Spain's growth and modernization create U.S. export opportunities

Business America, Dec 7, 1987 by Christine Sloop

Spain's Growth and Modernization Create U.S. Export Opportunities

In the past 35 years Spain has advanced from a rural society to an industrial power, thanks to steady economic growth. This year the trend is expected to continue, with the growth rate rising from 3.6 percent in 1986 to approximately 4.3 percent in 1987--one of the highest among countries in the European Community (EC). In 1987, growth will be fueled primarily by increased internal demand, expected to grow at a real annual rate of approximately 7 percent.

Foreign investment also is expected to expand and bolster Spain's competitiveness in the EC. Since Spain joined the EC in January 1986, foreign investment has been breaking records. In 1986, total foreign investment in Spain was $10.7 billion; the United States accounted for $2.6 billion, second only to West Germany. Rising profits, improved business confidence, declining interest rates, and growing demand contributed to a 12 percent real increase in investment in 1986. Investment demand is expected to rise 9.5 percent by the end of this year.

The current account is another area in which Spain has a comfortable margin over many of its EC neighbors. Primarily because of receipts from tourism, Spain had a $5 billion current-account surplus in 1986. Thus, Spain has become a creditor nation.

However, inflation may dampen some of the optimism about the Spanish economy. Although inflation is moderating at 6 percent, down from double digits just a few years ago, Spain continues to have a high inflation rate relative to other EC countries. Spanish officials are hoping to keep inflation near 6 percent this year by restraining consumer prices and wages.

The government budget deficit also is worrisome. However, the current Administration has decided to take a moderate approach by increasing tax receipts and continuing government expenditures in projects aimed at restructuring industry and promoting advances in high technology. The government hopes that, by carefully directing public funds to important sectors in the economy, unemployment can be brought under control and income levels can be raised to European standards.

After more than a decade of contraction, employment grew by 2.4 percent in 1986; the unemployment rate dropped slightly to 21.5 percent. Since acceding to the EC, Spain has been trying to bring employment and wages in line with EC norms. In the short term, Spanish economic authorities are expected to continue focusing on wage moderation and monetary restraint while encouraging modernization and growth.

To assist in the modernization process, the Spanish government has liberalized foreign investment regulations, streamlined administrative procedures, and reduced areas where foreign ownership is restricted.

Spain has passed new patent and copyright laws; it now affords protection similar to other EC countries. While the United States applauds progress in these areas, there are still areas of concern in our trade relations.

A key area of concern in our trade relations stems from Spain's implementation of new quantitative restrictions under its new import regime, which could put U.S. products at a distinct disadvantage vis-a-vis their EC competitors. Several hundred million dollars of U.S. exports could be affected, and the U.S. Government has begun discussions with Spain on these restrictions. The United States, favoring free trade, advocates the elimination of Spain's import licensing and quota system.

Despite some problems, the United States has long valued its business relations with Spain. In 1986, American firms supplied 10 percent of Spain's imports, worth $2.6 billion, making us one of Spain's leading suppliers of imported food and manufactured products. On a global basis, Spain is the 21st largest outlet for American products.

Spain imports a full spectrum of products--from energy and primary materials to capital equipment and consumer manufactures. During the first half of 1987, imports of manufactured products increased 22 percent over the same period in 1986. About 60 percent of all imports were manufactured products, namely capital goods.

U.S. products are beginning to benefit from both the Spanish import boom as well as the depreciation of the dollar. U.S. exports of capital goods in the first quarter of 1987 were up 58 percent from 1986. Consumer goods also increased by 45 percent. Last year, leading U.S. exports were soybeans, feed grains, coal, tobacco, EDP equipment, computers and peripherals, electronic components, aircraft, office equipment, and telecommunications products.

Not all is rosy, however. As a result of Spain's entry into the European Community, producers in other EC countries now have duty-free access to the Spanish market. American exporters have to hop over a tariff wall, putting them at a disadvantage. While this can be a significant disadvantage in many industrial areas, in most agricultural areas it poses a barrier that is impossible to cross.