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1 of 148 U.S. Department of State FY 2001 Country Commercial Guide: Italy The Country Commercial Guide for Italy was prepared by U.S. Embassy Rome and released by the Bureau of Economic and Business in July 2000 for Fiscal Year 2001. International Copyright, U.S. & Foreign Commercial Service and the U.S. Department of State, 2000. All rights reserved outside the United States. TABLE OF CONTENTS I. EXECUTIVE SUMMARY II. ECONOMIC TRENDS AND OUTLOOK Major Trends and Outlook Economic Trends for Agriculture Principal Growth Sectors Government Role in the Economy Balance of Payments Situation Infrastructure III. POLITICAL ENVIRONMENT Nature of Political Relationship with the United States Major Political Issues Affecting Business Climate Brief Synopsis of Political System / Major Political Parties Political Environment for Agriculture IV. MARKETING U.S. PRODUCTS AND SERVICES Distribution and Sales Channels Use of Agents/Distributors; Finding a Partner Franchising 2 of 148 Direct Marketing Leasing Joint Ventures / Licensing Steps to Establishing an Office Advertising and Trade Promotion Pricing Product Selling Techniques / Service / Customer Support Selling to the Government Need for a Local Attorney Performing Due Diligence Marketing U.S. Agricultural Products and Services V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT Best Prospects for Non-Agricultural Goods and Services Best Prospects for Agricultural Products Significant Investment Opportunities VI. TRADE REGULATIONS, CUSTOMS AND STANDARDS Trade Barriers Customs Regulations/Tariff Rates/Import License Requirements Value-Added Taxes Temporary Goods Entry Requirements Special Import/Export Requirements and Certifications Labeling Requirements Prohibited Imports Warranty and Non-warranty Repairs Export Controls Standards Free Trade Zones/Warehouses Membership in Free Trade Arrangements Customs Contact Information Trade Regulations and Standards for Agriculture VII. INVESTMENT CLIMATE STATEMENT Openness to Foreign Investment Right to Private Ownership and Establishment Protection of Property Rights 3 of 148 Adequacy of Laws and Regulation Governing Commercial Transactions Foreign Trade Zones / Free Ports Major Taxation Issues Affecting U.S. Business Performance Requirements / Incentives Transparency of the Regulatory System Corruption Labor Efficiency of Capital Markets and Portfolio Investment Conversion and Transfer Policies Expropriation and Compensation Dispute Settlements Political Violence Bilateral Investment Agreements OPIC and Other Investment Insurance Programs Capital Outflow Policy Major Foreign Investors Host Country Contact Information for Investment-related Inquiries VIII. TRADE AND PROJECT FINANCING Description of Banking System Foreign Exchange Controls Affecting Trade General Availability of Financing How to Finance Exports / Methods of Payment Export Financing and Insurance Availability of Project Financing List of Banks with Correspondent U.S. Banking Arrangements IX. BUSINESS TRAVEL Business Customs Travel Advisory and Visas Workweek Holidays Business Infrastructure Temporary Entry of Goods 4 of 148 X. ECONOMIC AND TRADE STATISTICS Appendix A: The Domestic Economy Appendix B: Trade Statistics Appendix C: Investment Statistics XI. US AND COUNTRY CONTACTS XII. MARKET RESEARCH XII. TRADE EVENT SCHEDULE I. EXECUTIVE SUMMARY This Country Commercial Guide (CCG) presents a comprehensive look at Italy's commercial environment, using economic, political and market analysis. The CCGs were established by recommendation of the Trade Promotion Coordinating Committee (TPCC), a multi-agency task force, to consolidate various reporting documents prepared for the U.S. business community. Country Commercial Guides are prepared annually at U.S. embassies through the combined efforts of several U.S. government agencies. Italy, with world's sixth largest industrial economy, remains in the midst of a process of political and economic transformation. The Italian government continues on a path of budget austerity and privatization, reducing its significant role in the economy. As this rationalization of the economy moves forward, Italy should offer even more opportunities for U.S. firms, both as a destination for exports and a point for investment. Italy is the slowest growing country among the 11 founding members of the European Economic and Monetary Union (EMU) and is likely to remain so through 2000. This reflects the substantial fiscal tightening and restrictive monetary policy needed to get into the EMU and structural impediments that discourage investment and job creation. Italy’s real GDP grew 1.4 percent in 1999, significantly less that the 2.9 percent growth in the Euro-11 area and the 2.2 percent of all industrialized economies. Domestic demand remained the dominant factor in GDP growth, while the contribution of net exports was negative. Most economic forecasters expect GDP growth to accelerate in 2000 to 2.8% and slightly below 3 percent in 2001. 5 of 148 Exports decreased slightly while imports grew, with the result that the trade surplus of $20.4 billion in 1999 (1.7% of GDP) was over 40 percent smaller than the 1998 surplus balance of $36.3 billion (3.1% of GDP). A modest surplus of 0.3% of GDP is forecast for 2000. This is the result of the weakness of the euro and high oil and raw material prices and their impact on import prices. Through 1999 Italy reduced foreign exchange reserves to $40.8 billion, down from the level at end 1998 ($54.8 billion). On inflation, Italy is now firmly within norms specified for Economic and Monetary Union, a major achievement for this historically inflation-prone country. Though still relatively high by European standards, consumer inflation stood around two percent in 1997, 1998 and 1999. Due to the increase of oil prices and to the strengthening of the dollar vis-à-vis the euro consumer inflation is expected to accelerate 2.4 percent in 2000. The 1992 and 1993 agreements on wage adjustments, which have helped keep wage pressures on inflation low, have been renewed by December 1998 and will be effective through 2002. Besides guidelines for wage negotiations, the new pact cuts some labor costs and includes incentives from investment and worker training. The key economic challenges facing Italy are keeping the government deficit under control, continuing efforts to reduce the high level of government debt, reducing unemployment, addressing structural rigidities of the Italian market and improving public administration. The Italian market is mature and highly competitive, demanding high quality products and services. The market is very open to U.S. items, particularly innovative and niche market products, services and technologies. European Union (EU) changes to the Common Agricultural Policy (CAP) and Italy's implementation of EU harmonized phytosanitary and sanitary regulations should offer fresh opportunities for U.S. agricultural exports. For example, the continued move toward a fully integrated single European market should aid U.S. high value, convenience, and health food products. The realignment of the distribution sector toward larger chains and more competitive pricing should also aid U.S. exports. Italy’s participation in the “euro” will simplify trade for those companies exporting to several EU countries. It also creates opportunities for U.S. companies with technologies and services that can assist Italian firms compete in the more integrated European market. However, these changes also will benefit European competitors who are increasing their presence in the Italian market through mergers and joint ventures with Italian firms. U.S. companies, already well known for innovation, will have to continue to emphasize the quality of their products as well as focus on price and service to maintain or develop their market share. The U.S. exporter also should be aware that to be successful in Italy they need to establish linkages with Italian representatives or partners and be flexible in their approach to this market. 6 of 148 II. ECONOMIC TRENDS AND OUTLOOK MAJOR TRENDS AND OUTLOOK Italy is the slowest growing country among the 11 founding members of the European Economic and Monetary Union (EMU) and is likely to remain so through 2000. This reflects the substantial fiscal tightening and restrictive monetary policy needed to get into the EMU and structural impediments that discourage investment and job creation. Italy’s real GDP grew 1.4 percent in 1999, significantly less that the 2.9 percent growth in the Euro-11 area and the 2.2 percent of all industrialized economies. Domestic demand remained the dominant factor in GDP growth, while the contribution of net exports was negative. Most economic forecasters expect GDP growth to accelerate in 2000 to 2.8% and slightly below 3 percent in 2001. Exports decreased slightly while imports grew, with the result that the trade surplus of $20.4 billion in 1999 (1.7% of GDP) was over 40 percent smaller than the 1998 surplus balance of $36.3 billion (3.1% of GDP). A modest surplus of 0.3% of GDP is forecast for 2000. This is the result of the weakness of the euro and high oil and raw material prices and their impact on import prices. Through 1999 Italy reduced foreign exchange reserves to $40.8 billion, down from the level at end 1998 ($54.8 billion). On inflation, Italy is now firmly within norms specified for Economic and Monetary Union, a major achievement for this historically inflation-prone country. Though still relatively high by European standards, consumer inflation stood