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





                        THE UNITED KINGDOM

                     Key Economic Indicators
                  (Billions of U.S. dollars) 1/


                                     1992      1993      1994 2/

Income, Production and Employment:

Real GDP (1990 prices) 3/           825.9     713.9     752.3
Real GDP Growth 
  (pct. based on BPS)                -0.5       2.0       3.4
GDP (at current prices) 3/          913.3     819.2     876.7
By Sector:  4/
  Agriculture                        16.5      15.6      16.6
  Energy/Water                       42.5      39.2      41.7
  Manufacturing                     197.5     177.5     189.4
  Construction                       52.7      43.8      46.8
  Rents                              67.3      61.7      64.8
  Financial Services                153.1     139.4     148.8
  Other Services                    261.8     233.9     249.6
  Government/Health/Education       163.4     143.6     153.2
Net Exports of Goods and Services   -15.9     -12.5      -9.1
Real Per Capita GDP ($US)         16404.4   14145.0   14916.4
Labor Force (millions)               28.4      28.2      28.0
Unemployment Rate (pct.)              9.8      10.3       9.4

Money and Prices:

Money Supply (M2)                   920.8     820.2     862.7
Base Interest Rate (pct.)             9.6       6.0       5.5
Personal Saving Rate (DI)            12.8      12.2      11.0
Retail Inflation (CPI in pct.)        3.7       1.6       2.4
Wholesale Inflation (pct.)            3.1       3.9       2.5
Exchange Rate (USD/BPS)              1.77      1.50      1.54

Balance of Payments and Trade:

Total Exports (FOB) 5/              189.9     182.1   200.7
  Exports to U.S. 6/                 20.1      21.7    22.8
Total Imports (CIF) 5/              213.1     201.9   217.3
  Imports from U.S. 6/               22.8      26.4    28.8
Trade Balance                       -23.2     -19.8   -16.6
  Trade Balance with U.S.            -2.7      -4.7    -6.0
Foreign Exchange Reserves            41.4      42.9    43.6


1/ Converted from British pound sterling (BPS) at the average
exchange rate for each year.
2/ Data for 1994 are annualized estimates based on available
quarterly data through July 1994.
3/ GDP at factor cost.
4/ Sectoral total contains adjustment factor of approximately
BPS 23 billion.
5/ Merchandise trade (does not include services)
6/ U.S. Department of Commerce figures.
Source: U.K. Central Stat. Office: Survey of Current Business








1.  General Policy Framework

    The United Kingdom (UK) has a free market economy and an
open financial services environment which encourage open
competition.  Most formerly government-owned industries have
been privatized.  Among the few remaining barriers to
international trade and investment are preferential treatment
for UK firms in broadcasting, telecommunications and utilities
procurement.

    The economy is in its second year of recovery.  The
government refocused its economic policy after leaving the
European Community Exchange Rate Mechanism (ERM) at the
beginning of 1993.  Low inflation with sustainable growth is
now the primary goal.  Inflation fell dramatically in 1993 and
has remained subdued in 1994.  It should average less than 2.5
percent for the year.  The base interest rate was reduced to
5.25 percent at the beginning of 1994, but it was raised to
5.75 percent in August to slow the rate of expansion.

    After declining in 1992, real GDP growth was two percent in
1993 and is expected to exceed three percent in 1994.  The
unemployment rate continues to fall sharply; it stood at 9.1
percent in September 1994 compared to the 1993 average of 10.3
percent.  (Note that the depreciation of the pound sterling
means that the UK's 1993 GDP expressed in dollars appeared to
contract even though real GDP in national currency expanded.)

    Fiscal Policy:  Although the government entered the
recession with a fiscal surplus in 1990, the loss of revenue
during the recession substantially increased cyclical spending
on unemployment benefits, and pre-election spending in 1992 led
to a record budget deficit level and Public Sector Borrowing
Requirement (PSBR) by 1993.  Seized by the need to rein in the
spiraling PSBR, the government initiated a series of stringent
fiscal measures to take effect over the three fiscal years
starting April 1, 1994.  Partially due to falling employment
and faster than expected growth, PSBR performance for 1993/94
was better than projected by the government.

    In 1994/95, the current fiscal year, progress in reducing
the PSBR is being maintained, again due to higher than expected
growth and falling unemployment.  However, fiscal tightening
appears to be slowing consumption expenditure.

    The Conservative government retains its goal of reducing
the basic personal income tax rate to 20 percent as soon as
possible.  Current tax rates are 20, 25 and 40 percent.  For
tax purposes, capital gains are adjusted for inflation.  The
first five thousand pounds in capital gains are tax free, and
the remainder is generally taxed at regular income tax rates. 
Gains from the sale of a primary home are exempt.  Corporate
tax rates vary between 25 and 33 percent.  Other domestic tax
revenue sources include the value-added tax (VAT, currently set
at a rate of 17.5 percent), and excise taxes on alcohol,
tobacco, retail motor fuels, and North Sea oil production.

    Monetary Policy:  The UK manages its monetary policy
through open market operations by buying and selling in the
markets for overnight funds and commercial paper.  There are no
explicit reserve requirements.  


2.  Exchange Rate Policy

    The UK withdrew from the ERM in September 1992, and the
pound sterling floats freely in the exchange market.  The Prime
Minister has publicly disavowed any return to the ERM in the
foreseeable future.  Sterling's trade-weighted exchange rate
index initially fell from 92 in 1992 to 76 in early 1993 and
hovered at around 80 for most of 1994.


3.  Structural Policies

    The UK economy is characterized by free markets and open
competition.  Prices for most goods and services are
established by market forces.  Prices are set by the government
in those few sectors where the government still provides
services directly, such as passenger railway and urban
transportation fares, and government regulatory bodies monitor
the prices charged by electric, natural gas and water
utilities.  The UK's participation in the European Union Common
Agricultural Policy significantly affects the prices for raw
and processed food items, but prices are not actually fixed for
any of these items.

    Over the past 15 years Conservative governments pursued
growth and increased economic efficiency through structural
reform, principally privatization and deregulation.  The
financial services and transportation industries were
deregulated.  The government sold its interests in the
automotive, steel, aircraft and air transportation sectors. 
Electric power and water supply utilities were also
privatized.  Coal mining, rail transportation and local bus
transportation are in the process of being privatized. 
Subsidies were cut substantially, and capital controls lifted. 
Employment legislation increased market flexibility,
democratized unions, and increased union accountability for the
industrial acts of their members.

    Although there has been great progress, some challenges
remain.  Social welfare programs and the business community are
still adjusting to job losses and changes in the business
climate resulting from deregulation and privatization.  The
government has not been able to achieve sustained success in
reducing the budget deficit, and consequently has not been able
to lower tax rates as expected.

    The current UK government strongly supports free trade and
open markets.  It has ratified the Uruguay Round agreement and
joined the World Trade Organization (WTO) as a founding member.


4.  Debt Management Policies

    The United Kingdom has no meaningful external public debt. 
London is one of the foremost international financial centers
of the world, and British financial institutions are major
intermediaries of credit flows to developing countries.  The
British government is an active but cautious participant in the
development of a coordinated debt strategy.  British banks are
prominent members of bank advisory committees on developing
country debt and debt of former communist countries.  They
recognize a need in many countries for debt and debt service
relief, but generally object to mixing new money with debt
relief.


5.  Significant Barriers to U.S. Exports

    Although structural reforms have made it easier for U.S.
exporters to enter UK markets, some barriers still remain in
broadcasting, telecommunications and utilities procurement. 
Problem areas and specific regulations resulting in trade
barriers in these areas are profiled below.

    Broadcasting: The 1990 Broadcasting Act, which implements
the 1989 European Community Broadcast Directive, requires that
"a suitable proportion" of television programs broadcast in the
UK be produced locally and that a "proper proportion" be of
European origin.  The EC directive itself calls for a majority
(50 percent) of EC content "where practicable."

    Telecommunications: The UK domestic telephony market was
opened for competition in 1991.  In the past year, the UK
telecommunications regulatory body has made a number of
favorable rulings on issues such as the high cost and
difficulty of negotiating interconnection agreements with
British Telecom (the former government monopoly, now
privatized), number portability (ability to keep a specific
phone number when changing service provider), and other equal
access issues.  These rulings have significantly reduced the
main market barriers with the aim of completely eliminating
some of the most onerous by 1996.  Sufficient progress was made
to allow the FCC to make an initial determination in September
1994, that the UK market was "equivalent" to the U.S. market. 
This was followed up in October by a similar decision on the
part of the UK.  This mutual action will pave the way for
significant increases in competition in trans-Atlantic
telecommunications.  Some U.S. companies believe, however, that
the UK still has some distance to go, particularly regarding
Access Deficit Charges as well as refusing to permit new
entrants to operate international long distance services using
their own facilities in the near term.

    Utilities Procurement:  The UK implemented the EC Utilities
Directive in 1992 by instituting a series of regulations based
on the Directive.  The regulations allow government-owned and
private utilities to favor EC over foreign suppliers.


6.  Export Subsidies Policies

    The Conservative government opposes subsidies as a general
principle, and UK trade-financing mechanisms do not
significantly distort trade.  The Export Credits Guarantee
Department (ECGD), an institution similar to the Export-Import
Bank of the United States, was partially privatized in 1991.

    Although much of ECGD's business is conducted at market
rates of interest, it does provide some concessional lending in
cooperation with the Overseas Development Administration (ODA,
the British equivalent of our own Agency for International
Development) for projects in developing countries. 
Occasionally the United States objects to financing offered for
specific projects.

    The UK's development assistance (aid) program also has
certain "tied aid" characteristics.  To minimize the distortive
effects of such programs, particularly when used in conjunction
with ECGD-type credits through the Aid and Trade Provision
(ATP), the United States negotiated the 1987 "Arrangements on
Officially Supported Export Credits" with the UK and other
developed countries.  It appears that Britain has adhered to
the Arrangement.


7.  Protection of U. S. Intellectual Property

    UK intellectual property laws are strict, comprehensive and
rigorously enforced.  The UK is a signatory to all relevant
international conventions, including the Convention
Establishing the World Intellectual Property Organization
(WIPO), the Paris Convention for the Protection of Industrial
Property, the Berne Convention for the Protection of Literary
and Artistic Works, the Patent Cooperation Treaty, the Geneva
Phonograms Convention and the Universal Copyright Convention.

    New copyright legislation simplified the British process
and permitted the UK to join the most recent text of the Berne
Convention.  The United Kingdom's positions in international
fora are very similar to the U.S. positions. 


8.  Worker Rights

    a.  Right of Association

    Unionization of the work force in Britain is prohibited
only in the armed forces, public sector security services, and
police force.

    b.  Right to Organize and Bargain Collectively

    Over 10 million workers, about 38 percent of the work
force, are organized.  Employers are not legally required to
bargain with union representatives.  However, they are legally
barred from discriminating based on union membership (except in
the armed forces, police force, or security services where
union membership is prohibited).  The 1993 Trade Union Reform
and Employment Rights Act limited that prohibition under
certain special circumstances in matters short of dismissal.

    The 1990 Employment Act made unions responsible for
members' industrial actions, including unofficial strikes,
unless union officials repudiate the action in writing. 
Unofficial strikers can be legally dismissed, and voluntary
work stoppage is considered a breach of contract.

    During the 1980s, Parliament eliminated immunity from
prosecution in secondary strikes and in actions with suspected
political motivations.  Actions against subsidiaries of
companies engaged in bargaining disputes are banned if the
subsidiary is not the employer of record.  Unions encouraging
such actions are subject to fines and seizure of their assets. 
Many unions claim that workers are not protected from employer
secondary action such as work transfers within the corporate
structure.

    c.  Prohibition of Forced or Compulsory Labor

    Forced or compulsory labor is unknown in the UK.

    d.  Minimum Age for Employment of Children

    Children under the age of 16 may work in an industrial
enterprise only as part of an educational course.  Local
education authorities can limit employment of children under 16
years old if working will interfere with a child's education.

    e.  Acceptable Conditions of Work

    With the exception of wages in agriculture, the setting of
minimum wages in the UK was abolished by the Trade Union Reform
and Employment Rights Act of 1993.  Daily and weekly working
hours are not limited by law.

    Hazardous working conditions are banned by the Health and
Safety at Work Act of 1974.  A health and safety commission
submits regulatory proposals, appoints investigatory
committees, does research and trains workers.  The Health and
Safety Executive (HSE) enforces health and safety regulations
and may initiate criminal proceedings.  This system is
efficient and fully involves workers' representatives. 

    f.  Rights in Sectors with U.S. Investment

    All U.S. corporations operating within the UK are obliged
to obey legislation relating to worker rights.






  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                                             13,802
Total Manufacturing                                   22,855
  Food & Kindred Products                   2,314
  Chemicals and Allied Products             3,722
  Metals, Primary & Fabricated              1,591
  Machinery, except Electrical              4,265
  Electric & Electronic Equipment           2,247
  Transportation Equipment                  1,906
  Other Manufacturing                       6,810
Wholesale Trade                                        4,408
Banking                                                4,122
Finance/Insurance/Real Estate                         44,401
Services                                               4,447
Other Industries                                       2,396
TOTAL ALL INDUSTRIES                                  96,430   

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

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