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The US's accomodative business environment is under threat on several fronts. The deteriorating government budget deficit means that corporate tax increases in the future are a serious possibility. The banking sector remains fragile, which weakens the outlook for business lending. Following the nationalisation of automakers, banks and insurers, and a major health care bill signed in March, government involvement in the private sector has increased significantly in the past two years. Despite these challenges, the US still has one the world's best environments in which to conduct business, as exhibited by its score of 78.4 in our business environment ratings, which is among the highest in the world. Furthermore, the US still boasts a vast array of natural resources, productive capacity and labour market flexibility, all of which gives it a significant competitive advantage compared with most developed states.
Latest Developments
In the wake of the BP oil spill, the Obama administration has suffered another setback in its efforts to impose a moratorium on deepwater drilling in the Gulf of Mexico (GoM) but BMI sees continued legal uncertainty preventing deepwater operations from resuming anytime soon. The Fifth Circuit federal court of appeals on July 8 refused to grant a stay of an earlier federal judge's decision to overturn the drilling ban, saying the US Department of Interior (DoI) failed to show that the federal government would suffer 'irreparable injury' if the moratorium were lifted. With the administration likely to issue a new moratorium and companies still uncertain over the legal status of GoM deepwater drilling, however, we see little likelihood of a quick resumption of operations.
The US has allowed more sugar imports from 25 sugar producing nations, according to the US trade representative's office. This comes after the Agriculture Department took a decision to set the sugar import quota at 1.571mn tonnes, up by 272,155 tonnes raw value, in the year ending September 30 2010. The trade representative's office distributed the quota among 25 nations with Brazil securing the largest allocations of 57,166 tonnes, followed by Australia and the Dominican Republic.
The US Food and Drug Administration (FDA) is to implement stronger regulations regarding contract manufacturing in the pharmaceutical industry, placing more responsibility with drugmakers to ensure the purity and safety of products made by contractors. BMI believes this will ultimately improve drug safety and will create savings for drugmakers in the long run. It is our Pharma team's core view that research and development (R&D) and manufacturing outsourcing to low cost bases will accelerate as drugmakers look to contain costs and increase efficiency - further increasing the need for improved regulation.
China has imposed anti-subsidy duties of up to 31.4% on some US chicken products as of April 28 2010. The Chinese Ministry of Commerce announced that the imposition of new tariffs will enable the country to create a level playing field for Chinese companies. The ministry alleged that US chicken producers have been receiving unfair government subsidies which in turn have hurt Chinese firms. The news could adversely affect the ongoing trade dispute between the countries.
The US government has awarded two federal loan guarantees to the solar power sector worth almost US$2bn. The loan guarantees have enabled the government to tackle two major concerns over the US economy simultaneously, boosting energy independence, and job creation.
Table: BMI Business And Operation Risk RatingsInfrastructure RatingInstitutions RatingMarket Orientation RatingBusiness EnvironmentAustriaBelgiumCanadaDenmarkFinlandFranceGermanyGreeceIrelandItalyLuxembourgNetherlandsNorwayPortugalSpainSwedenSwitzerlandUnited KingdomUnited StatesSource: BMI. Scores out of 100, with 100 representing the best score available for each indicator
Institutions
Legal Framework
The US has a strong, sophisticated, well-codified legal system that is considered to be among the world's most business-friendly. Federal laws must be passed by both the US Senate and House of Representatives, then approved by the president. A key point is that each of the 50 states has its own constitution, legislature, governor, and judiciary, and therefore state-level laws can vary widely from state-to-state. As a general rule, state-level laws must be as stringent as federal laws, although additional regulations may be required. The Uniform Commercial Code has been adopted by most states for the purposes of commercial transactions. While this offers many businesses a reasonable standard to look to, the interpretation of the code's provisions can vary from state-to-state, and in some instances, private parties choose to deviate from the Uniform Commercial Code by way of contractual agreement, which is usually respected by courts. In the case of dispute, state-level cases can be brought before the state judiciary. Cases over federal law, or involving intrastate transactions, can be brought to federal courts located throughout the country. The US Supreme Court is the court of last appeal.
Although the US legal system has some drawbacks, including a reputation for frivolous lawsuits, the system itself is considered fair and impartial, and there is little corruption within the judiciary. However, the legal system can be costly to engage in. Arbitration is often considered a reasonable means for solving disputes without going straight into litigation.
Property Rights
Private property rights are enshrined as one of the primary tenets of the US Constitution, and are considered very strong. Firstly, the government does not have the right to seize private property without just compensation. This principle is almost universally adhered to, with some very high-profile exceptions, including a case in Connecticut in which buildings were seized to make way for a high-profile development project. Secondly, private entities' property rights are well-protected against other private entities, with the US judiciary enforcing contracts on a reasonable basis. Generally, foreign owners' rights are considered equal to those of US citizens.
Intellectual Property Rights
As one of the world's creative centres, with a great deal of intellectual property (IP) to protect on a commercial basis, the US has very strong IP protection. On an international basis, the US is a staunch defender of IP protection, and is a signatory to the major conventions. As such, the US has been involved in significant trade disputes with its partners over their perceived failure to enforce IP laws. There are several US agencies which deal with IP protection, the primary one being the US Patent and Trademark Office
Government corruption is not considered a serious or endemic problem in the US. There have been some high-profile cases in recent years, but they have merely been exceptions that prove the rule, in our view. In instances where corruption has been revealed, there is justifiable faith that the judiciary will deal with cases impartially and in the public's interest.
Table: BMI Legal Framework RatingInvestor Protection ScoreRule of Law ScoreContract Enforceability ScoreCorruption ScoreAustriaBelgiumCanadaDenmarkFinlandFranceGermanyGreeceIrelandItalyLuxembourgNetherlandsNorwayPortugalSpainSwedenSwitzerlandUnited KingdomUnited StatesSource: BMI. Scores out of 100, with 100 representing the best score available for each indicator
Infrastructure
Physical Infrastructure
The US's physical infrastructure is considered generally good by global standards, but the country may be slipping by its own historic (and other developed states') standards. A survey released by the American Society of Civil Engineers in 2009 assigned an overall 'D' grade to the US's physical infrastructure, citing figures such as that one-quarter of the country's bridges are either structurally deficient or functionally obsolete. The conclusion was that it would require US$2.2trn in investment from the government in order to return the national infrastructure into a state of good repair.
US transportation infrastructure is among the most extensive in the world. The country boasts dozens of international airports and hundreds of regional airports, major ports, and millions of miles of interstate highways. However, there are signs that the transportation system is crumbling. In the same survey by the American Society of Civil Engineers, the road system received a 'D-' grade, on the basis of heavy traffic congestion (with 45% of major highways considered congested). The transit and aviation sectors received 'D' grades, with half of US households lacking access to bus or rail transit, and major delays in the airline traffic system.
Although rebuilding the US's infrastructure is a priority of the Obama administration, including the setup of a national infrastructure development bank and a high-speed rail programme, progress will take time, as major new projects take years to enact.
Labour Force
The US labour force, which numbers over 150mn, is among the most competitive in the world. Structurally, 83% of the labour force is employed in services, with 10% in manufacturing.
Worker productivity in the US is higher than in most other developed states, according to the International Labour Organisation. However, this is primarily because US workers work longer hours than their counterparts in other developed countries. Union participation in the private sector has declined dramatically in recent decades, from 25% in 1975 to 7.6% in 2008. There is a high proportion of foreign-born workers in the US, of around 16% of the total labour force, owing to both legal and illegal immigration. In 2007, foreign-born workers accounted for half of the total increase in the labour force.
With a near-full literacy rate (at 99%), the US has a fairly good education system by developed world standards. At the post-secondary level, the US education system is world-class, boasting several top international universities.
Although the US has among the most free labour markets amongst developed states, there are many key pieces of legislation on a federal, state and local level that affect employer-employee relations. These include the National Labor Relations Act, which regulates relationships with unionised employees, and the Age Discrimination in Employment Act. There are several regulatory and statutory factors that should be considered by employers, which can vary from state to state. These include the minimum wage, overtime pay, maternity leave, and sick pay.
Table: Labour Force QualityLiteracy Rate,%Labour Market Rigidity ScoreFemale Labour Participation, %AustriaBelgiumCanadaDenmarkFinlandFranceGermanyGreeceIrelandItalyLuxembourgNetherlandsNorwayPortugalSpainSwedenSwitzerlandUnited KingdomUnited StatesSource: BMI/World Bank/ILO. Labour Market Rigidity score from Ease of Doing Business report, 1 = highest score
Market Orientation
Foreign Investment Policy
In general, the US recognises foreign investment in the same light as capital of domestic origin, and treats them equally under the law. Indeed, foreign businesses operating in the US are able to access the same government assistance programmes provided to domestically-owned businesses. Tax treatment is, in the vast majority of instances, the same as well. The US does not impose any foreign exchange controls and non-US investors can, with few exceptions, freely repatriate capital, loans, and income.
Some industries require government approval for foreign investment, particularly when they are subject to national security concerns. These include defence, nuclear energy, and communications. Individual states may have their own regulations by industry. For example, some states do not allow the sale of agricultural land to foreign buyers, and any such sale must be reported to the Secretary of Agriculture.
As with many other aspects of the US business environment, conditions can vary widely from state to state, and even within states. For example, some state and local governments offer incentives in order to attract new businesses to their areas, including tax concessions. Foreign firms operating in the US can enter into joint or stand-alone ventures in any state. Incorporation is a reasonably easy and inexpensive process. States such as Delaware offer particularly friendly conditions for incorporation. Immigration law allows 10,000 permanent resident visas annually for foreigners who create a new business in the US worth US$1mn or more that employ at least 10 US workers. One regulation that should be borne in mind is that US corporations in which foreign entities have a controlling interest must by law report transactions with related foreign entities.
From an international perspective, few countries offer better environments for entrepreneurial activity. The US still has considerable comparative advantages in services, intellectual property and 'creative' industries, with significant centres of technological innovation (eg Silicon Valley).
200620072008US$bnPer capitaUS$bnPer capitaUS$bnPer
200620072008US$bnPer capitaUS$bnPer capitaUS$bnPer capitaAustralia25.741,253.622.271073.446.772227.3Austria6.19746.630.673687.013.551622.9Belgium64.376,097.440.633,819.859.685577.6Canada62.761,926.7108.653305.044.711344.3Denmark3.62666.111.222060.510.921993.0Finland5.481,044.18.481608.6-4.20-793.8France78.151,235.7157.972483.1117.511839.0Germany55.17669.950.93619.124.94303.4Greece5.36482.31.92172.05.09454.7Ireland-5.54-1,316.830.597093.6-20.03-4501.1Italy39.24665.240.20676.317.03288.7Japan-6.51-50.922.55176.624.43191.5Netherlands7.98488.799.446078.8-3.49-212.9New Zealand8.051,984.92.77676.61.98480.2Norway6.471,386.70.60128.2-0.10-20.0Portugal11.301,122.35.63557.13.53347.0Spain26.89614.553.391200.465.541418.6Sweden23.162,560.020.952299.043.664786.8Switzerland26.283499.640.395346.917.412261.7United Kingdom148.192,443.8223.973670.196.941578.8United States236.72793.2232.87772.9316.111039.2Source: UNCTAD, BMI.
Foreign Trade Regime
The US actively supports free trade. The country is a signatory to most major global conventions on trade, including the World Trade Organization (WTO). In 1994, the US signed up to the North American Free Trade Agreement (NAFTA) with Canada and Mexico, which created the world's largest trade bloc by eliminating virtually all trade barriers between these three countries. Over the last two years, the US has signed up to the Central American Free Trade Agreement (DR-CAFTA) with Central American states and the Dominican Republic.
Although the US customs regulatory regime is considered straightforward and relatively easy to deal with, there are restrictions on imports and exports. Quotas are imposed on some imported products, while permits are required to import goods subject to safety, health and agricultural controls. The US has anti-dumping laws which can force foreign companies selling goods at below fair market prices to compensate US competitors. As with foreign investment, there are some restrictions on exports when they may concern issues of national security. For example, high-tech items, even computers, can sometimes require a waiver confirming that the goods are not destined for states or entities blacklisted by government agencies such as the Commerce or State Departments. On that note, the US has placed trade embargoes on states such as Iran and Cuba, and future embargoes on other states are not out of the question.
There are some risks to the foreign trade outlook. While the Bush administration was firmly committed to broadening the US's free trade ties, the weakened domestic economy has put pressure on the Obama administration to hold off on future deals for the time being. Despite public pronouncements by President Obama that the US remains firmly committed to free trade, there are some worrying signs, including the use of a 'buy American' clause in the recent fiscal stimulus package.
Table: Trade And Investment RatingsOpenness To Investment ScoreOpenness To Trade ScoreAustriaBelgiumCanadaDenmarkFinlandFranceGermanyGreeceIrelandItalyLuxembourgNetherlandsNorwayPortugalSpainSwedenSwitzerlandUnited KingdomUnited StatesSource: BMI. Scores out of 100, with 100 representing the best score available for each indicator
200020012002200320042005200620072008EXPORTS TO CANADA174,616163,725160,799169,481187,713211,420230,257248,437260,914EXPORTS TO MEXICO108,751.00101,509.0097,530.5097,457.30110,775.00120,049.00134,167.00136,541.00151,539.00EXPORTS TO CHINA,P.R.: MAINLAND15,963.7019,234.9022,052.7028,418.5034,721.0041,836.7055,224.0065,238.4071,457.00EXPORTS TO JAPAN64,537.6057,639.1051,439.6052,063.7054,400.0055,409.6059,649.3062,664.9066,579.20EXPORTS TO GERMANY29,216.7030,113.9026,628.5028,847.9031,380.8034,149.2041,319.6049,652.0054,732.30% of Top 550.950.9151.751.9851.3151.1850.248.3846.55EXPORTS TO WORLD772,280731,122693,357723,885816,630904,4311,037,1501,162,7101,300,190Source: IMF, Direction of Trade Statistics
Tax Regime
The US tax system varies widely by state and local authority, but includes income, payroll, corporate and property taxes. The federal tax system is administered by the Internal Revenue Service (IRS). The US has tax treaties with dozens of foreign countries, which mitigates double-taxation problems, but foreign corporations which conduct a business in a branch in the US are taxed on the profits of the branch. Employers are liable to pay 6.2% in Social Security tax, with 6.2% paid by the employee. Furthermore, the US has a payroll tax which is equivalent to 1.2% in of the first $7,000, but co-ordinated with state unemployment agencies and taxes in such a way that most employees are not double taxed in states that have unemployment insurance.
For businesses, tax rates range from 15% to 38%, with everything over US$18.3mn subject to 35% tax. Net long-term capital gains of individuals are taxed at a maximum rate of 15% (with some exceptions), but relatively low capital gains taxes are the norm, and are intended to spur investment and entrepreneurship. That said, the level of taxation in the US is actually relatively high, at least on a corporate basis. According to PricewaterhouseCoopers, taxes on profit as a share of profits before total taxes is equivalent to 23.5%, which is in the 72nd percentile worldwide. Furthermore, the combined US federal and (average) state and local tax is 39.3%, well above the 26.2% OECD average. While legislated federal tax deductions bring the headline rate down by a few percentage points in some cases, the overall burden is relatively high. All that said, the US tax system is fairly complex, and contains several provisions by which corporations can reduce their effective tax rates. Companies are advised to seek professional counsel in order to minimise tax liabilities. On a positive note, it is considered relatively easy to comply with US tax regulations.
Operational Risk
Security Risks
As the world's lone superpower, the US is the target of terrorist groups, highlighted most dramatically by the attacks on New York City on September 11 2001. However, that event was the exception, rather than the rule, and terrorist attacks should be considered extremely rare. Violent crime has fallen dramatically in recent decades, with homicide rates currently at their lowest level since 1965. Some cities have higher rates of crime than others, although in most cases it is not so high as to generate serious operati
The US's accomodative business environment is under threat on several fronts. The deteriorating government budget deficit means that corporate tax increases in the future are a serious possibility. The banking sector remains fragile, which weakens the outlook for business lending. Following the nationalisation of automakers, banks and insurers, and a major health care bill signed in March, government involvement in the private sector has increased significantly in the past two years. Despite these challenges, the US still has one the world's best environments in which to conduct business, as exhibited by its score of 78.4 in our business environment ratings, which is among the highest in the world. Furthermore, the US still boasts a vast array of natural resources, productive capacity and labour market flexibility, all of which gives it a significant competitive advantage compared with most developed states.
Latest Developments
In the wake of the BP oil spill, the Obama administration has suffered another setback in its efforts to impose a moratorium on deepwater drilling in the Gulf of Mexico (GoM) but BMI sees continued legal uncertainty preventing deepwater operations from resuming anytime soon. The Fifth Circuit federal court of appeals on July 8 refused to grant a stay of an earlier federal judge's decision to overturn the drilling ban, saying the US Department of Interior (DoI) failed to show that the federal government would suffer 'irreparable injury' if the moratorium were lifted. With the administration likely to issue a new moratorium and companies still uncertain over the legal status of GoM deepwater drilling, however, we see little likelihood of a quick resumption of operations.
The US has allowed more sugar imports from 25 sugar producing nations, according to the US trade representative's office. This comes after the Agriculture Department took a decision to set the sugar import quota at 1.571mn tonnes, up by 272,155 tonnes raw value, in the year ending September 30 2010. The trade representative's office distributed the quota among 25 nations with Brazil securing the largest allocations of 57,166 tonnes, followed by Australia and the Dominican Republic.
The US Food and Drug Administration (FDA) is to implement stronger regulations regarding contract manufacturing in the pharmaceutical industry, placing more responsibility with drugmakers to ensure the purity and safety of products made by contractors. BMI believes this will ultimately improve drug safety and will create savings for drugmakers in the long run. It is our Pharma team's core view that research and development (R&D) and manufacturing outsourcing to low cost bases will accelerate as drugmakers look to contain costs and increase efficiency - further increasing the need for improved regulation.
China has imposed anti-subsidy duties of up to 31.4% on some US chicken products as of April 28 2010. The Chinese Ministry of Commerce announced that the imposition of new tariffs will enable the country to create a level playing field for Chinese companies. The ministry alleged that US chicken producers have been receiving unfair government subsidies which in turn have hurt Chinese firms. The news could adversely affect the ongoing trade dispute between the countries.
The US government has awarded two federal loan guarantees to the solar power sector worth almost US$2bn. The loan guarantees have enabled the government to tackle two major concerns over the US economy simultaneously, boosting energy independence, and job creation.
Table: BMI Business And Operation Risk RatingsInfrastructure RatingInstitutions RatingMarket Orientation RatingBusiness EnvironmentAustriaBelgiumCanadaDenmarkFinlandFranceGermanyGreeceIrelandItalyLuxembourgNetherlandsNorwayPortugalSpainSwedenSwitzerlandUnited KingdomUnited StatesSource: BMI. Scores out of 100, with 100 representing the best score available for each indicator
Institutions
Legal Framework
The US has a strong, sophisticated, well-codified legal system that is considered to be among the world's most business-friendly. Federal laws must be passed by both the US Senate and House of Representatives, then approved by the president. A key point is that each of the 50 states has its own constitution, legislature, governor, and judiciary, and therefore state-level laws can vary widely from state-to-state. As a general rule, state-level laws must be as stringent as federal laws, although additional regulations may be required. The Uniform Commercial Code has been adopted by most states for the purposes of commercial transactions. While this offers many businesses a reasonable standard to look to, the interpretation of the code's provisions can vary from state-to-state, and in some instances, private parties choose to deviate from the Uniform Commercial Code by way of contractual agreement, which is usually respected by courts. In the case of dispute, state-level cases can be brought before the state judiciary. Cases over federal law, or involving intrastate transactions, can be brought to federal courts located throughout the country. The US Supreme Court is the court of last appeal.
Although the US legal system has some drawbacks, including a reputation for frivolous lawsuits, the system itself is considered fair and impartial, and there is little corruption within the judiciary. However, the legal system can be costly to engage in. Arbitration is often considered a reasonable means for solving disputes without going straight into litigation.
Property Rights
Private property rights are enshrined as one of the primary tenets of the US Constitution, and are considered very strong. Firstly, the government does not have the right to seize private property without just compensation. This principle is almost universally adhered to, with some very high-profile exceptions, including a case in Connecticut in which buildings were seized to make way for a high-profile development project. Secondly, private entities' property rights are well-protected against other private entities, with the US judiciary enforcing contracts on a reasonable basis. Generally, foreign owners' rights are considered equal to those of US citizens.
Intellectual Property Rights
As one of the world's creative centres, with a great deal of intellectual property (IP) to protect on a commercial basis, the US has very strong IP protection. On an international basis, the US is a staunch defender of IP protection, and is a signatory to the major conventions. As such, the US has been involved in significant trade disputes with its partners over their perceived failure to enforce IP laws. There are several US agencies which deal with IP protection, the primary one being the US Patent and Trademark Office
Government corruption is not considered a serious or endemic problem in the US. There have been some high-profile cases in recent years, but they have merely been exceptions that prove the rule, in our view. In instances where corruption has been revealed, there is justifiable faith that the judiciary will deal with cases impartially and in the public's interest.
Table: BMI Legal Framework RatingInvestor Protection ScoreRule of Law ScoreContract Enforceability ScoreCorruption ScoreAustriaBelgiumCanadaDenmarkFinlandFranceGermanyGreeceIrelandItalyLuxembourgNetherlandsNorwayPortugalSpainSwedenSwitzerlandUnited KingdomUnited StatesSource: BMI. Scores out of 100, with 100 representing the best score available for each indicator
Infrastructure
Physical Infrastructure
The US's physical infrastructure is considered generally good by global standards, but the country may be slipping by its own historic (and other developed states') standards. A survey released by the American Society of Civil Engineers in 2009 assigned an overall 'D' grade to the US's physical infrastructure, citing figures such as that one-quarter of the country's bridges are either structurally deficient or functionally obsolete. The conclusion was that it would require US$2.2trn in investment from the government in order to return the national infrastructure into a state of good repair.
US transportation infrastructure is among the most extensive in the world. The country boasts dozens of international airports and hundreds of regional airports, major ports, and millions of miles of interstate highways. However, there are signs that the transportation system is crumbling. In the same survey by the American Society of Civil Engineers, the road system received a 'D-' grade, on the basis of heavy traffic congestion (with 45% of major highways considered congested). The transit and aviation sectors received 'D' grades, with half of US households lacking access to bus or rail transit, and major delays in the airline traffic system.
Although rebuilding the US's infrastructure is a priority of the Obama administration, including the setup of a national infrastructure development bank and a high-speed rail programme, progress will take time, as major new projects take years to enact.
Labour Force
The US labour force, which numbers over 150mn, is among the most competitive in the world. Structurally, 83% of the labour force is employed in services, with 10% in manufacturing.
Worker productivity in the US is higher than in most other developed states, according to the International Labour Organisation. However, this is primarily because US workers work longer hours than their counterparts in other developed countries. Union participation in the private sector has declined dramatically in recent decades, from 25% in 1975 to 7.6% in 2008. There is a high proportion of foreign-born workers in the US, of around 16% of the total labour force, owing to both legal and illegal immigration. In 2007, foreign-born workers accounted for half of the total increase in the labour force.
With a near-full literacy rate (at 99%), the US has a fairly good education system by developed world standards. At the post-secondary level, the US education system is world-class, boasting several top international universities.
Although the US has among the most free labour markets amongst developed states, there are many key pieces of legislation on a federal, state and local level that affect employer-employee relations. These include the National Labor Relations Act, which regulates relationships with unionised employees, and the Age Discrimination in Employment Act. There are several regulatory and statutory factors that should be considered by employers, which can vary from state to state. These include the minimum wage, overtime pay, maternity leave, and sick pay.
Table: Labour Force QualityLiteracy Rate,%Labour Market Rigidity ScoreFemale Labour Participation, %AustriaBelgiumCanadaDenmarkFinlandFranceGermanyGreeceIrelandItalyLuxembourgNetherlandsNorwayPortugalSpainSwedenSwitzerlandUnited KingdomUnited StatesSource: BMI/World Bank/ILO. Labour Market Rigidity score from Ease of Doing Business report, 1 = highest score
Market Orientation
Foreign Investment Policy
In general, the US recognises foreign investment in the same light as capital of domestic origin, and treats them equally under the law. Indeed, foreign businesses operating in the US are able to access the same government assistance programmes provided to domestically-owned businesses. Tax treatment is, in the vast majority of instances, the same as well. The US does not impose any foreign exchange controls and non-US investors can, with few exceptions, freely repatriate capital, loans, and income.
Some industries require government approval for foreign investment, particularly when they are subject to national security concerns. These include defence, nuclear energy, and communications. Individual states may have their own regulations by industry. For example, some states do not allow the sale of agricultural land to foreign buyers, and any such sale must be reported to the Secretary of Agriculture.
As with many other aspects of the US business environment, conditions can vary widely from state to state, and even within states. For example, some state and local governments offer incentives in order to attract new businesses to their areas, including tax concessions. Foreign firms operating in the US can enter into joint or stand-alone ventures in any state. Incorporation is a reasonably easy and inexpensive process. States such as Delaware offer particularly friendly conditions for incorporation. Immigration law allows 10,000 permanent resident visas annually for foreigners who create a new business in the US worth US$1mn or more that employ at least 10 US workers. One regulation that should be borne in mind is that US corporations in which foreign entities have a controlling interest must by law report transactions with related foreign entities.
From an international perspective, few countries offer better environments for entrepreneurial activity. The US still has considerable comparative advantages in services, intellectual property and 'creative' industries, with significant centres of technological innovation (eg Silicon Valley).
200620072008US$bnPer capitaUS$bnPer capitaUS$bnPer
200620072008US$bnPer capitaUS$bnPer capitaUS$bnPer capitaAustralia25.741,253.622.271073.446.772227.3Austria6.19746.630.673687.013.551622.9Belgium64.376,097.440.633,819.859.685577.6Canada62.761,926.7108.653305.044.711344.3Denmark3.62666.111.222060.510.921993.0Finland5.481,044.18.481608.6-4.20-793.8France78.151,235.7157.972483.1117.511839.0Germany55.17669.950.93619.124.94303.4Greece5.36482.31.92172.05.09454.7Ireland-5.54-1,316.830.597093.6-20.03-4501.1Italy39.24665.240.20676.317.03288.7Japan-6.51-50.922.55176.624.43191.5Netherlands7.98488.799.446078.8-3.49-212.9New Zealand8.051,984.92.77676.61.98480.2Norway6.471,386.70.60128.2-0.10-20.0Portugal11.301,122.35.63557.13.53347.0Spain26.89614.553.391200.465.541418.6Sweden23.162,560.020.952299.043.664786.8Switzerland26.283499.640.395346.917.412261.7United Kingdom148.192,443.8223.973670.196.941578.8United States236.72793.2232.87772.9316.111039.2Source: UNCTAD, BMI.
Foreign Trade Regime
The US actively supports free trade. The country is a signatory to most major global conventions on trade, including the World Trade Organization (WTO). In 1994, the US signed up to the North American Free Trade Agreement (NAFTA) with Canada and Mexico, which created the world's largest trade bloc by eliminating virtually all trade barriers between these three countries. Over the last two years, the US has signed up to the Central American Free Trade Agreement (DR-CAFTA) with Central American states and the Dominican Republic.
Although the US customs regulatory regime is considered straightforward and relatively easy to deal with, there are restrictions on imports and exports. Quotas are imposed on some imported products, while permits are required to import goods subject to safety, health and agricultural controls. The US has anti-dumping laws which can force foreign companies selling goods at below fair market prices to compensate US competitors. As with foreign investment, there are some restrictions on exports when they may concern issues of national security. For example, high-tech items, even computers, can sometimes require a waiver confirming that the goods are not destined for states or entities blacklisted by government agencies such as the Commerce or State Departments. On that note, the US has placed trade embargoes on states such as Iran and Cuba, and future embargoes on other states are not out of the question.
There are some risks to the foreign trade outlook. While the Bush administration was firmly committed to broadening the US's free trade ties, the weakened domestic economy has put pressure on the Obama administration to hold off on future deals for the time being. Despite public pronouncements by President Obama that the US remains firmly committed to free trade, there are some worrying signs, including the use of a 'buy American' clause in the recent fiscal stimulus package.
Table: Trade And Investment RatingsOpenness To Investment ScoreOpenness To Trade ScoreAustriaBelgiumCanadaDenmarkFinlandFranceGermanyGreeceIrelandItalyLuxembourgNetherlandsNorwayPortugalSpainSwedenSwitzerlandUnited KingdomUnited StatesSource: BMI. Scores out of 100, with 100 representing the best score available for each indicator
200020012002200320042005200620072008EXPORTS TO CANADA174,616163,725160,799169,481187,713211,420230,257248,437260,914EXPORTS TO MEXICO108,751.00101,509.0097,530.5097,457.30110,775.00120,049.00134,167.00136,541.00151,539.00EXPORTS TO CHINA,P.R.: MAINLAND15,963.7019,234.9022,052.7028,418.5034,721.0041,836.7055,224.0065,238.4071,457.00EXPORTS TO JAPAN64,537.6057,639.1051,439.6052,063.7054,400.0055,409.6059,649.3062,664.9066,579.20EXPORTS TO GERMANY29,216.7030,113.9026,628.5028,847.9031,380.8034,149.2041,319.6049,652.0054,732.30% of Top 550.950.9151.751.9851.3151.1850.248.3846.55EXPORTS TO WORLD772,280731,122693,357723,885816,630904,4311,037,1501,162,7101,300,190Source: IMF, Direction of Trade Statistics
Tax Regime
The US tax system varies widely by state and local authority, but includes income, payroll, corporate and property taxes. The federal tax system is administered by the Internal Revenue Service (IRS). The US has tax treaties with dozens of foreign countries, which mitigates double-taxation problems, but foreign corporations which conduct a business in a branch in the US are taxed on the profits of the branch. Employers are liable to pay 6.2% in Social Security tax, with 6.2% paid by the employee. Furthermore, the US has a payroll tax which is equivalent to 1.2% in of the first $7,000, but co-ordinated with state unemployment agencies and taxes in such a way that most employees are not double taxed in states that have unemployment insurance.
For businesses, tax rates range from 15% to 38%, with everything over US$18.3mn subject to 35% tax. Net long-term capital gains of individuals are taxed at a maximum rate of 15% (with some exceptions), but relatively low capital gains taxes are the norm, and are intended to spur investment and entrepreneurship. That said, the level of taxation in the US is actually relatively high, at least on a corporate basis. According to PricewaterhouseCoopers, taxes on profit as a share of profits before total taxes is equivalent to 23.5%, which is in the 72nd percentile worldwide. Furthermore, the combined US federal and (average) state and local tax is 39.3%, well above the 26.2% OECD average. While legislated federal tax deductions bring the headline rate down by a few percentage points in some cases, the overall burden is relatively high. All that said, the US tax system is fairly complex, and contains several provisions by which corporations can reduce their effective tax rates. Companies are advised to seek professional counsel in order to minimise tax liabilities. On a positive note, it is considered relatively easy to comply with US tax regulations.
Operational Risk
Security Risks
As the world's lone superpower, the US is the target of terrorist groups, highlighted most dramatically by the attacks on New York City on September 11 2001. However, that event was the exception, rather than the rule, and terrorist attacks should be considered extremely rare. Violent crime has fallen dramatically in recent decades, with homicide rates currently at their lowest level since 1965. Some cities have higher rates of crime than others, although in most cases it is not so high as to generate serious operati
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