BELGIUM Key Economic Indicators (Billions of Belgian Francs (BF) Unless Otherwise Noted) Belgium enjoys one of the most open economies in the world, with exports and imports together equivalent to a very high 140 percent of GNP in 1989. The country's greatest economic strength lies in its geographic location. Situated on Europe's northwest coast and sharing borders with four countries, including Germany and France, Belgium is a natural center for transit trade. Having few natural resources of its own, its economy is a classic example of a "transput" economy, i.e., the vast majority of processed goods are imported, then transformed and mostly reexported. The principal sectors of Belgium's industrial base include pharmaceuticals, high tech, BELGIUM automobile assembly, textiles, steel products, chemicals, refined petrochemicals and petroleum products. Major imports from the United States include crude oil, transportation equipment, diamonds, computers and related equipment. With a direct investment position of US$8,290 million in 1989, U.S. investment is well represented in Belgium, with more than 1,000 companies present. In all, U.S. companies created employment for some 200,000 Belgians in 1989 (5 percent of the labor force). Belgium's good business support systems (transportation, communications, etc.) and its status as the home of the European Community's (EC) Commission combine to make the country a prime location for American firms seeking to establish an office or facility abroad. According to recent studies, Belgium's open economy is likely to gain considerably from the 1992 European Community internal market effort. The National Bank of Belgium projects industrial investment real growth of 20 percent per year. This projection, plus an increasing wave of mergers and acquisitions, indicate that the EC internal market program is having a beneficial effect on the Belgian economy. The Belgian government ran up a budget deficit of 6.5 percent of GNP in 1989 (1990 forecast: 6.2 percent). While this constitutes a significant improvement from the 13 percent deficit in 1982, further significant reductions of the deficit will be slow, mainly because of the large burden of government debt and its related interest payments. The overall net debt to GNP ratio equals a very high level of 120 percent. Deficit reduction over the past two years has slackened and owes more to vigorous economic growth and lower interest rates than to discretionary changes in policy. The government fears that it may take 10 to 15 years to bring the debt ratio down to 80 percent of GNP. This problem constitutes a potential stumbling block toward Belgium's full participation in phase two of the European Monetary Union (EMU), which will require strict budgetary discipline. Belgium participates in the European Monetary System (EMS), and the Belgian franc (BF) makes up part of the basket of European currencies from which the value of the ECU (European Currency Unit) is calculated. The Belgian franc is equivalent at par with the Luxembourg franc; the two countries formed the Belgian-Luxembourg Economic Union, or BLEU, in 1919. In March 1990, the Belgian government abolished its system of dual exchange rates, whereby an official rate was used for capital transactions and a free or commercial rate for commercial transactions. The move in the context of further EC capital market liberalization - did not disturb financial markets in Belgium because the difference between the official and the market rate had averaged less than one percent since 1982. Of greater consequence for the Belgian exchange rate outlook was the decision by the Belgian authorities in May 1990 to link the Belgian franc much closer to the German mark (DM). The National Bank of Belgium said that it wanted a maximum divergence between the BF and the DM of 0.5 percentage points (versus 2.25 percent allowed under BELGIUM the EMS exchange rate mechanism) in a first stage. Consequently, the BF short-term interest rate differential with the DM disappeared almost overnight. The Bank will aim for full parity in a second stage. In practice, there is currently freedom of trade for all purposes that does not discriminate between foreign and domestic investors. There are basically no measures in force to protect local industry against foreign competitors, except in the agricultural sector. In this case, the EC's common external tariff and the quota structure of the Common Agricultural Policy (CAP) apply. The Belgian government's attitude toward free trade enjoys widespread support throughout the business community. The national government substantially reduced its aid to business during the 1980s. Within the manufacturing sector, the decline can be attributed entirely to steel and shipbuilding. Nonetheless, Belgium remains a heavy subsidizer by EC standards in several sectors. On July 19, 1990, the EC Commission announced that it was recommending the abolition of several long-standing general investment aid programs in Belgium. The Commission was particularly troubled by general investment aids which did not have clear regional or structural objectives. Subsequently, the regions of Wallonia and Flanders announced revisions to their aid programs, in both cases to make them more effective in terms of job creation. Foreign investments in the transportation, banking, and insurance sectors are subject to screening by the Ministry of Economic Affairs. Nonetheless, there are no difficult administrative procedures. Foreign interests may establish a Belgian company on the same basis as domestic interests. Establishing a branch of a foreign corporation or acquiring the assets or shares of an existing corporation in Belgium are fairly simple matters. Belgium's tax structure was substantially revised in 1989, but the top marginal rate on personal income is still 55 percent. The corporate tax level was reduced from 43 to 41 percent in 1990, and will be further reduced to 39 percent in 1991. In addition, in February 1990 the government decided to reduce the withholding tax on interest income from 25 to 10 percent. Despite the reforms of the past five years, the Belgian tax system is still characterized by relatively high marginal rates, a fairly narrow base due to numerous "tax expenditures" (i.e., fiscal loopholes) and some imbalance at the expense of labor. While indirect taxes are lower than elsewhere in the European Community, both in relation to GNP and as a share of total revenues, personal income taxation and social security contributions are particularly heavy. The United States-Belgium income tax treaty dates from 1970 and the U.S. Treasury is now revising the finalized draft language of a new treaty which was negotiated with Belgian authorities. In the meantime, a protocol to the 1970 treaty BELGIUM was concluded in December 1987 and was approved by the Belgian Parliament in April 1989. The instruments of ratification were exchanged by the U.S. and Belgian governments in July 1989, and the protocol went into effect retroactive to January 1, 1988. The protocol amends the existing treaty by providing for a reciprocal reduction of the withholding rate on corporate dividends from 15 to 5 percent (a feature which was actively sought by the American business community). 4. Debt Management Policies Belgium's public sector is a net external debtor, but the foreign assets of the private sector probably push the country into a net creditor position. Only 15.3 percent of the Belgian government's overall debt is owed to foreign creditors. Moody's top Aal rating of the country's bond issues in foreign currency fully reflects Belgium's integrated position in the EC, its significant improvements in fiscal and external balances over the past few years, as well as the slowdown in external debt growth. The Belgian government does not experience problems in obtaining new loans on the local credit market. The latest three government loans were oversubscribed. In May 1990, the "Philippe II" loan was three times oversubscribed, which allowed the Belgian government to finance its needs through the rest of the year by issuing more notes than was originally planned. As a member of the G-10 group of leading financial nations, Belgium participates actively in the International Monetary Fund, the World Bank and the Paris Club. Belgium closely follows developing country debt issues, particularly with respect to Zaire. In January 1993, when the EC's internal market will be integrated, Belgium will have harmonized most, if not all, of its barriers in both commodity and services sectors with those of the other eleven EC member countries. Thus, the potential for U.S. exporters to take advantage of the vastly expanded EC market through investments or sales in Belgium will grow significantly. Some Belgian barriers to services and commodity trade still exist, however. Belgian military procurement programs frequently contain offset clauses, whereby a certain amount of the contract needs to be invested in Belgium, either directly (i.e. direct compensation on the sale) or indirectly, i.e. by giving Belgian subcontracters a share of unrelated contracts. The offset programs are complicated because of the required regional breakdowns: 53 percent must go to Flanders, 38 percent to Wallonia and 9 percent to Brussels. As a consequence, most U.S. defense companies have steered clear of the Belgian defense market. In the past, foreign suppliers of telecommunications equipment encountered difficulties in gaining access to the Belgian market when they had no production facilities in the BELGIUM country. However, given the EC directive to liberalize public procurement in the telecommunications, water, energy, and transport sectors, U.S. suppliers could benefit. If the EC judges that the goods the non-EC supplier sells receive comparable and effective access in the supplier's country, they will grant national treatment to the supplier's goods. Otherwise, procuring EC entities have no obligation to consider tenders if more than half of their price represents the value of products manufactured outside the Community. any case, when two bids are equivalent a Community bid must be preferred to a non-Community bid. Prices are to be considered as equivalent within a margin of 3 percent; i.e., EC bidders are afforded a 3 percent price preference. Belgium voted against the EC broadcasting directive (which required high percentages of "domestic" programs) because its provisions were not, in Belgium's view, strong enough to protect the fledgling film industry in Flanders. The Flemish (Dutch-speaking) region and Walloon (French-speaking) community of Belgium have local content broadcasting requirements for private television stations operating in those areas. The EC has taken the Walloon community to the European Court of Justice concerning these requirements. In Distributors of U.S. films in Belgium, as well as distributors of other films, are required by a Belgian court ruling to supply copies of a new film to small theaters for release within a few weeks of the showing of the film by large theaters. While this practice does not discriminate against U.S. producers, the requirement does increase their costs through their having to make and supply additional prints. Starting in the early 1970s, Belgium applied a numerical limit on the total number of foreign legal consultants that were allowed to work in Belgium. The government limited the entry of foreign lawyers to a total of 35, of which 25 could be from the United States and 10 from all other non-EC countries. The limitation was lifted on October 17, 1990 for U.S. lawyers, but apparently remains in place for other non-EC lawyers. 6. Export Subsidies Policies There are no direct export subsidies offered by the government of Belgium to industrial and commercial entities in the country. The government does conduct an active program of trade promotion, however. The social expenditure break (reduction of social security contributions by employers, generous rules for cyclical layoffs) offered to companies by the government, and the trade promotion activity may come close to the definition of a subsidy in the case of a company engaged in exporting. 7. Protection of U.S. Intellectual Property Belgium is a member of the World Intellectual Property Organization and is party to the Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Literary and Artistic Works, the Universal Copyright Convention and the Patent Cooperation Treaty. |