Portugal Has Easier Time : Spain Finds Going Rough in Common Market

Spain has had a more difficult time than neighboring Portugal in adapting to the European Common Market, which both joined little more than a year ago.

Most analysts agree this is because Spain has a larger population and economy than Portugal and because Portugal’s entry was never seriously challenged by the other 10 members of what is formally called the European Economic Community.

“Spain did not enter the community, but the community has made a massive entry into Spain,” maintains Alfredo Molina, head of a regional businessmen’s association in Spain’s Catalonia region.

In the first 10 months of last year, imports to Spain from Common Market countries were up 30% over 1985 as importers took advantage of the first of seven annual tariff reductions that amounted to 10%.

Exports, mainly automobiles, chemicals and agricultural products, increased only 5%.

Jose Maria Cuevas, head of the Spanish businessmen’s confederation CEOE, said Spain’s $1.16-billion trade deficit with the Common Market was “absolutely disheartening.”

But Pedro Solbes, Spain’s secretary of state for relations with the Common Market, said the increased imports “show that Spanish industry is more competitive because it is importing more new equipment.”

On the whole, Portugal, with a population of 10 million, has had an easier time, partly because as the poorest of the 12 member countries, it has been a net beneficiary of Common Market credits.

In 1987, Portugal will receive $737 million in credits compared to the $250 million it is expected to pay into the community’s common fund.

Spain, with a population of 38.9 million and an economy much less developed than those of its northern neighbors, has a considerably higher obligation to the common fund.

Special Aid for Portugal

But at the end of the year, the Ministry of Economy said Spain ended up receiving $101 million more in Common Market funds than it paid out in contributions.

Receipts totaled $799 million, while payments amounted to $698 million.

Portuguese negotiators managed during the first year of membership to have the community’s Council of Ministers agree to a separate special aid fund to Portuguese industry to help it face growing competition from Common Market imports.

The Common Market has also agreed to provide Portugal with $1 billion to offset Common Market tariffs on imported U.S. grain.

Spanish dairy farmers, on the other hand, will be obliged to cut back milk production by 8.5% this year and next because of the surpluses of butter and cheese in Denmark, the Netherlands and France--even though Spain has no surplus of dairy products.

Government figures indicate that Portugal’s inflation rate fell to 12% last year from 19% in 1985 and is expected to go down to 8 or 9% this year.

Prime Minister Anibal Cavaco Silva is predicting a 4% growth rate this year, which would be the highest in Europe.

In Spain inflation was 8.1% in 1985, rising to 9% last year. Economy officials hope to reduce it to 5% this year. The 1986 growth rate was 3% with an expected rise this year to 3.5%.

While Spanish businessmen fret over increased competition after years of high protective tariffs, foreign investors have flocked to Spain during its first year as a Common Market member.

Official figures indicate foreign investment totaled $4 billion for the first 10 months of last year, triple what it was in 1985.

Both countries have had to struggle with the mysteries of the Common Market’s value-added tax. But through the tax, which is added on nearly all finished goods and services, fiscal authorities have been able to tap revenue sources in societies where shorthanding the tax collector is widespread.

Spanish businessmen are also calling on the government of Prime Minister Felipe Gonzalez to lower the amount they are required to pay into employees’ social security benefits and to ease restrictions on dismissing workers, in line with practices in other Common Market countries.