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RR RUEHWEB

DE RUEHBS #0598/01 0541136
ZNR UUUUU ZZH
R 231136Z FEB 07 ZDK
FM AMEMBASSY BRUSSELS
TO RUEHC/SECSTATE WASHDC 4443
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS BRUSSELS 000598 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/OIA, EB/ AND EUR/UBI 
USDOC FOR 3133/USFCS/OIO/EUR 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ENRG BE
SUBJECT:  Investment Climate Improving, Still Work To Do 
 
Ref: (A) BRUSSELS 228 
 
¶1.  Summary.  At a working breakfast on the eve of his 
departure from Belgium, Ambassador Korologos reviewed 
progress and priorities on Belgium's investment climate 
with representatives from the Belgian Employers Federation 
(FEB/VBO), American Chamber of Commerce, and U.S. companies 
from the sectors with which post has worked most closely. 
The group rejoiced that its concerted efforts appear to 
have reaped real progress over the past three years to 
improve the climate for U.S. investment.  For example, the 
GOB has introduced tax incentives, signed an updated 
bilateral tax treaty, and appeared more open to dialogue. 
All of Belgium's political parties, including the 
Socialists, now publicly recognize the need to attract 
foreign and domestic investment to ensure Belgium's future, 
which in itself is a mark of progress.  Ongoing objectives 
remain reducing labor costs and the weight of social 
programs on employers, and fostering innovation and 
entrepreneurship through better private sector-academia- 
public sector cooperation.  The group also highlighted 
challenges related to energy costs and climate change, as 
well as the need to keep economic issues before the voters 
and politicians in the approach to June 10 Belgian federal 
elections.  End summary. 
 
------------------- 
IMPROVING CLIMATE 
------------------- 
¶2.  On February 1, Ambassador Korologos hosted a breakfast 
roundtable of leading business community representatives, 
including executives from the Belgian Employers Federation 
(FEB/VBO), American Chamber of Commerce, and U.S. banking, 
pharmaceutical, express mail, and energy companies. 
Ambassador opened with a review of the progress that had 
been made, noting the introduction of the so-called 
notional interest deduction for companies that use their 
own funds for capital investment in Belgium.  Once 
President Bush and Prime Minister had agreed in early 2006 
that it was a priority, the negotiation and November 2006 
signature of an updated bilateral tax treaty closed out an 
agenda item pending over a decade.  Under steady pressure 
from the Embassy and the business community, the GOB also 
eliminated some of the most egregious tax and regulatory 
burdens such as the "clawback" tax whereby the 
pharmaceutical sector was required to fill in gaps in the 
Belgian Federal health care budget. 
 
¶3.  Business leaders expressed strong appreciation for the 
support they received from Ambassador and Embassy over the 
years, and acknowledged that real progress had been made. 
The fact that political leaders of all stripes and at all 
levels have now begun to voice the need to attract more 
foreign - and domestic - investment to spur job creation 
was a marked success.  AmCham President Leonard Schrank 
called 2006 a good year for U.S. companies in Belgium. 
FEB/VBO President Jean-Claude Daoust noted that while it 
was not easy for Belgium to change as fast as businesses 
would like in order to keep up with globalization, the most 
recent collective bargaining agreement, which in Belgium is 
negotiated trilaterally at a national level by the FEB/VBO, 
the Belgian federal government, and unions, was a step in 
the right direction toward a better consensus among 
Belgians of how to achieve economic growth. 
 
¶4.  A number of U.S. companies talked about their long-term 
plans in Belgium.  Some, including 3M and Pfizer, have 
completed sizable investments in R&D and manufacturing in 
the past year.  While those investments were under 
consideration for some time, the positive recent 
developments helped local managing directors sell their 
viability better to headquarters back in the U.S. 
 
------------ 
WORK TO DO 
------------ 
¶5.  At the invitation of Ambassador, business leaders 
provided their views on where future efforts should be 
focused to make Belgium more business-friendly.  Belgium's 
labor market remains one of Europe's most expensive and 
most rigid, business leaders believe.  FEB/VBO 
representative Thomaes joked that Belgium's economy is like 
a train driving with its brakes on.  Partly from linguistic 
and regional tension, partly from social tradition, labor 
mobility in Belgium is still too low.  The tradition of 
automatic wage increases should be halted, because 
otherwise competitiveness suffers.  Further, the fiscal 
pressure on business due to labor costs and social 
contributions dampens new job creation and investment. 
 
FEB/VBO argued that decreasing the cost of Belgium's public 
sector by 7.5 billion euros should be an objective, even 
though it would require 30,000 civil service positions to 
be eliminated.  Controlling the costs of government 
entitlement programs would be determinative.  A banker said 
the banking sector is also too fat - too many banks, too 
many workers, repetitious services and inefficiencies - 
although the three U.S. banks that still remain (down from 
12 years ago) have found profitable niches.  Better worker 
re-training programs and education to respond to changing 
demand would keep people working longer, give them skills 
businesses need, and reduce wage pressures by increasing 
the supply of talent most sought by industry. 
 
¶6.  While innovation has been a Belgian strength in the 
past in the science and cultural fields, an unpredictable 
tax and regulatory environment and heavy "social charges" 
have limited companies' resources for innovation.  Belgium 
also ranks poorly on EU lists of enterprise formation; few 
young Belgians exhibit entrepreneurial spirit and 
anticipate starting a business.  3M's Managing Director for 
Belgium stressed the need for more collaboration among 
private sector, university researchers, and government; 
good synergy achieved in such contexts elsewhere have 
stimulated innovation, business, jobs, and growth. 
 
¶7.  A third major focus of participants was on energy and 
the challenge of climate change.  They pled for U.S.- 
European cooperation on environmental issues.  As a major 
logistical hub, Belgium is particularly sensitive to the 
soaring costs of transportation ? road, sea, and air. 
Renewal of Belgium's logistical infrastructure to minimize 
costs is essential.  If carbon emissions quotas are not 
divided judiciously, compliance imperatives could well 
dampen economic activity.  Belgium also has to come to 
grips with its own energy policy, FEB/VBO representatives 
emphasized.  The previous intention to phase out of nuclear 
power, which provides 55 percent of the country's needs is 
not viable.  A serious plan for Belgium's energy future 
will give business confidence, and help check electricity 
costs that deter investment. 
 
-------------------------- 
IT'S THE ECONOMY, STUPID 
-------------------------- 
¶8.  Summing up, EconCouns noted that keeping Belgian 
political leaders focused during coming election campaign 
and federal-regional negotiations would be essential.  The 
big questions remain spurring innovation, cultivating labor 
skills, and reforming healthcare to address Belgium's 
demographic challenge.  For both the short-term and long- 
term, educating Belgians about energy needs and options is 
crucial.  The Ambassador thanked the assembled 
representatives and CEOs for their support during his 
tenure in Brussels, and encouraged their continued 
interaction with his successor:  the Embassy-Business 
partnership is key to improving the investment climate. 
 
Imbrie