United Kingdom

Originally published: Jul-26-2005

Government

Full name: United Kingdom of Great Britain and Northern Ireland

The United Kingdom consists of Great Britain (England, Wales and Scotland), and Northern Ireland. It is a constitutional monarchy with executive, legislative and judicial branches. Administrative divisions consist of 47 boroughs, 36 counties, 29 London boroughs, 12 cities and boroughs, 10 districts, 12 cities, 3 royal boroughs. Executive power rests nominally with the monarch but actually is exercised by a committee of ministers (cabinet) traditionally selected from among the members of the House of Commons and the House of Lords. The prime minister is normally the leader of the largest party in the Commons, and the government is dependent on its support.

Population

Estimated population as of July 2005 is 60,441,457, with a 2005 estimated growth rate of 0.28%.

Languages: English, Welsh (about 26% of the population of Wales), Scottish form of Gaelic (about 60,000 in Scotland)

Legal System

Each of the four countries making up the United Kingdom (England, Wales, Scotland and Northern Ireland) have their own court system and legal profession.

The constitution of the United Kingdom is unwritten and made up partly of statutes and partly common law and practice. The U.K. legal system is based on common law tradition with early Roman and modern continental influences. The U.K. accepts compulsory ICJ jurisdiction, with reservations.

Much of the law relating to contracts is common law and is based on business practice. Statute law always overrides common law where the two are in conflict. It is also necessary to look at the body of case law when considering any problem.

Economy

Currency: British pound (GBP)

GBP per USD: 0.5827 (7/25/05)

Economic Indicators

(e) estimate (f) forecast

Leading Markets (2004): US 15%, Germany 10.7%, France 9.2%, Ireland 6.8%, Netherlands 6.1%, Belgium 5.2%

Leading Exports: services, manufactured goods, fuels, chemicals, food, beverages, tobacco

Leading Suppliers (2004): Germany 13%, US 9.2%, France 7.5%, Netherlands 6.6%, Belgium 5%, Italy 4.3%, China 4.2%

Leading Imports: manufactured goods, machinery, fuels, foodstuffs

Top Industries: machine tools, electric power equipment, automation equipment, railroad equipment, shipbuilding, aircraft, motor vehicles and parts, electronics and communications equipment, metals, chemicals, coal, petroleum, paper and paper products, food processing, textiles, clothing, and other consumer goods

General Economic Situation

The United Kingdom has the fourth-largest economy in the world, is the second-largest economy in the European Union, the fifth-largest international trading nation, and the second-largest exporter of services. Its highly developed and diversified market-based economy, along with extensive social welfare services, provides most residents a high standard of living. Inflation, interest rates and unemployment remain low.

The economy is based primarily on private enterprise which accounts for about 4/5 of output and employment. 75% of GDP comes from the service sector, which will be the main growth engine in 2005. The UK has the largest financial services trade surplus in the world, with London remaining the largest center for international financial services. Manufacturing has fallen to less than 20% of GDP and, while steadily improving, has yet to compare to 2000-2001 levels.

In 1979, the British government began privatizing most of its state-owned companies including British Steel, British Airways, British Telecom, British Coal, British Aerospace and British Gas. The current Labour government, headed by Prime Minister Tony Blair and in power since May 2, 1997, has continued the policy of privatization and partial privatization (public-private partnerships).

The U.K. has been a full member of the European Union since 1973. However, its relatively good economic performance has made it difficult for the government to make a case for Britain to join the European Economic and Monetary Union (EMU). Opinion polls show a majority of Britons are still opposed to adopting the Euro.

The U.K. is the European Union’s only significant energy exporter. It is also one of the largest energy consumers, and most analysts expect a shift in status from net exporter to net importer of energy by 2020.

The country has been enjoying a prolonged consumer boom which is now coming to an end. Real GDP, which grew by 3.2% in 2004, is expected to expand 2.3% in 2005 and 1.8% in 2006. This is well below the government’s original forecast of 3-3.5% for 2005. Economic growth will depend mainly on exports, which will benefit from the pound sterling depreciation against the euro.

Business Climate

The United Kingdom is Europe’s leading business center and has the least restricted business environment within the European Union.

Common law prevails in the UK as the basis for commercial transactions, and the International Commercial Terms (INCOTERMS) of the International Chambers of Commerce are accepted definitions of trading terms. Accounting standards and audit provisions used in the UK are the SSAP Standards of the Accounting Standards Board.

The UK imposes very few restrictions on foreign ownership and there are no limitations on the free flow of capital, although there are strict rules on transfer pricing. Once established in the UK, foreign-owned companies are regarded in the same way as their domestic counterparts. With a few exceptions, foreign companies establishing UK-based subsidiaries encounter no special nationality requirements on directors and shareholders.

The UK legal system provides a high-level of intellectual property rights (IPR) protection. Enforcement mechanisms are comparable to those available in the United States. The UK is a member of the World Intellectual Property Organization (WIPO) and is also a member of the major international intellectual property protection agreements.

The top best prospect sectors in the UK include: aircraft and parts, apparel, automotive parts and servicing equipment, computers and peripherals, cosmetics and toiletries, drugs and pharmaceuticals, education and training, furniture, medical equipment, pollution control, renewable energy equipment, safety and security equipment, telecommunications equipment, travel and tourism.

As the U.K. market is well developed and highly competitive, new entrants must demonstrate some advantage like price, quality or superior design. In general, the best means of developing a market presence is through experienced and established local representatives.

Local contracts and agreements should be vetted by a competent law firm familiar with U.K. and EU law. U.S. contracts should not be utilized as they are generally unenforceable in UK law.

Credit and Collections

Collection Experience: Good-Fair

Exchange Delays: 2 months - In cases of heavy volume trading partners, such as the United States, delays of one month or more may occur after the US bank receives exchange transfer from foreign customer’s bank.

Preferred Credit Terms: 60 day sight draft

Minimum Credit Terms: open account

Payments

Checks are widely used, but do not provide real security as non-payment of checks is not a criminal offense in the U.K. Checks do not have to be covered when issued and the drawer can stop payment at any time.

Bank transfers, particularly via the SWIFT network, are regularly used for international settlements. Leading British companies also use two other inter-bank transfer systems: BACS (Bankers’ Automated Clearing Services) and CHAPS (Clearing House Automated Payment Systems.

Debt Collection

The collection process begins with a reminder (dunning) letter to the debtor. Debt collection agencies or solicitors handle the recovery of past due accounts. The law permits all commercial firms to bill interest in cases of late payment. Unless otherwise specified by the parties, the applicable interest rate is the Bank of England’s base rate (dealing rate) plus eight basis points.

Judgments are enforced through conventional methods - service by bailiff, attachment of debtor assets, etc. For debts larger than 750 British pounds, a formal serving of a statutory demand for payment can be used. With the statutory demand, after a 21-day period without settlement, transaction or provision of a payment guarantee, the creditor may file a winding-up petition against the debtor with the court. In some cases, and to elicit a speedier reaction or payment from the debtor, the statutory demand procedure may be used to collect uncontested claims directly without obtaining a prior ruling.

Risk Assessment

Country Risk Rating: A1 - The steady political and economic environment has positive effects on an already good payment record of companies. Very weak default probability.

Sources for further information on doing business in the United Kingdom

Doing Business in the United Kingdom: 2007 Country Commercial Guide, U.S. Department of Commerce

Foreign and Commonwealth Office (UK): extensive site providing information on trade and investments, legislation, news, programs, etc.

HM Treasury, web site of the U.K. Economics and Finance Ministry: includes news, economic data and independent review.

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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including the United Kingdom. For further information, contact info@abc-amega.com.

This report represents a compilation of information from a wide variety of reputable sources including: the U.S. Commercial Service, CIA World Factbook, Federation of International Trade Associations, and Economist Country Briefings.

Risk Assessment information: Provided with permission by Coface Country Rating.

Information on credit terms and the probability of prompt payment are provided, with permission, from Overseas Press and Consultants (OP&C) as published in IOMA's Report on "Managing Credit, Receivables & Collections," February 2005.