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Country Commercial Guides for FY 2000: Spain Report prepared by U.S. Embassy Madrid, Released July, 1999   Note*

EXECUTIVE SUMMARY

This Country Commercial Guide (CCG) presents a comprehensive look at Spain's commercial environment using economic, political and market analysis. The CCGs were established by recommendation of the Trade Promotion Coordinating Committee (TPCC), a multi-agency task force, to consolidate various reporting 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.

Spain and the U.S. enjoy excellent bilateral relations as industrial democracies and NATO allies. Spain provides the U.S. with one of its largest export markets. In 1998, the U.S. enjoyed a USD 700 million trade surplus with Spain. During that time period, U.S. exports to Spain were USD 5.5 billion and U.S. imports from Spain were USD 4.8 billion.

Major U.S. exports to Spain include telecommunication services, pollution control and water resources equipment, franchising, telecommunications equipment, medical equipment, electric power systems, and automotive parts and accessories. U.S. agricultural exports were dominated by oilseeds, grains and grain by-products, and forestry products.

All indicators confirm that 1998 was an excellent year for the Spanish economy. Economic growth surged from 3.5 in 1997 to 3.8 percent in 1998. This growth was fueled by investment, which increased by 3.1 percent in 1998; domestic demand, up by 4.9 percent; and industrial production, which grew 5.4 percent. The economy also benefited from the government's fulfillment of the European Monetary Union's convergence criteria.

The macroeconomic objectives established by the Maastricht Treaty of 1992 link the E.U. countries and drive their economic policy decisions. Spain's economic progress resulted in its qualification to enter the European Monetary Union in 1999. In 1998, Spain's economy continued to fall within the Maastricht guidelines with an inflation rate of 1.4 percent, an interest rate of 4.9 percent and a government deficit rate of 2.6 percent. Though Spain's debt/GDP of 69 percent in 1998 was above the Maastricht criteria of 60 percent, it is predicted to decline as the percent of deficit to spending decreases.

On Spain's political front, Jose Maria Aznar of the center-right Popular Party won the general elections held in March 1996 by a narrow margin. As a minority government, the Popular Party is dependent on ad-hoc coalitions to advance its legislative programs. As such, political and business relations with the Basque Country, the autonomous community of Catalunya (the area around Barcelona), and the Canary Islands have taken on added significance of late.

Experiencing a recovery since the middle of 1996, industrial production continues to drive the Spanish economy. This recovery has been particularly strong in the metalworking industries due to increased production in shipbuilding, data-processing equipment, and other transportation equipment. In addition, all indicators show that services are still an expanding sector marked by growth in nearly all segments, particularly tourism. After falling in 1997 by 3.9 percent, the agricultural sector experienced a 0.8 percent growth rate in 1998.

The Spanish market is a series of regional markets joined by the two hubs of Madrid and Barcelona. Major business activities occur around these two cities. At all levels, the Spanish government has eased regulations and increased incentives in an effort to attract foreign firms and investments. Except in a few cases, Spanish law permits foreign investment of up to 100 percent of equity. In some sectors, however, disincentives such as high labor costs, inflexible labor laws, and concern for intellectual property rights still exist. Although structural reform packages aimed at rectifying these problems were passed in both 1996 and 1997, reform is far from complete.

The U.S. ranks among the top ten-investor nations in Spain. Direct U.S. investment in Spain was USD 1.87 billion in 1998. Nevertheless, U.S. exporters will continue to face competition from E.U. countries and from Japan. Though U.S. firms must pay higher tariffs than their E.U. counterparts, they benefit from lower production costs. In addition, U.S. products are considered technologically advanced and of the highest quality. E.U. firms, however, offer excellent financing support, after-sales service, and customization of products to fit local market needs.

Sectors of the Spanish economy primed for future growth include: the telecommunications equipment and services markets, which opened completely in December, 1998, and the environmental services and equipment sector, where the government of Spain estimates that USD 33 billion must be invested by the year 2005.

Privatization, backed by the center-right administration, will continue to open opportunities in the telecommunications, defense, energy, transportation and aerospace sectors, with total sales expected to reach USD 20 billion.

Country Commercial Guides 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.

Country Commercial Guides can be accessed via the World Wide Web at:

www.stat-usa.gov

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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.