I. COMMERCIAL OVERVIEW The Country Commercial Guide (CCG) is a basic document prepared by the mission for the benefit of American business to help them define their commercial plans in Spain. It addresses some of the commonly asked questions during a typical commercial counseling session. It blends the efforts of several sections of the U.S. Embassy in Spain, such as Foreign Commercial Service, Foreign Agricultural Service, Economic and Political Sections, U.S. Information Service, the Consular Section and the Office of Defense Cooperation. Overview of Import Market After two years of recession, the Spanish economy seems to be undergoing a slow export-led recovery. After a one-percent decline in 1993, GDP should increase just over one percent this year according to the latest OECD estimates. A higher economic growth is forecast for 1995. Low consumer consumption decreased demand for imports which allowed a much needed reduction of trade deficit which had skyrocketed during the 1980's. This was supported by the 1992/93 devaluations of the peseta by almost 40 percent against the dollar. Export growth has been strong in late 1993 and the first quarter of 1994; it is linked to the incipient recovery in the economies of Spain's largest trading partners and an increased competitiveness of Spanish products. Brief Synopsis of Commercial Environment The Spanish market is a series of regional markets joined to two major hubs--Madrid and Barcelona. Most of the economic power blocks of the country operate out of these two hubs. Dealers, branch offices, or government offices located outside of these two hubs almost invariably obtain their supplies from their Madrid and Barcelona contacts rather than engage in direct importation. The key to a foreign firm's sales success in Spain is to appoint a competent agent or distributor or to establish an effective subsidiary in either of these locations or in their zones of influence. Host Country Business Attitude Spain and the United States enjoy an excellent bilateral relationship suitable to close allies and industrial democracies. The governments cooperate closely on a broad range of issues and are allies in the North Atlantic Treaty Organization (NATO). Spain is also a member of the United Nations and all its specialized bodies (World Bank, International Monetary Fund, GATT, ILO, etc.), UNCTAD , European Council, Asian Bank for Development, OECD, African Development Bank, European Reconstruction and Development Bank, and Inter-American Development Bank, etc. Since January 1, 1986, Spain has been a member of the European Union. In general, Spaniards have a positive attitude towards American products and services, from blue jeans to computers. Specifically, U.S. technology is highly regarded by the Spanish business community. American computer software and hardware is very popular and demanded by Spanish consumers. Companies such as Microsoft, Borland, IBM, Compacq, Apple, Dell, etc. are leaders in this market. In the telecommunications market AT&T and Motorola are leading companies in their sector. The same applies to the Medical sector and others such as business consulting and auditing, car manufacturing, etc. Companies such as General Motors, Ford, Arthur Andersen, General Electric, etc. are well respected in Spain. Just an example of how popular U.S. products and services are American movies. They have an 80 percent market share of total box office revenues despite severe barriers that limit their screening. Major Business Opportunities In spite of recent economic recession, there are some excellent opportunities for the export of U.S. products and services. As the economy improves, additional opportunities will be created for American suppliers in various sectors. The ten best prospects for U.S. business identified by the Mission are: - Telecommunications Services - Medical Equipment - Pollution Control Equipment - Franchising - Computer Software - Films and Videos - Telecommunications Equipment - Paper and Paperboard - Computer Services - Dental Equipment There is a good potential for U.S. companies in the telecommunications sector. There is a possibility that a new cable-TV law will be approved in the second half of 1994, opening the way for major investments in this sector. A second license for mobile cellular telecommunications will soon be awarded and will open up new opportunities for American exporters of telecommunication equipment and services to form joint ventures. Overall modernization plans in this sector will require US$ 10 billion in the next 10 years. There are also large opportunities to American exporters in Spain's investments in infrastructure projects planned through the year 2,010. These projects amount to US$ 147 billion in new road construction, upgrading railroads, improving port facilities, refurbishing airport facilities, building new drinking water facilities, and to enhance the environment in downgraded areas of Spain. However, some of these projects may be affected by budget constraints as Spain's government in its attempt to reduce the deficit, spreads investments over a longer period of time. Major Roadblocks to Doing Business Spain's Social-Democratic government exercises influence in the economy more through regulation than through direct ownership. In fact, during 1993 the government began partial privatization of several major firms, a process that is expected to continue. Spanish rules on trade and investment are influenced largely by its obligations to European Union. Trade relations with Spain are also affected by bilateral U.S.and EU trade agreements. Outside of agriculture and few other protected sectors, EU trade and investment policies are generally quite open. However, some restrictions remain that affect U.S. companies doing business in Spain. Cumbersome product certification requirements ("homologation") remain for certain computer equipment and telecommunications equipment. These should be phased-out as EU norms for these products are developed. There are also broadcast quotas that American films have to face in order to view their films in Spain. Spanish labor law is inflexible and mandates very high severance payments, discouraging new hiring. Reform legislation passed in 1994 liberalizes old work rules and makes the transfer of workers from one task to another easier. Nonetheless, legislation is still too rigid by Western Standards. Local and Third Country Competition Most of Spain's trade is carried out with European Union members. In 1993, goods from other members of the European Union made up 61.1 percent of total imports. France leads with 17 percent of total imports, while Germany follows closely behind with 15.5 percent of total imports. Italian goods imported into Spain made up 9 percent of total imports. Imports from the U.S. make up 6.7 percent of total imports, while Japanese products have a share of 3.9 percent of total imports. Local competition diminishes in those markets that require high technology. Domestic competition is high in consumer goods such as apparel, footwear and textiles. Local companies are also strong manufacturers of industrial products such as metal-working equipment, automotive products and aerospace parts and pieces. There is also strong competition in the insurance and financial services.