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U.S. DEPARTMENT OF STATE
SPAIN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                              SPAIN

                     Key Economic Indicators
        (Billions of U.S. dollars unless otherwise noted)


                                    1992      1993      1994 1/

Income, Production and Employment:

Real GDP (1986 prices) 2/          393.2     312.0     303.0
Real GDP Growth (pct.)               0.8      -1.0       1.7
GDP (at current prices) 2/         576.3     478.4     479.1
By Sector:
  Agriculture                       20.3      16.5      17.2
  Industry                         133.8     108.3     108.3
  Construction                      49.5      39.2      38.3
  Services                         334.9     286.7     285.7
Net Exports of Goods and Services  101.4      94.6     105.3
Real Per Capita GDP (USD:1986)    10,082     7,980     7,728
Labor Force (000s)                15,193    15,406    15,550
Unemployment Rate (pct.)            20.1      23.9      24.5

Money and Prices:  (annual percentage growth)

Money Supply (M2)                    1.5     -15.8      -3.8
Base Interest Rate 3/               13.5      12.6      10.2
Personal Saving Rate                19.3      19.4      20.0
Retail Inflation                     5.9       4.6       4.5
Wholesale Inflation                  1.4       2.4       4.0
Consumer Price Index               100.4     105.0     109.3
Exchange Rate (Pta/USD)            102.1     127.4     133.0

Balance of Payments and Trade:

Total Exports (FOB) 4/              64.7      59.5      70.0
  Exports to U.S.                    3.1       2.9       3.0
Total Imports (CIF) 4/              99.9      78.6      85.0
  Imports from U.S.                  7.4       5.6       5.7
External Public Debt                79.8       N/A       N/A
Debt Service Payments (paid)        21.8       N/A       N/A
Gold and Foreign Exch. Reserves     50.5      45.3      45.0
Trade Balance 4/                   -35.2     -19.1     -15.0
  Trade Balance with U.S.           -4.3      -2.7      -2.7


1/ 1994 Figures are all estimates based on available monthly
data in October 1994.
2/ GDP at factor cost.
3/ Actual, average annual interest rates, not changes in rates.
4/ Merchandise trade.



1.  General Policy Framework

    Following the economic boom of 1986-90, the Spanish economy
slowed down and, along with the economies of most other western
European countries, fell into recession during the second half
of 1992.  Unemployment reached over 24 percent, and is not
expected to decline significantly during 1994.  Devaluation of
the peseta since 1992 and the beginning of economic recovery in
Spain's major European markets are contributing to an
export-led economic recovery; real GDP is expected to grow by
around 1.7 percent in 1994.

    Spain's accession to the European Union (then called the
European Communities) in 1986 established the framework for its
subsequent economic performance.  EU membership has required
Spain to open its economy, modernize its industrial base,
improve infrastructure, and revise economic legislation to
conform to EU guidelines.  Furthermore, the 1992 Maastricht
Treaty, calling for eventual Economic and Monetary Union (EMU)
among the EU member states, established specific criteria for
economic performance which now serve as official objectives for
the Spanish government.  In particular, those criteria call for
reduced government deficits, lower inflation and foreign
exchange stability.  Foreign investors, principally from other
EU countries, have invested over 60 billion dollars in Spain
since 1986.

    Inflation continues to be a problem.  Despite the recession
and massive unemployment, Spanish inflation declined only to
4.5 percent by the end of 1993, and is generally expected to
stay close to that level in 1994, some two percentage points
above the EU average.  In years past, high wage settlements
contributed significantly to inflation.  Wage settlements in
1994, following modest reforms to the labor market at the
beginning of the year, have been more moderate.  Inflationary
pressure from the fiscal deficit continues, however, as the
public sector deficit reached 7.3 perent of GDP in 1993, and
will stay close to seven percent in 1994.  Spanish economists
also note that structural rigidities -- basically a lack of
competition in certain service sectors -- also contribute to
inflationary pressures.


2.  Exchange Rate Policy

    Spain joined the European Monetary System (EMS) in
mid-1989.  The peseta played a role in the turmoil disrupting
the EMS beginning in September 1992 and resulting in expansion
of EMS "bands" to 15 percent around the European Currency Unit
(ECU) in August 1993.  Since September 1992, the peseta has
declined by 18 percent against the ECU and 25 percent against
the Deutsche mark; the peseta has remained among the weakest
currencies within the EMS, although it has not tested the
boundaries of the 15-percent band.

    The Government of Spain removed the few remaining capital
controls on February 1, 1992.  The controls were temporarily
reimposed in the wake of the September 1992 EMS crisis, but
were rescinded shortly thereafter.


3.  Structural Policies

    Joining the EU in January 1986 required Spain to open its
economy.  By December 1992, Spanish tariffs were phased out for
imports from other EU countries, and lowered to the EU's common
external tariff level for imports from non-EU countries.  Many
nontariff barriers also had to be reduced or eliminated.  While
areas of dispute remain (see section 5) the trend is strongly
toward a more open economy.  The EU program to establish a
single market has accelerated Spain's integration into the EU.

    Spain's membership in the EU also required liberalization
of its foreign investment regulations and the foreign exchange
regime.  In July 1989, a securities market reform went into
effect.  The reform has provided for more open and transparent
stock markets, as well as for licensing of investment banking
services.  The reform also liberalized conditions for obtaining
a stock brokerage license.  A new foreign investment law passed
in June 1992 removed many of the administrative requirements
for foreign investments.  Investments from EU resident
companies are free from almost all restrictions, while non-EU
resident investors must obtain authorization from the
authorities to invest in broadcasting, gaming, air transport,
or defense.

    Faced with the loss of the Spanish feed grain market as a
result of Spain's membership in the EU, the United States
negotiated an Enlargement Agreement with the EU in 1987 which
establishes a 2.3 million ton annual quota for Spanish imports
of corn, specified nongrain feed ingredients and sorghum from
non-EU countries during a four year period.  The agreement was
extended through 1994.  The Uruguay Round agreement had the
effect of extending this agreement indefinitely.  The United
States remains interested in maintaining access to the Spanish
feed grain market and will continue to press the EU on this
issue.  U.S. exports of corn and sorghum, of about $200 million
annually, are an important part of U.S. trade with Spain.

    Spain was obliged under its EU accession agreement to
establish a formal system of import licenses and quotas to
replace the structure of formal and informal import
restrictions for industrial products existing prior to EU
membership.  The United States objected that the new import
regime for non-EU products was illegal under GATT.  In response
to U.S. concerns, in October 1988, Spain initiated an
automatic, computerized licensing system for Spanish imports of
the affected U.S. products.  Since the system became effective,
no U.S. exporters have reported market access impediments to
their products covered under the automatic approval system.

    EU ratification of the Uruguay Round trade agreement will
deepen trade liberalization and apply it to new sectors.  The
Government of Spain also ratified the Uruguay Round package and
joined the World Trade Organization (WTO) as a founding member.


4.  Debt Management Policies

    Spain's external debt totalled $79.8 billion in December
1992 (latest data available).  Foreign investors bought heavily
into Spanish government long-term debt during 1993, profitting
as interest rates declined from 12.2 percent in January 1993 to
eight percent in February 1994.  Foreign investors held about
$38 billion of this debt in March 1994, but have since reduced
their position in this market as interest rates have trended 
upwards.  The Spanish government has signed standby loan
arrangements in foreign currency with consortia of private
banks, and reached agreement with investment banks to float
bonds in foreign markets, as alternatives to domestic financing.

    International reserves totalled $4.8 billion in July 1994,
equivalent to six months of imports.  Moody's rates debt of the
Kingdom of Spain as AA2.


5.  Significant Barriers to U.S. Exports

    Import Restrictions:  Under the EU's Common Agricultural
Policy (CAP), Spanish farm incomes are protected by direct
payments and guaranteed farm prices that are higher than world
prices.  One of the mechanisms for maintaining this internal
support are high external tariffs and variable levies (as much
as 200 percent for some commodities) that effectively keep
lower priced imports from entering the domestic market to
compete with domestic production.  However, the Uruguay Round
agreement established that these variable levies will be
replaced by fixed import duties beginning on July 1, 1995.  In
addition all import duties on agricultural products will be
reduced during the five year period from 1995 to 2000.

    In addition to these mechanisms, the EU employs a variety
of strict animal and plant health standards which act as
barriers to trade.  These regulations end up severely
restricting or prohibiting Spanish imports of certain plant and
livestock products.  One of the most glaring examples of these
policies is the EU ban on imports of hormone treated beef,
imposed with the stated objective of protecting consumer
health.  Despite a growing and widespread use of illegal
hormones in Spanish beef production, the EU continues to ban
U.S. beef originating from feedlots where growth promotants
have been used safely and under strict regulation. 

    One important aspect of Spain's EU membership is how
EU-wide phytosanitary regulations, and regulations that govern
food ingredients, labeling and packaging, impact on the Spanish
market for imports of U.S. agricultural products.  The majority
of these regulations took effect on January 1, 1993 when EU
"single market" legislation became fully implemented in Spain,
and now agricultural and food product imports into Spain are
subject to the same regulations as in other EU countries. 

    While many restrictions that had been in operation in Spain
before the transition have now been lifted, for certain
products the new regulations impose additional import
requirements.  For example, Spain now requires any foodstuff
that has been treated with ionizing radiation to carry an
advisory label.  In addition, a lot marking is now required for
any packaged food items.  Spain, in adhering to EU-wide
standards, continues to impose strict requirements on product
labeling, composition, and ingredients.  Like the rest of the
EU, Spain prohibits imports which do not meet a variety of
unusually strict product standards.  Food producers must
conform to these standards, and importers of these products
must register with government health authorities prior to
importation.  In 1994, a shipment of squid from the U.S. had
difficulty entering Spain as authorities were concerned that it
exceeded maximum levels of copper, which is considered a heavy
metal under Spanish food and drug law.  Neither the U.S. nor
the EU impose a standard regarding copper.

    Telecommunications:  Spain's telecommunications policy is
in flux, as the Government of Spain simultaneously seeks to
assure the continued strength of Telefonica, the state
controlled public telephone operator, and to liberalize the
market in order to attract foreign investment and comply with
EU guidelines.  Although regulations liberalizing value-added
services were issued in 1991, U.S. companies trying to
establish these services, particularly international virtual
private networks (IVPNs), closed user groups, and real-time fax
and voice data service, have encountered obstacles.

    Recently, progress has been made.  In October 1994, the
Government of Spain began taking bids on its second digital
cellular license.  (Under the terms of its 30-year contract
with the government, Telefonica will be awarded the first
digital cellular license on a non-competitive basis.)  The
Government of Spain has stated that it hopes to award the
permit by the end of 1994, which would allow the winning
company to begin operating in mid-1995.  Telefonica has already
been offering analog cellular services for over two years, and
therefore begins the battle for the digital market with a
substantial advantage.

    In its role as public telephone operator, Telefonica has
embarked on an ambitious project to upgrade Spain's
communications infrastructure.  It plans to lay 2,500
kilometers of fiber optic line in the next one to two years. 
The Spanish firm is also a major buyer of U.S. switching and
transmission equipment, and has indicated interest in forming
alliances with U.S. companies.

    Banking Services:  Spain's transposition of the EU second
banking directive in March 1993 placed U.S. banks with branches
in Spain at a potential competitive disadvantage with respect
to branches of EU banks in Spain.  Spanish regulatory
authorities temporarily waived the most onerous restrictions,
however, and negotiations are underway for a permanent solution.

    Government Procurement:  During the May 1992 GATT
Government Procurement Code Committee meeting, signatories
agreed to extend code benefits to Spain by July 22, 1992.  This
required Spain to fully implement the corresponding EU
directives.  As a result, American suppliers having contracts
with Spanish government entities covered by the GATT Code are
protected with respect to discrimination, transparency, and
appeal procedures.

    Offset requirements are common in defense contracts and
some large nondefense-related and public sector purchases (e.g.
commercial aircraft and satellites).  Recent large commercial
contracts have contained offset provisions in the 30 to 60
percent range.

    Television Broadcasting Stations:  The government
transposed the EU broadcast directive in July 1994.  It imposes
a requirement that 51 percent of broadcast time be reserved for
European products.  The EU is considering revisions in this 
directive.  Should the revisions result in further increases in
the European content reservations, this would, of course,
further restrict the Spanish market for U.S. products.  Spanish
legislation imposes restrictions on foreign ownership of the
three private TV concessions allowed.  These restrictions are
aimed at developing the local Spanish program industry and
encouraging Spanish language productions.  The government plans
to introduce legislation to regulate cable T.V.  Two operating
concessions would be granted in each specified geographical
area.  One concession would be reserved for Telefonica, the
state controlled public telephone operator, while one would be
assigned to a private firm through competitive bidding.

    Motion Picture Dubbing Licenses and Screen Quotas:  Spain
requires issuance of a license for dubbing non-EU films into
Spanish for distribution in Spain.  Dubbed movies are
commercially more successful than subtitled original language
films in the Spanish market.  To obtain a license, distributors
must contract to distribute an EU film.  Changes in the Cinema
Law, implemented in December 1993, increased the number of
viewers which the EU film must attract for it to confer a
dubbing license, and imposed requirements for dubbing into
minority languages.  The law also requires cinemas to show one
day of EU films for every two days of non-EU films.  Efforts
are underway to seek administrative revisions in the law to
limit its prejudicial effects on non-EU producers and
distributors.

    Product Standards and Certification Requirements:  While
product certification requirements (homologation) have been
liberalized considerably since Spain's entry into the EU,
problems remain for U.S. exporters in three areas.  First,
cumbersome certification requirements remain for some
telecommunications products, terminal equipment, certain
computer peripherals, and some building materials.  Second,
there is a lack of transparency and consistency in the
application of certification requirements.  There are no
published norms for the documentary evidence needed to
establish that an item has met certification requirements of
another EU government and that a product is in "free
circulation" in an EU market.  Third, the local interpretation
and application of some EU directives and regulations have
caused disruption in trade with the U.S.  For example, U.S.
exporters of gas connectors have had difficulty in obtaining
permission for the entry of their products into Spain.  

    Another example of such stringent procedural requirements
has to do with the import of live bivalve mollusks.  Since July
of 1993 a new purification process for the mollusks is required
along with an acceptable certification from recognized U.S.
authorities.  All this can delay the shipment of clams to the
Spanish market, increase production cost and adversely affect
product quality.

    The Spanish government generally holds that it does not use
product certification procedures to hinder trade.  It has been
cooperative in resolving specific trade issues brought to its
attention.  The United States has encouraged Spain to simplify
its certification procedures and make them more transparent. 
In this regard, mutual recognition of product standards and
testing laboratory results is being pursued at the EU level.


6.  Exports Subsidies Policies

    Spain aggressively uses "tied aid" credits to promote
exports, especially in Latin America, the Maghreb, and more
recently, China. Such credits reportedly are consistent with
the OECD arrangement on offically supported export credits.

    As a member of the EU, Spain benefits from EU export
subsidies which are applied to many agricultural products when
exported to destinations outside the Union.  Total EU subsidies
of Spanish agricultural exports amounted to $551 million in
1993.  Spanish exports of grains, olive oil, other oils,
tobacco, wine, sugar, dairy products, beef, sheep and goat
meat, and fruits and vegetables benefitted most from these
subsidies in 1993.


7.  Protection of U.S. Intellectual Property

    Spain adopted new patent, copyright, and trademark laws, as
agreed at the time of its EU accession.  It enacted a new
patent law in March 1986, a new copyright law in November 1987,
and a new trademark law in November 1988.  All approximate or
exceed EU levels of intellectual property protection.  Spain is
a party to the Paris, Bern, and Universal copyright conventions
and the Madrid Accord on Trademarks.  Spanish government
officials have said that their laws reflect genuine concern for
the protection of intellectual property.

    The patent law greatly increased the protection accorded
patent holders.  In October of 1992, Spain's pharmaceutical
process patent protection regime expired, and product
protection took effect.  Industry sources have advised that the
impact of the new product protection law will not be felt until
early in the next century when new pharmaceutical product
patents applied for after October 1992 enter the market after
the 10 to 12 years research and development period normally
associated with the introduction of a new product into the
market.  U.S. makers of chemical and pharmaceutical products
have complained that this provides effective patent protection
only for approximately eight years.  The U.S. pharmaceutical
industry would like to see some lengthening of the patent term.

    The copyright law is designed to redress historically weak
protection accorded movies, video cassettes, sound recordings
and software.  It includes computer software as intellectual
property, unlike the prior law.  In 1991, judicial sanctions
for violations increased significantly again.  The law provides
a clear legal framework for copyright protection.  The new
copyright law has been useful in alleviating abuses of authors'
rights.  For example, the home video industry trade association
reported improved ability to secure court orders after the
copyright law was enacted.

    Nevertheless, U.S. software producers complain of losses
from business software piracy and are taking legal action under
the new intellectual property law to correct this.  The Spanish
government has responded to concerns over software piracy by
sending instructions to prosecutors calling for rigorous 
enforcement of the law and urging private industry to pursue
pirates aggressively through the courts.  In December 1993,
legislation was enacted which transposed the EU software
directive.  It includes provisions that allow for unannounced
searches in civil lawsuits.  Some searches have taken place
under these provisions.

    Continuing Spanish government enforcement efforts have
reduced video and audio cassette piracy although it remains a
significant problem.  Operators of small neighborhood cable
networks, called "Community Video," broadcast video programs
without broadcast rights, but the Spanish government has
prohibited them from running cables across public ways and is
attempting to phase them out.  This process would be speeded up
if, as the government has proposed, a new cable television law
is enacted which grants exclusive franchises over large areas. 
The copyright law has clearly established that no motion
picture can be publicly exhibited without the authorization of
the copyright holder and that "Community Video" is to be
considered as public exhibition.

    The trademark law is intended to facilitate improved
enforcement.  It incorporates by reference the enforcement
procedures of the patent law, defines trademark infringements
as unfair competition, and creates civil and criminal penalties
for violations.  Aggressive Spanish enforcement efforts have
resulted in numerous civil and criminal actions; however, the
infringement of trademark rights in Spain is still a problem,
particularly in the textile and leather goods sector.


8.  Worker Rights

    a. The Right of Association

    All workers except military personnel, judges, magistrates
and prosecutors are entitled to form or join unions of their
own choosing without previous authorization.  Self-employed,
unemployed and retired persons may join but may not form unions
of their own.  There are no limitations on the right of
association for workers in special economic zones.  Under the
constitution, trade unions are free to choose their own
representatives, determine their own policies, represent their
members' interests, and strike.  They are not restricted or
harassed by the government and maintain ties with recognized
international organizations.  About 11 percent of the Spanish
work force belongs to a trade union.  While no official data
are available on the percentage of union affiliation in Spain's
free trade zones, a trade union official has stated that union
membership in these zones is higher than the average for the
whole economy.

    b. The Right to Organize and Bargain Collectively

    The right to organize and bargain collectively was
established by the Workers Statute of 1980.  Trade union and
collective bargaining rights were extended to all workers in
the public sector, except the military services, in 1986. 
Public sector collective bargaining in 1989 was broadened to
include salaries and employment levels.  Collective bargaining
is widespread in both the private and public sectors.  Sixty 
percent of the working population is covered by collective
bargaining agreements although only a minority are actually
union members.  Labor regulations in free trade zones and
export processing zones are the same as in the rest of the
country.  There are no restrictions on the right to organize or
on collective bargaining in such areas.

    c.  Prohibition of Forced or Compulsory Labor

    Forced or compulsory labor is outlawed and is not
practiced.  Legislation is effectively enforced.

    d.  Minimum Age for Employment of Children

    The legal minimum age for employment as established by the
Workers Statute is 16.  The Ministry of Labor and Social
Security is primarily responsible for enforcement.  The minimum
age is effectively enforced in major industries and in the
service sector.  It is more difficult to control on small farms
and in family owned businesses.  Legislation prohibiting child
labor is effectively enforced in the special economic zones. 
The Workers Statute also prohibits the employment of persons
under 18 years of age at night, for overtime work, or for work
in sectors considered hazardous by the Ministry of Labor and
Social Security and the unions.

    e.  Acceptable Conditions of Work

    Workers in general have substantial, well defined rights. 
A 40 hour work week is established by law.  Spanish workers
enjoy 12 paid holidays a year and a month's paid vacation.  The
employee receives his annual salary in 14 payments--one
paycheck each month and an "extra" check in June and in
December.  Based on a 1994 average exchange rate of 133 pesetas
to the dollar and full days and years of work, the legal
minimum wage for workers over 18 is $15.18 per day or $455.41
per month.  For those 16 to 18 it is $10.03 per day or $300.90
per month.  The minimum wage is revised every year in
accordance with the consumer price index.  Government
mechanisms exist for enforcing working conditions and
occupational health and safety conditions, but bureaucratic
procedures are cumbersome.  Safety and health legislation is
being revised to conform to EU directives.

    f.  Rights in Sectors with U.S. Investment

    U.S. capital is invested primarily in the following
sectors: petroleum, automotive, food and related products,
chemicals and related products, primary and fabricated metals,
non-electrical machinery, electric and electronics equipment,
and other manufacturing.  Workers in those sectors enjoy all
the rights guaranteed under the Spanish constitution and law,
and conditions in these sectors do not differ from those in
other sectors of the economy.





  Extent of U.S. Investment in Selected Industries.--U.S. Direct
Investment Position Abroad on an Historical Cost Basis--1993

                    (Millions of U.S. dollars)
                                                                
              Category                          Amount          

Petroleum                                               140
Total Manufacturing                                   3,481
  Food & Kindred Products                   622
  Chemicals and Allied Products             549
  Metals, Primary & Fabricated              122
  Machinery, except Electrical              415
  Electric & Electronic Equipment           237
  Transportation Equipment                  946
  Other Manufacturing                       590
Wholesale Trade                                         984
Banking                                               1,090
Finance/Insurance/Real Estate                           160
Services                                                405
Other Industries                                        176
TOTAL ALL INDUSTRIES                                  6,437    

Source: U.S. Department of Commerce, Bureau of Economic
Analysis

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