program to establish a single market has accelerated Spain's integration into the EU.

Spain's membership in the EU also required liberalization of its foreign investment regulations and the foreign exchange regime. In July 1989, a securities market reform went into effect. The reform has provided for more open and transparent stock markets, as well as for licensing of investment banking services. The reform also liberalized conditions for obtaining a stock brokerage license. A new foreign investment law passed in June 1992 removed many of the administrative requirements for foreign investments. Investments from EU resident companies are free from almost all restrictions, while non-EU resident investors must obtain authorization from the authorities to invest in broadcasting, gaming, air transport, or defense.

Faced with the loss of the Spanish feed grain market as a result of Spain's membership in the EU, the United States negotiated an Enlargement Agreement with the EU in 1987 which establishes a 2.3 million ton annual quota for Spanish imports of corn, specified nongrain feed ingredients and sorghum from non-EU countries during a four year period. The agreement was extended through 1994. The Uruguay Round agreement had the effect of extending this agreement indefinitely. The United States remains interested in maintaining access to the Spanish feed grain market and will continue to press the EU on this issue. U.S. exports of corn and sorghum, of about $200 million annually, are an important part of U.S. trade with Spain.

Spain was obliged under its EU accession agreement to establish a formal system of import licenses and quotas to replace the structure of formal and informal import restrictions for industrial products existing prior to EU membership. The United States objected that the new import regime for non-EU products was illegal under GATT. In response to U.S. concerns, in October 1988, Spain initiated an automatic, computerized licensing system for Spanish imports of the affected U.S. products. Since the system became effective, no U.S. exporters have reported market access impediments to their products covered under the automatic approval system.

EU ratification of the Uruguay Round trade agreement will deepen trade liberalization and apply it to new sectors. The Government of Spain also ratified the Uruguay Round package and joined the World Trade Organization (WTO) as a founding member.

4. Debt Management Policies

Spain's external debt totalled $79.8 billion in December 1992 (latest data available). Foreign investors bought heavily into Spanish government long-term debt during 1993, profitting as interest rates declined from 12.2 percent in January 1993 to eight percent in February 1994. Foreign investors held about $38 billion of this debt in March 1994, but have since reduced their position in this market as interest rates have trended upwards. The Spanish government has signed standby loan arrangements in foreign currency with consortia of private banks, and reached agreement with investment banks to float bonds 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 the Kingdom of Spain as AA2.

5. Significant Barriers to U.S. Exports

Import Restrictions: Under the EU's Common Agricultural Policy (CAP), Spanish farm incomes are protected by direct payments and guaranteed farm prices that are higher than world prices. One of the mechanisms for maintaining this internal support are high external tariffs and variable levies (as much as 200 percent for some commodities) that effectively keep lower priced imports from entering the domestic market to compete with domestic production. However, the Uruguay Round agreement established that these variable levies will be replaced by fixed import duties beginning on July 1, 1995. In addition all import duties on agricultural products will be reduced during the five year period from 1995 to 2000.

In addition to these mechanisms, the EU employs a variety of strict animal and plant health standards which act as barriers to trade. These regulations end up severely restricting or prohibiting Spanish imports of certain plant and livestock products. One of the most glaring examples of these policies is the EU ban on imports of hormone treated beef, imposed with the stated objective of protecting consumer health. Despite a growing and widespread use of illegal hormones in Spanish beef production, the EU continues to ban U.S. beef originating from feedlots where growth promotants have been used safely and under strict regulation.

One important aspect of Spain's EU membership is how EU-wide phytosanitary regulations, and regulations that govern food ingredients, labeling and packaging,

impact on the Spanish market for imports of U.S. agricultural products. The majority of these regulations took effect on January 1, 1993 when EU “single market" leg. islation became fully implemented in Spain, and now agricultural and food product imports into Spain are subject to the same regulations as in other EU countries. While many restrictions that had been in operation in Spain before the transition have now been lifted, for certain products the new regulations impose additional import requirements. For example, Spain now requires any foodstuff that has been treated with ionizing radiation to carry an advisory label. In addition, a lot marking is now required for any packaged food items. Spain, in adhering to EU-wide standards, continues to impose strict requirements on product labeling, composition, and ingredients. Like the rest of the EU, Spain prohibits imports which do not meet a variety of unusually strict product standards. Food producers must conform to these standards, and importers of these products must register with government health authorities prior to importation. In 1994, a shipment of squid from the U.S. had dif ficulty entering Spain as authorities were concerned that it exceeded maximum levels of copper, which is considered a heavy metal under Spanish food and drug law. Neither the U.S. nor the EU impose a standard regarding copper.

Telecommunications: Spain's telecommunications policy is in flux, as the Government of Spain simultaneously seeks to assure the continued strength of Telefonica, the state controlled public telephone operator, and to liberalize the market in order to attract foreign investment and comply with EU guidelines. Although regulations liberalizing value-added services were issued in 1991, U.S. companies trying to establish these services, particularly international virtual private networks (IVPNs), closed user groups, and real-time fax and voice data service, have encountered ob

stacles.

Recently, progress has been made. In October 1994, the Government of Spain began taking bids on its second digital cellular license. (Under the terms of its 30year contract with the government, Telefonica will be awarded the first digital cellular license on a non-competitive basis.) The Government of Spain has stated that it hopes to award the permit by the end of 1994, which would allow the winning company to begin operating in mid-1995. Telefonica has already been offering analog cellular services for over two years, and therefore begins the battle for the digital market with a substantial advantage.

In its role as public telephone operator, Telefonica has embarked on an ambitious project to upgrade Spain's communications infrastructure. It plans to lay 2,500 kilometers of fiber optic line in the next one to two years. The Spanish firm is also a major buyer of U.S. switching and transmission equipment, and has indicated interest in forming alliances with U.S. companies.

Banking Services: Spain's transposition of the EU second banking directive in March 1993 placed U.S. banks with branches in Spain at a potential competitive disadvantage with respect to branches of EU banks in Spain. Spanish regulatory authorities temporarily waived the most onerous restrictions, however, and negotiations are underway for a permanent solution.

Government Procurement: During the May 1992 GATT Government Procurement Code Committee meeting, signatories agreed to extend code benefits to Spain by July 22, 1992. This required Spain to fully implement the corresponding EU directives. As a result, American suppliers having contracts with Spanish government entities covered by the GATT Code are protected with respect to discrimination, transparency, and appeal procedures.

Offset requirements are common in defense contracts and some large nondefenserelated and public sector purchases (e.g. commercial aircraft and satellites). Recent large commercial contracts have contained offset provisions in the 30 to 60 percent range.

Television Broadcasting Stations: The government transposed the EU broadcast directive in July 1994. It imposes a requirement that 51 percent of broadcast time be reserved for European products. The EU is considering revisions in this directive. Should the revisions result in further increases in the European content reservations, this would, of course, further restrict the Spanish market for U.S. products. Spanish legislation imposes restrictions on foreign ownership of the three private TV concessions allowed. These restrictions are aimed at developing the local Spanish program industry and encouraging Spanish language productions. The government plans to introduce legislation to regulate cable T.V. Two operating concessions would be granted in each specified geographical area. One concession would be reserved for Telefonica, the state controlled public telephone operator, while one would be assigned to a private firm through competitive bidding.

Motion Picture Dubbing Licenses and Screen Quotas: Spain requires issuance of a license for dubbing non-EU films into Spanish for distribution in Spain. Dubbed movies are commercially more successful than subtitled original language films in

the Spanish market. To obtain a license, distributors must contract to distribute an EU film. Changes in the Cinema Law, implemented in December 1993, increased the number of viewers which the EU film must attract for it to confer a dubbing license, and imposed requirements for dubbing into minority languages. The law also requires cinemas to show one day of EU films for every two days of non-EU films. Efforts are underway to seek administrative revisions in the law to limit its prejudicial effects on non-EU producers and distributors.

Product Standards and Certification Requirements: While product certification requirements (homologation) have been liberalized considerably since Spain's entry into the EU, problems remain for U.S. exporters in three areas. First, cumbersome certification requirements remain for some telecommunications products, terminal equipment, certain computer peripherals, and some building materials. Second, there is a lack of transparency and consistency in the application of certification requirements. There are no published norms for the documentary evidence needed to establish that an item has met certification requirements of another EU government and that a product is in "free circulation" in an EU market. Third, the local interpretation and application of some EU directives and regulations have caused disruption in trade with the U.S. For example, U.S. exporters of gas connectors have had difficulty in obtaining permission for the entry of their products into Spain.

Another example of such stringent procedural requirements has to do with the import of live bivalve mollusks. Since July of 1993 a new purification process for the mollusks is required along with an acceptable certification from recognized U.S. authorities. All this can delay the shipment of clams to the Spanish market, increase production cost and adversely affect product quality.

The Spanish government generally holds that it does not use product certification procedures to hinder trade. It has been cooperative in resolving specific trade issues brought to its attention. The United States has encouraged Spain to simplify its certification procedures and make them more transparent. In this regard, mutual recognition of product standards and testing laboratory results is being pursued at the EU level.

6. Exports Subsidies Policies

Spain aggressively uses "tied aid" credits to promote exports, especially in Latin America, the Maghreb, and more recently, China. Such credits reportedly are consistent with the OECD arrangement on offically supported export credits.

As a member of the EU, Spain benefits from EU export subsidies which are applied to many agricultural products when exported to destinations outside the Union. Total EU subsidies of Spanish agricultural exports amounted to $551 million in 1993. Spanish exports of grains, olive oil, other oils, tobacco, wine, sugar, dairy products, beef, sheep and goat meat, and fruits and vegetables benefitted most from these subsidies in 1993.

7. Protection of U.S. Intellectual Property

Spain adopted new patent, copyright, and trademark laws, as agreed at the time of its EU accession. It enacted a new patent law in March 1986, a new copyright law in November 1987, and a new trademark law in November 1988. All approximate or exceed EU levels of intellectual property protection. Spain is a party to the Paris, Bern, and Universal copyright conventions and the Madrid Accord on Trademarks. Spanish government officials have said that their laws reflect genuine concern for the protection of intellectual property.

The patent law greatly increased the protection accorded patent holders. In October of 1992, Spain's pharmaceutical process patent protection regime expired, and product protection took effect. Industry sources have advised that the impact of the new product protection law will not be felt until early in the next century when new pharmaceutical product patents applied for after October 1992 enter the market after the 10 to 12 years research and development period normally associated with the introduction of a new product into the market. U.S. makers of chemical and pharmaceutical products have complained that this provides effective patent protection only for approximately eight years. The U.S. pharmaceutical industry would like to see some lengthening of the patent term.

The copyright law is designed to redress historically weak protection accorded movies, video cassettes, sound recordings and software. It includes computer software as intellectual property, unlike the prior law. In 1991, judicial sanctions for violations increased significantly again. The law provides a clear legal framework for copyright protection. The new copyright law has been useful in alleviating abuses of authors' rights. For example, the home video industry trade association reported improved ability to secure court orders after the copyright law was enacted.

Nevertheless, U.S. software producers complain of losses from business software piracy and are taking legal action under the new intellectual property law to correct this. The Spanish government has responded to concerns over software piracy by sending instructions to prosecutors calling for rigorous enforcement of the law and urging private industry to pursue pirates aggressively through the courts. In December 1993, legislation was enacted which transposed the EU software directive. It includes provisions that allow for unannounced searches in civil lawsuits. Some searches have taken place under these provisions.

Continuing Spanish government enforcement efforts have reduced video and audio cassette piracy although it remains a significant problem. Operators of small neighborhood cable networks, called "Community Video," broadcast video programs without broadcast rights, but the Spanish government has prohibited them from running cables across public ways and is attempting to phase them out. This process would be speeded up if, as the government has proposed, a new cable television law is enacted which grants exclusive franchises over large areas. The copyright law has clearly established that no motion picture can be publicly exhibited without the authorization of the copyright holder and that "Community Video" is to be considered as public exhibition.

The trademark law is intended to facilitate improved enforcement. It incorporates by reference the enforcement procedures of the patent law, defines trademark infringements as unfair competition, and creates civil and criminal penalties for violations. Aggressive Spanish enforcement efforts have resulted in numerous civil and criminal actions; however, the infringement 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, magistrates and prosecutors are entitled to form or join unions of their own choosing without previous authorization. Self-employed, unemployed and retired persons may join but may not form unions of their own. There are no limitations on the right of association for workers in special economic zones. Under the constitution, trade unions are free to choose their own representatives, determine their own policies, represent their members' interests, and strike. They are not restricted or harassed by the government and maintain ties with recognized international organizations. About 11 percent of the Spanish work force belongs to a trade union. While no official data are available on the percentage of union affiliation in Spain's free trade zones, a trade union official has stated that union membership in these zones is higher than the average for the whole economy.

b. The Right to Organize and Bargain Collectively.-The right to organize and bargain collectively was established by the Workers Statute of 1980. Trade union and collective bargaining rights were extended to all workers in the public sector, except the military services, in 1986. Public sector collective bargaining in 1989 was broadened to include salaries and employment levels. Collective bargaining is widespread in both the private and public sectors. Sixty percent of the working population is covered by collective bargaining agreements although only a minority are actually union members. Labor regulations in free trade zones and export processing zones are the same as in the rest of the country. There are no restrictions on the right to organize or on collective bargaining in such areas.

c. Prohibition of Forced or Compulsory Labor.-Forced or compulsory labor is outlawed and is not practiced. Legislation is effectively enforced.

d. Minimum Age for Employment of Children.-The legal minimum age for employment as established by the Workers Statute is 16. The Ministry of Labor and Social Security is primarily responsible for enforcement. The minimum age is effectively enforced in major industries and in the service sector. It is more difficult to control on small farms and in family owned businesses. Legislation prohibiting child labor is effectively enforced in the special economic zones. The Workers Statute also prohibits the employment of persons under 18 years of age at night, for overtime work, or for work in sectors considered hazardous by the Ministry of Labor and Social Security and the unions.

e. Acceptable Conditions of Work.-Workers in general have substantial, well defined rights. A 40 hour work week is established by law. Spanish workers enjoy 12 paid holidays a year and a month's paid vacation. The employee receives his annual salary in 14 payments-one paycheck each month and an "extra" check in June and in December. Based on a 1994 average exchange rate of 133 pesetas to the dollar and full days and years of work, the legal minimum wage for workers over 18 is $15.18 per day or $455.41 per month. For those 16 to 18 it is $10.03 per day or $300.90 per month. The minimum wage is revised every year in accordance with the consumer price index. Government mechanisms exist for enforcing working con

ditions and occupational health and safety conditions, but bureaucratic procedures are cumbersome. Safety and health legislation is being revised to conform to EU directives.

f. Rights in Sectors with U.S. Investment.-U.S. capital is invested primarily in the following sectors: 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 all the rights guaranteed under the Spanish constitution and law, and conditions in these sectors do not differ from those in other sectors of the economy.

Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis-1993 [Millions of U.S. dollars]