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U.S. Department of State
United Kingdom Country Commercial Guide
Office of the Coordinator for Business Affairs
COUNTRY COMMERCIAL GUIDE
UNITED KINGDOM
JUNE 1995
CONTENTS
SECTION I EXECUTIVE SUMMARY
SECTION II ECONOMIC TRENDS
- Major Trends and Outlook
- Principal Growth Sectors (host-country perspective)
- Government Role in the Economy
- Balance of Payments Situation
- Infrastructure Situation
SECTION III POLITICAL ENVIRONMENT
- Nature of Political Relationship with the U.S.
- Major political issues affecting business climate
- Brief synopsis of political system - schedule for election and
orientation of major political parties.
SECTION IV MARKETING U.S. PRODUCTS & SERVICES
- Distribution & Sales Channels
- Use of Agents & Distributors; Finding a Partner
- Franchising
- Direct Marketing
- Joint Ventures/Licensing
- Steps to Establishing an Office
- Selling Factors/Techniques
- Advertising & Trade Promotion
- Pricing Product
- Sales Service/Customer Support
- Selling to the Government
- Protecting your Product from IPR Infringement
- Need for a Local Attorney
- The "Showcase Europe" Initiative.
SECTION V - LEADING SECTORS FOR U.S. EXPORTS & INVESTMENT
- Best Prospects for Non-Agricultural Goods & Services
- Best Prospects for Agricultural Products
SECTION VI TRADE REGULATIONS & STANDARDS
- Trade Barriers, including tariffs, non-tariff barriers and import
taxes
- Customs Valuation
- Import Licenses
- Export Controls
- Import/Export Documentation
- Temporary Entry
- Labeling, Marking Requirements
- Prohibited Imports
- Standards (e.g. ISO 9000 Usage)
- Free Trade Zones/Warehouses
- Special Import Provisions
- Membership in Free Trade Arrangement
SECTION VII INVESTMENT CLIMATE STATEMENT
A1. - Openness to Foreign Investment (including information on
investment barriers)
A2. - Conversion & Transfer Policies
A3. - Expropriation and Compensation
A4. - Dispute Settlement
A5. - Performance Requirements/Incentives
A6. - Right to Private Ownership and Establishment
A7. - Protection of Property Rights
A8. - Regulatory System: Laws and Procedures
A9. - Efficient Capital Markets and Portfolio Investment
A10. - Political Violence
B) - Bi-Lateral Investment Agreements
C) - OPIC & Other Investment Insurance Programs
D) - Labor
E) - Foreign Trade Zones/Free Ports
F) - Capital Outflow Policy (Do not repeat Ch. IV. info)
G) - Foreign Direct Investment Statistics
H) - Major Foreign Investors
I) - Opportunities in Northern Ireland.
SECTION VIII TRADE & PROJECT FINANCING
- Brief Description of Banking System
- Foreign Exchange Controls Affecting Trading (as opposed to
investment)
- General Financing Availability
- How to Finance Exports / Methods of Payment
- Types of Available Export Financing and Insurance (including bi-
lateral)
- Project Financing Available
- List of Banks with Correspondent U.S. Banking Arrangements
IX BUSINESS TRAVEL
- Business Customs
- Travel Advisory and Visas
- Holidays
- Business Infrastructure
IX ADDENDICES:
A) Country Data
B) Domestic Economy
C) Trade
D) Investment Statistics
E) U.S. & Country Contacts
F) Market Research
G) Trade Event Schedule
This Country Commercial Guide (CCG) presents a comprehensive look at the
United Kingdom's commercial environment through economic, political and
market analyses.
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.
I. EXECUTIVE SUMMARY
Political stability, low rates of direct taxation, assured property
rights, a flexible labor market, first-class financial markets and a
geographic location in close proximity to the continental European
markets make the United Kingdom especially attractive to U.S. exporters
and investors. Entry into the market by U.S. firms is greatly
facilitated by a common language, legal heritage and similar business
institutions and practices.
For the last decade and a half the UK government has striven to expose
the economy to the invigorating influence of market forces and to
encourage freer movement of capital and labor. It has pursued a policy
to reduce the role of the state in the economy, cut public spending, and
to revive UK industry. Specific measures taken include; tax reform,
abolition of capital controls, privatization of national industries,
deregulation of financial services, telecommunications and
transportation, and labor law reform. These steps have generated
significant structural changes in the economy and increased its
efficiency.
As a result, the United Kingdom has entered a period of sustained, if
modest, economic expansion with a leaner, more competitive business
sector.
The UK's government perceives its primary role as developing a stable
macroeconomic environment, with low inflation and sound public finances
as the cornerstone, as well as ensuring a physical infrastructure
adequate to sustain business development. A high degree of labor
flexibility is also seen as essential to national competitiveness.
The United Kingdom (UK), remains solidly entrenched as the United
States' largest European market and fourth largest worldwide (after
Canada, Japan and Mexico). In 1994, UK imports from the United States
reached $26.8 billion, generating a $1.7 billion U.S. trade surplus.
Given just its size and growth potential, the United Kingdom represents
a uniquely important overseas market, and over the next few years new
and established U.S. exporters can expect to find exceptional trading
opportunities.
The UK market is based on a commitment to the principles of free
enterprise and open competition. International trade is vital to its
economy. The absence of major trade barriers and the relative ease of
doing business ensure that the United Kingdom remains an attractive
marketplace. Demand for U.S. goods and services is growing as the
sustained recovery in the United Kingdom's industrial sector strengthens
and as corporate investment is stepped up to meet the competitive
challenges of an integrated European Union.
Establishing an initial trading relationship with the United Kingdom is
an effective means to gain access to, and experience in, the European
Single Market of 370 million consumers. The abolition of many internal
trade barriers within the Single Market enables European-based firms to
operate relatively freely, and thereby achieve the economies of scale
necessary to compete on a regional and international basis. From the
United Kingdom, U.S. firms are well-positioned to take advantage of the
full range of opportunities that regional integration and a return to
economic growth in Europe are providing. Excellent transport and
communications infrastructure, and accommodating political and
commercial environment have already established the United Kingdom as a
gateway to Europe for many companies.
An important strand in our bilateral commercial relationship is the
investment each nation has made in the other's economy. The United
Kingdom is the largest investor in the United States, and has
traditionally been the most important destination of U.S. direct
investment in Europe. One in eight of the United Kingdom's five hundred
largest companies is an affiliate of a U.S. company. This economy
provides a unique commercial base for gaining entry to the markets of
the European Union (EU) and beyond through direct sales and investments,
or through strategic alliances formed with UK firms. In 1992, the UK
economy attracted 40 percent of all U.S. investment into the EU.
The United Kingdom imposes no impediments to foreign ownership, nor
restrictions to the free-flow of capital. Its regulatory environment is
pragmatic, featuring a deregulatory trend consistent with the
government's intention to provide a stable and unfettered commercial
environment in which private enterprise can flourish. Within the EU,
Her Majesty's Government (HMG) has shown itself to be a staunch defender
of the rights of any British- registered company, irrespective of
national ownership.
Soaring productivity in recent years has resulted in a rapid decline in
real terms of unit labor costs, and has put the United Kingdom in the
low-cost lead among the Group of Seven leading industrialized countries.
In addition, low inflation and interest rates, and the reputation as a
hospitable commercial environment, have enabled the United Kingdom to
maintain its position as the preferred investment location in Europe for
U.S., Japanese and other firms based outside this region.
The United Kingdom shares a long cultural heritage with the United
States, and the great sense of affinity which the British generally feel
toward Americans translates into a high level of receptivity to U.S.
goods, services and investment.
Bilateral trade and investment relations between our two countries are
generally harmonious, if not exemplary, reflecting a shared commitment
to the principles of an open and expansive multilateral trade system.
II. ECONOMIC TRENDS AND OUTLOOK
MAJOR TRENDS AND OUTLOOK
The resurgence of the British economy in the 1980's roughly paralleled
the return of the Conservative Party to power in 1979. The recovery
began in 1981 and continued for nine years, the longest running growth
period in British postwar history. Labor productivity in manufacturing
rose 4.8 percent a year from 1979 to 1989, and the 2.2 percent rate of
real GDP growth achieved in that period was among the highest rates in
EU countries.
After successfully emerging from its 1979-81 recession, the United
Kingdom was able to avoid the slowdown in economic growth in Western
Europe in the early 1980's that resulted, in part, from high interest
rates. UK government policy was to maintain a tight control over
domestic demand while engineering a competitive devaluation of the
pound.
Signs of economic overheating began to emerge in 1988 and were
unmistakable by 1990, as retail price inflation reached a rate of
approximately 11 percent and average annual wages were growing at nearly
10 percent. The government response to overheating and inflation
employed several strategies.
A tight monetary policy featuring higher interest rates was established
to rein in the momentum of the economy. Base (prime) rates were raised
incrementally from 7.5 in mid-1988 to 15 percent by the end of 1989. To
help curb inflation, the United Kingdom shifted from a floating exchange
rate system and entered the fixed Exchange Rate Mechanism (ERM) of the
European Monetary System in October 1990. Joining the ERM required the
government to maintain a fixed exchange rate of sterling against the
Deutsche mark (DM) at DM 2.95, a rate which proved increasingly
difficult to maintain.
By early 1990, the effects of monetary restraint were producing a
slowdown in the economy. Consumer spending declined sharply as
households paid off personal and mortgage debt incurred during the
earlier period of low interest rates. Concurrently, companies' fixed
investments declined, and inventories were drawn down. The resulting
recession, which was the longest since the 1930's, caused widespread
business failures and unemployment, and significantly increased the
public sector borrowing requirement. Both consumer and business
confidence were seriously undermined. Small firms were particularly
hard hit as larger companies stayed afloat by cutting costs, postponing
investment and by delaying payments to creditors.
From a high of 10.9 percent at the beginning of the recession in
September 1990, the underlying rate of inflation dropped to 2.6 percent
in April of 1995. (The UK Treasury prefers to monitor the "underlying"
rate of inflation instead of the "headline" rate which includes mortgage
interest payments exaggerating inflationary trends. The latter was 3.3
percent.) Steep declines in domestic demand early in the recession
drove down inflation; high levels of unemployment and restrained wage
growth should keep the underlying inflation rate from going much over
3.0 percent in 1995.
Interest rates were maintained at relatively high levels until September
1992, when intense speculative pressure on the currency exchange markets
caused the United Kingdom to withdraw from the ERM and allowed the pound
sterling to float. Freed from the constraints of the ERM, the UK
Treasury brought down the base rate from 10 percent in September 1992 to
5.25 percent in June 1994.
Very high levels of economic growth in mid-1994 prompted monetary
tightening from September. Three 50-basis point increases to 6.75
percent appear to be contributing to a slowing of growth to a more
sustainable level.
The economic recovery, which began in mid-1992, has already lasted 12
quarters. However, it has been restrained by persistently low levels of
consumer confidence, in spite of vigorous export growth. The effective
devaluation of sterling upon leaving the ERM, and the return of economic
growth in the United States, had a positive impact on UK exports during
1993 and 1994. Also half the United Kingdom's trade is now with other
members of the EU, and economic recovery in Europe has contributed to
demand for British exports. At the same time, imports have remained
restrained so that the narrowing of the trade deficit made a significant
contribution to growth.
Real GDP grew at 3.8 percent in 1994, and in Q1 1995 GDP growth slowed
slightly to the annual rate of 3.7 percent. The UK Treasury stands
ready to raise interest rates again if necessary, but growth appears to
be slowing. The Government expects growth of about 3.2 percent in 1995
and most forecasters project slightly less than 3.0 percent in 1996.
Unemployment, which had been rising since mid-1990, peaked in January
1993 at 10.6 percent. The manufacturing sector was significantly
disrupted, and many white-collar jobs have been permanently lost.
Although employment has fallen, output has climbed back to early-1990
levels, indicating that firms are finding ways to operate more
productively with reduced staffing levels. The rate of unemployment is
falling slowly now, and remained at 8.3 percent in April of 1995. It is
expected to remain at relatively high levels for some time, however.
Grappling with a growing fiscal deficit, which reached 7.25 percent of
GDP in 1993-4, the Government's budgets of April and November 1993
contained a package of revenue enhancement and spending control measures
which, the UK's Treasury projects, will erase the fiscal deficit by the
year 2000. These include an extension of goods subject to the value
added tax, and a freeze on the total salary bill for the country's 5
million public sector employees through 1997. Any salary increases for
public sector employees must be paid for through productivity gains, and
by reductions in the administrative cost of providing public services.
These fiscal measures were received favorably by the business community
and financial markets, which appear to view them as a credible solution
to the deficit problem.
The November 1994 budget reaffirmed these measures, and on the basis of
higher-than-expected growth and lower-than-expected inflation, actually
increased fiscal tightening. The Government succeeded in reducing the
deficit to about 5.0 percent of GDP in 1994/95 and projects a further
reduction to 3.0 percent in 1995/96. A downside risk to this forecast,
however, is the strong likelihood of election-related tax cuts to shore
up an increasingly unpopular Conservative government.
The UK Treasury has set a target of maintaining the underlying rate of
inflation in the lower half of the monitoring range of one to four
percent. The rate remained well within the target range in 1994, but
has since reached 2.8 percent before falling back to 2.6 percent in
April 1995. Average earnings for the whole economy only rose 3.75
percent in 1994, influenced by a 1.5 percent pay ceiling imposed on
public sector employees. Manufacturing sector rises for the same period
were 4.75 percent.
The expansion in indirect taxes, contained in recent budget statements,
has exerted upward pressure on prices as well as rising commodity prices
and a weaker pound sterling. The rate of increase in producer price
inflation appears to be slowing, and has remained at 4.2 percent for
both April and May 1995. Headline retail price increases slowed from
3.5 percent to 3.3 percent in April 1995. With slowing economic growth
and continued moderate wage inflation, most economists expect underlying
inflation to slow shortly after reaching 3.0 percent later in 1995.
Productivity, expressed as output per person employed for the whole
economy, rose by 13 percent between 1984 and Q1 1993. However, the rise
for manufacturing industries was 40 percent during the same period, an
annualized rate of 4.5 percent. Productivity growth accelerated
dramatically during the tail end of the recession and into the recovery,
with manufacturing output surging by 6.0 percent in the Q3 and Q4 1994,
before falling back to a more sustainable rate of 3.0 percent in the
first quarter of 1995. This has resulted in a rapid decline in real
terms of unit labor costs, and has put the United Kingdom in the low-
cost lead among the Group of Seven leading industrialized countries.
Consumption, which comprises about 63 percent of GDP, was clearly the
driving force behind recovery in 1992 and 1993, turning positive in 1992
and growing at 2 percent in 1993. As expected, it dipped in Q2 1994
after the implementation of tax increases, but it recovered in Q3 and Q4
ending 1994 with 2.6 percent growth. Higher taxes and tighter money
appear to have caught up with the consumer, however, and consumption
actually contracted by 0.1 percent in Q1, 1995. Most analysts project
between 1.5 and 2.0 percent growth for all of 1995.
Reaching self-sufficiency in crude oil production in 1981, the economy
has maintained its role as a net exporter ever since. Output reached
2.3 million barrels per day (MMBD) in 1993 and is likely to continue to
rise at least until 1996 before beginning a gradual decline. However,
the recent reductions in margins for oil producers have resulted in a
decline in national revenues. Natural gas production is rising and will
account for an increasingly high proportion of the hydrocarbon resources
produced. The formerly state-owned coal industry has been privatized.
PRINCIPAL GROWTH SECTORS
The service sector now accounts for approximately 70 percent of the
United Kingdom's GDP, a share which has grown consistently over the last
few decades. The financial services sector is particularly strong.
Productivity growth in the manufacturing sector has increased at a rapid
rate since the early 1980's, driven by a high degree of labor
flexibility, acceptance of innovative technologies, and a supportive tax
regime.
The United Kingdom offers markets for the full gamut of U.S. exports.
The current government's commitment to open markets, deregulation and
privatization of industry will continue to offer opportunities for
competitive U.S. firms. Increasingly, public sector procurement policy
emphasizes "best value for money," regardless of origin, and
'outsourcing' is encouraged as a means of improving the quality of
public services, while containing cost.
Major domestic developments, notably recent pollution control
legislation, further planned privatization of state-owned industries,
reforms in the National Health Service, and further deregulation of the
telecommunications market, have created outstanding commercial
opportunities for U.S. exporters in such diverse sectors as healthcare,
environment, telecommunications, utilities and transport.
Plans to privatize all or part of the railroads, part of the prison
service, and air traffic control offer potential to exporters and joint-
venture partners. Britain's telecommunications sector is probably the
most liberal in Europe, and presents significant opportunities for both
equipment manufacturers and service providers.
The UK healthcare market, especially as the state-funded National Health
Service (NHS) restructures, presents opportunities for U.S. suppliers of
equipment and services, particularly where they can provide demonstrable
productivity gains.
The United Kingdom is a major market for agricultural products, taking
about $936 million in agricultural imports from the U.S. In addition,
some $223 million in forestry products and $93 million in seafood is
imported from the U.S.
In Europe, growing public awareness of the consequences of environmental
pollution is creating higher EU and national environmental standards,
and more rigorous enforcement of existing regulations. U.S.
technological development has placed our environmental firms at a
distinct competitive advantage.
The UK Ministry of Defense (MoD) welcomes participation of U.S.
companies in procurement competitions. The MoD's procurement policy is
to secure "best value for money." In many competitions, U.S. companies
bring management expertise and leading edge technology not available
within the UK defense industrial base. Generally, the MoD's policy
enables U.S. companies to compete on a level playing field, whether as
prime contractor, or as a major sub-contractor to UK industry.
The U.S. Department of Defense (DOD) and UK's Ministry of Defence have a
Reciprocal Procurement Memorandum of Understanding (MOU) for defense
equipment. This MOU constitutes an effort by both governments to look
at each other's existing weapons systems to satisfy their requirements
and reduce legislative restrictions to reciprocal procurements. Of all
our allies, the UK military enjoys the closest operational relationship
with U.S. forces. Traditionally, this cooperation has resulted in many
UK procurements of U.S., or U.S.-compatible defense equipment.
GOVERNMENT ROLE IN THE ECONOMY
With its emphasis on deregulation of industry, free trade and minimal
intervention in the marketplace, the economic philosophy of the current
UK administration is perhaps closer to that of the United States than to
those of any of its European trading partners.
Since coming to power in 1979, the ruling Conservative government's
specific policies have included the return to private ownership of
state-owned industries, the reduction of both personal and corporate tax
rates, and the abolition of capital controls and labor law reform. In
addition, the Conservatives deregulated financial services,
telecommunications, and transportation, liberalized mortgage regulations
and transformed much of the public housing stock into owner-occupied
dwellings. These changes have increased the efficiency and growth
potential of the economy, and made the United Kingdom more competitive
in world markets.
Since 1979, HMG has privatized the telephone, water, gas and electric
utilities. It also sold its majority interest in the country's major
automobile and aerospace companies, and in its national airline.
Moreover, it has encouraged contracting, to private sector firms, many
of the services provided by national and local government. Future
candidates for privatization include the rail system, coal mining, the
prison and postal services, and air traffic control system.
HMG perceives its primary role as developing a stable macroeconomic
environment, with low inflation and sound public finances as the
cornerstone, as well as ensuring a physical infrastructure adequate to
sustain business development. A high degree of labor flexibility is
also seen as essential to national competitiveness.
HMG has also demonstrated a firm commitment to the goals of the European
Single Market. However, plans for the UK's participation in a
politically and financially-united "federal" Europe are less clear.
"Euro-skeptics" from both the ruling Conservative Party and the
opposition Labour Party assert the unease among much of the country's
population over the effects the "New Europe" will have on the country's
political and economic sovereignty. Although the current Conservative
government holds a small majority in Parliament, it is nonetheless
confident that it has the political means to carry out its policies.
The current administration views the near collapse of the ERM in mid-
1993 as a vindication of its earlier decision to withdraw from the
mechanism, and it appears unlikely that the United Kingdom will soon
participate in any form of monetary union. The problems of the ERM and
the difficulties experienced by several EU members ratifying Maastricht
have also reduced the momentum for greater political union, which built
up in the late 1980's. There are clear indications that, in the short
term, European "pro-marketeers" will shift their efforts towards the
more achievable goals of strengthening commercial cooperation between
member countries. The Conservative government also favors the
rapid integration of Eastern Europe into the Union.
The Social Chapter of the Treaty on European Union (Maastricht Treaty)
codifies, across the European Union, issues of employees' rights in the
work place, equitable wages, communal bargaining and employee
consultation. By securing for the United Kingdom the right to "opt-out"
of the Social Chapter, HMG wishes to sustain the climate of minimal
intervention in labor markets which has prevailed during its
administration. It hopes to facilitate job-creation and maintain the
UK's position as a competitively attractive destination for foreign
investment. It is generally supported in this endeavor by the private
sector, which fears the increased business costs experienced on the
Continent by conformance to the Social Chapter's provisions.
HMG does not have a formal policy to protect its defense industrial
base. The MoD's "best value for money" procurement policy has forced UK
defense companies to rationalize the industrial base in order to remain
competitive internationally. Some senior UK MoD officials have indicated
that certain sectors of the defense industrial base (aerospace, tanks,
shipbuilding, and nuclear technology) will not be allowed to perish.
Additionally, the increased emphasis on UK "industrial participation"
(offsets) in contracts awarded to offshore firms bolsters the economy by
maintaining quality jobs.
The MoD preferred procurement policy is to purchase "off-the-shelf" via
a direct commercial contract with industry. "Off-the-shelf" normally
entails long, complex development programs, and the MoD usually expects
the prime contractor to assume all risks. The UK industrial base has
failed to retain its portion (13%) of the global market in 1994/95.
Industrial associations have organized to bring pressure on HMG to
support the defense industrial base. They are asking HMG for changes in
the procurement policy which, if adopted, would favor UK sources in
competitions or would reduce the number of procurements conducted in a
competitive environment.
Occasionally, DoD officials will limit U.S. defense equipment sales to
FMS only. MoD officials continue to question this policy when pursuing
U.S. systems designated "FMS" only. Some senior UK MoD officials have
indicated that certain sectors of the defense industrial base (systems
integration, process technology, materials and structures, aerodynamics,
sensor systems/data fusion/data processing, high-integrity/real-time
software, simulation/modelling/synthetic environments) will not be
allowed to perish.
Taxation and Fiscal Policy:
The government seeks to minimize the tax burden on both individuals and
corporations, and direct tax rates are among the lowest in the EU.
The highest personal tax rate of 40 percent is applicable to only the
top 6 percent of income earners. The majority fall within the lower 25
percent tax rate, known as the base rate. It is the stated intention of
the current government to reduce the base rate to 20 percent, when
economic conditions permit. A start has already been made in that
direction with the 20 percent rate applying to the first tranche of zero
to 3,000 British pounds sterling (BPS) of taxable income.
The full corporate tax rate of 33 percent applies to companies with
profits in excess of BPS 1.25 million. Partial tax relief is available
to firms with profits of less than BPS 250,000 to bring their effective
tax rate to 25 percent. Profits between these limits are taxed on a
formula basis which results in a total tax rate between 25 and 33
percent.
A central theme of the current government's fiscal policy has been its
emphasis on taxing spending rather than earnings. Since coming to
office, it has increased indirect taxes while reducing direct income
taxes to the levels outlined above. The United Kingdom now levies a
value-added tax (VAT) of 17.5 percent on the purchase price of most
goods, a rate which is comparable to those charged by other EU
countries.
BALANCE OF PAYMENTS SITUATION
Following a modern trend for the United Kingdom, the recent deficit in
"visible" trade, that is trade in tangible goods, has been partially
offset by a surplus in "invisible" trade, the gains from financial
transactions and the provision of services. In 1994 visible exports of
US$206.9 billion and visible imports of $222.9 billion produced a UK
merchandise trade deficit of $16.0 billion (1993: $30.7 billion).
However, service credits of $59.2 billion exceeded debits by $3.7
billion and, when combined with a $17.1 billion net investment surplus,
produced a current account deficit of under $300 million.
The economy has run a deficit in visible trade since 1983. This surged
during the "boom" of the late 1980's, as consumer demand for imported
goods ballooned. Once the recession took hold, imports dropped,
reducing the visible trade deficit dramatically in 1991. The
depreciation of the pound, following the UK's September 1992 withdrawal
from the ERM, increased the cost of imports and enhanced UK
competitiveness. This turn of events came as the global economy was
expanding and UK exporters were able to gain market share.
The United Kingdom is the second largest overseas investor (behind only
the U.S.) with the United States the favorite destination. The
cumulative total of British investments in the United States reached $96
billion in 1993. The United Kingdom has an extremely important service
sector, of which banking and insurance are the largest and contribute
close to 20 percent of GDP.
INFRASTRUCTURE SITUATION
Sea Transport:
Excellent transportation facilities exist between the United States and
the United Kingdom. There are daily sailings of cargo vessels and
scheduled air freight services from U.S. ports and major cities.
The United Kingdom has 80 ports of commercial significance.
Major development projects have recently been completed at eastern and
southern ports. The most important for container traffic are London,
Felixstowe, and Southampton. The major ports for roll-on/roll-off are
Dover, Harwich, Felixstowe, and Grimsby/Immingham.
New facilities are being developed to accommodate bulk and container
shipments on the Medway, and for bulk and roll-on cargoes on the Humber.
Terminals and supply bases for offshore oil and gas installations have
been built at a number of ports in Scotland.
Air Transport:
There are reportedly 137 licensed commercial airports in the United
Kingdom, of which 7 are owned and operated by BAA plc, the successor
company to the statutory British Airports Authority. The seven airports
owned by BAA include Heathrow, Gatwick and Stanstead in England, and
Glasgow, Edinburgh, Prestwick and Aberdeen in Scotland.
These airports handle 72 percent of air passengers and 83 percent of
airfreight in the United Kingdom. Heathrow Airport, located 15 miles
from London, is one of the busiest airports in the world. Gatwick
Airport, 25 miles south of London, was developed as a second airport
serving the city. The main airports used by international scheduled
airlines are Heathrow, Gatwick, and Prestwick.
Highways:
Road haulage accounts for nearly 80 percent of all inland freight
movement with most of the traffic carried in vehicles of over 25 tons
gross laden weight. International road haulage has grown rapidly, and
nearly 7 million tons of freight are transported annually by UK vehicles
to and from Continental Europe and Ireland.
There are 363,000 kilometers of well-maintained highways, and population
centers are connected by an excellent system of 'motorways.' Plans are
currently being implemented to widen large stretches of motorway to
relieve congestion, particularly in the London area.
Railroads:
The state-owned railroad system provides excellent service between major
cities and towns. A system of express freight trains, called freight
liners, has been developed and serves a freight rail system having more
than 20 major freight terminals. As of March 1988, British Rail had
23,557 miles of standard gauge lines and sidings in use.
Channel Tunnel:
In 1994 the United Kingdom ceased technically to be an island. The
Channel Tunnel project provides twin rail tunnels between the United
Kingdom at Folkestone and France near Calais. Separate passenger and
freight shuttles operate in the 31-mile tunnel between the two
terminals. In addition, a high-speed rail link will be constructed over
the next few years to connect the Tunnel to London and beyond. This
will service the increased freight and passenger traffic expected.
MAJOR INFRASTRUCTURE PROJECTS UNDERWAY
Major projects include the Cross-London Rail Link, the extension of
London Underground's Jubilee Line to Canary Wharf, the construction of
the High-Speed rail Link to the Channel Tunnel, revitalization of the
main west-coast rail line and the planned construction of another runway
for Heathrow Airport.
III. POLITICAL ENVIRONMENT
NATURE OF THE POLITICAL RELATIONSHIP WITH THE UNITED STATES
The important Anglo-American partnership is one of the most enduring of
our bilateral relationships. It remains securely anchored in historical
traditions, common political systems and values, compatible security
interests and a shared cultural heritage. At the government level, the
closeness of the relationship ensures a remarkable degree of cooperation
on a very broad range of issues.
With the end of the Cold War and the diminished relative importance of
security issues, and with the movement towards European integration, our
bilateral relationship has further evolved. The United States now
emphasizes to a greater extent than previously the value of our economic
interests in Asia and Latin America. The United Kingdom, for its part,
is working now more closely with its European partners on political,
trade and other economic matters.
Yet the US-UK alliance continues to be a key one for both countries, and
the pattern of productive cooperation is expected to continue. We share
very similar, if not identical, views on such priority issues as
extending security to Eastern Europe, promoting political and economic
reform in the former Soviet Union, and furthering peace in the Middle
East.
MAJOR POLITICAL ISSUES AFFECTING BUSINESS CLIMATE
None
BRIEF SYNOPSIS OF POLITICAL SYSTEM, SCHEDULE FOR ELECTIONS, AND
ORIENTATION OF MAJOR POLITICAL PARTIES
Constitutional System:
The United Kingdom of Great Britain and Northern Ireland is comprised of
four national entities: England, Scotland, Wales (together making Great
Britain), and Northern Ireland. The United Kingdom is a constitutional
monarchy.
The constitution is largely unwritten, and almost all political power is
vested in one chamber of the bicameral Parliament--the House of Commons.
The other chamber, the House of Lords, consisting of hereditary and life
peers, as well as senior officials of the Church of England, has limited
legislative powers. The House of Commons consists of 651 members -- 524
from England, 72 from Scotland, 38 from Wales, and 17 from Northern
Ireland. Members are elected from specific geographic constituencies,
each representing about 60,000 voters.
Because of population shifts, constituencies in England vary
considerably over time. General elections are held no more than five
years apart, the last having been in April 1992. They are always held
at a date of the government's choosing. The next election must be held
by the spring of 1997.
The government, a cabinet headed by a Prime Minister, is formed by
whichever party, or coalition of parties, can command a majority in the
Commons. Legislation is passed by majority vote.
At present, the major parties are the ruling Conservatives (Tory Party)
and the opposition Labour Party. The Liberal Democrats constitute the
only other significant political force.
Administratively, the United Kingdom acts as a centralized state. The
national government, consisting of some 17 cabinet-level departments,
plus smaller entities, is staffed by career, nonpartisan civil servants.
Only the three or four senior policy positions in each department (the
Secretary of State, the Minister of State, and the junior ministers) are
occupied by political appointees. They are drawn from the ranks of the
ruling party in the House of Commons or the House of Lords.
The current Conservative government under Prime Minister John Major is
pro-business in orientation and seeks to maximize the growth of private
enterprise. While still coping with the economic and social effects of
having "weathered" Britain's longest recession in decades, it remains
enthusiastically committed to the philosophy and policies of the
previous Thatcher administration.
Even though firmly focused on implementing the Single Market program,
some Conservative Members of Parliament express deep concern over the
effects that full European integration will have on the country's
sovereignty. Britain opted out of the "social chapter" of the
Maastricht Treaty and deferred a decision on joining the European
Monetary Union, if and when it becomes operational. Division over these
and other related issues has led to a spate of factional disputes, at
times weakening the Conservatives' capacity to present a united policy
front.
Since the early 1980's, the opposition Labour Party has attempted to
widen its popular appeal by moving steadily towards a more moderate
position nearer to the political center. In the process, it has reduced
the traditional dominant influence of the trade unions over party
policies. It is not anticipated that a future Labour government would
seek to re-nationalize privatized industries and utilities, or
significantly reverse legislation restricting trade union business
sector activities. A Labour government would most probably pursue
orthodox fiscal and monetary policies. Labour is more pro-European than
the Conservatives; it endorses the Maastricht "social chapter," but has
its own concerns about European Monetary Union, such as the need for
economic convergence of all member states in such a union.
The third major force in British politics is the centralist Liberal
Democrats, formed in the early 1980's when several Labour Party Members
of Parliament, dissatisfied with the strongly left-wing orientation of
their party at that time, joined forces with the majority of the small
Liberal Party. The Liberal Democrats have commanded a sizable share of
the popular vote. However, due to the current "first-past-the-post"
voting system, they have managed to secure only 25 seats in Parliament.
Cultivating an independent identity, strongly pro-European and
supporting Parliamentary reforms favoring increased openness in
government, the Liberal Democrats might conceivably hold the swing vote
in any future "hung" Parliament.
IV. MARKETING U.S. PRODUCTS AND SERVICES
DISTRIBUTION AND SALES CHANNELS
Import Channels:
The United Kingdom has a well-developed network of import channels.
British importers are well versed in foreign trade and have long
experience in handling all types of products. Import channels vary with
the nature of the product. Selection of an appropriate marketing
channel is of critical importance to the success of any export marketing
venture.
Channels through which foreign goods move range from the branch offices
of overseas manufacturers to import houses that purchase abroad and sell
on their own account. Between these two extremes are sales agents (some
of them manufacture equipment similar to the products they import),
commission agents, specialized importers, brokers, and importing
distributors. Frequently, larger business firms engaged in manufacture
or domestic trade buy directly from overseas suppliers, while smaller
firms find it more convenient to buy through intermediaries.
Industrial equipment is generally handled by sales agents, while office
machinery is sold through branch offices or representatives of overseas
manufacturers. Chemical products are largely imported by merchants.
Foodstuffs and some consumer products move through specialized
importers. Computers, traditionally handled by a sales agent and, more
preferably, by a distributor, have been successfully marketed by
"salesmen" that have evolved as an interface between suppliers and
distributors.
In the case of capital goods and raw materials, direct selling is
sometimes employed by foreign manufacturers, since the range of buyers
is more limited. The distinction between the various types of import
channels is not clear cut. Considerable variation exists even within a
single group of products.
A recent development is the appearance of organizations that take care
of the costing, warehousing, distribution, pricing, and factoring
(guaranteeing of manufacturers' invoices) of import goods. These firms--
sometimes referred to as "importers/ factors"--began as forwarding
agents. As market conditions changed, they gradually extended their
activities. Today, importers/factors still provide shipping, forwarding,
and customs clearance services.
Developing sales is still the responsibility of exporters. They can
hold inventories and control sales in the United Kingdom through the use
of these importers/factors, thus dispensing with
subsidiaries.
Larger UK distributors have an annual turnover which greatly exceeds the
average manufacturer. Consequently, they expect that foreign
manufacturers will already have their products adapted for local sale
and use. This is especially relevant for the mass marketing of
computers.
Distribution methods of U.S. firms selling to the UK market vary with
the product, and depend on the firm's knowledge of local market
conditions. Generally, firms new to the UK market find it more
convenient to appoint one distributor to cover the whole country.
Later, in order to achieve greater market penetration, they often
appoint other regional distributors.
Wholesale and Retail Channels:
There are many types of wholesale establishments in the United Kingdom.
Some wholesalers carry a wide range of complementary and competitive
merchandise, extending credit to retailers and even financing
manufacturers. At the other extreme are commission agents or brokers
who operate without inventory (and frequently on credit), placing orders
only to cover their sales and, therefore, operating on an especially low
markup in comparison with other wholesalers who carry out more
functions.
Methods of distribution vary according to the type of merchandise
handled. Fresh fish, for example, is distributed directly by importers
and wholesalers to processors (canners, curers, and meal and oil
processors), freezers, and fast-food manufacturers. Importers also sell
fresh and chilled fish to large catering and local retail outlets.
Medical equipment sales are most effectively promoted by the use of
specialist importers or in collaboration with UK manufacturers of
noncompetitive equipment. Electronic components marketing through
agents and distributors is the standard practice for sales of non-
customized components; specialized components may require a different
approach.
In recent years, independent wholesalers have faced increasing
competition from large-scale retail organizations with direct access to
manufacturers. They are able to promote sales through their own retail
outlets and through mail-order businesses. As a result, only a portion
of the trade in consumer goods now passes through wholesalers.
This change has stimulated the creation of new forms of wholesale
organizations for the benefit of both wholesalers and retailers.
Smaller retailers, as a defense against the larger groups, have joined
organizations incorporating one or more wholesalers. Through these
organizations, they benefit from economies of bulk purchasing without
the loss of independence with the advantages of sales promotion schemes.
Computer marketing and sales practices have changed dramatically in
recent years. As computers have become like other commodities,
marketing practices have evolved to resemble those found in the United
States.
As declining prices and margins have made distributors and dealers'
profits vulnerable, retailing is likely to evolve into heavy-volume,
small-profit selling by superstores and value-added hardware sales that
incorporate software and systems integration. By the second half of
this decade the majority of all personal computer sales will eventually
be made by retailers.
Defense Sector:
UK defense equipment acquisition programs are driven by senior level
approved military requirements, much like DoD programs. The central
staff (Land, Sea, Air, and Joint Systems) Operational Requirements
departments are responsible for defining these equipment requirements,
and obtaining the funding line. Once approved for acquisition, the
MoD's Procurement Executive (PE) acts as the main executive agent for
program competition in the UK. The U.S. Embassy's Office of Defense
Cooperation maintains a close liaison with all of these organizations.
Additionally, the MoD's New Suppliers Services and Defense Export
Services Organization are excellent sources of information for U.S.
companies on: application procedures for acceptance to the MoD's Defense
Contractors List; the MoD's acquisition organizational structure; and UK
industry points of contact for teaming and sub-contract possibilities.
Agriculture:
The majority of retailers, wholesalers, manufacturers and caterers let
importers and distributors handle logistics and take the risks
associated with importing food products. Some retailers, who deal in
large volumes of produce, occasionally import directly. In such cases,
the retailer has a buyer or produce technician in the United States who
places the order.
Many importers of non frozen and chilled foods have in-house
distribution networks and warehousing facilities, while smaller
importers contract out. Many fresh produce importers have controlled
atmosphere warehousing facilities and even pack houses catering to the
growing retail demand for pre-packed, and sometimes trimmed fruits and
vegetables. Almost all importers of frozen and chilled foods contract
out to specialized storage, handling and distribution companies.
Tourism:
U.S. tourism providers seeking to secure a significant share of the UK
travel market must first negotiate with tour operators for inclusion in
the next season's brochures. The structure of the UK travel industry is
such that, unless a destination or attraction is included in a tour
operator's catalog, it is unlikely to be booked by other than
independent travel agents, who are in the minority.
USE OF AGENTS/DISTRIBUTORS: FINDING A PARTNER
Agency Agreements:
The United Kingdom has rules and practices concerning agency agreements.
Companies should obtain legal advice, both in the United States and in
the United Kingdom, to ensure that they are not violating U.S. antitrust
laws and that they are in compliance with local UK laws and business
practices.
National laws governing the relationships between agents/ distributors
and manufacturers/suppliers are being harmonized throughout the European
Union. The EU Directive, which is the basis of these laws, establishes
the rights and obligations of the principal and his agents, the agent's
remuneration, and the conclusion and termination of an agency contract.
Each member state can choose between two options for compensation in
case of termination of a contract: indemnity (based on past and
anticipated performance) and damages (based on immediate costs at the
time of termination.)
The Directive, concerning EU-based contracts, has been effective since
January 1994 and applies to anyone who is "self employed" and has
authority to negotiate and/or conclude sales or purchases of goods on
behalf of a principal. With this broad definition, the Directive covers
a wide variety of business people ranging from sales representatives to
territorial sales agents.
General duties of the agent, outlined by the Directive, include
negotiating and concluding transactions as well as communicating to the
principal all necessary information. The responsibilities of the
principal include providing the agent with adequate documentation on the
goods covered and keeping in close contact with his agent on any
commercial transactions involving both parties.
The Directive also sets rules pertaining to payment, conditions
pertaining to commission, and the circumstances for termination of the
agency contract.
Prospective agents overseas normally have standard agency agreements
that they sign with foreign manufacturers. The Commercial Section in
the U.S. Embassy in London can provide advice with respect to these
types of agreements and can also supply a list of attorneys in the
United Kingdom whom the U.S. Embassy has found to be reliable. Local
U.S. Department of Commerce district offices, international banks, and
freight forwarders also may know attorneys who specialize in foreign
agency agreements.
Agent/Distributor Service:
The Department of Commerce's Agent/Distributor Service (ADS) helps U.S.
firms identify prospective distributors or sales representatives in
overseas markets. Through the ADS application form, the U.S. company
representative specifies the characteristics sought in a prospective
overseas representative.
That information and appropriate product information is forwarded to the
Commercial Section in the U.S. Embassy in London, which then makes a
search of its database of appropriate local companies and consults with
trade associations and chambers of commerce to determine the suitability
and interest of UK firms in representing an American company's product
or service.
The process takes about 60-90 days from receipt of an ADS request. An
ADS report intends to identify a minimum of three qualified firms that
have expressed interest in a proposal. A typical ADS report includes
the name and title of the person to contact, the telephone number, the
cable address and telex number, and brief comments about the firm or its
stated interest in the proposal.
The Commerce Department sponsors a variety of trade events for the
purpose of bringing U.S. exporters in direct contact with potential
agents, distributors and, in certain cases, joint venture partners or
licensees.
Commerce Department-sponsored events provide U.S. corporate participants
with previously screened appointments, booth space and utilities, pre-
show promotion, etc. Information on these events can be obtained from
Department of Commerce district offices located throughout the United
States.
The U.S. Embassy in London houses the Commerce Department-operated
International Marketing Center (IMC). The IMC provides a prestigious
venue for all types of promotional events, exclusively for American
companies, their subsidiaries, agents, or distributors. Facilities
include a 2,000 square-foot exhibition hall and an auditorium,
complemented by a comprehensive range of marketing support services.
The latter includes assistance in identifying business prospects,
printing show catalogs, flyers, invitations and arranging appointments.
The service also includes secretarial assistance and other logistical
needs. Booking of the IMC is made directly with its staff; telephone:
011 (44-171) 409-2927; fax: 011 (44-171) 495-2944.
The U.S. Embassy's Office of Defense Cooperation and the Foreign
Commerce Section are excellent sources of information on the UK defense
business climate. Information is available on UK industrial
capabilities and various consultancy services. The MoD's New Supplier
Service and Defense Export Services Organization provide information on
UK industry for teaming and sub-contract opportunities.
The Office of Agricultural Affairs at the U.S. Embassy, London can
assist U.S. food and agricultural commodity exporters to identify
potential importers for their products/commodities. Resource materials
available include: an annual American Food Directory (cross-referenced
listing of UK importers handling U.S. foods and beverages); a USA Wine
Directory, computerized importer listings by product/commodity under the
AgExport Connections database.
FRANCHISING
Franchising is a relatively new but widely accepted form of business in
the United Kingdom. As a low-risk method of doing business, it has
outstanding potential in the UK market. Even during the last economic
recession, the franchise sector in general experienced positive growth
and significantly outperformed the economy as a whole. The availability
of a pool of relatively inexpensive labor, coupled with a regulatory
environment in the UK which encourages labor flexibility, help reduce
the risk and costs in establishing a labor-intensive service franchise.
A principal advantage for new U.S. entrants is the number and generally
good reputation of U.S. franchise enterprises already present. Frequent
exposure to U.S. franchises has generated positive feelings about
American brand name products and services which has made their
acceptance in these overseas markets even easier. The UK is also
America's largest source of tourists, and many returning British
vacationers have brought back an appreciation for the service and value-
for-money which they experienced with franchise operations in America.
This has made the UK exceptionally receptive to American franchises,
particularly in food services and retailing.
DIRECT MARKETING
Although direct marketing in the United Kingdom is similar in many ways
to that of the U.S., legal restrictions, postal requirements, subtle but
key linguistic and cultural differences, and differences in list
management/availability and response mechanisms make it advisable to use
a UK advertising agency or direct marketing house to create parallel UK
direct marketing campaigns, or to adjust U.S.-generated promotions for
the UK market.
The British Code of Advertising Practice (CAP) has established rules for
direct mail advertising and list and database management. The rules set
the obligations of advertisers on conformity to product standards,
delivery times, goods sent on approval, customer lists and privacy
protection, etc. The code and the supplementary rules can be obtained
from the CAP at Brook House, Torrington Place, London WC1E 7HN;
telephone: (44) 171 580-5555; fax: (44) 171 631-3051.
Postal Importations:
The Post Office's bulk handling center in Swindon handles more than 230
million items per year. Growth is expected in the telemarketing and
product fulfillment services.
Consignments of goods imported by letter or parcel post must comply with
internationally agreed arrangements that are established in UK postal
and customs regulations. One essential requirement is that postal
packages must be accompanied by a properly completed customs
declaration. Normally, a formal Customs and Excise import entry is only
necessary for consignments of high value, for goods eligible for certain
tariff relief, or where further information is required.
JOINT VENTURES/ LICENSING
Joint-venture and licensing agreements are common practice in the United
Kingdom. Recent developments in the economy include the further
privatization of state-owned industries, reforms in the National Health
Service and further deregulation of the telecommunications market.
These developments present opportunities to U.S. firms as joint-venture
partners and licensors.
Plans to privatize all or part of the railway system, the prison
service and air traffic control offer significant joint venture
possibilities to U.S. businesses. The inclusion of private U.S. firms
possessing the products, operating experience and best practices as
partners with established UK firms can add credibility to their bids for
franchises. Such Anglo-American joint ventures have been successful in
winning franchises for operating prisons, and the national lottery.
The requirement for industrial participation in major UK defense
acquisition programs has driven U.S. contractors to establish commercial
partnerships with UK companies. In various programs, U.S. contractors
have chosen a UK firm to lead the bidding as prime contractor, in order
to overcome the "buy national" advantage of onshore competitors.
STEPS TO ESTABLISHING AN OFFICE
Establishing an office in the United Kingdom is relatively inexpensive
and straight-forward. A wide range of support services are available to
assist in this task. The appointment of a local representative already
established in the market and experienced in the ways of doing business
in the United Kingdom, is a simple task. The Foreign Commercial
Service, the Travel and Tourism Office, and the Agricultural Trade
Office, all at the U.S. Embassy in London, are able to provide advice
and assistance. The Invest in Britain Bureau of the British Department
of Trade and Industry offers help to those interested in investing in
the United Kingdom. (Please see the contact list in the Appendix.)
Tax Treaty with the United States:
A convention between the United States and the United Kingdom with
respect to income taxation has been in existence since April 1945. A
number of protocols amending this basic convention have since come into
force. Details relating to double taxation arrangements between the
United States and the United Kingdom can be found in Statutory
Instrument 568, entitled Double Taxation Relief (Taxes on Income) (USA).
The convention applies to the taxation of profits arising from a
permanent, commercial establishment in the United Kingdom. Copies of
this document are available from Her Majesty's Stationary Office at 49
Holborn, London WC1 6HB, Tel: 011-44-71-873-0011, or by calling their
representative in the U.S., Kraus-Thompson Publishing, at (914) 762-
2200.
Under the provisions of the U.S.-UK Double Tax Treaty, certain classes
of income arising in the one country are exempt from the other country's
tax, if the income flows to a resident of the other country who is
subject to tax on it there. For taxation purposes, foreign-owned firms
are categorized as non-resident companies, that is, companies controlled
and managed abroad but conducting business through a permanent
establishment in the United Kingdom. A company which is merely
represented by a commission agent or a broker is not regarded as a
permanent establishment unless the agent has the authority to negotiate
and conclude contracts on behalf of the foreign principal. The term
"permanent establishment" includes branches, offices, factories,
workshops, mines, oil and gas wells, quarries, or other places of
extraction of natural resources, and building, construction or
installation projects that exist for more than 12 months.
Business may be carried on through a broker, general commission agent or
other independent agent, or through a salesman not authorized to
conclude contracts, without incurring permanent establishment status.
In addition, licensing another company to make and sell products in the
United Kingdom will produce royalty income exempt from UK withholding
tax under the tax treaty.
SELLING FACTORS/TECHNIQUES
The Competition Act:
The U.K.'s Competition Act (of 1980) governs agreements such as
exclusive agency, exclusive chain selling, exclusive supply
arrangements, exclusive purchasing contracts, restrictive terms, and
other related matters. Manufacturers and exporters are able to appoint
exclusive agents and to determine the method of distribution. However,
they may not prevent the import or sale of competitive goods from other
sources, including parallel, or "grey" imports from dealers and
distributors in other countries.
Practices of concern under the act are those anti-competitive measures
that restrict the production/distribution pattern to benefit the
manufacturer by making it difficult for competitors of the
manufacturer's appointed agents to attract customers or suppliers. Such
restrictions may make it difficult or impossible for new competitors to
enter a market and may be subject to challenge under the Competition
Act.
On the other hand, "vertical restraints" may improve the efficiency of
distribution without harming competition. Such circumstances would not
amount to an anti-competitive practice under the act.
Anti-competitive practice is defined in the act as a course of conduct
pursued by a person in the course of business that has, or is intended
to have, the effect of restricting, distorting, or preventing
competition in connection with the production, supply, or securing of
goods or services in the United Kingdom, or any part of it.
The act does not apply to agreements between a UK resident and a
nonresident. These agreements are generally covered by contract law,
which takes a laissez-faire approach to terms and conditions freely
agreed upon between the parties.
The European Union has adopted legislation establishing the obligations
and conditions of European agents and their foreign suppliers. The
purpose of this legislation is to harmonize the laws and provisions of
the member states.
The directive also establishes conditions regarding remuneration of the
agent and the conclusion and termination of the agency contract. To
date, implementation of the directive has been slow, but U.S. firms
entering into agency contracts in the European Union should be aware of
the principles of the directive.
Changes to British law and the increased regulation of the principal-
agent relationship will encourage U.S. exporters to determine carefully
the most advantageous channel of distribution, and the ensuing legal
responsibilities of all parties. Alternatives to the appointment of
self-employed commission agents include the use of distributors or the
hiring of salespersons as company employees. All forms of
representation should be carefully explored with legal counsel.
ADVERTISING AND TRADE PROMOTION (INCLUDING LISTING OF MAJOR NEWSPAPERS
AND BUSINESS JOURNALS)
It is advised that print and other advertising designed for the U.S.
market be vetted by a UK advertising agency or direct marketing house to
modify promotions for legal, cultural, and other differences between the
two countries. (See Direct Marketing, above).
Advertising in the United Kingdom is highly developed and practices are
similar to those of the United States. Several hundred advertising
agencies operate in the United Kingdom, and most of the major American
agencies have a significant UK presence. The full range of specialist
advertising and market research services is readily available.
The industry is self-regulating, with the Advertising Standards
Authority, located at Brook House, 2-16 Torrington Place, London WC1E
7HN, overseeing the practices of the advertising industry and enforcing
the provisions of the British Code of Advertising Practice (CAP).
Advertisers should become familiar with the CAP regulations.
Of the approximately $12 billion in annual advertising expenditures, 60
percent goes to press advertisements and 31 percent to commercial
television.
The main vehicles for press advertising are the 130-odd national daily
and Sunday newspapers. Of these, there are 12 dailies and 9 Sunday
newspapers with national circulation. They are classified as either
"quality" or "popular" papers on the basis of their style and content.
With their immense circulation and deep penetration throughout the
country, these newspapers are extensively used by manufacturers to
advertise their products. Total circulation of national newspapers is
approximately 15 million on weekdays and 18 million on Sundays.
Major national 'broadsheet' newspapers include The Times, Financial
Times, Daily Telegraph, Guardian, and Independent. National 'tabloids'
include the Daily Mail, Daily Mirror, and The Sun. (see Appendices for
list of specialist publications.)
Commercial television programs are delivered on a regional basis, and
advertisements may be run either regionally or nationally. The state-
sponsored British Broadcasting Corporation (BBC) does not accept
commercial advertising on its radio or television stations. The quasi-
governmental Independent Broadcasting Authority (IBA) regulates
television advertising through its code of advertising standards and
practices. In any one hour of broadcasting, the commercial time is
limited to nine minutes. However, the average hourly time for
commercials per day cannot exceed seven minutes. Certain types of
commercials--such as cigarette and gambling ads--are prohibited.
Key U.K. food and agriculture trade journals include; The Grocer, Fresh
Produce Journal, Caterer and Hotelkeeper, Frozen & Chilled Foods, Super
marketing, Timber Trades Journal, Meat Trades Journal, Fish Trader and
Farmers' Weekly. Contact details for these publications are available
from the Foreign Agricultural Service of the U.S. Embassy in London (see
Appendix E).
PRICING PRODUCT
The United Kingdom represents a strongly competitive market with high
receptivity to U.S. goods. When pricing product for sale in the United
Kingdom, U.S. exporters need to be aware of some additional costs which
could reduce profit margins below those available in the United States.
A value-added tax of 17.5 percent is charged on the majority of goods
sold in the United Kingdom (with food and children's clothes the major
exceptions). In addition, imported goods may be subject to customs
duty. The costs of transportation, freight forwarding and customs
brokerage charges will further diminish margins, as will commissions to
agents and distributors.
UK retailers have tended to demand higher profit margins than those in
the United States. However, increased competition from large European
and U.S. chains, as well as the arrival of warehouse clubs, are
beginning to eliminate excessive profits.
SALES SERVICE/CUSTOMER SUPPORT
As an advanced economy, the United Kingdom offers a full array of sales
and customer support services. Advice on accessing these may be
obtained from the Foreign Commercial Service at the American Embassy.
A full array of market research services is available. In addition, the
American Embassy in London provides periodic economic and financial
country data, as well as market research reports and timely business
information bulletins. These data may be accessed on the National Trade
Data Base (NTDB), a CD-ROM which is widely available throughout the
United States in major libraries, or through subscription. For more
information, write to the U.S. Department of Commerce, Office of
Business Analysis, HCHB Room 4885, Washington, DC 20230, Tel: (202) 482-
1986.
SELLING TO THE GOVERNMENT
The UK government adheres to a general policy of "best value for money"
in public procurements. In both central and local government, there is
a strong trend towards "out-sourcing" of services previously provided
in-house. Most government departments are subject to the GATT MTN
Procurement Code. This requires that tenders for public procurement
over a specified value threshold must be advertised in a timely manner,
and that bidders from GATT signatory countries should be given non-
discriminatory treatment. Urgency or national security reasons can be
used to justify procurements outside GATT rules.
Certain industries, notably telecommunications and transport, are
exempted from the MTN Procurement Code. The 1993 US-EU agreement on
reciprocal market access in the electrical utilities sector has paved
the way for further market access liberalization.
Since Great Britain has no official journal, procurement intentions are
published in the EU Official Journal. In addition, trade publications
and specialist bulletins are used to advertise future tenders for the
procurement of equipment, works, or services that are industry-specific.
Such tender announcements supplement EU Official Journal entries, they
do not substitute for them.
The UK MoD prefers a direct commercial sales approach for its major
defense acquisition programs. Its acquisition policy calls for
competitive "firm fixed price" contracting, wherever possible. Rarely
will it fund developmental costs for a new start program. The majority
of its competitions focus on off-the-shelf equipment, which often
requires some development to meet the specifications. This approach
entails selecting a single prime contractor who will accept all program
risk (including development risks for adapting off-the-shelf technology
to meet the operational requirement). The MoD's policy is to amortize
this cost over the production run of the system. Many of their programs
call for total package procurement to include: training infrastructure,
ammunition, parts and maintenance support, development testing, and
various performance guarantees.
The MoD publishes a biweekly digest called the MoD Contracts Bulletin.
The bulletin contains information of possible future purchases,
competitive contracts awarded, single-source contracts awarded, and
prime contractor sub-contracts requirements. It is available to U.S.
contractor subscribers. The American Embassy also utilizes the Commerce
Trade Opportunities Program (TOP) to advertise pertinent information on
pending procurements.
The growing UK health care market is dominated by the state-run National
Health Service (NHS). Procurement is the responsibility of several
Regional Health Authorities, each of which takes the lead in procuring a
range of products and services for the entire NHS.
PROTECTING YOUR PRODUCT FROM IPR INFRINGEMENT
UK intellectual property rights laws are strict, comprehensive,
rigorously enforced and conform to the harmonized approach to IPR
adopted by the EU. The UK's IPR positions in international fora, such
as the World International Patent Organization (WIPO) and GATT
negotiations, parallel those of the United States.
The UK has legislation also in effect for the protection of patents,
trademarks, and industrial designs. The British Patent Office is
responsible for the administration of the Patent Acts, the Registered
Designs Act, and for dealing with issues related to the Copyright Acts.
The United Kingdom is a member of the "Paris Union" International
Convention for the Protection of Industrial Property (1958 Revision).
Recent UK copyright law is designed to make copyrighting a more
simplified, user-friendly procedure and has permitted the United Kingdom
to join the Berne Convention.
Implementation by the United Kingdom of the 1989 EU Trademark Directive,
which will establish a unitary trademark system for the European Union,
will make it easier for UK trademark holders to obtain protection in
other countries. The UK's ratification of the Madrid Protocol on the
international registration of marks will enable trademarks to be
registered in all signatory countries with a single application. Until
the EU's Trademark Office is opened in Alicante, Spain in mid-1995, EU
trademarks will be registered on a national basis.
A Single European Patent, valid throughout the EU, does not yet exist,
since the Community Patent Convention has been ratified only by Germany
and Greece.
Applications for patents and for design protection in the United Kingdom
should be filed with the Comptroller, The British Patent Office (BPO),
25 Southampton Buildings, Chancery Lane, London, WC2. Trademark
applications should be filed with the Registrar, The Patent Office,
Trade Marks Registry, also at the above address.
Private professional advice is normally provided by patent or trademark
agents. The Chartered Institute of Patent Agents, located at Staple Inn
Buildings, High Holborn, London WC1V 7PZ telephone: (44-71) 405-9450,
maintains a list of patent agents. The Institute of Trade Mark Agents,
at Suite 3-5, Panther House, 38 Mount Pleasant, London WC1X 0AP
(telephone: (44-71) 833-0875), does the same for trademarks agents.
Some attorneys have a significant practice in trademark law, but it is
not a legal specialty that many handle on a regular basis. Most
attorneys will consult a trademark or patent attorney when necessary,
but it is often easier for firms to deal directly with a patent or
trademark agent.
Patents:
Under UK law, three kinds of patents are granted. These include basic
patents, patents of addition, and secret patents. Basic patents are
issued on new inventions and discoveries for a period of 4 years from
the date of application and are renewable every year for up to 20 years.
Patent applicants first file a request for the granting of a patent that
protects the patent for the first year. The protection ends unless a
"request for search" is filed. The third step is the applicant's
request for "substantive examination." The granting of patents is
usually completed in less than four years from the initial filing date.
There are prescribed fees for each step of the process and for annual
renewal of the patent. The patentee must work the invention
commercially within three years after issue of the patent; otherwise, a
compulsory license may be ordered. Compulsory licenses can be granted
to prevent abuse of a monopoly position. Special compulsory licensing
applies to the pharmaceutical sector.
Patentees may elect to grant "licenses of right" under which they permit
any interested person to work the invention upon payment of royalties.
Revocation of a patent is possible two years after issuance if it is
still not properly worked.
The United Kingdom is a signatory to the International Patent
Cooperation Treaty (IPCT). Under the IPCT, an inventor may file a
single patent application with the BPO, which will then stake a claim in
49 other countries, including 15 European nations and all the major
industrial nations.
Thirty months after filing, if the examination report is favorable, the
inventor must file separate applications and translations in the
individual countries.
Industrial Designs:
Industrial designs can be registered and protected for five years from
the date the application is filed. Registration is renewable for two
terms of five years each. The same design may be registered for more
than one article. Non-use of a design will not cause its registration
to be cancelled, but a compulsory license can be ordered if the design
may also be subjected to secrecy restrictions similar to those enforced
on patents for national security purposes.
Trademarks:
The first user of a mark is entitled to its registration. Trademarks
are registered for 7 years from the date of application and are
renewable for periods of 14 years each. Applications should be filed
with the Registrar, The Patent Office, Trade Marks Registry, at the
address given earlier for the Patent Office. The Trade Marks Register
is divided into two parts (A and B). Graduated fees are charged for the
application, registration, and renewal.
To qualify for part A, which offers better protection, a trademark must
be distinctive of the goods of the proprietor so that it will
distinguish those goods from those of others. The validity of trademark
registration in part A is considered conclusive seven years after its
registration.
The purpose of part B is to permit the registration of trademarks that
are not inherently distinctive but may become so eventually after use.
The law provides for removal of a trademark if the applicant has no
intention of using it or if it has not otherwise been used continuously
for five years.
Copyrights:
Both the United Kingdom and the United States are signatories of the
Universal Copyright Convention. This convention affords mutual
copyright protection.
Copyrights are granted in the United Kingdom for the life of the author
and for 50 years after his death, subject in the latter period to
licensing stipulations. Any one member state is able to grant
protection which is applicable throughout the EU.
In 1986, the United Kingdom began to provide protection for service
marks, a form of trademark, where a particular product or service is
associated with a particular trading entity. Both service marks and
trademarks have to be examined for compliance with three basic
principles of trademark law: whether it is distinctive, not deceptive,
and does not conflict with another mark.
Trademark protection is available for almost any word or symbol that can
have the attribute of becoming exclusive if sufficiently used. Certain
words and marks cannot be registered simply because they are laudatory
or are used in the industry to describe goods or services. For example,
words and symbols that cannot be registered are those such as "best" for
a particular product or service, a crossed fork and knife for a
restaurant, or a money symbol for a bank.
Well-known geographical locations are not registrable even though they
may have become distinctive of a particular company's products. This
rule, though, may be differently applied to services. The "Virginia"
restaurant may be registrable, for example, while "Virginia" cookies
would not.
A mark can acquire distinctiveness after considerable use. Examples
include very common surnames which are recognized by the public in
connection with specific businesses. A rough test for distinctiveness
is whether competitors inherently would want to use the word or symbol
as part of their business.
A mark can not be deceptive and may not imply that the business is other
than what the trademark indicates. The final requirement is that the
mark not belong to another person or company. There cannot be a prior
registration for the same product or service for the same, or very
similar, mark.
The phrase "the same goods or services" is important. In the United
Kingdom, a trademark is registered for a specific statement of goods in
one of a number of classes.
Goods and services have been classified by an international system into
over 40 classes ranging from live animals to machinery, to services such
as banking, insurance, and finance. UK registration for one class does
not prevent use in another class. If a company has far ranging
activities, each class of activity will need to be protected.
NEED FOR A LOCAL ATTORNEY
Circumstances in which an attorney would be necessary are very similar
to those in the United States. Many large U.S. law firms maintain
branches in London or work in cooperation with local British lawyers.
"SHOWCASE EUROPE" INITIATIVE
The EU's Single Internal Market:
The European Union of fifteen nations, encompassing a market of $7
trillion and 372 million consumers, is by far the largest and most
important global economic partner for the United States, and our most
important market for the remainder of the nineties. The United Kingdom
is currently the largest customer for U.S. goods and services within the
EU.
Due to the vast size of the EU market, the modest anticipated 3 percent
annual growth in the EU's GDP is equivalent to the creation of a new
market for U.S. products the size of Taiwan's every year.
The EU's Single Market objective, established in law, is to remove
internal barriers to the movement of goods, capital, labor, and
services. This has created major opportunities for American exporters
and investors, and along with them some new challenges. For example, a
significant advantage for the U.S. is that they will be able to
manufacture to a single set of product standards, whereas previously
each country had set its own product standards.
The Commercial Service of the U.S. Department of Commerce is currently
transforming its organizational structure in Europe, and attuning its
business support services, to meet the needs of American firms operating
within the Single European Market for Europe-wide assistance. Based on
a new vision for U.S.-European commercial relations, a newly-developed
commercial plan - dubbed Showcase Europe - has been designed to help
U.S. firms exploit the commercial opportunities presented by the immense
European Union market, and the emerging markets of Eastern Europe.
There is a potent opportunity for U.S. export gains in Europe by
increasing U.S. market share through aggressive export promotion
efforts. For example, U.S. firms have an 11 percent share of the UK's
import market but less than 6 percent of the rest of the EU. Consider
also that the German economy is 70 percent larger than the UK economy -
yet American firms export 40 percent more to the UK than to Germany.
Also, approximately 25 thousand American firms export to the UK and only
18 thousand to Germany and 12 thousand to France. Success in the UK
appears principally related to marketing effort. A promotion and policy
focus on other EU markets has the potential to raise U.S. market share
throughout the EU to the level now enjoyed only in the UK.
At the same time, the remarkable transformation of the countries of
Central and Eastern Europe into increasingly free market-oriented
democracies has created a wealth of opportunities for U.S. exporters and
investors. Although starting from a low base, the market in these
countries could triple by the year 2000. As trading relations between
the EU and East European countries strengthen, access to these emerging
markets by U.S. firms may most effectively be gained through West
European affiliates.
The Showcase Europe plan aims to provide U.S. business with the support
needed to embrace these opportunities. It seeks vigorously to open up
transatlantic trade through reductions in tariffs and standards
barriers, mutual recognition of product testing and certification, full
access to government procurement opportunities and national treatment
for investors. Another goal of the plan is to accelerate the
integration of the economies of Central Europe, Russia and the Newly
Independent States into the world economy as full and open partners.
Finally it seeks to expand U.S. exports to Europe by approaching the
market on a regional basis and by encouraging existing exporters and
investors to move into additional EU or East European markets.
These changes have required that the Commercial Service modify the old
"compartmentalized" approach to supporting U.S. exports, with each
country treated as a separate market, in favor of an integrated
structure offering uniform, pan-European programs and services managed
and coordinated from centers of excellence in embassies throughout the
EU. To help U.S. firms fully realize the opportunities flowing from
Central and Eastern Europe, the Commercial Service is creating new
resources and developing new partnerships, and information on these is
being actively promoted to U.S. firms already operating in the EU. More
attention is being paid to the interests of U.S. investors, with more
counseling and information on investment opportunities, joint ventures
and financing.
To accomplish the goals of Showcase Europe, the Commercial Service is
implementing three broad-based strategies. They include: adopting a
Single Market Approach to address the European market in regional or
sub-regional terms, rather than in national terms, in order to attract
U.S. companies into additional European markets; creating an American
Business Network to develop new promotion and policy initiatives with
clients and partners in the private sector in order to increase market
share in Europe; and developing a Commercial Information Infrastructure
to utilize new communication and information technologies in order to
deliver market intelligence and trade and investment opportunities more
efficiently to its U.S. clients.
The Single Market Approach:
Taking cognizance that Europe is rapidly becoming one market, and that
U.S. firms should trade and invest throughout Europe, our trade
promotion and information programs are being revamped to provide a
continent-wide support base. For example the Commercial Service is
implementing a European-wide approach to bringing foreign buyers and
decision makers to U.S. trade shows, and a regional approach to
identifying, supporting and counseling American companies interested in
expanding their activities in Europe.
Initially the Single Market Approach is focusing on four pilot industry
sectors - aerospace, power generation, information technology and
environmental technologies. Market research in these sectors is being
coordinated, and major European trade events are being promoted by all
Embassies.
To support investors, conferences have been arranged to inform U.S.
firms with an established presence in Europe of opportunities and
conditions in other markets within the EU and beyond, and of U.S.
government programs to assist entry to these markets. Due to the large
number of U.S. firms based in the UK, and the ease of access to
Heathrow, London has been a favorite venue for these events.
American Business Network:
We are establishing a policy reporting network to ensure that U.S.
business interests are fully reflected in embassy activities to open
markets, remove barriers, ensure international agreements are
implemented and to develop an early warning network to avert emerging
problems. In addition, industry-specific and issue-specific U.S.
business groups are being established with a Europe-wide focus.
The effort to support firms of U.S. parentage based in Europe brings
the goals of the Commercial Service into alignment with those of some
host trade promotion and investment organizations whose own resources
and networks can be mobilized.
Aggressive Advocacy:
While Europe represents the most open and transparent market for U.S.
companies, they are not always afforded equal treatment across the EU.
In some sectors - such as electric power generation, telecommunications
and audiovisual services - barriers still exist. New product standards
and product testing /certification rules can discriminate against non-EU
firms, and American businesses can be prevented from participating on
equal terms in the coming wave of privatizations. Where such barriers
persist, the U.S. Government will advocate aggressively to ensure that
U.S. firms be allowed to compete fully throughout the integrated
"borderless" market of Europe, and that European consumers enjoy the
full benefits of genuine competition,
UK Strategy:
Recognizing the current substantial comparative advantage in the U.K.
marketplace, the London Embassy has developed a two-year trade promotion
strategy to support the key objectives of Showcase Europe. This
strategy, "the U.K./U.S. Business Partnership for Europe", features two
parts: the European Launch-Pad and Strategic Sectors.
The European Launch Pad strategy aims to build upon the current strength
of the U.S. strategic commercial position in the United Kingdom. The UK
is our fourth largest trading partner in the world and the largest in
Europe. It is the destination of 40 percent of U.S. investment in the
EU, and is the host to the regional headquarters of over 50 percent of
U.S. corporations with operations in more than one European country.
London's role as Europe's pre-eminent financial center reinforces the
UK's unique position as the most effective gateway to the EU and a
staging post for entry into Central Europe, Russia, the NIS, the Middle
East and Africa.
Integral elements of the European Launch-Pad include: the development
of a client database of U.S. firms exporting to the U.K. and nowhere
else, the design of an aggressive, systematic outreach campaign to major
U.K. business centers, the development of tools to allow us to counsel
U.S. clients interested in the U.K. or other opportunities in the larger
European marketplace, and the marketing of Commercial Service products
and services directly to U.K.-based U.S. clients seeking to enter other
European and regional markets.
Coupled with the European Launch-Pad is the London Embassy's focus on
supporting the four pan-European strategic sectors - aerospace,
electrical power generation, environmental products and services, and
information technologies - as well as three which represent exceptional
opportunities in the UK market - biotechnology and health care, consumer
products and building materials.
From the standpoint of U.S. commercial interests, Europe could well be
the most promising market for the remainder of the 1990s. The
Commercial Service is well on its way to restructuring its trade
promotion programs to take advantage of some very promising
opportunities.
V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT
BEST PROSPECTS PRODUCTS AND SERVICES FOR U.S. EXPORTERS
Ranking based on greatest estimated 2-year growth in U.S. exports, the
best prospects in the UK's market are as follows:
Industrial Goods:
1) AIRCRAFT AND PARTS (AIR)
2) INDUSTRY COMMENTS:
The UK Aerospace industry, which suffered in FY 1993 as a result of
excess capacity and declining levels of demand, has shown signs of
revival. Long-term growth prospects for the industry are very positive.
Projections for the commercial market over the next fifteen years
anticipate that European air passenger traffic will grow from 394
billion in 1990 to over one billion by the year 2010. This will
translate into the need for more than 10,000 new aircraft and an
estimated $1,000 billion in airline expenditure.
Aircraft parts suppliers will also have major opportunities to enter the
UK aerospace market as the need to service aging fleets is becoming more
pronounced. British Air, one of the industry's leading performers, has
an ambitious plan for fleet expansion. Due to the introduction of noise
control regulations, airlines such as BA will either need to upgrade or
replace older Boeing 727's and 737-200's as well as DC-9's by the
beginning of the next century.
Airlines will look to plane manufacturers to develop new high technology
products and airliners that can efficiently handle the increasing number
of travelers while maintaining a lower operating cost than aircraft
flying today. It has been speculated that new multi-million dollar
projects aimed to ease congestion at the UK's busiest airports may
include a "super jumbo" jet and a supersonic successor to the Concorde.
3) MARKET DATA (US$ millions) 1994 1995 1996
(est.) (forecast)
A) Total Market Size 4,973 5,105 5,513
B) Total Local Production 8,806 9,043 11,119
C) Total Exports 10,948 11,223 12,554
D) Total Imports 7,115 7,286 7,908
E) Imports from the U.S. 3,356 3,617 3,912
1 COMPUTER SOFTWARE (CSF)
2 INDUSTRY COMMENTS
The U.K. market for computer software is expected to continue to grow in
1996. The trend away from bespoke applications running on proprietary
mainframes and mini-computers should continue and more firms are
expected to adopt client/server solutions. In 1995 the fastest growing
segments of the market was software development tools which grew by 14
per cent. PC software packages running under Microsoft Windows will be
in high demand as figures for 1995 show that Windows is installed on 64
per cent of all PCs. In recent years the financial services sector has
been the biggest spender on I.T. services and software.
3 MARKET DATA (US$ millions) 1994 1995 1996
(est.) (forecast)
A) Total Market Size 7,388 7,937 8,373
B) Total Local Production 5,700 6,190 6,700
C) Total Exports 1,170 1,269 1,422
D) Total Imports 2,858 3,016 3,095
E) Imports from the U.S. 1,370 1,627 1,723
1) POLLUTION CONTROL EQUIPMENT (POL)
2) INDUSTRY COMMENT
Little has changed in the last year in the U.K. pollution control
equipment market. The Government is continuing to promulgate new
legislation that will drive this market, and this will continue to
create opportunities for U.S. companies. In 1995 the Government
launched its new Waste Strategy, establishing a waste hierarchy, with
waste minimization at the top, followed by reuse, recovery and finally
disposal. The Government will also enact the Environment Act, 1995,
which sets out new proposals for dealing with contaminated land. In
1996 a new U.K. Environment Agency will be established to amalgamate
several agencies and impose a more rigorous enforcement regime on
polluters. Also a tax on landfill will come into effect. All this will
stimulate demand for pollution control equipment.
The U.S. is second only to Germany in air pollution control, and in
water pollution control France has less than half the U.S. import share
of the UK market. The current value of the dollar is encouraging U.K.
buyers look towards the United States where previously they had relied
on European suppliers in these sectors. The market is expected to grow
by about 10% from 1995-96.
3) MARKET DATA
(US $ millions) 1994 1995 1996
(est.) (forecast)
A) Total Market Size 3,010 3,300 3,696
B) Total Local Production 2,450 2,695 3,018
C) Total Exports 520 572 640
D) Total Imports 1,070 1,177 1,318
E) Imports from the U.S. 260 312 374
The above statistics are unofficial estimates.
1) APPAREL (APP)
2) INDUSTRY COMMENTS:
Despite the on-going recession throughout many European countries, the
British economy has been enjoying a recovery since 1993. This is
reflected in the womenswear market where sales increased by 4.6 percent
in 1993. With a further growth of between 3 and 4 percent forecast each
year throughout the 1990s, this can only fuel its strength. The
clothing sector represents nearly 6 percent of the total expenses of
British households, with women's clothing accounting for 48 percent of
the whole clothing trade.
The menswear market in both the U.S. and U.K. continues to grow with an
emphasis on quality and simplicity. It has been predicted that the
menswear industry will be expanding at a larger rate than womenswear.
Due to an increase in the male population between the ages of 45 - 64,
retailers have been targeting a less fashion conscious group and
returning to classic styles. As in womenswear and childrenswear,
American designers continue to supply functional casual wear as opposed
to the impractical European looks. Ralph Lauren, Levi's and 'The Gap'
are expanding in the U.K. offering a wide range of comfortable and easy
to wear clothes.
3) MARKET DATA (US$ millions) 1994 1995 1996
(est.) (forecast)
A) Total Market Size 13,117 13,750 15,000
B) Total local Production 11,048 11,600 12,450
C) Total Exports 3,702 3,900 4,050
D) Total Imports 5,771 6,050 6,600
E) Imports from the U.S. 390 425 470
1 DRUGS & PHARMACEUTICALS (DRG)
2 INDUSTRY COMMENT
The UK market for all medicinal and pharmaceutical products was $8.5
billion in 1994. This breaks down as $5.6 billion through pharmacies,
$0.9 billion through medical facilities and $2.0 billion over-the-
counter (OTC) sales. The UK market is the 6th largest in the world.
The conservative prescribing habits of UK doctors means that the UK
market is barely half the size of the German or French ones, yet with a
population similar to France. The National Health Service (NHS)
accounts for 90 percent of prescription pharmaceuticals. Prescription
drug sales grew by 8 percent in 1994 and OTC products by 6.5 percent.
The primary distribution channel for pharmaceuticals in the UK is
through pharmacies. Over 80 percent of ethical drug and 70 percent of
OTC products are made through the 11,000 pharmacies in the UK.
Drugs for 3 therapeutic areas account for over 50 percent of the UK
prescribed market. They are: alimentary/metabolism, cardiovascular and
respiratory (asthma drug sales alone run at about $600 million per
year). The largest sector of the OTC market is analgesics. Sales
reached $300 million in 1994.
All the major pharmaceutical companies compete in the UK market and many
have research and production facilities here using the very strong
science base. The 1995 merger of 2 UK firms created the world's largest
pharmaceutical company - Glaxo Wellcome.
The main driver of the market is the cost of healthcare. Pharmaceutical
prices in the UK are controlled by the Pharmaceutical Price Regulation
Scheme (PPRS). The scheme doesn't regulate individual drug prices, but
rather individual company's Return on Capital (ROC). However, the
pressure on health costs also presents opportunities. Therapies that
can demonstrate savings in other areas of health will do very well - for
instance, a drug that cures faster or removes the need for hospital
care, even though it might be relatively expensive, will have a market.
In addition, cost pressure is fuelling demand for generic substitutes of
branded drugs. Currently about 50 percent of prescriptions written and
40 percent of those dispensed are for generics. Generic development in
the European Union (EU) is, however, hindered to some extent by the
system of supplementary protection for pharmaceutical products (the SPC
system). This system prevents manufacturers from starting development of
a generic until the branded protection ends. U.S. generic suppliers
that can develop products outside Europe should be able to beat their
European competitors to market.
By September 1998 all prescription medicines sold in the UK will have to
be in patient (original) packs. The UK Medicines Control Agency (MCA)
recently published details of the Patient Pack Initiative including
details of the 3 year program for pack introductions. The program has
12 phases of 6 months, each covering drugs in a number of therapeutic
areas. The first phase began on June 1, 1995 for submissions, with the
first patient packs due for introduction in December 1995.
The European Medicines Evaluation Agency (EMEA) recently opened in
London. Its remit is to oversee the implementation of European
regulations and directives for product licenses across Europe. There
are 3 procedures for seeking product licenses: centralized (required for
many biotechnology products), decentralized and national authorization
for single, domestic markets. Much of the industry believes that the
EMEA's London location will act as a draw for companies to establish
pharmaceutical research facilities, particularly biotechnological
research, in the UK to best take advantage of its proximity.
3 MARKET DATA (US$ millions) 1994 1995 1996
(est.)(forecast)
A) Total Market Size 8,500 9,400 9,900
B) Total Local Production 11,200 12,100 12,500
C) Total Exports 6,400 6,700 7,000
D) Total Imports 3,700 4,000 4,400
E) Imports from the U.S. 380 440 480
The above statistics are unofficial estimates.
1) BUILDING PRODUCTS (BLD)
2) INDUSTRY COMMENTS:
Activity within the U.K. construction industry has been markedly slow to
throw of the effects of recession. The economy grew strongly during
1994, driven principally by increased capital expenditure and an
improved overseas trade performance. In contrast, consumer expenditure
growth slowed in reaction to higher taxation, weak real income growth
and concerns over rising interest rates. Consumer confidence remains
persistently weak and this frailty is reflected in the sluggish housing
market. Overall, it is the repair and maintenance sector of the housing
market which is exhibiting signs of increased activity. As new home
owners continue to refurbish rather than 'trade up' or move on,
prospects for one of the building products primary subsectors, that of
the Do-It-Yourself (D-I-Y) market, will remain excellent. The
competition for U.S. exporters in most areas of the building products
market is considerable but U.S. imports are perceived, in the main, as
having superior quality particularly suited to the upper end of the
market. Good opportunities exist for suppliers of ornamental brickwork
and facings and architectural metalwork; and also for all types of
insulation products, including windows and doors, as Britain's older
housing stock is updated.
3) MARKET DATA (US$ millions) 1994 1995 1996
(est.) (forecast)
A) Total Market Size 16,202 17,775 18,000
B) Total local Production 16,716 18,275 18,500
C) Total Exports 2,811 2,850 2,900
D) Total Imports 2,297 2,350 2,400
E) Imports from the U.S. 355 375 400
1 MEDICAL EQUIPMENT (MED)
2 INDUSTRY COMMENT
The major purchaser of medical equipment in the UK is the National
Health Service (NHS), followed by the residential care and private
hospital sectors. Growth has been steady, if not high, due to cost
pressures within UK healthcare. Growth in sales of electro-medical
equipment has risen faster than that in the rest of the market. The
market is competitive with many UK and foreign suppliers. U.S.
companies are well represented as are the major German companies.
The sale of medical devices in the UK is governed by 3 European Union
(EU) directives. The Medical Devices Agency is the UK Competent
Authority responsible for the implementation and enforcement of the
regulations. Those products that meet the regulations are awarded the
CE mark which enables marketing of the product throughout the EU.
A common obstacle to the purchase of capital medical equipment by the
NHS is tight Department of Health (DoH) spending controls. The UK
government has, however, recently introduced the Private Finance
Initiative (PFI) which allows, within certain guidelines, private
finance to be used for the purchase and running of equipment. The NHS
then pays for access/usage, typically less than full capacity, leaving
the company free to sell the balance to other healthcare providers.
Whilst the supplier assumes the financial risk, the initiative opens the
market for the supply of capital equipment.
The tight financial controls mean that the NHS has an ongoing, though
unspecified, interest in reconditioned capital medical equipment. It
has in the past bought substantial quantities of reconditioned
equipment. At present, and as a result of the changes in the NHS, there
is an internal surplus of equipment which is reallocated as appropriate.
This surplus is not expected to last long and in any case may not
satisfy all requirements. Reconditioned medical equipment is covered by
the same regulations as new equipment. In addition, the NHS requires
suppliers of medical equipment, whether new or 2nd hand, to satisfy
their own safety, quality and legal requirements. The best
opportunities will therefore be for properly reconditioned equipment
accompanied by guarantees and service back up.
3 MARKET DATA (US$ millions) 1994 1995 1996
(est.) (forecast)
A) Total Market Size 2,360 2,480 2,610
B) Total Local Production 2,610 2,740 2,880
C) Total Exports 1,370 1,440 1,510
D) Total Imports 1,120 1,180 1,240
E) Imports from the U.S. 350 370 390
The above statistics are unofficial estimates.
1) SPORTING GOODS & RECREATIONAL EQUIPMENT (SPT)
2) INDUSTRY COMMENTS:
Sports activities in the U.K. have grown spectacularly over the last ten
years, driven by increased public awareness of general health and
fitness. This recently discovered 'fitness' has spawned an industry of
magazines, books and videos on the subject of aerobics, golf, tennis,
etc. Additionally, many U.S. exercise products for home use are highly
visible. Major U.K. retailer Lillywhites has reported that according to
sales, women's fitness is one of the fastest growing sports areas. In
fact, according to a recent report, predictions are that there will be a
growth in the market of up to 70 percent by the year 2000.
There are in excess of 27 million active sports participants in the U.K.
Each year it is estimated that one in four of them suffers a sports-
related injury. It is therefore not surprising that with the growth in
self-treatment and increasing consumer awareness, the market for sports
supports in the U.K. sports trade is growing at a phenomenal rate of 24
percent year-on-year.
The new 'craze' in the U.K. is roller blading, or in-line skating as it
is also known. The glamour and style of the sport appeals hugely to the
younger age group making in-line skating potentially a huge money
spinner for sports retailers in the U.K., and an excellent opportunity
for U.S. manufacturers of sports related products.
3) MARKET DATA (US$ millions) 1994 1995 1996
(est.) (forecast)
A) Total Market Size 1,038 1,110 1,165
B) Total local Production 514 590 625
C) Total Exports 203 230 235
D) Total Imports 721 750 775
E) Imports from the U.S. 155 160 165
1) DEFENSE EQUIPMENT (DFN)
2) INDUSTRY COMMENTS:
Like most western countries, the UK defense budget is being trimmed. As
a result, a "best value for money" policy has been adopted. Competition
is key; it will be expanded by "market testing" proposals which will
allow private firms to bid for such traditional military tasks as
aircraft maintenance and certain transport roles. Due to budgetary
constraints, the acquisition process has focused increasingly on "off
the shelf" systems, and money for research and development has been
limited. While significant opportunities do exist, the competition for
contracts has intensified as more firms are bidding for fewer jobs.
Major defense projects offering opportunities for U.S. business in the
defense sector include: Aircraft and parts for the Attack Helicopter,
Airlift Modernization, Maritime Patrol Aircraft Replacement programs,
Mission Systems Integration technology for various major equipment
procurement programs (as prime contractor or sub-contractor) and major
sub-contracting opportunities in the electronic component/test equipment
and telecommunications equipment fields.
Other best prospects for U.S. firms include: aircraft, electronics
industry production and test equipment, electronic components, avionics
and ground support equipment, lasers and electro-optics, and
telecommunications equipment. Construction and engineering services and
computer and software services present the greatest defense sector
business opportunities within the service categories. Major defense
competitions during the next two years are: Conventionally Armed
Standoff Missile (CASOM); Air Launched Anti-Armor Weapon; Attack
Helicopter; Bowman Combat Radio; Tactical Reconnaissance Armored Combat
Equipment Requirement (TRACER); Maritime Patrol Aircraft Replacement;
Sea King Airborne Early Warning Helicopter Upgrade; Future Medium Range
Air-to-Air Missile; Ballistic Missile Defense Systems Studies; and
Launch Vehicle for Skynet IV Satellite.
Please note that figures on imports and exports of defense equipment are
only rough estimates as the sector is generally broken up to be included
under such categories as aircraft and parts, computer software,
electrical, etc.
(US $ millions)
1994 1995 1996
(est.) (forecast)
D) Total Market Size 12,232 12,142 12,142
E) Total Local Production 12,809 12,722 12,722
F) Total Exports 1,877 1,860 1,860
G) Total Imports 1,300 1,280 1,280
H) Imports from the U.S. 342 342 342
Note: The above statistics are unofficial estimates. No official
estimates were available for 1996 expenditure at time of writing.
However, no significant change is anticipated over the 1995 figures.
1) FRANCHISING (FRA)
2) INDUSTRY COMMENTS
Sales of products or services through franchised outlets have grown
exponentially in the United Kingdom. The value of goods and services
sold through franchises grew by 500% from 1984 to 1993. Throughout the
United Kingdom there are 414 franchise systems in operation. An
estimated 175,900 people work in 26,400 franchise outlets, and a further
16,400 are employed by the franchise systems. Total sales by franchises
were estimated at $8.8 billion in 1994, a 10 percent increase over the
previous year.
The United Kingdom is exceptionally receptive to American franchisors,
particularly in food services and retailing. The common language, and
similar cultural and business customs, has made the United Kingdom the
logical first choice in Europe for American franchisors, and an ideal
base for franchise expansion into the Continent. In a recent study by
NatWest Bank, 47 percent of the UK's franchisors plan to expand their
operations into the Continent by 1999, and 20 percent claim to be doing
so already.
There are approximately 85 non-British owned franchise systems operating
in the UK, about 60 of which are American-owned.
The expansion of U.S. franchises has often been at the expense of small
indigenous retailers unable or unwilling to match their levels of
organization and marketing, customer service, cleanliness and value. In
many cases, smaller UK firms have been slow to respond to changing
patterns in consumer lifestyles which, to a large extent, have been
similar both in the U.S. and the UK. Generally, if a franchising idea
has proved successful in the U.S., it has an excellent chance in the UK
and Northern Ireland, particularly among the young.
Factors which will continue to drive the growth of franchising in the UK
include: the expected overall improvement in the economy; increasing
consumer confidence; shifting demographics, such as the growing number
of retirees, and the increase in the number of women working outside the
home.
There are several large UK-owned food service and hospitality
corporations which are potentially very competitive. Through their
substantial investments in the U.S., some of these are the parents of
American franchisors. For example, Grand Metropolitan owns Burger King.
However, many of these large corporations have occasionally found it
more effective to act as franchisees in the UK rather than as direct
competitors, attesting to the cache attached to a successful U.S. brand
name.
Best franchising prospects include food services, specialty store
retailers, businesses catering to retirees and two wage-earner families,
cleaning and repair services, day care services, home renovation and
decoration, and leisure products and services.
3 MARKET DATA (US$ millions) 1994 1995 1996
(est.) (forecast)
A) Total Sales 8,000 8,8000 9,680
B) Domestic Sales by Local Firms 8,000 8,800 9,600
C) Foreign Sales by Local Firms n/a n/a n/a
D) Sales by Foreign-owned Firms n/a n/a n/a
E) Sales by U.S.-owned Firms n/a n/a n/a
(The above statistics are unofficial estimates. Franchisees are
considered local firms. There are no separate figures available for
sales by units of which the franchisor is non-British).
The table below shows the number of franchise systems and franchise
units operating in the United Kingdom in 1994.
SECTOR SYSTEMS UNITS
Building Services 39 925
Catering & Hotels 55 3,095
Cleaning Services 15 1,510
Commercial & Indstr'l Services 55 1,085
Distribution 51 2,910
Domestic & Personal Services 25 1,110
Employment Agencies & Training 16 530
Estate/Business Transfer Agents 16 435
Parcel and Courier Services 13 1,095
Quick Print/Design 8 635
Retail 86 4,515
Vehicle Services 28 1,555
(Source: NatWest Bank - Small Business Services)
Agricultural Sectors:
1. AGRICULTURE - FOREST PRODUCTS (FOR)
2. COMMENT:
This table includes roundwood, softwood lumber, temperate hardwood
lumber, tropical hardwood lumber, softwood veneer, temperate hardwood
veneer, tropical hardwood veneer, softwood plywood, temperate hardwood
plywood, tropical hardwood plywood, hardboard, medium density
fiberboard, insulation board, and particle board.
Temperate hardwood lumber and softwood plywood represent the sectors
with the greatest U.S. imports at 121 and 268 thousand cubic meters
respectively. Third country competitors in the temperate hardwood sector
are Canada and Germany, but the U.S. is by far the largest supplier.
Canada is also the major competitor in the softwood plywood sector of
the forest products market.
3. MARKET DATA ('000 cubic meters)
1992 1993 1994
A) Total Market Size 20,056 20,993 21,253
B) Total Local Production 10,669 11,639 11,848
C) Total Exports 397 394 335
D) Total Imports 9,784 9,748 9,740
E) Imports form U.S. 626 604 485
1. AGRICULTURE - TURKEY MEAT
2. COMMENTS:
Although the UK is a net exporter of turkey meat, imports of turkey
breast meat are required to fulfill consumer preference. Imports of
processed turkey meat are bound under GATT at a tariff rate of 17
percent. This binding avoids the EU sluice gate price. Under the U.S.
- EU Blair House Agreement this rate will be halved to 8.5 percent with
GATT implementation. United States processed turkey meat is presently
bought by UK retailers and further processors. France and the
Netherlands are the major competitors.
3. MARKET DATA ('000 metric tons)
1992 1993 1994
A) Total Market Size 230 249 258
B) Total Local Production 246 252 253
C) Total Exports 38 32 31
D) Total Imports 20 26 36
E) Imports from the U.S. 6 4 4
1. AGRICULTURE - SEAFOOD
2. COMMENTS:
U.S. Seafood is generally competitive on both price and quality,
especially in the high value seafood sectors. The most promising
subsectors within the seafood market are, and are likely to be, crab and
crab meat, and other specialty products. However, salmon remains by far
the largest single U.S. seafood export to the UK. The major third
country competitor in both farmed and seafish is Norway.
3.MARKET DATA ('000 metric tons)
1993 1994 1995
B) Total Market Size 462 464 470
C) Total Local Production 380 386 398
D) Total Exports 365 384 384
E) Total Imports 442 464 453
F) Imports form the US 25 18 22
1. AGRICULTURE - TREE NUTS
2. COMMENTS:
United States tree nuts continue to be competitive on quality and to a
lesser degree on price. The above table includes the four major tree
nut varieties imported to the market - almonds, pecans, pistachios and
walnuts. The most promising subsectors within the tree nut market are
almonds and pecans. Major third country competition comes from China,
India and Iran.
3. MARKET DATA ('000 metric tons)
1992 1993 1994
B) Total Market Size 21 21 22
C) Total Local Production -- -- --
D) Total Exports 4 4 4
E) Total Imports 25 25 26
F) Imports from U.S. 13 11 11
1. AGRICULTURE - PET FOODS
2. COMMENTS:
Local production dominates the canned "moist" pet food market but
imports are rising as demand for other types of pet food increases. The
most promising subsectors for imports are complete dry dog food, dietary
products and treats. Major third country competition comes from
Thailand with intra-EU trade also supplying the market.
3. MARKET DATA ('000metric tons)
1992 1993 1993
A) Total Market Size 1,415 1,403 1,341
B) Total Local Production 1,348 1,248 1,245
C) Total Exports 192 148 160
D) Total Imports 259 303 256
E) Imports from U.S. 18 24 29
Tourism:
1) TOURISM
2) INDUSTRY COMMENTS:
In 1995 the United Kingdom is again forecast to be the second largest
overseas provider of tourists to the United States.
The U.S. is the top long-haul destination for UK travelers, and the
forecast for 1995 is for nearly 3 million UK residents to visit the
United States and provide almost $7 billion in export earnings. This
represents a 2.4% growth in arrivals and a 5.9% increase in spending
over 1994.
There remains great potential in the UK-to-US travel market for the
continued growth over the next several years, both with first-time
visitors and with the 70% of repeat travelers exploring further afield
to lesser-known and rural destinations.
Florida bookings, which declined following the highly-publicized tourist
killings in that state more than a year ago, are showing recovery. As
British visitors become more sophisticated, they also search for new
places to visit in the U.S., beyond the typical first visit of a "stay-
put two-week holiday" at a sunshine destination. USTTA marketing
efforts in 1995 and 1996 will focus on six niche markets: golf/tennis;
soft adventure; theater/arts/culture; skiing; lesser-known state and
national parks; and shopping.
The British pound sterling buys few bargains for the British traveler in
Europe these days (even with the recent devaluations of the Spanish and
Portuguese currencies) but does buy bargains in the USA. Favorable
exchange rates should rekindle British interest in visiting America in
1995-96. This factor alone could cause an upturn in U.S. arrivals from
the UK.
While most prospective travelers are aware of the potential for violence
in any city in the world, security concerns must be a priority for U.S.
destinations hoping to attract UK visitors. The British tend to regard
the U.S. as a "gun culture," an image that has been amplified by the
Oklahoma bombing and the subsequent media coverage of its link to
heavily armed militia groups in the U.S.
In addition to addressing safety issues, focusing on value-for-money and
new destination possibilities in the United States is important to
ensure continued growth of this market.
International competition for UK visitors is heating up, with new and
aggressive long-haul destinations offering inclusive holidays with
charter flights at costs comparable to the favorite UK destination,
Florida. It is now possible to fly to Australia by charter flight for
approximately the same cost as the cheapest scheduled flights to Los
Angeles and San Francisco.
The Gambia and Kenya in Africa, Sri Lanka, Goa in India, Thailand and
several Caribbean islands, as well as European and Mediterranean
destinations such as Greece, Turkey, and Israel, are investing millions
of dollars in advertising and promotion campaigns to court the UK
traveler.
These and other competitor-nation tourist office investments are paying
handsome dividends for their home countries in increased tourism while
they erode US market share.
Statistics from the UK Central Statistical Office document this trend:
For the three months to December 1994, when UK outbound travel increased
by 10% over the previous year, UK visits to North America fell 5%, while
travel to Western Europe rose 7%. Spain, one of the biggest spenders in
this market , increased its UK visitor numbers 23.8% between January and
November 1994.
An interesting parallel is that the UK, another nation cutting back its
national tourist office budget in times of heavy competition from other
nations, is also losing market share.
In previous years the USA, like the UK, could rely on the assumption
that people "will come anyway." This assumption is still technically
true, but the hot and heavy global competition for the tourism dollar
has brought a new focus to the international tourism picture. The rules
of the global tourism game have changed, and market share is
increasingly moving to the marketers.
VI. TRADE REGULATIONS AND STANDARDS
TRADE BARRIERS
The United Kingdom has international trading obligations under its
membership in the European Union (EU), the General Agreement on Tariffs
and Trade (GATT), the Organization for Economic Cooperation and
Development (OECD),the International Monetary Fund (IMF), and the United
Nations Conference on Trade and Development (UNCTAD).
Our relations with the United Kingdom reflect a shared commitment to an
open and expansive multilateral trade system. The UK presents no
significant impediments to trade and investment or foreign ownership of
corporate assets, nor restrictions on the free-flow of capital.
However, there are several specific sectoral barriers:
Bilateral Issues:
- Air Services: The bilateral air services agreement restricts
competitive opportunities for U.S. carriers between points in the United
States and Great Britain. Limits on access to Heathrow Airport are a
particular problem.
- Telecommunications Services: While the UK telecom services market
is the most open in Europe, regulatory and other barriers limit the
ability of U.S. operators to compete, particularly in facilities-based
international service.
EU Issues:
- EU Directives: Implementation of EU directives, notably the
Broadcast and Utilities Directives, could create trade barriers in a
previously open market.
- Agriculture: Potential disapproval of dairy products containing
BST, EU requirement for food plant approvals, EU requirement for
hormone-free beef, efforts to change standards for seasoned turkey meat
imports, and other EU directives limit access.
- Defense: While the UK is generally open to defense competition,
economic and political commitments can advantage internal and EU
contract awards in favor of UK and other European firms.
- Product Standards, Testing and Certification: Formulation and
implementation of EU standards and procedures can constitute a barrier
to trade. Of particular current concern are EU efforts to define
standards for "environmentally-friendly" products.
- Tourism: Fear of violence in the U.S. is a concern of foreign
visitors.
Specific Issues:
Bilateral trade disputes between the United States and the United
Kingdom are rare. There have been recent instances where British
authorities have been reluctant to provide expanded access to the UK
market sought by U.S. firms in telecommunications, and a larger presence
at Heathrow Airport for U.S.-flag carriers. However, most trade
barriers of concern to the U.S. are the result of EU regulations, rather
than actions by the British government or UK companies.
Product Standards:
The ongoing EU harmonization of product standards, labelling, testing
and certification requirements will substantially simplify U.S.
exporters' ability to offer a suitable choice of products across the
Union, while reducing costs significantly. However, the potential
exists to use product standards as a means of restricting market access
to non-EU Manufacturers.
Government Procurement:
The EU's "Utilities Directive" covering purchases in the water,
transport, energy and telecommunications sectors came into effect in
January 1993. While the directive required open, objective bidding
procedures--a benefit to U.S. firms--it discriminated against non-EU
bids, except in the electric power sector, absent an international or
bilateral agreement. EU procuring utilities may exclude bids with less
than 50 percent EU value without additional justification. In addition,
accepted bids with a majority of EU content must receive a three percent
price preference over non-EU bids.
In April 1994, U.S. and EU negotiators reached an agreement under the
GATT government procurement code covering the electrical utility sector.
As a result, exports of heavy electrical equipment are no longer subject
to the discriminatory provisions of the Utilities Directive. However,
the United States and European Union were unable to reach agreement on
procurement by telecommunications utilities, but pledged to continue
negotiations. In the United Kingdom, only British Telecom and Kingston
Communications are subject to the EU directive; other UK companies are
exempt.
Because of the failure to reach agreement on telecommunications
procurement, U.S. sanctions imposed under Title VII of the 1988 Trade
Act, imposed on certain EU member states, will remain in effect.
Broadcast Quotas:
HMG's Department of National Heritage is charged with enforcing the
quota provisions of the 1989 EU Broadcast Directive. As mandated by the
directive, it requires that channel providers broadcast a majority of
European-origin programming "where practicable." HMG has generally
interpreted the "where practicable" language liberally. HMG is under
increasing pressure from the European Commission to press individual
channel providers to set mileposts for increasing their European
content.
Telecommunications:
HMG opened the UK domestic market for competition in 1991 and continues
to pursue a policy of encouraging competition. Last fall, the U.S. and
the UK declared each other "equivalent" for purposes of international
simple resale. In December OFTEL continued to work to resolve the issue
of interconnection with British Telecommunications with the publication
of "A framework for Effective Competition." These moves went a great
deal towards reducing some of the few remaining market barriers.
Some problems remain. U.S. companies face concerns over access deficit
charges, interconnection, number portability and the unwillingness of
HMG to grant international facilities-based licenses.
Government Support for Airbus:
The Airbus consortium, of which British Aerospace is a member, has
benefitted in the past from government financial support programs. A
U.S.-EU bilateral agreement reached in July 1992 imposed limitations on
future support provided to the Airbus program by governments of the
Airbus consortium members, along with an obligation for the consortium
to repay past state aid. An effort is currently being made under GATT
auspices to extend this bilateral agreement to encompass other countries
that are currently or potentially major players in the international
aerospace marketplace.
Defense:
There are no major barriers to U.S. contractors in the UK defense
sector, other than national security exclusions, and the industrial
participation requirements previously mentioned.
TARIFFS AND IM