Spain continues to experience good investment-led growth as part of the economic upturn which began in 1985. In 1991, the rate of growth will slow to 2.5 percent from 3.7 percent in 1990, as a result of the weaker international economy and a high interest policy implemented since mid-1989 to curb inflationary pressures. The goal of Spanish policy is to SPAIN foster a competitive economy in the context of the European Community (EC) Single Market with the eventual goal of approaching EC averages on per-capita income. Spain's 1986 accession to the EC established the framework for the present economic expansion. EC membership has required Spain to open its economy, modernize its industrial base, improve infrastructure, and revise economic legislation to conform to EC guidelines. With Spain firmly anchored in the EC, foreign investors, principally from other EC countries, have brought into Spain over $50 billion since the EC accession. The principal challenge for Spain in the 1990's will be to adapt to the EC Single Market. Spain's overall competitiveness has suffered in recent years, principally due to inflation levels which continue to exceed EC averages and wage increases above productivity gains. With the peseta linked to other EC currencies via the European Monetary System (EMS), above average inflation leads immediately to a decline in competitiveness of Spanish goods and services. The main source of inflationary pressure is the fiscal deficit, which will be about 2.0 percent of GDP in 1991. From the period 1986-90, Spain was able to increase both social and public infrastructure spending, due to a rapidly expanding tax base following the introduction of a value-added tax. Starting in mid-1991, public works spending was sharply curtailed because of the need to cut the deficit, and in the face of growing social program coverage and expenditures. From mid-1989 until February 1991, the Bank of Spain maintained a high interest rate policy as the principal measure to combat inflation. While the policy had success in reducing inflation, the high yields attracted foreign capital, leading to an appreciation of the peseta. The appreciation of the peseta was also one factor in the decline in competitiveness. 2. Exchange Rate Policies Spain joined the EMS in mid-1989, and was given a "wide band" of plus or minus six percent around the peseta's central peg to the ECU. With high interest rates, the peseta has remained five to six percent above the central peg, and in the first quarter of the year frequently bumped up against the ceiling. One condition for eventual entry into a common European currency will be to move the peseta within the "narrow band," plus or minus 2.5 percent of the central peg. To do so, Spain will have to reduce the interest rate spread with other EMS currencies. The Government of Spain has lifted all significant foreign exchange controls for businesses, and it has announced that remaining controls, for businesses and individuals alike, will be lifted effective February 1, 1992. 3. Structural Policies Spain's Treaty of Accession to the EC requires it to open SPAIN its economy. By January 1, 1993, Spanish tariffs must be phased out for imports from other EC countries, and lowered to the EC's common external tariff for imports from non-EC countries. Many non-tariff barriers must also be reduced or eliminated. While areas of dispute remain (see section 5) the trend is strongly toward a more open economy. The EC program to establish a single market has accelerated Spain's integration into the EC. Spain's membership in the EC also required liberalization of its foreign investment regulations and the foreign exchange regime. Complete freedom of capital movement will be established by 1993 at the latest, although Spanish authorities have announced that they intend to advance the timetable to the end of 1992. In July 1989 a securities market reform went into effect. The reform provides for more open and transparent stock markets, as well as for licensing of investment banking services. The reform liberalizes conditions for obtaining a stock brokerage license, but provides for a transition period through 1992. Faced with the loss of the Spanish feed grain market as a result of Spain's membership in the EC, the United States negotiated an Enlargement Agreement with the EC in 1987 which establishes a 2.3 million ton annual quota for Spanish imports of corn, specified non-grain feed ingredients and sorghum from non-EC countries during a four year period. Since the United States and the EC could not agree on permanent compensation when the Agreement was to expire in 1990, a one-year extension was negotiated. In December 1991, the EC unilaterally extended the agreement for an additional year to end December 31, 1992. The United States remains interested in maintaining access to the Spanish feed grain market and will continue to press the EC on this issue. U.S. exports of corn and sorghum, valued at about $420 million annually, are an important part of U.S. trade with Spain. Spain was obliged under its EC 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 EC membership. The United States objected that the new import regime for non-EC products was illegal under GATT. In response to U.S. concerns, in September 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. 4. Debt Management Policies 1991. 1991. Spain's external debt totalled $44.8 billion in June International reserves were $62.1 billion in June With a low debt service-export ratio, Spain should have no difficulty in servicing its debt. 5. Significant Barriers to U.S. Exports Import Restrictions: Spain prohibits imports of U.S. SPAIN produce, notably fresh apples, pears, cherries, avocados and grapefruit, based on plant protection arguments. The two countries appear to be close to an agreement to allow imports of fresh apples and pears from the U.S. Northwest, but problems remain for other products. Other EC countries allow imports of these items, but Spain has not indicated any willingness to bring their overall policy into line with other EC countries before the revised EC-wide regulations are put in place sometime after 1992. Processed Food Standards: Unusually strict regulations on processed food imports constitute an important barrier. Spanish regulations prohibit importation of processed food products whose ingredients, additives (including colorings and flavorings) and labels the Government of Spain has not approved prior to customs clearance. Thus, food products must conform to Spanish standards and be registered by importers with health authorities prior to entry. Shipments not in compliance with Spanish regulations are subject to detention and must be destroyed or re-exported. Telecommunications: The Spanish government enacted a general telecommunications law in December 1987 which established the framework for policy and regulation of telecommunications services in Spain. The law preserves the monopoly of state-controlled Telefonica in the area of final and carrier services; it allows for eventual liberalization of certain customer premise equipment and value-added services. Impetus for policy change increasingly comes from the EC regulatory institutions in this sector. Spain has indicated that it will not liberalize its telecommunications market in advance of EC deadlines. However, the government has recently announced that it would be submitting amendments to the 1987 law and that a national telecommunications plan would soon be released. It is expected that these changes will specify additional liberalization. Government procurement biases and product-certification requirements (discussed elsewhere in this report) are problems for some U.S. suppliers. Government Procurement: The Spanish government looks to the EC Commission, as well as other EC member states, in establishing the policies and timetables for liberalization of public procurement of goods and services. While Spain has not yet completed the process of implementing the GATT Government Procurement Code, Spain has reportedly met the Community's request for additional detailed statistical information regarding Spanish central government entity purchases, and the Community is likely to present Spain's government procurement package to Code signatories for approval by June, 1992. Although there are no discriminatory legal requirements, anecdotal evidence indicates that major award decisions by national entities are made according to the following order of priority: a) locally-made products; b) EC products; c) U.S. and other non-Asian products; and d) products from the Far East. Offset and local content provisions are established features in competitions for major Spanish defense contracts. They are also common in large non-defense-related government awards. Typical offset commitments for defense sales reportedly range from 50 to 130 percent of the purchase price. The recent winning proposals in non-defense satellite SPAIN communications tenders have included offset commitments in the 30 to 60 percent range of the contract value. Television Broadcasting Stations: In line with EC policy, Spanish legislation includes restrictions on the share of non-EC programming shown on private TV, as well as 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. While the principal government-owned television networks show more U.S. programs than the quota restrictions on private channels would permit, observers are concerned that the government TV networks may eventually attempt to limit non-EC programming to a share comparable to the quota for private-TV. Given the strong public acceptance of U.S. programs, quota restrictions could limit sales opportunities. Motion Picture Dubbing Licenses and Screen Quotas: Spain requires issuance of a license for dubbing non-EC 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 a Spanish film. Spain continues to enforce screen quotas requiring cinemas to show one day of EC films for every two days of non-EC films. Dubbing licenses cost U.S. firms more than $15 million. The U.S. has raised this issue bilaterally and in the OECD. Harmonization of Standards: Prior to Spain's 1986 entry into the European Community, certification (homologation) requirements for electrical, electronic, and telecommunications imports were difficult and compliance was expensive. Certification has been liberalized significantly since 1986. Spanish Royal Decree 105 of 1988 waived homologation requirements for products approved for sale in other EC markets. Products made in non-EC countries that are in "free circulation" in any EC country receive the same treatment as EC-origin products. Despite these improvements, problems remain for U.S. exports in two areas. First, in product areas such as telecommunications equipment and construction materials, some pre-1986 requisites remain in force. Secondly, there is a lack of clarity and consistency in that uniform norms are lacking regarding the documentary evidence needed to establish that an imported item meets the certification requirements of another EC government or that the item is in free circulation in another EC country market. In order to promote exports, particularly in Latin America, Spain uses tied aid credits. However, such credits are consistent with the OECD arrangement on officially supported export credits. 7. Protection Of U.S. Intellectual Property Spain has adopted new patent, copyright, and trademark laws, as agreed at the time of its EC accession. It enacted a |