BELGIUM granted substantial budgetary expenditure autonomy, but only limited fiscal revenue autonomy. By not matching the fiscal resources to the devolved responsibilities, the Federal government in effect passed on part of the budget austerity burden to the regions and communities, which in turn were forced to rely on borrowings. These borrowings are not covered by a Federal government guarantee. This The government believes that it may take 10 to 15 years to bring the debt stock ratio down to 80 percent of GNP. problem constitutes a potential stumbling block for Belgium's full participation in Phase Three of the EC's Economic and Monetary Union (EMU), which will require strict budgetary discipline (a debt/GDP ratio of no more than 60 percent and a deficit/GDP ratio of no more than 3 percent). 2. Exchange Rate Policies Belgium participates in the EC's 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 1921. 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 (against the 2.25 allowed in theory) 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. The remarkably strong performance of the Belgian franc since mid-1990 is also related to the enormous improvement of cross-border securities trading, bringing the basic balance (current account plus long-term capital) out of the red. Belgian franc investments by non-residents in 1991 increased steeply (currently 12 times higher than in the preceding 12-month period). In practice, there is freedom of trade for all purposes, and no discrimination 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 external tariff and the quota structure of the Common Agricultural Policy (CAP) apply. The Belgian Government's attitude toward free BELGIUM trade enjoys widespread support throughout the business community. On Subsidies: The national government substantially reduced its aid to business during the 1980s, particularly for steel and shipbuilding. Nonetheless, Belgium remains a heavy subsidizer by EC standards in several sectors. (Subsidies to Belgian coal producers, planned for elimination in 1992, were in fact terminated in mid-1991, well ahead of schedule.) 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 any 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. Investment: 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. Tax structure: 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 probably be further reduced to 37 percent in 1992. According to a recent study by the Belgian Ministry of Finance, the average effective corporate rate is around 26 percent. The witholding tax on interest income was reduced from 25 to 10 percent effective March 1990. 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 fiscal loopholes and some imbalance at the expense of labor. While indirect taxes are lower than elsewhere in the EC, 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 bilateral income tax treaty dates from 1970 and the U.S. Treasury Department is now reviewing the final draft language of a new treaty which was negotiated with the Belgian authorities. In the meantime, a protocol to the 1970 treaty was concluded in 1987 and was approved by the Belgian Parliament in 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 five percent (a feature which was actively sought by the American business community). BELGIUM 4. Debt Management Policies Belgium's public sector is a net external debtor, but the net foreign assets of the private sector probably push the country into a net creditor position. Only 15.4 percent of the Belgian Government's overall debt is owed to foreign creditors. Moody's 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 any problems in obtaining new loans on the local credit market. The three latest government loans were oversubscribed. Due to the reform of monetary policy in January 1991, direct financing in Belgian francs obtained from the National Bank of Belgium (NBB) has become almost impossible. The Treasury retains only a BF 15 billion credit facility with the NBB for day-to-day cash management purposes. The contracting of foreign currency loans has also been restricted since then. 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 and the Paris Club. Belgium is a leading donor nation, and it closely follows development and debt issues, particularly with respect to Zaire and other African nations. In January 1993, when the EC's internal market will be integrated, Belgium will have harmonized most, if not all, of its trade rules 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 should grow significantly. Some Belgian barriers to services and commodity trade still exist, however, including: 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 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 nine percent to Brussels. As a consequence, many U.S. defense companies have steered clear of the Belgian defense market. Telecommunications: Foreign suppliers of telecom equipment have encountered difficulties in gaining access to the Belgian market, especially when they do not have production facilities in the country. However, U.S. suppliers should benefit from the EC directive to liberalize public procurement in excluded sectors, one of which is BELGIUM telecommunications. Further opportunities for U.S. business may also come from the opening up of the terminal equipment market and the splitting of the Belgian telecom company RTT into a commercial branch, Belgacom, and a standard setting and approval body, BIPT. Value-added and information services may also be opened to competition from the private sector. However, invisible barriers of entry are likely to persist (e.g., technical specifications tailored to those of the national champions, long and expensive approval procedures and market segments reserved for the RTT). Broadcasting and Motion Pictures: Belgium voted against the EC broadcasting directive (which required high percentages of "domestic" programs) because its provisions were not, in the country'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. 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, it does increase their costs by requiring that they make and supply additional prints. Barriers to legal services: Starting in the early 1970s, Belgium applied a numerical limit on the number of U.S. legal consultants that were allowed to apply for a professional card and work in Belgium. With the increase in the number of U.S. legal firms in Belgium, the number of U.S. lawyers with a professional card was approaching the limit by the end of the 1980s. The government lifted the limit in October, 1990. government review of the qualitative restrictions on the activities of foreign legal consultants is being considered. 6. Export Subsidies Policies A There are no direct export subsidies offered by the Government of Belgium to industrial and commercial entities in the country. However, both the Wallonia and Brussels regions recently granted subsidies to several civilian industries in their areas, especially in the aerospace sector. At least some of the subsidized production will go into Airbus airplanes sold on the international market. In addition, the government does conduct an active program of trade promotion. 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 The Government of Belgium is keenly interested in BELGIUM intellectual property protection and actively follows the subject in the Uruguay Round negotiations. Some Belgian firms, especially textile capital equipment manufacturers, have seen their own research and development efforts pirated and are therefore eager to improve standards of protection. Belgium is party to the major intellectual property agreements, including the Paris, Berne and Universal Copyright Conventions, and the Patent Cooperation Treaty. Copyrights: The Belgian Copyright Law, passed in 1886, provides insufficient or outdated penalties for copyright infringement. Some authors and editors claim that many copies are made each year from legally protected works. Specific copyright or patent protection for computer software does not yet exist. The EC Commission has passed a directive protecting computer software, and Belgium is required to implement it by January 1, 1993. Even though the EC directive does not offer as much intellectual property protection as in the case of U.S. law, it does increase protection. Belgium supports the U.S. Government's position regarding the maximum protection of computer software, including the prohibition on reverse engineering. 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 Trademark Office in The Hague. This trademark protection is valid for ten years, renewable for successive ten-year periods. The Benelux Office of Designs and Models will grant registration of industrial designs for 50 years of protection. International deposit of industrial designs under the auspices of the World Intellectual Property Organization (WIPO) is also possible. 8. Worker Rights a. Right of Association Workers have the right to associate freely and to strike. With 70 percent of its labor force organized, Belgium is one of the most unionized countries in the world and has a long tradition of democratic trade union elections. Labor unions striking or protesting government policies are free from harassment and persecution. Labor unions are strong and independent of the Government but have important informal links with and influence on many of the major political parties. Unions in Belgium are affiliated with the major international bodies representing labor, such as the International Confederation of Free Trade Unions and the World Confederation of Labor. |