial investment is completelyderegulated and the government has significantly streamlinedthe investment registration process. However, whileregistration has been simplified, domestic and foreigninvestors typically must obtain a series of approvals fromvarious government agencies in order to implement theirprojects. Bureaucratic red tape, compounded by rent-seekingactivity, slows decision-making. The major exception isinvestment in the country's Export Processing Zones (EPZ),located in Chittagong and Dhaka. Investment proposals for theEPZs are processed quickly, and the EPZ administrators takecare of the investor's needs, from tax treatment to utilityhook-ups. Barriers to investment also include the country'slow labor productivity, poor infrastructure, and an uncertainlaw and order situation. The lack of effective commercial lawsmakes it difficult to enforce business contracts. The government has made significant progress inliberalizing what had been one of the most restrictive traderegimes in Asia. Tariff reform was accelerated significantlyin FY94 by the compression of customs duty rates into a rangeof 7.5 to 100 percent for most products, with the exception oflarge vehicles, alcohol, cigarettes and air-conditioners, forwhich duties remain in excess of 100 percent. The tradeweighted average import tax rate was 43 percent in FY94compared to 59 percent in FY92. In July 1992 the governmentreplaced an import sales tax with a trade-neutral VAT, leavingonly the 2.5 percent "advance income tax" to be removed to makecustoms duty the only protective instrument for most imports.The number of products subject to an import ban or restrictionwas reduced during FY94 and import procedures have been furtherstreamlined. The formerly cumbersome procedure for openingletters of credit also has been simplified. Bangladeshcontinues to raise relatively high shares of its governmentrevenue from customs duties. Bangladesh ratified the UruguayRound agreements and became a founding member of the WorldTrade Organization (WTO) on January 1, 1995.6. Export Subsidies Policies The Bangladesh government attempts to encourage exportgrowth through measures such as ensuring duty-free status forsome imported inputs, including capital machinery, andproviding easy access to financing for exporters. Ready madegarment producers are stimulated by bonded warehousing andback-to-back letter of credit facilities. Exporters are nowallowed to exchange 100 percent of their foreign currencyearnings through any authorized dealer. Government financedinterest rate subsidies to exporters were slightly reduced inFY91 and further reduced over FY93-FY94. The growth in garment exports, still by far the mostdynamic performer in Bangladesh's economy, continued to taperin FY94, up only 15 percent compared to a robust growth of 68percent in FY91 and 48 percent in FY92. At over $1.4 billionin FY94, garments now comprise 60 percent of the value ofBangladesh's total exports. However, because most of the tradeconsists of assembling imported cloth for re-export, the totalvalue added to garments in Bangladesh is only about one fourthof the exported value. Bangladesh is shifting a larger shareof its garment exports towards the European Union, while U.S.garment imports from Bangladesh dropped slightly in FY94.Recent years have seen some challenges to Bangladeshi garmentexporters from U.S. labor groups protesting child laborpractices, and from U.S. garment producers alleging that someproducts are being dumped or covertly subsidized.7. Protection of U.S. Intellectual Property Bangladesh intellectual property law dates from thecolonial era and has many similarities with the current Britishsystem. The Patent and Design Act of 1911, as amended by thePatent and Design Rule of 1933, the Trademark Act of 1940, andthe Copyright Ordinance of 1962, govern patents, trademarks,and copyrights in Bangladesh. Drafts of new legislation have been produced by the legalprofession in some cases and are under review by governmentalcommittees. A new "Companies Act 1994" has been approved bythe parliament although it has not yet been publicly releasednor implemented. Although the government has not givenintellectual property rights a high priority, Bangladesh hasbeen a member of the World Intellectual Property Organizationin Geneva since 1985 and is represented on two of its permanentcommittees. Intellectual property infringement is common, butis of limited significance for U.S. firms, with the possibleexception of pharmaceutical products and audio and videocassettes.8. Worker Rights a. The Right of Association The Bangladesh constitution guarantees freedom ofassociation, the right to join unions, and, with governmentapproval, the right to form a union. With the exception ofworkers in the railway, postal, telegraph, and telephonesectors, state administration workers are forbidden to joinunions. However, some workers covered by this ban have formedunregistered unions. The ban also applies to security-relatedgovernment employees, such as in the military and police.Bangladeshi civil servants forbidden to join unions, such asthose for teachers or nurses, have joined associations whichperform functions similar to labor unions. Workers inBangladesh's two EPZs have also skirted prohibitions on formingunions by setting up associations. The government has statedthat labor law restrictions on freedom of association andformation of unions in the EPZ will be lifted by 1997. In theburgeoning garment industry, there have been numerouscomplaints of workers being harassed and fired in somefactories for trying to organize workers. b. The Right to Organize and Bargain Collectively Unions in Bangladesh are highly politicized. Virtually allthe National Trade Union centers are affiliated with politicalparties, including the ruling Bangladesh Nationalist Party. Some unions are militant and engage in intimidation andvandalism. General strikes, or "hartals" continue to be usedby the political opposition to pressure the government.Hartals cause significant economic and social disruptionthrough loss of work hours and production. The EssentialServices Ordinance permits the government to bar strikes forthree months in any sector deemed "essential." Mechanisms forconciliation, arbitration, and labor court dispute resolutionwere established under the Industrial Relations Ordinance of1969. c. Prohibition of Forced or Compulsory Labor The constitution prohibits forced or compulsory labor. TheFactories Act and Shops and Establishments Act of 1965 set upinspection mechanisms to enforce laws against forced labor, butlimited resources prevent the rigorous enforcement of theselaws. d. Minimum Age of Employment of Children Bangladesh has laws that prohibit child labor. TheFactories Act of 1965 bars children under the age of 15 fromworking in factories. In reality, enforcement of these rulesin inadequate. According to United Nations estimates, aboutone third of Bangladesh's population under the age of 18 isworking. In a society as poor as Bangladesh's, the extraincome obtained by children, however meager, is welcome andsought after. In anticipation of possible U.S. legislationprohibiting the import of products made by child labor,thousands of underage children employed in Bangladesh's garmentindustry were fired in 1993, and this trend continuedthroughout 1994. e. Acceptable Conditions of Work Regulations regarding minimum wages, hours of work, andoccupational safety and health are not strictly enforced. Thelegal minimum wage varies depending on occupation andindustry. It is generally not enforced. The law sets a standard 48-hour workweek with one mandatedday off. A 60-hour workweek, inclusive of a maximum 12 hoursof overtime, is allowed. The Factories Act of 1965 nominallysets occupational health and safety standards. The law iscomprehensive but appears to be largely ignored by manyBangladeshi employers. f. Rights in Sectors with U.S. Investment U.S. investment stock in Bangladesh is very small,totalling less than $30 million. It is concentrated in thecapitalization and physical assets of a life insurance company,a commercial bank and a representative banking office, and afew other service and manufacturing operations. The manufacturing firms with U.S. investment have unionsand bargain collectively. The threat of worker layoffs due toreductions-in-force can cause serious management-labordisputes. As far as can be determined, firms with U.S. capitalinvestment abide by the labor laws and the provisions of the 31International Labor Organization conventions ratified byBangladesh. Similarly, these firms respect the minimum age forthe employment of children. According to both the Bangladeshgovernment and representatives of the firms, workers in firmswith U.S. capital investment generally earn a much highersalary than the minimum wage set for each specific industry.In some cases, workers in these firms enjoy shorter workinghours than those working in comparable indigenous firms. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 0Total Manufacturing (1) Food & Kindred Products 0 Chemicals and Allied Products (1) Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 0Wholesale Trade 0Banking (1)Finance/Insurance/Real Estate 1Services 0Other Industries 0TOTAL ALL INDUSTRIES (1)(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEBAHRAIN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS BAHRAIN Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:GDP (at current prices) 4,338 4,555 4,637GDP Growth (nominal) 3.4 5.0 1.8Per Capita GNP (USD) 8,300 8530 8725Labor Force (000s) 203 212 221Unemployment (pct.) 12 15 15Money and Prices:Money Supply (M2/ann. pct. growth) 4.1 5.5 6.0Prime Interest Rate 7.5 6.1 6.5Savings Rate 3.5 3.0 3.0Consumer Price Inflation 2.0 4.8 2.3Consumer Price Index (1983/84=100) 96.5 101.1 103.5Exchange Rate (USD/BD) 2.65 2.65 2.65Balance of Payments and Trade: 2/Total Exports (FOB) 3,408.2 3,675.6 3,174.7 Non-Oil Exports to U.S. 69.0 102.2 103.0Total Imports (CIF) 4,133.7 3,811.2 3,561.6 Non-Oil Imports from U.S. 3/ 345.1 349.4 277.0Aid from Other Countries 50 50 50 Aid from U.S. 0 0 0External Public Debt N/A N/A N/ADebt Service N/A N/A N/AGold and Foreign Exch. Reserves 1,449 1,350 1,336Trade Balance (-725.5) (-135.6) (-386.9)Non-Oil Balance with U.S. 3/ (-276.1) (-247.2) (-174.0)N/A/--Not available.1/ 1994 Figures are all estimates based on data available inOctober 1994.2/ Trade figures are for merchandise trade.3/ Excluding imports of military items and civil aircraft.1. General Policy Framework Although the Government of Bahrain has controllinginterests in many of the island's major industrialestablishments, 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 a few basicfoodstuffs, the price of goods in Bahrain is determined bymarket forces, and the importation and distribution of foreigncommodities and manufactured products is carried out by theprivate sector. Owing to its historical position as aregional trading center, Bahrain has a well-developed andhighly competitive mercantile sector in which products fromthe entire world are represented. Import duties are primarilya revenue device for the government and are assessed at a tenpercent rate on most products. The Bahraini dinar (BD) isfreely convertible, and there are no restrictions on theremittance of capital or profits. With the exception of thepetroleum sector, Bahrain does not tax either corporate orindividual earnings. Over the last two decades, the Government of Bahrain hasencouraged economic diversification by investing directly insuch basic industries as aluminum smelting, petrochemicals,and ship repair, and by creating a regulatory framework whichhas fostered the development of Bahrain as a regionalfinancial and commercial center. Despite diversificationefforts, the oil and gas sector remains the cornerstone of theeconomy. Oil and gas revenues constitute over 60 percent ofgovernmental revenues, and oil and related products accountfor about 80 percent of the island's exports. The largestsource of the government's oil revenue comes from Bahrain's100,000 barrel/day share of the offshore Abu Saf'a Field,which is shared with and managed by Saudi Arabia. The budgetary accounts for the central government areprepared on a biennial basis. The budget for 1993-94 wasapproved in April 1993. Budgetary revenues consist primarilyof receipts from oil and gas (over 60 percent) supplemented byfees and charges for services, customs duties, and investmentincome. Bahrain has no income taxes and thus does not use itstax system to implement social or investment policies. In1993, revenue was $1.487 billion and expenditures were $1.659billion. The resulting $172 million shortfall was financedthrough the issuance of three-month and six-month treasurybills to domestic banks, according to the normal practice ofrecent years. 1994 revenue is projected to be $1.590 billionand expenditures are projected to be $1.789 billion. Theprojected $199 million deficit will also be financed throughthe issuance of treasury bills. The 1995-96 budget isexpected to be approved by the Council of Ministers by spring1995. It will most likely project budget shortfalls similarto those seen over the past two years. The instruments of monetary policy available to theBahrain Monetary Agency (BMA) are limited. Treasury bills areused to regulate dinar liquidity positions of the commercialbanks. Liquidity to the banks is provided now throughsecondary operations in treasury bills, including: (A)discounting treasury bills; and (B) sales by banks of bills tothe BMA with a simultaneous agreement to repurchase at a laterdate ("repos"). Starting in 1985, the BMA imposed a reserverequirement on commercial banks equal to five percent of dinarliabilities. Although the BMA has no legal authority to fixinterest rates, it has published recommended rates forBahraini dinar deposits since 1975. In 1982, the BMAinstructed the commercial banks to observe a maximum margin ofone percent over their cost of funds, as determined by therecommended deposit rates, for loans to prime customers. InAugust 1988, special interest rate ceilings for consumer loanswere introduced. In May 1989, the maximum prime rate wasabolished and, in February 1990, new guidelines permitting theissuance of dinar certificates of deposit (CD's) at freelynegotiated rates for any maturity from six months to fiveyears were published.2. Exchange Rate Policies Since December 1980, Bahrain has maintained a fixedrelationship between the Bahraini dinar and the U.S. dollar atthe rate of one U.S. dollar equals 0.377 BD. Bahrainmaintains a fully open exchange system free of restrictions onpayments and transfers. There is no black market or parallelexchange rate.3. Structural Policies Bahrain ratified the Uruguay Round Agreements and becameone of the founding members of the World Trade Organization(WTO) on January 1, 1995. Bahrain is also a member of theregional Gulf Cooperation Council (GCC). As a member of theGCC, Bahrain participates fully in its efforts to achievegreater economic integration among its member states. Inaddition to according duty-free treatment to imports fromother GCC states, Bahrain has adopted GCC food productlabeling and automobile standards. Efforts are underway within the GCC to enlarge the scopeof cooperation in fields such as product standards andindustrial investment coordination. In recent years, the GCChas focused its attention on negotiations on a trade agreementwith the European Union. If these negotiations aresuccessfully concluded, such an agreement could have along-term adverse impact on the competitiveness of U.S.products within the GCC, including Bahrain. Bahrain is alsoan active participant in the ongoing U.S.- GCC economicdialogue. For the present, U.S. products and services competeon an equal footing with those of other non-GCC foreignsuppliers. Bahrain participates in the Arab League economicboycott against Israel, but this year announced that it wouldnot observe secondary and tertiary boycott policies againstthird-country firms having economic relationships with Israel. With the exception of a few basic foodstuffs and petroleumproduct prices, the Government of Bahrain does not attempt tocontrol prices on the local market. Because most manufacturedproducts sold in Bahrain are imported, prices are basicallydependent upon the source of supply, shipping costs andagents' mark-ups. Since the opening of the SaudiArabia-Bahrain Causeway in 1985, local merchants are less ableto maintain excessive margins and, as a consequence, priceshave tended to fall toward the levels prevailing in other GCCcountries. Bahrain is essentially tax-free. The only corporateincome tax in Bahrain is levied on oil, gas, and petroleumcompanies. There is no individual income tax, nor does theisland have any value added tax, property tax, or productiontax. A few indirect and excise taxed are assessed. Asidefrom customs duties, including a tax on gasoline, a tenpercent municipal levy on rents paid by residential tenantsand a 12.5 percent tax on office rents are imposed.4. Debt Management Policies The Government of Bahrain follows a policy of strictlylimiting its official indebtedness to foreign financialinstitutions. In the past, it has financed its budget deficitthrough local banks. The $1.4 billion Aluminum Bahrain (ALBA)Smelting Plant Expansion Project, completed in December 1992,was financed in part through foreign commercial and suppliercredits. The Government of Bahrain does not regard this debtas sovereign risk. Bahrain has no International Monetary Fundor World Bank programs.5. Significant Barriers to U.S. Exports Standards: Processed food items imported into Bahrain aresubject to strict shelf life and labeling requirements.Pharmaceutical products must be imported directly from amanufacturer which has a research department and must belicensed in at least two other GCC countries, one of whichmust be Saudi Arabia. Investment: The government actively promotes foreigninvestment and in recent years promulgated regulationspermitting 100 percent foreign ownership of new industrialestablishments and the establishment of representative officesor branches of foreign companies without local sponsors. Mostother commercial investments are subject to governmentapproval and generally must be made in partnership with aBahraini national controlling 51 percent of the equity.Except for citizens of Kuwait, Saudi Arabia, and the U.A.E.,foreign nationals are not permitted to purchase land inBahrain. The government encourages the employment of localnationals by setting local-national employment targets in eachsector and by restricting the issuance of expatriate laborpermits. Government Procurement Practices: The government makesmajor purchasing decisions through the tendering process. Formajor projects, the Ministry of Works, Power, and Waterextends invitations to selected, prequalified firms.Likewise, construction companies bidding on governmentconstruction projects must be registered with the Ministry ofWorks, Power, and Water. Smaller contracts are handled byindividual ministries and departments and are not subject toprequalification. Customs Procedures: The customs clearance process is usedto enforce the primary boycott of Israel. While goodsproduced by blacklisted firms may be subjected to minordelays, the secondary and tertiary boycotts are no longer usedas the basis for denying customs clearance. Bahraini customsalso enforces the Foreign Agency Law. Goods manufactured by afirm with a registered agent in Bahrain may only be importedby that agent or, if by a third party, upon payment of acommission to the registered agent.6. Export Subsidies Policies The Government of Bahrain provides indirect exportsubsidies 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 rawmaterial inputs for incorporation into products for export andthe duty-free importation of equipment and machinery fornewly-established export industries. The government does notspecifically target subsidies to small businesses. Bahrain isa member of GATT, the GATT Subsidies Code, and the WTO.7. Protection of U.S. Intellectual Property The Government of Bahrain is not yet a signatory to anymajor intellectual property convention, and its new copyrightlaw, adopted in 1993, excludes from protection nearly allforeign works which are first introduced outside Bahrain.Procedures for enforcement even of this limited law are undulycumbersome, and there is no effective enforcement mechanism.Consequently, protection of intellectual property isconsidered unsatisfactory by U.S. standards. The sale ofunauthorized cheap video and audio tapes and counterfeitcomputer software is widespread. Patents and trademarks,however, are protected by Bahraini law. Existing intellectual property protection is provided bythe Patent, Design, and Trademark Law of 1955, as amended byMinisterial Decree No. 22 of 1977 and implementing regulationsof 1978. The Trademark Law was revised in 1991 and reissuedas Decree No. 10 of 1991. Protection periods are as follows:(1) A trademark can be registered for a period of ten years,renewable without limit for further ten-year periods; (2) Adesign can be registered for a period of five years, but theregistration is only renewable for two periods of five yearseach; (3) A patent can be registered for 15 years, renewablefor one five-year period if the patent is deemed by thePatents and Trademarks Registration Office of the Ministry ofCommerce and Agriculture to be of special importance and notto have realized revenue commensurate with the expensesinvolved in its formulation. The enforcement of trademarks is generally left to thelocal agent or an appointed representative of the trademarkowner. The government does not have a proactive policy ofseeking and/or removing counterfeit goods from themarketplace. Trademark registration fees and procedures havenot been identified as obstacles to seeking or maintainingtrademark protection. Infringement of new technology in Bahrain is basicallylimited to software piracy. Private satellite receivers arebanned. The U.S.-based Cable News Network (CNN) istransmitted for one hour every night on an open channel by theMinistry of Information with the agreement of the firm, andviewers wishing to receive CNN on a 24-hour basis must pay afee. Bahrain's recently-enacted copyright law, LegislativeDecree No. 10 of 1993, applies only to intellectual propertiesof Bahrainis and other Arab authors who are nationals ofstates which have ratified the Arab Copyright ProtectionAgreement of 1958. Intellectual properties of other foreignauthors are protected only if originally published inBahrain. There are no reliable estimates of losses to U.S.trade as a result of Bahrain's failure to provide adequatecopyright protection. However, as part of its Uruguay Roundobligations under the Trade Related Intellectual PropertyAgreement (TRIPS), Bahrain will bring its laws into conformitywith international intellectual property rights conventions.8. Worker Rights a. The Right of Association The partially suspended 1973 Constitution recognizes theright of workers to organize, but trade unions do not exist inBahrain, and the government does not encourage theirformation. However, the government passed a series of laborregulations which, among other things, allow the formation ofelected workers' committees in larger Bahraini companies.Worker representation in Bahrain today is based on a system ofjoint labor-management consultative councils (JCCs)established by ministerial decree. Between 1981 and 1984, 12JCCs were established in the major state-owned industries. In1994, four new JCCs were established in the private sector,including one in a major hotel. Further expansion of the JCCsystem into tourism and banking sectors is under activeconsideration. The JCCs are composed of equal numbers ofappointed management representatives and workerrepresentatives elected from and by company employees. Theselection of worker representatives appears to be a fairprocess, and worker representatives appear generally togenuinely represent worker interests. The elected laborrepresentatives of the JCCs select the 11 members of theGeneral Committee of Bahraini Workers (GCBW) established in1983 by law, which oversees and coordinates the work of theJCCs. The JCC-GCBW system represents close to 70 percent ofthe islands indigenous industrial workers, although bothgovernment and labor representatives readily admit thatnonindustrial workers and expatriates are clearlyunderrepresented within the system. b. The Right to Organize and Bargain Collectively While the JCCs described above are empowered to discusslabor disputes, organize workers' services, and discuss wages,working conditions, and productivity, the workers have noentirely independent, recognized vehicle for representingtheir interests on these or other labor-related issues.Bahraini labor law neither grants nor denies workers the rightto organize and bargain collectively or to strike. There areno recent examples of major strikes, but walkouts and otherjob actions have been known to occur without governmentalintervention and with positive results for the workers.Minimum wage rates are established by Council of Ministers'decree. Increases in wages above the minumum, which aresubject to discussion in the JCCs, are set by management, withgovernment salaries for comparable work often serving as aninformal guide. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is prohibited in Bahrain, andthe Labor Ministry is charged with enforcing the law. Thepress often performs an ombudsman function on labor problems,reporting instances in which private sector employersoccasionally compelled foreign workers from developingcountries to perform work not specified in their contracts, aswell as Ministry of Labor responses. Once a complaint hasbeen lodged by a worker, the Labor Ministry opens aninvestigation and often takes remedial action. d. Minimum Age for Employment of Children The minimum age for employment is 14. Juveniles betweenthe ages of 14 and 16 may not be employed in hazardousconditions or at night, and may not work over 6 hours per dayor on a piecework basis. Child labor laws are effectivelyenforced by Ministry of Labor inspectors in the industrialsector; child labor outside that sector is less wellmonitored, but is not believed to be significant outsidefamily-operated businesses. e. Acceptable Conditions of Work Bahrain's labor law, enforced by the Ministry of Labor,mandates acceptable conditions of work for all adult workers,including adequate standards regarding hours of work (maximum48 hours per week) and occupational safety and health.Minimum wage scales, set by government decree, exist for bothprivate and public sector employees. Complaints broughtbefore the Ministry of Labor which cannot be settled througharbitration must, by law, be referred to the fourth high court(labor) within 15 days. In practice, most employers prefer tosettle such disputes through arbitration, particularly sincethe court and labor law are generally considered to favor theworker/employee. The law provides protection for bothBahraini and expatriate workers. However, all foreign workersare required to be sponsored by Bahrainis or institutions andcompanies based in Bahrain. Foreign workers, particularlythose from developing countries are often unwilling to reportabuse for fear of losing residence rights in Bahrain andhaving to return to their native countries, in which theywould face significantly inferior working conditions andearning possibilities. In addition, the labor lawspecifically favors Bahrainis, followed by Arab expatriates,over all other expatriate workers in the areas of hiring andfiring. Women are generally paid less than men, and areprohibited from performing night work, except in certainexempted fields. Women are entitled to 60 days of paidmaternity leave, nursing periods during the day, and up to oneyear of unpaid maternity leave. f. Rights in Sectors with U.S. Investment U.S. capital investment in Bahrain is concentratedprimarily in the petroleum sector. It takes the form ofminority share interests in the Bahrain Petroleum Company (BAPCO), Bahrain National Gas Company (BANAGAS), and theBahrain Aviation Fueling Company (BAFCO). There are alsojoint venture factories producing plastic bottle caps,tissues, and pipes. Workers at all these companies enjoy thesame 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 CostBasis--1993 (Millions of U.S. dollars) Category AmountPetroleum 25Total Manufacturing 0 Food & Kindred Products 0 Chemicals and Allied Products 0 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 0Wholesale Trade 4Banking -152Finance/Insurance/Real Estate (1)Services (1)Other Industries 0TOTAL ALL INDUSTRIES -114(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEBAHAMAS: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS THE BAHAMAS Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 /1Income, Production and Employment:Real GDP 3,059 3,065 N/AGDP Growth Rate 3.0 3.0 N/AGDP Share by Sector: (pct.) Tourism 50 50 50 Finance 12 12 12 Manufacturing 4 4 4 Agriculture/Fisheries 4 4 4 Government 12 12 12GDP Per Capita (USD) 11,588 11,610 N/ALabor Force 135,700 136,900 N/AUnemployment Rate (pct.) 14.8 13.1 N/AMoney and Prices:Money Supply (M1) 377.7 379.5 N/ACommercial Interest Rate (pct.) 8.0 7.25 N/APersonal Savings Rate 3.20-5.55 2.54-5.13 3.00-4.63Investment Rate N/A N/A N/ARetail Price Index (1987=100) 133.0 136.2 136.6Retail Price Index Change (pct.) 7.2 5.7 2.7Wholesale Price Index N/A N/A N/AExchange Rate (USD:BD) 1:1 1:1 1:1Balance of Payments and Trade:Total Exports (FOB) 310.2 256.8 N/A Non-Oil Exports (estimated) 585.3 348.2 N/A Exports to U.S. 488.2 607.2 227.0Total Imports (CIF) 1,129.9 1,151.3 628.2 Non-oil Imports (estimated) 972.7 1,014.7 330.5 Imports from U.S. 712.6 704.1 N/AAid from U.S. 0 0 0Aid from Other Countries 0 0 0External Public Debt 133.3 117.2 N/ADebt Repayment 72.2 77.5 30.3Gold Reserves N/A N/A N/AForeign Exchange Reserves 173.9 146.0 252.8Balance of Payments Current Account 173.9 146.0 N/A Merchandise Exports (FOB) 310.2 256.8 N/A Merchandise Imports (FOB) 1,069.2 1,080.9 N/A Services (net) 711.5 738.9 N/AN/A--Not available.1/ Statistics cover mid-year 1994.1. General Policy Framework The Bahamas is a politically stable, middle-incomedeveloping country. The economy is based primarily on tourismand financial services, which account for approximately 50percent and 12 percent of gross domestic product (GDP),respectively. The agricultural and industrial sectors, whilesmall, have recently been the focus of government efforts toexpand these sectors to produce new jobs and diversify theeconomy. The United States remains The Bahamas' major tradingpartner. U.S. firms exported an estimated $704.1 million worthof goods and services to The Bahamas in 1993, down from $712.5million the previous year but still approximately 55 percent ofall Bahamian imports. The Bahamian Government activelyencourages foreign investment, with free trade zones on GrandBahama and New Providence. Capital and profits are freelyrepatriated, and investors are offered relief from personal andcorporate income taxes. Designation under the Caribbean BasinInitiative (CBI) trade program allows qualified Bahamian goodsto enter the United States duty-free. The Bahamas continues to run a fiscal deficit due toinvestment in capital projects by the government and publiccorporations. The recurrent government budget includedrepayments estimated at $64 million on a total public debt of$358.4 million. The public debt service ratio reached 4.6percent as of the first quarter of 1994. The overall FY 94/95government budget of $756 million represented an increase of$75 million over the total projected expenditures in the FY1993-94 budget. The budget announced new tax measures,including a 10 percent increase in the gasoline tax (the secondsuch raise in two years), an import tariff on pork products(previously untaxed), increases in business license fees andother government fees, and the elimination of a system ofrebates for early payments of annual property taxes. These newmeasures were projected to raise an additional $38 million ingovernment revenue. The government also projected an increasein public borrowing of $60 million to make up for the budgetaryshortfall. One problem faced by the Ingraham Administrationwas that government revenue under the previous budget fell anestimated $30 million short of original projections, apparentlydue to slow growth of the overall economy and substantial taxevasion. Total 1993 national debt was $1.41 billion, up from$1.28 billion in 1992. The Bahamas' primary monetary strategy is to maintainstability and expansion in foreign exchange reserves topurchase essential imports, maintain the parity of the Bahamianand American dollars, and finance repatriation of corporateprofits. Despite efforts by the Central Bank to ease consumercredit in January 1993 by removing the previous 35 percentdown-payment requirement for consumer loans, domestic Bahamianbanks were so awash in liquidity by mid-1994 that some bankseven refused new Bahamian dollar deposits. Central Bankauthorities blamed overly cautious lending policies by Bahamianbanks for both consumer and business loans for the excessliquidity problem. By mid 1994, the commercial banks' primelending rate was 6.75 percent.2. Exchange Rate Policy The Bahamian dollar is pegged to the U.S. dollar at anexchange rate of 1:1, and the Bahamian Government recentlyrepeated its longstanding commitment to maintain parity.3. Structural Policies Price controls exist on 13 bread basket items, gasoline,utility rates, public transportation, automobiles, and autoparts. The rate of inflation which was estimated at 5.7percent in 1993 is now 2.7 percent. Recognized internationally as a tax haven, The Bahamas doesnot impose income, inheritance or sales taxes. In 1994, theGovernment raised some customs duties and imposed new tariffson pork products. Bahamians shopping in Florida (and elsewhereabroad) are permitted to import $300 worth of goods duty freeper trip, twice a year ($150 for persons under 12 years ofage.) In addition, The Bahamas charges a host of "stamp taxes"on most imports above and beyond the import duties. Thesestamp taxes vary depending upon the item in question, and applyeven to many items otherwise duty free. For example, in 1992,the Bahamian government lifted customs duties on a list ofitems (including china, crystal, fine jewelry, leather goods,crocheted linens and tablecloths, liquor, wines, perfume,cologne, photographic equipment and accessories, sweaters, andwatches) which could be sold to tourists as "duty-free," butretained variable stamp taxes on these items. Bahamian Customsrequires entry forms and genuine invoices (original or carboncopy) for goods coming by sea, air or post. The CustomsDepartment only honors discounts of up to three percent givenby U.S. exporters. Certain goods may be imported conditionally on a temporarybasis against a security bond or deposit which is refundable ontheir re-exportation. These include fine jewelry, goods forbusiness meetings or conventions, travelling salesman samples,automobiles or motorcycles, photographic and cinematographicequipment, and equipment or tools for repair work. The Bahamian government in 1993 repealed the ImmovableProperty (Acquisition by Foreign Persons) Act, which requiredforeigners to obtain approval from the Foreign Investment Boardbefore purchasing real property in the country, replacing itwith the Foreign Persons (Landholding) Act. Under the new law,approval is automatically granted for non-Bahamians to purchaseresidential property of less than five acres on any singleisland in The Bahamas, except where the property constitutesover fifty percent of the land area of a cay (small island) orinvolves ownership of an airport or marina. The Bahamian government hopes this new legislation willstimulate the second home/vacation home market and revive theonce-vibrant real estate sector. The new law also provides fora two-year real property tax exemption for foreign personsacquiring undeveloped land in The Bahamas for developmentpurposes, provided that substantial development occurs duringthose two years. Following protests by foreign propertyowners, the Bahamian government has revised plans for theproposed 7 percent increase on the assessed value ofundeveloped property owned by non-Bahamians. The new taxstructure as of January, 1994 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 1/2 percent of the assessed value. A gambling tax is also levied. To increase revenues, theairport departure tax was raised from $7 to $13 per person in1991 and from $13 to $15 per person in 1993. The governmentraised the harbor departure tax from $7 to $20 per person in1991. Following protests from cruise ship operators, theharbor departure tax was later lowered to $15, effective April1, 1992. Although The Bahamas encourages foreign investment, thegovernment reserves certain businesses exclusively forBahamians, including restaurants, most construction projects,most retail outlets, and small hotels. Other categories ofbusinesses are designated for possible joint ventures involvingBahamians and foreigners. A new "One-Stop Shop" for investment established in 1992,the Bahamas Investment Authority (BIA), consolidated theInvestment Promotion Division of The Bahamas Agricultural andIndustrial Corporation (BAIC) and the Financial ServicesSecretariat (FSS). The Authority planned to facilitate andcoordinate local and international investment and to provideoverall guidance to the Government on all aspects of investmentpolicy. Other trade and investment incentives include theInternational Business Companies Act, the IndustriesEncouragement Act, the Hotels Encouragement Act, theAgricultural Manufactories Act, the Spirit and Beer ManufactureAct, and the Tariff Act. The International Business CompaniesAct simplifies procedures and reduces costs for incorporatingcompanies. The Industries Encouragement Act provides dutyexemption on machinery, equipment, and raw materials used formanufacturing purposes. The Hotels Encouragement Act grantsrefunds of duty on materials, equipment, and furniture requiredin construction or furnishing of hotels. The Agricultural Manufactories Act provides exemption forfarmers from duties on agricultural imports and machinerynecessary for food production. The Spirit and Beer ManufactureAct grants duty exemptions for producers of beer or distilledspirits on imported raw materials, machinery, tools, equipment,and supplies used in productions. The Tariff Act grantsone-time relief from duties on imports of selected productsdeemed to be of national interest. The Hawksbill Creek Agreement of 1954 granted certain taxand duty exemptions on business license fees, real propertytaxes, and duties on building materials and supplies in thetown of Freeport on Grand Bahama Island. In July 1993, theGovernment enacted legislation extending most Hawksbill Creektax and duty exemptions through 2054, while withdrawingexemptions on real property tax for foreign individuals andcorporations. The Prime Minister declared, however, thatproperty tax exemptions might still be granted to particularinvestors on a case-by-case basis. The Bahamas is a beneficiary of the United States'Caribbean Basin Initiative (CBI) trade program, permitting thecountry to export most goods duty-free to the United States.4. Debt Management Policies The Bahamas' national debt reached $1.41 billion in 1993,with debt service of $74.0 million accounting for 8.6 percentof total government revenues.5. Significant Barriers To U.S. Exports The Bahamas is a $700 million market for U.S. companies.There are no barriers to the import of U.S. goods, although asubstantial duty applies to most imports. Deviations from theaverage duty rate often reflect policies aimed at importsubstitution. Tariffs on items which are also produced locallyare at a rate designed to provide protection to localindustries. The Ministry of Agriculture occasionally issuestemporary bans on the import of certain agricultural productswhen it determines that a sufficient supply of locally grownitems exists. The government's quality standards for importedgoods are similar to those of the United States.6. Export Subsidies Policies The Bahamian Government does not provide direct subsidiesto industry. The Export Manufacturing Industries EncouragementAct provides exemptions to approved export manufacturers fromduty for raw materials, machinery, and equipment. The approvedproduct is not subject to any export tax.7. Protection of U.S. Intellectual Property The Bahamas is a member of the World Intellectual PropertyOrganization (WIPO), and is a party to the Paris Convention forthe Protection of Industrial Property and the Berne Conventionfor the Protection of Literary and Artistic Works (olderversions for some articles of the latter are used). It is alsoa member of the Universal Copyright Convention.8. Worker Rights a. Right of Association The Constitution specifically grants labor unions therights of free assembly and association. Unions operatewithout restriction or Government control, and are guaranteedThe right to strike and to maintain affiliations withinternational trade union organizations. b. Right to Organize and Bargain Collectively Workers are free to organize and collective bargaining isextensive for the 34,225 workers (25 percent of the work force)who are unionized. Collective bargaining is protected by lawand the Ministry of Labor is responsible for mediatingdisputes. The Industrial Relations Act requires employers torecognize trade unions. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is prohibited by theConstitution and does not exist in practice. d. Minimum Age for Employment of Children While there are no laws prohibiting the employment ofchildren below a certain age, compulsory education for childrenup to the age of 14 years and high unemployment rates amongadult workers effectively discourage child employment.Nevertheless, some children sell newspapers along majorthoroughfares and work at grocery stores and gasolinestations. Children are not employed to do industrial work inThe Bahamas. e. Acceptable Conditions of Work The Fair Labor Standards Act limits the regular workweek to48 hours and provides for at least one 24-hour rest period.The Act requires overtime payment (time and a half) for hoursin excess of the standard. The Act permits the formation of aWages Council to determine a minimum wage; to date, no suchCouncil has been established. The Ministry of Labor is responsible for enforcing laborlaws and has a team of several inspectors who make on-sitevisits to enforce occupational health and safety standards andinvestigate employee concerns and complaints. The Ministrynormally announces these inspections ahead of time. Employersgenerally cooperate with the inspections in implementing safetystandards. A 1988 law provides for maternity leave and theright to reemployment after childbirth. Worker rightslegislation applies equally to all sectors of the economy. f. Rights in Sectors with U.S. Investment Authorities enforce Labor laws and regulations uniformlyfor all sectors and throughout the country, including withinthe export processing zones. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 471Total Manufacturing (1) Food & Kindred Products 0 Chemicals and Allied Products (1) Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing (2)Wholesale Trade 140Banking 2,707Finance/Insurance/Real Estate 817Services -38Other Industries (1)TOTAL ALL INDUSTRIES 4,194(1) Suppressed to avoid disclosing data of individual companies(2) Less than $500,000Source: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEAZERBAIJAN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS AZERBAIJAN Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:GDP (current prices) 131 331 166Real GDP Growth (pct.) -35.2 -13.3 -25.6GDP Growth by Sector: (pct.) Agriculture -32.5 -29.4 -11.5 Energy/Water N/A N/A -7.7 Manufacturing -50.5 -45.6 -25.6 Construction -8.8 -13.7 -25.0 Rents N/A N/A N/A Financial Services N/A N/A 131.0 Other Services -4.8 -3.6 N/A Government/Health/Education N/A N/A N/AReal Per Capita GDP 2/ 179.0 N/A N/ALabor Force (000s) 3,849 2,706 2,639Unemployment (pct.) 0.16 0.70 27.90Money and Prices: (annual growth percentage)Money Supply N/A N/A 507Base Interest Rate (pct.) N/A N/A 150Personal Saving Rate N/A N/A 60-200Retail Inflation (pct.) 1,066.6 833.0 1,742.6Wholesale Inflation 463.4 208.7 890.0Consumer Price Index (actual) N/A N/A 1,403Exchange Rate (avg/manats:USD) N/A N/A 2,000Balance of Trade and Payments:Total Exports (FOB) N/A 255.0 397.2 Exports to U.S. N/A 3.4 0.0Total Imports (CIF) N/A 147.0 577.0 Imports from U.S. N/A 10.8 4.2Trade Balance N/A 108.0 -179.8 Trade Balance with U.S. N/A 7.4 4.2Aid from U.S. 3/ N/A N/A 25.0Aid from Other Countries N/A N/A N/AExternal Public Debt N/A N/A N/ADebt Service Payments N/A N/A N/AGold and Foreign Exch. Reserves N/A N/A N/AN/A--Not available.1/ January-August 1994.2/ Figure obtained using the 1992 average annual exchange rateof 20 manat = 1 dollar.3/ Some U.S. assistance was available through regional programsfor which a country-by-country breakdown is not available.Figures should be considered as indicators of order ofmagnitude only. Most data was furnished by the StateStatistics Committee of Azerbaijan.1. General Policy Framework Azerbaijan, a country of 7.5 million people with richnatural resources, has significant potential as a trading andinvestment partner of the United States. Exploitation of itsenormous oil and gas reserves in the Caspian Sea will requireforeign capital and know-how, and Azerbaijan has taken thefirst step toward developing these resources by signing aproduction sharing agreement with a consortium of western oilfirms, including several U.S. companies, in September 1994.Azerbaijan has an array of heavy industries, particularly oilrefining, petrochemicals, oil field equipment, and airconditioners, that will require foreign investment to make themviable in a world economy. Finally, Azerbaijan is richlyendowed with a diverse agricultural sector producing grapes,cotton, tobacco, silk, tea, and other fruits for export. Azerbaijan has yet to realize its potential largely becauserecent governments have been preoccupied with issues ofsurvival and instability arising from the conflict inNagorno-Karabakh, a break-away, formerly autonomous province ofAzerbaijan inhabited mostly by ethnic Armenians. Azerbaijanhas been unable to resolve the conflict and approximately 20percent of its territory has been occupied by Nagorno-KarabakhArmenian forces. President Heydar Aliyev, a former member ofthe Soviet Union's Politburo and former communist ruler ofAzerbaijan in the 1970s, has announced his government'scommitment to democratic and market-based reforms, though hefavors a process of gradual reform rather than economic shocktherapy. First Deputy Prime Minister Quliyev is responsiblefor economic performance and reform, while four deputy primeministers in the Cabinet of Ministers have responsibility fordirecting different economic ministries, though all answerultimately to President Aliyev. Ministerial andsub-ministerial changes are taking place following an internalpolitical crisis in October 1994 which resulted in thedismissal of the Prime Minister. Some of these changes willaffect economic decision-makers. The economy remains dominated by large state enterprisesand, in the agricultural sector, by large state and cooperativefarms, all of whose production is theoretically based on stateorders prepared by the government ministries. The nationalparliament passed a privatization law in August 1994, but theprocess has languished as no implementing legislation has yetbeen approved. Private business has begun to appear, primarilyin the retail sector in the main cities and towns. Inaddition, many state enterprises are beginning to produce andeven market their products independently of central governmentcontrol. The economy declined about 25 percent in the first ninemonths of 1994 compared to the same period in 1993. Thegovernment, continuing its subsidies of key commodities,allowed budget deficits to remain above ten percent of GDP inthe first nine months of 1994. The government does not yethave a realistic plan for financing this deficit, and willprobably continue to rely on the inflationary policy of issuingmore currency. Azerbaijan declared its currency, the manat, sole legaltender January 1, 1994, and has allowed the manat to floatagainst major currencies since April 1994. Foreign currencyexchanges have been introduced to help make the manatconvertible, but are still operating at very low volumes. Although Azerbaijan became an active member of theCommonwealth of Independent States (CIS) in 1993, it has notsigned the proposed ruble zone agreement. Joining the CISeliminated tariff and other restrictions on Azerbaijan'scritical trade with Russia, Ukraine, and other CIS countries,but commercial ties continue to slump due to payment problemson Azerbaijan's part and disagreements over Azerbaijan's debtswith some CIS members, especially Russia. The conflict inChechenya has disrupted Azerbaijan's main trade route withRussia, and Moscow has imposed restrictions on Azerbaijani useof the Volga-Don Canal, the only water route linking Baku tothe outside world.2. Exchange Rate Policy The Azerbaijani manat has been allowed to float againstmajor currencies, and has suffered a sharp, steady devaluationas a result of Baku's expansionary fiscal and monetarypolicies. The manat has lost more than 90 percent of itsvalue. In October 1994, the rate reached 2,500 manats to thedollar. The government imposes several controls on foreignexchange, including a surrender requirement and a limit on theamount of foreign currency that can be taken out of the country.3. Structural Policies Structural change is coming to Azerbaijan, albeit slowlyand more as a result of the breakdown of the centrally plannedsystem rather than through a government reform plan. Pricing Policies: Several key commodities, includingbread, natural gas and gasoline, remain under price controls.While the government raises these controlled pricesperiodically, they remain artificially low, and shortages ofthese goods occur, along with corruption and black marketactivity. In addition, nearly all goods are produced by stateenterprise monopolies, and the government continues to setprices it will pay to these enterprises based on fixedcost-plus formulas. Tax Policies: The government implemented a new tax systemin 1992 through a series of presidential decrees. This systemis composed mainly of four taxes: a 28 percent value-addedtax; an enterprise profit tax, with a standard 35 percent rateand differential rates allowed on certain enterprises; excisetaxes of up to 90 percent of the price for selected goods; anda personal income tax, progressive in nature but not strictlyenforced. Other important sources of government revenue are aroyalty on crude oil production, and a tax on vehicle ownership. Regulatory Policies: The government regulates the exportof strategic commodities produced in Azerbaijan, which includethe main hard currency earners such as refined oil products,cotton, and wine. Potential buyers of such commodities mustpay for an export license or cooperate with an Azerbaijanipartner that has obtained a general license for that commodity.4. Debt Management Policies In September 1993, Azerbaijan signed a "zero optionagreement" with Russia under which Russia will pay Azerbaijan'sshare of the external debt of the former Soviet Union in returnfor Azerbaijan's share of the former Soviet Union's assets. The Azerbaijani budget deficit remains at high levels,amounting to over 10 percent of GDP in 1994. Since Russia hasstopped financing Azerbaijani debt outlays with rubles,Azerbaijani officials increased contacts with the InternationalMonetary Fund (IMF), World Bank, and the European Bank forReconstruction and Development (EBRD). However, borrowingprograms will not be granted until Azerbaijan tightens itspolicy to meet generally accepted financial criteria, which hasproposed to do by the end of 1994. Azerbaijan has no borrowingrelationship with commercial banks, and in the short term islikely to finance budget shortfalls through printing manats andissuing credit through the National Bank.5. Significant Barriers to U.S. Exports Corporate Barriers to U.S. Exports: The most significantbarrier to trade with the United States is the lack of hardcurrency reserves. Azerbaijan pays for nearly all imports withbarter goods, primarily oil-based products, cotton, oil fieldequipment, diesel fuel, chemical products of organic synthesis,silk, waste metals and tobacco. Selling goods or services toAzerbaijan almost always entails receiving barter goods inpayment. Lack of laws and institutions which regulate fairness intrade, and poor infrastructure create barriers. Azerbaijan hasno bankruptcy or commercial transactions laws. Only some bankshave access to foreign exchange. The customs service andairport officials lack professional training and attitudes.Entry and exit regulations at the airport change frequently andwithout warning. Office space is at a premium and costly,telecommunications are not reliable and experience with westernbusiness practices is rare. Standards and Testing Requirements: Azerbaijan producesoil field equipment, machine tools and other manufactured goodsaccording to the GOST standards used throughout the formerSoviet Union, which are not up to U.S. or European industrystandards. There are a few Western companies here with jointventures which have brought or are bringing products andfacilities up to American or European standards. It is assumedthat with the recent signing of the oil contract, foreigncompanies and banks will be more likely to move forward onplanned projects. Trademarks and Logos: There is a small but growing marketin Azerbaijan for pirated videos, sound recordings, andcomputer software, with no government effort to stop it. Aprivately-owned television channel's programming consistsalmost entirely of pirated American films and televisionmini-series, which have been dubbed into Russian and marketedthroughout the former Soviet Union. There is no evidence,however, that Azerbaijan produces such pirated works. Investment Barriers: According to the Foreign InvestmentLaw of 1992, the government's Council of Ministers mustpre-approve all foreign investments. Mineral exploration andextraction rights granted through concessionary agreements withthe approval of the Council of Ministers usually requireparliamentary approval as well. There are restrictions on thenumber of foreign personnel that an enterprise may hire. Atpresent, both Azeris and foreigners may lease land but not ownit outright. The exception is the .05 percent of land owned byprivate farmers. To normalize its trade and investment relations withAzerbaijan, the United States has proposed a network of fourbilateral economic agreements. A bilateral trade agreement,which would provide reciprocal most-favored nation status, wassigned in April 1993 but has yet to be ratified by theAzerbaijani parliament. An Overseas Private InvestmentCorporation (OPIC) incentive agreement, which would allow OPICto offer political risk insurance and other programs to U.S.investors in Azerbaijan, was concluded in 1992, but it also hasyet to be ratified by Azerbaijan. The United States hasproposed a bilateral investment protection treaty, which wouldestablish an open investment legal regime for investmentsbetween the two countries. The Azerbaijani government has notyet accepted the U.S. offer to negotiate this treaty.6. Export Subsidies Policies The government continues to subsidize production at stateenterprises to maintain production levels and employment(although most factories work below capacity). There is,however, no direct government support for exports to countriesoutside the former Soviet Union.7. Protection of U.S. Intellectual Property Azerbaijan has yet to adopt adequate laws to protectintellectual property. The Committee on Science andTechnology of the presidential apparatus drafted patent andtrademark laws, but the parliament has not passed them intolaw. A presidential decree on patents provides someprotection. There is no copyright law. Azerbaijan has notadhered to any of the international conventions that protectintellectual property. Trademarks may be registered with theMinistry of Foreign Economic Relations, but there is widespreadunauthorized use of pirated films. The lack of intellectual property protection is one of thefactors inhibiting the development of U.S. trade andinvestment, though its impact is difficult to assess given thelow levels of trade and investment to date. The tradeagreement of April 1993 contains commitments on protection ofintellectual property. This agreement has not been ratified bythe Azerbaijani parliament.8. Worker Rights a. The Right of Association Azerbaijani labor unions continue to be highly dependentupon the government, but are free from federations, andparticipate in international bodies. Azerbaijan is a member ofthe ILO (International Labor Organization). There is a legalright to strike, and workers do from time to time strike atcertain factories. b. The Right to Organize and Bargain Collectively Collective bargaining remains at a rudimentary level.Wages are decreed by relevant government ministries fororganizations within the government budget. There are noexport-processing zones. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is prohibited by law and is notknown to be practiced. d. Minimum Age for Employment of Children The minimum employment age is 16, though children of 14 areallowed to work during vacations with the consent of theirparents and certification of a physician. Children of 15 maywork if the work place's labor union does not object. e. Acceptable Conditions of Work A nationwide minimum wage is set by presidential decree,and was raised numerous times in the past year to offsetinflation. Unemployment benefits (5,000 rubles or about $4 permonth) were granted to 21,567 people between September 1992 andAugust 1993, although state factories and enterprisestemporarily laid off many more employees. The legal workweek is 41 hours. Health and safety standards exist but arenot enforced. f. Rights in Sectors with U.S. Investment In the petroleum sector, the only sector with significantU.S. investment, worker rights do not generally differ fromthose in other sectors of the economy, with one importantexception. In the work places in which U.S. petroleumcompanies have invested, the health and safety standards havedramatically improved. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 0 Food & Kindred Products 0 Chemicals and Allied Products 0 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 0Wholesale Trade 0Banking 0Finance/Insurance/Real Estate 0Services 0Other Industries 0TOTAL ALL INDUSTRIES (1)(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis</text>
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<text>U.S. DEPARTMENT OF STATEAUSTRIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS AUSTRIA Key Economic Indicators (Billions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:Real GDP (1985 prices) 2/ 78.8 78.6 80.6Real GDP growth (pct.) 1.6 -0.3 2.5GDP (at current prices) 185.2 181.4 195.4By Sector: Agriculture 4.5 4.1 4.4 Energy/Water 5.1 5.1 5.3 Manufacturing/Mining 46.9 43.7 47.4 Construction 13.8 13.5 14.7 Rents N/A N/A N/A Financial Services 32.7 33.9 36.6 Other Services 50.7 49.5 53.0 Public Services 24.9 25.2 27.0Net Exports of Goods & Services -73.3 -69.1 -73.5Real Per Capita GDP (USD/1985 base) 2/ 9,990 9,890 10,090Labor Force (000s) 3,663 3,684 3,685Unemployment Rate (pct.) 3/ 3.6 4.3 4.3Money and Prices:(annual percentage growth unless otherwise noted)Money Supply (M2) 6.2 3.2 3.0Secondary Bond Market Rate 4/ 8.39 6.74 6.50Personal Savings Rate 4/ 11.2 11.5 12.0Wholesale Inflation -0.2 -0.4 1.0Consumer Price Index 4.1 3.6 3.0Exchange Rate (AS/USD) 5/ 10.99 11.63 11.40Balance of Payments and Trade:Total Exports (FOB) 44.4 40.2 44.1 Exports to U.S. 1.2 1.3 1.4Total Imports (CIF) 54.0 48.6 53.8 Imports from U.S. 2.1 2.1 2.3Aid from U.S. N/A N/A N/AAid from Other Countries N/A N/A N/AExternal Public Debt 6/ 15.7 18.3 21.5Debt Service Payments 1.8 2.5 2.2Gold and FOREX Reserves (year-end) 16.2 18.3 N/ATrade Balance 7/ -9.7 -8.4 -0.9 Trade Balance with U.S. 7/ -0.9 -0.8 -10.0N/A--Not available.1/ Data as of October 1994 and economic forecasts.2/ Converted at the 1985 exchange rate of AS 20.69=US$1.3/ Unemployment rate according to OECD method.4/ Average annual rates.5/ There is only an official rate, no parallel rates.6/ Figures reflect the federal government's external debt.7/ Merchandise trade only.1. General Policy Framework Austria, a member of the European Free Trade Association(EFTA) and the OECD, has a highly developed economy with a highstandard of living. Austria's economy is highly integratedinto the international economy, with exports of goods andservices amounting to almost 40 percent of GDP. Thestate-owned sector has traditionally played a significant rolein the economy. Austria achieved a top economic and politicalgoal - full membership in the European Union (EU), whichoccurred on January 1, 1995. The Austrian Parliament ratifiedthe EU accession agreement by an overwhelming majority onNovember 11, 1994. After eleven consecutive years of growth, the Austrianeconomy experienced a mild recession in 1993, by contracting0.3 percent in Austrian Schilling (AS) terms. In 1994, Austriahas again entered a phase of swift recovery. The budgetdeficit has increased, however, from the planned three percentof GDP to 4.7 percent in 1993 as a result of the weak economyand spending increases, particularly for unemployment benefitsand a second year of maternity leave. Austria financed its1993 federal budget deficit of AS 117.1 billion (10 billiondollars) primarily through Schilling and foreign currencybonds. The Austrian National Bank does not set money supplytargets, but uses interest rates, in particular the rediscountrate and the rate for open market transactions, as its maintool for maintaining the mark-schilling peg. Formation of the European Union's single market and thetransformation occurring in Central Europe have posedsignificant challenges for Austria, with the need for majorrestructuring. Austria's Grand Coalition Government of SocialDemocrats and Conservatives undertook measures to make theAustrian economy more liberal and open by introducing taxreforms, privatizing some state firms, and liberalizingcross-border capital movements. Austria has significantlyincreased trade and investment activities in Central Europesince 1989, but has also faced stiffer competition from theinflux of low-priced Eastern products, and discriminationresulting from the EU's free trade agreements with thosecountries. In July 1994, Austria's parliament approved theUruguay Round agreements. Austria ratified the Uruguay Roundagreements in December and became a founding member of theWorld Trade Organization on January 1, 1995.2. Exchange Rate Policy Because of the Federal Republic of Germany's importance asa trading partner, the Austrian National Bank (ANB) maintainsits "hard schilling policy" by adjusting money supply andinterest rates to peg the schilling to the German Mark at anexchange rate of AS 7 equals DM 1. The schilling continued toappreciate vis-a-vis many other European currencies in 1993,which meant that Austria's international competitivenessdeteriorated. After a small recovery in 1993, the dollarstarted to decline again vis-a-vis the schilling in late summer1994. Austria's foreign exchange regime is fully liberalized.Austrian capital markets were deregulated and liberalized bythe new Capital Market Law on Public Securities introduced in1992. U.S. issuers of bonds and securities are free to placeofferings in the Austrian capital market.3. Structural Policies Austria's participation in the European Economic Area (EEA)beginning in January 1994 and preparations for EU membershiphave resulted in broad structural reform. Most non-tariffbarriers to merchandise trade have been removed, financial andother services have been liberalized, and cross-border capitalmovements and market access for foreign bonds have been fullyliberalized. Following a preliminary set of tax reform measures in 1992and 1993 geared at the environment and tax simplification, acomprehensive tax reform became effective January 1, 1994.Main features of the reform were an increase of the general taxcredit for all taxpayers, the streamlining of tax procedures,and the abolition of existing taxes such as capital tax and taxon industry and trade. To compensate for part of the revenueshortfall, the corporate tax rate was raised from 30 to 34percent. Other laws and regulations have been amended to open up theeconomy. A more liberal Business Code became effective July 1,1993, which reduced licensing requirements. On November 1,1993, Austria's new cartel law allowing for merger controlbecame effective. The government enacted on July 1, 1994, anew law requiring environmental impact assessments for manyprojects in the waste, transportation, and energy sectors, andfor large industrial projects. Austria's participation in theEEA required Austria to implement its first federal procurementlaw and to make its subsidy programs consistent with EUregulations.4. Debt Management Policies Austria's external debt management has no significantimpact on U.S. trade. At the end of 1993, Austria's externalFederal Government debt amounted to AS 212.9 billion (18billion dollars), or 19.2 percent of the Government's overalldebt. In terms of GDP, Austria's public external debt amountedto 10.1 percent in 1993 and is estimated to rise to 11 percentin 1994. Debt service for Austria's external federal debtamounted to AS 29.2 billion (2.5 billion dollars) in 1993 andwas equal to 1.4 percent of GDP and 3.6 percent of totalexports of goods and services.5. Significant Barriers to U.S. Exports Austria's tariff regime will change when it impliments theEU common external tariff on January 1, 1995. U.S. exporterswill face higher tariffs in many sectors including computers,modems, fax machines, and other electronic equipment. In some sectors, competition is restricted, especially inagriculture. High tariffs combined with complicated licensingand quota systems limit agricultural imports. Discretionarylicenses are required for imports of some food products,including dairy product, red meats, poultry, grains (exceptrice), fruits, vegetables, sugar, brown coal, and someweapons. Trade of cheese and beef between the U.S. and Austria isconducted under two bilateral agreements. The first, datingfrom 1980, gives the U.S. a 600 ton quota for U.S. high qualitybeef (HQB) in Austria, and the U.S. granted Austria a duty freequota of 7,850 tons for cheese. The second accord, negotiatedin 1992 under GATT Article XXVIII as a result of tradeconcessions withdrawn by Austria on oilseeds products, providesfor an additional HQB quota of 400 tons for the U.S. In thefall of 1993, the U.S. requested consultations, claiming thatAustria was in violation of the agreements because of changesin the import mechanism, failure to release the full quota in atimely manner, and substantial increases in levies. In thefirst half of 1994, the import mechanism was changed, but theimport levy, which can reach as high as four dollars akilogram, remains in place. The U.S. beef quota is likely tobe folded into the EU-wide HQB quota. Due to the EU ban onhormones, this would effectively curtail exports of U.S. beefto Austria. The Government of Austria generally welcomes foreign directinvestment. One hundred percent foreign ownership ispermitted, and there are no restrictions on repatriation ofearnings, interest payments, and dividends. However, investorsmust sometimes deal with complicated administrative proceduresto obtain approval for new operations. Environmentalregulations and land use plans that differ between provincescomplicate both domestic and foreign investment. For example,environmental and administrative approval of one recent largeU.S. investment took nearly two years. In July 1993, Austria implemented a highly restrictiveresidency law aimed at curbing illegal immigration. It appliesto all residents, except those from EU countries andSwitzerland, staying longer than six months. Procedures arecomplicated and lengthy, and it has made timely approval forAmerican business executives, their representatives, and theirfamilies difficult. Austria's 1993 Banking Act presents a number of obstaclesfor market entry of U.S. banks. Branches of non-EEA banks mustbe licensed, while EEA banks may operate branches on the basisof their home country licenses. For bank branches orsubsidiaries from a non-EEA member country, the limits forsingle large loan exposures and open foreign exchange positionswill shrink considerably, because the endowment capital fromtheir parent companies can no longer be included in the capitalbase used for calculating these limits. Other providers offinancial services, such as accountants, tax consultants, andproperty consultants must specifically prove theirqualifications, such as university education or experience inorder to practice. Other service companies also require abusiness license, one of the preconditions of which is legalresidence. As a result, U.S. service companies often must forma joint venture with an Austrian firm. U.S. companies holdinginvestments in several EEA member countries benefit from moreliberal regulations with the enforcement of the EEA. Imports of foodstuffs, plant pesticides, pharmaceuticals,or electrical equipment are permitted only if the products passstandards set by the Austrian Testing Institute or a governmentagency. Due to the sometimes broad and diverse testingprocedures for pharmaceuticals, responses may take as long asthree or four years. The Austrian Consumer Protection Law andthe Law Against Unfair Competition require that textileproducts, apparel, household chemicals, soaps, toiletries, andcosmetic preparations must be marked and labeled in German.All telecommunications equipment, including customer premisesequipment, private networks, cable TV networks and value-addedservices, is subject to approval by the Austrian Post andTelegraph Administration (PTT). The Austrian approval policyfor customer premises equipment tends to be liberal. Austrian government procurement is non-discriminatory andcomplies with the General Agreement on Tariffs and Trade (GATT)Agreement on Government Procurement. Austria does not haverestrictive "buy-national" legislation and the principle of thebest bidder is usually maintained. Bid times are sufficientlylong to allow foreign firms to submit bids. In the militarysector, the Austrian Government often requests offsetarrangements; in early 1993, it concluded such an agreementwith the French Government for the purchase of Mistralmissiles. With Austria's participation in the EEA, Austriaenacted its first federal procurement law, adapting the EU'sSingle Market legislation on procurement. The AustrianGovernment did not, however, implement Article 29 of the EUUtilities Directive which mandates price preferences for EUfirms.6. Export Subsidies Policies The Government provides export promotion loans andguarantees within the framework of the OECD Export CreditArrangement and the GATT Subsidies Code. Preferentialfinancing is the main form of subsidy. In mid-1991, theAustrian Kontrollbank (AKB), Austria's export financing agency,revised its guarantee policy to set rates according to countryrisk rather than fixed rates. As a result, the extension ofguarantees has become more restrictive. The Government assumesguarantees for credit transactions of the AKB if the proceedsof such transaction are used for financing exports andcontributes to the AKB's borrowing costs. The AKB's ExportFund provides export financing programs for small andmedium-sized companies with annual export sales of up to AS 100million. Austria is a member of the GATT Subsidies Code.7. Protection of U.S. Intellectual Property Austrian Laws are consistent with international standards,and Austria is a member of all principal multilateralintellectual property organizations, including the WorldIntellectual Property Organization. Austria took an activeposition on intellectual property during the Uruguay Roundnegotiations. To adopt to EU laws, as required by the EEAagreement, Austria amended in March 1993 its copyright law toprovide for the protection of computer software. TheGovernment also implemented in April 1994 the Protection ofInventions Act and a law implementing protection certificatesfor medicine patents in July 1994. A levy on imports of home video cassettes and a compulsorylicense for cable transmission is required under Austriancopyright law. Fifty-one percent of total revenues go to aspecial fund used for social and cultural projects. A draftlaw which was prepared by the Justice ministry to introducecompulsory licensing of videocassettes to tourist andeducational institutions was postponed in September 1994.Austrian copyright law requires that the owner of intellectualproperty must prove the entire chain of rights up to theproducer. In the case of films, this has made prosecution ofcases for video piracy rare.8. Worker Rights a. The Right of Association Workers in Austria have the constitutional right toassociate freely and the de facto right to strike. Guaranteesin the Austrian Constitution governing freedom of associationcover the rights of workers to join unions and engage in unionactivities. Labor participates in the "Social Partnership," inwhich the leaders of Austria's labor, business, andagricultural institutions give their concurrence to neweconomic legislation and influence overall economic policy. b. The Right to Organize and Bargain Collectively Austrian unions enjoy the right to organize and bargaincollectively. The Austrian Trade Union Federation (OGB) isexclusively responsible for collective bargaining. All workersexcept civil servants are required to be members of theAustrian Chamber of Labor. Leaders of the OGB and laborchamber are democratically elected. Workers are legallyentitled 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 iseffectively enforced by the Labor Inspectorate of the Ministryfor Social Affairs. e. Acceptable Conditions of Work There is no legally-mandated minimum wage in Austria.Instead, minimum wage scales are set in annual collectivebargaining agreements between employers and employeeorganizations. Workers whose incomes fall below the povertyline are eligible for social welfare benefits. Over 50 percentof the workforce works a maximum of either 38 or 38.5 hours perweek, a result of collective bargaining agreements. The LaborInspectorate ensures the effective protection of workers byrequiring companies to meet Austria's extensive occupationalhealth and safety standards. f. Rights in Sectors with U.S. Investment Labor laws tend to be consistently enforced in all sectors,including the automotive sector, in which the majority of U.S.capital is invested. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 210Total Manufacturing 578 Food & Kindred Products 15 Chemicals and Allied Products 25 Metals, Primary & Fabricated 2 Machinery, except Electrical 54 Electric & Electronic Equipment (1) Transportation Equipment (1) Other Manufacturing 60Wholesale Trade 453Banking (1)Finance/Insurance/Real Estate 110Services 12Other Industries (1)TOTAL ALL INDUSTRIES 1,384(1) Suppressed to avoid disclosing data of individual companies.Source: U.S. Department of Commerce, Bureau of EconomicAnalysis</text>
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<text>U.S. DEPARTMENT OF STATEAUSTRALIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS Patents: Patents are available for inventions in allfields of technology (except for human beings and biologicalprocesses for their production). They are protected by thePatents Act, which offers coverage for 16 years, subject torenewal. However, patents for pharmaceutical substances mayhave the term of protection extended to 20 years. Tradesecrets are protected by common law, such as by contract.Designs can be initially protected by registration under theDesigns Act for one year, which may be extended for six yearsand for further periods of five and five years respectively,upon application. Trademarks: Trade names and marks may be protected forseven years and renewed at will by registration under theTrademark Act. Once used, trade names and marks may also,without registration, be protected by common law. Someprotection also extends to parallel importing; that is, importsof legally manufactured products ordered by someone other thana person or firm having exclusive distribution rights inAustralia. Parallel importation is allowed, however, forbooks, and has been proposed for sound recordings (legislationwhich would have allowed such imports died when Parliament wasdissolved for the March 1993 national election). In September1993 the Australian Copyright Law Review Committee recommendedthat parallel importation of computer software be allowed understrict limitations. Copyrights: Copyrights are protected under the CopyrightAct. Works do not require registration and copyrightautomatically subsists in original literary, artistic, musicaland dramatic works, film and sound recordings. Computerprograms are legally considered to be literary works.Copyright protection is for the life of the author plus50 years. The Australian Copyright Act provides protection regardingpublic performances in hotels and clubs, and against videopiracy and unauthorized third-country imports. Australia'sUruguay Round implementing legislation extends protectionagainst the commercial rental of sound recordings and computerprograms. The Attorney General's Department monitors theeffectiveness of industry bodies and enforcement agencies incurbing the illegal use of copyrighted material. New Technologies: Illegal infringement of technology doesnot appear to be a significant problem. Australia has its ownsoftware industry and accords protection to foreign anddomestic production. Australia manufactures only basicintegrated circuits and semiconductor chips. Its geographicisolation precludes most U.S. satellite signal piracy.Australian networks, which pay for the rights to U.S.television programs, jealously guard against infringement.Cable television is not yet established in Australia.8. Worker Rights a. Right of Association Workers in Australia fully enjoy and practice the rights toassociate, to organize and to bargain collectively; theserights are enshrined in the Arbitration Act of 1904.Legislation which went into effect on March 30, 1994 formallylegalized the right to strike, which already had beenwell-established in practice. In general, industrial disputesare resolved either through direct employer-union negotiationsor under the auspices of the various state and federalindustrial relations commissions whose mandate includesresolution of disputes through conciliation and arbitration.Australia has ratified the major International LaborOrganization conventions regarding worker rights. b. Right to Organize and Bargain Collectively Slightly less than 40 percent of the Australian work forcebelongs to a union. The industrial relations system operatesthrough independent federal and state tribunals; unions arefully integrated into that process, having explicitly statedlegal rights and responsibilities. c. Prohibition of Forced or Compulsory Labor Compulsory and forced labor are prohibited by ILOconventions which Australia has ratified, and are not practicedin Australia. d. Minimum Age for Employment of Children The minimum age for the employment of children varies inAustralia according to industry apprenticeship programs, butthe enforced requirement in every state that children attendschool until age 15 maintains an effective floor on the age atwhich children may be employed full time. e. Acceptable Conditions of Work There is no legislatively-determined minimum wage. Anadministratively-determined minimum wage exists, but is nowlargely outmoded, although some minimum wage clauses stillremain in several federal awards and some state awards.Instead, various minimum wages in individual industries arespecified in industry "awards" approved by state or federaltribunals. Workers in Australian industries, including the petroleum,food, chemicals, metals, machinery, electrical, transportationequipment, wholesale trade, and general manufacturing sectors,enjoy hours, conditions, health, safety standards and wagesthat are among the best and highest in the world. f. Rights in Sectors with U.S. Investment Most of Australia's industrial sectors enjoy some U.S.investment. Worker rights in all sectors are essentiallyidentical in law and practice and do not differ betweendomestic and foreign ownership. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 2,579Total Manufacturing 7,076 Food & Kindred Products 1,319 Chemicals and Allied Products 2,235 Metals, Primary & Fabricated 317 Machinery, except Electrical 624 Electric & Electronic Equipment 405 Transportation Equipment 472 Other Manufacturing 1,704Wholesale Trade 1,706Banking 1,199Finance/Insurance/Real Estate 2,060Services 734Other Industries 3,083TOTAL ALL INDUSTRIES 18,437Source: U.S. Department of Commerce, Bureau of EconomicAnalysis</text>
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<text>U.S. DEPARTMENT OF STATEAUSTRALIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS AUSTRALIA Key Economic Indicators (Billions of U.S. dollars unless otherwise noted 1/) 1992 1993 1994 2/Income, Production and Employment:Real GDP (1989-90 prices) 3/ 276.7 262.4 293.8Real GDP Growth (pct.) 1.8 3.2 4.3GDP (at current prices) 292.1 281.5 317.6By Sector: Agriculture 11.7 10.9 12.2 Energy/Water 9.2 8.7 9.4 Manufacturing 41.2 40.3 46.1 Construction 18.2 17.8 19.6 Ownership of Dwellings 27.5 26.1 28.8 Finance/Property/Business Svcs. 33.0 30.4 32.6 Other Services 4/ 45.4 43.4 49.1 General Government and Defense 10.8 10.0 10.9 Net Exports of Goods & Services -0.5 -1.3 -1.3Real Per Capita GDP (USD) 15.8 15.0 16.6Labor Force (000s) 8,623 8,648 8,760Unemployment Rate (pct.) 10.8 10.9 9.8Money and Prices: (annual percentage growth)Money Supply (M1) (pct./year-end) 20.0 17.8 19.3Base Interest Rate 5/ 7.2 5.8 6.0Personal Savings Ratio (pct.) 4.9 5.0 5.4Retail Price Index (pct. change) 2.1 2.8 2.9Consumer Price Index (pct. change) 1.0 1.8 2.4Wholesale Price Index N/A N/A N/AExchange Rate (A$1=U.S. cents) 74.0 68.0 73.0 Percentage Growth -5.0 -8.1 7.4Balance of Payments and Trade:Total Exports (FOB) 6/ 43.2 42.7 50.4 Exports to U.S. 3.8 3.4 4.0Total Imports (FOB) 41.1 42.4 51.1 Imports from U.S. 9.2 9.0 10.2Aid from U.S. 0 0 0Aid from Other Countries 0 0 0Gross External Public Debt 63.2 64.9 67.9Debt Service Payments (paid) 9.2 7.5 7.9Gold and Foreign Exch. Reserves 14.9 14.3 15.0Current Account Balance -10.7 -10.7 -12.0 Trade Balance with U.S. -5.3 -5.5 -6.2N/A--Not available.1/ Exchange rate fluctuations must be considered when analyzingdata. Percentage changes are calculated in Australian dollars.2/ 1994 figures are all estimates based on available monthlyand quarterly data in October 1994.3/ GDP at factor cost for base year indicated.4/ "Other Services" includes community, recreation, personaland other services.5/ Figures are actual, average annual interest rates, notchanges in them.6/ Trade data recorded on a foreign trade basis - different tothose recorded on a balance of payments basis.1. General Policy Framework Australia's gross domestic product (GDP) in 1994 wasestimated to be US $317.6 billion. Real GDP is estimated tohave grown by 4.3 percent, a substantial improvement from1993's 3.2 percent. Nevertheless, the impact of the recessionwhich began during the third quarter of 1989 and ended in 1991continued to be felt; unemployment hovered between 9.5 and 10percent during 1994. U.S. economic interests in Australia are substantial,including direct investment worth approximately US $16 billionand a bilateral trade surplus of approximately US $6 billion(up by approximately US $600 million from 1993). Although in area Australia is the size of the contiguousUnited States, its domestic market is limited by a smallpopulation (17.7 million people). The production ofagricultural commodities and primary products is an importantcomponent of the economy; Australia leads the world in woolproduction, is a significant supplier of wheat, barley, dairyproduce, meat, sugar, and fruit, and a leading exporter ofcoal, minerals and metals, particularly iron ore, gold,alumina, and aluminum. Export earnings are not welldiversified; in 1993, primary products accounted for 60percent of the total value of goods and services exports. The drought which Australia suffered in 1994 affected theagricultural sector severely. The wheat crop, for example, wascut by an estimated 51 percent from the previous year, reducingexport earnings and necessitating the importation of wheat,corn, and sorghum. Some commentators believe that the droughtmay reduce otherwise-attainable real GDP growth (as shown inthe data table above) by approximately 0.5 percent. To increase Australia's international competitiveness, thegovernment has continued its longstanding effort to reduceprotective trade barriers and deregulate large segments of theeconomy. Privatization of government services at both thefederal (airlines, banks, telecommunications) and state level(water treatment, transportation, electricity, banks) is beingpursued. The government intends to sell the remaining75 percent of Qantas to the public in 1995. Trade reformsbegun in June 1988 resulted in an end to import quotas on allbut textiles, clothing, and footwear, and lower tariffs on mostimports. Although the 20 percent preference given by thefederal government to Australian and New Zealand firms biddingon government contracts was abolished November 1, 1989, andcivil offsets in December 1992, some state and territorygovernments continue to apply preferences in their contracts. The Australian Government continued to provide substantialfiscal stimulus to the domestic economy in 1994. The budgetdeficit reached US $9.6 billion (3.4 percent of GDP). Publicsector borrowing more than funded the deficit, and took theform of treasury notes (US $427 million), treasury bonds(US $10.1 billion), and cash drawdowns (US $4.9 billion). Aspart of its Australian Fiscal Year (AFY) 1994-95 budget, thegovernment announced its intention to cut the deficit to1 percent of GDP by AFY 1996-97. The money supply is controlled through an open-markettrading system of nine dealers who act as a conduit between theReserve Bank and the financial system. Transactions mayinvolve purchases, sales, or trade in repurchase agreements ofshort-term treasury securities. Depending on liquidityconditions, the Reserve Bank may bypass dealers and buy or sellshort-term treasury notes directly with banks on a cash basis.Banks do not normally hold liquid deposits of any size with theReserve Bank. Instead, they hold call-funds with theauthorized dealers. If a bank needs cash on a given day, iteither borrows from other banks or withdraws funds it has ondeposit with the dealers. Under the above money supply controlsystem, foreign exchange flows and government deficits andcredits have only limited impact on the money supply. Thegovernment also uses interest rate changes to influence themoney supply. In 1994, official government interest rates wereincreased twice, by 75 basis points in August, and a fullpercentage point in October, to reach 6.5 percent. A strong supporter of the Uruguay Round negotiationsliberalizing international trade, the Australian governmentmoved rapidly to ratify the Uruguay Round agreements and becamea founding member of the World Trade Organization (WTO) onJanuary 1, 1995. Australia also advocates liberalizing tradewithin the Asia-Pacific region; it is a leading member of theAsia Pacific Economic Cooperation (APEC) forum, and stronglysupported the November 1994 Bogor Declaration, in which APECleaders set the goal of free trade in the region by the year2020. The challenge the government will face in 1995 is tomaintain moderately high real growth and reduce unemploymentwithout causing a revival of inflation and a massive increasein the current account deficit (by virtue of the impact growthhas on the demand for imports). Many economists believe thatthe desired gains in growth and employment will come, but areworried that unless the government cuts the budget deficitfaster than currently planned, both of the feared side effectscould be produced by an overheating economy.2. Exchange Rate Policies Australian Dollar (A$) exchange rates are determined byinternational currency markets. Official policy is not todefend any particular exchange rate level. In practice,however, the Reserve Bank has a comfort range in mind whenlooking at exchange rate movements. It is active in "smoothingand testing" foreign exchange rates in order to provide agenerally stable environment for fundamental economicadjustment policies, and intervenes occasionally to combatspeculative attacks on the Australian dollar. Australia does not have major foreign exchange controlsbeyond requiring Reserve Bank approval if more than A$5,000(US $3,650) in cash is to be taken out of Australia at onetime, or A$50,000 (US $36,500) in any form in one year. Thepurpose is to control tax evasion and money laundering. If theReserve Bank is satisfied that there are no liens against themoney, authorization to take large sums out of the country isautomatic. The regulation does not affect U.S. trade.3. Structural Policies Pursuing a goal of a globally competitive economy, theAustralian government is continuing a program of economicreform begun in the 1980s that includes an acceleratedtimetable for the reduction of protection and micro-economicreform. Initially broad in scope, the Australian government'sprogram is now focusing on industry-by-industry, micro-economicchanges designed to compel businesses to become morecompetitive. The strategy has three principal premises: protection mustbe reduced; the pace of reform needs to be accelerated; andindustry must learn to do without high levels of protection. Towards these ends, a phased program to cut tariffs by anaverage of about 70 percent was begun July 1, 1988, to becompleted on June 30, 1996. Specifically, in approximatelyequal phases, except for textiles, clothing, footwear and motorvehicles, all tariffs will be reduced to 5 percent. Alongwith these measures, some of the few manufactured productsstill receiving bounties (production subsidies) will have thosebenefits reduced each year until the bounties expire. TheUruguay Round agreements will force faster-than-planned tariffreductions in only a small number of cases. As noted in Section five (below), local contentrequirements on television advertising and programming andcertain government procurement practices may have adverseeffects on U.S. exporters and service industries.4. Debt Management Policies Australia's gross external public debt now exceedsUS $67.7 billion, or 23.5 percent of GDP. That figurerepresents 46 percent of Australia's gross external debt; theremaining 54 percent is owed by the private sector. Grossinterest payments on public debt totaled US $4.0 billion inAFY 1993/94, representing 6.7 percent of exports of goods andservices. Private sector debt service totaled US $4.0 billion,an amount equal to another 6.7 percent of export earnings. Onan overall basis, therefore, Australia's debt service ratio was13.4 percent, down substantially from AFY 1992/93's 14.9percent. Falling international interest rates caused the dropin the debt service ratio. Standard and Poor's general creditrating for Australia remained AA during 1994.5. Significant Barriers to U.S. Exports The U.S. enjoyed an estimated US $6.2 billion trade surpluswith Australia in 1994. There are no longer any significantAustralian barriers to U.S. exports. The U.S. is the numberone source of imports in Australia, with a 21 percent share ofAustralia's import market and a substantial share of theimported products purchased by the government. The followingAustralian trade policies and practices affect U.S. exports tosome degree. Licensing: Import licenses are now required only forcertain vehicles, textiles, clothing, and footwear. Licensingapplied to these products is for protection, but except for asmall market among importers of used automobiles has had littleimpact on U.S. products. Service Barriers: The Australian services market isgenerally open, and many U.S. financial services, legal, andtravel firms are established in Australia. In 1992 theGovernment announced a complete liberalization of the bankingsector and new foreign banks will be licensed to operate aseither branches (for wholesale banking) or subsidiaries (forretail operations). The Australian Broadcasting Authority(ABA), which controls broadcast licensing, liberalized rulesgoverning local content in television advertising effectiveJanuary 1, 1992. Under current rules, up to 20 percent of thetime used for paid advertisements can be filled with messagesproduced by non-Australians. Statistics covering 1992 (thelatest available) indicate that approximately 8 percent oftelevision advertisements broadcast in that year were producedabroad. On January 1, 1990, local content regulations regardingcommercial television programming entered into force.Beginning with 35 percent for 1990, the local contentrequirement increased by 5 percent per year until January1993. From that date forward, 50 percent of a commercialtelevision station's weekly broadcasts between the hours of6:00 a.m. and midnight must be dedicated to Australianprograms. Programs are evaluated on a complex point systembased on relevancy to Australia (setting, accent, etc., rangingfrom no Australian content to a 100 percent Australianproduction). Trade sources indicate that the contentregulation does not have a substantial impact on the amount ofU.S. programming sold to Australian broadcasters, as the mix ofprogramming is driven by the market's preference for Australianthemes. The latest available statistics bear that out.According to the ABA, in the two years before the local contentrequirement took effect, an average of 46 percent of commercialstations' broadcasting time was devoted to importedprogramming. During the 1992 broadcasting year, that figurefell to 44 percent. Regulations governing the development ofAustralia's pay-TV system require that channels carrying dramaprograms devote at least 10 percent of broadcast time to new,locally produced programs. The ABA's local contentrequirements have been opposed actively by the American Embassyand U.S. trade officials. In September 1994 the Embassyreiterated U.S. opposition to quotas in the context of theABA's review of broadcasting content regulation. That reviewis expected to conclude in early 1995. State governments restrict development of privatehospitals. States' motives are to limit public healthexpenditures and to balance public/private services to preventsaturation and overuse -- major government fiscal concernsgiven that most medical expenses for private hospital care arepaid through government health programs. Standards: In 1992, Australia became a signatory to theGATT Standards Code. However, it still maintains restrictivestandards requirements and design rules for automobile parts,electronic and medical equipment, and some machine parts andequipment. Currently, all Australian standards are beingrewritten to harmonize them where possible to internationalstandards with the objective of fulfilling all obligations ofthe GATT Standards Code. State governments agreed in March1991 to recognize each others' standards. As a result, statestandards are being reviewed to harmonize with federalstandards. Labeling: Federal law requires that country of origin beclearly indicated on the front label of some products sold inAustralia. Labels must also give the name and address of aperson in Australia responsible for the information provided onthe label. State rules requiring that mass or volume ofpackaging contents be expressed on labels to the nearest fivemilliliters or kilograms are expected to be changed as statestandards are harmonized. These and similar regulations arebeing reconsidered along with other standards in light ofcompliance with GATT obligations, lack of utility and effect ontrade. Motor Vehicles: Passenger vehicle tariffs, currently30 percent, will drop to 27.5 percent on January 1, 1995 andwill be phased down to 15 percent on January 1, 2000. Underautomotive arrangements announced in March 1991, automobilemanufacturers may import duty free dutiable imported componentsup to a maximum value equal to 15 percent of their automobileproduction in a given year. In addition, under terms of theexport facilitation scheme, local manufacturers of vehicles andautomotive components can receive an offset on the tariff onfinished vehicles they import for sale in Australia in anamount equal to the value of their exports ofvehicles/components times the duty rate on the vehiclesimported. Under the Motor Vehicle Standards Act of August1989, the import of used vehicles manufactured after 1973 forpersonal use is banned, except where the car was purchased andused overseas by the buyer for a minimum of three months.Commercial importers must apply for a "compliance plate"costing A$20,000 (US $14,600) for each make of car imported.Left-hand drive cars must be converted to right hand beforethey may be driven in Australia. Only approved (licensed)garages are permitted to make these conversions. Because ofthese requirements, only a small number of used cars areimported into Australia each year. Foreign Investment: U.S. firms account for the largestsingle share of the stock of foreign direct investment inAustralia. In February 1992 the government announcedsignificant reforms to open the economy even further to foreigninvestment. In the mining sector (excluding uranium), the50 percent Australian equity and control guideline forparticipation in new mining projects, and the economic benefitstest for acquisitions of existing mining businesses, wereabolished. In almost all sectors of the economy, thethresholds above which foreign investment proposals must beexamined by the Foreign Investment Review Board (FIRB)wereincreased. Proposals to acquire 15 percent or more of acompany or business with total assets below A$50 million(US $36.5 million), or takeover an off-shore company withAustralian subsidiaries or assets valued below A$50 million(US $36.5 million) are no longer examined. Proposals above thethreshold will be approved unless found contrary to thenational interest. The only sectors in which the reforms donot apply are uranium mining, civil aviation, the media, andurban real estate. Divestment cannot be forced without due process of law.There is no record of forced disinvestment outside thatstemming from investments or mergers which tend to createmarket dominance, contravene laws on equity participation, orresult from unfulfilled contractual obligations. Government Procurement: Australia is not a member of theGATT government procurement code. However, in June 1994 thegovernment announced an interagency examination of the code andthe question of possible adherence. The review is scheduled tobe completed in early 1995. The federal government abandoned the civil offset programin 1992. Three state governments still require offsets in somecases. Nonetheless, in dismantling the offset program, thegovernment removed a major trade irritant between the UnitedStates and Australia. Since 1991, foreign information technology companies withannual sales to the Australian government of A$10-40 million(US $7.3-29.2 million) have been required to enter into fixedterm arrangements (FTAs), and those with sales greater thanA$40 million (US $29.2 million) into partnerships fordevelopment (PFDs). Under FTAs, a foreign company or itssubsidiary commits to undertake local industrial developmentactivities worth 15 percent of its projected amount ofgovernment sales over a four year period. Under a PFD, theheadquarters of the foreign firm agrees to invest 5 percent ofits annual local turnover on R and D in Australia; export goodsand services worth 50 percent of imports (for hardwarecompanies) or 20 percent of turnover (for software companies);and achieve 70 percent local content across all exports withinthe seven year life of the PFD. In 1992 this scheme wasextended into the telecommunications customer premisesequipment (CPE) sector, replacing, in large measure, therequirement that suppliers of cellular mobile telephones, pabx,small business systems, and first telephones have IndustrialDevelopment Arrangements (IDAS) in place before obtaininglicenses to connect their equipment to the public switchednetwork. The IDA program now is scheduled to be eliminated inJune 1996. Beginning on February 1, 1992, the government implemented aRestricted Systems Integration Panel (RSIP) scheme. The RSIPis a panel of 20 to 25 selected private companies through whichall Commonwealth information technology requirements involvingsystems integration activity are to be sourced, except forpurchases with an estimated value of less than A$1 million(US $0.7 million). Firms applying for panel membership will beevaluated on "demonstrated competence, commercial viability andpotential to contribute to government policy objectives,including expansion into Asian-Pacific markets, particularlythose of North and Southeast Asia". The net effect of thepanel will be to hinder non-member participation in governmentsystems integration contracts. Technically, panel membershipwill not be closed. However, access will remain restricted anda new applicant (domestic or foreign) would have to demonstrateeligibility to join or be able to offer expertise not availablewithin the panel. Several U.S. firms were named initialmembers of the panel. The U.S. Embassy and the AustralianInformation Industry Association have strongly opposed thepanel's establishment. In December 1992 the Australian government announced aninitiative requiring, beginning in AFY 1993/4, GovernmentBusiness Enterprises (GBEs - central government-owned companiessuch as the Australian and Overseas TelecommunicationCorporation and the Civil Aviation Authority) to, inter alia,give "local companies the maximum opportunity to compete forgovernment business consistent with the commercial objectivesof GBEs and the need to obtain value for money". The newpolicy stops well short of directing GBEs to give preference tolocal suppliers. However, it does bias them towards buyinglocally and could, therefore, become a significant elementdetermining their procurement choices. The Australian government's May 1994 employment andindustry policy statement strengthens these efforts to usegovernment procurement policy to encourage local industrialdevelopment. It requires industry impact statements to bedrafted for procurement of US $7.4 million or more, andestablishes a two-envelope system for such tenders. Under thelatter system, bidders will be required to submit detailedinformation regarding Australian industrial developmentseparately (in "envelope 2"), and bids will be judged both onprice/product specifications and industrial development grounds. Quarantines: Because of its geographic location, Australiais relatively free of many animal diseases (rabies,hoof-and-mouth, etc.) and pests that plague other parts of theworld. To preserve its environment, Australia imposesextremely stringent animal and plant quarantine restrictions.Except for horses, livestock imports are limited toreproductive material and a few valuable breeding animals thatmust undergo long quarantines. Studies are underway whichcould see the lifting of phytosanitary barriers to theimportation of U.S. salmon and cooked chicken. Tobacco: Local manufacturers are encouraged to use atleast 50 percent local leaf in their products through the offerof concessional duties on imported leaf. In practice, an"informal" agreement between growers and cigarettemanufacturers extends the local content requirements to57 percent. This local content rule is to be removed onOctober 1, 1995. Since October 12, 1989 the government hasbanned the sale of smokeless tobaccos (chewing tobacco, snufffor oral use) in Australia, leaving the market solely to localproducts used for oral purposes, but not labeled as such. Fruit Drinks: Noncarbonated fruit drinks containing20 percent or more local fruit juice are assessed a sales taxof 10 percent, whereas fruit drinks with below 20 percent localfruit juice content are assessed a 20 percent sales tax. ThisAustralian content-based tax rule was due to be rescinded on orbefore January 1, 1995. In 1993, Australia modified itspreferential tariff scheme to equalize, from July 1, 1995, thetariff applied on citrus from developed and developingcountries. The tariff will be set at 8 percent effective onthat date, and will fall to 5 percent on July 1, 1996.6. Export Subsidies Policies Australia signed the GATT Subsidies Code and joined withthe U.S. in GATT negotiations to limit export subsidy use. The Australian government provides export marketdevelopment-reimbursement grants of up to A$250,000(US $182,500) for most qualifying domestic firms exportinggoods and services. Other mechanisms provide for drawbacks oftariffs, sales, and excise taxes paid on exported finishedproducts or their components. In some cases, government grantsand low-cost financing are provided to exporters for bonding,training, research, insurance, shipping costs, fees, marketadvice, and to meet other costs. "Bounties" (in effectproduction subsidies) are paid to manufacturers of some textileand yarn products, bed sheets, new ships, some machine tools,and computer and molding equipment to help them export orcompete with cheaper foreign-made substitutes. Existingbounties are to be phased down until they expire. Bountiesand their expiration dates are: shipbuilding and textiles(June 30, 1995); citric acid (March 31, 1996); machine toolsand robots (June 30, 1997); books, computers and circuit boards(December 31, 1997). All bounties will be reviewed beforeexpiration with some possibly extended or converted totariffs. Dairy market support payments, which were classed asan export subsidy under the Uruguay Round, are to be terminatedon June 30, 1995 in accordance with Australia's Uruguay Roundimplementing legislation. The government provides support and research anddevelopment grants to Australian industry for trials anddevelopment of internationally competitive products andservices for which the Federal or state government are theprimary purchasers. Electricity production is within the purview of stategovernments, some of which subsidize the industry and/orselected users of electricity. States also control railroadsand rates; some use rail charges as a form of indirect taxationto overcome their legal inability to levy income and some salestaxes. New South Wales and Queensland charge high freightrates for coal partly for that reason. Other states chargehigh prices to move wheat by rail, a factor which hurtsAustralian wheat's competitiveness on world markets. Incompeting for investment, states offer a wide range ofnegotiable concessions on land, utilities, and labor training,some of which amount to subsidies.7. Protection of U.S. Intellectual Property Patents, trademarks, designs and integrated circuitcopyrights are protected by Australian law. Australia is amember of the World Intellectual Property Organization, theParis Convention for the Protection of Industrial Property, theBerne Convention for the Protection of Literary and ArtisticWorks, the Universal Copyright Convention, the GenevaPhonograms Convention, the Rome Convention for the Protectionof Performers, Producers of Phonograms and BroadcastingOrganizations, and the Patent Cooperation Treaty. Australianlaw is broad and protects new technology, including geneticengineering.</text>
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<text>U.S. DEPARTMENT OF STATEARMENIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS ARMENIA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994Income, Production and Employment: (billions of rubles)Real GDP (1991 prices) 7.593 6.469 6.391Real GDP Growth (pct.) -52.3 -14.8 -1.2GDP (at current prices) 59.068 779.619 29.400 2/By Sector: (pct.) Agriculture 31.8 48.1 34.8 Industry 37.6 26.0 51.6 Construction 4.3 3.7 2.6 Transportation 1.3 0.6 1.5 Trade/Catering 3.3 2.0 1.5 Other 21.5 19.6 8.0Real Per Capita GDP (1991 USD) N/A 990 900Labor Force (000s) 2,194 1,530 1,490Unemployment Rate (pct.) 3.4 6.5 7.0Money and Prices: (annual percentage growth)Money Supply (M2) N/A N/A 700Base Interest Rate 8-10 46.5 360-210Personal Savings Rate 9-10 N/A 60-180Retail Inflation 728.7 930.0 900.0Wholesale Inflation N/A 990.0 900.0Consumer Price Index 28.7 940.0 900.0Exchange Rate (USD/NC) Official 1/400 1/2,020 1/350 Parallel 1/400 1/2,050 1/370Balance of Payments and Trade: (USD millions)Total Exports (FOB) 74.52 108.01 129.98 Exports to U.S. 1.43 0.23 0.39Total Imports (CIF) 141.02 205.43 254.44 Imports from U.S. 3/ 1.02 1.99 2.30Aid from U.S. 4/ 45.10 93.20 81.73Aid from Other Countries N/A 112.50 113.00External Public Debt 0.0 220.0 592.0Debt Service Payments (paid) 0.0 0.0 45.0Gold and Foreign Exch. Reserves 15.9 N/A N/ATrade Balance 3/ -66.500 -97.417 -124.460 Trade Balance with U.S. 3/ 0.409 -1.764 -1.991N/A--Not available.1/ 1994 Figures are all estimates based on available data inOctober 1994.2/ 1994 GDP estimate is in billions of Armenian drams.3/ Grain, fuel and other assistance imports not included.4/ Other U.S. assistance was available through regionalprograms for which a country-by-country breakdown is notavailable.Sources: the Armenian Ministry of Economy, the Armenian StateStatistical and Analysis Committee, and the Central Bank.1. General Policy Framework In 1994, the severe economic crisis in Armenia continued.Almost all Armenian industries suffered shortages of fuel,electricity and raw materials, as a result of the embargoes byAzerbaijan and Turkey, and civil unrest in Georgia.Rehabilitation of regions damaged by the 1988 earthquake hasbeen progressing slowly. The average purchasing power of thepopulation decreased as compared with 1993 and further limitedtrade opportunities. Corruption remained a problem. However,the relative stability afforded by the cease-fire which hasbeen in place since May 1994 for the Nagorno-Karabakh conflicthas enabled the government to devote more attention to theeconomy and invigorate its reform efforts. The present Armenian government has demonstrated a firmcommitment to turning Armenia from a centralized state with aplanned economy into a democratic society with free-marketeconomic relations. The disintegration of the ruble zone in1993 led Armenia to introduce its national currency, the dram,which lost value rapidly at the beginning of 1994. The generaleconomic crisis and severe shortages of energy resources duringthe winter period resulted in a significant decrease inindustrial production. The standard of living has continued toerode, and a significant out-migration of the population hasoccurred. The Nagorno-Karabakh conflict had forced thegovernment to convert many of its operating machinerymanufacturers to defense production, but the cease-fire, whichhas been in place since May 1994, has helped stabilize theeconomic situation. The government has taken measures to lift almost all tradebarriers for exporters, and to reinforce the role of theCentral Bank by granting it significant authority to conductstate monetary policy and license individuals or organizationsengaged in banking and related activities. However, thegovernment budget deficit in 1994 decreased markedly due toincreases in grants, decreases in lending, and lower levels ofcurrent expenditure. The deficit was partially financed byborrowing from the Central Bank and commercial banks, and bycredits received from Russia, other countries, and multilateralinstitutions. Since June 1994, the Central Bank has exercisedstrong control on the emission and the exchange rates policy,set higher reserve/deposits ratio requirements for banks, andstarted to conduct credit auctions. This, along with a slightincrease in exports during the summer and a number ofinternational credits, contributed to a sharp decrease in therate of inflation, from 30-40 percent in January/February to3-7 percent in September/October. In 1992, Armenia privatized almost 80 percent of itsagricultural land. In 1994, Armenia began major privatizationof industry. The privatization program will be conducted inthree stages during 1994-1997, and is considered to be a keystep in improving the economic situation. In 1994, more than4,700 small and medium-sized enterprises were planned to beprivatized. Privatization of dwellings also took placethroughout the year and is expected to end in 1995. During 1994, the Armenian government worked hard to improveoperating industries' export performance. Concentrated effortswere made to upgrade energy industry infrastructure, and tofind new sources/suppliers of energy and fuel. An agreementhas been reached with Russia on joint exploitation of theMetsamor nuclear power plant which may reopen in 1995. In themeantime, Armenian and Russian specialists continue to test andmodernize the plant, which was closed after the 1988 earthquakefor safety reasons. Armenian business laws have gradually been readjusted tomatch those of western developed nations. Present Armenian lawpermits the establishment of almost all types of privatecompanies existing in the West, and the country's bankingsystem, which currently is very backward, is expected toimprove in the near future. Armenia is open to foreigninvestors and maintains a liberal foreign trade policy.2. Exchange Rate Policy At present, Armenia's banking sector consists of two statebanks, the Central Bank and the Savings Bank, and more thanforty private commercial banks, some of which are partiallycontrolled by the state. During 1994, in an attempt tostabilize the exchange rate and fight the hard currency blackmarket, the Central Bank adopted a number of contradictorymeasures including a liberal policy toward issuing licenses forexchange operations to any businesses, no strict control onexchange rate policy, and numerous dollar interventions (thoughof modest value). Then, the Central Bank decided to setobligatory exchange rates for all exchanges in Armenia, andfinally, to close many of the private exchanges, granting theright for exchange operations to the existing banks only, anddetermining exchange rates at the regular hard currencyauctions. Exchange rates may vary from the Central Bank'sexchange rate by up to three percent. In addition to themarket rate, the Central Bank maintains a second, lowerofficial exchange rate to be used in non-cash transactionsbetween state enterprises. No strict measures exist for control of hard currencyoutflow from Armenia. Armenian residents are currentlypermitted to take a maximum of USD 500 with them when theyleave the country. Permission to export foreign currency inexcess of USD 500 is granted only upon presentation of adocument proving that the money was purchased officially, orlegally obtained. In May 1994, the Central Bank ordered allArmenian resident companies to close their business accounts inforeign banks, transfer funds to Armenia, and conduct all theirinternational transactions via Armenian resident banks.3. Structural Policies In 1994, U.S. commercial exports to Armenia wereinsignificant, and were more affected by the Azerbaijani and defacto Turkish blockade, unrest in Georgia, and the conflict inNagorno-Karabakh than by Armenia's tax and regulatorypolicies. In Armenia, resident foreign business owners receivenational treatment, and are generally subject to the same taxesand regulations as Armenian businessmen. Joint ventures withmore than 30 percent foreign investment are granted significanttax benefits and other privileges. Basic Armenian taxes include a profit/corporate tax (12-20percent), a value-added tax (16.6-20 percent), an excise tax(5-70 percent) for sale of certain products, a personal incometax, and taxes paid to social security and pension funds.Amounts of duties and fees paid for export/import licenses andlicenses for certain professional activities are normallydependent on the current minimum monthly wages set by thegovernment. Though Armenian tax law describes ten more typesof taxes, including a property and a land tax, relevantnecessary legislation and collection mechanisms have yet to beadopted. All exports from Armenia are duty-free. The law sets minorcustoms duties (5-10 percent) for imports of certain goods. In 1992, Armenia and the United States signed a bilateralinvestment treaty and an Overseas Private InvestmentCorporation (OPIC) incentive agreement, which allows OPIC tooffer political risk insurance and other programs to U.S.investors in Armenia. In 1994, Armenia adopted the Law onForeign Investments in hope of providing a legal structure forsecure investments in the country's economy.4. Debt Management Policies In 1992, Russia assumed responsibility for managingArmenia's share of the former Soviet Union's external debt of$561.6 million. In 1993, Armenia incurred ruble and hardcurrency external debt totalling $220 million. This includedcredits received from the World Bank, European Bank forReconstruction and Development (EBRD), as well as from otherinternational institutions and foreign governments. No debtservice payments were made in 1993. At the end of 1994, the Armenian external debt increased to$592 million. It included loans received from the World Bankfor rehabilitation projects in the earthquake zone, irrigationprojects, an EBRD loan for reconstruction of the Hrazdannatural gas-fired power generating unit, a credit forconstruction of a cargo terminal at Yerevan's Zvartnotsairport, and a number of other foreign credits. Debt servicepayments by the end of 1994 are estimated at $45 million. In December 1994, the IMF approved a $25 million IMFSystemic Transformation Facility loan to support Armenia'sreform program. The World Bank is also expected to offerfinancing worth about $80 million during 1995, which willsupport reform. The United States, France, and the Netherlandspledged about $110 million in humanitarian assistance and tradecredits which also will support Armenia's reform program byaddressing its balance of payments needs. Earlier in 1994,Russia also agreed to extend a 110 billion ruble credit, partof which will be used for retooling the Metsamor nuclear powerplant.5. Significant Barriers to U.S. Exports In 1994, the following factors acted as significantbarriers to U.S. exports to Armenia: a partial road and railembargo of the country, fuel shortages, lack of marketinformation, lack of a modern telecommunications system,nonconvertibility of the Armenian dram outside of the country,inflation, a backward banking system, insufficient protectionof foreign investments, the extremely low purchasing power ofthe population and local companies, and lack of internationaltrade experience. Local or foreign companies registered and operating inArmenia which receive their revenues in hard currency arerequired to sell 50 percent of their hard currency profits tothe state for drams at the official exchange rate. In 1994, government procurement practices were mainly basedon countertrade transactions, as well as competitive bidding incertain industry sectors and programs financed by internationalcredits.6. Export Subsidies Policies In 1994, export-oriented industries continued to receivegovernment assistance. As was the case during the Sovietperiod, the government subsidized some state enterprises andprovided resource discounts to producers in critical industries.7. Protection of U.S. Intellectual Property An agreement on trade relations between Armenia and theUnited States, signed in 1992, states that the parties shallensure that domestic legislation provide for protection andimplementation of internal property rights, includingcopyrights on literary, scientific and artistic works,including computer programs and data bases, patents and otherrights on inventions and industrial design, know-how, tradesecrets, trademarks and servicemarks, and protection againstunfair competition. In August 1993, the Armenian parliament adopted the Law onPatents, and the government established a PatentAdministration. Patents are granted for a period of 20 years.Laws on trademarks and copyrights are being considered by theParliament. Armenia plans to join the Paris Convention for theProtection of Intellectual Property, the Madrid Agreementconcerning international registration of trademarks, and thePatent Cooperation Treaty. Meanwhile, piracy of video and audio materials, books andsoftware in the poorly controlled private sector iswidespread. Items are copied locally, and some are importedfrom neighboring states, mainly Russia. No exports of piratedmaterials from Armenia to other states have been observed.Armenian state television and numerous illegal private cablechannels regularly air Western video materials, many of whichare unlicensed and of low quality.8. Worker Rights The 1992 Law on Employment guarantees employees the rightto form or join unions of their own choosing without previousauthorization. At the same time, many large enterprises,factories, and organizations remain under state control, andvoluntary, direct negotiations between unions and employerswithout the participation of the government cannot take place.The 1992 Law on Employment guarantees the right to organize andbargain collectively. Armenia's high unemployment rate makesit difficult to gauge to what extent this right is exercised inpractice. The 1992 Law on Employment prohibits forced labor. Childlabor is not practiced. The statutory minimum age foremployment is sixteen. The minimum wage is set by governmentaldecree and was increased periodically during 1994. Employeespaid the minimum and even average official wages cannot supporteither themselves or their families and must look for sourcesof additional income. Most enterprises are either idle oroperating at only a fraction of their capacity. Individualsstill on the payroll of idle enterprises continue to receivetwo-thirds of their base salary. The overwhelming majority ofArmenians are thought to live below the officially recognizedpoverty level.</text>
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<text>U.S. DEPARTMENT OF STATEARGENTINA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS ARGENTINA Key Economic Indicators (Billions of U.S. dollars unless otherwise noted) 1992 1993 1994 1/Income, Production and Employment:GDP (at current prices) 2/ 229 257 279Real GDP Growth (pct.) 8.7 6.0 6.5GDP by Sector: (pct./GDP) Agriculture 7.8 7.3 7.0 Manufacturing 27.0 26.6 27.5 Mining 2.3 2.3 2.3 Services 55.4 55.9 56.0GDP Per Capita (USD) 6,932 7,644 8,206Labor Force (000s) 13,126 13,126 13,978Unemployment Rate (pct.) 6.9 9.3 10.8Money and Prices:Money Supply (M1) Growth (pct.) 3/ 48.9 31.0 10.0Commercial Interest Rates on 180 Day Deposits 3/ 8.0 7.8 8.9(Aug)Savings Rate (pct. of GDP) 15.2 15.9 13.5Investment Rate (pct. of GDP) 16.7 17.7 20.0Wholesale Inflation 3/ 3.3 0.1 3.9CPI (pct. change) 3/ 17.5 7.4 3.7Exchange Rate (USD/peso) 4/ Official .9910 .9990 1.0 Parallel .9910 .9990 1.0Balance of Payments and Trade:Total Exports (FOB) 5/ 12.2 13.1 14.7 Exports to U.S. (FOB) 1.4 1.3 1.5Total Imports (CIF) 14.9 16.8 20.2 Imports from U.S. (FAS) 6/ 3.0 3.8 4.8Aid from U.S. (USD/000s) 1.2 1.8 1.7External Public Debt 7/ 65.5 62.8 70.1Debt Service Payments 8/ 4.2 4.2 3.3Gold and Foreign Exch. Reserves 12.5 15.0 15.5Trade Balance -2.6 -3.7 -5.5 Trade Balance with U.S. 6/ -1.8 -2.5 -3.31/ Figures for 1994 are U.S. Embassy estimates.2/ Nominal GDP is virtually the same in dollars or pesos after1991 when the Convertibility Plan took effect, linking the pesoand the dollar at the rate of one to one.3/ End of period.4/ Average for the period.5/ Based on official Argentine Government data.6/ Based on U.S. Department of Commerce data.7/ Foreign currency debt.8/ Includes net debt service paid by public sector tointernational financial institutions and on Government ofArgentina Foreign Currency Bonds.1. General Policy Framework President Carlos Menem's far-reaching reform program, whichbegan in earnest in 1991, has revitalized Argentina's economy.From 1991-1993 real GDP growth averaged eight percent annually,and the government has forecast growth of nearly seven percentin 1994. By mid-1993 the inflation rate fell to virtuallyzero--a major accomplishment given Argentina's bouts withhyperinflation only a few years ago. Meanwhile, a stableexchange rate and the opening of the economy to internationalcompetition, including large reductions in tariffs and othertrade barriers and elimination of all but one export tax, haveresulted in a boom in imports, particularly from the UnitedStates. During the first five months of 1994 Argentina'sdeficit with the United States was $1.4 billion, 56 percent ofArgentina's overall trade deficit during that timeframe. Theexpanding deficit has raised eyebrows, but the government hascountered this by citing the high concentration (30 percent) ofvitally needed capital goods in the import bill. The public sector budget has been in the black for the pastfew years--a result of more efficient tax collection, increasedrevenue from import tariffs (resulting from the import surge)and large infusions of revenue from the sale of stateindustries. The government has also eased the tax burden onbusinesses by eliminating charges on bank debt, freight,shipping, and foreign currency transactions. At the same time,the burden on the consumer has grown, via increases in thevalue added tax (VAT) and personal income tax rates. However,continued heavy expenditures have threatened to generate adeficit (less than one percent of GDP) in 1994, prompting thegovernment to crack down on tax evaders and to turn to foreignborrowing. The Central Bank of Argentina controls the money supplythrough the buying and selling of dollars. Under theConvertibility Law of 1991, the exchange rate of the Argentinepeso is fixed to the dollar at par value. Through the firstnine months of 1993, the Central Bank bought $2.2 billion,selling an equal amount of pesos.2. Exchange Rate Policy Argentina has no exchange controls; customers may freelybuy and sell currency from banks and brokers at market prices.The Convertibility Law, however, requires the Central Bank tosell dollars at a fixed rate of one peso to one dollar. TheBank buys dollars at a rate of .998 pesos per dollar. The fixed exchange rate, which some observers believe isovervalued, and the release of pent-up demand stemming from theoverall economic recovery, have made imports increasinglycompetitive for local buyers. Accordingly, the value of U.S.exports to Argentina nearly quadrupled from 1990 to 1993, withfurther growth in 1994.3. Structural Policies The Menem Administration's reform program has madesignificant progress in transforming Argentina from a closed,highly regulated economy to one based on market forces andexposed to international competition. The government's role inthe economy has diminished markedly through the privatizationof most state firms, including the oil firm YPF. Meanwhile,the authorities have eliminated price controls on all but a fewgoods in the marketplace. Nevertheless, the expanded tradedeficit has occasionally compelled the government to implementad hoc protectionist measures. For example, in 1993 theauthorities temporarily placed higher duties on various textileimports which allegedly were being sold in Argentina belowcost. These measures remain in effect until January 31, 1995with a possible one-time extension of six months. Argentina, Brazil, Paraguay and Uruguay formed a customsunion (MERCOSUR) on January 1, 1995 with a common externaltariff (CET) covering 85 percent of traded goods. (Capitalgoods, informatics and telecommunications will be excepted fromthe CET until the turn of century). Argentina strove tomaintain minimal tariffs during MERCOSUR negotiations in orderto facilitate renovation of its industrial plant, whichrequires continued imports of capital equipment and otherinputs. The CET will range from zero to 20 percent; manynon-MERCOSUR products entering Argentina will face highertariffs. The Argentine government has indicated it willcompensate by lowering or eliminating the statistical tax. Argentina ratified the Uruguay Round Agreements and becamea founding member of the World Trade Organization (WTO) onJanuary 1, 1995.4. Debt Management Policies The government reduced Argentina's public debt by $10.4billion in 1993 through privatizations, decline in netdisbursements, reduction in capital (Brady Plan),capitalization of interest and adjustment of the value ofgovernment assets. From 1989 to 1993 Argentina's debt servicefell from 101 percent to under 50 percent of exports of goodsand non-factor services. Total public sector foreign currencyexternal debt came to $62.9 billion at the end of 1993. The IMF, World Bank, and InterAmerican Development Bank(IDB) have been major sources of funds to Argentina. InSeptember 1994 the government terminated an IMF Extended FundFacility (EEF) arrangement, initiated in 1992, preferring toforego Fund conditionality in favor of commercial borrowing.Both the World Bank and IDB obligated over $1 billion annuallyin 1993-1994.5. Significant Barriers to U.S. Exports One of the key free market reforms of the MenemAdministration has been to open the Argentine economy toforeign producers. The government abolished the importlicensing system in 1989 and since 1990 has slashed the averagetariff from nearly 29 percent to less than 10 percent, althoughmany imports must pay a higher surcharge (the "statisticstax"). Tariffs are as low as zero on capital goods and 0.5percent on raw materials. American exports have capitalized onthis and risen dramatically over the past few years. Barriers to U.S. Exports: Despite the generally favorableenvironment for imports, the authorities occasionally erectprotectionist barriers. In September 1993, responding to whatit considered widespread "dumping" of apparel, particularlyfrom the far east, the government imposed temporary importsurcharges on an array of clothing, rugs and textiles.Restrictions apply to imports of a broad range of used andmanufactured equipment as well. In October 1994, followingcongressional passage of a law designed to promote the localfilm industry, the government enacted new taxes on video salesand rentals, which could curtail demand for U.S.-made films.(However, President Menem vetoed other sections of the bill,including authority for the National Film Institute to regulatethe release of foreign films and establishment of a six monthminimum timeframe between opening of a film in the theater andits video release). On the other hand, in September 1994 thegovernment eliminated tariffs and duties on imports of computersoftware, much of which is supplied by American firms. Argentina also protects the automobile assembly industrythrough a combination of quotas and heavy tariffs.Nevertheless, the number of foreign-manufactured vehicles onthe roads is increasing through heavy demand that easilyoutstrips local production. The government claims it willdismantle the protection scheme by the turn of the century. Service Barriers: The government has progressivelyeliminated restrictions on foreign-owned banks. In January1994 the authorities formally abolished the distinction betweenforeign and domestic banks. They allowed foreign banks to openbranches and began issuing new licenses. However, lending andother operational limits for foreign bank branches are based onlocal, rather than global capital. Government bodies and stateagencies must still direct their business to public banks, butthis stipulation's importance is declining, given the ongoingprivatization program. U.S. banks are well represented inArgentina and are some of the more dynamic players in thefinancial market. Furthermore, the privatization of pensionfunds has attracted some American firms. Investment Barriers: There are few barriers to foreigninvestment. Firms need not obtain permission to invest inArgentina. Foreign investors may wholly own a local company,and investment in shares on the local stock exchange requiresno government approval. A U.S.-Argentina bilateral investment treaty came intoforce on October 20, 1994. Under the treaty U. S. investorsenjoy national treatment in all sectors except shipbuilding,fishing, insurance and nuclear power generation. An amendmentto the treaty removed mining, except uranium production, fromthe list of exceptions. Government Procurement Practices: "Buy Argentina"practices have been virtually abolished. Argentine sourceswill normally be chosen only when all other factors (price,quality, etc.) are equal. Customs Procedures: Customs procedures are generallyextensive and time consuming, thus raising the costs forimporters, although installation of an automated system haseased the burden somewhat.6. Export Subsidies Policies Argentina adheres to the GATT Subsidies Code and also has abilateral agreement with the United States to eliminateremaining subsidies for industrial exports and to ports locatedin the Patagonia region. Nevertheless, the government retainsminimal supports, such as reimbursement of indirect taxpayments to exporters.7. Protection of U.S. Intellectual Property Argentina officially adheres to most treaties andinternational agreements on intellectual property, includingthe Paris Convention for the Protection of Industrial Property(Lisbon Text and non-substantive portions of the StockholmText), the Brussels and Paris Texts of the Berne Convention,the Universal Copyright Convention, the Geneva PhonogramConvention, the Treaty of Rome and the Treaty on theInternational Registration of Audiovisual Works. In addition,Argentina is a member of the World Intellectual PropertyOrganization (WIPO) and a signatory to the Uruguay Round TRIPStext. However, USTR maintained Argentina on its "prioritywatch list" in 1994 because of the lack of patent protectionfor pharmaceuticals. Patents: Argentina's patent law, enacted in 1864, is theweakest component of the country's IPR regime. The lawspecifically excludes pharmaceutical "compositions" from patentprotection, which have cost U.S. drug firms hundreds ofmillions of dollars in sales lost to pirates and has damagedArgentina's ability to attract certain high-tech industries inboth production and research and development. The law alsocontains stringent working requirements and allows a maximumpatent term of only 15 years. The Menem Administrationsubmitted a draft of a new patent law to Congress in 1991. Thenew law would improve patent protection and extend it topharmaceuticals, but as of October 1994, the bill was still notpassed by either house of the Argentine congress. Copyrights: Argentina's copyright law, enacted in 1993, isadequate by international standards. Recent decrees providedprotection to computer software and extended the term ofprotection for motion pictures from 30 to 50 years after thedeath of the copyright holder. As in many countries, however,video piracy has become a serious problem. Efforts areunderway to combat this, including arrests, seizure or piratedmaterial and introduction of security stickers for cassettes. Trademarks: Trademark laws and regulations in Argentinaare generally good. The key problem is a slow registrationprocess, which the government has striven to improve. Trade Secrets: Argentina has no trade secrets law per se,but the concept is recognized and encompassed by laws oncontract, labor and property. Penalties exist under thesestatutes for unauthorized revelation of trade secrets. Semiconductor Chip Layout Design: Argentina has no lawdealing specifically with the protection of layout designs andsemiconductors. This technology conceivably could be coveredby existing legislation on patents or copyrights, but this hasnot been verified in practice. Nevertheless, Argentina hassigned the WIPO Treaty on Integrated Circuits.8. Worker Rights a. Right of Association The Argentine labor movement is undergoing a difficulttransition as the government privatizes inefficient state-ownedenterprises. These changes have affected the composition ofthe labor movement, but have not altered the worker's right toform trade unions. Most unions belong to the large, nationalGeneral Labor Confederation (CGT), which supports, withreservations, the government's economic reforms. However, amilitant faction within the CGT, the Movement of ArgentineWorkers, and a separate organization, the Congress of ArgentineWorkers, led by some government and teachers' unions, arecritical of the government's economic reform policies. Unions have the right to strike and members who participatein strikes are protected by law. In 1994 major strikesoccurred without government interference against the privatizedgreater Buenos Aires electric power utility and the aluminumsmelting plant in the southern province of Chubut. However,the government declared illegal a proposed general strike bytrade union opponents of the government's economic policies, onthe grounds that the constitutional right to strike is intendedto protect workers' economic interests but not to be used as apolitical weapon. Argentine unions are members of international laborassociations and secretariats and participate actively in theirprograms. b. The Right to Organize and Bargain Collectively Anti-union practices are prohibited by law and respected inpractice. Argentine labor, the government and the privatesector reaffirmed these rights in a framework agreement signedin July aimed at reforming labor-management relations in thecontext of economic restructuring and increasing globalcompetitiveness. The trend towards bargaining on a companylevel in contrast to negotiating at the national level on asectoral basis continues, but the adjustment is difficult forboth sides. For this reason, the agreement proposes to createa national mediation service to promote more effectivecollective bargaining. The Committee of Experts on the Application of Conventionsand Recommendations of the International Labor Organization(ILO) took note of a teacher's union complaint regardingrestrictions on collective bargaining in certain specifiedsectors and asked the government to inform the ILO of measuresit may take or has taken to encourage voluntary negotiationswithout impediments. The framework agreement also covers health and safetyissues, employment creation and training, work-relatedinjuries, grievance procedures, and the distribution of socialbenefits. It is expected to lead to the reform of asignificant body of the labor code, which many observers agreeneeds urgent revision. The framework agreement aims, in part,to lower labor costs and give employers greater flexibility inhiring, firing, and redistributing the workforce. Workers may not be fired for participating in legal unionactivities. Those who prove they have been discriminatedagainst have the right to be reinstated. There are no officially designated export processing zones. c. Prohibition of Forced or Compulsory Labor Forced labor is not known to be practiced in Argentina. d. Minimum Age for the Employment of Children Employment of children under 14, except within the family,is prohibited by law. Minors aged 14 to 18 may work in alimited number of job categories, but not more than six hours aday or 35 hours a week. Notwithstanding these regulations, asignificant number of children between 10 and 14 years of age,estimated at 200 thousand in a 1993 report by the Ministry ofLabor, UNICEF and the ILO, are illegally employed, primarily asstreet vendors or household workers. e. Acceptable Conditions of Work The national monthly minimum wage is $200. Federal laborlaw mandates acceptable working conditions in the areas ofhealth, safety and hours. The maximum workday is eight hours,and workweek 48 hours. The framework agreement is designed toproduce legislation to modernize the accident compensationprocess and occupational health and safety norms. Inresponding to a complaint from the Argentine Congress ofWorkers that work-related illnesses were not covered under theexisting workmen's compensation system, the ILO's committee ofexperts urged the government to provide information to theCongress of Argentine Workers regarding the measures it plansto take to fulfill its obligations under Convention 42,Workmen's Compensation (occupational diseases) which Argentinaratified in 1950. Occupational health and safety standards in Argentina arecomparable to those in most industrialized countries, butfederal and provincial governments lack sufficient resources toenforce them fully. The most common victims of inhumaneworking conditions generally are illegal immigrants with littleopportunity or knowledge to seek legal redress. f. Rights in Sectors with U.S. Investment Argentine law does not distinguish between worker rights innationally-owned enterprises and those in sectors with U.S.investment. The rights enjoyed by Argentine employees ofU.S.-owned firms in Argentina equal or surpass Argentine legalrequirements. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 566Total Manufacturing 1,993 Food & Kindred Products 667 Chemicals and Allied Products 443 Metals, Primary & Fabricated (1) Machinery, except Electrical (1) Electric & Electronic Equipment 56 Transportation Equipment 23 Other Manufacturing 386Wholesale Trade 135Banking 552Finance/Insurance/Real Estate 578Services 77Other Industries 455TOTAL ALL INDUSTRIES 4,355Source: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEANGOLA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS ANGOLA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1/ 1994 2/Income, Production and Employment:Nominal GDP 9,206 7,218 N/AReal GDP Growth (pct.) 1.3 -23.8 N/AShare by Sector: (pct.) Agriculture 6.9 6.1 N/A Extractive 39.9 43.6 N/A Oil/lpg 35.7 42.1 N/A Diamonds 4.2 1.5 N/A Manufacturing 1.5 1.9 N/A Construction 4.0 2.8 N/A Services 26.8 23.1 N/A Trade 15.6 17.8 N/A Transport/Communications 1.9 2.2 N/A Import Duties 3.3 2.4 N/ANet Exports of Goods and Services -961 -1,211 N/ANominal GDP Per Capita (USD) 868 661 N/AUnemployment Rate (pct.) 3/ 22.3 N/A N/AMoney and Prices:Money Supply (M2) 392.4 358.6 N/ABase Interest Rate (pct.) 12.0 16.0 N/ARetail Inflation (pct.) 3/ 495.8 1,837.9 1,003.0Consumer Price Index 3/ 1,643 31,834 71,470Exchange Rate: (NKZ/USD) 4/ Official (end of period) 550.0 6,500.3 410,000 Parallel (end of period) 3/ 6,900 106,000 610,000Balance of Payments and Trade:Total Exports (FOB) 3,833 2,831 N/A Exports to U.S. (CIF) 2,303 2,090 1,811Total Imports (FOB) 1,988 1,415 N/A Imports from U.S. (FAS) 158 169 187Aid from U.S. 72 N/A 97External Public Debt 5/ 8,325 8,624 N/ADebt Service Payments 504 583 N/AGold and Foreign Exch. Reserves 485.4 216.4 N/ATrade Balance 1,845 1,416 N/A Trade Balance with U.S. 2,145 1,921 1,624N/A--Not available.1/ Estimated and/or based on incomplete data.2/ Estimate based on January-June data.3/ Data for Luanda only.4/ See Section 2 for exchange rate info; data as of 10/25.5/ Medium- and long-term debt; excludes a portion of the oilcompanies' debt and short-term commitments.1. General Policy Framework The Republic of Angola is potentially one of Africa'swealthiest countries. Relatively sparsely populated, it haslarge hydrocarbon and mineral resources, huge hydroelectricpotential, and ample arable land. Civil war between theGovernment of Angola and the National Union for the TotalIndependence of Angola (UNITA) from 1975 until May 1991, andagain from November 1992 until November 1994, has wreaked havoc. In addition to extreme disruptions caused by conflict, asevere lack of managerial and technical talent has hamperedeconomic performance. Misguided and ineffective attempts atsocialist economic planning and centralized decisionmakingfurther hindered development. Of the country's productivesectors, only the oil sector, jointly run by foreign oilcompanies and the state oil firm Sonangol, has remainedwell-managed and prosperous. Angola currently produces over580,000 barrels per day of crude, accounting for the majorityof GDP, over 90 percent of exports, and over 80 percent ofgovernment revenues. The softening of world oil prices afterthe Gulf War, and especially in late 1993 and early 1994, hasserved to erode government export earnings at the same timeproduction has been increasing. Urban populations swollen by internally-displaced refugeeshave subsisted largely on food aid or parallel markets. Therural population often carves out a living in marginalsecurity, surviving by subsistence farming. Administrativechaos, corruption, hyperinflation, and war have vitiated normaleconomic activity and attempts at reform. As a result of thenear-total absence of domestic production of nonoil products,importation of food and other consumer items is lucrativeenough to attract traders from abroad. The government budget, perpetually in deficit from heavymilitary and other non-productive spending, ballooned to 38% ofGDP in 1992 and 32% in 1993. The deficit has been financed byincreasing the money supply and resorting to expensive,oil-backed short-term lending. Shortages, price controls,hyperinflation, and erosion of confidence in the nationalcurrency encourage parallel markets and widespread dependenceon barter or dollar transactions. The signature of the Lusaka Protocol on November 20, 1994provides a hope that Angola may finally end the destructivecivil war and embark on the road to economic development. TheProtocol calls for a UN-monitored cease-fire, the formation ofa unified army, and the demilitarization of UNITA forces. Inreturn, UNITA will be given representation at every level ofgovernment, from the local "commune" to the national Cabinet.Both the Angolan government and UNITA have asked for a strongUN presence to oversee the implementation of the Protocol. The long-term effects of the war, the destruction ofinfrastructure, and years of economic mismanagement remain tobe addressed. The end of conflict should portend economicstabilization and growth, but there appears to be little hopefor an immediate "peace dividend." Reconstruction is likely tobe a long and arduous process, requiring significant inflows offoreign assistance and investment. Since 1987, the government has launched various programsaimed at privatization, liberalization, devaluation of thekwanza, and new rigor in financial management. Most of theseprograms have enjoyed little implementation. The government's1994 Economic and Social Program has been favorably received bydonor nations and financial institutions, but its executionremains largely undone. The oil sector, the only functional part of the Angolaneconomy managed by the government and largely isolated from thecivil war, has been the focus of U.S.-Angolan trade andinvestment. The U.S. bought about 74% of Angola's oil exportsin the first quarter of 1994, while equipment for the sectoraccounts for much of U.S. sales to Angola. Given the country'shuge potential, lasting peace and genuine economicliberalization could provide substantial opportunities for U.S.trade and investment in Angola, particularly in communications,energy, and transportation sectors.2. Exchange Rate Policy From 1978 to September 1990, the government maintained theofficial exchange rate for the kwanza, a non-convertiblecurrency, at 29 kwanzas/$. The new kwanza (NKz) replaced thekwanza at par in September 1990, and in March 1991, thegovernment devalued the new kwanza by 50%; further devaluationsbrought the official rate to NKz550/$ by April 1992. To narrowthe gap between that and a parallel market rate several timeshigher, the government adopted a program of auctions in late1992 and early 1993 that led to the devaluation of the currencyto NKz7000/$. In March 1993, the government revalued the newkwanza to NKz4000/$, but in October devalued to NKz6500/$. In 1994, the government began a program of foreign exchangeselling in which the Central Bank and commercial banksparticipate. The rate which results from "fixing" sessions isutilized as a floating official rate. By late October 1994,that rate reached 410,000 kwanzas per dollar. The parallelrate, meanwhile, has risen to over 600,000 kwanzas per dollar.Exchange houses operate legally in Luanda and other cities.Rates close to the parallel rate can be obtained both inexchange houses and in some banks in limited amounts. Thegovernment continues to declare its intention to bridge the gapbetween official and parallel rates via further devaluations.3. Structural Policies Angola's economic policy remained in flux in 1994. Thegovernment has taken steps to reduce its role in the economy,and has reduced or eliminated subsidies and controls of somefoodstuffs and other consumer products. Nevertheless, itcontinues to heavily subsidize fuel, public transport,electricity and other utilities, and to regulate profit marginson the sale of numerous products. During 1994, the government has focused on bringing downinflation and taking measures to stabilize the budget deficit.While the government has publicly declared its desire for IMFbalance of payments assistance, the IMF has only agreed tobegin a monitoring program of Angolan performance.4. Debt Management Policies The government began substantial foreign borrowing only inthe early 1980's, principally to finance large oil sectorinvestments. Prior to the 1986 slump in international oilprices, the government scrupulously met its foreign debtcommitments, even those contracted prior to independence.Subsequently, however, large payment arrears, estimated by theIMF to be over $4.2 billion at the end of 1993, have forcedmajor Western export credit agencies to suspend or highlyrestrict cover to the country. Total foreign debt is now probably between $9 and $10billion, and at the end of 1993 was 119% of GDP and 293% ofexports, according to the IMF. Approximately half of the debtis owed to the former Soviet Union and its former satellitesfor military purchases between 1975 and 1991. In 1989, Angolajoined the IMF and the World Bank, and was able to secure therescheduling of over $1.8 billion in Paris Club and otherdebt. Creditors rescheduled $669 million of Angolan debt in1990, but only about $17 million in 1993. The government hasadmitted that it will be unable to lighten its debt burden,further failing an agreement with the IMF on structuraladjustment of the economy.5. Significant Barriers to U.S. Exports Since the sharp decline of its coffee and diamond sectors,Angola's ability to import has depended entirely on oilearnings, and has been severely constrained by the diversion ofresources to defense spending since the return of hostilitiesin late 1992. The lack of customers with access to foreignexchange, together with Angola's poor international financialreputation, presents sizable challenges for U.S. suppliers ofgoods and services. Import licenses are now routinely granted after the fact,and are more easily obtained if no government allocation offoreign exchange is involved. Most products require importlicenses, but enforcement is lax. State-owned firms in someservice industries have in the recent past attempted to keepout foreign competition, sometimes with success. Angola is "off cover" for trade finance from theExport-Import Bank of the U.S. (EXIM) because of the elevatedbusiness risk in Angola and the country's extensive outstandingarrears. It is possible, however, that EXIM will considersupporting specific projects. The Overseas Private InvestmentCorporation (OPIC) signed an Investment Incentive Agreementwith Angola in 1994. OPIC lists Angola among the countrieswhere its investment finance and insurance programs aregenerally available. The U.S. Department of Agriculture (USDA)made $8 million in agricultural export loan guaranteesavailable to Angola for the purchase of U.S. agriculturalproducts under the P.L. 480 Title I program in 1994. The U.S. government continues to prohibit the transfer ofU.S.-origin lethal material to all entities in Angola under the"Triple Zero Clause" of the Bicesse Peace Accords and theInternational Traffic in Arms Regulations, and to prohibit byExecutive Order, in accordance with UN sanctions enacted inSeptember, 1993, the transfer of all defense articles andpetroleum products to UNITA. The U.S. government has liftedthe restriction on the private transfer of U.S.-originnonlethal defense articles to the Government of Angola, with apresumption of approval of applications for export licenses forsuch transfers. Foreign investment regulations enacted since the late1980's have aimed at opening more sectors to foreigninvestment, and at simplifying the process for potentialinvestors. Regulations and the lack of execution of reformscontinue to prohibit or limit foreign investment in defense,banking, public telecommunications, media, energy, andtransport.6. Export Subsidies Policies No export subsidy schemes currently exist, although amongthe measures proposed but not yet implemented is a foreignexchange retention scheme as an incentive for nonoil exportindustries.7. Protection of U.S. Intellectual Property The Republic of Angola joined the World IntellectualProperty Organization in 1985, and acceded to the GATT in1994. To date, Angola has not adhered to any of the principalinternational intellectual property rights conventions.8. Worker Rights a. The Right of Association The 1991 constitution recognizes the right of Angolans toform trade unions and to bargain collectively. The lawgoverning unions has yet to be passed; free labor organizationscannot yet affiliate with international labor bodies. TheNational Union of Angolan Workers (UNTA), the former officialunion of the ruling MPLA, remains the principal workerorganization. UNTA is affiliated with the Organization ofAfrican Trade Union Unity and the formerly communist-dominatedWorld Federation of Trade Unions. b. The Right to Organize and Bargain Collectively The constitution provides for the right to strike.Legislation passed in 1991 provides the legal framework tostrike, including prohibition of lockouts, protection ofnonstriking workers, and prohibition of worker occupation ofplaces of employment. Strikes by military and policepersonnel, prison workers, and firemen are prohibited. TheMinistry of Labor and Social Security continues to set wagesand benefits on an annual basis. Salaries for public servantsare set at the minister's discretion; salaries of parastatalemployees are based on profits of the previous year andavailable loans from the Central Bank. Angola has no export processing zones. c. Prohibition of Forced or Compulsory Labor New legislation is still pending which prohibits forcedlabor, reversing previous laws and provisions which had beencited by the International Labor Organization (ILO) forviolation of Convention 105. The previous legislationpermitted forced labor for breaches of discipline andparticipation in strikes. d. Minimum Age of Employment of Children The legal minimum age for employment in Angola is 14. TheInspector General of the Ministry of Labor is responsible forenforcing labor laws. Labor Ministry registration centersscreen out applicants under the age of 14. However, childrenat a much younger age work throughout the informal sector. e. Acceptable Conditions of Work Formal wages in the state and private sector rarely surpassthe equivalent of $10 per month on the parallel market; manyworkers earn less than $5 per month. Most workers depend onthe informal sector, second jobs at night, subsistence farming,theft, corruption, or overseas remittances to maintain anacceptable standard of living. The normal workweek is 37hours. There is no information on adequacy of work conditionsor health standards, but they are in most cases assumed not toapproach Western standards, given the extreme underdevelopmentof the Angolan economy and lack of enforcement mechanisms. f. Rights in Sectors with U.S. Investment U.S. investment in Angola is concentrated in the petroleumsector. Workers in the oil sector earn salaries far greaterthan those in almost every other sector of the Angolaneconomy. Workers in the petroleum sector enjoy the same rightsas those in other sectors of the Angolan economy. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum 100Total Manufacturing 0 Food & Kindred Products 0 Chemicals and Allied Products 0 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 0Wholesale Trade 0Banking 0Finance/Insurance/Real Estate (1)Services (2)Other Industries 0TOTAL ALL INDUSTRIES (1)(1) Suppressed to avoid disclosing data of individual companies(2) Less than $500,000Source: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text>U.S. DEPARTMENT OF STATEALGERIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICESBUREAU OF ECONOMIC AND BUSINESS AFFAIRS ALGERIA Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1/ 1993 2/ 1994 3/Income, Production and Employment:GDP (at current prices) 45,300 46,500 N/AGDP Growth Rate (pct.) 2.3 2.6 N/AGDP Per Capita (USD) 1,674 1,694 N/ABy Sector: Agriculture 5,450 5,700 N/A Industry 16,592 22,100 N/A Services 14,142 15,700 N/ALabor Force (millions) 6.2 6.45 6.70Unemployment Rate (pct.) 22 24 N/AMoney and Prices: (annual percent growth)Money Supply 23.9 21.2 N/AConsumer Price Index 31.8 20.8 31.0Commercial Interest Rate 17 20 22Exchange Rate (dinars/USD) 21.8 23.0 40.0Balance of Payments and Trade:Exports (FOB) 4/ 11,510 10,330 N/AImports (CIF) 4/ 8,300 7,770 N/ACurrent Account Balance 1,290 1,010 N/AExports to U.S. 1,694 1,711 1,232Imports from U.S. 677 898 821Trade Balance with U.S. 1,017 813 411External Debt 26,349 24,600 N/ADebt Service Payments 9,277 9,100 N/AGold and Foreign Exch. Reserves 3,318 3,300 N/AN/A--Not available.1/ World Bank data.2/ U.S. Embassy estimates.3/ Data as of August 1994.4/ Merchandise trade.1. General Policy Framework With a rapidly growing population of about 27 millionpeople and tremendous natural gas and petroleum reserves,Algeria has the potential to be a major market for Americanexports. Algeria has an aging industrial sector in need ofnew investment. The infrastructure of its cities isinadequate and often employs antiquated technologies. Withthe vast bulk of its territory desert, Algeria also willremain a substantial market for agricultural exports. This potential for American exports of goods, services andinvestment so far has not been fully realized, due mainly toAlgerian government mismanagement of the economy. With theexception of the state-owned hydrocarbons sector, an efficienteconomy able to compete internationally has never evolved. Asa result, hydrocarbons exports still account for about 97percent of Algeria's foreign exchange earnings. The low levelof petroleum prices in 1993 left Algeria unable to financeneeded imports and also make payments on its foreign debt. During 1994, however, the Algerian government began inearnest a broad program aimed at freeing more hard currency forimports. It concluded an agreement with the InternationalMonetary Fund (IMF) which allowed it to close a debtrescheduling agreement with its Paris Club creditors. Thesubsequent rescheduling of about five billion dollars inpayments will make possible a substantially higher level ofimports in 1995. The government is also negotiating arescheduling of payments due on its five billion dollarcommercial debt. Meanwhile, Algeria also signed the UruguayRound agreements which now await ratification by the country'slegislature. In conjunction with its IMF accord, the government alsoenacted measures to transform eventually the state-managedeconomy to one guided by market forces. Beyond the structuralmeasures discussed in section 3 below, the government reducedits budget deficit from about nine percent of GDP in 1993 toabout three percent in 1994. It cut a broad series ofconsumer-good subsidies and raised energy prices. It alsorestrained government expenditures and limited wage increasesto the roughly two-thirds of the labor force who work in thegovernment, public and private sectors. The government hasfinanced its budget deficits primarily by borrowing from theBank of Algeria (Central Bank) which increased the moneysupply. The government had little choice, since monetarypolicy instruments are relatively rudimentary. There are nobond sales to finance government spending, and much of themoney circulating in the economy is outside government controlin the parallel market. Reduced bank financing for thegovernment budget deficit and public-sector enterprises hasslowed money supply growth from about 22 percent in 1993 toroughly 14 percent in 1994. To attract some of the liquidityback out of the parallel economy into the formal commercialsector, the government raised interest rates at the banks.These measures should reduce inflation in 1995 from the roughly30 percent level of 1994. The period of transition for an economy in which thegovernment-owned sector is so predominant will take years.Moreover, the ultimate success of the reform policies willremain linked to an improvement in the unsettled political andsecurity situation.2. Exchange Rate Policy The dinar is still not a fully convertible currency.However, the structural readjustment changes put into effectthis year, such as the debt rescheduling, the devaluation ofthe dinar and an easing of controls on imports and access tohard currency, have made it somewhat easier for companies tobuy the hard currency necessary to pay for imports. In April,after negotiations with the IMF, the Algerian governmentdevalued the dinar by forty percent, setting the official rateat USD 1 equals 36 dinars. By November that value had fallento an official value of USD 1 equals 41.7 dinars, versus ablack market rate of approximately USD 1 equals 65 dinars. Toestablish the exchange rate, the Algerian Central Bank sellsforeign currency to the commercial banks once a week, thustying the exchange rate to commercial demand. Central Bankofficials anticipate that by 1995 foreign currency sales tobanks will be made on a daily basis. In 1994 the Algerian government made it easier forinvestors and private citizens to buy and to hold foreigncurrency. Algerian banks allow deposit accounts denominated ina foreign currency. The most restrictive control stilllimiting the ability of potential investors to import productsis the commercial banks' requirement that an importer depositthe full cost of the imported item and also a percentage of thecost in the bank before it will ask international banks forletters of credit. The banks justify this extra charge bysaying that their costs have risen. This extra dinar marginalso protects the Algerian banks from losses stemming fromadditional devaluations. International banks have beenreticent in extending new credit lines to Algerian banksbecause of the debt rescheduling and because of a longer termconcern about the political unrest in Algeria.3. Structural Policies Prior to the initiation of its reform policies, thegovernment controlled many prices directly and allowed fixedprofit margins on many others. In April 1994, the governmenteliminated controls on prices for agricultural equipment andspare parts and lubricants. These measures should lead to anincrease in U.S. exports of these products. The government isalso moving towards eliminating the requirement that producersnotify it of their prices with an obligation that they simplypublish their prices. This should encourage more efficientpricing policy, especially in sectors such as food industriesand construction which could utilize American inputs. Government officials stress their desire for foreigninvestment and have sought to streamline the applicationprocess. In October 1993 the government issued an investmentcode which liberalizes the regulatory environment outside ofthe hydrocarbons sector. The code provides investors with athree-year exemption from the value added tax on goods andservices used as production inputs and a two to five yearexemption from corporate taxes. It also cut the duty onimported goods to three percent and placed a ceiling of sevenpercent on an employer's contribution to local socialsecurity. The government, in November 1994, was preparing tocreate an agency, modelled on success stories in Morocco andTunisia, to determine incentive eligibility and shepherd theapplications through the maze of Algerian bureaucracy. In Julyof 1994 the government opened to foreign investment up to 49percent of selected public-sector enterprises: there is nolimit on ownership shares of the subsidiaries now owned bypublic-sector firms. An influx of foreign investment, however,hinges on improvements in the security situation.4. Debt Management Policies The fall in oil prices in the last quarter of 1993triggered a balance of payments crisis that obliged Algeria toconclude an IMF agreement and seek debt relief. The Algeriangovernment had resisted debt rescheduling, preferring to carrya heavy payments load (in 1991 debt service payment consumed 75percent of export earnings, and in 1992, 77 percent) ratherthan permit outside "interference" in the monetary managementof the country. The Algerian government was facing 9.3 billiondollars of debt servicing in 1994 and the possibility of exportrevenues reaching only USD 8.8 billion to USD 9 billion.Unable to secure large new inflows of credit, the governmentcould continue on its old policy track no longer. After the IMF approved Algeria's reform program on May 31,1994, Algeria reached agreement on June 1 with its official(Paris Club) creditors to reschedule USD 5.3 billion inprincipal and interest payments falling due between June 1994and May 1995. An eventual agreement with commercial debtors toreschedule commercial debt payments coming due is expected tofurther reduce Algeria's debt substantially. Central Bankforeign exchange reserves quickly recovered from 1.5 billiondollars in December 1993 to 2.8 billion in August 1994. Thisprovided Algerian commercial banks far easier access to hardcurrency for their customers. In addition, the World Bankreleased 150 million dollars in July 1994 as part of its loanfor public-sector reform. However, because of the debtrescheduling, some commercial and official creditors have beenreluctant to extend new credit lines to Algerians, therebylimiting Algerian importers' ability to take further advantageof the government's reform measures.5. Significant Barriers to U.S. Imports The government has deregulated the foreign trade sectorsignificantly, but some controls remain. The list of itemswhich may not be imported was reduced from 107 products to 85in April 1994. Those items still on the list are foods,consumer goods and machinery produced in the Algerian publicsector for which the government wants to extend tradeprotection. The government has indicated it will eliminatethis list entirely by early 1995, thus opening up many newproduct areas to potential U.S. exporters. The governmentmaintains a second list of products for which an importer mustreceive a special permit. This list includes a number of goodsin which American producers enjoy comparative advantage, suchas wheat, flour, barley, powdered milk, medicines and medicalequipment. Some Algerian business people have complained thatthe necessary permits are difficult to obtain. It is unclearwhen this second list will be abolished. Aside from import controls, many importers still lack readyaccess to foreign exchange by which they can finance importsfrom the U.S. Prior to the June 1994 Paris Club accord, therewas an acute shortage of foreign exchange, and the governmentchannelled the available hard currency resources into priorityneeds, such as food imports. As 1994 progressed, hard currencyreserves at the Bank of Algeria increased substantially.Nonetheless, imports were slow to increase for two reasons.First, well-established importers, most notably public-sectorenterprises, lack dinar liquidity with which to buy the foreignexchange. In addition, the Bank of Algeria in April 1994ordered banks not to provide importers with foreign exchangeuntil they had undertaken careful study of the importers'projects. Many business people claim the banking system is toobureaucratic to complete the studies quickly, and theapplications for hard currency have piled up. Notably, privateimporters have obtained only about 18 percent of the foreignexchange allocated to imports in 1994, with the remainderchannelled to the public sector. To save hard currency, the Algerian government givespreference to local engineering and construction firms unlessthe technology needed is not available in Algeria. The abilityof foreign firms to obtain contracts depends critically ontheir ability to offer attractive financing. U.S. Eximbank'sdecision in April 1994 to suspend new medium- and long-termfinancing will hinder U.S. firms' ability to find suitablefinance terms for Algerian customers. Firms from countriesretaining extensive bilateral lines of credit with Algeria havean advantage over U.S. firms in this regard. The government had maintained a monopoly on particularservices, most notably insurance and banking. In November 1994the legislature is reviewing a draft bill ending thegovernment's monopoly in the insurance sector. The bankingsector, however, is opening up to private investors. Oneprivate bank now operates in Algeria, and a second bank hasreceived a license. Foreign banks are allowed to haverepresentative offices in Algeria, but these may not engage incommercial transactions. A U.S. bank, Citibank, maintains suchan office in Algeria.6. Export Subsidies Policies About 97 percent of Algeria's export earnings come from thehydrocarbons sector. To date few other economic activitiesable to compete internationally have emerged. The government'scontractionary budget policies preclude it from offering anykind of explicit export subsidy to foster new exports.Exporters do enjoy below-market priced energy, but to theextent that the official rate for the dinar remains overvalued,exporters pay an implicit tax as well.7. Protection of U.S. Intellectual Property Algeria is a party to the Universal Copyright Conventionand the Paris Convention for the Protection of IndustrialProperty. The government of Algeria has a good record ofrespect for intellectual property rights. Generally, Algerianpractice is to obtain authorization and pay royalties forproprietary technology. Copying of patented technologies isgenerally beyond Algeria's technical capabilities. There areno reports of trademarks being counterfeited or sufferingproblems obtaining registration.8. Worker Rights a. The Right of Association Algerians have the right to form and be represented bytrade unions of their choice. Government approval for thecreation of a labor union is not necessary, although limits areimposed on union activities. Unions may not receive funds fromabroad, and the government may suspend a union's operations ifit violates the law. Unions may form and join federations orconfederations and affiliate themselves with internationalbodies. b. The Right to Organize and Bargain Collectively A 1990 law permits collective bargaining for all unions,and this right has been freely practiced. The law alsoprohibits discrimination by employers against union members andorganizers and provides mechanisms for resolving trade unioncomplaints of antiunion practices by employers. It furtherpermits all unions, whether longstanding or newly created, torecruit members of the workplace. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor has not been practiced inAlgeria and is incompatible with the Constitution. d. Minimum Age of Employment of Children The minimum employment age is 16 years and state inspectorsenforce this regulation in the state sector. It is not muchenforced in the agricultural sector or in the growing informalsector, where economic necessity is forcing a growing number ofchildren into menial jobs. e. Acceptable Conditions of Work The 1990 law on work relations defines the overallframework for acceptable conditions of work, but leavesspecific policies with regard to hours, salaries, and otherwork conditions to the discretion of employers in consultationwith employees. A guaranteed monthly minimum wage rate for allsectors is set by the government. Algeria has a 44-hourworkweek. A government decree regulates occupation and healthstandards. f. Rights in Sectors with U.S. Investment Nearly all U.S. investment is located in the hydrocarbonssector. The rights outlined above better enjoyed by Algerianworkers at these U.S. facilities than in the Algerian economyat large. Extent of U.S. Investment in Selected Industries.--U.S. DirectInvestment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category AmountPetroleum (1)Total Manufacturing 0 Food & Kindred Products 0 Chemicals and Allied Products 0 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 0Wholesale Trade 0Banking 0Finance/Insurance/Real Estate 3Services 0Other Industries 0TOTAL ALL INDUSTRIES (1)(1) Suppressed to avoid disclosing data of individual companiesSource: U.S. Department of Commerce, Bureau of EconomicAnalysis(###)</text>
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<text><span class="style2">lgeria Angola Argentina Armenia Australia Austria Azerbaijan The Bahamas Bahrain Bangladesh Barbados Belarus Belgium Bolivia Bosnia and Herzegovina Brazil Bulgaria Canada Chile China Colombia Costa Rica Croatia Czech Republic Denmark Dominica Ecuador Egypt El Salvador Estonia Finland France Gabon Georgia Germany Ghana Greece Guatemala Honduras Hong Kong Hungary India Indonesia Iran Iraq Ireland Israel Italy Jamaica Japan Jordan Kazakhstan Kenya Korea, South Kuwait Kyrgyzstan Latvia Lithuania Macedonia, The Former Yugoslav Republic of Malaysia Mexico Moldova Morocco Netherlands New Zealand Nicaragua Nigeria Norway Oman Pakistan Panama Paraguay Peru Philippines Poland Portugal Romania Russia Saudi Arabia Serbia and Montenegro Singapore Slovakia Slovenia South Africa Spain Sweden Switzerland Syria Tajikistan Thailand Trinidad and Tobago Tunisia Turkey Turkmenistan Ukraine United Arab Emirates United Kingdom Uruguay Uzbekistan Venezuela Taiwan </span></text>
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<text><span class="style4">Welcome to the Economics Information from the State Department.Use the arrow keys in the lower right corner to move around.</span></text>
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