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e. Acceptable Conditions of Work.-The Supreme Soviet, along with the Cabinet of Ministers, has the responsibility to set a minimum wage which is increased periodically in response to inflation. The labor code limits the work week to 40 hours, with a required 24 hour rest period. Many workers, however, find themselves underemployed and are forced to take unpaid leave due to lack of demand for factory production. The law establishes minimum conditions for work place safety and employee health. Enforcement of these standards is lax.

f. Rights in Sectors with U.S. Investment.-There is no significant U.S. investment in Belarus.

2 GDP at factor cost.

4 Merchandise trade.

11994 figures are all estimates based on available monthly data in October 1994.

Figures are actual, average annual interest rates.

1. General Policy Framework

Belgium, a highly developed market economy, belongs to the OECD group of leading industrialized democracies. With exports and imports each equivalent to about 60 percent of GDP, the country depends heavily on world trade. About 75 percent of its trade takes place with other European Union (EU) members. Belgium ranked as the ninth-largest trading country in the world in 1993. The country's service sector generates more than 70 percent of GDP, compared with 25 percent for industry and two percent for agriculture. Belgium imports many basic or intermediate goods, adds value, and then exports final products.

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Belgium exports twice as much per capita as Germany and five times as much as Japan. The country derives trade advantages from its central geographic location, and a highly skilled, multilingual and industrious workforce. Over the past 30 years, Belgium has enjoyed the second-highest average annual growth in productivity for all OECD countries after Japan.

Globally, Belgium ranks as the United States' 10th-largest export market worldwide and the fifth-largest in Western Europe. Belgium is the 13th largest target for U.S. investment in the world. U.S. trade and investment prospects are positive, and many opportunities exist for U.S. exporters and investors. The Belgian government recently undertook steps to improve the foreign investment climate even more.

Of all European Union members, Belgium's 1993 economic recession was the worst after Germany's. Part of the 1993 recession came about because the government instituted a variety of budget cuts and revenue measures totalling about 6.6 percent of GDP in 1992 and 1993 to try to meet economic performance targets under the EU's proposed Economic and Monetary Union (EMU). Due to the highest net public sector debt load among OECD countries (127 percent of GDP), Belgium faces tight fiscal policy for many years to come.

Belgium, with its small open economy, is very vulnerable to declines in economic activity in Germany, France and the Netherlands, which together account for more than half of Belgium's exports. Belgian unemployment currently stands at more than 10 percent of the workforce (by EU and OECD standardized definitions), an increase of more than 15 percent in one year. The country's competitiveness also deteriorated in 1993. Per capita wage costs increased by 4.2 percent, against 3.6 percent for the country's seven most important trading partners.

For 1994, the extent of economic recovery in Belgium depends in large part on economic development results in neighboring countries, as well as the degree of Belgian monetary and fiscal tightness. Most recent GDP growth forecasts are in the neighborhood of 2.3 percent in 1994 and 2.8 percent in 1995.

Belgium completed domestic ratification of the Uruguay Round agreement and became a founding member of the WTO on January 1, 1995.

When the present coalition government under Prime Minister Dehaene came to power in March 1992, it set three budgetary targets. First, federal expenditures net of debt payments should not grow faster than the inflation rate. Second, the growth rate of fiscal revenues should at least match the growth rate of nominal GDP. Third, the deficit in the social security budget should be eliminated. The Government has managed to meet the two first criteria, but has not yet balanced the social security budget, mainly due to substantial cost overruns in health insurance and unemployment benefits. In 1993, the Government of Belgium's (GOB) public sector budget deficit equaled 7.2 percent of GDP, up 0.3 percentage points from the 1992 level. According to the Government's own convergence plan for possible membership in the European Economic and Monetary Union (EMU), the 1993 target was 5.8 percent. For 1994, it is 4.8 percent. Despite weak fiscal results to date, the Belgian Government since March 1992 has implemented budgetary austerity measures worth more than $16.2 billion, or about 6.6 percent of GDP. Even though 75 percent of these measures were revenue increases rather than expenditure cuts, they had the advantage of being mostly structural in nature, as opposed to one-time measures. As a consequence, the Government still expects to meet the three percent of GDP annual budget deficit target in 1996, one of the Maastricht Treaty requirements for possible full EMU membership. Since Belgium has virtually no chance of reaching in this decade the 60 percent of GDP public debt target under the Maastricht Treaty, the Belgian public sector must come close to the annual deficit target to obtain a derogation on the debt target.

2. Exchange Rate Policy

Belgian monetary policy basically shadows German interest rates as closely as possible in order to keep the Belgian Franc (BF) close to a central parity with the Deutsche Mark (DM). In June 1990, the National Bank of Belgium (NBB) decided to keep the BF within a plus or minus 0.3 percent band around the central parity of the DM, a much narrower band than what the European Exchange Rate Mechanism (ERM) required. That policy proved successful during the next three years; Belgian inflation ranked among the lowest in the EU, and renewed credibility of the BF allowed the Government to finance its debt at good rates. As part of the near collapse of the entire ERM on July 30, 1993, this "strong franc" policy came under serious attack both before and after the widening of the ERM fluctuation bands on August 2, 1993. Despite the NBB's intention to bring the BF back within the narrow ERM band as soon as possible, markets began to focus more on Belgium's imbalances (mainly the widening budget deficit gap, the huge public debt and the depth of the recession). Serious pressures developed against the BF in the summer and

fall of 1993. Consequently, the NBB and Government used high short-term interest rates, jawboning and currency market interventions to support the BF.

After the franc slipped by about seven percent against the central parity rate with the Mark, several factors came to its rescue, apart from high interest rates and currency market intervention. The German Bundesbank lowered its key interest rates at the end of October 1993, relieving the pressure in the ERM. The ensuing appreciation of the dollar against the DM further eased the pressure on the BF. Subsequently, the NBB lowered its interest rates by more than 100 basis points within two weeks. Through the combination of the above factors, the BF by the end of 1993 had returned close to the central parity with the DM, and has stayed there since then, despite gradual short-term interest rate cuts.

3. Structural Policies

In practice, freedom of trade in Belgium does not discriminate between foreign and domestic investors. There are basically no legal measures in force to protect local industry against foreign competitors, except in the agricultural sector where the EU's external tariffs and the quota structure of the Common Agricultural Policy (CAP) apply. Nevertheless, unwritten rules have favored national suppliers for public procurement contracts and there have been occasional instances where individual private sector projects have met resistance from established economic interests. Subsidies: On July 20, 1993, Belgium completed its process of constitutional change and became a federal state. In this new system, the three regional governments of Flanders, Brussels, and Wallonia will assume responsibility for most state aid programs under the guidance of the federal government and EU regulation. State aids are mainly based on two federal laws: (1) the Economic Expansion Act of August 4, 1978 (for small companies), and (2) the Economic Expansion Act of December 30, 1970 (for large companies). Both laws provide financial and fiscal incentives for investments in land, buildings, and tangible and intangible assets. Belgian state aid programs at all levels of government seem likely to shrink in the next several years as pressures to limit them from the EU Commission and from declining national and regional budgets intensify. The EU Commission believes that state aids distort the single market, impair structural change, and threaten EU convergence and social and economic cohesion. Belgium has historically been near the top of the EU in providing state aids, well above the community average. In recent years about five percent of total Belgian public sector spending has gone to state aids, about 64 percent of which went to particular industries, e.g. the railroads and coal mines. In the future, the remaining state aid programs will emphasize general macro objectives such as promoting innovation, research and development, energy saving, exports, and most of all, employment.

Investment: Belgium maintains an excellent investment climate for U.S. companies. U.S. investment in Belgium-almost $11 billion-ranks 13th in the world. No restrictions in Belgium apply specifically to foreign investors. Specific restrictions that apply to all investors in Belgium, foreign and domestic, include the need to obtain special permission to open department stores, provide transportation, produce and sell certain food items, cut and polished diamonds, and sell firearms and ammunition. During 1993, the American Chamber of Commerce in Belgium complained publicly on behalf of some of its members about a deterioriation in certain aspects of the previously excellent foreign investment climate in Belgium. The American Chamber specifically criticized the absence of a unified government policy on foreign investment within Belgium resulting in firms finding themselves welcomed and turned away at the same time by different government agencies. In addition, the Chamber complained of an inconsistent approach to environmentally sensitive investment projects, contradictory tax treatment of expatriate cost remuneration, uncertainties concerning the legal status of certain kinds of investments, and hardships for the families of expatriates occasioned by Belgian tax, visa, and immigration policies. Since then, the government has responded positively to these points and promised to take the necessary measures to remedy these problems.

Tax structure: Belgium's tax structure was substantially revised in 1989. The top marginal rate on personal income is still 55 percent. Corporations are taxed on income at a standard rate of 39 percent and a reduced rate ranging from 29 percent to 37 percent. Branches of foreign offices are taxed on total profits at a rate of 43 percent, or at a lower rate in accordance with the provisions contained in the double taxation treaty. Under the bilateral treaty between Belgium and the United States, that rate is 39 percent.

Despite the reforms of the past five years, the Belgian tax system is still characterized by relatively high marginal rates and a fairly narrow base resulting from numerous fiscal loopholes. 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 are particularly heavy.

The United States-Belgium bilateral income tax treaty dates from 1970. A protocol to the 1970 treaty was concluded in December 1987 and 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 net foreign assets of the private sector push the country into a net creditor position. Only about 15 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 EU, its significant improvements in fiscal and external balances over the past few years, its economic union with the financial powerhouse of Luxembourg, as well as the slowdown in external debt growth. The Belgian government does not experience any major problems in obtaining new loans on the local credit market. Because of the reform of monetary policy in January 1991, as well as greater independence granted in 1993 to the National Bank of Belgium (NBB), direct financing in Belgian francs by the Treasury through the central bank has become impossible. The Treasury retains only a $ 500 million credit facility with the NBB for day-to-day cash management purposes. The contracting of foreign currency loans by the Belgian government has also been restricted. Such borrowing is possible only in consultation with the NBB, which ensures that these loans do not compromise the effectiveness of the exchange rate policy.

As a member of the G-10 group of leading financial nations, Belgium participates actively in the IMF, the World Bank, the EBRD and the Paris Club. Belgium is a significant donor nation, and it closely follows development and debt issues, particularly with respect to Zaire (where development aid flows are frozen) and some other African nations.

5. Significant Barriers to U.S. Exports

With the beginning of the EU's single market, Belgium has implemented most, but not all, of the trade and investment rules necessary to harmonize with the rules of the other EU member countries. Thus, the potential for U.S. exporters to take advantage of the vastly expanded EU market through investments or sales in Belgium has grown significantly.

Some barriers to services and commodity trade still exist, however, including: Telecommunications: The Belgian telecommunications market, with its state monopoly of the basic telephone network, has shown recently a greater degree of openness than in the past. A second cellular license will be issued before the end of 1994, the yellow pages have been opened up to competition (albeit both under EU pressure) and the search is on for a strategic partner for Belgacom, the public telephone operator. However, foreign suppliers of equipment still complain that they face an unequal battle with the 'national champions'.

Ecotaxes: The Belgian government has passed a series of ecotaxes, in order to redirect consumer buying patterns away from environmentally damaging materials (as defined by the green parties, which supported the government coalition's efforts to revise the constitution and create a federal state). These taxes will possibly raise costs for U.S. exporters, since U.S. companies selling into the Belgian market must adapt to the phased-in implementation of these taxes, which may add more costs to U.S. producers forced to adapt worldwide products to varying EU environmental standards.

Belgian Subsidies to Airbus Participants: Since the inception of the Airbus project in Europe, Belgian companies have participated as subcontractors to the main German and French producers of the aircraft. In the past, Belgian public production supports for Airbus contractors have included subsidies for both recurring and nonrecurring costs. Cash advances were halted in 1991, though support continues today in the form of a guaranteed exchange rate designed to compensate Belgian contractors for the decline in the BF/dollar rate. The precise level of the subsidy depends on the equipment being supplied, the Airbus aircraft type, and the degree of Belgian federal and regional government participation. Between 1978 and 1991, Belgian federal and regional authorities contributed an estimated $167 million to Belgian Airbus component manufacturers participating in the Belairbus consortium. In the period 1992-1998, Belgian governments have pledged $392 million in total support. While federal supports are scheduled to end, regional government subsidies are like

ly to continue and even rise in the future, despite federal government commitments to control them. This, of course, depends on Belgian industry receiving continued work from the Airbus consortium.

Regionalization: The devolution of various central government powers to the three regions of Belgium is accelerating. The regions already have considerable influence over educational and environmental matters and control most of the subsidies and investment incentives given to both domestic and foreign business. At some point, it is likely that the regions will press for taxing authority to raise revenues, in order to meet their added responsibilities. There is inconsistent enforcement of environment regulations among the regions, which may lead to a less favorable investment climate for U.S. business in some parts of the country. The regions have promised to take steps to avoid nontransparency and conflicting jurisdictions.

Opening the Retail Service Sector to U.S. Firms: During 1993 and 1994, the large U.S. retail chain, Toys R Us, has experienced considerable difficulty in obtaining permits to open three outlets in Belgium. Current legislation is designed to protect the small shopkeeper in Belgium and has a decidedly nontransparent and protectionist bent. While Belgian retailers also suffer from the same restrictions, their existing sites give them strong market share and power in local markets. Toys R Us officials want to continue to open outlets in Belgium and are concerned that strict enforcement of the retail law will prevent them from doing so.

Military Offset Programs: Belgian military investment programs frequently contain offset clauses, whereby a certain amount of the contract needs to be performed in Belgium, either directly (i.e. direct compensation on the sale) or indirectly (i.e. by giving Belgian subcontractors 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. The number of military contracts is dwindling, however, as Belgian military spending declines. Broadcasting and Motion Pictures: Belgium voted against the EU broadcasting directive (which required high percentages of European programs) because its provisions were not, in the country's view, strong enough to protect the fledgling fism industry in Flanders. The Flemish (Dutch-speaking) region and Walloon (Frenchspeaking) community of Belgium have local content broadcasting requirements for private television stations operating in those areas. The EU has taken the Walloon and Flemish communities to the European Court of Justice concerning these requirements. In 1993 the Francophone community led an effort to exclude the U.S. TNT cartoon channel from cable systems in all three regions. A Brussels court subsequently required the broadcasting of TNT in the Brussels region. Similar difficulties await NBC and Viacom, when they try to enter the Flemish market in early 1995 with their TV4 channel.

6. Export Subsidies Policies

There are no direct export subsidies offered by the Government of Belgium to industrial and commercial entities in the country, but the Government does conduct an active program of trade promotion. This trade promotion activity (subsidies for participation in foreign fairs and the compilation of market research reports), together with a social expenditure break (a reduction of social security contributions by employers, and generous rules for cyclical layoffs) are offered to both domestic and foreign companies in export sectors, and they 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 party to the major intellectual property agreements, including the Paris, Berne and Universal Copyright Conventions, and the Patent Cooperation Treaty. Nevertheless, an estimated 25 percent of Belgium's video cassette and compact disc markets are composed of pirated cassettes.

On June 30, 1994, the Belgian Senate gave its final approval of the revised Belgian copyright law. The old law dated from 1886. National treatment standards were introduced in the blank tape levy provisions of the new law, replacing reciprocity standards. Problems regarding first fixation and non-assignability were also resolved. The final law states that authors will receive national treatment, and allows for sufficient manoeuvrability in neighbouring rights. It is estimated that U.S. authors and producers will receive some $7 million annually from the proceeds of the blank tape levy in Belgium.

Patents: A Belgian patent can be obtained for a maximum period of twenty years and is issued only after the performance of a novelty examination.

Trademarks: The Benelux Convention on Trademarks, signed in Brussels in 1962, established a joint process for the registration of trademarks for Belgium, Luxembourg, and the Netherlands. Product trademarks are available from the Benelux