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Country Commercial Guides FY 2000: Luxembourg Report prepared by U.S. Embassy Luxembourg, released July 1999 Note*

CHAPTER I. EXECUTIVE SUMMARY

This Country Commercial Guide (CCG) presents a comprehensive look at Luxembourg's commercial environment, using economic, political, and market analysis. The CCG's were established by recommendation of the Trade Promotion Coordinating Committee (TPCC), a multi-agency task force, to consolidate various documents prepared for the U.S. business community. Country Commercial Guides are prepared annually at U.S. Embassies through the combined efforts of several U.S. government agencies.

Luxembourg is the smallest member-nation of the European Union (EU) and is situated among France, Germany, and Belgium in the "heart of Europe." With the highest standard of living among the fifteen EU members, continuous economic growth for well over the past ten years, relatively low inflation, and virtually no unemployment, Luxembourg offers an economy that is both strong and diversified. An example of Luxembourg's economic strength is that Luxembourg was the first EU member to fully comply with the convergence criteria necessary to join Europe's Economic and Monetary Union (EMU).

Luxembourg is also the focal point of the Saar-Lor-Lux region, which is comprised of Saarland, Lorraine, Grand Duchy of Luxembourg, Luxembourg province of Belgium, Trier, and Western Palatinate. This region is well known as an industrial stronghold with approximately 11 million inhabitants and forms a social, economic, and cultural entity with its own identifiable character. Straddling the crossroads of European trade, this region is an important link between Northern Europe and the Mediterranean as well as the Atlantic and Central European countries. The Saar-Lor-Lux region is made up of several nationalities, each contributing to the unity, drive, and economic growth of the area, setting a perfect example for the 320 million Europeans in the Single European Market.

Iron and steel production were pivotal in the country's industrialization and modernization. The Luxembourg-based ARBED Group is the second largest steel producer in Europe and the fourth largest in the world. In 1998, the European steel industry had an excellent first half-year despite being negatively impacted by the economic crisis in South East Asia, Russia, and Brazil. ARBED's 1998 earnings were 91.8% higher compared to 1997. It also remains the largest single private employer in Luxembourg, despite workforce reductions in the 1980s.

In telecommunications, the government backed the creation of the satellite company Société Européenne des Satellites (SES) in 1985, which recently went public in July 1998 on the Luxembourg Stock Exchange (symbol: SES). SES operates ASTRA, a leading satellite system for direct-to-home (DTH) transmission of TV, radio, and multimedia services throughout Europe. SES recently launched its ninth ASTRA satellite in June 1998, and another two are scheduled for launch before 2001. In total, the ASTRA satellites reach over 74 million homes in Europe.

Luxembourg's all-cargo airline, Cargolux, ranks among the top ten European air cargo carriers. The company has been expanding over the past few years by adding more scheduled destinations with many destinations in the U.S. Cargolux maintains a fleet of ten aircraft composed entirely of modern Boeing 747-400Fs, making the airline an important client of the U.S. aircraft industry.

Since the end of World War II, strong efforts have been made to attract investments to bring diversity into Luxembourg's former monolithic industry. American companies such as Goodyear, DuPont de Nemours, General Motors, and Guardian International realized that the location of Luxembourg was ideal for serving European markets. Goodyear and Guardian, in particular, manage their European operations from Luxembourg and represent the two most important foreign manufacturing investments in the country.

Luxembourg offers many incentives to companies intending to set up operations within the country such as tax rebates and help in obtaining credit. Despite these continuing efforts to increase industrial activity, however, Luxembourg's industrial labor force is diminishing; instead, the service sector continues to expand. Despite consolidation among banks, the financial sector is still Luxembourg's biggest growth sector due to expansion of the insurance segment. This has enabled the country to play a major role as a prominent international financial center. 215 (1997) banks, 1,200 investment funds, 180 insurance and re-insurance companies, and 19,000 domiciled holding companies benefit from a favorable tax environment and bank-secrecy legislation. This presence represents the largest banking concentration in the European Union. To combat the image of Luxembourg as a tax haven, as well as a money laundering center, severe laws against money laundering have been passed.

Although financial services, steel, and multinational companies dominate Luxembourg's economy, there are many benefits to small- and medium-sized American investors. Luxembourg is an attractive business center despite Luxembourg's high wages, strong labor legislation, and high costs. Investors benefit from a multilingual, highly educated and productive labor force, and relatively low social costs. Excellent road, rail, and air connections, a tailor-made investment incentive program, easy access to government decision makers, and a stable political and economic environment also aid companies investing in Luxembourg.

The Commercial Service in Luxembourg is part of a European-wide initiative called Showcase Europe (http://www.sce.doc.gov). Created in April of 1995, Showcase Europe provides information collected by all the Commercial Service offices throughout Europe to assist American companies in conducting business in the European market. An exporter can access Country Commercial Guides, check available industry sector research, and contact the Commercial Service office in a particular country of interest. Showcase Europe is a one-stop shop for European market information. While there is no fee to use this website, registration is required.

The Commercial Service at the U.S. Embassy in Brussels also serves businesses interested in Luxembourg. The U.S. Embassy in Luxembourg can be contacted by phone, at +35/2 46-01-23. The Commercial Service in Brussels can be reached at +32/2 508-2425. Complete details of services offered can be obtained by visiting the Commercial Service Brussels website at http://www.us-embassy.be or by contacting your local Export Assistance Center found at http://www.ita.doc.gov/uscs.

Country Commercial Guides (CCG) are available for U.S. exporters from the National Trade Data Bank's CD-ROM or via the Internet. Please contact STAT-USA at 1-800-STAT-USA for more information. CCGs can be accessed via the World Wide Web at http://www.stat-usa.gov, http://1997-2001.state.gov, and http://www.mac.doc.gov. They can also be ordered in hard copy or on diskette from the National Technical Information Service (NTIS) at 1-800-553-NTIS. U.S. exporters seeking general export information/assistance and country-specific commercial information should contact the U.S. Department of Commerce, Trade Information Center by phone at 1-800-USA-TRADE or by fax at (202) 482-4473.