III.  ECONOMIC TRENDS AND OUTLOOK:

Macroeconomic outlook:

The Belgian economy performed poorly in 1993.  Real GDP declined by 1.3
percent, the worst figure since World War II.  Among EU member states,
only Germany, Belgium's most important trading partner, had a worst
recession.  Belgium, with its small open economy, is very vulnerable to
declines in economic activity in Germany, France and the Netherlands,
which together account for more than 55 percent of Belgium's exports.
Belgian unemployment currently stands at almost 10 percent of the
workforce (by EU and OECD standardized definitions), an increase of more
than 15 percent in one year.  The country's competitiveness also
deteriorated in 1993.  Per capita wage costs increased by 4.2 percent,
against 3.6 percent for the country's seven most important trading
partners.  Exchange rate fluctuations did not influence this evolution
very much, since the BF's depreciation against the Dollar and the Yen was
matched by its appreciation vis a vis the Italian Lira and the British
Pound Sterling.  The loss in competitiveness was one of the arguments used
by the Belgian government to pass the Global Austerity Plan described
below.

Due to delays caused by the recent harmonization of EU trade statistics,
only partial trade figures are available for 1993.  During the first
quarter of 1993, Belgium exported goods worth BF 800 billion (current
BF/dollar rate equals about 34.5) to other EU member states, and imported
BF 743 billion from them.  In the same period in 1992, these figures were
BF 804 and BF 772 billion, respectively.  The most marked difference for
1993 occurred in the trade with non-EU members, with an export increase of
almost 7.8 percent against an import decline of more than 13 percent
during the first half of the year.  However, more than 50 percent of the
export increase was due to the export of diamonds, largely because of the
higher dollar rate and increased world market demand.

In 1993, the Belgium Luxembourg Economic Union (BLEU) ran a current
account surplus of BF 350 billion, or 4.8 percent of GDP.  According to
the National Bank of Belgium (NBB), however, 45 percent of that surplus
was generated by the financial services sector in Luxembourg.  The NBB has
not yet published capital account figures for 1993.  The figures will
probably confirm that Belgium's foreign-denominated debt increased
significantly in the wake of the ERM/BF currency crisis of the summer and
fall of 1993.

For 1994, the extent of economic recovery in Belgium will depend in large
part on economic results in neighboring countries, as well as the degree
of Belgian monetary and fiscal tightness.  At the start of 1994, Belgian
economic growth forecasts varied between 0.5 and 1 percent net.  Since
then, growing stocks, rising interim labor and improving business
confidence have caused these projections to be revised to between 1 and
1.5 percent net growth for 1994.  Most of the growth impetus will come
from exports, and to a lesser extent higher consumer confidence.
Unemployment will continue to go up, however, and several government
measures will put a ceiling on disposable income for this year.  For 1995
however, declining unemployment coupled to a reduction in the savings
ratio will in all likelihood bring net GDP growth to a level around 2
percent.

Budgetary Problems:

When the present coalition government under Prime Minister Dehaene came to
power in March 1992, it set three budgetary targets.  First, federal
expenditures net of debt payments should not grow faster than the
inflation rate.  Second, the growth rate of fiscal revenues should at
least match the growth rate of real GDP.  Third, the deficit in the social
security budget should be eliminated.  The government has managed to meet
the two first criteria, but has not yet balanced the social security
budget, mainly due to substantial cost overruns in health insurance and
unemployment benefits.  In 1993, the Government of Belgium's (GOB) public
sector budget deficit equaled 7.2 percent of GDP, up 0.3 percent from the
1992 level.  According to the government's own convergence plan for
possible membership in the European Economic and Monetary Union (EMU), the
1993 target was 5.8 percent.

In conjunction with the fiscal performance by the federal government, the
regional governments in Flanders, Wallonia and Brussels generally have not
met the expenditure targets put forward by the High Council for Finances,
a Treasury advisory body.  As a consequence, the regions caused the
overall public sector budget deficit to grow by at least 1.5 percent of
GDP in 1993.

Despite weak fiscal results to date, the Belgian government since March
1992 has implemented budgetary austerity measures worth more than BF 500
billion, or about 6.6 percent of GDP.  Even though 75 percent of these
measures were revenue increases rather than expenditure cuts, they had the
advantage of being mostly structural in nature, as opposed to one- time
measures.  As a consequence, the GOB still projects compliance with the
three percent of GDP annual budget deficit target in 1996, one of the
Maastricht Treaty requirements for possible full EMU membership.  Since
the GOB has virtually no chance of reaching in this decade the 60 percent
of GDP public debt target under the Maastricht Treaty, the Belgian public
sector must come close to the annual deficit target to attain a derogation
on the debt target.  Budget control figures released in March this year
suggest that federal finances as well as social security expenditures for
1994 are doing much better than originally forecasted, probably due to the
structural effects of earlier budget measures.

However, the higher-than-expected budget deficit for 1993 caused the
Belgian net public sector debt to rise from 122 to 127 percent of GDP
during the year, the worst figure in the OECD.  If the net debt is not
reduced, interest payments on the debt - currently more than 41 percent of
federal expenditures - can crowd out other budget outlays.

Global Plan:

Having failed to reach an agreement earlier in the year on sufficient cuts
to balance the social security system (which includes retirement,
unemployment and health benefits), the Belgian government in July 1993
tasked a special commission to draft a Global Plan aimed at bringing the
off-budget social security system in balance, as well as to improve
international labor market competitiveness and employment.  Problems in
social security system include the lack of an adequate capitalization
system (i.e., no pension reserves, and retirees are paid from withholdings
of current salaries), very high employer contributions, overconsumption in
the health care system and unemployment entitlements for indefinite
periods.

After the Special Commission report was released in mid-October, employers
and trade unions found fault in its findings and broke off traditional
tripartite wage/social benefits negotiations with the Government.  The
government eventually had to draft and implement its own version of the
Global Plan.  Even though the final Global Plan was less severe than the
original special commission proposal, it generated considerable
opposition, including general strikes.

The final Global Plan tries mainly to reduce the structural deficit of
social security substantially.  Overall, to help balance the social
security budget by 1996, the Global Plan cuts social transfers and
pensions by BF 69.4 billion totally, raises direct contributions by BF 12
billion annually, and increases indirect taxes on capital income.  To
combat Belgium's loss of international competitiveness, the Global Plan
also includes a real wage freeze for the period 1995-1996, as well as a
permanent slowdown of the automatic wage indexation mechanism through the
introduction of a revised index that does not include all items in the
normal index.

Hiring and firing rigidities have impeded employment.  To provide more
flexibility, the Global Plan reduces employers' social security
contributions for low skilled workers.  Other exemptions on social
security contributions will be granted to promote the hiring of young
workers.  Also, the GOB intends to create a specific employment contract
for people with less than six months experience in the labor market.  At
90 percent of the usual salary, the contract will also include easier
separation procedures.  Other employment incentives included limited
contract periods, and negotiation of severance payments before hiring.

Monetary Policy in Turmoil:

Belgian monetary policy basically shadows German interest rates as closely
as possible in order to keep the BF close to a central parity with the
Mark.  In June 1990, the National Bank of Belgium (NBB) decided to keep
the BF within a plus or minus 0.3 percent band around the central parity
of the DM, a much narrower band than what the European Exchange Rate
Mechanism (ERM) required.  That policy proved successful during the next
three years; Belgian inflation ranked among the lowest in the EU, and
renewed credibility of the BF allowed the GOB to finance its debt at good
rates.  As part of the near collapse of the entire ERM on July 30, 1993,
this "strong franc" policy came under serious attack both before and after
the widening of the ERM fluctuation bands on August 2, 1993.  Despite the
NBB's intention to bring the BF back within the narrow ERM band as soon as
possible, markets began to focus more on Belgium's imbalances (mainly the
widening budget deficit gap, the huge public debt and the depth of the
recession).  Serious pressures developed against the BF in the summer and
fall of 1993.  Consequently, the NBB and GOB used high short-term interest
rates, jawboning and currency market interventions to support the BF.

After the franc slipped by about seven percent against the central parity
rate with the Mark, several factors came to its rescue, apart from high
interest rates and currency market intervention.  The Bundesbank lowered
its key interest rates at the end of October, relieving the pressure in
the ERM.  The ensuing appreciation of the dollar against the DM further
eased the pressure on the BF.  Following the announcement of the Global
Plan in November, the NBB lowered its interest rates by more than 100
basis points within two weeks.  Through the combination of the above
factors, the BF by the end of 1993 had returned close to the central
parity with the Mark, and has stayed there since then, despite gradual
short-term interest rate cuts.

Privatization:

Unlike many European governments, Belgium never nationalized much of its
economy in the post World War II period.  Thus, state firms account for
only a small percentage of economic activity.  Nonetheless, the GOB
decided in 1992 to privatize several public sector entities, perhaps more
to raise money to close the budget deficit gap than to improve economic
efficiency.  Initially, the coalition partners intended to raise BF 60
billion through full or partial privatizations in the 1993-1996 period.
With the worsening budget situation due to the recession, budget planners
raised the minimum target for the 1993-1996 period for privatization
receipts to BF 85 billion.  In 1993, the GOB sold most of the public
sector bank ASLK/CGER to the Dutch-Belgian insurance group Fortis for BF
35 billion.  In 1994, the government decided to seek another BF 10 billion
from privatization, meaning that the government expects to raise BF 67
billion (dols 2.1 billion) in 1994.  To do so, the government has already
raised BF 15 billion from the sale of the national investment company
(particularly the portion known as Distrigaz) to Tractebel, the giant
utility holding company.  In addition, the government plans to raise BF 12
billion from the sale of the Belgian Embassy in Tokyo, some BF 5 billion
from the sale of two public sector banks, BF 5 billion from a monopoly
rent due from the national lottery, and the remaining BF 20 billion from
the stock market placement of 24 percent of the monopoly GSM cellular
service.  Given the difficulty of some of these privatization,
particularly the stock offer of the cellular service before yearend,
combined with uncertainty over the future of the telephone company, it
appears unlikely that the government will meet its privatization goals by
the end of 1994.  Because of fairly optimist revenue projections, this
should not cause the government any severe financial problems, and the
proposed privatizations should move ahead in 1995.  By far the largest and
most interesting privatization still to be decided would involve partial
or total privatization of all of Belgacom, the state telecommunications
firm.  The GOB recently announced general principles for privatization of
the firm over the next few years.  Driven by increasing liberalization
requirements set by the EU commission, as well as international
technological competition/progress, Belgacom wants to modernize its
operations.

The Belgian Labor Force:

Belgian workers are highly unionized (63 percent of the work force),
highly productive, and usually enjoy high salaries.  At the same time, in
recent years the unemployment rate as measured according to the EU's
definition has approached 9-10 percent.  High wage levels and high levels
of unemployment can coexist because most of Belgium's long-term unemployed
are virtually unemployable without major retraining---their overall
educational level is significantly lower than that of the general
population.  At the same time, a shortage exists for workers with training
in computer hardware and software, automation and marketing.  The
resulting bottlenecks cause wage pressures.

The Belgian comprehensive and individual social security package is
composed of five major elements:  family allowance, unemployment
insurance, retirement, medical benefits and a sick leave program which
guarantees salary in event of illness.  Currently, employer payments to
the social security system stand at 35.02 percent, while employee
contributions comprise 13.07 percent.  In addition, many private companies
offer supplemental programs of medical benefits and retirement.

Belgian labor unions, while maintaining a national superstructure, are, in
effect, divided along French and Dutch linguistic lines.  The two main
confederations, the Confederation of Christian Unions and the General
Labor Federation of Belgium, maintain close relationships with the
Christian Democratic and Socialist political parties, respectively.  They
exert a strong influence in the country---politically, socially and
industrially.  A national bargaining process covers inter-professional
agreements, which the trade union confederations negotiate biennially with
the government and the employers' associations.  In addition to these
negotiations, or occasionally after the failure of talks, the unions
negotiate further agreements within the various industrial sectors.

Foreign firms, which generally pay well, usually have harmonious labor
relations.  Nonetheless, problems can occur, particularly in connection
with the shutting down or restructuring of operations.  Many strikes are
one-day symbolic actions, but longer industrial actions have occurred.

Firing a Belgian employee can be extremely expensive.  An employee may be
dismissed immediately for cause, such as embezzlement or other illegal
activity.  But when a reduction in force occurs, the procedure is far more
complicated.  For white collar workers, the minimum standard is three
months notice or severance pay, or a combination of the two, for each
five-year period or fraction thereof for which the employee has worked for
the company.  In the case of blue collar workers, the minimum is two weeks
notice or the wage equivalent.  As part of the government's attempt to
improve Belgian competitiveness, employers can now negotiate severance
packages with more highly-paid workers at the time of hiring.  These
negotiated packages can be significantly less than those which existed
until this change in the law.  In addition, employers can now hire
temporary workers for up to three years on one-year renewable contracts
without obligation of severance pay.  After three one-year contracts, the
employee is considered a permanent employee entitled to severance pay.
These two steps have added a much-needed degree of flexibility to Belgian
labor practice.

In those instances where the employer and employee cannot agree on the
amount of severance pay or indemnity, the case is referred to the courts
for a decision.  To avoid these complications, firms should provide for a
"trial period" in any employer-employee contract.

Business in Belgium has benefitted from a long period of social peace.
However, as discussed above, Belgium's international competitiveness has
been negatively affected in recent years by high government expenditures
and an extremely high level of public debt.  Belgium has been particularly
hurt by the current generalized European recession, and has experienced
unemployment rates of over 14 percent.  While the government in 1993 did
adopt austerity measures over the opposition of labor, it will be
politically difficult for any Belgium coalition government to reach
consensus on further cuts in the generous social security system - cuts
which are needed if Belgium is to meet the Maastricht targets necessary to
join a common monetary union by 1997.

Trade and Investment Barriers:

Belgium maintains an excellent trade and investment climate for U.S.
companies.  Overall, government leaders at all levels are very supportive
of open trade and investment.  That does not, however, always translate
into a commercial environment easy for U.S. companies to understand or
operate in, and American companies do sometimes encounter trade or
investment problems.  Those problems often result from the Belgian
penchant to compromise and avoid confrontation.  They also sometimes
result from the unclear division of responsibilities among local,
regional, and federal authorities.  This lack of clear responsibility can
lead to bureaucratic delays and inaction.  It can also lead to
inconsistent legislation and implementation.

Major trade barriers

1) Telecommunications

The Belgian telecommunications market, with its state monopoly of the
basic telephony network, is more open in theory than in practice to
foreign suppliers of equipment.  Fortunately, EU liberalization is
gradually breaking down these barriers, as is the rapid pace of
technological advances.

2)  Ecotaxes

The Belgian government has passed a series of ecotaxes, in order to
redirect consumer buying patterns away from environmentally damaging
materials (as defined by the green parties, which supported the government
coalition's efforts to revise the constitution and create a federal
state.)  These taxes will possibly raise costs for U.S. exporters, as U.S.
companies selling into the Belgian market adapt to the phased-in
implementation of these taxes.

3)  Intellectual property protection

Current Belgian copyright law provides insufficient penalties for
copyright infringement.  An estimated 25 percent of Belgium's video
cassette and compact disc markets are composed of pirated cassettes.
Protection of IPR in Belgium is of particular concern to the Motion
Picture Export Association of America, including possible implementation
of a "blank tape levy" that would discriminate against U.S. producers.
The revision of the antiquated copyright law is nearly completed and will
mitigate to some extent some of the problems which currently exist.
However, the reciprocity provisions of the "blank tape levy" will be part
of the new law.

4)  Government procurement of goods and services

The EU has adopted several directives covering public supplies and public
works, as well as the sectors of energy, water, telecommunications, and
transport (the so-called "utilities" or "excluded sectors" directive).
However, Belgium's implementation of these directives has been slow and
incomplete.  Belgian public procurement is still characterized by
-poor public notification and procedural enforcement;
-requirements of offsets in military procurement;
-an unofficial "buy local" policy; and
-nontransparency throughout the procurement process.
Since early in 1994, the government has implemented a new law on
government procurement to bring Belgian legislation into conformity with
European Union directives.  The revision has incorporated some of the
onerous provisions of EU legislation, while improving certain aspects of
government procurement at the various governmental levels in Belgium.  The
new law can only be evaluated over time and its benefits will be heavily
influenced by the way it is interpreted and implemented in Belgium.

5)  Belgian subsidies to Airbus participants

Since the inception of the Airbus project in Europe, Belgian companies
have participated as subcontractors to the main German and French
producers of the aircraft.  In the past, Belgian public production
supports for Airbus contractors have included subsidies for both recurring
and non-recurring costs.  Cash advances were halted in 1991, though
support continues today in the form of a guaranteed exchange rate designed
to compensate Belgian contractors for the decline in the dollar/BF rate.
The precise level of the subsidy depends on the equipment being supplied,
the Airbus aircraft type, and the degree of Belgian federal and regional
government participation.  Between 1978 and 1991, Belgian federal and
regional authorities contributed an estimated usdols 167 million to
Belgian Airbus component manufacturers participating in the Belairbus
consortium. In the period 1992-1998, Belgian governments have pledged
usdols 392 million in total support.  While federal supports are scheduled
to end, regional government subsidies are likely to continue and even rise
in the future, despite federal government commitments to control them.

6)  Cattle growth hormone ban

The EU bans imports of U.S. hormone-treated beef and all high-value
products containing hormone-treated meat.  This has led to the loss of
U.S. agricultural sales in member states of the EU.

Major investment barriers

1)  Regionalization

The devolution of various central government powers to the three regions
of Belgium is accelerating.  The regions already have considerable
influence over educational and environmental matters and control most of
the subsidies and investment incentives given to both domestic and foreign
business.  At some point, it is likely that the regions will press for
taxing authority to raise revenues, in order to meet their added
responsibilities.  We are beginning to see inconsistent enforcement of
environment regulations among the regions, which may lead to a less
favorable investment climate for U.S. business in some parts of the
country.

2)  Changing the investment climate

The Belgian government is going through a severe budgetary crisis, which
will last for several years.  Consequently, the government is looking for
new sources of revenue and for places to cut expenditures.  As the
government looks for new budgetary savings and revenue, we expect U.S.
companies, such as coordination centers, with their favorable fiscal
regimes, and pharmaceutical companies which are now subject to a year-long
price freeze to hold down public health care costs, to be the target of
more budgetary activity.  Changing the regime for long-time investors will
reduce the attractiveness of Belgium as a site for american investment.

3)  Opening the retail service sector to U.S. firms

During 1993 and 1994, the large U.S. retail chain, Toys R Us, has had
considerable difficulty in obtaining permits to open two outlets in
Belgium.  Current legislation is designed to protect the small shopkeeper
in Belgium and has a decidedly nontransparent and protectionist bent.
While Belgian retailers also suffer from the same restrictions, their
existing sites give them strong market share and power in local markets.
Toys R Us officials want to continue to open outlets in Belgium and are
concerned that strict enforcement of the retail law will prevent it from
doing so.